Exhibit 99(j)
TACK ACQUISITION CORP.
$875,000,000 CREDIT FACILITIES
SUMMARY OF TERMS AND CONDITIONS
February 19, 2001
White Mountains Insurance Group, Ltd., a company incorporated in Bermuda
("WHITE MOUNTAINS"), together with certain other investors (the "INVESTOR
GROUP"), has formed Tack Holding Corp., a Delaware corporation (the "PARENT"),
which in turn formed Tack Acquisition Corp., a Delaware corporation
("ACQUISITION CO."), which will acquire (the "ACQUISITION") the U.S. property
and casualty insurance business (the "ACQUIRED ASSETS") of CGNU plc, a company
incorporated in England and Wales (the "SELLER"). The Acquisition will be
consummated pursuant to the Stock Purchase Agreement, dated as of September 24,
2000, as amended by Amendment No.1 to the Stock Purchase Agreement, dated as of
October 15, 2000 , and Amendment No.2 to the Stock Purchase Agreement, dated as
of February 19, 2001 (the "STOCK PURCHASE AGREEMENT"), among White Mountains,
the Parent, Acquisition Co., CGU International Holdings Luxembourg S.A., a
Luxembourg corporation ("CGU LUXEMBOURG"), CGU Holdings LLC, a Delaware limited
liability company ("CGU DELAWARE") and the Seller. The Acquisition will be
accomplished as described in Annex II to this Summary of Terms and Conditions;
certain terms defined in such Annex II are used herein with the meanings given
therein.
In that connection, credit facilities in an aggregate principal amount of
$875,000,000 are being established, as described below. The Credit Facilities
described below include a Tranche C Term Loan Facility; it is anticipated that
the Tranche C Term Loans may be refinanced with the proceeds of a capital
markets transaction entered into by the Borrower or the Parent, and to the
extent the Tranche C Term Loans have not been refinanced before the date which
is six months after the Closing Date, the holder thereof has the right to
exchange the Tranche C Term Loans for the Exchange Notes described below.
I. PARTIES
Borrowers: Acquisition Co. (the "BORROWER").
Guarantors: The Parent, and each subsidiary of the Borrower other
than any insurance company subsidiary and other than
A.W.G. Dewar (the "GUARANTORS"; the Borrower and the
Guarantors,
collectively, the "CREDIT PARTIES"). The Exchange
Notes, if issued, shall be guaranteed by the
Guarantors on a PARI PASSU basis with the Credit
Facilities.
Sole Advisor, Sole
Lead Arranger and
Sole Book Manager: Lehman Brothers Inc. ("LBI" or, in such capacity, the
"ARRANGER").
Syndication Agent: A bank or other financial institution to be determined
(in such capacity, the "SYNDICATION AGENT").
Documentation Agents: Banks or other financial institutions to be determined
(in such capacities, the "DOCUMENTATION AGENTS").
Administrative Agent: Lehman Commercial Paper Inc. ("LCPI", or, in such
capacity, the "ADMINISTRATIVE AGENT").
Co-Arranger: To be determined.
Lenders: A syndicate of banks, financial institutions and other
entities arranged by the Arranger (collectively, the
"LENDERS").
II. TYPES AND AMOUNTS OF CREDIT FACILITIES
1. TERM LOAN FACILITIES
Types and Amounts
of Facilities: Term Loan Facilities (the "TERM LOAN FACILITIES") in
an aggregate amount of $725,000,000 as follows:
TRANCHE A TERM LOAN FACILITY: A five-year tranche A
term loan facility (the "TRANCHE A TERM LOAN
FACILITY") in an aggregate principal amount equal to
$250,000,000 (the loans thereunder, the "TRANCHE A
TERM LOANS"). The Tranche A Term Loans shall be
repayable in installments in amounts equal to the
percentage set forth below multiplied by the aggregate
principal amount of the Tranche A Term Loans borrowed
on the Closing Date for each year following the
Closing Date (as defined below):
YEAR AMOUNT
------------------------------------------
Year 1 15%
Year 2 17.5%
Year 3 20%
Year 4 22.5%
Year 5 25%
The foregoing amounts payable in each year will be
payable in equal quarterly installments during such
year; PROVIDED, that (i) principal payments shall
commence on March 31, 2002 and the entire principal
amount payable for Year 1 shall be payable on March
31, 2002 and (ii) if, having used its best efforts to
obtain regulatory approvals required to permit
quarterly payment of dividends by its insurance
company subsidiaries, the Borrower does not obtain
such approvals for payments prior to June 30, 2002,
principal payments in respect of the Tranche A Term
Loans scheduled to be made on June 30, 2002, September
30, 2002, December 31, 2002 and March 31, 2003 shall
be made on March 31, 2003.
TRANCHE B TERM LOAN FACILITY. A six-year tranche B
term loan facility (the "TRANCHE B TERM LOAN
FACILITY") in an aggregate principal amount equal to
$200,000,000 (the loans thereunder, the "TRANCHE B
TERM LOANS"). The Tranche B Term Loans shall be
repayable in installments in amounts equal to the
percentage set forth below multiplied by the aggregate
principal amount of the Tranche B Term Loans borrowed
on the Closing Date for each year following the
Closing Date:
YEAR AMOUNT
------------------------------------------
Year 1 1%
Year 2 1%
Year 3 1%
Year 4 1%
Year 5 1%
Year 6 95%
The foregoing amounts payable in each year will be
payable in equal quarterly installments during such
year; PROVIDED, that (i) principal payments shall
commence on March 31, 2002 and the entire principal
amount payable for Year 1 shall be payable on March
31, 2002 and (ii) if, having used its best efforts to
obtain regulatory approvals required to permit
quarterly payment of dividends by its insurance
company subsidiaries, the Borrower does not obtain
such approvals for payments prior to June 30, 2002,
principal payments in respect of the Tranche B Term
Loans scheduled to be made on June 30, 2002, September
30, 2002, December 31, 2002 and March 31, 2003 shall
be made on March 31, 2003.
TRANCHE C TERM LOAN FACILITY. A tranche C term loan
facility (the "TRANCHE C TERM LOAN FACILITY") in an
aggregate principal amount equal to $275,000,000 with
a maturity date (the "TRANCHE C TERM LOAN FACILITY
MATURITY DATE") of the earlier of (i) seven years
after the Closing Date and (ii) the date which
is six months prior to the date of mandatory
redemption of the Berkshire Preferred Stock (as
defined below) (the loans thereunder, the "TRANCHE C
TERM LOANS", and, together with the Tranche A Term
Loans and the Tranche B Term Loans, the "TERM LOANS").
The Tranche C Term Loans shall be repayable in one
payment on the Tranche C Term Loan Facility Maturity
Date.
Exchange of Tranche C
Term Loans for Exchange
Notes: The holder of the Tranche C Term Loans shall have the
right, at any time on or after the date which is six
months after the Closing Date, upon two weeks prior
written notice to White Mountains and the Borrower, to
exchange all or any portion of the Tranche C Term
Loans for notes (the "EXCHANGE NOTES") in an aggregate
principal amount equal to the principal amount of the
Tranche C Term Loans so exchanged. The Exchange Notes
shall be subject to the terms and conditions set forth
in Annex III to this Term Sheet (the "EXCHANGE NOTE
TERM SHEET").
Availability: The Term Loans shall be made in a single drawing on
the Closing Date.
Purpose: The proceeds of the Term Loans shall be used to
finance the Acquisition, to repay certain existing
indebtedness of CGU and its subsidiaries, to pay
related fees and expenses and for general corporate
purposes.
2. REVOLVING CREDIT FACILITY
Type and Amount
of Facility: Five-year revolving credit facility (the "REVOLVING
CREDIT FACILITY"; together with the Term Loan
Facility, the "CREDIT FACILITIES") in the amount of
$150,000,000 (the loans thereunder, the "REVOLVING
CREDIT LOANS"; together with the Term Loans, the
"LOANS").
Availability: The Revolving Credit Facility shall be available on a
revolving basis during the period commencing on the
Closing Date and ending on the fifth anniversary
thereof (the "REVOLVING CREDIT TERMINATION DATE").
Optional Commitment
Increase: The aggregate amount of the Revolving Credit Facility
may, at any time during the period commencing on the
Closing Date and ending on the date that is one year
after the Closing Date, be increased, at the request
of the Borrower, by the amount of up to $50,000,000
without the approval of any Lender so long as the
commitments of any Lender are not increased without
such Lender's consent, PROVIDED that the Borrower
shall have provided additional lenders to make
available the additional
commitments. Procedures pursuant to which the Borrower
shall provide lenders to make available the additional
commitments shall be set forth in the Credit
Documentation. The Revolving Credit Facility as so
increased shall be available on the same terms and
conditions as set forth herein. If the Revolving
Credit Facility is so increased, White Mountains may
borrow up to $50,000,000 thereof and up to $10,000,000
of the portion of the Revolving Credit Facility
available for the issuance of Letters of Credit shall
be available to White Mountains, PROVIDED that the
Borrower shall guarantee any borrowing made by White
Mountains, and PROVIDED FURTHER that the Lenders will
request repayment from White Mountains with respect to
borrowings made by White Mountains prior to making a
demand for repayment from any or all Guarantors.
Letters of Credit A portion of the Revolving Credit Facility not in
excess of $25,000,000 shall be available for the
issuance of letters of credit (the "LETTERS OF
CREDIT") by a Lender to be agreed upon (in such
capacity, the "ISSUING LENDER"). No Letter of Credit
shall have an expiration date after the earlier of (a)
one year after the date of issuance and (b) five
business days prior to the Revolving Credit
Termination Date, PROVIDED that any Letter of Credit
with a one-year tenor may provide for the automatic
renewal thereof (in the absence of notice to the
contrary from the Issuing Lender) for additional
one-year periods (which shall in no event extend
beyond the date referred to in clause (b) above).
Drawings under any Letter of Credit shall be
reimbursed by the Borrower (whether with its own funds
or with the proceeds of Revolving Credit Loans) on the
next business day. To the extent that the Borrower
does not so reimburse the Issuing Lender, the Lenders
under the Revolving Credit Facility shall be
irrevocably and unconditionally obligated to reimburse
the Issuing Lender on a PRO RATA basis.
Swing Line Loans: A portion of the Revolving Credit Facility not in
excess of $10,000,000 shall be available to the
Borrower for swing line loans (the "SWING LINE LOANS")
from LCPI (in such capacity, the "SWING LINE LENDER")
on same-day notice. Any Swing Line Loans will reduce
availability under the Revolving Credit Facility on a
dollar-for-dollar basis. Each Lender under the
Revolving Credit Facility shall acquire, under certain
circumstances, an irrevocable and unconditional PRO
RATA participation in each Swing Line Loan.
Purpose: The proceeds of the Revolving Credit Loans shall be
used to finance the Acquisition, to repay certain
existing indebtedness of CGU and its subsidiaries, to
pay related fees and expenses and for working capital
and general corporate purposes of the
Borrower and its subsidiaries in the ordinary course
of business.
III. CERTAIN PAYMENT PROVISIONS
Fees and Interest
Rates: As set forth on Annex I.
Optional Prepayments
and Commitment
Reductions: Loans may be prepaid and commitments may be reduced by
the Borrower in minimum amounts to be agreed upon. The
Borrower may optionally prepay the Tranche C Term
Loans (i) with the proceeds of equity at any time and
(ii) other than with the proceeds of equity during the
period commencing on the Closing Date and ending on
the date which is six months after the Closing Date,
in each case without simultaneously prepaying the
other Term Loans, provided that any such prepayment
shall not reduce the principal amount of the Tranche C
Term Loans to any amount between $0 and $150,000,000
unless the Arranger determines that a bond transaction
in such reduced amount can be successfully completed;
all other optional prepayments of the Term Loans shall
be applied ratably to the Tranche A Term Loan
Facility, the Tranche B Term Loan Facility and the
Tranche C Term Loan Facility. Optional prepayments of
the Tranche A Term Loans and the Tranche B Term Loans
shall be applied to the Tranche A Term Loans and the
Tranche B Term Loans ratably and to the installments
thereof as follows: FIRST, to the next installment
thereof due after the date of such prepayment, and,
SECOND, to the remaining installments thereof ratably
in accordance with the then outstanding amounts
thereof and may not be reborrowed. Notwithstanding the
foregoing, so long as any Tranche A Term Loans are
outstanding, each holder of Tranche B Term Loans and,
after the date that is six months after the Closing
Date in the case of any prepayment other than with the
proceeds of equity, Tranche C Term Loans shall have
the right to refuse all or any portion of such
prepayment allocable to its Tranche B Term Loans or
Tranche C Term Loans, as the case may be, and the
amount so refused will be applied to prepay the
Tranche A Term Loans.
Prepayment Fee: Each optional prepayment in respect of the Tranche B
Term Loans on or prior to the date that is eighteen
months after the Closing Date shall be accompanied by
a prepayment fee equal to (i) if such prepayment is
made prior to the first anniversary of the Closing
Date, 1.5% of the principal amount of such prepayment
and (ii) if such prepayment is made on or after the
first anniversary of the Closing Date and prior to the
date that is eighteen months after the Closing Date,
0.5% of the principal
amount of such prepayment. Any prepayment of the
Tranche B Term Loans upon the refinancing thereof
(whether with proceeds of equity or indebtedness) or
upon the occurrence of a change of control shall be
deemed to be an optional prepayment.
Mandatory Prepayments
and Commitment
Reductions: The following amounts shall be applied to prepay the
Term Loans and reduce the Revolving Credit Facility:
(a) 50% of the net proceeds, above a $5,000,000
threshold amount, of any sale or issuance of equity by
the Parent (with exceptions to be agreed upon,
including exceptions (i) permitting proceeds of equity
to be used to prepay the Tranche C Term Loans and the
Seller Note and up to $300,000,000 contributed by
White Mountains to the Borrower pursuant to the
warrant agreement to repay the Berkshire Preferred
Stock and (ii) exempting from mandatory prepayment
requirements $20,000,000 of the proceeds of preferred
stock issued by the Parent and sold to a third party
in connection with the transactions contemplated
hereby);
(b) 100% of the net proceeds of any capital markets
transaction entered into by the Parent or the Borrower
for the purpose of repaying the Tranche C Term Loans;
and
(c) 100% of the net proceeds, above a $10,000,000
threshold amount, of any sale or other disposition by
assets by the Borrower or any of its non-insurance
company subsidiaries (with exceptions to be agreed
upon, including exceptions permitting disposition of
portfolio investments and the reinvestment of the
proceeds thereof in other portfolio investments).
All such amounts shall be applied, FIRST, to the
prepayment of the Term Loans and, SECOND, to the
permanent reduction of the Revolving Credit Facility;
PROVIDED, that the Revolving Credit Facility shall not
be reduced to less than $100,000,000 pursuant to the
foregoing mandatory prepayment and commitment
reduction provisions. Each such prepayment of Term
Loans with the proceeds of a capital markets
transaction referred to in paragraph (b) above shall
be applied to the Tranche C Term Loans and any
outstanding Exchange Notes ratably; each other such
prepayment shall be applied to the Tranche A Term
Loans, the Tranche B Term Loans and the Tranche C Term
Loans ratably and to make an offer to ratably redeem
the Exchange Notes. Each such prepayment of the Term
Loans made with the proceeds of asset sales shall be
applied to the installments thereof ratably in
accordance with the then outstanding amounts thereof
and may not be reborrowed; and each other such
prepayment of Term Loans shall be applied, FIRST, to
the next installment thereof due after the date of
such prepayment, and, SECOND, to the remaining
installments thereof ratably in accordance with the
then outstanding amounts thereof and may not be
reborrowed. Notwithstanding the foregoing, so long as
any Tranche A Term Loans are outstanding, each holder
of Tranche B Term Loans and, after the date that is
six months after the Closing Date, Tranche C Term
Loans shall have the right to refuse all or any
portion of such prepayment allocable to its Tranche B
Term Loans or Tranche C Term Loans, as the case may
be, and the amount so refused will be applied to
prepay the Tranche A Term Loans. The Revolving Credit
Loans shall be prepaid and the Letters of Credit shall
be cash collateralized or replaced to the extent such
extensions of credit exceed the amount of the
Revolving Credit Facility.
IV. COLLATERAL The obligations of the Borrower and each Guarantor in
respect of the Credit Facilities shall be secured by a
perfected first priority security interest in the
capital stock of each of its non-insurance company
subsidiaries (other than A.W.G. Dewar) and each of its
first-tier insurance company subsidiaries (including
the capital stock of the Borrower, which will be
pledged by the Parent) and substantially all of its
other intangible assets (it being understood that the
Parent and its subsidiaries (other than insurance
company subsidiaries) will not have any material
tangible assets). Not more than 65% of the capital
stock of any foreign subsidiaries will be required to
be pledged. The Exchange Notes, if issued, shall, at
the option of the holder thereof, be secured equally
and ratably with the Credit Facilities.
V. CERTAIN CONDITIONS
Initial Conditions: The availability of the Credit Facilities shall be
conditioned upon satisfaction of, among other things,
the following conditions precedent (the date upon
which all such conditions precedent shall be
satisfied, the "CLOSING DATE") on or before April 13,
2001 (which date shall be extended to June 30, 2001 if
the only condition to the consummation of the
Acquisition as set forth in the Stock Purchase
Agreement that has not been met on April 13, 2001 is
the receipt of all required governmental approvals)
(with references to the Borrower and its subsidiaries
in this paragraph being deemed to refer to and include
the Acquired Assets after giving effect to the
Acquisition):
(a) Each Credit Party shall have executed and
delivered customary definitive financing documentation
with respect to the Credit Facilities, which shall be
reasonably satisfactory to all parties thereto and
shall reflect the terms and conditions set forth
herein and such other terms and conditions, consistent
with the terms and conditions set forth herein, as
shall be reasonably acceptable to all parties thereto
(the "CREDIT DOCUMENTATION").
(b) White Mountains shall have received commitments
from (i) the Investor Group to purchase for cash an
amount consistent with the Sources and Uses Table
attached as Annex I-B (the "SOURCES AND USES TABLE")
of equity securities of White Mountains and (ii)
Berkshire Hathaway to purchase no less than an amount
consistent with the Sources and Uses Table of
preferred stock of the Borrower (with a separate
warrant to purchase White Mountains common stock)(the
"BERKSHIRE PREFERRED STOCK"). The Parent shall have
received at least an amount consistent with the
Sources and Uses Table in cash and marketable
securities from the issuance of its equity securities
to White Mountains and/or the Investor Group. The
Borrower shall have received at least an amount
consistent with the Sources and Uses Table in cash and
marketable securities from the issuance of its equity
securities to the Parent. CGU shall have received as
dividends from its subsidiaries cash in an amount
consistent with the Sources and Uses Table, and such
cash shall be available for use to pay a portion of
the purchase price of the Acquisition or for the other
uses set forth in the Sources and Uses Table.
(c) The Acquisition shall have been consummated in
accordance with the Stock Purchase Agreement (without
any material waiver or other modification of any
material provision thereof unless such waiver or other
modification has been approved by the Administrative
Agent), and as described in Annex II hereto. After
giving effect to the consummation of the Acquisition,
the Borrower shall have no material indebtedness other
than indebtedness under the Credit Facilities, the
Seller Note (which constitutes indebtedness of the
Parent), approximately $30,000,000 of existing
indebtedness of CGU and indebtedness of Folksamerica
in respect of a promissory note in the original
principal amount of approximately $21,000,000 (which
is currently carried on the books of Folksamerica at
an outstanding principal amount of approximately $0).
(d) The Lenders, the Administrative Agent and the
Arranger shall have received all fees required to be
paid on or before the Closing Date, and the
Administrative Agent shall have received
reimbursement of all out-of-pocket expenses of the
Arranger and the Administrative Agent payable by the
Borrower in connection with the Credit Facilities.
(e) All governmental and third party approvals
required for the financing contemplated hereby and the
creation of the security interests contemplated
hereby, and, to the extent required by the Stock
Purchase Agreement, all governmental and third party
approvals required for the Acquisition and the
continuing operations of the Borrower and its
subsidiaries, shall have been obtained and be in full
force and effect, and all applicable waiting periods
shall have expired without any action being taken or
threatened by any competent authority which would
restrain, prevent or otherwise impose materially
adverse conditions on the Acquisition or the financing
thereof.
(f) The Lenders shall have received (i) audited
consolidated financial statements of White Mountains
and CGU for the two most recent fiscal years for which
such financial statements are available and (ii)
unaudited interim consolidated financial statements of
White Mountains and CGU for each fiscal quarterly
period ended subsequent to the date of the latest
financial statements delivered pursuant to clause (i)
of this paragraph as to which such financial
statements are available. All such financial
statements shall be in reasonable detail, shall be
prepared in accordance with generally acceptable
accounting principles and shall be certified by an
appropriate financial officer or accountants, as
applicable.
(g) The Lenders shall have received a PRO FORMA
consolidated balance sheet of the Borrower as at the
date of the most recent consolidated balance sheet
delivered pursuant to paragraph (f) above, adjusted to
give effect to the consummation of the Acquisition and
the financings and other transactions contemplated
hereby as if such transactions had occurred on such
date. Such PRO FORMA consolidated balance sheet shall
be prepared in reasonable detail and in accordance
with customary standards. Such PRO FORMA balance sheet
shall reflect (i) an increase in reserves of at least
$800,000,000 at December 31, 2000 for 1999 and prior
accident years, (ii) an aggregate unassigned surplus
of dividend paying first-tier insurance company
subsidiaries of the Borrower of at least $950,000,000
(PROVIDED, that such amount may be reduced to not less
than $900,000,000 if the Credit Facilities are reduced
by the same amount, and additional equity in the same
amount is made available to the Borrower) and (iii)
the net cost of the reinsurance arrangements described
in paragraph (l) below.
(h) The Lenders shall have received (i) unaudited
consolidating financial statements of CGU for the two
most recent fiscal years
for which such financial statements are available,
(ii) unaudited interim consolidating financial
statements of CGU for each fiscal quarterly period
ended subsequent to the date of the latest financial
statements delivered pursuant to clause (i) of this
paragraph as to which such financial statements are
available and (iii) monthly financial statements of
the Acquired Assets for each monthly period ending
from and after May 31, 2000 and prior to the Closing
Date. All such financial statements shall be in
reasonable detail, shall be prepared in accordance
with generally acceptable accounting principles and
shall be certified by an appropriate financial officer
or accountants, as applicable.
(i) The Lenders shall have received a business plan
for fiscal years 2001-2007 and a written analysis of
the business and prospects of the Borrower and its
subsidiaries for the period from the Closing Date
through the final maturity of the Tranche C Term
Loans. Such business plan and analysis shall be
prepared in reasonable detail and in accordance with
customary standards.
(j) All material insurance company subsidiaries of the
Borrower shall have received ratings from A.M. Best of
at least A-.
(k) The Lenders shall have received the results of a
recent lien search in each relevant jurisdiction with
respect to the Credit Parties, and such search shall
reveal no liens on any of the assets of the Credit
Parties except for liens permitted by the Credit
Documentation or liens to be discharged on or prior to
the Closing Date pursuant to documentation
satisfactory to the Administrative Agent. It is
understood that mortgages securing approximately
$30,000,000 of existing debt of insurance company
subsidiaries shall be permitted.
(l) Insurance company subsidiaries of CGU shall have
completed a reinsurance transaction with Berkshire
Hathaway (materially consistent with the letter, dated
July 18, 2000, from Ajit Jain of Berkshire Hathaway
Group to Ray Barrette of White Mountains, together
with the Reinsurance Agreement Terms attached to such
letter) for not less than $2,500,000,000 (relating to
certain discontinued operations). Insurance company
subsidiaries of CGU shall have entered into a
reinsurance transaction (the terms of which shall be
reasonably acceptable to the Arranger) with one of the
third party reinsurers previously identified to the
Arranger or a comparably rated or more highly rated
third party reinsurer providing excess of loss
coverage for accident year 2000 and prior with a limit
of between $550,000,000 and $600,000,000 (relating to
certain continuing operations) at a cost not to exceed
$350,000,000.
(m) The aggregate statutory net worth of the
Borrower's insurance company subsidiaries shall be not
less than $2,300,000,000, after giving effect to the
cost of the reinsurance described in paragraph (l)
above, the reserve strengthening described in
paragraph (g) above and the other transactions
contemplated hereby.
(n) The Lenders shall have received such legal
opinions, documents and other instruments as are
customary for transactions of this type or as they may
reasonably request.
On-Going Conditions: The making of each extension of credit shall be
conditioned upon (a) the accuracy of all
representations and warranties in the Credit
Documentation (including, without limitation, the
material adverse change and litigation
representations) and (b) there being no default or
event of default in existence at the time of, or after
giving effect to the making of, such extension of
credit.
As used herein and in the Credit Documentation, a
"material adverse change" shall mean:
(i) with respect to the "material adverse change"
representation and warranty to be made on the Closing
Date, any event or development that has had or would
reasonably be expected to have a material adverse
effect on (a) the business, operations, property or
financial condition of the Borrower and its
subsidiaries, taken as a whole, the Acquired Assets or
White Mountains and its subsidiaries, taken as a
whole, or (b) the validity or enforceability of any of
the Credit Documentation or the rights and remedies of
the Administrative Agent and the Lenders thereunder,
other than any such effect resulting from (1) changes
in general economic or securities or financial market
conditions (including changes in interest rates), (2)
any write-off of assets or establishment of
liabilities identified in Section 1.1(a) of the
Disclosure Schedule to the Stock Purchase Agreement,
in each case in amounts materially consistent with the
amounts reflected in the Projections provided by White
Mountains to LBI and LCPI prior to the date hereof or
(3) any ratings downgrade of any material insurance
company subsidiary of the Borrower by A.M. Best to a
level not below A-; and
(ii) with respect to the "material adverse change"
representation and warranty to be made at any time
after the Closing Date, any event, development or
circumstance that has had or could reasonably be
expected to have a material adverse effect on (a) the
Acquisition or the other transactions contemplated
hereby, (b) the business, assets, property or
financial condition of the Borrower and its
subsidiaries taken as a whole, or (c) the
validity or enforceability of any of the Credit
Documentation or the rights and remedies of the
Administrative Agent and the Lenders thereunder.
VI. CERTAIN DOCUMENTATION
MATTERS:
The Credit Documentation shall contain
representations, warranties, covenants and events of
default customary for financings of this type (in each
case applicable to each of the Credit Parties, as
appropriate), including, without limitation:
Representations and
Warranties: Financial statements (including pro forma financial
statements and statutory accounts); absence of
undisclosed liabilities; no material adverse change;
corporate existence; compliance with law; corporate
power and authority; enforceability of Credit
Documentation; no conflict with law or contractual
obligations; no material litigation; no default;
ownership of property; liens; intellectual property;
no burdensome restrictions; taxes; Federal Reserve
regulations; ERISA; Investment Company Act;
subsidiaries; environmental matters; solvency;
insurance regulatory matters; accuracy of disclosure;
and creation and perfection of security interests.
Affirmative Covenants: Delivery of financial statements, reports, statutory
accounts, accountants' letters, projections, officers'
certificates and other information reasonably
requested by the Lenders; payment of other
obligations; continuation of business and maintenance
of existence and material rights and privileges;
compliance with laws and material contractual
obligations; maintenance of property and insurance;
maintenance of books and records; right of the Lenders
(subject to customary restrictions and standards) to
inspect property and books and records; notices of
defaults, litigation and other material events;
compliance with environmental laws; agreement to
obtain within 150 days after the Closing Date interest
rate protection for at least 50% of the Tranche A Term
Loan Facility and the Tranche B Term Loan Facility for
a period of at least three years on terms and
conditions satisfactory to the Administrative Agent;
and agreement, at or prior to the maturity thereof, to
either convert the Seller Note to, or purchase the
Seller Note for, common or preferred stock of White
Mountains or the Parent or to refinance the Seller
Note with the proceeds of common or preferred stock of
the Parent or White Mountains or subordinated debt of
the Parent, the Borrower or White Mountains maturing
after the Credit Facilities and the Exchange Notes and
having other terms and conditions reasonably
satisfactory to the Lenders.
Financial Covenants: Financial covenants (including, without limitation,
minimum interest and fixed charge coverage, maximum
leverage,
minimum net worth, and minimum statutory surplus and
minimum risk based capital ratio for each material
insurance company subsidiary). The foregoing financial
covenants will be as set forth in the December 15,
2000 draft Credit Agreement relating to financing of
the Original Acquisition, except as required to
reflect the changes set forth herein (which changes
shall be determined in a manner consistent with the
methodology utilized in Annex III to the Existing
Commitment Letter).
Negative Covenants: Limitations on: indebtedness (including preferred
stock of subsidiaries), which shall permit the
issuance of the Exchange Notes and capital market
transactions entered into by the Parent or the
Borrower to repay the Tranche C Term Loans; liens;
guarantee obligations; mergers, consolidations,
liquidations and dissolutions; sales of assets;
leases; dividends and other payments in respect of
capital stock (which will permit the Borrower to pay
annual dividends and other restricted payments to the
holders of its preferred stock or to the Parent, as
the case may be, and the Parent to pay such amounts to
its shareholders, in each case in an aggregate amount
not exceeding the sum of (a) $20,000,000 plus (b) the
lesser of (i) the actual dividends required to be paid
on the Berkshire Preferred Stock and (ii) $40,000,000,
plus (c) to the extent the amount of excess cash and
2001 debt service referred to in the Sources and Uses
Table exceeds $80,000,000, such excess amount (not to
exceed $45,000,000) may, at any time during the period
commencing on the Closing Date and ending on the date
that is six months after the Closing Date be once
dividended to the Parent to repay the Seller Note, in
each case, subject to compliance with covenants and
absence of default under Credit Documentation);
investments, loans and advances; optional payments and
modifications of subordinated and other debt
instruments; transactions with affiliates; sale and
leasebacks; changes in fiscal year; negative pledge
clauses; and changes in lines of business.
Refinancing Transaction: The Borrower shall be permitted to enter into a
transaction for the sale of senior debt securities
(which are expected to be unsecured but may be secured
if required to obtain a rating equivalent to that of
the senior bank financing) maturing not earlier than
the date that is six months after the maturity of the
Tranche B Term Loans, the proceeds of which shall be
used to repay the Tranche C Term Loans and the
Exchange Notes. The securities issued may, at the
option of the holder therof at the time of issuance,
be guaranteed by the Guarantors on a PARI PASSU basis
with the Credit Facilities. Additionally, equity may
be issued by the Parent to refinance the Tranche C
Term Loans.
Events of Default: Nonpayment of principal when due; nonpayment of
interest, fees or other amounts after a grace period
to be agreed upon; material inaccuracy of
representations and warranties; violation of covenants
(subject, in the case of certain affirmative
covenants, to a grace period to be agreed upon);
cross-default to other material debt instruments;
bankruptcy and insolvency events; certain ERISA
events; material judgments; actual or asserted
invalidity of any guarantee or security document,
subordination provisions or security interest; and a
change of control (as defined below).
Change of Control: (a) Prior to any initial public offering of the
Parent's capital stock, White Mountains ceases to own,
directly or indirectly, at least 50% of all of the
outstanding capital stock of the Parent, and (b) after
any initial public offering of the Parent's capital
stock, (i) White Mountains ceases to own, directly or
indirectly, at least 25% of all of the outstanding
capital stock of the Parent, or (ii) any person or
group other than White Mountains owns a greater
percentage than White Mountains owns of all of the
outstanding capital stock of the Parent or (iii) a
majority of the directors of the Parent ceases to be
persons appointed or approved by White Mountains.
Voting: Amendments and waivers with respect to the Credit
Documentation shall require the approval of Lenders
holding not less than a majority of the aggregate
amount of the outstanding Loans and unused commitments
under the Credit Facilities, except that (a) the
consent of each Lender directly affected thereby shall
be required with respect to (i) reductions in the
amount or extensions of the scheduled date of
amortization or final maturity of any Loan, (ii)
reductions in the rate of interest or any fee or
extensions of any due date thereof, (iii) increases in
the amount or extensions of the expiry date of any
Lender's commitment and (iv) modifications to the pro
rata provisions of the Credit Documentation and (b)
the consent of 100% of the Lenders shall be required
with respect to (i) modifications to any of the voting
percentages and (ii) releases of all or substantially
all of the Guarantors or all or substantially all of
the collateral. In addition, "class" voting
requirements will apply to modifications affecting
certain payment matters.
Assignments
and Participations: The Lenders shall be permitted to assign and sell
participations in their Loans and commitments,
subject, in the case of assignments (other than
assignments (i) by the Administrative Agent, (ii) by
LBI, LBCI or any of their respective affiliates, (iii)
to another Lender or to an affiliate of a Lender or
(iv) of funded Term Loans), to the consent of the
Administrative Agent and the Borrower and, in the case
of any assignment of
commitments under the Revolving Credit Facility, the
Issuing Lender and the Swing Line Lender (which
consent in each case shall not be unreasonably
withheld). The holders of Tranche C Term Loans shall
give notice to the Borrower of any assignment of
Tranche C Term Loans to financial institutions or
entities other than the Administrative Agent, the
Syndication Agent and the Documentation Agents and
their respective affiliates. Non-pro rata assignments
shall be permitted. In the case of partial assignments
(other than to another Lender or to an affiliate of a
Lender), the minimum assignment amount shall be
$5,000,000 ($1,000,000 in the case of Tranche B Term
Loans), and, after giving effect thereto, the
assigning Lender (if it shall retain any commitments
or Loans) shall have commitments and Loans aggregating
at least $5,000,000 ($1,000,000 in the case of Tranche
B Term Loans), in each case unless otherwise agreed by
the Borrower and the Administrative Agent.
Participants shall have the same benefits as the
Lenders with respect to yield protection and increased
cost provisions, subject to customary limitations.
Voting rights of participants shall be limited to
those matters with respect to which the affirmative
vote of the Lender from which it purchased its
participation would be required as described under
"Voting" above. Pledges of Loans in accordance with
applicable law shall be permitted without restriction.
Promissory notes shall be issued under the Credit
Facilities only upon request.
Yield Protection: The Credit Documentation shall contain customary
provisions (a) protecting the Lenders against
increased costs or loss of yield resulting from
changes in reserve, tax, capital adequacy and other
requirements of law and from the imposition of or
changes in withholding or other taxes and (b)
indemnifying the Lenders for "breakage costs" incurred
in connection with, among other things, any prepayment
of a Eurodollar Loan (as defined in Annex I) on a day
other than the last day of an interest period with
respect thereto.
Expenses and
Indemnification: The Borrower shall pay (a) all reasonable
out-of-pocket expenses of the Administrative Agent and
the Arranger associated with the syndication of the
Credit Facilities and the preparation, execution,
delivery and administration of the Credit
Documentation and any amendment or waiver with respect
thereto (including the reasonable fees, disbursements
and other charges of one counsel and the charges of
Intralinks) and (b) all out-of-pocket expenses of the
Administrative Agent, and the Lenders (including the
fees, disbursements and other charges of one counsel)
in connection with the enforcement of the Credit
Documentation.
The Administrative Agent, the Arranger and the Lenders
(and their affiliates and their respective officers,
directors, employees, advisors and agents) will have
no liability for, and will be indemnified and held
harmless against, any loss, liability, cost or expense
incurred in respect of the financing contemplated
hereby or the use or the proposed use of proceeds
thereof (except to the extent resulting from the gross
negligence or willful misconduct of the indemnified
party).
Governing Law and Forum: State of New York.
Counsel to the
Administrative Agent
and the Arranger: Simpson Thacher & Bartlett.
Annex I
Interest and Certain Fees
Interest Rate Options: The Borrower may elect that the Loans comprising each
borrowing bear interest at a rate per annum equal to:
the Base Rate plus the Applicable Margin; or the
Eurodollar Rate plus the Applicable Margin.
PROVIDED, that all Swing Line Loans shall bear
interest based upon the Base Rate.
As used herein:
"BASE RATE" means the highest of (i) the rate of
interest publicly announced by Deutsche Bank, New York
Office as its prime rate in effect at its principal
office in New York City (the "PRIME RATE"), (ii) the
secondary market rate for three-month certificates of
deposit (adjusted for statutory reserve requirements)
PLUS 1% and (iii) the federal funds effective rate
from time to time PLUS 0.5%.
"APPLICABLE MARGIN" means, initially, (a) for
Revolving Credit Loans and Tranche A Term Loans,
2.125% for such Loans which are Eurodollar Loans and
1.125% for such Loans which are Base Rate loans, (b)
for Tranche B Term Loans, 2.875% for such Loans which
are Eurodollar Loans and 1.875% for such Loans which
are Base Rate Loans and (c) for Tranche C Term Loans,
2.75% for such Loans which are Eurodollar Loans and
1.75% for such Loans which are Base Rate Loans. The
Applicable Margins for the Revolving Credit Loans and
Tranche A Term Loans shall be subject to adjustment
pursuant to a Pricing Grid to be agreed upon.
"EURODOLLAR RATE" means the rate (adjusted for
statutory reserve requirements for eurocurrency
liabilities, as and if incurred) at which eurodollar
deposits for one, two, three or six months (as
selected by the Borrower) are offered in the interbank
eurodollar market.
Interest Payment Dates: In the case of Loans bearing interest based upon the
Base Rate ("BASE RATE LOANS"), quarterly in
arrears.
In the case of Loans bearing interest based upon the
Eurodollar Rate ("EURODOLLAR LOANS"), on the last day
of each relevant interest period and, in the case of
any interest period longer than
three months, on each successive date three months
after the first day of such interest period.
Commitment Fees: The Borrower shall pay a commitment fee calculated at
the rate of .375% per annum on the average daily
unused portion of the Revolving Credit Facility,
payable quarterly in arrears; the commitment fee rate
will be subject to reduction based upon performance
criteria to be agreed upon. Swing Line Loans shall,
for purposes of the commitment fee calculations only,
not be deemed to be a utilization of the Revolving
Credit Facility.
Letter of Credit Fees: The Borrower shall pay a commission on all outstanding
Letters of Credit at a per annum rate equal to the
Applicable Margin then in effect with respect to
Revolving Credit Loans that are Eurodollar Loans on
the face amount of each such Letter of Credit. Such
commission shall be shared ratably among the Lenders
participating in the Revolving Credit Facility and
shall be payable quarterly in arrears.
In addition to letter of credit commission, a fronting
fee calculated at a rate per annum to be agreed upon
by the Borrower and the Issuing Bank on the face
amount of each Letter of Credit shall be payable
quarterly in arrears to the Issuing Lender for its own
account. In addition, customary administrative,
issuance, amendment, payment and negotiation charges
shall be payable to the Issuing Lender for its own
account.
Default Rate: At any time when the Borrower is in default in the
payment of any amount of principal due under the
Credit Facilities, such amount shall bear interest at
2% above the rate otherwise applicable thereto.
Overdue interest, fees and other amounts shall bear
interest at 2% above the rate applicable to Base Rate
Loans.
Rate and Fee Basis: All per annum rates shall be calculated on the basis
of a year of 360 days (or 365/366 days, in the case of
Base Rate Loans the interest rate payable on which is
then based on the Prime Rate) for actual days elapsed.
Annex I-B
TACK ACQUISITION COMPANY
SOURCES AND USES TABLE
($ in millions)
- --------------------------------------------------------------------- -----------------------------------------------------------
SOURCES USES
- --------------------------------------------------------------------- -----------------------------------------------------------
$150 Revolving Credit Facility $2,100 Base purchase price
250 Tranche A Term Loan Facility 70 Earnings adjustments
200 Tranche B Term Loan Facility (35) CGU LIFE adjustment (estimated)
250 Tranche C Term Loan Facility (7) Soc Gen adjustment
- ------
875 Total Credit Facilities (68) PILOT adjustment
- ------
(1) Munich Re adjustment
- ------ -------
260 Seller Note issued at the Parent 2,059 Estimated adjusted purchase price
- ------ -------
- ------
225 Berkshire Hathaway preferred stock
- ------ issued at the Borrower
1,100 Refinance of existing CGU Term Note
359 White Mountains cash contribution (210) CGU LIFE proceeds (estimated)
441 Investor Group cash to purchase equity securities of
White Mountains (122) Soc Gen proceeds
75 Proceeds from Berkshire Hathaway's warrant to purchase
common stock of White Mountains (285) PILOT proceeds
- ------ -------
875 Contributed cash from White Mountains to the 483 Estimated adjusted CGU Term Note
- ------ Parent to Newco -------
313 Estimated existing CGU cash on hand, net [1] 35 Estimated fees and expenses
235 Cash from CGU subsidiary swap 300 Reinsurance premium paid by
200 CGNU concessions (to CGU Corp.) CGU and/or its subsidiaries (estimated) [2]
- ------
748 CGU cash available 80 2001 debt service [3]
- ------ 26 Excess cash [4]
------
$2,983 Total Sources $2,983 Total Uses
====== ======
[1] Cash on hand reflects interest paid on $1,100 inter-company note through
April 30, 2001
[2] Up to an additional $50 million of insurance subsidiary resources may be
used to pay premium in excess of $300 million.
[3] Cushion for 8 months of 2001 debt service ($10 million per month).
[4] Excess cash may be used to address shortfalls in any area.
Annex II
DESCRIPTION OF ACQUISITION
White Mountains Insurance Group, Ltd., a company incorporated in Bermuda
("WHITE MOUNTAINS"), together with investors previously identified to the
Arranger (the "INVESTOR GROUP"), will form a holding company (the "PARENT"),
which will in turn form an acquisition corporation ("ACQUISITION CO.", or the
"BORROWER"), which will then acquire (the "ACQUISITION") the U.S. property and
casualty insurance business (the "ACQUIRED ASSETS") of CGU plc (the "SELLER").
The Acquisition will be consummated pursuant to the Stock Purchase Agreement,
dated as of September 24, 2000, among CGU International Holdings Luxembourg
S.A., a Luxembourg corporation, CGU Holdings LLC, a Delaware limited liability
company, Seller and White Mountains, as amended by Amendment No.1 to the Stock
Purchase Agreement, dated as of October 15, 2000 and by Amendment No.2 to the
Stock Purchase Agreement ,dated as of February 19, 2001 (the "STOCK PURCHASE
AGREEMENT"). The Acquisition will be accomplished through the acquisition by the
Borrower from the Seller of 100% of the equity interests of CGU Corporation, a
Delaware corporation ("CGU").
Prior to or concurrently with the Acquisition, the following transactions
(the "PRE-CLOSING TRANSACTIONS") will occur:
(i) White Mountains will contribute to the Parent, which will in
turn contribute to Acquisition Co., all of the outstanding shares of
Folksamerica Holding Company, Inc., a New York company ("FOLKSAMERICA"),
and White Mountains' interests in certain other insurance assets
(collectively with Folksamerica, the "PARENT INSURANCE ASSETS");
(ii) CGU will exchange and/or contribute all of the shares of
Commercial Union Insurance Company, a Massachusetts company, The Northern
Assurance Company of America, a Massachusetts company, The Employers'
Fire Insurance Company, a Massachusetts company, American Employers'
Insurance Company, a Massachusetts company and Potomac Insurance Company
of Illinois, an Illinois company, which are all first-tier subsidiaries
of CGU, for (x) all of the shares of Pilot Insurance Company, a Canadian
company ("PILOT"), a second-tier subsidiary of CGU, and (y) cash (the
combined value of shares and cash to total an amount consistent with the
Sources and Uses Table) (the Pilot shares are currently held by CGU
Insurance Company, a Pennsylvania company ("CGUIC"), CGU Insurance
Company of New Jersey, a New Jersey company ("CGUIC-NJ"), and General
Accident Insurance Company, a Pennsylvania company ("GAIC"));
(iii) Acquisition Co. will transfer all of the Parent Insurance
Assets to CGUIC;
(iv) CGU will sell all of the shares of Pilot to the Seller or an
affiliate of Seller for cash;
(v) CGU Asset Management, Inc., a Delaware corporation and a
subsidiary of CGU, will sell all of the outstanding shares of CGU
Investment Management Canada Limited, a Canadian company, to a subsidiary
of the Seller;
(vi) CGU will sell all of the outstanding shares of CGU Annuity
Service Corporation, a Delaware corporation, and CGU Life Insurance
Company of America, a Delaware corporation, to a newly-formed Delaware
corporation that will be an indirect subsidiary of the Seller;
(vii) CGU will sell all of the outstanding shares of Societe
Generale held by it to one or more subsidiaries of the Seller; and
(viii) the subsidiaries of CGU that hold shares of Munich Re will
sell all of such shares to one or more subsidiaries of the Seller.
Cash and certain other proceeds of the sales and other dispositions contemplated
in clauses (iv) through (vii) of the prior sentence will be applied towards the
repayment of the outstanding promissory note made by CGU to the Seller in the
outstanding principal amount of $1,100,000,000 (the "TERM NOTE"), which Term
Note will be repaid in full in connection with the Acquisition.
The aggregate purchase price (the "PURCHASE PRICE") payable by
Acquisition Co. to the Seller in connection with the Acquisition shall consist
of (a) cash equal to the sum of (1) an amount consistent with the Sources and
Uses Table, (2) any net income (loss) of CGU (net of (i) realized gains (losses)
in CGU's and its subsidiaries' fixed income portfolio and (ii) taxes) for the
period from June 1, 2000 through August 31, 2000 and (3) the difference between
(x) the amount of unrealized gains (losses) on CGU's and its subsidiaries'
investments in publicly traded common equity securities (other than Societe
Generale and Munich Re shares) as of August 31, 2000 and (y) the amount of
unrealized gains (losses) on such common securities as of May 31, 2000 (in the
case of each of (x) and (y), net of taxes), and (b) a seller note in an
aggregate principal amount consistent with the Sources and Uses Table. The
Purchase Price will be adjusted (up or down) by the difference between the
actual proceeds of the sales contemplated in clauses (iv)-(viii) of the first
sentence of the preceding paragraph (calculated on an after-tax basis in
accordance with the Stock Purchase Agreement) and the reference sales proceeds
set forth in the Stock Purchase Agreement.
Annex III
EXCHANGE NOTES
SUMMARY OF TERMS AND CONDITIONS
I. PARTIES
Issuer of Exchange Notes: The Borrower.
Guarantors: Each guarantor in respect of the Credit Facilities
(the "GUARANTORS"; together with the Borrower, the
"CREDIT PARTIES").
Indenture Trustee: To be agreed upon.
II. ISSUANCE OF EXCHANGE NOTES
Exchange Notes: A holder of a Tranche C Term Loan may, at any time on
or after the date which is six months after the
Closing Date, exchange all or a portion of the Tranche
C Term Loan held by such holder for one or more
Exchange Notes in minimum denominations to be agreed
upon and in an aggregate principal amount equal to the
principal amount of the Tranche C Term Loan for which
it is exchanged. The Borrower will issue Exchange
Notes under an indenture that complies with the Trust
Indenture Act of 1939, as amended (the "INDENTURE").
The Borrower will appoint a trustee reasonably
acceptable to the Administrative Agent. The Exchange
Notes and the Indenture will be fully executed and
deposited into escrow on the Closing Date.
Ranking: The Exchange Notes shall rank pari passu with the
Credit Facilities.
Security: The Exchange Notes will be secured equally and ratably
with the Credit Facilities.
Maturity: The Exchange Notes will mature on the Tranche C Term
Loan Facility Maturity Date (as applying to the
Exchange Notes, the "EXCHANGE NOTE MATURITY DATE").
III. CERTAIN PAYMENT TERMS
Interest Rate: The Exchange Notes will bear interest at a fixed rate
per annum of 13%.
Interest on the Exchange Notes will be payable
quarterly in arrears on the first business day of
each fiscal quarter of the Borrower, on the Exchange
Note Maturity Date and on the date of any prepayment
thereof. Interest will accrue on any overdue amount
(whether interest or principal, including defaulted
interest), to the extent lawful, at a rate per annum
equal to 200 basis points above the then current
interest rate until such amount (plus all accrued
and unpaid interest) is paid in full.
Optional Redemption: The Borrower may redeem the Exchange Notes, in whole
or in part, at any time at a price equal to 100% of
the principal amount thereof (plus accrued and unpaid
interest if any to the date of redemption) plus a
make-whole premium calculated by discounting the
future interest payment and principal amortization at
maturity at a rate equal to the applicable US Treasury
rate plus 50 basis points, provided that no make-whole
premium shall be payable in connection with any
redemption resulting from asset sales.
IV. CERTAIN DOCUMENTATION MATTERS
Covenants: The same as or less restrictive than the Credit
Facilities, as determined by the Administrative Agent
in its sole discretion.
Events of Default: The Exchange Notes will have events of default that
are customary for an indenture governing similar
securities issued by issuers in a similar industry and
having similar credit statistics (but more restrictive
in certain respects, as determined by the
Administrative Agent in its sole discretion). Upon a
change of control, the Borrower shall offer to redeem
the Exchange Notes at 101% of the principal amount
thereof.
Transferability: Transfers of the Exchange Notes will not be limited
except as otherwise provided by law.
Amendments: Customary amendment provisions to be included in the
indenture with respect to the Exchange Notes.
Registration Rights: The Borrower will be required to file a Shelf
Registration Statement with respect to the Exchange
Notes on or before the date which is six months after
the Closing Date (the "STEP-UP DATE"). The Borrower
and the Guarantors, jointly and severally, will pay
liquidated damages in the form of increased interest
of 50 basis points on the principal amount of Exchange
Notes outstanding to holders of Exchange Notes (i) if
the Shelf Registration Statement is not declared
effective by the SEC within 60 days of the Step-up
Date, until such Shelf Registration Statement is
declared effective, and (ii) during any period of time
(subject to customary exceptions) following the
effectiveness of the Shelf Registration Statement that
such Shelf Registration Statement is not available for
sales thereunder. After 12 weeks, the liquidated
damages shall increase by 50 basis points, and shall
increase by 50 basis points for each successive
12-week period thereafter to a maximum increase in
interest of 200 basis points (such damages to be
payable in the form of additional Exchange Notes, if
the interest rate thereon exceeds 14% PER ANNUM). In
addition, unless and until the Borrower has caused the
Shelf Registration Statement to become effective, the
holders of the Exchange Notes will have the right to
"piggy-back" in the registration of any debt or
preferred equity securities (subject to customary
scale-back provisions) that are registered by the
Company (other than on a Form S-4) unless all the
Exchange Notes will be redeemed or repaid from the
proceeds of such securities.