Document:

Unassociated Document

Exhibit 10.10

 

 

BLUEPHOENIX  SOLUTIONS USA, INC.

 

LOAN AND SECURITY AGREEMENT

 

  

  

  

 

This LOAN AND SECURITY AGREEMENT (this "Agreement") is entered into as of October 2, 2013, by and between Comerica Bank ("Bank") and BluePhoenix Solutions USA, Inc. ("Borrower").

 

RECITALS

Borrower wishes to obtain credit from time to time from Bank, and Bank desires to extend credit to Borrower. This Agreement sets forth the terms on which Bank will advance credit to Borrower, and Borrower will repay the amounts owing to Bank.

AGREEMENT

 

The parties agree as follows:

 

1.                  DEFINITIONS AND CONSTRUCTION.

 

1.1           Definitions. As used in this Agreement, all capitalized terms shall have the definitions set forth on Exhibit A. Any term used in the Code and not defined herein shall have the meaning given to the term in the Code.

 

1.2           Accounting Terms. Any accounting term not specifically defined on Exhibit A shall be construed in accordance with GAAP and all calculations shall be made in accordance with GAAP. The term "financial statements" shall include the accompanying notes and schedules.

 

2.                  LOAN AND TERMS OF PAYMENT.

 

2.1           Credit Extensions.

 

(a)           Promise to Pay. Borrower promises to pay to Bank, in lawful money of the United States of America, the aggregate unpaid principal amount of all Credit Extensions made by Bank to Borrower, together with interest on the unpaid principal amount of such Credit Extensions at rates in accordance with the terms hereof.

 

(b)           Advances Under Revolving Line.

 

(i)           Amount. Subject to and upon the terms and conditions of this Agreement, and after Bank receives the results of the Initial Audit (in form and substance satisfactory to Bank), Borrower may request Advances in an aggregate outstanding amount not to exceed the lesser of (A) the Revolving Line or (B) the Borrowing Base. Amounts borrowed pursuant to this Section 2.1(b) may be repaid and reborrowed at any time without penalty or premium prior to the Revolving Maturity Date, at which time all Advances under this Section 2.1(b) shall be immediately due and payable,

 

(ii)           Form  of Request. Whenever Borrower desires an Advance, Borrower will notify Bank by facsimile transmission or telephone no later than 3:00 p.m. Pacific time (12:00 p.m. Pacific time for wire transfers), on the Business Day that the Advance is to be made. Each such notification shall be promptly confirmed by a Payment/Advance Form in substantially the form of Exhibit C. Bank is authorized to make Advances under this Agreement, based upon instructions received from a Responsible Officer or a designee of a Responsible Officer, or without instructions if in Bank's discretion such Advances are necessary to meet Obligations which have become due and remain unpaid. Bank shall be entitled to rely on any facsimile or telephonic notice given by a person who Bank reasonably believes to be a Responsible Officer or a designee thereof, and Borrower shall indemnify and hold Bank harmless for any damages or loss suffered by Bank as a result of such reliance. Bank will credit the amount of Advances made under this Section 2.1(b) to Borrower's deposit account.

 

(c)           Non-Formula  Revolving Line Advances.

 

(i)           Subject to and upon the terms and conditions of this Agreement, Borrower may request Non-Formula  Revolving Line Advances in an aggregate outstanding amount not to exceed the Non-Formula Revolving Line. Amounts borrowed pursuant to this Section 2.l(c) may be repaid and  reborrowed  at any  time without penalty or premium prior to the Non-Formula Revolving Line Maturity Date, at which  time all Non­-Formula Revolving Line Advances under this Section 2.1(c) shall be immediately  due and payable.

 

  

  

  

 

(ii)          Whenever Borrower desires a Non-Formula Revolving Line Advance, Borrower will notify Bank by facsimile transmission or telephone no later than 3:00 p.m. Pacific time (12:00 p.m. Pacific time for wire transfers), on the Business Day that the Non-Formula Revolving Line Advance is to be made. Each such notification shall be promptly confirmed by a Payment/Advance Form in substantially the form of Exhibit C. Bank is authorized to make Non-Formula Revolving Line Advances under this Agreement, based upon instructions received from a Responsible Officer or a designee of a Responsible Officer, or without instructions if in Bank's discretion such Non Formula Revolving Line Advances are necessary to meet Obligations which have become due and remain unpaid. Bank shall be entitled to rely on any facsimile or telephonic notice given by a person who Bank reasonably believes to be a Responsible Officer or a designee thereof, and Borrower shall indemnify and hold Bank harmless for any damages or loss suffered by Bank as a result of such reliance. Bank will credit the amount of Non­ Formula Revolving Line Advances made under this Section 2.1(c) to Borrower's deposit account.

 

2.2           Overadvances. If the aggregate amount of the outstanding Advances exceeds the lesser of the Revolving Line or the Borrowing Base at any time, Borrower shall immediately pay to Bank, in cash, the amount of such excess.

 

2.3           Interest Rates. Payments. and Calculations.

 

(a)           Interest Rates.

(i)           Advances. The Advances shall bear interest, on the outstanding daily balance thereof, on the terms set forth in the Pricing Addendum.

 

 (ii)          Non-Formula Revolving Line Advances. The Non-Formula Revolving Line Advances shall bear interest, on the outstanding daily balance thereof, on the terms set forth in the Pricing Addendum.

 

(b)           Payments. Bank shall, at its option, charge such interest, all Bank Expenses, and all Periodic Payments against any of Borrower's deposit accounts or against the Revolving Line, in which case those amounts shall thereafter accrue interest at the rate then applicable hereunder. Any interest not paid when due shall be compounded by becoming a part of the Obligations, and such interest shall thereafter accrue interest at the rate then applicable hereunder.

 

2.4           Crediting Payments. Prior to the occurrence of an Event of Default, Bank shall credit a wire transfer of funds, check or other item of payment to such deposit account or Obligation as Borrower specifies. After the occurrence and during the continuance of an Event of Default, Bank shall have the right, in its sole discretion, to immediately apply any wire transfer of funds, check, or other item of payment Bank may receive to conditionally reduce Obligations, but such applications of funds shall not be considered a payment on account unless such payment is of immediately available federal funds or unless and until such check or other item of payment is honored when presented for payment. Notwithstanding anything to the contrary contained herein, any wire transfer or payment received by Bank after 12:00 noon Pacific time shall be deemed to have been received by Bank as of the opening of business on the immediately following Business Day. Whenever any payment to Bank under the Loan Documents would otherwise be due (except by reason of acceleration) on a date that is not a Business Day, such payment shall instead be due on the next Business Day, and additional fees or interest, as the case may be, shall accrue and be payable for the period of such extension.

2.5           Fees. Borrower shall pay to Bank the following:

 

(a)           Bank Expenses. (i) On the Closing Date, all Bank Expenses incurred through the Closing Date; provided, however, that Borrower's obligation to reimburse Bank for legal fees shall be limited to $5,000 so long as moderate comments to the Loan Documents are made by Borrower or any third party, and (ii) after the Closing Date, all Bank Expenses, as and when they become due.

 

  

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2.6          Term. This Agreement shall become effective on the Closing Date and, subject to Section 13.8, shall continue in full force and effect for so long as any Obligations remain outstanding or Bank has any obligation to make Credit Extensions under this Agreement. Notwithstanding the foregoing, Bank shall have the right to terminate its obligation to make Credit Extensions under this Agreement immediately and without notice upon the occurrence and during the continuance of an Event of Default.

 

3.                  CONDITIONS OF LOANS.

3.1           Conditions Precedent to Initial Credit Extension. The obligation of Bank to make the initial Credit Extension is subject to the condition precedent that Bank shall have received, in form and substance satisfactory to Bank, the following:

 

(a)           this Agreement;

 

(b)          an officer's certificate of Borrower with respect to incumbency and resolutions authorizing the execution and delivery of this Agreement;

 

(c)           the Pricing Addendum;

 

(d)           a financing statement (Form UCC-1) naming Borrower as debtor;

 

(e)           an intellectual property security agreement;

 

(f)           agreement to furnish insurance;

 

(g)          for each collateral location or warehouse location of Borrower or any Collateral location not owned by Borrower, a landlord subordination agreement, collateral access agreement or bailment waiver, executed by the landlord, warehouseman or bailee of such location, as applicable, together with a copy of the lease, warehouse or bailment agreement for each such location, as applicable, provided that with respect to the location with the address 601 Union Street, Suite 4616, Seattle, WA, Borrower shall be entitled to satisfy this condition within no later than 60 Business Days after the Closing Date;

 

(h)          payment of the fees and Bank Expenses then due specified in Section 2.5;

 

(i)           current SOS Reports indicating that except for Permitted Liens, there are no other security interests or Liens of record in the Collateral;

 

(j)           current financial statements, including audited statements for Borrower's most recently ended fiscal year, together with an unqualified opinion, company prepared consolidated and consolidating balance sheets and income statements for the most recently ended month in accordance with Section 6.2, and such other updated financial information as Bank may reasonably request;

 

(k)           current Compliance Certificate in accordance with Section 6.2;

 

(l)            a guaranty by Columbia Pacific Opportunity Fund, L.P. ("Columbia Pacific");

 

(m)          resolutions and incumbency certificate of Columbia Pacific, authorizing the execution of a guaranty in favor of Bank and related documents;

 

(n)           an Automatic Loan Payment Authorization; and

 

(o)           such other documents or certificates, and completion of such other matters, as Bank may reasonably deem necessary or appropriate.

 

  

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3.2           Conditions Precedent to all Credit Extensions. The obligation of Bank to make each Credit Extension, including the initial Credit Extension, is further subject to the following conditions:

 

(a)           timely receipt by Bank of the Payment/Advance Form as provided in Section 2.1; and

 

(b)          the representations and warranties contained in Article 5 shall be true and correct in all material respects on and as of the date of such Payment/Advance Form and on the effective date of each Credit Extension as though made at and as of each such date, and no Event of Default shall have occurred and be continuing, or would exist after giving effect to such Credit Extension (provided, however, that those representations and warranties expressly referring to another date shall be true, correct and complete in all material respects as of such date). The making of each Credit Extension shall be deemed to be a representation and warranty by Borrower on the date of such Credit Extension as to the accuracy of the facts referred to in this Section 3.2.

4.                  CREATION OF SECURITY INTEREST.

 

4.1           Grant of Security Interest. Borrower grants and pledges to Bank a continuing security interest in the Collateral to secure prompt repayment of any and all Obligations and to secure prompt performance by Borrower of each of its covenants and duties under the Loan Documents. Except as set forth in the Schedule, such security interest constitutes a valid, first priority security interest in the presently existing Collateral, and will constitute a valid, first priority security interest in later-acquired Collateral.

 

4.2           Perfection of Security Interest. Borrower authorizes Bank to file at any time financing statements, continuation statements, and amendments thereto that (i) either specifically describe the Collateral or describe the Collateral as all assets of Borrower of the kind pledged hereunder, and (ii) contain any other information required by the Code for the sufficiency of filing office acceptance of any financing statement, continuation statement, or amendment, including whether Borrower is an organization, the type of organization and any organizational identification number issued to Borrower, if applicable. Any such financing statements may be filed by Bank at any time in any jurisdiction whether or not Division 9 of the Code is then in effect in that jurisdiction. Borrower shall from time to time endorse and deliver to Bank, at the request of Bank, all Negotiable Collateral and other documents that Bank may reasonably request, in form satisfactory to Bank, to perfect and continue perfection of Bank's security interests in the Collateral and in order to fully consummate all of the transactions contemplated under the Loan Documents. Borrower shall have possession of the Collateral, except where expressly otherwise provided in this Agreement or where Bank chooses to perfect its security interest by possession in addition to the filing of a financing statement. Where Collateral is in possession of a third party bailee, Borrower shall take such steps as Bank reasonably requests for Bank to (i) obtain an acknowledgment, in form and substance satisfactory to Bank, of the bailee that the bailee holds such Collateral for the benefit of Bank, and (ii) obtain "control" of any Collateral consisting of investment property, deposit accounts, securities accounts, letter-of-credit rights or electronic chattel paper (as such items and the term "control" are defined in Division 9 of the Code) by causing  the securities intermediary or depositary institution or issuing bank to execute a control agreement  in form and substance satisfactory to Bank. Borrower will not create any chattel paper without placing a legend on the chattel paper acceptable to Bank indicating that Bank has a security interest in the chattel paper. Borrower from time to time may deposit with Bank specific cash collateral to secure specific Obligations; Borrower authorizes Bank to hold such specific balances in pledge and to decline to honor any drafts thereon or any request by Borrower or any other Person to pay or otherwise transfer any part of such balances for so long as the specific Obligations are outstanding.

 

4.3           Right to Inspect. Bank (through any of its officers, employees, or agents) shall have the right, upon reasonable prior notice, from time to time during Borrower's usual business hours but no more than twice a year (excluding the Initial Audit), unless an Event of Default has occurred and is continuing, to inspect Borrower's Books and to make copies thereof and to check, test, and appraise the Collateral in order to verify Borrower's financial condition or the amount, condition of, or any other matter relating to, the Collateral.

 

  

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5.                  REPRESENTATIONS AND WARRANTIES.

 

Borrower represents and warrants as follows:

 

5.1           Due Organization and Qualification. Borrower and each Subsidiary is an entity duly existing under the laws of the jurisdiction in which it is organized and qualified and licensed to do business in any state in which the conduct of its business or its ownership of property requires that it be so qualified, except where the failure to do so could not reasonably be expected to cause a Material Adverse Effect.

 

5.2           Due Authorization; No Conflict. The execution, delivery, and performance of the Loan Documents are within Borrower's powers, have been duly authorized, and are not in conflict with nor constitute a breach of any provision contained in Borrower's organizational documents, nor will they constitute an event of default under any material agreement by which Borrower is bound. Borrower is not in default under any agreement by which it is bound, except to the extent such default would not reasonably be expected to cause a Material Adverse Effect.

 

5.3           Collateral. Borrower has rights in or the power to transfer the Collateral, and its title to the Collateral is free and clear of Liens, adverse claims, and restrictions on transfer or pledge except for Permitted Liens. All Collateral is located solely in the Collateral States. The Eligible Accounts are bona fide existing obligations. The property or services giving rise to such Eligible Accounts has been delivered or rendered to the account debtor or its agent for immediate shipment to and unconditional acceptance by the account debtor. Borrower has not received notice of actual or imminent Insolvency Proceeding of any account debtor whose accounts are included in any Borrowing Base Certificate as an Eligible Account. No licenses or agreements giving rise to such Eligible Accounts is with any Prohibited Territory or with any Person organized under or doing business in a Prohibited Territory. All Inventory is in all material respects of good and merchantable quality, free from all material defects, except for Inventory for which adequate reserves have been made. Except as set forth in the Schedule, none of the Collateral is maintained or invested with a Person other than Bank or Bank's Affiliates.

 

5.4           Intellectual Property Collateral. Borrower is the sole owner of the Intellectual Property Collateral, except for non-exclusive licenses granted by Borrower to its customers in the ordinary course of business. To the best of Borrower's knowledge, each of the Copyrights, Trademarks and Patents is valid and enforceable, and no part of the Intellectual Property Collateral has been judged invalid or unenforceable, in whole or in part, and no claim has been made to Borrower that any part of the Intellectual Property Collateral violates the rights of any third party except to the extent such claim could not reasonably be expected to cause a Material Adverse Effect. Except as set forth in the Schedule, Borrower's rights as a licensee of intellectual property do not give rise to more than five percent (5%) of its gross revenue in any given month, including without limitation revenue derived from the sale, licensing, rendering or disposition of any product or service.

 

5.5           Name: Location of Chief Executive Office; Location of Inventory and Equipment. Except as disclosed in the Schedule, Borrower has not done business under any name other than that specified on the signature page hereof, and its exact legal name is as set forth in the first paragraph of this Agreement. The chief executive office of Borrower is located in the Chief Executive Office State at the address indicated in Section 10 hereof. Except as disclosed in the Schedule, all inventory and Equipment of Borrower is located at the address indicated in Section 10 hereof.

 

5.6           Actions. Suits.  Litigation. or Proceedings.  Except as set forth in the Schedule, there are no actions, suits, litigation or proceedings, at law or in equity, pending by or against Borrower or any Subsidiary before any court, administrative agency, or arbitrator in which a likely adverse decision could reasonably be expected to have a Material Adverse Effect.

 

5.7           No Material Adverse Change in Financial Statements. All consolidated and consolidating financial statements related to Borrower and any Subsidiary that are delivered by Borrower to Bank fairly present in all material respects Borrower's consolidated and consolidating financial condition as of the date thereof and Borrower's consolidated and consolidating results of operations for the period then ended. There has not been a material adverse change in the consolidated or in the consolidating financial condition of Borrower since the date of the most recent of such financial statements submitted to Bank.

 

  

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5.8           Solvency, Payment of Debts. Borrower is able to pay its debts (including trade debts) as they mature; the fair saleable value of Borrower's assets (including goodwill minus disposition costs) exceeds the fair value of its liabilities; and Borrower is not left with unreasonably small capital after the transactions contemplated by this Agreement.

 

5.9           Compliance with Laws and Regulations. Borrower  and each  Subsidiary  have met the minimum funding requirements of ERISA with respect to any employee benefit plans subject to  ERISA.  No  event  has occurred resulting from Borrower's failure to comply with ERISA that is reasonably likely to result in Borrower's incurring any liability that could reasonably be expected to have a Material Adverse Effect. Borrower is not an "investment company" or a company "controlled" by an "investment company" within the meaning  of  the Investment Company Act of 1940. Borrower is not engaged principally, or as one of the important activities, in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulations T, U and X of the Board of Governors of the Federal Reserve System). Borrower has complied in all material respects with all the provisions of the Federal Fair Labor Standards Act. Borrower is in compliance with all environmental laws, regulations and ordinances except where the failure to comply is not reasonably likely to have a Material Adverse Effect. Borrower has not violated any statutes, laws, ordinances or rules  applicable  to  it,  the violation of which could reasonably be expected to have a Material Adverse Effect. Borrower and each Subsidiary have filed or caused to be filed all tax returns required to be filed, and have paid, or have made adequate provision for the payment of, all taxes reflected therein except those being contested in good  faith with  adequate  reserves under GAAP or where the failure to file such returns or pay such taxes could not reasonably  be expected to have a Material  Adverse Effect.

 

5.10         Subsidiaries. Borrower does not own any stock, partnership interest or other equity securities of any Person, except for Permitted Investments.

 

5.11         Government Consents. Borrower and each Subsidiary have obtained all consents, approvals and authorizations of, made all declarations or filings with, and given all notices to, all governmental authorities that are necessary for the continued operation of Borrower's business as currently conducted, except where the failure to do so would not reasonably be expected to cause a Material Adverse Effect.

 

5.12         Inbound Licenses. Except as disclosed on the Schedule, Borrower is not a party to, nor is bound by, any inbound license or other agreement, the failure, breach, or termination of which  could  reasonably be expected to cause a Material Adverse Effect, or that prohibits or otherwise restricts Borrower  from granting  a security interest in Borrower's interest in such license or agreement or any other property.

 

5.13         Full Disclosure. No representation, warranty or other statement made by Borrower in any certificate or written statement furnished to Bank taken together with all such certificates and written statements furnished to Bank contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained in such certificates or statements not misleading, it being recognized by Bank that the projections and forecasts provided by Borrower in good faith and based upon reasonable assumptions are not to be viewed as facts and that actual results during the period or periods covered by any such projections and forecasts may differ from the projected or forecasted results.

 

6.                  AFFIRMATIVE COVENANTS.

 

Borrower covenants that, until payment in full of all outstanding Obligations, and for so long as Bank may have any commitment to make a Credit Extension hereunder, Borrower shall do all of the following:

 

6.1           Good Standing and Government Compliance. Borrower shall maintain its, and each of its Subsidiaries' organizational existence and good standing in the Borrower State, shall maintain qualification and good standing in each other jurisdiction in which the failure to so qualify could reasonably be expected to have a Material Adverse Effect, and shall furnish to Bank the organizational identification number issued to Borrower by the authorities of the jurisdiction in which Borrower is organized, if applicable. Borrower shall meet, and shall cause each Subsidiary to meet, the minimum funding requirements of ERISA with respect to any employee benefit plans subject to ERISA. Borrower shall comply in all material respects with all applicable Environmental Laws, and maintain all material permits, licenses and approvals required thereunder where the failure to do so could reasonably be expected to have a Material Adverse Effect. Borrower shall comply, and shall cause each Subsidiary to comply, with all statutes, laws, ordinances and government rules and regulations to which it is subject, and shall maintain, and shall cause each of its Subsidiaries to maintain, in force all licenses, approvals and agreements, the loss of which or failure to comply with which would reasonably be expected to have a Material Adverse Effect.

 

  

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6.2           Financial Statements, Reports, Certificates. Borrower shall deliver to Bank: (i) as soon as available, but in any event within thirty (30) days after the end of each calendar month, a company prepared consolidated and consolidating balance sheet and income statement covering Borrower's and each Subsidiaries' operations during such period, prepared in accordance with GAAP, and in a form reasonably acceptable to Bank and certified by a Responsible Officer; (ii)  as soon as available, but in any event within one hundred fifty (150) days after the end of each fiscal year of Borrower, company prepared consolidated and consolidating financial statements of Borrower, together with a balance sheet and income statement covering Borrower's and each Subsidiaries' operations during such period, prepared in accordance with GAAP, and in a form reasonably acceptable to Bank and certified by a Responsible  Officer; (iii) as soon as available, but in any event within one hundred fifty (150) days after the end of Parent's fiscal year, audited consolidated and consolidating financial  statements of Parent prepared in accordance with GAAP, consistently applied, together with an opinion which is unqualified (including no going concern comment or qualification) or otherwise consented to in writing by Bank on such financial statements of an independent certified public accounting firm reasonably acceptable to Bank; (iv) if applicable, copies of all statements, reports and notices sent or made available generally by Borrower to its security holders or to any holders of Subordinated Debt and all reports on Forms  10-K and  10-Q filed with the Securities and Exchange Commission; (v) promptly upon receipt of notice thereof, a report of any legal actions pending or threatened against Borrower or any Subsidiary that could result in damages or costs to Borrower or any Subsidiary of Two Hundred Fifty Thousand Dollars ($250,000) or more; (vi) promptly upon receipt, each management letter prepared by Borrower's independent certified public accounting firm regarding Borrower's management control systems; (vii) as soon as available, but in any event not later than January 31 of each year, Borrower's financial and business projections and budget for the then current or immediately  following (as applicable) year, with evidence of approval thereof by Borrower's board of directors; (viii) such budgets, sales projections, operating plans or other financial information generally prepared by Borrower in the ordinary course of business as Bank may reasonably request from time to time; and (ix) within thirty (30) days of the last day of each fiscal quarter, a report signed by Borrower, in form reasonably acceptable to Bank, listing any applications or registrations that Borrower has made or filed in respect of any Patents, Copyrights or Trademarks and the status of any outstanding applications or registrations, as well as any material change in Borrower's Intellectual Property Collateral, including but not limited to any subsequent ownership right of Borrower in or to any Trademark, Patent or Copyright not specified in Exhibits A, B, and C of any Intellectual Property Security Agreement delivered to Bank by Borrower in connection with this Agreement.

(a)           Within thirty (30) days after the last day of each month, Borrower shall deliver to Bank a Borrowing Base Certificate signed by a Responsible Officer in substantially the form of Exhibit D hereto, together with aged-listings by invoice date of accounts receivable and accounts payable.

 

(b)           Within thirty (30) days after the last day of each month, Borrower shall deliver to Bank with the monthly financial statements a Compliance Certificate certified as of the last day of the applicable month and signed by a Responsible Officer in substantially the form of Exhibit E hereto.

 

(c)           Immediately upon becoming aware of the occurrence or existence of an Event of Default hereunder, a written statement of a Responsible Officer setting forth details of the Event of Default, and the action which Borrower has taken or proposes to take with respect thereto.

 

(d)           Bank shall have a right from time to time hereafter to audit Borrower's Accounts and appraise Collateral at Borrower's  expense, provided that such audits will be conducted no more often than every six (6) months (not including the Initial Audit) unless an Event of Default has occurred and is continuing.

 

Borrower may deliver to Bank on an electronic basis any certificates, reports or information required pursuant to this Section 6.2, and Bank shall be entitled to rely on the information contained in the electronic files, provided that Bank in good faith believes that the files were delivered by a Responsible Officer. If Borrower delivers this information electronically, it shall also deliver to Bank by U.S. Mail, reputable overnight courier service, hand delivery, facsimile or .pdf file within five (5) Business Days of submission of the unsigned electronic copy the certification of monthly financial statements, the intellectual property report, the Borrowing Base Certificate and the Compliance Certificate, each bearing the physical signature of the Responsible Officer.

 

  

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6.3           Inventory; Returns. Borrower shall keep all Inventory in good and merchantable condition, free from all material defects except for  Inventory for which adequate reserves have been made. Returns and allowances, if any, as between Borrower and its account debtors shall be on the same basis and in accordance with the usual customary practices of Borrower, as they exist on the Closing Date. Borrower shall promptly notify Bank of all returns and recoveries and of all disputes and claims involving more than Two Hundred Fifty Thousand Dollars ($250,000).

 

6.4           Taxes. Borrower shall make, and cause each Subsidiary to make, due and timely payment or deposit of all material federal, state, and local taxes, assessments, or contributions required of it by law, including, but not limited to, those laws concerning income taxes, F.I.C.A., F.U.T.A. and state disability, and will execute and deliver to Bank, on demand, proof reasonably satisfactory to Bank indicating that Borrower or a Subsidiary has made such payments or deposits and any appropriate certificates attesting to the payment or deposit thereof; provided that Borrower or a Subsidiary need not make any payment if the amount or validity of such payment is contested in good faith by appropriate proceedings and is reserved against (to the extent required by GAAP) by Borrower.

 

6.5           Insurance.

 

(a)           Borrower, at its expense, shall keep the Collateral insured against loss or damage by fire, theft, explosion, sprinklers, and all other hazards and risks, and in such amounts, as insured by the Borrower as of the date of this Agreement. Borrower shall also maintain liability and other insurance in amounts and of a type as insured by the Borrower as of the date of this Agreement.

 

(b)          All such policies of insurance shall be in such form, with such companies, and in such amounts as reasonably satisfactory to Bank. All policies of property insurance shall contain a lender's loss payable endorsement, in a form reasonably satisfactory to Bank, showing Bank as an additional loss payee, and all liability insurance policies shall show Bank as an additional insured and specify that the insurer must give at least twenty (20) days notice to Bank before canceling its policy for any reason.  Upon Bank's request, Borrower shall deliver to Bank certified copies of the policies of insurance and evidence of all premium payments. If no Event of Default has occurred and is continuing, proceeds payable under any casualty policy will, at Borrower's option, be payable to Borrower to replace the property subject to the claim, provided that any such replacement property shall be deemed Collateral in which Bank has been granted a first priority security interest. If an Event of Default has occurred  and is continuing, all proceeds payable under any such policy shall, at Bank's option, be payable to Bank to be applied on account of the Obligations.

 

 6.6           Accounts. Borrower shall maintain all of its depository and operating accounts with Bank and its primary investment accounts with Bank or Bank's Affiliates (covered by satisfactory control agreements). Notwithstanding the foregoing, Borrower may maintain (a) an account with HSBC Bank ("HSBC"), provided that within sixty (60) days after the Closing Date, such account is covered by a control agreement in form and substance satisfactory to Bank in its reasonable discretion and (b) accounts with  financial  institutions  other  than  Bank  or HSBC, provided that the (i) aggregate balance of all accounts with any  one such  financial  institution  shall  not exceed $125,000 at any time and (ii) aggregate balance of all accounts at all such other financial institutions shall not exceed $225,000 at any time.

 

6.7             [Reserved.]

 

6.8             Registration  of Intellectual Property Rights.

  (a)           Borrower shall register or cause to be registered on an expedited basis (to the extent not already registered) with the United States Patent and Trademark Office or the United States Copyright Office, as the case may be, those registrable intellectual property rights now owned or hereafter developed or acquired by Borrower, to the extent that Borrower, in its reasonable business judgment, deems it appropriate to so protect such intellectual property rights.

 

  

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(b)          Borrower shall promptly give Bank written notice of any applications or registrations of intellectual property rights filed with the United States Patent and Trademark Office, including the date of such filing and the registration or application numbers, if any.

 

(c)           Borrower shall (i) give Bank not less than thirty (30) days prior written notice of the filing of any applications or registrations with the United States Copyright Office, including the title of such intellectual property rights to be registered, as such title will appear on such applications or registrations, and the date such applications or registrations will be filed; (ii) prior to the filing of any such applications or registrations, execute such documents as Bank may reasonably request for Bank to maintain its perfection in such intellectual property rights to be registered by Borrower; (iii) upon the request of Bank, either deliver to Bank or file such documents simultaneously with the filing of any such applications or registrations; (iv) upon filing any such applications or registrations, promptly provide Bank with a copy of such applications or registrations together with any exhibits, evidence of the filing of any documents requested by Bank to be filed for Bank to maintain the perfection and priority of its security interest in such intellectual property rights, and the date of such filing.

 

(d)          Borrower shall execute and deliver such additional instruments and documents  from time to time as Bank shall reasonably request to perfect and maintain the perfection  and  priority  of Bank's  security interest in the Intellectual Property  Collateral.

 

(e)           Borrower shall use commercially reasonably efforts to (i) protect, defend and maintain the validity and enforceability of the Trademarks, Patents, Copyrights, and trade secrets, (ii) detect infringements of the Trademarks, Patents and Copyrights and promptly advise Bank in writing of material infringements detected and (iii) not allow any material Trademarks, Patents or Copyrights to be abandoned, forfeited or dedicated to the public without the written consent of Bank, which shall not be unreasonably withheld, delayed or conditioned.

 

(f)           Bank may audit Borrower's Intellectual Property Collateral to confirm compliance with Section 6.2(d) and this Section 6.8, provided such audit may not occur more often than twice per year, unless an Event of Default has occurred and is continuing. Bank shall have the right, but not the obligation, to take, at Borrower's sole expense, any actions that Borrower is required under this Section 6.8 to take but which Borrower fails to take, after fifteen (15) days' notice to Borrower. Borrower shall reimburse and indemnify Bank for all reasonable costs and reasonable expenses incurred in the reasonable exercise of its rights under this Section 6.8.

 

6.9           Consent of Inbound Licensors. Prior to entering into or becoming bound by any inbound license or agreement (other than over-the-counter software that is commercially available to the public), the failure, breach, or termination of which could reasonably be expected to cause a Material Adverse Effect, Borrower shall: (i) provide written notice to Bank of the material terms of such license or agreement with a description of its likely impact on Borrower's business or financial condition; and (ii) in good faith take such actions as Bank may reasonably request to obtain the consent of, or waiver by, any person whose consent or waiver is necessary for (A) Borrower's interest in such licenses or contract rights to be deemed Collateral and for Bank to have a security interest in it that might otherwise be restricted by the terms of the applicable license or agreement, whether now existing or entered into in the future, and (B) Bank to have the ability in the event of a liquidation of any Collateral to dispose of such Collateral in accordance with Bank's rights and remedies under this Agreement and the other Loan Documents, provided, however, that the failure to obtain any such consent or waiver shall not constitute a default under this Agreement.

 

6.10         Further Assurances. At any time and from time to time Borrower shall execute and deliver such further instruments and take such further action as may reasonably be requested by Bank to effect the purposes of this Agreement.

 

  

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7.                  NEGATIVE COVENANTS.

 

Borrower covenants and agrees that, so long as any credit hereunder shall be available and until the outstanding Obligations are paid in full or for so long as Bank may have any commitment to make any Credit Extensions, Borrower will not do any of the following without Bank's prior written consent:

 

7.1           Dispositions. Convey, sell, lease, license,  transfer or otherwise dispose of (collectively, to "Transfer"), or permit any of its Subsidiaries to Transfer, all or any part of its business or property, or subject to Section 6.6 of the Agreement, move cash balances on deposit with Bank to accounts opened at another financial institution, other than Permitted Transfers.

 

7.2           Change in Name, Location, Executive Office, or Executive Management; Change in Business; Change in Fiscal Year; Change in Control. Change its name or the Borrower State or relocate its chief executive office without  twenty (20) days prior written notification to Bank; replace its chief executive officer or chief financial officer without seven (7) days prior written notification to Bank; engage in any business, or permit any of its Subsidiaries to engage in any business, other than or reasonably related or incidental to the businesses currently engaged in by Borrower; change its fiscal year end; or have a Change in Control.

 

7.3           Mergers or Acquisitions. Merge or consolidate, or permit any of  its Subsidiaries to merge or consolidate, with or into any other business organization (other than mergers or consolidations of a Subsidiary into another Subsidiary or into Borrower), or acquire, or permit any of its Subsidiaries to acquire, all or substantially  all of the capital stock or property  of another Person, or enter into any agreement to do any of the same, except where (i) such transactions do not in the aggregate exceed Two Hundred Fifty Thousand Dollars ($250,000) during any fiscal year, (ii) no Event  of Default has occurred, is continuing or would exist after giving effect to such transactions, (iii) such transactions do not result in a Change in Control, and (iv) Borrower is the surviving entity.

 

7.4           Indebtedness. Create, incur, assume, guarantee or be or remain liable with respect to any Indebtedness, or permit any Subsidiary to do so, other than Permitted Indebtedness, or prepay any  Indebtedness  or take any actions which impose on Borrower an obligation to prepay  any Indebtedness, except Indebtedness to Bank.

 

7.5           Encumbrances. Create, incur, assume or allow any Lien with respect to any of its property, or assign or otherwise convey any right to receive income, including the sale of any Accounts, or permit any of its Subsidiaries so to do, except for Permitted Liens, or covenant to any other Person that Borrower in the future will refrain from creating, incurring, assuming or allowing any Lien with respect to any of Borrower's property.

 

7.6           Distributions. Pay any dividends or make any other distribution or payment on account of or in redemption, retirement or purchase of any capital stock, other than Permitted Stock Repurchases and transfer of funds to Parent as permitted under Section 7.12 of this Agreement.

 

7.7           Investments. In each case, other than a Permitted Investment, directly or indirectly acquire or own, or make any Investment in or to any Person, or permit any Subsidiary to do so, or maintain or invest any of its property with a Person other than Bank or Bank's Affiliates or permit any of its Subsidiaries to do so unless such Person has entered into a control agreement with Bank, in form and substance reasonably satisfactory to Bank, or suffer or permit any Subsidiary to be a party to, or be bound by, an agreement that restricts such Subsidiary from paying dividends or otherwise distributing property to Borrower. Further, Borrower shall not enter into any license or agreement with any Prohibited Territory or with any Person organized under or doing business in a Prohibited Territory.

7.8           Transactions with Affiliates. Directly or indirectly enter into or permit to exist any material transaction with any Affiliate of Borrower except for transactions existing as of the date of this Agreement and listed on the Schedule and new transactions (or amendments to existing transactions) that are in the ordinary course of Borrower's business, upon fair and reasonable terms that are no less favorable to Borrower than would be obtained in an arm's length transaction with a non-affiliated Person.

 

7.9           Subordinated Debt. Make any payment in respect of any Subordinated Debt, or permit any of its Subsidiaries to make any such payment, except in compliance with the terms of such Subordinated Debt and the terms of the subordination agreement relating to such Subordinated Debt, or amend any provision of any document evidencing such Subordinated Debt, except in compliance with the terms of the subordination agreement relating to such Subordinated Debt, or amend any provision affecting Bank's rights contained in any documentation relating to the Subordinated Debt without Bank's prior written consent.

 

  

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7.10         Inventory and Equipment. Store the Inventory or the Equipment with a bailee, warehouseman, or similar third party unless the third party has been notified of Bank's security interest and Bank (a) has received an acknowledgment from the third party that it is holding or will hold the Inventory or Equipment for Bank's benefit or (b) is in possession of the warehouse receipt, where negotiable, covering such Inventory or Equipment. Except for Inventory sold in the ordinary course of business and except for such other locations as Bank may approve in writing, Borrower shall keep the Inventory and Equipment only at the location set forth in Section 10, the current Schedule and such other locations of which Borrower gives Bank prior written notice.

 

7.11         No Investment Company; Margin Regulation. Become or be controlled by an "investment company," within the meaning of the Investment Company Act of 1940, or become principally engaged in, or undertake as one of its important activities, the business of extending credit for the purpose of purchasing or carrying margin stock, or use the proceeds of any Credit Extension for such purpose.

 

7.12          Transfers to Parent. Transfers of funds to Parent shall not be in excess of $750,000, during any fiscal year of Borrower.

 

8.                  EVENTS OF DEFAULT.

 

Any one or more of the following events shall constitute an Event of Default by Borrower under this Agreement:

 

8.1            Payment Default. If Borrower fails to pay any of the Obligations when due;

 

8.2           Covenant Default.

 

(a)          If Borrower fails to perform any obligation under Section 6.2, 6.4, 6.5 or 6.6, or violates any of the covenants contained in Article 7 of this Agreement;

 

(b)          If Borrower fails or neglects to perform any obligation under Section 6.1, 6.3, 6.8, 6.9 or 6.10 and has failed to cure such default within ten (10) days after the earlier to occur of (i) Borrower's receipt of notice thereof or (ii) the date any officer of Borrower becomes aware thereof; however during such cure period no Credit Extensions will be made; or

(c)          If Borrower fails or neglects to perform or observe any other material term, provision, condition, covenant contained in this Agreement, in any of the Loan Documents, or in any other present or future agreement between Borrower and Bank and as to any default under such other term, provision, condition or covenant that can be cured, has failed to cure such default within fifteen (15) days after Borrower receives notice thereof or any officer of Borrower becomes aware thereof; provided, however, that if the default cannot by its nature be cured within the fifteen (15) day period or cannot after diligent attempts by Borrower be cured within such fifteen (15)  day  period,  and  such  default  is  likely  to  be  cured  within  a reasonable  time,  then  Borrower  shall  have an additional reasonable period (which shall not in any case exceed thirty five (35)  days)  to  attempt  to  cure such default, so long as Borrower continues to diligently attempt to cure such default, and within such reasonable time period the failure to have cured such default shall not be deemed an Event of Default but no Credit Extensions will be made;

8.3           Material Adverse Change. If there occurs any circumstance or circumstances that could reasonably be expected to have a Material Adverse Effect;

 

  

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8.4           Attachment. If any material portion of Borrower's or any Subsidiary's assets is attached, seized, subjected to a writ or distress warrant, or is levied upon, or comes into the possession of any trustee, receiver or person acting in a similar capacity and such attachment, seizure, writ or distress warrant or levy has not been removed, discharged or rescinded within ten (10) days, or if Borrower or any Subsidiary is enjoined, restrained, or in any way prevented by court order from continuing to conduct all or any material part of its business affairs, or if a judgment or other claim becomes a lien or encumbrance upon any material portion  of  Borrower's  or  any Subsidiary's assets, or if a notice of lien, levy, or assessment is filed of record with respect to any of Borrower's or any Subsidiary's assets by the United States Government, or any department, agency, or instrumentality  thereof, or by any state, county, municipal, or governmental agency, and the same is not paid  within  ten  (10)  days  after Borrower or such Subsidiary, as applicable, receives notice thereof, provided that none of  the  foregoing  shall constitute an Event of Default where such action or event is stayed or an adequate bond has been posted pending a good faith contest by Borrower or a Subsidiary, as  applicable (provided that  no  Credit  Extensions  will  be  made during such cure period);

8.5           Insolvency. If Borrower or any Subsidiary becomes insolvent, or if an Insolvency Proceeding is commenced by Borrower or a Subsidiary of Borrower, or if an Insolvency Proceeding is commenced against Borrower or any Subsidiary and is not dismissed or stayed within thirty (30) days (provided that no Credit Extensions will be made prior to the dismissal of such Insolvency Proceeding);

8.6           Other Agreements. If there is a default or other failure to perform in any agreement to which Borrower or any Subsidiary is a party with a third party or parties resulting in such third party or parties, exercising their rights against the Borrower or a Subsidiary and the maturity of any Indebtedness in an amount in excess of Two Hundred Fifty Thousand Dollars ($250,000) or that would reasonably be expected to have a Material Adverse Effect;

8.7           Subordinated Debt. If Borrower or any Subsidiary makes any payment on account of Subordinated Debt, except to the extent such payment is allowed under any subordination agreement entered into with Bank;

8.8           Judgments; Settlements. If one or more (a) judgments, orders, decrees or arbitration awards requiring the Borrower and/or its Subsidiaries to pay an aggregate amount of Two Hundred Fifty Thousand Dollars ($250,000) or greater shall be rendered against Borrower and/or its Subsidiaries and the same shall not have been vacated or stayed within ten (10) days thereafter (provided that no Credit Extensions will be made prior to such matter being vacated  or stayed); or (b) settlements  is agreed upon by Borrower and/or its Subsidiaries for the payment by Borrower  and/or its Subsidiaries of an aggregate amount of Two Hundred Fifty Thousand Dollars ($250,000) or greater or that could reasonably be expected to have a Material Adverse Effect; or 

 

8.9           Misrepresentations. If any material misrepresentation or material misstatement exists now or hereafter in any warranty or representation set forth herein or in any certificate delivered to Bank by any Responsible Officer pursuant to this Agreement or to induce Bank to enter into this Agreement or any other Loan Document.

 

8.10          Guaranty. If any guaranty of all or a portion of the Obligations (a "Guaranty")  ceases  for  any reason to be in full force and effect, or any guarantor fails to perform any obligation  under  any  Guaranty  or  a security agreement securing any Guaranty (collectively, the ''Guaranty Documents"), or any event of default occurs under any Guaranty Document or any guarantor revokes or purports to revoke a Guaranty, or any material misrepresentation or material misstatement exists now or hereafter in any warranty or representation set forth in any Guaranty Document or in any certificate delivered to Bank in connection with any Guaranty Document, or if any of the circumstances described  in Sections 8.3 through  8.9 occur with respect to any guarantor.

9.                  BANK'S RIGHTS AND REMEDIES.

 

9.1           Rights and Remedies. Upon the occurrence and during the continuance of an Event of Default, Bank may, at its election, without notice of its election and without demand, do any one or more of the following, all of which are authorized by Borrower:

(a)           Declare all Obligations,  whether  evidenced by this Agreement,  by any of the other Loan Documents, or otherwise,  immediately  due and  payable  (provided that  upon  the occurrence of an  Event of Default described in Section 8.5 (insolvency), all Obligations shall become  immediately due and payable without any action by Bank);

 

  

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(b)          Demand that Borrower (i) deposit cash with Bank in an amount equal to the aggregate limit of corporate credit cards and merchant credit card processing reserves, and (ii) pay in advance all fees with respect to such corporate credit cards and merchant credit card processing reserves, and Borrower shall promptly deposit and pay such amounts;

 

(c)          Cease advancing money or extending credit to or for the benefit of Borrower under this Agreement or under any other agreement between Borrower and Bank;

 

(d)          Settle or adjust disputes and claims directly with account debtors for amounts, upon terms and in whatever order that Bank reasonably considers advisable;

 

(e)          Make such payments and do such acts as Bank considers necessary or reasonable to protect its security interest in the Collateral Borrower agrees to assemble the Collateral if Bank so requires, and to make the Collateral available to Bank as Bank may designate. Borrower authorizes Bank to enter the premises where the Collateral is located, to take and maintain possession of the Collateral, or any part of it, and to pay, purchase, contest, or compromise any encumbrance, charge, or lien which in Bank's determination appears to be prior or superior to its security interest and to pay all expenses incurred in connection therewith. With respect to any of Borrower's owned premises, Borrower hereby grants Bank a license to enter into possession of such premises and to occupy the same, without charge, in order to exercise any of Bank's rights or remedies provided herein, at law, in equity, or otherwise;

 

(f)           Set off and apply to the Obligations any and all (i) balances and deposits of Borrower held by Bank, and (ii) indebtedness at any time owing to or for the credit or the account of Borrower held by Bank;

 

(g)          Ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell (in the manner provided for herein) the Collateral. Bank is hereby granted a license or other right, solely pursuant to the provisions of this Section 9.1, to use, without charge, Borrower's labels, patents, copyrights, rights of use of any name, trade secrets, trade names, trademarks, service marks, and advertising matter, or any property of a similar nature, as it pertains to the Collateral, in completing production of, advertising for sale, and selling any Collateral and, in connection with Bank's exercise of its rights under this Section 9.1, Borrower's rights under all licenses and all franchise agreements shall inure to Bank's benefit;

 

(h)          Sell the Collateral at either a public or private sale, or both, by way of one or more contracts or transactions, for cash or on terms, in such manner and at such places (including Borrower's premises) as Bank determines is commercially reasonable, and apply any proceeds to the Obligations in whatever manner or order Bank deems appropriate. Bank may sell the Collateral without giving any warranties as to the Collateral Bank may specifically disclaim any warranties of title or the like. This procedure will not be considered adversely to affect the commercial reasonableness of any sale of the Collateral If Bank sells any of the Collateral upon credit, Borrower will be credited only with payments actually made by the purchaser, received by Bank, and applied to the indebtedness of the purchaser. If the purchaser fails to pay for the Collateral, Bank may resell the Collateral and Borrower shall be credited with the proceeds of the sale;

 

(i)           Bank may credit bid and purchase at any public sale;

 

(j)          Apply for the appointment of a receiver, trustee, liquidator or  conservator  of  the Collateral, without notice and without regard to the adequacy of the security for the Obligations and without regard to the solvency of Borrower, any guarantor or any other Person liable for any of the Obligations; and

 

(k)         Any deficiency  that  exists after disposition  of the  Collateral  as provided  above will  be paid immediately by Borrower.

 

  

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Bank may comply with any applicable state or federal law requirements in connection with a disposition of the Collateral and compliance will not be considered adversely to affect the commercial reasonableness of any sale of the Collateral.

9.2           Power of Attorney. Effective only upon the occurrence and during the continuance of an Event of Default, Borrower hereby irrevocably appoints Bank (and any of Bank's designated officers, or employees) as Borrower's true and lawful attorney to: (a) send requests for verification of Accounts or notify account debtors of Bank's security interest in the Accounts; (b) endorse Borrower's name on any checks or other forms of payment or security that may come into Bank's possession; (c) sign Borrower's name on any invoice or bill of lading relating to any Account, drafts against account debtors, schedules and assignments of Accounts, verifications of Accounts, and notices to account debtors; (d) dispose of any Collateral; (e) make, settle, and adjust all claims under and decisions with respect to Borrower's policies of insurance; (f) settle and adjust disputes and claims respecting the accounts directly with account debtors, for amounts and upon terms which Bank determines to be reasonable; (g) enter into a shortform intellectual property security agreement consistent with the terms of this Agreement for recording purposes only or modify, in its sole discretion, any intellectual property security agreement entered into between Borrower and Bank without first obtaining Borrower's approval of or signature to such modification by amending Exhibits A, B, and C, thereof, as appropriate, to include reference to any right, title or interest in any Copyrights, Patents or Trademarks acquired by Borrower after the execution hereof or to delete any reference to any right, title or interest in any Copyrights, Patents or Trademarks in which Borrower no longer has or claims to have any right, title or interest; and (h) file, in its sole discretion, one or more financing or continuation statements and amendments thereto, relative to any of the Collateral without the signature of Borrower where permitted by law; provided Bank may exercise such power of attorney to sign the name of Borrower on any of the documents described in clauses (g) and (h) above, regardless of whether an Event of Default has occurred. The appointment of Bank as Borrower's attorney in fact, and each and every one of Bank's rights and powers, being coupled with an interest, is irrevocable until all of the Obligations have been fully repaid and performed and Bank's obligation to provide advances hereunder is terminated.

9.3           Accounts Collection. At any time after the occurrence and during the continuation of an Event of Default, Bank may notify any Person owing funds to Borrower of Bank's security interest in such funds and verify the amount of such Account. Borrower shall collect all amounts owing to Borrower for Bank, receive in trust all payments as Bank's trustee, and immediately deliver such payments to Bank in their original form as received from the account debtor, with proper endorsements for deposit.

 

9.4           Bank Expenses. If Borrower fails to pay any amounts or furnish any required proof of payment due to third persons or entities, as required under the terms of this Agreement, then Bank may do any or all of the following after reasonable notice to Borrower: (a) make payment of the same or any part thereof; (b) set up such reserves under the Revolving Line as Bank deems necessary to protect Bank from the exposure created by such failure; or (c) obtain and maintain insurance policies of the type discussed in Section 6.5 of this Agreement, and take any action with respect to such policies as Bank deems prudent. Any amounts so paid or deposited by Bank shall constitute Bank Expenses, shall be immediately due and payable, and shall bear interest at the then applicable rate hereinabove provided, and shall be secured by the Collateral. Any payments made by Bank shall not constitute an agreement by Bank to make similar payments in the future or a waiver by Bank of any Event of Default under this Agreement.

 

9.5           Bank's Liability for Collateral. Bank has no obligation to clean up or otherwise prepare the Collateral for sale. All risk of loss, damage or destruction of the Collateral shall be borne by Borrower.

 

9.6           No Obligation to Pursue Others. Bank has no obligation to attempt to satisfy the Obligations by collecting them from any other Person liable for them and Bank may release, modify  or  waive  any  collateral provided by any other Person to secure any of the Obligations,  all without affecting Bank's rights against Borrower. Borrower waives any right it may have to require Bank to pursue any other Person for any of the Obligations.

 

9.7           Remedies Cumulative. Bank's rights and remedies under this Agreement, the Loan Documents, and all other agreements shall be cumulative. Bank shall have all other rights and remedies not inconsistent herewith as provided under the Code, by law, or in equity. No exercise by Bank of one right or remedy shall be deemed an election, and no  waiver  by  Bank of any Event of Default  on Borrower's  part  shall  be deemed  a continuing waiver. No delay by Bank shall constitute a waiver, election, or acquiescence by it. No waiver by Bank shall be effective unless made in a written document signed on behalf of Bank and then shall be effective only in the specific instance and for the specific purpose for which it was given. Borrower expressly agrees that this Section 9.7 may not be waived or modified by Bank by course of performance, conduct, estoppel or otherwise.

 

  

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9.8           Demand; Protest. Except as otherwise provided in this Agreement, Borrower waives demand, protest, notice of protest, notice of default or dishonor, notice of payment and nonpayment and any other notices relating to the Obligations.

 

10.                 NOTICES.

 

Unless otherwise provided in this Agreement, all notices or demands by any party relating to this Agreement or any other agreement entered into in connection herewith shall be in writing and (except for financial statements and other informational documents which may be sent by first-class mail, postage prepaid) shall be personally delivered or sent by a  recognized overnight delivery service, certified mail,  postage  prepaid,  return receipt requested, or by telefacsimile to Borrower or to Bank, as the case may be, at its addresses set forth below:

 

 

	If to Borrower: 	BluePhoenix Solutions USA, Inc.
	 	
601  Union  Street, Suite 4616

	 	
Seattle, WA 981

	 	Attn: Rick Rinaldo
	 	FAX:(       )                               
	 	 
	If to Bank:	Comerica Bank
	 	M/C 7578
	 	39200 Six Mile Rd.
	 	Livonia, MI 48152
	 	
Attn: National Documentation Services

	 	 
	with a copy to:	Comerica Bank
	 	
10500 NE 8th Street, Suite 1905

	 	Bellevue, WA 98004 
	 	Attn: Michael Fishback 
	 	
FAX: (425) 452-2510

 

The parties hereto may change the address at which they are to receive notices hereunder, by notice in writing in the foregoing manner given to the other.

 

11.                 CHOICE OF LAW AND VENUE: JURY TRIAL WAIVER.

This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of California, without regard to principles of conflicts of law. Each of Borrower and Bank hereby submits to the exclusive jurisdiction of the State and Federal courts located in the State of California. THE UNDERSIGNED ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED UNDER CERTAIN CIRCUMSTANCES. TO THE EXTENT PERMITTED BYLAW, EACH PARTY, AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF ITS, HIS OR HER CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THE MUTUAL BENEFIT OF ALL PARTIES, WAIVES ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION ARISING OUT OF OR RELATED TO THIS AGREEMENT OR ANY OTHER DOCUMENT, INSTRUMENT OR AGREEMENT BETWEEN THE UNDERSIGNED PARTIES.

 

12.                 REFERENCE  PROVISION.

 

12.1          In the event the Jury Trial Waiver set forth above is not enforceable, the parties elect to proceed under this Judicial Reference Provision.

 

  

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12.2          With the exception of the items specified in Section 12.3, below, any controversy, dispute or claim (each, a "Claim") between the parties arising out of or relating to this Agreement or any other document, instrument or agreement between the undersigned parties (collectively in this Section, the "Comerica Documents''), will be resolved by a reference proceeding in California in accordance with the provisions of Sections 638 et seq. of the California Code of Civil Procedure ("CCP"), or their successor sections, which shall constitute the exclusive remedy for the resolution of any Claim, including whether the Claim is subject to the reference proceeding. Except as otherwise provided in the Comerica Documents, venue for the reference proceeding will be in the Superior Court in the County where the real property involved in the action, if any, is located or in a County where venue is otherwise appropriate under applicable law (the "Court'').

 

12.3          The matters that shall not  be subject to a reference are the following: (i) foreclosure of any security interests in real or personal property, (ii) exercise of self help remedies (including, without limitation, set­ oft), (iii) appointment of a receiver and (iv) temporary, provisional or ancillary remedies (including,  without limitation, writs of attachment, writs of possession, temporary restraining orders or preliminary injunctions). This Agreement does not limit the right of any party to exercise or oppose any of the rights and remedies described in clauses (i) and (ii) or to seek or oppose from a court of competent jurisdiction any of the items described in clauses (iii) and (iv). The exercise of, or opposition to, any of those items does not waive the right of any patty to a reference pursuant to this Agreement.

 

12.4          The referee shall be a retired Judge or Justice selected by mutual written agreement of the parties. If the parties do not agree within ten (10) days of a written request to do so by any party, then, upon request of any party, the referee shall be selected by the Presiding Judge of the Court (or his or her representative). A request for appointment of a referee may be heard on an ex parte or expedited basis, and the parties agree that irreparable harm would result if ex parte relief is not granted.

 

12.5          The parties agree that time is of the essence in conducting the reference proceedings. Accordingly, the referee shall be requested, subject to change in the time periods specified herein for good cause shown, to (i) set the matter for a status and trial setting conference within fifteen (15) days after the date of selection of the referee, (ii) if practicable, try all issues of law or fact within one hundred twenty (120) days after the date of the conference and (iii) report a statement of decision within twenty (20) days after the matter has been submitted for decision.

 

12.6          The referee will have power to expand or limit the amount and duration of discovery. The referee may set or extend discovery deadlines or cutoffs for good cause, including a party's failure to provide requested discovery for any reason whatsoever. Unless otherwise ordered based upon good cause shown, no party shall be entitled to "priority" in conducting discovery, depositions may be taken by either party upon seven (7) days written notice, and all other discovery shall be responded to within fifteen (!5) days after service. All disputes relating to discovery which cannot be resolved by the parties shall be submitted to the referee whose decision shall be final and binding.

 

12.7          Except as expressly  set forth in this Agreement, the referee shall determine the manner in which the reference proceeding is conducted including the time and place of hearings, the  order  of  presentation  of evidence, and all other questions that arise with respect to the course of the reference proceeding. All proceedings and hearings conducted before the referee, except for trial, shall be conducted without a court reporter, except that when any party so requests, a court reporter will be used at any hearing conducted before the referee, and the referee will be provided a courtesy copy of the transcript. The party making such a request shall  have the obligation to arrange for and pay the court reporter. Subject to the referee's power to award costs to the prevailing party, the parties will equally share the cost of the referee and the court reporter at trial.

 

12.8          The referee shall be required to determine all issues in accordance with existing case law and the statutory laws of the State of California. The rules of evidence applicable to proceedings at law in the State of California will be applicable to the reference proceeding. The referee shall be empowered to enter equitable as well as legal relief, enter equitable orders  that will be binding on the parties and rule on any motion which  would be authorized in a court proceeding, including without limitation motions for summary judgment or summary adjudication. The referee shall issue a decision at the close of the reference proceeding which disposes of all claims of the parties that are the subject of the reference. Pursuant to CCP § 644, such decision  shall be entered by the Court as a judgment  or  all order  in the same manner  as if the action  had  been  tried  by  the Court and  any such decision will be final, binding and conclusive. The parties reserve the right to appeal from the final judgment or order or from any appealable decision or order entered by the referee, The parties reserve the right to findings of fact, conclusions of laws, a written statement of decision, and the right to move for a new trial or a different judgment, which new trial, if granted, is also to be a reference proceeding under this provision.

 

  

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12.9          If the enabling legislation which provides for appointment of a referee is repealed (and no successor statute is enacted), any dispute between the parties that would otherwise be determined by reference procedure will be resolved and determined by arbitration. The arbitration will be conducted by a retired judge or Justice, in accordance with the California Arbitration Act § 1280 through § 1294.2 of the CCP as amended from time to time. The limitations with respect to discovery set forth above shall apply to any such arbitration proceeding.

 

12.10        THE PARTIES RECOGNIZE AND AGREE THAT ALL CONTROVERSIES, DISPUTES AND CLAIMS RESOLVED UNDER THIS REFERENCE PROVISION WILL BE DECIDED BY A REFEREE AND NOT BY A JURY. AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF ITS, HIS OR HER OWN CHOICE, EACH PARTY KNOWINGLY AND VOLUNTARILY, AND FOR THE MUTUAL BENEFIT OF ALL PARTIES, AGREES THAT THIS REFERENCE PROVISION WILL APPLY TO ANY CONTROVERSY, DISPUTE OR CLAIM BETWEEN OR AMONG THEM ARISING OUT OF OR IN ANY WAY RELATED TO, THIS AGREEMENT OR THE OTHER COMERICA DOCUMENTS.

 

13.                 GENERAL PROVISIONS.

 

13.1          Successors and Assigns. This Agreement shall bind and inure to the benefit of the respective successors and permitted assigns of each of the parties and shall bind all persons who become bound as a debtor to this Agreement; provided, however, that neither this Agreement nor any rights hereunder may be assigned  by Borrower without Bank's prior written consent, which consent may be granted or withheld in Bank's sole discretion. Bank shall have the right without the consent of or notice to Borrower to sell, transfer, negotiate, or grant participation  in all or any part of, or any interest in, Bank's obligations, rights and benefits hereunder.

 

13.2          Indemnification. Borrower shall defend, indemnify and hold harmless Bank and its officers, employees, and agents against: (a) all obligations, demands, claims, and liabilities claimed or asserted by any other party in connection with the transactions contemplated by this Agreement and/or the Loan Documents; and (b) all losses or Bank Expenses in any way suffered, incurred, or paid by Bank, its officers, employees and agents as a result of or in any way arising out of, following, or consequential to transactions between Bank and Borrower whether under this Agreement, or otherwise (including without limitation reasonable attorneys fees and expenses), except for losses caused by Bank's gross negligence or willful misconduct.

 

13.3          Time of Essence. Time is of the essence for the performance of all obligations set forth in this Agreement.

 

13.4          Severability of Provisions. Each provision of this Agreement shall be severable from every other provision of this Agreement for the purpose of determining the legal enforceability of any specific provision.

 

13.5          Correction of Loan Documents. Bank may correct patent errors and fill in any blanks in this Agreement and the other Loan Documents consistent with the agreement of the parties.

 

13.6          Amendments in Writing, Integration. All amendments to or terminations of this Agreement or the other Loan Documents must be in writing signed by the parties. All prior agreements, understandings, representations, warranties, and negotiations between the parties hereto with respect to the subject matter of this Agreement and the other Loan Documents, if any, are merged into this Agreement and the Loan Documents.

 

13.7          Counterparts. This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same Agreement.

 

  

17

  

 

13.8          Survival. All covenants, representations and warranties made in this Agreement shall continue in full force and effect so long as any Obligations remain outstanding or Bank has any obligation to make any Credit Extension to Borrower. The obligations of Borrower to indemnify Bank with respect to the expenses, damages, losses, costs and liabilities described in Section 13.2 shall survive until all applicable statute of limitations periods with respect to actions that may be brought against Bank have run.

 

13.9          Confidentiality. In handling any confidential information, Bank and all employees and agents of Bank shall exercise the same degree of care that Bank exercises with respect to its own proprietary information of the same types to maintain the confidentiality of any non-public information thereby received or received pursuant to this Agreement except that disclosure of such information may be made (i) to the subsidiaries or Affiliates of Bank in connection with their present or prospective business relations with Borrower, (ii) to prospective transferees, participants or purchasers of any interest in the Obligations, (iii) as required by law, regulations, rule or order, subpoena, judicial order or similar order, (iv) as may be required in connection with the examination, audit or similar investigation of Bank, (v) to Bank's accountants, auditors and regulators, and (vi) as Bank may determine in connection with the enforcement of any remedies hereunder. Confidential information hereunder shall not include information that either: (a) is in the public domain or in the knowledge or possession of Bank when disclosed to Bank, or becomes part of the public domain after disclosure to Bank through no fault of Bank; or (b) is disclosed to Bank by a third party, provided Bank does not have actual knowledge that such third party is prohibited from disclosing such information.

 

[signatures on following page]

  

18

  

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written.

 

	 	
BLUEPHOENIX SOLUTIONS USA, INC.

	 
	 	 	 	 
	
 

	
By: 

	/s/ Rick Rinaldo	 
	 	Name: 	Rick Rinaldo	 
	 	Title: 	CFO	 
	 	 	 
	 	COMERICA BANK	 
	 	 	 
	 	By:	/s/ Michael Fishback	 
	 	Name:	Michael Fishback	 
	 	Title:	Vice President   	 

 

[Signature Page to Loan and Security Agreement (3004855)]

 

  

19

  

 

EXHIBIT A

 

DEFINITIONS

"Accounts" means all presently existing and hereafter arising accounts, contract rights, payment intangibles and all other forms of obligations owing to Borrower arising out of the sale or lease of goods (including, without limitation, the licensing of software and other technology) or the rendering of services by Borrower and any and all credit insurance, guaranties, and other security therefor, as well as all merchandise returned to or reclaimed by Borrower and Borrower's Books relating to any of the foregoing.

"Advance" or "Advances" means a cash advance or cash advances under the Revolving Line.

"Affiliate" means, with respect to any Person, any Person that owns or controls directly or indirectly such Person, any Person that controls or is controlled by or is under common control with such Person, and each of such Person's senior executive officers, directors, and partners.

"Bank Expenses" means all costs or expenses of Bank, or any other holder or owner of the Loan Documents (including, without limit, court costs, legal expenses and reasonable attorneys' fees and expenses, whether generated in-house or by outside counsel, whether or not suit is instituted, and, if suit is instituted, whether at trial court level, appellate court level, in a bankruptcy, probate or administrative proceeding or otherwise) incurred in connection with the preparation, negotiation, execution, delivery, amendment, administration, and performance, or incurred in collecting, attempting to collect under the Loan Documents or the Obligations, or incurred in defending the Loan Documents, or incurred in any other matter or proceeding relating to the Loan Documents or the Obligations; and reasonable Collateral audit fees, which Collateral audit fees shall not exceed $_______ per audit.

"Borrower State" means Delaware, the state under whose laws Borrower is organized.

"Borrower's Books" means all of Borrower's books and records including: ledgers; records concerning Borrower's assets or liabilities, the Collateral, business operations or financial condition; and all computer programs, or tape files, and the equipment, containing such information.

"Borrowing Base" means an amount equal to eighty percent (80%) of Eligible Accounts, as determined by Bank with reference to the most recent Borrowing Base Certificate delivered by Borrower. The advance rate is subject to adjustment up or down based on the results of the Initial Audit.

 

"Business Day" means any day that is not a Saturday, Sunday, or other day on which banks in the State of California are authorized or required to close.

 

''Change in Control" shall mean any transaction or series of related transactions in which any ''person" or "group" (within the meaning of Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934) becomes the "beneficial owner" (as defined in Rule 13d-3 under the Securities Exchange Act of 1934), directly or indirectly, of a sufficient number of shares of all classes of stock then outstanding of Borrower ordinarily entitled to vote in the election of directors, empowering such "person" or "group" to elect a majority of the Board of Directors of Borrower, who did not have such power before such transaction, provided, however, that such power derives solely from such shares or class of stock held by such "person" or "group" and not by virtue of a collaboration with other "person" or "group" who holds shares or class of stock of the Borrower as of the date of this Agreement.

''Chief Executive Office State" means Washington, where Borrower's chief executive office is located. 

 

"Closing Date" means the date of this Agreement.

 

''Code" means the California Uniform Commercial Code as amended or supplemented from time to time.

 

  

Exhibit A - Page 1

  

 

"Collateral" means the property described on Exhibit Battached hereto and all Negotiable Collateral and Intellectual Property Collateral to the extent not described on Exhibit B, except to the extent any such property (i) is nonassignable by its terms without the consent of the licensor thereof or another party (but only to the extent such prohibition on transfer is enforceable under applicable law, including without limitation, Sections 9406 and 9408 of the Code), (ii) the granting of a security interest therein is contrary to applicable law, provided that upon the cessation of any such restriction or prohibition, such property shall automatically become part of the Collateral, or (iii) constitutes the capital stock of a controlled foreign corporation (as defined in the IRC), in excess of sixty five percent (65%) of the voting power of all classes of capital stock of such controlled foreign corporations entitled to vote.

 

"Collateral State" means the state or states where the Collateral is located, which is Washington.

 

''Contingent Obligation" means, as applied to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to (i) any indebtedness, lease, dividend, letter of credit or other obligation of another, including, without limitation, any such obligation directly or indirectly guaranteed, endorsed, co-made or discounted or sold with recourse by that Person, or in respect of which that Person is otherwise directly or indirectly liable; (ii) any obligations with respect to undrawn letters of credit, corporate credit cards or merchant services issued for the account of that Person;  and (iii) all obligations arising under any interest rate, currency or commodity swap agreement, interest rate cap agreement, interest rate collar agreement, or other agreement or arrangement designed to protect a Person against fluctuation in interest rates, currency exchange rates or commodity prices; provided, however, that the term "Contingent Obligation" shall not include endorsements for collection or deposit in the ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determined amount of the primary obligation in respect of which such Contingent Obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by such Person in good faith; provided, however, that such amount shall not in any event exceed the maximum amount of the obligations under the guarantee or other support arrangement.

 

"Copyrights" means any and all copyright rights, copyright applications, copyright registrations and like protections in each work or authorship and derivative work thereof, whether published or unpublished and whether or not the same also constitutes a trade secret, now or hereafter existing, created, acquired or held.

 

"Credit Extension" means each Advance, Non-Formula Revolving Line Advance or any other extension of credit by Bank to or for the benefit of Borrower hereunder.

"Eligible Accounts" means those Accounts that arise in the ordinary course of Borrower's business that comply with all of Borrower's representations and warranties to Bank set forth in Section 5.3; provided, that Bank may change the standards of eligibility: (i) based on the results of the Initial Audit, or (ii) thereafter, by giving Borrower thirty (30) days prior written notice, such change in standards of eligibility shall be made to the minimum extent necessary for the purpose of reducing credit risks exposures created following the date of this Agreement not as a result of any act or omission of the Bank,  Unless otherwise agreed to by Bank, Eligible Accounts shall not include the following:

 

(a)    Such portion of Accounts that the account debtor has failed to pay in full within ninety (90) days of invoice date;

(b)   Credit balances over ninety (90) days;

(c)   Accounts with respect to an account debtor, twenty-five percent (25%) of whose Accounts the account debtor has failed to pay within ninety (90) days of invoice date;

(d)   Accounts with respect to an account debtor, including Subsidiaries and Affiliates, whose total obligations to Borrower exceed twenty-five percent (25%) of all  Accounts  ("Concentration  Limit"),  to the extent such obligations exceed the aforementioned percentage, except as approved in writing by Bank; provided, however, the Concentration Limit for IBM Corporation shall be one hundred percent (100%);

(e)   Accounts with respect to which the account debtor does not have its principal place of business in the United  States, except for Eligible Foreign Accounts;

 

  

Exhibit A - Page 2

  

 

(f)            Accounts with respect to which the account debtor is the United States or any department, agency, or instrumentality of the United States, except for Accounts of the United States if the payee has assigned its payment rights to Bank and the assignment has been acknowledged under the Assignment of Claims Act of 1940 (31 U.S.C. 3727);

(g)            Such portion of Accounts with respect to which Borrower is liable to the account debtor for goods sold or services rendered by the account debtor to Borrower, but only to the extent of any amounts owing to the account debtor against amounts owed to Borrower;

(h)            Such pottion of Accounts with respect to which goods are placed on consignment, guaranteed sale, sale or return, sale on approval, bill and hold, demo or promotional, or other terms by reason of which the payment by the account debtor may be conditional;

(i)            Accounts with respect to which the account debtor is an individual,  officer,  employee, agent or Affiliate of Borrower;

(j)            Such portion of Accounts that have not yet been billed to the account debtor or that relate to deposits (such as good faith deposits) or other property of the account debtor held by Borrower for the performance of services or delivery of goods which Borrower has not yet performed or delivered;

(k)            Accounts with respect to which the account debtor disputes liability or makes any claim with respect thereto as to which Bank believes, in its sole reasonable discretion, that there may be a basis for dispute (but only to the extent of the amount subject to such dispute or claim), or is subject to any Insolvency Proceeding, or becomes insolvent, or goes out of business;

(l)            Accounts the collection of which Bank reasonably determines after inquiry and consultation with Borrower to be doubtful; and

 

(m)           Retentions and hold-backs.

  

"Eligible Foreign Accounts" means Accounts (i) with respect to which the account debtor does not have its principal place of business in the United States and is not located  in an OFAC sanctioned country, (ii) that are (a) insured under a credit insurance policy in form and substance reasonably  acceptable to Bank with respect to which Bank is the first priority Joss payee under a payee endorsement reasonably acceptable to Bank in the exercise of its sole reasonable judgment, (b) generated by an account debtor with its principal  place  of business  in Canada, provided that the Bank has perfected its security interest in the appropriate Canadian province, or (b) approved by Bank on a case-by-case basis, and (iii) that otherwise meet the definition of Eligible Accounts, other  than  clause (c). All Eligible Foreign Accounts must be calculated in U.S. Dollars.

 

"Environmental Laws" means all laws, rules, regulations, orders and the like issued  by  any  federal  state,  local foreign or other governmental or quasi-governmental authority or any agency pertiaining  to the environment or to any hazardous materials or wastes, toxic substances, flammable, explosive or radioactive materials, asbestos or other similar materials.

"Equipment" means all present and future machinery, equipment, tenant improvements, furniture, fixtures, vehicles, tools, parts and attachments in which Borrower has any interest.

"ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and the regulations thereunder.

"Event of Default" has the meaning assigned in Article 8.

"GAAP" means generally accepted accounting principles, consistently applied, as in effect from time to time in the United States of America.

 

  

Exhibit A - Page 3

  

 

"Indebtedness" means (a) all indebtedness for borrowed money or the deferred purchase price of property or services, including without limitation reimbursement and other obligations with respect to surety bonds and letters of credit, (b) all obligations evidenced by notes, bonds, debentures or similar instruments, (c) all capital lease obligations, and (d) all Contingent Obligations.

"Initial Audit" means an audit of the Collateral, the results of which shall (i) be delivered prior to Borrower requesting the initial Advance and (ii) be satisfactory to Bank.

 

"Insolvency Proceeding" means any proceeding commenced by or against any Person or entity under any provision of the United States Bankruptcy Code, as amended, or under any other bankruptcy or insolvency law, including assignments for the benefit of creditors, formal or informal moratoria, compositions, extension generally with its creditors, or proceedings seeking reorganization, arrangement, or other similar relief.

"Intellectual Property Collateral" means all of Borrower's right, title, and interest in and to the following:

 

(a)            Copyrights, Trademarks and Patents;

(b)           Any and all trade secrets, and any and all intellectual property rights in  computer software and computer software products now or hereafter existing, created, acquired or held;

 

(c)           Any and all design rights which may be available to Borrower now or hereafter existing, created, acquired or held;

(d)           Any and all claims for damages by way of past, present and future infringement of any of the rights included above, with the right, but not the obligation, to sue for and collect such damages for said use or infringement of the intellectual property rights identified above;

 

(e)           All licenses  or other rights to use any of the Copyrights, Patents or Trademarks, and all license fees and royalties arising fi·om such use to the extent permitted by such license or rights;

 

(f)           All amendments, renewals and extensions of any of the Copyrights, Trademarks or Patents; and

 

(g)          All proceeds and products of the foregoing, including without limitation all payments under insurance or any indemnity or warranty payable in respect of any of the foregoing.

 

"Inventory" means all present and future inventory in which Borrower has any interest.

"Investment" means any beneficial ownership of (including stock, partnership or limited liability company interest or other securities) any Person, or any loan, advance or capital contribution to any Person.

"IRC" means the Internal Revenue Code of 1986, as amended, and the regulations thereunder.

"Lien" means any mortgage, lien, deed of trust, charge, pledge, security interest or other encumbrance.

 

"Loan Documents" means, collectively, this Agreement, any note or notes executed by Borrower, and any other document, instrument or agreement entered into in connection with this Agreement, all other standard forms, agreements or other documents entered into between the Borrower and the Bank, in connection with this Agreement or otherwise, all as amended or extended from time to time.

"Material Adverse Effect" means (i) a material adverse change in Borrower's business or financial condition, (ii) a material impainnent in the prospect of repayment of all or any portion of the Obligations or in otherwise performing Borrower's obligations under the Loan Documents, or (iii) a material impairment in the perfection, value or priority of Bank's security interests in the Collateral.

 

  

Exhibit A - Page 4

  

 

"Negotiable Collateral" means all of Borrower's present and future letters of credit of which it is a beneficiary, drafts, instruments (including promissory notes), securities, documents of title, and chattel paper, and Borrower's Books relating to any of the foregoing.

 

"Non-Formula Revolving Line" means a Credit Extension of up to Five Hundred Thousand Dollars ($500,000). 

 

"Non-Formula Revolving Line Advance" means a cash advance or cash advances under the Non-Formula Revolving Line.

 

''Non-Formula Revolving Line Maturity Date" means October 2, 2014.

"Obligations" means all debt, principal, interest, Bank Expenses and other amounts owed to Bank by  Borrower pursuant to this Agreement or any other agreement, including  without  limitation,  indebtedness owing by Borrower to Bank in connection with credit cards issued by Bank to Borrower, whether absolute or contingent, due or to become due, now existing or hereafter arising, including any interest that accrues after the commencement of an Insolvency Proceeding and including any debt, liability, or obligation owing from Borrower to others that Bank may have obtained by assignment or otherwise but excluding any Warrants.

"Parent" means Blue Phoenix Solutions Ltd.

"Patents" means all patents, patent applications and like protections including without limitation improvements, divisions, continuations, renewals, reissues, extensions and continuations-in-part of the same.

"Periodic Payments" means all installments or similar recurring payments that Borrower may now or hereafter become obligated to pay to Bank pursuant to the terms and provisions of any instrument, or agreement now or hereafter in existence between Borrower and Bank.

"Permitted Indebtedness" means:

 

(a)    Indebtedness of Borrower in favor of Bank arising under this Agreement or any other Loan Document;

 

(b)   Indebtedness existing on the Closing Date and disclosed in the Schedule;

 

(c)       Indebtedness not to exceed Two Hundred Fifty Thousand Dollars ($250,000) in the aggregate in any fiscal year of Borrower secured by a lien described in clause (c) of the defined term ''Permitted Liens" provided such Indebtedness does not exceed the lesser of the cost or fair market value of the equipment financed with such Indebtedness;

(d)   Subordinated Debt;

(e)   Indebtedness to trade creditors incurred in the ordinary course of business;

(f)    Negative balances in bank accounts at a specific bank, but only to the extent such bank accounts are subject to a contractual combination of accounts of the same bank (pooling arrangement), where the overall balance of the bank accounts of such bank subject to such contractual combination of accounts (pooling arrangement) is positive; and

(g)   Extensions, refinancings and renewals of any items of Permitted Indebtedness, provided that the principal amount is not increased or the terms modified to impose more burdensome terms upon Borrower or its Subsidiary, as the case may be.

 

  

Exhibit A - Page 5

  

 

"Permitted Investment" means:

(a)           Investments disclosed in the Schedule;

 

(b)           (i) Marketable direct obligations issued or unconditionally guaranteed by the United States of America or any agency or any State thereof maturing within one (1) year from the date of acquisition thereof, (ii) commercial paper maturing no more than one ( 1) year from the date of creation thereof and currently having rating of at least A-2 or P-2 from either Standard & Poor's Ratings Services or Moody's Investors Service, Inc., (iii) Bank's certificates of deposit maturing no more than one (1) year from the date of investment therein, and (iv) Bank's money market accounts;

(c)           Permitted Stock Repurchases;

(d)           Investments accepted in connection with Permitted Transfers;

 

(e)           Investments of Subsidiaries in or to other Subsidiaries or Borrower and Investments by Borrower in Subsidiaries not to exceed Two Hundred Fifty Thousand Dollars ($250,000) in the aggregate in any fiscal year;

   

(f)           Investments not to exceed Two Hundred Fifty Thousand Dollars ($250,000) in the aggregate in any fiscal year consisting of (i) advances and employee relocation loans and other employee loans and advances in the ordinary course of business, and (ii) loans to employees, officers or directors relating to the purchase of equity securities of Borrower or its Subsidiaries pursuant to employee stock purchase plan agreements approved by Borrower's Board of Directors;

 

(g)          Investments (including debt obligations) received in connection with the bankruptcy or reorganization of customers or suppliers and in settlement of delinquent obligations of, and other disputes with, customers or suppliers arising in the ordinary  course of Borrower's business;

(h)           Investments consisting of notes receivable of, or prepaid royalties and other credit extensions, to customers and suppliers who are not Affiliates, in the ordinary course of business, provided  that this subparagraph (h) shall not apply to Investments of Borrower in any Subsidiary; and

(i)            Joint ventures or strategic alliances in the ordinary course of Borrower's business consisting of the non-exclusive licensing of technology, the development of technology or the providing of technical support, provided that any cash Investments by Borrower do not exceed Two Hundred Fifty Thousand Dollars ($250,000) in the aggregate in any fiscal year.

"Permitted Liens" means the following:

(a)           Any Liens existing on the Closing Date and disclosed in the Schedule (excluding Liens to be satisfied with the proceeds of the Advances or Non-Formula Revolving Line Advances) or arising under this Agreement or the other Loan Documents;

(b)           Liens for taxes, fees, assessments or other governmental charges or levies, either not delinquent or being contested in good faith by appropriate proceedings and for which Borrower maintains adequate reserves, provided the same have no priority  over any of Bank's security interests;

(c)            Liens securing Indebtedness not to exceed Two Hundred Filly Thousand Dollars ($250,000) in the aggregate (i) upon or in any Equipment (other than Equipment financed by a Credit Extension) acquired or held by Borrower or any of its Subsidiaries to secure the purchase price of such Equipment or indebtedness incurred solely for the purpose of financing the acquisition or lease of such Equipment, or (ii) existing on such Equipment at the time of its acquisition, provided that the Lien is confined solely to the property so acquired and improvements thereon, and the proceeds of such Equipment;

(d)           Liens incurred in connection with the extension, renewal or refinancing of  the indebtedness secured by Liens of the type described in clauses (a) through (c) above, provided that any extension, renewal or replacement Lien shall be limited to the property encumbered by the existing Lien and the principal amount of the indebtedness being extended, renewed or refinanced does not increase; and

 

  

Exhibit A - Page 6

  

 

(e)        Liens arising from judgments, decrees or  attachments  in  circumstances  not  constituting an Event of Default under Sections 8.4 (attachment) or 8.8 (judgments/settlements);  and

(f)        Liens in favor of other financial institutions arising in connection with  Borrower's deposit accounts held at such institutions to secure standard fees for deposit services charged by, but not financing made available by such institutions, provided that Bank has a perfected security interest in the amounts held in such deposit accounts.

"Permitted Stock Repurchases" means repurchases of stock from former employees or directors of Borrower under the terms of applicable repurchase agreements (i) in an aggregate amount not to exceed Two Hundred Fifty Thousand Dollars ($250,000) in any fiscal year, provided that no Event of Default has occurred, is continuing or would exist after giving effect to the repurchases, or (ii) in any amount where the consideration for the repurchase is the cancellation of indebtedness owed by such former employees to Borrower regardless of whether an Event of Default exists.

"Permitted Transfer" means the conveyance, sale, lease, transfer or disposition by Borrower or any Subsidiary of:

(a)    Inventory in the ordinary course of business;

(b)   Non-exclusive licenses and similar arrangements for the use of the property of Borrower or its Subsidiaries in the ordinary course of business;

(c)   Worn-out or obsolete Equipment not financed with the proceeds of a Credit Extension; or

(d)   Transfer of cash equivalent from Borrower to Affiliates in connection with transfer pricing agreements or agreements of the same nature.

(e)   Assets or rights, sold, transferred or otherwise disposed of, under or in connection with a transaction or action which is permitted under the Loan Documents.

 

(f)    Other assets of Borrower or its Subsidiaries that do not in the aggregate exceed Two Hundred Fifty Thousand Dollars ($250,000) during any fiscal year.

"Person" means any individual, sole proprietorship, partnership, limited liability company, joint venture, trust, unincorporated organization, association, corporation, institution,  public benefit corporation, firm, joint stock company, estate, entity or governmental agency.

"Pricing Addendum" means that certain Prime Referenced Rate Addendum to Loan and Security Agreement attached hereto as Exhibit F.

"Prohibited Territory" means any person or country listed by the Office of Foreign Assets Control of the United States Department of Treasury as to which transactions between a United States Person and that territory are prohibited.

"Responsible Officer" means each of the Chief Executive Officer, the Chief Operating Officer, the Chief Financial Officer and the Controller of Borrower.

"Revolving Line" means a Credit Extension of up to Five Hundred Thousand Dollars ($500,000). 

 

"Revolving Maturity Date" means October 1, 2014.

 

"Schedule" means the schedule of exceptions attached hereto and approved by Bank, if any.

 

  

Exhibit A - Page 7

  

 

"SOS Reports" means the official reports from the Secretary of State of the Borrower State and other applicable federal, state or local government offices identifying all current security interests tiled in the Collateral and Liens of record as of the date of such report.

"Subordinated Debt" means any debt incurred by Borrower that is subordinated in writing to the debt owing by Borrower to Bank on terms reasonably acceptable to Bank (and identified as being such by Borrower and Bank).

"Subsidiary" means any corporation, partnership or limited liability company or joint venture in which (i) any general partnership interest or (ii) more than fifty percent (50%) of the stock, limited liability company interest or joint venture of which by the terms thereof ordinary voting power to elect the Board of Directors, managers or trustees of the entity, at the time as of which any determination is being made, is owned by Borrower, either directly or through an Affiliate.

"Trademarks" means any trademark and servicemark rights, whether registered or not, applications to register and registrations of the same and like protections, and the entire goodwill of the business of Borrower connected  with and symbolized by such trademarks.

 

  

Exhibit A - Page 8

  

 

DEBTOR:                               BLUEPHOENIX SOLUTIONS USA, INC.

SECURED PARTY:               COMERICA BANK

EXHIBIT  B

COLLATERAL DESCRIPTION ATTACHMENT TO LOAN AND SECURITY AGREEMENT

All personal property of Borrower (herein referred to as "Borrower" or "Debtor") whether presently existing or hereafter created or acquired, and wherever located, including, but not limited to:

 

	
(a) 

	
all accounts (including health-care-insurance receivables), chattel paper (including tangible and electronic chattel paper), deposit accounts, documents (including negotiable documents), equipment (including all accessions and additions thereto), general intangibles (including payment intangibles and software), goods (including fixtures), instruments (including promissory notes), inventory (including all goods held for sale or lease or to be furnished under a contract of service, and including returns and repossessions), investment property (including securities and securities entitlements), letter of credit rights, money, and all of Debtor's books and records with respect to any of the foregoing, and the computers and equipment containing said books and records;

	 	 
	
(b)

	
all common law and statutory copyrights and copyright registrations, applications for registration, now existing or hereafter arising, in the United States of America or in any foreign jurisdiction, obtained or to be obtained on or in connection with any of the foregoing, or any parts thereof or any underlying or component elements of any of the foregoing, together with the right to copyright and all rights to renew or extend such copyrights and the right (but not the obligation) of Secured Party to sue in its own name and/or in the name of the Debtor for past, present and future infringements of copyright;

	 	 
	
(c)

	
all trademarks, service marks, trade names and service names and the goodwill associated therewith, together with the right to trademark and all rights to renew or extend such trademarks and the right (but not the obligation) of Secured Party to sue in its own name and/or in the name of the Debtor for past, present and future infringements of trademark;

	 	 
	
(d)

	
all (i) patents and patent applications filed in the United States Patent and Trademark Office or any similar office of any foreign jurisdiction, and interests under patent license agreements, including, without limitation, the inventions and improvements described and claimed therein, (ii) licenses pertaining to any patent whether Debtor is licensor or licensee, (iii) income, royalties, damages, payments, accounts and accounts receivable now or hereafter due and/or payable under and with respect thereto, including, without limitation, damages and payments for past, present or future infringements thereof, (iv) right (but not the obligation) to sue in the name of Debtor and/or in the name of Secured Party for past, present and future infringements thereof, (v) rights corresponding thereto throughout the world in all jurisdictions in which such patents have been issued or applied for, and (vi) reissues, divisions, continuations, renewals, extensions and continuations-in-part with respect to any of the foregoing; and

	 	 
	
(e)

	
any and all cash proceeds and/or noncash proceeds of any of the foregoing, including, without limitation, insurance proceeds, and all supporting obligations and the security therefor or for any right to payment. All terms above have the meanings given to them in the California Uniform Commercial Code, as amended or supplemented from time to time.

 

  

Exhibit B - Page 1

  

 

EXHIBIT C

TECHNOLOGY & LIFE SCIENCES DIVISION

LOAN ANALYSIS

LOAN ADVANCE/PAYDOWN REQUEST FORM

DEADLINE FOR SAME DAY PROCESSING IS 3:00* P.M, P.S.T. 

DEADLINE FOR CREDIT EXTENSIONS IS 3:00P.M., P.S.T.**

DEADLINE FOR WIRE TRANSFERS IS 1.30 P.M, P.S.T.

 

*At month end and the day before a holiday, the cut off time is 1:30 P.M, P.S.T.

**Subject to 3 day advance notice.

 

	TO: Loan Analysis	DATE: ________________	TIME: ________________
	
FAX#: (650) 462-6061

	 	 

                            

	FROM:	BluePhoenix Solutions USA Inc.	 	
TELEPHONE REQUEST (For Bank Use Only):

	 	
Borrower's Name

	 	 
	 	 	 	 
	FROM:	 	 	The following person is authorized to request the loan payment transfer/loan advance on the designated account and is known to me.
	 	
Authorized Signer's Name

	 	 	 
	 	 	 	 	 
	FROM:	 	 	 	 
	 	
Authorized Signature (Borrower)

	 	 	
Authorized Requester & Phone #

	 	 	 	 	 
	PHONE#	 	 	 	 
	 	 	 	 	
Received by (Bank) & Phone #

	FROM ACCOUNT#: 	 	 	 	 
	
(please include Note number, if applicable)

	 	 	 
	 	 	 	 	
Authorized Signature (Bank)

	TO ACCOUNT#:	 	 	 	 
	
(please include Note number, if applicable)

	 	 	 

 

 

	
REQUESTED TRANSACTION TYPE                                                                     

	REQUESTED DOLLAR AMOUNT 	                  For Bank Use Only
	
 

PRINCIPAL INCREASE* (ADVANCE)                                                               

PRINCIPAL PAYMENT (ONLY)                                                                             

 

OTHER INSTRUCTIONS:

	
  

  $_____________________

  $_____________________

	
 

    Date Rec'd: 

Time:

Comp. Status:                            YES            NO

Status Date: 

Time: 

Approval:

	    _________________________________________________________________________________
	    _________________________________________________________________________________
	    _________________________________________________________________________________

 

All representations and warranties of Borrower stated in the Loan and Security Agreement are true, correct and complete in all material respects as of the date of the telephone request for an advance confirmed by this Borrowing Certificate, including without limitation the representation that Borrower has paid for and owns the equipment financed by Bank; provided, however, that those representations and warranties expressly referring to another date shall be true, correct and complete in all material respects as of such date.

*IS THERE A WIRE REQUEST TIED TO THIS LOAN ADVANCE? (PLEASE CIRCLE ONE) YES NO

If YES, the Outgoing Wire Transfer Instructions must be completed below.

	
OUTGOING WIRE TRANSFER INSTRUCTIONS

	Fed Reference Number	 	Bank Transfer Number
	 	 	 	 
	
 

The items marked with an asterisk (*) are required  to be completed.

	
*Beneficiary Name

	  
	
*Beneficiary Account Number

	  
	
*Beneficiary Address

	  
	
Currency Type

	
US DOLLARS ONLY

	
*ABA Routing Number (9 Digits)

	  
	
*Receiving Institution Name

	  
	
*Receiving Institution Address

	  
	
*Wire Amount

	
$

 

  

Exhibit C - Page 1

  

 

EXHIBIT D

FORM OF BORROWING BASE CERTIFICATE

(See Attached)

 

  

Exhibit D - Page 1

  

 

EXHIBIT E

 

COMPLIANCE CERTIFICATE

 

	Please send all Required Reporting to:	Comerica Bank
	 	Technology & Life Sciences Division
	 	
Loan Analysis Department

	 	250 Lylton Avenue
	 	3rd Floor, MC 4240
	 	
Palo Alto CA 94301

	 	Phone: (650) 462-6060
	 	
Fax: (650) 462-6061

 

FROM: BluePhoenix Solutions USA, Inc.

 

The undersigned authorized Officer of BluePhoenix Solutions USA, Inc. ("Borrower"), hereby certifies that in accordance with the terms and conditions of the Loan and Security Agreement between Borrower and Bank (the "Agreement''), (i) Borrower is in complete compliance for the period ending ___________, 201__ with all required covenants, including without limitation the ongoing registration of intellectual property rights in accordance with Section 6.8, except as noted below and (ii) all representations and warranties of Borrower stated in the Agreement are time and correct in all material respects as of the date hereof; provided, however, that those representations and warranties expressly referring to another date shall be true, correct and complete in all material respects as of such date. Attached herewith are the required documents supporting the above certification ("Supporting Documents"). The Officer further certifies the Supporting Documents are prepared in accordance with Generally Accepted Accounting Principles (GAAP) and are consistently applied form one period to the next except as explained in an accompanying letter or footnotes.

Please indicate compliance status by circling Yes/No under "Complies" or "Applicable" column,

 

	
REPORTING COVENANTS

	  	
REQUIRED

	  	
COMPLIES

	 	 	 	 	 	 
	
Company Prepared Monthly F/S

	 	
Monthly, within 30 days

	 	
YES

	NO
	
Compliance Certificate

	 	
Monthly, within 30 days

	 	
YES

	NO
	
CPA Audited, Unqualified F/S for Parent

	 	Annually, within ISO days of FYE	 	
YES

	NO
	
Company Prepared Annual F/S

	 	
Annually, within ISO days of FYE

	 	
YES

	NO
	
Borrowing Base Cert, A/R & A/P Agings

	 	
Monthly, within 30 days

	 	
YES

	NO
	
Annual Business Plan

	 	Annually, on or before 1/31	 	
YES

	NO
	
Intellectual Property Report

	 	
Quarterly within 30 days

	 	
YES

	NO
	
Audit

	 	
Semi-annual

	 	
YES

	NO
	 	 	 	 	 	 
	
If Public:

	 	 	 	 	 
	
10-Q

	 	
Quarterly, within 5 days of SEC filing (50 days)

	 	
YES

	NO
	
10-K

	 	
Annually, within 5 days of SEC filing (95 days)

	 	
YES

	NO
	 	 	 	 	 	 
	
Total amount of Borrower's cash and investments

	 	
Amount:$  ______________________________

	 	YES	NO
	
Total amount of Borrower's cash and investments maintained with Bank

	 	
Amount:$  ______________________________

	 	
YES

	NO
	 	 	 	 	
 

	 
	 	 	DESCRIPTION	 	
APPLICABLE

	 	 	 	 	 	 
	
Legal Action> $250,000 (Sect. 6.2(iv))

	 	
Notify promptly upon notice _____________________________

	 	
YES

	NO
	
Inventory Disputes> $250,000 (Sect. 6.3)

	 	
Notify promptly upon notice _____________________________

	 	YES	NO
	Mergers & Acquisitions> $250,000 (Sect. 7.3)	 	
Notify promptly upon notice _____________________________

	 	YES	NO
	Cross default with other agreements >$250,000 (Sect. 8.6)	 	

Notify promptly upon notice _____________________________

	 	YES	NO
	
Judgments/Settlements > $2SO,OOO (Sect. 8.8)

	 	
Notify promptly upon notice _____________________________

	 	YES	NO

 

	
FINANCIAL COVENANTS

	 	REQUIRED	 	ACTUAL	 	

COMPLIES

	 	 	 	 	 	 	 	 
	Permitted Indebtedness for equipment leases 	 	
<$250,000

	 	$ ____________________ 	 	
YES

	NO
	Permitted Investments for stock repurchase 	 	
<$250,000

	 	$ ____________________ 	 	
YES

	NO
	Permitted Investments for subsidiaries 	 	
<$250,000

	 	$ ____________________	 	
YES

	NO
	
Permitted lnvestments for employee loans 

	 	
<$250,000

	 	$ ____________________	 	
YES

	NO
	Permitted Investments for joint ventures 	 	
<$250,000

	 	$ ____________________	 	
YES

	NO
	Permitted Liens for equipment leases 	 	
<$250,000

	 	$ ____________________	 	
YES

	NO
	Permitted Transfers	 	<$250,000	 	$ ____________________	 	
YES

	NO
	 	 	 	 
	
Please Enter Below Comments Regarding Violations:

	 	 	 	 

 

  

Exhibit E - Page 1

  

 

The undersigned further acknowledges that at any time Borrower is not in compliance with all the terms set forth in the Agreement, including, without limitation, the financial covenants, no Credit Extensions will be made.

 

Very truly yours,

 

BLUEPHOENIX SOLUTIONS USA, INC.

 

	 	 
	

Authorized Signer

	 
	 	 
	
 

	 
	Name	 
	 	 
	 	 
	Title	 

 

  

Exhibit E - Page 2

  

 

EXHIBIT F

 

PRICING ADDENDUM

 

(See Attached)

 

  

Exhibit F - Page 1

  

 

SCHEDULE OF EXCEPTIONS

TO LOAN AND SECURITY AGREEMENT

 

 

[Borrower to Complete]

 

Permitted Indebtedness (Exhibit A)

 

 

Permitted Investments (Exhibit A)

 

 

Permitted Liens (Exhibit A)

 

 

Prior Names (Section 5.5)

 

 

Inventory or Equipment Locations (Section 5.5)

 

 

Litigation (Section 5.6)

 

 

Inbound Licenses (Section 5.12)

 

  

  

  

 

Corporation Resolutions and Incumbency Certification

Authority to Procure Loans

 

 

I certify that I am the duly elected and qualified Secretary of BLUEPHOENIX SOLUTIONS USA, INC., a Delaware corporation (the "Corporation"); that the following is a true and correct copy of resolutions duly adopted by the Board of Directors of the Corporation in accordance with its bylaws and applicable statutes.

 

Copy of Resolutions:

 

Be it Resolved, That: 

 

	
1.

	
Any one (1) of the following CEO and CFO (insert titles only) of the Corporation are/is authorized, for, on behalf of, and in the name of the Corporation to:

 

	
  

	
(a)

	
Negotiate and procure loans, letters of credit and other credit or financial accommodations from Comerica Bank ("Bank"), a Texas banking association, from time to time, in an unlimited amount, including without limitation that certain Loan and Security Agreement dated October 2, 2013, as may be subsequently amended from time to time.

 

	
  

	
(b)

	
Discount with the Bank, commercial or other business paper belonging to the Corporation made or drawn by or upon third parties, without limit as to amount;

 

	
  

	
(c)

	
Purchase, sell, exchange, assign, endorse for transfer and/or deliver certificates and/or instruments representing stocks, bonds, evidences of Indebtedness or other securities owned by the Corporation, whether or not registered in the name of the Corporation;

 

	
  

	
(d)

	
Give security for any liabilities of the Corporation to the Bank by grant, security interest, assignment, lien, deed of trust or mortgage upon any real or personal property, tangible or intangible of the Corporation;

 

	
  

	
(e)

	
Issue a warrant or warrants to purchase the Corporation's capital stock; and

 

	
  

	
(f)

	
Execute and deliver in form and content as may be required by the Bank any and all notes, evidences of Indebtedness, applications for letters of credit, guaranties, subordination agreements, loan and security agreements, financing statements, assignments, liens, deeds of trust, mortgages, trust receipts and other agreements, instruments or documents to carry out the purposes of these Resolutions, ,and any and all amendments or modifications thereto, any or all of which may relate to all or to substantially all of the Corporation's property and assets.

 

	
2.

	
Said Bank be and it is authorized and directed to pay the proceeds' of any such loans or discounts as directed by the persons so authorized to sign, whether so payable to the order of any of said persons in their individual capacities or not, and whether such proceeds are deposited to the individual credit of any of said persons or not;

 

	
3.

	
Any and all agreements, instruments and documents previously executed and acts and things previously done to carry out the purposes of these Resolutions are ratified, confirmed and approved as the act or acts of the Corporation.

 

	
4.

	
These Resolutions shall continue in force, and the Bank may consider the holders of said otTices and their signatures to be and continue to be as set forth in a certified copy of these Resolutions delivered to the Bank, until notice to the contrary in writing is duly served on the Bank (such notice to have no effect on any action previously taken by the Bank in reliance on these Resolutions).

 

	
5.

	
Any person, corporation or other legal entity dealing with the Bank may rely upon a certificate signed by an officer of the Bank to effect that these Resolutions and any agreement, instrument or document executed pursuant to them are still in full force and effect and binding upon the Corporation.

 

	
6.

	
The Bank may consider the holders of the offices of the Corporation and their signatures, respectively, to be and continue to be as set forth in the Certificate of the Secretary of the Corporation until notice to the contrary in writing is duly setved on the Bank.

  

1

  

 

I further certify that the above Resolutions are in full force and effect as of the date of this Certificate; that these Resolutions and any borrowings or financial accommodations under these Resolutions have been properly noted in the corporate books and records, and have not been rescinded, annulled, revoked or modified; that neither the foregoing Resolutions nor any actions to be taken pursuant to them are or will be in contravention of any provision of the certificate of incorporation or bylaws of the Corporation or of any agreement, indenture or other instrument to which the Corporation is a party or by which it is bound; and that neither the certificate of incorporation nor bylaws of the Corporation nor any agreement, indenture or other instrument to which the Corporation is a party or by which it is bound require the vote or consent of shareholders of the Corporation to authorize any act, matter or thing described in the foregoing Resolutions.

 

I further certify that the following named persons have been duly elected to the offices set opposite their respective names, that they continue to hold these offices at the present time, and that the signatures which appear below are the genuine, original signatures of each respectively:

 

(PLEASE SUPPLY GENUINE SIGNATURES OF AUTHORIZED SIGNERS BELOW)

 

	NAME (Type or Print)	 	TTILE	 	
SIGNATURE

	 	 	 	 	 
	Matt Bell	 	President	 	/s/ Matt Bell
	 	 	 	 	 
	Rick Rinaldo	 	Vice President 	 	/s/ Rick Rinaldo
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 

 

In Witness Whereof, I have affixed my name as Secretary and have caused the corporate seal (where available) of said Corporation to be affixed on October 2, 2013.

 

	 	 	 	/s/ Rick Rinaldo
	 	 	 	Secretary

 

***

 

	The Above Statements are Correct.	 
	 	SIGNATURE OF OFFICER OR DIRECTOR OR, IF NONE. A SHAREHOLDER OTHER THAN SECRETARY WHEN SECRETARY IS AUTHORIZED TO SIGN ALONE.

Failure to complete the above when the Secretary is authorized to sign alone shall constitute a certification by the Secretary that the Secretary is the sole Shareholder, Director and Officer of the Corporation.

  

2

  

 

To: BLUEPHOENIX SOLUTIONS USA, INC.

 

USA PATRIOT ACT 

 

NOTICE

OF

CUSTOMER IDENTIFICATION

 

 

IMPORTANT INFORMATION ABOUT PROCEDURES FOR OPENING A NEW ACCOUNT

 

 

To help the government fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify, and record information that identifies each person who opens an account.

WHAT THIS MEANS FOR YOU: when you open an account, we will ask your name, address, date of birth, and other information that will allow us to identity you. We may also ask to see your driver's license or other identifying documents.

  

  

  

 

	
DEBTOR:

	
BLUEPHOENIX SOLUTIONS USA, INC.

	  	  
	
SECURED PARTY:

	
COMERICA  BANK

 

EXHIBIT A to UCC Financing Statement

 

COLLATERAL DESCRIPTION ATTACHMENT TO UCC NATIONAL FINANCING FORM

 

All personal property of Borrower (herein referred to as "Borrower" or "Debtor") whether presently existing or hereafter created or acquired, and wherever located, including, but not limited to:

 

	
(a)

	
all accounts (including health-care-insurance receivables), chattel paper (including tangible and electronic chattel paper), deposit accounts, documents (including negotiable documents), equipment (including all accessions and additions thereto), general intangibles (including payment intangibles and software), goods (including fixtures), instruments (including promissory notes), inventory (including all goods held for sale or lease or to be furnished under a contract of service, and including returns and repossessions), investment property (including securities and securities entitlements), letter of credit rights, money, and all of Debtor's books and records with respect to any of the foregoing, and the computers and equipment containing said books and records;

	  	  
	
(b)

	
all common law and statutory copyrights and copyright registrations, applications for registration, now existing or hereafter arising, in the United States of America or in any foreign jurisdiction, obtained or to be obtained on or in connection with any of the foregoing, or any parts thereof or any underlying or component elements of any of the foregoing, together with the right to copyright and all rights to renew or extend such copyrights and the right (but not the obligation) of Secured Party to sue in its own name and/or in the name of the Debtor for past, present and future infringements of copyright;

	  	  
	
(c)

	
all trademarks, service marks, trade names and service names and the goodwill associated  therewith, together with the right to trademark and all rights to renew or extend such trademarks and the right (but not the obligation) of Secured Party to sue in its own name and/or in the name of the Debtor for past, present and future infringements of trademark;

	  	  
	
(d)

	
all (i) patents and patent applications filed in the United States Patent and Trademark Office or any similar office of any foreign jurisdiction, and interests under patent license agreements, including, without limitation, the inventions and improvements described and claimed therein, (ii) licenses pe11aining to any patent whether Debtor is licensor or licensee, (iii) income, royalties, damages, payments, accounts and accounts receivable now or hereafter due and/or payable under and with respect thereto, including, without limitation, damages and payments for past, present or future infringements thereof, (iv) right (but not the obligation) to sue in the name of Debtor and/or in the name of Secured Party for past, present and future infringements thereof, (v) rights corresponding thereto throughout the world in all jurisdictions in which such patents have been issued or applied for, and (vi) reissues, divisions, continuations, renewals, extensions and continuations in-part with respect to any of the foregoing; and

	  	  
	
(e)

	
any and all cash proceeds and/or noncash proceeds of any of the foregoing, including, without limitation, insurance proceeds, and all supporting obligations and the security therefor or for any right to payment. All terms above have the meanings given to them in the California Uniform Commercial Code, as amended or supplemented from time to time.

 

  

2

  

 

Agreement to Furnish Insurance

(BluePhoenix) 

(Herein called "Bank")

 

Borrower: BluePhoenix Solutions USA, Inc.

 

I understand that the Loan and Security Agreement which I executed in connection with this transaction requires me to provide a physical damage insurance policy including a Lenders Loss Payable Endorsement in favor of the Bank as shown below, within ten (10) days from the date of this agreement.

 

The following minimum insurance must be provided according to the terms of the security documents.

	
o AUTOMOBILES, TRUCKS, RECREATIONAL VEHICLES

	 	
o MACHINERY & EQUIPMENT: 

	                Comprehensive & Collision	 	                MISCALLANEOUS PERSONAL PROPERTY
	
 
Lender's Loss Payable Endorsement

	 	
Fire & Extended Coverage

	
 

	 	
Lender's Loss Payable Endorsement

	 	 	
o Breach of Warranty Endorsement

	 	 	 
	
o BOATS

	 	
o AIRCRAFT

	
All Risk Hull Insurance

	 	
All Risk Ground & Flight Insurance

	
Lender's Loss Payable Endorsement

	 	
Lenders Loss Payable Endorsement 

	
o Breach of Warranty Endorsement

	 	 o Breach of Warranty Endorsement
	 	 	 
	
o MOBILE HOMES

	 	
o REAL PROPERTY

	
 Fire, Theft & Combined Additional Coverage 

	 	
Fire & Extended Coverage

	 Lender's Loss Payable Endorsement	 	
Lender's Loss Payable Endorsement

	   o Earthquake	 	
o All Risk Coverage

	 	 	
o Special Form Risk Coverage

	 	 	 o INVENTORY
	 	 	 o Earthquake
	 
 

	 	 o Other                                                               
	
 

	 	 
	o Other _______________________________________________________________________________________
	         ____________________________________________________________________________________________   
	         ____________________________________________________________________________________________ 

 

I may obtain the required insurance from any company that is acceptable to the Bank, and will deliver proof of such coverage with an effective date of October 2, 2013 or earlier.

 

I understand and agree that if I fail to deliver proof of insurance to the Bank at the address below, or upon the lapse or cancellation of such insurance, the Bank may procure Lender's Single Interest Insurance or other similar coverage on the property. If the Bank procures insurance to protect its interest in the property described in the security documents, the cost for the insurance will be added to my indebtedness as provided in the security documents. Lender's Single Interest Insurance shall cover only the Bank's interest as a secured party, and shall become effective at the earlier of the funding date of this transaction or the date my insurance was canceled or expired. I UNDERSTAND THAT LENDER'S SINGLE INTEREST INSURANCE WILL PROVIDE ME WITH ONLY LIMITED PROTECTION AGAINST PHYSICAL DAMAGE TO THE COLLATERAL, UP TO THE BALANCE OF THE LOAN, HOWEVER, MY EQUITY IN THE PROPERTY WILL NOT BE INSURED. FURTHER, THE INSURANCE WILL NOT PROVIDE MINIMUM PUBLIC LIABILITY OR PROPERTY DAMAGE INDEMNIFICATION AND DOES NOT MEET THE REQUIREMENTS OF THE FINANCIAL RESPONSIBILITY LAW.

CALIFORNIA CIVIL CODE SECTION 2955.5. HAZARD INSURANCE DISCLOSURE: No lender shall require a borrower, as a condition of receiving or maintaining a loan secured by real property, to provide hazard insurance coverage against risks to the improvements on that real property in an amount exceeding the replacement value of the improvements on the property.

 

	 	
Bank Address for Insurance Documents:

	 
	 	 	 
	 	
Comerlca Bank - insurance Service Center 

P.O. Box 863299 

Plano Texas 75086 

	 

 

  

3

  

 

I acknowledge having read the provisions of this agreement, and agree to its terms. I authorize the Bank to provide to any person (including any insurance agent or company) any information necessary to obtain the insurance coverage required.

 

	
OWNER OF COLLATERAL: 

	 	DATED: October 2, 2013

 

BLUEPHOENIX SOLUTIONS USA, INC.

 

	
By:

	
/s/ [ILLEGIBLE]

	  
	  	  	  
	
Name:

	
/s/ [ILLEGIBLE]

	  
	  	  	  
	
Title:

	
/s/ [ILLEGIBLE]

	  

	
INSURANCE VERIFICATION

	  
	  	  	  
	
Date _______________

	  	
Phone ________________

	
Agents Name _________________________________

	  	
Person Talked To _____________________

	
Agents Address _______________________________________________

	
Insurance Company ____________________________________________________________________________

	
Policy Number(s) ______________________________________________________________________________

	Effective Dates: From __________ To: ____________
	
Deductible $

	  	
Comments: ______________________

 

[Signature Page to Agreement to Furnish Insurance (3005043)]

 

  

4

  

 

Automatic Loan Payment Authorization

 

 

Date: October 2, 2013

 

Obligor Name (Typed or Printed):  BLUEPHOENIX SOLUTIONS USA, INC.

 

	
Obligor Number:

	  	                                 Lender's Cost Center #: 97-306

 

	Address:	601 Union Street, suite 4616	Seattle	Washington	98101
	  	
STREET ADDRESS

	
CITY

	
STATE

	
ZIP CODE

 

The undersigned hereby authorizes COMERICA BANK ("Bank") to charge the account designated below for the payments due on the loan(s) as designated below and all renewals, extensions, modifications and/or substitutions thereof. This authorization will remain in effect unless the undersigned requests a modification that is agreed to by the Bank in writing. The undersigned remains fully responsible for all amounts outstanding to Bank if the designated account is insufficient for repayment.

 

	  	x	
Automatic Payment Authorization for all payments on all current and future borrowings, as and when such payments come due (which payments include, without limitation, principal, interest, fees, costs, and expenses).

	  	  	  
	  	o	
Automatic Payment Authorization for all payments on only the specific borrowing identified below, as and when such payments come due (which payments include, without limitation, principal, interest, fees, costs, and expenses).

	  	  	  
	  	o	
Specific Obligation Number:

	  	  	  
	  	o	
Automatic Payment Authorization for less than all payments on only the specific borrowing identified below, as and when such payments come due.

	  	  	  
	  	o	
Specific Obligation Number:

	  	  	  
	  	o	
Principal and Interest payments only

	  	  	  
	  	o	
Principal payments only

	  	  	  
	  	o	
Interest payments only

	  	  	  
	  	o	
SPECIAL INSTRUCTIONS/IRREGULAR PAYMENT INSTRUCTIONS

	  	  	  
	  	  	  
	  	  	  
	  	  	  
	  	  	  
	  	  	  
	 	 	 
	 	 	 

 

Payment Due Date: Your loan payments will be charged to your account as indicated above on the dates such payments become due (or on a date thereafter when there are available funds) unless that day is a Saturday, Sunday, or Bank holiday in which case such payments will be charged on the following business day, with interest to accrue during this extension as provided under the loan documents.

  

5

  

 

Account to be Charged:

Account No. _______________________________

 

Transit No. ________________________________

 

Number of lead days to issue billing: ____________

 

(Charges to account are withdrawals pursuant to account resolution)

 

BLUEPHOENIX SOLUTIONS USA, INC.

	 	
By: 

	/s/ [ILLEGIBLE]	 
	 	 	SIGNATURE OF	 
	 	 	 	 
	 	Its:	/s/ [ILLEGIBLE]	 
	 	 	
TITLE (If applicable)

	 

 

[Signature Page to Automatic Loan Payment Authorization  (3004990)]

 

 

6INGFALLoCFacilityAxisSpecialtyLimitedFINAL

US$170,000,000
LETTER OF CREDIT FACILITY AGREEMENT

Dated 6 November 2013
for
AXIS SPECIALTY LIMITED

as the Company 

with

ING BANK N.V., LONDON BRANCH

as the Bank

Ref: AP/EC/L-219261 
Linklaters LLP

1

2

CONTENTS
CLAUSE    PAGE
SECTION 1
INTERPRETATION
		
	1.
	Definitions and interpretation    1

SECTION 2
THE FACILITY
		
	2.
	The Facility    13

		
	3.
	Purpose    13

		
	4.
	Conditions of Utilisation    13

SECTION 3
UTILISATION
		
	5.
	Utilisation    14

		
	6.
	Letter of Credit    15

		
	7.
	Collateral Cover    17

SECTION 4
PREPAYMENT AND CANCELLATION
		
	8.
	Prepayment and cancellation    19

SECTION 5
COSTS OF UTILISATION
		
	9.
	Default Interest    21

		
	10.
	Fees    21

SECTION 6
ADDITIONAL PAYMENT OBLIGATIONS
		
	11.
	Tax gross up and indemnities    22

		
	12.
	Increased costs    24

		
	13.
	Other indemnities    25

		
	14.
	Mitigation by the Bank    26

		
	15.
	Costs and expenses    27

SECTION 7
REPRESENTATIONS, UNDERTAKINGS AND EVENTS OF DEFAULT
		
	16.
	Representations    28

		
	17.
	Information undertakings    32

		
	18.
	General undertakings    34

		
	19.
	Events of Default    36

SECTION 8
CHANGES TO PARTIES
		
	20.
	Changes to the Bank    41

SECTION 9
THE PARTIES

1

		
	21.
	Status of the Parties    43

		
	22.
	Conduct of business by the Bank    43

SECTION 10
ADMINISTRATION
		
	23.
	Payment mechanics    44

		
	24.
	Set-off    46

		
	25.
	Notices    46

		
	26.
	Calculations and certificates    47

		
	27.
	Partial invalidity    48

		
	28.
	Remedies and waivers    48

		
	29.
	Amendments and waivers    48

		
	30.
	Confidentiality    48

		
	31.
	Counterparts    51

SECTION 11
GOVERNING LAW AND ENFORCEMENT
		
	32.
	Governing law    52

		
	33.
	Enforcement    52

THE SCHEDULES
SCHEDULE    PAGE
		
	 Eligible Collateral and Applicable Advance Rates
	53

		
	 Conditions precedent to Initial Utilisation
	54

		
	 Utilisation Request
	56

		
	 Timetables Letter of Credit
	57

		
	 Form of Letter of Credit
	58

		
	 Form of Borrowing Base Certificate
	62

SIGNATURE PAGE64

2

THIS AGREEMENT is dated 6 November 2013 and made between:
		
	(1)
	AXIS SPECIALTY LIMITED, a corporation incorporated under the laws of Bermuda and having its registered office at Clarendon House 2, Church Street, Hamilton HM 11, Bermuda (the "Company"); and

		
	(2)
	ING BANK N.V., LONDON BRANCH as the bank (the "Bank").

IT IS AGREED as follows:
SECTION 1
INTERPRETATION
		
	1.
	DEFINITIONS AND INTERPRETATION

		
	1.1
	Definitions

In this Agreement:
"2014 YOA" means the 2014 underwriting year of account (which for the avoidance of doubt shall not include any prior open years of account for the Syndicate). 
"Account Control Agreement" means an agreement dated on or about the date of this Agreement between the Company, the Custodian and the Bank in respect of the Eligible Collateral to be held from time to time by the Custodian. 
"Affiliate" means, in relation to any person, a Subsidiary of that person or a Holding Company of that person or any other Subsidiary of that Holding Company.
"Anti-Money Laundering Laws" means the Executive Order, the Bank Secrecy Act (31 U.S.C. §§ 5311 et seq.), the Money Laundering Control Act of 1986 (18 U.S.C. §§ 1956 et seq.), the USA Patriot Act and any similar law enacted in the United States after the date of this Agreement.
"Applicable Insurance Regulatory Authority" means:
		
	(a)
	the insurance department or similar administrative authority or agency located in each state or jurisdiction (foreign or domestic) in which the Company is domiciled; and 

		
	(b)
	to the extent asserting regulatory jurisdiction over the Company, the insurance department, authority or agency in each state or jurisdiction (foreign or domestic) in which the Company is licensed.

"Authorisation" means an authorisation, consent, approval, resolution, licence, exemption, filing, notarisation or registration.
"Availability Period" means the period from and including the date of this Agreement up to and including 31 July 2014.
"Bank's Spot Rate of Exchange" means the Bank's spot rate of exchange for the purchase of the relevant currency with US Dollars in the London foreign exchange market at or about 11:00 a.m. on any particular day.

1

"Beneficiary" means the beneficiary under the Letter of Credit issued pursuant to this Agreement.
"Borrowing Base Certificate" means a certificate, substantially in the form of Schedule 6 (Borrowing Base Certificate), or any other form agreed between the Bank and the Company, in respect of the Investment Collateral held in the Deposit Accounts, and certain other financial information as stated therein to be based on valuations of the Eligible Collateral by the Custodian.
"Business Day" means a day (other than a Saturday or Sunday) on which banks are open for general business in London, New York City and Bermuda and (in relation to any date for payment or purchase of any other currency) the principal financial centre of the country of that currency.
"Cash Collateral" means any Eligible Collateral in the form of cash held in a Deposit Account with the Custodian.
"Claim" has the meaning given to it in paragraph (a) of Clause 6.3 (Claims under the Letter of Credit).
"Claim Amount" has the meaning given to it in paragraph (c) of Clause 6.3 (Claims under the Letter of Credit).
"Claim Period" has the meaning given to it in paragraph (c) of Clause 6.3 (Claims under the Letter of Credit).
"Collateral Amount" has the meaning given to it in paragraph (b) of Clause 7.2 (Amount of Collateral Cover).
"Collateral Cover" has the meaning given to it in paragraph (a) of Clause 7.1 (Collateral Cover requirements).
"Confidential Information" means all information relating to the Company, the Group, the Finance Documents or the Facility of which the Bank becomes aware in its capacity as, or for the purpose of becoming, the Bank or which is received by the Bank in relation to, or for the purpose of becoming the Bank under, the Finance Documents or the Facility from any member of the Group or any of its advisers, in whatever form, and includes information given orally and any document, electronic file or any other way of representing or recording information which contains or is derived or copied from such information but excludes information that:
		
	(a)
	is or becomes public information other than as a direct or indirect result of any breach by the Bank of Clause 30 (Confidentiality); 

		
	(b)
	is identified in writing at the time of delivery as non-confidential by any member of the Group or any of its advisers; or

		
	(c)
	is known by the Bank before the date the information is disclosed to it in accordance with this definition or is lawfully obtained by the Bank after that date, from a source which is, as far as the Bank is aware, unconnected with the Group and which, in either case, as far as the Bank is aware, has not been obtained in breach of, and is not otherwise subject to, any obligation of confidentiality.

"Confidentiality Undertaking" means a confidentiality undertaking substantially in a recommended form of the LMA or in any other form agreed between the Company and the Bank.

2

"Contingent Obligation" of a person means any agreement, undertaking or arrangement by which such person assumes, guarantees, endorses, contingently agrees to purchase or provide funds for the payment of, or otherwise becomes or is contingently liable upon, the obligation or liability of any other person, or agrees to maintain the net worth or working capital or other financial condition of any other person, or otherwise assures any creditor of such other person against loss, including, without limitation, any legally binding comfort letter, operating agreement, take-or-pay contract or the obligations of any such person as general partner of a partnership with respect to the liabilities of the partnership. The term "Contingent Obligation" shall not include (a) the obligations of the Company arising under any insurance policy or reinsurance agreement entered into in the ordinary course of business or (b) operating leases. 
"Corporate Member" means AXIS Corporate Capital UK Limited a company incorporated in England and Wales with registration number 08702951 and having its registered office at c/o Willkie Farr & Gallagher (UK) LLP, CityPoint, 1 Ropemaker Street, London EC2Y 9AW.
"CTA" means the Corporation Tax Act 2009.
"Custodian" means Bank of New York Mellon of 111 Sanders Creek Parkway, East Syracuse, New York 13057 or a financial institution designated by the Company and acceptable to the Bank in its entire discretion from time to time for the purpose of holding Investment Collateral and/or Cash Collateral pledged to the Bank pursuant to the Security Documents.
"Default" means an Event of Default or any event or circumstance specified in Clause 19 (Events of Default) which would (with the expiry of a grace period, if any, lapse of time, the giving of notice , the making of any determination under any Finance Document or any combination of any of the foregoing) be an Event of Default.
"Deposit Account" means each securities and cash account held by the Company with the Custodian and notified to the Bank as the account in which Investment Collateral and Cash Collateral will be held in accordance with the provisions of Clause 7 (Collateral Cover).
"Designated Person" means a person or entity:
		
	(a)
	listed in the annex to, or otherwise targeted by the provisions of, the Executive Order;

		
	(b)
	named as a "Specially Designated National and Blocked Person" on the most current list published by OFAC at its official website or any replacement website or other replacement official publication of such list; or

		
	(c)
	to the best of the Company's knowledge, with which the Bank is prohibited from dealing or otherwise engaging in any transaction by any Economic Sanctions Laws.

"Disruption Event" means either or both of:
		
	(a)
	a material disruption to those payment or communications systems or to those financial markets which are, in each case, required to operate in order for payments to be made in connection with the Facility (or otherwise in order for the transactions contemplated by the Finance Documents to be carried out) which disruption is not caused by, and is beyond the control of, any of the Parties; or 

3

		
	(b)
	the occurrence of any other event which results in a disruption (including, without limitation, of a technical or systems-related nature) to the treasury or payments operations of a Party preventing that, or any other Party:

		
	(i)
	from performing its payment obligations under the Finance Documents; or

		
	(ii)
	from communicating with other Parties in accordance with the terms of the Finance Documents,

and which (in either such case) is not caused by, and is beyond the control of, the Party whose operations are disrupted.
"Economic Sanctions Laws" means the Executive Order, the International Emergency Economic Powers Act (50 U.S.C. §§ 1701 et seq.), the Trading with the Enemy Act (50 U.S.C. App. §§ 1 et seq.), any other law or regulation promulgated thereunder from time to time and administered by OFAC, the US State Department, the US Department of Commerce or the US Department of the Treasury, and any similar law enacted in the United States after the date of this Agreement.
"Eligible Collateral" means collateral in the form described in column 1 of the table set out in Schedule 1 (Eligible Collateral and Applicable Advance Rates) and over which no Security exists (other than pursuant to a Security Document) as of the date of this Agreement and which shall be capable of being marked to market on a daily basis.
"Eligible Collateral Security Agreement" means a pledge and security agreement dated on or about the date hereof between the Bank and the Company under which the Company pledges to the Bank its rights in respect of the Eligible Collateral held from time to time by the Custodian on each Deposit Account.
"Event of Default" means any event or circumstance specified as such in Clause 19 (Events of Default).
"Executive Order" means the US Executive Order No. 13224 on Blocking Property and Prohibiting Transactions with Persons who Commit, Threaten to Commit, or Support Terrorism.
"Expiry Date" means, for the Letter of Credit, the last day of its Term or such other date as set out in the notice of termination provided by the Bank to the Beneficiary of the Letter of Credit in accordance with Clause 5.6 (Notice of Termination).
"Facility" means the letter of credit facility made available by the Bank under this Agreement as described in Clause 2 (The Facility).
"Facility Amount" means up to one hundred seventy million US Dollars (US$170,000,000) to the extent not cancelled, reduced or transferred by the Bank under this Agreement.
"Facility Office" means:
		
	(a)
	the office of the Bank at London; or

		
	(b)
	such other office or offices or branch or branches notified by the Bank to the Company in writing on or before the date of this Agreement (or, following that date, by not less than five Business Days' written notice) as the office or offices or branch or branches through which it will perform its obligations under this Agreement. 

4

"Finance Document" means this Agreement and any other document designated as such by the Bank and the Company.
"Financial Indebtedness" means any indebtedness for or in respect of:
		
	(a)
	moneys borrowed;

		
	(b)
	any amount raised by acceptance under any acceptance credit facility or dematerialised equivalent;

		
	(c)
	any amount raised pursuant to any note purchase facility or the issue of bonds (but not Trade Instruments), notes, debentures, loan stock or any similar instrument;

		
	(d)
	the amount of any liability in respect of any lease or hire purchase contract which would, in accordance with GAAP as in effect at the date of this Agreement, be treated as a finance or capital lease;

		
	(e)
	receivables sold or discounted (other than any receivables to the extent they are sold on a non-recourse basis);

		
	(f)
	any amount raised under any other transaction (including any forward sale or purchase agreement) having the commercial effect of a borrowing and classified as borrowings under GAAP;

		
	(g)
	for the purpose of Clause 19.6 (Cross Default and Cross Collateralisation) only any derivative transaction entered into, in connection with protection against or benefit from fluctuation in any rate or price (and, when calculating the value of any derivative transaction, only the marked to market value shall be taken into account);

		
	(h)
	shares which are expressed to be redeemable (other than at the option of the issuer) before 31 July 2018;

		
	(i)
	any counter-indemnity obligation in respect of a guarantee, indemnity, bond, standby or documentary letter of credit or any other instrument (but not in any case Trade Instruments) issued by a bank or financial institution in respect of an underlying obligation of an entity which is not a member of the Group which liability would fall within one of the other paragraphs of this definition; and 

		
	(j)
	the amount of any liability in respect of any guarantee or indemnity for any of the items referred to in paragraphs (a) to (i) above,

provided that indebtedness arising under insurance or reinsurance contracts entered into in the ordinary course of trading shall not be included. 
"Funds at Lloyd's" and "FAL" means funds at Lloyd's supporting underwriting activities of the Corporate Member for any applicable year of account as required by Lloyd's pursuant to Lloyd's Rules.
"GAAP" means in respect of:
		
	(a)
	the Company generally accepted accounting principles in the United States of America; and

5

		
	(b)
	any other entity, generally accepted accounting principles in its jurisdiction of incorporation, including IFRS.

"Group" means the Company and the Corporate Member.
"Holding Company" means, in relation to a company or corporation, any other company or corporation in respect of which it is a Subsidiary.
"IFRS" means international accounting standards within the meaning of the IAS Regulation 1606/2002 to the extent applicable to the relevant financial statements.
"Insurance Licenses" means licences (including licences or certificates of authority from each Applicable Insurance Regulatory Authority), permits or authorisations to transact insurance and reinsurance business. 
"Interpolated Screen Rate" means, in relation to LIBOR for any Claim Amount, the rate (rounded to the same number of decimal places as the two relevant Screen Rates) which results from interpolating on a linear basis between:
		
	(a)
	the applicable Screen Rate for the longest period (for which that Screen Rate is available) which is less than the Claim Period of that Claim Amount; and

		
	(b)
	the applicable Screen Rate for the shortest period (for which that Screen Rate is available) which exceeds the Claim Period of that Claim Amount,

each as of 11:00 a.m. on the Quotation Day for the currency of that Claim Amount.
"Investment Collateral" means any Eligible Collateral other than Cash Collateral and held in a Deposit Account.
"ISP" means the International Standby Practices, International Chamber of Commerce Publication No. 590, 1998 (or any subsequent revision to which the Letter of Credit may be expressed to be subject).
"L/C Commission" has the meaning given to it in paragraph (a) of Clause 6.2 (L/C Commission).
"L/C Fee Rate" means zero point three hundred and seventy five per cent. (0.375%) per annum.
"L/C Reimbursement Rate" means three per cent. (3.0%) per annum.
"Legal Reservations" means:
		
	(a)
	the principle that equitable remedies may be granted or refused at the discretion of a court and the limitation of enforcement by laws relating to insolvency, reorganisation and other laws generally affecting the rights of creditors;

		
	(b)
	the time barring of claims under the Limitation Acts, the possibility that an undertaking to assume liability for or indemnify a person against non-payment of UK stamp duty may be void and defences of set-off or counterclaim;

		
	(c)
	the possibility that the courts may recharacterise any security purporting to be a fixed charge as a floating charge (or vice versa); 

6

		
	(d)
	any other matters which are set out as qualifications or reservations as to matters of law of general application in any legal opinion delivered pursuant to Clause 4 (Conditions of Utilisation); and

similar principles, rights and defences under the laws of any relevant jurisdiction.
"Letter of Credit" means a letter of credit, substantially in the form set out in Schedule 5 (Form of Letter of Credit).
"LIBOR" means, in relation to any Claim Amount:
		
	(a)
	the applicable Screen Rate;

		
	(b)
	(if no Screen Rate is available for the Claim Period of that Claim Amount) the Interpolated Screen Rate for that Claim Amount; or

		
	(c)
	if:

		
	(i)
	no Screen Rate is available for the currency of that Claim Amount; or

		
	(ii)
	no Screen Rate is available for the Claim Period of that Claim Amount and it is not possible to calculate an Interpolated Screen Rate for that Claim Amount,

the rate quoted by the Bank as the rate at which it could borrow funds in the London interbank market in the relevant currency and for the relevant period, were it to do so by asking for and then accepting interbank offers for deposits in reasonable market size in that currency and for that period,
as of, in the case of paragraphs (a) and (c) above, 11:00 a.m. on the Quotation Day for the currency of that Claim Amount and for a period equal in length to the Claim Period of that Claim Amount. If any such applicable Screen Rate, Interpolated Screen Rate or rate is below zero, LIBOR will be deemed to be zero.
"Limitation Acts" means the Limitation Act 1980 and the Foreign Limitation Periods Act 1984.
"Lloyd's" means the Society incorporated by the Lloyd's Act 1871 by the name of Lloyd's.
"Lloyd's Obligations" has the meaning given to it in the standard form Lloyd's Security and Trust Deed published by Lloyd's from time to time.
"Lloyd's Rules" means Lloyd's Acts 1871-1982 and the byelaws and regulations (including, if applicable, Financial Services Authority regulations) of Lloyd's applicable and in force from time to time.
"Lloyd's Security and Trust Deed" means any deed which Lloyd's may from time to time require the Company to execute for the purpose of providing FAL for the benefit of its Corporate Member.
"LMA" means the Loan Market Association.
"Material Adverse Effect" means a material adverse effect on or material adverse change in:
		
	(a)
	the financial condition, assets or business of the Company or the consolidated financial condition, assets or business of the Group;

7

		
	(b)
	the ability of the Company to perform and comply with its payment obligations under any Finance Document taking into account the financial resources available to the Company from other members of the Group; or

		
	(c)
	the validity, legality or enforceability of any Finance Document.

"Month" means a period starting on one day in a calendar month and ending on the numerically corresponding day in the next calendar month, except that:
		
	(a)
	if the numerically corresponding day is not a Business Day, that period shall end on the next Business Day in that calendar month in which that period is to end if there is one, or if there is not, on the immediately preceding Business Day; and

		
	(b)
	if there is no numerically corresponding day in the calendar month in which that period is to end, that period shall end on the last Business Day in that calendar month.

The above rules will only apply to the last Month of any period.
"Moody's" means Moody's Investor Services Limited, or any successor entity thereto.
"OFAC" means the Office of Foreign Assets Control of the United States Department of the Treasury (or any successor thereto).
"Original Financial Statements" means in relation to the Company, the audited financial statements of the Company for the financial year ended 31 December 2012.
"Party" means a party to this Agreement.
"Qualifying Bank" has the meaning given to it in Clause 11 (Tax gross-up and indemnities).
"Quotation Day" means, in relation to any Claim Period, the day falling two (2) Business Days before the first half of that Claim Period.
"Rating" means Financial Strength Rating assigned by Moody's and S&P from time to time to Investment Collateral.
"RDS" means a realistic disaster scenario as such term is used by Lloyd's and in respect of which, pursuant to the Lloyd's Rules, the managing agent of the Syndicate is obliged to prepare and submit to Lloyd's a report.
"Repeating Representations" means each of the representations set out in Clauses 16.1 (Status) to 16.5 (Title and compliance), 16.7 (Governing law and enforcement), paragraph (a) of 16.11 (No default), paragraphs (a) and (b) of 16.13 (Financial statements), 16.14 (Security and pari passu ranking), and 16.20 (Lines of Business) to 16.22 (US Anti-Terrorism Laws) and 16.24 (Anti-corruption law).
"Representative" means any delegate, agent, manager, administrator, nominee, attorney, trustee or custodian.
"S&P" means Standard and Poor's Rating Services, or any successor entity thereto.
"Screen Rate" means in relation to LIBOR, the London interbank offered rate administered by the British Bankers Association (or any other person which takes over the administration of that rate) for the relevant currency and period displayed on pages LIBOR01 or LIBOR02 of the Reuters screen (or any replacement 

8

Reuters page which displays that rate) or on the appropriate page of such other information service which publishes that rate from time to time in place of Reuters. If such page or service ceases to be available, the Bank may specify another page or service displaying the relevant rate after consultation with the Company.
"Security" means a mortgage, charge, pledge, lien or other security interest securing any obligation of any person or any other agreement or arrangement having a similar effect.
"Security Document" means an Account Control Agreement, an Eligible Collateral Security Agreement or any other security document that may at any time be given to the Bank as security for the Company's obligations under the Finance Documents.
"Specified Time" means a time determined in accordance with Schedule 4 (Timetables).
"Statutory Surplus" means, with respect to a person at any time, the statutory capital and surplus of such company at such time as determined in accordance with its financial statements.
"Subsidiary" means, in relation to any company, corporation or other legal entity, (a "holding company"), a company, corporation or other legal entity:
		
	(a)
	which is controlled, directly or indirectly, by the holding company;

		
	(b)
	more than half the issued share capital of which is beneficially owned, directly or indirectly, by the holding company; or

		
	(c)
	which is a subsidiary of another Subsidiary of the holding company,

and, for this purpose, a company or corporation shall be treated as being controlled by another if that other company or corporation is able to determine the composition of the majority of its board of directors or equivalent body.
"Syndicate" means Lloyd's Syndicate 1686. 
"Tax" means any tax, levy, impost, duty or other charge or withholding of a similar nature (including any penalty or interest payable in connection with any failure to pay or any delay in paying any of the same).
"Term" means the period determined under this Agreement for which the Bank is under a liability under the Letter of Credit.
"Termination Date" means:
		
	(a)
	31 July 2018; or

		
	(b)
	such later date as may from time to time be notified by the Bank (in its absolute discretion) to the Company in writing as the Termination Date for the purposes of the Facility.

"Trade Instruments" means any performance bonds, advance payment bonds or documentary letters of credit issued in respect of the obligations of any member of the Group arising in the ordinary course of trading of that member of the Group.
"Unpaid Sum" means any sum due and payable but unpaid by the Company under the Finance Documents.

9

"US" and "United States" means the United States of America, its territories and possessions.
"US$" and "US Dollars" means the lawful currency of the United States.
"USA Patriot Act" means the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, Public Law 107-56 of the United States.
"US Bankruptcy Law" means the United States Bankruptcy Code of 1978 (Title 11 of the United States Code), any other United States federal or state bankruptcy, insolvency or similar law.
"US Tax Obligor" means:
		
	(a)
	any of the Company and its Subsidiaries which are resident for tax purposes in the United States; or

		
	(b)
	the Company and its Subsidiaries some or all of whose payments under the Finance Documents are from sources within the United States for United States federal income tax purposes.

"Utilisation" means the utilisation of the Facility by the Letter of Credit.
"Utilisation Date" means the date of the Utilisation, being the date on which the relevant Letter of Credit is issued.
"Utilisation Request" means a notice substantially in the form set out in Schedule 3 (Utilisation Request) or in any equivalent electronic format agreed between the Company and the Bank.
"VAT" means:
		
	(a)
	any tax imposed in compliance with the Council Directive of 28 November 2006 on the common system of value added tax (EC Directive 2006/112); and

		
	(b)
	any other tax of a similar nature, whether imposed in a member state of the European Union in substitution for, or levied in addition to, such tax referred to in paragraph (a) above or imposed elsewhere.

		
	1.2
	Construction

		
	(a)
	Unless a contrary indication appears, any reference in this Agreement to:

		
	(i)
	the "Company", the "Bank", or any "Party" shall be construed so as to include its successors in title, permitted assigns and permitted transferees;

		
	(ii)
	"assets" includes present and future properties, revenues and rights of every description;

		
	(iii)
	a reference to the "Bank" means the Bank acting through any Facility Office of the Bank;

		
	(iv)
	a "Finance Document" or any other agreement or instrument is a reference to that Finance Document or other agreement or instrument as amended, novated, supplemented, extended, restated (however fundamentally and whether or not more onerously) or replaced and includes any change in the purpose of, any extension of or any increase in any facility or the addition of any new facility under any Finance Document or other agreement or instrument;

		
	(v)
	"indebtedness" includes any obligation (whether incurred as principal or as surety) for the payment or repayment of money, whether present or future, actual or contingent;

10

		
	(vi)
	a "person" includes any individual, firm, company, corporation, government, state or agency of a state or any association, trust, joint venture, consortium or partnership (whether or not having separate legal personality);

		
	(vii)
	a "regulation" includes any regulation, rule, official directive, request or guideline (whether or not having the force of law) of any governmental, intergovernmental or supranational body, agency, department or of any regulatory, self-regulatory or other authority or organisation;

		
	(viii)
	"total assets" means the total assets of the applicable person or group (excluding intangible assets) as ascertained by reference to the latest accounts of that person or group delivered under this Agreement;

		
	(ix)
	words importing the plural shall include the singular and vice versa;

		
	(x)
	a provision of law is a reference to that provision as amended or re-enacted; and

		
	(xi)
	a time of day is a reference to London time.

		
	(b)
	Any reference in this Agreement to:

		
	(i)
	the Utilisation made or to be made to the Company refers to the Letter of Credit issued or to be issued on its behalf;

		
	(ii)
	amounts outstanding under this Agreement refer to amounts outstanding under or in respect of the Letter of Credit; 

		
	(iii)
	an outstanding amount of the Letter of Credit at any time is the maximum amount that is or may be payable by the Company in respect of the Letter of Credit at that time; 

		
	(iv)
	the Company "repaying" or "prepaying" the Letter of Credit means:

		
	(A)
	the maximum amount payable under the Letter of Credit being reduced in accordance with its terms; or

		
	(B)
	the Bank being satisfied that it has no further liability under the Letter of Credit,

and the amount by which the Letter of Credit is repaid or prepaid under sub-paragraph (A) above is the amount of the relevant Collateral Cover or reduction.
		
	(c)
	Section, Clause and Schedule headings are for ease of reference only.

		
	(d)
	Unless a contrary indication appears, a term used in any other Finance Document or in any notice given under or in connection with any Finance Document has the same meaning in that Finance Document or notice as in this Agreement.

		
	(e)
	A Default (other than an Event of Default) is "continuing" if it has not been remedied or waived and an Event of Default is "continuing" if it has not been waived.

		
	1.3
	Third Party Rights

A person who is not a Party has no right under the Contracts (Rights of Third Parties) Act 1999 to enforce or to enjoy the benefit of any term of this Agreement.

11

SECTION 2
THE FACILITY
		
	2.
	THE FACILITY

Subject to the terms of this Agreement, the Bank makes available to the Company a letter of credit facility in an amount of up to the Facility Amount.
		
	3.
	PURPOSE

		
	3.1
	Purpose

The Company shall use the Facility to provide a Letter of Credit in favour of Lloyd's as Funds at Lloyd's to support the underwriting of the Corporate Member as a member of the Syndicate for the 2014 YOA.
		
	3.2
	Monitoring

The Bank is not bound to monitor or verify the application of the Letter of Credit issued pursuant to this Agreement.
		
	4.
	CONDITIONS OF UTILISATION

		
	4.1
	Initial conditions precedent

The Company may not deliver a Utilisation Request unless the Bank has either received or agreed in writing to waive all of the documents and other evidence listed in Schedule 2 (Conditions precedent to initial Utilisation) in form and substance satisfactory to the Bank. The Bank shall notify the Company promptly upon being so satisfied. 
		
	4.2
	Further conditions precedent

The Company shall not deliver a Utilisation Request to the Bank, unless on the date of the Utilisation Request and on the date of Utilisation:
		
	(a)
	no Default and no event which would have constituted a Default is continuing or would result from the proposed Utilisation; and

		
	(b)
	the Repeating Representations to be made by the Company are true in all material respects. 

12

SECTION 3
UTILISATION
		
	5.
	UTILISATION

		
	5.1
	Delivery of a Utilisation Request 

The Company may request a Utilisation of the Facility by delivery to the Bank of a duly completed Utilisation Request substantially in the form of Schedule 3 (Utilisation Request) (or in any other form or equivalent electronic format agreed between the Company and the Bank) no later than the Specified Time (or any other time as may be agreed between the Bank and the Company).
		
	5.2
	Completion of the Utilisation Request

		
	(a)
	The Utilisation Request is irrevocable and will not be regarded as having been duly completed unless:

		
	(i)
	it identifies the Corporate Member for which the proposed Letter of Credit is to be issued;

		
	(ii)
	it specifies the currency and amount of the proposed Letter of Credit and these comply with Clause 5.3 (Currency and amount); 

		
	(iii)
	the proposed Utilisation Date is a Business Day within the Availability Period;

		
	(iv)
	the form of the Letter of Credit is attached;

		
	(v)
	the Letter of Credit has an initial tenor of 4 years and (assuming the Bank gives notice of cancellation of the Letter of Credit in accordance with its terms) will expire no later than 31 July  2018; 

		
	(vi)
	the delivery instructions for the Letter of Credit are specified; and

		
	(vii)
	the Beneficiary is Lloyd's.

		
	(b)
	Only one Letter of Credit can be requested under a Utilisation Request.

		
	5.3
	Currency and amount

		
	(a)
	The currency specified for the Letter of Credit must be US Dollars.

		
	(b)
	The amount of the proposed Letter of Credit must be in an amount which is not more than the Facility Amount.

		
	5.4
	Issue of the Letter of Credit

If the conditions set out in this Agreement have been met, the Bank shall issue the Letter of Credit on the Utilisation Date through its Facility Office. 
		
	5.5
	Amendment of the Letter of Credit

		
	(a)
	Subject to the terms of this Agreement, the Company may no later than the Specified Time and by way of a written request in substantially the form of a Utilisation Request, ask for the Letter of Credit to be increased or reduced.

		
	(b)
	If the Bank approves the Company's request, it will reissue the Letter of Credit revised as requested, in exchange for the existing Letter of Credit, or otherwise amend the existing Letter of Credit. 

		
	5.6
	Notice of Termination

13

The Bank may, at any time in its absolute discretion, serve notice on the Beneficiary giving four years' notice of termination of the Letter of Credit, in accordance with the terms of such Letter of Credit, to ensure that the Letter of Credit expires no later than the Termination Date. 
		
	5.7
	Cancellation of Facility

The unutilised Facility Amount shall be immediately cancelled at the end of the Availability Period.
		
	6.
	LETTER OF CREDIT

		
	6.1
	Immediately payable

If the Letter of Credit or any amount outstanding under the Letter of Credit is expressed to be immediately payable, the Company shall pay that amount to the Bank, or prepay or repay the Letter of Credit (or the applicable amount outstanding thereunder), immediately on demand by the Bank.
		
	6.2
	L/C Commission

		
	(c)
	The Company shall pay to the Bank a letter of credit fee in the same currency as the Letter of Credit at the L/C Fee Rate on the outstanding amount of the Letter of Credit for the period from its Utilisation Date until its Expiry Date (the "L/C Commission").

		
	(d)
	The accrued L/C Commission in respect of the outstanding Letter of Credit shall be payable in arrear three Business Days after the last day of each calendar quarter (or such shorter period as shall end on the Expiry Date for the Letter of Credit) from the date of this Agreement and for the first time on 31 December 2013.

		
	6.3
	Claims under the Letter of Credit 

		
	(a)
	The Company irrevocably and unconditionally authorises the Bank to pay any claim made or purported to be made under the Letter of Credit and which appears on its face to be in order (a "Claim", as determined by the Bank). 

		
	(b)
	The Company shall immediately on demand pay to the Bank, an amount equal to the aggregate of:

		
	(i)
	the amount of any Claim under the Letter of Credit; and

		
	(ii)
	the interest in respect of such Claim accrued under paragraph (c) below.

For the avoidance of doubt, the occurrence of the Termination Date will not in any way affect any Company's obligation to make this payment or its obligations under the Agreement in respect of such payment obligation.
		
	(c)
	Interest will accrue on any amount paid by the Bank in respect of a Claim under the Letter of Credit (a "Claim Amount") pursuant to paragraph (b) above from the date on which the Bank makes such payment until the date of reimbursement of the applicable amount by the Company to the Bank (the "Claim Period") at the percentage rate per annum which is the aggregate of:

		
	(i)
	the L/C Reimbursement Rate; and

		
	(ii)
	LIBOR for the Claim Period.

The Bank shall promptly notify the Company of the determination of a rate of interest under this paragraph (c).

14

		
	(d)
	The Company acknowledges that:

		
	(i)
	the Bank is not obliged to carry out any investigation or seek any confirmation from any other person before paying a Claim; and

		
	(ii)
	the Bank deals in documents only and will not be concerned with the legality of a Claim or any underlying transaction or any available set-off, counterclaim or other defence of any person.

		
	(e)
	The obligations of the Company under this Clause will not be affected by:

		
	(i)
	the sufficiency, accuracy or genuineness of any Claim or any other document; or

		
	(ii)
	any incapacity of, or limitation on the powers of, any person signing a Claim or other document.

		
	6.4
	Indemnity

		
	(c)
	The Company shall immediately on demand indemnify the Bank against any cost, loss or liability incurred by the Bank (otherwise than by reason of gross negligence or wilful misconduct) in providing or performing its obligations under the Letter of Credit. 

		
	(d)
	The Company will be entitled to any right of contribution or indemnity from the Bank in respect of any payment it may make under this Clause 6.4.

		
	6.5
	Exclusion of Bank's liability

		
	(a)
	The Letter of Credit shall be issued entirely at the risk of the Company.

		
	(b)
	Any action taken or omitted by the Bank or any of its correspondents or agents under or in connection with the Letter of Credit, if taken or omitted in good faith and in the absence of gross negligence or wilful default, shall be binding on the Company and shall not place the Bank under any liability to the Company.

		
	(c)
	Without prejudice to the provisions of paragraph (b) above, in the event of any uncertainty or ambiguity in any instructions given to the Bank, the Bank may, at its discretion, either:

		
	(iii)
	act upon its understanding of the meaning of such instructions; or

		
	(iv)
	take no action until the Company clarifies such instructions to the Bank's satisfaction,

and the Bank shall not be held liable for any losses incurred by the Company as a result of any action or inaction which the Bank takes or omits to takes in the light of such instructions (otherwise than by reason of gross negligence or wilful misconduct).
		
	6.6
	Provision of information

The Company undertakes to inform and keep the Bank informed of any fact or circumstance which is reasonably likely to materially and adversely affect the interests of the Bank under the Letter of Credit immediately upon its becoming aware of such fact or circumstance.
		
	6.7
	Incorporation of ISP and conditions of Application

The Company agrees that ISP and the conditions of the relevant Utilisation Request shall apply to the Letter of Credit. In case of any conflict between the provisions of this Agreement, ISP and/or the relevant Utilisation Request, the provisions of this Agreement shall prevail.
		
	6.8
	Notice of termination of Letter of Credit

The Bank may give to the Beneficiary notice terminating the Letter of Credit in accordance with its terms.

15

		
	7.
	COLLATERAL COVER

		
	7.1
	Collateral Cover requirements

		
	(e)
	For the purposes of this Agreement, the Company providing "Collateral Cover" for the Letter of Credit means the Company depositing Eligible Collateral into a Deposit Account, in the case of Investment Collateral and Cash Collateral with the Custodian in accordance with the terms of this Clause 7 (Collateral Cover) and the Company having executed a Security Document creating a first ranking security interest over each of those accounts in favour of the Bank.

		
	(f)
	For the purpose of providing Collateral Cover under this Agreement, the Company shall ensure that Investment Collateral in the form of investment grade non-convertible corporate bonds as set out in row 8 of Schedule 1 (Eligible Collateral and Applicable Advance Rates) shall not at any time:

		
	(v)
	exceed forty per cent. (40%) of the aggregate Investment Collateral (after applying the rates set out in column 2 of the table in Schedule 1 (Eligible Collateral and applicable advance rates)); and

		
	(vi)
	in respect of a single issuer represent more than five per cent. (5%) of the aggregate value of such form of Eligible Collateral.

		
	(g)
	For the purpose of providing Collateral Cover under this Agreement, the Company shall ensure that Investment Collateral in the form of US government sponsored enterprises as set out in row 5 of Schedule 1 (Eligible Collateral and Applicable Advance Rates) shall not at any time exceed twenty per cent. (20%) of the aggregate Investment Collateral (after applying the rates set out in column 2 of the table in Schedule 1 (Eligible Collateral and applicable advance rates)).

		
	(h)
	Any Investment Collateral in excess of the thresholds set out in paragraph (b) and (c) above shall not be taken into account for the purpose of calculating the Collateral Cover pursuant to paragraph (a) of Clause 7.2 (Amount of Collateral Cover).

		
	7.2
	Amount of Collateral Cover

		
	(f)
	The Company shall maintain at all times from the date of this Agreement until the Expiry Date of the issued Letter of Credit, Eligible Collateral with a Collateral Amount of no less than the face value of the issued Letter of Credit.

		
	(g)
	The amount of Collateral Cover (the "Collateral Amount") provided at any time shall be the aggregate of the deemed values of all Eligible Collateral held in the Deposit Accounts and the Cash Accounts which shall be determined by applying the rates set out in column 2 of the table in Schedule 1 (Eligible Collateral and Applicable Advance Rates) and shall be expressed in US Dollars.

		
	7.3
	Collateral Amount update

		
	(e)
	For such time as the Company has provided Collateral Cover under this Agreement, the Bank shall re-calculate the Collateral Amount (based on such information as the Bank deems appropriate acting reasonably and in good faith (including, but not limited to, the most recent Borrowing Base Certificate)) in US Dollars on a monthly basis from the date on which the Collateral Cover is first provided.

		
	(f)
	If the Collateral Amount in US Dollars, as re-calculated by the Bank under paragraph (a) above, is less than the face value of the issued Letter of Credit (a "Collateral Shortfall"), the Bank shall notify the 

16

Company and the Company shall, within one Business Day, deposit an amount of cash or securities into the applicable account in accordance with this Clause 7 equal to such Collateral Shortfall. 

17

SECTION 4
PREPAYMENT AND CANCELLATION
		
	8.
	PREPAYMENT AND CANCELLATION

		
	8.1
	Illegality

If it becomes unlawful in any applicable jurisdiction for the Bank to perform any of its obligations as contemplated by this Agreement or to maintain or to allow to remain outstanding the Letter of Credit:
		
	(a)
	the Bank shall notify the Company and the Facility Amount will be immediately cancelled; and

		
	(b)
	if the Bank so requires, the Company shall procure that on such date as the Bank specifies to the Company which, if allowed by law, is on no less than three Business Days' notice, ensure that the liabilities of the Bank under or in respect of each outstanding Letter of Credit are reduced to zero or repaid in full.

		
	8.2
	Change of control

		
	(g)
	If AXIS Capital Holdings Limited ceases to own (directly or indirectly) the entire issued share capital of, and control, the Company and/or the Corporate Member:

		
	(i)
	the Company and/or the Corporate Member shall promptly notify the Bank upon becoming aware of that event; and

		
	(i)
	the Bank may, by not less than one Business Day's notice to the Company, cancel the Facility and declare the outstanding Letter of Credit, together with accrued interest, and all other amounts accrued under the Finance Documents due and payable, whereupon the Facility will be cancelled and the Company shall ensure that within 5 Business Days of the Bank's notice, its liabilities under or in respect of the Finance Documents are reduced to zero or otherwise secured by the provision of full cash Collateral Cover (either by realising the Investment Collateral on the Deposit Accounts or any other way).

		
	(h)
	For the purpose of paragraph (a) above "control" has the meaning given to it in section 450 of the CTA.

		
	8.3
	Voluntary cancellation

The Company may, if it gives the Bank not less than five Business Days' (or such shorter period as the Bank may agree) prior notice, cancel the whole or any part (being a minimum amount of US$5,000,000 or a higher integral multiple of US$1,000,000) of the Facility. 
		
	8.4
	Voluntary prepayment of Utilisations

The Company may, if it gives the Bank not less than five Business Days' (or such shorter period as the Bank may agree) prior notice, return the Letter of Credit for cancellation as a whole or in part (but, if in part, being an amount that reduces the amount of the Letter of Credit by a minimum of US$5,000,000 or a higher integral multiple of US$1,000,000). 
		
	8.5
	Restrictions

		
	(a)
	Any notice of cancellation or prepayment given by any Party under Clause 8 (Prepayment and cancellation) shall be irrevocable and, unless a contrary indication appears in this Agreement, shall 

18

specify the date or dates upon which the relevant cancellation or prepayment is to be made and the amount of that cancellation or prepayment.
		
	(b)
	Any prepayment under this Agreement shall be made without premium or penalty.

		
	(c)
	The Company shall not repay or prepay all or any part of the Utilisation or cancel all or any part of the Facility Amount except at the times and in the manner expressly provided for in this Agreement.

		
	(d)
	No amount of the Facility Amount cancelled under this Agreement may be subsequently reinstated.

		
	(e)
	If all or part of the Utilisation under the Facility is repaid or prepaid and is not available for redrawing, an amount of the Facility Amount (equal to the amount of such Utilisation which is repaid or prepaid) will be deemed to be cancelled on the date of repayment or prepayment.

		
	8.6
	No requirement to apply Eligible Collateral

The Bank shall not be obliged to apply any Eligible Collateral in settlement of any of the Company's obligations under Clauses 6.3 (Claims under the Letter of Credit), 8.1 (Illegality) and 8.2 (Change of control).

19

SECTION 5
COSTS OF UTILISATION
		
	9.
	DEFAULT INTEREST

		
	(i)
	Without prejudice to the provisions of Clause 6.3 (Claims under the Letter of Credit), if the Company fails to pay any amount payable by it under a Finance Document on its due date, interest shall accrue on the overdue amount on each day from the due date up to the date of actual payment (both before and after judgment), at a rate which is the sum of:

		
	(i)
	the L/C Fee Rate plus 1 per cent; and

		
	(ii)
	LIBOR.

Any interest accruing under this Clause 9 (Default Interest) shall be immediately payable by the Company on demand by the Bank.
		
	(j)
	Default interest (if unpaid) arising on an overdue amount will be compounded with the overdue amount at the end of each successive period of three months for which that overdue amount is outstanding but will remain immediately due and payable. 

		
	10.
	FEES

		
	10.1
	Arrangement Fee

The Company shall pay to the Bank an arrangement fee in US Dollars in an amount equal to zero point zero seventy five per cent. (0.075%) of the Facility Amount on the date of this Agreement. 
		
	10.2
	Commitment Fee

		
	(a)
	The Company shall pay to the Bank a commitment fee in US Dollars computed at the rate of zero point two per cent. (0.2%) per annum of the unutilised Facility Amount for the Availability Period. 

		
	(b)
	The accrued commitment fee is payable on the last day of each successive period of three Months which ends during the Availability Period, on the last day of the Availability Period and, if cancelled in full, on the cancelled amount of the Facility Amount at the time the cancellation is effective.

20

SECTION 6
ADDITIONAL PAYMENT OBLIGATIONS
		
	11.
	TAX GROSS UP AND INDEMNITIES 

		
	11.1
	Definitions

		
	(c)
	In this Agreement:

"Qualifying Bank" means a person which is beneficially entitled to interest payable to it in respect of an advance under the Letter of Credit and on any other payment made to it under this Agreement.
"Tax Credit" means a credit against, relief or remission for, or repayment of any Tax.
"Tax Deduction" means a deduction or withholding for or on account of Tax from a payment under a Finance Document.
"Tax Payment" means either the increase in a payment made by the Company to the Bank under Clause 11.2 (Tax gross-up) or a payment under Clause 11.3 (Tax indemnity).
		
	(d)
	Unless a contrary indication appears, in this Clause 11 a reference to "determines" or "determined" means a determination made in the absolute discretion of the person making the determination.

		
	11.2
	Tax gross-up

		
	(f)
	The Company shall make all payments to be made by it without any Tax Deduction, unless a Tax Deduction is required by law.

		
	(g)
	The Company shall promptly upon becoming aware that it must make a Tax Deduction (or that there is any change in the rate or the basis of a Tax Deduction) notify the Bank accordingly. Similarly, the Bank shall notify the Company on becoming so aware in respect of a payment payable to it. 

		
	(h)
	If a Tax Deduction is required by law to be made by the Company, the amount of the payment due from the Company shall be increased to an amount which (after making any Tax Deduction) leaves an amount equal to the payment which would have been due if no Tax Deduction had been required.

		
	(i)
	A payment shall not be increased under paragraph (c) above by reason of a Tax Deduction on account of Tax imposed by the United Kingdom, if on the date on which the payment falls due the payment could have been made to the Bank without a Tax Deduction if the Bank had been a Qualifying Bank, but on that date the Bank is not or has ceased to be a Qualifying Bank other than as a result of any change after the date it became the Bank under this Agreement in (or in the interpretation, administration or application of) any law or treaty or any published practice or published concession of any relevant taxing authority.

		
	(j)
	If the Company is required to make a Tax Deduction, the Company shall make that Tax Deduction and any payment required in connection with that Tax Deduction within the time allowed and in the minimum amount required by law.

		
	11.3
	Tax indemnity

		
	(a)
	If the Bank is or will be subject to any liability, or required to make any payment, for or on account of Tax in relation to a sum received or receivable (or any sum deemed for the purposes of Tax to be received or receivable) under a Finance Document, the Company shall (within three Business Days of demand 

21

by the Bank) pay to the Bank an amount equal to the loss, liability or cost which the Bank determines will be or has been (directly or indirectly) suffered for or on account of Tax by it in respect of a Finance Document.
		
	(b)
	Paragraph (a) above shall not apply:

		
	(ii)
	with respect to any Tax assessed on the Bank:

		
	(A)
	under the law of the jurisdiction in which the Bank is incorporated or, if different, the jurisdiction (or jurisdictions) in which the Bank is treated as resident for tax purposes; or

		
	(B)
	under the law of the jurisdiction in which the Bank's Facility Office is located in respect of amounts received or receivable in that jurisdiction,

if that Tax is imposed on or calculated by reference to the net income received or receivable (but not any sum deemed to be received or receivable) by the Bank; or
		
	(iii)
	to the extent a loss, liability or cost:

		
	(A)
	is compensated for by an increased payment under Clause 11.2 (Tax gross-up); or

		
	(B)
	would have been compensated for by an increased payment under Clause 11.2 (Tax gross-up) but was not so compensated solely because the exclusion in paragraph (d) of Clause 11.2 (Tax gross-up) applied.

		
	(c)
	If the Bank makes, or intends to make, a claim under paragraph (a) above, it shall promptly notify the Company of the event which will give, or has given, rise to the claim.

		
	11.4
	Tax Credit

If the Company makes a Tax Payment and the Bank determines that:
		
	(b)
	a Tax Credit is attributable either to an increased payment of which that Tax Payment forms part, or to that Tax Payment; and

		
	(c)
	the Bank has obtained, utilised and retained that Tax Credit,

the Bank shall pay an amount to the Company which the Bank determines will leave it (after that payment) in the same after-Tax position as it would have been in had the Tax Payment not been required to be made by the Company.
		
	11.5
	Stamp taxes

The Company shall pay and, within three Business Days of demand, indemnify the Bank against any cost, loss or liability the Bank incurs in relation to all stamp duty, registration and other similar Taxes payable in respect of any Finance Document.
		
	11.6
	VAT

		
	(a)
	All amounts set out or expressed in a Finance Document to be payable to the Bank which (in whole or in part) constitute the consideration for a supply or supplies for VAT purposes shall be deemed to be exclusive of any VAT which is chargeable on such supply or supplies, and accordingly, subject to paragraph (b) below, if VAT is or becomes chargeable on any supply made by the Bank to any Party under a Finance Document, that Party shall pay to the Bank (in addition to and at the same time as 

22

paying any other consideration for such supply) an amount equal to the amount of such VAT (and the Bank shall promptly provide an appropriate VAT invoice to such Party).
		
	(b)
	Where a Finance Document requires any Party to reimburse or indemnify the Bank for any cost or expense, that Party shall reimburse or indemnify (as the case may be) the Bank for the full amount of such cost or expense, including such part thereof as represents VAT, save to the extent that the Bank reasonably determines that it is entitled to credit or repayment in respect of such VAT from the relevant tax authority.

		
	(c)
	Any reference in this Clause 11.6 to any Party shall, at any time when such Party is treated as a member of a group for VAT purposes, include (where appropriate and unless the context otherwise requires) a reference to the representative member of such group at such time (the term "representative member" to have the same meaning as in the Value Added Tax Act 1994).

		
	12.
	INCREASED COSTS

		
	12.1
	Increased costs

		
	(k)
	Subject to paragraph (b) below and Clause 12.2 (Exceptions) the Company shall, within five Business Days of a demand by the Bank, pay for the account of the Bank the amount of any Increased Costs incurred by the Bank or any of its Affiliates as a result of (i) the introduction of or any change in (or in the interpretation, administration or application of) any law or regulation or (ii) compliance with any law or regulation made after the date of this Agreement or (iii) the implementation or application of or compliance with Basel III or CRD IV.

		
	(l)
	In this Agreement, "Increased Costs" means:

		
	(i)
	a reduction in the rate of return from the Facility or on the Bank's (or its Affiliate's) overall capital;

		
	(ii)
	an additional or increased cost; or

		
	(iii)
	a reduction of any amount due and payable under any Finance Document,

which is incurred or suffered by the Bank or any of its Affiliates to the extent that it is attributable to the Bank having entered into the Facility or performing its obligations under any Finance Document.
		
	12.2
	Exceptions

		
	(d)
	Clause 12.1 (Increased costs) does not apply to the extent any Increased Cost is:

		
	(i)
	attributable to a Tax Deduction required by law to be made by the Company;

		
	(ii)
	compensated for by Clause 11.3 (Tax indemnity) (or would have been compensated for under Clause 11.3 (Tax indemnity) but was not so compensated solely because any of the exclusions in paragraph (b) of Clause 11.3 (Tax indemnity) applied); or 

		
	(iii)
	attributable to the wilful breach by the Bank or its Affiliates of any law or regulation.

		
	(e)
	For the purpose of this Clause:

"Basel III" means:
		
	(i)
	the agreements on capital requirements, a leverage ratio and liquidity standards contained in "Basel III: A global regulatory framework for more resilient banks and banking systems", "Basel 

23

III: International framework for liquidity risk measurement, standards and monitoring" and "Guidance for national authorities operating the countercyclical capital buffer" published by the Basel Committee on Banking Supervision in December 2010, each as amended, supplemented or restated;
		
	(ii)
	the rules for global systemically important banks contained in "Global systemically important banks: assessment methodology and the additional loss absorbency requirement – Rules text" published by the Basel Committee on Banking Supervision in November 2011, as amended, supplemented or restated; and

		
	(iii)
	any further guidance or standards published by the Basel Committee on Banking Supervision relating to "Basel III".

"CRD IV" means:
		
	(i)
	Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms; and

		
	(ii)
	Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms.

		
	(f)
	In this Clause 12.2, a reference to a "Tax Deduction" has the same meaning given to the term in Clause 11.1 (Definitions).

		
	13.
	OTHER INDEMNITIES

		
	13.1
	Currency indemnity

		
	(g)
	If any sum due from the Company under the Finance Documents (a "Sum"), or any order, judgment or award given or made in relation to a Sum, has to be converted from the currency (the "First Currency") in which that Sum is payable into another currency (the "Second Currency") for the purpose of:

		
	(i)
	making or filing a claim or proof against the Company;

		
	(ii)
	obtaining or enforcing an order, judgment or award in relation to any litigation or arbitration proceedings,

the Company shall as an independent obligation, within five Business Days of demand, indemnify the Bank to whom that Sum is due against any cost, loss or liability arising out of or as a result of the conversion including any discrepancy between (A) the rate of exchange used to convert that Sum from the First Currency into the Second Currency and (B) the rate or rates of exchange available to that person at the time of its receipt of that Sum.
		
	(h)
	The Company waives any right it may have in any jurisdiction to pay any amount under the Finance Documents in a currency or currency unit other than that in which it is expressed to be payable.

		
	13.2
	Other indemnities

The Company shall within three Business Days of demand, indemnify the Bank against any cost, loss or liability incurred by the Bank as a result of: 

24

		
	(c)
	the occurrence of any Event of Default or investigating any event which it reasonably believes is a Default, provided that if those investigations do not disclose any Default of the kind giving rise to such investigations the cost of such investigations shall be at the sole expense of the Bank;

		
	(d)
	a failure by the Company to pay any amount due under a Finance Document on its due date;

		
	(e)
	issuing, or making arrangements to issue, the Letter of Credit requested by the Company in a Utilisation Request but not made by reason of the operation of any one or more of the provisions of this Agreement (other than by reason of default or negligence by the Bank); or

		
	(f)
	the Utilisation (or part of the Utilisation) not being prepaid in accordance with a notice of prepayment given by the Company.

		
	14.
	MITIGATION BY THE BANK

		
	14.1
	Mitigation

		
	(b)
	The Bank shall, in consultation with the Company, take all reasonable steps to mitigate any circumstances which arise and which would result in any amount becoming payable under or pursuant to, or cancelled pursuant to, any of Clause 8.1 (Illegality), Clause 11 (Tax gross-up and indemnities) or Clause 12 (Increased costs) including (but not limited to) transferring its rights and obligations under the Finance Documents to another Affiliate or Facility Office.

		
	(c)
	Paragraph (a) above does not in any way limit the obligations of the Company under the Finance Documents.

		
	(d)
	The Bank shall notify the Company as soon as reasonably practicable if it becomes aware that any circumstances of the kind described in paragraph (a) above have arisen.  

		
	14.2
	Limitation of liability

		
	(a)
	The Company shall within three Business Days indemnify the Bank for all costs and expenses reasonably incurred by the Bank as a result of steps taken by it under Clause 14.1 (Mitigation).

		
	(b)
	The Bank is not obliged to take any steps under Clause 14.1 (Mitigation) if, in the opinion of the Bank (acting reasonably), to do so might be prejudicial to it.

		
	15.
	COSTS AND EXPENSES

		
	15.1
	Transaction expenses

The Company shall promptly on demand pay the Bank the amount of all costs and expenses (including legal fees) reasonably incurred by it in connection with the negotiation, preparation, printing, registration and execution of:
		
	(d)
	this Agreement and any other documents referred to in this Agreement; and

		
	(e)
	any other Finance Documents executed after the date of this Agreement,

provided that the Company's liability under this Clause 15.1 shall be limited to any maximum amount or fee caps agreed in writing between the Company and the Bank.
		
	15.2
	Amendment costs

25

If the Company requests a waiver or consent, it shall, within five Business Days of presentation of an invoice, reimburse the Bank for the amount of all costs and expenses (including legal fees) reasonably incurred by it in connection with the negotiation, preparation, printing and execution of, and responding to, that request and related documentation.
		
	15.3
	Enforcement costs

The Company shall, within five Business Days of presentation of an invoice, pay to the Bank the amount of all costs and expenses (including legal fees) incurred by the Bank in connection with the enforcement of, or the preservation of any rights under, any Finance Document.
		
	15.4
	Security expenses

The Company shall promptly, and in any event within three Business Days of presentation of an invoice, pay the Bank the amount of all documented costs and expenses (including legal fees) reasonably incurred by the Bank in connection with the entry into, the administration or the release of any Security created pursuant to any Security Document.

26

SECTION 7
REPRESENTATIONS, UNDERTAKINGS AND EVENTS OF DEFAULT
		
	16.
	REPRESENTATIONS

The Company makes the representations and warranties set out in this Clause 16 to the Bank on the date of this Agreement.
		
	16.1
	Status

		
	(d)
	It is a corporation, duly incorporated and validly existing under the law of its jurisdiction of incorporation.

		
	(e)
	It and the Corporate Member has the power to own its assets and carry on its business as it is being conducted.

		
	16.2
	Binding obligations

Subject to the Legal Reservations the obligations expressed to be assumed by it in each Finance Document are legal, valid, binding and enforceable obligations.
		
	16.3
	Non-conflict with other obligations

The entry into and performance by it of, and the transactions contemplated by, the Finance Documents do not and will not conflict with:
		
	(a)
	any law or regulation applicable to it;

		
	(b)
	its or any of its Subsidiaries' constitutional documents; or

		
	(c)
	any agreement or instrument binding upon it or any of its assets which has or would be reasonably likely to have a Material Adverse Effect.

		
	16.4
	Power and authority

It has the power to enter into, perform and deliver, and has taken all necessary action to authorise (including any authorisation required by the applicable governmental, regulatory or supervisory authority)  its entry into, performance and delivery of, the Finance Documents to which it is a party and the transactions contemplated by those Finance Documents.
		
	16.5
	Title and compliance

		
	(a)
	Subject to the operation and effect of the terms of all Lloyd's Security and Trust Deeds pursuant to which its own assets are or may be deposited as third party FAL, the Company has good and marketable title to its property and assets and is the legal and beneficial owner of its property and assets.

		
	(b)
	It has complied in all material respects with all statutory and other requirements for the conduct of its business where failure to comply with such statutory and other requirements has or would be reasonably likely to have a Material Adverse Effect.

		
	16.6
	Validity and admissibility in evidence

All Authorisations required:
		
	(a)
	to enable it lawfully to enter into, exercise its rights and comply with its obligations in the Finance Documents to which it is a party; 

27

		
	(b)
	to make the Finance Documents to which it is a party admissible in evidence in its jurisdiction of incorporation; and

		
	(c)
	to enable it to create the Security to be created by it pursuant to any Security Document and to ensure that such Security has the priority and ranking it is expressed to have,

have been obtained or effected and are in full force and effect. 
		
	16.7
	Governing law and enforcement

		
	(a)
	The choice of English law as the governing law of the Finance Documents will be recognised and enforced in its jurisdiction of incorporation.

		
	(b)
	Any judgment obtained in England in relation to a Finance Document will be recognised and enforced in its jurisdiction of incorporation.

		
	16.8
	Deduction of Tax

It is not required to make any deduction for or on account of Tax from any payment it may make under any Finance Document to the Bank, provided that the Bank is a Qualifying Bank. 
		
	16.9
	No filing or stamp taxes

Under the law of its jurisdiction of incorporation it is not necessary that the Finance Documents be filed, recorded or enrolled with any court or other authority in that jurisdiction or that any stamp, registration or similar tax be paid on or in relation to the signing or initial delivery of the Finance Documents or (excluding any assignment or transfer undertaken pursuant to Clause 20 (Changes to the Bank)) the transactions contemplated by the Finance Documents.
		
	16.10
	Taxation

		
	(a)
	It is not overdue in the filing of any Tax returns (where applicable).

		
	(b)
	To the best of its knowledge and belief having made reasonable enquiry no claims are being or are reasonably likely to be asserted against it with respect to Taxes.

		
	16.11
	No default

		
	(a)
	No Event of Default is continuing or might reasonably be expected to result from the making of any Utilisation.

		
	(b)
	No other event or circumstance is outstanding which constitutes a default under any other agreement or instrument which is binding on it or to which its assets are subject which is reasonably likely to have a Material Adverse Effect.

		
	16.12
	No misleading information

		
	(a)
	All factual information provided by or on behalf of any member of the Group to the Bank in relation to the Finance Documents and the transactions contemplated thereby was true and accurate in all material respects as at the date it was provided or as at the date (if any) at which it is stated.

		
	(b)
	Nothing has occurred or been omitted from the factual information referred to in paragraph (a) above and no information has been given or withheld that results in that information being untrue or misleading in any material respect.

		
	16.13
	Financial statements

28

		
	(a)
	Its Original Financial Statements or, in the context of Repeating Representations, its latest financial statements delivered under Clause 17.1 (Financial statements), as applicable, were prepared in accordance with GAAP consistently applied. 

		
	(b)
	Its Original Financial Statements or, in the context of Repeating Representations, its latest financial statements delivered under Clause 17.1 (Financial statements), as applicable, fairly represent its business or financial condition (consolidated in the case of the Company) as at the end of and for the relevant financial year.

		
	(c)
	There has been no material adverse change in its business or financial condition since 30 September 2013.

		
	16.14
	Security and pari passu ranking

		
	(a)
	Subject to the Legal Reservations each Security Document creates (or, once entered into, will create) in favour of the Bank the Security which it is expressed to create with the ranking and priority it is expressed to have. 

		
	(b)
	Without limiting paragraph (a) above, its payment obligations under the Finance Documents rank at least pari passu with the claims of all its other unsecured and unsubordinated creditors, except for obligations mandatorily preferred by law applying to companies generally.

		
	16.15
	No proceedings pending or threatened

No litigation, arbitration or administrative proceedings of or before any court, arbitral body or agency which, are reasonably likely to be adversely determined and which, if adversely determined, might reasonably be expected to have a Material Adverse Effect have (to the best of its knowledge and belief) been started or threatened against it.
		
	16.16
	Solvency

No proceedings specified in Clause 19.8(a) (Insolvency proceedings) have been commenced or, so far as it is aware having made reasonable enquiry, threatened against it. 
		
	16.17
	Money Laundering

The performance of its obligations under this Agreement and under the other Finance Documents to which it is a party will be for its own account and will not involve any breach by it of any law or regulatory measure of the United Kingdom relating to money laundering as defined in Article 1 of the Directive 2005/60/EC of the European Parliament and of the Council of the European Communities or in any equivalent law or regulatory measure in that jurisdiction.
		
	16.18
	Security 

No Security or Quasi-Security exists over all or any of the assets of it or any other member of the Group, other than any Security created by it or a member of the Group in the ordinary course of its banking or investment arrangements under the customary terms of a bank or securities intermediary where it or such member maintains an account. 
		
	16.19
	Insurance License 

29

		
	(a)
	There is, in relation to itself and each of the Insurance Companies: 

		
	(i)
	no Insurance License that is the subject of a proceeding for suspension, revocation or limitation or any similar proceedings; 

		
	(ii)
	no sustainable basis for such a suspension, revocation or limitation; and 

		
	(iii)
	no such suspension, revocation or limitation threatened by any Applicable Insurance Regulatory Authority, 

that, in each case has, or is readily likely to have, a Material Adverse Effect.
		
	(b)
	As of the date of this Agreement, neither it nor any of the Insurance Companies transacts its insurance business, directly or indirectly, in any jurisdiction without all Insurance Licenses required by the Applicable Insurance Regulatory Authority in such jurisdiction, except where the failure to hold such Insurance Licenses has not had, and is not reasonably likely to have, a Material Adverse Effect.

		
	16.20
	Lines of Business 

There has been no change to the general nature of the business conducted by it since the date of the Agreement.
		
	16.21
	US Governmental Regulation

		
	(a)
	It is not a "public utility" within the meaning of, or subject to regulation under, the United States Federal Power Act of 1920 (16 USC §§791 et seq.).

		
	(b)
	It is not an "investment company" as defined in, or subject to regulation under, the United States Investment Company Act of 1940 (15 USC. §§ 80a-1 et seq.) or subject to regulation under any United States federal or state law or regulation that limits its ability to incur or guarantee indebtedness.

		
	(c)
	It will not use any part of the proceeds from the Utilisation, directly or indirectly, for payments to any government official or employee, political party, official of a political party, candidate for political office, official of any public international organization or anyone else acting in an official capacity, in order to obtain, retain or direct business or obtain any improper advantage, in violation of the United States Foreign Corrupt Practices Act of 1977 (15 USC. §§ 78dd-1 et seq.), assuming in all cases that such Act applies to it.

		
	16.22
	US Anti-Terrorism Laws 

It, and to the best of its knowledge, the Corporate Member:
		
	(i)
	has taken reasonable measures to ensure compliance with applicable Economic Sanctions Laws and Anti-Money Laundering Laws;

		
	(ii)
	is not a Designated Person; and

		
	(iii)
	will not use any part of the proceeds from any Utilisation on behalf of any Designated Person or otherwise use such proceeds in connection with any investment in, or any transactions or dealings with, any Designated Person if it could reasonably be expected to cause (i) the Bank to be in violation of any applicable Economic Sanctions Laws or Anti-Money Laundering Laws or (ii) any Collateral Cover to be subject to any freezing or other remedial action, or adversely 

30

affect the validity, legality or enforceability of the Collateral Cover, in each case under or as a result of any applicable Economic Sanctions Laws or Anti-Money Laundering Laws.
		
	16.23
	No Material Adverse Effect

Since 30 September 2013 there has been no event, development or circumstance that has resulted in, or would reasonably be expected to result in, a Material Adverse Effect.
		
	16.24
	Anti-corruption law

Each member of the Group has conducted its businesses in compliance with applicable anti-corruption laws and has instituted and maintained policies and procedures designed to promote and achieve compliance with such laws, as applicable.
		
	16.25
	Repetition

The Repeating Representations are deemed to be made by the Company by reference to the facts and circumstances then existing on:
		
	(a)
	the date of the Utilisation Request and the date on which the Letter of Credit is (or is to be) issued; and

		
	(b)
	1 January, 1 April, 1 July and 1 October of each year in which the Letter of Credit is outstanding. 

		
	17.
	INFORMATION UNDERTAKINGS 

The undertakings in this Clause 17 remain in force from the date of this Agreement for so long as any amount is outstanding under the Finance Documents or any Facility Amount is in effect.
		
	17.1
	Financial statements

The Company shall supply to the Bank:
		
	(d)
	as soon as the same become available, but in any event within 120 days after the end of each financial year, its financial statements for that financial year audited by an internationally recognised firm of independent auditors licensed to practice in the relevant jurisdiction; and

		
	(e)
	as soon as the same become available, but in any event within 60 days after the end of each financial quarter, its financial statement for that financial quarter.

		
	17.2
	Requirements as to financial statements

		
	(b)
	Each set of financial statements delivered by the Company pursuant to Clause 17.1 (Financial statements) shall be certified by the chief financial officer of the Company (without personal liability) as fairly representing its (or, as the case may be, its consolidated) financial condition as at the end of and for the period in relation to which those financial statements were drawn up.

		
	(c)
	The Company shall procure that each set of financial statements delivered pursuant to Clause 17.1 (Financial statements) is prepared using GAAP accounting practices and financial reference periods consistent with those applied in the preparation of the Original Financial Statements unless, in relation to any set of financial statements, it notifies the Bank that there has been a change in GAAP, the accounting practices or reference periods in which case the Company and the Bank shall for a minimum period of thirty days enter into negotiations in good faith with a view to agreeing (i) any amendments to this Agreement which are necessary as a result of the change or (ii) that such change will apply thereafter without need for such amendment. To the extent practicable any such amendments will be such as to 

31

ensure that the change does not result in any material alteration in the commercial effect of the obligations in this Agreement. If any amendments are agreed they shall take effect and be binding on each of the Parties in accordance with their terms and, in which case, or if it is agreed under this paragraph that no amendments are necessary, the changed GAAP shall apply for the purposes of this Agreement thereafter and in the absence of any such agreement the Company shall deliver to the Bank:
		
	(i)
	a description of any change necessary for those financial statements to reflect the GAAP, accounting practices and reference periods upon which the Original Financial Statements were prepared; and

		
	(ii)
	sufficient information, in form and substance as may be reasonably required by the Bank to be able to make an accurate comparison between the financial position indicated in those financial statements and the Original Financial Statements.

Any reference in this Agreement to those financial statements shall be construed as a reference to those financial statements as adjusted to reflect the basis upon which the Original Financial Statements were prepared.
		
	(d)
	If the Bank considers that the Company's financial position or prospects are deteriorating, it may appoint independent auditors to carry out an audit and inspection of the Company's financial affairs (and the Company shall provide all reasonable assistance in that regard) provided that in the absence of a Default or Event of Default, the audit and inspection shall be at the cost of the Bank.

		
	17.3
	Information: miscellaneous

The Company shall supply to the Bank:
		
	(a)
	all documents dispatched by the Company to its shareholders (or any class of them) or its creditors generally at the same time as they are dispatched;

		
	(b)
	promptly upon becoming aware of them, the details of any litigation, arbitration or administrative proceedings which are current, threatened or pending against any member of the Group, and which are reasonably likely to be adversely determined and which, if adversely determined are reasonably likely to have a Material Adverse Effect;

		
	(c)
	promptly, such further information regarding the financial condition, business and operations any member of the Group as the Bank may reasonably request;

		
	(d)
	within three days of being delivered to Lloyd's, the Franchise Performance Management Quarterly Report for the Syndicate for each quarter of each financial year; 

		
	(e)
	within five Business Days of receipt from Lloyd's, a copy of the annual solvency statement prepared by Lloyd's for the Syndicate for each financial year;

		
	(f)
	within five Business Days of being delivered to Lloyd's, a copy of the Syndicate Business Forecast of the Syndicate; 

		
	(g)
	within 10 days of each calendar month end, a Borrowing Base Certificate in respect of the Eligible Collateral that has been provided as Collateral Cover;

32

		
	(h)
	within 30 days of notification by Lloyd's thereof, a summary of any material change in the RDS definitions published by Lloyd's or reporting requirements published by Lloyd's; or

		
	(i)
	promptly such other periodic or exceptional financial reports that the Syndicate and/or the Company may be required to provide to Lloyd's or to any regulator or governmental authority.

		
	17.4
	Notification of default

		
	(c)
	The Company shall notify the Bank of any Default (and the steps, if any, being taken to remedy it) promptly upon becoming aware of its occurrence.

		
	(d)
	Promptly upon a request by the Bank, the Company shall supply to the Bank a certificate signed by its chief financial officer on its behalf certifying that no Default is continuing (or if a Default is continuing, specifying the Default and the steps, if any, being taken to remedy it.

		
	17.5
	"Know your customer" checks

If:
		
	(ii)
	the introduction of or any change in (or in the interpretation, administration or application of) any law or regulation made after the date of this Agreement;

		
	(iii)
	any change in the status of the Company after the date of this Agreement; or

		
	(iv)
	a proposed assignment or transfer by the Bank of any of its rights and obligations under this Agreement,

obliges the Bank (or, in the case of paragraph (iii) above, any prospective new Bank) to comply with "know your customer" or similar identification procedures in circumstances where the necessary information is not already available to it, the Company shall promptly upon the request of the Bank supply, or procure the supply of, such documentation and other evidence as is reasonably requested by the Bank (for itself or, in the case of the event described in paragraph (iii) above, on behalf of any prospective new Bank) in order for the Bank or, in the case of the event described in paragraph (iii) above, any prospective new Bank, to carry out and be satisfied it has complied with all necessary "know your customer" or other similar checks under all applicable laws and regulations pursuant to the transactions contemplated in the Finance Documents.
		
	18.
	GENERAL UNDERTAKINGS

The undertakings in this Clause 18 remain in force from the date of this Agreement for so long as any amount is outstanding under the Finance Documents or any Facility Amount is in effect.  
		
	18.1
	Authorisations

The Company shall promptly:
		
	(a)
	obtain, comply with and do all that is necessary to maintain in full force and effect; and

		
	(b)
	supply certified copies to the Bank of,

any Authorisation required under any law or regulation of its jurisdiction of incorporation to enable it to perform its obligations under the Finance Documents and to ensure the legality, validity, enforceability or admissibility in evidence in its jurisdiction of incorporation of any Finance Document.

33

		
	18.2
	Compliance with laws

The Company shall comply in all respects with all laws to which it may be subject, if failure so to comply has or would be reasonably likely to have a Material Adverse Effect.
		
	18.3
	Merger

The Company shall not enter into any amalgamation, demerger, merger or corporate reconstruction other than a solvent reorganisation where no Default is continuing.
		
	18.4
	Change of business

The Company shall procure that no substantial change is made to the general nature of the business of the Company or the Group taken as a whole from that carried on at the date of this Agreement.
		
	18.5
	Insurance

The Company shall not (and the Company shall ensure that each member of the Group) maintain insurances on and in relation to its business and assets with reputable underwriters or insurance companies against those risks, and to the extent, usually insured against by prudent companies located in the same or a similar location and carrying on a similar business.
		
	18.6
	Pari Passu

The Company shall ensure that its obligations under the Finance Documents rank at all times at least pari passu in right of priority and payment with the claims of all its other unsecured and unsubordinated creditors, except for obligations mandatorily preferred by law applying to companies generally.
		
	18.7
	Books, Records and Inspections

The Company shall:
		
	(c)
	keep (and will cause its Subsidiaries to keep) proper books of record and account in which full true and correct entries in conformity with GAAP, shall be made of all dealings and transactions in relation to its business and activities; and 

		
	(d)
	If an Event of Default is continuing or the Bank reasonably suspects an Event of Default is continuing and subject to any binding confidentiality obligation of the Company or its Subsidiaries owed to third parties and Clause 30.2 (Disclosure of Confidential Information), permit and (will cause each of its Subsidiaries to permit) representatives of the Bank to visit and inspect any of their respective properties, to examine their respective books and records and to discuss their respective affairs, finances and accounts with their respective officers, employees and independent public accountants, in each case at such reasonable times, upon reasonable notice as often as may reasonably be desired. The Company agrees to co-operate and assist with such visits.

		
	18.8
	Taxation

The Company shall (and the Company shall ensure that each member of the Group will) pay and discharge all taxes imposed upon it or its assets within the time period allowed without incurring penalties unless and only to the extent that:
		
	(i)
	such payment is being contested in good faith;

34

		
	(ii)
	adequate reserves are being maintained for those taxes and the costs required to contest them which have been disclosed in its latest financial statements delivered to the Bank under Clause 17.1 (Financial statements); and

		
	(iii)
	such payment can be lawfully withheld and failure to pay those taxes does not have or is not reasonably likely to have a Material Adverse Effect.

		
	18.9
	Transactions with Affiliates 

The Company shall not (and the Company shall ensure no member of the Group will) enter into any transaction with any Affiliate except on arm's length terms and for full market value.
		
	18.10
	Acquisitions and Investments

Except with the prior written consent of the Bank (such consent not to be unreasonably withheld or delayed), the Company shall not (and the Company shall ensure that no other member of the Group will) acquire a company or any shares or securities or a business or undertaking (or, in each case, any interest in any of them) provided that this prohibition shall not apply in respect of any acquisition where the higher of the market value or consideration payable for that acquisition (when aggregated with the higher of the market value or consideration payable for every other acquisition) does not since the date of this Agreement exceed fifteen per cent. of the total assets of the Group and the Company.
		
	18.11
	US Anti-Terrorism Laws  

		
	(d)
	The Company shall not engage in any transaction that violates any Economic Sanctions Law or Anti-Money Laundering Law applicable to the Company.

		
	(e)
	None of the funds or assets of the Company or its Subsidiaries that are used to repay the Facility Amount shall (i) constitute property of, or shall be beneficially owned by, any Designated Person, if it could reasonably be expected to cause the Bank to be in violation of any applicable Economic Sanctions Laws, or (ii) be the direct proceeds derived from any transactions that violate any applicable Economic Sanctions Law, and no Designated Person shall have any direct or indirect interest in the Company insofar as such interest would violate any Economic Sanctions Laws applicable to the Company.

		
	18.12
	Amendment to agreements

The Company will not amend, waive, modify or terminate any of its constituent documents in any manner that could reasonably be expected to have a Material Adverse Effect.
		
	19.
	EVENTS OF DEFAULT

Each of the events or circumstances set out in this Clause 19 is an Event of Default (save for Clause 19.14 (Acceleration)).
		
	19.1
	Non-payment

The Company does not pay on the due date any amount payable pursuant to a Finance Document at the place at and in the currency in which it is expressed to be payable unless:
		
	(j)
	its failure to pay is caused by:

		
	(i)
	administrative or technical error; or

		
	(ii)
	a Disruption Event; and

35

		
	(k)
	payment is made within 3 Business Days of its due date.

		
	19.2
	Financial covenants

Any requirement of Clause 17.1 (Financial statements) or Clause 17.2 (Requirements as to financial statements) is not satisfied. 
		
	19.3
	Collateral Cover

Any requirement of Clause 7 (Collateral Cover) is not satisfied.
		
	19.4
	Other obligations

		
	(c)
	The Company does not comply with any provision of the Finance Documents (other than those referred to in Clause 19.1 (Non-payment), Clause 19.2 (Financial covenants) and Clause 19.3 (Collateral Cover)).

		
	(d)
	No Event of Default under paragraph (a) above will occur if the failure to comply is capable of remedy and is remedied within 21 days of the earlier of: (i) the Bank giving notice to the Company and (ii) the Company becoming aware of the failure to comply. 

		
	19.5
	Misrepresentation

		
	(a)
	Any representation or statement made or deemed to be made by the Company in the Finance Documents or any other document delivered by or on behalf of the Company under or in connection with any Finance Document is or proves to have been incorrect or misleading in any material respect when made or deemed to be made.

		
	(b)
	No Event of Default under paragraph (a) will occur if the matter giving rise to the failure to comply is capable of remedy and is remedied within 21 Business Days of the earlier of (i) the Bank giving notice to the Company or (ii) the Company becoming aware of the failure to comply.

		
	19.6
	Cross default and cross collateralisation

		
	(b)
	Any Financial Indebtedness of the Company or any member of the Group is not paid when due nor within any originally applicable grace period.

		
	(c)
	Any Financial Indebtedness of the Company or any member of the Group is declared to be or otherwise becomes due and payable prior to its specified maturity as a result of an event of default (however described).

		
	(d)
	Any commitment for any Financial Indebtedness of any member of the Group is cancelled or suspended by a creditor of or any member of the Group as a result of an event of default (however described).

		
	(e)
	Any creditor of the Company or any member of the Group becomes entitled to declare any Financial Indebtedness of the Company or any member of the Group due and payable prior to its specified maturity as a result of an event of default (however described).

		
	(f)
	No Event of Default will occur under this Clause 19.6 if the aggregate amount of Financial Indebtedness or commitment for Financial Indebtedness falling within paragraphs (a) to (e) above is less than US$10,000,000 (or its equivalent in any other currency or currencies). 

		
	19.7
	Insolvency

		
	(c)
	The Company or any member of the Group is unable or admits inability to pay its debts as they fall due, suspends making payments on any of its debts or, by reason of actual or anticipated financial difficulties, 

36

commences negotiations with one or more classes of its creditors (other than the Bank) with a view to rescheduling any of its indebtedness.
		
	(d)
	The value of the assets of the Company or any member of the Group is less than its liabilities (taking into account contingent and prospective liabilities).

		
	(e)
	A moratorium is declared in respect of any indebtedness of the Company or any member of the Group.

		
	19.8
	Insolvency proceedings

Any corporate action or legal proceedings or other formal procedure or step is taken in relation to:
		
	(a)
	the suspension of payments, a moratorium of any indebtedness, winding-up, dissolution, administration or reorganisation (by way of voluntary arrangement, scheme of arrangement or otherwise) of the Company or any member of the Group other than a solvent liquidation or reorganisation of any member of the Group which is not the Company;

		
	(b)
	a composition, compromise, assignment or arrangement with any class of creditors of the Company or any member of the Group;

		
	(c)
	the appointment of a liquidator (other than in respect of a solvent liquidation of any member of the Group which is not the Company), receiver, administrative receiver, administrator, compulsory manager or other similar officer in respect of the Company or member of the Group or any its assets; or

		
	(d)
	enforcement of any Security over any assets of the Company or any member of the Group,

or any analogous procedure or step is taken in any jurisdiction.
This Clause 19.8 shall not apply to any winding-up petition which is frivolous or vexatious and is discharged, stayed or dismissed within 21 days of commencement.
		
	19.9
	Unlawfulness

It is or becomes unlawful for the Company to perform any of its obligations under the Finance Documents.
		
	19.10
	Repudiation

The Company repudiates a Finance Document or evidences an intention to repudiate a Finance Document. 
		
	19.11
	Security

Subject to the Legal Reservations any Security Document is not in full force and effect or does not create in favour of the Bank the Security which it is expressed to create with the ranking and priority it is expressed to have.
		
	19.12
	Failure to comply with final judgment

The Company fails to comply with the final, non-appealable judgment by a court of competent jurisdiction, where such failure could reasonably be expected to have a Material Adverse Effect. 
		
	19.13
	Material adverse change

Any event or circumstance occurs which the Bank reasonably believes has or is reasonably likely to have a Material Adverse Effect. 
		
	19.14
	US Insolvency Proceedings

37

		
	(a)
	An involuntary proceeding shall be commenced or an involuntary petition shall be filed in a court of competent jurisdiction in the United States seeking:

		
	(i)
	relief in respect of the Company, or of a substantial part of the property or assets of the Company, under US Bankruptcy Law;

		
	(ii)
	the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Company or for a substantial part of the property or assets of the Company; or

		
	(iii)
	the winding-up or liquidation of the Company, 

and, in any such case, such proceeding or petition shall continue undismissed for 60 days or an order or decree approving or ordering any of the foregoing shall be entered. 
		
	(b)
	The Company shall:

		
	(i)
	voluntarily commence any proceeding or file any petition seeking relief under US Bankruptcy Law;

		
	(ii)
	consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or the filing of any petition described in clause (a) above;

		
	(iii)
	apply for or consent to the appointment, pursuant to the laws of the United States or any state thereof, of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Company or for a substantial part of the property or assets of the Company;

		
	(iv)
	file an answer admitting the material allegations of a petition filed against it in any such proceeding; or

		
	(v)
	take any action for the purpose of effecting any of the foregoing.

		
	19.15
	Acceleration

		
	(a)
	On and at any time after the occurrence of an Event of Default, other than an Event of Default referred to in clause (b) below, which is continuing, the Bank may, by notice to the Company:

		
	(vi)
	cancel the Facility Amount whereupon it shall immediately be cancelled; 

		
	(vii)
	declare that all or part of the Utilisations, together with all fees and other amounts accrued or outstanding under the Finance Documents be immediately due and payable, whereupon they shall become immediately due and payable;

		
	(viii)
	declare that all or part of the Utilisations be payable on demand, whereupon they shall immediately become payable on demand by the Bank.

		
	(ix)
	enforce the Security created pursuant to the Security Documents; and/or

		
	(x)
	without prejudice to paragraph (iv) above, use any of the Eligible Collateral standing to the credit of any Cash Account and/or Deposit Account and apply the same in or towards the discharge of all sums due by the Company under the Finance Documents.

		
	(b)
	If an Event of Default occurs under Clause 19.14 (US Insolvency Proceedings):

		
	(iv)
	the Facility Amount shall immediately be cancelled; and 

38

		
	(v)
	all of the Utilisations, together with accrued interest and all other amounts accrued under the Finance Documents, shall be immediately due and payable; 

in each case automatically and without any direction, notice, declaration or other act.
This Clause 19.15 is without prejudice to any other rights that the Bank may have at any time (including, but not limited to, under paragraph (b) of Clause 5.7 (Cancellation of Facility)).

39

SECTION 8
CHANGES TO PARTIES
		
	20.
	CHANGES TO THE BANK

		
	20.1
	Assignments and transfers by the Bank

Subject to this Clause 20, the Bank (the "Existing Bank") may:
		
	(a)
	assign any of its rights; or

		
	(b)
	transfer by novation any of its rights and obligations,

to: 
		
	(i)
	another bank or financial institution; or

		
	(ii)
	a trust, fund or other entity which is regularly engaged in or established for the purpose of making, purchasing or investing in loans, securities or other financial assets, 

in each case, which is an entity approved by Lloyd's for the purpose of issuing letters of credit which are eligible to form part of FAL (the "New Bank").
		
	20.2
	Conditions of assignment or transfer

		
	(b)
	The consent of Lloyd's and the Company's is required for an assignment or transfer by the Existing Bank, provided that the consent of the Company is not required if (i) the assignment or transfer is to an Affiliate of the Existing Bank that is a Qualifying Bank or (ii) the assignment or transfer is made at a time when an Event of Default is continuing.

		
	(c)
	The consent of the Company to an assignment or transfer must not be unreasonably withheld or delayed. The Company will be deemed to have given its consent five Business Days after the Existing Bank has requested it unless consent is expressly refused by the Company within that time.

		
	(d)
	If:

		
	(ii)
	the Bank assigns or transfers any of its rights or obligations under the Finance Documents or changes its Facility Office; and

		
	(iii)
	as a result of circumstances existing at the date the assignment, transfer or change occurs, the Company would be obliged to make a payment to the New Bank or Bank acting through its new Facility Office under Clause 11 (Tax gross-up and indemnities) or Clause 12 (Increased Costs),

then the New Bank or the Bank acting through its new Facility Office is only entitled to receive payment under those Clauses to the same extent as the Existing Bank or the Bank acting through its previous Facility Office would have been if the assignment, transfer or change had not occurred.
		
	20.3
	Security over Bank's rights

In addition to the other rights provided to the Bank under Clause 20, the Bank may without consulting with or obtaining consent from the Company, at any time charge, assign or otherwise create Security in or over (whether by way of collateral or otherwise) all or any of its rights under any Finance Document to secure obligations of the Bank including, without limitation:

40

		
	(a)
	any charge, assignment or other Security to secure obligations to a federal reserve or central bank; and

		
	(b)
	any charge, assignment or other Security granted to any holders (or trustee or representatives of holders) of obligations owed, or securities issued, by the Bank as security for those obligations or securities,

except that no such charge, assignment or Security shall:
		
	(i)
	release the Bank from any of its obligations under the Finance Documents or substitute the beneficiary of the relevant charge, assignment or Security for the Bank as a party to any of the Finance Documents; or

		
	(ii)
	require any payments to be made by the Company other than or in excess of, or grant to any person any more extensive rights than, those required to be made or granted to the Bank under the Finance Documents.

41

SECTION 9
THE PARTIES
		
	21.
	STATUS OF THE PARTIES

		
	21.1
	Approved Credit Institution

		
	(e)
	If the Bank ceases to be approved by Lloyd's for the purposes of issuing letters of credit comprising FAL, the Company may, at its discretion, procure the substitution and release of the Letter of Credit and their return to the Bank.

		
	(f)
	The Bank undertakes to do or to procure all such acts and things and to sign, execute and deliver or procure the signing, execution and delivery of all such instruments and documents at the Company may reasonably require for the purpose of effecting the substitution referred to in paragraph (a) above including the prompt release of the Security Documents provided always that such release shall only take place after the release of the Letter of Credit issued by the Bank and its return to the Bank.

		
	22.
	CONDUCT OF BUSINESS BY THE BANK

No provision of this Agreement will:
		
	(c)
	interfere with the right of the Bank to arrange its affairs (tax or otherwise) in whatever manner it thinks fit;

		
	(d)
	oblige the Bank to investigate or claim any credit, relief, remission or repayment available to it or the extent, order and manner of any claim; or

		
	(e)
	oblige the Bank to disclose any information relating to its affairs (tax or otherwise) or any computations in respect of Tax.

42

SECTION 10
ADMINISTRATION
		
	23.
	PAYMENT MECHANICS

		
	23.1
	Payments to the Bank

		
	(c)
	On each date on which the Company is required to make a payment under a Finance Document, the Company shall make the same available to the Bank for value on the due date at the time and in such funds specified by the Bank as being customary at the time for settlement of transactions in the relevant currency in the place of payment.

		
	(d)
	Payment shall be made to such account in the principal financial centre of the country of that currency with such bank as the Bank may notify to the Company by not less than five Business Days' notice.

		
	23.2
	Payments by the Bank

		
	(g)
	On each date on which the Bank is required to make a payment under a Finance Document, the Bank shall make the same available to the Company for value on the due date at the time and in such funds specified by the Bank as being customary at the time for settlement of transactions in the relevant currency in the place of payment.

		
	(h)
	Payment shall be made to such account in the principal financial centre of the country of that currency with such bank as the Company may notify to the Bank in the relevant Utilisation Request.

		
	23.3
	Distributions to the Company

The Bank may (with the consent of the Company or in accordance with Clause 24 (Set-off)) apply any amount received by it for the Company in or towards payment (on the date and in the currency and funds of receipt) of any amount due from the Company under the Finance Documents or in or towards purchase of any amount of any currency to be so applied.
		
	23.4
	Partial payments

		
	(c)
	If the Bank receives a payment that is insufficient to discharge all the amounts then due and payable by the Company under the Finance Documents, the Bank shall apply that payment towards the obligations of the Company under the Finance Documents in any order selected by the Bank

		
	(d)
	Paragraph (a) above will override any appropriation made by the Company.

		
	23.5
	No set-off the Company

All payments to be made by the Company under the Finance Documents shall be calculated and be made without (and free and clear of any deduction for) set-off or counterclaim.
		
	23.6
	Business Days

Any payment which is due to be made on a day that is not a Business Day shall be made on the next Business Day in the same calendar month (if there is one) or the preceding Business Day (if there is not).
		
	23.7
	Currency of account

		
	(c)
	Subject to paragraphs (b) and (c) below, US Dollars is the currency of account and payment for any sum due from the Company under any Finance Document.

43

		
	(d)
	Each payment in respect of costs, expenses or Taxes shall be made in the currency in which the costs, expenses or Taxes are incurred.

		
	(e)
	Any amount expressed to be payable in a currency other than US Dollars shall be paid in that other currency.

		
	23.8
	Change of currency

		
	(a)
	Unless otherwise prohibited by law, if more than one currency or currency unit are at the same time recognised by the central bank of any country as the lawful currency of that country, then:

		
	(i)
	any reference in the Finance Documents to, and any obligations arising under the Finance Documents in, the currency of that country shall be translated into, or paid in, the currency or currency unit of that country designated by the Bank (after consultation with the Company); and

		
	(ii)
	any translation from one currency or currency unit to another shall be at the official rate of exchange recognised by the central bank for the conversion of that currency or currency unit into the other, rounded up or down by the Bank (acting reasonably).

		
	(b)
	If a change in any currency of a country occurs, this Agreement will, to the extent the Bank (acting reasonably and after consultation with the Company) specifies to be necessary, be amended to comply with any generally accepted conventions and market practice in the relevant interbank market and otherwise to reflect the change in currency.

		
	23.9
	Disruption to Payment Systems etc.

If either the Bank determines (in its discretion) that a Disruption Event has occurred or the Bank is notified by the Company that a Disruption Event has occurred:
		
	(a)
	the Bank may, and shall if requested to do so by the Company, consult with the Company with a view to agreeing with the Company such changes to the operation or administration of the Facility as the Bank may deem necessary in the circumstances;

		
	(b)
	the Bank shall not be obliged to consult with the Company in relation to any changes mentioned in paragraph (a) if, in its opinion, it is not practicable to do so in the circumstances and, in any event, shall have no obligation to agree to such changes;

		
	(c)
	any such changes agreed upon by the Bank and the Company shall (whether or not it is finally determined that a Disruption Event has occurred) be binding upon the Parties as an amendment to (or, as the case may be, waiver of) the terms of the Finance Documents notwithstanding the provisions of Clause 29 (Amendments and Waivers); and

		
	(d)
	the Bank shall not be liable for any damages, costs or losses whatsoever (including, without limitation for negligence, gross negligence, or any other category of liability whatsoever but not including any claim based on the fraud of the Bank) arising as a result of its taking, or failing to take, any actions pursuant to or in connection with this Clause 23.9. 

		
	24.
	SET-OFF

44

The Bank may set off any matured obligation due from the Company under the Finance Documents (to the extent beneficially owned by the Bank) against any matured obligation owed by the Bank to the Company, regardless of the place of payment, booking branch or currency of either obligation. If the obligations are in different currencies, the Bank may convert either obligation at a market rate of exchange in its usual course of business for the purpose of the set-off.
		
	25.
	NOTICES

		
	25.1
	Communications in writing

Any communication to be made under or in connection with the Finance Documents shall be made in writing and, unless otherwise stated, may be made by fax or letter.
		
	25.2
	Addresses

The address and fax number (and the department or officer, if any, for whose attention the communication is to be made) of each Party for any communication or document to be made or delivered under or in connection with the Finance Documents is:
		
	(a)
	in the case of the Company, that identified with its name below; and

		
	(b)
	in the case of the Bank, that identified with its name below,

or any substitute address, fax number or department or officer as the Parties may notify to the other Party by not less than five Business Days' notice.
		
	25.3
	Delivery

		
	(c)
	Any communication or document made or delivered by one person to another under or in connection with the Finance Documents will only be effective:

		
	(ii)
	if by way of fax, when received in legible form; or

		
	(iii)
	if by way of letter, when it has been left at the relevant address or three Business Days after being deposited in the post postage prepaid in an envelope addressed to it at that address,

and, if a particular department or officer is specified as part of its address details provided under Clause 25.2 (Addresses), if addressed to that department or officer.
		
	(d)
	Any communication or document to be made or delivered to the Bank will be effective only when actually received by the Bank during its normal business hours and then only if it is expressly marked for the attention of the department or officer identified with the Bank's signature below (or any substitute department or officer as the Bank shall specify for this purpose).

		
	(e)
	Any communication or document made or delivered to the Company in accordance with this Clause will be deemed to have been made or delivered to the Company.

		
	(f)
	Any communication or document which becomes effective, in accordance with paragraphs (a) to (c) above, after 5.00 p.m. in the place of receipt shall be deemed only to become effective on the following day.

		
	25.4
	Electronic communication

		
	(f)
	Any communication to be made between any two Parties under or in connection with the Finance Documents may be made by electronic mail or other electronic means to the extent that those two 

45

Parties agree that, unless and until notified to the contrary, this is to be an accepted form of communication and if those two Parties:
		
	(xi)
	notify each other in writing of their electronic mail address and/or any other information required to enable the sending and receipt of information by that means; and

		
	(xii)
	notify each other of any change to their address or any other such information supplied by them by not less than five Business Days' notice.

		
	(g)
	Any electronic communication made between those two Parties will be effective only when actually received in readable form and in the case of any electronic communication made by a Party to the Lender only if it is addressed in such a manner as the Lender shall specify for this purpose.

		
	(h)
	Any electronic communication which becomes effective, in accordance with paragraph (b) above, after 5.00 p.m. in the place of receipt shall be deemed only to become effective on the following day.

		
	25.5
	English language

		
	(f)
	Any notice given under or in connection with any Finance Document must be in English.

		
	(g)
	All other documents provided under or in connection with any Finance Document must be:

		
	(i)
	in English; or

		
	(ii)
	if not in English, and if so required by the Bank, accompanied by a certified English translation and, in this case, the English translation will prevail unless the document is a constitutional, statutory or other official document.

		
	26.
	CALCULATIONS AND CERTIFICATES

		
	26.1
	Accounts

In any litigation or arbitration proceedings arising out of or in connection with a Finance Document, the entries made in the accounts maintained by the Bank are prima facie evidence of the matters to which they relate.
		
	26.2
	Certificates and determinations

Any certification or determination by the Bank of a rate or amount under any Finance Document is, in the absence of manifest error, conclusive evidence of the matters to which it relates.
		
	26.3
	Day count convention

Any interest, commission or fee accruing under a Finance Document will accrue from day to day and is calculated on the basis of the actual number of days elapsed and a year of 360 days or, in any case where the practice in the relevant interbank market differs, in accordance with that market practice.
		
	27.
	PARTIAL INVALIDITY

If, at any time, any provision of the Finance Documents is or becomes illegal, invalid or unenforceable in any respect under any law of any jurisdiction, neither the legality, validity or enforceability of the remaining provisions nor the legality, validity or enforceability of such provision under the law of any other jurisdiction will in any way be affected or impaired.
		
	28.
	REMEDIES AND WAIVERS

46

No failure to exercise, nor any delay in exercising, on the part of the Bank, any right or remedy under the Finance Documents shall operate as a waiver, nor shall any single or partial exercise of any right or remedy prevent any further or other exercise or the exercise of any other right or remedy. The rights and remedies provided in this Agreement are cumulative and not exclusive of any rights or remedies provided by law.
		
	29.
	AMENDMENTS AND WAIVERS

Any term of the Finance Documents may be amended or waived only with the consent of the Bank and the Company and any such amendment or waiver will be binding on all Parties.
		
	30.
	CONFIDENTIALITY

		
	30.1
	Confidential Information

The Bank agrees to keep all Confidential Information confidential and not to disclose it to anyone, save to the extent permitted by Clause 30.2 (Disclosure of Confidential Information), and to ensure that all Confidential Information is protected with security measures and a degree of care that would apply to its own confidential information.
		
	30.2
	Disclosure of Confidential Information

The Bank may disclose:
		
	(e)
	to any of its Affiliates and any of its or their officers, directors, employees, professional advisers, auditors, partners and Representatives such Confidential Information as the Bank shall consider appropriate if any person to whom the Confidential Information is to be given pursuant to this paragraph (a) is informed in writing of its confidential nature and that some or all of such Confidential Information may be price-sensitive information except that there shall be no such requirement to so inform if the recipient is subject to professional obligations to maintain the confidentiality of the information or is otherwise bound by requirements of confidentiality in relation to the Confidential Information;

		
	(f)
	to any person:

		
	(i)
	to (or through) whom it assigns or transfers (or may potentially assign or transfer) all or any of its rights and/or obligations under one or more Finance Documents and to any of that person's Affiliates, Representatives and professional advisers;

		
	(ii)
	with (or through) whom it enters into (or may potentially enter into), whether directly or indirectly, any sub-participation in relation to, or any other transaction under which payments are to be made or may be made by reference to, one or more Finance Documents and/or the Company and to any of that person's Affiliates, Representatives and professional advisers;

		
	(iii)
	appointed by the Bank or by a person to whom paragraph (b)(i) or (ii) above applies to receive communications, notices, information or documents delivered pursuant to the Finance Documents on its behalf;

		
	(iv)
	who invests in or otherwise finances (or may potentially invest in or otherwise finance), directly or indirectly, any transaction referred to in paragraph (b)(i) or (b)(ii) above;

47

		
	(v)
	to whom information is required or requested to be disclosed by any court of competent jurisdiction or any governmental, banking, taxation or other regulatory authority or similar body, the rules of any relevant stock exchange or pursuant to any applicable law or regulation;

		
	(vi)
	to whom or for whose benefit the Bank charges, assigns or otherwise creates Security (or may do so) pursuant to Clause 20.3 (Security over Bank's rights);

		
	(vii)
	who invests (or may potentially invest) in a securitisation (or similar transaction of broadly equivalent effect) of the Bank's rights or obligations under the Finance Documents;

		
	(viii)
	to whom and to the extent that information is required to be disclosed in connection with, and for the purposes of, any litigation, arbitration, administrative or other investigations, proceedings or disputes concerning the Finance Documents;

		
	(ix)
	who is a Party; or

		
	(x)
	with the consent of the Company;

in each case, such Confidential Information as the Bank shall consider appropriate if:
		
	(A)
	in relation to paragraphs (b)(i), (b)(ii) and b(iii) above, the person to whom the Confidential Information is to be given has entered into a Confidentiality Undertaking except that there shall be no requirement for a Confidentiality Undertaking if the recipient is a professional adviser and is subject to professional obligations to maintain the confidentiality of the Confidential Information;

		
	(B)
	in relation to paragraph (b)(iv) above, the person to whom the Confidential Information is to be given has entered into a Confidentiality Undertaking or is otherwise bound by requirements of confidentiality in relation to the Confidential Information they receive and is informed that some or all of such Confidential Information may be price-sensitive information;

		
	(C)
	in relation to paragraphs (b)(v), (b)(vi), (b)(vii) and (b)(viii) above, the person to whom the Confidential Information is to be given is informed of its confidential nature and that some or all of such Confidential Information may be price-sensitive information except that there shall be no requirement to so inform if, in the opinion of the Bank, it is not practicable so to do in the circumstances;

		
	(g)
	to any person appointed by the Bank or by a person to whom paragraph (b)(i) or (b)(ii) above applies to provide administration or settlement services in respect of one or more of the Finance Documents including without limitation, in relation to the trading of participations in respect of the Finance Documents, such Confidential Information as may be required to be disclosed to enable such service provider to provide any of the services referred to in this paragraph (c) if the service provider to whom the Confidential Information is to be given has entered into a confidentiality agreement substantially in the form of the LMA Master Confidentiality Undertaking 

48

for Use With Administration/Settlement Service Providers or such other form of confidentiality undertaking agreed between the Company and the Bank;
		
	(h)
	to any rating agency (including its professional advisers) such Confidential Information as may be required to be disclosed to enable such rating agency to carry out its normal rating activities in relation to the Finance Documents and/or the Company.

		
	30.3
	Disclosure to numbering service providers

		
	(c)
	The Bank may disclose to any national or international numbering service provider appointed by the Bank to provide identification numbering services in respect of this Agreement, the Facility and/or the Company the following information:

		
	(vi)
	name of the Company;

		
	(vii)
	country of domicile the Company;

		
	(viii)
	place of incorporation the Company;

		
	(ix)
	date of this Agreement;

		
	(x)
	date of each amendment and restatement of this Agreement;

		
	(xi)
	Facility Amount;

		
	(xii)
	currencies of the Facility;

		
	(xiii)
	type of Facility;

		
	(xiv)
	ranking of Facility;

		
	(xv)
	Termination Date for Facility; 

		
	(xvi)
	changes to any of the information previously supplied pursuant to paragraphs (i) to (x) above; and

		
	(xvii)
	such other information agreed between the Bank and the Company,

to enable such numbering service provider to provide its usual syndicated loan numbering identification services.
		
	(d)
	The Parties acknowledge and agree that each identification number assigned to this Agreement, the Facility and/or the Company by a numbering service provider and the information associated with each such number may be disclosed to users of its services in accordance with the standard terms and conditions of that numbering service provider.

		
	(e)
	The Company represents that none of the information set out in paragraphs (i) to (xii) of paragraph (a) above is, nor will at any time be, unpublished price-sensitive information.

		
	30.4
	Entire agreement

Clause 30 (Confidentiality) constitutes the entire agreement between the Parties in relation to the obligations of the Bank under the Finance Documents regarding Confidential Information and supersedes any previous agreement, whether express or implied, regarding Confidential Information.
		
	30.5
	Inside information

49

The Bank acknowledges that some or all of the Confidential Information is or may be price-sensitive information and that the use of such information may be regulated or prohibited by applicable legislation including securities law relating to insider dealing and market abuse and the Bank undertakes not to use any Confidential Information for any unlawful purpose.
		
	30.6
	Notification of disclosure

The Bank agrees (to the extent permitted by law and regulation) to inform the Company:
		
	(a)
	of the circumstances of any disclosure of Confidential Information made pursuant to paragraph (b)(v) of Clause 30.2 (Disclosure of Confidential Information) except where such disclosure is made to any of the persons referred to in that paragraph during the ordinary course of its supervisory or regulatory function; and

		
	(b)
	upon becoming aware that Confidential Information has been disclosed in breach of Clause 30 (Confidentiality).

		
	30.7
	Continuing obligations

The obligations in Clause 30 (Confidentiality) are continuing and, in particular, shall survive and remain binding on the Bank for a period of twelve months from the earlier of:
		
	(a)
	in advance if practicable and, if not, promptly thereafter, the date on which all amounts payable by the Company under or in connection with this Agreement have been paid in full and the Facility has been cancelled or otherwise cease to be available; and 

		
	(b)
	the date on which the Bank otherwise ceases to be a party to this Agreement.

		
	31.
	COUNTERPARTS

Each Finance Document may be executed in any number of counterparts, and this has the same effect as if the signatures on the counterparts were on a single copy of the Finance Document.

50

SECTION 11
GOVERNING LAW AND ENFORCEMENT
		
	32.
	GOVERNING LAW

This Agreement and any non-contractual obligations arising out of or in connection with it are governed by English law.
		
	33.
	ENFORCEMENT

		
	33.1
	Jurisdiction

		
	(c)
	The courts of England have exclusive jurisdiction to settle any dispute arising out of or in connection with this Agreement (including a dispute relating to the existence, validity or termination of this Agreement or any non-contractual obligation arising out of or in connection with this Agreement) (a "Dispute").

		
	(d)
	The Parties agree that the courts of England are the most appropriate and convenient courts to settle Disputes and accordingly no Party will argue to the contrary.

		
	(e)
	This Clause 33.1 is for the benefit of the Bank only. As a result, the Bank shall not be prevented from taking proceedings relating to a Dispute in any other courts with jurisdiction. To the extent allowed by law, the Bank may take concurrent proceedings in any number of jurisdictions.

		
	33.2
	Service of process

Without prejudice to any other mode of service allowed under any relevant law, the Company:
		
	(c)
	irrevocably appoints Sarah Hills, AXIS, 4th Floor, Plantation Place South, 60 Great Tower Street, London, England, EC4R 5AZ, as its agent for service of process in relation to any proceedings before the English courts in connection with any Finance Document; and

		
	(d)
	agrees that failure by a process agent to notify the Company of the process will not invalidate the proceedings concerned.

This Agreement has been entered into on the date stated at the beginning of this Agreement.

51

Schedule 1 
ELIGIBLE COLLATERAL AND APPLICABLE ADVANCE RATES
	
		
	Collateral Description
	Advance Rate

	Cash held with the Custodian.
	95%

	US Dollar Time Deposits, CDs and Money Market Deposits of any OECD
incorporated bank with a rating of at least (i) AA- from S&P and (ii) Aa3
from Moody's and maturing within two years from the date of determination.
	

95%

	US Government Securities issued or directly and fully guaranteed or insured
by the United States Government or any agency or instrumentality thereof
(provided that the full faith and credit of the United States is pledged in
support thereof) with maturities of:
•    less than five years from the date of determination
•    more than five years from the date of determination
	

90% 
87.5%

	US Government Sponsored Enterprises: Federally chartered US-domiciled
corporations which carry the implicit (rather than explicit) support of the US
Government and which do not, therefore, meet the "full faith and credit"
requirement to qualify as US Government securities (for example Federal
National Mortgage Association and Federal Home Loan Mortgage
Corporation). 
	

85%

	OECD Government and/or Supranational Bonds rated at least AA+ by S&P
and A1 from Moody's, and maturing within five years from the date of
determination.
	

85%

	Investment Grade Municipal Bonds rated at least (i) A from S&P and (ii) A2
from Moody's, and maturing within five years from the date of determination.
	

85%

	Investment Grade Non-Convertible Corporate Bonds which are publicly
traded on a nationally recognised exchange, eligible to be settled by the
Depository Trust Company and rated at least A- from S&P and A3 from
Moody's. The weighted average credit rating of the corporate bonds pledged
as collateral is at all times to be no lower than A.
	

70%

SCHEDULE 2     
CONDITIONS PRECEDENT TO INITIAL UTILISATION
		
	1.
	The Company

		
	(a)
	A copy of the constitutional documents of the Company.

		
	(b)
	A copy of a resolution of the board of directors of the Company:

		
	(i)
	approving the terms of, and the transactions contemplated by, the Finance Documents to which it is a party and resolving that it execute the Finance Documents to which it is a party;

52

		
	(ii)
	authorising a specified person or persons to execute the Finance Documents to which it is a party on its behalf; and

		
	(iii)
	authorising a specified person or persons, on its behalf, to sign and/or despatch all documents and notices (including, if relevant, any Utilisation Request) to be signed and/or despatched by it under or in connection with the Finance Documents to which it is a party.

		
	(c)
	A specimen of the signature of each person authorised by the resolution referred to in paragraph (b) above.

		
	(d)
	A certificate of the Company (signed by a director) dated no earlier than the date of this Agreement confirming that borrowing or guaranteeing, as appropriate, the Facility Amount would not cause any borrowing, guaranteeing or similar limit binding on the Company to be exceeded; confirming that the representations and warranties set out in Clause 16 (Representations) are true and accurate in all material respects and that no material adverse change in its business or financial condition (or the business or consolidated financial condition of the Group) has occurred since 30 September 2013. 

		
	(e)
	A certificate of an authorised signatory of the Company certifying that each copy document relating to it specified in this Schedule 2 is correct, complete and in full force and effect as at a date no earlier than the date of this Agreement.

		
	2.
	Legal opinions

		
	(a)
	A legal opinion of Linklaters LLP, legal advisers to the Bank in England, substantially in the form distributed to the Bank prior to signing this Agreement.

		
	(b)
	A legal opinion of Linklaters LLP, legal advisers to the Bank in New York, substantially in the form distributed to the Bank prior to signing this Agreement.

		
	(c)
	A legal opinion of Appleby, legal advisers to the Bank in Bermuda, substantially in the form distributed to the Bank prior to signing this Agreement.

		
	3.
	Other documents and evidence

		
	(a)
	Evidence that any process agent referred to in Clause 33.2 (Service of process) has accepted its appointment.

		
	(b)
	Evidence that Eligible Collateral with an aggregate value no less than the face value of the Letter of Credit to be issued has been deposited with the Custodian in a Deposit Account.

		
	(c)
	A copy of any other Authorisation or other document, opinion, authorisation or assurance which the Bank considers to be necessary (if it has notified the Company accordingly) in connection with the entry into and performance of the transactions contemplated by any Finance Document or for the validity and enforceability of any Finance Document.

		
	(d)
	The Original Financial Statements of the Company.

		
	(e)
	Evidence that the fees, costs and expenses then due from the Company pursuant to Clause 10 (Fees) and Clause 15 (Costs and expenses) have been paid or will be paid by the first Utilisation Date. 

53

SCHEDULE 3     
UTILISATION REQUEST
From:    AXIS Specialty Limited
To:    ING Bank N.V., London Branch
Dated:    [                   ]
Dear Sirs
AXIS Specialty Limited – Letter of Credit Facility Agreement of up to US$170,000,000 
dated 6 November 2013 (the "Agreement")
		
	1.
	We refer to the Agreement. This is a Utilisation Request. Terms defined in the Agreement have the same meaning in this Utilisation Request unless given a different meaning in this Utilisation Request.

		
	2.
	We wish to arrange for a Letter of Credit to be issued by the Bank on the following terms:

		
	3.
	We confirm that each condition specified in Clause 5.4 (Issue of the Letter of Credit) is satisfied on the date of this Utilisation Request.

Proposed Utilisation Date: [                   ].
Amount: [                   ]
		
	4.
	We attach a copy of the proposed Letter of Credit.

		
	5.
	We represent and warrant that:

		
	(a)
	each condition specified in Clause 5.4 (Issue of the Letter of Credit) is satisfied on the date of this Utilisation Request;

		
	(b)
	no Default and no event which would have constituted a Default is continuing or would result from the proposed Utilisation;

		
	(c)
	no Change of Control nor Material Adverse Effect has occurred from the date of the Agreement;

		
	(d)
	the Repeating Representations are true in all material respects.

		
	6.
	This Utilisation Request is irrevocable.

Delivery Instructions:
[specify delivery instructions]

Yours faithfully
....................................... 
authorised signatory for
AXIS Specialty Limited

54

SCHEDULE 4     
TIMETABLES 
LETTER OF CREDIT
"D –    " refers to the number of Business Days before the relevant Utilisation Date, or the number of Business Days before the request for an amendment pursuant to Clause 5.5 (Amendment of Letters of Credit)
	
		
	Delivery of a duly completed Utilisation Request (Clause 5.1 (Delivery of a Utilisation Request for the Letter of Credit)
	D – 3 
10:00 a.m.

	Delivery of a duly completed request for an amendment to the issued Letter of Credit  (Clause 5.5 Amendment of Letters of Credit)
	D – 3
10:00 a.m.

55

SCHEDULE 5     
FORM OF LETTER OF CREDIT
		
	To:
	The Society and the Council of Lloyd's, 
c/o The Manager, Market Services, 
Fidentia House, Walter Burke Way, 
Chatham Marine,  
Chatham, Kent ME4 4RN

Dated [                 ]
Dear Sirs:
Irrevocable Standby Letter of Credit No. [                   ]
Re: [●] (the "Applicant"); Member Code: [                   ]
This Clean Irrevocable Standby Letter of Credit (the "Credit") for a sum not to exceed the aggregate of [US$[                   ]] ([                   ] US Dollars only) is issued by ING BANK N.V., London Branch (the "Issuing Bank") in favour of the Society of Lloyd's ("Lloyd's") on the following terms:
		
	1.
	Subject to the terms hereof, the Issuing Bank shall make payments within two business days of demand in accordance with paragraph 4 below.

		
	2.
	Upon a demand being made by Lloyd's pursuant to paragraph 4 below the Issuing Bank shall pay the amount demanded. Any payment by the Issuing Bank hereunder shall be made in US Dollars to Lloyd's account specified in the demand made by Lloyd's pursuant to paragraph 4 below.

		
	3.
	This Credit is effective from [                   ] (the "Commencement Date") and will expire on the Final Expiration Date (as defined below).  This Credit shall remain in force until we give you not less than four years notice in writing terminating the same on the fourth anniversary of the Commencement Date or on any date subsequent thereto as specified in such notice (the "Final Expiration Date"), our notice to be sent by registered mail for the attention of the Manager, Market Services, at the above address.

		
	4.
	Subject to paragraph 3 above, the Issuing Bank shall pay to Lloyd's under this Credit upon presentation of a demand by Lloyd's substantially in the form set out in Schedule 1 hereto the amount specified therein.

		
	5.
	All charges are for the Applicant's account.

		
	6.
	Subject to any contrary indication herein, this Credit is subject to the International Standby Practices – ISP98 (1998 publication – International Chamber of Commerce Publication No. 590).

		
	7.
	This Credit shall be governed by and interpreted in accordance with English law and the Issuing Bank hereby irrevocably submits to the jurisdiction of the High Court of Justice in England.

		
	8.
	The Issuing Bank engages with Lloyd's that demands made under and in compliance with the terms of this Credit will be duly honoured on presentation.

Yours faithfully, 

56

For and on behalf of
ING Bank N.V., London Branch

57

Schedule 1 
Form of Demand (US Dollars)
[on Lloyd's letterhead]
Dear Sir/Madam
THE SOCIETY OF LLOYD'S
TRUSTEE OF
LETTER OF CREDIT NO [                   ]
With reference to the above, we enclose for your attention a Bill of Exchange, together with the respective Letter of Credit.  Payment should be made by way of electronic transfer.  The account details are as follows:
[                   ]

Please quote Member Code:

Yours faithfully,

for Manager
Market Services
By:___________________
      Name: 
          Title:

 

58

Your ref:
Our ref:      MEM/    /     /      /C911f
Extn:

BILL OF EXCHANGE
The Society of Lloyd's
Trustee of
Letter of Credit No. [                   ]
Please pay in accordance with the terms of the Letter of Credit to our order the amount of [US$[                   ]] ____________.

For and on behalf of

Authorised Signatory
Market Services

To:    [insert name of bank/credit institution]
as the Bank

SCHEDULE 6     
FORM OF BORROWING BASE CERTIFICATE

[LETTERHEAD AXIS SPECIALTY LIMITED]
To be provided to the addressee by no later than the 10 day of each month in respect of the Investment Collateral of the Company as of the last day of the immediately preceding month.
To:    ING Bank N.V., London Branch

This Borrowing Base Certificate (the "Certificate") is delivered pursuant to the reporting requirements of Clause 17.3 (Information: Miscellaneous) of the Letter of Credit Facility Agreement dated 6 November 2013 (as amended and restated from time to time) between the Company and ING Bank N.V., London Branch as the 

59

Bank (the "Letter of Credit Facility Agreement"). Terms used in this Certificate shall have the meaning provided in the Letter of Credit Facility Agreement unless otherwise defined herein.
The Company represents and warrants that the following calculations determine its Investment Collateral in accordance with the relevant definitions as set forth in the Letter of Credit Facility Agreement and hereby certificates as follows:
		
	1.
	The Borrowing Base as of [insert date] comprises the following:

	
					
	Investment Collateral held in the Deposit Account
	Rating of Investment Collateral (where applicable)
	Amount / Market Value
	Relevant Advance Rate
	Calculation of the Applicable Collateral Value

	 
	 
	 
	 
	 

	 
	 
	 
	 
	 

	 
	 
	 
	 
	 

	 
	 
	 
	 
	 

		
	2.
	The aggregate amount of Investment Collateral held in Deposit Accounts of the Company on that date is [                   ].

		
	3.
	The aggregate amount of Cash Collateral held in the Deposit Accounts of the Company on [                   ] is [                   ].

		
	4.
	[Financial Information relating to Financial Covenants]

The Company hereby further represents and warrants that each Deposit Account of the Company with the Custodian and the Bank is being maintained in compliance with the provisions of, and subject to the first priority perfected Security Document in favour of the Bank required by, the Finance Documents and that as of [insert date], the amount of Collateral Cover provided in relation to the Letter of Credit issued and outstanding under the Facility was equal to or in excess of the amount required to be provided under the Agreement.
This Certificate is executed on [                   ] by the chief financial officer of the Company.

Date: ____________________________________    [●]

By: _______________________________ 
Name:                     
Title: Chief Financial Officer        

SIGNATURE PAGE

The Company
AXIS Specialty Limited  
Address:     92 Pitts Bay Road, Pembroke, HM 08, Bermuda

60

Attention:     Jose Osset
Fax:         (441) 405 2640
Email:         Jose.Osset@axiscapital.com
/s/      Jose Osset
By:     Jose Osset
Title:     SVP & Treasurer

The Bank
ING Bank N.V., London Branch
Address:         60 London Wall, London EC2M 5TQ
Attention:         Nick Marchant
Fax:         +4420 7767 7507
Email:         Nick.Marchant@UK.ING.COM     

/s/     Nick Marchant                          /s/         Mike Sharman
	
		
	By:     Nick Marchant
Title:    Director, Insurance Sector Finance

	By:     Mike Sharman
Title:    Managing Director, Insurance Sector          Finance

61

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