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 CLEARWATER INSURANCE
COMPANY (f/k/a Odyssey Reinsurance Corporation)
(“Clearwater”). As used in this Agreement,
“we”, “us” and “our” shall
refer to Clearwater, 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 May 11,
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 changed by
us, the investment guidelines shall be as set out in the investment
guidelines attached hereto as Schedule A . The
investment guidelines shall at all times be in compliance with the
investment statutes of the State of Delaware.
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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 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
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request, HW
agrees to provide a list of individual names and a brief
description of their responsibilities. HW 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 The Bank of New York (or with such other custodian
as is chosen by us from time to time and is approved by the
Delaware Insurance Department) (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 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, which change shall require the
approval of Delaware Insurance Department. 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 agents, brokers or dealers
operating in the United States. 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 we 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
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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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Any
dispute or difference arising with reference to the interpretation
or effect of this Agreement, or any part thereof, shall be referred
to a Board of Arbitration (the “Board”) of two
(2) arbitrators and an umpire.
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The
members of the Board shall be active or retired disinterested
officers of insurance or reinsurance companies.
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One
arbitrator shall be chosen by the party initiating the arbitration
and designated in the letter requesting arbitration. The other
party shall respond, within thirty (30) days, advising of its
arbitrator. The umpire shall thereafter be chosen by the two (2)
arbitrators. In the event either party fails to designate its
arbitrator as indicated above, the other party is hereby authorized
and empowered to name the second arbitrator, and the party which
failed to designate its arbitrator shall be deemed to
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have waived its
rights to designate an arbitrator and shall not be aggrieved
thereby. The two (2) arbitrators shall then have thirty
(30) days within which to choose an umpire. If they are unable
to do so within thirty (30) days following their appointment,
the umpire shall be chosen by the manager of the American
Arbitration Association and such umpire shall be a person who is an
active or retired and disinterested officer of an insurance or
reinsurance company. In the event of the death, disability or
incapacity of an arbitrator or the umpire, a replacement shall be
named pursuant to the process, which resulted in the selection of
the arbitrator or umpire to be replaced.
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Each party shall submit its case to
the Board within one (1) month from the date of the
appointment of the umpire, but this period of time may be extended
by unanimous written consent of the Board.
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The
Board shall make its decision with regard to the custom and usage
of the insurance and reinsurance business. The Board is released
from all judicial formalities and may abstain from the strict rules
of law. The written decision of a majority of the Board shall be
rendered within sixty (60) days following the termination of
the Board’s hearings, unless the parties consent to an
extension. Such majority decision of the Board shall be final and
binding upon the parties both as to law and fact, and may not be
appealed to any court of any jurisdiction. Judgment may be entered
upon the final decision of the Board in any court of proper
jurisdiction.
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Each party shall bear the fees and
expenses of the arbitrator selected by or on its behalf, and the
parties shall bear the fees and expenses of the umpire as
determined by the party, as above provided, the expenses of the
arbitrators, the umpire and the arbitration shall be equally
divided between the two parties. The arbitrators may allocate any
and all of the costs and fees against the losing party upon a
determination that the position of the losing party was, in whole
or in part, groundless, specious or otherwise without merit or
asserted primarily for the purposes of obfuscation or
delay.
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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 p
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