-----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, OhnbX891l1pVFzE/HgonC00F3ePi9+9ehrC5UTv1/YRhQXtiMB0DWZSYWbjkP/KJ kVXT8YhJDQ0Hh3Oiy1XHjA== 0000950131-01-501640.txt : 20010528 0000950131-01-501640.hdr.sgml : 20010528 ACCESSION NUMBER: 0000950131-01-501640 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 16 CONFORMED PERIOD OF REPORT: 20010517 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 20010525 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MUTUAL RISK MANAGEMENT LTD CENTRAL INDEX KEY: 0000826918 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 000000000 STATE OF INCORPORATION: D0 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-10760 FILM NUMBER: 1648871 BUSINESS ADDRESS: STREET 1: 44 CHURCH ST STREET 2: BERMUDA CITY: HAMILTON HM 12 BERMU STATE: D0 BUSINESS PHONE: 4412955688 MAIL ADDRESS: STREET 1: PO BOX 2064 STREET 2: BERMUDA CITY: HAMILTON HM HX STATE: D0 8-K 1 d8k.txt FORM 8-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ------------- FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): May 17, 2001 Mutual Risk Management Ltd. - -------------------------------------------------------------------------------- (Exact Name of Registrant as Specified in Charter) Bermuda 1-10760 Not Applicable - ----------------- ----------------- --------------------- (State or Other Jurisdiction (Commission (I.R.S. Employer of Incorporation) File Number) Identification No.) 44 Church Street Hamilton HM 12 Bermuda (Address, including zip code, of Registrant's Principal Executive Offices) Registrant's telephone number, including area code: 441-295-5688 Not Applicable - -------------------------------------------------------------------------------- (Former Name or Former Address, if Changed Since Last Report) Item 5. Other Events. On May 17, 2001, pursuant to a Securities Purchase Agreement, dated May 8, 2001, XL Insurance Ltd. ("XL"), First Union Merchant Banking 2001, LLC ("First Union"), High Ridge Capital Partners II, L.P. ("High Ridge"), Century Capital Partners II, L.P. ("Century Capital II"), Taracay Investors Company ("Taracay") and Robert A. Mulderig purchased $112,500,000 in aggregate principal amount of the Registrant's convertible exchangeable debentures due 2006 (collectively, "Debentures"), and Intrepid Funding Master Trust ("Intrepid") exchanged $30,000,000 of the Registrant's outstanding Auction Rate Reset Preferred Securities ("RHINOS") for $30,000,000 aggregate principal amount of the Debentures. The Debentures were issued as a unit with voting preferred stock that has nominal economic value. In addition, XL, First Union, Century Capital II and Taracay were issued warrants (the "Warrants") to purchase up to an aggregate of 2,147,601 of the Registrant's common shares (the "Common Shares"). The Debentures are convertible at any time at the option of the holder into Common Shares at an initial conversion price of $7.00 per share, and the Warrants are exercisable at any time at the option of the holder for Common Shares at an initial exercise price of $7.00 per share. The Debentures are secured by the capital stock of Mutual Risk Management (Holdings) Ltd., a wholly owned subsidiary of the Registrant ("MRM Holdings"). The number of Common Shares currently issuable upon conversion of all of the Debentures and the Warrants is 22,509,085, which represents approximately 54% of the currently outstanding Common Shares. In connection with the issuance of the Debentures and the Warrants, the Company is required to restructure its operating units into two separate holding companies (the "Restructuring"). One holding company will own the Registrant's insurance operations and general agency entities in the United States and will operate through subsidiaries as a specialty insurer writing a selected book of program business. A second holding company will be a newly incorporated Bermuda company ("Newco") that will own all of the Registrant's fee generating businesses that presently comprise its Corporate Risk Management, Specialty Brokerage and Financial Services business segments and all of the Registrants' insurance operations outside of the United States. In addition, Newco will own the Company's IPC (or "rent-a-captive") companies that are principally dedicated to its Corporate Risk Management business segment, except for Mutual Indemnity (Dublin) Ltd. During the period beginning on September 17, 2001 and ending on November 17, 2001, both XL and the holders of a majority in principal amount of the outstanding Debentures have the right to require the Registrant to repurchase all of the Debentures if all regulatory and shareholder approvals have not been obtained and the Restructuring has not been completed by the date of such election. The net proceeds from the sale of the Debentures and the Warrants have been pledged to secure this obligation. After the formation of Newco, the Debentures will be secured by the capital stock of Newco and will be exchangeable for common shares of Newco and/or debentures of Newco that are substantially similar to the Debentures. The Registrant currently estimates that if all of the Debentures were exchanged for Newco common shares, the holder of the Debentures would own approximately 42.4% of Newco. On May 8, 2001, Mutual Group, Ltd., a wholly owned subsidiary of the Registrant, purchased $10,000,000 of outstanding RHINOS from Intrepid. All of the RHINOS, together with the related 2 Auction Rate Reset Common Securities and Auction Rate Reset Senior Notes Series A, were canceled in connection with the issuance of the Debentures and the Warrants and are no longer outstanding. On May 17, 2001, the Registrant amended its Credit Agreement, dated as of September 21, 2000 (the "Credit Facility"), to permit the issuance of the Debentures and the Warrants, to make modifications to the covenants contained in the Credit Facility and to provide for a pledge of the capital stock of MRM Holdings and, when formed, Newco to secure the obligations under the Credit Facility on a second priority basis. The net proceeds from the sale of the Debentures and the Warrants also have been pledged to secure these obligations on a second priority basis until the Registrant is no longer required to repurchase the Debentures or, if later, the end of a subordination period. In adddition, payments under the Credit Facility are subordinated to the payment of the Debentures pursuant to the terms of a subordination agreement. Item 7. Financial Statements and Exhibits. (c) Exhibits. Exhibit No. Document Description ----------- -------------------- 4.1 Form of the Registrant's Convertible Exchangeable Debenture Due 2006 (the "MRM Debentures"). 4.2 Form of Voting Preferred Shares issued together as a unit with the MRM Debentures. 4.3 Form of Warrant for Common Stock of the Registrant. 4.4 Form of Newco Convertible Exchangeable Debenture Due 2006. 4.5 Amendment No. 1 to Amended and Restated Trust Agreement, dated May 8, 2001, by and among the Administrative Trustees of MRM Capital Trust I (as defined therein), Mutual Group, Ltd. and Intrepid. 4.6 Second Supplemental Indenture, dated May 8, 2001, by and among Mutual Group, Ltd., the Registrant and The Chase Manhattan Bank, as Trustee. 10.1 Securities Purchase Agreement for Debentures, dated May 8, 2001, between the Registrant, Mutual Group Ltd., the additional Guarantors named therein, XL, First Union, High Ridge, Century Capital II, Robert A. Mulderig, Taracay and Intrepid. 3 10.2 Debenture Registration Rights Agreement, dated as of May 17, 2001, by and among the Registrant, XL, First Union, High Ridge, Century Capital II, Robert A. Mulderig, Taracay and Intrepid. 10.3 Warrant Registration Rights Agreement, dated as of May 17, 2001, by and among the Registrant, XL, First Union, High Ridge, Century Capital II and Taracay. 10.4 Subordination Agreement, dated May 17, 2001, by and among the Bank Lenders (as defined therein), Intrepid, MRM Capital Trust I, The Chase Manhattan Bank, the Registrant, Mutual Group, Ltd., the Guarantors named therein, XL, First Union, High Ridge, Century Capital II, Robert A. Mulderig and Taracay. 10.5 Collateral Agreement, dated as of May 17, 2001, by and between First Union National Bank, as Collateral Agent, and the Registrant. 10.6 Amendment No. 1 to Remarketing and Contingent Purchase Agreement, dated May 8, 2001, by and among Mutual Group, Ltd., the Registrant, MRM Capital Trust I and Banc of America Securities LLC, as Remarketing Agent. 10.7 First Amendment to Credit Amendment, Consent and Waiver, dated May 17, 2001, among the Registrant, Mutual Group, Ltd., the Lenders (as defined therein) and Bank of America, N.A., as Administrative Agent for the Lenders ("First Amendment to Credit Agreement"). 10.8 Assignment of Account, dated May 17, 2001, from the Registrant, as Assignor, for the benefit of the holders of the Debentures (first priority security interest) and the RHINOS Holders (as defined therein) and Bank of America, N.A., as Administrative Agent for the Lenders under the First Amendment to Credit Agreement (second priority security interest). 10.9 Deposit Account Control Agreement, dated May 17, 2001, among the Registrant, as Pledgor, XL, as Representative, Bank of America, N.A., as Administrative Agent and Intrepid, as RHINOS Holder, with Fleet National Bank, as Depository Bank. 4 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: May 24, 2001 By: /s/ Elizabeth B. Price ---------------------------- Name: Elizabeth B. Price Title: Secretary 5 EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION OF DOCUMENT - --------- ----------------------------------------------------------------- 4.1 Form of the Registrant's Convertible Exchangeable Debenture Due 2006 (the "MRM Debentures"). 4.2 Form of Voting Preferred Shares issued together as a unit with the MRM Debentures. 4.3 Form of Warrant for Common Stock of the Registrant. 4.4 Form of Newco Convertible Exchangeable Debenture Due 2006. 4.5 Amendment No. 1 to Amended and Restated Trust Agreement, dated May 8, 2001, by and among the Administrative Trustees of MRM Capital Trust I (as defined therein), Mutual Group, Ltd. and Intrepid. 4.6 Second Supplemental Indenture, dated May 8, 2001, by and among Mutual Group, Ltd., the Registrant and The Chase Manhattan Bank, as Trustee. 10.1 Securities Purchase Agreement for Debentures, dated May 8, 2001, between the Registrant, Mutual Group Ltd., the additional Guarantors named therein, XL, First Union, High Ridge, Century Capital II, Robert A. Mulderig, Taracay and Intrepid. 10.2 Debenture Registration Rights Agreement, dated as of May 17, 2001, by and among the Registrant, XL, First Union, High Ridge, Century Capital II, Robert A. Mulderig, Taracay and Intrepid. 10.3 Warrant Registration Rights Agreement, dated as of May 17, 2001, by and among the Registrant, XL, First Union, High Ridge, Century Capital II and Taracay. 10.4 Subordination Agreement, dated May 17, 2001, by and among the Bank Lenders (as defined therein), Intrepid, MRM Capital Trust I, The Chase Manhattan Bank, the Registrant, Mutual Group, Ltd., the Guarantors named therein, XL, First Union, High Ridge, Century Capital II, Robert A. Mulderig and Taracay. 10.5 Collateral Agreement, dated as of May 17, 2001, by and between First Union National Bank, as Collateral Agent, and the Registrant. 10.6 Amendment No. 1 to Remarketing and Contingent Purchase Agreement, dated May 8, 2001, by and among Mutual Group, Ltd., the Registrant, MRM Capital Trust I and Banc of America Securities LLC, as Remarketing Agent. 6 10.7 First Amendment to Credit Amendment, Consent and Waiver, dated May 17, 2001, among the Registrant, Mutual Group, Ltd., the Lenders (as defined therein) and Bank of America, N.A., as Administrative Agent for the Lenders ("First Amendment to Credit Agreement"). 10.8 Assignment of Account, dated May 17, 2001, from the Registrant, as Assignor, for the benefit of the holders of the Debentures (first priority security interest) and the RHINOS Holders (as defined therein) and Bank of America, N.A., as Administrative Agent for the Lenders under the First Amendment to Credit Agreement (second priority security interest). 10.9 Deposit Account Control Agreement, dated May 17, 2001, among the Registrant, as Pledgor, XL, as Representative, Bank of America, N.A., as Administrative Agent and Intrepid, as RHINOS Holder, with Fleet National Bank, as Depository Bank. 7 EX-4.1 2 dex41.txt FORM OF CONVERTABLE EXCHANGEABLE DEBENTURE EXHIBIT 4.1 THIS DEBENTURE IS INITIALLY ISSUED AS PART OF AN ISSUANCE OF UNITS, CONSISTING OF CONVERTIBLE EXCHANGEABLE DEBENTURES DUE 2006 AND SHARES OF SERIES A PREFERRED STOCK OF MUTUAL RISK MANAGEMENT LTD. THIS DEBENTURE MAY NOT BE TRANSFERRED OR EXCHANGED SEPARATELY FROM, AND MAY BE TRANSFERRED OR EXCHANGED ONLY TOGETHER WITH, SHARES OF SERIES A PREFERRED STOCK REPRESENTING THE SAME PERCENTAGE OF THE TOTAL AMOUNT OF OUTSTANDING SHARES OF SERIES A PREFERRED STOCK THAT THE PRINCIPAL AMOUNT OF CONVERTIBLE EXCHANGEABLE DEBENTURES DUE 2006 PROPOSED TO BE TRANSFERRED OR ASSIGNED REPRESENTS OF THE TOTAL PRINCIPAL AMOUNT OF OUTSTANDING CONVERTIBLE EXCHANGEABLE DEBENTURES DUE 2006. THIS CONVERTIBLE EXCHANGEABLE DEBENTURE AND THE SECURITIES ISSUABLE UPON CONVERSION OR EXCHANGE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT UNDER ANY CIRCUMSTANCES BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF WITHOUT AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY APPLICABLE STATE SECURITIES LAWS, OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS. MUTUAL RISK MANAGEMENT LTD. CONVERTIBLE EXCHANGEABLE DEBENTURE DUE 2006 No. [ ] U.S.$[ ] May 17, 2001 The undersigned, Mutual Risk Management Ltd., a company organized under the laws of Bermuda with offices at 44 Church Street, Hamilton HM 12 Bermuda (the "Issuer"), unconditionally promises to pay to [Name of Holder] or its permitted ------ assigns, transferees and successors as provided herein (each, a "Holder"), on ------ May 17, 2006 (the "Maturity Date"), at such place as may be designated by the ------------- Holder to the Issuer, the principal amount outstanding hereunder, or such lesser amount as shall then be payable pursuant to the terms of Section 3 hereof, together with all accrued and unpaid interest thereon. -2- This Debenture is issued pursuant to a Securities Purchase Agreement, dated as of May 8, 2001, by and among the Issuer, the guarantors named therein, XL Insurance Ltd., First Union Merchant Banking 2001, LLC, High Ridge Capital Partners II, L.P., Century Capital Partners II, L.P., Robert A. Mulderig, Taracay Investors Company and Intrepid Funding Master Trust (as such agreement may be amended at any time, the "Securities Purchase Agreement"), and the Holder ----------------------------- hereof is intended to be afforded the benefits thereof, including the representations and warranties set forth therein. The Issuer shall use the proceeds of the issuance and sale of this Debenture solely in accordance with the provisions set forth therein and as required thereby. Section 11 contains definitions of certain of the terms used herein. Capitalized terms used but not otherwise defined herein shall, unless otherwise indicated, have the meanings given such terms in the Securities Purchase Agreement. SECTION 1. INTEREST. Interest on this Debenture shall accrue at a rate per annum equal to 9 --- ----- 3/8%, from and after the date of the disbursement of funds hereunder (the "Original Issue Date"); provided, however, that (x) from and after the 120th day ------------------- -------- ------- after the Original Issue Date to but excluding the date on which the Issuer has received all Required Approvals and the Restructuring has been consummated, the interest rate applicable to this Debenture shall increase by an additional 0.25% per annum, such increased interest rate to further increase by an additional - --- ----- 0.25% per annum for each subsequent 30-day period during which the Required --- ----- Approvals have not been obtained or the Restructuring has not been consummated up to a maximum total rate of interest on the Debentures of 11.0% per annum (it --- ----- being understood that from and after such time as all Required Approvals have been obtained and the Restructuring shall have been completed, the interest rate applicable to this Debenture shall return to 9 3/8% per annum) and (y) from and --- ----- after the occurrence of an Event of Default and for so long as such Event of Default continues, the interest rate applicable to the Debenture shall increase by an additional 1.00% per annum over the otherwise then applicable rate. --- ----- Interest shall be compounded quarterly and payable quarterly in cash in arrears on each March 20, June 20, September 20, and December 20 (each, an "Interest -------- Payment Date"), beginning on June 20, 2001, to the holder of this Debenture at - ------------ the close of business on the immediately preceding March 1, June 1, September 1 and December 1, respectively (whether or not a Business Day). Interest shall be calculated on the basis of a year of twelve 30-day months and the actual number of days elapsed. SECTION 2. PAYMENTS OF PRINCIPAL AND INTEREST. Unless earlier converted or exchanged in accordance with the terms of Section 4 or 5 below, or repaid in accordance with the terms hereof or redeemed pursuant to Section 3 below, the entire outstanding principal amount of this Debenture, together with any accrued and -3- unpaid interest thereon, shall be due and payable on the Maturity Date. The parties agree that any payment of interest due to the Holder hereunder shall be net of any applicable withholding taxes due in respect of this Debenture. SECTION 3. REDEMPTION. (a) At the Option of the Issuer. This Debenture shall not be redeemable --------------------------- at the option of the Issuer at any time prior to the Maturity Date. (b) Mandatory Redemption At the Option of the Holders. At any time during ------------------------------------------------- the Put Term, the Requisite Holders and XL each have the right (the "Redemption ---------- Right") to require the Issuer or any Guarantor to redeem and repay all of the - ----- Debentures, at a redemption price (the "Redemption Price") initially equal to ---------------- the higher of (i) 100% of the aggregate principal amount of the Debentures and (ii) 100% of the aggregate of the then current market price of the Issuer's Common Shares into which the Debentures would be convertible pursuant to Section 5 at such time (calculated using the average closing price for a three-day trading period beginning on the second trading day following the public announcement of the exercise of such mandatory redemption right), in each case, plus accrued and unpaid interest thereon to the applicable redemption date; provided, however, that the Redemption Price shall increase by an additional 25 - -------- ------- basis points for each subsequent 30-day period during the Put Term until all Required Approvals have been obtained and the Restructuring has been completed. (c) In the event the Requisite Holders or XL, as the case may be, desires to exercise the Redemption Right, such exercising party shall provide written notice thereof to the Issuer during the Put Term, setting forth (i) the fact that such Holder intends to exercise the Redemption Right and (ii) the date for such redemption, which shall be a Business Day and be between 10 and 15 days after the date of such notice. Upon receipt by the Issuer of any request to exercise a Redemption Right, the Issuer shall promptly provide written notification thereof to all Holders of Debentures. (d) On the applicable redemption date, (i) the holders of all Debentures shall tender the Debentures and the related MRM Voting Preferred Stock to the Issuer for cancellation, duly endorsed or assigned to the Issuer or in blank, at the principal executive office of the Issuer and (ii) the Issuer shall deliver to the address of the Holder described in Section 10 hereof immediately available funds in an amount equal to the aggregate principal amount of all Debentures tendered for redemption by such Holder. SECTION 4. EXCHANGE. (a) Exchange of Debenture for Newco Debentures. (i) The Holder shall have ------------------------------------------ the right (the "Debenture Exchange Right") to exchange this Debenture, in whole ------------------------ or in part, at any time prior to the Newco Exchange Right Termination Date, for an equal principal amount -4- of senior convertible debentures due 2006 of Newco (each, a "Newco Debenture" --------------- and, collectively, the "Newco Debentures"); provided, however, that only holders ---------------- -------- ------- of Debentures in an aggregate principal amount of at least 20% of the principal amount of the Debentures then outstanding may exercise the first Debenture Exchange Right. The Newco Debentures shall be convertible into shares of common stock of Newco and otherwise have substantially the same terms and provisions of this Debenture (other than with respect to the exchange rights set forth in this Section 4). The Newco Debenture shall be substantially in the form of Exhibit ------- A-2 attached to the Securities Purchase Agreement. - --- (ii) In order to exercise the Debenture Exchange Right, the Holder shall provide written notice thereof to the Issuer and Newco, in the form of Annex I attached hereto, and setting forth (A) the fact that the Holder intends - ------- to exercise a Debenture Exchange Right, (B) the aggregate principal amount of this Debenture for which the Holder is exercising a Debenture Exchange Right and (C) the date for such exchange (the "Debenture Exchange Date"), which shall be a ----------------------- Business Day and be between 15 and 30 days after the date of such notice. (iii) On the Debenture Exchange Date, (A) the Holder shall tender this Debenture and the related MRM Voting Preferred Stock to the Issuer for cancellation, duly endorsed or assigned to the Issuer or in blank, at the principal executive office of the Issuer, (B) the Issuer shall cause Newco to issue, execute and deliver to the Holder, at the expense of Newco, (I) one or more Newco Debentures, registered in the name of the Holder (or its nominee or assignee), in an aggregate principal amount equal to the aggregate principal amount of this Debenture tendered to the Issuer in connection with the exercise of such Debenture Exchange Right and (II) a certificate representing shares of Newco Voting Preferred Stock entitling the holder thereof to voting rights in Newco equal to the aggregate voting rights of the Common Stock of Newco issuable to the Holder upon conversion of the Newco Debentures owned by such Holder, (C) in case this Debenture is exchanged in part only, upon such exchange, the Issuer shall execute and deliver to the Holder, at the expense of the Issuer, (I) a new Debenture of an authorized denomination in aggregate principal amount equal to the unexchanged portion of the aggregate principal amount of the Debenture tendered to the Issuer in connection with the exercise of such Debenture Exchange Right and (II) a certificate representing the related MRM Voting Preferred Stock and (D) the Issuer shall deliver to the Holder an opinion of counsel satisfactory to the Holder, in form and substance satisfactory to the Holder, to the effect that (w) Newco has been duly organized, is validly existing and in good standing, (x) the Newco Debenture has been duly authorized, executed and delivered to the Holder by Newco, (y) the Newco Debenture is a valid and binding obligation of Newco, enforceable against Newco in accordance with its terms (y) the Newco Voting Preferred Stock issued to such Holder has been duly authorized and will, upon issuance, be validly issued, fully paid and nonassessable. -5- (b) Exchange of Debenture for Newco Common Stock. (i) The Holder shall -------------------------------------------- have the right (the "Newco Common Stock Exchange Right") to exchange this --------------------------------- Debenture, in whole or in part, at any time prior to the Newco Exchange Right Termination Date, for Common Stock of Newco; provided, however that only holders -------- ------- of Debentures in aggregate principal amount of at least 20% of the aggregate principal amount of the Debentures then outstanding may exercise the first Newco Common Stock Exchange Right. The number of shares of Common Stock of Newco issuable to the Holder upon each exchange of this Debenture pursuant to any exercise of a Newco Common Stock Exchange Right shall be equal to the amount that will result in the percentage ownership of the equity of Newco, on a Fully Diluted Basis (calculated as of the first such exchange), of the Holder following such exchange to be equal to the Newco Ownership Percentage. (ii) In order to exercise the Newco Common Stock Exchange Right, the Holder shall provide written notice thereof to the Issuer and Newco, setting forth (A) the fact that the Holder intends to exercise a Newco Common Stock Exchange Right, (B) the aggregate principal amount of this Debenture for which the Holder is exercising a Newco Common Stock Exchange Right and (C) the date for such exchange (the "Newco Common Stock Exchange Date"), which shall be a -------------------------------- Business Day and be between 15 and 30 days after the date of such notice. (iii) On the Newco Common Stock Exchange Date, (A) the Holder shall tender this Debenture and the related MRM Voting Preferred Stock to the Issuer for cancellation, duly endorsed or assigned to the Issuer or in blank, at the principal executive office of the Issuer, (B) the Issuer shall cause Newco to issue, execute and deliver to the Holder, at the expense of Newco, shares of Common Stock of Newco, registered in the name of the Holder (or its nominee or assignee), in an amount equal to the Newco Ownership Percentage for the Holder, (C) in case this Debenture is exchanged in part only, upon such exchange, the Issuer shall execute and deliver to the Holder, at the expense of the Issuer, (I) a new Debenture of an authorized denomination in aggregate principal amount equal to the unexchanged portion of the aggregate principal amount of the Debenture tendered to the Issuer in connection with the exercise of such Debenture Exchange Right and (II) a certificate representing the related MRM Voting Preferred Stock, (D) the Issuer shall pay to the Holder an amount in cash equal to the accrued and unpaid interest on the portion of this Debenture surrendered by the Holder for exchange pursuant to exercise of a Newco Common Stock Exchange Right through but excluding the Newco Common Stock Exchange Date and (E) the Issuer shall deliver to the Holder an opinion of counsel, in form and substance satisfactory to the Holder, to the effect that (x) Newco has been duly organized and is validly existing and in good standing and (y) the Common Stock of Newco has been duly authorized and will, upon issuance, be validly issued, fully paid and nonassessable. -6- (c) Issuer to Cause Newco to Reserve Common Stock. The Issuer shall, at --------------------------------------------- all times up until the day after the Newco Common Stock Exchange Right Termination Date, cause Newco to reserve and keep available, free from preemptive rights, out of Newco's authorized but unissued Common Stock, for the purpose of effecting the conversion of the Newco Debentures and the exercise of the Newco Common Stock Exchange Right, the full number of shares of Common Stock of Newco then issuable upon conversion of all outstanding Newco Debentures and exchange of all outstanding Debentures. SECTION 5. CONVERSION. (a) Conversion Right and Conversion Price. Subject to and upon compliance ------------------------------------- with the provisions of this Section 5, at the option of the Holder hereof, this Debenture or any portion of the principal amount hereof may be converted into a number of fully paid and nonassessable shares (calculated as to each conversion to the nearest 1/100 of a share) of Common Stock of the Issuer determined by dividing the aggregate principal amount of the Debenture to be converted by the Conversion Price in effect at the time of conversion. The "Conversion Price" shall be initially $7.00; provided, however, that ---------------- -------- ------- the Conversion Price shall be reduced by $0.20 beginning on September 17, 2001 and by an additional $0.20 on each monthly anniversary thereafter until the date on which all Required Approvals shall have been obtained and the Restructuring shall have been completed. The Conversion Price shall be adjusted in certain instances as provided in (i) through (vii) of Section 5(e) hereof. In the event this Debenture is converted after any Interest Payment Date but on or prior to the regular record date relating to the next succeeding Interest Payment Date, the Issuer shall, on the Conversion Date (as defined below), pay to the Holder the pro rata portion of interest due on the Holder's --- ---- Debentures surrendered for conversion up to, but excluding, the Conversion Date. In the event this Debenture is converted after any regular record date and on or prior to the next succeeding Interest Payment Date, interest that is due on such Interest Payment Date shall be payable on such Interest Payment Date notwithstanding such conversion, and such interest (whether or not punctually paid or duly provided for) shall be paid to the Person in whose name this Debenture is registered at the close of business on such regular record date. Except as otherwise expressly provided in the two immediately preceding sentences, in the event this Debenture is converted, interest which would become payable on an Interest Payment Date falling after the date of conversion of this Debenture shall not be payable. (b) Exercise of Conversion Right. The Holder of this Debenture may ---------------------------- exercise its conversion right by delivering to the Issuer irrevocable written notice of such election, substantially in the form of Annex II attached hereto, -------- at least five days prior to the Business Day designated in such notice as the date of conversion (the "Conversion Date"). Such notice --------------- -6- -7- shall also specify the principal amount of this Debenture to be converted. In the event any portion of this Debenture is to be converted, the Holder shall, on or before the Conversion Date, surrender the Debenture for cancellation together with the related MRM Voting Preferred Stock, duly endorsed or assigned to the Issuer or in blank, at the office or agency described in Section 10 hereof. The portion of this Debenture as to which the Holder shall have elected to convert shall be deemed to have been converted immediately prior to the close of business on the Conversion Date, and at such time the rights of the Holder as Holder shall cease as to such portion of this Debenture, and, upon conversion, the Holder shall be treated for all purposes as the record holder of Common Stock of the Issuer at such time. On the Conversion Date, the Issuer shall issue and deliver at the office or agency described in Section 10 hereof a certificate or certificates for the number of full shares of Common Stock of the Issuer issuable upon conversion, together with payment in lieu of any fraction of a share, as provided in Section 5(d). In the event this Debenture is converted in part only, upon such conversion the Issuer shall execute and deliver to the Holder, at the expense of the Issuer, (i) a new Debenture or Debentures of an authorized denomination in aggregate principal amount equal to the unconverted portion of the aggregate principal amount of such Debenture and (ii) a certificate representing the related MRM Voting Preferred Stock with voting rights equal to the aggregate voting rights of the Common Stock issuable upon conversion or exchange of such new Debenture. (c) Surrender of Debentures on Conversion Date. In the event the Holder ------------------------------------------ wishes to exercise its right to convert this Debenture into Common Stock pursuant to Section 5(a) hereof, the Holder shall surrender to the Issuer Debentures in an aggregate principal amount at least equal to the applicable Conversion Price (as adjusted by Section 5(e), if applicable). (d) Fractions of Shares. No fractional shares of Common Stock shall be ------------------- issued upon conversion of this Debenture. If all or a portion of the principal amount of this Debenture shall be surrendered for conversion at one time, the number of full shares which shall be issuable upon conversion thereof shall be computed on the basis of the aggregate principal amount of the Debenture so converted. Instead of any fractional share of Common Stock, which would otherwise be issuable upon conversion of the Debenture (or specified portions thereof), the Issuer shall pay a cash adjustment in respect of such fraction in an amount equal to the same fraction of the market price per share of Common Stock (as determined as provided in Section 5(e)(vi)) at the close of business on the Conversion Date. (e) Adjustment of Conversion Price. (i) In the event that the Issuer shall ------------------------------ pay or make a dividend or other distribution on any class of its capital stock in Common Stock or securities convertible into, or exercisable or exchangeable for, Common Stock ("Common ------ -8- Stock Equivalents"), the Conversion Price applicable to conversions of this - ----------------- Debenture in effect at the opening of business on the day following the date fixed for the determination of shareholders entitled to receive such dividend or other distribution shall be reduced by multiplying such Conversion Price by a fraction of which (A) the numerator shall be the number of shares of Common Stock of the Issuer outstanding at the close of business on the date fixed for such determination and (B) the denominator shall be the sum of (x) such number of shares and (y) the total number of shares of Common Stock constituting such dividend or other distribution and shares of Common Stock issuable upon conversion, exercise or exchange of the Common Stock Equivalent constituting such dividend or other distribution, in each case, such reduction to become effective immediately after the opening of business on the day following the date fixed for such determination. For the purposes of this paragraph, the number of shares of Common Stock of the Issuer at any time outstanding shall not include shares held in the treasury of the Issuer or held by Subsidiaries of the Issuer but shall include shares of Common Stock issuable in respect of scrip certificates issued in lieu of fractions of shares of Common Stock of the Issuer. The Issuer will not pay any dividend or make any distribution on shares of Common Stock held in the treasury of the Issuer or held by Subsidiaries of the Issuer. (ii) In case the Issuer shall issue Common Stock of the Issuer at a price per share less than the higher of the Conversion Price then in effect or the current market price per share (determined as provided in Section 5(e)(vi)) of the Common Stock of the Issuer on the date on which such Common Stock is issued, the Conversion Price applicable to conversions of Debentures of the Issuer in effect at the opening of business on the day following such date shall be reduced by multiplying such Conversion Price by a fraction of which (A) the numerator shall be the number of shares of Common Stock of the Issuer outstanding at the close of business on such date plus the number of shares of Common Stock of the Issuer which the aggregate of the offering price of the total number of shares of Common Stock of the Issuer so issued or offered for subscription or purchase would purchase at the higher of such current market price or the Conversion Price and (B) the denominator shall be the sum of (x) the number of shares of Common Stock of the Issuer outstanding at the close of business on such date and (y) the number of shares of Common Stock of the Issuer so offered for subscription or purchase, such reduction to become effective immediately after the opening of business on the day following such date. In case the Issuer shall issue Common Stock Equivalents of the Issuer with a conversion, exercise or exchange price per share that, together with the issuance price per share of such Common Stock Equivalents, is less than the higher of the Conversion Price then in effect or the current market price per share (determined as provided in Section 5(e)(vi)) of the Common Stock of the Issuer on the date on which such Common Stock Equivalents are issued, the Conversion Price applicable to conversions of Debentures in effect at the opening of business on the day following such date shall be reduced by multiplying such Conversion -9- Price by a fraction of which (A) the numerator shall be the number of shares of Common Stock of the Issuer outstanding at the close of business on such date plus the aggregate number of shares of Common Stock of the Issuer that the sum of (x) the aggregate conversion, exercise or exchange price of all such Common Stock Equivalents and (y) the aggregate issuance price of all such Common Stock Equivalents would purchase if the sum of the conversion, exercise or exchange price, as applicable, per share of Common Stock of the Issuer and the issuance price of such Common Stock Equivalents were equal to the higher of such current market price or the Conversion Price and (B) the denominator shall be the number of shares of Common Stock of the Issuer outstanding at the close of business on such date plus the aggregate number of shares of Common Stock of the Issuer that are issuable upon conversion, exercise or exchange of all such Common Stock Equivalents at the actual conversion, exercise or exchange prices applicable to such Common Stock Equivalents, such reduction to become effective immediately after the opening of business on the day following such date. For the purposes of this clause (ii), the number of shares of Common Stock of the Issuer at any time outstanding shall not include shares of Common Stock held in the treasury of the Issuer or held by Subsidiaries of the Issuer but shall include shares issuable in respect of scrip certificates issued in lieu of fractions of shares of Common Stock. The Issuer will not issue any rights or warrants in respect of shares of Common Stock held in the treasury of the Issuer or held by Subsidiaries of the Issuer. If any rights or warrants shall expire without having been exercised, the Conversion Price shall thereupon be readjusted to eliminate the amount of its adjustment due to their issuance. (iii) In case outstanding shares of Common Stock of the Issuer shall be subdivided into a greater number of shares of Common Stock, the Conversion Price applicable to conversions of this Debenture in effect at the opening of business on the day following the day upon which such subdivision becomes effective shall be proportionately reduced, and, conversely, in case outstanding shares of Common Stock of the Issuer shall each be combined into a smaller number of shares of Common Stock, the Conversion Price applicable to conversions of this Debenture in effect at the opening of business on the day following the day upon which such combination becomes effective shall be proportionately increased, such reduction or increase, as the case may be, to become effective immediately after the opening of business on the day following the day upon which such subdivision or combination becomes effective. (iv) In case the Issuer shall, by dividend or otherwise, distribute to holders of its Common Stock evidences of its indebtedness or assets (including securities, but excluding any Common Stock Equivalents referred to in clause (ii) of this Section, any dividend or distribution paid in cash out of the retained earnings of the Issuer at a rate not exceeding $0.07 per share per quarter and any dividend or distribution referred to in clause (i) of this Section), the Conversion Price applicable to conversions of this Debenture shall be adjusted so that the same shall equal the price determined by multiplying the applicable Conversion Price in effect -10- immediately prior to the close of business on the date fixed for the determination of shareholders entitled to receive such distribution by a fraction of which (A) the numerator shall be the higher of the Conversion Price then in effect or the current market price per share (determined as provided in Section 5(e)(vi)) of the Common Stock of the Issuer on the date fixed for such determination less the then fair market value (as determined in good faith by the board of directors of the Issuer, whose determination shall be described in a board resolution delivered to the Holder) of the portion of the assets or evidences of indebtedness so distributed applicable to one share of Common Stock of the Issuer and (B) the denominator shall be such current market price per share of the Common Stock of the Issuer, such adjustment to become effective immediately prior to the opening of business on the day following the date fixed for the determination of shareholders entitled to receive such distribution. (v) The reclassification of Common Stock into securities including other than Common Stock (other than any reclassification upon a consolidation or merger to which Section 5(k) applies) shall be deemed to involve (A) a distribution of such securities other than Common Stock to all holders of Common Stock of the Issuer (and the effective date of such reclassification shall be deemed to be "the date fixed for the determination of shareholders entitled to receive such distribution" and "the date fixed for such determination" within the meaning of clause (iv) of this Section), and (B) a subdivision or combination, as the case may be, of the number of shares of Common Stock of the Issuer outstanding immediately prior to such reclassification into the number of shares of Common Stock of the Issuer outstanding immediately thereafter (and the effective date of such reclassification shall be deemed to be "the day upon which such subdivision becomes effective" or "the day upon which such combination becomes effective", as the case may be, and "the day upon which such subdivision or combination becomes effective" within the meaning of clause (iii) of this Section). (vi) For the purpose of any computation under Section 5(d) or clauses (ii) and (iv) of this Section 5(e), the current market price per share of Common Stock of the Issuer on any date shall be deemed to be the average of the daily closing prices for the 10 consecutive Business Days selected by the Issuer commencing not less than 10 and no more than 20 Business Days before the day in question; provided, however, that the 10 consecutive Business Days selected for -------- ------- determination shall commence no earlier than three Business Days following the expiration of the Put Period. The closing price for each day shall be the closing price for such day reported in The Wall Street Journal or, if not so reported, the last reported sales price regular way or, in case no such reported sale takes place on such day, the average of the reported closing bid and asked prices regular way, in either case on the New York Stock Exchange or, if the Common Stock of the Issuer is not listed or admitted to trading on such Exchange, on the principal national securities exchange on which such Common Stock is listed or admitted to trading or, if not listed or admitted to trading on any national securities exchange, on the National Association of Securities Dealers Automated Quotations National Market System or, if such Common Stock is not listed or admitted to trading on any national -11- securities exchange or quoted on such National Market System, the average of the closing bid and asked prices in the over-the-counter market as furnished by any New York Stock Exchange member firm selected from time to time by such Issuer for that purpose. In the absence of one or more such sale prices, quotes or bid and asked prices, the board of directors of the Issuer shall determine the current market price based on (A) the most recently completed arm's-length transaction between the Issuer and a Person other than an Affiliate of the Issuer and the closing of which occurs on such date or shall have occurred within the six months preceding such date, (B) if no such transaction shall have occurred on such date or within such six-month period, the value of the Common Stock most recently determined as of a date within the six months preceding such date by a nationally recognized investment banking firm or appraisal firm which is not an Affiliate of the Issuer (an "Independent Financial Advisor") or (C) if ----------------------------- neither clause (A) nor (B) is applicable, the value of the Common Stock determined as of such date by an Independent Financial Advisor. (vii) In addition to the reductions in the Conversion Price that are required by clauses (i), (ii), (iii) and (iv) of this Section, the Issuer will make such reductions in the Conversion Price (A) as it considers to be advisable in order that any event treated for Federal income tax purposes as a dividend of stock or stock rights shall not be taxable to the recipients and (B) as may be necessary to account for any adjustments to conversion, exercise or exchange prices or rates made to any Common Stock Equivalents of the Issuer after the Original Issue Date, the result of which is that the conversion, exercise or exchange price or rate applicable to such Common Stock Equivalents is below the higher of the Conversion Price or the current market price per share (determined as provided in Section 5(e)(vi)) of the Common Stock of the Issuer, in each case in effect on the date of such adjustment. (f) Notice of Adjustments of Conversion Price. Whenever the Conversion ----------------------------------------- Price is adjusted as herein provided: (i) the Issuer shall compute the adjusted Conversion Price in accordance with Section 5(a) and shall prepare a certificate signed by the Chief Financial Officer of the Issuer setting forth the adjusted Conversion Price and showing in reasonable detail the facts upon which such adjustment is based, and such certificate shall forthwith be filed at each office or agency maintained for the purpose of conversion of this Debenture pursuant to Section 10; and (ii) a notice stating that the Conversion Price has been adjusted and setting forth the adjusted Conversion Price shall be mailed by the Issuer together with a copy of the certificate prepared in accordance with subsection (i) above to the Holder at its last address as it shall appear in the Debenture Register as soon as practicable after such adjustment. -12- (g) Notice of Certain Corporate Action. In case: ---------------------------------- (i) the Issuer shall declare a dividend (or any other distribution) on its Common Stock payable other than in cash out of its retained earnings at a rate not in excess of $0.07 per share per quarter; or (ii) the Issuer shall authorize the granting to the holders of its Common Stock of rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any other rights; or (iii) of any reclassification of the Common Stock of the Issuer, or of any consolidation or merger to which the Issuer is a party and for which approval of any of its shareholders is required, or of the sale or transfer of all or substantially all of the assets of the Issuer; or (iv) of the voluntary or involuntary dissolution, liquidation or winding up of the Issuer; then the Issuer shall cause to be filed at each office or agency maintained for the purposes of conversion of this Debenture pursuant to Section 10, and shall cause to be mailed to the Holder at its last address as it shall appear in the Debenture Register, at least 20 days (or 10 days in any case specified in clause (i) or (ii) above) prior to the applicable record or effective date hereinafter specified, a notice describing such event in reasonable detail and stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, rights or warrants, or, if a record is not to be taken, the date as of which the holders of record of such Issuer's Common Stock to be entitled to such dividend, distribution, rights or warrants are to be determined, or (y) the date on which such reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding up is expected to become effective, and the date as of which it is expected that holders of record of the Issuer's Common Stock shall be entitled to exchange their shares of Common Stock of the Issuer for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding up. (h) Taxes on Conversions. The Issuer will pay any and all transfer or -------------------- stamp taxes that may be payable in respect of the issue or delivery of shares of Common Stock on conversion of this Debenture pursuant hereto. The Issuer shall not, however, be required to pay any income tax payable with respect to conversion of this Debenture or any tax which may be payable in respect of any transfer involved in the issue and delivery of shares of Common Stock in a name other than that of the Holder of the Debenture to be converted, and no such issue or delivery shall be made unless and until the Person requesting such issue has paid to the Issuer the amount of any such tax, or has established to the satisfaction of the Issuer that such tax has been paid. -13- (i) Covenant as to Common Stock. The Issuer covenants that all shares of --------------------------- Common Stock which may be issued upon conversion of this Debenture will, upon issue, be validly issued, fully paid and nonassessable and, except as provided in Section 5(h), the Issuer will pay all taxes, liens and charges with respect to the issue thereof. (j) Cancellation of Converted Debenture. In the event this Debenture is ----------------------------------- delivered for conversion, in whole or in part, it and the related MRM Voting Preferred Stock shall be delivered to and canceled by the Issuer. (k) Provisions in Case of Consolidation, Merger or Sale of Assets. In case ------------------------------------------------------------- of any consolidation of the Issuer with, or merger of the Issuer into, any other Person, any merger of another Person into the Issuer (other than a merger which does not result in any reclassification, conversion, exchange or cancellation of outstanding shares of Common Stock of the Issuer) or any sale or transfer of all or substantially all of the assets of the Issuer, the Person formed by such consolidation or resulting from such merger or which acquires such assets, as the case may be, shall execute and deliver a supplement to this Debenture providing that the Holder of this Debenture shall have the right thereafter to convert this Debenture only into the kind and amount of securities, cash and other property receivable upon such consolidation, merger, sale or transfer by a holder of the number of shares (including fractional shares) of Common Stock of the Issuer into which this Debenture might have been converted immediately prior to such consolidation, merger, sale or transfer, assuming such holder of Common Stock of the Issuer (i) is not a Person with which the Issuer consolidated or into which the Issuer merged or which merged into the Issuer or to which such sale or transfer was made, as the case may be ("constituent Person"), or an ------------------ Affiliate of a constituent Person and (ii) failed to exercise its rights of election, if any, as to the kind or amount of securities, cash and other property receivable upon such consolidation, merger, sale or transfer; provided, -------- however, that if the kind or amount of securities, cash and other property - ------- receivable upon such consolidation, merger, sale or transfer is not the same for each share of Common Stock of the Issuer held immediately prior to such consolidation, merger, sale or transfer by others than a constituent Person or an Affiliate thereof and in respect of which such rights of election shall not have been exercised ("non-electing share"), then for the purpose of this Section ------------------ the kind and amount of securities, cash and other property receivable upon such consolidation, merger, sale or transfer by each non-electing share shall be deemed to be the kind and amount so receivable per share by a plurality of the non-electing shares. Such supplement to this Debenture shall provide for adjustments which, for events subsequent to the effective date of the event which triggers the requirement of such supplemental indenture, shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 5(k). The above provisions of this Section 5(k) shall similarly apply to successive consolidations, mergers, sales or transfers. -14- (l) No Impairment. The Issuer will not, by amendment of its memorandum of ------------- association or bye-laws or through any reorganization, recapitalization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Issuer, but will at all times in good faith assist in the carrying out of all the provisions of this Section 5 and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Holder against impairment. (m) Certain Limitations on Voting and Conversion Rights. (i) In the event --------------------------------------------------- that the Conversion Date in respect of any exercise by the Holder of its right to convert this Debenture into Common Stock of the Issuer pursuant to this Section 5 occurs prior to the time that the Form A approvals relating to the Transactions shall have been received by the Issuer, then, until such time as such Form A approvals are received by the Issuer, the Common Stock issuable to the Holder upon each conversion of this Debenture shall be limited in its voting rights to the Maximum Voting Right Percentage. The limitations on voting rights contained in this Section 5(m)(i) shall not in any way restrict the ability of the Holder to exercise its right to convert all or any portion of this Debenture. In addition, the provisions of this Section 5(m)(i) shall not in any manner restrict or otherwise affect the economic ownership percentage represented by the Common Stock of the Issuer issued in connection with any conversion of this Debenture; and (ii) In the event that the Conversion Date in respect of any exercise by the Holder of its right to convert this Debenture into Common Stock of the Issuer pursuant to this Section 5 occurs prior to the time that the shareholder approvals relating to the Transactions shall have been received by the Issuer, then, until such time as such shareholder approvals are received by the Issuer, the number of shares of Common Stock issuable to the Holder upon each conversion of this Debenture shall be limited to the Maximum Conversion Right Percentage. (n) When De Minimis Adjustment May Be Deferred. No adjustment in the ------------------------------------------ number of shares of Common Stock of the Issuer issuable upon conversion of Debentures need be made unless the adjustment would require an increase or decrease of at least 1% in the number of shares of Common Stock issuable upon conversion of all Debentures. Any adjustments that are not made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 5 shall be made to the nearest 1/100th of a share. SECTION 6. AFFIRMATIVE COVENANTS. The Issuer hereby agrees for the benefit of the Holder that, from and after the date hereof, so long as any Debentures remain outstanding and unpaid or any other amount is ow- -15- ing to the Holder under any Transaction Document, it will deliver to the Holder, or cause to be delivered to the Holder, the following materials and information: (a) Information. ----------- (i) As soon as available and in any event within 45 days after the end of each of the first three fiscal quarters of each fiscal year, (A) consolidated and consolidating balance sheets of the Issuer and its Subsidiaries as of the end of such quarter and the related consolidated statements of income, cash flows and shareholders' equity (deficit) for such quarter and for the portion of the fiscal year ended at the end of such quarter, setting forth, in each case, in comparative form the figures for the corresponding quarter and the corresponding portion of the previous fiscal year, accompanied by a certificate of the chief financial officer or the chief accounting officer of the Issuer to the effect that they fairly present the financial condition at such dates and the results of operations and cash flows for such periods and were prepared in accordance with GAAP (or, in the case of the Insurance Subsidiaries, Statutory Accounting Principles prescribed or permitted by the Insurance Acts), subject to year-end audit adjustments (consisting only of normal recurring accruals), (B) if the Holder is a holder of at least 10% of the outstanding Debentures, such operating information of the Issuer as may be reasonably requested by the Holder and (C) if the Holder is a holder of at least 10% of the outstanding Debentures, a comparison of the results of such quarter against the operating plan and budget, together with an explanation of any deviations therefrom; (ii) As soon as available and in any event within 90 days after the end of each fiscal year, (A) consolidated and consolidating balance sheets of the Issuer and its Subsidiaries as of the end of such fiscal year and the related consolidated statements of income, cash flows and shareholders' equity (deficit) for such fiscal year, setting forth, in each case, in comparative form the figures for the previous fiscal year, accompanied by a certificate of the chief financial officer or the chief accounting officer of the Issuer to the effect that they fairly present the financial condition at such dates and the results of operations and cash flows for such periods and were prepared in accordance with GAAP (or, in the case of the U.S. Insurance Subsidiaries, Statutory Accounting Principles prescribed or permitted by the Insurance Acts) and a report (unqualified as to scope) of a firm of independent public accountants of nationally recognized standing, (B) if the Holder is a holder of at least 10% of the outstanding Debentures, a "management letter" from such firm regarding the internal control structure of the Issuer and (C) if the Holder is a holder of at least 10% of the outstanding Debentures, and in exchange for the express agreement of such Holder to keep such information confidential, an opinion in form and substance reasonably satisfactory to the Holder as to the loss reserves of the Insurance Subsidiaries as of the end of such fiscal year by Tilling- -16- hast, Towers & Perrin or another actuarial consultant selected by the Issuer and acceptable to the Holder; (iii) If the Holder is a holder of at least 10% of the outstanding Debentures, as soon as available and in any event within 60 days after the end of each fiscal quarter, the results of the "early warning" tests described in Section 7(m) and any supporting documentation requested by the Holder; (iv) If the Holder is a holder of at least 10% of the outstanding Debentures, as soon as available, prior to the beginning of each fiscal year and in exchange for the express agreement of such Holder to keep such information confidential, an annual budget and operating plan of the Issuer, including an investment policy and plan, presented on a quarterly basis for such fiscal year; (v) If the Holder is a holder of at least 10% of the outstanding Debentures and in exchange for the express agreement of such Holder to keep such information confidential, as soon as available, annual financial projections (including forecasted consolidated and consolidating balance sheets of the Issuer and its Subsidiaries and the related consolidated statements of income, cash flows and shareholders' equity (deficit)) for the fiscal years ending December 31, 2001 through December 31, 2006 (including monthly financial projections) and containing all material assumptions relating to such projections and data, accompanied by a statement by the Issuer that such projections are based on assumptions believed by it in good faith to be reasonable as to the future financial performance of the Issuer; (vi) If the Holder is a holder of at least 10% of the outstanding Debentures and in exchange for the express agreement of such Holder to keep such information confidential, as soon as available, and in any event within 30 days after the filing thereof, copies of annual and quarterly reports and all other filings of the Insurance Subsidiaries filed with the Insurance Departments; (vii) In exchange for the express agreement of the Holder to keep such information confidential, promptly following the occurrence thereof, notice and a description in reasonable detail of any material adverse change in the assets, liabilities, business, results of operations, condition (financial or otherwise), Permits or prospects of the Issuer and its Subsidiaries taken as a whole; (viii) As soon as available, copies of all reports and memoranda relating to the current status of the Restructuring and copies of all related applications, agreements and other documents executed in connection with the Restructuring; -17- (ix) If the Holder is a holder of at least 10% of the outstanding Debentures and in exchange for the express agreement of such Holder to keep such information confidential, from time to time such additional information regarding the financial position or business of the Issuer or any of its Subsidiaries as the Holder may reasonably request; and (x) In exchange for the express agreement of such Holder to keep such information confidential, copies of any presentation made by the Issuer or any of its Subsidiaries to S&P, Moody's, A.M. Best Company or any other rating agency. (b) Payment of Obligations. It will pay and discharge, and ---------------------- will cause each of its Subsidiaries to pay and discharge, at or before maturity, all their respective obligations and liabilities, including tax liabilities, except where the same may be contested in good faith by appropriate proceedings, and will maintain, in accordance with GAAP, appropriate reserves for the accrual of any of the same. (c) Maintenance of Property; Insurance. ---------------------------------- (i) It will keep, and will cause each of its Subsidiaries to keep, all property useful and necessary in its business in good working order and condition, ordinary wear and tear excepted. (ii) It will maintain, and will cause each of its Subsidiaries to maintain, (A) with financially sound and responsible insurance companies, insurance in at least such amounts and against such risks as are usually insured against in the same general areas by companies of established repute of similar size that are engaged in the same or a similar business and (B) such other insurance coverage in such amounts and with respect to such risks as the Purchaser may reasonably request. It will deliver to the Holder (x) upon request from time to time, full information as to the insurance carried, (y) within five days of receipt of notice from any insurer a copy of any notice of cancellation or material change in coverage from that existing on the date of this Debenture and (z) within five days of receipt, any notice of any cancellation or nonrenewal of coverage for the Issuer or any of its Subsidiaries. (d) Conduct of Business and Maintenance of Existence. It will ------------------------------------------------ continue, and will cause each of its Subsidiaries to continue, to engage in business of the same general type as now conducted by the Issuer and its Subsidiaries, and will preserve, renew and keep in full force and effect, and will cause each of its Subsidiaries to preserve, renew and keep in full force and effect their respective corporate existence and their respective rights, privileges, licenses and franchises necessary or desirable in the normal conduct of business, except in each case as required or contemplated by the Restructuring. -18- (e) Compliance with Laws and Contractual Obligations. It will comply, and ------------------------------------------------ will cause each of its Subsidiaries to comply, in all material respects, with all applicable laws, ordinances, rules, regulations, and requirements of Governmental Entities, and with all contractual obligations, except where compliance in all material respects therewith is contested in good faith by appropriate proceedings, including, without limitation, with respect to itself and each member of the ERISA Group, (i) maintaining each Plan in compliance, in all material respects with the applicable provisions of ERISA, the Internal Revenue Code and other applicable law; (ii) causing each Plan which is qualified under Section 401(a) of the Internal Revenue Code to maintain such qualification; and (iii) making all required contributions to any Plan subject to Section 142 of the Internal Revenue Code. (f) Inspection of Property, Books and Records. It will keep, and will ----------------------------------------- cause each of its Subsidiaries to keep, proper books of record and account in which full, true and correct entries shall be made of all dealings and transactions in relation to their respective businesses and activities; and will permit, and will cause each of its Subsidiaries to permit (during normal business hours and, unless a Default shall have occurred and be continuing, upon reasonable advance notice) officers, attorneys, agents and other representatives of the Holder to visit and inspect any of their respective properties, to examine and make abstracts from any of their respective books and records and to discuss their respective affairs, finances and accounts with their respective directors, officers, senior employees, independent public accountants and actuaries as often as may reasonably be requested. (g) Reservation of Common Stock. It will at all times reserve and keep --------------------------- available, free from preemptive rights, out of its authorized but unissued Common Stock or out of Common Stock held by a Subsidiary of the Issuer, for the purpose of effecting the conversion of the Debentures, the full number of shares of Common Stock then issuable upon the conversion of this Debenture and all outstanding Debentures. (h) Covenant to Guarantee. (i) At any time that any Subsidiary of the --------------------- Issuer (A) shall be formed or acquired by the Issuer, including Newco (other than a U.S. Insurance Subsidiary) and such Subsidiary constitutes a Significant Subsidiary, (B) becomes a Significant Subsidiary or (C) shall guarantee any Debt of the Issuer or Newco other than the Debentures, then, in each such case, the Issuer will, at its expense: (A) within ten days after such event, cause each such Subsidiary to duly authorize, execute and deliver to the Holder a Guaranty, substantially in the form of Annex III attached hereto; -19- (B) within ten days after such event, deliver to the Holder a signed copy of a legal opinion, addressed to the Holder, of counsel for the Issuer reasonably acceptable to the Holder, as to such Guaranty being a legal, valid and binding obligation of such party thereto, enforceable in accordance with its terms and as to such other matters as the Holder may reasonably request; and (C) at any time and from time to time, promptly execute and deliver any and all further instruments and documents and take all such action as the Holder may deem necessary or reasonably desirable to obtain the full benefits of such Guaranty. (ii) Upon any exchange of this Debenture for a Newco Debenture pursuant to Section 4(a): (A) Mutual Risk Management Ltd. and Mutual Group Ltd. will immediately authorize, execute and deliver to the Holder a Guaranty, substantially in the form of Annex IV attached hereto; -------- (B) within ten days after such exchange, deliver to the Holder a signed copy of a legal opinion, addressed to the Holder, of counsel for the Issuer reasonably acceptable to the Holder, as to such Guaranty being a legal, valid and binding obligation of such party thereto, enforceable in accordance with its terms and as to such other matters as the Holder may reasonably request; and (C) at any time and from time to time, promptly execute and deliver any and all further instruments and documents and take all such action as the Holder may deem necessary or reasonably desirable to obtain the full benefits of such Guaranty. (i) Insurance. It will maintain, in full force and effect, executive risk --------- insurance in an amount which the Issuer reasonably believes to be sufficient for the conduct of its business. (j) Compliance Certificate. Concurrently with the delivery of each of the ---------------------- financial statements required by Sections 6(a)(i) and (ii), it will deliver to the Holders a compliance certificate by the Chief Financial Officer of the Issuer stating that the Issuer and its Subsidiaries are in compliance with each covenant contained in this Debenture, together with the calculations demonstrating such compliance in reasonable detail. -20- SECTION 7. NEGATIVE COVENANTS. The Issuer hereby agrees for the benefit of the Holder that, from and after the date hereof and so long as any portion of this Debenture remains outstanding and unpaid or any other amount is owing to the Holder under any Transaction Document, without the prior written consent of the Requisite Holders (which consent, in the case of Section 7(i), shall not be unreasonably withheld): (a) Restrictions on Amendments of Governance Documents. It will -------------------------------------------------- not, directly or indirectly, amend, and will not suffer, cause or permit to be amended, the memorandum of association, bye-laws or any other organizational document of the Issuer or any of its Significant Subsidiaries, or any partnership or shareholder agreement to which the Issuer or any of its Significant Subsidiaries is a party. (b) Prohibition on Restricted Payments. It will not, and will ---------------------------------- not cause or permit any of its Subsidiaries to, directly or indirectly, declare or make any Restricted Payment other than, so long as no Default or Event of Default has occurred and is continuing or would result therefrom, (i) quarterly dividends to all shareholders of the Issuer, pro rata, in an amount no greater than $0.07 per share per --- ---- quarter, (ii) the dividend or distribution by the Issuer of shares of Newco in order to comply with Section 2.1(b)(ii) of the Debenture Registration Rights Agreement entered into in connection with the issuance of the Debentures, (iii) Restricted Payments made to the Issuer or any Guarantor, (iv) Restricted Payments made to the holders of the Debentures pro rata based on the principal amount of Debentures --- ---- held by each Holder, (v) dividends on Policy Holder Preferred Shares made solely in connection with the CRM business and determined in a manner consistent with past practices and (vi) dividends made in respect of shares issued pursuant to the Hemisphere Restricted Stock Plan and the repurchase of such shares, in each case in accordance with such plan and consistent with past practices. (c) Consolidations and Mergers. It will not, and will not cause -------------------------- or permit any of its Subsidiaries to, directly or indirectly, consolidate or merge with or into, or acquire, any other Person; provided, however, that the foregoing shall not prohibit (i) a merger -------- ------- of a Subsidiary of the Issuer with and into the Issuer or a Subsidiary, (ii) a merger or consolidation of the Issuer with a Subsidiary or any other Person incorporated under the laws of Bermuda or a state of the United States, if the Issuer is the surviving corporation and continues to be a Bermuda company and immediately after giving effect thereto no Default or Event of Default shall have occurred and be continuing, (iii) the Restructuring or (iv) so long as no Default or Event of Default shall have occurred and be continuing or would result therefrom, acquisitions of Persons in the -21- same or substantially the same business as the Issuer and its Subsidiaries for aggregate consideration of no more than $30.0 million in any twelve-month period. (d) Investments. It will not, and will not cause or permit any of its ----------- Subsidiaries to, directly or indirectly, make or acquire any Investment, other than (i) Investments pursuant to the Issuer's investment policy as adopted by the Issuer's board of directors and in accordance with the Issuer's annual plan and budget, (ii) after the completion of the Restructuring, the Investment of up to $80.0 million of the net proceeds from the original issuance of the Debentures into the Issuer's U.S. Insurance Subsidiaries, as contemplated by the Securities Purchase Agreement, (iii) Investments in Subsidiaries of the Issuer made in connection with the Restructuring, (iv) Investments in the Collateral Account (as defined in the Securities Purchase Agreement) and in Cash Equivalents and U.S. Government Obligations (as defined in the Collateral Agreement), (v) Investments by Subsidiaries of the Issuer in the Issuer or any Guarantor and (vi) other Investments not exceeding $10.0 million in the aggregate outstanding at any one time. (e) Limitation on Incurrence and Repayment of Debt. ---------------------------------------------- (i) It will not, and will not cause or permit any of its Subsidiaries to, directly or indirectly, create, incur, issue, assume or suffer to exist any Debt; provided, however, that the foregoing shall not prohibit the issuance or -------- ------- existence of (A) the Debentures (including any Guarantees thereof), (B) the Existing Bank Debt and any Permitted Refinancings thereof, (C) Debt in an aggregate principal amount not in excess of $32.0 million consisting of, or issued in connection with, the RHINOS, (D) no more than $15.0 million of principal amount of accreted value of other Debt of the Issuer outstanding on the Original Issue Date, (E) additional Debt of the Issuer in an aggregate principal amount not to exceed $22.0 million at any one time outstanding; provided, however, that any Debt incurred pursuant to this clause (E) shall be - -------- ------- subordinated to the Debentures pursuant to subordination provisions in form and substance satisfactory to the Requisite Holders and (F) Debt consisting of reimbursement obligations (or guarantees thereof) in respect of letters of credit issued under a letter of credit facility entered into solely in connection with the issuance of Policy Holder Preferred Shares consistent with past practices. (ii) It will not, and will not cause or permit any of its Subsidiaries to, directly or indirectly, make any voluntary principal pre-payments in respect of any Debt, whether at or prior to its stated maturity, other than (A) the Debentures in accordance with their terms, (B) Permitted Refinancings of the Existing Bank Debt in accordance with the terms of the Existing Bank Agreement as in effect on the date hereof, (C) Debt consisting of, or issued in connection with, the RHINOS in an aggregate -22- principal amount not in excess of $32.0 million and (D) reimbursement obligations (or guarantees thereof) in respect of letters of credit issued under a letter of credit facility entered into solely in connection with the issuance of Policy Holder Preferred Shares consistent with past practices. (f) Negative Pledge. It will not, and will not cause or permit --------------- any of its Subsidiaries to, directly or indirectly, create, assume or suffer to exist any Lien on any asset now owned or hereafter acquired by it, except for (i) Liens which may be created in the ordinary course of business (it being understood that no Lien securing Debt shall be deemed to have been created in the ordinary course of business), (ii) Liens on funds deposited into the Collateral Account (as defined in the Collateral Agreement) and other Liens on assets of the Issuer and its Subsidiaries in favor of the holders of the Debentures, (iii) Liens securing letters of credit issued under a letter of credit facility entered into solely in connection with the issuance of Policy Holder Preferred Shares, consistent with past practices, (iv) Liens on assets of the Issuer or any of its Subsidiaries that are junior to first priority Liens securing the Debentures on such assets and (v) after the expiration of the Put Term, Liens securing the Debentures, the Existing Bank Debt, any Permitted Refinancing of Existing Bank Debt, Debt permitted under Section 7(e)(i)(E) hereof, and the RHINOS on a pari passu basis. (g) Transactions with Affiliates. It will not, and will not ---------------------------- cause or permit any of its Subsidiaries 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 to, purchase any assets from, or participate in, or effect or suffer to exist any other transaction with, or for the benefit of, any Affiliate of the Issuer or any Related Person, except (i) upon fair and reasonable terms that are no less favorable to it than it would obtain in a comparable arm's-length transaction with an unrelated Person and pursuant to the reasonable requirements of its business or (ii) as contemplated by this Debenture and the Securities Purchase Agreement (including, without limitation, the Restructuring). (h) Fundamental Changes. It will not, and will not cause or ------------------- permit any of its Subsidiaries to, wind-up, liquidate or dissolve their respective affairs, except any such action taken with the unanimous consent of the Issuer's board of directors. It will not, and will not cause or permit any of its Subsidiaries to, commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to themselves or their respective debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seek the appointment of a trustee, receiver, liquidation, custodian or other similar official of them or any substantial part of their prop- -23- erty, or 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 them, or make a general assignment for the benefit or creditors, or fail generally to pay their respective debts as they become due or on demand, or take any corporate action to authorize any of the foregoing, except any such action taken with the unanimous consent of the Issuer's board of directors. (i) Business. It will not, and will not cause or permit any of -------- its Subsidiaries to, make any material change in the nature of its business or its underwriting strategy or investment policy other than as expressly contemplated by the Restructuring. (j) Limitation on Restrictions Affecting Subsidiaries. It will ------------------------------------------------- not, and will not cause or permit any of its Subsidiaries to, directly or indirectly, enter into, or suffer to exist, any consensual agreement with any Person which prohibits or limits the ability of any Subsidiary to (i) pay dividends or make other distributions or pay any Debt owed to the Issuer or any of its Subsidiaries, (ii) make loans or advances to the Issuer or any of its Subsidiaries or (iii) transfer any of its properties or assets to the Issuer or any of its Subsidiaries, except for such agreement or restrictions existing under or by reason of any of the following: (A) The Debentures, any agreement in effect on the Original Issue Date, including the Existing Bank Debt Documents and the documents governing the terms of any Permitted Refinancing thereof; (B) The Newco Debentures; (C) Customary non-assignment provisions of any lease governing a leasehold interest of the Issuer or any of its Subsidiaries; (D) Any agreement or other instrument of a Person acquired by the Issuer or any of its Subsidiaries in existence at the time of such acquisition (but not created in contemplation thereof), which encumbrance or restriction is not applicable to any Person, or properties or assets of any Person, other than the Person, or the Property or assets of the Person, so acquired; and (E) Any limitations under applicable laws as to dividends payable by Insurance Subsidiaries. (k) Minimum Capital and Surplus. It will not permit its U.S. --------------------------- Insurance Subsidiaries' capital and surplus, as defined in the Pennsylvania or Illinois Insurance -24- Code, as applicable, to be less than the greater of (i) the minimum amount required under any applicable insurance law to which it is subject and (ii) $350.0 million in any quarterly period beginning May 1, 2001. (l) Maximum Combined Ratio. The statutory "combined ratio" for ---------------------- the Issuer's U.S. Insurance Subsidiaries, measured with respect to all business written by the Insurance Subsidiaries as the sum for such U.S. Insurance Subsidiaries of (i) the Loss Ratio and (ii) the Expense Ratio, shall not exceed 125%. The Issuer will measure the statutory combined ratio for the previous 12 months as of the end of each fiscal quarter. In the event such statutory combined ratio exceeds 120%, the Issuer and the U.S. Insurance Subsidiaries will establish and implement a plan in order to lower the statutory combined ratio below 115%. (m) Minimum Risk-Based Capital. It will not permit the Risk- -------------------------- Based Capital for any U.S. Insurance Subsidiary to be less than 175% of the Authorized Control Level and for all such U.S. Insurance Subsidiaries (collectively, on a combined basis) to be less than 175% of the Authorized Control Level. The Issuer will measure Risk-Based Capital as of each December 31, commencing December 31, 2001, and will run the "early warning" tests established by the NAIC as of each March 31, June 30, September 30 and December 31, commencing June 30, 2001. If the Issuer and the U.S. Insurance Subsidiaries fail to comply with any such "early warning" tests, the Issuer and the U.S. Insurance Subsidiaries will establish and implement a plan in order to improve such test results. In no event will the Issuer and the U.S. Insurance Subsidiaries fail to comply with more than three such "early warning" tests. (n) Limitation on Asset Sales. It will not, and will not cause ------------------------- or permit any of its Subsidiaries to, consummate an Asset Sale unless (i) the Issuer or the applicable Subsidiary, as the case may be, receives consideration at the time of such Asset Sale at least equal to the Fair Market Value of the assets sold or otherwise disposed of and (ii) the consideration received for the assets sold by the Issuer or such Subsidiary, as the case may be, in such Asset Sale are in the form of cash or Cash Equivalents, in each case received at the time of such Asset Sale. It will not, and will not cause or permit any of its Subsidiaries to, in a single transaction or a series of related transactions, directly or indirectly, sell, lease or otherwise transfer, directly or indirectly, all or substantially all of the assets of the Issuer and its Subsidiaries to any Person other than the Issuer or any of its wholly owned Subsidiaries. (o) Restrictions on Certain Equity Issuances. It will not issue ---------------------------------------- any Capital Stock or any Common Stock Equivalents (other than pursuant to employee stock option plans in effect on the Original Issue Date and other than upon conversion of the Debentures) until at least 30 days following the date on which the Required Approvals -25- have been obtained and the Restructuring has been consummated; provided, however, that the Issuer may comply with its obligations -------- ------- under the RHINOS and the documents executed in connection therewith. (p) Restrictions on Amendments of Existing Debt. It will not, ------------------------------------------- and will not cause or permit any of its Subsidiaries to, amend, supplement or otherwise modify any of the Existing Bank Debt Documents or any of the documents related to the RHINOS (or permit any of the foregoing) without the prior written consent of the Requisite Holders, which consent will not be unreasonably withheld or delayed, other than as may be necessary in order to complete the Restructuring; provided, -------- however, that after the earlier of (i) the addition of Newco as a ------- Guarantor of the Debentures and (ii) the exchange of at least 51% of the Convertible Exchangeable Debentures due 2006 of the Issuer issued on the Original Issue Date for Newco Common Stock or Newco Debentures (or any combination thereof) pursuant to Section 3 hereof, the Existing Bank Debt Documents may be amended solely to add Newco as an additional obligor thereunder. (q) Restrictions on Amendment of Certain CRM Documents. It will -------------------------------------------------- not, and will not cause or permit any of its Subsidiaries to, amend or modify any of the agreements or arrangements between Newco or any of its Subsidiaries and the Issuer or any of its Subsidiaries relating to the retention of a portion of any premium by, or the payment of any fees to, the Issuer or any of its Subsidiaries in connection with the writing of the underlying insurance policies related to the CRM business. (r) Consolidated Debt to Consolidated Total Capital Ratio. It ----------------------------------------------------- will not permit the ratio of Consolidated Debt to Consolidated Total Capital to exceed (i) 0.50 to 1 at any time from the Original Issue Date to March 21, 2002, or (ii) 0.45 to 1 at any time thereafter. (s) Shareholders' Equity. It will maintain a Shareholders' -------------------- Equity which is not at any time less than the sum of (i) $350.0 million (without giving effect to no more than $15.0 million of adjustments required by FASB 115), plus (ii) 50% of cumulative positive consolidated net income (without deduction for any net loss for any period) of the Issuer and its Subsidiaries after March 31, 2001. (t) No Change in Accounting. It will not, and will not cause or ----------------------- permit any of its Subsidiaries to, make any material change in any accounting policy or practice including, without limitation, with respect to accounting for loss reserves and/or reinsurance recoverables other than any such changes that are required by law or any order of any Governmental Entity having jurisdiction over the Issuer or any such Subsidiary. -26- (u) XL Consent Rights. Until the earlier of such time as XL ----------------- owns less than 20% of the principal amount of outstanding Debentures or such time as 80% or more of the principal amount of Debentures originally issued on the Original Issue Date are converted to Common Stock of the Issuer in accordance with Section 5, (x) it will not, and will not cause or permit any of its Subsidiaries to, enter into or consummate any transaction described in the foregoing Sections 7(a), 7(c), 7(h), 7(i), 7(p), 7(q) and 7(t) without the prior written consent of XL and (y) XL shall have the right to approve the Insurance Subsidiary or other entity that writes the principal insurance policies relating to the CRM business in connection with the Issuer's IPC (i.e., rent-a-captive) companies. --- SECTION 8. EVENTS OF DEFAULT. (a) Events of Default. If one or more of the following events (each, ----------------- an "Event of Default") shall have occurred and be continuing: ---------------- (i) there shall be a failure to pay when due (whether at maturity, upon mandatory redemption, acceleration or otherwise) all or any part of the principal of this Debenture; (ii) there shall be a failure to pay when due all or any part of the interest or premium due on this Debenture or any other amount payable by the Issuer or any of its Subsidiaries to the Holder under any Transaction Document, which failure remains unremedied for a period of 10 days after the due date thereof; (iii) the Issuer or any of its Subsidiaries shall fail to observe or perform any covenant or agreement contained in Sections 7(a), 7(b), 7(f), 7(h), 7(j), 7(q), 7(r) or 7(s) of this Debenture; (iv) the Issuer or any of its Subsidiaries shall fail to observe or perform any of its other agreements or covenants hereunder (other than those covered by clauses (i), (ii) and (iii) above) or in any other Transaction Document and such failure continues for 30 days; (v) any representation, warranty, certification or statement made by the Issuer or any of its Subsidiaries in any Transaction Document shall prove to have been untrue, misleading or inaccurate in any material respect when made or deemed made; (vi) (A) the Issuer or any of its Subsidiaries shall default in the payment when due of any principal of or interest on any Debt (including the Existing Bank Debt) with an aggregate principal amount in excess of $5.0 million beyond the grace period, if any, or the holder or holders of any Debt with an aggregate principal amount -27- in excess of $5.0 million shall have accelerated the maturity of such Debt as a result of an event of default thereunder or (B) at any time prior to the expiration of the Put Term, any principal amount of the Existing Bank Debt or the RHINOS shall become due or payable for any reason or the holders of any Existing Bank Debt or RHINOS shall have the right to accelerate the maturity thereof; (vii) the Issuer or any of its Subsidiaries commences a voluntary case or other proceeding seeking 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, custodian or other similar official of it or any substantial part of its property, or consents 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 makes a general assignment for the benefit of creditors, or fails generally, or admits in writing its inability, to pay its debts as they become due or on demand, or takes any corporate action to authorize any of the foregoing; (viii) an involuntary case or other proceeding is commenced against the Issuer or any of its Subsidiaries seeking 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, custodian or other similar official of it or any substantial part of its property and such case or proceeding continues undismissed or undischarged for a period of 30 days, or an order for relief is entered against the Issuer or any of its Subsidiaries under the U.S. Bankruptcy Code or any other bankruptcy or insolvency law; (ix) any material attachment, sequestration or similar proceeding (each, a "Proceeding") shall be filed against any assets or ---------- properties of the Issuer or any of its Subsidiaries, which Proceeding remains undischarged, unbonded by the Issuer or undismissed for a period of 30 days after the commencement thereof; (x) one or more judgments for the payment of money shall be rendered against the Issuer or any of its Subsidiaries for an amount in excess of $5.0 million and such judgment(s) shall continue unsatisfied and in effect for a period of 30 consecutive days without being vacated, discharged, satisfied or stayed or bonded pending appeal; (xi) a Change of Control Event shall occur; or (xii) any insurance license or other authorization or permit necessary for the conduct by any Insurance Subsidiary of its business is revoked or withdrawn or otherwise fails to be in full force and effect, which failure, revocation or withdrawal, in the judgment of the Holder, has a material adverse change in the assets, liabilities, busi- -28- ness, results of operations, condition (financial or otherwise), Permits or prospects of the Issuer and its Subsidiaries taken as a whole. then, and in every such occurrence, unless at such time all obligations under the Transaction Documents have been paid in full in cash, the holders of at least 25% in aggregate principal amount of the outstanding Debentures may, by notice to the Issuer, declare all amounts under the Debentures and all other amounts owing to the holders of Debentures under the Transaction Documents (together with accrued interest thereon) to be, and the Debentures and such other Debt held by the Holder and the other holders of Debentures shall thereon become, immediately due and payable; provided, however, that in the case of any of the Events of Default -------- ------- specified in clause (vii) or (viii) above then, without any notice to the Issuer or any other act by any holder, the entire principal amount of the Debentures and such other Debt and amounts owing to the holders of Debentures, together with accrued interest thereon, shall become immediately due and payable; provided, further, however, that in the case of an Event of Default specified in clause (vi)(B) above, then any Holder may, by notice to the Issuer, declare all amounts under the Debenture held by such Holder to be immediately due and payable. The rights provided for herein are cumulative and are not exclusive of any other rights, powers, privileges or remedies provided by law. (b) Waivers of Defaults. The Requisite Holders, by notice to the ------------------- Issuer, may waive an existing Default and its consequences; provided, -------- however, that a waiver of a Default described under Sections 8(a)(i) or ------- (ii) shall not be effective as to any holder without its consent. When a Default is waived, it is cured and ceases, but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon. SECTION 9. GUARANTEE. (a) The Guarantee. Each of the Guarantors hereby, jointly and ------------- severally, unconditionally guarantees to the Holder and its successors and assigns the prompt payment in full when due (whether at stated maturity, upon mandatory redemption, by acceleration or otherwise) of the principal of and interest on this Debenture and all other amounts from time to time owing to the Holder under any Transaction Document (such obligations being herein collectively called the "Guaranteed Obligations"). Each of the ---------------------- Guarantors hereby further agrees that if the Issuer shall fail to pay in full when due (whether at stated maturity, by acceleration or otherwise) any of the Guaranteed Obligations, the Guarantors will promptly pay the same, without any demand or notice whatsoever, and that in the case of any extension of time of payment or renewal of any of the Guaranteed Obligations, the same will be promptly paid in full when due (whether at extended maturity, by acceleration or otherwise) in accordance with the terms of such extension or renewal. -29- (b) Obligations Unconditional. The Guaranteed Obligations are ------------------------- absolute, irrevocable and unconditional, irrespective of the value, genuineness, validity, regularity or enforceability of the obligations of the Issuer under any Transaction Document, or any substitution, release or exchange of any other guarantee of or security for any of the Guaranteed Obligations, and, to the fullest extent permitted by applicable law, irrespective of any other circumstance whatsoever that might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor, it being the intent of this Section 9(b) that the Guaranteed Obligations shall be absolute, irrevocable and unconditional, joint and several, under any and all circumstances. Without limiting the generality of the foregoing, it is agreed that the occurrence of any one or more of the following shall not alter or impair the liability of the Guarantors hereunder which shall remain absolute, irrevocable and unconditional as described above: (i) at any time or from time to time, without notice to any of the Guarantors, the time for any performance of or compliance with any of the Guaranteed Obligations shall be extended, or such performance or compliance shall be waived; (ii) any of the acts mentioned in any of the provisions of any Transaction Document shall be done or omitted; or (iii) the maturity of any of the Guaranteed Obligations shall be accelerated, or any of the Guaranteed Obligations shall be modified, supplemented or amended in any respect, or any right under any Transaction Document shall be amended, modified or waived in any respect or any other guarantee of any of the Guaranteed Obligations or any security therefor shall be released or exchanged in whole or in part or otherwise dealt with. Each of the Guarantors hereby expressly waives diligence, presentment, demand of payment, protest and all notices whatsoever, and any requirement that the Purchaser or the Holder exhaust any right, power or remedy or proceed against the Issuer under any Transaction Document, or against any other Person under any other guarantee of, or security for, any of the Guaranteed Obligations. Each of the Guarantors waives any and all notice of the creation, renewal, extension or accrual of any of the Guaranteed Obligations and notice of or proof of reliance by the Holder upon this guarantee or acceptance of this guarantee. This guarantee shall be construed as a continuing, absolute, irrevocable and unconditional guarantee of payment without regard to any right of offset with respect to the Guaranteed Obligations at any time or from time to time held by the Holder, and the Guaranteed Obligations shall not be conditioned or contingent upon the pursuit by the Holder or any other Person at any time of any right or remedy against the Issuer or against any other Person which may be or become liable in respect of all or any part of the Guaranteed Obligations or against any collateral security or guarantee therefor or right of offset with respect thereto. This guarantee shall remain in full force and effect and be binding in accordance with and to the extent of its terms upon the -30- issuer and its successors and assigns thereof, and shall inure to the benefit of the Holder, and its successors and assigns. (c) Subrogation; Subordination. Each of the Guarantors hereby agrees -------------------------- that until the payment and satisfaction in full in cash of all Guaranteed Obligations it shall not exercise any right or remedy arising by reason of any performance by it of its guarantee in Section 9(a), whether by subrogation or otherwise, against the Issuer or any other guarantor of any of the Guaranteed Obligations or any security for any of the Guaranteed Obligations. The payment of any amounts due with respect to any indebtedness of the Issuer now or hereafter owing to any of the Guarantors by reason of any payment by such Guarantor under this Section 9 is hereby subordinated to the prior payment in full of the Guaranteed Obligations. Each Guarantor agrees that it will not demand, sue for or otherwise attempt to collect any such indebtedness of the Issuer to such Guarantor until the Guaranteed Obligations shall have been paid in full. If, notwithstanding the foregoing sentence, a Guarantor shall prior to the payment in full of its Guaranteed Obligations collect, enforce or receive any amounts in respect of such indebtedness, such amounts shall be collected, enforced and received by such Guarantor as trustee for the Holder and paid over to the Holder on account of its Guaranteed Obligations without affecting in any manner the liability of such Guarantor under the other provisions of the guaranty contained herein. (d) Limitation on Guarantee. Each Guarantor and by its acceptance ----------------------- hereof the Holder hereby confirms that it is the intention of all such parties that the guarantee by such Guarantor pursuant to its Guarantee not constitute a fraudulent transfer or conveyance for purposes of any state or Federal bankruptcy, insolvency, reorganization or other law affecting the rights of creditors generally, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar Federal or state law. To effectuate the foregoing intention, the Holder and such Guarantor hereby irrevocably agree that the obligations of such Guarantor under the Guarantee shall be limited to the maximum amount as will, after giving effect to all other contingent and fixed liabilities of such Guarantor and after giving effect to any collections from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under its Guarantee or pursuant to subsection (e) below, result in the obligations of such Guarantor under the Guarantee not constituting such fraudulent transfer or conveyance. (e) Contribution. In order to provide for just and equitable ------------ contribution among the Guarantors, the Guarantors agree, inter se, that in ----- -- the event any payment or distribution is made by any Guarantor (a "Funding ------- Guarantor") under the Guarantee, such Funding Guarantor shall be entitled --------- to a contribution from all other Guarantors in a pro rata amount based on --- ---- the Adjusted Net Assets of each Guarantor (including the Funding Guarantor) for all payments, damages and expenses incurred by that Funding Guarantor in discharging the Issuer's obligations with respect to any Debentures or any other Guarantor's obligations with respect -31- to the Guarantee. "Adjusted Net Assets" of such Guarantor at any date shall -------------------- mean the lesser of the amount by which (x) the fair value of the property of such Guarantor exceeds the total amount of liabilities, including, without limitation, contingent liabilities (after giving effect to all other fixed and contingent liabilities incurred or assumed on such date and after giving effect to any collection from any other Subsidiary of the Guarantor in respect of the obligations of its Guarantee), but excluding liabilities under the Guarantee, of such Guarantor at such date and (y) the present fair salable value of the assets of such Guarantor at such date exceeds the amount that will be required to pay the probable liability of such Guarantor on its debts (after giving effect to all other fixed and contingent liabilities incurred or assumed on such date and after giving effect to any collection from any other Subsidiary of the Issuer in respect of the obligations of such Guarantor under its Guarantee), excluding debt in respect of the Guarantee of such Guarantor, as they become absolute and matured. SECTION 10. REGISTRATION; EXCHANGE, SUBSTITUTION OF DEBENTURES. (a) Registration of Debentures. The Issuer shall keep at its -------------------------- principal executive office a register for the registration and registration of transfers of this Debenture (the "Debenture Register"). The name and ------------------ address of each holder of Debentures, each transfer of this Debenture and the related MRM Voting Preferred Stock and the name and address of each transferee of one or more Debentures shall be registered in such register. Prior to due presentment for registration of transfer, the Person in whose name this Debenture shall be registered shall be deemed and treated as the owner and Holder hereof for all purposes hereof, and the Issuer shall not be affected by any notice or knowledge to the contrary. The Issuer shall give to the Holder of at least 5% of the original aggregate principal amount ($112.5 million) of all Debentures promptly upon request therefor, a complete and correct copy of the names and addresses of all registered holders of Debentures. (b) Transfer and Exchange of Debentures. (i) So long as XL owns any ----------------------------------- Debentures, any transfer of this Debenture or portion hereof shall be subject to the prior written approval of XL, such approval not to be unreasonably withheld (it being understood that it is reasonable for XL to withhold its approval of any proposed transfer of this Debenture or portion hereof to a competitor of the Issuer or XL or to any investor whose ownership might, in the judgment of XL, adversely affect the tax status of the Issuer, Newco, XL or any of their respective Subsidiaries or shareholders). In the event the Holder desires to transfer this Debenture or any portion hereof, the Holder shall deliver to XL written notice of such intention (such notice shall identify the amount to be transferred and the identity of the proposed transferee) at XL Insurance Ltd., c/o XL Capital Ltd., XL House, One Bermudiana Road, Hamilton HM 11, Bermuda, telecopy: (441) 292-8618, Attention: Paul Giordano. XL shall notify the Holder in writing by 5:00 p.m. (Bermuda time) on the fifth Business Day following its receipt of written notice from the Holder of its request to transfer this Debenture or portion hereof of -32- its decision whether to approve such transfer and, if its decision is not to approve such transfer, its reasons therefor. The failure by XL to notify the Holder of its decision to approve a proposed transfer within such time period shall be deemed to be an approval by XL of the proposed transfer. Notwithstanding the foregoing, the holders of the RHINOS Debentures will have the right to transfer the RHINOS Debentures, subject to applicable securities laws, to any institutional portfolio or hedge fund investor (other than a direct or indirect competitor of the Issuer or XL or any entity whose ownership might, in the judgment of XL, adversely affect the tax status of the Issuer, Newco, XL or any of their respective Subsidiaries or their shareholders). (ii) This Debenture may not be transferred or exchanged separately from, and may be transferred or exchanged only together with, shares of MRM Voting Preferred Stock representing the same percentage of the total amount of outstanding shares of MRM Voting Preferred Stock that the principal amount of Convertible Exchangeable Debentures due 2006 of the Issuer proposed to be transferred or assigned represents of the total principal amount of outstanding Convertible Exchangeable Debentures due 2006. (iii) Upon surrender of this Debenture and the related MRM Voting Preferred Stock at the principal executive office of the Issuer for registration of transfer or exchange (and in the case of a surrender for registration of transfer, duly endorsed or accompanied by a written instrument of transfer duly executed by the registered Holder or his attorney duly authorized in writing and accompanied by the address for notices of each transferee of this Debenture or part thereof), the Issuer shall execute and deliver, at the Issuer's expense (except as provided below), one or more new Debentures (as requested by the Holder) in exchange therefor, in an aggregate principal amount equal to the unpaid principal amount of the surrendered Debenture and a new certificate representing the related MRM Voting Preferred Stock with voting rights equal to the aggregate voting rights of the Common Stock issuable upon conversion or exchange of such new Debenture. Each such new Debenture shall be payable to such Person as such Holder may request and shall be substantially in the form of this Debenture. Each such new Debenture shall be dated and bear interest from the date on which interest shall have been paid on the surrendered Debenture or dated the date of the surrendered Debenture if no interest shall have been paid hereon. The Issuer may require payment of a sum sufficient to cover any stamp tax or governmental charge imposed in respect of any such transfer of Debentures. This Debenture shall not be transferred in denominations of less than $100.00; provided, however, that -------- ------- if necessary to enable the registration of transfer by the Holder of the entire amount of this Debenture, one Debenture may be in a denomination of less than $100.00. Any transferee, by its acceptance of a Debenture registered in its name (or the name of its nominee), shall be deemed to have made the representation set forth in Sections 4.2 and 4.3 of the Securities Purchase Agreement. -33- (c) Replacement of this Debenture. Upon receipt by the Issuer of evidence ----------------------------- reasonably satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of this Debenture, and (i) in the case of loss, theft or destruction, of indemnity reasonably satisfactory to it, or (ii) in the case of mutilation, upon surrender and cancellation thereof, the Issuer at its own expense shall execute and deliver, in lieu thereof, a new Debenture, dated and bearing interest from the date to which interest shall have been paid on this Debenture or dated the date of this Debenture if no interest shall have been paid thereon. SECTION 11. DEFINITIONS; CONSTRUCTION. (a) Definitions. The following terms, as used herein, have the following ----------- meanings: "Adjusted Net Assets" has the meaning set forth in Section 9(e). ------------------- "Affiliate" means, with respect to any Person (the "Subject Person"), (i) --------- -------------- any other Person (a "Controlling Person") that directly, or indirectly through one or more intermediaries, Controls the Subject Person or (ii) any other Person which is Controlled by or is under common Control with a Controlling Person; provided, however, that the Holder and its Affiliates shall not be deemed - -------- ------- Affiliates of the Issuer or any of its Subsidiaries. "Asset Sale" means any direct or indirect sale, issuance, conveyance, ---------- lease, assignment, transfer or other disposition for value by the Issuer or any of its Subsidiaries to any Person other than the Issuer or any of its wholly owned Subsidiaries (any such transaction, a "disposition") of any asset of the ----------- Issuer or any of its Subsidiaries, excluding (i) any disposition in the ordinary course of business, (ii) any disposition of Cash Equivalents in the ordinary course of business, (iii) any disposition of Investment Securities in the ordinary course of business the proceeds of which are used to purchase other Investment Securities or invested in Cash Equivalents pending such purchase and (iv) any disposition of assets (or series of related dispositions) the Fair Market Value of which does not exceed $1.0 million in the aggregate. "Authorized Control Level" means "Authorized Control Level" as defined by ------------------------ the NAIC from time to time and as applied in the context of the Risk-Based Capital Guidelines promulgated by the NAIC (or any term substituted therefor by the NAIC). In the event that there is a conflict between the risk-based capital formulas adopted by the NAIC and any applicable department of insurance, the calculation of the applicable department of insurance shall govern. -34- "Business Day" means any day except a Saturday, Sunday or other day on ------------ which (i) commercial banks in The City of New York are authorized or required by law to close or (ii) the New York Stock Exchange is not open for trading. "Capital Stock" means, with respect to any Person, any and all shares, ------------- partnership interests or equivalents (however designated and whether voting or non-voting) of such Person's capital stock, whether outstanding on the date hereof or hereafter issued. "Cash Equivalents" means (i) marketable direct obligations issued or ---------------- unconditionally guaranteed by the United States government or issued by any agency thereof and backed by the full faith and credit of the United States of America, in each case maturing within one year from the date of acquisition thereof; (ii) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof maturing within one year from the date of acquisition thereof and, at the time of acquisition, having the highest rating obtainable from either S&P or Moody's; (iii) commercial paper maturing no more than one year from the date of creation thereof and, at the time of acquisition, having the highest rating obtainable from either S&P or Moody's; (iv) certificates of deposit or bankers' acceptances maturing within one year from the date of acquisition thereof issued by any commercial bank organized under the laws of the United States of America or any state thereof or the District of Columbia that (A) is at least "adequately capitalized" (as defined in the regulations of its primary Federal banking regulator) and (B) has Tier I capital (as defined in such regulations) of not less than $250.0 million; (v) certificates of deposit or banker's acceptances maturing within one year from the date of acquisition thereof issued by the Bank of Bermuda or The Bank of N.T. Butterfield & Son Limited; (vi) shares of any money market mutual fund that (a) has its assets invested continuously in the types of investments referred to in clauses (i) and (ii) above, (b) has net assets of not less than $500.0 million, and (c) has the highest rating obtainable from either S&P or Moody's; and (vii) repurchase agreements with respect to, and which are fully secured by a perfected security interest in, obligations of a type described in clause (i) or clause (ii) above and are with any commercial bank described in clause (iv) above. "Change of Control Event" shall mean any of the following: (i) the ----------------------- Issuer shall cease to own, directly or indirectly, 100% on a Fully Diluted Basis of the economic and voting interest in the Capital Stock of the Insurance Subsidiaries (other than (w) Tremont International Insurance LTD., (x) as a result of the conversion of any Debentures, (y) the exercise of any Newco Common Stock Exchange Right or (z) the Policy Holder Preferred Shares) or (ii) any Person or "group" (within the meaning of Rules 13d-3 and 13d-5 under the Exchange Act) shall have (x) acquired beneficial ownership of 33% or more on a Fully Diluted Basis of the voting and/or economic interest in the Issuer's Capital Stock, other than any such acquisition resulting solely from the conversion of Debentures (for purposes of this calculation, only the denominator shall be calculated on a Fully Diluted Basis) or (y) obtained the power (whether -35- or not exercised) to elect a majority of the Issuer's directors or (iii) the board of directors of the Issuer shall cease to consist of a majority of Continuing Directors or (iv) any event or condition which constitutes a change of control under the Existing Bank Agreement or the documents governing the RHINOS. "Common Stock" means the common stock or common shares of the ------------ referenced Person. "Common Stock Equivalents" has the meaning set forth in Section 5(e). ------------------------ "Consolidated Debt" means, with respect to the Issuer and its ----------------- Subsidiaries at any date, the Debt of the Issuer and its Subsidiaries, determined on a consolidated basis as of such date including, without limitation, all Debt evidenced by the Debentures. "Consolidated Total Capital" means, with respect to the Issuer and its -------------------------- Subsidiaries at any date, the sum, without duplication, of Consolidated Debt and Shareholders' Equity. "Constituent person" has the meaning set forth in Section 5(k). ------------------ "Continuing Directors" shall mean the directors of the Issuer on the -------------------- Closing Date and each other director whose nomination for the election to the board of directors of the Issuer is recommended by a majority of the then Continuing Directors. "Control" (including, with correlative meanings, the terms ------- "Controlling," "Controlled by" and "under common Control with"), as used with ----------- ------------- ------------------------- respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of that Person, whether through the ownership of voting securities or interests, by contract or otherwise. "Conversion Date" has the meaning set forth in Section 5(b). --------------- "Conversion Price" has the meaning set forth in Section 5(a). ---------------- "CRM" has the meaning set forth in the definition of "Restructuring." --- "Debenture" means this Convertible Exchangeable Debenture due 2006 and --------- "Debentures" means, collectively, this Debenture and any other Convertible ---------- Exchangeable Debentures due 2006 of the Issuer and Convertible Debentures due 2006 of Newco. "Debenture Exchange Date" has the meaning set forth in Section 4(a). ----------------------- "Debenture Exchange Right" has the meaning set forth in Section 4(a). ------------------------ -36- "Debenture Register" has the meaning set forth in Section 10(a). ------------------ "Debt" of any Person means at any date, without duplication, (i) all ---- obligations of such Person for borrowed money (other than (except for purposes of Section 8(a)(vi)) regularly scheduled interest payments, including interest payable in the form of additional Debt obligations), (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments issued by such Person, (iii) all obligations of such Person to pay the deferred purchase price of property or services, except trade accounts payable arising in the ordinary course of business, (iv) all obligations of such Person under any Financing Lease, (v) all reimbursement obligations of such Person in respect of letters of credit or other similar instruments, (vi) Disqualified Capital Stock of such Person (other than Policy Holder Preferred Shares), (vii) Preferred Stock of any Subsidiary of such Person (other than Policy Holder Preferred Shares), (viii) all Debt of others secured by a Lien on any asset of such Person, whether or not such Debt is otherwise an obligation of such Person, and (ix) all Debt of others Guaranteed by such Person; provided, however, that Debt -------- ------- shall not include the accretion of principal amount on zero coupon discount obligations. "Default" means any event or condition which constitutes an Event of ------- Default or which with the giving of notice or lapse of time or both would, unless cured within the stated time period or waived, become an Event of Default. "Disqualified Capital Stock" means that portion of any Capital Stock -------------------------- which, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable at the option of the holder thereof), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the sole option of the holder thereof, or requires the payment of any dividends, in each case at any time that any obligation under the Transaction Documents is outstanding. "ERISA" means the Employee Retirement Income Security Act of 1974, as ----- amended. "ERISA Group" means the Issuer and its Subsidiaries 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 Issuer or any of its Subsidiaries, are treated as a single employer under Section 414 of the Internal Revenue Code. "Event of Default" has the meaning set forth in Section 8(a). ---------------- "Exchange Act" means the Securities Exchange Act of 1934, as amended. ------------ "Existing Bank Agreement" means the Credit Agreement dated as of ----------------------- September 21, 2000 among the Issuer, Mutual Group, Ltd., Bank of America, N.A., as Administrative -37- Agent, and the Lenders party thereto, as in effect on the Original Issue Date or as amended, modified or refinanced in accordance with Sections 7(e) and 7(p) hereof. "Existing Bank Debt" means the Debt in an aggregate principal amount ------------------ of no more than $180.0 million of the Issuer outstanding under the Existing Bank Agreement. "Existing Bank Debt Documents" means the Existing Bank Agreement and ---------------------------- all other documentation related to the Existing Bank Debt as in effect on the Original Issue Date or as amended, modified or re-executed in accordance with Sections 7(e) and 7(p) hereof. "Expense Ratio" means a ratio equal to (i) Other Underwriting Expenses ------------- Incurred divided by (ii) Net Premiums Written (as set forth in the Issuer's combined annual statements of the U.S. Insurance Subsidiaries). "Fair Market Value" means, with respect to any Asset Sale, the price ----------------- (after taking into account any liabilities relating to such asset) which could be negotiated in an arm's-length free market transaction, for cash, between a willing seller and a willing and able buyer, neither of which is under any compulsion to complete the transaction. "FAS 115" means Statement No. 115 ("Accounting for Certain Investments ------- in Indebtedness and Equity Securities") issued by the Financial Accounting Standards Board. "Financing Lease" means any lease of property, real or personal, the --------------- obligations of the lessee in respect of which are required in accordance with GAAP to be capitalized on a balance sheet of the lessee. "Fully Diluted Basis" means after giving effect to the exercise of all ------------------- outstanding options, warrants and other rights to purchase Capital Stock of the relevant Person and the conversion or exchange of all securities convertible or exchangeable into Capital Stock of the relevant Person (whether or not then exercisable, exchangeable or convertible and whether or not "in the money"). "Funding Guarantor" has the meaning set forth in Section 9(e). ----------------- "GAAP" has the meaning set forth in Section 11(b). ---- "Governmental Entity" means any court, arbitral tribunal, ------------------- administrative agency or commission or other governmental or other regulatory authority or agency, including any insurance regulatory authority or agency or Insurance Department. "Guarantee" by any Person means any obligation, contingent or --------- otherwise, of such Person directly or indirectly guaranteeing (whether by virtue of partnership arrangements, by agreement to keepwell, to purchase assets, goods, securities or services, to take-or-pay, or to -38- maintain a minimum net worth, financial ratio or similar requirements, or otherwise) any Debt 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 (ii) entered into for the purpose of assuring in any other manner the holder of such Debt of the payment thereof or to protect such holder against loss in respect thereof (in whole or in part). The term "Guarantee" used as a verb has a corresponding meaning. --------- "Guaranteed Obligations" has the meaning set forth in Section 9.1(a). ---------------------- "Guarantors" means each of the Subsidiaries of the Issuer named on the ---------- signature pages to this Debenture and each additional entity required to become a Guarantor pursuant to Section 6(h) hereof. "Holder" has the meaning set forth in the introductory paragraphs hereto. ------ "Independent Financial Advisor" has the meaning set forth in Section 5(e). ----------------------------- "Insurance Acts" means all applicable insurance laws and the applicable -------------- rules and regulations thereunder. "Insurance Department" means the Bermuda Registrar of Companies and the -------------------- Departments of Insurance of the States of Pennsylvania and Illinois. "Insurance Subsidiaries" means (i) Legion Insurance Company, Legion ---------------------- Indemnity Ltd. and Villanova Insurance Company and (ii) each other Subsidiary of the Issuer that is a licensed insurance company. "Interest Payment Date" has the meaning set forth in Section 1. --------------------- "Internal Revenue Code" means the Internal Revenue Code of 1986, as --------------------- amended. "Investment" means any investment in any Person, whether by means of share ---------- purchase, capital contribution, loan, advance, time deposit or otherwise. "Investment Securities" means "securities" classified as "trading --------------------- securities" or "available-for-sale securities" for purposes of FAS 115, in each case within the meaning of FAS 115. "IPC" means Insurance Profit Center. --- "Issuer" has the meaning set forth in the introductory paragraphs hereto. ------ -39- "Lien" means any lien, mechanic's lien, materialmen's lien, lease, ---- easement, charge, encumbrance, mortgage, conditional sale agreement, title retention agreement, voting trust agreement, assignment by way of security, restriction on voting or transfer, agreement to sell or convey, option, claim, title imperfection, encroachment or other survey defect, pledge, restriction, security interest or adverse claim of any kind, whether arising by contract or under law or otherwise (including any Financing Lease having substantially the same economic effect as any of the foregoing, and the filing of any financing statement under the UCC or comparable law of any jurisdiction in respect of any of the foregoing). "Loss Ratio" means a ratio equal to (i) Losses Incurred plus Loss ---------- Expenses Incurred (inclusive of allocated and unallocated loss adjustments) divided by (ii) Net Premiums Earned (as set forth in the Issuer's combined annual statements of the U.S. Insurance Subsidiaries). "Maturity Date" has the meaning set forth in the introductory ------------- paragraphs hereto. "Maximum Conversion Right Percentage" means a percentage of the total ----------------------------------- equity ownership of the Issuer, calculated in accordance with the rules and regulations of the New York Stock Exchange, equal to the product of (i) 19.9% and (ii) a fraction, the numerator of which is the number of shares of Common Stock of the Issuer issuable upon conversion of this Debenture subject to the conversion right giving rise to the need to calculate such Maximum Conversion Right Percentage and the denominator of which is the sum of (x) the aggregate number of shares of Common Stock of the Issuer issued or issuable upon conversion of the Convertible Exchangeable Debentures due 2006 of the Issuer and (y) the number of shares of Common Stock of the Issuer issued or issuable upon exercise of the Warrants. "Maximum Voting Rights Percentage" means a percentage of the total -------------------------------- voting power of the Issuer equal to (A) the product of (i) 9.9% and (ii) a fraction, the numerator of which is the number of shares of Common Stock of the Issuer issuable upon conversion of this Debenture subject to the conversion right giving rise to the need to calculate such Maximum Voting Right Percentage and the denominator of which is the sum of (w) the aggregate number of issued and outstanding shares of MRM Voting Preferred Stock held by the Holder of this Debenture, (x) the number of shares of Common Stock of the Issuer issued to the Holder of this Debenture as a result of conversion of the Convertible Exchangeable Debentures due 2006 of the Issuer, (y) in case this Debenture is held by a holder who holds Warrants, the number of shares of Common Stock of the Issuer issued or issuable upon exercise of the Warrants held by such holder minus (B) the percentage of the total voting power of the Issuer represented by - ----- securities of the Issuer (other than the Transaction Securities) then held by the Holder. "Moody's" means Moody's Investors Service, Inc. or its successor. ------- "MRM Voting Preferred Stock" means shares of preferred stock of the -------------------------- Issuer having a nominal liquidation preference and par value, no dividend rights and aggregate voting rights -40- equal to the aggregate voting rights of the Common Stock of the Issuer issuable upon conversion of all Debentures issued on the Original Issue Date. "Multiemployer Plan" means at any time a multiemployer 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. "NAIC" means the National Association of Insurance Commissioners. ---- "Newco" has the meaning set forth in the definition of ----- "Restructuring". "Newco Aggregate Ownership Percentage" means 35.9% of the equity ------------------------------------ ownership of Newco, on a Fully Diluted Basis; provided, however, that if the -------- ------- RHINOS Debentures are issued, "Newco Aggregate Ownership Percentage" shall mean 42.4% of the equity ownership of Newco, on a Fully Diluted Basis. "Newco Common Stock Exchange Date" has the meaning set forth in -------------------------------- Section 4(b). "Newco Common Stock Exchange Right" has the meaning set forth in --------------------------------- Section 4(b). "Newco Debenture" has the meaning set forth in Section 4(a). --------------- "Newco Exchange Right Termination Date" means the date on which the ------------------------------------- closing sale price of the Issuer's Common Stock exceeds two times the then applicable Conversion Price on each trading day during any period of consecutive trading days beginning no earlier than 90 days after the Required Approvals are obtained and the Restructuring is completed and consisting of 120 trading days plus, if the holders of Debentures exercise a demand registration right pursuant - ---- to Section 2.1 of the Registration Rights Agreement entered into in connection with the issuance of the Debentures during such 120 trading day period, the number of trading days from such exercise until 15 days after the effective date of the registration statement filed in connection with such demand registration. "Newco Ownership Percentage" means a percentage ownership of the -------------------------- equity of Newco, on a Fully Diluted Basis, equal to the product of (i) the Newco Aggregate Ownership Percentage and (ii) a fraction, the numerator of which is the aggregate principal amount of this Debenture subject to the Newco Common Stock Exchange Right giving rise to the need to calculate such Newco Ownership Percentage and the denominator of which is the aggregate principal amount of all Debentures originally issued, including the RHINOS Debentures, if any. -41- "Newco Voting Preferred Stock" means shares of preferred stock of ---------------------------- Newco having a nominal liquidation preference and par value, no dividend rights and aggregate voting rights equal to the aggregate voting rights of the Common Stock of Newco issuable upon conversion of all Debentures issued on the Original Issue Date. "non-electing share" has the meaning set forth in Section 5(k). ------------------ "Obligors" means, collectively, the Issuer and the Guarantors; and -------- "Obligor" means any of them. ------- "Original Issue Date" has the meaning set forth in Section 1. ------------------- "Other Investor Warrants" means the warrants to purchase Common Stock ----------------------- of the Issuer issued to First Union Merchant Banking 2001, LLC, High Ridge Capital Partners II, L.P., Century Capital Partners II and Taracay Investors Company. "Permits" means all domestic and foreign licenses, permits, consents, ------- franchises, orders, authorizations, clearances, certificates, and approvals from Governmental Entities. "Permitted Refinancings" means any incurrence by the Issuer of Debt ---------------------- that refunds, refinances, replaces or extends the Existing Bank Debt of the Company or of a wholly owned Subsidiary of the Company, but only to the extent that (i) such Debt is subject to the Subordination Agreement (if then in effect) to at least the same extent as the Debt being refunded, refinanced, replaced or extended; (ii) such Debt is scheduled to mature either (a) no earlier than the Debt being refunded, refinanced or extended or (b) after the Maturity Date; (iii) such Debt is in an aggregate principal amount that is equal to or less than the sum of (a) the aggregate principal amount then outstanding under the Debt being refunded, refinanced or extended, (b) the amount of accrued and unpaid interest, if any, and premiums owed, if any, not in excess of preexisting prepayment provisions on such Debt being refunded, refinanced or extended, and (c) the amount of customary fees, expenses and costs related to the incurrence of such Debt; (iv) such Debt does not have a Weighted Average Life to Maturity that is less than the Weighted Average Life to Maturity of the Debt being refinanced; (v) such Debt contains covenants no more onerous that the Debt being refunded, refinanced, replaced or extended; and (vi) such Debt is incurred either by the same Person that initially incurred the Debt being refunded, refinanced, replaced or extended or by the Issuer. "Person" means an individual or a corporation, company, partnership, ------ trust, incorporated or unincorporated association, joint venture, joint stock company, limited liability company, government (or any agency or political subdivision thereof) or other entity of any kind. "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 stan- -42- dards 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 the time a member of such ERISA Group for employees of any Person which was at the time a member of the ERISA Group. "Policy Holder Preferred Shares" means shares of Preferred Stock of an ------------------------------ IPC (i.e., rent-a-captive) Subsidiary of the Issuer (or of a holding company --- thereof) issued to policy holders solely in connection with the CRM business consistent with past practices. "Preferred Stock" means, with respect to any Person, any Capital Stock --------------- of such Person that has preferential rights over any other Capital Stock of such Person with respect to dividends, distributions or upon liquidation. "Proceeding" has the meaning set forth in Section 8(a). ---------- "Program Business" means the business of the Issuer in which it acts ---------------- as a conduit between producers of specialty books of business and reinsurers of such business. "Put Term" means the period beginning on September 17, 2001 and ending -------- on the earlier of (i) November 17, 2001 and (ii) the date on which all of the Required Approvals have been obtained and the Restructuring has been completed; provided, however, that if any holder of Debentures has exercised its right to - -------- ------- have any Debentures mandatorily redeemed pursuant to Section 3(b), the Put Term shall mean such longer period until all such Debentures are indefeasibly paid in full in cash. "Redemption Price" has the meaning set forth in Section 3(b). ---------------- "Redemption Right" has the meaning set forth in Section 3(b). ---------------- "Related Person" means any director, officer or employee of the Issuer -------------- or any of its Subsidiaries who is also an equity or debt holder of the Issuer or any of its Subsidiaries. "Required Approvals" means all federal, state and local government ------------------ regulatory (including any Form A approvals and all other approvals relating to insurance) and shareholders approvals necessary for consummation of the Transactions, including all approvals necessary in order to remove any restrictions or limitations on voting rights or conversion contained in any of the Transaction Documents. "Requisite Holders" means the holders of a majority in principal amount of all outstanding Debentures; provided, however, that at any time when -------- ------- XL holds or has the right to vote a majority in principal amount of outstanding Debentures (other than RHINOS Deben- -43- tures), "Requisite Holders" shall mean a majority in principal amount of outstanding Debentures (other than RHINOS Debentures); provided, further, -------- ------- however, that as long as XL owns at least $50.0 million in principal amount of - ------- Debentures, XL will be deemed to hold a majority of the principal amount of outstanding Debentures. "Restricted Payment" means, with respect to any Person, (i) any ------------------ dividend or other distribution on or in respect of any shares of Capital Stock of such Person (except dividends payable solely in shares of Capital Stock of the same class of such Person and except dividends or other distributions by a Subsidiary of the Issuer to the Issuer) or (ii) any direct or indirect payment on account of the purchase, redemption, retirement or acquisition of (a) any shares of such Person's Capital Stock or (b) any option, warrant or other right to acquire shares of such Person's Capital Stock. "Restructuring" means the restructuring of the operating units of the ------------- Issuer into two separate holding company structures, resulting in (i) one holding company owning the Issuer's U.S. insurance operations and managing general agency entities and operating through subsidiaries as a specialty insurer writing a selected book of Program Business and (ii) the second holding company, a newly formed company organized under the laws of Bermuda ("Newco"), ----- owning (A) all of the Issuer's fee generating businesses that presently comprise its Corporate Risk Management ("CRM"), Specialty Brokerage and Financial --- Services business segments and all of the Issuer's non-U.S. insurance operations and (B) the Issuer's IPC (i.e., rent-a-captive) companies, other than Mutual Indemnity (Dublin) Limited (which will be confined solely to its present business), that are principally dedicated to its CRM business segment. As part of the Restructuring, (x) Newco will be entitled to receive all of the fees attributable to the CRM business except that MRM's U.S. Insurance Subsidiaries that write the related policies (which will only be Villanova Insurance Company ("Villanova") where Villanova is legally entitled to write such policies and the --------- prospective holder of the underlying policy does not object to the use of Villanova, or a new company in the case of new or renewal policies) may retain a portion of the premium equal to actual costs, but not more than 1 1/4% and (y) Newco will be given an option to purchase Villanova or such new company for book value. The Restructuring shall be effected in a manner reasonably acceptable to XL, including with respect to capitalization. "RHINOS" means the Auction Rate Reset Preferred Securities, known as ------ "RHINOS," issued by an Affiliate of the Issuer, including the related documentation. "RHINOS Debentures" means Debentures issued to any current or former ----------------- holders of RHINOS or any of their respective Affiliates in exchange for an equal principal amount of RHINOS and any Debentures issued in exchange for any such Debentures. -44- "Risk-Based Capital" means, for any Person, the ratio (expressed as a ------------------ percentage), at any time, of the Total Adjusted Capital of such Person to the Authorized Control Level of such Person. "S&P" means Standard & Poor's Ratings Group or its successor. --- "Securities Act" means the Securities Act of 1933, as amended. -------------- "Securities Purchase Agreement" has the meaning set forth in the ----------------------------- introductory paragraphs hereto. -45- "Shareholders' Equity" means, with respect to the Issuer and its -------------------- Subsidiaries at any date, the shareholders' equity of the Issuer and its Subsidiaries determined on a consolidated basis in accordance with GAAP; provided, however, that, for purposes hereof, Shareholders Equity shall be - -------- ------- determined without regard to the requirements of FAS 115; and provided, further, -------- ------- that the principal or face amount of the RHINOS shall not be considered to be Shareholders Equity. "Significant Subsidiaries" has the meaning set forth in Section 1-02(w) ------------------------ of Regulation S-X under the Securities Act. "Statutory Accounting Principles" means generally accepted statutory ------------------------------- accounting principles for property and casualty insurance companies domiciled in Pennsylvania or Illinois, as applicable. "Subsidiary" means, with respect to any Person, (i) any corporation or ---------- other entity of which more than 50% of the Capital Stock or other ownership interests having ordinary voting power to elect more than 50% of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by such Person and (ii) any partnership, association, joint venture or other entity in which such Person, directly or indirectly through Subsidiaries, has a greater than 50% equity interest; provided, however, that -------- ------- for all purposes of this Debenture, MRM Capital Trust I shall not constitute a Subsidiary of the Issuer. "Total Adjusted Capital" means "Total Adjusted Capital" as defined by ---------------------- the NAIC as of December 31, 1998 and as applied in the context of the Risk-Based Capital Guidelines promulgated by the NAIC. In the event that there is a conflict between the risk-based capital formulas adopted by the NAIC and any applicable department of insurance, the calculation of the applicable department of insurance shall govern. "Transaction Documents" means (i) the Debentures, (ii) the Securities --------------------- Purchase Agreement, (iii) the Collateral Agreement, (iv) the registration rights agreements relating to the Debentures and the Warrants, (v) the Subordination Agreement, (vi) the certificates of designations relating to the MRM Voting Preferred Stock and the Newco Voting Preferred Stock, (vii) the MRM Voting Preferred Stock and the Newco Voting Preferred Stock, (viii) the Warrants and (ix) each other document executed in connection with or pursuant to the Securities Purchase Agreement, including the lock-up agreements and the directors' and officers' voting proxies. "Transaction Securities" means, collectively, the Debentures, the MRM ---------------------- Voting Preferred Stock, the Newco Voting Preferred Stock, the Warrants and the Common Stock of the Issuer or Newco issuable upon conversion or exchange of Debentures or upon exercise of the Warrants. -46- "Transactions" means the issuance, sale and conversion of the ------------ Debentures, the MRM Voting Preferred Stock, the Newco Voting Preferred Stock and each of the other transactions contemplated by the Transaction Documents, including the Restructuring, both before and after giving effect to permitted exchanges and/or conversions of the Debentures. "U.S. Insurance Subsidiaries" means Legion Insurance Company, Legion --------------------------- Indemnity Ltd. and Villanova Insurance Company. "Warrants" means collectively the XL Warrant and the Other Investor -------- Warrants. "Weighted Average Life to Maturity" means, when applied to any Debt at --------------------------------- any date, the number of years obtained by dividing (a) the then outstanding aggregate principal amount of such Debt into (b) the sum of the total of the products obtained by multiplying (i) the amount of each then remaining installment, sinking fund, serial maturity or other required payment of principal, including payment at final maturity, in respect thereof, by (ii) the number of years (calculated to the nearest one-twelfth) which will elapse between such date and the making of such payment. "XL" means XL Insurance Ltd. -- "XL Warrant" means the warrant to purchase Common Stock of the Issuer ---------- issued to XL in connection with its purchase of Debentures. (b) Accounting Terms and Determinations. Unless otherwise specified ----------------------------------- herein, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared, in accordance with generally accepted accounting principles as in effect in the United States on the date hereof applied on a consistent basis ("GAAP"). ---- (c) Rules of Construction. The definitions in Section 11(a) shall --------------------- apply equally to both the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include," "includes" and ------- -------- "including" shall be deemed to be followed by the phrase "without limitation." --------- (d) References. Unless the context shall otherwise require, all ---------- references herein to (i) Sections, Exhibits, Schedules and Annexes shall be deemed references to Sections of, and Exhibits, Schedules and Annexes to, this Debenture, (ii) Persons include their respective permitted successors and assigns or, in the case of governmental Persons, Persons succeeding to the relevant functions of such Persons, (iii) agreements and other contractual instruments include subsequent amendments, assignments, and other modifications thereto to the date hereof and thereafter, but in the case of any amendment, assignment or modification after the date -47- hereof, only to the extent such amendments, assignments or other modifications thereto are not prohibited by their terms or the terms of any Transaction Document, (iv) statutes and related regulations include any amendments of same and any successor statutes and regulations, (v) time shall be deemed to be to New York City time and (vi) "ordinary course of business" (and similar phrases) shall mean the ordinary course of business of the Issuer and its Subsidiaries consistent with past practice. SECTION 12. MISCELLANEOUS. (a) This Debenture and all of the provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, and shall be binding upon any entity succeeding to the Issuer by merger or acquisition of all or substantially all the assets of the Issuer. The Issuer may not assign this Debenture or any rights or obligations hereunder except as specifically provided herein. The Holder may transfer or assign this Debenture at any time without the prior consent of the Issuer, subject to the provisions and restrictions on transfer set forth herein. (b) All notices, demands and requests of any kind to be delivered to any party in connection with this Debenture shall be in writing and shall be deemed to have been duly given if personally or hand delivered or if sent by an internationally-recognized overnight delivery courier or by registered or certified mail, return receipt requested and postage prepaid, or by facsimile transmission addressed as follows: (i) if to the Issuer, to: Mutual Risk Management Ltd. 44 Church Street Hamilton HM12 Bermuda Attention: Chief Executive Officer Facsimile: (441) 292-1867 with a copy to: Mayer, Brown & Platt 190 South LaSalle Street Chicago, Illinois 60603-3441 Attention: Richard W. Shepro Facsimile: (312) 701-7711 (ii) if to the Holder, the Holder's address as set forth in the books and records of the Issuer, or to such other address as the party to whom notice is to be given may have fur- -48- nished to the other party hereto in writing in accordance with provisions of this Section 12. Any such notice or communication shall be deemed to have been effectively given (i) in the case of personal or hand delivery, on the date of such delivery, (ii) in the case of an internationally-recognized overnight delivery courier, on the second Business Day after the date when sent, (iii) in the case of mailing, on the fifth Business Day following that day on which the piece of mail containing such communication is posted and (iv) in the case of facsimile transmission, the date of telephone confirmation of receipt. (c) This Debenture may not be modified or amended, or any of the provisions hereof waived, except by written agreement of the Issuer and the Requisite Holders dated after the date hereof; provided, however, that the -------- ------- provisions of Section 1, 2, 3(a), 3(b), 4, 5, 8(a)(i), 8(a)(ii), this Section 12(c), Sections 12(d) and (f) and Section 11 with respect to the definitions of terms used in connection with the foregoing Sections may not be amended without the consent of each Holder of a Debenture affected thereby; and provided, -------- further, however, that any modification or amendment which adversely affects the - ------- ------- rights of any Holder shall require the consent of such Holder unless the modification or amendment adversely affects the rights of all Holders in the same manner. (d) THIS DEBENTURE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK. ANY DISPUTE UNDER THIS DEBENTURE THAT IS NOT SETTLED BY MUTUAL CONSENT SHALL BE FINALLY ADJUDICATED BY ANY FEDERAL OR STATE COURT SITTING IN THE CITY, COUNTY AND STATE OF NEW YORK, AND THE ISSUER CONSENTS TO THE EXCLUSIVE JURISDICTION OF SUCH COURTS (OR ANY APPELLATE COURT THEREFROM) OVER ANY SUCH DISPUTE. THE ISSUER AND EACH GUARANTOR HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE FEDERAL AND NEW YORK STATE COURTS LOCATED IN NEW YORK COUNTY IN CONNECTION WITH ANY SUIT, ACTION OR PROCEEDING RELATED TO THIS DEBENTURE OR ANY OF THE MATTERS CONTEMPLATED HEREBY, IRREVOCABLY WAIVES ANY DEFENSE OF LACK OF PERSONAL JURISDICTION AND IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT. THE ISSUER AND EACH GUARANTOR IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. -49- (e) By the execution and delivery of this Debenture, the Issuer and each Guarantor (i) acknowledges that it will, by separate written instrument, designate and appoint The CT Corporation System, Inc., 111 Eighth Avenue, New York, New York 10011 (and any successor entity) as its authorized agent upon which process may be served in any suit or proceeding arising out of or relating to any of the Transaction Documents that may be instituted in any Federal or state court in the State of New York, New York County or brought under Federal or state securities laws, and acknowledges that The CT Corporation System, Inc. will accept such designation, (ii) waives trial by jury, (iii) agrees that service of process upon The CT Corporation System, Inc. and written notice of said service to the Issuer in accordance with Section 12(b) shall be deemed in every respect effective service of process upon the Issuer or such Guarantor, as the case may be, in any such suit or proceeding and (iv) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law. (f) All payments made or required to be made hereunder shall be made in U.S. dollars. The Issuer and each Guarantor, jointly and severally, agrees to indemnify the Holder against any loss incurred by such party as a result of any judgment or order being given or made against the Issuer or Guarantor, as the case may be, for any U.S. dollar amount due under this Debenture and such judgment or order being expressed and paid in a currency (the "Judgment -------- Currency") other than United States dollars and as a result of any variation as - -------- between (i) the rate of exchange at which the United States dollar amount is converted into the Judgment Currency for the purpose of such judgment or order and (ii) the spot rate of exchange in The City of New York at which such party on the date of payment of such judgment or order is able to purchase United States dollars with the amount of the Judgment Currency actually received by such party if such party had utilized such amount of Judgment Currency to purchase United States dollars as promptly as practicable upon such party's receipt thereof. The foregoing indemnity shall continue in full force and effect notwithstanding any such judgment or order as aforesaid. The term "spot rate of ------------ exchange" shall include any premiums and costs of exchange payable in connection - -------- with the purchase of, or conversion into, United States dollars. All amounts paid to the Holder hereunder shall be paid free and clear of, and without any deduction or withholding for or on account of, any present or future taxes, duties, assessments or other governmental charges of whatever nature imposed or levied by or on behalf of Bermuda or any political subdivision thereof or by any authority therein or thereto or within any other jurisdiction in which the Issuer and Guarantors or any of their Subsidiaries is organized or engaged in business for tax purposes having power to tax, unless such deduction or withholding is required by applicable law, in which event, each of the other parties hereto agrees to pay additional amounts so that the persons entitled to such payments will receive the amount that such persons would otherwise have received but for such deduction or withholding. -50- (g) This Debenture may be executed and delivered to the Holder by a facsimile transmission; such transmission shall be deemed a valid signature. [Signature Pages Follow] -51- IN WITNESS WHEREOF, the Issuer and the Guarantors have executed and delivered this Debenture on the date first above written. MUTUAL RISK MANAGEMENT LTD. By: _________________________________ Name: Title: By: _________________________________ Name: Title: MUTUAL GROUP LTD. By: _________________________________ Name: Title: LEGION FINANCIAL CORP. By: _________________________________ Name: Title: MGL INVESTMENTS LTD. By: _________________________________ Name: Title: -52- MRM SECURITIES LTD. By: _________________________________ Name: Title: MUTUAL FINANCE LTD. By: _________________________________ Name: Title: MUTUAL RISK MANAGEMENT (HOLDINGS) LTD. By: _________________________________ Name: Title: ANNEX I FORM OF NOTICE OF ELECTION TO EXERCISE AN EXCHANGE RIGHT Date: To: Mutual Risk Management, Ltd. and [Name of Newco] From: Re: Exercise of an Exchange Right - -------------------------------------------------------------------------------- Pursuant to the terms of the Convertible Exchangeable Debenture Due 2006 (the "Debenture") issued by Mutual Risk Management, Ltd. (the "Issuer") to --------- ------ ______________ ("Holder") dated ___________, 200_, specifically Section 4 ------ thereof, the Holder hereby notifies the Issuer and [Insert name of Newco] of its intention to exercise a right of exchange. [insert one of the following two paragraphs as appropriate:] [Pursuant to Section 4 of the Debenture, the Holder hereby elects to exchange U.S.$__________ in aggregate principal amount and all accrued and unpaid interest thereon for shares of Newco's Common Stock, par value $.01 per share. The date of exchange shall be __________, 200_.] [Pursuant to Section 4 of the Debenture, the Holder hereby elects to exchange U.S.$__________ in aggregate principal amount and all accrued and unpaid interest thereon for an equal aggregate principal amount of Newco's Debentures. The date of exchange shall be __________, 200_.] We have instructed our attorneys to contact the Issuer and [Insert name of Newco] to discuss the timing and documentation of the conversion. Sincerely, [HOLDER] By: __________________________________ Name: Title: ANNEX II FORM OF NOTICE OF ELECTION TO EXERCISE A CONVERSION RIGHT Date: To: Mutual Risk Management, Ltd. From: Re: Exercise of a Conversion Right - -------------------------------------------------------------------------------- Pursuant to the terms of the Convertible Exchangeable Debenture Due 2006 (the "Debenture") issued by Mutual Risk Management, Ltd. (the "Issuer") to --------- ------ ______________ ("Holder") dated ___________, 200_, specifically Section 5 ------ thereof, the Holder hereby notifies the Issuer of its intention to exercise a right of conversion. Pursuant to Section 5 of the Debenture, the Holder hereby elects to convert U.S.$__________ in aggregate principal amount and all accrued and unpaid interest thereon for shares of the Issuer's Common Stock, par value $.01 per share. The date of conversion shall be __________, 200_. We have instructed our attorneys to contact the Issuer to discuss the timing and documentation of the conversion. Sincerely, [HOLDER] By: _______________________________ Name: Title: ANNEX III FORM OF GUARANTY The undersigned (the "Guarantor") hereby jointly and severally --------- unconditionally guarantees, to the extent set forth in the Convertible Exchangeable Debenture Due 2006 dated as of May 17, 2001, issued by Mutual Risk Management Ltd. (as amended, restated or supplemented from time to time, the "Debenture") to which this Guaranty is attached, and subject to the provisions --------- of the Debenture, (a) the due and punctual payment of the principal of, and premium, if any, and interest on the Debenture, when and as the same shall become due and payable, whether at maturity, by acceleration or otherwise, the due and punctual payment of interest on overdue principal of, and premium and, to the extent permitted by law, interest, and the due and punctual performance of all other obligations of the Issuer to the Holders, all in accordance with the terms set forth in Section 9 of the Debenture, and (b) in case of any extension of time or payment or renewal of any Debenture or any of such other obligations, that the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. The obligations of the Guarantor to the Holder pursuant to this Guaranty and the Debenture are expressly set forth in Section 9 of the Debenture and reference is hereby made to the Debenture for the precise terms and limitations of this Guaranty. [GUARANTOR] By: _______________________________ Name: Title: ANNEX IV FORM OF GUARANTY The undersigned (the "Guarantor") hereby jointly and severally --------- unconditionally guarantees, to the extent set forth in the Convertible Debenture Due 2006 dated as of May 17, 2001, issued by [Newco] (as amended, restated or supplemented from time to time, the "Debenture") to which this Guaranty is --------- attached, and subject to the provisions of the Debenture, (a) the due and punctual payment of the principal of, and premium, if any, and interest on the Debenture, when and as the same shall become due and payable, whether at maturity, by acceleration or otherwise, the due and punctual payment of interest on overdue principal of, and premium and, to the extent permitted by law, interest, and the due and punctual performance of all other obligations of the Issuer to the Holders, all in accordance with the terms set forth in Section 9 of the Debenture, and (b) in case of any extension of time or payment or renewal of any Debenture or any of such other obligations, that the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. The obligations of the Guarantor to the Holder pursuant to this Guaranty and the Debenture are expressly set forth in Section 9 of the Debenture and reference is hereby made to the Debenture for the precise terms and limitations of this Guaranty. [GUARANTOR] By: ________________________________ Name: Title: EX-4.2 3 dex42.txt FORM OF VOTING PREFERRED SHARES EXHIBIT 4.2 THE PREFERRED SHARES EVIDENCED BY THIS CERTIFICATE ARE INITIALLY ISSUED AS PART OF AN ISSUANCE OF UNITS, CONSISTING OF CONVERTIBLE EXCHANGEABLE DEBENTURES DUE 2006 (THE "DEBENTURES") OF MUTUAL RISK MANAGEMENT LTD. ("MRM") AND SERIES A PREFERRED SHARES OF MRM. THE SERIES A PREFERRED SHARES OF MRM EVIDENCED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED OR EXCHANGED SEPARATELY FROM, AND MAY BE TRANSFERRED OR EXCHANGED ONLY TOGETHER WITH, DEBENTURES REPRESENTING THE SAME PERCENTAGE OF THE TOTAL PRINCIPAL AMOUNT OF OUTSTANDING DEBENTURES THAT THE NUMBER OF SERIES A PREFERRED SHARES PROPOSED TO BE TRANSFERRED OR ASSIGNED REPRESENTS OF THE TOTAL NUMBER OF OUTSTANDING SERIES A PREFERRED SHARES. THE PREFERRED SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT UNDER ANY CIRCUMSTANCES BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF WITHOUT AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY APPLICABLE STATE SECURITIES LAWS, OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS. Certificate Number: [001] Number of Series A Preferred Shares: [_] Series A Preferred Shares (par value $.01 per share) (Liquidation Preference $.01 per share) of MUTUAL RISK MANAGEMENT LTD. MUTUAL RISK MANAGEMENT LTD., a company organized under the laws of Bermuda (the "Company"), hereby certifies that [_] (the "Holder") is the registered owner of fully paid and non-assessable preferred securities of the Company designated the Series A Preferred Shares (par value $.01) (liquidation preference $.01 per share) (the "Series A Preferred Shares"). The Series A Preferred Shares are transferable on the books and records of the Registrar, in person or by a duly authorized attorney, upon surrender of this certificate duly endorsed and in proper form for transfer, together with the related Debenture to which this preferred share certificate is attached. The designation, rights, privileges, restrictions, preferences and other terms and provisions of the Series A Preferred Shares represented hereby are issued and shall in all respects be subject to the provisions of the Certificate of Designations of Series A Preferred Shares due 2006 adopted on April 26, 2001, as the same may be amended from time to time (the "Certificate of Designations"). Capitalized terms used but not defined herein shall have the meanings given them in the Certificate of Designations. The Company will provide a copy of the Certificate of Designations to a Holder without charge upon written request to the Company at its principal place of business. Reference is hereby made to select provisions of the Series A Preferred Shares set forth on the reverse hereof, and to the Certificate of Designations, which select provisions and the Certificate of Designations shall for all purposes have the same effect as if set forth at this place. Upon receipt of this certificate, the Holder is bound by the Certificate of Designations and is entitled to the benefits thereunder. IN WITNESS WHEREOF, the Company has executed this certificate this [_] day of May 2001. MUTUAL RISK MANAGEMENT LTD. By:_________________________________ Name: Title: By:_________________________________ Name: Title: REVERSE OF SECURITY The Company is not required to pay any dividends on the Series A Preferred Shares. The Series A Preferred Shares are entitled to the voting rights set forth in the Certificate of Designations. The Series A Preferred Shares shall be automatically redeemed, for no consideration, upon the conversion, exchange or redemption of the Debenture to which this preferred share certificate is attached. The Series A Preferred Shares shall not be redeemable at the option of Company at any time. ASSIGNMENT FOR VALUE RECEIVED, the undersigned assigns and transfers the Series A Preferred Shares evidenced hereby to: ________________________________________________________________________________ (Insert assignee's social security or tax identification number) ________________________________________________________________________________ (Insert address and zip code of assignee) Date: _________________ Signature: ____________________________________________ (Sign exactly as your name appears on the other side of this Series A Preferred Share Certificate) Signature Guarantee:/1/ ________________________________________________________ _________________________________ /1/ (Signature must be guaranteed by an "eligible guarantor institution," that is, a bank, stockbroker, savings and loan association or credit union meeting the requirements of the Registrar, which requirements include membership or participation in the Securities Transfer Agents Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended.) EX-4.3 4 dex43.txt FORM OF WARRANT FOR COMMON STOCK EXHIBIT 4.3 THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT UNDER ANY CIRCUMSTANCES BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF WITHOUT AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY APPLICABLE STATE SECURITIES LAWS, OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS. WARRANT ENTITLING THE HOLDER TO PURCHASE [ ] SHARES OF COMMON STOCK OF MUTUAL RISK MANAGEMENT LTD. No. [001] May 17, 2001 MUTUAL RISK MANAGEMENT LTD. MUTUAL RISK MANAGEMENT LTD., a company organized under the laws of Bermuda (the "Company"), hereby certifies that, for value received, [ ], ------- or its assigns, (the "Holder") is entitled, subject to the terms set forth ------ below, to purchase from the Company, at any time and from time to time (subject only to Section 5(b)), in whole or in part, an aggregate of [ ] fully paid and nonassessable shares of Common Stock, par value $0.01 per share ("Common ------ Stock"), of the Company from and after the date hereof (the "Closing Date") - ----- ------------ until the date which is the fifth anniversary of the Closing Date (the "Exercise -------- Period"). - ------ SECTION 1. PURCHASE PRICE. Such shares of Common Stock shall be purchased at a purchase price per share, subject to the provisions of Section 3 hereof, equal to U.S. $7.00 (as adjusted in accordance with the terms hereof, the "Purchase Price"). The number of shares and the character of such Common -------------- Stock are subject to adjustment as provided below, and the term "Common Stock" ------------ shall mean, unless the context otherwise requires, the Common Stock and/or other securities or property at the time deliverable upon the exercise of this Warrant. SECTION 2. EXERCISE OF WARRANT. The purchase rights evidenced by this Warrant shall be exercised by the Holder surrendering this Warrant, with the form of subscription attached hereto as Annex I at the end hereof duly executed by such Holder (the "Exercise Notice"), to the Company at its offices, --------------- 44 Church Street, Hamilton HM12, Bermuda, accompanied by payment (as specified below) of the aggregate Purchase Price determined as of the Determination Date (as defined below) of the shares of Common Stock being -2- purchased pursuant to such exercise. Payment of the aggregate Purchase Price may be made, at the option of the Holder, (i) in cash, (ii) by certified check or bank cashier's check payable to the order of the Company in the amount of such Purchase Price, (iii) by delivering shares of Common Stock with an aggregate market price (determined in accordance with Section 3.1(f)) as of the day prior to the Company's receipt of the Exercise Notice (the "Determination Date") equal ------------------ to the product of the Purchase Price and the number of shares of Common Stock being purchased, (iv) by the Company reducing, at the request of the Holder, the number of shares of Common Stock for which this Warrant is exercisable by a number of shares of Common Stock (the "Surrendered Stock") equal to (a) the ----------------- product of (x) the Purchase Price in effect on the Determination Date and (y) the number of shares of Common Stock being purchased, divided by (b) the difference (if positive) between the market price per share of Common Stock (determined in accordance with Section 3.1(f)) as of the Determination Date and the Purchase Price in effect on the Determination Date or (v) any combination of the methods of payment described in clauses (i) through (iv) above. 2.1. Partial Exercise. This Warrant may be exercised for less than ---------------- the full number of shares of Common Stock, in which case the number of shares of Common Stock receivable upon the exercise of this Warrant as a whole, and the sum payable upon the exercise of this Warrant as a whole, shall be proportionately reduced. Upon any such partial exercise, the Company, at its expense, will forthwith issue to the Holder hereof a new Warrant or Warrants of like tenor for the number of shares of Common Stock as to which rights have not been exercised, such Warrant or Warrants to be issued in the name of the Holder hereof or his nominee. 2.2. Delivery of Certificates for Common Stock on Conversion. As ------------------------------------------------------- soon as practicable after the exercise of this Warrant and payment of the Purchase Price, and in any event within ten (10) days thereafter, the Company, at its expense, will cause to be issued in the name of, and delivered to, the Holder hereof a certificate or certificates for the number of fully paid and nonassessable shares of Common Stock or other securities or property to which such Holder shall be entitled upon such exercise, plus, in lieu of any fractional share to which such Holder would otherwise be entitled, cash in an amount determined in accordance Section 4 hereof. The Company agrees that the shares of Common Stock so received shall be deemed to be issued to the Holder as the record owner of such shares of Common Stock as of the close of business on the date on which this Warrant shall have been surrendered and payment for such shares of Common Stock made as aforesaid. SECTION 3. ANTI-DILUTION PROVISIONS AND OTHER ADJUSTMENTS. In order to prevent dilution of the right granted hereunder, the Purchase Price shall be subject to adjustment from time to time in accordance with this Section 3. Upon each adjustment of the Purchase Price pursuant to this Section 3, the registered holder hereof shall thereafter be entitled to acquire upon exercise of this Warrant, at the Purchase Price resulting -3- from such adjustment, the number of shares of the Company's Common Stock obtainable by multiplying the Purchase Price in effect immediately prior to such adjustment by the number of shares of the Company's Common Stock acquirable upon exercise thereof immediately prior to such adjustment and dividing the product thereof by the Purchase Price resulting from such adjustment. 3.1. Adjustment of Purchase Price. (a) In the event that the Company ---------------------------- shall pay or make a dividend or other distribution on any class of its capital stock in Common Stock or securities convertible into, or exercisable or exchangeable for, Common Stock ("Common Stock Equivalents"), the Purchase Price ------------------------ applicable to exercises of this Warrant in effect at the opening of business on the day following the date fixed for the determination of stockholders entitled to receive such dividend or other distribution shall be reduced by multiplying such Purchase Price by a fraction of which (i) the numerator shall be the number of shares of Common Stock of the Company outstanding at the close of business on the date fixed for such determination and (ii) the denominator shall be the sum of (x) such number of shares and (y) the total number of shares of Common Stock constituting such dividend or other distribution and shares of Common Stock of the Company issuable upon conversion, exercise or exchange of the Common Stock Equivalents constituting such dividend or other distribution, in each case, such reduction to become effective immediately after the opening of business on the day following the date fixed for such determination. For the purposes of this paragraph, the number of shares of Common Stock of the Company at any time outstanding shall not include shares held in the treasury of the Company or held by subsidiaries of the Company but shall include shares of Common Stock issuable in respect of scrip certificates issued in lieu of fractions of shares of Common Stock of the Company. During the Exercise Period, the Company will not pay any dividend or make any distribution on shares of Common Stock held in the treasury of the Company or held by subsidiaries of the Company. (b) In case the Company shall issue Common Stock of the Company at a price per share less than the higher of the Purchase Price then in effect or the current market price per share (determined as provided in Section 3.1(f)) of the Common Stock of the Company on the date such Common Stock is issued, the Purchase Price applicable to exercise of this Warrant in effect at the opening of business on the day following such date shall be reduced by multiplying such Purchase Price by a fraction of which (i) the numerator shall be the number of shares of Common Stock of the Company outstanding at the close of business on such date plus the number of shares of Common Stock of the Company which the aggregate of the offering price of the total number of shares of Common Stock of the Company so issued or offered for subscription or purchase would purchase at the higher of such current market price or the Purchase Price and (ii) the denominator shall be the number of shares of Common Stock of the Company outstanding at the close of business on such date plus the aggregate number of shares of Common Stock of the Company so offered for subscription or -4- purchase, such reduction to become effective immediately after the opening of business on the day following such date fixed for such determination. In case the Company shall issue Common Stock Equivalents of the Company with a conversion, exercise or exchange price per share that, together with the issuance price per share of such Common Stock Equivalents, is less than the higher of the Purchase Price then in effect or the current market price per share (determined as provided in Section 3.1(f)) of the Common Stock of the Company on the date on which such Common Stock Equivalents are issued, the Purchase Price applicable to exercise of this Warrant in effect at the opening of business on the day following such date shall be reduced by multiplying such Purchase Price by a fraction of which (i) the numerator shall be the number of shares of Common Stock of the Company outstanding at the close of business on such date plus the aggregate number of shares of Common Stock of the Company that the sum of (A) the aggregate conversion, exercise or exchange price of all such Common Stock Equivalents and (B) the aggregate issuance price of all such Common Stock Equivalents would purchase if the conversion, exercise or exchange price, as applicable, per share of Common Stock of the Company and the issuance price of Common Stock Equivalent were equal to the higher of such current market price or the Purchase Price and (ii) the denominator shall be the number of shares of Common Stock of the Company outstanding at the close of business on such date plus the aggregate number of shares of Common Stock of the Company that are issuable upon conversion, exercise or exchange of all such Common Stock Equivalents at the actual conversion, exercise or exchange prices applicable to such Common Stock Equivalents, such reduction to become effective immediately after the opening of business on the day following such date. For the purposes of this clause (b), the number of shares of Common Stock of the Company at any time outstanding shall not include shares held in the treasury of the Company or held by subsidiaries of the Company but shall include shares issuable in respect of scrip certificates issued in lieu of fractions of shares of Common Stock. During the Exercise Period, the Company will not issue any rights or warrants in respect of shares of Common Stock held in the treasury of the Company or held by subsidiaries of the Company. If any rights or warrants shall expire without having been exercised, the Purchase Price shall thereupon be readjusted to eliminate the amount of its adjustment due to their issuance. (c) In case outstanding shares of Common Stock of the Company shall be subdivided into a greater number of shares of Common Stock, the Purchase Price applicable to exercises of this Warrant in effect at the opening of business on the day following the day upon which such subdivision becomes effective shall be proportionately reduced, and, conversely, in case outstanding shares of Common Stock of the Company shall each be combined into a smaller number of shares of Common Stock, the Purchase Price applicable to exercises of this Warrant in effect at the opening of business on the day following the day upon which such combination becomes effective shall be proportionately increased, such reduction or in- -5- crease, as the case may be, to become effective immediately after the opening of business on the day following the day upon which such subdivision or combination becomes effective. (d) In case the Company shall, by dividend or otherwise, distribute to holders of its Common Stock evidences of its indebtedness or assets (including securities, but excluding any Common Stock Equivalents referred to in clause (b) of this Section 3.1, any dividend or distribution paid in cash out of the retained earnings of the Company at a rate not exceeding $0.07 per share per quarter and any dividend or distribution referred to in clause (a) of this Section 3.1), the Purchase Price applicable to exercises of this Warrant shall be adjusted so that the same shall equal the price determined by multiplying the applicable Purchase Price in effect immediately prior to the close of business on the date fixed for the determination of stockholders entitled to receive such distribution by a fraction of which (i) the numerator shall be the higher of the Purchase Price then in effect or the current market price per share (determined as provided in Section 3.1(f)) of the Common Stock of the Company on the date fixed for such determination less the then fair market value (as determined in good faith by the board of directors of the Company, whose determination shall be described in a board resolution delivered to the Holder) of the portion of the assets or evidences of indebtedness so distributed applicable to one share of Common Stock of the Company and (ii) the denominator shall be such current market price per share of the Common Stock of the Company, such adjustment to become effective immediately prior to the opening of business on the day following the date fixed for the determination of stockholders entitled to receive such distribution. (e) The reclassification of Common Stock of the Company into securities including other than Common Stock (other than any reclassification upon a consolidation or merger to which Section 3.7 applies) shall be deemed to involve (i) a distribution of such securities other than Common Stock to all holders of Common Stock of the Company (and the effective date of such reclassification shall be deemed to be "the date fixed for the determination of stockholders entitled to receive such distribution" and "the date fixed for such determination" within the meaning of clause (d) of this Section 3.1), and (ii) a subdivision or combination, as the case may be, of the number of shares of Common Stock of the Company outstanding immediately prior to such reclassification into the number of shares of Common Stock of the Company outstanding immediately thereafter (and the effective date of such reclassification shall be deemed to be "the day upon which such subdivision becomes effective" or "the day upon which such combination becomes effective," as the case may be, and "the day upon which such subdivision or combination becomes effective" within the meaning of clause (c) of this Section 3.1). (f) For the purpose of any computation under Sections 2 or 4 or clauses (b) and (d) of this Section 3.1, the current market price per share of Common Stock of the Company on any date shall be deemed to be the average of the daily closing prices for the 10 consecutive Business Days selected by the Company commencing not less than 10 nor more than -6- 20 Business Days before the day in question; provided, however, that the 10 -------- ------- consecutive Business Days selected for determination shall commence no earlier than three Business Days following the expiration of the Put Period (as defined in the Securities Purchase Agreement). The closing price for each day shall be the closing price for such day reported in The Wall Street Journal or, if not so reported, the last reported sales price regular way or, in case no such reported sale takes place on such day, the average of the reported closing bid and asked prices regular way, in either case on the New York Stock Exchange or, if the Common Stock of the Company is not listed or admitted to trading on such Exchange, on the principal national securities exchange on which such Common Stock is listed or admitted to trading or, if not listed or admitted to trading on any national securities exchange, on the National Association of Securities Dealers Automated Quotations National Market System or, if such Common Stock is not listed or admitted to trading on any national securities exchange or quoted on such National Market System, the average of the closing bid and asked prices in the over-the-counter market as furnished by any New York Stock Exchange member firm selected from time to time by such Company for that purpose. In the absence of one or more such sale prices, quotes or bid and asked prices, the board of directors of the Company shall determine the current market price based on (i) the most recently completed arm's-length transaction between the Company and a Person other than an Affiliate (as defined in Section 11) of the Company and the closing of which occurs on such date or shall have occurred within the six months preceding such date, (ii) if no such transaction shall have occurred on such date or within such six-month period, the value of the security most recently determined as of a date within the six months preceding such date by a nationally recognized investment banking firm or appraisal firm which is not an Affiliate of the Company (an "Independent Financial Advisor") or (iii) if ----------------------------- neither clause (i) nor (ii) is applicable, the value of the security determined as of such date by an Independent Financial Advisor. (g) In addition to the reductions in the Purchase Price that are required by clauses (a), (b), (c) and (d) of this Section 3.1, the Company will make such reductions in the Purchase Price (i) as it considers to be advisable in order that any event treated for Federal income tax purposes as a dividend of stock or stock rights shall not be taxable to the recipients and (ii) as may be necessary to account for any adjustments to conversion, exercise or exchange prices or rates made to any Common Stock Equivalents of the Company after the Closing Date, the result of which is that the conversion, exercise or exchange price or rate applicable to such Common Stock Equivalents is below the higher of the Purchase Price or the current market price per share (determined as provided in Section 3.1(f)) of the Common Stock of the Company, in each case in effect on the date of such adjustment. 3.2. Notice of Adjustments of Purchase Price. Whenever the Purchase --------------------------------------- Price is adjusted as herein provided: -7- (a) the Company shall compute the adjusted Purchase Price in accordance with Section 3.1 and shall prepare a certificate signed by the Chief Financial Officer of the Company setting forth the adjusted Purchase Price and showing in reasonable detail the facts upon which such adjustment is based, and such certificate shall forthwith be delivered to the Holder; and (b) a notice stating that the Purchase Price has been adjusted and setting forth the adjusted Purchase Price shall be mailed by the Company together with a copy of the certificate prepared in accordance with subsection (a) above to the Holder as soon as practicable after the adjustment. 3.3. Notice of Certain Corporate Action. In case: ---------------------------------- (a) the Company shall declare a dividend (or any other distribution) on its Common Stock payable other than a dividend payable in cash out of its retained earnings at a rate not in excess of $0.07 per share per quarter; or (b) the Company shall authorize the granting to the holders of its Common Stock of rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any other rights; or (c) of any reclassification of the Common Stock of the Company, or of any consolidation or merger to which the Company is a party and for which approval of any of its stockholders is required, or of the sale or transfer of all or substantially all of the assets of the Company; or (d) of the voluntary or involuntary dissolution, liquidation or winding up of the Company; then the Company shall cause to be delivered to the Holder at least 20 days (or 10 days in any case specified in clause (a) or (b) above) prior to the applicable record or effective date hereinafter specified, a notice describing such event in reasonable detail and stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, rights or warrants, or, if a record is not to be taken, the date as of which the holders of record of such Company's Common Stock to be entitled to such dividend, distribution, rights or warrants are to be determined, or (y) the date on which such reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding up is expected to become effective, and the date as of which it is expected that holders of record of the Company's Common Stock of record shall be entitled to exchange their shares of Common Stock of the Company for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding up. -8- 3.4. Taxes on Exercise. The Company will pay any and all transfer or ----------------- stamp taxes that may be payable in respect of the issue or delivery of shares of Common Stock on exercise of this Warrant pursuant hereto. The Company shall not, however, be required to pay any income tax payable with respect to exercise of this Warrant or any tax which may be payable in respect of any transfer involved in the issue and delivery of shares of Common Stock in a name other than that of the Holder to be converted, and no such issue or delivery shall be made unless and until the Person requesting such issue has paid to the Company the amount of any such tax, or has established to the satisfaction of the Company that such tax has been paid. 3.5. Covenant as to Common Stock. The Company covenants that all --------------------------- shares of Common Stock which may be issued upon exercise of this Warrant will, upon issue, be validly issued, fully paid and nonassessable and, except as provided in Section 3.4, the Company will pay all taxes, liens and charges with respect to the issue thereof. 3.6. Cancellation of Exercised Warrant. In the event this Warrant is --------------------------------- surrendered for exercise, in whole or in part, it shall be delivered to and canceled by the Company. 3.7. Provisions in Case of Consolidation, Merger or Sale of Assets. ------------------------------------------------------------- In case of any consolidation of the Company with, or merger of the Company into, any other Person, any merger of another Person into the Company (other than a merger which does not result in any reclassification, exercise, exchange or cancellation of outstanding shares of Common Stock of the Company) or any sale or transfer of all or substantially all of the assets of the Company, the Person formed by such consolidation or resulting from such merger or which acquires such assets, as the case may be, shall execute and deliver a supplement to this Warrant providing that the Holder of this Warrant shall have the right thereafter to convert this Warrant only into the kind and amount of securities, cash and other property receivable upon such consolidation, merger, sale or transfer by a holder of the number of shares (including fractional shares) of Common Stock of the Company into which this Warrant might have been converted immediately prior to such consolidation, merger, sale or transfer, assuming such holder of Common Stock of the Company (a) is not a Person with which the Company consolidated or into which the Company merged or which merged into the Company or to which such sale or transfer was made, as the case may be ("constituent ----------- Person"), or an Affiliate of a constituent Person and (b) failed to exercise its - ------ rights of election, if any, as to the kind or amount of securities, cash and other property receivable upon such consolidation, merger, sale or transfer; provided, however, that if the kind or amount of securities, cash and other - -------- ------- property receivable upon such consolidation, merger, sale or transfer is not the same for each share of Common Stock of the Company held immediately prior to such consolidation, merger, sale or transfer by others than a constituent Person or an Affiliate thereof and in respect of which such rights of election shall not have been exercised ("non-electing share"), then for the purpose of this ------------------ Section 3.7 the kind and amount of securities, cash and other property receivable upon such consolidation, merger, sale or transfer by each non- electing share shall be deemed to be the kind and amount -9- so receivable per share by a plurality of the non-electing shares. Such supplement to this Warrant shall provide for adjustments which, for events subsequent to the effective date of the event which triggers the requirement of such supplement, shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 3.7. The above provisions of this Section 3.7 shall similarly apply to successive consolidations, mergers, sales or transfers. 3.8. No Impairment. The Company will not, by amendment of its ------------- memorandum of association or bye-laws or through any reorganization, recapitalization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Section 3 and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Holder against impairment. 3.9. When De Minimis Adjustment May Be Deferred. No adjustment in ------------------------------------------ the number of shares of Common Stock of the Company issuable upon exercise of this Warrant need be made unless the adjustment would require an increase or decrease of at least 1% in the number of shares of Common Stock of the Company issuable upon exercise of this Warrant. Any adjustments that are not made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 3 shall be made to the nearest 1/100th of a share. SECTION 4. FRACTIONS OF SHARES. No fractional shares of Common Stock of the Company shall be issued upon exercise of this Warrant. Instead of any fractional share of Common Stock which would otherwise be issuable upon conversion of the Warrant (or specified portions thereof), the Company shall pay a cash adjustment in respect of such fraction in an amount equal to the same fraction of the market price per share of Common Stock (as determined as provided in Section 3.1(f)) at the close of business on the day of any such conversion. SECTION 5. CERTAIN LIMITATIONS ON VOTING AND EXERCISE RIGHTS. (a) In the event that the date of payment of the Purchase Price in respect of any exercise by the Holder of this Warrant (any such date, the "Exercise Date") ------------- occurs prior to the time that the Form A approvals relating to the Transactions shall have been received by the Company, then, until such time as such Form A approvals are received by the Company, the Common Stock issuable upon each exercise of this Warrant shall be limited in its voting rights to the Maximum Voting Right Percentage (as defined in Section 11). The limitations on voting rights contained in this Section 5(a) shall not in any way restrict the ability of the Holder to exercise all or any portion of this Warrant or to receive Common Stock of the Company therefor. In addition, the provisions of this Section 5(a) shall not in any manner restrict or other- -10- wise affect the economic ownership percentage represented by the Common Stock of the Company issued in connection with any exercise of this Warrant. (b) In the event that any Exercise Date occurs prior to the time that the shareholder approvals relating to the Transactions shall have been received by the Company, then, until such time as such shareholder approvals are received by the Company, the number of shares of Common Stock issuable upon each exercise of this Warrant shall be limited to the Maximum Exercise Right Percentage (as defined in Section 11). SECTION 6. RESERVATION OF COMMON STOCK, ETC., ISSUABLE UPON EXERCISE OF WARRANTS. The Company shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock or out of Common Stock of the Company held in the treasury of the Company or held by a subsidiary of the Company, solely for issuance and delivery upon the exercise of this Warrant and other similar warrants, such number of its duly authorized shares of Common Stock as from time to time shall be issuable upon the exercise of this Warrant and all other similar warrants at the time outstanding. SECTION 7. REPLACEMENT OF WARRANT. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, upon delivery of an indemnity agreement (with surety if reasonably required) in an amount reasonably satisfactory to it, or, in the case of mutilation, upon surrender and cancellation of this Warrant, the Company will issue, in lieu thereof, a new Warrant of like tenor. SECTION 8. REMEDIES. The Company stipulates that the remedies at law of the Holder of this Warrant in the event of any default by the Company in the performance of or compliance with any of the terms of this Warrant are not and will not be adequate, and that the same may be specifically enforced. SECTION 9. NEGOTIABILITY, ETC. This Warrant is issued upon the following terms, to all of which each taker or owner hereof consents and agrees: (a) Neither this Warrant, the shares of Common Stock of the Company issuable upon exercise of this Warrant (the "Underlying Stock") nor ---------------- the rights of the Holder hereunder may be transferred except in compliance with all applicable Federal and State securities laws. The provisions of this Section 9 shall be binding upon any transferee of this Warrant and upon each holder of Underlying Stock. -11- (b) Subject to the limitations described in this Section 9, title to this Warrant may be transferred by endorsement (by the Holder hereof executing the form of assignment at the end hereof including guaranty of signature) and delivery in the same manner as in the case of a negotiable instrument transferable by endorsement and delivery. (c) Any person in possession of this Warrant properly endorsed and, if not the original holder hereof, to whom possession was transferred in accordance with the provisions of clauses (a) and (b) of this Section 9 is authorized to represent himself as absolute owner hereof and is granted power to transfer absolute title hereto by endorsement and delivery hereof to a bona fide purchaser hereof for value; each prior taker or owner waives and renounces all of his equities or rights in this Warrant in favor of every such bona fide purchaser, and every such bona fide purchaser shall acquire title hereto and to all rights represented hereby. (d) Until this Warrant is transferred on the books of the Company, the Company may treat the registered Holder of this Warrant as the absolute owner hereof for all purposes without being affected by any notice to the contrary. SECTION 10. NO RIGHTS TO VOTE OR RECEIVE DIVIDENDS OR OTHER DISTRIBUTIONS. Prior to the exercise of this Warrant, the Holder hereof shall not be entitled to any rights of a stockholder of the Company with respect to shares of Common Stock for which this Warrant shall be exercisable, including, without limitation, the right to vote, to receive dividends or other distributions or to exercise any preemptive rights, and shall not be entitled to receive any notice of any proceedings of the Company, except as provided herein. SECTION 11. CERTAIN DEFINITIONS. "Affiliate" means, with respect to any Person (the "Subject Person"), --------- -------------- (i) any other Person (a "Controlling Person") that directly, or indirectly ------------------ through one or more intermediaries, Controls the Subject Person or (ii) any other Person which is Controlled by or is under common Control with a Controlling Person; provided, however, that the Holder and its Affiliates shall -------- ------- not be deemed Affiliates of the Company or any of its subsidiaries. "Business Day" means any day except a Saturday, Sunday or other day on ------------ which (i) commercial banks in the City of New York are authorized or required by law to close or (ii) the New York Stock Exchange is not open for trading. "Maximum Exercise Right Percentage" means a percentage of the total --------------------------------- equity ownership of the Company (calculated in accordance with the rules and regulations of the New York Stock Exchange) equal to the product of (i) 19.9% and (ii) a fraction, the numerator -12- of which is the number of shares of Common Stock of the Company issuable upon exercise of this Warrant giving rise to the need to calculate such Maximum Exercise Right Percentage and the denominator of which is the sum of (x) the aggregate number of shares of Common Stock of the Company issued or issuable upon exercise of this Warrant and all other similar warrants issued to purchasers of the Company's 9 3/8% Convertible Exchangeable Debentures due 2006 in connection with the purchase thereof and (y) the aggregate number of shares of Common Stock of the Company issued or issuable upon conversion of the 9 3/8%Convertible Exchangeable Debentures due 2006 of the Company. "Maximum Voting Right Percentage" means a percentage of the total ------------------------------- voting power of the Company equal to (A) product of (i) 9.9% and (ii) a fraction, the numerator of which is the number of shares of Common Stock of the Company issuable upon exercise of this Warrant giving rise to the need to calculate such Maximum Voting Right Percentage and the denominator of which is the sum of (x) the aggregate number of issued and outstanding shares of Series A Preferred Stock held by the Holder, (y) the number of shares of the Company issued to the Holder as a result of the conversion of 9 3/8% Convertible Exchangeable Debentures due 2006 of the Company and (z) the number of shares of Common Stock of the Company issued or issuable to the Holder upon exercise of this Warrant minus (B) the percentage of the total voting power of the Company ----- represented by the securities of the Company (other than the Transaction Securities) then held by the holder. "Person" means an individual or a corporation, company, partnership, ------ trust, incorporated or unincorporated association, joint venture, joint stock company, limited liability company, government (or any agency or political subdivision thereof) or other entity of any kind. "Series A Preferred Stock" means the Series A Preferred Stock of the ------------------------ Company issued to holders of the Company's 9 3/8% Convertible Exchangeable Debentures due 2006 in connection with the purchase of such debentures. "Transaction Securities" means, collectively, the 9 3/8% Convertible ---------------------- Exchangeable Debentures due 2006, the Series A Preferred Stock, the shares of Common Stock of the Company issued or issuable upon conversion of the 9 3/8% Convertible Exchangeable Debentures due 2006, this Warrant and the shares of Common Stock of the Company issued or issuable upon exercise of this Warrant. "Transactions" means the transactions contemplated by the Transaction ------------ Documents (as defined in the Securities Purchase Agreement), both before and after giving effect to permitted exchanges and conversions of the Convertible Exchangeable Debentures due 2006 of the Company, including the Restructuring (as defined in the Securities Purchase Agreement). -13- SECTION 12. MAILING OF NOTICES, ETC. All notices and other communications from the Company to the Holder of this Warrant shall be mailed by first-class certified mail, postage prepaid, to the address furnished to the Company in writing by the last Holder of this Warrant who shall have furnished an address to the Company in writing. SECTION 13. CHANGE, WAIVER, ETC. The terms of this Warrant may not be changed, waived, discharged or terminated orally but only by an instrument in writing signed by the Holder of this Warrant against which enforcement of the change, waiver, discharge or termination is sought. [Signature Page Follows] -14- IN WITNESS WHEREOF, the Company has executed this Warrant this 17th day of May, 2001. MUTUAL RISK MANAGEMENT LTD. By: ___________________________________ Name: Title: By: ___________________________________ Name: Title: Attest: ___________________________ Annex I ------- [To be signed only upon exercise of Warrant] To Mutual Risk Management Ltd. The undersigned, the Holder of the within Warrant, hereby irrevocably elects to exercise the purchase right represented by such Warrant for, and to purchase thereunder, _______________ shares of Common Stock of Mutual Risk Management Ltd. and herewith makes payment of $_________ therefor and/or requests that the number of shares of Common Stock for which the within Warrant is exercisable be reduced by __________ shares of Common Stock (in addition to the shares of Common Stock being purchased) and/or delivers _______ shares of Common Stock, the aggregate of such payment being equal to the aggregate purchase price for the shares of Common Stock being purchased, and requests that the certificates for the shares of Common Stock being purchased be issued in the name of, and be delivered to, _____________, whose address is ________________. Dated: ________________________ _________________________________________ (Signature must conform in all respects to name of Holder as specified on the face of the Warrant) _________________________________________ Address Annex II -------- [To be signed only upon transfer of Warrant] FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto _____________________ the within Warrant and appoints _________________ attorney to transfer said right on the books of Mutual Risk Management Ltd. with full power of substitution in the premises. Dated: ________________________ _________________________________________ (Signature must conform in all respects to name of Holder as specified on the face of the Warrant) _________________________________________ Address Signature Guarantee:/1/_____________________________ _____________________________ /1/ (Signature must be guaranteed by an "eligible guarantor institution" that is, a bank, stockbroker, savings and loan association or credit union meeting the requirements of the Registrar, which requirements include membership or participation in the Securities Transfer Agents Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended). EX-4.4 5 dex44.txt FORM OF NEWCO CONVERTIBLE DEBENTURE Exhibit 4.4 THIS DEBENTURE IS INITIALLY ISSUED AS PART OF AN ISSUANCE OF UNITS, CONSISTING OF CONVERTIBLE DEBENTURES DUE 2006 AND SHARES OF SERIES A PREFERRED STOCK OF [NEWCO]. THIS DEBENTURE MAY NOT BE TRANSFERRED OR EXCHANGED SEPARATELY FROM, AND MAY BE TRANSFERRED OR EXCHANGED ONLY TOGETHER WITH, SHARES OF SERIES A PREFERRED STOCK REPRESENTING THE SAME PERCENTAGE OF THE TOTAL AMOUNT OF OUTSTANDING SHARES OF SERIES A PREFERRED STOCK THAT THE PRINCIPAL AMOUNT OF CONVERTIBLE DEBENTURES DUE 2006 PROPOSED TO BE TRANSFERRED OR ASSIGNED REPRESENTS OF THE TOTAL PRINCIPAL AMOUNT OF OUTSTANDING CONVERTIBLE DEBENTURES DUE 2006. THIS CONVERTIBLE DEBENTURE AND THE SECURITIES ISSUABLE UPON CONVERSION HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT UNDER ANY CIRCUMSTANCES BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF WITHOUT AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY APPLICABLE STATE SECURITIES LAWS, OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS. [NEWCO] CONVERTIBLE DEBENTURE DUE 2006 No. [_] U.S. $[_] [ ], 2001 The undersigned, [Newco], a company organized under the laws of Bermuda with offices at 44 Church Street, Hamilton HM 12 Bermuda (the "Issuer"), ------ unconditionally promises to pay to [Name of Holder] or its permitted assigns, transferees and successors as provided herein (each, a "Holder"), on May [_], ------ 2006 (the "Maturity Date"), at such place as may be designated by the Holder to ------------- the Issuer, the principal amount outstanding hereunder, or such lesser amount as shall then be payable pursuant to the terms of Section 3 hereof, together with all accrued and unpaid interest thereon. This Debenture is issued pursuant to a Securities Purchase Agreement, dated as of May 8, 2001, by and among the Issuer, the guarantors named therein, XL Insurance Ltd., First Union Merchant Banking 2001, LLC, High Ridge Capital Partners II, L.P., Century Capital -4- Partners II, L.P., Robert A. Mulderig, Taracay Investors Company and Intrepid Funding Master Trust (as such agreement may be amended at any time, the "Securities Purchase Agreement"), and the Holder hereof is intended to be ----------------------------- afforded the benefits thereof, including the representations and warranties set forth therein. The Issuer shall use the proceeds of the issuance and sale of this Debenture solely in accordance with the provisions set forth therein and as required thereby. Section 10 contains definitions of certain of the terms used herein. Capitalized terms used but not otherwise defined herein shall, unless otherwise indicated, have the meanings given such terms in the Securities Purchase Agreement. SECTION 1. INTEREST. Interest on this Debenture shall accrue at a rate per annum equal to 9 --- ----- 3/8%, from and after the last Interest Payment Date in respect of which interest was paid to the Holder of the Convertible Exchangeable Debenture Due 2006 of Mutual Risk Management Ltd. ("MRM") surrendered in exchange for this Debenture --- or, if no interest has been paid to such Holder, from the date of original issue of such Convertible Exchangeable Debenture Due 2006 (the "Original Issue Date"); ------------------- provided, however, that (x) from and after the 120th day after the Original - -------- ------- Issue Date to but excluding the date on which the Issuer has received all Required Approvals and the Restructuring has been consummated, the interest rate applicable to this Debenture shall increase by an additional 0.25% per annum, --- ----- such increased interest rate to further increase by an additional 0.25% per --- annum for each subsequent 30-day period during which the Required Approvals have - ----- not been obtained or the Restructuring has not been consummated up to a maximum total rate of interest on the Debentures of 11.0% per annum (it being understood --- ----- that from and after such time as all Required Approvals have been obtained and the Restructuring shall have been completed, the interest rate applicable to this Debenture shall return to 9 3/8% per annum) and (y) from and after the --- ----- occurrence of an Event of Default and for so long as such Event of Default continues, the interest rate applicable to the Debenture shall increase by an additional 1.00% per annum over the otherwise then applicable rate. Interest --- ----- shall be compounded quarterly and payable quarterly in cash in arrears on each March 20, June 20, September 20, and December 20 (each, an "Interest Payment ---------------- Date"), beginning on the first such date after issuance of this Debenture. - ---- Interest shall be calculated on the basis of a year of twelve 30-day months and the actual number of days elapsed. SECTION 2. PAYMENTS OF PRINCIPAL AND INTEREST. Unless earlier converted in accordance with the terms of Section 4 below, or repaid in accordance with the terms hereof or redeemed pursuant to Section 3 below, the entire outstanding principal amount of this Debenture, together with any accrued and unpaid interest thereon, shall be due and payable on the Maturity Date. The parties agree that any payment of -5- interest due to the Holder hereunder shall be net of any applicable withholding taxes due in respect of this Debenture. SECTION 3. REDEMPTION. (a) At the Option of the Issuer. This Debenture shall not be redeemable at --------------------------- the option of the Issuer at any time prior to the Maturity Date. (b) Mandatory Redemption At the Option of the Holders. At any time during ------------------------------------------------- the Put Term or in the event that a RHINOS or Bank Event occurs, the Requisite Holders and XL each have the right (the "Redemption Right") to require the ---------------- Issuer or any Guarantor to redeem and repay all of the Debentures, at a redemption price (the "Redemption Price") initially equal to the higher of (i) ---------------- 100% of the aggregate principal amount of the Debentures and (ii) 100% of the aggregate of the then current market price of the Issuer's Common Shares into which the Debentures would be convertible pursuant to Section 4 at such time (calculated using the average closing price for a three-day trading period beginning on the second trading day following the public announcement of the exercise of such mandatory redemption right), in each case, plus accrued and unpaid interest thereon to the applicable redemption date; provided, however, -------- ------- that the Redemption Price shall increase by an additional 25 basis points for each subsequent 30-day period during the Put Term until all Required Approvals have been obtained and the Restructuring has been completed. (c) In the event the Requisite Holders or XL, as the case may be, desires to exercise the Redemption Right, such exercising party shall provide written notice thereof to the Issuer during the Put Term or within four Business Days after a RHINOS or Bank Event occurs, setting forth (i) the fact that such Holder intends to exercise the Redemption Right and (ii) the date for such redemption, which shall be a Business Day and be between 10 and 15 days after the date of such notice. Upon receipt by the Issuer of any request to exercise a Redemption Right, the Issuer shall promptly provide written notification thereof to all Holders of Debentures. (d) On the applicable redemption date, (i) the holders of all Debentures shall tender the Debentures and the related Newco Voting Preferred Stock to the Issuer for cancellation, duly endorsed or assigned to the Issuer or in blank, at the principal executive office of the Issuer and (ii) the Issuer shall deliver to the address of the Holder described in Section 9 hereof immediately available funds in an amount equal to the aggregate principal amount of all Debentures tendered for redemption by such Holder. SECTION 4. CONVERSION. (a) Conversion Right and Conversion Price. Subject to and upon compliance ------------------------------------- with the provisions of this Section 4, at the option of the Holder hereof, this Debenture or any por- -6- tion of the principal amount hereof may be converted into a number of fully paid and nonassessable shares (calculated as to each conversion to the nearest 1/100 of a share) of Common Stock of the Issuer determined by dividing the aggregate principal amount of the Debenture to be converted by the Conversion Price in effect at the time of conversion. The "Conversion Price" shall be initially equal to the Initial Newco ---------------- Conversion Price; provided, however, that the Conversion Price shall be reduced -------- ------- by $0.20 beginning on September [ ], 2001 and by an additional $0.20 on each monthly anniversary thereafter until the date on which all Required Approvals shall have been obtained and the Restructuring shall have been completed. The Conversion Price shall be adjusted in certain instances as provided in (i) through (vii) of Section 4(e) hereof. In the event this Debenture is converted after any Interest Payment Date but on or prior to the regular record date relating to the next succeeding Interest Payment Date, the Issuer shall, on the Conversion Date (as defined below), pay to the Holder the pro rata portion of interest due on the Holder's -------- Debentures surrendered for conversion up to, but excluding, the Conversion Date. In the event this Debenture is converted after any regular record date and on or prior to the next succeeding Interest Payment Date, interest that is due on such Interest Payment Date shall be payable on such Interest Payment Date notwithstanding such conversion, and such interest (whether or not punctually paid or duly provided for) shall be paid to the Person in whose name this Debenture is registered at the close of business on such regular record date. Except as otherwise expressly provided in the two immediately preceding sentences, in the event this Debenture is converted, interest which would become payable on an Interest Payment Date falling after the date of conversion of this Debenture shall not be payable. (b) Exercise of Conversion Right. The Holder of this Debenture may ---------------------------- exercise its conversion right by delivering to the Issuer irrevocable written notice of such election, substantially in the form of Annex I attached hereto, ------- at least five days prior to the Business Day designated in such notice as the date of conversion (the "Conversion Date"). Such notice shall also specify the --------------- principal amount of this Debenture to be converted. In the event any portion of this Debenture is to be converted, the Holder shall, on or before the Conversion Date, surrender the Debenture for cancellation together with the related Newco Voting Preferred Stock, duly endorsed or assigned to the Issuer or in blank, at the office or agency described in Section 9 hereof. The portion of this Debenture as to which the Holder shall have elected to convert shall be deemed to have been converted immediately prior to the close of business on the Conversion Date, and at such time the rights of the Holder as Holder shall cease as to such portion of this Debenture, and, upon conversion, the Holder shall be treated for all purposes as the record holder of Common Stock of the Issuer at such time. On the Conversion Date, the -7- Issuer shall issue and deliver at the office or agency described in Section 9 hereof a certificate or certificates for the number of full shares of Common Stock of the Issuer issuable upon conversion, together with payment in lieu of any fraction of a share, as provided in Section 4(d). In the event this Debenture is converted in part only, upon such conversion the Issuer shall execute and deliver to the Holder, at the expense of the Issuer, (i) a new Debenture or Debentures of an authorized denomination in aggregate principal amount equal to the unconverted portion of the aggregate principal amount of such Debenture and (ii) a certificate representing the related Newco Voting Preferred Stock with voting rights equal to the aggregate voting rights of the Common Stock issuable upon conversion of such new Debenture. (c) Surrender of Debentures on Conversion Date. In the event the Holder ------------------------------------------ wishes to exercise its right to convert this Debenture into Common Stock pursuant to Section 4(a) hereof, the Holder shall surrender to the Issuer Debentures in an aggregate principal amount at least equal to the applicable Conversion Price (as adjusted by Section 4(e), if applicable). (d) Fractions of Shares. No fractional shares of Common Stock shall be ------------------- issued upon conversion of this Debenture. If all or a portion of the principal amount of this Debenture shall be surrendered for conversion at one time, the number of full shares which shall be issuable upon conversion thereof shall be computed on the basis of the aggregate principal amount of the Debenture so converted. Instead of any fractional share of Common Stock, which would otherwise be issuable upon conversion of the Debenture (or specified portions thereof), the Issuer shall pay a cash adjustment in respect of such fraction in an amount equal to the same fraction of the market price per share of Common Stock (as determined as provided in Section 4(e)(vi)) at the close of business on the Conversion Date. (e) Adjustment of Conversion Price. (i) In the event that the Issuer shall ------------------------------ pay or make a dividend or other distribution on any class of its capital stock in Common Stock or securities convertible into, or exercisable or exchangeable for, Common Stock ("Common Stock Equivalents"), the Conversion Price applicable ------------------------ to conversions of this Debenture in effect at the opening of business on the day following the date fixed for the determination of shareholders entitled to receive such dividend or other distribution shall be reduced by multiplying such Conversion Price by a fraction of which (A) the numerator shall be the number of shares of Common Stock of the Issuer outstanding at the close of business on the date fixed for such determination and (B) the denominator shall be the sum of (x) such number of shares and (y) the total number of shares of Common Stock constituting such dividend or other distribution and shares of Common Stock issuable upon conversion, exercise or exchange of the Common Stock Equivalent constituting such dividend or other distribution, in each case, such reduction to become effective immediately after the opening of business on the day following the date fixed for such determination. For the purposes of this paragraph, the number of shares of Common Stock of the Issuer at any time outstanding shall not include shares held in -8- the treasury of the Issuer or held by Subsidiaries of the Issuer but shall include shares of Common Stock issuable in respect of scrip certificates issued in lieu of fractions of shares of Common Stock of the Issuer. The Issuer will not pay any dividend or make any distribution on shares of Common Stock held in the treasury of the Issuer or held by Subsidiaries of the Issuer. (ii) In case the Issuer shall issue Common Stock of the Issuer at a price per share less than the higher of the Conversion Price then in effect or the current market price per share (determined as provided in Section 4(e)(vi)) of the Common Stock of the Issuer on the date on which such Common Stock is issued, the Conversion Price applicable to conversions of Debentures of the Issuer in effect at the opening of business on the day following such date shall be reduced by multiplying such Conversion Price by a fraction of which (A) the numerator shall be the number of shares of Common Stock of the Issuer outstanding at the close of business on such date plus the number of shares of Common Stock of the Issuer which the aggregate of the offering price of the total number of shares of Common Stock of the Issuer so issued or offered for subscription or purchase would purchase at the higher of such current market price or the Conversion Price and (B) the denominator shall be the sum of (x) the number of shares of Common Stock of the Issuer outstanding at the close of business on such date and (y) the number of shares of Common Stock of the Issuer so offered for subscription or purchase, such reduction to become effective immediately after the opening of business on the day following such date. In case the Issuer shall issue Common Stock Equivalents of the Issuer with a conversion, exercise or exchange price per share that, together with the issuance price per share of such Common Stock Equivalents, is less than the higher of the Conversion Price then in effect or the current market price per share (determined as provided in Section 4(e)(vi)) of the Common Stock of the Issuer on the date on which such Common Stock Equivalents are issued, the Conversion Price applicable to conversions of Debentures in effect at the opening of business on the day following such date shall be reduced by multiplying such Conversion Price by a fraction of which (A) the numerator shall be the number of shares of Common Stock of the Issuer outstanding at the close of business on such date plus the aggregate number of shares of Common Stock of the Issuer that the sum of (x) the aggregate conversion, exercise or exchange price of all such Common Stock Equivalents and (y) the aggregate issuance price of all such Common Stock Equivalents would purchase if the sum of the conversion, exercise or exchange price, as applicable, per share of Common Stock of the Issuer and the issuance price of such Common Stock Equivalents were equal to the higher of such current market price or the Conversion Price and (B) the denominator shall be the number of shares of Common Stock of the Issuer outstanding at the close of business on such date plus the aggregate number of shares of Common Stock of the Issuer that are issuable upon conversion, exercise or exchange of all such Common Stock Equivalents at the actual conversion, exercise or -9- exchange prices applicable to such Common Stock Equivalents, such reduction to become effective immediately after the opening of business on the day following such date. For the purposes of this clause (ii), the number of shares of Common Stock of the Issuer at any time outstanding shall not include shares of Common Stock held in the treasury of the Issuer or held by Subsidiaries of the Issuer but shall include shares issuable in respect of scrip certificates issued in lieu of fractions of shares of Common Stock. The Issuer will not issue any rights or warrants in respect of shares of Common Stock held in the treasury of the Issuer or held by Subsidiaries of the Issuer. If any rights or warrants shall expire without having been exercised, the Conversion Price shall thereupon be readjusted to eliminate the amount of its adjustment due to their issuance. (iii) In case outstanding shares of Common Stock of the Issuer shall be subdivided into a greater number of shares of Common Stock, the Conversion Price applicable to conversions of this Debenture in effect at the opening of business on the day following the day upon which such subdivision becomes effective shall be proportionately reduced, and, conversely, in case outstanding shares of Common Stock of the Issuer shall each be combined into a smaller number of shares of Common Stock, the Conversion Price applicable to conversions of this Debenture in effect at the opening of business on the day following the day upon which such combination becomes effective shall be proportionately increased, such reduction or increase, as the case may be, to become effective immediately after the opening of business on the day following the day upon which such subdivision or combination becomes effective. (iv) In case the Issuer shall, by dividend or otherwise, distribute to holders of its Common Stock evidences of its indebtedness or assets (including securities, but excluding any Common Stock Equivalents referred to in clause (ii) of this Section, any dividend or distribution paid in cash out of the retained earnings of the Issuer and any dividend or distribution referred to in clause (i) of this Section), the Conversion Price applicable to conversions of this Debenture shall be adjusted so that the same shall equal the price determined by multiplying the applicable Conversion Price in effect immediately prior to the close of business on the date fixed for the determination of shareholders entitled to receive such distribution by a fraction of which (A) the numerator shall be the higher of the Conversion Price then in effect or the current market price per share (determined as provided in Section 4(e)(vi)) of the Common Stock of the Issuer on the date fixed for such determination less the then fair market value (as determined in good faith by the board of directors of the Issuer, whose determination shall be described in a board resolution delivered to the Holder) of the portion of the assets or evidences of indebtedness so distributed applicable to one share of Common Stock of the Issuer and (B) the denominator shall be such current market price per share of the Common Stock of the Issuer, such adjustment to become effective immediately prior to the opening of business on the day following the date fixed for the determination of shareholders entitled to receive such distribution. -10 (v) The reclassification of Common Stock into securities including other than Common Stock (other than any reclassification upon a consolidation or merger to which Section 4(k) applies) shall be deemed to involve (A) a distribution of such securities other than Common Stock to all holders of Common Stock of the Issuer (and the effective date of such reclassification shall be deemed to be "the date fixed for the determination of shareholders entitled to receive such distribution" and "the date fixed for such determination" within the meaning of clause (iv) of this Section), and (B) a subdivision or combination, as the case may be, of the number of shares of Common Stock of the Issuer outstanding immediately prior to such reclassification into the number of shares of Common Stock of the Issuer outstanding immediately thereafter (and the effective date of such reclassification shall be deemed to be "the day upon which such subdivision becomes effective" or "the day upon which such combination becomes effective", as the case may be, and "the day upon which such subdivision or combination becomes effective" within the meaning of clause (iii) of this Section). (vi) For the purpose of any computation under Section 4(d) or clauses (ii) and (iv) of this Section 4(e), the current market price per share of Common Stock of the Issuer on any date shall be deemed to be the average of the daily closing prices for the 10 consecutive Business Days selected by the Issuer commencing not less than 10 and no more than 20 Business Days before the day in question. The closing price for each day shall be the closing price for such day reported in The Wall Street Journal or, if not so reported, the last reported sales price regular way or, in case no such reported sale takes place on such day, the average of the reported closing bid and asked prices regular way, in either case on the New York Stock Exchange or, if the Common Stock of the Issuer is not listed or admitted to trading on such Exchange, on the principal national securities exchange on which such Common Stock is listed or admitted to trading or, if not listed or admitted to trading on any national securities exchange, on the National Association of Securities Dealers Automated Quotations National Market System or, if such Common Stock is not listed or admitted to trading on any national securities exchange or quoted on such National Market System, the average of the closing bid and asked prices in the over-the-counter market as furnished by any New York Stock Exchange member firm selected from time to time by such Issuer for that purpose. In the absence of one or more such sale prices, quotes or bid and asked prices, the board of directors of the Issuer shall determine the current market price based on (A) the most recently completed arm's-length transaction between the Issuer and a Person other than an Affiliate of the Issuer and the closing of which occurs on such date or shall have occurred within the six months preceding such date, (B) if no such transaction shall have occurred on such date or within such six-month period, the value of the Common Stock most recently determined as of a date within the six months preceding such date by a nationally recognized investment banking firm or appraisal firm which is not an Affiliate of the Issuer (an "Independent ----------- Financial Advisor") or (C) if neither clause (A) nor (B) is - ----------------- applicable, the value of the Common Stock determined as of such date by an Independent Financial Advisor. -11- (vii) In addition to the reductions in the Conversion Price that are required by clauses (i), (ii), (iii) and (iv) of this Section, the Issuer will make such reductions in the Conversion Price (A) as it considers to be advisable in order that any event treated for Federal income tax purposes as a dividend of stock or stock rights shall not be taxable to the recipients and (B) as may be necessary to account for any adjustments to conversion, exercise or exchange prices or rates made to any Common Stock Equivalents of the Issuer after the Original Issue Date, the result of which is that the conversion, exercise or exchange price or rate applicable to such Common Stock Equivalents is below the higher of the Conversion Price or the current market price per share (determined as provided in Section 4(e)(vi)) of the Common Stock of the Issuer, in each case in effect on the date of such adjustment. (f) Notice of Adjustments of Conversion Price. Whenever the Conversion ----------------------------------------- Price is adjusted as herein provided: (i) the Issuer shall compute the adjusted Conversion Price in accordance with Section 4(a) and shall prepare a certificate signed by the Chief Financial Officer of the Issuer setting forth the adjusted Conversion Price and showing in reasonable detail the facts upon which such adjustment is based, and such certificate shall forthwith be filed at each office or agency maintained for the purpose of conversion of this Debenture pursuant to Section 9; and (ii) a notice stating that the Conversion Price has been adjusted and setting forth the adjusted Conversion Price shall be mailed by the Issuer together with a copy of the certificate prepared in accordance with subsection (i) above to the Holder at its last address as it shall appear in the Debenture Register as soon as practicable after such adjustment. (g) Notice of Certain Corporate Action. In case: ---------------------------------- (i) the Issuer shall declare a dividend (or any other distribution) on its Common Stock; or (ii) the Issuer shall authorize the granting to the holders of its Common Stock of rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any other rights; or (iii) of any reclassification of the Common Stock of the Issuer, or of any consolidation or merger to which the Issuer is a party and for which approval of any of its shareholders is required, or of the sale or transfer of all or substantially all of the assets of the Issuer; or -12- (iv) of the voluntary or involuntary dissolution, liquidation or winding up of the Issuer; then the Issuer shall cause to be filed at each office or agency maintained for the purposes of conversion of this Debenture pursuant to Section 10, and shall cause to be mailed to the Holder at its last address as it shall appear in the Debenture Register, at least 20 days (or 10 days in any case specified in clause (i) or (ii) above) prior to the applicable record or effective date hereinafter specified, a notice describing such event in reasonable detail and stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, rights or warrants, or, if a record is not to be taken, the date as of which the holders of record of such Issuer's Common Stock to be entitled to such dividend, distribution, rights or warrants are to be determined, or (y) the date on which such reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding up is expected to become effective, and the date as of which it is expected that holders of record of the Issuer's Common Stock shall be entitled to exchange their shares of Common Stock of the Issuer for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding up. (h) Taxes on Conversions. The Issuer will pay any and all transfer or -------------------- stamp taxes that may be payable in respect of the issue or delivery of shares of Common Stock on conversion of this Debenture pursuant hereto. The Issuer shall not, however, be required to pay any income tax payable with respect to conversion of this Debenture or any tax which may be payable in respect of any transfer involved in the issue and delivery of shares of Common Stock in a name other than that of the Holder of the Debenture to be converted, and no such issue or delivery shall be made unless and until the Person requesting such issue has paid to the Issuer the amount of any such tax, or has established to the satisfaction of the Issuer that such tax has been paid. (i) Covenant as to Common Stock. The Issuer covenants that all shares of --------------------------- Common Stock which may be issued upon conversion of this Debenture will, upon issue, be validly issued, fully paid and nonassessable and, except as provided in Section 4(h), the Issuer will pay all taxes, liens and charges with respect to the issue thereof. (j) Cancellation of Converted Debenture. In the event this Debenture is ----------------------------------- delivered for conversion, in whole or in part, it and the related Newco Voting Preferred Stock shall be delivered to and canceled by the Issuer. (k) Provisions in Case of Consolidation, Merger or Sale of Assets. In case ------------------------------------------------------------- of any consolidation of the Issuer with, or merger of the Issuer into, any other Person, any merger of another Person into the Issuer (other than a merger which does not result in any reclassification, conversion, exchange or cancellation of outstanding shares of Common Stock of the Issuer) or any sale or transfer of all or substantially all of the assets of the Issuer, the Person -13- formed by such consolidation or resulting from such merger or which acquires such assets, as the case may be, shall execute and deliver a supplement to this Debenture providing that the Holder of this Debenture shall have the right thereafter to convert this Debenture only into the kind and amount of securities, cash and other property receivable upon such consolidation, merger, sale or transfer by a holder of the number of shares (including fractional shares) of Common Stock of the Issuer into which this Debenture might have been converted immediately prior to such consolidation, merger, sale or transfer, assuming such holder of Common Stock of the Issuer (i) is not a Person with which the Issuer consolidated or into which the Issuer merged or which merged into the Issuer or to which such sale or transfer was made, as the case may be ("constituent Person"), or an Affiliate of a constituent Person and (ii) failed ------------------ to exercise its rights of election, if any, as to the kind or amount of securities, cash and other property receivable upon such consolidation, merger, sale or transfer; provided, however, that if the kind or amount of securities, -------- ------- cash and other property receivable upon such consolidation, merger, sale or transfer is not the same for each share of Common Stock of the Issuer held immediately prior to such consolidation, merger, sale or transfer by others than a constituent Person or an Affiliate thereof and in respect of which such rights of election shall not have been exercised ("non-electing share"), then for the ------------------ purpose of this Section the kind and amount of securities, cash and other property receivable upon such consolidation, merger, sale or transfer by each non-electing share shall be deemed to be the kind and amount so receivable per share by a plurality of the non-electing shares. Such supplement to this Debenture shall provide for adjustments which, for events subsequent to the effective date of the event which triggers the requirement of such supplemental indenture, shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 4(k). The above provisions of this Section 4(k) shall similarly apply to successive consolidations, mergers, sales or transfers. (l) No Impairment. The Issuer will not, by amendment of its memorandum of ------------- association or bye-laws or through any reorganization, recapitalization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Issuer, but will at all times in good faith assist in the carrying out of all the provisions of this Section 4 and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Holder against impairment. (m) When De Minimis Adjustment May Be Deferred. No adjustment in the ------------------------------------------ number of shares of Common Stock of the Issuer issuable upon conversion of Debentures need be made unless the adjustment would require an increase or decrease of at least 1% in the number of shares of Common Stock issuable upon conversion of all Debentures. Any adjustments that are not made shall be carried forward and taken into account in any subsequent adjustment. -14- All calculations under this Section 4 shall be made to the nearest 1/100th of a share. SECTION 5. AFFIRMATIVE COVENANTS. The Issuer hereby agrees for the benefit of the Holder that, from and after the date hereof, so long as any Debentures remain outstanding and unpaid or any other amount is owing to the Holder under any Transaction Document, it will deliver to the Holder, or cause to be delivered to the Holder, the following materials and information: (a) Information. (i) As soon as available and in any event within 45 days ----------- after the end of each of the first three fiscal quarters of each fiscal year, (A) consolidated and consolidating balance sheets of the Issuer and its Subsidiaries as of the end of such quarter and the related consolidated statements of income, cash flows and shareholders' equity (deficit) for such quarter and for the portion of the fiscal year ended at the end of such quarter, setting forth, in each case, in comparative form the figures for the corresponding quarter and the corresponding portion of the previous fiscal year, accompanied by a certificate of the chief financial officer or the chief accounting officer of the Issuer to the effect that they fairly present the financial condition at such dates and the results of operations and cash flows for such periods and were prepared in accordance with GAAP (or, in the case of the Insurance Subsidiaries, Statutory Accounting Principles prescribed or permitted by the Insurance Acts), subject to year-end audit adjustments (consisting only of normal recurring accruals), (B) if the Holder is a holder of at least 10% of the outstanding Debentures, such operating information of the Issuer as may be reasonably requested by the Holder and (C) if the Holder is a holder of at least 10% of the outstanding Debentures, a comparison of the results of such quarter against the operating plan and budget, together with an explanation of any deviations therefrom; (ii) As soon as available and in any event within 90 days after the end of each fiscal year, (A) consolidated and consolidating balance sheets of the Issuer and its Subsidiaries as of the end of such fiscal year and the related consolidated statements of income, cash flows and shareholders' equity (deficit) for such fiscal year, setting forth, in each case, in comparative form the figures for the previous fiscal year, accompanied by a certificate of the chief financial officer or the chief accounting officer of the Issuer to the effect that they fairly present the financial condition at such dates and the results of operations and cash flows for such periods and were prepared in accordance with GAAP (or, in the case of the U.S. Insurance Subsidiaries, Statutory Accounting Principles prescribed or permitted by the Insurance Acts) and a report (unqualified as to scope) of a firm of independent public accountants of nationally recognized standing, (B) if the Holder is a holder of at least 10% of the outstanding Debentures, a "management letter" from such firm regarding the internal control structure of the Issuer and (C) if the Holder is a holder of at least 10% of the outstanding Debentures, and in exchange for the express agreement of such Holder to keep such information confidential and in the event the Issuer has an Insurance Subsidiary, an opinion in form and substance reasonably sat- -15- isfactory to the Holder as to the loss reserves of the Insurance Subsidiaries as of the end of such fiscal year by Tillinghast, Towers & Perrin or another actuarial consultant selected by the Issuer and acceptable to the Holder; (iii) If the Holder is a holder of at least 10% of the outstanding Debentures, in the event the Issuer has an Insurance Subsidiary, as soon as available and in any event within 60 days after the end of each fiscal quarter, the results of the "early warning" tests described in Section 7(m) and any supporting documentation requested by the Holder; (iv) If the Holder is a holder of at least 10% of the outstanding Debentures, as soon as available, prior to the beginning of each fiscal year and in exchange for the express agreement of such Holder to keep such information confidential, an annual budget and operating plan of the Issuer, including an investment policy and plan, presented on a quarterly basis for such fiscal year; (v) If the Holder is a holder of at least 10% of the outstanding Debentures, and in exchange for the express agreement of such Holder to keep such information confidential, as soon as available, annual financial projections (including forecasted consolidated and consolidating balance sheets of the Issuer and its Subsidiaries and the related consolidated statements of income, cash flows and shareholders' equity (deficit)) for the fiscal year including the Original Issue Date and each fiscal year thereafter through December 31, 2006 (including monthly financial projections) and containing all material assumptions relating to such projections and data, accompanied by a statement by the Issuer that such projections are based on assumptions believed by it in good faith to be reasonable as to the future financial performance of the Issuer; (vi) If the Holder is a holder of at least 10% of the outstanding Debentures and in exchange for the express agreement of such Holder to keep such information confidential, as soon as available, and in any event within 30 days after the filing thereof, copies of annual and quarterly reports and all other filings of the Insurance Subsidiaries filed with the Insurance Departments; (vii) In exchange for the express agreement of the Holder to keep such information confidential, promptly following the occurrence thereof, notice and a description in reasonable detail of any material adverse change in the assets, liabilities, business, results of operations, condition (financial or otherwise), Permits or prospects of the Issuer and its Subsidiaries taken as a whole; (viii) If the Holder is a holder of at least 10% of the outstanding Debentures, and in exchange for the express agreement of such Holder to keep such information confidential, from time to time such additional information regarding the financial position or business of the Issuer or any of its Subsidiaries as the Holder may reasonably request; and -16- (ix) In exchange for the express agreement of such Holder to keep such information confidential, copies of any presentation made by the Issuer or any of its Subsidiaries to S&P, Moody's, A.M. Best Company or any other rating agency. (b) Payment of Obligations. It will pay and discharge, and will cause ---------------------- each of its Subsidiaries to pay and discharge, at or before maturity, all their respective obligations and liabilities, including tax liabilities, except where the same may be contested in good faith by appropriate proceedings, and will maintain, in accordance with GAAP, appropriate reserves for the accrual of any of the same. (c) Maintenance of Property; Insurance. (i) It will keep, and will cause ---------------------------------- each of its Subsidiaries to keep, all property useful and necessary in its business in good working order and condition, ordinary wear and tear excepted. (ii) It will maintain, and will cause each of its Subsidiaries to maintain, (A) with financially sound and responsible insurance companies, insurance in at least such amounts and against such risks as are usually insured against in the same general areas by companies of established repute of similar size that are engaged in the same or a similar business and (B) such other insurance coverage in such amounts and with respect to such risks as the Purchaser may reasonably request. It will deliver to the Holder (x) upon request from time to time, full information as to the insurance carried, (y) within five days of receipt of notice from any insurer a copy of any notice of cancellation or material change in coverage from that existing on the date of this Debenture and (z) within five days of receipt, any notice of any cancellation or nonrenewal of coverage for the Issuer or any of its Subsidiaries. (d) Conduct of Business and Maintenance of Existence. It will continue, ------------------------------------------------ and will cause each of its Subsidiaries to continue, to engage in business of the same general type as now conducted by the Issuer and its Subsidiaries, and will preserve, renew and keep in full force and effect, and will cause each of its Subsidiaries to preserve, renew and keep in full force and effect their respective corporate existence and their respective rights, privileges, licenses and franchises necessary or desirable in the normal conduct of business, except in each case as required or contemplated by the Restructuring. (e) Compliance with Laws and Contractual Obligations. It will comply, ------------------------------------------------ and will cause each of its Subsidiaries to comply, in all material respects, with all applicable laws, ordinances, rules, regulations, and requirements of Governmental Entities, and with all contractual obligations, except where compliance in all material respects therewith is contested in good faith by appropriate proceedings, including, without limitation, with respect to itself and each member of the ERISA Group, (i) maintaining each Plan in compliance, in all material respects with the applicable provisions of ERISA, the Internal Revenue Code and other applicable law; (ii) causing each Plan which is qualified under Section 401(a) of the Internal Reve- -17- nue Code to maintain such qualification; and (iii) making all required contributions to any Plan subject to Section 142 of the Internal Revenue Code. (f) Inspection of Property, Books and Records. It will keep, and will ----------------------------------------- cause each of its Subsidiaries to keep, proper books of record and account in which full, true and correct entries shall be made of all dealings and transactions in relation to their respective businesses and activities; and will permit, and will cause each of its Subsidiaries to permit (during normal business hours and, unless a Default shall have occurred and be continuing, upon reasonable advance notice) officers, attorneys, agents and other representatives of the Holder to visit and inspect any of their respective properties, to examine and make abstracts from any of their respective books and records and to discuss their respective affairs, finances and accounts with their respective directors, officers, senior employees, independent public accountants and actuaries as often as may reasonably be requested. (g) Reservation of Common Stock. It will at all times reserve and keep --------------------------- available, free from preemptive rights, out of its authorized but unissued Common Stock or out of Common Stock held by a Subsidiary of the Issuer, for the purpose of effecting the conversion of the Debentures, the full number of shares of Common Stock then issuable upon the conversion of this Debenture and all outstanding Debentures. (h) Covenant to Guarantee. At any time that any Subsidiary of the Issuer --------------------- (i) shall be formed or acquired by the Issuer (other than a U.S. Insurance Subsidiary) and such Subsidiary constitutes a Significant Subsidiary, (ii) becomes a Significant Subsidiary or (iii) shall guarantee any Debt of the Issuer other than the Debentures, then, in each such case, the Issuer will, at its expense: (i) within ten days after such event, cause each such Subsidiary to duly authorize, execute and deliver to the Holder a Guaranty, substantially in the form of Annex II attached hereto; (ii) within ten days after such event, deliver to the Holder a signed copy of a legal opinion, addressed to the Holder, of counsel for the Issuer reasonably acceptable to the Holder, as to such Guaranty being a legal, valid and binding obligation of such party thereto, enforceable in accordance with its terms and as to such other matters as the Holder may reasonably request; and (iii) at any time and from time to time, promptly execute and deliver any and all further instruments and documents and take all such action as the Holder may deem necessary or reasonably desirable to obtain the full benefits of such Guaranty. (i) Insurance. It will maintain, in full force and effect, executive risk --------- insurance in an amount which the Issuer reasonably believes to be sufficient for the conduct of its business. -18- (j) Compliance Certificate. Concurrently with the delivery of each of the ---------------------- financial statements required by Sections 5(a)(i) and 5(a)(ii), it will deliver to the Holders a compliance certificate executed by the Chief Financial Officer of the Issuer stating that the Issuer and its Subsidiaries are in compliance with each covenant contained in this Debenture, together with the calculations demonstrating such compliance in reasonable detail. SECTION 6. NEGATIVE COVENANTS. The Issuer hereby agrees for the benefit of the Holder that, from and after the date hereof and so long as any portion of this Debenture remains outstanding and unpaid or any other amount is owing to the Holder under any Transaction Document, without the prior written consent of the Requisite Holders (which consent, in the case of Section 6(i), shall not be unreasonably withheld): (a) Restrictions on Amendments of Governance Documents. It will not, -------------------------------------------------- directly or indirectly, amend, and will not suffer, cause or permit to be amended, the memorandum of association, bye-laws or any other organizational document of the Issuer or any of its Significant Subsidiaries, or any partnership or shareholder agreement to which the Issuer or any of its Significant Subsidiaries is a party. (b) Prohibition on Restricted Payments. It will not, and will not ---------------------------------- cause or permit any of its Subsidiaries to, directly or indirectly, declare or make any Restricted Payment other than, so long as no Default or Event of Default has occurred and is continuing or would result therefrom, (i) Restricted Payments made to the Issuer or any Guarantor, (ii) Restricted Payments made to the holders of the Debentures pro rata based on the --- ---- principal amount of Debentures held by each Holder and (iii) dividends on Policy Holder Preferred Shares made solely in connection with the CRM business and determined in a manner consistent with past practices. (c) Consolidations and Mergers. It will not, and will not cause or -------------------------- permit any of its Subsidiaries to, directly or indirectly, consolidate or merge with or into, or acquire, any other Person; provided, however, that -------- ------- the foregoing shall not prohibit (i) a merger of a Subsidiary of the Issuer with and into the Issuer or a Subsidiary, (ii) a merger or consolidation of the Issuer with a Subsidiary or any other Person incorporated under the laws of Bermuda or a state of the United States, if the Issuer is the surviving corporation and continues to be a Bermuda company and immediately after giving effect thereto no Default or Event of Default shall have occurred and be continuing or (iii) the Restructuring. (d) Investments. It will not, and will not cause or permit any of its ----------- Subsidiaries to, directly or indirectly, make or acquire any Investment, other than (i) Investments pursuant to the Issuer's investment policy as adopted by the Issuer's board -19- of directors and in accordance with the Issuer's annual plan and budget, (ii) Investments in Subsidiaries of the Issuer made in connection with the Restructuring, (iii) Investments in Cash Equivalents, (iv) Investments by Subsidiaries of the Issuer in the Issuer or any Guarantor and (v) other Investments not exceeding $[ ] [insert amount reasonably satisfactory to XL and the Company at the time of issuance of this Debenture] in the aggregate outstanding at any one time. (e) Limitation on Incurrence and Repayment of Debt. ---------------------------------------------- (i) It will not, and will not cause or permit any of its Subsidiaries to, directly or indirectly, create, incur, issue, assume or suffer to exist any Debt; provided, however, that the foregoing shall not prohibit the -------- ------- issuance or existence of (A) the Debentures (including any Guarantees thereof), (B) the Existing Bank Debt and any Permitted Refinancings thereof, (C) Debt in an aggregate principal amount not to exceed $[ ] ] [insert amount reasonably satisfactory to XL and the Company at the time of issuance of this Debenture] at any one time outstanding; provided, however, -------- ------- that any Debt incurred pursuant to this clause (C) shall be subordinated to the Debentures pursuant to subordination provisions in form and substance satisfactory to the Requisite Holders, (D) Debt consisting of, or issued in connection with, the RHINOS in an aggregate principal amount not in excess of $32.0 million and (E) Debt consisting of reimbursement obligations (or guarantees thereof) in respect of letters of credit issued under a letter of credit facility entered into solely in connection with the issuance of Policy Holder Preferred Shares consistent with past practices. (ii) It will not, and will not cause or permit any of its Subsidiaries to, directly or indirectly, make any voluntary principal payments in respect of any Debt, whether at or prior to its stated maturity, other than (A) the Debentures in accordance with their terms, (B) Permitted Refinancings of the Existing Bank Debt in accordance with the terms of the Existing Bank Agreement as in effect on the date hereof, (C) Debt consisting of, or issued in connection with, the RHINOS in an aggregate principal amount not in excess of $32.0 million and (D) reimbursement obligations (or guarantees thereof) in respect of letters of credit issued under a letter of credit facility entered into solely in connection with the issuance of Policy Holder Preferred Shares consistent with past practices. (f) Negative Pledge. It will not, and will not cause or permit any of --------------- its Subsidiaries to, directly or indirectly, create, assume or suffer to exist any Lien on any asset now owned or hereafter acquired by it, except for (i) Liens which may be created in the ordinary course of business (it being understood that no Lien securing Debt shall be deemed to have been created in the ordinary course of business), (ii) Liens on assets of the Issuer and its Subsidiaries in favor of the holders of the Debentures, (iii) Liens -20- securing letters of credit issued under a letter of credit facility entered into solely in connection with the issuance of Policy Holder Preferred Shares, consistent with past practices, (iv) Liens on assets of the Issuer or any of its Subsidiaries that are junior to first priority Liens securing the Debentures on such assets and (v) after the expiration of the Put Term, Liens securing the Debentures, the Existing Bank Debt, any Permitted Refinancing of Existing Bank Debt, Debt permitted under Section 6(e)(i)(E) hereof, and the RHINOS on a pari passu basis. (g) Transactions with Affiliates. It will not, and will not cause or ---------------------------- permit any of its Subsidiaries 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 to, purchase any assets from, or participate in, or effect or suffer to exist any other transaction with, or for the benefit of, any Affiliate of the Issuer or any Related Person, except (i) upon fair and reasonable terms that are no less favorable to it than it would obtain in a comparable arm's-length transaction with an unrelated Person and pursuant to the reasonable requirements of its business or (ii) as contemplated by this Debenture and the Securities Purchase Agreement (including, without limitation, the Restructuring). (h) Fundamental Changes. It will not, and will not cause or permit ------------------- any of its Subsidiaries to, wind-up, liquidate or dissolve their respective affairs, except any such action taken with the unanimous consent of the Issuer's board of directors. It will not, and will not cause or permit any of its Subsidiaries to, commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to themselves or their respective debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seek the appointment of a trustee, receiver, liquidation, custodian or other similar official of them or any substantial part of their property, or 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 them, or make a general assignment for the benefit or creditors, or fail generally to pay their respective debts as they become due or on demand, or take any corporate action to authorize any of the foregoing, except any such action taken with the unanimous consent of the Issuer's board of directors. (i) Business. It will not, and will not cause or permit any of its -------- Subsidiaries to, make any material change in the nature of its business or its underwriting strategy or investment policy other than as expressly contemplated by the Restructuring. -21- (j) Limitation on Restrictions Affecting Subsidiaries. It will not, ------------------------------------------------- and will not cause or permit any of its Subsidiaries to, directly or indirectly, enter into, or suffer to exist, any consensual agreement with any Person which prohibits or limits the ability of any Subsidiary to (i) pay dividends or make other distributions or pay any Debt owed to the Issuer or any of its Subsidiaries, (ii) make loans or advances to the Issuer or any of its Subsidiaries or (iii) transfer any of its properties or assets to the Issuer or any of its Subsidiaries, except for such agreement or restrictions existing under or by reason of any of the following: (A) The Debentures, any agreement in effect on the Original Issue Date, including the Existing Bank Debt Documents and the documents governing the terms of any Permitted Refinancing thereof; (B) Customary non-assignment provisions of any lease governing a leasehold interest of the Issuer or any of its Subsidiaries; (C) Any agreement or other instrument of a Person acquired by the Issuer or any of its Subsidiaries in existence at the time of such acquisition (but not created in contemplation thereof), which encumbrance or restriction is not applicable to any Person, or properties or assets of any Person, other than the Person, or the Property or assets of the Person, so acquired; and (D) Any limitations under applicable laws as to dividends payable by Insurance Subsidiaries. (k) Minimum Capital and Surplus. It will not permit its U.S. --------------------------- Insurance Subsidiaries' capital and surplus, as defined in the [Pennsylvania or Illinois] Insurance Code, as applicable, to be less than the greater of (i) the minimum amount required under any applicable insurance law to which it is subject and (ii) $[ ] [insert amount reasonably satisfactory to XL and the Company at the time of issuance of this Debenture], in any quarterly period. (l) Maximum Combined Ratio. The statutory "combined ratio" for the ---------------------- Issuer's U.S. Insurance Subsidiaries, measured with respect to all business written by the Insurance Subsidiaries as the sum for such U.S. Insurance Subsidiaries of (i) the Loss Ratio and (ii) the Expense Ratio, shall not exceed [ ]% [insert percentage reasonably satisfactory to XL and the Company at the time of issuance of this Debenture]. The Issuer will measure the statutory combined ratio for the previous 12 months as of the end of each fiscal quarter. In the event such statutory combined ratio exceeds [ ]% [insert percentage reasonably satisfactory to XL and the Company at the time of issuance of this Debenture], the Issuer and the U.S. Insurance Subsidiaries will establish -22- and implement a plan in order to lower the statutory combined ratio below [ ]% [insert percentage reasonably satisfactory to XL and the Company at the time of issuance of this Debenture]. (m) Minimum Risk-Based Capital. It will not permit the Risk-Based -------------------------- Capital for any U.S. Insurance Subsidiary to be less than [ ]% [insert percentage reasonably satisfactory to XL and the Company at the time of issuance of this Debenture] of the Authorized Control Level and for all such U.S. Insurance Subsidiaries (collectively, on a combined basis) to be less than [ ]% [insert percentage reasonably satisfactory to XL and the Company at the time of issuance of this Debenture] of the Authorized Control Level. The Issuer will measure Risk-Based Capital as of each December 31, commencing on the first December 31 following the issuance of this Debenture, and will run the "early warning" tests established by the NAIC as of each March 31, June 30, September 30 and December 31, commencing on the first such date following the date of issuance of this Debenture. If the Issuer and the U.S. Insurance Subsidiaries fail to comply with any such "early warning" tests, the Issuer and the U.S. Insurance Subsidiaries will establish and implement a plan in order to improve such test results. In no event will the Issuer and the U.S. Insurance Subsidiaries fail to comply with more than three such "early warning" tests. (n) Limitation on Asset Sales. It will not, and will not cause or ------------------------- permit any of its Subsidiaries to, consummate an Asset Sale unless (i) the Issuer or the applicable Subsidiary, as the case may be, receives consideration at the time of such Asset Sale at least equal to the Fair Market Value of the assets sold or otherwise disposed of and (ii) the consideration received for the assets sold by the Issuer or such Subsidiary, as the case may be, in such Asset Sale are in the form of cash or Cash Equivalents, in each case received at the time of such Asset Sale. It will not, and will not cause or permit any of its Subsidiaries to, in a single transaction or a series of related transactions, directly or indirectly, sell, lease or otherwise transfer, directly or indirectly, all or substantially all of the assets of the Issuer and its Subsidiaries to any Person other than the Issuer or any of its wholly owned Subsidiaries. (o) Restrictions on Certain Equity Issuances. It will not issue any ---------------------------------------- Capital Stock or any Common Stock Equivalents (other than pursuant to employee stock option plans in effect on the Original Issue Date and other than upon conversion of the Debentures) until at least 30 days following the date on which the Required Approvals have been obtained and the Restructuring has been consummated. (p) Restrictions on Amendments of Existing Debt. It will not, and ------------------------------------------- will not cause or permit any of its Subsidiaries to, amend, supplement or otherwise modify any of the Existing Bank Debt Documents or any of the documents related to the RHINOS -23- (or permit any of the foregoing) without the prior written consent of the Requisite Holders, which consent will not be unreasonably withheld or delayed, other than as may be necessary in order to complete the Restructuring. (q) Restrictions on Amendment of Certain CRM Documents. It will not, -------------------------------------------------- and will not cause or permit any of its Subsidiaries to, amend or modify any of the agreements or arrangements between the Issuer or any of its Subsidiaries and MRM or any of its Subsidiaries (other than the Issuer and its Subsidiaries) relating to the retention of a portion of any premium by, or the payment of any fees to, MRM or any of its Subsidiaries to or by the Issuer or any of its Subsidiaries (other than the Issuer and its Subsidiaries) in connection with the writing of the underlying insurance policies related to the CRM business. (r) Consolidated Debt to Consolidated Total Capital Ratio. It will ----------------------------------------------------- not permit the ratio of Consolidated Debt to Consolidated Total Capital to exceed (i) [0.45] [insert ratio reasonably satisfactory to XL and the Company at the time of issuance of this Debenture] to 1 at any time from date of issuance of this Debenture to March 21, 2002, or (ii) [0.40] [insert ratio reasonably satisfactory to XL and the Company at the time of issuance of this Debenture] to 1 at any time thereafter. (s) Shareholders' Equity. It will maintain a Shareholders' Equity -------------------- which is not at any time less than the sum of (i) $[ ] [insert amount reasonably satisfactory to XL and the Company at the time of issuance of this Debenture] plus (ii) 50% of cumulative positive consolidated net income (without deduction for any net loss for any period) of the Issuer and its Subsidiaries after the last day of the fiscal quarter during which the first Convertible Debenture due 2006 of the Issuer is issued. (t) No Change in Accounting. It will not, and will not cause or ----------------------- permit any of its Subsidiaries to, make any material change in any accounting policy or practice including, without limitation, with respect to accounting for loss reserves and/or reinsurance recoverables other than any such changes that are required by law or any order of any Governmental Entity having jurisdiction over the Issuer or any such Subsidiary. (u) XL Consent Rights. (a) Until the earlier of such time as XL owns ----------------- less than 20% of the principal amount of outstanding Debentures or such time as 80% or more of the principal amount of Debentures originally issued on the Original Issue Date are converted to Common Stock of the Issuer in accordance with Section 5, (x) it will not, and will not cause or permit any of its Subsidiaries to, enter into or consummate any transaction described in the foregoing Sections 6(a), 6(c), 6(h), 6(i), 6(p), 6(q) and 6(t) without the prior written consent of XL and (y) XL shall have the right to approve the Insurance Subsidiary or other entity that writes the principal insurance -24- policies relating to the CRM business in connection with the Issuer's IPC (i.e., rent-a-captive) companies. (b) [At any time subsequent to exchange of at least 80% of the Debentures originally issued to Debentures issued by Newco or to Common Stock issued by Newco, the Issuer shall not, and shall not cause or permit any of its Subsidiaries (other than Subsidiaries of Newco) to, [engage in any transactions outside of the ordinary course of business with, or take any other action that would adversely affect, Newco], without the prior written consent of XL.] SECTION 7. EVENTS OF DEFAULT. (a) Events of Default. If one or more of the following events (each, an ----------------- "Event of Default") shall have occurred and be continuing: ---------------- (i) there shall be a failure to pay when due (whether at maturity, upon mandatory redemption, acceleration or otherwise) all or any part of the principal of this Debenture; (ii) there shall be a failure to pay when due all or any part of the interest or premium due on this Debenture or any other amount payable by the Issuer or any of its Subsidiaries to the Holder under any Transaction Document, which failure remains unremedied for a period of 10 days after the due date thereof; (iii) the Issuer or any of its Subsidiaries shall fail to observe or perform any covenant or agreement contained in Sections 6(a), 6(b), 6(f), 6(h), 6(j), 6(q), 6(r) or 6(s) of this Debenture; (iv) the Issuer or any of its Subsidiaries shall fail to observe or perform any of its other agreements or covenants hereunder (other than those covered by clauses (i), (ii) and (iii) above) or in any other Transaction Document and such failure continues for 30 days; (v) any representation, warranty, certification or statement made by MRM or the Issuer or any of their Subsidiaries in any Transaction Document shall prove to have been untrue, misleading or inaccurate in any material respect when made or deemed made; (vi) (A) the Issuer or any of its Subsidiaries shall default in the payment when due of any principal of or interest on any Debt (including the Existing Bank Debt) with an aggregate principal amount in excess of $5.0 million beyond the grace period, if any, or the holder or holders of any Debt with an aggregate principal amount -25- in excess of $5.0 million shall have accelerated the maturity of such Debt as a result of an event of default thereunder or (B) at any time prior to expiration of the Put Term, any principal amount of the Existing Bank Debt or the RHINOS shall become due or payable for any reason or the holders of any Existing Bank Debt or RHINOS shall have the right to accelerate the maturity thereof; (vii) the Issuer or any of its Subsidiaries commences a voluntary case or other proceeding seeking 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, custodian or other similar official of it or any substantial part of its property, or consents 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 makes a general assignment for the benefit of creditors, or fails generally, or admits in writing its inability, to pay its debts as they become due or on demand, or takes any corporate action to authorize any of the foregoing; (viii) an involuntary case or other proceeding is commenced against the Issuer or any of its Subsidiaries seeking 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, custodian or other similar official of it or any substantial part of its property and such case or proceeding continues undismissed or undischarged for a period of 30 days, or an order for relief is entered against the Issuer or any of its Subsidiaries under the U.S. Bankruptcy Code or any other bankruptcy or insolvency law; (ix) any material attachment, sequestration or similar proceeding (each, a "Proceeding") shall be filed against any assets or properties of ---------- the Issuer or any of its Subsidiaries, which Proceeding remains undischarged, unbonded by the Issuer or undismissed for a period of 30 days after the commencement thereof; (x) one or more judgments for the payment of money shall be rendered against the Issuer or any of its Subsidiaries for an amount in excess of $5.0 million and such judgment(s) shall continue unsatisfied and in effect for a period of 30 consecutive days without being vacated, discharged, satisfied or stayed or bonded pending appeal; (xi) a Change of Control Event shall occur; or (xii) any insurance license or other authorization or permit necessary for the conduct by any Insurance Subsidiary of its business is revoked or withdrawn or otherwise fails to be in full force and effect, which failure, revocation or withdrawal, in the judgment of the Holder, has a material adverse change in the assets, liabilities, busi- -26- ness, results of operations, condition (financial or otherwise), Permits or prospects of the Issuer and its Subsidiaries taken as a whole. then, and in every such occurrence, unless at such time all obligations under the Transaction Documents have been paid in full in cash, the holders of at least 25% in aggregate principal amount of the outstanding Debentures may, by notice to the Issuer, declare all amounts under the Debentures and all other amounts owing to the holders of Debentures under the Transaction Documents (together with accrued interest thereon) to be, and the Debentures and such other Debt held by the Holder and the other holders of Debentures shall thereon become, immediately due and payable; provided, however, that in the case of any -------- ------- of the Events of Default specified in clause (vii) or (viii) above then, without any notice to the Issuer or any other act by any holder, the entire principal amount of the Debentures and such other Debt and amounts owing to the holders of Debentures, together with accrued interest thereon, shall become immediately due and payable. The rights provided for herein are cumulative and are not exclusive of any other rights, powers, privileges or remedies provided by law. (b) Waivers of Defaults. The Requisite Holders, by notice to the Issuer, ------------------- may waive an existing Default and its consequences; provided, however, that a -------- ------- waiver of a Default described under Sections 7(a)(i) or (ii) shall not be effective as to any holder without its consent. When a Default is waived, it is cured and ceases, but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon. SECTION 8. GUARANTEE. (a) The Guarantee. Each of the Guarantors hereby, jointly and severally, ------------- unconditionally guarantees to the Holder and its successors and assigns the prompt payment in full when due (whether at stated maturity, upon mandatory redemption, by acceleration or otherwise) of the principal of and interest on this Debenture and all other amounts from time to time owing to the Holder under any Transaction Document (such obligations being herein collectively called the "Guaranteed Obligations"). Each of the Guarantors hereby further agrees that if ---------------------- the Issuer shall fail to pay in full when due (whether at stated maturity, by acceleration or otherwise) any of the Guaranteed Obligations, the Guarantors will promptly pay the same, without any demand or notice whatsoever, and that in the case of any extension of time of payment or renewal of any of the Guaranteed Obligations, the same will be promptly paid in full when due (whether at extended maturity, by acceleration or otherwise) in accordance with the terms of such extension or renewal. (b) Obligations Unconditional. The Guaranteed Obligations are absolute, ------------------------- irrevocable and unconditional, irrespective of the value, genuineness, validity, regularity or enforceability of the obligations of the Issuer under any Transaction Document, or any substitution, -27- release or exchange of any other guarantee of or security for any of the Guaranteed Obligations, and, to the fullest extent permitted by applicable law, irrespective of any other circumstance whatsoever that might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor, it being the intent of this Section 8(b) that the Guaranteed Obligations shall be absolute, irrevocable and unconditional, joint and several, under any and all circumstances. Without limiting the generality of the foregoing, it is agreed that the occurrence of any one or more of the following shall not alter or impair the liability of the Guarantors hereunder which shall remain absolute, irrevocable and unconditional as described above: (i) at any time or from time to time, without notice to any of the Guarantors, the time for any performance of or compliance with any of the Guaranteed Obligations shall be extended, or such performance or compliance shall be waived; (ii) any of the acts mentioned in any of the provisions of any Transaction Document shall be done or omitted; or (iii) the maturity of any of the Guaranteed Obligations shall be accelerated, or any of the Guaranteed Obligations shall be modified, supplemented or amended in any respect, or any right under any Transaction Document shall be amended, modified or waived in any respect or any other guarantee of any of the Guaranteed Obligations or any security therefor shall be released or exchanged in whole or in part or otherwise dealt with. Each of the Guarantors hereby expressly waives diligence, presentment, demand of payment, protest and all notices whatsoever, and any requirement that the Purchaser or the Holder exhaust any right, power or remedy or proceed against the Issuer under any Transaction Document, or against any other Person under any other guarantee of, or security for, any of the Guaranteed Obligations. Each of the Guarantors waives any and all notice of the creation, renewal, extension or accrual of any of the Guaranteed Obligations and notice of or proof of reliance by the Holder upon this guarantee or acceptance of this guarantee. This guarantee shall be construed as a continuing, absolute, irrevocable and unconditional guarantee of payment without regard to any right of offset with respect to the Guaranteed Obligations at any time or from time to time held by the Holder, and the Guaranteed Obligations shall not be conditioned or contingent upon the pursuit by the Holder or any other Person at any time of any right or remedy against the Issuer or against any other Person which may be or become liable in respect of all or any part of the Guaranteed Obligations or against any collateral security or guarantee therefor or right of offset with respect thereto. This guarantee shall remain in full force and effect and be binding in accordance with and to the extent of its terms upon the issuer and its successors and assigns thereof, and shall inure to the benefit of the Holder, and its successors and assigns. -28- (c) Subrogation; Subordination. Each of the Guarantors hereby agrees that -------------------------- until the payment and satisfaction in full in cash of all Guaranteed Obligations it shall not exercise any right or remedy arising by reason of any performance by it of its guarantee in Section 8(a), whether by subrogation or otherwise, against the Issuer or any other guarantor of any of the Guaranteed Obligations or any security for any of the Guaranteed Obligations. The payment of any amounts due with respect to any indebtedness of the Issuer now or hereafter owing to any of the Guarantors by reason of any payment by such Guarantor under this Section 8 is hereby subordinated to the prior payment in full of the Guaranteed Obligations. Each Guarantor agrees that it will not demand, sue for or otherwise attempt to collect any such indebtedness of the Issuer to such Guarantor until the Guaranteed Obligations shall have been paid in full. If, notwithstanding the foregoing sentence, a Guarantor shall prior to the payment in full of its Guaranteed Obligations collect, enforce or receive any amounts in respect of such indebtedness, such amounts shall be collected, enforced and received by such Guarantor as trustee for the Holder and paid over to the Holder on account of its Guaranteed Obligations without affecting in any manner the liability of such Guarantor under the other provisions of the guaranty contained herein. (d) Limitation on Guarantee. Each Guarantor and by its acceptance hereof ----------------------- the Holder hereby confirms that it is the intention of all such parties that the guarantee by such Guarantor pursuant to its Guarantee not constitute a fraudulent transfer or conveyance for purposes of any state or Federal bankruptcy, insolvency, reorganization or other law affecting the rights of creditors generally, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar Federal or state law. To effectuate the foregoing intention, the Holder and such Guarantor hereby irrevocably agree that the obligations of such Guarantor under the Guarantee shall be limited to the maximum amount as will, after giving effect to all other contingent and fixed liabilities of such Guarantor and after giving effect to any collections from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under its Guarantee or pursuant to subsection (e) below, result in the obligations of such Guarantor under the Guarantee not constituting such fraudulent transfer or conveyance. (e) Contribution. In order to provide for just and equitable contribution ------------ among the Guarantors, the Guarantors agree, inter se, that in the event any ----- -- payment or distribution is made by any Guarantor (a "Funding Guarantor") under ----------------- the Guarantee, such Funding Guarantor shall be entitled to a contribution from all other Guarantors in a pro rata amount based on the Adjusted Net Assets of --- ---- each Guarantor (including the Funding Guarantor) for all payments, damages and expenses incurred by that Funding Guarantor in discharging the Issuer's obligations with respect to any Debentures or any other Guarantor's obligations with respect to the Guarantee. "Adjusted Net Assets" of such Guarantor at any ------------------- date shall mean the lesser of the amount by which (x) the fair value of the property of such Guarantor exceeds the total amount of liabilities, including, without limitation, contingent liabilities (after giving effect to -29- all other fixed and contingent liabilities incurred or assumed on such date and after giving effect to any collection from any other Subsidiary of the Guarantor in respect of the obligations of its Guarantee), but excluding liabilities under the Guarantee, of such Guarantor at such date and (y) the present fair salable value of the assets of such Guarantor at such date exceeds the amount that will be required to pay the probable liability of such Guarantor on its debts (after giving effect to all other fixed and contingent liabilities incurred or assumed on such date and after giving effect to any collection from any other Subsidiary of the Issuer in respect of the obligations of such Guarantor under its Guarantee), excluding debt in respect of the Guarantee of such Guarantor, as they become absolute and matured. SECTION 9. REGISTRATION; EXCHANGE, SUBSTITUTION OF DEBENTURES. (a) Registration of Debentures. The Issuer shall keep at its principal -------------------------- executive office a register for the registration and registration of transfers of this Debenture (the "Debenture Register"). The name and address of each ------------------ holder of Debentures, each transfer of this Debenture and the related Newco Voting Preferred Stock and the name and address of each transferee of one or more Debentures shall be registered in such register. Prior to due presentment for registration of transfer, the Person in whose name this Debenture shall be registered shall be deemed and treated as the owner and Holder hereof for all purposes hereof, and the Issuer shall not be affected by any notice or knowledge to the contrary. The Issuer shall give to the Holder of at least 5% of the original aggregate principal amount ($112.5 million) of all Debentures promptly upon request therefor, a complete and correct copy of the names and addresses of all registered holders of Debentures. (b) Transfer of Debentures. ---------------------- (i) So long as XL owns any Debentures, any transfer of this Debenture or portion hereof shall be subject to the prior written approval of XL, such approval not to be unreasonably withheld (it being understood that it is reasonable for XL to withhold its approval of any proposed transfer of this Debenture or portion hereof to a competitor of the Issuer or XL or to any investor whose ownership might, in the judgment of XL, adversely affect the tax status of the Issuer, Newco, XL or any of their respective Subsidiaries or shareholders). In the event the Holder desires to transfer this Debenture or any portion hereof, the Holder shall deliver to XL written notice of such intention (such notice shall identify the amount to be transferred and the identity of the proposed transferee) at XL Insurance Ltd., c/o XL Capital Ltd., XL House, One Bermudiana Road, Hamilton HM 11, Bermuda, telecopy: (441) 292-8618, Attention: Paul Giordano. XL shall notify the Holder in writing by 5:00 p.m. (Bermuda time) on the fifth Business Day following its receipt of written notice from the Holder of its request to transfer this Debenture or portion hereof of its decision whether to approve such transfer and, if its decision is not to approve such transfer, its reasons therefor. The failure by XL to notify -30- the Holder of its decision to approve a proposed transfer within such time period shall be deemed to be an approval by XL of the proposed transfer. Notwithstanding the foregoing, the holders of the RHINOS Debentures will have the right to transfer the RHINOS Debentures, subject to applicable securities laws, to any institutional portfolio or hedge fund investor (other than a direct or indirect competitor of MRM or XL or any entity whose ownership might, in the judgment of XL, adversely affect the tax status of MRM, the Issuer, XL or any of their respective Subsidiaries or their shareholders). (ii) This Debenture may not be transferred separately from, and may be transferred only together with, shares of Newco Voting Preferred Stock representing the same percentage of the total amount of outstanding shares of Newco Voting Preferred Stock that the principal amount of Convertible Debentures due 2006 of the Issuer proposed to be transferred or assigned represents of the total principal amount of outstanding Convertible Debentures due 2006. (iii) Upon surrender of this Debenture and the related Newco Voting Preferred Stock at the principal executive office of the Issuer for registration of transfer or exchange (and in the case of a surrender for registration of transfer, duly endorsed or accompanied by a written instrument of transfer duly executed by the registered Holder or his attorney duly authorized in writing and accompanied by the address for notices of each transferee of this Debenture or part thereof), the Issuer shall execute and deliver, at the Issuer's expense (except as provided below), one or more new Debentures (as requested by the Holder) in exchange therefor, in an aggregate principal amount equal to the unpaid principal amount of the surrendered Debenture and a new certificate representing the related Newco Voting Preferred Stock with voting rights equal to the aggregate voting rights of the Common Stock issuable upon conversion of such new Debenture. Each such new Debenture shall be payable to such Person as such Holder may request and shall be substantially in the form of this Debenture. Each such new Debenture shall be dated and bear interest from the date on which interest shall have been paid on the surrendered Debenture or dated the date of the surrendered Debenture if no interest shall have been paid hereon. The Issuer may require payment of a sum sufficient to cover any stamp tax or governmental charge imposed in respect of any such transfer of Debentures. This Debenture shall not be transferred in denominations of less than $100.00; provided, however, that if necessary to enable the registration of -------- ------- transfer by the Holder of the entire amount of this Debenture, one Debenture may be in a denomination of less than $100.00. Any transferee, by its acceptance of a Debenture registered in its name (or the name of its nominee), shall be deemed to have made the representation set forth in Sections 4.2 and 4.3 of the Securities Purchase Agreement. (c) Replacement of this Debenture. Upon receipt by the Issuer of evidence ----------------------------- reasonably satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of this Debenture, and -31- (i) in the case of loss, theft or destruction, of indemnity reasonably satisfactory to it, or (ii) in the case of mutilation, upon surrender and cancellation thereof, the Issuer at its own expense shall execute and deliver, in lieu thereof, a new Debenture, dated and bearing interest from the date to which interest shall have been paid on this Debenture or dated the date of this Debenture if no interest shall have been paid thereon. SECTION 10. DEFINITIONS; CONSTRUCTION. (a) Definitions. The following terms, as used herein, have the following ----------- meanings: "Adjusted Net Assets" has the meaning set forth in Section 8(e). ------------------- "Affiliate" means, with respect to any Person (the "Subject Person"), (i) --------- -------------- any other Person (a "Controlling Person") that directly, or indirectly through ------------------ one or more intermediaries, Controls the Subject Person or (ii) any other Person which is Controlled by or is under common Control with a Controlling Person; provided, however, that the Holder and its Affiliates shall not be deemed - -------- ------- Affiliates of the Issuer or any of its Subsidiaries. "Asset Sale" means any direct or indirect sale, issuance, conveyance, ---------- lease, assignment, transfer or other disposition for value by the Issuer or any of its Subsidiaries to any Person other than the Issuer or any of its wholly owned Subsidiaries (any such transaction, a "disposition") of any asset of the ----------- Issuer or any of its Subsidiaries, excluding (i) any disposition in the ordinary course of business, (ii) any disposition of Cash Equivalents in the ordinary course of business, (iii) any disposition of Investment Securities in the ordinary course of business the proceeds of which are used to purchase other Investment Securities or invested in Cash Equivalents pending such purchase and (iv) any disposition of assets (or series of related dispositions) the Fair Market Value of which does not exceed $1.0 million in the aggregate. "Authorized Control Level" means "Authorized Control Level" as defined by ------------------------ the NAIC from time to time and as applied in the context of the Risk-Based Capital Guidelines promulgated by the NAIC (or any term substituted therefor by the NAIC). In the event that there is a conflict between the risk-based capital formulas adopted by the NAIC and any applicable department of insurance, the calculation of the applicable department of insurance shall govern. "Business Day" means any day except a Saturday, Sunday or other day on ------------ which (i) commercial banks in The City of New York are authorized or required by law to close or (ii) the New York Stock Exchange is not open for trading. -32- "Capital Stock" means, with respect to any Person, any and all shares, ------------- partnership interests or equivalents (however designated and whether voting or non-voting) of such Person's capital stock, whether outstanding on the date hereof or hereafter issued. "Cash Equivalents" means (i) marketable direct obligations issued or ---------------- unconditionally guaranteed by the United States government or issued by any agency thereof and backed by the full faith and credit of the United States of America, in each case maturing within one year from the date of acquisition thereof; (ii) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof maturing within one year from the date of acquisition thereof and, at the time of acquisition, having the highest rating obtainable from either S&P or Moody's; (iii) commercial paper maturing no more than one year from the date of creation thereof and, at the time of acquisition, having the highest rating obtainable from either S&P or Moody's; (iv) certificates of deposit or bankers' acceptances maturing within one year from the date of acquisition thereof issued by any commercial bank organized under the laws of the United States of America or any state thereof or the District of Columbia that (A) is at least "adequately capitalized" (as defined in the regulations of its primary Federal banking regulator) and (B) has Tier I capital (as defined in such regulations) of not less than $250.0 million; (v) certificates of deposit or banker's acceptances maturing within one year from the date of acquisition thereof issued by the Bank of Bermuda or The Bank of N.T. Butterfield & Son Limited; (vi) shares of any money market mutual fund that (a) has its assets invested continuously in the types of investments referred to in clauses (i) and (ii) above, (b) has net assets of not less than $500.0 million, and (c) has the highest rating obtainable from either S&P or Moody's; and (vii) repurchase agreements with respect to, and which are fully secured by a perfected security interest in, obligations of a type described in clause (i) or clause (ii) above and are with any commercial bank described in clause (iv) above. "Change of Control Event" shall mean any of the following: (i) the Issuer ----------------------- shall cease to own, directly or indirectly, 100% on a Fully Diluted Basis of the economic and voting interest in the Capital Stock of the Insurance Subsidiaries or (ii) the Permitted Holders shall cease to own and control at least a majority of the issued and outstanding Common Stock of the Issuer (for purposes of this calculation, only the denominator shall be calculated on a Fully Diluted Basis) or (iii) any Person or "group" (within the meaning of Rules 13d-3 and 13d-5 under the Exchange Act), except the Permitted Holders, shall have (x) acquired beneficial ownership of 33% or more on a Fully Diluted Basis of the voting and/or economic interest in the Issuer's Capital Stock other than any such acquisition resulting solely from conversion of Debentures (for purposes of this calculation, only the denominator shall be calculated on a Fully Diluted Basis) and the Permitted Holders shall, at such time, beneficially own a lesser percentage than such Person or group or (y) obtained the power (whether or not exercised) to elect a majority of the Issuer's directors or (iv) the board of directors of the Issuer shall cease to consist of a majority of Continuing Directors or (v) any event or condition which consti- -33- tutes a change of control under the Existing Bank Agreement or the documents governing the RHINOS. "Common Stock" means the common stock or common shares of the referenced ------------ Person. "Common Stock Equivalents" has the meaning set forth in Section 4(e). ------------------------ "Consolidated Debt" means, with respect to the Issuer and its Subsidiaries ----------------- at any date, the Debt of the Issuer and its Subsidiaries, determined on a consolidated basis as of such date including, without limitation, all Debt evidenced by the Debentures. "Consolidated Total Capital" means, with respect to the Issuer and its -------------------------- Subsidiaries at any date, the sum, without duplication, of Consolidated Debt and Shareholders' Equity. "Constituent Person" has the meaning set forth in Section 4(k). ------------------ "Continuing Directors" shall mean the directors of the Issuer on the -------------------- Closing Date and each other director whose nomination for the election to the board of directors of the Issuer is recommended by a majority of the then Continuing Directors. "Control" (including, with correlative meanings, the terms "Controlling," ------- ----------- "Controlled by" and "under common Control with"), as used with respect to any - -------------- ------------------------- Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of that Person, whether through the ownership of voting securities or interests, by contract or otherwise. "Conversion Date" has the meaning set forth in Section 4(b). --------------- "Conversion Price" has the meaning set forth in Section 4(a). ---------------- "CRM" has the meaning set forth in the definition of "Restructuring." --- "Debenture" means this Convertible Debenture due 2006 and "Debentures" --------- ---------- means, collectively, this Debenture and any other Convertible Debentures due 2006 of the Issuer and Convertible Exchangeable Debentures due 2006 of MRM. "Debenture Register" has the meaning set forth in Section 9(a). ------------------ "Debt" of any Person means at any date, without duplication, (i) all ---- obligations of such Person for borrowed money (other than (except for purposes of Section 7(a)(vi)) regularly scheduled interest payments, including interest payable in the form of additional Debt obligations), (ii) all obligations of such Person evidenced by bonds, debentures, notes or other simi- -34- lar instruments issued by such Person, (iii) all obligations of such Person to pay the deferred purchase price of property or services, except trade accounts payable arising in the ordinary course of business, (iv) all obligations of such Person under any Financing Lease, (v) all reimbursement obligations of such Person in respect of letters of credit or other similar instruments, (vi) Disqualified Capital Stock of such Person (other than Policy Holder Preferred Shares), (vii) Preferred Stock of any Subsidiary of such Person (other than Policy Holder Preferred Shares), (viii) all Debt of others secured by a Lien on any asset of such Person, whether or not such Debt is otherwise an obligation of such Person, and (ix) all Debt of others Guaranteed by such Person; provided, -------- however, that Debt shall not include the accretion of principal amount on zero - ------- coupon discount obligations. "Default" means any event or condition which constitutes an Event of ------- Default or which with the giving of notice or lapse of time or both would, unless cured within the stated time period or waived, become an Event of Default. "Disqualified Capital Stock" means that portion of any Capital Stock which, -------------------------- by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable at the option of the holder thereof), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the sole option of the holder thereof, or requires the payment of any dividends, in each case at any time that any obligation under the Transaction Documents is outstanding. "ERISA" means the Employee Retirement Income Security Act of 1974, as ----- amended. "ERISA Group" means the Issuer and its Subsidiaries 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 Issuer or any of its Subsidiaries, are treated as a single employer under Section 414 of the Internal Revenue Code. "Event of Default" has the meaning set forth in Section 7(a). ---------------- "Exchange Act" means the Securities Exchange Act of 1934, as amended. ------------ "Existing Bank Agreement" means the Credit Agreement dated as of September ----------------------- 21, 2000 among the MRM, Mutual Group, Ltd., Bank of America, N.A., as Administrative Agent, and the Lenders party thereto, as in effect on the Original Issue Date or as amended, modified or refinanced in accordance with Sections 6(e) and 6(p) hereof. "Existing Bank Debt" means the Debt in an aggregate principal amount of no ------------------ more than $180.0 million of MRM outstanding under the Existing Bank Agreement. -35- "Existing Bank Debt Documents" means the Existing Bank Agreement and all ---------------------------- other documentation related to the Existing Bank Debt as in effect on the Original Issue Date or as amended, modified or re-executed in accordance with Sections 6(e) and 6(p) hereof. "Expense Ratio" means a ratio equal to (i) Other Underwriting Expenses ------------- Incurred divided by (ii) Net Premiums Written (as set forth in the Issuer's combined annual statements of the U.S. Insurance Subsidiaries). "Fair Market Value" means, with respect to any Asset Sale, the price (after ----------------- taking into account any liabilities relating to such asset) which could be negotiated in an arm's-length free market transaction, for cash, between a willing seller and a willing and able buyer, neither of which is under any compulsion to complete the transaction. "FAS 115" means Statement No. 115 ("Accounting for Certain Investments in ------- Indebtedness and Equity Securities") issued by the Financial Accounting Standards Board. "Financing Lease" means any lease of property, real or personal, the --------------- obligations of the lessee in respect of which are required in accordance with GAAP to be capitalized on a balance sheet of the lessee. "Fully Diluted Basis" means after giving effect to the exercise of all ------------------- outstanding options, warrants and other rights to purchase Capital Stock of the relevant Person and the conversion or exchange of all securities convertible or exchangeable into Capital Stock of the relevant Person (whether or not then exercisable, exchangeable or convertible and whether or not "in the money"). "Funding Guarantor" has the meaning set forth in Section 8(e). ----------------- "GAAP" has the meaning set forth in Section 10(b). ---- "Governmental Entity" means any court, arbitral tribunal, administrative ------------------- agency or commission or other governmental or other regulatory authority or agency, including any insurance regulatory authority or agency or Insurance Department. "Guarantee" by any Person means any obligation, contingent or otherwise, of --------- such Person directly or indirectly guaranteeing (whether by virtue of partnership arrangements, by agreement to keepwell, to purchase assets, goods, securities or services, to take-or-pay, or to maintain a minimum net worth, financial ratio or similar requirements, or otherwise) any Debt 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 (ii) entered into for the purpose of assuring in any other manner the holder of such Debt of the payment thereof or to protect such -36- holder against loss in respect thereof (in whole or in part). The term "Guarantee" used as a verb has a corresponding meaning. --------- "Guaranteed Obligations" has the meaning set forth in Section 8.1(a). ---------------------- "Guarantors" means each of the Subsidiaries of MRM named on the signature ---------- pages to this Debenture and each additional entity required to become a Guarantor pursuant to Section 5(h) hereof. "Holder" has the meaning set forth in the introductory paragraphs hereto. ------ "Independent Financial Advisor" has the meaning set forth in Section 4(e). ----------------------------- "Initial Newco Conversion Price" means an amount, expressed as a dollar ------------------------------ amount, to be determined at the time of the first exchange of any 9 3/8% convertible exchangeable debentures due 2006 of MRM for Debentures, that (assuming the exchange of all 9 3/8% convertible exchangeable debentures due 2006 of MRM for Debentures and the conversion of all Debentures into Common stock of the Issuer in accordance with Section 4 of this Debenture) would result in the holders of the Debentures receiving Common Stock of the Issuer equal to 33.5% of the equity ownership of Newco, on a fully diluted basis; provided, -------- however, that if the RHINOS Debentures are issued, such ownership percentage - ------- shall be equal to 57.6%, on a Fully Diluted Basis, "Insurance Acts" means all applicable insurance laws and the applicable -------------- rules and regulations thereunder. "Insurance Department" means the Bermuda Registrar of Companies and the -------------------- Departments of Insurance of the States of [Pennsylvania and Illinois]. "Insurance Subsidiaries" means each Subsidiary of the Issuer that is a ---------------------- licensed insurance company. "Interest Payment Date" has the meaning set forth in Section 1. --------------------- "Internal Revenue Code" means the Internal Revenue Code of 1986, as --------------------- amended. "Investment" means any investment in any Person, whether by means of share ---------- purchase, capital contribution, loan, advance, time deposit or otherwise. "Investment Securities" means "securities" classified as "trading --------------------- securities" or "available-for-sale securities" for purposes of FAS 115, in each case within the meaning of FAS 115. -37- "IPC" means Insurance Profit Center. --- "Issuer" has the meaning set forth in the introductory paragraphs hereto. ------ "Lien" means any lien, mechanic's lien, materialmen's lien, lease, ---- easement, charge, encumbrance, mortgage, conditional sale agreement, title retention agreement, voting trust agreement, assignment by way of security, restriction on voting or transfer, agreement to sell or convey, option, claim, title imperfection, encroachment or other survey defect, pledge, restriction, security interest or adverse claim of any kind, whether arising by contract or under law or otherwise (including any Financing Lease having substantially the same economic effect as any of the foregoing, and the filing of any financing statement under the UCC or comparable law of any jurisdiction in respect of any of the foregoing). "Loss Ratio" means a ratio equal to (i) Losses Incurred plus Loss Expenses ---------- Incurred (inclusive of allocated and unallocated loss adjustments) divided by (ii) Net Premiums Earned (as set forth in the Issuer's combined annual statements of the U.S. Insurance Subsidiaries). "Maturity Date" has the meaning set forth in the introductory paragraphs ------------- hereto. "Moody's" means Moody's Investors Service, Inc. or its successor. ------- "MRM" has the meaning set forth in Section 1. --- "MRM Voting Preferred Stock" means shares of preferred stock of MRM having -------------------------- a nominal liquidation preference and par value, no dividend rights and aggregate voting rights equal to the aggregate voting rights of the Common Stock of MRM issuable upon conversion of all Debentures issued on the Original Issue Date. "Multiemployer Plan" means at any time a multiemployer 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. "NAIC" means the National Association of Insurance Commissioners. ---- "Newco Voting Preferred Stock" means shares of preferred stock of the ---------------------------- Issuer having a nominal liquidation preference and par value, no dividend rights and aggregate voting rights equal to the aggregate voting rights of the Common Stock of the Issuer issuable upon conversion of all Debentures issued on the Original Issue Date. "non-electing share" has the meaning set forth in Section 4(k). ------------------ -38- "Obligors" means, collectively, the Issuer and the Guarantors; and -------- "Obligor" means any of them. ------- "Original Issue Date" has the meaning set forth in Section 1. ------------------- "Other Investor Warrants" means the warrants to purchase Common Stock of ----------------------- the Issuer issued to First Union Merchant Banking 2001, LLC, High Ridge Capital Partners II, L.P. and Century Capital Partners II. "Permits" means all domestic and foreign licenses, permits, consents, ------- franchises, orders, authorizations, clearances, certificates, and approvals from Governmental Entities. "Permitted Holders" means (i) MRM or any of its wholly owned Subsidiaries ----------------- and (ii) XL Insurance Ltd. and its Affiliates. "Permitted Refinancings" means any incurrence by the Issuer of Debt that ---------------------- refunds, refinances, replaces or extends the Existing Bank Debt of the Company or of a wholly owned Subsidiary of the Company, but only to the extent that (i) such Debt is subject to the Subordination Agreement (if then in effect) to at least the same extent as the Debt being refunded, refinanced, replaced or extended; (ii) such Debt is scheduled to mature either (a) no earlier than the Debt being refunded, refinanced or extended or (b) after the Maturity Date; (iii) such Debt is in an aggregate principal amount that is equal to or less than the sum of (a) the aggregate principal amount then outstanding under the Debt being refunded, refinanced or extended, (b) the amount of accrued and unpaid interest, if any, and premiums owed, if any, not in excess of preexisting prepayment provisions on such Debt being refunded, refinanced or extended, and (c) the amount of customary fees, expenses and costs related to the incurrence of such Debt; (iv) such Debt does not have a Weighted Average Life to Maturity that is less than the Weighted Average Life to Maturity of the Debt being refinanced; (v) such Debt contains covenants no more onerous that the Debt being refunded, refinanced, replaced or extended; and (vi) such Debt is incurred either by the same Person that initially incurred the Debt being refunded, refinanced, replaced or extended or by the Issuer. "Person" means an individual or a corporation, company, partnership, trust, ------ incorporated or unincorporated association, joint venture, joint stock company, limited liability company, government (or any agency or political subdivision thereof) or other entity of any kind. "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 -39- to, by any Person which was at the time a member of such ERISA Group for employees of any Person which was at the time a member of the ERISA Group. "Policy Holder Preferred Shares" means shares of Preferred Stock of an IPC ------------------------------ (i.e., rent-a-captive) Subsidiary of the Issuer (or of a holding company --- thereof) issued to policy holders solely in connection with the CRM business consistent with past practices. "Preferred Stock" means, with respect to any Person, any Capital Stock of --------------- such Person that has preferential rights over any other Capital Stock of such Person with respect to dividends, distributions or upon liquidation. "Proceeding" has the meaning set forth in Section 7(a). ---------- "Program Business" means the business of MRM in which it acts as a conduit ---------------- between producers of specialty books of business and reinsurers of such business. "Put Term" means the period beginning on September [_], 2001 and ending on -------- the earlier of (i) November [ ], 2001 and (ii) the date on which all of the Required Approvals have been obtained and the Restructuring has been completed; provided, however, that if any holder of Debentures has exercised its right to - -------- ------- have any Debentures mandatorily redeemed pursuant to Section 3(b), the Put Term shall mean such longer period until all such Debentures are indefeasibly paid in full in cash. "Redemption Price" has the meaning set forth in Section 3(b). ---------------- "Redemption Right" has the meaning set forth in Section 3(b). ---------------- "Related Person" means any director, officer or employee of the Issuer or -------------- any of its Subsidiaries who is also an equity or debt holder of the Issuer or any of its Subsidiaries. "Required Approvals" means all federal, state and local government ------------------ regulatory (including any Form A approvals and all other approvals relating to insurance) and shareholders approvals necessary for consummation of the Transactions, including all approvals necessary in order to remove any restrictions or limitations on voting rights or conversion contained in any of the Transaction Documents. "Requisite Holders" means the holders of a majority in principal amount of ----------------- all outstanding Debentures; provided, however, that at any time when XL holds or -------- ------- has the right to vote a majority in principal amount of outstanding Debentures (other than RHINOS Debentures), "Requisite Holders" shall mean a majority in principal amount of outstanding Debentures (other than RHINOS Debentures); provided, further, however, that as long as XL owns - -------- ------- ------- -40- at least $50.0 million in principal amount of Debentures, XL will be deemed to hold a majority of the principal amount of outstanding Debentures. "Restricted Payment" means, with respect to any Person, (i) any dividend or ------------------ other distribution on or in respect of any shares of Capital Stock of such Person (except dividends payable solely in shares of Capital Stock of the same class of such Person and except dividends or other distributions by a Subsidiary of the Issuer to the Issuer) or (ii) any direct or indirect payment on account of the purchase, redemption, retirement or acquisition of (a) any shares of such Person's Capital Stock or (b) any option, warrant or other right to acquire shares of such Person's Capital Stock. "Restructuring" means the restructuring of the operating units of MRM into ------------- two separate holding company structures, resulting in (i) one holding company owning MRM's U.S. insurance operations and managing general agency entities and operating through subsidiaries as a specialty insurer writing a selected book of Program Business and (ii) the Issuer owning (A) all of MRM's fee generating businesses that presently comprise its Corporate Risk Management ("CRM"), --- Specialty Brokerage and Financial Services business segments and all of MRM's non-U.S. insurance operations and (B) MRM's IPC (i.e., rent-a-captive) --- companies, other than Mutual Indemnity (Dublin) Limited (which will be confined solely to its present business), that are principally dedicated to its CRM business segment. As part of the Restructuring, (x) the Issuer will be entitled to receive all of the fees attributable to the CRM business except that MRM's U.S. Insurance Subsidiaries that write the related policies (which will only be Villanova Insurance Company ("Villanova") where Villanova is legally entitled to --------- write such policies and the prospective holder of the underlying policy does not object to the use of Villanova, or a new company in the case of new or renewal policies) may retain a portion of the premium equal to actual costs, but not more than 1 1/4% and (y) the Issuer will be given an option to purchase Villanova or such new company for book value. The Restructuring shall be effected in a manner reasonably acceptable to XL, including with respect to capitalization. "RHINOS" means the Auction Rate Reset Preferred Securities, known as ------ "RHINOS," issued by an Affiliate of the Issuer, including the related documentation. "RHINOS Debentures" means Debentures issued to any current or former ----------------- holders of RHINOS or any of their respective Affiliates in exchange for an equal principal amount of RHINOS and any Debentures issued in exchange for any such Debentures. "RHINOS or Bank Event" means the occurrence of any event upon or after -------------------- which any principal amount of the Existing Bank Debt or the RHINOS shall become due or payable prior to its stated maturity for any reason or the holders of any Existing Bank Debt or RHINOS shall have the right to accelerate the maturity thereof. -41- "Risk-Based Capital" means, for any Person, the ratio (expressed as a ------------------ percentage), at any time, of the Total Adjusted Capital of such Person to the Authorized Control Level of such Person. "S&P" means Standard & Poor's Ratings Group or its successor. --- "Securities Act" means the Securities Act of 1933, as amended. -------------- "Securities Purchase Agreement" has the meaning set forth in the ----------------------------- introductory paragraphs hereto. "Shareholders' Equity" means, with respect to the Issuer and its -------------------- Subsidiaries at any date, the shareholders' equity of the Issuer and its Subsidiaries determined on a consolidated basis in accordance with GAAP; provided, however, that, for purposes hereof, Shareholders Equity shall be - -------- ------- determined without regard to the requirements of FAS 115; and provided, further, -------- ------- that the principal or face amount of the RHINOS shall not be considered to be Shareholders Equity. "Significant Subsidiaries" has the meaning set forth in Section 1-02(w) of ------------------------ Regulation S-X under the Securities Act. "Statutory Accounting Principles" means generally accepted statutory ------------------------------- accounting principles for property and casualty insurance companies domiciled in Pennsylvania or Illinois, as applicable. "Subsidiary" means, with respect to any Person, (i) any corporation or ---------- other entity of which more than 50% of the Capital Stock or other ownership interests having ordinary voting power to elect more than 50% of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by such Person and (ii) any partnership, association, joint venture or other entity in which such Person, directly or indirectly through Subsidiaries, has a greater than 50% equity interest. "Total Adjusted Capital" means "Total Adjusted Capital" as defined by the ---------------------- NAIC as of December 31, 1998 and as applied in the context of the Risk-Based Capital Guidelines promulgated by the NAIC. In the event that there is a conflict between the risk-based capital formulas adopted by the NAIC and any applicable department of insurance, the calculation of the applicable department of insurance shall govern. "Transaction Documents" means (i) the Debentures, (ii) the Securities --------------------- Purchase Agreement, (iii) the Collateral Agreement, (iv) the registration rights agreements relating to the Debentures and the Warrants, (v) the Subordination Agreement, (vi) the certificates of designations relating to the MRM Voting Preferred Stock and the Newco Voting Preferred -42- Stock, (vii) the MRM Voting Preferred Stock and the Newco Voting Preferred Stock, (viii) the Warrants and (ix) each other document executed in connection with or pursuant to the Securities Purchase Agreement, including the lock-up agreements and the directors' and officers' voting proxies. "Transactions" means the issuance, sale and conversion of the Debentures, ------------ the MRM Voting Preferred Stock, the Newco Voting Preferred Stock and each of the other transactions contemplated by the Transaction Documents, including the Restructuring, both before and after giving effect to permitted conversions of the Debentures. "U.S. Insurance Subsidiaries" means each Insurance Subsidiary of the Issuer --------------------------- that is organized under the laws of any State of the United States of America or the District of Columbia. "Warrants" means collectively the XL Warrant and the Other Investor -------- Warrants. "Weighted Average Life to Maturity" means, when applied to any Debt at any --------------------------------- date, the number of years obtained by dividing (a) the then outstanding aggregate principal amount of such Debt into (b) the sum of the total of the products obtained by multiplying (i) the amount of each then remaining installment, sinking fund, serial maturity or other required payment of principal, including payment at final maturity, in respect thereof, by (ii) the number of years (calculated to the nearest one-twelfth) which will elapse between such date and the making of such payment. "XL" means XL Insurance Ltd. -- "XL Warrant" means the warrant to purchase Common Stock of the Issuer ---------- issued to XL in connection with its purchase of Debentures. (b) Accounting Terms and Determinations. Unless otherwise specified ----------------------------------- herein, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared, in accordance with generally accepted accounting principles as in effect in the United States on the date hereof applied on a consistent basis ("GAAP"). ---- (c) Rules of Construction. The definitions in Section 10(a) shall apply --------------------- equally to both the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include," "includes" and "including" shall ------- -------- --------- be deemed to be followed by the phrase "without limitation." -43- (d) References. Unless the context shall otherwise require, all references ---------- herein to (i) Sections, Exhibits, Schedules and Annexes shall be deemed references to Sections of, and Exhibits, Schedules and Annexes to, this Debenture, (ii) Persons include their respective permitted successors and assigns or, in the case of governmental Persons, Persons succeeding to the relevant functions of such Persons, (iii) agreements and other contractual instruments include subsequent amendments, assignments, and other modifications thereto to the date hereof and thereafter, but in the case of any amendment, assignment or modification after the date hereof, only to the extent such amendments, assignments or other modifications thereto are not prohibited by their terms or the terms of any Transaction Document, (iv) statutes and related regulations include any amendments of same and any successor statutes and regulations, (v) time shall be deemed to be to New York City time and (vi) "ordinary course of business" (and similar phrases) shall mean the ordinary course of business of the Issuer and its Subsidiaries consistent with past practice. SECTION 11. MISCELLANEOUS. (a) This Debenture and all of the provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, and shall be binding upon any entity succeeding to the Issuer by merger or acquisition of all or substantially all the assets of the Issuer. The Issuer may not assign this Debenture or any rights or obligations hereunder except as specifically provided herein. The Holder may transfer or assign this Debenture at any time without the prior consent of the Issuer, subject to the provisions and restrictions on transfer set forth herein. (b) All notices, demands and requests of any kind to be delivered to any party in connection with this Debenture shall be in writing and shall be deemed to have been duly given if personally or hand delivered or if sent by an internationally-recognized overnight delivery courier or by registered or certified mail, return receipt requested and postage prepaid, or by facsimile transmission addressed as follows: (i) if to the Issuer, to: Mutual Risk Management Ltd. 44 Church Street Hamilton HM12 Bermuda Attention: Chief Executive Officer Facsimile: (441) 292-1867 with a copy to: Mayer, Brown & Platt 190 South LaSalle Street Chicago, Illinois 60603-3441 Attention: Richard W. Shepro Facsimile: (312) 701-7711 (ii) if to the Holder, the Holder's address as set forth in the books and records of the Issuer, or to such other address as the party to whom notice is to be given may have furnished to the other party hereto in writing in accordance with provisions of this Section 11. Any such notice or communication shall be deemed to have been effectively given (i) in the case of personal or hand delivery, on the date of such delivery, (ii) in the case of an internationally-recognized overnight delivery courier, on the second Business Day after the date when sent, (iii) in the case of mailing, on the fifth Business Day following that day on which the piece of mail containing such communication is posted and (iv) in the case of facsimile transmission, the date of telephone confirmation of receipt. (c) This Debenture may not be modified or amended, or any of the provisions hereof waived, except by written agreement of the Issuer and the Requisite Holders dated after the date hereof; provided, however, that the -------- ------- provisions of Section 1, 2, 3(a), 3(b), 4, 7(a)(i), 7(a)(ii), this Section 11(c), Sections 11(d) and (f) and Section 10 with respect to the definitions of terms used in connection with the foregoing Sections may not be amended without the consent of each Holder of a Debenture affected thereby; and provided, -------- further, however, that any modification or amendment which adversely affects the - ------- ------- rights of any Holder shall require the consent of such Holder unless the modification or amendment adversely affects the rights of all Holders in the same manner. (d) THIS DEBENTURE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK. ANY DISPUTE UNDER THIS DEBENTURE THAT IS NOT SETTLED BY MUTUAL CONSENT SHALL BE FINALLY ADJUDICATED BY ANY FEDERAL OR STATE COURT SITTING IN THE CITY, COUNTY AND STATE OF NEW YORK, AND THE ISSUER CONSENTS TO THE EXCLUSIVE JURISDICTION OF SUCH COURTS (OR ANY APPELLATE COURT THEREFROM) OVER ANY SUCH DISPUTE. THE ISSUER AND EACH GUARANTOR HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE FEDERAL AND NEW YORK STATE COURTS LOCATED IN NEW YORK COUNTY IN CONNECTION WITH ANY SUIT, ACTION OR PROCEEDING RELATED TO THIS DEBENTURE OR ANY OF THE MATTERS CONTEMPLATED HEREBY, IRREVOCABLY -45- WAIVES ANY DEFENSE OF LACK OF PERSONAL JURISDICTION AND IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT. THE ISSUER AND EACH GUARANTOR IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. (e) By the execution and delivery of this Debenture, the Issuer and each Guarantor (i) acknowledges that it will, by separate written instrument, designate and appoint The CT Corporation System, Inc., 111 Eighth Avenue, New York, New York 10011 (and any successor entity) as its authorized agent upon which process may be served in any suit or proceeding arising out of or relating to any of the Transaction Documents that may be instituted in any Federal or state court in the State of New York, New York County or brought under Federal or state securities laws, and acknowledges that The CT Corporation System, Inc. will accept such designation, (ii) waives trial by jury, (iii) agrees that service of process upon The CT Corporation System, Inc. and written notice of said service to the Issuer in accordance with Section 11(b) shall be deemed in every respect effective service of process upon the Issuer or such Guarantor, as the case may be, in any such suit or proceeding and (iv) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law. (f) All payments made or required to be made hereunder shall be made in U.S. dollars. The Issuer and each Guarantor, jointly and severally, agrees to indemnify the Holder against any loss incurred by such party as a result of any judgment or order being given or made against the Issuer or Guarantor, as the case may be, for any U.S. dollar amount due under this Debenture and such judgment or order being expressed and paid in a currency (the "Judgment -------- Currency") other than United States dollars and as a result of any variation as - -------- between (i) the rate of exchange at which the United States dollar amount is converted into the Judgment Currency for the purpose of such judgment or order and (ii) the spot rate of exchange in The City of New York at which such party on the date of payment of such judgment or order is able to purchase United States dollars with the amount of the Judgment Currency actually received by such party if such party had utilized such amount of Judgment Currency to purchase United States dollars as promptly as practicable upon such party's receipt thereof. The foregoing indemnity shall continue in full force and effect notwithstanding any such judgment or order as aforesaid. The term "spot rate of ------------ exchange" shall include any premiums and costs of exchange payable in connection - -------- with the purchase of, or conversion into, United States dollars. -46- All amounts paid to the Holder hereunder shall be paid free and clear of, and without any deduction or withholding for or on account of, any present or future taxes, duties, assessments or other governmental charges of whatever nature imposed or levied by or on behalf of Bermuda or any political subdivision thereof or by any authority therein or thereto or within any other jurisdiction in which the Issuer and Guarantors or any of their Subsidiaries is organized or engaged in business for tax purposes having power to tax, unless such deduction or withholding is required by applicable law, in which event, each of the other parties hereto agrees to pay additional amounts so that the persons entitled to such payments will receive the amount that such persons would otherwise have received but for such deduction or withholding. (g) This Debenture may be executed and delivered to the Holder by a facsimile transmission; such transmission shall be deemed a valid signature. [Signature Pages Follow] IN WITNESS WHEREOF, the Issuer and the Guarantors have executed and delivered this Debenture on the date first above written. [NEWCO] By:_______________________________ Name: Title: By:_______________________________ Name: Title: MUTUAL RISK MANAGEMENT LTD. By:_______________________________ Name: Title: MUTUAL GROUP LTD. By:_______________________________ Name: Title: [OTHER GUARANTORS] By:_______________________________ Name: Title: ANNEX I FORM OF NOTICE OF ELECTION TO EXERCISE A CONVERSION RIGHT Date: To: [Name of Newco] From: Re: Exercise of a Conversion Right - -------------------------------------------------------------------------------- Pursuant to the terms of the Convertible Debenture Due 2006 (the "Debenture") issued by [Newco] (the "Issuer") to ______________ ("Holder") dated --------- ------ ------ ___________, 200_, specifically Section 4 thereof, the Holder hereby notifies the Issuer of its intention to exercise a right of conversion. Pursuant to Section 4 of the Debenture, the Holder hereby elects to convert U.S.$__________ in aggregate principal amount and all accrued and unpaid interest thereon for shares of the Issuer's Common Stock. The date of conversion shall be __________, 200_. We have instructed our attorneys to contact the Issuer to discuss the timing and documentation of the conversion. Sincerely, [HOLDER] By: ________________________ Name: Title: ANNEX II FORM OF GUARANTY The undersigned (the "Guarantor") hereby jointly and severally --------- unconditionally guarantees, to the extent set forth in the Convertible Debenture Due 2006 dated as of [ ], issued by [Newco] (as amended, restated or supplemented from time to time, the "Debenture") to which this Guaranty is --------- attached, and subject to the provisions of the Debenture, (a) the due and punctual payment of the principal of, and premium, if any, and interest on the Debenture, when and as the same shall become due and payable, whether at maturity, by acceleration or otherwise, the due and punctual payment of interest on overdue principal of, and premium and, to the extent permitted by law, interest, and the due and punctual performance of all other obligations of the Issuer to the Holders, all in accordance with the terms set forth in Section 8 of the Debenture, and (b) in case of any extension of time or payment or renewal of any Debenture or any of such other obligations, that the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. The obligations of the Guarantor to the Holder pursuant to this Guaranty and the Debenture are expressly set forth in Section 8 of the Debenture and reference is hereby made to the Debenture for the precise terms and limitations of this Guaranty. [GUARANTOR] By:__________________________ Name: Title: EX-4.5 6 dex45.txt AMENDMENT 1 TO AMENDED & RESTATED TRUST AGREEMENT Exhibit 4.5 AMENDMENT NO. 1 TO AMENDED AND RESTATED TRUST AGREEMENT This AMENDMENT NO. 1 (the "Amendment") is made as of May 8, 2001, by and among the Administrative Trustees of MRM Capital Trust I, Mutual Group Ltd., a Delaware corporation, as Sponsor and as holder of the Common Securities (the "Sponsor"), and Intrepid Master Funding Trust, as holder of the Preferred Securities. WITNESSETH: WHEREAS, certain of the Trustees and the Sponsor established MRM CAPITAL TRUST I (the "Trust"), a trust created under the Business Trust Act (as defined herein) pursuant to a Trust Agreement dated as of February 3, 2000 (the "Original Agreement"), as amended and restated by the Amended and Restated Trust Agreement dated as of September 21, 2000 (as amended and restated, the "Trust Agreement"); WHEREAS, the parties hereto desire to amend the Trust Agreement as set forth herein; WHEREAS, the Trust Agreement provides for amendment of its terms, subject to satisfaction of certain requirements, including the consent of all the holders of the Preferred Securities and the Common Securities; WHEREAS, all things necessary to make this Amendment a valid amendment and agreement according to its terms have been done; NOW THEREFORE, in consideration of their mutual covenants contained herein, the parties hereto, intending to be legally bound, hereby mutually covenant and agree as follows: ARTICLE 1 AMENDMENTS Section 1.01. Definitions. (a) Capitalized terms used and not defined in this Amendment shall have the meanings assigned to them in the Trust Agreement. (b) The definition of Reference Corporate Dealer in Section 1.01 of the Trust Agreement is hereby amended to read in its entirety as follows: "Reference Corporate Dealer" means each of Morgan Stanley & Co. Incorporated, Salomon Smith Barney, Inc., Credit Suisse First Boston Corporation, Goldman, Sachs & Co. and Merrill Lynch, Pierce, Fenner & Smith Incorporated. (c) The definition of Trigger Event in Section 1.01 of the Trust Agreement is hereby amended to read in its entirety as follows: "Trigger Event" means the occurrence of any of the following: (a) May 17, 2001, if no Mutual Party has issued to any XL Entity and other purchasers at least $100,000,000 in aggregate principal amount of any XL Securities (of which at least $50,000,000 are to be purchased for investment by an XL Entity) prior to such date, (b) any issued XL Securities become due and payable or the holders thereof have the right to require the relevant Mutual Party to purchase such XL Securities, (c) on (i) any Trading Day from and including the date four months from the first date of issuance of any XL Securities (the "Initial XL Issuance Date") to but excluding the date six months from the Initial XL Issuance Date, if the Restructuring has not been completed by 9:00 a.m., New York City time on such Trading Day and the Closing Price of the Common Shares on the immediately preceding Trading Day is less than $8.00 or (ii) the first Business Day six months after the Initial XL Issuance Date, if the Restructuring has not been completed, (d) after 9:00 a.m., New York City time, on the tenth day immediately following the date the Restructuring has been completed or (e) the One Hundred Million Dollar Trigger. (d) Section 1.01 of the Trust Agreement is hereby amended by the addition of the following new definitions in the appropriate alphabetical order: "Amendment No. 1" means Amendment No. 1 to the Remarketing Agreement dated as of May 8, 2001. "Initial XL Issuance Date" has the meaning set forth in the definition of Trigger Event. "Mutual Party" means each of the Sponsor, the Guarantor and each of their respective affiliates and subsidiaries and any entity formed in connection with the Restructuring. 2 "Newco" shall have the meaning set forth in Annex A to Amendment No. 1. "One Hundred Million Dollar Trigger" means at any time from and including the Initial XL Issuance Date to but excluding the date on which the holders of the XL Securities no longer have any right to, or could not pursuant to the terms of the XL Securities upon the occurrence of any event, have any right to, require a Mutual Party to repurchase such XL Securities, the sum of the amounts in the Separate Account and the collateral account referred to in Section 3(a)(x) of the Remarketing Agreement does not equal at least $100,000,000 at that time. "Restructuring" shall have the meaning set forth in Annex A to Amendment No. 1. "Separate Account" means the account established by the Company with Fleet National Bank pursuant to Section 3(a)(x) of the Remarketing Agreement, as amended. "XL Entity" means XL Capital Ltd. or any subsidiary or affiliate thereof. "XL Securities" means any debt securities issued by any Mutual Party to any XL Entity and any securities of the same class issued to any other purchasers, together with the voting preferred stock described in the "Voting Preferred Stock" section of Annex A to Amendment No. 1 (it being understood that the Warrants (as defined in Annex A to Amendment No. 1) shall not be deemed to be XL Securities). Section 1.02. Remarketing Provisions. (a) Sections 6.02(a) and (b) of the Trust Agreement are hereby amended to read in their entirety as follows: SECTION 6.02. (a) Remarketing Procedures.(i) Subject to Section 6.04, upon and at any time after the occurrence of a Trigger Event or a Cross Default, the Holders of a Majority in Liquidation Amount of the Securities, acting together as a single class (the "Requesting Holders"), will have the right to require remarketing of the Preferred Securities. The Requesting Holders may exercise this right by delivering a written notice to the Remarketing Agent by 10:00 a.m. on any date on or after the date on which such Trigger Event or Cross Default occurs. Upon the 3 receipt of such notice, the Remarketing Agent shall immediately deliver a written notice to the Sponsor on behalf of the Requesting Holders (the "Remarketing Notice"). If the Requesting Holders exercise their right to require the remarketing of the Preferred Securities, the Reset Date shall be the date on which such Remarketing Notice is delivered. (ii) If the Requesting Holders do not exercise their right to require the remarketing of the Preferred Securities pursuant to Section 6.02(a)(i) above with respect to any Trigger Event or Cross Default, the Requesting Holders shall have the right to require the remarketing of the Preferred Securities in accordance with Section 6.02(a)(i) at any subsequent time with respect to the same Trigger Event or Cross Default or with respect to any subsequent Trigger Event or Cross Default. (b) If the Sponsor and the Guarantor have complied in all material respects with all covenants set forth in the Remarketing Agreement, as amended, then by 3:00 p.m., New York City time, on the Reset Date, the Remarketing Agent shall request Bids from the Reference Corporate Dealers. The Remarketing Agent shall disclose to Sponsor the Bids obtained and determine the lowest Bid Rate (the "Winning Bid Rate") from among the Bids obtained on the Reset Date. By 4:30 p.m., New York City time, on the Reset Date, the Remarketing Agent shall notify the Sponsor and the Property Trustee of the Winning Bid Rate. If on a Reset Date, Bids are not submitted by at least two Reference Corporate Dealers, or if the lowest Bid submitted would result in a Winning Bid Rate in excess of the rate permitted by applicable law, or if the Sponsor and the Guarantor have not complied in all material respects with all covenants set forth in the Remarketing Agreement, as amended, the Remarketing shall be deemed to be a Failed Remarketing on such date; provided, that the Company's obligation to furnish the Offering Memorandum to the Remarketing Agent by 11:00 a.m. (New York City time) on the Reset Date pursuant to Section 13of the Remarketing Agreement shall not be subject to the foregoing qualification as to materiality. The Winning Bid Rate determined by the Remarketing Agent, absent manifest error, shall be binding and conclusive upon the Holders of the Trust Securities, the Sponsor, the Guarantor and the Trust. 4 Section 1.03. Successful Remarketing. Section 6.02(d) of the Trust Agreement shall be amended by the addition of the following new sentence after the last sentence thereof: On the Remarketing Settlement Date following the settlement of the purchase and sale of the Preferred Securities (or, if applicable, the Senior Notes), the provisions of this Section 6.02 (other than Sections 6.02(i) and 6.02(j)) shall terminate and shall be of no further effect. Section 1.04. Failed Remarketing. (a) Section 6.05 of the Trust Agreement is hereby amended in its entirety to read as follows: SECTION 6.05. Failed Remarketing. The Remarketing Agent shall give notice of any Failed Remarketing on or after the date such Failed Remarketing occurs to the Sponsor, the Guarantor, the Senior Note Trustee and the Property Trustee. Section 1.05. Cancellation by Holders. The Trust Agreement is hereby amended by the addition of the following new Section 7.12: SECTION 7.12. Cancellation by Holders. The Holders of all of the outstanding Preferred Securities and Common Securities may, at any time, deliver all of the outstanding Preferred Securities and Common Securities to the Property Trustee for cancellation; provided that upon such surrender of all of the outstanding Preferred Securities and Common Securities for cancellation, the Trust shall, simultaneously, surrender the aggregate principal amount of the outstanding Senior Notes to the trustee under the Base Indenture for cancellation. The Property Trustee shall promptly cancel all Preferred Securities and Common Securities surrendered for cancellation and shall dispose of all such canceled Preferred Securities and Common Securities in accordance with its customary practices; provided that the Property Trustee shall not be obligated to destroy any Preferred Securities or Common Securities. The Trust may not issue new Preferred Securities or Common Securities to replace the Preferred Securities that the Holders thereof delivered to the Property Trustee for cancellation. Section 1.06. Dissolution and Termination of Trust. Section 8.01 of the Trust Agreement is hereby amended by deleting the word "or" at the end of clause (v) thereof, replacing the period at the end of clause (vi) thereof by "; or" and inserting the following new clause (vii): 5 (vii) the cancellation of all Preferred Securities and Common Securities pursuant to Section 7.12 hereof. Section 1.07. Distribution Rate. The Trust Agreement (including Annex I and the Exhibits thereto) is hereby amended by replacing each reference to "150 basis points" therein by a reference to "566 basis points". Such amended Distribution Rate shall be effective on and as of April 1, 2001. ARTICLE 2 Miscellaneous Section 2.01. Conditions. On the date hereof, the Property Trustee shall have received (a) an Officers' Certificate from each of the Trust and the Sponsor that such amendment is permitted by, and conforms to, the terms of this Agreement (including the terms of the Securities) pursuant to Section 12.01(b)(i) of the Trust Agreement and (b) an Opinion of Counsel pursuant to Sections 6(b), 7(b) and 8 of Annex I to the Trust Agreement. Section 2.02. Consent to Action by Property Trustee. The Sponsor, as holder of the Common Securities, and Intrepid Funding Master Trust, as holder of the Preferred Securities, hereby consent to the execution and delivery of the Trust's consent to the Second Supplemental Indenture dated as of May 8, 2001, among Mutual, MRM, and The Chase Manhattan Bank, as trustee, by The Chase Manhattan Bank, as Property Trustee under the Trust Agreement, on behalf of the Trust. Section 2.03. Governing Law. This Amendment and the rights of the parties hereunder shall be governed by and construed in accordance with the laws of the State of Delaware and all rights and remedies shall be governed by such laws, without reference to the choice of laws rules thereof; provided, however, that the immunities and standard of care of the Property Trustee in connection with the administration of its trusts and duties hereunder shall be construed in accordance with and governed by the internal laws of the State of New York. SECTION 3540 OF TITLE 12 OF THE DELAWARE CODE SHALL NOT APPLY TO THE TRUST. Section 2.04. Severability. If any provision in this Amendment shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 6 Section 2.05. Counterparts. The parties may sign any number of copies of this Amendment. Each signed copy shall be an original, but all of them together represent the same agreement. Any signed copy shall be sufficient proof of this Amendment. Section 2.06. Ratification of Trust Agreement; Amendment Controls. The Trust Agreement, as amended by Amendment, is in all respects ratified and confirmed, and this Amendment shall be deemed part of the Trust Agreement. The provisions of this Amendment shall supersede the provisions of the Trust Agreement to the extent the Trust Agreement is inconsistent herewith. 7 IN WITNESS WHEREOF, the undersigned have caused this Amendment to the Trust Agreement to be executed as of the date first above written. Richard O'Brien, not in his individual capacity but solely as Administrative Trustee of the Trust /s/ Richard E. O'Brien ___________________________ Elizabeth Price, not in her individual capacity but solely as Administrative Trustee of the Trust /s/ Elizabeth B. Price ___________________________ MUTUAL GROUP LTD., as Sponsor and the Holder of the Common Securities By: /s/ Elizabeth B. Price ________________________ Name: Elizabeth B. Price Title: Assistant Secretary Consented to: INTREPID FUNDING MASTER TRUST, as the Holder of the Preferred Securities By: Wilmington Trust Company, not in its individual capacity, but solely as Owner Trustee By: /s/ Mary Kay Pupillo _________________________ Name: Mary Kay Pupillo Title: Senior Financial Services Officer THE CHASE MANHATTAN BANK, not in its individual capacity but solely as Property Trustee of the Trust By: /s/ Sheik Wiltshire ________________________ Name: Sheik Wiltshire Title: Assistant Vice President EX-4.6 7 dex46.txt SECOND SUPPLEMENTAL INDENTURE Exhibit 4.6 SECOND SUPPLEMENTAL INDENTURE among Mutual Group Ltd., as Issuer, Mutual Risk Management Ltd., as Guarantor, and The Chase Manhattan Bank, as Trustee, dated as of May 8, 2001 This Second Supplemental Indenture (the "Second Supplemental Indenture") is made as of May 8, 2001, by and among Mutual Group Ltd., a Delaware corporation, as Issuer (the "Company"), Mutual Risk Management Ltd., as Guarantor (the "Guarantor"), and The Chase Manhattan Bank, as Trustee (the "Trustee") under the Indenture dated as of September 21, 2000 among the Company, the Guarantor and the Trustee (the "Base Indenture" and together with the First Supplemental Indenture thereto dated as of September 21, 2000 (the "First Supplemental Indenture"), the "Indenture"). WITNESSETH: WHEREAS, the Company, the Guarantor and the Trustee entered into the First Supplemental Indenture to provide for the establishment of a new series of the Company's Securities known as its Auction Rate Reset Senior Notes Series A (the "Senior Notes"); WHEREAS, MRM Capital Trust I, a statutory business trust organized under the laws of the State of Delaware (the "Trust") purchased from the Company certain of the Senior Notes pursuant to the Senior Note Purchase Agreement dated as of September 21, 2000 between the Company and the Trust; WHEREAS, the parties hereto desire to amend and supplement the Indenture as set forth herein; WHEREAS, the Base Indenture provides for the amendment of its terms and the terms of any supplemental indenture, subject to satisfaction of certain requirements, including the consent of all the holders of the Senior Notes; WHEREAS, all things necessary to make this Second Supplemental Indenture a valid instrument in accordance with its terms have been done; NOW THEREFORE, in consideration of their mutual covenants contained herein, the parties hereto, intending to be legally bound, hereby mutually covenant and agree as follows: ARTICLE 1 AMENDMENTS Section 1.01. Definitions. (a) Capitalized terms used and not defined in this Second Supplemental Indenture shall have the meanings assigned to them in the First Supplemental Indenture. (b) The definition of Trigger Event in Section 1.01 of the First Supplemental Indenture is hereby superseded in its entirety by the following: "Trigger Event" means the occurrence of any of the following: (a) May 17, 2001, if no Mutual Party has issued to any XL Entity and other purchasers at least $100,000,000 in aggregate principal amount of any XL Securities (of which at least $50,000,000 are to be purchased for investment by an XL Entity) prior to such date, (b) any issued XL Securities become due and payable or the holders thereof have the right to require the relevant Mutual Party to purchase such XL Securities, (c) on (i) any Trading Day from and including the date four months from the first date of issuance of any XL Securities (the "Initial XL Issuance Date") to but excluding the date six months from the Initial XL Issuance Date, if the Restructuring has not been completed by 9:00 a.m., New York City time on such Trading Day and the Closing Price of the Common Shares on the immediately preceding Trading Day is less than $8.00 or (ii) the first Business Day six months after the Initial XL Issuance Date, if the Restructuring has not been completed, (d) after 9:00 a.m., New York City time, on the tenth day immediately following the date the Restructuring has been completed or (e) the One Hundred Million Dollar Trigger. (c) The following new definitions shall supplement those definitions set forth in Section 1.01 of the First Supplemental Indenture: "Amendment No. 1" means Amendment No. 1 to the Remarketing Agreement dated as of May 8, 2001. "Initial XL Issuance Date" has the meaning set forth in the definition of Trigger Event. 2 "Mutual Party" means each of the Company, the Guarantor and each of their respective affiliates and subsidiaries and any entity formed in connection with the Restructuring. "Newco" shall have the meaning set forth in Annex A to Amendment No. 1. "One Hundred Million Dollar Trigger" means at any time from and including the Initial XL Issuance Date to but excluding the date on which the holders of the XL Securities no longer have any right to, or could not pursuant to the terms of the XL Securities upon the occurrence of any event, have any right to, require a Mutual Party to repurchase such XL Securities, the sum of the amounts in the Separate Account and the collateral account referred to in Section 3(a)(x) of the Remarketing Agreement does not equal at least $100,000,000 at that time. "Restructuring" shall have the meaning set forth in Annex A to Amendment No. 1. "Separate Account" means the account established by the Company with Fleet National Bank pursuant to Section 3(a)(x) of the Remarketing Agreement, as amended. "XL Entity" means XL Capital Ltd. or any subsidiary or affiliate thereof. "XL Securities" means any debt securities issued by any Mutual Party to any XL Entity and any other securities of the same class issued to any other purchasers, together with the voting preferred stock described in the "Voting Preferred Stock" section of Annex A to Amendment No. 1 (it being understood that the Warrants (as defined in Annex A to Amendment No. 1) shall not be deemed to be XL Securities). Section 1.02. Cancellation by Trust. Article 2 of the First Supplemental Indenture is hereby supplemented by the addition of the following new Section 2.08: SECTION 2.08. Cancellation by Trust. If all of the outstanding Preferred Securities and Common Securities are surrendered by the Holders thereof pursuant to Section 7.12 of the Amended and Restated Trust Agreement, as amended, the Trust 3 shall deliver the aggregate principal amount of the outstanding Senior Notes to the Trustee for cancellation. The Trustee shall promptly cancel all Senior Notes surrendered by the Trust for cancellation and shall dispose of all such canceled Senior Notes in accordance with its customary practices. Upon cancellation of all of the Senior Notes pursuant to this Section 2.08, the Indenture shall be deemed satisfied and discharged and shall cease to be of further effect, except as otherwise provided for in Article 4 of the Indenture. Section 1.03. Remarketing Provisions. (a) Sections 8.02(a) and (b) of the First Supplemental Indenture are hereby superseded in their entirety by the following: SECTION 8.02. (a) Remarketing Procedures.(i) Subject to Section 8.04, upon and at any time after the occurrence of a Trigger Event or a Cross Default and if the Senior Notes have been distributed to the holders of the Trust Securities, the holders of a majority in principal amount of the Senior Notes (the "Requesting Holders") will have the right to require remarketing of the Senior Notes. The Requesting Holders may exercise this right by delivering a written notice to the Remarketing Agent by 10:00 a.m. on any date on or after the date on which such Trigger Event or Cross Default occurs. Upon the receipt of such notice, the Remarketing Agent shall immediately deliver a written notice to the Company on behalf of the Requesting Holders (the "Remarketing Notice"). If the Requesting Holders exercise their right to require the remarketing of the Senior Notes, the Reset Date shall be the date on which such Remarketing Notice is delivered. (ii) If the Requesting Holders do not exercise their right to require the remarketing of the Senior Notes pursuant to Section 8.02(a)(i) above with respect to any Trigger Event or Cross Default, the Requesting Holders shall have the right to require the remarketing of the Senior Notes in accordance with Section 8.02(a)(i) at any subsequent time with respect to the same Trigger Event or Cross Default or with respect to any subsequent Trigger Event or Cross Default. (b) If the Company and the Guarantor have complied in all material respects with all covenants set forth in the Remarketing Agreement, as amended, then by 3:00 p.m., New York City time, 4 on the Reset Date, the Remarketing Agent shall request Bids from the Reference Corporate Dealers. The Remarketing Agent shall disclose to Company the Bids obtained and determine the lowest Bid Rate (the "Winning Bid Rate") from among the Bids obtained on the Reset Date. By 4:30 p.m., New York City time, on the Reset Date, the Remarketing Agent shall notify the Company and the Property Trustee of the Winning Bid Rate. If on a Reset Date, Bids are not submitted by at least two Reference Corporate Dealers, or if the lowest Bid submitted would result in a Winning Bid Rate in excess of the rate permitted by applicable law, or if the Company and the Guarantor have not complied in all material respects with all covenants set forth in the Remarketing Agreement, as amended, the Remarketing shall be deemed to be a Failed Remarketing on such date; provided, that the Company's obligation to furnish the Offering Memorandum to the Remarketing Agent by 11:00 a.m. (New York City time) on the Reset Date pursuant to Section 13 of the Remarketing Agreement shall not be subject to the foregoing qualification as to materiality. The Winning Bid Rate determined by the Remarketing Agent, absent manifest error, shall be binding and conclusive upon the holders of the Trust Senior Notes, the Company, the Guarantor and the Trust. Section 1.04. Successful Remarketing. Section 8.02(d) of the First Supplemental Indenture shall be supplemented by the following: On the Remarketing Settlement Date following the settlement of the purchase and sale of the Senior Notes, the provisions of this Section 8.02 (other than Sections 8.02(i) and 8.02(j)) shall terminate and shall be of no further effect. Section 1.05. Failed Remarketing. (a) Section 8.05 of the First Supplemental Indenture is hereby superseded in its entirety by the following: SECTION 8.05. Failed Remarketing. The Remarketing Agent shall give notice of any Failed Remarketing on or after the date such Failed Remarketing occurs to the Company, the Trustee and the Paying Agent. Section 1.06. Interest Rate. Each reference to "150 basis points" in the First Supplemental Indenture and in each of the Exhibits thereto is hereby superseded by a reference to "566 basis points". Such amended Interest Rate shall be effective on and as of April 1, 2001. Upon surrender of any certificates representing Senior Notes, replacement certificates representing such Senior Notes 5 and reflecting this Amendment shall be executed by the Company, with the Guarantee endorsed thereon executed by the Guarantor, and delivered to the Trustee for authentication, and the Trustee shall thereupon authenticate and deliver such Senior Notes to the holders of the Senior Notes in accordance with the Base Indenture. Article 2 COVENANTS Section 2.01. Additional Guarantors. If any Mutual Party incurs any direct obligation, or guarantees the obligations of any other Person, with respect to any XL Securities, the Company and the Guarantor will immediately notify the Remarketing Agent and the Trustee thereof and will cause such Mutual Party to fully and unconditionally guarantee all the Company's obligations under the Base Indenture, as supplemented by the First Supplemental Indenture and the Second Supplemental Indenture, and to become subject to the provisions of Article XIV of the Base Indenture and such Mutual Party shall be deemed to be a "Guarantor" for purposes thereof as supplemented by the First Supplemental Indenture and this Second Supplemental Indenture. Section 2.02. Limitation on Liens. If any Mutual Party creates, assumes, incurs, or otherwise permits to exist any Lien on any property now owned or hereafter acquired, which such Lien secures any obligations of any Mutual Party under any XL Securities or any guarantee thereof (other than the segregation of proceeds into a collateral account for the payment of interest on the XL Securities pursuant to the section entitled "Use of Proceeds" of Annex A to Amendment No. 1), the Company and the Guarantor will immediately notify the Remarketing Agent and the Trustee thereof and will cause such Mutual Party to secure any obligations of any Mutual Party under the Senior Notes and any guarantee thereof by such Mutual Party equally and ratably with such XL Securities or such guarantee thereof. Section 2.03. Limitation on Senior Debt. No Mutual Party will create, incur, assume or permit to exist any Debt, other than the XL Securities or any guarantee thereof, not outstanding on the date hereof that ranks pari passu with or senior to the Senior Notes in right of payment. For purposes hereof, "Debt" shall mean, with respect to any Mutual Party at any date and without duplication: (a) all liabilities, obligations and indebtedness for borrowed money, including but not limited to obligations evidenced by bonds, debentures, notes or other similar instruments of any such Person, (b) all obligations to pay the deferred purchase price of property or services of any such Person (other than trade payables due 6 from such Person and arising in the ordinary course of business for not more than 90 days not subject to (a) above), (c) all obligations of such Person under a lease that are required to be capitalized and accounted for as capital lease obligations under GAAP, (d) all Debt of any other Person secured by a Lien on any asset of any such Person, (e) all obligations, contingent or otherwise, of any such Person relating to the face amount of letters of credit, whether or not drawn, and banker's acceptances issued for the account of any such Person, but excluding any obligation relating to an undrawn letter of credit if the undrawn letter of credit is issued in connection with a liability for which a reserve has been established by such Person in accordance with GAAP, (f) all obligations incurred by any such Person pursuant to any interest rate protection agreements and/or other types of hedging agreements which are due and payable and (g) all contingent obligations of any such Person with respect to Debt referred to in clauses (a) through (f) of this definition. For purposes hereof, "GAAP" shall mean generally accepted accounting principles as in effect from time to time in the United States. ARTICLE 3 Miscellaneous Section 3.01. Conditions. On or prior to the date hereof, the Trustee shall have received (a) a resolution from the board of directors of each of the Company and the Guarantor pursuant to Section 9.2 of the Base Indenture that such Second Supplemental Indenture has been authorized by such board, (b) an Officers' Certificate from each of the Company and the Guarantor pursuant to Section 1.2 of the Base Indenture and (c) an Opinion of Counsel pursuant to Sections 1.2 and 9.3 of the Base Indenture. Section 3.02. Ratification of Base Indenture and First Supplemental Indenture; Second Supplemental Indenture Controls. The Base Indenture and the First Supplemental Indenture, as supplemented by this Second Supplemental Indenture, are in all respects ratified and confirmed, and this Second Supplemental Indenture shall be deemed part of the Base Indenture and the First Supplemental Indenture in the manner and to the extent herein and therein provided. The provisions of this Second Supplemental Indenture shall supersede the provisions of the Base Indenture and the First Supplemental Indenture to the extent the Base Indenture or the First Supplemental Indenture is inconsistent herewith. Section 3.03. Governing Law. This Second Supplemental Indenture and the rights of the parties hereunder shall be governed by and construed in accordance with the laws of the State of New York and all rights and remedies 7 shall be governed by such laws, without reference to the choice of laws rules thereof. Section 3.04. Severability. If any provision in this Second Supplemental Indenture shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 3.05. Counterparts. The parties may sign any number of copies of this Second Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. Any signed copy shall be sufficient proof of this Second Supplemental Indenture. 8 IN WITNESS WHEREOF, the undersigned have caused this Second Supplemental Indenture to be executed as of the date first above written. MUTUAL GROUP LTD. By: /s/ Elizabeth B. Price ____________________________ Name: Elizabeth B. Price Title: Assistant Secretary MUTUAL RISK MANAGEMENT LTD., as Guarantor By: /s/ Elizabeth B. Price ____________________________ Name: Elizabeth B. Price Title: Secretary THE CHASE MANHATTAN BANK, as Trustee By: /s/ Sheik Wiltshire ____________________________ Name: Sheik Wiltshire Title: Assistant Vice President Consented to: THE CHASE MANHATTAN BANK, not in its individual capacity but solely as Property Trustee of the Trust and holder of the Senior Notes By: /s/ Sheik Wiltshire ____________________________ Name: Sheik Wiltshire Title: Assistant Vice President EX-10.1 8 dex101.txt SECURITIES PURCHASE AGREEMENT EXHIBIT 10.1 SECURITIES PURCHASE AGREEMENT dated as of May 8, 2001 among MUTUAL RISK MANAGEMENT LTD. and THE INVESTORS NAMED HEREIN TABLE OF CONTENTS
Page ARTICLE I DEFINITIONS SECTION 1.1. Definitions......................................................................... 2 SECTION 1.2. Accounting Terms and Determinations................................................. 12 SECTION 1.3. Rules of Construction............................................................... 13 ARTICLE II PURCHASE AND SALE OF SECURITIES SECTION 2.1. Closing............................................................................. 13 ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE OBLIGORS SECTION 3.1. Corporate Existence and Power....................................................... 15 SECTION 3.2. Authorization, Execution, Enforceability............................................ 15 SECTION 3.3. Capitalization of the Company....................................................... 16 SECTION 3.4. Subsidiaries; Other Interests....................................................... 16 SECTION 3.5. No Contravention, Conflict, Breach, Etc............................................. 17 SECTION 3.6. Consents............................................................................ 17 SECTION 3.7. No Existing Violation, Default, Etc................................................. 18 SECTION 3.8. Licenses and Permits................................................................ 18 SECTION 3.9. Title to Properties................................................................. 18 SECTION 3.10. Taxes............................................................................... 18 SECTION 3.11. Litigation.......................................................................... 19 SECTION 3.12. Labor Matters....................................................................... 19 SECTION 3.13. Contracts........................................................................... 19 SECTION 3.14. Finder's Fees....................................................................... 20 SECTION 3.15. Financial Statements................................................................ 20 SECTION 3.16. Compliance with ERISA............................................................... 21 SECTION 3.17. Contingent Liabilities.............................................................. 21 SECTION 3.18. No Material Change.................................................................. 21 SECTION 3.19. Insurance Matters................................................................... 22 SECTION 3.20. Full Disclosure..................................................................... 24 SECTION 3.21. Solicitation........................................................................ 24
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Page ---- SECTION 3.22. Governmental Regulation............................................................. 25 SECTION 3.23. Reservation of Shares............................................................... 25 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS SECTION 4.1. Organization, Good Standing, Power, Authority, Etc.................................. 25 SECTION 4.2. Investment Intent, Etc.............................................................. 26 SECTION 4.3. Accredited Investor................................................................. 26 ARTICLE V CONDITIONS PRECEDENT SECTION 5.1. Conditions to the Purchasers' Obligations........................................... 26 SECTION 5.2. Conditions to the Company's Obligations............................................. 30 ARTICLE VI COVENANTS SECTION 6.1. Restructuring....................................................................... 30 SECTION 6.2. Preemptive Rights................................................................... 31 SECTION 6.3. Board Representation................................................................ 31 SECTION 6.4. Information......................................................................... 33 SECTION 6.5. Use of Proceeds..................................................................... 35 SECTION 6.6. Non-Competition..................................................................... 36 SECTION 6.7. Certain Transactions................................................................ 36 SECTION 6.8. Insurance Professional.............................................................. 36 SECTION 6.9. Purchase Option..................................................................... 36 SECTION 6.10. Employment Agreements............................................................... 37 ARTICLE VII MISCELLANEOUS SECTION 7.1. Notices............................................................................. 37 SECTION 7.2. No Waivers; Powers and Remedies Cumulative; Amendments.............................. 40 SECTION 7.3. Indemnification..................................................................... 41 SECTION 7.4. Expenses; Documentary Taxes......................................................... 43 SECTION 7.5. Register............................................................................ 43 SECTION 7.6. Termination......................................................................... 43 SECTION 7.7. Successors and Assigns.............................................................. 43
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Page ---- SECTION 7.8. Governing Law; Waiver of Jury Trial; Submission to Jurisdiction; Net Payments........................................................................ 44 SECTION 7.9. Survival............................................................................ 45 SECTION 7.10. Independence of Representations, Warranties and Covenants........................... 45 SECTION 7.11. Severability........................................................................ 45 SECTION 7.12. Counterparts........................................................................ 46 SECTION 7.13. Entire Agreement; Benefit........................................................... 46 SECTION 7.14. Headings............................................................................ 46 SECTION 7.15. Execution by Newco.................................................................. 46
Schedule 3.3(c) Outstanding Debt Schedule 3.4 Subsidiaries Schedule 3.10 Taxes Schedule 3.11 Litigation Matters Schedule 3.13 Contracts Schedule 3.18 Certain Material Changes Schedule 3.19(d) Loss Experience Schedule 3.19(e) Certain Reinsurance Collectibles Schedule 3.19(f) Governmental Consents and Approvals Annex I - Projected and Pro Forma Financial Statements Exhibit A-1 - Form of Convertible Exchangeable Debenture Exhibit A-2 - Form of Newco Debenture Exhibit B - Form of Collateral Agreement Exhibit C - Form of Debenture Registration Rights Agreement Exhibit D - Form of Warrant Registration Rights Agreement Exhibit E - Form of Subordination Agreement Exhibit F - Form of Lock-Up Agreement Exhibit G - Form of Voting Preferred Stock Exhibit H - Form of Warrant -iii- SECURITIES PURCHASE AGREEMENT SECURITIES PURCHASE AGREEMENT (this "Agreement") dated as of May 8, 2001 among MUTUAL RISK MANAGEMENT LTD., MUTUAL GROUP LTD., the ADDITIONAL GUARANTORS NAMED HEREIN, XL INSURANCE LTD, FIRST UNION MERCHANT BANKING 2001, LLC, HIGH RIDGE CAPITAL PARTNERS II, L.P., CENTURY CAPITAL PARTNERS II, L.P., ROBERT A. MULDERIG, TARACAY INVESTORS COMPANY AND INTREPID FUNDING MASTER TRUST. R E C I T A L S : WHEREAS, the parties hereto desire to enter into certain financing arrangements pursuant to the terms and subject to the conditions hereinafter set forth; WHEREAS, the Purchasers (other than Intrepid), pursuant to the terms and subject to the conditions herein, severally desire to purchase convertible exchangeable debentures of the Company (the "Convertible Exchangeable Debentures") in an aggregate principal amount of $112,500,000 and the Company desires to contribute, after completion of the Restructuring, approximately $80,000,000 of such proceeds to the statutory capital and surplus of its U.S. Insurance Subsidiaries; WHEREAS, the parties hereto have agreed that the remaining amount of the net proceeds from the issuance and sale of the Convertible Exchangeable Debentures hereunder will be held in the Collateral Account until such time as they are released, in accordance with the terms of this Agreement and the Collateral Agreement; WHEREAS, Intrepid, pursuant to the terms and subject to the conditions herein, desires to exchange $30,000,000 liquidation preference of RHINOS for Convertible Exchangeable Debentures in an aggregate principal amount of $30,000,000; NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: -2- ARTICLE I DEFINITIONS SECTION 1.1. Definitions. The following terms, as used herein, have ----------- the following meanings: "Affiliate" means, with respect to any Person (the "Subject Person"), (i) any other Person (a "Controlling Person") that directly, or indirectly through one or more intermediaries, Controls the Subject Person or (ii) any other Person which is Controlled by or is under common Control with a Controlling Person; provided, however, that the Purchasers and their respective Affiliates (other - -------- ------- than any officers or directors (other than any XL Designees) of the Company and their respective Affiliates) shall not be deemed Affiliates of the Company or any of its Subsidiaries. "Audited Statutory Financial Statements" has the meaning set forth in Section 3.15(a). "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. "Business Day" means any day except a Saturday, Sunday or other day on which (i) commercial banks in The City of New York are authorized or required by law to close or (ii) the New York Stock Exchange is not open for trading. "Capital Stock" means, with respect to any Person, any and all shares, partnership interests or equivalents (however designated and whether voting or non-voting) of such Person's capital stock, whether outstanding on the date hereof or hereafter issued. "Century" means Century Capital Partners II, L.P. "Century Warrants" means warrants to purchase initially an aggregate of 103,112 shares of Common Stock of the Company. The Century Warrants shall (i) be immediately exercisable, initially at an exercise price of $7.00 per share of Common Stock of the Company, (ii) be exercisable for five years from the date of issuance, (iii) contain provisions for adjustment of the exercise price and the number of shares of Common Stock of the Company issuable upon exercise of the Century Warrants comparable to the antidilution provisions applicable to the Debentures and (iv) have the benefit of registration rights comparable to the registration rights applicable to the Debentures, including one demand registration right and -3- unlimited piggyback registration rights. The Century Warrants shall be in the form of Exhibit H hereto. --------- "Closing Date" has the meaning set forth in Section 2.1. "Collateral Account" means the Collateral Account established and maintained pursuant to the Collateral Agreement between the Company and the Collateral Agent named therein. "Collateral Agreement" means a Collateral Agreement in the form of Exhibit B hereto between the Company and the Collateral Agent named therein. - --------- "Common Stock" means the common stock or common shares of the referenced Person. "Company" means Mutual Risk Management Ltd., a company organized under the laws of Bermuda. "Contributed Amounts" has the meaning set forth in Section 6.5. "Control" (including, with correlative meanings, the terms "Controlling," "Controlled by" and "under common Control with"), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of that Person, whether through the ownership of voting securities or interests, by contract or otherwise. "Convertible Exchangeable Debentures" means the 9-3/8% Convertible Exchangeable Debentures Due 2006 of the Company in the form of Exhibit A-1 ----------- hereto. "CRM" has the meaning set forth in the definition of "Restructuring." "D&O Proxies" has the meaning set forth in Section 5.1(r). "Debentures" means, collectively, the Convertible Exchangeable Debentures and the Newco Debentures. All references to Debentures in this Agreement shall be deemed to include the shares of Voting Preferred Stock issued in connection therewith. "Debenture Registration Rights Agreement" means a registration rights agreement in the form of Exhibit C hereto. --------- "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, Debentures or other similar instruments issued by such Person, (iii) all obligations -4- of such Person to pay the deferred purchase price of property or services, except trade accounts payable arising in the ordinary course of business, (iv) all obligations of such Person under any Financing Lease, (v) all reimbursement obligations of such Person in respect of letters of credit or other similar instruments, (vi) Disqualified Capital Stock of such Person, (vii) Preferred Stock of any Subsidiary of such Person (other than preferred shares of the IPC (i.e., rent-a-captive) subsidiaries of the Company or Newco issued to policyholders in connection with the CRM business), (viii) all Debt of others secured by a Lien on any asset of such Person, whether or not such Debt is otherwise an obligation of such Person, and (ix) all Debt of others Guaranteed by such Person. "Designees" means, collectively, the First Union and High Ridge Designee and the XL Designees and "Designee" means any one of them. "Disqualified Capital Stock" means that portion of any Capital Stock which, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable at the option of the holder thereof), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the sole option of the holder thereof, or requires the payment of any dividends, in each case, at any time that any obligation under the Transaction Documents is outstanding. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "ERISA Group" means the Company and its Subsidiaries 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 Company or any of its Subsidiaries, are treated as a single employer under Section 414 of the Internal Revenue Code. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Existing Bank Agreement" means the Credit Agreement dated as of September 21, 2000 among the Company, Mutual Group Ltd., Bank of America, N.A., as Administrative Agent and a lender and the Lenders party thereto from time to time, as in effect on the date hereof or as amended or amended and restated. "Existing Bank Lenders" means the Lenders under the Existing Bank Agreement. "Financing Lease" means any lease of property, real or personal, the obligations of the lessee in respect of which are required in accordance with GAAP to be capitalized on a balance sheet of the lessee. -5- "First Union" means First Union Merchant Banking 2001, LLC. "First Union Warrants" means warrants to purchase initially an aggregate of 263,965 shares of Common Stock of the Company. The First Union Warrants shall (i) be immediately exercisable, initially at an exercise price of $7.00 per share of Common Stock of the Company, (ii) be exercisable for five years from the date of issuance, (iii) contain provisions for adjustment of the exercise price and the number of shares of Common Stock of the Company issuable upon exercise of the First Union Warrants comparable to the antidilution provisions applicable to the Debentures and (iv) have the benefit of registration rights comparable to the registration rights applicable to the Debentures, including one demand registration right and unlimited piggyback registration rights. The First Union Warrants shall be in the form of Exhibit H --------- hereto. "First Union and High Ridge Designee" has the meaning set forth in Section 6.3(b). "Fully Diluted Basis" means after giving effect to the exercise of all outstanding options, warrants and other rights to purchase Capital Stock of the relevant Person and the conversion or exchange of all securities convertible or exchangeable into Capital Stock of the relevant Person (whether or not then exercisable, exchangeable or convertible and whether or not "in the money"). "GAAP" has the meaning set forth in Section 1.2. "Governmental Entity" means any court, arbitral tribunal, administrative agency or commission or other governmental or other regulatory authority or agency, including any insurance regulatory authority or agency or Insurance Department. "Guarantee" by any Person means (a) any obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing (whether by virtue of partnership arrangements, by agreement to keep well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain a minimum net worth, financial ratio or similar requirements, or otherwise) any Debt 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 (ii) entered into for the purpose of assuring in any other manner the holder of such Debt of the payment thereof or to protect such holder against loss in respect thereof (in whole or in part). The term "Guarantee" used as a verb has a corresponding meaning. "Guarantors" means each of the Subsidiaries of the Company listed on Schedule 3.4 (other than the Insurance Subsidiaries) and each other Subsidiary guaranteeing the obligations hereunder and the Debentures pursuant to the terms of the Debentures. -6- "High Ridge" means High Ridge Capital Partners II, L.P. "High Ridge Warrants" means warrants to purchase initially an aggregate of 148,481 shares of Common Stock of the Company. The High Ridge Warrants shall (i) be immediately exercisable, initially at an exercise price of $7.00 per share of Common Stock of the Company, (ii) be exercisable for five years from the date of issuance, (iii) contain provisions for adjustment of the exercise price and the number of shares of Common Stock of the Company issuable upon exercise of the High Ridge Warrants comparable to the antidilution provisions applicable to the Debentures and (iv) have the benefit of registration rights comparable to the registration rights applicable to the Debentures, including one demand registration right and unlimited piggyback registration rights. The High Ridge Warrants shall be in the form of Exhibit H --------- hereto. "Holders" has the meaning set forth in Section 7.5. "Indemnified Parties" and "Indemnified Party" have the meanings set forth in Section 7.3. "Insurance Acts" means all applicable insurance laws and the applicable rules and regulations thereunder. "Insurance Departments" means the Bermuda Registrar of Companies and the Departments of Insurance of the States of Illinois and Pennsylvania. "Insurance License" means a license or permit from an Insurance Department or any other department of insurance of any other jurisdiction. "Insurance Subsidiaries" means (i) Legion Insurance Company, Legion Indemnity Ltd. and Villanova Insurance Company and (ii) each other Subsidiary of the Company that is a licensed insurance company. "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended. "Investment" means any investment in any Person, whether by means of share purchase, capital contribution, loan, advance, time deposit or otherwise. "Intrepid" means Intrepid Funding Master Trust. "IPC" means Insurance Profit Center. "Judgment Currency" has the meaning set forth in Section 7.8(c). -7- "Lien" means any lien, mechanic's lien, materialmen's lien, lease, easement, charge, encumbrance, mortgage, conditional sale agreement, title retention agreement, voting trust agreement, assignment by way of security, restriction on voting or transfer, agreement to sell or convey, option, claim, title imperfection, encroachment or other survey defect, pledge, restriction, security interest or adverse claim of any kind, whether arising by contract or under law or otherwise (including any Financing Lease having substantially the same economic effect as any of the foregoing, and the filing of any financing statement under the Uniform Commercial Code or comparable law of any jurisdiction in respect of any of the foregoing). "Lock-Up Agreements" means the lock-up agreements of the inside directors and executive officers of the Company in the form of Exhibit F hereto. --------- "Material Adverse Effect" has the meaning set forth in Section 3.1(b). "Multiemployer Plan" means at any time a multiemployer 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. "NAIC" means the National Association of Insurance Commissioners. "Newco" has the meaning set forth in the definition of "Restructuring." "Newco Debenture" means a 9 3/8% Convertible Debenture due 2006 of Newco substantially in the form of Exhibit A-2 hereto; provided, ----------- -------- however, that the final terms of the covenants and events of default to be - ------- included in the Newco Debenture shall be determined by XL and Newco prior to the issuance thereof. "Newco Voting Preferred Stock" means shares of preferred stock of Newco having a nominal liquidation preference and par value, no dividend rights and aggregate voting rights equal to the aggregate voting rights of the Common Stock issuable upon conversion of all Newco Debentures and otherwise substantially the same as the Voting Preferred Stock. "Non-Competition Period" has the meaning set forth in Section 6.6. "Obligors" means, collectively, the Company, Newco, the Guarantors and any additional Person that is required to become a party to this Agreement; and "Obligor" means any of them. "Observer" has the meaning set forth in Section 6.3(b). -8- "Officers' Certificate" means a certificate executed on behalf of the Company by the Chief Executive Officer or President and by its Chief Financial Officer, its Treasurer or any other officer acceptable to the Purchasers; provided, however, that the Officers' Certificate with respect to the compliance - -------- ------- with a condition precedent to the Closing Date shall include (i) a statement that the signers have read such condition and any definitions or other provisions contained in this Agreement relating thereto, (ii) a statement that in the opinion of the signers, they have made or have caused to be made such examination or investigation as is necessary to enable them to express an informed opinion as to whether or not such condition has been complied with and (iii) a statement as to whether, in the opinion of the signers, such condition has been complied with. "PBGC" means the Pension Benefit Guaranty Corporation. "Permits" means all domestic and foreign licenses, permits, consents, franchises, orders, authorizations, clearances, certificates, Insurance Licenses and approvals from Governmental Entities. "Person" means an individual or a corporation, company, partnership, trust, incorporated or unincorporated association, joint venture, joint stock company, limited liability company, government (or any agency or political subdivision thereof) or other entity of any kind. "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 the time a member of such ERISA Group for employees of any Person which was at the time a member of the ERISA Group. "Preferred Stock" means, with respect to any Person, any Capital Stock of such Person that has preferential rights over any other Capital Stock of such Person with respect to dividends, distributions or redemptions or upon liquidation. "Program Business" means the business of MRM in which it acts as a conduit between producers of specialty books of business and reinsurers of such business. "Purchase Price" means the aggregate amount paid to the Company by the Purchasers (other than Intrepid) hereunder in respect of the Convertible Exchangeable Debentures and the Voting Preferred Stock pursuant to Section 2.1(a) of this Agreement. -9- "Purchasers" means XL Insurance Ltd, First Union, High Ridge, Century, Robert A. Mulderig, Taracay, Intrepid and any other purchasers of Convertible Exchangeable Debentures for cash approved by XL, such approval not to be unreasonably withheld (it being understood that it is reasonable for XL to withhold its approval of any proposed Purchaser that is a competitor of the Company, XL or any of their respective Subsidiaries or of any proposed Purchaser whose purchase might, in the judgment of XL, adversely affect the tax status of MRM, Newco, XL or any of their respective Subsidiaries or shareholders); provided, however, that XL's consent shall not be required for the issuance of - -------- ------- RHINOS Debentures to existing holders of RHINOS in exchange for such RHINOS. "Qualified Offering" means the registration and sale of Common Stock of Newco with a stated offering price of not less than $20.0 million registered under the United States securities laws with the intent that a liquid trading market therein develop. "Register" has the meaning set forth in Section 7.5. "Registration Rights Agreements" means, collectively, the Debenture Registration Rights Agreement and the Warrant Registration Rights Agreement. "Reinsurance Arrangements" has the meaning set forth in Section 3.19(e). "Related Person" means any director, officer or employee of the Company or any of its Subsidiaries who is also an equity or debt holder of the Company or any of its Subsidiaries. "Required Approvals" means all federal, state and local government regulatory (including any Form A approvals and all other approvals relating to insurance) and shareholder approvals necessary for consummation of the Transactions, including all approvals necessary in order to remove any restrictions or limitations on voting rights or conversion contained in any of the Transaction Documents. "Requisite Holders" means the Holders of a majority of the principal amount of outstanding Debentures; provided, however, that (i) the principal -------- ------- amount of Debentures that have been converted into or exchanged for Common Stock of the Company and/or Newco shall, solely for purposes of this definition, be deemed to be outstanding and held by the respective holders of such Common Stock, (ii) at any time when XL holds, or has the right to vote, a majority of the principal amount of outstanding Debentures (other than RHINOS Debentures), "Requisite Holders" shall mean a majority of the principal amount of the outstanding Debentures other than the RHINOS Debentures and (iii) so long as XL holds or has the right to vote at least $50.0 million of the principal amount of Debentures, it will be deemed to own a majority of the principal amount of the outstanding Debentures. -10- "Restructuring" means the restructuring of the operating units of the Company into two separate holding company structures, resulting in (i) one holding company owning the Company's U.S. insurance operations and managing general agency entities and operating through subsidiaries as a specialty insurer writing a selected book of Program Business and (ii) the second holding company, a newly formed company organized under the laws of Bermuda ("Newco"), owning (A) all of the Company's fee generating businesses that presently comprise its Corporate Risk Management ("CRM"), Specialty Brokerage and Financial Services business segments and all of the Company's non-U.S. insurance operations and (B) the Company's IPC (i.e., rent-a-captive) companies, other than Mutual Indemnity (Dublin) Limited (which will be confined solely to its present business), that are principally dedicated to its CRM business segment. As part of the Restructuring, (x) Newco will be entitled to receive all of the fees attributable to the CRM business except that MRM's U.S. Insurance Subsidiaries that write the related policies (which will only be Villanova Insurance Company ("Villanova") where Villanova is legally entitled to write such policies and the prospective holder of the underlying policy does not object to the use of Villanova or a new company in the case of new or renewal policies) may retain a portion of the premium equal to its actual costs, but not more than 1-1/4% and (y) Newco will be given an option to purchase Villanova and/or such new company for book value. The Restructuring shall be effected in a manner reasonably acceptable to XL, including with respect to capitalization and minimum capital and surplus of Newco. In addition to the foregoing, the Restructuring shall not be deemed to have been completed until the Company has complied with its obligations set forth in Section 6.1 hereof. "RHINOS" means the Auction Rate Reset Preferred Securities of the Trust, known as "RHINOS," including the related documentation. "RHINOS Debentures" means Debentures issued to any current or former holders of RHINOS or any of their respective Affiliates in exchange for an equal principal amount of RHINOS. "Securities" means the Debentures, the Voting Preferred Stock, the Newco Voting Preferred Stock, the Common Stock of the Company and Newco issued or issuable upon exchange or conversion of the Debentures and the Warrants. "Securities Act" means the Securities Act of 1933, as amended. "Significant Subsidiary" has the meaning set forth in Section 1-02(w) of Regulation S-X under the Securities Act. "Statutory Accounting Principles" means generally accepted statutory accounting principles for property and casualty insurance companies domiciled in the States of Illinois and Pennsylvania, as applicable. -11- "Statutory Financial Statements" has the meaning set forth in Section 3.15(b). "Subordination Agreement" means a subordination agreement in the form of Exhibit E hereto. --------- "Subsidiary" means, with respect to any Person, (i) any corporation or other entity of which more than 50% of the Capital Stock or other ownership interests having ordinary voting power to elect more than 50% of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by such Person and (ii) any partnership, association, joint venture or other entity in which such Person, directly or indirectly through Subsidiaries, has a greater than 50% equity interest; provided, however, that for all purposes of this Agreement references to - -------- ------- Subsidiaries of the Company shall not include such entities designated by the Company that, in the aggregate, would not constitute a Significant Subsidiary of the Company. "Transaction Documents" means (i) the Debentures, (ii) this Agreement, (iii) the Collateral Agreement, (iv) the Registration Rights Agreements, (v) the Subordination Agreement, (vi) the Certificate of Designations relating to the Voting Preferred Stock, (vii) the Voting Preferred Stock, (viii) the Newco Voting Preferred Stock, (ix) the Warrants, (x) the Lock-Up Agreements, (xi) the D&O Proxies and (xii) each other document executed in connection with or pursuant to this Agreement. "Transactions" means the issuance and sale of the Convertible Exchangeable Debentures, the Voting Preferred Stock and the Warrants and each of the other transactions contemplated by the Transaction Documents, both before and after giving effect to permitted exchanges and/or conversions of the Debentures, including the Restructuring and the exercise of all of the rights of the Purchasers under the Transaction Documents and fulfillment of all obligations of the Obligors under the Transaction Documents. "Trust" means MRM Trust I, a Delaware statutory business trust, the issuer of the RHINOS and a Subsidiary of the Company. "Taracay" means Taracay Investors Company. "Taracay Warrants" means warrants to purchase initially an aggregate of 4,342 shares of Common Stock of the Company. The Taracay Warrants shall (i) be immediately exercisable, initially at an exercise price of $7.00 per share of Common Stock of the Company, (ii) be exercisable for five years from the date of issuance, (iii) contain provisions for adjustment of the exercise price and the number of shares of Common Stock of the Company issuable upon exercise of the Taracay Warrants comparable to the antidilution provisions applicable to the Debentures and (iv) have the benefit of registration rights comparable to the registration rights applicable to the Debentures, including one demand registration right and -12- unlimited piggyback registration rights. The Taracay Warrants shall be in the form of Exhibit H hereto. --------- "Unaudited Statutory Financial Statements" has the meaning set forth in Section 3.15(b). "U.S. Insurance Subsidiaries" means Legion Insurance Company, Legion Indemnity Ltd. and Villanova Insurance Company. "Voting Preferred Stock" means shares of preferred stock of the Company having a liquidation preference and par value of U.S. $.01 per share, no dividend rights and aggregate voting rights equal to the aggregate voting rights of the Common Stock issuable upon conversion or exchange of all Convertible Exchangeable Debentures. The Voting Preferred Stock shall be in the form of Exhibit G hereto. --------- "Warrant Registration Rights Agreement" means a registration rights agreement in the form of Exhibit D hereto. --------- "Warrants" means, collectively, the XL Warrants, the First Union Warrants, the High Ridge Warrants, the Century Warrants and the Taracay Warrants. "XL" means XL Insurance Ltd. "XL Designees" has the meaning set forth in Section 6.3(a). "XL Warrants" means warrants to purchase initially an aggregate of 1,632,043 shares of Common Stock of the Company. The XL Warrants shall (i) be immediately exercisable, initially at an exercise price of $7.00 per share of Common Stock of the Company, (ii) be exercisable for five years from the date of issuance, (iii) contain provisions for adjustment of the exercise price and the number of shares of Common Stock of the Company issuable upon exercise of the XL Warrants comparable to the antidilution provisions applicable to the Debentures and (iv) have the benefit of registration rights comparable to the registration rights applicable to the Debentures, including one demand registration right and unlimited piggyback registration rights. The XL Warrants shall be in the form of Exhibit H hereto. --------- SECTION 1.2. Accounting Terms and Determinations. Unless ----------------------------------- otherwise specified herein, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared, in accordance with generally accepted accounting principles as in effect in the United States on the date hereof applied on a consistent basis ("GAAP"). -13- SECTION 1.3. Rules of Construction. (a) The definitions in --------------------- Section 1.1 shall apply equally to both the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include," "includes" and "including" shall be deemed to be followed by the phrase "without limitation." (b) Unless the context shall otherwise require, all references herein to (i) Articles, Sections, Exhibits, Schedules and Annexes shall be deemed references to Articles and Sections of, and Exhibits, Schedules and Annexes to, this Agreement, (ii) Persons include their respective permitted successors and assigns or, in the case of governmental Persons, Persons succeeding to the relevant functions of such Persons, (iii) agreements and other contractual instruments include subsequent amendments, assignments, and other modifications thereto to the date hereof and thereafter, but in the case of any amendment, assignment or modification after the date hereof, only to the extent such amendments, assignments or other modifications thereto are not prohibited by their terms or the terms of any Transaction Document, (iv) statutes and related regulations include any amendments of same and any successor statutes and regulations, (v) time shall be deemed to be to New York City time and (vi) "ordinary course of business" (and similar phrases) shall mean the ordinary course of business of the Company and its Subsidiaries consistent with past practice. ARTICLE II PURCHASE AND SALE OF SECURITIES SECTION 2.1. Closing. (a) Subject to the prior satisfaction of ------- all the terms and conditions set forth herein and unless this Agreement shall have been earlier terminated in accordance with its terms, each Purchaser (other than Intrepid) severally agrees to purchase from the Company and the Company agrees to issue and sell to each Purchaser (other than Intrepid), on a date to be mutually agreed upon by the Company and XL, which date shall be no later than five Business Days after the date hereof (the "Closing Date"), the aggregate principal amount of Convertible Exchangeable Debentures (together with the related Voting Preferred Stock) set forth on the signature page to this Agreement for such Purchaser, at a purchase price equal to the aggregate principal amount of Convertible Exchangeable Debentures purchased by such Purchaser, less the aggregate par value of the related Voting Preferred Stock issued to such Purchaser in connection with its purchase of Convertible Exchangeable Debentures. Subject to the prior satisfaction of all the terms and conditions set forth herein and unless this Agreement shall have been earlier terminated in accordance with its terms, Intrepid and the Company agree to exchange, on the Closing Date, $30,000,000 liquidation preference of RHINOS currently owned beneficially and of record by Intrepid for the aggregate principal amount of Convertible Exchangeable Debentures (together with the related Vot- -14- ing Preferred Stock) set forth on the signature page to this Agreement for Intrepid. The Convertible Exchangeable Debentures shall be convertible as provided therein into Common Stock of the Company and exchangeable as provided therein for, at the option of the Holder thereof, Newco Debentures or Common Stock of Newco. In connection with the purchase of the Convertible Exchangeable Debentures, the Company shall issue to each Purchaser (other than Intrepid), for additional consideration equal to the par value thereof, a percentage of the total number of shares of Voting Preferred Stock equal to the percentage of the principal amount of all Convertible Exchangeable Debentures purchased by such Purchaser. In connection with the exchange for the Convertible Exchangeable Debentures, the Company shall issue to Intrepid a percentage of the total number of shares of Voting Preferred Stock equal to the percentage of the principal amount of all Convertible Exchangeable Debentures purchased by Intrepid. The Voting Preferred Stock will provide that it may only be transferred with a proportional amount of the Convertible Exchangeable Debentures and the Convertible Exchangeable Debentures will provide that they may only be transferred with a proportional amount of Voting Preferred Stock. (b) On the Closing Date, the Purchasers (other than Intrepid) shall deliver the Purchase Price in immediately available funds by wire transfer to the account of the Company (which account shall be specified by the Company in writing no later than 9:00 a.m. on the second Business Day preceding the Closing Date). On the Closing Date, Intrepid shall deliver to the Company for cancellation certificates representing $30,000,000 liquidation preference of RHINOS. (c) On the Closing Date, against payment and delivery as set forth in Section 2.1(b), the Company shall deliver to each Purchaser one or more Convertible Exchangeable Debentures representing an aggregate principal amount equal to the amount set forth on the signature page to this Agreement opposite the name of such Purchaser and the related Voting Preferred Stock, each registered in the name or names, and in such denominations, as shall be designated by the applicable Purchaser by notice to the Company at least two Business Days prior to the Closing Date. (d) On the Closing Date, the Company shall issue the XL Warrants to XL, the First Union Warrants to First Union, the High Ridge Warrants to High Ridge, the Century Warrants to Century and the Taracay Warrants to Taracay, in each case, for no additional consideration. (e) The Company and the Purchasers, having adverse interests and as a result of arm's-length bargaining, agree that neither the Purchasers nor any of their Affiliates has rendered or has agreed to render any services to the Company in connection with this Agreement or the issuance of the Convertible Exchangeable Debentures and the related Voting Preferred Stock to be issued on the Closing Date. -15- ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE OBLIGORS Each of the Obligors represents and warrants, as of the date hereof and the Closing Date, to the Purchasers and to each Holder, as set forth below: SECTION 3.1. Corporate Existence and Power. (a) The Company ----------------------------- and each of its Subsidiaries is a company, corporation or partnership duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, and has all organizational power and authority and all Permits required to own, lease or operate its respective properties and carry on its respective business as now conducted and as proposed to be conducted. (b) The Company and each of its Subsidiaries is, where applicable, duly qualified to transact business as a foreign corporation or partnership and is in good standing in each jurisdiction in which the conduct of its business or its ownership, leasing or operation of property requires such qualification, other than any failure to be so qualified or in good standing as would not, singly or in the aggregate, have a material adverse effect on the assets, liabilities, business, results of operations, condition (financial or otherwise), prospects or Permits of the Company and its Subsidiaries, taken as a whole, or of Newco and its Subsidiaries, taken as a whole, on a pro forma basis for the Restructuring (each, a "Material Adverse Effect"). SECTION 3.2. Authorization, Execution, Enforceability. Each ---------------------------------------- Obligor has the corporate power and authority to execute and deliver, and to perform its obligations under, each of the Transaction Documents to which it is or is to be a party. Subject to receipt of regulatory approval from each Insurance Department (which approvals the Obligors hereby agree to use their best efforts to obtain as soon as practicable), each Obligor has taken all action required by law, organizational documents or otherwise required to be taken by it to authorize the execution, delivery and performance by it of each Transaction Document to which it is or is to be a party. Each of the Transaction Documents is, or upon execution and delivery will be, a valid and binding obligation of each Obligor (to the extent each is a party thereto), enforceable against each Obligor in accordance with their respective terms except to the extent that the enforceability hereof and thereof may be limited by applicable bankruptcy, insolvency, moratorium, reorganization, fraudulent conveyance or similar laws affecting the enforcement of creditors' rights and remedies generally and by general equitable principles (regardless of whether the issue of enforceability is considered in a proceeding in equity or at law). True and complete copies of the organizational documents of each Obligor have been made available by the Company to the Purchasers. -16- SECTION 3.3. Capitalization of the Company. (a) The authorized ----------------------------- Capital Stock of the Company (before giving effect to the Securities being issued and sold hereunder) consists of 180,000,000 shares of Common Stock, of which 41,618,331 shares are issued and outstanding as of March 31, 2001, and 20,000,000 shares of Preferred Stock, of which none are outstanding as of the date hereof. All outstanding shares of Common Stock have been duly authorized, are validly issued, fully paid and nonassessable and have been issued in compliance with applicable federal and state securities laws. (b) Except for the RHINOS and the Securities, no more than $14.0 million aggregate principal amount of Zero Coupon Convertible Exchangeable Subordinated Debentures due 2015 of the Company and no more than $5.0 million aggregate principal amount of convertible notes issued in connection with the Company's acquisition of the Valmet Group Ltd., and except as disclosed in the periodic reports filed by the Company under the Exchange Act prior to the date hereof, there are no (i) securities or obligations of the Company convertible into or exchangeable for any Capital Stock of the Company, (ii) warrants, options or other rights to purchase or acquire from the Company any such Capital Stock or any such convertible or exchangeable securities or obligations or (iii) obligations of the Company to issue such Capital Stock, any such convertible or exchangeable securities or obligations or any such warrants, rights or options. No Person has any preemptive or similar rights with respect to any Capital Stock of the Company or any rights to require registration of any securities of the Company. (c) Schedule 3.3(c) sets forth a complete list of all of the outstanding Debt of the Company or any of its Subsidiaries as of the date hereof, together with the names of the holders thereof, the principal amount, interest rate, issue date, stated maturity date and any other material terms. Schedule 3.3(c) also sets forth an accurate description of all Debt of the Company or any of its Subsidiaries that was repaid since December 31, 2000. SECTION 3.4. Subsidiaries; Other Interests. (a) Schedule 3.4 ----------------------------- sets forth a true, complete and correct list of each Significant Subsidiary of the Company. Except as indicated on Schedule 3.4, each such Significant Subsidiary is wholly owned by the Company. Schedule 3.4 sets forth the jurisdictions in which the Company's Significant Subsidiaries are domiciled (both by incorporation and as a "commercial domiciliary" under applicable law), which are the only jurisdictions in which the Company's Significant Subsidiaries are required to be so licensed. All of the outstanding Capital Stock of the Company's Subsidiaries has been duly authorized and validly issued and is fully paid and nonassessable and owned by the Company, directly, free and clear of all Liens (other than (x) such transfer restrictions as may exist under federal and state securities laws, (y) arising under the RHINOS or the documents executed in connection therewith and (z) Liens on the shares of the Company's IPC Subsidiaries and the special purpose mutual company Subsidiaries and the assets thereof, in each case, arising under letter of credit facilities entered into in connection with the CRM business); and -17- there are no warrants, options or other rights granted to or in favor of any third party (whether acting in an individual, fiduciary or other capacity), other than the Company, to acquire any such Capital Stock, any additional Capital Stock or any other securities of the Company's Subsidiaries except for such options or rights arising under the RHINOS or the documents executed in connection therewith and pursuant to the Company's and its Subsidiaries existing stock option and benefit plans, as described in the Company's filings made pursuant to the Exchange Act prior to the date hereof. (b) Except for interests in the Subsidiaries, neither the Company nor any of its Subsidiaries, directly or indirectly, holds, or has any contractual or other commitment to make, any Investment in any Person, except for Investments made by the Insurance Subsidiaries in the ordinary course of their business and in accordance with the Company's investment policy in effect on the date hereof. SECTION 3.5. No Contravention, Conflict, Breach, Etc. The --------------------------------------- execution, delivery and performance of each of the Transaction Documents and the consummation of the Transactions will not (i) conflict with, or result in a breach or violation of, any provision of the memorandum of association, bye-laws or other organizational documents of the Company or any of its Subsidiaries, (ii) upon receipt of regulatory approvals from the Insurance Departments, result in risk of loss of, or limitation on, any Insurance License or other Permit held by the Company or any of its Subsidiaries, or the right of the Company or of any of its Subsidiaries to conduct business in any jurisdiction as currently conducted, or (iii) conflict with or result in a breach or violation of any of the terms and provisions of, or constitute a default under, or result in the creation or imposition of any Lien upon any assets or properties of the Company or any of its Subsidiaries under, any statute, rule, regulation, order or decree of any Governmental Entity, or any agreement or instrument evidencing Debt or any material lease, Permit or other material agreement or instrument to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound or to which any of their respective properties, assets or operations are subject. SECTION 3.6. Consents. Except for consents that have been -------- obtained and the consents required from the Existing Bank Lenders, the Trust and the holders of the RHINOS as set forth in Section 5.1(a) and, with respect to the Restructuring and the issuance of Common Stock of Newco upon exchange of the Debentures, any Form A approvals and all other regulatory approvals and necessary shareholder approvals, no consent, approval, authorization, order, registration, filing or qualification of or with any (i) Governmental Entity or (ii) other third party (whether acting in an individual, fiduciary or other capacity) is necessary for the issuance and sale of the Debentures, the Voting Preferred Stock and the Warrants, the execution, delivery and performance of the Transaction Documents and the consummation of the Transactions. -18- SECTION 3.7. No Existing Violation, Default, Etc. (a) Neither ------------------------------------ the Company nor any of its Subsidiaries is in violation of (i) its memorandum of association, bye-laws or other organizational documents, (ii) any applicable law, ordinance, administrative or governmental rule or regulation except to the extent that any such violations, in the case of this clause (ii), would not, singly or in the aggregate, have a Material Adverse Effect or (iii) any order, decree or judgment of any court or governmental agency or body having jurisdiction over the Company or any of its Subsidiaries. (b) No event of default or event that, but for the giving of notice or the lapse of time or both, would constitute an event of default exists under any indenture, mortgage, loan agreement, note or other agreement or instrument for borrowed money, any guarantee of any agreement or instrument for borrowed money or any material lease, Permit or other agreement or instrument to which the Company or any of its Subsidiaries is party or by which the Company or any of its Subsidiaries is bound or to which any of their respective properties, assets or operations is subject. SECTION 3.8. Licenses and Permits. Except as would not have a -------------------- Material Adverse Effect, the Company and its Subsidiaries have such Permits from appropriate Governmental Entities (including, Insurance Licenses) as are necessary to own, lease or operate their properties as currently owned, leased or operated and to conduct their businesses as currently conducted and all such Permits are valid and in full force and effect. The Company and its Subsidiaries are in compliance in all respects with their respective obligations under such Permits, with such exceptions as would not, singly or in the aggregate, have a Material Adverse Effect. No event has occurred that allows, or after notice or lapse of time would allow, revocation or termination of such Permits and no insurance regulatory agency or body has issued any order or decree impairing, restricting or prohibiting the payment of dividends by the Company or any of its Subsidiaries to their respective parent companies or shareholders. SECTION 3.9. Title to Properties. The Company and its -------------------- Subsidiaries each have sufficient title or right to all properties (real and personal) owned or used by the Company and its Subsidiaries or reflected in their financial statements which are necessary for the conduct of the business of the Company and its Subsidiaries as currently conducted, free and clear of any Lien that may interfere with the conduct of the business of the Company and its Subsidiaries, taken as a whole, except for those Liens created by the Transaction Documents, and to the best of the Company's knowledge, all properties held under lease by the Company or any of its Subsidiaries are held under valid, subsisting and enforceable leases. SECTION 3.10. Taxes. Except as specifically set forth on ----- Schedule 3.10, all United States Federal income tax returns and all other tax returns (including foreign tax returns) which are required to be filed by or on behalf of the Company and its Subsidiaries have been filed and all taxes due pursuant to such returns or pursuant to any assessment received by -19- the Company or any of its Subsidiaries have been paid. The charges, accruals and reserves on the books of the Company and its Subsidiaries in respect of taxes or other governmental charges have been established in accordance with GAAP (or, in the case of the Insurance Subsidiaries, in accordance with Statutory Accounting Principles). SECTION 3.11. Litigation. Other than as disclosed in the ---------- reports of the Company filed pursuant to the Exchange Act or on Schedule 3.11, there are no pending or, to the Company's knowledge, threatened actions, suits, proceedings, arbitrations or investigations (including any market conduct investigations) against or affecting the Company or any of its Subsidiaries or any of their respective properties, assets or operations or with respect to which the Company or any of its Subsidiaries is responsible by way of indemnity or otherwise, that question the validity of any of the Transaction Documents, or that would, singly or in the aggregate, if adversely determined have a Material Adverse Effect or would have an adverse effect on the ability of the Company or any of its Subsidiaries to perform its obligations under this Agreement or any of the other Transaction Documents to which they are party; and the Company is not aware of any basis for any such action, suit, proceeding or investigation. SECTION 3.12. Labor Matters. No labor disturbance by the ------------- employees of the Company or any of its Subsidiaries exists or is threatened. Neither the Company nor any of its Subsidiaries is party to any collective bargaining or other union contract. The Company is not aware of the existence of any effort to unionize employees of either the Company or any of its Subsidiaries. SECTION 3.13. Contracts. Except as listed on Schedule 3.13: --------- (a) neither the Company nor any of its Subsidiaries is party to any (written or oral) stockholder agreement, employment agreement with executive officers or material advisors' agreement, consulting agreement or similar agreement; (b) neither the Company nor any of its Subsidiaries is a party to or bound by (i) any agreement containing "change in control" or similar provisions relating to change in control of the Company or any of its Subsidiaries; (ii) any powers of attorney or binding authorities other than those made in the ordinary course of the Insurance Subsidiaries' business; or (iii) any agreements (other than insurance policies, leases or other similar agreements issued or made by the Company or any of its Subsidiaries in the ordinary course of its business) pursuant to which the Company or any of its Subsidiaries is obligated to indemnify any other Person; and (c) no agreement, contract or other document of the Company or any of its Subsidiaries will require increased payments (in either amount or frequency) or changed terms or permits the termination thereof by any of the other parties thereto as a result of the transactions contemplated by the Transaction Documents. -20- The Company has heretofore made available to the Purchaser complete and correct copies of the contracts, agreements and instruments listed on Schedule 3.13. Schedule 3.13 further contains a list of all insureds the gross written premiums of which (together with the gross written premiums derived from any of its Affiliates) represented more than (or are expected to represent more than) 2% of the Company's consolidated gross written premiums in any such fiscal year. SECTION 3.14. Finder's Fees. Except for fees payable to Banc ------------- of America Securities LLC and Credit Suisse First Boston Corporation, no broker, finder or other party is entitled to receive from the Company or any of its Subsidiaries any brokerage or finder's fee or any other fee, commission or payment as a result of the Transactions. SECTION 3.15. Financial Statements. (a) The audited statutory -------------------- financial statements and related schedules and notes of the U.S. Insurance Subsidiaries for the years ended December 31, 1999 and 2000 (the "Audited Statutory Financial Statements") fairly present the financial condition, results of operations, cash flows and changes in capital and surplus of the U.S. Insurance Subsidiaries at December 31, 1999 and 2000 and for the years then ended and were prepared in accordance with Statutory Accounting Principles as permitted or prescribed by the applicable U.S. Insurance Acts. The Statements of Actuarial Opinion with respect to the Audited Statutory Financial Statements were determined in accordance with generally accepted actuarial standards and met the requirements of the Illinois and Pennsylvania Insurance Acts. (b) The unaudited statutory financial statements and related schedules and notes of the U.S. Insurance Subsidiaries for periods commencing subsequent to December 31, 2000 (the "Unaudited Statutory Financial Statements", and together with the Audited Statutory Financial Statements, the "Statutory Financial Statements") fairly present the financial condition, results of the operations, cash flows and changes in capital and surplus of the U.S. Insurance Subsidiaries at the dates and for the periods presented and were prepared in accordance with Statutory Accounting Principles prescribed or permitted by the applicable U.S. Insurance Acts, subject to year-end audit adjustments (consisting only of normal recurring accruals) and full footnote disclosures which have been omitted. (c) The audited consolidated and consolidating financial statements and the related notes of the Company and its Subsidiaries for the years ended December 31, 1999 and 2000 fairly present the financial condition, results of operations and cash flows of the Company and its Subsidiaries at the dates and for the periods presented and were prepared in accordance with GAAP applied on a consistent basis. (d) The projected and pro forma consolidated financial data attached hereto as Annex I have been prepared by the Company in good faith and, among other things, reflect the -21- Transactions and the Restructuring and contain all material assumptions relating to such projections and data. The Company believes such projections and the assumptions upon which they are based are reasonable. SECTION 3.16. 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 has resulted or could result in the imposition of a Lien or the posting of a bond or other security under ERISA or the Internal Revenue Code 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 3.17. Contingent Liabilities. Neither the Company nor ---------------------- any of its Subsidiaries have any material liabilities (including tax liabilities), absolute or contingent, that are required to be reserved against in a financial statement prepared in accordance with GAAP or Statutory Accounting Principles that are not so adequately reserved against. Neither the Company nor any of its Subsidiaries has any material reinsurance receivable that is required to be reserved against in accordance with GAAP or Statutory Accounting Principles other than those provided for in the reserve against reinsurance recoverables reflected in the Financial Statements and the consolidated financial statements of the Company and its Subsidiaries prepared in accordance with GAAP. At December 31, 2000, neither the Company nor any of its Subsidiaries had any material liabilities (absolute or contingent) other than those reflected in the Financial Statements and the consolidated financial statements prepared in accordance with GAAP. Since December 31, 2000, the Company and its Subsidiaries have not incurred any material liabilities (absolute or contingent) other than with respect to claims under insurance policies written by the Insurance Subsidiaries and reported in the ordinary course of business. The frequency and severity of such claims within the individual lines of business of the Company and its Subsidiaries since December 31, 2000, are consistent with those reported for comparable periods prior to December 31, 2000. SECTION 3.18. No Material Change. Since December 31, 2000, ------------------ except as listed on Schedule 3.18, (a) neither the Company nor any of its Subsidiaries has relinquished or incurred any material liability or obligation (indirect, direct or contingent), or entered into any oral or written agreement or other transaction that is not in the ordinary course of business; (b) neither the Company nor any of its Subsidiaries has sustained any material loss or interference with its respective businesses or properties from fire, flood, windstorm, accident or other calamity (whether or not covered by insurance); (c) there has been no material change -22- in the Debt of the Company or any of its Subsidiaries, and no material change in the Capital Stock of the Company (except as contemplated hereby); (d) the Company has not permitted or allowed any of its or its Subsidiaries' assets to be subjected to any Liens; (e) the Company has not transferred or otherwise disposed of any of its or its Subsidiaries' assets, except in the ordinary course of business; (f) the Company has not made any single capital expenditure or commitment for a capital expenditure relating to its or its Subsidiaries' assets in excess of $500,000; (g) there has not been any change in any method of accounting or accounting practice or policy (including any reserving method, practice or policy) by the Company or any of its Subsidiaries; (h) there has not been, to the extent payable directly or indirectly by the Company or any of its Subsidiaries, any (i) employment, deferred compensation, severance, retirement or other similar agreement entered into with any director, officer or employee (or any amendment to any such existing agreement) outside of the ordinary course of business, (ii) grant of any severance or termination pay to any director, officer or employee outside of the ordinary course of business, (iii) change in compensation or other benefits payable to any Related Person or change in compensation or other benefits payable to any director, officer or employee outside of the ordinary course of business or (iv) loans or advances to any directors, officers or employees except for ordinary travel and business expenses in the ordinary course of business and advances of salary (not exceeding one month's pay); (i) there has been no material damage, theft or casualty loss by the Company or any of its Subsidiaries; (j) there has not been any change by the Company or any of its Subsidiaries in underwriting practices or standards; (k) there has not been (i) any entering into of any facultative reinsurance contract outside of the ordinary course of business, or (ii) any commutation of any facultative reinsurance contract outside of the ordinary course of business, or (iii) any entering into or any commutation of any reinsurance treaty by the Company or any of its Subsidiaries outside of the ordinary course of business; (l) there has not been any insurance transaction by the Company or any of its Subsidiaries other than in the ordinary course of business; (m) there has not been any change by the Company or any of its Subsidiaries in the compensation structure of, or benefits available to, any agent or with respect to agents generally; and (n) there has been no event or circumstance causing a Material Adverse Effect, nor any development that would, singly or in the aggregate, result in a Material Adverse Effect. SECTION 3.19. Insurance Matters. (a) The Company and its ----------------- Subsidiaries are each in compliance in all material respects with the requirements of all Insurance Acts and have filed all material reports, documents or other information required to be filed thereunder; and neither the Company nor any of its Subsidiaries has received any notification from any insurance regulatory authority, commission or other insurance regulatory body in the United States or elsewhere to the effect that the Company or any of its Subsidiaries is not in compliance in any material respect with the Insurance Acts. (b) Neither the Company nor any of its Subsidiaries has made any change in its insurance reserving practices, either on a gross or net of reinsurance basis, since Decem- -23- ber 31, 2000, that would, singly or in the aggregate, have (i) a Material Adverse Effect or (ii) a material adverse effect on the ability of any of the Insurance Subsidiaries to pay dividends or the amount thereof. (c) All insurance policies issued by the Company and each Insurance Subsidiary, as now in force, are, to the extent required under applicable law, in a form acceptable to applicable regulatory authorities or have been filed and not objected to by such authorities within the period provided for objection other than any failure to be in such form or to have been so filed as would not, singly or in the aggregate, have a Material Adverse Effect. All premium rates, rating plans and policy forms established or used by the Company or any Insurance Subsidiary that are required to be filed with or approved by insurance regulatory authorities have been so filed or approved, the premiums charged conform in all respects to the premiums so filed or approved and comply in all respects with the insurance laws applicable thereto and no such premiums are subject to any review or investigation by any insurance regulatory authority other than any failure to be so filed or approved or to so comply or any review or investigation as would not, singly or in the aggregate, have a Material Adverse Effect. (d) Except as specifically set forth on Schedule 3.19(d), no loss experience has developed, within any individual lines of business or on an aggregate basis for all lines, that would require or make it appropriate for the Company or any of its Subsidiaries to alter or modify its reserving methodology or assumptions since December 31, 2000. (e) All material reinsurance treaties, contracts, agreements and arrangements ("Reinsurance Arrangements") to which the Company or any of its Subsidiaries is a party are in full force and effect and are valid and binding in accordance with their terms on the insurance company party thereto. The Company believes that, except as disclosed in its periodic reports filed with the U.S. Securities and Exchange Commission under the Exchange Act prior to the date hereof or as disclosed on Schedule 3.19(e), all amounts recoverable by the Company or any of its Subsidiaries pursuant to any Reinsurance Arrangement are fully collectible in due course. Except as disclosed in its periodic reports filed with the U.S. Securities and Exchange Commission under the Exchange Act prior to the date hereof, neither the Company nor any of its Subsidiaries nor any other party thereto is in default as to any Reinsurance Arrangement and there is no reason to believe that the financial condition of any such other party is impaired to the extent that a default thereunder may reasonably be anticipated. None of the Reinsurance Arrangements contains any provision that may permit the other party thereto to terminate such Reinsurance Arrangement by reason of the transactions contemplated by the Transaction Documents. -24- (f) The only Permits required under the Insurance Acts for the consummation of the transactions contemplated by this Agreement or the Transaction Documents are those listed on Schedule 3.19(f). (g) All material filings required under any Insurance Act to have been made with state insurance regulatory authorities by the Company and its Subsidiaries have been duly and timely made, and when filed were in compliance in all material respects with the requirements of each such Insurance Act. (h) No Insurance Department has taken, or stated (orally or in writing) that it intends to take or that it may take, any action to seize control of the Company or any of its Subsidiaries through rehabilitation, liquidation or otherwise, and has not otherwise precluded, or stated (orally or in writing) that it intends to preclude or may preclude, the Insurance Subsidiaries from writing. SECTION 3.20. Full Disclosure. The information heretofore --------------- furnished by or on behalf of any Obligor to the Purchasers for purposes of or in connection with the consummation of the Transactions does not, and all such information hereafter furnished by or on behalf of any Obligor to the Purchasers will not (in each case taken together and on the date as of which such information is furnished), contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained therein, in the light of the circumstances under which they are made, not misleading. The Obligors have disclosed to the Purchasers any and all facts which materially and adversely affect or may affect the business, results of operations, condition (financial or otherwise), prospects or Permits of the Company and its Subsidiaries or the ability of the Company and its Subsidiaries to perform their respective obligations under the Transaction Documents to which they are party. SECTION 3.21. Solicitation. No form of general solicitation or ------------ general advertising was used by the Company or any of its Subsidiaries or any other Person acting on their behalf in respect of the Securities or in connection with the offer and sale of the Securities. None of the Company or any of its Subsidiaries and no Person acting on any of their behalf has, either directly or indirectly, sold or offered for sale to any Person any of the Securities or, within the six months prior to the date hereof, any other similar security of the Company or any of its Subsidiaries, and none of the Company or any of its Subsidiaries and no Person authorized to act on any of their behalf (except that neither the Company nor any of its Subsidiaries make any representation as to the Purchasers and their Affiliates) will sell or offer for sale any such security to, or solicit any offers to buy any such security from, or otherwise approach or negotiate in respect thereof with, any Person or Persons so as thereby to cause the issuance or sale of any of the Securities to be in violation of any of the provisions of Section 5 of the Securities Act. Assuming the accuracy of the representations and warranties of the Purchasers in Sections 4.2 and 4.3, it is not necessary in connection with the issuance and sale of -25- the Securities pursuant to this Agreement to register any of the Securities under the Securities Act. SECTION 3.22. Governmental Regulation. (a) Neither the Company ----------------------- nor any of its Subsidiaries is subject to regulation under the Public Utility Holding Company Act of 1935, as amended, the Federal Power Act, the Interstate Commerce Act or to any federal or state statute or regulation limiting its ability to issue and perform its obligations under any Transaction Document. (b) Neither the Company nor any of its Subsidiaries is, or will be after giving effect to the transactions contemplated by the Transaction Documents, an "investment company" within the meaning of the Investment Company Act of 1940, as amended. (c) Neither the Company nor any of its Subsidiaries has taken or will take any action that would cause this Agreement, the issuance and sale of the Securities or the use of the proceeds therefrom to violate the provisions of Regulation T, U or X of the Board of Governors of the Federal Reserve System. SECTION 3.23. Reservation of Shares. Prior to the Closing --------------------- Date, the Company shall have duly reserved for issuance a sufficient number of shares of Common Stock of the Company for conversion of the Convertible Exchangeable Debentures and exercise of the Warrants. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS Each of the Purchasers severally represents and warrants (as to itself only), as of the date hereof and the Closing Date, to the Obligors as set forth below: SECTION 4.1. Organization, Good Standing, Power, Authority, ---------------------------------------------- Etc. Such Purchaser is duly formed and registered, validly existing and in good - --- standing under the laws of its jurisdiction of organization and has the power and authority (corporate or otherwise) to own, lease and operate its properties and to conduct its business as currently owned, leased and conducted. Such Purchaser has the power and authority (corporate or otherwise) to execute and deliver, and to perform its obligations under, this Agreement and each Transaction Document to which it is (or is to be) a party. Such Purchaser has taken all action required by law, its organizational documents or otherwise required to be taken by it to authorize the exe- -26- cution, delivery and performance of this Agreement and each Transaction Document to which it is (or is to be) a party and the consummation of the transactions contemplated to be performed by it hereunder and thereunder. This Agreement is, and each Transaction Document to which such Purchaser is, or is to be, a party will be, a valid and binding agreement of such Purchaser, enforceable in accordance with its terms except to the extent that the enforceability hereof and thereof may be limited by applicable bankruptcy, insolvency, moratorium, reorganization, fraudulent conveyance or similar laws affecting the enforcement of creditors' rights and remedies generally and by general equitable principals (regardless of whether the issue of enforceability is considered in a proceeding in equity or at law). SECTION 4.2. Investment Intent, Etc. Such Purchaser is ---------------------- purchasing or otherwise acquiring the Securities for its own account and not with a view to, or for a sale in connection with, any distribution in violation of the Securities Act. Such Purchaser has had the opportunity to ask questions and receive answers from the Obligors concerning the Securities and the business, financial condition, operations and prospects of the Obligors and has been furnished with all other information about the Obligors which it has requested (it being understood that the foregoing shall not affect the Company's representations and warranties in this Agreement or any other Transaction Document or any of the Purchasers' rights and remedies thereunder or available as a matter of law or otherwise). Such Purchaser will not transfer any of the Securities except in accordance with applicable federal and state securities laws. SECTION 4.3. Accredited Investor. Such Purchaser is an ------------------- "Accredited Investor" within the meaning of Rule 501(a) under the Securities Act and has such knowledge and experience in financial and business matters so as to be capable of evaluating the merits and risks of such Purchaser's investment in the Securities, and such Purchaser is capable of bearing the economic risks of such investment and is able to bear a complete loss of such Purchaser's investment in the Securities. ARTICLE V CONDITIONS PRECEDENT SECTION 5.1. Conditions to the Purchasers' Obligations. The ----------------------------------------- Purchasers' respective obligations to purchase or otherwise acquire the Convertible Exchangeable Debenture to be purchased or acquired by them on the Closing Date pursuant to Section 2.1 are subject to the prior satisfaction in full of each of the following conditions: -27- (a) (i) The Existing Bank Lenders shall have consented in writing, in form and substance satisfactory to the Purchasers, to the Transaction Documents, the Restructuring, the other Transactions and the exercise by the Purchasers of all of their rights under the Transaction Documents; (ii) the Trust and the holders of the RHINOS shall have consented, in form and substance satisfactory to the Purchasers, to the Transaction Documents, the Restructuring, the other Transactions and the exercise by the Purchasers of all of their rights under the Transaction Documents; (iii) the Purchasers shall have received a copy of the Subordination Agreement duly executed by each of the parties thereto, including each of the Existing Bank Lenders, the holder of the RHINOS, the holders of the RHINOS Debentures, the Trust, the applicable trustees and the Obligors; (iv) there shall have been obtained in form and substance satisfactory to the Purchasers all other consents and waivers that are necessary in connection with the execution of the Transaction Documents and the execution and delivery of the Convertible Exchangeable Debentures hereunder; (v) the Bermuda Monetary Authority and the Bermuda Registrar of Companies shall have consented in form and substance satisfactory to the Purchasers to the Transactions, the Restructuring and the other transactions contemplated hereby; and (vi) the holders of the RHINOS shall have either (x) committed to exchange RHINOS for RHINOS Debentures or (y) forfeited their rights to exchange RHINOS for RHINOS Debentures with respect to all RHINOS, in each case on terms and conditions satisfactory to XL. (b) The capital and surplus of the U.S. Insurance Subsidiaries under Statutory Accounting Principles (not including any amounts attributable to the Purchase Price) shall not be less than $365.0 million (without giving effect to no more than $15.0 million of adjustments required by FASB 115). (c) The representations and warranties of the Obligors in the Transaction Documents shall be true and correct in all material respects at such time (without giving effect to any qualifications as to materiality or knowledge contained therein). The Company shall have performed and complied with all covenants and agreements required by such Transaction Documents to be performed or complied with by it at such time. Before and after giving effect to the use of proceeds of the Purchase Price, no Default or Event of Default (as defined in the Debentures) shall have occurred and be continuing. The Purchasers shall have received an Officers' Certificate dated as of the Closing Date to the effect that the conditions in this clause (c) and clauses (i)(i) and (j) of this Section 5.1 have been satisfied. (d) The Purchasers shall have received an opinion, dated the Closing Date, of each of Mayer, Brown & Platt, special counsel to the Company, Conyers Dill & Pearman, Bermuda counsel to the Company, and Richard O'Brien, General Counsel of the Company, in each case, covering such matters as are requested by the Purchasers and in form and substance satisfactory to the Purchasers. -28- (e) The Purchasers shall have received the Convertible Exchangeable Debentures, together with the related Voting Preferred Stock, to be issued on the Closing Date, duly executed by the Company and in the denominations and registered in the names specified in or pursuant to Section 2.1(c). (f) The Collateral Agreement shall have been duly executed and delivered by the Company and the Collateral Agent thereunder. (g) The Registration Rights Agreements shall have been duly executed and delivered by the Company and its Subsidiaries party thereto and the Purchasers. (h) The Company and each of its Subsidiaries shall have taken such requisite action necessary to ensure that it will be able to comply with Section 6.3 and have implemented any requests made pursuant to Section 6.3. (i) (i) There shall not have occurred or become known to the Purchasers any events or changes (A) since December 31, 2000 that, individually or in the aggregate, have had or could reasonably be expected to have a Material Adverse Effect, or (B) that have had or could reasonably be expected to have an adverse effect on the rights or remedies of the Purchasers, or on the ability of any of the Obligors to perform their respective obligations hereunder or under the other Transaction Documents, (ii) the Purchasers shall not have become aware after the date hereof of any information or other matter affecting the Company, any of its Subsidiaries or the transactions contemplated hereby which is inconsistent in a material and adverse manner with any such information or other matter disclosed to the Purchasers prior to the date hereof, (iii) trading in securities generally on the New York Stock Exchange, American Stock Exchange or the Nasdaq National Market shall not have been suspended or limited and minimum or maximum prices or maximum ranges for prices shall not have been established on any such exchange; (iv) a banking moratorium shall not have been declared by New York or United States authorities; and (v) there shall not have been (A) an outbreak or escalation of material hostilities between the United States and any foreign power, (B) an outbreak or escalation of any other material insurrection or armed conflict involving the United States or any other national or international calamity or emergency or (C) any material change or disruption in the general financial banking or capital markets of the United States. (j) Since the date of this Agreement, neither A.M. Best Company nor Standard & Poor's Ratings Services shall have downgraded the ratings ascribed to the Company or any of its Subsidiaries on the date of this Agreement; and since the date of this Agreement, neither A.M. Best Company nor Standard & Poor's Ratings Services shall have issued any warning of or announced that it is considering a possible downgrade. (k) The Purchasers shall have received confirmation to their satisfaction that the transactions contemplated hereby will not trigger any payments under any of the Com- -29- pany's employment arrangements or loss of benefits under any of the Company's reinsurance or other material contracts. (l) The fees and expenses of the Purchasers' counsel, accountants and other advisors and consultants, including, with respect to XL, Cahill Gordon & Reindel, Am-Re Consultants, Inc. and PriceWaterhouseCoopers, LLP, shall have been paid in accordance with Section 7.4 hereof. (m) No insurance regulatory department shall have indicated that it may take any action to seize control of the Company. (n) The Purchasers shall have received a duly executed Lock-Up Agreement from each of the directors (other than outside directors) and executive officers of the Company. (o) The Purchasers shall have received a certificate of the Secretary or Assistant Secretary of the Company, dated as of the Closing Date, certifying (A) (i) that attached thereto is a true, complete and correct copy of resolutions duly adopted by the Board of Directors of the Company, authorizing (1) the execution, delivery and performance of the Transaction Documents to which it is a party and (2) the Transactions and (ii) that such resolutions have not been amended, modified, revoked or rescinded; (B) as to the incumbency and specimen signature of each officer executing any Transaction Documents on its behalf and (C) that attached thereto are true and complete copies of its constituent documents; and such certificate and the resolutions attached thereto shall be in form and substance satisfactory to the Purchasers. (p) On the Closing Date, in addition to any Convertible Exchangeable Debentures purchased by Century, directors and officers of the Company or their Affiliates shall purchase Convertible Exchangeable Debentures in an aggregate principal amount of at least $2.0 million and no more than $2.5 million; provided, however, that no individual director or officer (or affiliate -------- ------- thereof) of the Company may purchase Convertible Exchangeable Debentures in a principal amount of less than $500,000. (q) XL shall have received a duly executed voting proxy (the "D&O Proxies"), in form and substance satisfactory to XL, from each of the directors and officers of the Company that purchase Convertible Exchangeable Debentures (other than any outside directors of the Company that purchase Convertible Exchangeable Debentures indirectly through Century) pursuant to which such directors and officers shall assign to XL the voting power of the Debentures, Voting Preferred Stock, Newco Voting Preferred Stock and Common Stock of the Company and Newco into which such Debentures are convertible or for which they are exchangeable. -30- SECTION 5.2. Conditions to the Company's Obligations. The --------------------------------------- Company's obligations to issue the Convertible Exchangeable Debentures to be purchased or otherwise acquired by the Purchasers on the Closing Date pursuant to Section 2.1 are subject to the prior satisfaction in full of each of the following conditions: (a) The representations and warranties of the Purchasers in the Transaction Documents shall be true and correct in all material respects at such time (without giving effect to any qualifications as to materiality or knowledge contained therein). The Purchasers shall have performed and complied with all covenants and agreements required by such Transaction Documents to be performed or complied with by the Purchasers at such time. The Company shall have received an Officers' Certificate dated as of the Closing Date to the effect that the conditions in this clause (a) of this Section 5.2 have been satisfied. (b) Not less than $100.0 million in principal amount of Convertible Exchangeable Debentures shall be purchased by XL, First Union and High Ridge, in the aggregate, on the Closing Date. ARTICLE VI COVENANTS SECTION 6.1. Restructuring. The Company will use its best ------------- efforts, as promptly as practicable after the Closing Date, to obtain all Required Approvals and to complete the Restructuring. At such time as the Company believes that the Restructuring has been completed, the Company shall deliver to the Purchasers (a) an Officer Certificate certifying that (i) the Restructuring has been completed in accordance with the description thereof in this Agreement and all applicable laws and regulations, (ii) after giving effect to the Restructuring, neither the Company and its Subsidiaries on the one hand nor Newco and its Subsidiaries on the other hand will be insolvent or otherwise unable to pay their debts as they come due and (iii) the Restructuring will not be voidable under fraudulent conveyance, fraudulent transfer or other similar laws affecting creditors' rights generally and (b) written opinions, in form and substance reasonably satisfactory to the Purchasers, from an independent investment banking or appraisal firm satisfactory to the Purchasers as to the solvency of the Company and its Subsidiaries on the one hand and Newco and its Subsidiaries on the other hand. -31- SECTION 6.2. Preemptive Rights. If, at any time or from time ----------------- to time, Newco offers or proposes to offer any equity interests or debt that is convertible into or exercisable or exchangeable for equity interests in Newco or any of its Subsidiaries, Newco shall offer, or shall cause to be offered (and the Company, if then Controlling Newco, shall cause Newco to offer), to each Holder such interests or such convertible debt on a pro rata basis in accordance with its ownership interest in Newco on terms and conditions no less favorable than the most favorable terms offered to others. Newco will give the Holders at least 20 days' written notice of the purchase right set forth in the paragraph above. Such notice shall set forth a description of the securities, the proposed number of such securities and the form of consideration to be paid for such securities and the other expected terms and conditions of the offer. To the extent that the Holders have elected to exercise such rights within such 20-day period, any sales to such Holders shall be consummated concurrently and, in any case, within 45 days from the date the offer is first made. To the extent that the Holders have not elected to exercise such rights within such 20-day period, Newco shall have 180 days from the date on which the offer is first made to consummate the transactions contemplated by the offering on no more favorable terms to the purchasers thereof than offered to the Holders. The foregoing notwithstanding, this Section 6.2 shall not apply to the offer or issuance of any Common Stock of Newco (i) upon the grant or exercise of any options issued under a plan for employees of Newco approved by Newco's board of directors not to exceed 5% of Newco's outstanding Capital Stock on a Fully Diluted Basis, (ii) in a Qualified Offering or (iii) pursuant to the Company's obligation to spin off shares of Common Stock of Newco to its existing shareholders arising under the Debenture Registration Rights Agreement. SECTION 6.3. Board Representation. (a) From the Closing Date -------------------- until XL no longer owns at least 20% of the principal amount of the outstanding Debentures, (x) the Company shall cause all of the XL Designees (as defined below) to be nominated for election to the board of directors of the Company at the Company's next stockholders' meeting and the Company shall support and use its best efforts to cause the election of such individuals to the board of directors of the Company and (y) XL shall have the right to request, and upon such request the Company shall cause, the XL Designees to be elected to serve on the boards of directors of each of the Company's direct and indirect Subsidiaries. In addition, all such XL Designees will be permitted to serve on any committees, including any executive committee of the board of directors of the Company and each Subsidiary, unless such XL Designee is not qualified therefor under applicable law, rule or regulation, in which event XL shall have the right to select one individual to observe all such meetings in substitution therefor. "XL Designees" shall mean a number of individuals designated by XL equal to the greater of (x) two and (y) the number derived from multiplying the number of seats on the applicable board of -32- directors times a fraction the numerator of which is the number of shares of Common Stock of the Company owned by XL (assuming conversion of all Debentures held by XL) and the denominator of which is the number of outstanding shares of Common Stock of the Company on a Fully Diluted Basis (rounding up in the case of any fractions). At any time while an XL Designee is not a member of the Company's and each such Subsidiary's boards of directors, at the sole discretion of XL, XL may appoint a representative of XL, and the Company and each such Subsidiary will permit such representative, to attend all meetings of the boards of directors of the Company and each such Subsidiary and any committees thereof. XL will continue to have the right to designate the XL Designees for election or appointment to the boards of directors of the Company and each such Subsidiary in lieu of any representative of XL. (b) From the Closing Date until First Union and High Ridge, in the aggregate, no longer own at least 20% of the principal amount of the outstanding Debentures, (x) the Company shall cause the First Union and High Ridge Designee (as defined below) to be nominated for election to the board of directors of the Company at the Company's next stockholders' meeting and the Company shall support and use its best efforts to cause the election of such persons to the board of directors of the Company and (y) First Union and High Ridge shall have the right to request, and upon such request the Company shall cause, the First Union and High Ridge Designee to be elected to serve on the boards of directors of each of the Company's direct and indirect Subsidiaries. In addition, the First Union and High Ridge Designee will be permitted to serve on any committees, including any executive committee of the board of directors of the Company and each Subsidiary, unless such First Union and High Ridge Designee is not qualified therefor under applicable law, rule or regulation, in which event First Union and High Ridge shall have the right to select one Person (in addition to the Observer) to observe all such meetings in substitution therefor. "First Union and High Ridge Designee" shall mean an individual designated by First Union and High Ridge for nomination to the board of directors of the Company, following consultation by First Union and High Ridge with Century. In addition, First Union and High Ridge will together have the right to select one individual to observe all meetings of the board of directors of the Company and each of the Company's direct and indirect Subsidiaries and each committee thereof (the "Observer"). At any time while the First Union and High Ridge Designee is not a member of the Company's and each such Subsidiary's boards of directors, at the sole discretion of First Union and High Ridge, First Union and High Ridge may together appoint a representative of First Union and High Ridge, and the Company and each such Subsidiary will permit such representative, to attend all meetings of the boards of directors of the Company and each such Subsidiary and any committees thereof. First Union and High Ridge will continue to have the right to designate the First Union and High Ridge Designee for election or appointment to the -33- boards of directors of the Company and each such Subsidiary in lieu of any representative of First Union and High Ridge. (c) At the end of the term of any Designee, the Person who designated such Designee shall have the right to designate the same or another Designee for the next term and the Company shall then support and use its best efforts to cause the election of such individual to such board of directors. In the event that a Designee shall cease to serve as a director for any reason, the vacancy resulting therefrom shall be filled by a Designee selected by the Person that selected the Designee whose vacancy is to be filled according to the procedures described above. Any such director shall comply with all applicable statutory requirements of the Insurance Departments. (d) The Company and each Subsidiary will provide the Designees, the Observer, any other observers selected pursuant to Sections 6.3(a) or (b) above or any representatives of XL and First Union and High Ridge with all information provided to such boards of directors and any committees thereof. SECTION 6.4. Information. Each of the Company and Newco hereby ----------- agrees for the benefit of the Purchasers and the Holders that, from and after the date hereof, so long as any Securities may be issued or remain outstanding and unpaid or any other amount is owing to any of the Holders under any Transaction Document, it will deliver or cause to be delivered the following materials and information to the respective parties listed below: (a) to the Holders, as soon as available and in any event within 45 days after the end of each of the first three fiscal quarters of each fiscal year, (i) consolidated and consolidating balance sheets of the Company and Newco and their Subsidiaries as of the end of such quarter and the related consolidated statements of income, cash flows and stockholders' equity (deficit) for such quarter and for the portion of the fiscal year ended at the end of such quarter, setting forth, in each case, in comparative form the figures for the corresponding quarter and the corresponding portion of the previous fiscal year, accompanied by a certificate of the chief financial officer or the chief accounting officer of the Company and Newco, as applicable, to the effect that they fairly present the financial condition at such dates and the results of operations and cash flows and stockholders' equity (deficit) for such periods and were prepared in accordance with GAAP (or, in the case of the Insurance Subsidiaries, Statutory Accounting Principles prescribed or permitted by the Insurance Acts), subject to year-end audit adjustments (consisting only of normal recurring accruals), (ii) in the case of any Holder of at least 10% of the outstanding Securities, such operating information of the Company and Newco as may be reasonably requested by any Holder and (iii) in the case of any Holder of at least 10% of the outstanding Securities, a comparison of the results of such quarter against the operating plan and budget, together with an explanation of any deviations therefrom; -34- (b) to the Holders, as soon as available and in any event within 90 days after the end of each fiscal year, (i) consolidated and consolidating balance sheets of the Company and Newco and their Subsidiaries as of the end of such fiscal year and the related consolidated statements of income, cash flows and stockholders' equity (deficit) for such fiscal year, setting forth, in each case, in comparative form the figures for the previous fiscal year, accompanied by a certificate of the chief financial officer or the chief accounting officer of the Company and Newco, as applicable, to the effect that they fairly present the financial condition at such dates and the results of operations and cash flows and stockholders' equity (deficit) for such periods and were prepared in accordance with GAAP (or, in the case of the U.S. Insurance Subsidiaries, Statutory Accounting Principles prescribed or permitted by the Insurance Acts), and a report (unqualified as to scope) of a firm of independent public accountants of nationally recognized standing and, in the case of any Holder of at least 10% of the outstanding Securities, a "management letter" from such firm regarding the internal control structure of the Company and Newco and (ii) in the case of any Holder of at least 10% of the outstanding Securities and in exchange for the express agreement of such Holder to keep such information confidential, an opinion in form and substance reasonably satisfactory to the Purchasers as to the loss reserves of the Insurance Subsidiaries as of the end of such fiscal year by Tillinghast, Towers & Perrin or another actuarial consultant selected by the Company and acceptable to the Purchasers and the Holders; (c) to any Holder of at least 10% of the outstanding Securities and in exchange for the express agreement of such Holder to keep such information confidential, as soon as available and in any event within 60 days after the end of each fiscal quarter, the results of the "early warning" tests described in Section 7(m) of the Debentures and any supporting documentation requested by such Holder; (d) to any Holder of at least 10% of the outstanding Securities, as soon as available, prior to the beginning of each fiscal year and in exchange for the express agreement of such Holder to keep such information confidential, an annual budget and operating plan of the Company and Newco, including an investment policy and plan, presented on a quarterly basis for such fiscal year; (e) to any Holder of at least 10% of the outstanding Securities and in exchange for the express agreement of such Holder to keep such information confidential, as soon as available, annual financial projections (including forecasted consolidated and consolidating balance sheets of the Company and Newco and their Subsidiaries and the related consolidated statements of income, cash flows and stockholders' equity (deficit)) for the fiscal years ending December 31, 2001 through December 31, 2006 (including monthly financial projections) containing all material assumptions relating to such projections, accompanied by a statement by the Company and Newco that its projections are based on assumptions believed by it in -35- good faith to be reasonable as to the future financial performance of the Company or Newco, as the case may be; (f) to any Holder of at least 10% of the outstanding Securities and in exchange for the express agreement of such Holder to keep such information confidential, as soon as available, and in any event within 30 days after the filing thereof, copies of annual and quarterly reports and all other filings of the Insurance Subsidiaries filed with the Insurance Departments; (g) to XL, so long as it continues to own at least 10% of the outstanding Securities and in exchange for the express agreement of XL to keep such information confidential, copies of the monthly and quarterly reports provided to the boards of directors of the Company and Newco and the Insurance Subsidiaries, at or about the same time such reports are distributed to such boards; (h) to each Holder, and in exchange for the express agreement of such Holder to keep such information confidential, promptly following the occurrence thereof, notice and a description in reasonable detail of any material adverse change in the assets, liabilities, business, results of operations, condition (financial or otherwise), Permits or prospects of the Company and its Subsidiaries taken as a whole, or of Newco and its Subsidiaries taken as a whole; (i) to any Holder of at least 10% of the outstanding Securities, and in exchange for the express agreement of such Holder to keep such information confidential, from time to time such additional information regarding the financial position or business of the Company or any of its Subsidiaries or of Newco or any of its Subsidiaries as such Holder may reasonably request; (j) to the Holders, as soon as available, copies of all reports and memoranda relating to the current status of the Restructuring and copies of all related applications, agreements and other documents executed in connection with the Restructuring; and (k) to each Holder and in exchange for the express agreement of such Holder to keep such information confidential, copies of any presentation made by the Company or any of its Subsidiaries to Standard & Poor's Ratings Services, Moody's, A.M. Best Company or any other rating agency. SECTION 6.5. Use of Proceeds. Upon completion of the --------------- Restructuring and the receipt by the Company of all Required Approvals, the Company will contribute $80.0 million of the net proceeds from the issuance and sale of the Convertible Exchangeable Debentures and the Voting Preferred Stock to the statutory capital and surplus of the U.S. Insurance Subsidiaries (the "Contributed Amounts"). The remainder of the net proceeds shall be -36- deposited into the Collateral Account for the benefit of the Holders on the Closing Date. Upon the 90th day after consummation of the Restructuring and the receipt by the Company of all Required Approvals, provided, however, that no -------- ------- Default or Event of Default (as defined in the Debentures) shall have occurred and be continuing, all amounts in the Collateral Account shall be released to the Company and the Company will retain all of such proceeds and will not contribute, loan or otherwise transfer or dispose of any such amounts disbursed from the Collateral Account to any Insurance Subsidiary. SECTION 6.6. Non-Competition. (a) From and after the date on --------------- which the Restructuring is consummated until the third anniversary of the date on which the Company ceases to own, directly or indirectly, any Common Stock or other ownership interests of Newco (the "Non-Competition Period"), the Company will not, and will cause each of its Affiliates not to, directly or indirectly, engage in or own any interest in any business substantially similar to the businesses transferred to Newco; provided, however, that (i) this Section 6.6(a) -------- ------- shall not be construed to prevent or restrict the Company or any of its Affiliates from, directly or indirectly, acquiring, owning or investing in securities representing less than 5% of the outstanding voting power of the securities of a publicly traded company and (ii) this Section 6.6(a) shall not prevent or restrict the Company from owning Common Stock or other ownership interests of Newco. (b) During the Non-Competition Period, the Company will not, and will not cause or permit any of its Subsidiaries to, transfer or reassign any of its employees who are primarily dedicated to the CRM business to any other business or division of the Company or any of its Subsidiaries, solicit for employment or hire any Person who, at the time of such solicitation or hiring, is employed by Newco or any of its Subsidiaries or induce or encourage any such Person to leave the employ of Newco or any of its Subsidiaries or to become employed by any Person other than Newco or any of its Subsidiaries. SECTION 6.7. Certain Transactions. The Company shall not, and -------------------- shall not cause or permit any of its Subsidiaries (other than Subsidiaries of Newco) to, engage in any intercompany transactions outside of the ordinary course of business with Newco or any other action that would adversely affect Newco, without the prior written consent of XL. SECTION 6.8. Insurance Professional. The Company shall use its ---------------------- best efforts to hire an insurance professional approved by XL for the Company's specialty insurance operations as successor to its Program Business as promptly as practicable. SECTION 6.9. Purchase Option. In connection with the --------------- Restructuring, the Company shall grant to Newco an option to purchase, at book value, Villanova Insurance Company and/or any new Insurance Subsidiary of the Company formed in connection with the writing of new or renewal insurance policies underlying the CRM business relating to the Company's IPC (i.e., rent-a-captive) Subsidiaries. -37- SECTION 6.10. Employment Agreements. The Company shall use its --------------------- best efforts to enter into written employment agreements and non-compete agreements with such executive officers of the Company as shall be identified in writing by XL and shall be reasonably acceptable to the Company within a reasonable time following receipt of such request, in each case on terms reasonably acceptable to XL. ARTICLE VII MISCELLANEOUS SECTION 7.1. Notices. All notices, demands and other ------- communications to any Person shall be in writing (including telecopier or similar writing) and shall be given to such Person at the address set forth below: if to any Holder, at its address set forth in the Register; if to XL, at: XL Insurance Ltd c/o XL Capital Ltd. XL House One Bermudiana Road Hamilton HM 11 Bermuda Attention: Paul Giordano Telephone: (441) 294-7162 Facsimile: (441) 292-5280 with a copy to: Cahill Gordon & Reindel 80 Pine Street New York, New York 10005 Attention: Immanuel Kohn Telephone: (212) 701-3000 Facsimile: (212) 269-5420 -38- if to First Union, at: First Union Merchant Banking 2001, LLC One First Union Center - 12th Floor 301 South College Street Charlotte, North Carolina 28288-0732 Attention: Wellford Tabor Telephone: (704) 374-4540 Facsimile: (704) 374-6711 with a copy to: Robinson, Bradshaw & Hinson, P.A. 101 North Tryon Street Suite 1900 Charlotte, North Carolina 28246 Attention: Steve Lynch Telephone: (704) 377-8355 Facsimile: (704) 373-3955 if to High Ridge, at: High Ridge Capital Partners II, L.P. 105 Rowayton Avenue Rowayton, Connecticut 06853 Attention: James L. Zech Telephone: (203) 831-0104 Facsimile: (203) 831-0480 with a copy to: Robinson, Bradshaw & Hinson, P.A. 101 North Tryon Street Suite 1900 Charlotte, North Carolina 28246 Attention: Steve Lynch Telephone: (704) 377-8355 Facsimile: (704) 373-3955 -39- if to Century, at: Century Capital Partners II, L.P. c/o Century Capital Management Inc. One Liberty Square Boston, Massachusetts 02109 Attention: Craig Eisenacher Telephone: (617) 482-3060 Facsimile: (617) 542-9398 with a copy to: Palmer & Dodge LLP One Beacon Street Boston, Massachusetts 02108 Attention: Ron Eppen Telephone: (617) 573-0322 Facsimile: (617) 227-4420 if to Taracay Investors Company, at: Taracay Investors Company 104 Wallacks Point Stamford, Connecticut 06902 Attention: Robert Clements Telephone: (203) 862-4343 Facsimile: (203) 625-8366 if to Intrepid, at: Intrepid Funding Master Trust c/o Wilmington Trust Company, as Owner-Trustee Rodney Square North 1100 North Market Street Wilmington, Delaware 19890 Attention: Mary Kay Pupillo Telephone: (302) 651-8558 Facsimile: (302) 651-8882 -40- if to the Obligors, at: Mutual Risk Management Ltd. 44 Church Street Hamilton HM12 Bermuda Attention: Chief Executive Officer Telephone: (441) 295-5688 Facsimile: (441) 292-1867 with a copy to: Mayer, Brown & Platt 190 South LaSalle Street Chicago, Illinois 60603 Attention: Richard W. Shepro Telephone: (312) 782-0600 Facsimile: (312) 701-7711 or such other address as such Person may hereafter specify (in accordance with this Section 7.1) for the purpose to the other parties. Each such notice, demand or other communication shall be effective (i) if given by telecopy, when such telecopy is transmitted to such Person's telecopy number and receipt thereof is confirmed by telephone or in writing, (ii) if given by mail, three Business Days after such communication is deposited in the mail with first class postage prepaid, addressed as aforesaid or (iii) if given by any other means, when delivered at the address specified in or pursuant to this Section. SECTION 7.2. No Waivers; Powers and Remedies Cumulative; ------------------------------------------ Amendments. (a) No failure or delay on the part of any party in exercising any - ---------- right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy. (b) No right or remedy herein conferred upon or reserved to the Purchasers or the Holders from time to time of Securities is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. Every power and remedy given by any Transaction Document or by law may -41- be exercised from time to time, and as often as shall be deemed expedient, by the Obligors, the Purchasers or the Holders from time to time of Securities. (c) Any provision of this Agreement may be amended, supplemented or waived if, but only if such amendment, supplement or waiver is in writing and is signed by the Company and the Purchasers, if such proposed amendment, supplement or waiver is effective on or prior to the Closing Date, and the Requisite Holders, if such proposed amendment, supplement or waiver is effective after the Closing Date. In determining whether the Requisite Holders have concurred in any direction, consent, or waiver as provided in any Transaction Document, Debentures which are owned by the Company or any of its Affiliates shall be disregarded and deemed not to be outstanding for the purpose of any such determination; provided, however, that any amendment, supplement or waiver -------- ------- which adversely affects the rights of any Holder hereunder shall require such Holder's consent unless the amendment, supplement or waiver adversely affects the rights of all Holders in the same manner. SECTION 7.3. Indemnification. The Obligors, jointly and --------------- severally, agree to indemnify and hold harmless the Purchasers and each Holder, their respective Affiliates, directors, officers and employees and each Person, if any, who controls any Purchaser and each Holder, or any of their Affiliates, within the meaning of the Securities Act or the Exchange Act (a "Controlling Person"), and the respective partners, agents, employees, officers and directors of the Purchasers and each Holder, their respective Affiliates and any such Controlling Person (each, an "Indemnified Party" and, collectively, the "Indemnified Parties"), from and against any and all losses, claims, damages, liabilities and expenses (including, as incurred, reasonable costs of investigating, preparing or defending any such claim or action, whether or not such Indemnified Party is a party thereto), that arise out of, or are in connection with (i) any breach of representation or warranty (including any misrepresentation in, or omission from, any certificate or other document furnished or to be furnished by it to any Purchaser and/or the Holders hereunder) or nonfulfillment of any covenant or agreement on the part of the Obligors under any Transaction Document (without giving effect to any qualifications of any representation or warranty with respect to knowledge) or (ii) any pending or threatened claims, actions, suits, proceedings, demands, assessments, judgments, costs and expenses incident to any of the foregoing or to the Transaction Documents or the Transactions; provided, however, that the Obligors will not be responsible for any losses, claims, damages, liabilities or expenses that are determined by final judgment of a court of competent jurisdiction to result solely from such Indemnified Party's gross negligence or willful misconduct. The Obligors and the Purchasers also agree that no Indemnified Party shall have any liability (except for breach of provisions of this Agreement) for losses, claims, damages, liabilities or expenses, including legal fees, incurred by the Obligors in connection with this Agreement unless they are determined by final judgment of a court of competent jurisdiction to result from such Indemnified Party's gross negligence or willful misconduct. -42- In case any action shall be brought against an Indemnified Party with respect to which indemnity may be sought against the Obligors under this Agreement, such Indemnified Party shall promptly notify the Obligors in writing and the Obligors shall, if requested by such Indemnified Party or if the Obligors desire to do so, assume the defense thereof, including the employment of counsel reasonably satisfactory to such Indemnified Party and payment of all reasonable fees and expenses. The failure to so notify the Obligors shall not affect any obligations the Obligors may have to such Indemnified Party under this Agreement or otherwise unless the Obligors are materially adversely affected by such failure. Such Indemnified Party shall have the right to employ separate counsel in such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party, unless: (i) the Obligors have failed to assume the defense and employ counsel reasonably satisfactory to such Indemnified Party or (ii) the named parties to any such action (including any impleaded parties) include such Indemnified Party, and one or more of the Obligors, and such Indemnified Party shall have been advised by counsel that there may be one or more legal defenses available to it which are different from or additional to those available to such Obligor, in which case, if such Indemnified Party notifies the Obligors in writing that it elects to employ separate counsel at the expense of the Obligors, the Obligors shall not have the right to assume the defense of such action or proceeding on behalf of such Indemnified Party; provided, however, that the Obligors shall not, in connection with any one such action or proceeding or separate but substantially similar or related actions or proceedings in the same jurisdiction arising out of the same general allegations or circumstances, be responsible hereunder for the reasonable fees and expenses of more than one such firm of separate counsel, in addition to any local counsel, which counsel shall be designated by XL if XL is at such time an Indemnified Party with respect to such matter and otherwise by such Indemnified Party. The Obligors shall not be liable for any settlement of any such action effected without the written consent of the Obligors (which shall not be unreasonably withheld or delayed) and the Obligors agree to indemnify and hold harmless each Indemnified Party from and against any loss or liability by reason of settlement of any action effected with the consent of the Obligors. In addition, the Obligors will not, without the prior written consent of XL, if XL is at such time and Indemnified Party with respect to such matter and otherwise by such Indemnified Party, settle or compromise or consent to the entry of any judgment in or otherwise seek to terminate any pending or threatened action, claim, suit or proceeding in respect to which indemnification or contribution may be sought hereunder (whether or not any Indemnified Party is a party thereto) unless such settlement, compromise, consent or termination includes an express, unconditional release of the Purchasers and the other Indemnified Parties, satisfactory in form and substance to the Purchasers, from all liability arising out of such action, claim, suit or proceeding. The indemnification and expense reimbursement obligations set forth in this Section 7.3 (i) shall be in addition to any liability the Obligors may have to any Indemnified Party at common law or otherwise, (ii) shall survive the termination of this Agreement and the -43- other Transaction Documents and the payment, conversion and/or exchange in full of the Debentures and (iii) shall remain operative and in full force and effect regardless of any investigation made by or on behalf of the Purchasers or any other Indemnified Party. SECTION 7.4. Expenses; Documentary Taxes. The Obligors, jointly --------------------------- and severally, agree to pay, whether or not the closing in respect of the issuance and sale of the Convertible Exchangeable Debenture to the Purchasers occurs, the costs, fees and expenses of the Purchasers incurred in connection with the Transaction Documents, including the fees and expenses of its legal counsel, actuaries, accountants and other advisors and consultants, including in connection with any amendments, modifications or waivers of the provisions of any of the Transaction Documents, or any enforcement of the rights of the Purchasers under any of the Transaction Documents or in connection with any collection, bankruptcy, insolvency and other enforcement proceedings resulting therefrom. Furthermore, the Obligors agree to pay any and all stamp, transfer and other similar taxes, assessments or charges payable in connection with the execution and delivery of any Transaction Document or the issuance of the Securities. SECTION 7.5. Register. Each of the Company and Newco shall keep -------- at its principal office a register (the "Register") in which shall be entered the names and addresses of the registered holders of the Securities issued by it and particulars of the respective Securities held by them and of all transfers of such Securities. References to the "Holder" or "Holders" shall mean the Person or Persons listed in the Register as the payee of any Security. The ownership of the Securities shall be proven by the Register. SECTION 7.6. Termination. This Agreement may be terminated (i) by ----------- the parties hereto by mutual agreement or (ii) if the Closing Date does not occur by May 17, 2001, by any party by written notice to the other parties hereto. Sections 7.3, 7.4, 7.8 and 7.9 shall survive any such termination. SECTION 7.7. Successors and Assigns. This Agreement shall be --------------------- binding upon the Company and upon the Purchasers and their respective successors and assigns, including, in the case of the Company, any transferee of substantially all of the business or assets of the Company; provided, however, -------- ------- that the Company shall not assign or otherwise transfer its rights or obligations under this Agreement to any other Person without the prior written consent of the Requisite Holders. The Company shall not be permitted to circumvent the rights of the Purchasers under any Transaction Document by reorganization, recapitalization, transfer of business or assets or otherwise, any attempt to do so shall be void, and any entity or entities surviving any reorganization, recapitalization, transfer or other similar transaction shall be deemed the Company. In the event of a transfer of any Debenture, the rights of a Holder under this Agreement, respectively, shall pass to such transferee. -44- SECTION 7.8. Governing Law; Waiver of Jury Trial; Submission ----------------------------------------------- to Jurisdiction; Net Payments. (a) THIS AGREEMENT SHALL BE GOVERNED BY AND - ----------------------------- CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK. ANY DISPUTE UNDER THIS AGREEMENT THAT IS NOT SETTLED BY MUTUAL CONSENT SHALL BE FINALLY ADJUDICATED BY ANY FEDERAL OR STATE COURT SITTING IN THE CITY, COUNTY AND STATE OF NEW YORK, AND THE COMPANY CONSENTS TO THE EXCLUSIVE JURISDICTION OF SUCH COURTS (OR ANY APPELLATE COURT THEREFROM) OVER ANY SUCH DISPUTE. THE COMPANY HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE FEDERAL AND NEW YORK STATE COURTS LOCATED IN NEW YORK COUNTY IN CONNECTION WITH ANY SUIT, ACTION OR PROCEEDING RELATED TO THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY, IRREVOCABLY WAIVES ANY DEFENSE OF LACK OF PERSONAL JURISDICTION AND IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT. THE COMPANY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. (b) By the execution and delivery of this Agreement, the Company and each of the Guarantors (i) acknowledges that it will, by separate written instrument, designate and appoint The CT Corporation System, Inc., 111 Eighth Avenue, New York, New York 10011 (and any successor entity) as its authorized agent upon which process may be served in any suit or proceeding arising out of or relating to any of the Transaction Documents that may be instituted in any Federal or state court in the State of New York, New York County or brought under Federal or state securities laws, and acknowledges that The CT Corporation System, Inc. will accept such designation, (ii) waives trial by jury, (iii) agrees that service of process upon The CT Corporation System, Inc. and written notice of said service to the Company or such Guarantor, as the case may be, in accordance with Section 7.1 shall be deemed in every respect effective service of process upon the Company or such Guarantor, as the case may be, in any such suit or proceeding and (iv) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law. (c) All payments made or required to be made hereunder shall be made in U.S. dollars. The Obligors agree to indemnify the Holder against any loss incurred by such party as a result of any judgment or order being given or made against the Obligors, for any U.S. dollar amount due under this Agreement and such judgment or order being expressed and paid in a currency (the "Judgment Currency") other than United States dollars and as a result of any -45- variation as between (i) the rate of exchange at which the United States dollar amount is converted into the Judgment Currency for the purpose of such judgment or order and (ii) the spot rate of exchange in The City of New York at which such party on the date of payment of such judgment or order is able to purchase United States dollars with the amount of the Judgment Currency actually received by such party if such party had utilized such amount of Judgment Currency to purchase United States dollars as promptly as practicable upon such party's receipt thereof. The foregoing indemnity shall continue in full force and effect notwithstanding any such judgment or order as aforesaid. The term "spot rate of exchange" shall include any premiums and costs of exchange payable in connection with the purchase of, or conversion into, United States dollars. All amounts paid by the Company or any Guarantor hereunder shall be paid free and clear of, and without any deduction or withholding for or on account of, any present or future taxes, duties, assessments or other governmental charges of whatever nature imposed or levied by or on behalf of Bermuda or any political subdivision thereof or by any authority therein or thereto or within any other jurisdiction in which the Company or any of its Subsidiaries is organized or engaged in business for tax purposes having power to tax, unless such deduction or withholding is required by applicable law, in which event, each of the other parties hereto agrees to pay additional amounts so that the persons entitled to such payments will receive the amount that such persons would otherwise have received but for such deduction or withholding. SECTION 7.9. Survival. (a) All covenants, agreements, -------- representations and warranties in any Transaction Document and in the certificates or other instruments prepared or delivered in connection with or pursuant to any Transaction Document shall be considered to have been relied upon by the Purchasers and shall survive the purchase of the Securities regardless of any investigation made by or on behalf of the Purchasers, and shall continue in full force and effect in accordance with their terms. (b) All indemnities set forth herein, including in Section 7.3, shall survive the execution and delivery of this Agreement, the issuance and purchase of the Securities and the repayment and cancellation of the Debentures. SECTION 7.10. Independence of Representations, Warranties and ------------------------------------------------ Covenants. The representations, warranties and covenants contained herein shall - --------- be independent of each other, and no exception to any representation, warranty or covenant (including any exception contained in a schedule hereto) shall be deemed to be an exception to any other representation, warranty or covenant contained herein unless expressly provided, nor shall any such exception be deemed to permit any action or omission that would be in contravention of applicable law. SECTION 7.11. Severability. If any term, provision, covenant ------------ or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforce- -46- able, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated. SECTION 7.12. Counterparts. This Agreement may be executed 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. SECTION 7.13. Entire Agreement; Benefit. This Agreement and ------------------------- the other Transaction Documents constitute the entire agreement among the parties relating to the subject matter hereof. Any previous agreement among the parties with respect to the subject matter hereof is superseded by this Agreement and the other Transaction Documents. Nothing in any Transaction Document is intended to confer upon any Person (other than the parties thereto and any Indemnified Party) any rights, remedies, obligations or liabilities under or by reason of the Transaction Documents. SECTION 7.14. Headings. Article and Section headings and the -------- Table of Contents are for convenience of reference only, are not part of this Agreement and are not to affect the construction of, or to be taken into consideration in interpreting, this Agreement. SECTION 7.15. Execution by Newco. Promptly after the formation ------------------ of Newco, the Company will cause Newco to execute and deliver a counterpart to this Agreement pursuant to which Newco shall, by so executing this Agreement, become a party to this Agreement as if Newco were an original party hereto and upon which this Agreement shall constitute a valid and binding agreement of Newco, enforceable in accordance with its terms. Upon execution of this Agreement by Newco in accordance with this Section 7.15, Newco shall be deemed to have made, as of the date of such execution, the representations and warranties contained in Sections 3.1, 3.2, 3.5, 3.6, 3.7, 3.8, 3.9, 3.10, 3.11, 3.19, 3.20, 3.22 and 3.23 of this Agreement to the holders as if all references contained therein to the Company were references to Newco. S-1 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers. Executed: May 8, 2001 MUTUAL RISK MANAGEMENT LTD. By: /s/ Richard E. O'Brien ------------------------------------ Name: Richard E. O'Brien Title: Senior Vice President MUTUAL GROUP LTD. By: /s/ Richard E. O'Brien ------------------------------------ Name: Richard E. O'Brien Title: Senior Vice President LEGION FINANCIAL CORP. By: /s/ Richard E. O'Brien ------------------------------------- Name: Richard E. O'Brien Title: Senior Vice President MGL INVESTMENTS LTD. By: /s/ Richard E. O'Brien ------------------------------------ Name: Richard E. O'Brien Title: Senior Vice President MRM SECURITIES LTD. By:/s/ Richard E. O'Brien ------------------------------------ Name: Richard E. O'Brien Title: Senior Vice President S-2 MUTUAL FINANCE LTD. By: /s/ Elizabeth B. Price ------------------------------------ Name: Elizabeth B. Price Title: Secretary MUTUAL RISK MANAGEMENT (HOLDINGS) LTD. By: /s/ Elizabeth B. Price ------------------------------------ Name: Elizabeth B. Price Title: Secretary S-3 PRINCIPAL AMOUNT OF CONVERTIBLE EXCHANGEABLE PURCHASERS: DEBENTURES PURCHASED: XL INSURANCE LTD $52,500,000 By: /s/ Clive Tobin -------------------------------- Name: Clive Tobin Title: President & Chief Executive Officer FIRST UNION MERCHANT BANKING 2001, LLC $30,400,000 By: /s/ Frederick W. Eubank II -------------------------------------- Name: Frederick W. Eubank II Title: Partner HIGH RIDGE CAPITAL PARTNERS II, L.P. $17,100,000 By: /s/ Steve Tynan --------------------------------------- Name: Steve Tynan Title: President, Liberty Street Corp., as general partner of Liberty Street Partners, LP, as member of High Ridge GP II LLC, as general partner of High Ridge Capital Partners II, L.P. S-4 CENTURY CAPITAL PARTNERS II, L.P. $ 10,000,000 BY: CCP CAPITAL II LLC, its general partner By: /s/ Craig Eisenacher ------------------------------------ Name: Craig Eisenacher Title: Managing Member /s/ Robert A. Mulderig - ---------------------------------------- $ 2,000,000 Robert A. Mulderig TARACAY INVESTORS COMPANY $ 500,000 By: /s/ Robert Clements --------------------------------------- Name: Robert Clements Title: ------------ Total for Purchasers (other than Intrepid)......... $112,500,000 ============ INTREPID FUNDING MASTER TRUST $ 30,000,000 WILMINGTON TRUST COMPANY not in its individual capacity but solely as Owner - Trustee. By: /s/ Mary Kay Pupillo --------------------------------- Name: Mary Kay Pupillo Title: Senior Financial Services Officer EX-10.2 9 dex102.txt DEBENTURE REGISTRATION RIGHTS AGREEMENT EXHIBIT 10.2 MUTUAL RISK MANAGEMENT LTD. DEBENTURE REGISTRATION RIGHTS AGREEMENT TABLE OF CONTENTS
Page ---- 1. Definitions............................................................................ 2 1.1 Other Definitions.............................................................. 5 2. Registration Rights.................................................................... 5 2.1 Demand Registrations........................................................... 6 2.2 Piggyback Registration......................................................... 9 2.3 Obligations of the Issuers..................................................... 9 2.4 Furnish Information............................................................ 11 2.5 Expenses of Registration....................................................... 11 2.6 Underwriting Requirements...................................................... 12 2.7 Indemnification................................................................ 13 2.8 Termination of Registration Rights............................................. 16 2.9 "Lock-Up" Agreement............................................................ 16 3. Indenture.............................................................................. 16 4. Miscellaneous.......................................................................... 16 4.1 Amendments; Waivers............................................................ 16 4.2 After-Acquired Shares.......................................................... 17 4.3 Successors and Assigns......................................................... 17 4.4 Rights and Obligations of Transferees.......................................... 17 4.5 Further Assurances............................................................. 17 4.6 Notices........................................................................ 18 4.7 Governing Law; Waiver of Jury Trial............................................ 20 4.8 Severability; Interpretation................................................... 21 4.9 Table of Contents; Headings.................................................... 21 4.10 Entire Agreement............................................................... 21 4.11 Counterparts................................................................... 21 4.12 No Third-Party Beneficiaries................................................... 21 4.13 Execution by Newco............................................................. 21
(i) DEBENTURE REGISTRATION RIGHTS AGREEMENT THIS DEBENTURE REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made --------- as of May 17, 2001, by and among Mutual Risk Management Ltd., a company organized under the laws of Bermuda (the "Company"), and XL Insurance Ltd ------- ("XL"), First Union Merchant Banking 2001, LLC, High Ridge Capital Partners II, -- L.P., Century Capital Partners II, L.P., Robert A. Mulderig and Taracay Investors Company (each, a "Purchaser" and, collectively, the "Purchasers") and --------- ---------- Intrepid Funding Master Trust (the "RHINOS Debenture Holder"). ----------------------- RECITALS WHEREAS, the Company, the Purchasers and the RHINOS Debenture Holder are parties to that certain securities purchase agreement dated as of May 8, 2001 (the "Securities Purchase Agreement") pursuant to which the Purchasers have ----------------------------- agreed to purchase 9 3/8% convertible exchangeable debentures due 2006 of the Company in an aggregate principal amount of $112,500,000 (such debentures, together with any RHINOS Debentures issued on or prior to the closing date in respect of the purchase of debentures by the Purchasers, the "MRM Debentures") -------------- and the RHINOS Debenture Holder has agreed to exchange RHINOS (as defined in the Securities Purchase Agreement) for RHINOS Debentures having a principal amount equal to the aggregate liquidation preference of the RHINOS tendered in exchange therefor; WHEREAS, the MRM Debentures are convertible into Company Shares or exchangeable for Newco Shares and/or Newco Debentures; and WHEREAS, in order to induce the Purchasers to enter into the Securities Purchase Agreement and to purchase the MRM Debentures, the Company, Newco and the Purchasers desire to enter into this Agreement for the purpose, among others, of establishing certain registration and other rights of the Holders (as defined below); NOW, THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: -2- 1. Definitions. (a) "Act" shall mean the Securities Act of 1933, as amended. --- (b) "Agreement" shall have the meaning set forth in the Preamble --------- to this Agreement. (c) "Business Day" shall mean any day that is not a Saturday, ------------ Sunday or a day on which (i) commercial banks in New York City are authorized or required to close or (ii) the New York Stock Exchange is not open for trading. (d) "Common Stock" shall mean the common stock or common shares ------------ of the referenced Person. (e) "Common Stock Equivalents" shall mean securities convertible ------------------------ into or exercisable or exchangeable for Common Stock of the referenced Person. (f) "Company" shall have the meaning set forth in the Preamble ------- to this Agreement. (g) "Company Securities" shall mean, collectively, the MRM ------------------ Debentures and the Company Shares. (h) "Company Shares" shall mean shares of Common Stock of the -------------- Company issuable upon conversion of the MRM Debentures. (i) "Debentures" shall mean, collectively, the MRM Debentures ---------- and the Newco Debentures. For all purposes of this Agreement, references to Debentures shall be deemed to include a reference to the Voting Preferred Stock issued in connection therewith. (j) "Demand Registration" shall mean a Company Demand ------------------- Registration and/or a Newco Demand Registration. -3- (k) "Holder" shall mean, as applicable, any Person owning or ------ having the right to acquire a Registrable Security from time to time. (l) "Issuer" shall mean either the Company or Newco, or both as ------ the context requires. (m) "MRM Debentures" shall have the meaning set forth in the -------------- Preamble to this Agreement. For all purposes of this Agreement, references to MRM Debentures shall be deemed to include a reference to the Voting Preferred Stock issued in connection therewith. (n) "Newco" shall mean a new company organized under the laws of ----- Bermuda and formed in connection with the Restructuring. (o) "Newco Debentures" means the convertible debentures due 2006 ---------------- of Newco issued in exchange for MRM Debentures. For all purposes of this Agreement, references to Newco Debentures shall be deemed to include a reference to the Newco Voting Preferred Stock issued in connection therewith. (p) "Newco Securities" shall mean, collectively, the Newco ---------------- Debentures and the Newco Shares. (q) "Newco Shares" shall mean shares of Common Stock of Newco ------------ issuable upon exchange of MRM Debentures or upon conversion of Newco Debentures. (r) "Newco Voting Preferred Stock" shall have the meaning ---------------------------- assigned thereto in the Securities Purchase Agreement. (s) "1934 Act" shall mean the Securities Exchange Act of 1934, -------- as amended. (t) "Person" shall mean any individual or a corporation, ------ company, partnership, trust, incorporated or unincorporated association, joint venture, joint stock company, limited liability company, government (or agency or political subdivision thereof) or other entity of any kind. -4- (u) "Purchaser(s)" shall have the meaning set forth in the ------------ Preamble to this Agreement. (v) "register," "registered" and "registration" shall mean a -------- ---------- ------------ registration effected by preparing and filing with the SEC a registration statement or similar document in compliance with the Act, and the declaration or ordering of effectiveness of such registration statement or document. (w) "Registrable Securities" shall mean (i) the Company Shares, ---------------------- (ii) the Newco Shares, (iii) the MRM Debentures (including the Voting Preferred Stock issued in connection therewith) and/or (iv) the Newco Debentures (including the Newco Voting Preferred Stock issued in connection therewith), in each case until such time as such securities have been sold pursuant to an effective registration statement or an applicable exemption from registration under the Act and are no longer subject to restrictions on transfer the Act. (x) "Requisite Holders" shall mean the holders of a majority of ----------------- the Registrable Securities (assuming, solely for purposes of this definition, that all MRM Debentures and Newco Debentures have been converted into Company Shares and Newco Shares, respectively, at the then applicable conversion price); provided, however, that at any time when XL holds a majority of the Registrable - -------- ------- Securities (other than RHINOS Debentures), "Requisite Holders" shall mean a majority of the Registrable Securities (other than RHINOS Debentures); and provided, further, however, that so long as XL owns at least $50.0 million - -------- ------- ------- principal amount of Debentures, XL will be deemed to own a majority of the Registrable Securities. (y) "Restructuring" shall have the meaning assigned thereto in ------------- the Securities Purchase Agreement. (z) "RHINOS Debenture Holder" shall have the meaning set forth ----------------------- in the preamble to this Agreement. (aa) "RHINOS Debentures" shall have the meaning assigned thereto ----------------- in the Securities Purchase Agreement. (bb) "Rule 144" shall mean Rule 144 promulgated under the Act. -------- -5- (cc) "SEC" shall mean the Securities and Exchange Commission. --- (dd) "Securities Purchase Agreement" shall have the meaning set ----------------------------- forth in the Recitals to this Agreement. (ee) "Voting Preferred Stock" shall have the meaning set forth ---------------------- in the Securities Purchase Agreement. (ff) "XL" shall have the meaning set forth in the preamble to -- this Agreement. 1.1 Other Definitions
Defined Term in Section ---- ---------- "Company Demand Registration"...................................................... Section 2.1(a) --------------------------- "Indemnified Party"................................................................ Section 2.7(a) ----------------- "Indemnified Person(s)"............................................................ Section 2.7(b) --------------------- "Indenture"........................................................................ Section 3 --------- "Initiating Holders"............................................................... Section 2.1(d) ------------------ "Newco Demand Registration"........................................................ Section 2.1(b) ------------------------- "selling security holder".......................................................... Section 2.6 ----------------------- "Violation"........................................................................ Section 2.7(a) ---------
Other capitalized terms used herein and not otherwise defined herein shall have the meanings given to such terms in the Securities Purchase Agreement. 2. Registration Rights. The Company and Newco, jointly and severally, covenant and agree as follows: -6- 2.1 Demand Registrations. (a) Holders of MRM Debentures/Company Shares. The Holders of (i) ---------------------------------------- at least $10.0 million in principal amount of MRM Debentures or (ii) at least 9.0% of the then outstanding Company Shares shall have the right at any time to make a written request of the Company to register and, upon the receipt of such written request, the Company shall register under the Act the number or aggregate principal amount, as applicable, of Registrable Securities which are the subject of such request (each, a "Company Demand Registration"). --------------------------- (b) Holders of Debentures/Newco Shares. (i) The Holders of at least 20% of the outstanding Registrable Securities (other than Company Shares) shall have the right, with the prior written consent of XL (so long as XL owns at least 20% of the outstanding Registrable Securities (other than Company Shares) at such time), at any time to make a written request of Newco to register and, upon receipt of such written request, Newco shall register under the Act the number of Newco Shares that are the subject of such request or that are issuable upon exchange of the Debentures that are the subject of such request (each, a "Newco Demand Registration"). ------------------------- (ii) The Holders of at least 20% of the outstanding Registrable Securities (other than Company Shares) may also require, with the prior written consent of XL (so long as XL owns at least 20% of the outstanding Registrable Securities (other than Company Shares) at such time), the Company to distribute up to 20% of the Common Stock of Newco owned by the Company to the holders of Common Stock of the Company in order to create a liquid trading market for such Common Stock of Newco. (c) (i) In connection with a Company Demand Registration made pursuant to Section 2.1(a), the Company shall: (A) within ten (10) days of the receipt thereof, give written notice of such request to all Holders of Company Securities; and (B) file as soon as practicable, and in any event within ninety (90) days of the receipt of such request, a registration statement under the Act covering all Company Securities constituting Registrable Securities (subject to the limitations of Section 2.1(d) and subject to the provisions of Section 2.6), which the Holders of the ap- -7- plicable Company Security request to be registered, within twenty (20) days of the mailing of such notice by the Issuer in accordance with Section 4.6. (ii) In connection with a Newco Demand Registration made pursuant to Section 2.1(b), Newco shall: (A) within ten (10) days of the receipt thereof, give written notice of such request to all Holders of Newco Securities; and (B) file as soon as practicable, and in any event within ninety (90) days of the receipt of such request, a registration statement under the Act covering all Newco Securities constituting Registrable Securities (subject to the limitations of Section 2.1(d) and subject to the provisions of Section 2.6), which the Holders of the applicable Newco Security request to be registered; within twenty (20) days of the mailing of such notice by the Issuer in accordance with Section 4.6. (d) If the Holders initiating a registration request pursuant to Section 2.1(a) and (b) (any such Holders, the "Initiating Holders") intend to ------------------ distribute the applicable Registrable Securities covered by their request by means of an underwriting, they shall so advise the applicable Issuer as a part of their request made pursuant to Section 2.1(a) or (b), as the case may be, and such Issuer shall include such information in the applicable written notice referred to in Section 2.1(c)(i)(A) or 2.1(c)(ii)(A). The managing underwriter will be selected by the majority in interest of the Initiating Holders and shall be reasonably acceptable to the applicable Issuer, or, if such Initiating Holders so direct, the applicable Issuer shall select the managing underwriter, which shall be reasonably acceptable to the Initiating Holders. In any such event, the right of any Holder to include such Holder's Registrable Securities in such registration shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting (unless otherwise mutually agreed by a majority in interest of the Initiating Holders and such Holder) to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall enter into an underwriting agreement, a custody agreement and a power of attorney, each in customary form with the underwriter or underwriters selected for such underwriting and deliver an opinion of counsel in customary form to such underwriter or underwriters. (e) Notwithstanding the foregoing, if the applicable Issuer shall furnish to Holders requesting a registration statement pursuant to this Section 2.1 a certificate signed by the president or chief executive officer of the applicable Issuer stating that in the good faith -8- judgment of its board of directors it would be materially adverse to such Issuer and its security holders for such registration statement to be filed at that time and it is therefore essential to defer the filing of such registration statement, or the filing of such registration statement would materially interfere with or otherwise adversely affect in any material respect any financing, acquisition, corporate reorganization or other material transaction or development involving such Issuer, such Issuer shall have the right to defer such filing for a period of not more than 90 days after receipt of the request of the Initiating Holders; provided, however, that each Issuer may utilize this -------- ------- right no more than once in any twelve-month period. (f) Notwithstanding anything else in this Agreement to the contrary, neither Issuer shall be obligated to effect, or to take any action to effect, any Demand Registration pursuant to this Section 2.1 for an Initiating Holder (other than an Initiating Holder that (x) holds at least $15.0 million in principal amount of Debentures or 13.0% of the then outstanding Company Shares and (y) has not previously initiated a Demand Registration) after the Issuers have, in the aggregate, effected three (3) Demand Registrations pursuant to this Section 2.1 and such Demand Registrations have been declared or ordered effective; provided, however, that such registrations remain effective under the -------- ------- Act until the earlier of (x) an aggregate of 120 days after the effective date thereof or (y) the consummation of the distribution by the Holders participating in such registration of all of the Registrable Securities covered thereby; provided, further, that a registration shall not constitute a Demand - -------- ------- Registration if (A) after such Demand Registration has become effective such registration or the related offer, sale or distribution of Registrable Securities thereunder is interfered with by any stop order, injunction or other order or requirement of the SEC or other governmental agency or court for any reason not attributable to the Initiating Holders and such interference is not thereafter eliminated or (B) the conditions specified in the underwriting agreement, if any, entered into in connection with such Demand Registration are not satisfied or waived (other than any conditions, the satisfaction of which is solely within the control of the selling Holders). (g) A registration will not count as a Demand Registration until it has become effective (unless the Initiating Holders withdraw the Registrable Securities or if such failure to become effective results solely from the failure of the Initiating Holders to fulfill an obligation or satisfy a condition under this Agreement, in which cases such demand will count as a Demand Registration unless the Initiating Holders agree to pay all expenses of such registration (as described in Section 2.5)). Except as provided above, the Company will pay all expenses in connection with any registration initiated as a Demand Registration, whether or not it becomes effective. -9- 2.2 Piggyback Registration. (a) Debentures. If either Issuer proposes to register (including ---------- for this purpose a registration effected by the applicable Issuer for security holders other than the Holders) any debt securities solely for cash, then the applicable Issuer shall, at such time, promptly give each Holder of Company Debentures or Newco Debentures, as the case may be, written notice of such registration setting forth the date on which such Issuer proposes to file such registration statement (which date shall be no earlier than 20 days from the date of such notice). Upon the written request of any such Holder given within twenty (20) days after mailing of such notice by such Issuer in accordance with Section 4.6, the applicable Issuer shall cause to be registered under the Act and include in the same registration statement all of the Company Debentures or Newco Debentures, as the case may be, that each such Holder has requested to be registered and take any and all other actions reasonably necessary under United States federal or state laws or otherwise to permit such Holders to effect the proposed sale or other disposition of the Company Debentures or Newco Debentures, as the case may be. (b) Company/Newco Shares. If either Issuer proposes to register -------------------- any of its Common Stock or Common Stock Equivalents under the Act in connection with the public offering of Common Stock or Common Stock Equivalents solely for cash, then such Issuer shall, at such time, promptly give each Holder of Company Shares or Newco Shares, as the case may be, written notice of such registration setting forth the date on which such Issuer proposes to file such registration statement (which date shall be no earlier than 20 days from the date of such notice). Upon the written request of any such Holder given within twenty (20) days after mailing of such notice by such Issuer in accordance with Section 4.6, such Issuer shall cause to be registered under the Act and include in the same registration statement all of the Company Shares or Newco Shares, as the case may be, that each such Holder has requested to be registered and take any and all other actions reasonably necessary under United States federal or state laws or otherwise to permit such Holders to effect the proposed sale or other disposition of the Company Shares or Newco Shares, as the case may be. 2.3 Obligations of the Issuers. Whenever required under this Section 2 to effect the registration of any Registrable Securities, the applicable Issuer shall promptly: (a) prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its best efforts to cause such registration statement to become effective, and keep such registration statement effective for a period of up to one hundred twenty (120) days or until the distribution contemplated in the Registration Statement has been completed; provided, however, that -------- ------- before filing any such -10- registration statement or amendments thereto, the applicable Issuer will furnish to the Holders of Registrable Securities proposed to be included in any such registration statement copies of all such documents proposed to be filed and afford such Holders a reasonable opportunity to comment thereon; (b) prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Act with respect to the disposition of all securities covered by such registration statement; (c) furnish to the Holders of Registrable Securities proposed to be included in any such registration statement such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them; (d) use its best efforts to register and qualify the securities covered by such registration statement under the securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders; provided, however, that the Issuer shall not be required in -------- ------- connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such jurisdictions; (e) in the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement in usual and customary form with the managing underwriter of such offering and, in connection therewith, the applicable Issuer shall cooperate with the managing underwriter and shall attend such meetings and travel to such places to aid in the marketing of such underwritten public offering as the underwriters may reasonably request; (f) notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing; -11- (g) use its best efforts to cause all such Registrable Securities registered pursuant hereunder to be listed on each securities exchange on which similar securities issued by the applicable Issuer are then listed; (h) provide a transfer agent and registrar for all Registrable Securities registered pursuant hereunder and a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration statement; (i) in the event of an underwritten public offering, use its best efforts to obtain, at the request of any Holder requesting registration of Registrable Securities pursuant to this Section 2, (i) an opinion, dated such date, of the counsel representing the applicable Issuer for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities and (ii) a letter, dated such date, from the independent certified public accountants of the applicable Issuer, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities; and (j) take such other customary and reasonable actions as the Holders of a majority of the Registrable Securities to be included in such registration statement or the underwriters, if any, reasonably request in order to facilitate the distribution of such Registrable Securities. 2.4 Furnish Information. It shall be a condition precedent to the obligations of the applicable Issuer to take any action pursuant to this Section 2 with respect to the Registrable Securities of any selling Holder that such Holder shall furnish to such Issuer such information regarding itself, the Registrable Securities held by it and the intended method of disposition of such Registrable Securities as shall be reasonably required to effect the registration of such Holder's Registrable Securities. 2.5 Expenses of Registration. All expenses (other than underwriting discounts and commissions) incurred in connection with registrations, filings or qualifications pursuant to Section 2.1 or 2.2, including (without limitation) all registration, filing and qualification fees, SEC and state "Blue Sky" filings, printers' and accounting fees (including the cost of "cold comfort" letters, if required), fees and disbursements of counsel for the applicable Issuer -12- and the reasonable fees and disbursements of one counsel for the Holders of Registrable Securities (selected by the Holders of a majority of Registrable Securities to be registered) included in each registration made pursuant to this Agreement shall be borne by such Issuer; provided, however, that such Issuer -------- ------- shall not be required to pay for any expenses of any registration proceeding begun pursuant to Section 2.1 if the registration request is subsequently withdrawn or the registration statement does not become effective, in each case, in the circumstances described in Section 2.1(g) (in which case all participating Holders shall severally and proportionately bear such expenses), unless the Requisite Holders agree to forfeit their right to one (1) demand registration right pursuant to Section 2.1(g). 2.6 Underwriting Requirements. (a) In connection with any offering involving an underwriting of Registrable Securities, such Issuer shall not be required under Section 2.2 to include any Registrable Securities of a Holder in such underwriting unless such Holder accepts the terms of the underwriting as agreed upon between the applicable Issuer and the underwriters; provided, -------- however, that under no circumstances will any Holder be obligated to make - ------- representations or provide indemnities except with respect to information reasonably required to be furnished pursuant to Section 2.4. (b) With respect to a registration pursuant to Section 2.1, if the total amount of securities, including Registrable Securities, requested by security holders to be included in such offering exceeds the amount of securities that the managing underwriters with respect to such registration determine in their sole discretion is compatible with the success of the offering, then the applicable Issuer shall be required to include in the offering only that number of such securities which the managing underwriters determine in their sole discretion will not jeopardize the success of the offering (the securities so included to be apportioned pro rata among the Holders according to the total amount of securities entitled to be included therein owned by each such Holder or in such other proportions as shall be mutually agreed to by such Holders); provided, however, that in no event shall -------- ------- any Registrable Securities proposed to be included in any registration be excluded from such offering if the securities of any selling security holder other than a Holder of Registrable Securities or any securities offered by either Issuer are included. (c) With respect to a registration pursuant to Section 2.2, if the total amount of securities, including Registrable Securities, requested by security holders to be included in such offering exceeds the amount of securities that the managing underwriters with respect to such registration determine in their sole discretion is compatible with the success of the offering, then the applicable Issuer shall be required to include in the offering only that number of such securities which the managing underwriters determine in their sole discretion -13- will not jeopardize the success of the offering (the securities so included to be apportioned pro rata among the applicable Issuer and the selling security holders, including the Registrable Securities, according to the total amount of securities entitled to be included therein owned by each such selling security holder or in such other proportions as shall mutually be agreed to by such selling security holders). 2.7 Indemnification. In the event any Registrable Securities are included in a registration statement under this Section 2: (a) To the extent permitted by law, each Issuer will indemnify and hold harmless each selling Holder, and each officer, director, employee, affiliate and each person, if any, who controls such Holder within the meaning of the Act or the 1934 Act (any of the foregoing persons, an "Indemnified Party"), against any losses, claims, damages, or liabilities ----------------- (joint or several) to which they may become subject under the Act, or the 1934 Act or other federal or state securities law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively, a "Violation"): (i) any untrue statement or --------- alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation by the Issuer of the Act, the 1934 Act, any state securities law or any rule or regulation promulgated under the Act, or the 1934 Act or any state securities law; and the applicable Issuer will pay to each Indemnified Party, as incurred, any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this -------- ------- Section 2.7(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the applicable Issuer (which consent shall not be unreasonably withheld or delayed). Nor shall any Issuer be liable in any such case for any such loss, claim, damage, liability or action to the extent that it arises out of or is directly based upon a Violation which occurs in reliance upon and in conformity with written information reasonably required by Section 2.4 furnished for use in connection with such registration by any Indemnified Party, or which results from the failure of an Indemnified Party to deliver a final, amended or supplemental prospectus furnished an Indemnified Party and required to be delivered if the Violation would not have occurred if the delivery had been made. -14- (b) To the extent permitted by law, each selling Holder will indemnify and hold harmless the applicable Issuer, each of its directors, officers, employees and affiliates, and each person, if any, who controls the applicable Issuer within the meaning of the Act or the 1934 Act, any other Holder selling securities in such registration statement and any controlling person of any such other Holder (any of the foregoing persons, an "Indemnified Person(s)"), against any losses, claims, damages or --------------------- liabilities (joint or several) to which any of such Indemnified Persons may become subject under the Act, or the 1934 Act or other federal or state securities law, insofar as such losses, claims, damages or liabilities (or actions in respect thereto) arise out of or are directly based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information reasonably required by Section 2.4 furnished by such Holder for use in connection with such registration; and each such Holder will pay, as incurred, any legal or other expenses reasonably incurred by any such Indemnified Person in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the -------- ------- indemnity agreement contained in this Section 2.7(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld or delayed. Nor shall such Holder be liable in any such case for any such loss, claim, damage, liability, or action to the extent that it arises out of or is based upon a Violation which results from the failure of any Indemnified Person to deliver a final, amended or supplemental prospectus furnished to any Indemnified Person, and required to be delivered, if the Violation would not have occurred if the delivery had been made; provided, however, that in -------- ------- no event shall any indemnity under this Section 2.7(b) exceed the gross proceeds from the offering received by such Holder. (c) Promptly after receipt by an indemnified party under this Section 2.7 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 2.7, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually and reasonably satisfactory to the parties; provided, -------- however, that an indemnified party (together with all other indemnified ------- parties which may be represented without conflict by one counsel) shall have the right to retain one separate counsel, reasonably acceptable to the indemnifying party, with the reasonable fees and expenses of such counsel to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other -15- party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 2.7, but the omission so to deliver written notice to the indemnifying party will not relieve the indemnifying party of any liability that the indemnifying party may have to any indemnified party otherwise under this Section 2.7. (d) If the indemnification provided for in this Section 2.7 is held by a court of competent jurisdiction to be unavailable to an indemnified party or is insufficient to hold any indemnified party harmless with respect to any loss, liability, claim, damage, or expense referred to herein, then the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such loss, liability, claim, damage, or expense in such proportion as is appropriate to reflect the relative benefits received by the indemnified party on the one hand and the indemnifying party on the other, and the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the statements or omissions that resulted in such loss, liability, claim, damage, or expense as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties' relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission. (e) Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control; provided, however, that any party hereto who is -------- ------- adversely affected thereby has consented in writing to such provisions in the underwriting agreement. (f) The obligations of the Issuers and the Holders under this Section 2.7 shall survive the completion of any offering of Registrable Securities in a registration statement under this Section 2, and otherwise. -16- 2.8 Termination of Registration Rights. This Agreement (other than the provisions of Sections 2.7, 2.9, 3, 4.6 and 4.7) shall terminate and be of no further force and effect on the first date on which no Registrable Securities are outstanding. 2.9 "Lock-Up" Agreement. Each Issuer hereby acknowledges and agrees that for a period of 90 days after any date upon which any Holders have made a Company Demand Registration and for a period of 180 days after any date upon which any Holders have made a Newco Demand Registration, it shall not (i) offer, pledge, announce the intention to sell, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of, directly or indirectly, in respect of any of its debt securities or capital stock, or any securities convertible into or exercisable or exchangeable therefor or (ii) enter into any swap, option, future, forward or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of such securities, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of such securities, in cash or otherwise or (iii) file or cause to become effective any registration statement under the Act other than that related solely to a Demand Registration, in each case, other than such securities to be sold pursuant to the Securities Purchase Agreement and other than any securities issued pursuant to an employee benefit or employee stock option plan of the Issuer. 3. Indenture. Upon registration of any Debentures pursuant to this Agreement, the applicable Issuer will provide a trust indenture (the "Indenture") with an independent institutional trustee meeting the qualification requirements under the Trust Indenture Act of 1939, as amended. The Indenture shall govern the terms of the Debentures so registered and contain terms substantially identical to the terms of the Debentures so registered. 4. Miscellaneous. 4.1 Amendments; Waivers. The provisions of this Agreement may be modified or amended, and waivers and consents to the performance and observance of the terms hereof may be given, only by written instrument executed and delivered by each of the Company, Newco (if then a signatory) and the Requisite Holders; provided, however, that any modification or amendment which adversely affects - -------- ------- the rights of any Holder shall require the consent of such Holder unless the modification or amendment adversely affects the rights of all Holders in the same manner. The failure at any time to require performance of any provision hereof shall in no way affect the full right to require such performance at any time thereafter (unless performance thereof has been waived in accordance with the terms hereof for all pur- -17- poses and at all times by the party to whom the benefit of such performance is to be rendered). The waiver by any party to this Agreement of a breach of any provision hereof shall not be taken or held to be a waiver of any succeeding breach of such provision or any other provision or as a waiver of the provision itself. 4.2 After-Acquired Shares. All provisions of this Agreement shall apply to all securities and instruments (i) received by a Holder as a dividend on or other payment made to holders of shares of capital stock of the Company, or (ii) issued in connection with a split of shares of capital stock of the applicable Issuer, or as a result of any exchange for or reclassification of shares of capital stock of the applicable Issuer, or a reorganization, recapitalization consolidation or merger. 4.3 Successors and Assigns. This Agreement and all covenants and agreements contained in this Agreement by or on behalf of the parties hereto shall bind, and inure to the benefit of, the respective successors and permitted assigns of the parties hereto. 4.4 Rights and Obligations of Transferees. If a Holder transfers any or all of its Registrable Securities to any person in accordance with the terms of the Debentures and the Securities Purchase Agreement, such person and each subsequent transferee shall have the same rights hereunder as are given to such Holder, and shall be subject to the same obligations as are imposed upon such Holder by the terms hereof (and all references herein to a Holder shall include such transferee), unless otherwise provided herein. Any such transferee shall execute and deliver to the applicable Issuer an instrument acknowledging such transferee's rights and obligations hereunder to be consistent with this Section 4.4. 4.5 Further Assurances. (a) Subject to the terms and conditions of this Agreement, each of the parties hereto agrees to use best efforts to take, or cause to be taken, all action, and to do, or cause to be done, all things necessary, proper or advisable under applicable legal requirements, to consummate and make effective the transactions contemplated by this Agreement. (b) If at any time after the closing any further action is necessary or reasonably desirable to carry out the purposes of this Agreement, the parties hereto shall take or cause to be taken all such necessary or convenient action and execute, and deliver and file, or cause to be executed, delivered and filed, all necessary or convenient documentation. -18- (c) Each of the Issuers agrees that after the date of this Agreement, it shall not grant any Person registration rights other than piggyback registration rights which are subordinate to the Holders hereunder with respect to any class of debt or equity security of the Issuers without the consent of the Requisite Holders, which consent shall not be unreasonably withheld. 4.6 Notices. All notices or other communications required or permitted to be given hereunder shall be in writing and shall be delivered by hand or sent, postage prepaid, by registered, certified or express mail or reputable overnight courier service and shall be deemed given when so delivered by hand, or if mailed, three Business Days after mailing (two Business Days in the case of express mail or overnight courier service), as follows: (i) If to the Company: Mutual Risk Management Ltd. 44 Church Street Hamilton HM12 Bermuda Attention: Chief Executive Officer Telephone: (441) 295-5688 Facsimile: (441) 292-1867 with a copy to: Mayer, Brown & Platt 190 South LaSalle Street Chicago, Illinois 60603 Attention: Richard W. Shepro Telephone: (312) 782-0600 Facsimile: (312) 701-7711 -19- (ii) If to the Purchasers: XL Insurance Ltd c/o XL Capital Ltd. XL House One Bermudiana Road Hamilton HM 11 Bermuda Attention: Paul Giordano Telephone: (441) 294-7162 Facsimile: (441) 292-5280 First Union Merchant Banking 2001, LLC One First Union Center - 12th Floor 201 South College Street Charlotte, North Carolina 28288-0732 Attention: Wellford Tabor Telephone: (704) 374-4540 Facsimile: (704) 374-6711 High Ridge Capital Partners II, L.P. 105 Rowayton Avenue Rowayton, Connecticut 06853 Attention: James L. Zech Telephone: (203) 831-0104 Facsimile: (203) 831-0480 Century Capital Partners II, L.P. c/o Century Capital Management Inc. One Liberty Square Boston, Massachusetts 02109 Attention: Craig Eisenacher Telephone: (617) 482-3060 Facsimile: (617) 542-9398 Taracay Investors Company 104 Wallacks Point Stamford, Connecticut 06902 -20- Attention: Robert Clements Telephone: (203) 862-4343 Facsimile: (203) 625-8366 (iii) If to the RHINOS Debenture Holders: Intrepid Funding Master Trust c/o Wilmington Trust Company, as Owner-Trustee Rodney Square North 1100 North Market Street Wilmington, Delaware 19890 Attention: Mary Kay Pupillo Telephone: (302) 651-8558 Facsimile: (302) 651-8882 4.7 Governing Law; Waiver of Jury Trial. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK. ANY DISPUTE UNDER THIS AGREEMENT THAT IS NOT SETTLED BY MUTUAL CONSENT SHALL BE FINALLY ADJUDICATED BY ANY FEDERAL OR STATE COURT SITTING IN THE CITY, COUNTY AND STATE OF NEW YORK, AND THE ISSUER CONSENTS TO THE EXCLUSIVE JURISDICTION OF SUCH COURTS (OR ANY APPELLATE COURT THEREFROM) OVER ANY SUCH DISPUTE. EACH OF THE COMPANY AND NEWCO HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE FEDERAL AND NEW YORK STATE COURTS LOCATED IN NEW YORK COUNTY IN CONNECTION WITH ANY SUIT, ACTION OR PROCEEDING RELATED TO THIS AGREEMENT OR ANY OF THE MATTERS CONTEMPLATED HEREBY, IRREVOCABLY WAIVES ANY DEFENSE OF LACK OF PERSONAL JURISDICTION AND IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT. EACH OF THE COMPANY AND NEWCO IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. -21- 4.8 Severability; Interpretation. If any provision in this Agreement is agreed by the parties hereto to be, is deemed to be or becomes invalid, illegal, void or unenforceable under any law that is applicable hereto, (i) such provision will be deemed amended to conform to applicable laws so as to be valid and enforceable or, if it cannot be so amended without materially altering the intention of the parties hereto, it will be deleted, with effect from the date of such agreement or such earlier date as the parties hereto may agree, and (ii) the validity, legality and enforceability of the remaining provisions of this Agreement shall not be impaired or affected in any way. 4.9 Table of Contents; Headings. The table of contents and section headings herein are for convenience only and shall not affect the construction hereof. 4.10 Entire Agreement. This Agreement constitutes the entire agreement among the parties hereto relating to the subject matter hereof and supersedes any and all prior oral or written agreements, representations or warranties, contracts, understandings, correspondence, conversations and memoranda, whether written or oral, between the parties hereto, or between or among any agents, representatives, parents, subsidiaries, affiliates, predecessors in interest or successors in interest, with respect to the subject matter hereof. 4.11 Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more such counterparts have been signed by each of the parties other than Newco and delivered to the other party. 4.12 No Third-Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and the Holders and is not intended to confer any benefit upon any other person or entity or infringe upon any rights or remedies, except as contemplated in this Section 4. 4.13 Execution by Newco. Promptly after the formation of Newco, the Company will cause Newco to execute and deliver a counterpart to this Agreement by signing in the space provided on the signature page hereof, pursuant to which Newco shall, by so executing this Agreement, become a party to this Agreement as if Newco were an original party hereto and upon which this Agreement shall constitute a valid and binding agreement of Newco, enforceable in accordance with its terms. -22- [Signature Pages Follow] -23- IN WITNESS WHEREOF, the parties hereto have executed this Debentures Registration Rights Agreement as of the date first above written. MUTUAL RISK MANAGEMENT LTD. By: /s/ Elizabeth B. Price --------------------------------- Name: Elizabeth B. Price Title: Secretary XL INSURANCE LTD By: /s/ Clive Tobin --------------------------------- Name: Clive Tobin Title: President & Chief Executive Officer FIRST UNION MERCHANT BANKING 2001, LLC By: /s/ Frederick W. Eubank, II --------------------------------- Name: Frederick W. Eubank, II Title: Partner -24- HIGH RIDGE CAPITAL PARTNERS II, L.P. By: /s/ Steve Tynan -------------------------------- Name: Steve Tynan Title: President, Liberty Street Corp., as general partner of Liberty Street Partners, LP, as member of High Ridge GP II LLC, as general partner of High Ridge Capital Partners II, L.P. CENTURY CAPITAL PARTNERS II, L.P. By: CCP CAPITAL II LLC, its general partner By: /s/ Craig Eisenacher -------------------------------- Name: Craig Eisenacher Title: Managing Member /s/ Robert A. Mulderig ------------------------------------- Robert A. Mulderig TARACAY INVESTORS COMPANY By: /s/ Robert Clements -------------------------------- Name: Robert Clements Title: -25- INTREPID FUNDING MASTER TRUST By: /s/ Mary Kay Pupillo -------------------------------- Name: Mary Kay Pupillo Title: Senior Financial Services Officer EX-10.3 10 dex103.txt WARRANT REGISTRATION RIGHTS AGREEMENT EXHIBIT 10.3 MUTUAL RISK MANAGEMENT LTD. WARRANT REGISTRATION RIGHTS AGREEMENT TABLE OF CONTENTS
Page ---- 1. Definitions................................................................................... 1 1.1 Other Definitions....................................................................... 3 2. Registration Rights........................................................................... 3 2.1 Demand Registration..................................................................... 3 2.2 Piggyback Registration.................................................................. 5 2.3 Obligations of the Company.............................................................. 5 2.4 Furnish Information..................................................................... 7 2.5 Expenses of Registration................................................................ 7 2.6 Underwriting Requirements............................................................... 8 2.7 Indemnification......................................................................... 9 2.8 Termination of Registration Rights...................................................... 11 2.9 "Lock-Up" Agreement..................................................................... 11 3. Miscellaneous................................................................................. 12 3.1 Amendments; Waivers..................................................................... 12 3.2 After-Acquired Shares................................................................... 12 3.3 Successors and Assigns.................................................................. 12 3.4 Rights and Obligations of Transferees................................................... 12 3.5 Further Assurances...................................................................... 13 3.6 Notices................................................................................. 13 3.7 Governing Law; Waiver of Jury Trial..................................................... 15 3.8 Severability; Interpretation............................................................ 15 3.9 Table of Contents; Headings............................................................. 16 3.10 Entire Agreement........................................................................ 16 3.11 Counterparts............................................................................ 16 3.12 No Third-Party Beneficiaries............................................................ 16
(i) WARRANT REGISTRATION RIGHTS AGREEMENT THIS WARRANT REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made --------- as of May 17, 2001, by and among Mutual Risk Management Ltd., a company organized under the laws of Bermuda (the "Company"), and XL Insurance Ltd ------- ("XL"), First Union Merchant Banking 2001, LLC, High Ridge Capital Partners II, -- L.P., Century Capital Partners II, L.P. and Taracay Investors Company (each, a "Purchaser" and, collectively, the "Purchasers"). --------- ---------- RECITALS WHEREAS, the Company and the Purchasers are parties to that certain securities purchase agreement dated as of May 8, 2001 (the "Securities Purchase ------------------- Agreement") pursuant to which the Purchasers and certain other purchasers have - --------- agreed to purchase 9 3/8% convertible exchangeable debentures due 2006 of the Company (the "MRM Debentures") in an aggregate principal amount of $112,500,000; -------------- WHEREAS, in connection with the purchase of MRM Debentures, the Company has agreed to issue warrants (the "Warrants") to purchase an aggregate of -------- 2,151,943 shares of Common Stock of the Company (the Common Stock issuable upon exercise of the Warrants being referred to herein as the "Warrant Shares") to -------------- the Purchasers; and WHEREAS, in order to induce the Purchasers to enter into the Securities Purchase Agreement and to purchase the MRM Debentures, the Company and the Purchasers desire to enter into this Agreement for the purpose, among others, of establishing certain registration and other rights of the Holders (as defined below); NOW, THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1. Definitions. (a) "Act" means the Securities Act of 1933, as amended. --- (b) "Agreement" shall have the meaning set forth in the --------- Preamble to this Agreement. (c) "Business Day" shall mean any day that is not a ------------ Saturday, Sunday or a day on which (i) commercial banks in New York City are authorized or required to close or (ii) the New York Stock Exchange is not open for trading. -2- (d) "Common Stock" shall mean the common stock or common ------------ shares of the referenced Person. (e) "Common Stock Equivalents" shall mean securities ------------------------ convertible into or exercisable or exchangeable for Common Stock of the referenced Person. (f) "Company" shall have the meaning set forth in the ------- Preamble to this Agreement. (g) "Holder" shall mean, as applicable, any Person owning ------ or having the right to acquire a Registrable Security from time to time. (h) "1934 Act" shall mean the Securities Exchange Act of -------- 1934, as amended. (i) "Person" shall mean any individual or a corporation, ------ company, partnership, trust, incorporated or unincorporated association, joint venture, joint stock company, limited liability company, government (or agency or political subdivision thereof) or other entity of any kind. (j) "Purchasers" shall have the meaning set forth in the ---------- Preamble to this Agreement. (k) "register," "registered" and "registration" shall -------- ---------- ------------ mean a registration effected by preparing and filing with the SEC a registration statement or similar document in compliance with the Act, and the declaration or ordering of effectiveness of such registration statement or document. (l) "Registrable Securities" shall mean the Warrants and ---------------------- the Warrant Shares, in each case until such time as such securities have been sold pursuant to an effective registration statement or an applicable exemption from registration under the Act and are no longer subject to restrictions on transfer under the Act. (m) "Requisite Holders" shall mean the holders of a ----------------- majority of the outstanding shares of Common Stock of the Company issued or issuable upon exercise of the Warrants and constituting Registrable Securities. (n) "Rule 144" shall mean Rule 144 promulgated under the -------- Act. (o) "SEC" shall mean the Securities and Exchange --- Commission. -3- (p) "Securities Purchase Agreement" shall have the meaning ----------------------------- set forth in the Recitals to this Agreement. (q) "Warrants" shall have the meaning set forth in the -------- Recitals to this Agreement. (r) "Warrant Shares" shall have the meaning set forth in -------------- the Recitals to this Agreement. 1.1 Other Definitions Defined Term in Section ---- ---------- "Demand Registration".................................. Section 2.1(a) ------------------- "Indemnified Party".................................... Section 2.7(a) ----------------- "Indemnified Person(s)"................................ Section 2.7(b) --------------------- "Initiating Holders"................................... Section 2.1(c) ------------------ "selling security holder".............................. Section 2.6 ----------------------- "Violation"............................................ Section 2.7(a) --------- Other capitalized terms used herein and not otherwise defined herein shall have the meanings given to such terms in the Securities Purchase Agreement. 2. Registration Rights. The Company covenants and agrees as follows: 2.1 Demand Registration. (a) The Holders of a majority of the then outstanding Registrable Securities shall have the right at any time to make a written request of the Company to register and, upon the receipt of such written request, the Company shall register under the Act the number or aggregate principal amount, as applicable, of Registrable Securities which are the subject of such request (each, a "Demand Registration"). ------------------- (b) In connection with a Demand Registration made pursuant to Section 2.1, the Company shall: (i) within ten (10) days of the receipt thereof, give written notice of such request to all Holders of Warrants and Warrant Shares; and (ii) file as soon as practicable, and in any event within ninety (90) days of the receipt of such request, a registration statement under the Act covering all War- -4- rants or Warrant Shares, as the case may be, constituting Registrable Securities (subject to the limitations of Section 2.1(c) and subject to the provisions of Section 2.6), which the Holders of the applicable Registrable Securities request to be registered, within twenty (20) days of the mailing of such notice by the Company in accordance with Section 3.6. (c) If the Holders initiating a registration request pursuant to Section 2.1(a) (any such Holders, the "Initiating Holders") intend ------------------ to distribute the applicable Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as a part of their request made pursuant to Section 2.1(a) and the Company shall include such information in the applicable written notice referred to in Section 2.1(b)(i). The managing underwriter will be selected by the majority in interest of the Initiating Holders and shall be reasonably acceptable to the Company, or, if such Initiating Holders so direct, the Company shall select the managing underwriter, which shall be reasonably acceptable to the Initiating Holders. In any such event, the right of any Holder to include such Holder's Registrable Securities in such registration shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting (unless otherwise mutually agreed by a majority in interest of the Initiating Holders and such Holder) to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall enter into an underwriting agreement, a custody agreement and a power of attorney, each in customary form with the underwriter or underwriters selected for such underwriting and deliver an opinion of counsel in customary form to such underwriter or underwriters. (d) Notwithstanding the foregoing, if the Company shall furnish to Holders requesting a registration statement pursuant to this Section 2.1 a certificate signed by the president or chief executive officer of the Company stating that in the good faith judgment of its board of directors it would be materially adverse to the Company and its security holders for such registration statement to be filed at that time and it is therefore essential to defer the filing of such registration statement, or the filing of such registration statement would materially interfere with or otherwise adversely affect in any material respect any financing, acquisition, corporate reorganization or other material transaction or development involving the Company, the Company shall have the right to defer such filing for a period of not more than 90 days after receipt of the request of the Initiating Holders; provided, however, that the Company may utilize this right no more than once in - -------- ------- any twelve-month period. (e) Notwithstanding anything else in this Agreement to the contrary, (i) the Company shall not be obligated to effect, or to take any action to effect, any Demand Registration pursuant to this Section 2.1 for an Initiating Holder after the Company has effected one (1) Demand Registration pursuant to this Section 2.1 in response to a registration request by such Initiating Holder and such Demand Registration has been declared or ordered -5- such Initiating Holder and such Demand Registration has been declared or ordered effective; provided, however, that such registration remains effective under the -------- ------- Act until the earlier of (x) an aggregate of 120 days after the effective date thereof or (y) the consummation of the distribution by the Holders participating in such registration of all of the Registrable Securities covered thereby; provided, further, that a registration shall not constitute a Demand - --------- ------- Registration if (A) after such Demand Registration has become effective such registration or the related offer, sale or distribution of Registrable Securities thereunder is interfered with by any stop order, injunction or other order or requirement of the SEC or other governmental agency or court for any reason not attributable to the Initiating Holders and such interference is not thereafter eliminated or (B) the conditions specified in the underwriting agreement, if any, entered into in connection with such Demand Registration are not satisfied or waived (other than any conditions, the satisfaction of which is solely within the control of the selling Holders). (f) A registration will not count as a Demand Registration until it has become effective (unless the Initiating Holders withdraw the Registrable Securities or if such failure to become effective results solely from the failure of the Initiating Holders to fulfill an obligation or satisfy a condition under this Agreement, in which cases such demand will count as a Demand Registration unless the Initiating Holders agree to pay all expenses of such registration (as described in Section 2.5)). Except as provided above, the Company will pay all expenses in connection with any registration initiated as a Demand Registration, whether or not it becomes effective. 2.2 Piggyback Registration. (a) Company Shares. If the Company proposes to register any -------------- of its Common Stock or Common Stock Equivalents under the Act in connection with the public offering of Common Stock or Common Stock Equivalents solely for cash, then the Company shall, at such time, promptly give each Holder of Registrable Securities written notice of such registration setting forth the date on which the Company proposes to file such registration statement (which date shall be no earlier than 20 days from the date of such notice). Upon the written request of any such Holder given within twenty (20) days after mailing of such notice by the Company in accordance with Section 3.6, the Company shall cause to be registered under the Act and include in the same registration statement all of the Registrable Securities that each such Holder has requested to be registered and take any and all other actions reasonably necessary under United States federal or state laws or otherwise to permit such Holders to effect the proposed sale or other disposition of the Registrable Securities. 2.3 Obligations of the Company. Whenever required under this Section 2 to effect the registration of any Registrable Securities, the Company shall promptly: -6- (a) prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its best efforts to cause such registration statement to become effective, and keep such registration statement effective for a period of up to one hundred twenty (120) days or until the distribution contemplated in the Registration Statement has been completed; provided, however, that -------- ------- before filing any such registration statement or amendments thereto, the Company will furnish to the Holders of Registrable Securities proposed to be included in any such registration statement copies of all such documents proposed to be filed and afford such Holders a reasonable opportunity to comment thereon; (b) prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Act with respect to the disposition of all securities covered by such registration statement; (c) furnish to the Holders of Registrable Securities proposed to be included in any such registration statement such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them; (d) use its best efforts to register and qualify the securities covered by such registration statement under the securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders; provided, however, that the Company shall not be -------- ------- required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such jurisdictions; (e) in the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement in usual and customary form with the managing underwriter of such offering and, in connection therewith, the applicable Company shall cooperate with the managing underwriter and shall attend such meetings and travel to such places to aid in the marketing of such underwritten public offering as the underwriters may reasonably request; (f) notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing; -7- (g) use its best efforts to cause all such Registrable Securities registered pursuant hereunder to be listed on each securities exchange on which similar securities issued by the Company are then listed; (h) provide a transfer agent and registrar for all Registrable Securities registered pursuant hereunder and a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration statement; (i) in the event of an underwritten public offering, use its best efforts to obtain, at the request of any Holder requesting registration of Registrable Securities pursuant to this Section 2, (i) an opinion, dated such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities and (ii) a letter, dated such date, from the independent certified public accountants of the applicable Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities; and (j) take such other customary and reasonable actions as the Holders of a majority of the Registrable Securities to be included in such registration statement or the underwriters, if any, reasonably request in order to facilitate the distribution of such Registrable Securities. 2.4 Furnish Information. It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Section 2 with respect to the Registrable Securities of any selling Holder that the Holder shall furnish to such Company such information regarding itself, the Registrable Securities held by it and the intended method of disposition of the Registrable Securities as shall be reasonably required to effect the registration of such Holder's Registrable Securities. 2.5 Expenses of Registration. All expenses (other than underwriting discounts and commissions) incurred in connection with registrations, filings or qualifications pursuant to Section 2.1 or 2.2, including (without limitation) all registration, filing and qualification fees, SEC and state "Blue Sky" filings, printers' and accounting fees (including the cost of "cold comfort" letters, if required), fees and disbursements of counsel for the Company and the reasonable fees and disbursements of one counsel for the Holders of Registrable Securities (selected by the Holders of a majority of Registrable Securities to be registered) included in each registration made pursuant to this Agreement shall be borne by the Company; provided, however, -------- ------- that the Company shall not be required to pay for any expenses of any registration -8- proceeding begun pursuant to Section 2.1 if the registration request is subsequently withdrawn or the registration statement does not become effective, in each case, in the circumstances described in Section 2.1(f) (in which case all participating Holders shall severally and proportionately bear such expenses), unless the Requisite Holders agree to forfeit their right to one (1) demand registration right pursuant to Section 2.1(f). 2.6 Underwriting Requirements. (a) In connection with any offering involving an underwriting of Registrable Securities, the Company shall not be required under Section 2.2 to include any Registrable Securities of a Holder in such underwriting unless such Holder accepts the terms of the underwriting as agreed upon between the Company and the underwriters; provided, however, that -------- ------- under no circumstances will any Holder be obligated to make representations or provide indemnities except with respect to information reasonably required to be furnished pursuant to Section 2.4. (b) With respect to a registration pursuant to Section 2.1, if the total amount of securities, including Registrable Securities, requested by security holders to be included in such offering exceeds the amount of securities that the managing underwriters with respect to such registration determine in their sole discretion is compatible with the success of the offering, then the Company shall be required to include in the offering only that number of such securities which the managing underwriters determine in their sole discretion will not jeopardize the success of the offering (the securities so included to be apportioned pro rata among the Holders according to the total amount of securities entitled to be included therein owned by each such Holder or in such other proportions as shall be mutually agreed to by such Holders); provided, however, that in no event shall any Registrable Securities -------- ------- proposed to be included in any registration be excluded from such offering if the securities of any selling security holder other than a Holder of Registrable Securities or any securities offered by the Company are included. (c) With respect to a registration pursuant to Section 2.2, if the total amount of securities, including Registrable Securities, requested by security holders to be included in such offering exceeds the amount of securities that the managing underwriters with respect to such registration determine in their sole discretion is compatible with the success of the offering, then the Company shall be required to include in the offering only that number of such securities which the managing underwriters determine in their sole discretion will not jeopardize the success of the offering (the securities so included to be apportioned pro rata among the Company and the selling security holders, including the Registrable Securities, according to the total amount of securities entitled to be included therein owned by each such selling security holder or in such other proportions as shall mutually be agreed to by such selling security holders). -9- 2.7 Indemnification. In the event any Registrable Securities are included in a registration statement under this Section 2: (a) To the extent permitted by law, the Company will indemnify and hold harmless each selling Holder, and each officer, director, employee, affiliate and each person, if any, who controls such Holder within the meaning of the Act or the 1934 Act (any of the foregoing persons, an "Indemnified Party"), against any losses, claims, ----------------- damages, or liabilities (joint or several) to which they may become subject under the Act, or the 1934 Act or other federal or state securities law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively, a "Violation"): (i) any untrue statement or alleged untrue statement of a --------- material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation by the Company of the Act, the 1934 Act, any state securities law or any rule or regulation promulgated under the Act, or the 1934 Act or any state securities law; and the Company will pay to each Indemnified Party, as incurred, any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in -------- ------- this Section 2.7(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld or delayed). Nor shall the Company be liable in any such case for any such loss, claim, damage, liability or action to the extent that it arises out of or is directly based upon a Violation which occurs in reliance upon and in conformity with written information reasonably required by Section 2.4 furnished for use in connection with such registration by any Indemnified Party, or which results from the failure of an Indemnified Party to deliver a final, amended or supplemental prospectus furnished an Indemnified Party and required to be delivered if the Violation would not have occurred if the delivery had been made. (b) To the extent permitted by law, each selling Holder will indemnify and hold harmless the Company, each of its directors, officers, employees and affiliates, and each person, if any, who controls the Company within the meaning of the Act or the 1934 Act, any other Holder selling securities in such registration statement and any controlling person of any such other Holder (any of the foregoing persons, an "Indemnified Person(s)"), against any losses, claims, --------------------- damages or liabilities (joint or several) to which any of such Indemnified Persons may become subject under the Act, or the -10- 1934 Act or other federal or state securities law, insofar as such losses, claims, damages or liabilities (or actions in respect thereto) arise out of or are directly based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information reasonably required by Section 2.4 furnished by such Holder for use in connection with such registration; and each such Holder will pay, as incurred, any legal or other expenses reasonably incurred by any such Indemnified Person in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the -------- ------- indemnity agreement contained in this Section 2.7(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld or delayed. Nor shall such Holder be liable in any such case for any such loss, claim, damage, liability, or action to the extent that it arises out of or is based upon a Violation which results from the failure of any Indemnified Person to deliver a final, amended or supplemental prospectus furnished to any Indemnified Person, and required to be delivered, if the Violation would not have occurred if the delivery had been made; provided, however, that in no event shall any indemnity -------- ------- under this Section 2.7(b) exceed the gross proceeds from the offering received by such Holder. (c) Promptly after receipt by an indemnified party under this Section 2.7 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 2.7, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually and reasonably satisfactory to the parties; provided, however, that an indemnified party (together -------- ------- with all other indemnified parties which may be represented without conflict by one counsel) shall have the right to retain one separate counsel, reasonably acceptable to the indemnifying party, with the reasonable fees and expenses of such counsel to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 2.7, but the omission so to deliver written notice to the indemnifying party will not relieve the indemnifying party of any liability that the indemnifying party may have to any indemnified party otherwise under this Section 2.7. -11- (d) If the indemnification provided for in this Section 2.7 is held by a court of competent jurisdiction to be unavailable to an indemnified party or is insufficient to hold any indemnified party harmless with respect to any loss, liability, claim, damage, or expense referred to herein, then the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such loss, liability, claim, damage, or expense in such proportion as is appropriate to reflect the relative benefits received by the indemnified party on the one hand and the indemnifying party on the other, and the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the statements or omissions that resulted in such loss, liability, claim, damage, or expense as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties' relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission. (e) Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control; provided, however, that any party hereto who is -------- ------- adversely affected thereby has consented in writing to such provisions in the underwriting agreement. (f) The obligations of the Company and the Holders under this Section 2.7 shall survive the completion of any offering of Registrable Securities in a registration statement under this Section 2, and otherwise. 2.8 Termination of Registration Rights. This Agreement (other than the provisions of Sections 2.7, 2.9, 3.6 and 3.7) shall terminate and be of no further force and effect on the first date on which no Registrable Securities are outstanding. 2.9 "Lock-Up" Agreement. The Company hereby acknowledges and agrees that for a period of 90 days after any date upon which any Holders have made a Demand Registration, it shall not (i) offer, pledge, announce the intention to sell, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of, directly or indirectly, in respect of any of its debt securities or capital stock, or any securities convertible into or exercisable or exchangeable therefor or (ii) enter into any swap, option, future, forward or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of such se- -12- curities, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of such securities, in cash or otherwise or (iii) file or cause to become effective any registration statement under the Act other than that related solely to a Demand Registration, in each case, other than such securities to be sold pursuant to the Securities Purchase Agreement and other than any securities issued pursuant to an employee benefit or employee stock option plan of the Company. 3. Miscellaneous. 3.1 Amendments; Waivers. The provisions of this Agreement may be modified or amended, and waivers and consents to the performance and observance of the terms hereof may be given, only by written instrument executed and delivered by each of the Company and the Requisite Holders; provided, however, that any -------- ------- modification or amendment which adversely affects the rights of any Holder shall require the consent of such Holder unless the modification or amendment adversely affects the rights of all Holders in the same manner. The failure at any time to require performance of any provision hereof shall in no way affect the full right to require such performance at any time thereafter (unless performance thereof has been waived in accordance with the terms hereof for all purposes and at all times by the party to whom the benefit of such performance is to be rendered). The waiver by any party to this Agreement of a breach of any provision hereof shall not be taken or held to be a waiver of any succeeding breach of such provision or any other provision or as a waiver of the provision itself. 3.2 After-Acquired Shares. All provisions of this Agreement shall apply to all securities and instruments (i) received by a Holder as a dividend on or other payment made to holders of shares of capital stock of the Company, or (ii) issued in connection with a split of shares of capital stock of the Company, or as a result of any exchange for or reclassification of shares of capital stock of the Company, or a reorganization, recapitalization consolidation or merger. 3.3 Successors and Assigns. This Agreement and all covenants and agreements contained in this Agreement by or on behalf of the parties hereto shall bind, and inure to the benefit of, the respective successors and permitted assigns of the parties hereto. 3.4 Rights and Obligations of Transferees. If a Holder transfers any or all of its Registrable Securities to any person in accordance with the terms of the Warrants and the Securities Purchase Agreement, such person and each subsequent transferee shall have the same rights hereunder as are given to such Holder, and shall be subject to the same obligations as are imposed upon such Holder by the terms hereof (and all references herein to a Holder shall include such transferee), unless otherwise provided herein. Any such transferee shall execute -13- and deliver to the Company an instrument acknowledging such transferee's rights and obligations hereunder to be consistent with this Section 3.4. 3.5 Further Assurances. (a) Subject to the terms and conditions of this Agreement, each of the parties hereto agrees to use best efforts to take, or cause to be taken, all action, and to do, or cause to be done, all things necessary, proper or advisable under applicable legal requirements, to consummate and make effective the transactions contemplated by this Agreement. (b) If at any time after the closing any further action is necessary or reasonably desirable to carry out the purposes of this Agreement, the parties hereto shall take or cause to be taken all such necessary or convenient action and execute, and deliver and file, or cause to be executed, delivered and filed, all necessary or convenient documentation. (c) The Company agrees that after the date of this Agreement it shall not grant any Person registration rights other than piggyback registration rights which are subordinate to those of the Holders hereunder with respect to any class of equity security of the Company without the consent of the Requisite Holders, which consent shall not be unreasonably withheld. 3.6 Notices. All notices or other communications required or permitted to be given hereunder shall be in writing and shall be delivered by hand or sent, postage prepaid, by registered, certified or express mail or reputable overnight courier service and shall be deemed given when so delivered by hand, or if mailed, three Business Days after mailing (two Business Days in the case of express mail or overnight courier service), as follows: (i) If to the Company: Mutual Risk Management Ltd. 44 Church Street Hamilton HM12 Bermuda Attention: Chief Executive Officer Telephone: (441) 295-5688 Facsimile: (441) 292-1867 with a copy to: -14- Mayer, Brown & Platt 190 South LaSalle Street Chicago, Illinios 60603 Attention: Richard W. Shepro Telephone: (312) 782-0600 Facsimile: (312) 701-7711 (ii) If to the Purchasers: XL Insurance Ltd c/o XL Capital Ltd. XL House One Bermudiana Road Hamilton HM 11 Bermuda Attention: Paul Giordano Telephone: (441) 294-7162 Facsimile: (441) 292-5280 First Union Merchant Banking 2001, LLC One First Union Center - 12th Floor 301 South College Street Charlotte, North Carolina 28288-0732 Attention: Wellford Tabor Telephone: (704) 374-4540 Facsimile: (704) 374-6711 High Ridge Capital Partners II, L.P. 105 Rowayton Avenue Rowayton, Connecticut 06853 Attention: James L. Zech Telephone: (203) 831-0104 Facsimile: (203) 831-0480 Century Capital Partners II, L.P. c/o Century Capital Management, Inc. One Liberty Square Boston, Massachusetts 02019 Attention: Craig Eisenacher Telephone: (617) 482-3060 Facsimile: (617) 542-9398 -15- Taracay Investors Company 104 Wallacks Point Stamford, Connecticut 06902 Attention: Robert Clements Telephone: (202) 862-4343 Facsimile: (203) 625-8366 3.7 Governing Law; Waiver of Jury Trial. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK. ANY DISPUTE UNDER THIS AGREEMENT THAT IS NOT SETTLED BY MUTUAL CONSENT SHALL BE FINALLY ADJUDICATED BY ANY FEDERAL OR STATE COURT SITTING IN THE CITY, COUNTY AND STATE OF NEW YORK, AND THE COMPANY CONSENTS TO THE EXCLUSIVE JURISDICTION OF SUCH COURTS (OR ANY APPELLATE COURT THEREFROM) OVER ANY SUCH DISPUTE. THE COMPANY HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE FEDERAL AND NEW YORK STATE COURTS LOCATED IN NEW YORK COUNTY IN CONNECTION WITH ANY SUIT, ACTION OR PROCEEDING RELATED TO THIS AGREEMENT OR ANY OF THE MATTERS CONTEMPLATED HEREBY, IRREVOCABLY WAIVES ANY DEFENSE OF LACK OF PERSONAL JURISDICTION AND IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT. THE COMPANY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. 3.8 Severability; Interpretation. If any provision in this Agreement is agreed by the parties hereto to be, is deemed to be or becomes invalid, illegal, void or unenforceable under any law that is applicable hereto, (i) such provision will be deemed amended to conform to applicable laws so as to be valid and enforceable or, if it cannot be so amended without materially altering the intention of the parties hereto, it will be deleted, with effect from the date of such agreement or such earlier date as the parties hereto may agree, and (ii) the validity, legality and enforceability of the remaining provisions of this Agreement shall not be impaired or affected in any way. -16- 3.9 Table of Contents; Headings. The table of contents and section headings herein are for convenience only and shall not affect the construction hereof. 3.10 Entire Agreement. This Agreement constitutes the entire agreement among the parties hereto relating to the subject matter hereof and supersedes any and all prior oral or written agreements, representations or warranties, contracts, understandings, correspondence, conversations and memoranda, whether written or oral, between the parties hereto, or between or among any agents, representatives, parents, subsidiaries, affiliates, predecessors in interest or successors in interest, with respect to the subject matter hereof. 3.11 Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more such counterparts have been signed by each of the parties and delivered to the other party. 3.12 No Third-Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and the Holders and is not intended to confer any benefit upon any other person or entity or infringe upon any rights or remedies, except as contemplated in this Section 3. [Signature Pages Follow] -17- IN WITNESS WHEREOF, the parties hereto have executed this Warrant Registration Rights Agreement as of the date first above written. MUTUAL RISK MANAGEMENT LTD. By: /s/ Elizabeth B. Price ------------------------------------------ Name: Elizabeth B. Price Title: Secretary XL INSURANCE LTD By: /s/ Clive Tobin ------------------------------------------ Name: Clive Tobin Title: President & Chief Executive Officer FIRST UNION MERCHANT BANKING 2001, LLC By: /s/ Frederick W. Eubank, II ------------------------------------------ Name: Frederick W. Eubank, II Title: Partner HIGH RIDGE CAPITAL PARTNERS II, L.P. By: /s/ Steve Tynan ------------------------------------------ Name: Steve Tynan Title: President, Liberty Street Corp., Street Partners, LP, as member of High Ridge GP II LLC, as general partner of High Ridge Capital Partners II, L.P. -18- CENTURY CAPITAL PARTNERS II, L.P. BY: CCP CAPITAL II LLC, its general partner By: /s/ Craig Eisenacher ------------------------------------------ Name: Craig Eisenacher Title: Managing Member -19- TARACAY INVESTORS COMPANY By: /s/ Robert Clements --------------------------------------- Name: Robert Clements Title: EX-10.4 11 dex104.txt SURBORDINATION AGREEMENT EXHIBIT 10.4 SUBORDINATION AGREEMENT ----------------------- Subordination Agreement (this "Subordination Agreement") dated as of ----------------------- May 17, 2001 by and among the Bank Lenders, Intrepid Funding Master Trust, as holder of the RHINOS Debentures and as holder (the "RHINOS Holder") of the ------------- Auction Rate Reset Preferred Securities (liquidation amount $1,000 per preferred security) (the "RHINOS") of MRM Capital Trust I, a Delaware statutory business ------ trust (the "Trust"), the Trust, the Trustees, The Chase Manhattan Bank, as ----- trustee under the Indenture (the "Indenture Trustee"), Mutual Risk Management ----------------- Ltd., a company organized under the laws of Bermuda ("MRM"), Mutual Group, Ltd., --- a Delaware corporation ("MG"), the guarantors named herein and the MRM Debenture -- Purchasers, as purchasers of the 9 3/8% Convertible Exchangeable Debentures due 2006 (the "MRM Debentures") of MRM. -------------- BACKGROUND ---------- As an inducement for the MRM Debenture Purchasers to purchase the MRM Debentures, the Subordinated Lenders have agreed to enter into this Subordination Agreement to provide for the subordination of all Obligations arising under the Subordinated Indebtedness to the Debentures to the extent set forth herein. AGREEMENTS ---------- NOW, THEREFORE, for good and valuable consideration, receipt of which is hereby acknowledged, the parties hereto agree as follows: 1. Definitions. ----------- 1.1. General Terms. For purposes of this Subordination Agreement, the ------------- the following terms shall have the following meanings: "Administrative Agent" shall have the meaning set forth in the -------------------- definition of Bank Lenders. "Bank Lenders" shall mean, collectively, Bank of America, N.A., as ------------ administrative agent for the lenders (in such capacity, the "Administrative -------------- Agent") and as a lender, Fleet National Bank, First Union National Bank and - ----- National Westminster Bank PLC, as lenders under the Credit Agreement and each of their respective successors and assigns. "Bankruptcy Law" shall mean Title 11, U.S. Code or any similar -------------- Federal, state or foreign law for the relief of debtors. "Companies" means MRM, MG and any successor entities. --------- "Credit Agreement" shall mean the Credit Agreement dated as of ---------------- September 21, 2000 among MRM, MG and the Bank Lenders, as amended or supplemented through the date hereof and as hereafter amended or supplemented as permitted herein. "Debenture Holders" shall mean the holders from time to time of any ----------------- Debentures. -2- "Debentures" shall mean, collectively, the MRM Debentures and the ---------- convertible debentures due 2006 of Newco issuable in exchange for MRM Debentures in an aggregate principal amount not to exceed $112.5 million. "Default" shall have the meaning provided to such term in the ------- Debentures. "Distribution" shall mean any payment or distribution of any kind, ------------ including without limitation principal, premium, interest, dividend and fees, whether in the form of cash, securities or any other asset or property, including by way of setoff or realization on collateral. "Event" shall have the meaning set forth in Section 2.2(c) hereof. ----- "Event of Default" shall have the meaning provided to such term in the ---------------- Debentures. "indefeasibly" shall mean, with respect to any payment, that 91 days ------------ have elapsed since the receipt of such payment without the institution of any case with respect to the payor under any Bankruptcy Law. "Indenture" shall mean the Indenture dated as of September 21, 2000 by --------- and among MG, as issuer, MRM, as guarantor, and The Chase Manhattan Bank, as indenture trustee, as amended or supplemented through the date hereof and as hereafter amended or supplemented as permitted herein. "Indenture Trustee" shall have the meaning set forth in the ----------------- introductory paragraph hereof. "MG" shall have the meaning set forth in the introductory paragraph -- hereof. "MRM" shall have the meaning set forth in the introductory paragraph --- hereof. "MRM Debentures" shall have the meaning set forth in the introductory -------------- paragraph hereof; provided, however, that for all purposes of this Subordination -------- ------- Agreement, the term MRM Debentures shall not include any RHINOS Debentures. "MRM Debenture Purchasers" shall mean XL Investments Ltd., First Union ------------------------ Merchant Banking 2001, LLC, High Ridge Capital Partners II, L.P., Century Capital Partners II, L.P., Robert A. Mulderig and Taracay Investors Company. "Newco" shall have the meaning set forth in the Securities Purchase ----- Agreement. "Obligations" shall mean all obligations of every nature from time to ----------- time owed to the Subordinated Lenders or the Debenture Holders, as the case may be, or, in the case of the Indenture Trustee, with respect to which it acts as Indenture Trustee whether for principal, reimbursements, interest, dividends, fees, expenses, indemnities or otherwise, and whether primary, secondary, direct, indirect, contingent, fixed or otherwise (including obligations of performance). "Person" shall mean an individual or a corporation, company, ------ partnership, trust, incorporated or unincorporated association, joint venture, joint stock company, limited liability company, government (or any agency or political subdivision thereof) or other entity of any kind. "Property Trustee" shall mean the Person acting as the property ---------------- trustee under the Trust from time to time. -3- "RHINOS" shall have the meaning set forth in the introductory ------ paragraph hereof. "RHINOS Debentures" shall mean any 9 3/8% Convertible Exchangeable ----------------- Debentures due 2006 of MRM issued to the RHINOS Holder in exchange for an equal amount of RHINOS and any convertible debentures due 2006 of Newco issued in exchange for such 9 3/8% Convertible Exchangeable Debentures due 2006. "RHINOS Holder" shall have the meaning set forth in the introductory ------------- paragraph hereof; provided, however, that for all purposes of this Subordination -------- ------- Agreement, the term RHINOS Holder shall include any holder of RHINOS Debentures. "Securities Act" shall mean the Securities Act of 1933, as amended. -------------- "Securities Purchase Agreement" shall mean the Securities Purchase ----------------------------- Agreement dated as of May 8, 2001 among MRM, the MRM Debenture Purchasers and any other purchasers named therein. "Senior Indebtedness" shall mean all Obligations of any kind owed by ------------------- MRM, MG, Newco and their respective subsidiaries to the Debenture Holders from time to time under or pursuant to the Debentures and the related guarantees thereof including, without limitation, all principal, interest (including all interest accruing after commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of MRM at the rates set forth in the Debentures, whether or not allowed) accruing thereon, premium, charges, expenses, fees and other sums chargeable to MRM, MG, Newco or any of their respective subsidiaries by the Debenture Holders, guarantee obligations and reimbursement, indemnity or other obligations due and payable to the Debenture Holders. Senior Indebtedness shall continue to constitute Senior Indebtedness, notwithstanding the fact that such Senior Indebtedness or any claim for such Senior Indebtedness is subordinated, avoided or disallowed under the applicable Bankruptcy Law or other applicable law; provided, however, that -------- ------- amounts other than principal, interest and premium shall constitute Senior Indebtedness only to the extent that (x) such amounts have accrued as of the end of the Subordination Period and (y) such amounts are, in the aggregate, less than $5.0 million. Senior Indebtedness shall not include any obligations of any kind owed to the RHINOS Holder pursuant to the RHINOS Debentures or the Securities Purchase Agreement. "Senior Representative" shall mean XL Investments Ltd., solely in its --------------------- capacity as representative of the holders of Senior Indebtedness under this Agreement. "Subordinated Indebtedness" shall mean, collectively, all Obligations ------------------------- of MRM, MG, Newco and the Trust arising under (i) the Credit Agreement, (ii) the Indenture, (including the notes issued thereunder), (iii) the RHINOS, (iv) the RHINOS Debentures, (v) the Trust Agreement or (vi) any of the documents or instruments executed in connection therewith and, in each case, any refinancings thereof; provided, however, that the term "Subordinated Indebtedness" shall not -------- ------- include any obligation to pay or reimburse any Trustee or the Indenture Trustee for its fees, expenses or indemnities. "Subordination Period" shall mean the period beginning on May 17, 2001 -------------------- and ending on the earlier of (i) November 17, 2001 and (ii) the date on which all of the Required Approvals have been obtained and the Restructuring has been completed (as such terms are defined in, and determined in accordance with, the Debentures as in effect on the date hereof); provided, however, that if any -------- ------- Debenture has become due and payable prior to the earlier of the dates set forth in the immediately preceding clauses (i) and (ii), pursuant to Section 3(b) of the Debentures (as in effect on the date of this Agreement) or otherwise, the Subordination Period shall not end until all such Debentures are indefeasibly paid in full in cash. -4- "Subordinated Lenders" shall mean, collectively, the Bank Lenders, the -------------------- Trust, the Indenture Trustee, the Property Trustee and the RHINOS Holder. "Subordinated Lending Agreements" shall mean the Credit Agreement ------------------------------- (including the other Loan Documents, as defined in the Credit Agreement), the Indenture (including the notes issued thereunder), the RHINOS, the Trust Agreement, the RHINOS Debentures, the Remarketing and Contingent Purchase Agreement executed in connection with the issuance of the RHINOS, dated as of September 21, 2000 and, solely with respect to obligations arising thereunder owing to the RHINOS Holder, the Securities Purchase Agreement, in each case, as amended, supplemented or modified. "Trust" shall have the meaning set forth in the introductory paragraph ----- hereof. "Trust Agreement" shall mean the Amended and Restated Trust Agreement --------------- of the Trust, dated as of September 21, 2000, as amended, supplemented or modified. "Trustees" shall mean the Administrative Trustees and the Property -------- Trustee under the Trust. 1.2. Outstanding Debentures. A Debenture shall be deemed to be ---------------------- outstanding for all purposes of this Subordination Agreement unless and until such Debenture shall have been indefeasibly paid in full in cash or such Debenture shall have been converted into or exchanged for common stock and/or common shares of MRM and/or Newco, as the case may be, in accordance with its terms. 1.3. Other Terms. Except as set forth herein, capitalized terms not ----------- otherwise defined herein shall have the meanings given to them in the Securities Purchase Agreement. 1.4. Certain Matters of Construction. The terms "herein," "hereof" ------------------------------- and "hereunder" and other words of similar import refer to this Subordination Agreement as a whole and not to any particular section, paragraph or subdivision. Any pronoun used shall be deemed to cover all genders. Wherever appropriate in the context, terms used herein in the singular also include the plural and vice versa. All references to statutes and related regulations shall ---- ----- include any amendments of same and any successor statutes and regulations. All references to any instruments or agreements, including, without limitation, references to any of the Subordinated Lending Agreements or the Debentures, shall include any and all permitted modifications, amendments, extensions or renewals thereto. 2. Covenants. The Companies and each Subordinated Lender hereby --------- covenant and agree that during the Subordination Period, each will comply with such of the following provisions as are applicable to it: 2.1. Transfers. Each Subordinated Lender (other than the Indenture --------- Trustee) covenants that any transferee of any Subordinated Indebtedness from it shall, prior to acquiring such interest, and MG and MRM covenant that, in case of the resignation or removal of the Indenture Trustee under the Indenture, they shall require as a condition to the succession thereunder of any successor Indenture Trustee, that such successor, prior to the effectiveness of such succession, execute and deliver a counterpart of this Subordination Agreement to each other party hereto or otherwise agree in writing to be bound by the provisions of this Agreement. 2.2. Subordination Provisions. To induce the MRM Debenture ------------------------ Purchasers to purchase the MRM Debentures, notwithstanding any other provision of the Subordinated Indebtedness to the contrary, at any and all times during the Subordination Period, any Distribution with respect to the Subordinated Indebtedness is -5- and shall be expressly junior and subordinated in right of payment to all amounts due and owing upon all Senior Indebtedness outstanding from time to time, as follows: (a) Payments. At any and all times during the Subordination Period, -------- none of MRM, MG or any of the guarantors signatories to this Subordination Agreement shall and none of them shall permit any of their respective Subsidiaries to make, and no Subordinated Lender shall accept, any Distribution on the Subordinated Indebtedness until such time as all amounts constituting Senior Indebtedness then due and payable shall have been indefeasibly paid in full and satisfied; provided, however, that, so -------- ------- long as no Default in the payment of interest on the Debentures shall have occurred and be continuing or would result therefrom, (x) MRM, MG and/or Newco may make, and the Bank Lenders, the Trust and the Indenture Trustee may accept, regular scheduled payments of interest and regularly scheduled payments of fees and reimbursement of reasonable expenses required by the Credit Agreement and the related documents as in effect on the date hereof only, when due, on the Credit Agreement and the Indenture, as applicable, made in accordance with the terms of the Credit Agreement and the Indenture, as applicable, as in effect on the date of this Subordination Agreement and (y) MRM, MG, the Trust and/or Newco may make, and the RHINOS Holder may accept, regular scheduled payments of dividends only, when due, on the RHINOS made in accordance with the terms of the RHINOS as in effect on the date of this Subordination Agreement. (b) Limitation on Acceleration and Principal Payments. At any and ------------------------------------------------- all times during the Subordination Period, no Subordinated Lender shall be entitled to accelerate the maturity of any Subordinated Indebtedness, exercise any remedies, commence any action or proceeding to recover any amounts due or to become due or accept for payment any amounts in respect of principal with respect to Subordinated Indebtedness while any Senior Indebtedness remains outstanding until, in each case, at least four business days following the date of delivery to the Senior Representative of written notice of the default, event of default or other event giving rise to the right to so accelerate, exercise remedies, commence an action or the requirement for the payment of principal and of such Subordinated Lenders' intention to so accelerate, exercise remedies, commence an action or accept such principal payment; provided, however, that the foregoing -------- ------- limitation shall not be applicable from and after the first to occur of (x) the occurrence of an Event, (y) the acceleration of the Senior Indebtedness and (z) the exercise by any Debenture Holder of its right to have any Debentures mandatorily redeemed pursuant to Section 3(b) of the Debentures. (c) Prior Payment of Senior Indebtedness in Bankruptcy, etc. In the ------------------------------------------------------- event of any insolvency or bankruptcy proceedings relative to MRM, MG, Newco or any of their Subsidiaries or any of their respective property, or any receivership, liquidation, reorganization or other similar proceedings in connection therewith, or in the event of any proceedings for voluntary liquidation, dissolution or other winding up of MRM, MG, Newco or any of their Subsidiaries or distribution or marshaling of any of their respective assets or any composition with creditors of MRM, MG, Newco or any of their Subsidiaries, whether or not involving insolvency or bankruptcy, or if MRM, MG, Newco or any of their Subsidiaries shall cease its operations, call a meeting of its creditors or no longer do business as a going concern (each individually or collectively, an "Event"), in each case commenced or occurring during the Subordination Period, then all Senior Indebtedness shall be paid in full in cash before any Distribution shall be made on account of any Subordinated Indebtedness. Any such Distribution which would, but for the provisions hereof, be payable or deliverable in respect of the Subordinated Indebtedness, shall be paid or delivered directly to the Senior Representative for distribution to the Debenture Holders in the proportions in which they hold the Debentures, until all amounts owing upon Senior Indebtedness shall have been indefeasibly paid in full in cash. The Subordinated Indebtedness shall continue to be treated as Subordinated Indebtedness and the provisions of this Subordination Agreement shall continue to gov- -6- ern the relative rights and priorities of the Debenture Holders and the Subordinated Lenders even if all or part of a payment made in respect of Senior Indebtedness during the Subordination Period, including in respect of any Debenture Holder's exercise of its right to have Debentures mandatorily redeemed pursuant to Section 3(b) of the Debentures, is subordinated, set aside, avoided or disallowed in connection with any such Event, and this Subordination Agreement shall be reinstated if at any time any payment of any of the Senior Indebtedness made during the Subordination Period is rescinded or must otherwise be returned by any Debenture Holder or any representative of such Debenture Holder. (d) Power of Attorney. Solely to enable the Debenture Holders to ----------------- assert and enforce their rights hereunder in any proceeding referred to in Section 2.2(c) or upon the happening of any Event, the Senior Representative or any person who it may designate is hereby irrevocably appointed attorney in fact for each Subordinated Lender with full power to act in the place and stead of each Subordinated Lender, to make, present and file (but not to vote) such proofs of claim against MRM, MG, Newco or any other Subsidiary of MRM on account of all or any part of the Subordinated Indebtedness as the Debenture Holders may deem advisable if such Subordinated Lender has not done so by the earlier of (i) 30 days after being asked by the Senior Representative to do so or (ii) two business days prior to the bar date for such filing and to receive and collect any and all Distributions made thereon (other than payments of interest, dividends and the fees and expenses contemplated by Section 2.2(a) hereof only made in accordance with the terms of Section 2.2(a) hereof) and to apply the same on account of the Senior Indebtedness. Each Subordinated Lender will execute and deliver to the Debenture Holders such instruments as may be reasonably required by the Debenture Holders to effectuate the aforesaid power of attorney and to effect collection of any and all payments which may be made at any time on account thereof (other than payments of interest, dividends and the fees and expenses contemplated by Section 2.2(a) hereof only made in accordance with the terms of Section 2.2(a) hereof). (e) Payments Held in Trust. Should any Distribution or the proceeds ---------------------- thereof in respect of the Subordinated Indebtedness be collected or received by any Subordinated Lender or any Affiliate (as such term is defined in Rule 405 of the Securities Act) of such Subordinated Lender at a time when such Subordinated Lender is not permitted to receive any such Distribution (provided that such Subordinated Lender shall be deemed to be permitted to receive any such Distribution that is permitted by Section 2.2(a) unless it or its representative has timely received notice described in the proviso at the end of Section 2.2(e), then such Subordinated Lender will forthwith deliver, or cause to be delivered, the same to the Senior Representative for the accounts of the Debenture Holders on a pro rata basis in proportion to the principal amount of Debentures held by each Debenture Holder, and until so delivered the same shall be held in trust by such Subordinated Lender or any such Affiliate as the property of the Debenture Holders and shall not be commingled with other property of such Subordinated Lender or any such Affiliate; provided; however, that such -------- ------- Subordinated Lender may retain any Distribution permitted by Section 2.2(a) received by it following a Default in the payment of interest on the Debentures if neither it nor its representative has received notice of such Default within 30 days of its occurrence. (f) Subrogation. Subject to the prior payment in full in cash and ----------- satisfaction of all Senior Indebtedness, to the extent that the Debenture Holders have received any Distribution on the Senior Indebtedness which, but for this Subordination Agreement, would have been applied to the Subordinated Indebtedness, each Subordinated Lender shall be subrogated to the then or thereafter rights of the Debenture Holders, including, without limitation, the right to receive any Distribution made on the Senior Indebtedness until the principal of, interest on and other charges due under the Subordinated Indebtedness shall be indefeasibly paid in full in cash; and, for the purposes of such subrogation, no Distribution to the Debenture Holders to which the Subordinated Lenders would be entitled except for the provisions of this Subordination Agreement shall, as between MRM, MG, Newco, any other Subsidiary of MRM, -7- their creditors (other than the Debenture Holders) and the Subordinated Lenders, be deemed to be a Distribution by MRM, MG or Newco to or on account of Senior Indebtedness, it being understood that the provisions hereof are and are intended solely for the purpose of defining the relative rights of each Subordinated Lender on the one hand, and the Debenture Holders on the other hand. (g) Scope of Subordination. The provisions of this Agreement are ---------------------- solely to define the relative rights of the Subordinated Lenders and the Debenture Holders with respect to the Senior Indebtedness. Nothing in this Subordination Agreement shall impair, as between MRM, MG and Newco, on the one hand, and each Subordinated Lender, on the other hand, the unconditional and absolute obligations of MRM, MG and Newco to punctually pay the principal, interest and any other amounts and Obligations owing under the Subordinated Indebtedness and the Subordinated Lending Agreements in accordance with the terms thereof, subject to the rights of the Debenture Holders under this Subordination Agreement. 3. Miscellaneous. ------------- 3.1. Survival of Rights. Except as expressly otherwise provided ------------------ herein, the right of the Debenture Holders to enforce the provisions of this Subordination Agreement shall not be prejudiced or impaired by any act or omitted act of the Companies or of any Debenture Holder, including forbearance, waiver, consent, compromise, amendment, extension, renewal, or taking or release of security in respect of any Debenture or noncompliance by the Companies with such provisions, regardless of the actual or imputed knowledge of any Debenture Holder. 3.2. Receipt of Agreements. MRM hereby acknowledges that it has --------------------- delivered to the MRM Debenture Purchasers correct and complete copies of the Subordinated Lending Agreements as in effect on the date hereof. MRM hereby acknowledges that it has delivered to the Subordinated Lenders a correct and complete copy of the Securities Purchase Agreement and the form of MRM Debenture and Newco Debenture as in effect on the date hereof. 3.3. No Amendment of Subordinated Lending Agreements. Until the ----------------------------------------------- earlier of (i) the expiration of the Subordination Period and (ii) the day following the first day on which no Debentures shall be outstanding, none of MRM, MG or any Subordinated Lender shall enter into any amendment to or modification of any Subordinated Lending Agreements which relates to or affects the Subordinated Indebtedness, without the prior written consent of the Requisite Holders (as defined in the Securities Purchase Agreement), which consent shall not be unreasonably withheld or delayed. 3.4. Amendments to Debentures. Until the expiration of the ------------------------ Subordination Period, no amendment or modification to the Debentures may, without the prior written consent of the Subordinated Lenders (which consent shall not be unreasonably withheld or delayed), increase the principal amount of or contractual interest rate or premium on the Debentures, modify the provisions of Section 3(b) of the Debentures, modify the provisions of Section 7 of the Debentures or modify the Debentures in a manner which materially adversely affects the subrogation rights of the Subordinated Lenders under Section 2.2 (f) hereof. 3.5. Notice of Default and Certain Events. The Debenture Holders and ------------------------------------ the Subordinated Lenders shall undertake to use commercially reasonable efforts to notify each of the other parties to this Agreement of the occurrence of any of the following, as applicable: (a) the obtaining of actual knowledge of the occurrence of an Event or any Default under any Senior Indebtedness or any default under any Subordinated Lending Agreement; -8- (b) the acceleration of any Senior Indebtedness by the Debenture Holders or, to the extent permitted under this Subordination Agreement, of any Subordinated Indebtedness by any Subordinated Lenders; (c) the granting by the Debenture Holders of any waiver of any Event of Default under the Debentures or the granting by any Subordinated Lender of any waiver of any breach or default under any Subordinated Lending Agreements; (d) the exercise of the right to have the Debentures mandatorily redeemed pursuant to Section 3(b) of the Debentures; (e) the termination of the Subordination Period; or (f) the indefeasible payment in full by MRM, MG, Newco or any other Subsidiary of MRM (whether as a result of refinancing or otherwise) of all Senior Indebtedness. The failure of any party to give such notice shall not itself give rise to liability to any other party to this Subordination Agreement or affect the subordination of the Subordinated Indebtedness as provided in this Subordination Agreement. 3.6. Notices. Any notice or other communication required or ------- permitted pursuant to this Subordination Agreement shall be deemed given (a) when personally delivered to any officer of the party to whom it is addressed, (b) on the earlier of actual receipt thereof or five (5) days following posting thereof by certified or registered mail, postage prepaid, (c) upon actual receipt thereof when sent by a recognized overnight delivery service or (d) upon actual receipt thereof when sent by facsimile to the number set forth below with telephone communication confirming receipt and subsequently confirmed by registered, certified or overnight mail to the address set forth below, in each case, addressed to each party at its address set forth below or at such other address as has been furnished in writing by a party to the other by like notice: If to the MRM, MG or Newco: c/o Mutual Risk Management Ltd. 44 Church Street Hamilton HM12 Bermuda Attention: Chief Executive Officer Telephone: (441) 295-5688 Facsimile: (441) 292-1867 with a copy to: Mayer, Brown & Platt 190 South LaSalle Street Chicago, Illinois 60603 Attention: Richard W. Shepro Telephone: (312) 782-0600 Facsimile: (312) 701-7711 If to the Debenture Holders: XL Investments Ltd., as Debenture Holder and as Senior Representative c/o XL Capital Ltd. XL House One Bermudiana Road -9- Hamilton HM 11 Bermuda Attention: Paul Giordano Telephone: (441) 294-7162 Facsimile: (441) 292-5280 with a copy to: Cahill Gordon & Reindel 80 Pine Street New York, New York 10005-1702 Attention: Immanuel Kohn Telephone: (212) 701-3000 Facsimile: (212) 269-5420 First Union Merchant Banking 2001, LLC One First Union Center - 12th Floor 301 South College Street Charlotte, North Carolina 28288-0732 Attention: Wellford Tabor Telephone: (704) 374-4540 Facsimile: (704) 374-6711 High Ridge Capital Partners II, L.P. 105 Rowayton Avenue Rowayton, Connecticut 06853 Attention: James L. Zech Telephone: (203) 831-0104 Facsimile: (203) 831-0480 with a copy to: Robinson, Bradshaw & Hinson, P.A. 101 North Tryon Street Suite 1900 Charlotte, North Carolina 28246 Attention: Steve Lynch Telephone: (704) 377-8355 Facsimile: (704) 373-3955 Century Capital Partners II, L.P. c/o Century Capital Management, Inc. One Liberty Square Boston, Massachusetts 02109 Attention: Craig Eisenacher Telephone: (617) 482-3060 Facsimile: (617) 542-9398 Taracay Investors Company 104 Wallacks Point Stamford, Connecticut 06902 Attention: Robert Clements -10- Telephone: (203) 862-4343 Facsimile: (203) 625-8366 with a copy to: Palmer & Dodge LLP One Beacon Street Boston, Massachusetts 02108 Attention: Ron Eppen Telephone: (617) 573-0322 Facsimile: (617) 227-4420 If to the Bank Lenders: Bank of America, N.A., as Administrative Agent 231 S. LaSalle Street Chicago, Illinois 60697 Attention: Mehul Meht Telephone: (312) 828-2147 Facsimile: (312) 987-0889 If to the RHINO Holder or the holder Intrepid Funding Master Trust of the RHINOS Debentures c/o Wilmington Trust Company as Owner-Trustee Rodney Square North 1100 North Market Street Wilmington, Delaware 19890 Attention: Mary Kay Pupillo Telephone: (302) 651-8558 Facsimile: (302) 651-8882 with a copy to: Banc of America Securities LLC 9 West 57th Street New York, New York 10019 Attention: William Caccamise Telephone: (212) 847-5109 Facsimile: (212) 847-5124 If to the Trust: Administrative Trustees of MRM Capital Trust I c/o Mutual Group Ltd One Logan Square, Suite 1500 Philadelphia, Pennsylvania 19103 Attention: Richard O'Brien Telephone: (215) 963-1600 Facsimile: (215) 963-1610 If to the Property Trustee: Property Trustee of MRM Capital Trust I The Chase Manhattan Bank 450 West 33rd Street New York, New York 10001 Attention: Institutional Trust Services -11- Telephone: (212) 946-3082 Facsimile: (212) 946-8161 If to the Indenture Trustee: The Chase Manhattan Bank 450 West 33/rd/ Street New York, New York 10001 Attention: Institutional Trust Services Telephone: (212) 946-3082 Facsimile: (212) 946-8161 3.7. Books and Records. Each Subordinated Lender shall furnish the ----------------- Debenture Holders, upon request from time to time, a statement of the account between the Subordinated Lenders, on the one hand, and MRM and/or MG and Newco, on the other hand. Each Debenture Holder (or the Representative) shall furnish the Subordinated Lenders, upon request from time to time, a statement of account between the Debenture Holders, on the one hand, and MRM and/or MG and Newco, on the other hand. 3.8 Binding Effect; Other. This Subordination Agreement shall be a --------------------- continuing agreement, shall be binding upon and shall inure to the benefit of the parties hereto from time to time and their respective successors and assigns and shall be irrevocable. Except as expressly provided otherwise herein, no action any Debenture Holder, MRM, MG or Newco may take or refrain from taking with respect to the Senior Indebtedness, including any amendments thereto, shall affect the provisions of this Subordination Agreement or the obligations of any Subordinated Lender hereunder. Any waiver or amendment hereunder must be evidenced by a signed writing of the party to be bound thereby, and shall only be effective in the specific instance. The headings in this Subordination Agreement are for convenience of reference only, and shall not alter or otherwise affect the meaning hereof. This Subordination Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more such counterparts have been signed by each of the parties hereto. 3.9 Legend. Each Subordinated Lender, for itself and its successors ------ and assigns, covenants to cause each note and each other instrument representing or evidencing the Subordinated Indebtedness to have affixed upon it or included in it the following legend until the earlier of (i) the expiration of the Subordination Period and (ii) subject to the last sentence of Section 2.2(c), the day following the first day on which no Debentures shall remain outstanding (provided that any failure to do so shall not itself give rise to liability to any other party to this Subordination Agreement or affect the subordination of the Subordinated Indebtedness as provided in this Subordination Agreement): "This instrument is subject to a Subordination Agreement dated as of May 17, 2001 between the maker and payee for the benefit of the holders from time to time of certain Debentures. Section 2 of the Subordination Agreement, among other things, under certain circumstances subordinates the maker's or obligor's obligations hereunder to the prior payment of all obligations of the maker or obligor to the Debenture Holders defined therein." Notwithstanding the foregoing, no Trustee or Indenture Trustee shall be obligated to affix the foregoing legend on any note issued under the Indenture until such time as MG and MRM shall have provided to it a copy of such legend suitable for affixation thereon and then, only after all expenses related thereto have been paid to such Trustee or Indenture Trustee, as the case may be, by MG or MRM. -12- 3.10. Certain Trustee Matters. ----------------------- (a) MRM shall give prompt written notice to the Property Trustee and the Indenture Trustee of any fact known to MRM that would prohibit the making of any payment to or by either such Trustee in respect of the Subordinated Indebtedness. Notwithstanding the provisions of this Subordination Agreement or any provision of the Subordinated Lending Agreements, neither Trustee shall be charged with knowledge of the existence of any facts that would prohibit the making of any payment to or by such Trustee in respect of the Subordinated Indebtedness unless and until the Trustee shall have received written notice thereof from MRM or a holder of Senior Indebtedness or from any trustee, agent or representative or attorney-in-fact therefor; provided, however, that if such -------- ------- Trustee shall not have received the notice provided for in this Section at least two Business Days prior to the date upon which by the terms hereof any monies may become payable for any purpose, then, anything herein contained to the contrary notwithstanding, such Trustee shall have full power and authority to receive such monies and to apply the same to the purpose for which they were received and shall not be affected by any notice to the contrary that may be received by it within two Business Days prior to such date, but this provision shall not affect the rights or obligations of the other Subordinated Lenders under Section 2.2(e). (b) Each such Trustee shall be entitled to rely on the delivery to it of a written notice by a Person representing himself or herself to be a holder of Senior Indebtedness (or a trustee, agent, representative or attorney- in-fact therefor) to establish that such notice has been given by a holder of Senior Indebtedness (or a trustee, agent, representative or attorney-in-fact therefor). In the event that such Trustee determines in good faith that further evidence is required with respect to the right of any Person as a holder of Senior Indebtedness to participate in any payment or distribution pursuant to this Subordination Agreement, such Trustee may request such Person to furnish evidence to the reasonable satisfaction of such Trustee as to the amount of Senior Indebtedness held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such Person under this Section, and if such evidence is not furnished, the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. (c) Upon any payment or distribution of assets referred to in this Subordination Agreement, each such Trustee shall be entitled to conclusively rely upon any order or decree entered by any court of competent jurisdiction in which any proceeding referred to in Section 2.2(c) is pending, or a certificate of the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit of creditors, agent or other Person making such payment or distribution, delivered to the Trustee, for the purpose of ascertaining the Persons entitled to participate in such payment or distribution, the holders of the Senior Indebtedness and other indebtedness of the Person subject to such proceeding, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Subordination Agreement. (d) No such Trustee, in its capacity as such, shall be deemed to owe any fiduciary duty to the holder of Senior Indebtedness and shall not be liable to any such holders if it shall in good faith mistakenly pay over or distribute to Subordinated Lenders or to any other Person cash, property or securities to which any holders of Senior Indebtedness shall be entitled by virtue of this Subordination Agreement or otherwise. (e) Each such Trustee in its individual capacity shall be entitled to all the rights set forth in this Subordination Agreement with respect to any Senior Indebtedness that may at any time be held by it, to the same extent as any other holder of Senior Indebtedness, and nothing in this Subordination Agreement shall deprive such Trustee of any of its rights as such holder. (f) The Property Trustee and the Indenture Trustee may conclusively assume that no Default has occurred, the Subordination Period has not expired and that all amounts owed upon Senior Indebtedness -13- have not been indefeasibly paid in full in cash unless and until it has received written notice of such Default or the expiration of the Subordination Period or of such payment, as the case may be. (g) For purposes of this Section 3.10, all references to "Trustee" shall be deemed to include the Indenture Trustee. 4. Representations and Warranties. ------------------------------ (a) Each Subordinated Lender (other than the Indenture Trustee) represents and warrants (as to itself only) to the Debenture Holders that such Subordinated Lender is the holder of Subordinated Indebtedness. Each Subordinated Lender agrees that it shall not assign or transfer any of its Subordinated Indebtedness without such assignment or transfer being made expressly subject to the terms of this Subordination Agreement. Each Subordinated Lender further warrants (as to itself only) to the Debenture Holders that it has full right, power and authority to enter into this Subordination Agreement and that this Subordination Agreement has been duly authorized, executed and delivered by such Subordinated Lender and is a legal, valid and binding agreement of such Subordinated Lender. (b) The Administrative Agent represents and warrants to the Debenture Holders that the Bank Lenders party to this Subordination Agreement constitute all of the Lenders party to the Credit Agreement on the date hereof. (c) The Administrative Trustees represent and warrant to the Debenture Holders that the RHINOS Holder party to this Subordination Agreement is the sole holder of RHINOS on the date hereof. (d) Each Debenture Holder represents and warrants (as to itself only) to the Subordinated Lenders that it is a holder of the Senior Indebtedness. Each Debenture Holder further warrants (as to itself only) to the Subordinated Lenders that it has full right, power and authority to enter into this Subordination Agreement and that this Subordination Agreement has been duly authorized, executed and delivered by such Debenture Holder and is a legal, valid and binding agreement of such Debenture Holder. 5. Termination. This Subordination Agreement shall terminate and be ----------- of no further force and effect after the earlier of (i) the expiration of the Subordination Period and (ii) subject to the last sentence of Section 2.2(c), the day following the first day on which no Debentures shall remain outstanding. 6. Governing Law; Submission to Jurisdiction; Venue. ------------------------------------------------ (a) THIS SUBORDINATION AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE INTERNAL LAWS OF THE STATE OF NEW YORK. (b) If any action, proceeding or litigation shall be brought by the Debenture Holders in order to enforce any right or remedy under this Subordination Agreement, the Debenture Holders and the Subordinated Lenders hereby consent and will submit to the jurisdiction of any state or federal court of competent jurisdiction sitting within the area comprising the Southern District of New York on the date of this Subordination Agreement; provided, -------- however, that such submission to jurisdiction shall be for purposes of actions, - ------- proceedings or litigation in respect of this Subordination Agreement only and not a general submission to jurisdiction. The Debenture Holders and the Subordinated Lenders hereby irrevocably waive any objection, including, but not limited to, any objection to the laying of venue or based on the grounds of forum non conveniens, which it may now or hereafter have to the bringing of any such action, proceeding or litigation in such jurisdiction. The Debenture -14- Holders and the Subordinated Lenders further agree that they shall not bring any action, proceeding or litigation arising out of this Subordination Agreement in any state or federal court other than any state or federal court of competent jurisdiction sitting within the area comprising the Southern District of New York on the date of this Subordination Agreement. (c) Each Debenture Holder and Subordinated Lender (other than a Debenture Holder or Subordinated Lender whose principal place of business is in the area comprising the Southern District of New York or is otherwise subject to proper service of process within the area comprising the Southern District of New York) hereby irrevocably designates CT Corporation at an address in New York City designated at the date of this Subordination Agreement as the designee, appointee and agent of such Debenture Holder or Subordinated Lender, as the case may be, to receive, for and on behalf of such Debenture Holder or Subordinated Lender, as the case may be, service of process in such jurisdiction in any action, proceeding or litigation with respect to this Subordination Agreement. It is understood that a copy of such process served on such agent will be promptly forwarded by mail to each Debenture Holder and Subordinated Lender, as the case may be, at the address set forth herein, but the failure of such Debenture Holder or Subordinated Lender, as the case may be, to have received such copy shall not affect in any way the service of such process. Each Debenture Holder and Subordinated Lender (other than a Debenture Holder or Subordinated Lender whose principal place of business is in the area comprising the Southern District of New York) further irrevocably consents to the service of process of any of the aforementioned courts in any such action, proceeding or litigation by the mailing of copies thereof by registered or certified mail, postage prepaid, to such Debenture Holder or Subordinated Lender, as the case may be, at said address, such service to become effective thirty (30) days after such mailing. (d) Nothing herein shall affect the right of any Debenture Holder or Subordinated Lender to serve process in any other manner permitted by law. If service of process is made on a designated agent it shall be made by either (i) personal delivery or (ii) mailing a copy of summons and complaint to the agent via registered or certified mail, return receipt requested, postage prepaid. (e) EACH DEBENTURE HOLDER AND SUBORDINATED LENDER HEREBY WAIVES ANY AND ALL RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY ACTION, PROCEEDING OR LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH, THIS SUBORDINATION AGREEMENT. 7. Execution by Newco and Future Guarantors. Promptly after the ---------------------------------------- formation of Newco or the formation or acquisition of any direct or indirect subsidiary of MRM that is required to become a guarantor of the Debentures pursuant to the terms thereof, MRM will cause Newco or such additional guarantor, as the case may be, to execute and deliver a counterpart to this Subordination Agreement pursuant to which Newco or such additional guarantor, as the case may be, shall, by so executing this Subordination Agreement, become a party to this Subordination Agreement as if it were an original party hereto and upon which this Subordination Agreement shall constitute a valid and binding agreement of Newco or such additional guarantor, as the case may be, enforceable in accordance with its terms. S-1 IN WITNESS WHEREOF, the undersigned have entered into this Agreement as of the date first written above. BANK LENDERS: BANK OF AMERICA, N.A., as Administrative Agent and as Lender By: /s/ Gary R. Peet ------------------------------------- Name: Gary R. Peet Title: Managing Director FLEET NATIONAL BANK By: /s/ Anson T. Harris ------------------------------------- Name: Anson T. Harris Title: Director FIRST UNION NATIONAL BANK By: /s/ Gail M. Golightly ------------------------------------- Name: Gail M. Golightly Title: Senior Vice President NATIONAL WESTMINSTER BANK PLC By: /s/ Jon Bowring ------------------------------------- Name: Jon Bowring Title: Senior Corporate Manager, Insurance S-2 RHINOS HOLDER: Wilmington Trust Company not in its individual capacity but solely as Owner-Trustee INTREPID FUNDING MASTER TRUST By: /s/ Mary Kay Pupillo -------------------------------------- Name: Mary Kay Pupillo Title: Senior Financial Services Officer RHINOS DEBENTURE HOLDER: Wilmington Trust Company not in its individual capacity but solely as Owner-Trustee INTREPID FUNDING MASTER TRUST By: /s/ Mary Kay Pupillo -------------------------------------- Name: Mary Kay Pupillo Title: Senior Financial Services Officer TRUST: MRM CAPITAL TRUST I By: /s/ Richard O'Brien ------------------------------------- Name: Richard O'Brien Title: Senior Vice President Richard O'Brien, not in his individual capacity but solely as Administrative Trustee of the Trust /s/ Richard O'Brien _________________________________________ Elizabeth Price, not in her individual capacity but solely as Administrative Trustee of the trust /s/ Elizabeth Price ------------------------------------------ S-3 THE CHASE MANHATTAN BANK, not in its individual capacity but solely as Property Trustee of the Trust By: /s/ Sheik Wiltshire ------------------------------- Name: Sheik Wiltshire Title: Assistant Vice President INDENTURE TRUSTEE: THE CHASE MANHATTAN BANK, as Trustee under the Indenture By: /s/ Sheik Wiltshire ------------------------------- Name: Sheik Wiltshire Title: Assistant Vice President DEBENTURE HOLDERS: XL INSURANCE LTD By: /s/ Christopher Coelho ------------------------------- Name: Christopher Coelho Title: Senior Vice President Chief Financial Officer S-4 FIRST UNION MERCHANT BANKING 2001, LLC By: /s/ Frederick W. Eubank, II ------------------------------------- Name: Frederick W. Eubank, II Title: Partner HIGH RIDGE CAPITAL PARTNERS II, L.P. By: /s/ Steve Tynan ------------------------------------- Name: Steve Tynan Title: President, Liberty Street Corp., as general partner of Liberty Street Partners, LP, as member of High Ridge GP II LLC, as general partner of High Ridge Capital Partners II, L.P. CENTURY CAPITAL PARTNERS II, L.P. By: /s/ Craig Eisenacher ------------------------------------- Name: Craig Eisenacher Title: Managing Member /s/ Robert A. Mulderig ----------------------------------------- Robert A. Mulderig TARACAY INVESTORS COMPANY By: /s/ Robert Clements ------------------------------------- Name: Robert Clements Title: S-5 ACKNOWLEDGEMENT The undersigned hereby acknowledges and agrees to the foregoing Subordination Agreement. The undersigned agrees to be bound by the terms and provisions thereof as they relate to the relative rights of the Debenture Holders and the holders of the Subordinated Indebtedness with respect to each other. However, nothing therein shall be deemed to amend, modify, supersede or otherwise alter the terms of the respective agreements between the undersigned and the Debenture Holders, on the one hand, and the holders of the Subordinated Indebtedness, on the other hand. The undersigned further agrees that the Subordination Agreement is solely for the benefit of the Debenture Holders and the holders of the Subordinated Indebtedness and shall not give the undersigned, its successors and assigns, or any other person, any rights vis-a-vis the Debenture Holders or any holders of the Subordinated Indebtedness. MUTUAL RISK MANAGEMENT LTD. By: /s/ Richard E. O'Brien ------------------------------------ Name: Richard E. O'Brien Title: Senior Vice President MUTUAL GROUP LTD. By: /s/ Richard E. O'Brien ------------------------------------ Name: Richard E. O'Brien Title: Senior Vice President LEGION FINANCIAL CORP. By: /s/ Richard E. O'Brien ------------------------------------ Name: Richard E. O'Brien Title: Senior Vice President S-6 MGL INVESTMENTS LTD. By: /s/ Richard E. O'Brien ------------------------------------ Name: Richard E. O'Brien Title: Senior Vice President MRM SECURITIES LTD. By: /s/ Richard E. O'Brien ------------------------------------ Name: Richard E. O'Brien Title: Senior Vice President MUTUAL FINANCE LTD. By: /s/ Elizabeth B. Price ------------------------------------ Name: Elizabeth B. Price Title: Secretary MUTUAL RISK MANAGEMENT (HOLDINGS) LTD. By: /s/ Elizabeth B. Price ------------------------------------ Name: Elizabeth B. Price Title: Secretary EX-10.5 12 dex105.txt COLLATERAL AGREEMENT EXHIBIT 10.5 COLLATERAL AGREEMENT -------------------- This COLLATERAL AGREEMENT (this "Agreement"), dated as of May 17, --------- 2001, by and between First Union National Bank, a national banking association, as collateral agent (in such capacity, the "Collateral Agent"), and Mutual Risk ---------------- Management Ltd., a company organized under the laws of Bermuda (the "Company"). ------- WHEREAS, pursuant to that certain securities purchase agreement dated as of May 8, 2001 (the "Securities Purchase Agreement"), by and among the ----------------------------- Company, certain of its subsidiaries, as Obligors, and XL Insurance Ltd ("XL"), -- First Union Merchant Banking 2001, LLC, High Ridge Capital Partners II, L.P., Century Capital Partners II, L.P., Robert A. Mulderig and Taracay Investors Company (each, a "Purchaser" and, collectively, the "Purchasers"), the Company --------- ---------- has agreed to issue $112,500,000 aggregate principal amount of 9 3/8% Convertible Exchangeable Debentures Due 2006; WHEREAS, the Company has agreed to deposit $22.5 million of the proceeds of the issuance and sale of the Debentures pursuant to the Securities Purchase Agreement into a Collateral Account (as defined herein) for the benefit of the Holders (as defined herein) on a first priority basis and for the benefit of the Administrative Agent (as defined herein) and the RHINOS Holders (as defined herein) on a second priority, pari passu basis; ---- ----- WHEREAS, the parties have entered into this Agreement in order to set forth the conditions upon which, and the manner in which, funds will be disbursed from the Collateral Account. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Defined Terms. In addition to any other defined terms used ------------- herein, the following terms shall constitute defined terms for purposes of this Agreement and shall have the meanings set forth below: "Administrative Agent" means Bank of America, N.A., as administrative -------------------- agent for the lenders under the Credit Agreement. "Applied" means that disbursed funds have been applied (i) to the ------- payment of interest on the Debentures or (ii) pursuant to Section 6(b)(iii). "Available Funds" means (A) the sum of (i) the Initial Amount and (ii) --------------- interest earned on the funds in the Collateral Account (including holdings of U.S. Government Obligations), less (B) the aggregate disbursements previously ---- made pursuant to this Agreement. -2- "Business Day" means any day that is not a Saturday, Sunday or a day ------------ on which (i) commercial banks in New York City or Charlotte, North Carolina are authorized or required to close or (ii) the New York Stock Exchange is not open for trading. "Closing Date" has the meaning set forth in the Securities Purchase ------------ Agreement. "Collateral" shall have the meaning given in Section 6(a) hereof. ---------- "Collateral Account" shall mean the collateral account established ------------------ pursuant to Section 2(b). "Collateral Account Statement" shall have the meaning given in Section ---------------------------- 2(f). "Credit Agreement" shall mean the credit agreement dated September 21, ---------------- 2000, among the Company, Mutual Group, Ltd., the lenders party thereto and the Administrative Agent. "Debentures" shall mean the 9 3/8% Convertible Exchangeable Debentures ---------- due 2006 of the Company and Convertible Debentures Due 2006 of Newco (as defined in the Securities Purchase Agreement); provided, however, that for all purposes -------- ------- of this Agreement "Debentures" shall not include the RHINOS Debentures. "Holders" shall mean the person or persons listed from time to time in ------- the Register as the payee of any Debenture. "Initial Amount" shall mean $22.5 million. -------------- "Interest Payment Date" means March 20, June 20, September 20 and --------------------- December 20 of each year until the Maturity Date. "Maturity Date" shall mean May 17, 2006. ------------- "Register" shall have the meaning assigned thereto in the Securities -------- Purchase Agreement. "Required Approvals" has the meaning assigned thereto in the ------------------ Securities Purchase Agreement. "Requisite Holders" means the Holders of a majority of the principal ----------------- amount of outstanding Debentures; provided, however, that (i) the principal -------- ------- amount of Debentures that have been converted into or exchanged for common stock of the Company and/or Newco (as defined in the Securities Purchase Agreement) shall, solely for purposes of this definition, -3- be deemed to be outstanding and held by the respective holders of such common stock, (ii) at any time when XL holds or has the right to vote a majority in principal amount of outstanding Debentures (other than RHINOS Debentures), "Requisite Holders" shall mean a majority of the principal amount of the outstanding Debentures other than the RHINOS Debentures and (iii) so long as XL holds or has the right to vote at least $50.0 million of the principal amount of Debentures, it will be deemed to own a majority of the principal amount of the outstanding Debentures. "Restructuring" has the meaning assigned thereto in the Securities ------------- Purchase Agreement. "RHINOS" shall mean the Auction Rate Reset Preferred Securities, known ------ as "RHINOS," issued by a subsidiary of the Company. "RHINOS Debentures" shall mean 9 3/8% Convertible Exchangeable ----------------- Debentures due 2006 of the Company issued to any current or former holders of RHINOS or any of their respective affiliates in exchange for an equal principal amount of RHINOS. "RHINOS Holders" shall mean the holders from time to time of the -------------- RHINOS or the RHINOS Debentures. "Subordination Agreement" shall mean the subordination agreement, ----------------------- dated the date hereof, by and among the Company, the guarantors named therein, the Holders named therein, the Subordinated Lenders named therein and the other parties thereto. "U.S. Government Obligations" shall mean direct obligations (or --------------------------- certificates representing an ownership interest in such obligations) of the United States of America (including any agency or instrumentality thereof) for the payment of which the full faith and credit of the United States of America is pledged and which are not callable at the issuer's option. 2. Collateral Account; Collateral Agent. ------------------------------------ (a) Appointment of Collateral Agent. The Company hereby appoints the ------------------------------- Collateral Agent, and the Collateral Agent hereby accepts appointment, as Collateral Agent, under the terms and conditions of this Agreement. (b) Establishment of Collateral Account. On the Closing Date, the ----------------------------------- Collateral Agent shall establish a collateral account entitled the "Collateral Account in favor of the Holders of Mutual Risk Management Ltd.'s Convertible Exchangeable Debentures Due 2006" (the "Collateral Account") at its office ------------------ located at Charlotte, North Carolina. All funds accepted by the Collateral Agent pursuant to this Agreement shall be held for the exclusive benefit of the Hold- -4- ers, the Administrative Agent and the RHINOS Holders. All such funds shall be held in the Collateral Account until disbursed or paid in accordance with the terms hereof. The Collateral Account, the assets held therein and any U.S. Government Obligations held on behalf of the Collateral Account by the Collateral Agent shall be under the sole dominion and control of the Collateral Agent for the benefit of the Holders, the Administrative Agent and the RHINOS Holders. The Collateral Account shall be a "securities account" and the assets held therein and any U.S. Government Obligations held on behalf of the Collateral Account by the Collateral Agent shall be "financial assets", each within the meaning of Article 8 of the New York Uniform Commercial Code. On the Closing Date, the Purchasers shall deliver the Initial Amount to the Collateral Agent for deposit into the Collateral Account against the Collateral Agent's written acknowledgment and receipt of the Initial Amount. (c) Collateral Agent Compensation. The Company shall pay to the ----------------------------- Collateral Agent compensation for services to be performed by it under this Agreement as set forth on Schedule A hereto. The Collateral Agent shall be paid ---------- any compensation owed to it directly by the Company and shall not disburse from the Collateral Account any such amounts. The fees set forth in Section I of Schedule A and the first annual fee set forth in Section II of Schedule A shall - ---------- ---------- be due and payable on the date of this Agreement. The Company shall reimburse the Collateral Agent upon request for all reasonable expenses, disbursements, and advances incurred or made by the Collateral Agent in implementing any of the provisions of this Agreement, including compensation and the reasonable fees, expenses and disbursements of its counsel. The Collateral Agent shall be paid any such expenses owed to it directly by the Company and shall not disburse from the Collateral Account any such amounts. (d) Investment of Funds in Collateral Account. Funds deposited in the ----------------------------------------- Collateral Account shall be invested and reinvested only upon the following terms and conditions: (i) Acceptable Investments. All funds deposited or held in the ---------------------- Collateral Account at any time shall be invested by the Collateral Agent in either (a) U.S. Government Obligations or (b) any money market fund that invests in U.S. Government Obligations and repurchase agreements backed by U.S. Government Obligations, including any money market fund managed by the Collateral Agent and any of its affiliates in accordance with the Company's written instructions from time to time to the Collateral Agent; provided, -------- however, that the Company shall only designate investment of funds in U.S. ------- Government Obligations maturing in an amount sufficient to and/or generating interest income sufficient to, when added to the balance of funds held in the Collateral Account, provide for the payment of interest on each of the Interest Payment Dates occurring prior to the termination of this Agreement in accor- -5- dance with Section 7 hereof to the Holders; provided, further, however, -------- ------- ------- that any such written instruction shall specify the particular investment to be made, shall state that such investment is authorized to be made hereby and in particular satisfies the requirements of the preceding proviso and Section 2(d)(v), shall contain the certification referred to in Section 2(d)(ii), if required, and shall be executed by the chief financial officer or other senior officer of the Company. All U.S. Government Obligations shall be assigned to and held in the possession of, or, in the case of U.S. Government Obligations maintained in book entry form with the Federal Reserve Bank, transferred to a book entry account in the name of, the Collateral Agent, for the benefit of the Holders, with such guarantees as are customary. (ii) Security Interest in Investments. No investment of funds in the -------------------------------- Collateral Account shall be made unless the Company has certified to the Collateral Agent, the Holders, the Administrative Agent and the RHINOS Holders and furnished an opinion of counsel satisfactory to XL that, upon such investment, the Collateral Agent, for the benefit of the Holders, the Administrative Agent and the RHINOS Holders, will have a first priority perfected security interest in the applicable investment. A certificate as to a class of investments need not be issued with respect to individual investments in securities in that class if the certificate applicable to the class remains accurate with respect to such individual investments, which continued accuracy the Collateral Agent may conclusively assume. (iii) Interest. All interest earned on funds invested in accordance -------- with Section 2(d)(i) hereof shall be deposited in the Collateral Account as additional Collateral for the exclusive benefit of the Holders and shall be reinvested in accordance with the terms hereof at the Company's written instruction. (iv) Limitation on Collateral Agent's Responsibilities. The ------------------------------------------------- Collateral Agent's sole responsibilities under this Section 2 shall be (A) to follow the Company's written instructions given in accordance with Section 2(d)(i), (B) to invest and reinvest funds pursuant to this Section 2(d) and (C) to use reasonable efforts to reduce to cash any investment made in accordance with Section 2(d)(i) hereof as may be required to fund any disbursement or payment in accordance with Section 3. Except as provided in Section 6, the Collateral Agent shall have no other responsibilities with respect to perfecting or maintaining the perfection of the Collateral Agent's security interest in the Collateral and shall not be required to file any instrument, document or notice in any public office at any time or times. In connection with clause (C) above, the Collateral Agent shall liquidate those U.S. Government Obligations having the lowest interest rate per annum or if none such exist, those having the nearest maturity, in all cases as directed in writing by the Company. -6- (v) Manner of Investment. Funds deposited in the Collateral Account -------------------- shall initially be invested in a manner such that such investments shall have such maturities and/or interest payment dates such that funds will be available with respect to each such Interest Payment Date no later than the time the Collateral Agent is required to disburse such funds to the Holders pursuant to Section 3. The Collateral Agent shall have no responsibility for determining whether funds held in the Collateral Account shall have been invested in such a manner as to comply with the requirements of this clause (v). (e) Substitution of Collateral Agent. The Collateral Agent may -------------------------------- resign by giving no less than 30 days' prior written notice to the Company. Such resignation shall take effect upon the later to occur of (i) delivery of all funds and U.S. Government Obligations maintained by the Collateral Agent hereunder and copies of all books, records, plans and other documents in the Collateral Agent's possession relating to such funds or U.S. Government Obligations or this Agreement to a successor collateral agent mutually approved by the Company, the Requisite Holders, the Administrative Agent and the holders of a majority in aggregate liquidation preference of the RHINOS (which approvals shall not be unreasonably withheld or delayed) and (ii) the Company and such successor Collateral Agent entering into this Agreement or any written successor agreement no less favorable to the interests of the Holders, the Administrative Agent and the RHINOS Holders than this Agreement; and the Collateral Agent shall thereupon be discharged of all obligations under this Agreement and shall have no further duties, obligations or responsibilities in connection herewith, except as set forth in Section 4. If a successor collateral agent has not been appointed or has not accepted such appointment within 30 days after notice of resignation is given to the Company, the Collateral Agent may apply to a court of competent jurisdiction (including a court in Charlotte, North Carolina) for the appointment of a successor collateral agent. (f) Collateral Account Statement. The Collateral Agent shall ---------------------------- deliver on a monthly basis to the Company, and the Company shall promptly transmit a copy thereof to the Holders, the Administrative Agent and the RHINOS Holders, a statement setting forth with reasonable particularity the balance of funds then in the Collateral Account and the assets held in the Collateral Account as well as a statement of transaction activity ("Collateral Account ------------------ Statement"). - --------- 3. Disbursements. ------------- (a) Disbursements to Holders on Interest Payment Dates and Upon ----------------------------------------------------------- Acceleration. Unless an Event of Default (as defined in any Debenture) has - ------------ occurred and the indebtedness represented by the Debentures has been accelerated and has become due and payable, or unless the Redemption Right (as defined in the Debenture) has been exercised, as evidenced to the Collateral Agent by written instructions from the Requisite Holders (in which event the Collateral Agent shall apply all Available Funds as required by Section 6(b)(iii)), -7- then as soon as practicable on any Interest Payment Date, but in no event later than 11:00 a.m. on such Interest Payment Date, the Collateral Agent shall disburse funds from the Collateral Account to the Holders on a pro rata basis in an amount equal to the amount of interest due on all outstanding Debentures by wire or book-entry transfer of immediately available funds to such account(s) as specified in writing to the Collateral Agent by the Holders. In the event that the amount remaining in the Collateral Account is less than the aggregate amount due to the Holders on any Interest Payment Date, the Collateral Agent shall disburse all remaining funds in the Collateral Account to the Holders pro rata by wire or book-entry transfer of immediately available funds to such account(s) as specified in writing to the Collateral Agent by such Holders. (b) Disbursement to Company After Restructuring. Unless an Event of ------------------------------------------- Default (as defined in any Debenture) has occurred and the indebtedness represented by the Debentures has been accelerated and has become due and payable, as evidenced to the Collateral Agent by written instructions from the Requisite Holders (in which event the Collateral Agent shall apply all Available Funds as required by Section 6(b)(iii)), then upon receipt by the Collateral Agent, the Holders, the Administrative Agent and the RHINOS Holders of a written notice from the Company certifying that at least 90 days prior to the date of such notice the Restructuring shall have been completed and the Company has received all Required Approvals, the Collateral Agent shall release all remaining funds in the Collateral Account to such account specified in writing by the Company as soon as practicable, but in any event no earlier than 10 Business Days following receipt of such notice; provided, however, that the -------- ------- Requisite Holders have not objected to such disbursement request within or prior to such 10 Business Days on the basis that such certification is not true. 4. Collateral Agent. ---------------- (a) Limitation of the Collateral Agent's Liability; ----------------------------------------------- Responsibilities of the Collateral Agent. The Collateral Agent's duties and - ---------------------------------------- responsibilities are fully set forth herein and the Collateral Agent shall have no duties or responsibilities other than those set forth herein. The Collateral Agent's responsibility and liability under this Agreement shall be limited as follows: (i) the Collateral Agent does not represent, warrant or guaranty to the Holders, the Administrative Agent or the RHINOS Holders from time to time the performance of the Company; (ii) the Collateral Agent shall have no responsibility to the Company, the Holders, the Administrative Agent or the RHINOS Holders as a consequence of performance or non-performance by the Collateral Agent hereunder, except for any gross negligence or willful misconduct of the Collateral Agent; (iii) the Company shall remain solely responsible for all aspects of the Company's business and conduct; (iv) the Collateral Agent does not guarantee any return and is not liable for any losses as long as the investment directions are followed and (v) the Collateral Agent is not obligated to supervise or inspect the Company or inform any third party of any matter referred to above. -8- No implied covenants or obligations shall be inferred from this Agreement against the Collateral Agent, nor shall the Collateral Agent be bound by the provisions of any agreement beyond the specific terms hereof. Specifically and without limiting the foregoing, the Collateral Agent shall in no event have any liability in connection with its investment, reinvestment or liquidation, in good faith and in accordance with the terms hereof, of any funds or U.S. Government Obligations held by it hereunder, including without limitation any liability for any delay not resulting from gross negligence or willful misconduct of the Collateral Agent in such investment, reinvestment or liquidation, or for any loss of principal or income incident to any such delay. The Collateral Agent, the Holders, the Administrative Agent and the RHINOS Holders shall be entitled to rely upon any judicial order or judgment, upon any written opinion of counsel or upon any certification, instruction, notice, or other writing delivered to it by the Company or the Holders in compliance with the provisions of this Agreement without being required to determine the authenticity or the correctness of any fact stated therein or the propriety or validity of service thereof. The Collateral Agent may act in reliance upon any instrument comporting with the provisions of this Agreement or signature believed by it to be genuine and may assume that any person purporting to give notice or receipt or advice or make any statement or execute any document in connection with the provisions hereof has been duly authorized to do so. At any time the Collateral Agent may request in writing an instruction in writing from the Company, and may at its own option include in such request the course of action it proposes to take and the date on which it proposes to act, regarding any matter arising in connection with its duties and obligations hereunder; provided, however, that the Collateral Agent shall state in such -------- ------- request that it believes in good faith that such proposed course of action is consistent with another identified provision of this Agreement. The Collateral Agent shall not be liable to the Company for acting without the Company's consent in accordance with such a proposal on or after the date specified therein if (i) the specified date is at least two Business Days after the Company receives the Collateral Agent's request for instructions and its proposed course of action, and (ii) prior to so acting, the Collateral Agent has not received the written instructions requested from the Company. The Collateral Agent may act pursuant to the written advice of counsel chosen by it with respect to any matter relating to this Agreement and (subject to Section 4(a)(ii)) shall not be liable for any action taken or omitted in accordance with such advice. The Collateral Agent shall not be called upon to advise any party as to selling or retaining, or taking or refraining from taking any action with respect to, any securities or other property deposited hereunder. -9- In the event of any ambiguity in the provisions of this Agreement with respect to any funds or property deposited hereunder, the Collateral Agent shall be entitled to refuse to comply with any and all claims, demands or instructions with respect to such funds or property, and the Collateral Agent shall not be or become liable for its failure or refusal to comply with conflicting claims, demands or instructions. The Collateral Agent shall be entitled to refuse to act until either any conflicting or adverse claims or demands shall have been finally determined by a court of competent jurisdiction or settled by agreement between the conflicting claimants as evidenced in a writing, satisfactory to the Collateral Agent, or the Collateral Agent shall have received security or an indemnity satisfactory to the Collateral Agent sufficient to save the Collateral Agent harmless from and against any and all loss, liability or expense which the Collateral Agent may incur by reason of its acting or failure to act. The Collateral Agent may in addition elect in its sole option to commence an interpleader action or seek other judicial relief or orders as the Collateral Agent may deem necessary. No provision of this Agreement shall require the Collateral Agent to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder. 5. Indemnity. The Company shall indemnify, hold harmless and --------- defend the Collateral Agent and its directors, officers, agents, employees and controlling persons, from and against any and all claims, actions, obligations, liabilities and expenses, including defense costs, investigative fees and costs, legal fees and claims for damages, arising from the Collateral Agent's performance under this Agreement, except to the extent that such liability, expense or claim is directly attributable to the gross negligence or willful misconduct of any of the foregoing persons. The obligations of the Company under this Section shall survive any termination, satisfaction or discharge of this Agreement, as well as the resignation or removal of the Collateral Agent. 6. Grant of Security Interest; Instructions to Collateral Agent. ------------------------------------------------------------ (a) The Company hereby (i) irrevocably grants a first priority security interest in and charges, pledges, assigns, transfers and sets over to the Collateral Agent for the ratable benefit of the Holders and (ii) irrevocably grants a second priority security interest in and charges, pledges, assigns, transfers and sets over to the Administrative Agent and the RHINOS Holders, in each case, all of the Company's right, title and interest in the Collateral Account, and all property now or hereafter placed or deposited in, or delivered to the Collateral Agent for placement or deposit in, the Collateral Account, including, without limitation, all funds held therein, all U.S. Government Obligations held by (or otherwise maintained in the name of) the Collateral Agent pursuant to Section 2, and all proceeds thereof as well as all rights of the Company under this Agreement (collectively, the "Collateral"), in order to ---------- secure (1) all obligations and indebtedness of the Company under the Debentures and any other obli- -10- gation, now or hereafter arising, of every kind and nature, owed by the Company under the Debentures to the Holders on a first priority, pari passu basis and ---- ----- (2) the "Obligations" (as defined in the Credit Agreement), all indebtedness, liabilities and obligations arising under or pursuant to the RHINOS, and any subrogation rights that the Administrative Agent or any RHINOS Holder may have under the Subordination Agreement on a second priority, pari passu basis. The ---- ----- Collateral Agent hereby acknowledges its security interest as set forth above. The Company shall take all actions necessary on its part to insure the continuance of a first priority security interest in the Collateral in favor of the Collateral Agent in order to secure all such obligations and indebtedness. (b) The Company hereby irrevocably instructs the Collateral Agent to, and the Collateral Agent shall (without further consent by the Company): (i) (A) maintain sole dominion and control over funds and any investment made in accordance with Section 2(d)(i) hereof in the Collateral Account for the benefit of the Holders to the extent specifically required herein, (B) take all reasonable steps requested by XL or, so long as not inconsistent with any request or direction by XL, the Administrative Agent or the RHINOS Holders to cause the Collateral Agent for the benefit of the Holders to enjoy a continuous perfected first priority security interest (perfected by control) and to cause the Collateral Agent, for the benefit of the Administrative Agent and the RHINOS Holders to enjoy a continuous perfected second priority security interest (perfected by control) under the New York Uniform Commercial Code and any applicable law of the State of New York in all U.S. Government Obligations purchased hereunder that are not certificated and (C) take such action as the Company, the Requisite Holders, the Administrative Agent or the holders of a majority in aggregate liquidation preference of the RHINOS may direct in writing which are within the control of the Collateral Agent in order to maintain the Collateral free and clear of all liens, security interests, safekeeping or other charges, demands and claims against the Collateral Agent of any nature now or hereafter existing in favor of anyone other than the Collateral Agent, for the benefit of the Holders, the Administrative Agent and the RHINOS Holders; (ii) promptly notify the Holders, the Administrative Agent and the RHINOS Holders if the Collateral Agent receives written notice that any persons, other than the Collateral Agent for the benefit of the Holders, the Administrative Agent and the RHINOS Holders has a lien or security interest upon any portion of the Collateral; (iii) upon acceleration of the maturity date of any Debenture or upon exercise of the Redemption Right (as defined in the Debentures), as evidenced to the Collateral Agent by written instructions from the Requisite Holders, (x) first, disburse all such Available Funds held as collateral to the Holders (pro rata in accordance with the --- ---- -11- proportion of Debentures held) as the Requisite Holders may direct by such written instructions, as promptly as practicable, and transfer title to such assets held by the Collateral Agent hereunder to the Holders as the Requisite Holders may direct by such written instructions and, (y) second, disburse the remaining Available Funds held as collateral to the Administrative Agent and the RHINOS Holders (pro rata in accordance with --- ---- the principal amount of the secured obligations held), and transfer title to all such remaining assets held by the Collateral Agent hereunder to the Administrative Agent and the RHINOS Holders (pro rata in accordance with --- ---- the principal amount or liquidation preference, as the case may be, of the secured obligations held). Notwithstanding any other provision contained in this Agreement, the Collateral Agent shall act solely as the Holders', the Administrative Agent's and the RHINOS Holders' agent in connection with its duties under this Section 6 or any other duties herein relating to the Collateral Account or any funds or U.S. Government Obligations held thereunder. The Collateral Agent shall not have any right to receive compensation from the Holders, the Administrative Agent or the RHINOS Holders and shall have no authority to obligate the Holders, the Administrative Agent or the RHINOS Holders or to compromise or pledge its security interest hereunder, except as provided herein. Accordingly, the Collateral Agent is hereby directed to cooperate with the Holders, the Administrative Agent and the RHINOS Holders in the exercise of its rights in the Collateral provided for herein; and (iv) comply with all "entitlement orders" (as defined in the New York Uniform Commercial Code) of XL, and so long as not inconsistent with any such entitlement orders received from XL, comply with all entitlement orders of the Administrative Agent. (c) Upon demand, the Company will execute and deliver to the Collateral Agent such instruments and documents as the Collateral Agent may reasonably deem necessary or advisable to confirm or perfect the rights of the Collateral Agent under this Agreement and the Collateral Agent's interest in the Collateral. The Collateral Agent, the Holders, the Administrative Agent and the RHINOS Holders shall be entitled to take all necessary action to preserve and protect the security interest created hereby as a lien and encumbrance upon the Collateral for the benefit of the Holders, the Administrative Agent and the RHINOS Holders. (d) With respect to each Interest Payment Date (as defined in the Debentures), the Company will provide to the Collateral Agent, no later than three Business Days following the immediately preceding March 1, June 1, September 1 and December 1, respectively, the name, principal amount held, address, tax identification number, wire instructions and interest payment amount for each of the Holders. -12- 7. Termination. This Agreement shall terminate automatically ten (10) ----------- Business Days following disbursement of all funds remaining in the Collateral Account (including U.S. Government Obligations), unless sooner terminated by agreement of the Company, the Collateral Agent and the Requisite Holders. Notwithstanding the foregoing, the obligations of the Company under Section 2(c) and Section 5 (and any existing claims thereunder) shall survive termination of this Agreement and the resignation or removal of the Collateral Agent and until such termination is effective, the Company will cause this Agreement (or any permitted successor agreement) to remain in effect and will cause there to be an Collateral Agent (including any permitted successor thereto) acting hereunder (or under any such permitted successor agreement). 8. Miscellaneous. ------------- (a) Waiver. Any breach of this Agreement by any party may be ------ specifically waived by a written agreement signed by the Company, the Collateral Agent, the Requisite Holders, the Administrative Agent and the holders of a majority in aggregate liquidation preference of the RHINOS, but no such waiver shall be deemed to have been given unless specifically designating the breach waived, nor shall any such waiver constitute a continuing waiver of similar or other breaches. (b) Invalidity. If for any reason whatsoever any one or more of the ---------- provisions of this Agreement shall be held or deemed to be inoperative, unenforceable or invalid in a particular case or in all cases, such circumstances shall not have the effect of rendering any of the other provisions of this Agreement inoperative, unenforceable or invalid, and the inoperative, unenforceable or invalid provision shall be construed as if it were written so as to effectuate, to the maximum extent possible, the parties' intent. (c) Assignment. This Agreement is personal to the parties hereto, and ---------- the rights and duties of any party hereunder shall not be assignable except with the prior written consent of the other parties and the Requisite Holders. Notwithstanding the foregoing, this Agreement shall inure to and be binding upon the parties and their successors and permitted assigns. (d) Benefit. The parties hereto and their successors and permitted ------- assigns, but no others, shall be bound hereby and entitled to the benefits hereof; provided, however, that the Holders, the Administrative Agent, the -------- ------- lenders under the Credit Agreement and the RHINOS Holders and their permitted assigns shall be entitled to the benefits hereof and to enforce this Agreement. (e) Time. Time is of the essence with respect to each provision of ---- this Agreement. -13- (f) Entire Agreement; Amendments. This Agreement contains the entire ---------------------------- agreement among the parties with respect to the holding, investment and disbursement of funds held in the Collateral Account and sets forth in their entirety the obligations and duties of the Collateral Agent with respect to funds held in the Collateral Account. This Agreement may be amended only by a writing signed by a duly authorized representative of each party hereto. (g) Notices. All notices and other communications required or ------- permitted to be given or made under this Agreement shall be in writing and shall be deemed to have been duly given and received, regardless of when and whether received, either: (a) on the day of hand delivery; (b) three Business Days following the day sent, when sent by United States certified mail, postage and certification fee prepaid, return receipt requested, addressed as set forth below; (c) when transmitted by telecopy with verbal confirmation of receipt by the telecopy operator to the telecopy number set forth below; or (d) two Business Days following the day timely delivered to a next-day air courier addressed as set forth below: To the Collateral Agent: First Union National Bank 401 S. Tryon Street 12th Floor Charlotte, North Carolina 28078 Attention: Corporate Trust Department Telephone: (704) 383-3503 Facsimile: (704) 383-7316 To the Holders: XL Insurance Ltd c/o XL Capital Ltd. XL House One Bermudiana Road Hamilton HM 11 Bermuda Attention: Paul Giordano Telecopy: (441) 292-8618 Telephone: (441) 294-7162 -14- First Union Merchant Banking 2001, LLC One First Union Center - 12th Floor 301 South College Street Charlotte, North Carolina 28288-0732 Attention: Wellford Tabor Telephone: (704) 374-4540 Facsimile: (704) 374-6711 High Ridge Capital Partners II, L.P. 105 Rowayton Avenue Rowayton, Connecticut 06853 Attention: James L. Zech Telephone: (203) 831-0104 Facsimile: (203) 831-0480 Century Capital Partners II, L.P. c/o Century Capital Management, Inc. One Liberty Square Boston, Massachusetts 02109 Attention: Craig Eisenacher Telephone: (617) 482-3060 Facsimile: (617) 542-9398 Taracay Investors Company 104 Wallacks Point Stamford, Connecticut 06902 Attention: Robert Clements Telephone: (203) 862-4343 Facsimile: (203) 625-8366 To the Administrative Agent: Bank of America, N.A., as Administrative Agent 231 S. LaSalle Street Chicago, Illinois 60697 Attention: Mehul Meht Telephone: (312) 828-2147 Facsimile: (312) 987-0889 -15- To the RHINOS Holders: Intrepid Funding Master Trust c/o Wilmington Trust Company as Owner-Trustee Rodney Square North 1100 North Market Street Wilmington, Delaware 19890 Attention: Mary Kay Pupillo Telephone: (302) 651-8558 Facsimile: (302) 651-8882 Banc of America Securities LLC 9 West 57th Street New York, New York 10019 Attention: William Caccamise Telephone: (212) 847-5109 Facsimile: (212) 847-5124 To the Company: Mutual Risk Management Ltd. 44 Church Street Hamilton HM12 Bermuda Attention: Chief Executive Officer Telecopy: (441) 292-1867 Telephone: (441) 295-5688 or at such other address as the specified entity most recently may have designated in writing in accordance with this Section; provided, however, that -------- ------- notices to the Collateral Agent shall be deemed to have been duly given and received upon actual receipt at the offices of the Collateral Agent specified herein. (h) Counterparts. This Agreement may be executed in one or more ------------ counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. (i) Captions. Captions in this Agreement are for convenience only and -------- shall not be considered or referred to in resolving questions of interpretation of this Agreement. -16- (j) Governing Law; Waiver of Jury Trial. THIS AGREEMENT SHALL BE ----------------------------------- GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK. IN ADDITION, THE LAWS OF THE STATE OF NEW YORK SHALL ALSO CONSTITUTE THE SECURITIES INTERMEDIARY'S JURISDICTION UNDER SECTION 8-110(e)(1) OF THE NEW YORK UNIFORM COMMERCIAL CODE AND SHALL GOVERN THE COLLATERAL AGENT IN ITS CAPACITY AS SECURITIES INTERMEDIARY. ANY DISPUTE UNDER THIS AGREEMENT THAT IS NOT SETTLED BY MUTUAL CONSENT SHALL BE FINALLY ADJUDICATED BY ANY FEDERAL OR STATE COURT SITTING IN THE CITY, COUNTY AND STATE OF NEW YORK, AND THE COMPANY CONSENTS TO THE EXCLUSIVE JURISDICTION OF SUCH COURTS (OR ANY APPELLATE COURT THEREFROM) OVER ANY SUCH DISPUTE. THE COMPANY HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE FEDERAL AND NEW YORK STATE COURTS LOCATED IN NEW YORK COUNTY IN CONNECTION WITH ANY SUIT, ACTION OR PROCEEDING RELATED TO THIS AGREEMENT OR ANY OF THE MATTERS CONTEMPLATED HEREBY, IRREVOCABLY WAIVES ANY DEFENSE OF LACK OF PERSONAL JURISDICTION AND IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT. THE COMPANY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. (k) The Company hereby represents and warrants that this Agreement has been duly authorized, executed and delivered on its behalf and constitutes the legal, valid and binding obligation of the Company. The execution, delivery and performance of this Agreement by the Company does not violate any applicable law or regulation to which the Company is subject and does not require the consent of any governmental or other regulatory body to which the Company is subject, except for such consents and approvals as have been obtained and are in full force and effect. (l) The Collateral Agent hereby represents and warrants that this Agreement has been duly authorized, executed and delivered on its behalf and constitutes its legal, valid and binding obligation. [Signature Pages Follow] -17- IN WITNESS WHEREOF, the parties have executed and delivered this Collateral Agreement as of the day first above written. FIRST UNION NATIONAL BANK, as Collateral Agent By: /s/ Paul F. Anatrella ------------------------------- Name: Paul F. Anatrella Title: Vice President MUTUAL RISK MANAGEMENT LTD. By: /s/ Elizabeth B. Price ------------------------------- Name: Elizabeth B. Price Title: Secretary -18- AGREED TO AND ACCEPTED BY: BANK OF AMERICA, N.A., as Administrative Agent and Lender By: /s/ Gary R. Peet -------------------------------- Name: Gary R. Peet Title: Managing Director FLEET NATIONAL BANK, as Lender By: /s/ Anson Harris -------------------------------- Name: Anson Harris Title: Director FIRST UNION NATIONAL BANK, as Lender By: /s/ Gail M. Golightly -------------------------------- Name: Gail M. Golightly Title: Senior Vice President NATIONAL WESTMINSTER BANK PLC, as Lender By: /s/ Jon Bowring -------------------------------- Name: Jon Bowring Title: Senior Corporate Manager, Insurance INTREPID FUNDING MASTER TRUST, as RHINOS Holder and RHINOS Debenture Holder Wilmington Trust Company not in its individual capacity but solely as Owner-Trustee By: /s/ Mary Kay Pupillo -------------------------------- Name: Mary Kay Pupillo Title: Senior Financial Services Officer -19- XL INSURANCE LTD, as Debenture Holder By: /s/ Clive Tobin ------------------------------- Name: Clive Tobin Title: President & Chief Executive Officer FIRST UNION MERCHANT BANKING 2001, LLC, as Debenture Holder By: /s/ Frederick W. Eubank,II ------------------------------- Name: Frederick W. Eubank, II Title: Partner HIGH RIDGE CAPITAL PARTNERS II, L.P., as Debenture Holder By: /s/ Steven J. Tynan -------------------------------- Name: Steven J. Tynan Title: President, Liberty Street Corp. As general partner of Liberty Street Partners LP As member of High Ridge GP II LLC As general partner of High Ridge Capital Partners II LP CENTURY CAPITAL PARTNERS II, L.P., as Debenture Holder By: /s/ Craig Eisenacher ------------------------------- Name: Craig Eisenacher Title: Managing Member ROBERT A. MULDERIG, as Debenture Holder By: /s/ Robert A. Mulderig ------------------------------- Name: Robert A. Mulderig -20- TARACAY INVESTORS COMPANY, as Debenture Holder By: /s/ Robert Clements ------------------------------- Name: Robert Clements Title: Schedule A ---------- SCHEDULE OF FEES COLLATERAL AGENT SERVICES Mutual Risk Management May 17, 2001 I. ACCEPTANCE FEE (Payable in advance) $1500 Per Collateral Account Initial fee for reviewing documents, communication with counsel and other parties connected with the financing, setting up accounts and administration records. Legal Review to Nexson Pruet Jacobs & Pollard, LLC of $2,500 II. ANNUAL ADMINISTRATION FEE (Payable in advance, non-proratable) $4000 Per Collateral Account Day-to-day administration of governing documents, maintenance of investments, communications with obligor and providing statements, and other duties defined in the Collateral Agreement. III. OUT-OF-POCKET EXPENSES Billed at Cost Advance or Out-of-Pocket expenses including but not limited to postage, legal, telephone, freight, courier and express mail. -22- IV. INVESTMENT MANAGEMENT OPTIONS A. Securities Transactions (Buy/Sell/Collateral Substitution) $50 Per Transaction B. Automatic Cash Management (Selected Money Market Funds) Floating Rate, net of expenses V. ACTIVITY CHARGES A. Wire Transfers/Assignment Processing $50 Per Wire B. Check Disbursements $15 Per Check
EX-10.6 13 dex106.txt AMENDMENT 1 TO REMARKETING & CONTINGENT AGREEMENT Exhibit 10.6 AMENDMENT NO. 1 TO REMARKETING AND CONTINGENT PURCHASE AGREEMENT This AMENDMENT NO. 1 (the "Amendment") is made as of May 8, 2001, by and among Mutual Group Ltd., a Delaware corporation (the "Company"), Mutual Risk Management Ltd., a Bermuda company (the "Guarantor"), MRM Capital Trust I, a Delaware statutory business trust (the "Trust"), and Banc of America Securities LLC, as remarketing agent (the "Remarketing Agent"). WITNESSETH: WHEREAS, the Company, the Guarantor, the Trust and the Remarketing Agent are parties to a Remarketing and Contingent Purchase Agreement dated as of September 21, 2000 (the "Remarketing Agreement"); WHEREAS, the parties hereto desire to amend the Remarketing Agreement as set forth herein; WHEREAS, the Remarketing Agreement provides for amendment of its terms, subject to satisfaction of certain requirements; WHEREAS, all things necessary to make this Amendment a valid amendment and agreement according to its terms have been done; NOW THEREFORE, in consideration of their mutual covenants contained herein, the parties hereto, intending to be legally bound, hereby mutually covenant and agree as follows: ARTICLE 1 AMENDMENTS Section 1.01. Definitions. (a) Capitalized terms used and not defined in this Amendment shall have the meanings assigned to them in the Remarketing Agreement. (b) The definition of Reference Corporate Dealer in Section 1 of the Remarketing Agreement is hereby amended to read in its entirety as follows: "Reference Corporate Dealer" means each of Morgan Stanley & Co. Incorporated, Salomon Smith Barney, Inc., Credit Suisse First Boston Corporation, Goldman, Sachs & Co. and Merrill Lynch, Pierce, Fenner & Smith Incorporated. (c) The definition of Trigger Event in Section 1 of the Remarketing Agreement is hereby amended to read in its entirety as follows: "Trigger Event" means the occurrence of any of the following: (a) May 17, 2001, if no Mutual Party has issued to any XL Entity and other purchasers at least $100,000,000 in aggregate principal amount of any XL Securities (of which at least $50,000,000 are to be purchased for investment by an XL Entity) prior to such date, (b) any issued XL Securities become due and payable or the holders thereof have the right to require the relevant Mutual Party to purchase such XL Securities, (c) on (i) any Trading Day from and including the date four months from the first date of issuance of any XL Securities (the "Initial XL Issuance Date") to but excluding the date six months from the Initial XL Issuance Date, if the Restructuring has not been completed by 9:00 a.m., New York City time on such Trading Day and the Closing Price of the Common Shares on the immediately preceding Trading Day is less than $8.00 or (ii) the first Business Day six months after the Initial XL Issuance Date, if the Restructuring has not been completed, (d) after 9:00 a.m., New York City time, on the tenth day immediately following the date the Restructuring has been completed or (e) the One Hundred Million Dollar Trigger. (d) Section 1 of the Remarketing Agreement is hereby amended by the addition of the following new definitions in the appropriate alphabetical order: "Deal Expenses" means any and all fees paid by any Mutual Party in connection with the issuance of the XL Securities or the Restructuring, including, without limitation, all interest payable on the XL Securities, the fee payable to Intrepid Master Funding Trust pursuant to Section 2.02 of Amendment No. 1 to the Remarketing Agreement, any private placement, structuring, advisory or similar fee payable to BAS or any other agent in connection with the issuance of the XL Securities or the Restructuring, all legal fees and disbursements incurred by any Mutual Party, BAS or any of its affiliates, Credit Suisse First Boston or any of it affiliates or any XL Entity in connection with any of the above and payable by any 2 Mutual Party and any other fees or expenses arising from related transactions. "Initial XL Issuance Date" has the meaning set forth in the definition of Trigger Event. "Mutual Party" means each of the Company, the Guarantor and each of their respective affiliates and subsidiaries and any entity formed in connection with the Restructuring. "Newco" shall have the meaning set forth in Annex A to this Amendment. "One Hundred Million Dollar Trigger" means at any time from and including the Initial XL Issuance Date to but excluding the date on which the holders of the XL Securities no longer have any right to, or could not pursuant to the terms of the XL Securities upon the occurrence of any event, have any right to, require a Mutual Party to repurchase such XL Securities, the sum of the amounts in the Separate Account and the collateral account referred to in Section 3(a)(x) does not equal at least $100,000,000 at that time. "Restructuring" shall have the meaning set forth in Annex A to this Amendment. "Separate Account" means the account established by the Company with Fleet National Bank pursuant to Section 3(a)(x). "XL Entity" means XL Capital Ltd. or any subsidiary or affiliate thereof. "XL Securities" means any debt securities issued by any Mutual Party to any XL Entity and any securities of the same class issued to any other purchasers, together with the voting preferred stock described in the "Voting Preferred Stock" section of Annex A to this Amendment (it being understood that the Warrants (as defined in Annex A to this Amendment) shall not be deemed to be XL Securities). Section 1.02. Separate Account. Section 3 of the Remarketing Agreement is hereby amended to add the following subsection 3(a)(x): 3 (x) On or prior to the Initial XL Issuance Date, the Company shall establish the Separate Account, and all proceeds of the issuance of the XL Securities shall be deposited directly in the Separate Account; provided that proceeds to be used for the payment of interest on the XL Securities as set forth in the "Use of Proceeds" section of Annex A to this Amendment may be deposited in an collateral account as described in Annex A to this Amendment. All Deal Expenses shall be paid solely out of funds in such collateral account. Section 1.03. Remarketing Provisions. (a) Sections 5(a) and (b) of the Remarketing Agreement are hereby amended to read in their entirety as follows: SECTION 5. Determination of Reset Date; Remarketing Procedures. (a) (i) Subject to Section 7, upon and at any time after the occurrence of a Event or a Cross Default, the Holders of a Majority in Liquidation Amount of the Trust Securities (or, if applicable, the holders of a majority in principal amount of the Senior Notes), acting together as a single class (the "Requesting Holders"), will have the right to require remarketing of the Trust Securities (or, if applicable, the Senior Notes). The Requesting Holders may exercise this right by delivering a written notice to the Remarketing Agent by 10:00 a.m. on any date on or after the date on which such Trigger Event or Cross Default occurs. Upon the receipt of such notice, the Remarketing Agent shall immediately deliver a written notice to the Company on behalf of the Requesting Holders (the "Remarketing Notice"). If the Requesting Holders exercise their right to require the remarketing of the Preferred Securities (or, if applicable, the Senior Notes), the Reset Date shall be the date on which such Remarketing Notice is delivered. (ii) If the Requesting Holders do not exercise their right to require the remarketing of the Preferred Securities (or, if applicable, the Senior Notes) pursuant to Section 103(a)(i) above --------- with respect to any Trigger Event or Cross Default, the Requesting Holders shall have the right to require the remarketing of the Preferred Securities (or, if applicable, the Senior Notes) in accordance with Section 103(a)(i) at any --------- subsequent time with respect to the same Trigger Event or Cross Default or with respect to any subsequent Trigger Event or Cross Defau lt. 4 (b) If the Company and the Guarantor have complied in all material respects with all covenants set forth herein, then by 3:00 p.m., New York City time, on the Reset Date, the Remarketing Agent shall request Bids from the Reference Corporate Dealers. The Remarketing Agent shall disclose to the Company the Bids obtained and determine the lowest Bid Rate (the "Winning Bid Rate") from among the Bids obtained on the Reset Date. By 4:30 p.m., New York City time, on the Reset Date, the Remarketing Agent shall notify the Company, the Indenture Trustee and the Property Trustee of the Winning Bid Rate. If on a Reset Date, Bids are not submitted by at least two Reference Corporate Dealers, or if the lowest Bid submitted would result in a Winning Bid Rate in excess of the rate permitted by applicable law, or if the Company and the Guarantor have not complied in all material respects with all covenants set forth herein, the Remarketing shall be deemed to be a Failed Remarketing on such date; provided, that the Company's obligation to furnish the Offering Memorandum to the Remarketing Agent by 11:00 a.m. (New York City time) on the Reset Date pursuant to Section 13 shall not be subject to the foregoing qualification as to materiality. The Winning Bid Rate determined by the Remarketing Agent, absent manifest error, shall be binding and conclusive upon the Holders of the Trust Securities, the holders of the Senior Notes, the Company, the Guarantor, the Indenture Trustee, the Property Trustee and the Trust. Section 1.04. Successful Remarketing. Section 5(d) of the Remarketing Agreement shall be amended by the addition of the following new sentence after the last sentence thereof: On the Remarketing Settlement Date following the settlement of the and sale of the Preferred Securities (or, if applicable, the Senior Notes), the provisions of this Section 5 (other than Sections 5(i) and 5(j)) shall terminate and shall be of no further effect. Section 1.05. XL Securities. Section 5 of the Remarketing Agreement shall be amended by the addition of the following new subsection (k): (k) If any XL Securities are issued, each Holder of Preferred Securities shall have the right to exchange all or any portion of the Preferred Securities (or, if applicable, the Senior Notes) held by such Holder for XL Securities (the "New Securities") with a principal amount equal to the principal amount of the Preferred 5 Securities so exchanged (or, if the Senior Notes have been distributed to the Holders of the Trust Securities, the aggregate principal amount of Senior Notes so exchanged); provided that such Holder notify the issuer of such XL Securities on or prior to the date hereof as to the exercise of such right and the principal amount of Preferred Securities (or, if the Senior Notes have been distributed to the Holders of the Trust Securities, the aggregate principal amount of Senior Notes) to be exchanged; provided further that such New Securities shall differ from the XL Securities solely to the extent set forth in Annex A. If the Mutual Party that issues such XL Securities is not a party hereto, the Company and the Guarantor shall cause such Mutual Party to honor the rights of the Remarketing Agent and the Holders of the Preferred Securities under this Section. The Company and the Guarantor shall promptly deliver, or caused to be delivered, to the Remarketing Agent copies of any and all documents relating to any XL Securities issued by any Mutual Party and all notices, including without limitation notices relating to the exercise of any right by any XL Entity to require the relevant Mutual Party to purchase the XL Securities held by such XL Entity, received by any Mutual Party from any XL Entity. In the event that a Holder of Preferred Securities exercises its right to exchange all or a portion of its Preferred Securities for New Securities pursuant to this subsection 5(k), the Trust shall pay in cash to such Holder all accrued and unpaid Distributions on such Preferred Securities (or, if the Senior Notes have been distributed to the Holders of the Trust Securities, all accrued and unpaid interest thereon) up to but excluding the date of such exchange. Section 1.06. Exchange of Preferred Securities. Section 5 of the Remarketing Agreement shall be amended by the addition of the following new subsection (l): (l) The Company and the Guarantor agree that if the Restructuring is effected, the final documentation therefor shall provide that if (i) the holders of all of the Preferred Securities (or, as applicable, the Senior Notes) do not exercise their right to exchange all of the Preferred Securities (or, as applicable, the Senior Notes) held by them into New Securities pursuant to Section 5(k) and (ii) any holder of any XL Securities subsequently exchanges, in whole or in part, the XL Securities held by such holder into common shares or convertible notes of Newco, then the Holders of a Majority in Liquidation Amount of the Trust Securities (or, if applicable, the holders of a majority in principal amount of 6 the Senior Notes) shall have the right to exchange the Preferred Securities (or, if applicable, the Senior Notes) for senior notes issued by Newco having terms substantially identical to the Senior Notes. Section 1.07. Failed Remarketing; Contingent Purchase Obligation. Section 9 of the Remarketing Agreement is hereby amended to read in its entirety as follows: SECTION 9. Failed Remarketing; Contingent Purchase Obligation. The Remarketing Agent shall give notice of any Failed Remarketing on or after the date such Failed Remarketing occurs to the Company, the Property Trustee, the Indenture Trustee and the paying agent under the Indenture. In the case of (a)(i) any Failed Remarketing or (ii) a Change of Control, the Holders of a Majority in Liquidation Amount of the Trust Securities (or, if applicable, the holders of a majority in principal amount of the Senior Notes) or (b) solely after the exchange of all or a portion of the Trust Securities (or, if applicable, the Senior Notes) for New Securities, the One Hundred Million Dollar Trigger (the "Post-Exchange Trigger"), any holder of New Securities may, by notice in writing to the Company which notice may be given at any time on or after the date of such Failed Remarketing, Change of Control or One Hundred Million Dollar Trigger, require the Company to purchase from the holders thereof, on a Pro Rata basis in accordance with Section 9 of Annex I to the Trust Agreement, all outstanding Trust Securities (or, if applicable, all outstanding Senior Notes) for a purchase price equal to the aggregate Liquidation Amount of such Trust Securities plus accrued but unpaid Distributions thereon (or, if applicable, the aggregate principal amount of such Senior Notes plus accrued but unpaid interest thereon) or (solely in the case of the Post-Exchange Trigger) all outstanding New Securities for a purchase price equal to the aggregate principal amount of such New Securities plus accrued but unpaid interest thereon. Payment of such purchase price shall be made directly to each such holder on the third Business Day following the date that the notice to the Company given pursuant to the preceding sentence is made. Such purchase shall be without recourse of any kind to any such holder. The parties recognize that the occurrence of a Failed Remarketing indicates that it would not be commercially reasonable under the circumstances to require Holders of Trust Securities (or, if applicable, holders of the Senior Notes) to attempt to resell such securities otherwise than pursuant to this Section 9, and that 7 therefore in the event of any default by the Company in its obligations under this Section 9, a holder shall be entitled to recover the price of the securities specified herein. Section 1.08. Offering Memorandum. (a) Section 13 of the Remarketing Agreement is hereby amended to read in its entirety as follows: SECTION 13. Offering Memorandum. Upon receipt of a Remarketing Notice by 10:00 a.m. (New York City time) on the Reset Date, the Company shall furnish an offering memorandum (the "Offering Memorandum") to the Remarketing Agent not later than 11:00 a.m. (New York City time) on such Reset Date, in form and substance reasonably satisfactory to the Remarketing Agent, to be used by the Secondary Purchaser or purchasers under the Secondary Purchase Agreement in the remarketing, and shall pay all expenses relating to the preparation and furnishing of such Offering Memorandum. Section 1.09. Term of Agreement. Section 19 of the Remarketing Agreement is hereby amended by replacing the period at the end of such Section with the following proviso: ; provided that if all or a portion of the Preferred Securities (or, if applicable, the Senior Notes) have been exchanged for New Securities, this Agreement shall not terminate until all New Securities have been redeemed or purchased pursuant to Section 9 hereof. Section 1.10. Successors and Assigns. Section 20 of the Remarketing Agreement is hereby amended by the deletion of the fourth sentence thereof. Section 1.11. Guarantee. Section 26 of the Remarketing Agreement is hereby amended by the insertion of "(a)" before the initial words "The Guarantor" and by the addition of the following new subsection (b): (b) If any Mutual Party incurs any direct obligation, or guarantees the obligations of any other Person, with respect to any XL Securities, the Company and the Guarantor will immediately notify the Remarketing Agent thereof and will cause such Mutual Party to fully and unconditionally guarantee all the Company's obligations hereunder, and to become subject to the provisions of Sections 27, 28 and 29 hereof, as applicable. 8 Article 2 PURCHASE Section 2.01. Purchase. (a) On or prior to the date hereof, the Company shall purchase from the Holders of the Preferred Securities, on a Pro Rata Basis in accordance with Section 9 of Annex I to the Trust Agreement (applied as if an Event of Default had occurred and were continuing under the Trust Agreement), for a purchase price equal to $10,024,796.53 to be paid no later than 5:00 p.m. New York City time on the date of purchase, Preferred Securities with an aggregate Liquidation Amount equal to $10,000,000. For the avoidance of doubt, the parties acknowledge that such purchase shall be a transfer of such Preferred Securities governed by Article 9 of the Trust Agreement. (b) The parties hereto acknowledge that this Section 2.01 is a "securities contract", as such term is defined in Section 741(7) of Title 11 of the United States Code (the "Bankruptcy Code"), and that any transfer of funds under this Section is a "settlement payment" as such term is used in Sections 362(b)(6) and 546(e) of the Bankruptcy Code. Section 2.02. Fees. The Company hereby agrees to pay to Intrepid Master Funding Trust on or prior to the date hereof a fee of $500,000. ARTICLE 3 Miscellaneous Section 3.01. Governing Law. This Amendment and the rights of the parties hereunder shall be governed by and construed in accordance with the laws of the State of New York and all rights and remedies shall be governed by such laws, without reference to the choice of laws rules thereof. Section 3.02. Severability. If any provision in this Amendment shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 3.03. Counterparts. The parties may sign any number of copies of this Amendment. Each signed copy shall be an original, but all of them together represent the same agreement. Any signed copy shall be sufficient proof of this Amendment. Section 3.04. Ratification of Remarketing Agreement; Amendment Controls. The Remarketing Agreement, as amended by this Amendment, is in all 9 respects ratified and confirmed, and this Amendment shall be deemed part of the Remarketing Agreement. The provisions of this Amendment shall supersede the provisions of the Remarketing Agreement to the extent the Remarketing Agreement is inconsistent herewith. Section 3.05. Expenses. The Company agrees to pay the expenses of the Remarketing Agent and the Holders of the Preferred Securities incurred in connection with this Amendment, Amendment No. 1 dated as of the date hereof to the Trust Agreement and the Second Supplemental Indenture dated as of the date hereof by and among the Company, the Guarantor and The Chase Manhattan Bank, as Trustee, and the transactions contemplated hereby and thereby, including the fees and disbursements of counsel to the Remarketing Agent and such Holders in connection with the drafting, negotiation and production of this letter agreement and any related documents or matters; provided, however, that the Company shall not be responsible for such expenses in excess of $50,000. 10 IN WITNESS WHEREOF, each of Company, the Guarantor, the Trust and the Remarketing Agent has caused this Amendment to the Remarketing Agreement to be executed in its name and on its behalf by one of its duly authorized officers as of the date first above written. MUTUAL GROUP LTD. By: /s/ Richard O'Brien _________________________ Name: Richard O'Brien Title: Vice President MUTUAL RISK MANAGEMENT LTD. By: /s/ Richard O'Brien _________________________ Name: Richard O'Brien Title: Senior Vice President MRM CAPITAL TRUST I By: /s/ Richard O'Brien ___________________________________ Name: Richard O'Brien Title: Vice President Confirmed and Accepted as of the date hereof: BANC OF AMERICA SECURITIES LLC, not individually, but solely as Remarketing Agent By: /s/ William C. Caccamise ________________________ Name: William C. Caccamise Title: Authorized Signatory Consented to: INTREPID FUNDING MASTER TRUST, as the Holder of the Preferred Securities By: Wilmington Trust Company, not in its individual capacity, but solely as Owner Trustee By: /s/ Mary Kay Pupillo ______________________________________ Name: Mary Kay Pupillo Title: Senior Financial Services Officer EX-10.7 14 dex107.txt FIRST AMENDMENT TO CREDIT AMENDMENT, CONSENT & WAIVER Exhibit 10.7 FIRST AMENDMENT TO CREDIT AGREEMENT, CONSENT AND WAIVER THIS FIRST AMENDMENT TO CREDIT AGREEMENT, CONSENT AND WAIVER (this "First Amendment, Consent and Waiver") is entered into as of May 17, 2001, among MUTUAL RISK MANAGEMENT LTD., a company incorporated under the laws of Bermuda ("Mutual Risk"), MUTUAL GROUP, LTD., a Delaware corporation ("Mutual Group"), the Lenders (hereinafter defined) party hereto, and BANK OF AMERICA, N.A., a national banking association, as the Administrative Agent for the Lenders (the "Administrative Agent"). RECITALS A. Mutual Risk, Mutual Group, the Lenders (herein so called) party thereto and the Administrative Agent are party to that certain Credit Agreement dated as of September 21, 2000 (the "Credit Agreement"). Unless otherwise defined herein, defined terms used herein shall have the meanings given such terms in the Credit Agreement. B. Mutual Risk proposes to issue up to $142,500,000 of Senior Convertible Exchangeable Debentures due 2006 (the "Debentures") pursuant to that certain Securities Purchase Agreement (herein so called) dated as of May 8, 2001, among Mutual Risk, an affiliate of XL Capital Ltd., First Union Merchant Banking 2001, LLC, High Ridge Capital Partners II, L.P., Century Capital Partners II and certain other investors and to enter into and perform the other Transactions (as defined in the Securities Purchase Agreement) contemplated by the Transaction Documents (as defined in the Securities Purchase Agreement), and has requested that the Lenders and the Administrative Agent (i) consent to the issuance of the Debentures and the entering into and performance of the other Transactions contemplated by the Transaction Documents, (ii) agree that such issuance, entering into and performance will not constitute a Default or Event of Default, (iii) waive certain provisions of the Credit Agreement, and (iv) agree to amend the Credit Agreement in certain respects in connection therewith. C. The Lenders and the Administrative Agent have agreed to give such consent and agreement and waiver and to amend the Credit Agreement in certain respects in connection therewith. NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Borrowers, the Lenders and the Administrative Agent agree as follows: 1. Amendments. The Credit Agreement is amended as follows: ---------- (a) A new definition of "Debentures," reading in its entirety as follows, is added to Section 1.1 of the Credit Agreement: ""Debentures" has the meaning given such term in the Securities ---------- Purchase Agreement." (b) A new definition of "First Amendment, Consent and Waiver," reading in its entirety as follows, is added to Section 1.1 of the Credit Agreement: ""First Amendment, Consent and Waiver" means that certain First ----------------------------------- Amendment to Credit Agreement, Consent and Waiver dated May 17, 2001, among the Borrowers and the Guarantors, the Lenders and the Administrative Agent." (c) A new definition of "Securities Purchase Agreement," reading in its entirety as follows, is added to Section 1.1 of the Credit Agreement: ""Securities Purchase Agreement" means that certain Securities ----------------------------- Purchase Agreement dated as of May 8, 2001, among an affiliate of XL Capital Ltd., First Union Merchant Banking 2001, LLC, High Ridge Capital Partners II, L.P., Century Capital Partners II, and certain other investors, in the form executed and delivered to the Lenders and the Administrative Agent, and as in effect, on the date of the First Amendment, Consent and Waiver and without giving effect to any amendment, supplement or other modification thereto that has not been consented to by the Lenders and the Administrative Agent." (d) The "$10,000,000" number appearing in the definition of "Asset Sale" in Section 1.1 of the Credit Agreement is amended to read "$1,000,000." (e) The definition of "Change of Control" in Section 1.1 of the Credit Agreement is amended to read in its entirety as follows: ""Change of Control" means the occurrence of any of the following ----------------- events: (i) Mutual Risk shall cease to own, directly or indirectly, 100% of the economic and voting interest in the Capital Stock of each Insurance Company Subsidiary (other than (v) Trement International Insurance LTD., (w) as a result of the conversion of any Debentures, (x) as a result of the exercise of any Newco Common Stock Exchange Right (as defined in the Debentures), (y) the Policy Holder Preferred Shares (as defined in the Debentures), or (z) as a result of the exercise by Newco (as defined in the Securities Purchase Agreement) of the option to purchase Villanova Insurance Company for book value); (ii) Any Person or Group (as defined below) becomes the beneficial owner (as defined below), directly or indirectly, in the aggregate of more than 33% of the total voting power of the Voting Stock of Mutual Risk; (iii) During any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors of Mutual Risk, together with any new directors whose election by such Board of Directors or whose nomination for election by the shareholders of Mutual Risk was approved by a vote of a majority of the directors of Mutual Risk then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority of the Board of Directors of Mutual Risk then in office; or (iv) Any event or condition that constitutes a change of control under the Debentures or the documents governing the RHINOS. 2 For purposes of this definition only: (a) "beneficial owner" and "beneficially own" shall have the meaning specified in Rules 13d-3 and 13d-5 under the Exchange Act, except that any Person or Group shall be deemed to have "beneficial ownership" of all securities that such Person or Group has the right to acquire, whether such right is exercisable immediately, only after the passage of time or upon the occurrence of a subsequent condition; (b) "Person" and "Group" shall have the meanings for "person" and "group" as used in Sections 13(d) and 14(d) of the Exchange Act; and (c) any Person or Group shall be deemed to beneficially own any Voting Stock of a corporation held by any other corporation (the "parent corporation") so long as such other Person or Group, as the case may be, beneficially owns, directly or indirectly, in the aggregate more than 33% of the voting power of the Voting Stock of the parent corporation and no other Person or Group beneficially owns an equal or greater amount of the Voting Stock of the parent corporation." (f) The definition of "Guarantee" in Section 1.1 of the Credit Agreement is amended to read in its entirety as follows: ""Guarantee" has the meaning assigned to it in Section 9.1 and --------- also includes any other guarantee of the Obligations." (g) The definition of "Guarantor" and "Guarantors" in Section 1.1 of the Credit Agreement is amended to read in its entirety as follows: ""Guarantor" and "Guarantors" have the meanings assigned to them --------- ---------- in the preamble of this Agreement and also include any other guarantor or guarantors of the Obligations." (h) The definition of "Loan Documents" in Section 1.1 of the Credit Agreement is amended to read in its entirety as follows: ""Loan Documents" means this Agreement (which includes the -------------- Guarantee), the Notes, and any other documents or instruments now or hereafter executed as security for or otherwise in connection with this Agreement (which includes the Guarantee) and the Notes, and any and all renewals, extensions, restatements, reaffirmations, or amendments of, or supplements to, all or any part of the foregoing." (i) The definition of "Loan Party" in Section 1.1 of the Credit Agreement is amended to read in its entirety as follows: "Loan Party" means each Borrower and Guarantor, and "Loan ---------- ---- Parties" means, collectively, the Borrower and the Guarantors." 3 (j) Sections 5 and 6 of the Credit Agreement are amended to read in their entirety as set forth in Exhibit C attached hereto. (k) Section 7.1(c) of the Credit Agreement is amended to read in its entirety as follows: "(c) Any Loan Party fails to observe or perform any covenant, condition or agreement on the part of such Loan Party to be observed and performed pursuant to Section 5.5, Section 5.7, Section 6, or the First Amendment, Consent and Waiver." (l) A new Section 7.1(p), reading in its entirety as follows, is added to the Credit Agreement: "(p) The holder of any Debenture shall exercise its right to have any Debenture mandatorily redeemed prior to the stated maturity thereof or the obligation to pay any Debenture shall be accelerated." (m) A new Section 7.1(q), reading in its entirety as follows, is added to the Credit Agreement: "(q) Mutual Risk ceases for any reason to have the right and power to elect a majority of the Persons comprising the Board of Directors of Newco (as defined in the Securities Purchase Agreement)." (n) A new Section 7.1(r), reading in its entirety as follows, is added to the Credit Agreement: "(r) any material attachment, sequestration or similar proceeding shall be filed against any assets or properties of Mutual Risk or any of its Subsidiaries, and such attachment, sequestration or similar proceeding remains undischarged, unbonded by Mutual Risk or undismissed for a period of 30 days after the commencement thereof." (o) The Pricing Schedule attached to the Credit Agreement is amended to read in its entirety as set forth in the Pricing Schedule attached hereto. 2. Consent. Subject to the satisfaction of the conditions precedent set ------- forth in Paragraph 4, hereof, the Lenders and the Administrative Agent hereby consent and agree as follows: (a) The Lenders and the Administrative Agent consent to (i) the issuance of the Debentures pursuant to the Securities Purchase Agreement (provided that such issuance occurs on or before May 18, 2001), including $30,000,000 of RHINOS Debentures (as defined in the Securities Purchase Agreement) to the holders of the RHINOS in exchange for all of the RHINOS, (ii) the exchange of the Debentures and the RHINOS Debentures for Newco Debentures (as defined in the Securities Purchase Agreement) and (iii) to the guaranties of the Debentures and the Newco Debentures, each as contemplated by the Securities Purchase Agreement, and, subject to compliance by the Borrowers with Paragraphs 5(a), 5(b), 5(c), 5(d), 5(e) and 5(f) hereof, agree that such issuance, exchange and guaranties will not constitute a Default or Event of Default under Sections 6.1, 4 6.4 or 6.10 of the Credit Agreement, both as in effect immediately prior to the execution of this First Amendment, Consent and Waiver and after giving effect to the amendments thereof contained herein. (b) The Lenders and the Administrative Agent consent to the Restructuring (as defined in the Securities Purchase Agreement), including a change in the organizational structure of Mutual Risk and certain of its Subsidiaries from that set forth in Exhibit A attached hereto to that set forth in Exhibit B attached hereto and, subject to compliance by the Borrowers with Paragraph 5(f) hereof, agree that the Restructuring will not constitute a Default or Event of Default under Sections 5.1, 6.5, 6.6, 6.10, 6.12 or 6.20 of the Credit Agreement, both as in effect immediately prior to the execution of this First Amendment, Consent and Waiver and after giving effect to the amendments thereof contained herein. (c) The Lenders and the Administrative Agent consent to Newco (as defined in the Securities Purchase Agreement) being granted an option to purchase Villanova Insurance Company for book value, and agree that such option and purchase will not constitute a Default or Event of Default under Sections 6.3, 6.5, 6.6 or 6.10 of the Credit Agreement, both as in effect immediately prior to the execution of this First Amendment, Consent and Waiver and after giving effect to the amendments thereof contained herein. (d) The Lenders and the Administrative Agent consent to the deposit of a portion of the proceeds of the issuance of the Debentures, and to the grant of security interests therein, pursuant to the Collateral Agreement (as defined in the Securities Purchase Agreement), and, subject to compliance by the Borrowers with Paragraph 5(d) hereof, agree that such deposit and security interests will not constitute a Default or Event of Default under Section 6.3 or 6.20 of the Credit Agreement, both as in effect immediately prior to the execution of this First Amendment, Consent and Waiver and after giving effect to the amendments thereof contained herein. (e) The Lenders and the Administrative Agent consent to the transactions contemplated by Paragraph 5(e) hereof, and subject to compliance by the Borrowers with such paragraph, agree that such transactions will not constitute a Default or Event of Default under Sections 6.3 or 6.20 of the Credit Agreement, both as in effect immediately prior to the execution of this First Amendment, Consent and Waiver and after giving effect to the amendments thereof contained herein. (f) The Lenders and the Administrative Agent consent to the employment and non-competition agreement with Robert A. Mulderig that is required by the Securities Purchase Agreement, and agree that such agreement will not constitute a Default or Event of Default under Section 6.10 of the Credit Agreement, both as in effect immediately prior to the execution of this First Amendment, Consent and Waiver and after giving effect to the amendments thereof contained herein. (g) The Lenders and the Administrative Agent consent to the affirmative and negative covenants and the defaults set forth in the Debentures and agree that such covenants and defaults will not constitute a Default or Event of Default under Section 6.3 or 6.8 of the Credit Agreement. (h) The Lenders and the Administrative Agent consent to the terms and conditions of the Securities Purchase Agreement, the Debentures, and the other Transaction Documents and the Transactions contemplated by the Securities Purchase Agreement, the Debentures, and the other 5 Transaction Documents, as executed, delivered to the Lenders and the Administrative Agent and in effect on the date hereof, provided that upon the termination of the Subordination Period (as contemplated by the Transaction Documents), the Obligations shall be pari passu in right of payment with the Debentures. (i) In furtherance of the authorizations set forth in Section 8 of the Credit Agreement, each Lender hereby irrevocably appoints Administrative Agent its attorney-in-fact, with full power of substitution, for and on behalf of and in the name of each such Lender, (i) to enter into the Collateral Agreement, the pledge or charge agreements contemplated by Paragraph 5(f), the Assignment of Account dated the date hereof among Mutual Risk, XL Insurance Ltd., Administrative Agent, and the holders of the RHINOS Debentures ("Assignment of Account", and collectively, with any related documents, the "Collateral Documents") (including, without limitation, any appointments of substitute trustees under any Collateral Document), (ii) to take action with respect to any collateral now or hereafter described in any Collateral Document ("Collateral") to perfect, maintain, and preserve Lenders' Liens, and (iii) to execute instruments of release or to take other action necessary to release Liens upon any Collateral to the extent authorized by Lenders. This power of attorney shall be liberally, not restrictively, construed so as to give the greatest latitude to Administrative Agent's power, as attorney, relative to the Collateral matters described in this Paragraph 2(i). The powers and authorities herein conferred on Administrative Agent may be exercised by Administrative Agent through any Person who, at the time of the execution of a particular instrument, is an officer of Administrative Agent. The power of attorney conferred by this Paragraph 2(i) is granted for valuable consideration and is coupled with an interest and is irrevocable so long as the Obligations, or any part thereof, shall remain unpaid or Lenders are obligated to make any Loans under the Loan Documents. 3. Waiver. The Required Lenders and the Administrative Agent hereby ------ waive any prepayment of the Loans pursuant to Section 2.12(c), and any reduction of the Commitments pursuant to Section 2.5, in each case in connection with the issuance of the Debentures. 4. Conditions Precedent. This First Amendment, Consent and Waiver shall -------------------- not become effective until the Administrative Agent receives (a) counterparts of this First Amendment, Consent and Waiver executed by the Borrowers and the Guarantors, the Lenders and the Administrative Agent, (b) resolutions adopted by the Borrowers' and the Guarantors' Boards of Directors authorizing the execution, delivery and performance of this First Amendment, Consent and Waiver by the Borrowers and the Guarantors, and authorizing the issuance of the Debentures and the entering into and performance of the other Transactions contemplated by the Transaction Documents, (c) true and correct copies of the Transaction Documents as in effect on the date hereof, (d) counterparts of each Collateral Document executed by each of the parties thereto, (e) legal opinions of each of Mayer, Brown & Platt, special counsel to the Loan Parties, Conyers Dill & Pearman, Bermuda counsel to the Loan Parties, and Richard O'Brien, General Counsel of Mutual Risk, in each case covering such matters as are requested by the Lenders and in form and substance satisfactory to the Lenders, (f) such other agreements, documents, instruments, and items as the Administrative Agent or any Lender may reasonably request, (f) an amendment fee in the amount of $450,000 to be shared pro rata by the Lenders in accordance with respective Commitments, (h) a written summary of the fees and expenses incurred in connection with the Transactions and this First Amendment, Consent and Waiver, which fees and expenses shall not exceed $10,000,000, and (i) payment of all expenses, including legal fees and expenses of counsel to the Administrative Agent and each Lender, incurred by the Administrative Agent or any Lender in connection with this First Amendment, Consent and Waiver. 6 5. Covenants. The Borrowers jointly and severally covenant and agree --------- with the Administrative Agent and the Lenders as follows: (a) In the event Newco (as defined in the Securities Purchase Agreement) becomes the issuer of the Newco Debentures upon the exchange of the Debentures, concurrently with such exchange, Newco shall, at the election of the Required Lenders, become a Co-Borrower with Mutual Risk under the Credit Agreement and assume and become jointly and severally liable with Mutual Risk for the obligations and liabilities of Mutual Risk as a Borrower under the Loan Documents, and Mutual Risk shall deliver a legal opinion of counsel to Newco reasonably acceptable to the Lenders as to such assumption by Newco being a legal, valid and binding obligation of Newco, enforceable in accordance with its terms and as to such other matters as the Lenders may request; provided that Newco shall not agree upon the final terms of the covenants and events of default in the Newco Debentures without the prior written consent of the Required Lenders. (b) In the event Newco has not then or theretofore become a Co- Borrower with Mutual Risk under the Credit Agreement pursuant to Paragraph 5(a), concurrently with the formation of Newco, Newco shall execute and deliver a guarantee of payment of the Obligations substantially in the form of Exhibit D attached hereto, together with a legal opinion of counsel to Newco reasonably acceptable to the Lenders as to such guarantee being a legal, valid, and binding obligation of Newco, enforceable in accordance with its terms and as to such other matters as the Lenders may reasonably request. (c) Concurrently with the execution and delivery thereof, each guarantor that executes and delivers a guarantee of the Debentures shall execute and deliver a guarantee of payment of the Obligations substantially in the form of Exhibit D attached hereto, together with a legal opinion of counsel to each such guarantor reasonably acceptable to the Lenders as to such guarantee being a legal, valid and binding obligation of such guarantor, enforceable in accordance with its terms and as to such other matters as the Lenders may reasonably request. (d) (i) Concurrently with the issuance of the Debentures, not less than $22,500,000 of the proceeds of the issuance of the Debentures shall be deposited pursuant to the Collateral Agreement as in effect on the date hereof, (ii) the Administrative Agent (on behalf of the Lenders) and the holders of the RHINOS Debentures shall be granted a second priority security interest, pledge and assignment (subordinate to that in favor of the holders of the Debentures (other than the RHINOS Debentures)) in the moneys held pursuant to the Collateral Agreement to secure the Obligations and the indebtedness and liabilities owing under the RHINOS Debentures, and (iii) the Collateral Agreement shall not be terminated prior to the disposition of the amounts held pursuant thereto in accordance with its terms. (e) (i) Concurrently with the issuance of the Debentures, not less than $80,000,000 of the proceeds of the issuance of the Debentures shall be deposited in an account with Bank of America, N.A. or another Lender located in the United States, (ii) the holders of the Debentures (other than the RHINOS Debentures) shall be granted a first priority security interest, pledge and assignment of such account and all moneys deposited thereto to secure the indebtedness evidenced by the Debentures (other than the RHINOS Debentures) and the Administrative Agent (on behalf of the Lenders) and the holders of the RHINOS Debentures shall be granted a second priority security interest, pledge and assignment of such account and all moneys deposited thereto to secure the Obligations and the 7 indebtedness and liabilities owing under the RHINOS Debentures (provided that such security interests, pledges and assignments shall automatically terminate upon the expiration of the Subordination Period (as defined in the Subordination Agreement) if upon the expiration of the Subordination Period, (A) there are no Debentures that have become due and payable pursuant to Section 3(b) of the Debentures and that have not been indefeasibly paid in full in cash, and (B) there are not then outstanding any Credit Agreement Obligations or RHINOS Obligations consisting of subrogation rights under the Subordination Agreement), (iii) the moneys deposited into such account shall be used by Mutual Risk to make a capital contribution in the amount of $80,000,000 to Legion Insurance Company and Legion Indemnity Company concurrently with the completion of the Restructuring, and shall not be withdrawn from such account or used for any other purpose (except in accordance with the terms of the Assignment of Account), and Bank of America, N.A. or such other Lender is hereby irrevocably authorized and directed, and hereby agrees, to restrict withdrawals from such account except for such purposes, and (iv) such account shall not be terminated prior to the disposition of the amounts deposited in such account pursuant to this paragraph. Any investment earnings on the moneys deposited in such account shall remain in such account until Mutual Risk has made a capital contribution in the amount of $80,000,000 to Legion Insurance Company and Legion Indemnity Company concurrently with the completion of the Restructuring, at which time such investment earnings may be released to Mutual Risk. (f) Concurrently with the issuance of the Debentures (in the case of the pledge of or charge on the shares of the capital stock of Mutual Risk Management (Holdings) Ltd.) and concurrently with its formation (in the case of the pledge of or charge on the shares of the capital stock of Newco), Bank of America, N.A., in its capacity as collateral agent for the holders of the Debentures (other than the RHINOS Debentures) (to secure the payment or redemption of the Debentures (other than the RHINOS Debentures) during the Subordination Period on a first priority basis) and for the Lenders and the holders of the RHINOS Debentures (to secure the Obligations and the indebtedness and liabilities owing under the RHINOS Debentures on a second priority basis prior to the termination of the Subordination Period) shall be granted a pledge of and charge on the capital stock of Mutual Risk Management (Holdings) Ltd. and Newco owned directly or indirectly by Mutual Risk pursuant to a pledge or charge agreement substantially in the form of Exhibit E attached hereto, and Mutual Risk shall deliver or cause to be delivered such resolutions, stock powers, legal opinions and other documents and instruments as may be required pursuant to the terms thereof or as the Lenders may otherwise reasonably request in connection therewith. Following the termination of the Subordination Period, the holders of the Debentures, the holders of the Obligations, and the holders of the RHINOS Debentures shall be secured pari passu by such stock. Upon the request of Mutual Risk (which request may be made on or after the first anniversary of the date of this First Amendment, Consent and Waiver) and provided that (i) at the time of such request and after giving effect thereto, no Event of Default has occurred and is continuing or would result therefrom, (ii) the ratio of Consolidated Indebtedness to Consolidated Total Capital is less than 0.425 to 1, and (iii) the holders of the Debentures and holders of the RHINOS Debentures have consented thereto, the Lenders agree to release, and hereby instruct Bank of America, N.A. in its capacity as collateral agent, to release, the pledge of and charge on the capital stock of Mutual Risk Management (Holdings) Ltd. and Newco given pursuant to this Paragraph 5(f). 8 (g) Mutual Risk shall use its best efforts to cause the Restructuring to occur by the fourth month anniversary of the date hereof and to obtain all approvals of Governmental Authorities, shareholders and other Persons required in connection therewith. (h) Mutual Risk shall, concurrently with their delivery to the Purchasers (as defined in the Securities Purchase Agreement), deliver to the Administrative Agent and each Lender the officer's certificate and legal opinion referenced in Section 6.1 of the Securities Purchase Agreement, together with writings authorizing the Administrative Agent and each Lender to rely on such certificate and legal opinion. (i) Mutual Risk will not, and will not permit any of its Subsidiaries to, amend, modify or supplement any of the Transaction Documents, as they are in effect on the date hereof, without the prior written consent of the Required Lenders, which consent will not be unreasonably withheld or delayed. (j) Mutual Risk will not sell, transfer, assign, dividend or otherwise dispose of, or permit to be sold, transferred, assigned, dividended or otherwise disposed of, any of the Capital Stock of Newco (other than by the holders of the Debentures after the conversion thereof to common stock of Newco in accordance with the Debentures) or any of its Subsidiaries without the prior written consent of the Required Lenders. (k) The Borrowers shall execute and deliver, or cause to be executed and delivered, to the Administrative Agent and the Lenders such amendments to the Loan Documents and such other documents, instruments, certificates and legal opinions, including a control agreement in order to give effect to the provisions of Paragraph 5(e), as the Administrative Agent or the Lenders may reasonably request in order to give effect to the satisfaction of the foregoing covenants. The breach by the Borrowers of any of the covenants set forth in this Paragraph 5 shall constitute an Event of Default. 6. Representations and Warranties. The Borrowers hereby jointly and ------------------------------ severally represent and warrant to the Lenders and the Administrative Agent that (a) immediately after the execution and delivery of this First Amendment, Consent and Waiver and after giving effect hereto, no Default or Event of Default exists under the Credit Agreement or any of the other Loan Documents, (b) all of the provisions of the Loan Documents, except as modified and amended hereby, are in full force and effect and are hereby ratified and confirmed, (c) the Borrowers have delivered to the Administrative Agent and the Lenders true and correct copies of the Securities Purchase Agreement, the Debentures and the other Transaction Documents, as executed and in effect on the date hereof, and (d) the Borrowers have no reason to believe that the Restructuring will not occur, and that all approvals of Governmental Authorities, shareholders and other Persons required in connection with the Restructuring will not be obtained by the fourth month anniversary of the date hereof. 7. Effect of First Amendment, Consent and Waiver. This First Amendment, --------------------------------------------- Consent and Waiver is a Loan Document. Except as expressly modified and amended by this First Amendment, Consent and Waiver, all of the terms, provisions and conditions of the Loan Documents shall remain unchanged and in full force and effect. The Loan Documents and any and all other documents heretofore, now or hereafter executed and delivered pursuant to the terms of the Credit Agreement are hereby amended so that any reference to the Credit Agreement shall mean a reference to the Credit Agreement as amended hereby. The consent and waiver of the Lenders and the Administrative Agent hereunder is expressly limited to the matters set forth in 9 Paragraphs 2 and 3 and shall not constitute the consent or waiver by any Lender or the Administrative Agent of or with respect to any other matter now or hereafter requiring its consent or waiver under the Loan Documents. 8. Counterparts. This First Amendment, Consent and Waiver may be ------------ executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute one and the same instrument. 9. Governing Law. This First Amendment, Consent and Waiver shall be ------------- governed by and construed in accordance with the laws of the State of New York. 10. ENTIRETY. THIS FIRST AMENDMENT, CONSENT AND WAIVER, THE CREDIT -------- AGREEMENT AND THE OTHER LOAN DOCUMENTS EMBODY THE ENTIRE AGREEMENT BETWEEN THE PARTIES AND SUPERCEDE ALL PRIOR AGREEMENTS AND UNDERSTANDINGS, IF ANY, RELATING TO THE SUBJECT MATTER HEREOF. THESE LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. [Remainder of Page Intentionally Left Blank] 10 MUTUAL RISK MANAGEMENT LTD., as a Borrower and as a Guarantor By: ________________________________________ Name: __________________________________ Title:__________________________________ MUTUAL GROUP, LTD., as a Borrower and as a Guarantor By: _____________________________________________ Name: ______________________________________ Title: ______________________________________ BANK OF AMERICA, N.A., as Administrative Agent and a Lender By: _____________________________________________ Name: ______________________________________ Title: ______________________________________ FLEET NATIONAL BANK, as a Lender By: _____________________________________________ Name: ______________________________________ Title: ______________________________________ FIRST UNION NATIONAL BANK, as a Lender By: _____________________________________________ Name: ______________________________________ Title: ______________________________________ NATIONAL WESTMINSTER BANK PLC NEW YORK AND/OR NASSAU BRANCH, as a Lender By: _____________________________________________ Name: ______________________________________ Title: ______________________________________ EXHIBIT A --------- Corporate Re-Organization Plan Old Organizational Chart - ---------------------------------------------------------- Mutual Risk Management Ltd - SUMMARY OF CURRENT STRUCTURE - ---------------------------------------------------------- - ------------------------- Revised 3/28/2001 - ------------------------- ----------- MRM ----------- -------------------- MRM HOLDINGS -------------------- ------------------------------------------------------------------------------------------------------------------------- - -------------- ------------------ ---------- ----------- ------------ --------------- MUTUAL GROUP MUTUAL INDEMNITY IPC COS. BROKERAGE CAPTIVE FINANCIAL SVC DUBLIN MANAGEMENT - -------------- ------------------ ---------- ----------- ------------ --------------- ------------------------------------------------------ - ------------- ----------- ------------------ LEGION INS. VILLANOVA LEGION INDEMNITY - ------------- ----------- ------------------ ----------------------------------- - ----- ----- ----- ----------- CRS CRI SBU COMPFIRST - ----- ----- ----- -----------
MRM - -------------------------------------------------------------------------------- EXHIBIT B --------- Corporate Re-Organization Plan New Organizational Chart - ---------------------------------------------------------- Mutual Risk Management Ltd - SUMMARY OF CURRENT STRUCTURE - ---------------------------------------------------------- - ------------------------- Revised 3/28/2001 - ------------------------- ----------- MRM ----------- -------------------- -------------- ------------ MRM HOLDINGS NEWCO (Bermuda) (Bermuda) -------------- ------------ ---------------- -------------- ------------------ ------------ MUTUAL GROUP MUTUAL INDEMNITY NEWCO (US) DUBLIN -------------- ------------------ ------------ --------------------------------------- --------------------------- ------------ ----- ----- ----------- ---------- ----------- CRS CRI BROKERAGE IPC COS. FINANCIAL SVC ----- ----- ----------- ---------- ----------- ------------- ------------------ ----------- LEGION INS. LEGION INDEMNITY VILLANOVA ------------- ------------------ ----------- ----------- ----- ----------- SBU COMPFIRST ----- -----------
MRM - -------------------------------------------------------------------------------- EXHIBIT C --------- If a defined term is used in this Exhibit C and such defined term is not defined in the Credit Agreement, such defined term shall have the meaning given to it in the Securities Purchase Agreement or the Debentures, as in effect on the date of the First Amendment, Consent and Waiver and without giving effect to any amendment, supplement or modification thereof that is not consented to by the Lenders. From and after the date that any of the Newco Debentures are outstanding, references to Mutual Risk shall be construed as references to Mutual Risk and Newco. SECTION 5 AFFIRMATIVE COVENANTS --------------------- Until all Obligations shall have been paid in full and no Lender shall have any Commitment hereunder, the Loan Parties, jointly and severally, covenant and agree with the Lenders and the Administrative Agent that: SECTION 5.1 Corporate Existence and Conduct of Business. Mutual Risk ------------------------------------------- shall do or cause to be done all things necessary to preserve and keep in full force and effect the corporate existence of Mutual Risk and each of its Subsidiaries (except as otherwise permitted herein) and the rights, privileges, licenses and franchises necessary or desirable in the normal conduct of business of Mutual Risk and each of its Subsidiaries, except in each case as required or contemplated by the Restructuring, and Mutual Risk will continue, and will cause each of its Subsidiaries to continue, to engage in business of the same general type as now conducted by Mutual Risk and its Subsidiaries. SECTION 5.2 Compliance With Laws and Contractual Obligations. Mutual ------------------------------------------------ Risk will, and will cause each of its Subsidiaries to, comply in all material respects with all applicable Laws and with all contractual obligations, except where compliance in all material respects therewith is contested in good faith by appropriate proceedings. SECTION 5.3 Maintenance of Property; Insurance. Mutual Risk shall cause ---------------------------------- all Property used or useful in the conduct of its business or the business of any of its Subsidiaries to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and shall cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided, that nothing in this Section 5.3 shall prevent Mutual Risk from discontinuing the operation or maintenance of any of such Property if such discontinuance is, in the judgment of Mutual Risk, desirable in the conduct of its business or the business of any of its Subsidiaries and not disadvantageous in any material respect to the Lenders. Mutual Risk will maintain or cause to be maintained (a) with financially sound and reputable insurers or with self insurance programs, in each case to the extent consistent with prudent business practices and customary in its industry, insurance with respect to its Properties and business and the Properties and businesses of its Subsidiaries against loss or damage of the kinds (including, in any event, business interruption insurance) and in the amounts customarily carried or maintained under similar circumstances by corporations of established reputation engaged in similar businesses and owning similar Properties in the same general respective areas in which Mutual Risk and its Subsidiaries operate, and (b) such other insurance coverage in such amounts and with respect to such risks as the Required Lenders may reasonably request. Mutual Risk will deliver to the Administrative Agent (x) upon request from time to time, full information as to the insurance carried, (y) within five days of receipt of notice from any insurer a copy of any notice of cancellation or material change in coverage from that existing on the date of the First Amendment, Consent and Waiver and (z) within five days of receipt, any notice of any cancellation or nonrenewal of coverage for Mutual Risk or any of its Subsidiaries. SECTION 5.4 Payment of Taxes and Other Claims. Mutual Risk shall pay or --------------------------------- discharge and will cause each of its Subsidiaries to pay or discharge, before the same shall become delinquent, (a) all Taxes, assessments and other governmental charges levied or imposed upon Mutual Risk or any of its Subsidiaries or upon the income, profits or Property of Mutual Risk or any of its Subsidiaries and (b) all lawful claims including, without limitation, for labor, services, materials and supplies which have become due and payable and, if unpaid, might by law become a Lien upon the Property of Mutual Risk or any of its Subsidiaries; provided, that Mutual Risk shall not be required to pay or discharge, or cause to be paid or discharged, any such Tax, assessment, charge or claim whose amount, applicability or validity is being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP or other appropriate provision has been made. Mutual Risk and each of its Subsidiaries, as the case may be, will, promptly upon any of its officers obtaining knowledge that a charge or claim described in the previous sentence has not been paid, other than as permitted by the proviso in the previous sentence, deliver notice to the Administrative Agent (which will provide a copy of such notice to each Lender) of such failure to pay. SECTION 5.5 Investment Company Act. No Loan Party shall become an ---------------------- investment company subject to registration under the Investment Company Act of 1940, as amended (without giving effect to any exemption based upon the number or status of the holders of its securities). SECTION 5.6 Payments in U.S. Dollars. All payments of principal, ------------------------ interest and other amounts to be made hereunder or under the Notes shall be made solely in U.S. Dollars or such other currency as is then legal tender for public and private debts in the United States of America. SECTION 5.7 Use of Proceeds. The Borrowers shall use the proceeds of --------------- the Loans solely to repay amounts owing under the Existing Credit Agreement and then as follows: (a) Mutual Risk may use such proceeds to repurchase Convertible Securities in open market or privately negotiated transactions; provided, that any Convertible Securities so repurchased shall be immediately canceled; (b) The Borrowers may use such proceeds for lawful general corporate purposes; provided that none of such proceeds shall be used by the Borrowers or any of their Subsidiaries, directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of purchasing or "carrying" (within the meaning of Regulation U) any Margin Stock; and provided further that none of such proceeds shall be used in connection with the acquisition of ten percent (10%) or more of the Voting Stock of any Person if such acquisition is opposed by the board of directors or other management of such Person. SECTION 5.8 Financial Statements. Mutual Risk will furnish or cause to -------------------- be furnished to the Administrative Agent and to each of the Lenders: (a) as soon as available, but in no event more than forty-five (45) days after the last day of each of the first three (3) fiscal quarters in each fiscal year of Mutual Risk, a copy of the consolidated balance sheet and statements of earnings, changes in stockholders' equity and cash flows of Mutual Risk and its Subsidiaries and of the consolidating balance sheet and statement of earnings of Mutual Risk and its Subsidiaries, prepared in accordance with GAAP (except for the absence of footnotes), as of, and for the fiscal quarter and portion 2 of the fiscal year ending on, such last day, together with the quarterly report of Mutual Risk on Form 10-Q (or other applicable form) for such fiscal quarter filed with the SEC, a certificate of the Chief Financial Officer of Mutual Risk stating whether, to his best knowledge and belief, any Default or Event of Default has occurred or exists hereunder, and, if any such Default or Event of Default has occurred and is continuing or otherwise exists, stating the facts with respect thereto, and a copy of any presentation made by Mutual Risk or any of its Subsidiaries to S&P, Moody's, A.M. Best Company or any other rating agency during such fiscal quarter; (b) as soon as available, but in no event more than ninety (90) days after the last day of each fiscal year of Mutual Risk, a copy of the consolidated balance sheet and statements of earnings, changes in stockholders' equity and cash flows of Mutual Risk and its Subsidiaries and the consolidating balance sheet and statement of earnings of Mutual Risk and its Subsidiaries, prepared in accordance with GAAP, as of, and for the fiscal year ending on, such last day, together with (i) the audit report on the consolidated portions thereof of Ernst & Young or other independent certified public accountants selected by Mutual Risk and reasonably satisfactory to the Administrative Agent, which audit report shall be without material qualification, (ii) a copy of the annual report of Mutual Risk on Form 10-K (or other applicable form) for such fiscal year filed with the SEC, and (iii) a certificate of the Chief Financial Officer of Mutual Risk stating whether, to his best knowledge and belief, any Default or Event of Default has occurred or exists hereunder, and, if any such Default or Event of Default has occurred and is continuing or otherwise exists, stating the facts with respect thereto; (c) as soon as available, but in no event more than one hundred and twenty (120) days after the last day of each fiscal year of each unconsolidated Subsidiary or Affiliate of Mutual Risk (whose operations are accounted for in the consolidated financial statements of Mutual Risk on the equity method), if any, a copy of the consolidated balance sheet and statements of earnings, changes in stockholders' equity and cash flows of such unconsolidated Subsidiary or Affiliate and its Subsidiaries and of the consolidating balance sheet and statement of earnings of such unconsolidated Subsidiary or Affiliate and its Subsidiaries, prepared in accordance with GAAP (or SAP in the case of a regulated insurance company) as of, and for the fiscal year ending on, such last day, together with the audit report on the consolidated portions thereof of a firm of independent certified public accountants of recognized standing, which audit report shall be without material qualification. (d) promptly upon their becoming available but in no event (i) more than ninety (90) days after the end of each calendar year in the case of the Annual Statements or (ii) more than forty-five (45) days after the end of each calendar quarter in the case of the Quarterly Statements, a copy of each Annual Statement and Quarterly Statement of each Insurance Company Subsidiary prepared in accordance with SAP, a copy of each externally-prepared actuarial analysis of each Insurance Company Subsidiary obtained by Mutual Risk or any of its Subsidiaries and, in the case of the Annual Statements, a copy of the management discussion and analysis submitted with such Annual Statements; (e) promptly upon their becoming available, copies of all financial statements, reports, notices as to material matters, and proxy statements sent by Mutual Risk or any of its Subsidiaries (which is not a Wholly Owned Subsidiary) to public stockholders, of all regular, periodic and special reports filed by Mutual Risk or any of its Subsidiaries with any securities exchange or with the SEC and of all regular, periodic and special reports filed by any Insurance Company Subsidiary with Governmental Authorities having jurisdiction over it; 3 (f) together with the items described in clauses (a) and (b) above, written calculations in form reasonably satisfactory to the Administrative Agent demonstrating compliance by Mutual Risk with the covenants contained in Sections 6.1, 6.2, 6.17, 6.18, 6.19 and 6.20; and (g) such additional information, reports, or statements (financial or otherwise) as is required to be delivered to any Holder of the Debentures or the Newco Debentures and is not otherwise required to be delivered to the Administrative Agent and/or the Lenders hereunder; and (h) such additional information, reports or statements (financial or otherwise) as the Administrative Agent or any Lender through the Administrative Agent may from time to time reasonably request. SECTION 5.9 Notice of Litigation and Other Matters. Mutual Risk will -------------------------------------- furnish or cause to be furnished to the Administrative Agent and to each of the Lenders promptly (but in no event later than ten (10) days after an Officer of Mutual Risk obtains knowledge thereof) telephonic and written notice of: (a) the commencement of all proceedings and investigations by or before any Governmental Authority and all actions and proceedings in any court or before any arbitrator against or involving Mutual Risk or any of its Subsidiaries or any of their respective Properties, assets or businesses which in any given case or in the aggregate would have a Material Adverse Effect; (b) any notice of any violation received by Mutual Risk or any of its Subsidiaries, from any Governmental Authority, including, without limitation, any notice of violation of EHS Laws, which in any such case would have a Material Adverse Effect; (c) any attachment, judgment, lien, levy or order exceeding $5,000,000 that may be assessed against or threatened against Mutual Risk or any of its Subsidiaries, other than normal insurance claims adjustment matters involving Insurance Company Subsidiaries; (d) any Default or Event of Default, or any other event which constitutes or which with the passage of time or giving of notice or both would constitute a default or event of default under any Contract to which Mutual Risk or any of its Subsidiaries is a party or by which Mutual Risk or any of its Subsidiaries or any of their respective Properties may be bound, which default or event of default would have a Material Adverse Effect; (e) any unfavorable determination letter from the Internal Revenue Service regarding the qualification of an Employee Benefit Plan under Section 401(a) of the Code (along with a copy thereof), (ii) any fact or circumstance that has resulted, or could reasonably be expected to result in an ERISA Event, (iii) the Amount of Unfunded Benefit Liabilities exceeds $1,000,000, and (iv) any event or events in respect of any Foreign Plan or Foreign Plans occur that, or are reasonably expected to occur which, individually or together with all other similar events, result or would reasonably be expected to result in an aggregate liability to Mutual Risk or any of its Subsidiaries in excess of $1,000,000; and (f) any event which makes any of the representations set forth in Section 3 inaccurate in any material respect. 4 SECTION 5.10 Payment of Obligations. Mutual Risk will pay and discharge, ---------------------- and will cause each of its Subsidiaries to pay and discharge, at or before maturity, all their respective obligations, except where the same may be contested in good faith by appropriate proceedings, and will maintain, in accordance with GAAP, appropriate reserves for the accrual of any of the same. SECTION 5.11 Executive Risk Insurance. Mutual Risk will maintain, in ------------------------ full force and effect, executive risk insurance in an amount which Mutual Risk reasonably believes to be sufficient for the conduct of its business. SECTION 5.13 Inspection of Property, Books and Records. Mutual Risk will ----------------------------------------- keep, and will cause each of its Subsidiaries to keep, proper books of record and account in which full, true and correct entries shall be made of all dealings and transactions in relation to their respective businesses and activities; and will permit, and will cause each of its Subsidiaries to permit (during normal business hours and, unless a Default shall have occurred and be continuing, upon reasonable advance notice) officers, attorneys, agents and other representatives of the Administrative Agent or any Lender to visit and inspect any of their respective properties, to examine and make abstracts from any of their respective books and records and to discuss their respective affairs, finances and accounts with their respective directors, officers, senior employees, independent public accountants and actuaries as often as may reasonably be requested. SECTION 6. NEGATIVE COVENANTS ------------------ Until all Obligations shall have been paid in full and no Lender shall have any Commitment hereunder, the Loan Parties, jointly and severally, covenant and agree with the Lenders and the Administrative Agent that: SECTION 6.1 Consolidated Indebtedness to Consolidated Total Capital ------------------------------------------------------- Ratio. Mutual Risk shall not permit the ratio of Consolidated Indebtedness to - ----- Consolidated Total Capital to exceed (a) 0.50 to 1 at any time from the date of this Agreement to March 21, 2002, or (b) 0.45 to 1 at any time thereafter. SECTION 6.2 Shareholders' Equity. Mutual Risk shall maintain a -------------------- Stockholders' Equity which is not at any time less than the sum of (a) $350,000,000 (without giving effect to no more than $15.0 million of adjustments required by FASB 115) plus (b) 50% of cumulative positive consolidated net income (without deduction for any net loss for any period) of Mutual Risk and its Subsidiaries after March 31, 2001. SECTION 6.3 Negative Pledge. Mutual Risk will not, and will not cause --------------- or permit any of its Subsidiaries to, directly or indirectly, create, assume or suffer to exist any Lien on any asset now owned or hereafter acquired by it, except for (a) Liens which may be created in the ordinary course of business (it being understood that no Lien securing Debt shall be deemed to have been created in the ordinary course of business), (b) Liens securing payment of the Debentures, the Newco Debentures, the Obligations, and the RHINOS Debentures, as contemplated by the First Amendment, Consent and Waiver, and (c) Liens securing reimbursement obligations in respect of letters of credit issued under a letter of credit facility entered into solely in connection with the issuance of Policy Holder Preferred Shares, consistent with past practices. SECTION 6.4 Limitation on Incurrence and Repayment of Debt. ---------------------------------------------- (a) So long as any of the Debentures are outstanding: 5 (i) Mutual Risk will not, and will not cause or permit any of its Subsidiaries to, directly or indirectly, create, incur, issue, assume or suffer to exist any Debt; provided, however, that the foregoing shall not prohibit the issuance or existence of (A) the Debentures or the Newco Debentures (including any guarantees thereof), (B) the Obligations, (C) no more than $15.0 million of principal amount of accreted value of other Debt of Mutual Risk outstanding on the date of the First Amendment, Consent and Waiver, (D) additional Debt of Mutual Risk in an aggregate principal amount not to exceed $22.0 million at any one time outstanding; provided, however, that any Debt incurred pursuant to this clause (D) shall be subordinated to the Obligations pursuant to subordination provisions in form and substance satisfactory to the Required Lenders and (E) Debt consisting of reimbursement obligations (or guarantees thereof) in respect of letters of credit issued under a letter of credit facility entered into solely in connection with the issuance of Policy Holder Preferred Shares, consistent with past practices; and (ii) Mutual Risk will not, and will not cause or permit any of its Subsidiaries to, directly or indirectly, make any principal prepayments in respect of any Debt, whether at or prior to its stated maturity, other than (A) the Debentures or the Newco Debentures in accordance with their terms as in effect on the date of issuance thereof, (B) the Obligations and (C) Debt consisting of reimbursement obligations (or guarantees thereof) in respect of letters of credit issued under a letter of credit facility entered into solely in connection with the issuance of Policy Holder Preferred Shares, consistent with past practices. (b) If none of the Debentures are outstanding, Mutual Risk shall not create, incur, assume or suffer to exist in any manner any Indebtedness other than, without duplication, (i) that outstanding on the date of this Agreement and described on Schedule 6.4 (provided, that the Indebtedness owing under the -------- Existing Credit Agreement may not remain outstanding after the initial borrowing of Loans hereunder), (ii) Indebtedness under the Loan Documents, (iii) Indebtedness in an amount not in excess of $13,000,000 incurred in connection with the purchase by Mutual Risk or its nominee of its home office building, (iv) unsecured Indebtedness in an amount not in excess of $5,000,000 incurred in connection with the acquisition of Valmet Group Ltd., (v) Indebtedness secured by the Liens described in clauses (i) and (ii) of the definition of Permitted Liens, and (vi) Permitted Debt Issuances. Mutual Risk shall not permit any of its Subsidiaries to create, incur, assume or suffer to exist in any manner any Indebtedness other than that outstanding on the date of this Agreement and described on Schedule 6.4; provided, that nothing contained in this Section 6.4 -------- shall prohibit (A) any Indebtedness of any Subsidiary of Mutual Risk outstanding at the time such Subsidiary becomes a Subsidiary of Mutual Risk and not incurred in contemplation thereof, as long as the outstanding amount of the Indebtedness remains the sole obligation of such Subsidiary and as long as the outstanding amount of such Indebtedness is not voluntarily increased by such Subsidiary after the date such Subsidiary becomes a Subsidiary of Mutual Risk, (B) any Indebtedness of any Subsidiary secured by a Permitted Lien, provided that such -------- Indebtedness does not exceed the value of the assets or property subject to such Permitted Lien, (C) any Indebtedness owing directly or indirectly to Mutual Risk by a Subsidiary of Mutual Risk, (D) any Indebtedness of Mutual Group under the Loan Documents, and (E) any Indebtedness not otherwise permitted by the foregoing clauses; provided, that the aggregate amount at any time outstanding for all Subsidiaries of Mutual Risk of (y) the Indebtedness incurred under the preceding clause (B) and (z) the Indebtedness incurred under the preceding clause (E) shall not exceed $10,000,000 in the aggregate at any time outstanding. SECTION 6.5 Limitation on Asset Sales. Mutual Risk, will not, and will ------------------------- not permit any of its Subsidiaries to, consummate an Asset Sale unless (a) Mutual Risk or the applicable Subsidiary, as the case may be, receives consideration at the time of such Asset Sale at least equal to the Fair Market Value of the 6 assets sold or otherwise disposed of, and (b) the consideration received for the assets sold by Mutual Risk or such Subsidiary, as the case may be, in such Asset Sale are in the form of cash or Cash Equivalents, in each case received at the time of such Asset Sale. Mutual Risk will not, and will not cause or permit any of its Subsidiaries to, in a single transaction or a series of related transactions, directly or indirectly, sell, lease or otherwise transfer, directly or indirectly, all or substantially all of the assets of Mutual Risk and its Subsidiaries to any Person other than Mutual Risk or any of its wholly owned Subsidiaries. SECTION 6.6 Merger, Consolidation, Sale of Assets and Liquidation. ----------------------------------------------------- Mutual Risk shall not enter into any merger or consolidation with any Person, or sell, lease, assign, distribute or otherwise dispose of all or substantially all of its assets, or liquidate in whole or in part, or permit any Subsidiary to enter into any merger or consolidation with any Person, or sell, lease, assign, distribute or otherwise dispose of all or substantially all of its assets, or liquidate in whole or in part, except that (a) Mutual Risk may merge or consolidate with any Subsidiary or other Person incorporated under the laws of Bermuda or a state of the United States, if Mutual Risk is the surviving corporation and continues to be a Bermuda company and immediately after giving effect thereto no Default or Event of Default shall have occurred and be continuing, (b) any Subsidiary may be merged or consolidated into, or may be liquidated into, or may sell, lease or transfer all or substantially all of its assets to, Mutual Risk or a Wholly Owned Subsidiary (provided that Mutual Group may merge or consolidate into, or liquidate into, or sell, lease or transfer all or substantially all of its assets to Mutual Risk only), if, in the case of a merger or consolidation, (y) Mutual Risk or such Wholly Owned Subsidiary is the surviving corporation (and, if Mutual Risk is the surviving corporation, it continues to be a Bermuda company), and (z) immediately after giving effect thereto no Default or Event of Default shall have occurred and be continuing, and (c) the Restructuring may occur. SECTION 6.7 Sale and Leaseback. Mutual Risk shall not enter into, or ------------------ permit any of its Subsidiaries to enter into, directly or indirectly, any arrangement under which Mutual Risk or such Subsidiary, as the case may be, sells or transfers any of the fixed assets then owed by it and thereupon or within one year thereafter rents or leases the assets so sold or transferred. SECTION 6.8 Limitations on Dividend and Other Payment Restrictions ------------------------------------------------------ Affecting Subsidiaries. Mutual Risk will not, and will not cause or permit any - ---------------------- of its Subsidiaries to, directly or indirectly, enter into, or suffer to exist, any consensual agreement with any Person which prohibits or limits the ability of any Subsidiary to (a) pay dividends or make other distributions or pay any Debt owed to Mutual Risk or any of its Subsidiaries, (b) make loan or advances to Mutual Risk or any of its Subsidiaries or (c) transfer any of its properties or assets to Mutual Risk or any of its Subsidiaries, except for such agreement or restrictions existing under or by reason of any of the following: (i) The Loan Documents and any other agreement in effect on the date of this Agreement; (ii) The Debentures or the Newco Debentures; (iii) Customary non-assignment provisions of any lease governing a leasehold interest of Mutual Risk or any of its Subsidiaries; (iv) Any agreement or other instrument of a Person acquired by Mutual Risk or any of its Subsidiaries in existence at the time of such acquisition (but not created in contemplation thereof), which encumbrance or restriction is not applicable to any Person, or properties or assets of any Person, other than the Person, or the Property or assets of the Person, so acquired; and 7 (v) Any limitations under applicable laws as to dividends payable by Insurance Company Subsidiaries. SECTION 6.9 Restricted Payments. ------------------- (a) So long as any of the Debentures are outstanding, Mutual Risk will not, and will not cause or permit any of its Subsidiaries to, directly or indirectly, declare or make any Restricted Payment other than, so long as no Default or Event of Default has occurred and is continuing or would result therefrom, (i) quarterly dividends to all shareholders of Mutual Risk, pro rata, in an amount no greater than $0.07 per share per quarter, (ii) the dividend or distribution by Mutual Risk of shares of Newco in order to comply with Section 2.1(b)(ii) of the Registration Rights Agreement entered into in connection with the issuance of the Debentures, (iii) Restricted Payments made to Mutual Risk or any Guarantor of the Obligations, (iv) Restricted Payments made to the Holders of the Debentures or the Newco Debentures in accordance with their terms as in effect on the date of issuance thereof, on a pro rata basis, (v) dividends on Policy Holder Preferred Shares made solely in connection with the CRM business and determined in a manner consistent with past practices and (vi) dividends made in respect of shares issued pursuant to the Hemisphere Restricted Stock Plan and the repurchase of such shares, in each case in accordance with such plan and consistent with past practices. (b) If none of the Debentures are outstanding, Mutual Risk shall not, and shall not permit any of its Subsidiaries to, declare or pay any dividend or distribution, either in cash or property, on any shares of its Capital Stock (except dividends or distributions payable solely in shares of Capital Stock) or purchase, redeem or retire any of its Capital Stock or any warrants, rights or options to purchase or acquire any shares of its Capital Stock (i) in the case of Mutual Risk, if a Default or Event of Default exists at any time thereof or would be caused thereby, (ii) in violation of any applicable Laws, (iii) in the case of Subsidiaries of Mutual Risk, except for dividends or distributions declared or paid by a Subsidiary of Mutual Risk to Mutual Risk or a Subsidiary of Mutual Risk (provided that if the Subsidiary declaring or paying such -------- dividend or distribution is not a Wholly-Owned Subsidiary, such dividend or distribution is paid pro rata to the stockholders of such Subsidiary), (iv) in the case of dividends or distributions by Mutual Risk, in an amount substantially greater than the amount of dividends and distributions historically declared, paid or made by Mutual Risk, and (v) in the case of stock purchases, redemptions, retirements or other acquisitions by Mutual Risk, including in completion of its previously announced and currently pending stock repurchase program, in an aggregate amount in excess of 10% of Stockholders' Equity on the date of this Agreement. SECTION 6.10 Transactions with Affiliates. Mutual Risk shall not enter ---------------------------- into or be a party to, or permit any Subsidiary to enter into or be a party to, any transaction with any Affiliate, except (a) pursuant to the reasonable requirements of its business and upon fair and reasonable terms that are no less favorable to it than it would obtain in a comparable arm's length transaction with an unrelated Person, and (b) in accordance with the terms and conditions of the Securities Purchase Agreement, including the Restructuring. SECTION 6.11 Lines of Business. Mutual Risk will not, nor will it permit ----------------- any Subsidiary to, engage in any business other than a Permitted Business. SECTION 6.12 Amendment to Charter Documents. Mutual Risk shall not, ------------------------------ directly or indirectly, and shall not cause or permit any of its Subsidiaries to, amend its memorandum of association, certificate of incorporation, by-laws or other organizational documents or any partnership or shareholder agreement to which Mutual Risk or any of its Subsidiaries is a party. 8 SECTION 6.13 No Change in Accounting. Mutual Risk will not, and will not ----------------------- cause or permit any of its Subsidiaries to, make any material change in any accounting policy or practice including, without limitation, with respect to accounting for loss reserves and/or reinsurance recoverables other than any such changes that are required by law or any order of any Governmental Authority having jurisdiction over Mutual Risk or any such Subsidiary. SECTION 6.14 Restrictions on Amendment of Certain CRM Documents. Mutual -------------------------------------------------- Risk will not, and will not cause or permit any of its Subsidiaries to, amend or modify any of the agreements or arrangements between Newco or any of its Subsidiaries and Mutual Risk or any of its Subsidiaries relating to the retention of a portion of any premium by, or the payment of any fees to, Mutual Risk or any of its Subsidiaries in connection with the writing of the underlying insurance policies related to the CRM business. SECTION 6.15 Restrictions on Amendments of Documents. Mutual Risk will --------------------------------------- not, and will not cause or permit any of its Subsidiaries to, amend, supplement or otherwise modify any of the Transaction Documents or any of the documents related to the RHINOS (or permit any of the foregoing) without the prior written consent of the Required Lenders, which consent shall not be unreasonably withheld or delayed, other than as may be necessary in order to complete the Restructuring. SECTION 6.16 Restrictions on Certain Equity Issuances. Mutual Risk will ---------------------------------------- not issue any Capital Stock or any Common Stock Equivalents (other than pursuant to employee stock option plans in effect on the date of the First Amendment, Consent and Waiver and other than upon conversion of the Debentures) until at least 30 days following the date on which the Required Approvals have been obtained and the Restructuring has been consummated; provided, however, that Mutual Risk may comply with its obligations under the RHINOS Debentures and the documents executed in connection therewith. SECTION 6.17 Minimum Capital and Surplus. So long as any of the --------------------------- Debentures are outstanding, Mutual Risk will not permit its U.S. Insurance Subsidiaries' capital and surplus, as defined in the Pennsylvania or Illinois Insurance Code, as applicable, to be less than the greater of (a) the minimum amount required under any applicable insurance law to which it is subject and (b) $350,000,000 in any quarterly period beginning May 1, 2001. SECTION 6.18 Maximum Combined Ratio. So long as any of the Debentures ---------------------- are outstanding, Mutual Risk will not permit the statutory "combined ratio" for Mutual Risk's U.S. Insurance Subsidiaries, measured with respect to all business written by the U.S. Insurance Subsidiaries as the sum for such U.S. Insurance Subsidiaries of (a) the Loss Ratio and (b) the Expense Ratio, to exceed 125%. Mutual Risk will measure the statutory combined ratio for the previous 12 months as of the end of each fiscal quarter. In the event such statutory combined ratio exceeds 120%, Mutual Risk and the U.S. Insurance Subsidiaries will establish and implement a plan in order to lower the statutory combined ratio below 115%. SECTION 6.19 Minimum Risk-Based Capital. On any date of determination -------------------------- prior to (a) the completion of the Restructuring and (b) the capital contribution by Mutual Risk in the amount of $80,000,000 to Legion Insurance Company and Legion Indemnity Company, Mutual Risk will not permit the Risk-Based Capital for any U.S. Insurance Subsidiary to be less than 175% of the Authorized Control Level and for all such U.S. Insurance Subsidiaries (collectively, on a combined basis) to be less than 175% of the Authorized Control Level. On any date of determination on and after (a) the completion of the Restructuring and (b) the capital contribution by Mutual Risk in the amount of $80,000,000 to Legion Insurance Company and Legion Indemnity, Mutual Risk will not permit the Risk-Based Capital for any U.S. Insurance Subsidiary to be less 9 than 205% of the Authorized Control Level and for all such U.S. Insurance Subsidiaries (collectively, on a combined basis) to be less than 225% of the Authorized Control Level. Mutual Risk will measure Risk-Based Capital as of each December 31, commencing December 31, 2001, and will run the "early warning" tests established by the NAIC as of each March 31, June 30, September 30 and December 31, commencing June 30, 2001. If Mutual Risk and the U.S. Insurance Subsidiaries fail to comply with any such "early warning" tests, Mutual Risk and the U.S. Insurance Subsidiaries will establish and implement a plan in order to improve such test results. In no event will Mutual Risk and the U.S. Insurance Subsidiaries fail to comply with more than three such "early warning" tests. SECTION 6.20 Investments. So long as any of the Debentures are ----------- outstanding, Mutual Risk will not, and will not cause or permit any of its Subsidiaries to, directly or indirectly, make or acquire any Investment, other than (a) Investments pursuant to Mutual Risk's investment policy as adopted by Mutual Risk's board of directors and in accordance with Mutual Risk's annual plan and budget, (b) after the completion of the Restructuring, the Investment of up to $80.0 million of the net proceeds from the original issuance of the Debentures into Legion Insurance Company and Legion Indemnity Company, as contemplated by the Securities Purchase Agreement and First Amendment, Consent and Waiver, (c) Investments in Subsidiaries of Mutual Risk made in connection with the Restructuring, (d) Investments in the Collateral Account (as defined in the Securities Purchase Agreement) and in Cash Equivalents and U.S. Government Obligations (as defined in the Collateral Agreement), (e) Investments by Subsidiaries of Mutual Risk in Mutual Risk or any Guarantor of the Obligations and (f) other Investments not exceeding $10,000,000 in the aggregate outstanding at any one time. SECTION 6.21 Fundamental Changes. So long as any of the Debentures are ------------------- outstanding, Mutual Risk will not, and will not cause or permit any of its Subsidiaries to, wind-up, liquidate or dissolve their respective affairs, except any such action taken with the unanimous consent of Mutual Risk's board of directors. Mutual Risk will not, and will not cause or permit any of its Subsidiaries to, commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to themselves or their respective debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seek the appointment of a trustee, receiver, liquidation, custodian or other similar official of them or any substantial part of their property, or 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 them, or make a general assignment for the benefit or creditors, or fail generally to pay their respective debts as they become due or on demand, or take any corporate action to authorize any of the foregoing, except any such action taken with the unanimous consent of Mutual Risk's board of directors. 10 EXHIBIT D FORM OF GUARANTEE ----------------- THIS GUARANTEE is executed as of ____________, 200_, by the undersigned ("Guarantor"), for the benefit of BANK OF AMERICA, N.A., a national banking association (in its capacity as Administrative Agent for the benefit of Lenders). RECITALS -------- A. Mutual Risk Management Ltd. ("Mutual Risk"), Mutual Group, Ltd. ("Mutual Group"), as borrowers (in such capacity, collectively, the "Borrowers" and individually, a "Borrower"), Bank of America, N.A., as administrative agent (including its permitted successors and assigns in such capacity, "Administrative Agent"), and certain banks and financial institutions from time to time party thereto (collectively, "Lenders" and individually, a "Lender") have entered into a Credit Agreement dated as of September 21, 2000 (as amended, modified, supplemented, or restated from time to time, the "Credit Agreement"). B. This Guarantee is integral to the transactions contemplated by the Credit Agreement and the execution and delivery hereof is a condition to Lenders obligations to extend credit to Borrower under the Credit Agreement. ACCORDINGLY, for adequate and sufficient consideration, the receipt and adequacy of which are hereby acknowledged, Guarantor (jointly and severally with any other guarantor of the obligation, whether pursuant to this Guarantee or otherwise) guarantees to Administrative Agent and Lenders the prompt payment of the Guaranteed Debt (defined below) as follows: 1. DEFINITIONS. Terms defined in the Credit Agreement have the same meanings when used, unless otherwise defined, in this Guarantee. As used in this Guarantee: "Guaranteed Debt" means, collectively, (a) the Obligations (provided that, if Guarantor is not organized under the laws of a state in the United States, Obligations shall be limited to Obligations owing by Mutual Risk under the Loan Documents) and (b) all present and future costs, attorneys' fees, and expenses reasonably incurred by Administrative Agent or any Lender to enforce Borrower's, Guarantor's, or any other obligor's payment of any of the Guaranteed Debt, including, without limitation (to the extent lawful), all present and future amounts that would become due but for the operation of (S)(S) 502 or 506 or any other provision of Title 11 of the United States Code and all present and future accrued and unpaid interest (including, without limitation, all post-maturity interest and any post-petition interest in any proceeding under Debtor Relief Laws to which Borrower or Guarantor becomes subject). 2. GUARANTEE. This is an absolute, irrevocable, and continuing guarantee of payment, not collection, and the circumstance that at any time or from time to time the Guaranteed Debt may be paid in full does not affect the obligation of Guarantor with respect to the Guaranteed Debt incurred after such time. This Guarantee remains in effect until the Guaranteed Debt is fully paid and performed and all Commitments to extend any credit under the Loan Documents have terminated. Guarantor may not rescind or revoke its obligations with respect to the Guaranteed Debt. Notwithstanding any contrary provision, it is the intention of Guarantor, Lenders, and Administrative Agent that the amount of the Guaranteed Debt guaranteed by Guarantor by this Guarantee shall be in, but not in excess of, the maximum amount permitted by fraudulent conveyance, fraudulent transfer, or similar laws applicable to Guarantor. Accordingly, notwithstanding anything to the contrary contained in this Guarantee or any other agreement or instrument executed in connection with the payment of any of the Guaranteed Debt, the amount of the Guaranteed Debt guaranteed by Guarantor under this Guarantee shall be limited to an aggregate amount equal to the largest amount that would not render Guarantor's obligations hereunder subject to avoidance under Section 548 of the United States Bankruptcy Code or any comparable provision of any applicable state or foreign law. This Guarantee is subject to the terms and conditions of the Subordination Agreement (as defined in the Securities Purchase Agreement dated as of May 8, 2001, among Mutual Risk, an affiliate of XL Capital Ltd., First Union Merchant Banking 2001, LLC, High Ridge Capital Partners II, L.P., Century Capital Partners II and certain other investors). 3. CONSIDERATION. Guarantor represents and warrants that its liability under this Guarantee may reasonably be expected to directly or indirectly benefit it. 4. CUMULATIVE RIGHTS. If Guarantor becomes liable for any indebtedness owing by Borrower to Administrative Agent or any Lender, other than under this Guarantee, that liability may not be in any manner impaired or affected by this Guarantee. The rights of Administrative Agent or Lenders under this Guarantee are cumulative of any and all other rights that Administrative Agent or Lenders may ever have against Guarantor. The exercise by Administrative Agent or Lenders of any right under this Guarantee or otherwise does not preclude the concurrent or subsequent exercise of any other right. 5. PAYMENT UPON DEMAND. If an Event of Default exists, Guarantor shall, on demand and without further notice of dishonor and without any notice having been given to Guarantor previous to that demand of either the acceptance by Administrative Agent or Lenders of this Guarantee or the creation or incurrence of any Guaranteed Debt, pay the amount of the Guaranteed Debt then due and payable to Administrative Agent and Lenders; provided that, if an Event of Default exists and Administrative Agent or Lenders cannot, for any reason, accelerate the Obligations, then the Guaranteed Debt shall be, as among Guarantor, Administrative Agent, and Lenders, a fully matured, due, and payable obligation of Guarantor to Administrative Agent and Lenders. It is not necessary for Administrative Agent or Lenders, in order to enforce that payment by Guarantor, first or contemporaneously to institute suit or exhaust remedies against Borrower or others liable on any Guaranteed Debt or to enforce rights against any collateral securing any Guaranteed Debt. 6. SUBROGATION AND CONTRIBUTION. Until payment in full of the Guaranteed Debt and the termination of the Commitment of each Lender to extend credit under the Loan Documents, (a) Guarantor may not assert, enforce, or otherwise exercise any right of subrogation to any of the rights or Liens of Administrative Agent or Lenders or any other beneficiary against Borrower or any other obligor on the Guaranteed Debt or any collateral or other security or any right of recourse, reimbursement, subrogation, contribution, indemnification, or similar right against Borrower or any other obligor on any Guaranteed Debt or Guarantor of it, (b) Guarantor defers all of the foregoing rights (whether they arise in equity, under contract, by statute, under common law, or otherwise), and (c) Guarantor defers the benefit of, and subordinates any right to participate in, any collateral or other security given to Administrative Agent or Lenders or any other beneficiary to secure payment of any Guaranteed Debt. 7. NO RELEASE. Guarantor's obligations under this Guarantee may not be released, diminished, or affected by the occurrence of any one or more of the following events: (a) any taking or accepting of any other security or assurance for any Guaranteed Debt; (b) any release, surrender, exchange, subordination, impairment, or loss of any collateral securing any Guaranteed Debt; (c) any full or partial release of the liability of any other obligor on any Guaranteed Debt, except for any final release resulting from payment in full of such Guaranteed Debt; (d) the modification of, or waiver of compliance with, any terms of any other Loan Document; (e) the insolvency, bankruptcy, or lack of corporate or partnership power of any other obligor at any time liable for any Guaranteed Debt, whether now existing or occurring in the future; (f) any renewal, extension, or rearrangement of any Guaranteed Debt or any adjustment, indulgence, forbearance, or compromise that may be granted or given by Administrative Agent or any Lender to any other obligor on any Guaranteed Debt; (g) any neglect, delay, omission, failure, or refusal of Administrative Agent or any Lender to take or prosecute any action in connection with the Guaranteed Debt or to foreclose, take, or prosecute any action in connection with any Loan Document; (h) any failure of Administrative Agent or any Lender to notify Guarantor of any renewal, extension, or assignment of any Guaranteed Debt, or the release of any security or of any other action taken or refrained from being taken by Administrative Agent or any Lender against Borrower or any new agreement between Administrative Agent, any Lender, and Borrower; it being understood that neither Administrative Agent nor any Lender is required to give Guarantor any notice of any kind under any circumstances whatsoever with respect to or in connection with any Guaranteed Debt, other than any notice required to be given to Guarantor by law or elsewhere in this Guarantee; (i) the unenforceability of any Guaranteed Debt against any other obligor or any security securing same because it exceeds the amount permitted by law, the act of creating it is ultra vires, the officers creating it exceeded their authority or violated their fiduciary duties in connection with it, or otherwise; or (j) any payment of any Guaranteed Debt to Administrative Agent or any Lender is held to constitute a preference under any Debtor Relief Laws or for any other reason Administrative Agent or any Lender is required to refund that payment or make payment to someone else (and in each such instance this Guarantee will be reinstated in an amount equal to that payment). 8. RELIANCE AND DUTY TO REMAIN INFORMED. Guarantor confirms that it has executed and delivered this Guarantee after reviewing the terms and conditions of the Loan Documents and such other information as it has deemed appropriate in order to make its own credit analysis and decision to execute and deliver this Guarantee. Guarantor confirms that it has made its own independent investigation with respect to Borrower's creditworthiness and is not executing and delivering this Guarantee in reliance on any representation or warranty by Administrative Agent or any Lender as to that creditworthiness. Guarantor expressly assumes all responsibilities to remain informed of the financial condition of Borrower and any circumstances affecting Borrower's ability to perform under the Loan Documents to which it is a party or any collateral securing any Guaranteed Debt. 9. NO REDUCTION. The Guaranteed Debt may not be reduced, discharged, or released because or by reason of any existing or future offset, claim, or defense (except for the defense of complete and final payment of the Guaranteed Debt) of Borrower or any other obligor against Administrative Agent or any Lender or against payment of the Guaranteed Debt, whether that offset, claim, or defense arises in connection with the Guaranteed Debt or otherwise. Those claims and defenses include, without limitation, failure of consideration, breach of warranty, fraud, bankruptcy, incapacity/infancy, statute of limitations, lender liability, accord and satisfaction, usury, forged signatures, mistake, impossibility, frustration of purpose, and unconscionability. 10. INSOLVENCY OF GUARANTOR. Should Guarantor become insolvent, or fail to pay Guarantor's debts generally as they become due, or voluntarily seek, consent to, or acquiesce in, the benefit or benefits of any Bankruptcy Law (other than as a creditor or claimant), or become a party to (or be made the subject of) any proceeding provided for by any Bankruptcy Law (other than as a creditor or claimant) that could suspend or otherwise adversely affect the rights of Administrative Agent or any Lender granted hereunder, then, in any such event, the Guaranteed Debt shall be, as among Guarantor, Administrative Agent, and Lenders, a fully matured, due, and payable obligation of Guarantor to Administrative Agent and Lenders (without regard to whether Borrower is then in default under the Loan Documents or whether the Obligation, or any part thereof, is then due and owing by Borrower to any Lender), payable in full by Guarantor to Lenders upon demand, and the amount thereof so payable shall be the estimated amount owing in respect of the contingent claim created hereunder. 11. LOAN DOCUMENT. This Guarantee is a Loan Document and is subject to the applicable provisions of Sections 1 and 10 of the Credit Agreement, including, without limitation, the provisions relating to GOVERNING LAW, JURISDICTION, VENUE, SERVICE OF PROCESS, AND WAIVER OF JURY TRIAL, all of which are incorporated into this Guarantee by reference the same as if set forth in this Guarantee verbatim. 12. NOTICES. Guarantor's address and telecopy number are as set forth next to Guarantor's signature on the signature page hereof. 13. AMENDMENTS, ETC. No amendment, waiver, or discharge to or under this Guarantee is valid unless it is in writing and is signed by the party against whom it is sought to be enforced and is otherwise in conformity with the requirements of Section 10.6 of the Credit Agreement. ------------ 14. ADMINISTRATIVE AGENT AND LENDERS. Administrative Agent is Administrative Agent for each Lender under the Credit Agreement. All rights granted to Administrative Agent under or in connection with this Guarantee are for each Lender's ratable benefit. Administrative Agent may, without the joinder of any Lender, exercise any rights in Administrative Agent's or Lenders' favor under or in connection with this Guarantee. Administrative Agent's and each Lender's rights and obligations vis-a-vis each other may be subject to one or more separate agreements between those parties. However, Guarantor is not required to inquire about any such agreement or is subject to any of its terms unless Guarantor specifically joins such agreement. Therefore, neither Guarantor nor its successors or assigns is entitled to any benefits or provisions of any such separate agreement or is entitled to rely upon or raise as a defense any party's failure or refusal to comply with the provisions of such agreement. 15. PARTIES. This Guarantee benefits Administrative Agent, Lenders, and their respective successors and assigns and binds Guarantor and its successors and assigns. Upon appointment of any successor Administrative Agent under the Credit Agreement, all of the rights of Administrative Agent under this Guarantee automatically vest in that new Administrative Agent as successor Administrative Agent on behalf of Lenders without any further act, deed, conveyance, or other formality other than that appointment. The rights of Administrative Agent and Lenders under this Guarantee may be transferred with any assignment of the Guaranteed Debt pursuant to and in accordance with the terms of the Credit Agreement. The Credit Agreement contains provisions governing assignments of the Guaranteed Debt and of rights and obligations under this Guarantee. Remainder of Page Intentionally Blank. Signature Page(s) to Follow. EXECUTED as of the date first stated in this Guarantee. GUARANTOR: Address: __________________ __________________ Facsimile: __________________ By _______________________ Name:__________________ Title:_________________ Signature Page to Guarantee EXHIBIT E --------- SHARE CHARGE ------------ THIS CHARGE dated the _____ day of ____________, 2001 is made BETWEEN: (1) [ ], a local company established under the laws of Bermuda of 44 Church Street, Hamilton HM 12 Bermuda (the "Chargor") and (2) Bank of America, N.A., a bank established under the laws of the United States of America of 231 S. LaSalle Street, Chicago, Illinois 60697, acting in its capacity as Collateral Agent (herein so called) for Holders (hereinafter defined), Lenders (hereinafter defined), and RHINOS Holders (hereinafter defined) (the "Secured Party"). WHEREAS: A. Pursuant to that certain Securities Purchase Agreement (herein so called) dated as of May 8, 2001, among Mutual Risk Management Ltd. ("MRM"), certain of its subsidiaries, as obligors, and XL Insurance Ltd., First Union Merchant Banking 2001, LLC, High Ridge Capital Partners II, L.P., Century Capital Partners II, L.P., Robert A. Mulderig, and Taracay Investors Company (collectively, "Purchasers"), Purchasers have agreed to purchase $112,500,000 aggregate principal amount of 9 3/8% Convertible Exchangeable Debentures due 2006 of MRM; B. MRM and Mutual Group, Ltd. (collectively, "Borrowers"), Bank of America, N.A., as Administrative Agent, and certain Lenders (herein so called) now or hereafter party thereto have entered into a Credit Agreement, dated as of September 21, 2000 (as amended, modified, supplemented, or restated from time to time, the "Credit Agreement"); C. MRM or one of its Subsidiaries has issued RHINOS (hereinafter defined) to the RHINOS Holders (hereinafter defined); and D. It is a condition precedent to the transactions contemplated by the Securities Purchase Agreement and the Credit Agreement that the Chargor and the Secured Party enter into this Charge. 1. DEFINITIONS AND INTERPRETATION (a) In this Charge, unless contrary to or inconsistent with the context: Administrative Agent means Bank of America, N.A., in its capacity as administrative agent for Lenders under the Credit Agreement. Collateral Agent is defined in the preamble to this Charge and includes any successor acting as "Collateral Agent" for Holders, Lenders, and RHINOS Holders. Credit Agreement Obligations means, collectively, (a) all Obligations (as defined in the Credit Agreement) now or hereafter owing by MRM under the Loan Documents and (b) any subrogation rights that Administrative Agent or any Lender may have under the Subordination Agreement. Debenture Obligations means all indebtedness, liabilities, and obligations arising under or pursuant to the Debentures. Debentures has the meaning given such term in the Securities Purchase Agreement. Dollar and US $ means the lawful currency of the United States of America. Event of Default means the occurrence of an event of default under or in respect of any of the Secured Obligations. Holders means the holders from time to time of the Debentures. Lien means a charge, mortgage, hypothecation, title retention, pledge, lien, security interest or other encumbrance, whether fixed or floating and howsoever created or arising. Representative means XL Insurance Ltd., acting hereunder as representative of Holders. RHINOS has the meaning given such term in the Securities Purchase Agreement and, for purposes of this Charge, also means and includes the RHINOS Debentures (as defined in the Securities Purchase Agreement). RHINOS Holders means the holders from time to time of the RHINOS. RHINOS Obligations means, collectively, (a) all indebtedness, liabilities, and obligations arising under or pursuant to the RHINOS and (b) any subrogation rights that any RHINOS Holder may have under the Subordination Agreement. Security Assets has the meaning given such term in clause 3(a). Secured Obligations means, collectively, the Debenture Obligations, the Credit Agreement Obligations and the RHINOS Obligations. Shares means the shares listed in Schedule 1 hereto of each Company (herein co called) listed on Schedule 1 hereto. Subordination Agreement means that certain Subordination Agreement, dated as of the date hereof, among Holders, Lenders, RHINOS Holders, Administrative Agent, Representative and certain other Persons. (b) In this Charge unless contrary to or inconsistent with the context: (i) capitalized terms used herein have the meaning ascribed thereto in the Credit Agreement; (ii) words (including, without limitation, defined terms) importing: (1) the singular include the plural and vice versa; and (2) any gender includes all genders; (iii) a reference to a party or person includes a reference to that party or person and its successors, substitutes (including, but not limited to, any party or person taking by novation), executors, administrators and assigns; (iv) the word "Person" includes an individual, any entity having separate legal personality under the laws governing its formation, partnerships and trusts (whether or not having separate legal personality), companies, corporations, unincorporated organisations and any government, department or agency thereof; (v) a reference to any thing or any matter (including, but not limited to, the Secured Obligations, any other amount and the Security Assets) is a reference to the whole and any part of it; (vi) a reference to this Charge, or any other document includes any variation, novation or replacement of or supplement to any of them from time to time; (vii) a reference to a clause or Schedule means a reference to a clause or Schedule of this Charge; (viii) where any clause contains sub-clauses, paragraphs or sub- paragraphs, each sub-clause, paragraph and sub-paragraph however called may be read and construed separately and independently of each other; (ix) a reference (whether specific or general) to a statute or to any other legislation includes any code, ordinance or other law, and any regulation, rule or bye-law or other instrument made under it, and all official directives (if any) and all amendments, consolidations, re-enactments or substitutions of any of them from time to time; (x) a reference to a document includes any deed, agreement in writing, or any certificate, notice, instrument or other document of any kind; (xi) "writing" and related expressions includes all means of reproducing words in a tangible and permanently visible form; (xii) any agreement, undertaking, acknowledgment, condition or other term that is made or given by the Chargor is deemed to be a covenant in favour of and for the benefit of the Secured Party; (xiii) headings are inserted for guidance only and do not affect the interpretation of this Charge; and (xiv) an Event of Default is "subsisting" until it has been waived in writing by, or remedied to the satisfaction of, the party or parties having the right to give such waiver or to receive such satisfaction. 2. CONSIDERATION The Chargor acknowledges that the giving of this Charge and the granting of rights under this Charge are in order to induce the Purchasers and RHINOS Holders to enter into the transactions contemplated by the Securities Purchase Agreement and the Lenders to enter into the transactions contemplated by the Credit Agreement, and that the Chargor is benefitting, directly or indirectly, from the giving of this Charge and the granting of rights under this Charge. 3. CHARGE The Chargor, as legal and beneficial owner hereby: (a) charges and agrees to charge in favour of the Secured Party, all of its right, title and interest in and to the following property (collectively the "Security Assets") (x) as a first fixed security and on a first priority basis prior to the termination of the Subordination Period (as defined in the Subordination Agreement), and on a pari passu basis with all the other Secured Obligations thereafter, for the full and complete payment and performance of the Debenture Obligations when due, and (y) as a second fixed security and on a second priority basis prior to the termination of the Subordination Period, and on a pari passu basis with all the other Secured Obligations thereafter, for the full and complete payment and performance of the Credit Agreement Obligations and the RHINOS Obligations when due: (i) the Shares owned by it and any interest it has in the entries on the books of any financial intermediary pertaining to such Shares, and all cash, warrants, rights, instruments and other property or proceeds from time to time received, receivable or otherwise distributed in respect or in exchange for any or all of such Shares; (ii) all additional shares of, and all securities convertible into and warrants, options and other rights to purchase or otherwise acquire, stock, shares or other securities of each Company from time to time acquired by it in any manner (which shares and securities shall be deemed to be part of the Shares) or any other rights and any interest in the entries on the books of any financial intermediary pertaining to such additional shares (all such shares, securities, warrants, options, rights, certificates, instruments and interests collectively being "Additional Shares") and all cash, warrants, rights, instruments and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such Additional Shares; (iii) all dividends or interest paid or payable by any Company after the date of and during the continuance of an Event of Default on all or any of the Shares and the Additional Shares; and (iv) to the extent not covered by clauses (i) through (iii) above, all proceeds of any or all of the foregoing Security Assets. For the purposes of this Charge, the term "proceeds" includes whatever is receivable or received when Security Assets or proceeds are sold, exchanged, collected or otherwise disposed of, whether such disposition is voluntary or involuntary; (b) agrees that this Charge shall be a first priority fixed charge (with the priorities as among the Holders, Lenders and RHINOS Holders set forth herein) over all of the Security Assets; and (c) undertakes to deposit forthwith with the Secured Party, and in such manner as the Secured Party may direct the following: (i) all share certificates and other documents in respect of the Security Assets and share transfer forms endorsed in blank in respect of the Shares or any stocks, shares or securities forming part of the Security Assets; (ii) an undertaking from each Company to register transfer of the Shares to the Secured Party or its nominees; (iii) a certified copy of the Register of Members of each Company containing a notation that the Shares are subject to a charge in favour of the Secured Party; (iv) an irrevocable proxy from the Chargor to the Secured Party in form and substance satisfactory to the Secured Party, entitling the Secured Party to vote the Shares and exercise all other rights, powers and privileges and remedies to which a holder of shares would be entitled; (v) an irrevocable power of attorney from the Chargor in favour of the Secured Party in form and substance satisfactory to the Secured Party; and (vi) executed but undated letters of resignation and release together with letters of authority to date the same from each of the directors, alternate directors and officers of each Company; provided that, upon irrevocable payment in full in Dollars of the Secured Obligations, the Secured Party will, at the request and expense of the Chargor, release to the Chargor all the rights, title and interest of the Secured Party in or to the Security Assets. 4. PRESERVATION OF SECURITY (a) The security constituted by this Charge shall be continuing and not satisfied by an intermediate payment or satisfaction of the whole or any part of the Secured Obligations but shall secure the ultimate balance of the Secured Obligations. The security hereby given shall be in addition to any other Lien now or hereafter held by the Secured Party for all or any of the Secured Obligations, and the Secured Party's rights under this Charge shall not be postponed, lessened or otherwise prejudicially affected or merged in any other such security. (b) The obligations of the Chargor hereunder and the security constituted by this Charge shall not be affected by any act, omission or circumstances which but for this provision might operate to release or otherwise exonerate the Chargor from its obligations hereunder or affect such obligations including without limitation and whether or not known to either of the Chargor or the Secured Party: (i) any time or indulgence granted to any person, including any Company, or the Chargor; (ii) the variation, extension, compromise, renewal or release of, or refusal or neglect to perfect or enforce any terms of this Charge; and (iii) any irregularity, invalidity or unenforceability of any of the Secured Obligations or any present or future law or order of any government authority (whether of right or in fact) purporting to reduce or otherwise affect any of the Secured Obligations which shall be construed accordingly as if there were no such irregularity, unenforceability, invalidity, law or order. (c) Where any discharge (whether in respect of this Charge, any other security or otherwise) is made in whole or in part or any arrangement is made on the faith of any payment, security or other disposition which is avoided or must be repaid on bankruptcy, liquidation or otherwise without limitation, this security and the liability of the Chargor under this Charge shall continue as if there had been no such discharge or arrangement. 5. WARRANTIES AND UNDERTAKINGS The Chargor hereby warrants, represents and undertakes to the Secured Party that: (a) it is and will remain the legal and registered owner of the Shares and that it has not transferred, assigned, charged or in any way encumbered, and hereby covenants that it will not transfer, assign, charge or otherwise encumber hereafter, the whole or any part of the Security Assets to anyone other than the Secured Party, unless with the prior written approval of the Secured Party; (b) the Shares have been duly authorised, validly issued and are fully paid and non-assessable; (c) neither the Chargor nor any Company has granted any options or other rights of any nature in respect of the Shares, or any other shares in the capital of any Company to any third party other than those in favour of the Secured Party; (d) it is authorised in every respect to make this Charge and its obligations hereunder constitute its legal, valid and binding obligations enforceable against it in accordance with its terms; (e) this Charge when duly registered will create a valid first priority security interest in the Security Assets (with the priorities as among the Holders, Lenders and RHINOS Holders set forth herein) securing the payment of the Secured Obligations, and upon execution all filings and other actions necessary or desirable to perfect such security interest will be duly made or taken; and (f) it shall exercise its powers as a shareholder of each Company to procure that each Company will not issue new shares or classes of shares or register the transfer of shares without the prior written approval of the Secured Party. 6. REGISTRATION The Chargor hereby authorises the Secured Party at any time after the occurrence and during the continuance of an Event of Default to arrange for the Security Assets to be registered (if required by the Secured Party to perfect or ensure the priority of the Secured Party's security therein) and (under the powers of realisation herein conferred) to transfer or cause the Security Assets to be transferred to and registered in the name of the Secured Party or in the name of any purchasers or transferees from, or nominees of, the Secured Party and the Chargor undertakes from time to time to execute and sign all transfers, powers of attorney and other documents which the Secured Party may require for perfecting its title to any of the Security Assets or for vesting the same in it or in its nominees or in any purchasers or transferees of or from it. 7. POWERS The Secured Party may on notice to the Chargor at any time after the occurrence and during the continuance of an Event of Default exercise at its discretion (in the name of the Chargor or otherwise) and without any further consent or authority on the part of the Chargor in respect of any of the Security Assets, any voting rights and any powers or rights which may be exercised by the Secured Party or by the person or persons in whose name or names the Security Assets are registered or who is the holder thereof under the terms thereof or otherwise including, but without limitation, all the powers given to trustees under the laws of Bermuda in respect of securities or property subject to a trust; provided that upon the taking of any such action the Secured Party will promptly give notice to the Chargor and that in the absence of any such notice, the Chargor may and shall continue to exercise any and all rights with respect to the Security Assets, subject always to the terms hereof. 8. VOTING OF SHARES The Secured Party hereby acknowledges that until an Event of Default shall have occurred and be continuing, the Chargor shall be entitled to (i) vote or cause to be voted any and all of the Security Assets and (ii) give or cause to be given consents, waivers and ratifications in respect thereof, provided, however, that no vote shall be cast or consent, waiver or ratification given or taken which would be inconsistent with any of the provisions of this Charge. All such rights of the Chargor to vote or cause to be voted and to give or cause to be given consents, waivers and ratifications shall cease automatically, where an Event of Default occurs and is continuing. 9. ENFORCEMENT OF SECURITY Upon and at any time after the occurrence and during the continuance of an Event of Default, the Secured Party shall be entitled to put into force and exercise immediately, without further notice to the Chargor, as and when it may see fit, any and every power possessed by it by virtue of this Charge and, in particular (without prejudice to the generality of the foregoing): (a) may solely and exclusively exercise all voting and/or consensual powers pertaining to the Security Assets or any part thereof and may exercise such powers in such manner as the Secured Party may think fit; (b) may remove the then existing directors and officers (with or without cause) by dating and presenting the undated, signed letters of resignation delivered pursuant to this Charge; (c) may receive and retain all dividends, interest or other monies or assets accruing on or in respect of the Security Assets or any part thereof, such dividends, interest or other monies or assets to be held by the Secured Party, until applied in the manner described in Clause 9(g) as additional security charged under and subject to the terms of this Charge and any such dividends, interest or other monies or assets received by the Chargor after such time shall be held in trust by the Chargor for the Secured Party and paid or transferred to the Secured Party on demand; (d) may sell, transfer, grant options over or otherwise dispose of the Security Assets or any part thereof at such place and in such manner and at such price or prices as the Secured Party may deem fit, and thereupon the Secured Party shall have the right to deliver, assign and transfer in accordance therewith the Security Assets so sold, transferred, granted options over or otherwise disposed of; (e) the Secured Party shall not be obliged to make any enquiry as to the nature or sufficiency of any payment received by it under this Charge or to make any claim or to take any action to collect any monies assigned by this Charge or to enforce any rights or benefits assigned to the Secured Party by this Charge or to which the Secured Party may at any time be entitled hereunder; (f) upon any sale of the Security Assets or any part thereof by the Secured Party the purchaser shall not be bound to see or enquire whether the Secured Party's power of sale has become exercisable in the manner provided in this Charge and the sale shall be deemed to be within the power of the Secured Party, and the receipt of the Secured Party for the purchase money shall effectively discharge the purchaser who shall not be concerned with the manner of application of the proceeds of sale or be in any way answerable therefor provided that the purchaser purchases the Security Assets in an arm's-length transaction; (g) all monies received by the Secured Party pursuant to this Charge prior to the termination of the Subordination Period shall be held by it upon trust in the first place to pay or make good all such expenses, liabilities, losses, costs, duties, fees, charges or other monies whatsoever as may have been paid or incurred by the Secured Party in exercising any of the powers specified or otherwise referred to in this Charge and the balance shall be applied in the following manner: (i) FIRSTLY: to Representative for application toward payment of the Debenture Obligations; (ii) SECONDLY: ratably to (A) Administrative Agent for application toward payment of the Credit Agreement Obligations and (B) RHINOS Holders for application toward payment of the RHINOS Obligations (for purposes hereof, "ratably" on any date of determination, shall mean the proportion that the principal amount outstanding at such time under the Credit Agreement or the RHINOS (as the case may be) bears to the sum of the principal amount outstanding at such time under the Credit Agreement and the RHINOS); (iii) THIRDLY: the surplus (if any) shall be paid to the Chargor as its interests may appear or to whomsoever else may be entitled thereto; (h) all monies received by the Secured Party pursuant to this Charge on or after the termination of the Subordination Period shall be held by it upon trust in the first place to pay or make good all such expenses, liabilities, losses, costs, duties, fees, charges or other monies whatsoever as may have been paid or incurred by the Secured Party in exercising any of the powers specified or otherwise referred to in this Charge and the balance shall be applied in the following manner: (i) FIRSTLY: ratably to (1) Representative for application toward payment of the Debenture Obligations, (2) Administrative Agent for application toward payment of the Credit Agreement Obligations, and (3) RHINOS Holders for application toward payment of the RHINOS Obligations (for purposes hereof, "ratably" on any date of determination, shall mean the proportion that the principal amount outstanding at such time under the Debentures, the Credit Agreement, or the RHINOS (as the case may be) bears to the sum of the principal amount outstanding at such time under the Debentures, the Credit Agreement, and the RHINOS); and (ii) SECONDLY: the surplus (if any) shall be paid to the Chargor as its interests may appear or to whomever else may be entitled thereto; (i) neither the Secured Party nor its agents, managers, officers, employees, delegates and advisers shall be liable for any claim, demand, liability, loss, damage, cost or expense incurred or arising in connection with the exercise or purported exercise of any rights, powers and discretions hereunder in the absence of gross negligence or dishonesty; (j) the Secured Party shall not by reason of the taking of possession of the whole or any part of the Security Assets or any part thereof be liable to account as mortgagee-in-possession or for anything except actual receipts or be liable for any loss upon realisation or for any default of omission for which a mortgagee-in- possession might be liable; and (k) the powers provided in this Charge are cumulative with and not exclusive of powers provided by law or equity independently of this Charge. 10. RECEIVER (a) In addition to the powers conferred in this Charge, at any time after the security hereby created shall become enforceable, the Secured Party may appoint in writing a receiver or a receiver and manager (herein the "Receiver") of all or any part of the Security Assets and may remove the Receiver so appointed and appoint another in his stead and may from time to time fix the remuneration of the Receiver. The power to appoint a Receiver over all the Security Assets may be exercised whether or not a Receiver has already been appointed over part of it. (b) Subject to any specific limitations in the terms of appointment, a Receiver shall have the powers conferred on receivers by law or equity in addition to all the Secured Party's powers including, but not limited to, any one or more of the powers in clause 9 each of which is to be construed as if a reference to the Secured Party includes a reference to the Receiver. (c) The Secured Party shall not be responsible for misconduct or negligence on the part of the Receiver. 11. PROCEDURE FOR PRIVATE SALE Without prejudice to the generality of Clause 9, in the event that the Secured Party determines in its discretion to sell the Security Assets in one or more private sales: (a) the Secured Party may sell the Security Assets or any part thereof in one or more parcels; (b) the Secured Party may sell for cash, on credit or for future delivery, at such time or times and at such price or prices and upon such other terms as the Secured Party may deem commercially reasonable; (c) the Secured Party may in its discretion establish a reserve price for the Security Assets or any part thereof; (d) the Secured Party shall not be obligated to make any sale regardless of any offer to sell which the Secured Party may have made; (e) the Secured Party may postpone or cancel the sale, modify the terms and conditions of the sale, withdraw Security Assets from the sale at any time, including by announcement at the time and place fixed for the sale, and such sale may, without further notice, be made at the time and place to which it was so adjourned; (f) the Chargor unconditionally waive any claims against the Secured Party arising by reason of the fact that the price of which any Security Assets may have been sold at such a private sale was less than the price which might have been attained at a public sale, even if the Secured Party accepts the first offer received and does not offer such Security Assets to more than one offeree provided that the purchaser purchases the Security Assets for value in an arms-length transaction; and (g) the Chargor unconditionally agrees that the Secured Party may acquire the Security Assets or sell them to an affiliate. 12. INDEMNITIES (a) The Chargor will indemnify and save harmless the Secured Party and each agent or attorney appointed under or pursuant to this Charge from and against any and all expenses, claims, liabilities, losses, taxes, costs, duties, fees and charges suffered, incurred or made by the Secured Party or such agent or attorney (the "Liabilities"): (i) in the exercise or purported exercise of any rights, powers or discretions vested in them pursuant to this Charge; (ii) in the preservation or enforcement of the Secured Party's rights under this Charge or the priority thereof; or (iii) on the release of any part of the Security Assets from the security created by this Charge; except where such Liabilities shall be found by a court of competent jurisdiction to have resulted from the gross negligence or willful misconduct of the Secured Party or such agent or attorney, and the Secured Party or such agent or attorney may retain and pay all sums in respect of the same out of money received under the powers conferred by this Charge. All amounts recoverable by the Secured Party or such agent or attorney or any of them shall be recoverable on a full indemnity basis. (b) If, under any applicable law or regulation, and whether pursuant to a judgement being made or registered against the Chargor or the bankruptcy or liquidation of the Chargor or for any other reason any payment under or in connection with this Charge is made or falls to be satisfied in a currency (the "Payment Currency") other than the currency in which such payment is due under or in connection with this Charge (the "Contractual Currency") then to the extent that the amount of such payment actually received by the Secured Party when converted into the Contractual Currency at the rate of exchange, falls short of the amount due under or in connection with this Charge, the Chargor, as a separate and independent obligation, shall indemnify and hold harmless the Secured Party against the amount of such shortfall. For the purposes of this Clause 12(b) "rate of exchange": means the rate at which the Secured Party is able on or about the date of such payment to purchase the Contractual Currency with the Payment Currency and shall take into account any premium payable to third parties and other costs of exchange with respect thereto. 13. EXPENSES The Chargor shall pay to the Secured Party on demand all costs, fees and expenses (including, but not limited to, legal fees and expenses) and taxes thereon incurred by the Secured Party or for which the Secured Party may become liable in connection with: (a) the negotiation, preparation and execution of this Charge; (b) the preserving or enforcing of, or attempting to preserve or enforce, any of the rights under this Charge or the priority hereof; (c) any variation of, or amendment or supplement to, any of the terms of this Charge; and/or (d) any consent or waiver required from the Secured Party in relation to this Charge; and in any case referred to in clauses 13(c) and 13(d) regardless of whether the same is actually implemented, completed or granted, as the case may be. 14. FURTHER ASSURANCE The Chargor further agrees that at any time and from time to time, upon the written request of the Secured Party, it will promptly and duly execute and deliver any and all such further instruments and documents as the Secured Party may deem necessary, desirable or appropriate for the purpose of obtaining the full benefit of this Charge and of the rights and powers herein granted. 15. PROTECTION OF PURCHASER No purchaser or other person dealing with the Secured Party or any Receiver or with its or his attorneys shall be concerned to enquire (i) whether any power exercised or purported to be exercised by it, him or them has become exercisable, (ii) whether any money remains due on the security hereby created, (iii) as to the propriety and regularity of any of its, his or their actions or (iv) as to the application of any money paid to him, it or them. In the absence of mala fides on the part of such purchaser or other person, such dealings shall be deemed so far as regards the safety and protection of such purchaser or other person to be within the powers hereby conferred and to be valid accordingly. 16. DELEGATION The Secured Party may at its expense at any time employ agents, managers, employees, advisers, attorneys and others on such terms as it sees fit for any of the purposes set out herein. 17. LIABILITY OF SECURED PARTY The Secured Party and any Receiver shall not be liable for any losses arising in connection with the exercise or purported exercise of any of their rights, powers and discretions in good faith hereunder and, in particular, without limitation as mortgagee in possession or for anything except actual receipts. 18. RELEASE Under no circumstances shall the Secured Party be deemed to assume any responsibility for or obligation or duty, with respect to any part of all of the Security Assets or this Charge of any nature or kind or any matter or proceeding arising out of or related thereto; but the same shall be at the Chargor's sole risk at all times. The Secured Party shall not be required to take any action of any kind to collect, preserve or protect its or any Chargor's rights in the Security Assets or against other parties thereto. 19. NOTICE Any notice, certificate, consent, determination or other communication required or permitted to be given or made under this Charge will be in writing and will be effectively given and made if (i) delivered personally, (ii) sent by prepaid courier service or mail, or (iii) sent prepaid by fax or other similar means of electronic communication, in each case to the applicable address set out below: (a) if to the Chargor, to: ________________ 44 Church Street Hamilton HM12 Bermuda (b) if to the Secured Party, to: Bank of America, N.A. 231 S. LaSalle Street Chicago, Illinois 60697 Attention: Any such communication so given or made will be deemed to have been given or made and to have been received on the day of delivery if delivered, or on the day of faxing or sending by other means of recorded electronic communication, provided that such day in either event is a business day and the communication is so delivered, faxed or sent prior to 4:30 p.m. on such day. Otherwise, such communication will be deemed to have been given and made and to have been received on the next following business day. Any such communication sent by mail will be deemed to have been given and made and to have been received on the third business day following the mailing thereof; provided however that no such communication will be mailed during any actual or apprehended disruption of postal services. Any such communication given or made in any other manner will be deemed to have been given or made and to have been received only upon actual receipt. Any Party may from time to time change its address for notice in the same manner as set out above. 20. ENUREMENT This Charge shall be binding upon the Chargor and its successors and permitted assigns, and enure to the benefit of the Secured Party and its successors and permitted assigns. 21. COUNTERPARTS This Charge may be executed in several counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same Charge. 22. TIME OF THE ESSENCE Time shall be of the essence of this Charge, both as regards the dates and periods mentioned and as regards any dates and periods which may be substituted for them in accordance with this Charge or by agreement in writing between the parties. 23. GOVERNING LAW This Charge shall be governed by and construed in accordance with the laws of Bermuda. 24. JURISDICTION (a) The parties irrevocably agree that the courts of Bermuda are to have jurisdiction to settle any disputes which may arise out of or in connection with this Charge and that accordingly any suit, action or proceeding arising out of or in connection with this Charge (in this clause referred to as "Proceedings") may be brought in such courts; (b) Nothing contained in this clause shall limit the right of the Secured Party to take Proceedings against the Chargor in any other court of competent jurisdiction, nor shall the taking of Proceedings in one or more jurisdictions preclude the taking of Proceedings in any other jurisdiction, whether concurrently or not; (c) The Chargor irrevocably waives (and irrevocably agrees not to raise) any objection which he or she may have now or subsequently to the laying of the venue of any Proceedings in any such court as is referred to in this clause any claim that any such Proceedings have been brought in an inconvenient forum and further irrevocably agrees that a judgment in any Proceedings brought in any such court as is referred to in this clause shall be conclusive and binding upon the Chargor and may be enforced in the courts of any other jurisdiction; 25. COLLATERAL AGENT (a) Representative (on behalf of Holders), Administrative Agent (on behalf of Lenders), and RHINOS Holders appoint Bank of America, N.A. as Collateral Agent to serve as nominee and agent for Holders, Lenders, and RHINOS Holders and to act in their names and on their behalf in and under this Charge and with respect to the Security Assets in accordance with this Clause 25. Collateral Agent accepts such appointment. Collateral Agent is hereby specifically authorized by Holders, Lenders, and RHINOS Holders: (i) to enter into this Charge on behalf of Holders, Lenders, and RHINOS Holders and to act as Holders', Lenders', and RHINOS Holders' nominee and on Holders', Lenders', and RHINOS Holders' behalf in and under this Charge; (ii) to hold the Security Assets and proceeds therefrom ever delivered to, or received by, Collateral Agent to secure the Secured Obligations, as agent and bailee for each Holder, each Lender, and each RHINOS Holder for all purposes; (iii) to take such action with respect this Charge and the Security Assets (including, without limitation, the exercise of any remedies hereunder or the release of all or any part of the Security Assets), as directed by the Administrative Agent without the consent or approval of any Holder or any RHINOS Holder; (iv) to receive all documents and items to be furnished to Holders, Lenders, and RHINOS Holders under this Charge; (v) to be the secured party, mortgagee, beneficiary, recipient, chargee, and similar party in respect of the Security Assets for the benefit of Holders, Lenders, and RHINOS Holders; (vi) to promptly distribute to Representative and Administrative Agent all material information, requests, documents, and items received from Chargor under this Charge; (vii) to promptly distribute (in accordance with the application of payment provided in this Charge) to Representative (for the benefit of Holders), to Administrative Agent (for the benefit of Lenders), or to RHINOS Holders, as the case may be, any proceeds of the Security Assets; (viii) to take any action that may be necessary to perfect and maintain the perfection and priority of the Holders', Lenders', and RHINOS Holders' liens in and to the Security Assets; and (ix) to exercise such additional powers as are reasonably incidental to the performance of the foregoing. However, Collateral Agent may not be required to take any action that exposes it to personal liability or that is contrary to any agreement or applicable law. (b) Collateral Agent may perform any of its duties or exercise any of its rights hereunder by or through its affiliates and representatives. Collateral Agent (and its representatives) (a) is entitled to rely upon (and shall be protected in relying upon) any written or oral statement believed by it or them to be genuine and correct and to have been signed or made by the proper Person and, with respect to legal matters, upon opinion of counsel it has selected, (b) is not deemed to have notice of the occurrence of an Event of Default unless a responsible officer of Collateral Agent who handles matters associated with the Loan Documents and transactions thereunder, has actual knowledge or has been notified by Representative or Administrative Agent, and (d) is entitled to consult with legal counsel (including counsel for MRM), independent accountants, and other experts it has selected and is not liable for any action taken or not taken in good faith by it in accordance with the advice of counsel, accountants, or experts. (c) Neither Collateral Agent nor any of its affiliates or representatives will be liable for any action taken or omitted to be taken by it or them under this Charge in good faith and believed by it or them to be within the discretion or power conferred upon it or them by this Charge or be responsible for the consequences of any error of judgment (except for fraud, gross negligence, or willful misconduct), and neither Collateral Agent nor any of its affiliates or representatives has a fiduciary relationship with any Holder, any Lender, or any RHINOS Holder by virtue of this Charge. Except as otherwise expressly set forth in this Clause 25, Collateral Agent shall not be responsible in any manner to any Holder, any Lender, or any RHINOS Holder for the effectiveness, enforceability, genuineness, validity, or the due execution of this Charge or for any representation, warranty, document, certificate, report, or statement made therein or furnished under or in connection therewith, or be under any obligation to any Holder, any Lender, or any RHINOS Holder to ascertain or to inquire as to the performance or observation of any of the terms, covenants, or conditions of this Charge on the part of any party hereto other than Collateral Agent. (d) Unless indemnified to its satisfaction against loss, cost, liability, and expense, Collateral Agent may not be compelled to do any act under this Charge or to take any action toward the execution or enforcement of the powers hereby created or to prosecute or defend any suit in respect of this Charge. If Collateral Agent requests instructions from Representative or Administrative Agent, as the case may be, with respect to any act or action in connection with this Charge, Collateral Agent is entitled to refrain (without incurring any liability to any Person by so refraining) from that act or action unless and until it has received instructions. In no event, however, may Collateral Agent or any of its representatives be required to take any action that it or they determine could incur for it or them criminal or onerous civil liability. Without limiting the generality of the foregoing, no Holder, Lender, or RHINOS Holder has any right of action against Collateral Agent as a result of Collateral Agent's acting or refraining from acting under this Clause 25 in accordance with instructions of Representative or Administrative Agent, as the case may be. (e) Each Holder, each Lender, and each RHINOS Holder agrees to indemnify Collateral Agent and its Affiliates and Representatives and hold them harmless from and against (but limited to such Holder's, Lender's, and RHINOS Holder's Proportionate Part thereof) any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, reasonable expenses, and reasonable disbursements of any kind or nature whatsoever that may be imposed on, asserted against, or incurred by them in any way relating to or arising out of this Charge, or any action taken or omitted by them under this Charge (including any of the foregoing arising from the negligence of Collateral Agent, its Affiliates or representatives) if Collateral Agent and its Representatives are not reimbursed for such amounts by Chargor; provided that, Collateral Agent, its Affiliates, and representatives shall not have the right to be indemnified for its or their own fraud, gross negligence, or willful misconduct. Remainder of Page Intentionally Blank. Signature Page(s) to Follow. IN WITNESS WHEREOF, the parties hereto have caused this Charge to be duly executed with the intent that is shall constitute a deed under Bermuda law the day and year first above written. [CHARGOR] By __________________________________ Name:_____________________________ Title:____________________________ BANK OF AMERICA, N.A., as Collateral Agent for the benefit of Holders, Lenders and RHINOS Holders By __________________________________ Name:_____________________________ Title:____________________________ BANK OF AMERICA, N.A., as Administrative Agent for the benefit of Lenders (for purposes of Clause 25) By __________________________________ Name:_____________________________ Title:____________________________ XL INSURANCE LTD., as Representative for the benefit of Holders (for purposes of Clause 25) By __________________________________ Name:_____________________________ Title:____________________________ INTREPID MASTER FUNDING TRUST, as RHINOS Holders (for purposes of Clause 25) By __________________________________ Name:_____________________________ Title:____________________________ Signature Page to Share Charge SCHEDULE I Name of Company Shares --------------- ------ PRICING SCHEDULE ---------------- Each of "Eurodollar Margin," "Commitment Fee Rate" and "Utilization Fee Rate" means, for any date, the rate set forth below in the row opposite such term and in the column corresponding to the "Pricing Level" (and, in the case of the Utilization Fee Rate, the utilization of the Commitments) that applies at such date:
- ----------------------------------------------------------------------------------------------------------------- Level I Level II Level III Level IV Level V Level VI - ----------------------------------------------------------------------------------------------------------------- Eurodollar Margin .50% .75% .95% 1.15% 1.50% 2.00% - ----------------------------------------------------------------------------------------------------------------- Commitment Fee Rate .125% .15% .175% .25% .325% .45% - ----------------------------------------------------------------------------------------------------------------- Utilization Fee Rate when 30% * Utilization ** .05% .10% .125% .125% .15% .25% 60% - ----------------------------------------------------------------------------------------------------------------- Utilization Fee Rate when 60% * Utilization .10% .20% .25% .25% .30% .50% - -----------------------------------------------------------------------------------------------------------------
* Less than ** Less than or equal to For purposes of this Schedule, the following terms have the following meanings, subject to the last paragraph of this Schedule: "Level I Pricing" applies at any date if, at such date, Mutual Risk is rated A+ or higher by S&P. "Level II Pricing" applies at any date if, at such date, Mutual Risk is rated A by S&P. "Level III Pricing" applies at any date if, at such date, Mutual Risk is rated A- or BBB+ by S&P. "Level IV Pricing" applies at any date if, at such date, Mutual Risk is rated BBB S&P. "Level V Pricing" applies at any date if, at such date, Mutual Risk is rated BBB- by S&P. "Level VI Pricing" applies at any date if, at such date, no other Pricing Level applies. "Pricing Level" refers to the determination of which of Level I, Level II, Level III, Level IV, Level V or Level VI applies at any date. The credit ratings to be utilized for purposes of this Schedule are those assigned by S&P to Mutual Risk as an issuer or to the long-term senior unsecured, non-credit enhanced debt of Mutual Risk. The rating in effect at any date is that in effect at the close of business on such date. If the rating system of S&P shall change, Mutual Risk and the Administrative Agent shall negotiate in good faith to amend this Pricing Schedule to reflect such changed rating system and, pending the effectiveness of such amendment (which shall require the approval of Required Lenders), the pricing shall be determined by reference to the rating most recently in effect prior to such change. If S&P no longer rates Mutual Risk as an issuer or assigns ratings to the long-term senior unsecured, non-credit enhanced debt of Mutual Risk, the rating to be used to determine which Pricing Level applies shall be the "financial strength" rating assigned by S&P to the Insurance Company Subsidiaries of Mutual Risk, and the issuer rating of Mutual Risk or the rating assigned to the long-term senior unsecured, non-credit enhanced debt of Mutual Risk shall be deemed to be three ratings below such "financial strength" rating (e.g., financial strength rating of A+ results in Level III Pricing). EX-10.8 15 dex108.txt ASSIGNMENT OF ACCOUNT Exhibit 10.8 ASSIGNMENT OF ACCOUNT Dated as of May 17, 2001 For value received, MUTUAL RISK MANAGEMENT LTD., a company organized under the laws of Bermuda (the "Assignor"), whose address is 44 Church Street, Hamilton HM 12 Bermuda, hereby (i) transfers, pledges, charges, and grants to the Holders (defined below) a first priority security interest and (ii) transfers, pledges, and grants to the Administrative Agent (defined below) and the RHINOS Holders (defined below) a second priority security interest (subordinate and inferior only to the first priority security interest in favor of the Holders) in (a) Account No. 0003493170 at Fleet National Bank, styled "Mutual Risk Management Ltd.," and (b) any extensions or renewals of such account if such account is one which may be extended or renewed (such account and any extensions or renewals being hereinafter called the "Account"), together with all of the Assignor's right, title, and interest (whether now existing or hereafter created or arising) in and to the Account, all sums from time to time on deposit therein, credited thereto, or payable thereon, and all instruments, documents, certificates, and other writings evidencing the Account (collectively, the "Collateral"), on the following terms and conditions: 1. As used herein: Account shall have the meaning assigned thereto in the introductory paragraph of this Agreement. Administrative Agent shall mean Bank of America, N.A., in its capacity as administrative agent for the Lenders (herein so called) party to that certain Credit Agreement (herein so called) dated September 21, 2000, among Assignor, Mutual Group, Ltd., such Lenders and the Administrative Agent, as amended, supplemented, modified, or restated from time to time. Agreement shall mean this Assignment of Account dated as of May 17, 2001. Assignor shall have the meaning assigned thereto in the introductory paragraph of this Agreement. Collateral Agreement means that certain Collateral Agreement dated as of May 17, 2001, by and between First Union National Bank, as collateral agent, and Assignor, a copy of which is attached hereto. Debentures shall mean (i) the 9 3/8% Convertible Exchangeable Debentures due 2006 of the Assignor and (ii) the 9 3/8% Convertible Debentures due 2006 of Newco (as defined in the Securities Purchase Agreement); provided, however, that "Debentures" shall not include the RHINOS Debentures. Holders shall mean the holders from time to time of the Debentures. Payment Event means the occurrence of any event which shall cause all or any portion of the Senior Indebtedness (as defined in the Subordination Agreement) to become due prior to the expiration of the Subordination Period (as defined in the Subordination Agreement). Representative means XL Insurance Ltd., acting hereunder as representative of the Holders. RHINOS shall have the meaning assigned thereto in the Securities Purchase Agreement and, for purposes of this Agreement, also means and includes the RHINOS Debentures (as defined in the Securities Purchase Agreement). RHINOS Debentures shall have the meaning assigned thereto in the Securities Purchase Agreement. RHINOS Holders means the holders from time to time of the RHINOS. Securities Purchase Agreement shall have the meaning assigned thereto in the Debentures. Subordination Agreement shall mean that certain Subordination Agreement dated as of May 17, 2001, among the Holders, the Lenders, the RHINOS Holders, the Administrative Agent, the Representative and certain other persons or entities. 2. This assignment of the Account and the Collateral shall secure (a) on a first priority basis, the payment of all obligations and indebtedness arising under or pursuant to the Debentures (the "Debenture Obligations"), and (b) on a second priority, pari passu basis, (i) the payment of all "Obligations" as defined in the Credit Agreement and any subrogation rights that the Administrative Agent or any Lender may have under the Subordination Agreement (the "Credit Agreement Obligations") and (ii) the payment of all obligations and indebtedness of the Assignor arising under or pursuant to the RHINOS and any subrogation rights that any RHINOS Holder may have under the Subordination Agreement (the "RHINOS Obligations"). 3. All funds deposited or held in the Account at any time shall be invested in U.S. Government Obligations, as defined in and subject to the procedures and limitations with respect to investments set forth in the Collateral Agreement. 4. The Assignor represents and warrants that (a) the Assignor is the sole owner of the Account and the Collateral and has authority to execute and deliver this Agreement; (b) no financing statement covering the Collateral, or any part thereof, has been filed with any filing officer and no other assignment or security agreement has been executed with respect to the Account or the Collateral; and (c) the Account and the Collateral are not subject to any lien or offset of any person, firm, or corporation other than the Holders on a first priority basis and the Administrative Agent and the RHINOS Holders on a second priority basis. 5. So long as the Debenture Obligations, the Credit Agreement Obligations, or the RHINOS Obligations or any part thereof remain unpaid and this Agreement remains effective, the Assignor covenants and agrees (a) from time-to-time promptly to execute and deliver to the Representative, the Administrative Agent, or the RHINOS Holders, as the case may be, all such other assignments, certificates, passbooks, supplemental writings, and financing statements and do all other acts or things as the Representative, the Administrative Agent, or the RHINOS Holders, as the case may be, may reasonably request in order to more fully evidence and perfect the security interests herein created; (b) promptly to furnish the Representative, the Administrative Agent, or the RHINOS Holders, as the case may be, with any information or writings which the Representative, the Administrative Agent, or the RHINOS Holders, as the case may be, may reasonably request concerning the Account, including copies of monthly bank statements; (c) promptly to notify the Representative, the Administrative Agent, and the RHINOS Holders of any claim, action, or proceeding affecting title to the Account, or any part thereof, or the security interest therein, and, at the request of the Representative, the Administrative Agent, or the RHINOS Holders, as the case may be, appear in and defend any such action or proceeding; and (d) to pay to the Representative, the Administrative Agent, or the RHINOS Holders, as the case may be, the amount of any costs and expenses, including reasonable attorneys' fees, incurred by the Representative, the Administrative Agent, or the RHINOS Holders, as the case may be, following any Payment Event in demanding and collecting the Account. The Assignor covenants and agrees that after the date hereof, without the prior consent of the Representative, the Administrative Agent, and the RHINOS Holders, the Assignor will not create any other security interest in, mortgage, or otherwise encumber, or assign the Account, or any part thereof, or permit the same to be or become subject to any lien, attachment, execution, sequestration, other legal or equitable process, or any encumbrance of any kind or character. 6. The Assignor hereby authorizes the Representative upon the occurrence of a Payment Event and so long as any part of the Debenture Obligations remain outstanding (a) to withdraw, collect, and receipt for any and all funds on deposit in or payable on the Account; (b) on behalf of the Assignor to endorse the name of the Assignor upon any checks, drafts, or other instruments payable to the Assignor evidencing payment on the Account; (c) to surrender or present for notation of withdrawal the passbook, certificate, or other documents issued to the Assignor in connection with the Account; and (d) to exercise any other rights or take any other actions specified herein or otherwise as if the Representative was the owner of the Account. Neither the Representative nor the Holders shall be liable for any loss of interest on or any penalty or charge assessed against funds in, payable on, or credited to the Account as a result of the exercise by the Representative or the Holders of any of their rights or remedies under this Agreement. 7. The Representative shall notify the holder of the Account of the amount of any distribution to Holders permitted hereunder. Any amounts remaining in the Account after distribution to the Holders pursuant to instructions from the Representative shall be distributed to Administrative Agent. Any and all funds distributed from the Account shall be applied as follows: first, to the principal of the Debentures, second, to accrued interest on the Debentures, third, to the remainder of the Debenture Obligations, and any excess shall be paid ratably to (i) the Administrative Agent for application toward payment of the Credit Agreement Obligations and (ii) the RHINOS Holders for application toward payment of the RHINOS Obligations (for purposes hereof, "ratably" on any date of determination, shall mean the proportion that the principal amount outstanding at such time under the Credit Agreement or the RHINOS (as the case may be) bears to the sum of the principal amount outstanding at such time under the Credit Agreement and the RHINOS). Assignor hereby irrevocably agrees to such application of payment. 8. Upon the earlier of (a) full and final payment of the Debenture Obligations, the Credit Agreement Obligations, and the RHINOS Obligations and (b) the expiration of the Subordination Period (as defined in the Subordination Agreement), provided that upon the expiration of the Subordination Period, (i) there are no Debentures that have become due and payable pursuant to Section 3(b) of the Debentures and that have not been indefeasibly paid in full in cash, and (ii) there are not then outstanding any Credit Agreement Obligations or RHINOS Obligations consisting of subrogation rights under the Subordination Agreement, the rights of the Holders, the Administrative Agent, and the RHINOS Holders in and to the Account and the Collateral hereunder will be deemed to be released and of no further force and effect. 9. All rights, titles, interests, liens, and remedies of the Holders, the Administrative Agent, and the RHINOS Holders, as the case may be, hereunder are cumulative of each other and of every other right, title, interest, lien, or remedy which the Holders, the Administrative Agent, and the RHINOS Holders, as the case may be, may otherwise have at law or in equity or under any other contract or other writing for the enforcement and collection of the Debenture Obligations, the Credit Agreement Obligations, or the RHINOS Obligations, as the case may be, and the exercise of one or more rights or remedies shall not prejudice or impair the concurrent or subsequent exercise of other rights or remedies. 10. No delay or omission by the Holders, the Administrative Agent, or the RHINOS Holders in exercising any right or power hereunder, or under any other writings executed by the Assignor as security for or in connection with the Debenture Obligations, the Credit Agreement Obligations, or the RHINOS Obligations, shall impair any such right or power or be construed as a waiver thereof or any acquiescence therein, nor shall any single or partial exercise of any such right or power preclude other or further exercise thereof, or the exercise of any other right or power of the Holders, the Administrative Agent, or the RHINOS Holders hereunder or under such other writings. 11. The Assignor agrees that the Account is a "Securities Account" and all assets in the Account are "Financial Assets" (as both terms are defined in Article 8 of the Uniform Commercial Code). 12. Any notice or other communication required or permitted pursuant to this Agreement shall be deemed given (a) when personally delivered to any officer of the party to whom it is addressed, (b) on the 3 earlier of actual receipt thereof or five (5) days following posting thereof by certified or registered mail, postage prepaid, (c) upon actual receipt thereof when sent by a recognized overnight delivery service, or (d) upon actual receipt thereof when sent by facsimile to the number set forth below with telephone communication confirming receipt and subsequently confirmed by registered, certified, or overnight mail to the address set forth below, in each case, addressed to the Assignor, the Representative, the Administrative Agent, or the RHINOS Holders at its address set forth below or at such other address as has been furnished in writing by a party to the other by like notice:
If to the Assignor: c/o Mutual Risk Management Ltd. 44 Church Street Hamilton HM12 Bermuda Attention: Chief Executive Officer Telephone: (441) 295-5688 Facsimile: (441) 292-1867 with a copy to: Mayer, Brown & Platt 190 South LaSalle Street Chicago, Illinois 60603 Attention: Richard W. Shepro Telephone: (312) 782-0600 Facsimile: (312) 701-7711 If to the Holders: XL Insurance Ltd., as Representative of the Holders c/o XL Capital Ltd. XL House 1 Bermudiana Street Hamilton HM11 Bermuda Attention: Paul Giordano Telephone: (441) 294-7162 Facsimile: (441) 292-5280 with a copy to: Cahill Gordon & Reindel 80 Pine Street New York, New York 10005-1702 Attention: Immanuel Kohn Telephone: (212) 701-3000 Facsimile: (212) 269-5420 If to the Administrative Agent: Bank of America, N.A. 231 S. LaSalles Chicago, Illinois 60697 Attention: Nita Savage Telephone: (312) 828-4854 Facsimile: (312) 987-0889 with a copy to: Haynes and Boone, LLP 901 Main Street, Suite 3100 Dallas, Texas 75202 Attention: Kenneth A. Rogers
4 Telephone: (214) 651-5951 Facsimile: (214) 200-0833 If to the RHINOS Holders: Intrepid Master Funding Trust c/o Wilmington Trust Company, as Owner-Trustee Rodney Square North 1100 North Market Street Wilmington, Delaware 19890 Attention: Mary Kay Pupillo Telephone: (302) 651-8558 Facsimile: (302) 651-8882 with a copy to: Banc of America Securities LLC 9 West 57/th/ Street New York, New York 10019 Attention: William Caccamise Telephone: (212) 847-5109 Facsimile: (212) 847-5124
13. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE INTERNAL LAWS OF THE STATE OF NEW YORK. 14. This Agreement shall be binding on the Assignor and its successors and assigns and shall inure to the benefit of the Assignor, the Holders, the Administrative Agent, and the RHINOS Holders and their respective successors and assigns. Remainder of Page Intentionally Left Blank. Signature Page to Follow. 5 ASSIGNOR ACKNOWLEDGES RECEIPT OF A COPY OF THIS ASSIGNMENT. ASSIGNOR: -------- Mutual Risk Management Ltd., a company organized under the laws of Bermuda By: _______________________________________ Name:__________________________________ Title:_________________________________ 6 EX-10.9 16 dex109.txt DEPOSIT ACCOUNT CONTROL AGREEMENT Exhibit 10.9 DEPOSIT ACCOUNT CONTROL AGREEMENT May 17, 2001 Mail Stop: CT EH 40225C Fleet National Bank 777 Main Street Hartford, CT 06115 Ladies and Gentlemen: This letter is to notify you (the "Depository Bank") that, pursuant to that certain Assignment of Account of even date herewith, a copy of which is attached hereto (the "Assignment of Account"), Mutual Risk Management Ltd., a company organized under the laws of Bermuda (the "Pledgor"), has (a) assigned to the Holders (as defined in the Assignment of Account) of certain Debentures (as defined in the Assignment of Account) and granted to the Holders a first priority security interest in and lien upon, and (b) assigned to the Administrative Agent (as defined in the Assignment of Account), for the benefit of the Lenders (as defined in the Assignment of Account), and the RHINOS Holders (as defined in the Assignment of Account), and granted to the Administrative Agent and the RHINOS Holders a second priority security interest in and lien upon, (a) Account No. 0003493170 (the "Account") maintained by the Pledgor with you, (b) any extensions or renewals of the Account if the Account is one which may be extended or renewed, and (c) all of the Pledgor's right, title, and interest (whether now existing or hereafter created or arising) in and to the Account, all sums from time to time on deposit therein, credited thereto, or payable thereon, and all instruments, documents, certificates, and other writings evidencing the Account (the items described in clauses (a), (b) and (c) being herein collectively called the "Collateral"). XL Insurance Ltd. (the "Representative") is acting as agent and representative of the Holders of the Debentures for purposes of this letter agreement. In connection therewith, the parties hereto agree (which agreement by the Pledgor will be construed as instructions to the Depository Bank): 1. The Depository Bank is instructed to deliver to the Representative, the Administrative Agent, and the RHINOS Holders copies of monthly statements on the Account. 2. The Account will be styled: "Mutual Risk Management Ltd." 3. All dividends, interest, gains, and other profits on the Collateral will be reported in the name and tax identification number of the Pledgor. 4. During the effectiveness of this agreement, the Depository Bank will not allow any of the Collateral or any interest therein to be sold, transferred, or withdrawn by or for the benefit of the Pledgor. 5. This letter agreement gives the Representative, the Administrative Agent, and the RHINOS Holders "control" of the Account and the Collateral. The Depository Bank agrees to comply with any order or instruction from the Representative (which shall also be deemed to be an order or instruction from the Administrative Agent and the RHINOS Holders for purposes of this letter agreement) as to the withdrawal or disposition of any funds from time to time credited to the Account, or as to any other matters relating to the Collateral, without the further consent of the Pledgor or any other person. The Depository Bank shall be fully entitled to rely upon such instructions from the Representative even if such instructions are contrary to any instructions or demands that the Pledgor, the Administrative Agent, or any other person may give to the Depository Bank. The Depository Bank shall have no duty to inquire or determine whether the Representative is entitled, under the Assignment of Account, to give any such instructions. Any amounts remaining in the Account after distribution pursuant to instructions from the Representative shall be distributed to Administrative Agent. 6. The Pledgor agrees to indemnify and hold the Depository Bank, its officers and employees, harmless from and against any and all claims, causes of action, liabilities, lawsuits, demands, and/or damages, including, without limitation, any and all costs, including court costs and reasonable attorneys' fees, that may arise or result from the Depository Bank entering into and performing its obligations under this letter agreement except to the extent that such claims, causes of action, liabilities, lawsuits, demands, and/or damages are found in a final, non-appealable judgment by a court of competent jurisdiction to have resulted from the gross negligence or willful misconduct of the Depository Bank. In addition, the Pledgor agrees to pay all reasonable costs and expenses of the Depository Bank in entering into and administering this agreement. 7. The Depository Bank represents that it has not received notice regarding any lien, encumbrance, or other claim to the Account or the Collateral from any person other than pursuant to this letter agreement and has not entered into another agreement with any other party to act on such party's instructions with respect to the Account. The Depository Bank further agrees not to enter into any such agreement with any other party. 8. Each of the parties executing this letter agreement agrees that the Account is a "Securities Account" and all assets in the Account are "Financial Assets" (as both terms are defined in Article 8 of the Uniform Commercial Code). 9. Unless the Depository Bank has obtained the Representative's, the Administrative Agent's, and the RHINOS Holders' prior written consent, the Depository Bank agrees not to exercise any right of recoupment or set-off, or to assert any security interest or other lien, that it may at any time have against or in any of the Collateral on account of any credit or other obligations owed to the Depository Bank by the Pledgor or any other person. The Pledgor shall pay the customary charges of the Depository Bank in maintaining the Account. 10. This agreement shall automatically terminate upon the release or termination of the security interest in the Collateral in accordance with the terms of the Assignment of Account. The Depository Bank shall be entitled to rely upon a certificate delivered by the Representative, the Administrative Agent, and the RHINOS Holders with respect to such termination or release. 11. To the extent a conflict exists between the terms of this letter agreement and any account agreement between the Pledgor and the Depository Bank, the terms of this letter agreement will control. 12. The terms of this letter agreement will in no way be modified except by a writing signed by all parties hereto. 2 13. Each of the parties executing this letter agreement represents that he has the proper authority to execute this letter agreement. 14. Governing Law. Pursuant to Section 5-1401 of the New York General ------------- Obligations Law, the substantive laws of the State of New York applicable to agreements made and to be performed entirely within such state, without regard to the choice of law principles that might otherwise apply, and the applicable federal laws of the United States of America, shall govern the validity, construction, enforcement and interpretation of this Letter Agreement. New York is the jurisdiction of the Depository Bank, as the "securities Intermediary" under Section 8-110(e)(1) of the Uniform Commercial Code. [Remainder of page intentionally blank. Signature page follows.] 3 IN WITNESS WHEREOF, Pledgor, the Representative, the Administrative Agent, and the RHINOS Holders have agreed to the terms of this letter agreement as of the date first indicated above. Pledgor: MUTUAL RISK MANAGEMENT LTD. By: ______________________________ Name:_________________________ Title:________________________ Representative: XL INSURANCE LTD. By: ______________________________ Name:_________________________ Title:________________________ Administrative Agent: BANK OF AMERICA, N.A., as Administrative Agent By: ______________________________ Name:_________________________ Title:________________________ RHINOS Holders: INTREPID MASTER FUNDING TRUST, as RHINOS Holders By: ______________________________ Name:_________________________ Title:________________________ Acknowledged and Agreed on May 17, 2001: Depository Bank: FLEET NATIONAL BANK By: ______________________________ Name:_________________________ Title:________________________ -----END PRIVACY-ENHANCED MESSAGE-----