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EXHIBIT 10.3
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SECOND AMENDMENT
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SECOND AMENDMENT (this "Amendment"), dated as of July 25, 2000, among
Ceres Group, Inc., a Delaware corporation (the "Borrower"), the lending
institutions party to the Credit Agreement referred to below (each a "Bank" and,
collectively, the "Banks") and The Chase Manhattan Bank, as Administrative Agent
(the "Administrative Agent"). All capitalized terms used herein and not
otherwise defined herein shall have the respective meanings provided such terms
in the Credit Agreement.
W I T N E S S E T H:
--------------------
WHEREAS, the Borrower, the Banks and the Administrative Agent are party
to a Credit Agreement, dated as of February 17, 1999 (as amended, modified and
supplemented prior to the date hereof, the "Credit Agreement"); and
WHEREAS, the Borrower has requested that the Banks provide the
amendments provided for herein and the Banks have agreed to provide such
amendments on the terms and conditions set forth herein;
NOW, THEREFORE, it is agreed:
1. On the Second Amendment Effective Date (as hereinafter defined), the
Revolving Loan Commitment of each Bank shall be modified to be the amount set
forth opposite the name of such Bank on Annex I hereto, directly below the
column entitled Revolving Loan Commitment. In connection with the foregoing, on
the Second Amendment Effective Date, the Borrower shall, in coordination with
the Administrative Agent and the Banks, repay outstanding Revolving Loans of
certain Banks and incur additional Revolving Loans from other Banks, in each
case if necessary so that the Banks participate in each Borrowing of Revolving
Loans PRO RATA on the basis of their Revolving Loan Commitments (after giving
effect to this Section 1). It is hereby agreed that the breakage costs incurred
by the Banks in connection with the repayment of Revolving Loans contemplated by
this Section 1, if any, shall be for the account of the Borrower. On the Second
Amendment Effective Date, Annex I to the Credit Agreement shall be deemed
amended to read as set forth in Annex I attached hereto to give effect to the
foregoing.
2. Section 5.05(b) of the Credit Agreement is hereby amended by
inserting the following text at the end thereof:
"(it being understood and agreed that, in any event, the use of such
proceeds to finance the Pyramid Acquisition shall be permitted)".
3. Notwithstanding anything to the contrary contained in Section
7.02(h)(iii) of the Credit Agreement, the Borrower may consummate the Pyramid
Acquisition so long as all of the conditions set forth in Section 7.02(h) (other
than clause (iii) thereof) are satisfied with respect to
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such acquisition.
4. Section 7.05 of the Credit Agreement is hereby amended by (i)
deleting the period appearing at the end of said Section and (ii) inserting the
following text in lieu thereof:
"; provided further that any portion of the Pyramid Acquisition that
would constitute a Capital Expenditure will be excluded for purposes of
the calculation required pursuant to this Section 7.05."
5. Section 7.08(a) of the Credit Agreement is hereby amended by
deleting the phrase "except that any Subsidiary of the Borrower may pay cash
dividends to its parent if such parent is the Borrower or a Wholly-Owned
Subsidiary of the Borrower," appearing at the end thereof and by inserting in
lieu thereof the following new phrase:
"except that the following shall be permitted:
(i) any Subsidiary of the Borrower may pay
cash dividends to its parent if such parent is the Borrower or
a Wholly-Owned Subsidiary of the Borrower; and
(ii) the Borrower may pay regularly
scheduled dividends on the Pyramid Seller Preferred Stock
through the issuance of additional shares of Pyramid Seller
Preferred Stock, or through accrual or accretion, but not in
cash."
6. Section 7.10 of the Credit Agreement is hereby amended by deleting
the table appearing therein in its entirety and by inserting in lieu thereof the
following new table:
"Period Ratio
------- -----
Initial Borrowing Date through
December 31, 1999 0.50:1.00
Thereafter through
December 31, 2000 0.40:1.00
Thereafter through
December 31, 2001 0.35:1.00
Thereafter 0.30: 1.00 "
7. Section 7.13 of the Credit Agreement is hereby amended by deleting
the table appearing therein in its entirety and by inserting in lieu thereof the
following new table:
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"Year Amount
----- ------
Initial Borrowing Date through
December 31, 1999 $ 35,000,000
Thereafter through
December 31, 2000 $ 80,000,000
Thereafter through
December 31, 2001 $110,000,000
Thereafter through
December 31, 2002 $160,000,000
Thereafter $200,000,000"
8. Section 7.14(a) of the Credit Agreement is hereby amended by
inserting the sentence at the end thereof:
"Notwithstanding anything to the contrary contained in this Section
7.14(a), the Borrower may issue Pyramid Seller Preferred Stock having
an aggregate liquidation preference of not more that $7,500,000 in
connection with the Pyramid Acquisition (and additional shares as
payment of dividends thereon pursuant to Section 7.08(a)(ii))."
9. Section 7 of the Credit Agreement is hereby amended by adding at the
end thereof the following now Section 7.17:
"7.17 FIXED CHARGE COVERAGE RATIO. The Borrower will not
permit the Fixed Charge Coverage Ratio for any Test Period
ending during a period set forth below to be less than the ratio
set forth opposite such period below:
Period Ratio
------ ------
June 30, 2000 through
June 30, 2001 1.05:1.00
Thereafter through
June 30, 2002 1.10:1.00
Thereafter through
June 30, 2003 1.20:1.00
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Thereafter 1.30:1.00
10. Section 9 of the Credit Agreement is hereby amended by (a) deleting
the definitions of "Consolidated Indebtedness" and "Test Period" appearing
therein, and (b) inserting the following definitions in the appropriate
alphabetical order:
"Borrower Cash Flow" shall mean, for any period, the sum of
(i) dividends paid by Regulated Insurance Companies during such period,
(ii) the net income (before dividend payments, interest expense,
depreciation and amortization) or the Borrower for such period
(determined on a stand-alone basis, without giving effect to the income
of or dividends received from its Subsidiaries) and (iii) the net
income (before interest expense, dividend payments, depreciation, and
amortization) of each Non-Regulated Company for such period (determined
on a stand-alone basis, without giving effect to the income of or
dividends received from its Subsidiaries).
"Consolidated Indebtedness" shall mean, at any time and as to
any Person, all indebtedness for borrowed money of such Person and its
Subsidiaries at such time determined on a consolidated basis in
accordance with GAAP but, in the case of the Borrower, excluding the
mortgage indebtedness listed on Annex III.
"Fixed Charge Coverage Ratio" shall mean, for any period, the
ratio of Borrower Cash Flow for such period to the sum for such period
of (i) Consolidated Interest Expense and (ii) Scheduled Repayments
required to be made during such period.
"Pyramid Acquisition" shall mean the acquisition by the
Borrower of 100% of the capital stock of Pyramid Life Insurance
Company, from Unitrin, Inc., to be financed through (i) the proceeds of
a common equity issuance by the Borrower, (ii) the issuance of Pyramid
Seller Preferred Stock to Unitrin, Inc. and/or (iii) proceeds from the
incurrence of Revolving Loans.
"Pyramid Seller Preferred Stock" shall mean preferred stock
issued by the Borrower as partial consideration for the Pyramid
Acquisition (or issued pursuant to Section 7.08(a)(ii)), the terms and
conditions of which are satisfactory to the Administrative Agent.
"Test Period" shall mean (a) for purposes of Section 7. 11,
(i) for any determination made on and prior to December 31, 1999, the
period from April 1,1999 to the last day of the fiscal quarter of the
Borrower then last ended, PROVIDED that for this purpose the first Test
Period shall end on June 30, 1999, and (ii) for any determination made
thereafter, the four consecutive fiscal quarters of the Borrower ended
on the last day of the most recently ended fiscal quarter of the
Borrower (taken as one accounting period) and (b) for purposes or
Section 7.17, (i) for any determination made on or prior to December
31, 2000, the period from April 1, 2000 to the last day of the fiscal
quarter of the Borrower then last ended, PROVIDED that for this purpose
the first Test Period shall end on June 30, 2000, and (ii) for any
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determination made thereafter, the four consecutive fiscal quarters of
the Borrower ended on the last day of the most recently ended fiscal
quarter of the Borrower (taken as one accounting period).
11. In order to induce the Banks to enter into this Amendment, the
Borrower represents and warrants that (i) all of the representations and
warranties contained in the Credit Agreement or in the other Credit Documents
are true and correct in all material respects on and as of the Second Amendment
Effective Date, both before and after giving effect to this Amendment unless
such representation and warranty expressly indicates that it is being made as of
any other specific date in which case such representation and warranty shall be
true and correct in all material respects as of such other specified date, and
(ii) there exists no Default or Event of Default on the Second Amendment
Effective Date, both before and after giving effect to this Amendment.
12. This Amendment shall become effective as of the date hereof (the
"Second Amendment Effective Date") when:
(a) the Borrower and each Bank shall have signed a counterpart
hereof (whether the same or different counterparts) and shall have
delivered (including by way of facsimile transmission) the same to the
Administrative Agent at its Notice Office;
(b) the Borrower shall have delivered to the Administrative
Agent a new Revolving Note for each Bank whose Revolving Loan
Commitment is increasing as a result of this Amendment, reflecting its
increased Revolving Loan Commitment, which Revolving Note shall be
issued in exchange for the Revolving Note currently held by such Bank;
and
(c) the Borrower shall have delivered to the Agent a certified
copy of resolutions duly adopted by the Borrower authorizing the
increase in the Total Revolving Loan Commitment contemplated by this
Amendment.
13. From and after the Second Amendment Effective Date, all references
in the Credit Agreement and each of the Credit Documents to the Credit Agreement
shall be deemed to be references to the Credit Agreement as amended hereby.
14. This Amendment is limited as specified and shall not constitute a
modification, acceptance or waiver of any other provision of the Credit
Agreement or any other Credit Document.
15. This Amendment may be executed in any number of counterparts and by
the different parties hereto on separate counterparts, each of which
counterparts when executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A complete set of
counterparts shall be lodged with the Borrower and the Administrative Agent.
16. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK.
* * *
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ANNEX I
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LIST OF BANKS AND COMMITMENTS
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<TABLE>
<CAPTION>
Bank Term Loan Commitment Revolving Loan Commitment
---- -------------------- -------------------------
<S> <C> <C>
Chase Manhattan Bank $12,000,000 $4,500,000
KeyBank $4,000,000 $1,500,000
Dresdner Bank AG, $12,000,000 $4,500,000
New York Branch and
Grand Cayman Branch
Firstar Bank Milwaukee, N.A. $4,000,000 $1,500,000
Fleet National Bank $8,000,000 $3,000,000
Total $40,000.000 $15,000,000
=========== ===========
</TABLE>
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IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart
of this Amendment to be duly executed and delivered as of the date hereof:
CERES GROUP, INC
/s/ Larry E. Wharton
-------------------------------------
By: Larry E. Wharton
Its: Vice President and Treasurer
THE CHASE MANHATTAN BANK
/s/ Helen L. Newcomb
-------------------------------------
By: Helen L. Newcomb
Its: Vice President
DRESDNER BANK AG NEW YORK BRANCH
AND GRAND CAYMAN BRANCH
/s/ George T. Ferguson, Iv
-------------------------------------
By: George T. Ferguson, IV
Its: Assistant Vice President
/s/ James J. Smith
-------------------------------------
By: James J. Smith
Its: Vice President
KEYBANK NATIONAL ASSOCIATION
/s/ Sherrie F. Manson
-------------------------------------
By: Sherrie F. Manson
Its: Vice President
FIRSTAR BANK MILWAUKEE, N.A.
/s/
-------------------------------------
By:
Its: Vice President
FLEET NATIONAL BANK
/s/
-------------------------------------
By:
Its: Vice President
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