EXHIBIT 10.19

 

--------------------------------------------------------------------------------

Date:  February 18, 2003

   

To:  Max Re Ltd.

 

From:  Canadian Imperial Bank of Commerce

Attention:  Keith S. Hynes

 

Contact:  Tyler Ratcliffe

Phone Number:  (441) 296-8800

 

Phone Number:  212-885-4413

Facsimile Number:  (441) 296-8811

 

Facsimile Number:  212-885-4378

Re:  Reference # NY OT00146

   

--------------------------------------------------------------------------------

 

TOTAL RETURN SWAP CONFIRMATION

 

The purpose of this letter agreement (this “Confirmation”) is to confirm the
terms and conditions of the Transaction entered into between Canadian Imperial
Bank of Commerce (“CIBC”) and Max Re Ltd., (“Counterparty”) on the Trade Date
specified below (the “Transaction”). This Confirmation constitutes a
“Confirmation” as referred to in the Master Agreement

 

The definitions and provisions contained in the 2000 ISDA Definitions (the “Swap
Definitions”) and in the 1996 ISDA Equity Derivatives Definitions (the “Equity
Definitions,” and together with the Swap Definitions, the “Definitions”), in
each case as published by the International Swaps and Derivatives Association,
Inc., are incorporated into this Confirmation. In the event of any inconsistency
between the Swap Definitions and the Equity Definitions, the Equity Definitions
will govern. In the event of any inconsistency between either set of Definitions
and this Confirmation, this Confirmation will govern.

 

1.   This Confirmation supplements, forms part of, and is subject to, the ISDA
Master Agreement dated as of February 18, 2003 as amended and supplemented from
time to time (the “Agreement”), between CIBC and Counterparty. All provisions
contained in the Agreement shall govern this Confirmation except as expressly
modified below. The parties hereto each acknowledges that the interests acquired
under this Transaction will not be registered under the Securities Act of 1933
(the “Act”) and are being sold in reliance upon the exemption for private
placements pursuant to Section 4(2) of the Act.

 

2.   The terms of the particular Transaction to which this Confirmation relates
are as follows:

 

GENERAL TERMS:

Trade Date:

 

February 18, 2003

Effective Date:

 

February 18, 2003

Termination Date:

 

February 28, 2005, subject to adjustment in accordance with the Modified
Following Business Day Convention.

Shares:

 

Common Stock of Max Re Diversified Strategies Ltd. (the “Fund”).

Calculation Agent:

 

CIBC

Settlement Currency:

 

USD

--------------------------------------------------------------------------------

 

EQUITY AMOUNTS PAYABLE BY CIBC:

Equity Amount Payer:

 

CIBC

Number of Shares:

 

On the Effective Date, 127,549, subject to adjustment as provided below under
Adjustments and Mandatory Redemptions.

Quarterly Valuation Date:

 

Each May 31, August 31, November 30, February 28 and the Termination Date.

Unit NAV:

 

The Fund’s total net assets, including without limitation investments, cash,
accrued interest receivable and any other category of assets, less its
liabilities including any obligations (whether present or future, contingent or
otherwise, as principal or surety or otherwise) as calculated on a per share
basis and reported by the Fund and by Bank of Bermuda (the “Custodian”) in
accordance with U.S. GAAP. Provided, that on any Valuation Date, if the Fund has
suspended reporting Unit NAV, then the Calculation Agent shall determine Unit
NAV.

Maximum Notional Amount:

 

USD 160,000,000

Equity Value:

 

With respect to any Business Day other than a final Quarterly Valuation Date,
the product of (a) Unit NAV and (b) the Number of Shares. On a final Quarterly
Valuation Date, the Equity Value shall be the higher of (i) the highest bid
price received by the Calculation Agent after soliciting bids from (A) at least
three nationally recognized broker / dealers and, (B) at the Counterparty’s
option, the Counterparty or (ii) the Redemption Amount (as defined below). For
this purpose, if Shares submitted by CIBC for redemption are not redeemed by the
Fund, the Calculation Agent shall determine the Unit NAV.

Capped Equity Value:

 

The lesser of the Maximum Notional Amount and the Equity Value.

Equity Notional Amount:

 

Initially, USD 150,000,000, subject to adjustment on each Quarterly Valuation
Date and Mandatory Redemption Date so that the Equity Notional Amount equals the
Capped Equity Value on such Quarterly Valuation Date and Mandatory Redemption
Date subject to adjustment as provided below under Adjustments.

Appreciation Amount:

 

With respect to the first Quarterly Valuation Date, an amount equal to the
Capped Equity Value minus the Equity Notional Amount and thereafter, except for
a final Quarterly Valuation Date, an amount equal to the Capped Equity Value
calculated on the relevant Quarterly Valuation Date minus the Capped Equity
Value calculated on the immediately preceding Quarterly Valuation Date, as
applicable. On a final

--------------------------------------------------------------------------------

   

Quarterly Valuation Date, the Appreciation Amount will be an amount equal to the
Equity Value calculated on such final Quarterly Valuation Date minus the Capped
Equity Value calculated on the immediately preceding Quarterly Valuation Date.

Equity Payment Dates:

 

(i)     The sixth Business Day following each Quarterly Valuation Date, subject
to adjustment in accordance with the Modified Following Business Day Convention;
and

 

(ii)    In the case of a Mandatory Redemption Date and the Termination Date,
each date on which CIBC receives a cash payment from the Fund in exchange for
Shares purchased by CIBC under the Stock Purchase Agreement (the “Redemption
Amount”).

Equity Payments:

 

On each Equity Payment Date CIBC will pay the Counterparty an amount equal to
algebraic sum of (a) the amount of all dividends and similar cash distributions
paid by the Fund on the Number of Shares during the period from the Effective
Date or the preceding Equity Payment Date, as the case may be and (b) the
Appreciation Amount, if such sum is positive. If such sum is negative then
Counterparty shall pay CIBC the absolute value of such sum.

 

FLOATING AMOUNTS PAYABLE

BY COUNTERPARTY:

 

Floating Amount Payer:

 

Counterparty

Notional Amount:

 

The Equity Notional Amount

Payment Dates:

 

Each Equity Payment Date.

Floating Rate for the Initial Calculation Period:

 

1.39068%

Initial Calculation Period

 

From the Effective Date to and including the first Quarterly Valuation Date.

Floating Rate Option:

 

USD-LIBOR-BBA

Designated Maturity:

 

3 months, pro-rated where applicable

Spread:

 

0.90%

Floating Rate Day Count Fraction:

 

Actual/360

Reset Days:

 

Each Payment Date.

Business Days:

 

New York

 

ADJUSTMENTS

 

On the Effective Date and each Valuation Date, the Unit NAV shall be as reported
by the Custodian on the last Business Day of the most recent month for which

--------------------------------------------------------------------------------

   

it has provided a Monthly Valuation Report as described in the Agreement. If
such month is not the month immediately preceding the Effective Date or any
Quarterly Valuation Date, on the date the Counterparty provides to CIBC the
Monthly Valuation Report (i) in the case of the Monthly Valuation Report for the
month immediately preceding the Effective Date, the Number of Shares shall be
adjusted so that the Number of Shares times the Unit NAV as of the last Business
Day of the month immediately preceding the Effective Date equals the initial
Equity Notional Amount and (ii) in the case of the Monthly Valuation Report for
the month corresponding to the Quarterly Valuation Date, CIBC or Counterparty,
as appropriate, shall pay to the other that amount, after taking into account
any payment made on the relevant Equity Payment Date, necessary to make such
other party whole as a result of any adjustment made to the Unit NAV reported on
the relevant Quarterly Valuation Date.

ADDITIONAL COUNTERPARTY PAYMENTS:

 

(A) By 1:00 p.m. on the first Business Day after receipt of written notice from
CIBC, Counterparty will pay to CIBC an amount equal to all amounts which are
required to be refunded to the Fund by CIBC, as the result of an adjustment
after the Termination Date, to Unit NAV. If CIBC receives an additional payment
after the Termination Date from the Fund as a result of an adjustment after the
Termination Date, to Unit NAV, CIBC shall pay such amount to Counterparty on the
first Business Day after receipt of such additional payment.

(B) By 1:00 p.m. on the first Business Day after receipt of written notice from
CIBC, Counterparty will pay to CIBC an amount equal to the amount that the Fund
or the Fund’s bankruptcy liquidators, trustee or any court having apparent
jurisdiction over the Fund requires CIBC to pay or repay to the Fund, the Fund’s
bankruptcy estate or any creditor of the Fund in respect of the Shares.

MANDATORY REDEMPTIONS:

 

In the event of a mandatory redemption by the Fund of all or part of the Shares
on any Business Day (the “Mandatory Redemption Date”), then the Equity Notional
Amount and the Number of Shares shall be adjusted accordingly on the relevant
Equity Payment Date. Such Equity Payment Date is considered to be a Termination
Date that is applicable to only the Redemption Amount.

3. ACCOUNT DETAILS:

   

    Payments to CIBC:

   

        Account for Payments:

 

Chase Manhattan Bank, New York

        For the Account of:

 

Canadian Imperial Bank of Commerce

        Account No.:

 

544-708-234

        ABA No.:

 

021-000-021

--------------------------------------------------------------------------------

 

      Attention:

 

Financial Products

    Payments to Counterparty:

   

        Account for Payments:

 

ITEM 1. Federal Reserve Bank of Boston

        For the Account of:

 

Max Re Ltd. (Gen-Re-NEAM)

        Account No.:

 

MRLF 0020502

        ABA No.:

 

011-001-234

BOS SAFE DEP

        DDA No.:

 

162299

4. OFFICES:

   

     (a) The Office of CIBC for the Transaction is Toronto.

   

     (b) The Office of Counterparty for the Transaction is Hamilton, Bermuda.

   

5. BROKER/ARRANGER:

 

None.

6. This Confirmation may be executed in one or more counterparts, either in
original or facsimile form, each of which shall constitute an original and all
of which together shall constitute one and the same agreement. When executed by
the parties through facsimile transmission, this Confirmation shall constitute
the original agreement between the parties and the parties hereby adopt the
signatures printed by the receiving facsimile machine as the original signatures
of the parties.

7. COVENANTS:

 

The Calculation Agent hereby covenants that all determinations made by the
Calculation Agent under this Confirmation will be made in good faith and in a
commercially reasonable manner at all times.

8. OTHER PROVISIONS:

   

     Optional Early Termination:

 

The Counterparty shall have the right, under Section 2.3 (b) (ii) of the
Liquidity Agreement, to terminate the Transaction in whole, but not in part, on
any Business Day, such Business Day shall be deemed the Termination Date.

 

After February 28, 2004, upon 30 days written notice to CIBC, the Counterparty
shall have the right to terminate the Transaction in whole, but not in part, on
any Business Day, such Business Day shall be deemed the Termination Date.

     Governing Law:

 

The laws of the State of New York (without reference to the choice of law
doctrine).

--------------------------------------------------------------------------------

 

EXHIBIT 10.19

 

Entering into a derivative transaction involves certain risks. An identification
of the principal risks is provided in the CIBC World Markets Risk Disclosure
Statement, which has been delivered to you. If you have not received a copy,
please let us know and one will be provided to you. You should always consider
those risks in determining whether to enter into derivative transactions.

 

Except as if expressly agreed to by you or us in writing, neither of us has
acted as advisor to the other with respect to the desirability or
appropriateness of entering into the Transaction confirmed hereby or with
respect to the other party’s risk management needs generally. This pertains not
only to the financial and market risk management risks and consequences of the
confirmed or any proposed Transaction, but also to any legal, regulatory, tax,
accounting and credit issues generated by such transactions, which each party
must evaluate for itself and in reliance on its own professional advisors.

 

The Transaction confirmed hereby might be one which includes one or more
elements not found in more basic swap structures with which you should be
familiar, such as single currency interest rate swaps. These elements, if
present, could include leverage, one or more embedded options or one or more
embedded forwards or some other structural elements which could significantly
affect the Transaction’s price behavior As with any other financial market
transaction, you should monitor the Transaction’s value frequently throughout
its term to protect yourself as well as possible against unanticipated or
undesired changes in its value and to insure its continued utility relative to
your financial management needs and your appetite for the market, legal,
regulatory, credit, tax and accounting risks that can attend the Transaction.

--------------------------------------------------------------------------------

 

Please confirm that the foregoing correctly sets forth the terms of our
agreement by executing the copy of this Confirmation enclosed for that purpose
and returning it to us or by sending to us a letter or telex substantially
similar to this letter, which letter or telex sets forth the material terms of
the Transaction to which this Confirmation relates and indicates your agreement
to those terms.

 

Yours Sincerely,

 

CANADIAN IMPERIAL BANK OF COMMERCE

 

By:                                             

Name: Gina S. Ghent

Title: Executive Director

 

Confirmed as of the date first above written:

 

MAX RE LTD.

 

By:                                             

Name:

Title: