THIS INVESTMENT
AGREEMENT (this “Agreement”), dated as of
January 1, 2003, is made by and between HAMBLIN WATSA
INVESTMENT COUNSEL LTD. (“HW”), FAIRFAX FINANCIAL
HOLDINGS LIMITED (“FFH”) and NEWLINE UNDERWRITING
MANAGEMENT LIMITED (“Newline”). As used in this
Agreement, “we”, “us” and “our”
shall refer to Newline, and “you” and
“your” shall refer to HW and FFH jointly. This
Agreement supersedes and replaces the Investment Management
Agreements between Clearwater and HW dated May 11, 2001 and
the Investment Administration Agreement between Clearwater and FFH
dated February 16, 2001.
In
consideration of the mutual promises contained herein, the parties
agree as follows:
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1.
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We
authorize HW to manage on a continuous basis an investment account
(the “Account”) on our behalf on the terms and
conditions set out in this Agreement.
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2.
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HW
shall manage the Account in accordance with the investment
objectives from time to time communicated in writing by us to HW,
subject at all times to the investment guidelines. Until mutually
agreed otherwise, the investment guidelines shall be as set out in
the investment guidelines attached hereto as Schedule A
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3.
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Subject to Section 2 above, HW
shall manage the Account in our name and HW is hereby authorized to
take such action for the Account as HW, in your sole discretion,
may consider appropriate for the operation of the Account
including, without limitation, the power to buy, sell and exchange
and otherwise deal in all securities which may at any time form
part of the Account and to invest, in securities selected by HW,
all funds contained in, paid to or derived from the operation of,
the Account, except to the extent that HW is otherwise instructed
in writing by us.
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The
services to be performed by HW shall be performed only by officers
and employees who have appropriate qualifications. HW agrees to
provide to us such information as we may reasonably request
concerning the education and experience of any individuals HW
proposes to assign to the performance of such services. Also, upon
our request, HW agrees to provide a list of individual names and a
brief description of their responsibilities. HW
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agrees to
promptly notify us of any changes in HW’s staff involving
individuals that perform material functions on our
Account.
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4.
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The
securities and funds of the Account have been deposited with and
shall be held by CITIBANK (or with such other custodian as is
chosen by you from time to time) (the “Custodian”)
pursuant to an agreement, which we have entered into with the
Custodian. We have instructed the Custodian to promptly follow your
directions at all times and to provide HW with all such information
concerning the Account as HW may from time to time require in
connection with your management of the Account, including without
limitation, copies of relevant monthly statements.
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5.
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Provided HW has used reasonable care
and diligence, HW shall not be liable for any damage, loss, cost or
other expense sustained in the operation of the Account or relating
in any manner to the carrying out of your duties under this
Agreement. Notwithstanding the foregoing, any losses suffered as a
result of an error in implementing investment decisions caused by
HW’s negligence or dishonesty are to be fully reimbursed by
HW. To the extent any errors occur in implementing investment
decisions, HW shall immediately notify us in writing of all
relevant facts. HW shall bear full responsibility for any such
errors to the extent such errors result from HW’s negligence
or dishonesty and shall be liable for all financial injury to us
resulting therefrom. We agree that HW shall be entitled to assume
that any information communicated by us or the Custodian to HW is
accurate and complete, and that in making investment decisions HW
shall be entitled to rely on publicly available information or on
information which HW believes to have been provided to you in good
faith, in both cases barring actual knowledge by HW to the
contrary.
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6.
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HW
will provide us with a monthly statement and a quarterly
presentation respecting the securities held in the
Account.
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7.
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HW
shall deliver in writing to us, as soon as practicable after
implementation of an investment decision, HW’s confirmation
of such implementation to enable us to ascertain that such
implementation has been effected pursuant to the guidelines and
procedures of our Board of Directors or a duly authorized committee
thereof. Otherwise, the nature and timing of HW’s reporting
to us on the status of the Account shall be at least quarterly,
within 45 days after the end of each quarter.
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8.
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We
acknowledge receipt of a copy of policies that HW has established
to ensure that investment opportunities are
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allocated
fairly among HW’s discretionary investment accounts and we
confirm that these policies, until revised by HW, will apply to the
account.
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Investment
Administration
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9.
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We
authorize FFH to provide, and by signing below FFH agrees to
provide, the investment administration services set forth in
Schedule B attached hereto, on our behalf and on the
terms and conditions set out in this Agreement, subject to such
guidelines, procedures and limitations as may be duly established
and approved by our Board of Directors or a duly authorized
committee of said Board.
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10.
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You
shall be entitled to such fees for the services provided hereunder
as FFH may specify from time to time. Attached hereto as
Schedule C is a copy of the current fee schedule and
FFH agrees to give us thirty (30) days prior written notice of
any change in such schedule. Such fees shall be the exclusive fees
and charges payable (excluding third party disbursements reasonably
incurred) for the services provided hereunder. As regards third
party services, you will charge us only the amount of your actual
disbursements paid to arm’s length third parties for such
services, and HW will select as agents, brokers or dealers
executing orders or acting on the purchase or sale of portfolio
securities only duly licensed agents, brokers or dealers. Such
disbursements to third parties shall be reported to us quarterly,
provided, that we shall pay third parties such disbursements
directly if requested to do so by you. We will pay you all fees and
disbursements hereunder not later than 20 days after receiving
your quarterly report.
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All
fees will be paid to FFH and FFH shall reimburse HW for its
investment management services. HW acknowledges that it has no
right under this agreement to receive fees directly from
us.
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11.
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Either you or FFH and HW may
terminate this Agreement without penalty by giving the other party
at least thirty (30) days advance written notice of its desire
to terminate the same. In the event that the day upon which this
Agreement is so terminated is a day other than the first day of a
calendar quarter, the fees payable in accordance with paragraph 6
for such quarter shall be pro-rated and shall be determined having
regard to the market value of the Account based upon the most
recent financial report which has been delivered to you by the
Custodian.
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12.
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All
notices and communications to each party to this Agreement shall be
in writing and shall be deemed to have been sufficiently given if
signed by or on behalf of the party giving the notice and either
delivered personally or sent by prepaid registered mail addressed
to such party at the address of such party indicated herein. Any
such notice or communication shall be deemed to have been received
by any such party if delivered, on the date of delivery, or if sent
by prepaid registered mail on the fourth business day following
mailing thereof to the party to whom addressed. For such purpose,
no day during which there shall be a strike or other occurrence
interfering with normal mail service shall be considered a business
day.
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13.
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This Agreement shall be effective
for a period of twelve (12) months from the date hereof, and
will be automatically renewed at each such anniversary date unless
otherwise terminated in accordance with paragraph 11 herein. The
parties may renegotiate the terms of the Agreement sixty
(60) days prior to each anniversary date. This Agreement shall
inure to the benefit of and shall be binding upon the parties
hereto and their respective successors. This Agreement may not be
assigned by any party.
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14.
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We
acknowledge that we have read and understood this Agreement and
that we have received a copy of the same. You and we each
acknowledge that the terms of this Agreement are the exclusive and
conclusive terms of our mutual agreement with regard to the subject
matter hereof.
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15.
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This Agreement shall be governed by
English law.
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16.
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Additional terms and conditions
applicable to this Agreement are set forth in Schedule D .
The provisions in Schedule A , Schedule B,
Schedule C and Schedule D attached hereto
are hereby incorporated into, and form part of, this
Agreement.
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17.
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This Agreement, including the
schedules attached hereto and made a part hereof, may only be
amended by written agreement signed by the parties.
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IN WITNESS
WHEREOF, this Agreement is hereby executed by duly authorized
officers of the parties hereto as of the date first written
above.
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CLEARWATER
INSURANCE COMPANY
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BY:
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/s/ CHARLES D.
TROIANO
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AUTHORIZED
SIGNATURE
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4
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CHARLES D.
TROIANO
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NAME OF
AUTHORIZED SIGNATORY
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HAMBLIN
WATSA INVESTMENT COUNSEL LTD.
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BY:
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/s/ F. BRIAN
BRADSTREET
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AUTHORIZED
SIGNATURE
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F. BRIAN
BRADSTREET
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NAME OF
AUTHORIZED SIGNATORY
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FAIRFAX
FINANCIAL HOLDINGS LIMITED
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BY:
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/s/ BRADLEY P.
MARTIN
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AUTHORIZED
SIGNATURE
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BRADLEY P.
MARTIN
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NAME OF
AUTHORIZED SIGNATORY
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5
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1.
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Investment for the long term always
providing sufficient liquidity for the payment of claims and other
policy obligations.
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2.
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Ensure preservation of invested
capital for policyholder protection.
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3.
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Invest in accordance with insurance
regulatory guidelines.
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All investments
are to be made using the value approach by investing in companies
at prices below their underlying long-term values to protect
capital from loss and earn income over time and provide operating
income as needed.
With regard to
equities, no attempt is made to forecast the
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