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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[XX] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-7461
ACCEPTANCE INSURANCE COMPANIES INC.
(Exact name of registrant as specified in its charter)
Delaware 31-0742926
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
222 South 15th St., Suite 600 N.
Omaha, Nebraska 68102
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(402) 344-8800
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES XX NO
____ ____
The number of shares of each class of the Registrant's common
stock outstanding on April 22, 1994 was:
Class of Common Stock No. of Shares Outstanding
Common Stock, $.40 Par Value 10,223,315
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<PAGE>
ACCEPTANCE INSURANCE COMPANIES INC.
FORM 10-Q
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets
March 31, 1994 (unaudited) and December 31, 1993
(audited)
Consolidated Statements of Operations (unaudited)
Three Months Ended March 31, 1994 and 1993
Consolidated Statements of Cash Flows (unaudited)
Three Months Ended March 31, 1994 and 1993
Notes to Interim Consolidated Financial Statements
(unaudited)
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 6. Exhibits
Signatures
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
ACCEPTANCE INSURANCE COMPANIES INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
March 31, December 31,
1994 1993
----------- ------------
(unaudited) (audited)
<S> <C> <C>
ASSETS
Investments:
Fixed maturities available for sale $146,391 $95,836
Fixed maturities held for investment - 51,756
Marketable equity securities - preferred stock 9,637 8,445
Marketable equity securities - common stock 5,109 5,427
Mortgage loans and other investments 2,496 2,852
Real estate 4,212 4,266
Short-term investments, at cost, which approximates
market 23,735 19,404
--------- --------
191,580 187,986
Cash 5,606 2,894
Receivables, net 62,300 48,166
Equity investment in Major Realty Corporation 5,293 5,376
Property and equipment, net 3,180 3,200
Reinsurance recoverable on unpaid loss and loss adjustment
expenses 55,947 95,886
Deferred policy acquisition costs 14,934 11,815
Prepaid reinsurance premiums 17,673 15,448
Excess of cost over acquired net assets 33,196 33,254
Other assets 7,001 5,360
--------- ---------
Total assets $396,710 $409,385
========= =========
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
Losses and loss adjustment expenses $176,394 $211,600
Unearned premiums 71,847 60,114
Amounts payable to reinsurers 16,805 7,186
Accounts payable and accrued liabilities 8,621 13,343
Bank borrowings, term debt and other borrowings 25,194 18,951
--------- ---------
Total liabilities 298,861 311,194
Contingencies - -
Minority interests 2,561 2,474
-------- --------
Stockholders' equity:
Preferred stock, no par value, 5,000,000 shares
authorized, none issued - -
Common stock, $.40 par value, 20,000,000 shares
authorized; 9,991,534 and 9,976,415 shares issued 3,997 3,991
Capital in excess of par value 140,145 140,002
Unrealized gain (loss) on marketable equity securities
and fixed maturities available for sale (2,481) 66
Accumulated deficit (42,109) (44,078)
--------- ---------
99,552 99,981
Less:
Treasury stock, at cost, 35,559 shares (1,564) (1,564)
Contingent stock, 240,000 shares (2,700) (2,700)
--------- ---------
Total stockholders' equity 95,288 95,717
--------- ---------
Total liabilities and stockholders' equity $396,710 $409,385
========= =========
<FN>
The accompanying notes are an integral part of the
interim consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ACCEPTANCE INSURANCE COMPANIES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
for the three months ended March 31, 1994 and 1993
(in thousands, except per share data)
(unaudited)
1994 1993
-------- -------
<S> <C> <C>
Revenues:
Insurance premiums earned $37,978 $26,468
Insurance agency commissions 853 939
Net investment income 2,637 2,505
Net realized capital gains 237 521
-------- --------
41,705 30,433
-------- --------
Costs and expenses:
Cost of revenues:
Insurance losses and loss adjustment
expenses 26,220 19,530
Insurance agency costs 812 920
Insurance underwriting expenses 11,129 7,045
General and administrative expenses 1,071 490
-------- --------
39,232 27,985
-------- --------
Operating profit 2,473 2,448
-------- --------
Other expense:
Interest expense (328) (704)
Share of net loss of investee (83) (141)
Other, net (13) (8)
-------- --------
(424) (853)
-------- --------
<PAGE>
Income before income taxes and minority
interests 2,049 1,595
Provision for income taxes - -
Minority interests in net income of consolidated
subsidiaries 80 43
-------- --------
Net income $ 1,969 $ 1,552
======== ========
Earnings per share:
Primary $ .20 $ .24
======== ========
Fully diluted $ .19 $ .23
======== ========
<FN>
The accompanying notes are an integral part of the
interim consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION> ACCEPTANCE INSURANCE COMPANIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the three months ended March 31, 1994 and 1993
(in thousands)
(unaudited)
1994 1993
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,969 $ 1,552
Net adjustment to reconcile net income to net cash provided
by operating activities 799 24,980
--------- ---------
Net cash provided by operating activities 2,768 26,532
--------- ---------
Cash flows from investing activities:
Proceeds from sales of investments 55 1,067
Proceeds from sales of investments available for sale 13,189 16,341
Proceeds from maturities of investments 462 747
Proceeds from maturities of investments available for sale 6,596 6,493
Purchases of investments (608) (4,798)
Purchases of investments available for sale (22,096) (58,682)
Purchases of property and equipment (223) (293)
--------- ---------
Net cash used for investing activities (2,625) (39,125)
--------- ---------
Cash flows from financing activities:
Repayments of bank borrowings (18,597) (10,375)
Proceeds from bank borrowings 25,000 -
Repayments of term debt and other borrowings (160) (415)
Minority interests 7 808
Proceeds from issuance of common stock 149 31,163
--------- ---------
Net cash provided by financing activities 6,399 21,181
--------- ---------
Net increase in cash and short-term investments 6,542 8,588
Cash and short-term investments at beginning of period 17,561 12,471
--------- ---------
Cash and short-term investments at end of period $ 24,103 $ 21,059
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 345 $ 924
========= =========
<FN>
The accompanying notes are an integral part of the
interim consolidated financial statements.
</TABLE>
<PAGE>
ACCEPTANCE INSURANCE COMPANIES INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Summary of Significant Accounting Policies:
Principles of Consolidation
The Company's consolidated financial statements include the
accounts of Acceptance Insurance Companies Inc. and majority
owned subsidiaries (the "Company"). All significant
intercompany transactions have been eliminated.
Management's Opinion
The accompanying consolidated financial statements reflect
all adjustments, consisting only of normal recurring
adjustments except as otherwise disclosed, which in the
opinion of management are considered necessary to fairly
present the Company's financial position as of March 31,
1994 and December 31, 1993, and the results of operations
for the three months ended March 31, 1994 and 1993 and cash
flows for the three months ended March 31, 1994 and 1993.
Statements of Cash Flows
The Company aggregates cash and short-term investments with
maturity dates of three months or less from the date of
purchase for purposes of reporting cash flows. As of March
31, 1994 approximately $5,238,000 of short-term investments
had a maturity date at acquisition of greater than three
months.
Reclassifications
Certain prior year accounts have been reclassified to
conform with current period presentation.
2. Subsequent Event:
On March 31, 1994, the Company entered into an Agreement and
Plan of Merger with Statewide Insurance Corporation
("Statewide"), the exclusive general agent for the Company's
non-standard automobile insurance program underwritten by
Phoenix Indemnity Insurance Company ("Phoenix Indemnity"),
and the owner of 20% of the outstanding shares of common
stock of Phoenix Indemnity, pursuant to which the Company
will acquire by merger (the "Merger") Statewide (except for
certain assets and liabilities relating to its agency
operations other than the non-standard automobile program
which will be divested prior to the merger). The Merger
takes effect at the beginning of business on April 1, 1994.
3. Per Share Data:
Primary earnings per share and fully diluted earnings per
share are based on the weighted average shares outstanding
of approximately 13.2 million and 13.4 million,
respectively, for the three months ended March 31, 1994 and
approximately 8.6 million and 9.4 million, respectively, for
the three months ended March 31, 1993. Included in weighted
average shares outstanding is the assumed conversion of all
outstanding options and warrants utilizing the treasury
stock method with appropriate adjustment to net income
attributable to the assumed use of proceeds.
4. Investments:
On January 1, 1994 the Company adopted Statement of
Financial Accounting Standards No. 115 (SFAS 115),
"Accounting for Certain Investments in Debt and Equity
Securities." In conjunction with the adoption of SFAS 115,
the Company reclassified its debt and equity securities to
meet the requirements of the statement. SFAS 115 requires
investments in debt and equity securities to be classified
at acquisition into one of three categories: held to
maturity, available for sale, or trading. Securities are
classified as trading when they are bought and held
principally for the purpose of selling them in the near
future. Securities are classified as available for sale
when the securities may be sold from time to time to
effectively manage interest rate exposure and liquidity
needs. Securities are classifed as held to maturity
securities when the Company has the positive intent and
ability to hold these securities until maturity.
At January 1, 1994 and March 31, 1994 all debt and equity
securities were classified as available for sale. Available
for sale securities are stated at fair value with the
unrealized gains and losses reported as a separate component
of stockholders' equity.
The amortized cost and related market values of debt and
equity securities in the accompanying balance sheets are as
follows (in thousands):
<PAGE>
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ------
<S> <C> <C> <C> <C>
March 31, 1994:
Fixed maturities available
for sale:
U.S. Treasury and
government securities $ 26,440 $ 176 $ 685 $ 25,931
States, municipalities and
political subdivisions 32,649 63 997 31,715
Mortgage-backed securities 75,325 837 1,626 74,536
Other debt securities 13,992 324 107 14,209
--------- ------- ------- ---------
$148,406 $1,400 $3,415 $146,391
========= ======= ======= =========
Marketable equity securities
available for sale -
preferred stock $ 9,917 $ 82 $ 362 $ 9,637
========= ======= ======= =========
Marketable equity securities
available for sale -
common stock $ 5,295 $ 254 $ 440 $ 5,109
========= ======= ======= =========
December 31, 1993:
Fixed maturities held for
investment:
U.S. Treasury and government
securities $ 9,076 $ 360 $ - $ 9,436
States, municipalities and
political subdivisions 504 26 - 530
Mortgage-backed securities 33,070 1,330 81 34,319
Other debt securities 9,106 663 - 9,769
--------- ------- ------ ---------
$ 51,756 $2,379 $ 81 $ 54,054
========= ======= ====== =========
Fixed maturities available for
sale:
U.S. Treasury and government
securities $ 17,379 $ 241 $ 206 $ 17,414
States, municipalities and
political subdivisions 33,370 407 4 33,773
Mortgage-backed securities 40,687 302 203 40,786
Other debt securities 4,400 88 11 4,477
--------- ------- ------- ---------
$ 95,836 $1,038 $ 424 $ 96,450
========= ======= ======= =========
Marketable equity securities -
preferred stock $ 8,367 $ 179 $ 101 $ 8,445
========= ======= ======= =========
Marketable equity securities -
common stock $ 5,439 $ 347 $ 359 $ 5,427
========= ======= ======= =========
</TABLE>
<PAGE>
5. Insurance Premiums and Claims
Insurance premiums written and earned by the Company's
insurance subsidiaries for the three months ended March 31,
1994 and 1993 are as follows (in thousands):
1994 1993
---- ----
Direct premiums written $74,270 $39,235
Assumed premiums written 1,149 989
Ceded premiums written (27,932) (8,876)
-------- --------
Net premiums written $47,487 $31,348
======== ========
Direct premiums earned $62,782 $36,781
Assumed premiums earned 903 1,682
Ceded premiums earned (25,707) (11,995)
-------- --------
Net premiums earned $37,978 $26,468
======== ========
Insurance loss and loss adjustment expenses have been
reduced by recoveries recognized under reinsurance contracts
of approximately $17,134,000 for the three months ended
March 31, 1994.
6. Bank Borrowings, Term Debt and Other Borrowings:
On March 31, 1994, the Company amended its borrowing
arrangements with its bank lenders. The new structure is a
$35 million line of credit with interest payable quarterly
at the Company's option of the prime rate or LIBOR plus a
margin of 1% to 1.75%, depending on the Company's debt to
equity ratio. The line of credit will mature in four years
and may be extended to five years by the bank lenders.
On March 31, 1994, the Company borrowed $25 million under
the arrangement. The proceeds were used to retire bank
borrowings and accrued interest of $17.7 million and to
provide capital for insurance subsidiaries. On April 6,
1994 the Company elected LIBOR plus 1.25% percent or 4.9375%
through May 6, 1994.
7. Income Taxes:
The Company recognized a deferred tax asset for all
temporary differences and net operating loss carryforwards
and a related valuation allowance account when realization
of the asset is uncertain. Accordingly, a valuation
allowance has been recorded for the full amount of the
deferred tax asset. During 1994, the valuation allowance
decreased approximately $786,000, the same amount the net
deferred tax asset decreased. The significant items
comprising the Company's net deferred tax asset as of March
31, 1994 are as follows (in thousands):
Net operating loss carryforwards
expiring in varying amounts through 2006 $ 2,828
Unpaid losses and loss adjustment expenses 6,489
Unearned premiums 3,683
Allowances for doubtful accounts 751
Major Realty basis difference 7,560
--------
Deferred tax asset 21,311
--------
Deferred policy acquisition costs (5,078)
Other (758)
--------
Deferred tax liability (5,836)
--------
15,475
Valuation allowance (15,475)
--------
Net deferred tax asset $ -
========
<PAGE>
PART I.
Item 2.
ACCEPTANCE INSURANCE COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of financial condition
and results of operations of the Company and its consolidated
subsidiaries is based upon the Company's interim consolidated
financial statement and the notes thereto included in this
report.
RESULTS OF OPERATIONS
Three months ended March 31, 1994
Compared to three months ended March 31, 1993
The Company's net income increased by 26.9% from $1,552,000
during the three months ended March 31, 1993 to $1,969,000 during
the same period in 1994. The principal components of this
increase in earnings were an improvement in the underwriting
results of the Company and a reduction in the interest expense of
the Company. These improvements were offset by a reduction in
the overall income produced by the investment portfolio of the
Company and an increase in the general and administrative
expenses of the Company.
During the first quarter of 1994, the Company's gross written,
net written and net earned premiums increased by 87.5%, 51.5% and
43.5% respectively as compared to the first quarter of 1993. The
two major components of this growth in premiums were the premiums
written by The Redland Group which was merged into the Company in
August 1993 and the premiums written by the Company's new
Scottsdale office which first began operating in October 1993.
These two elements combined to produce approximately $34 million
in direct written premiums during the first quarter of 1994, $23
million by The Redland Group and $11 million by the new
Scottsdale office. Coupled with this increase in premium revenue
was an improvement in the Company's overall underwriting results.
The Company's underwriting loss and expense ratio for the first
three months of 1994 fell to 98.3% as compared to 100.4% during
the same period in 1993. These improved underwriting results
resulted from a reduction in the loss ratio from 73.8% during the
first quarter of 1993 to 69.0% during the first quarter of 1994,
offset partially by an increase in the underwriting expense ratio
from 26.6% during the first quarter of 1993 to 29.3% during the
first quarter of 1994. These changes resulted primarily from the
addition of the business underwritten by The Redland Group which
carried a lower loss ratio, but higher expense ratio than the
Company's traditional lines. Redland's business lines are
concentrated in the rural communities, particularly in the
midwest where loss activity levels are historically lower during
the first quarter of the calendar year, but tend to increase with
increased activity in the rural community during the crop growing
season and with the increased storm activity during the spring
and summer months in the midwestern United States. Expense
levels during the first quarter of 1993 were reduced as a result
of the termination of certain reinsurance agreements while
expenses during the first quarter of 1994 were increased by the
addition of contingent commission agreements introduced in 1993
for the Company's agents.
During the first quarter of 1993, the Company's interest expense
was effected by higher interest rates under bridge notes
outstanding in that quarter. These notes were retired or
converted to equity during 1993, and therefore, the Company's
average interest rate was lower for the first quarter of 1994 as
compared to the first quarter of 1993. This reduction in
interest rates as well as lower average outstanding principal
amounts reduced the Company's interest expense by 53.4% from the
first quarter of 1993 to the first quarter of 1994. At the end
of the first quarter of 1994, the Company borrowed an additional
$7 million under a new bank loan facility, thus increasing its
bank borrowings and subsequent interest expense in future
quarters.
These benefits to the Company's net income were offset by a
reduction in the overall income produced by the Company's
investment portfolio. While investment income increased 5.3%
from the first quarter of 1993 to the first quarter of 1994, the
Company's realized gains fell by 54.5% between the two periods,
resulting in an overall decrease in the Company's total
investment income including realized gains of $152,000 from the
first quarter of 1993 to the first quarter of 1994. In addition,
the Company's general and administrative expenses increased by
$581,000 from the three months ended March 31, 1993 to the
similar period in 1994. This increase in general and
administrative expenses was principally due to the increased size
of the Company resulting from the merger of The Redland Group
into the Company in the summer of 1993.
Recent Statements of Financial Accounting Standards
On January 1, 1994, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." In conjunction with
the adoption of SFAS 115, the Company reclassified its debt and
equity securities to meet the requirements of the statement.
SFAS 115 requires investments in debt and equity securities to be
classified at acquisition into one of three categories; held to
maturity, available for sale, or trading. Securities are
classified as trading when they are bought and held principally
for the purpose of selling them in the near future. Securities
are classified as available for sale when the securities may be
sold from time to time to effectively manage interest rate
exposure and liquidity needs. Securities are classified as held
to maturity when the Company has a positive intent and an ability
to hold the securities until maturity.
At January 1, 1994 and March 31, 1994, all debt and equity
securities were classified as available for sale. Available for
sale securities are stated at fair market value with the
unrealized gains and losses reported as a separate component of
stockholders' equity. At March 31, 1994, the Company had an
unrealized loss on these securities of $2,481,000.
LIQUIDITY AND CAPITAL RESOURCES
The Company has included a discussion of the liquidity and
capital resources requirements of the Company and the Company's
insurance subsidiaries.
The Company - Parent Only
Historically, dividends from the insurance subsidiaries have not
been available to the Company because of restrictive covenants
set forth in the term and revolving loan agreements of the
Company's insurance subsidiaries which prohibited dividends from
the insurance subsidiaries to the Company without the expressed
consent from the holders of the debt obligation. In March 1994,
the Company agreed to amend its borrowing arrangements with its
bank lenders. The new arrangements transferred the debt
obligations from the holding companies of the insurance
subsidiaries to the parent company. At such time, the new loan
agreements no longer imposed restrictions on dividends from the
insurance subsidiaries to the Company. The new loan agreement is
structured as a $35 million line of credit with interest payable
quarterly at the Company's option of the prime rate or at LIBOR
plus a margin of 1% to 1.75% depending on the Company's debt to
equity ratio. The line of credit will mature in four years and
may be extended to five years by the bank lenders.
On March 31, 1994, the Company borrowed $25 million under the
agreement. The proceeds were used to retire bank borrowings and
accrued interest of $17.7 million and to provide capital for the
insurance subsidiaries.
In addition, dividends from the insurance subsidiaries of the
Company are regulated by the state regulatory authorities of the
states in which each subsidiary is domiciled. The laws of such
states generally restrict dividends from insurance companies to
parent companies to certain statutorily approved limits. As of
March 31, 1994, the statutory limitations on dividends from
insurance company subsidiaries to the parent without further
insurance department approval were approximately $3.4 million.
In addition to dividends, the parent company receives additional
liquidity from cash flows from the agency and claim service
operations of its noninsurance company subsidiaries.
Insurance Subsidiaries
The Company's insurance subsidiaries are highly liquid and are
able to meet their cash requirements on a timely basis. During
the first quarter of 1994, the Company retired all debt of the
insurance subsidiary holding companies as described above. Thus,
at March 31, 1994, the insurance subsidiaries had no outstanding
debt obligations.
On a longer term basis, principal liquidity needs of the
insurance company subsidiaries are to fund loss payments and loss
adjustment expenses required in the operation of its insurance
business. Primarily, the available sources to fund these
obligations are new premiums received and, to a lesser extent,
cash flows from the Company's portfolio operations. The Company
monitors its cash flow carefully and attempts to maintain its
portfolio at a duration which approximates the estimated cash
requirements for loss and loss adjustment expenses. The seasonal
nature of the Company's crop business generates a reverse cash
flow with acquisition costs in the first part of the year, losses
being paid over the summer months, and the related premiums not
collected until after the fall harvest. The cash flows from the
crop programs are similar in nature to cash flows in the farming
business.
Changes in Financial Condition
The Company's financial condition remained stable during the
first quarter of 1994. The Company's assets and liabilities were
primarily impacted by the settlement of crop losses under the
Company's federal multi-peril crop insurance program which
reduced both the liability for outstanding losses and loss
adjustment expenses as well as the asset for reinsurance
recoverable on unpaid loss and loss adjustment expenses. In
addition, the Company's debt obligations were restructured as
described above.
Consolidated Cash Flows
Cash flows from operations for the three months ended March 31,
1994 were a positive $2.8 million as compared to a positive $26.5
million for the first three months of 1993. Cash flows were
impacted during the first quarter of 1993 by the termination of
certain reinsurance agreements of the Company and the subsequent
transfer of in force business from the Company's reinsurers to
the Company. This change in the Company's reinsurance agreements
resulted in the insurance subsidiaries retaining more business.
Cash flows from financing activities for the three months ended
March 31, 1994 were primarily impacted by the restructuring of
the Company's bank borrowings as described earlier.
<PAGE>
Inflation
The Company does not believe that inflation has had a material
impact on its financial condition or the results of operation.
SUBSEQUENT EVENTS
On March 31, 1994, the Company entered into an agreement and plan
of merger with Statewide Insurance Corporation ("Statewide"), the
exclusive general agent for the Company's nonstandard automobile
insurance program underwritten by Phoenix Indemnity Insurance
Company ("Phoenix Indemnity"), and the owner of 20% of the
outstanding shares of common stock of Phoenix Indemnity pursuant
to which the Company will acquire by merger (the "Merger")
Statewide (except for certain assets and liabilities pertaining
to its agency operation other than the nonstandard automobile
program which will be divested prior to the merger). The merger
takes effect at the beginning of business on April 1, 1994.
<PAGE>
ACCEPTANCE INSURANCE COMPANIES INC.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
See Exhibit Index.
(b) No reports on Form 8-K were filed by the registrant
during the quarter for which this report is filed.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
ACCEPTANCE INSURANCE COMPANIES INC.
/s/ Kenneth C. Coon
May 13, 1994 ___________________________________
Kenneth C. Coon
Chief Executive Officer
/s/ Georgia M. Mace
May 13, 1994 ___________________________________
Georgia M. Mace
Treasurer and Chief Accounting
Officer
<PAGE>
ACCEPTANCE INSURANCE COMPANIES INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE MONTHS ENDED MARCH 31, 1994
EXHIBIT INDEX
NUMBER EXHIBIT DESCRIPTION
2 Agreement and Plan of Merger Between Acceptance
Insurance Companies Inc. and Statewide Insurance Corp.
of Phoenix, Inc., dated as of March 31, 1994.
10.1 $35,000,000 Credit Agreement By and Among Acceptance
Insurance Companies Inc., NBD Bank, N.A., First
National Bank of Omaha, FirsTier Bank, N.A., Comerica
Bank and NBD Bank, N.A., As Agent, dated as of March
31, 1994.
10.2 Intercompany Federal Income Tax Allocation Agreement
between Acceptance Insurance Holding Inc. and its
subsidiaries and Stoneridge Resources, Inc. dated April
12, 1990, and related agreements. Incorporated by
reference to Exhibit 10i to Stoneridge Resources, Inc.
Annual Report on Form 10-K for the fiscal year ended
August 31, 1990.
10.3 Amended and Restated Registration Rights Agreement,
dated April 9, 1990, between Stoneridge Resources, Inc.
and Patricia Investments, Inc. Incorporated by
reference to Exhibit 10d to Stoneridge Resources, Inc.
Quarterly Report on Form 10-Q for the period ended May
31, 1990.
10.4 Warrants to purchase a total of 389,507 shares of
common stock ($.10 par value) of Acceptance Insurance
Companies Inc. dated April 10, 1992, issued by
Acceptance Insurance Companies Inc. to the various
purchasers of the Floating Rate Secured Subordinated
Notes, due 1993, Series A and B. Incorporated by
reference to Exhibit 10.41 to the Stoneridge Resources,
Inc., Annual Report on Form 10-K for the fiscal year
ended December 31, 1991.
10.5 Employment Agreement dated February 19, 1990 between
Acceptance Insurance Holdings Inc., Stoneridge
Resources, Inc. and Kenneth C. Coon. Incorporated by
reference to Exhibit 10.65 to the Stoneridge Resources,
Inc., Annual Report on Form 10-K for the fiscal year
ended December 31, 1991.
11 Computation of Income per share.
99.1 Acceptance Insurance Companies Inc., 1992 Incentive
Stock Option Plan effective as of December 22, 1992.
Incoporated by reference to Exhibit 10.1 to the
Stoneridge Resources, Inc. (now, by change of name,
Acceptance Insurance Companies Inc.) Registration
Statement on Form S-1, Registration No. 33-53730.
99.2 Acceptance Insurance Companies Inc., Employee Stock
Purchase Plan, effective as of December 22, 1992.
Incorporated by reference to Exhibit 10.2 to the
Stoneridge Resources, Inc. (now, by change of name,
Acceptance Insurance Companies Inc.) Registration
Statement on Form S-1, Registration No. 33-53730.
99.3 Acceptance Insurance Companies Inc., Employee Stock
Ownership and Tax Deferred Savings Plan as merged,
amended and restated effective October 1, 1990.
Incorporated by reference to Exhibit 10.4 to the
Stoneridge Resources Inc. Quarterly Report on Form 10-Q
for the quarter ended November 30, 1990.
99.4 First Amendment to Acceptance Insurance Companies Inc.
Employee Stock Ownership and Tax Deferred Savings Plan.
Incorporated by reference to Exhibit 99.4 to the
Acceptance Insurance Companies Inc. Annual Report on
Form 10-K for the fiscal year ended December 31, 1993.
99.5 Second Amendment to Acceptance Insurance Companies Inc.
Employee Stock Ownership and Tax Deferred Savings Plan.
Incorporated by reference to Exhibit 99.5 to the
Acceptance Insurance Companies Inc. Annual Report on
Form 10-K for the fiscal year ended December 31, 1993.
EXHIBIT 2
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Merger Agreement" or
"Agreement") is entered into as of March 31, 1994, between
Acceptance Insurance Companies Inc., a Delaware corporation
("Acceptance") and Statewide Insurance Corp. of Phoenix, Inc.
(formerly known as Statewide Insurance Corp.) an Arizona
corporation ("Statewide").
WHEREAS, Acceptance is a holding company engaged in the
specialty property and casualty insurance business through
various subsidiaries; and
WHEREAS, Statewide has acted as the exclusive general agent
for Phoenix Indemnity Insurance Company, an Arizona-based
property and casualty insurance company and one of the Acceptance
subsidiaries ("PIIC"), to write a program of statutory non-
standard private passenger automobile insurance business
("Statewide Non-Standard Auto Program"), and has also acted as an
insurance agent for other subsidiaries of Acceptance and other
insurance companies for other lines of property and casualty
insurance not included in the Statewide Non-Standard Auto
Program; and
WHEREAS, Statewide intends to divest itself of certain
assets and liabilities relating to its business operations other
than the Statewide Non-Standard Auto Program, after which,
Acceptance and Statewide wish to consummate a merger of the two
companies ("Merger") under the terms and conditions of this
Agreement;
ACCORDINGLY, in consideration of the mutual covenants,
agreements, representations and warranties herein contained, the
parties hereto agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. Subject to the terms and conditions
contained in this Agreement, on the Closing Date (as defined in
Section 1.6), Statewide shall be merged with and into Acceptance
in accordance with this Agreement and the applicable provisions
of the Delaware Corporation Law (the "Delaware Law"), and the
Arizona General Corporation Law (the "Arizona Law"); the
separate existence of Statewide shall cease; and Acceptance
shall continue as the surviving corporation (the "Surviving
Corporation") and shall continue its corporate existence under
the laws of the State of Delaware.
1.2 Divestiture by Statewide Prior to Merger. Prior to the
Closing, Statewide shall have taken action to divest the assets
and liabilities of Statewide which relate to its business
operations other than the Statewide Non-Standard Auto Program
into a new corporation to be formed by Statewide or its
shareholders ("NewCo") (provided, however, Statewide may, at its
election, leave all receivables due from agents in Statewide, in
which event Acceptance shall take all reasonable steps to protect
such receivables and effect their collection, including, but not
limited to, offsetting commissions due such agents, and NewCo
shall cooperate with Acceptance in effecting collection of such
receivables, reimburse Acceptance for all costs of collection,
and indemnify Acceptance for any such receivables due from agents
which remain uncollected on December 31, 1994), and, after the
Closing Date, Statewide will have no further liability with
respect to the Statewide liabilities assumed by NewCo. NewCo
shall, after the Closing, be entitled to the exclusive use of the
name "Statewide", "Statewide Insurance Corp." or any similar
variation or derivation thereof as a part of its corporate name
and in connection with its business operations. Where
appropriate herein "Statewide" shall mean Statewide Insurance
Corp. of Phoenix, Inc. (formerly known as Statewide Insurance
Corp.), after the divestiture described in this Section 1.2
1.3 Effective Date. On the Closing Date the parties hereto
shall cause the Merger to be consummated by the filing of a
Certificate of Merger with the Secretary of State of Delaware in
Accordance with the provisions of the Delaware Law, and Articles
of Merger with the Arizona Corporation Commission, in accordance
with the provisions of the Arizona Law. The Merger shall become
effective immediately upon completion of such filings, which
filings shall be made contemporaneously with the Closing. The
date on which the Merger shall become effective shall be
hereinafter referred to as the "Effective Date".
Notwithstanding the foregoing, the effective date of the
Merger, for financial reporting purposes, shall be at 12:00 p.m.,
Central Time, March 31, 1994.
1.4 Effect of the Merger. On the Effective Date,
Acceptance, as the Surviving Corporation, shall possess all of
the rights and property of Statewide, and all of Statewide's
obligations and liabilities, other than those rights, properties,
obligations and liabilities divested by Statewide before the
Merger in accordance with Section 1.2, and all other effects of
the Merger provided for by the Arizona Law and Delaware Law shall
result therefrom.
1.5 Certificate of Incorporation, By-laws, Officers and
Directors of Surviving Corporation. The Certificate of
Incorporation and By-laws of Acceptance in effect immediately
prior to the Effective Date shall be the Certificate of
Incorporation and By-laws of the Surviving Corporation, without
amendment. The directors and officers of Acceptance immediately
prior to the Effective Date shall be the directors and officers
of the Surviving Corporation, in each case until their successors
are duly elected or appointed and qualified, or as otherwise
provided in the By-laws of Acceptance or by law.
1.6 Closing Date, Time and Place. The closing of the
Merger (the "Closing") shall take place on the later of (a) the
day after the approval of the Merger by the Statewide
shareholders as provided for in Section 7.6, (b) the earliest
date on which all of the conditions set forth in Article VIII are
fulfilled or waived, or (c) March 31, 1994; or on such other
date and time as Acceptance and Statewide agree to in writing
(the "Closing Date"). The Closing shall take place at such time
and place as the parties may agree.
ARTICLE II
CONVERSION OF SHARES
2.1 Conversion of Shares. On the Effective Date, by virtue
of the Merger and without any action on the part of any holder of
any securities of Acceptance or Statewide, each share of common
stock, par value $100.00 per share, of Statewide ("Statewide
Common Stock"), then issued and outstanding, other than
Dissenting Shares (as that term is defined in Section 2.4) and
Statewide Common Stock held in treasury, shall be converted into
the right to receive only the Merger Consideration (as such term
is defined in Section 2.2) upon the surrender of the
certificate(s) representing such Statewide Common Stock; and
each share of Statewide Common Stock then held in treasury of
Statewide or any direct or indirect subsidiary of Statewide,
shall be canceled and retired without any conversion thereof and
no payment of any consideration therefor.
2.2 Merger, Consideration. The Merger Consideration with
respect to all of the outstanding Statewide Common Stock shall be
that number of shares of common stock of Acceptance, par value
$.40 per share ("Acceptance Common Stock"), equal to the quotient
of $3.1 million (subject to Post Closing Adjustments, as defined
herein) divided by the Average Trading Price (as defined herein)
of the Acceptance Common Stock. For purposes of this Section
2.2, the "Average Trading Price" shall mean the volume-weighted
average of the closing prices of Acceptance Common Stock on the
New York Stock Exchange ("NYSE") for the period March 1, 1994,
through March 29, 1994. Post Closing Adjustments shall mean the
result obtained by applying the following formula ("Post Closing
Formula"), utilizing the final numbers contained in Statewide's
balance sheet as of the close of business on March 31, 1994, and
shall be completed no later than June 30, 1994:
$5.5 million, plus the fair market value of the shares
of stock of PIIC held by Statewide (fair market value
to equal the book value, based upon GAAP, of said
shares based upon the books of PIIC), plus the book
value of the furniture, fixtures and equipment of
Statewide, plus or minus the net balance of agents'
accounts, minus customer deposits held by Statewide and
minus the account payable due from Statewide to PIIC.
2.3 Conversion Procedure. On the closing date, Acceptance
shall deliver to the Statewide shareholders that number of shares
of Acceptance Common Stock equal to the quotient of $3.1 million
divided by the Average Trading Price, whichshall be available for
immediate distribution (the "Immediate Distribution Shares").
If, after the Post Closing adjustments, the Immediate
Distribution Shares exceed the number of shares to which the
Statewide shareholders are entitled, the excess shall be returned
to Acceptance immediately by the Statewide shareholders. If,
after Post Closing Adjustments, the Immediate Distribution Shares
are less than the number of shares to which the shareholders of
Statewide are entitled, Acceptance shall immediately deliver to
the Statewide shareholders sufficient additional shares of
Acceptance Common Stock required (the "Deferred Distribution
Shares"), and then the Deferred Distribution Shares shall be
available for immediate distribution to the Statewide
shareholders. The Statewide shareholders will receive
information and instructions from Acceptance in form and content
satisfactory to Acceptance and Statewide, regarding the
procedures to be followed for the surrender of certificates for
Statewide Common Stock in exchange for the Merger Consideration.
2.4 Fractional Shares. No fractional shares of Acceptance
Common Stock shall be issued in the Merger, and in lieu of such
fractional shares, Acceptance shall pay cash for any fractional
interest, assuming a valuation for each whole share of Acceptance
Common Stock equal to the Average Trading Price of the Acceptance
Common Stock.
2.5 Dissenting Shares. Dissenting shares are those shares
of Statewide Common Stock held by Statewide shareholders who
perfect their rights as "dissenting Shareholders" under
applicable provisions of the Arizona Law.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF STATEWIDE
Statewide represents and warrants to, and agrees with,
Acceptance as follows:
3.1(a) Organization, Standing and Power. Statewide is a
corporation duly organized and validly existing under the laws of
the State of Arizona and has the requisite power and authority to
carry on its business as now being conducted. Statewide is duly
qualified and holds any required license to do business and is in
good standing in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such
qualification or license necessary, other than in such
jurisdictions where the failure to be so qualified or licensed
would not have a Material Adverse Effect (as defined below) on
Statewide, or such jurisdictions in which Statewide has believed,
in good faith, it is not required to be so qualified or licensed.
Schedule 3.1 sets forth as to Statewide each jurisdiction in
which it is authorized to do business, the nature of the business
done and the nature of the license or other certification held to
transact such business, and each jurisdiction in which Statewide
has pending an application to do business, and the status of such
application, and each jurisdiction in which Statewide does any
business but is not qualified or licensed, the nature of the
business done in such jurisdiction and the reason why Statewide
has believed, in good faith, that it is not required to be so
qualified or licensed in such jurisdiction. The term "Material
Adverse Effect" means, as to any party, any change or effect (or
any development that, insofar as reasonably can be seen, is
likely to result in the change or effect) that is materially
adverse to the business, properties, assets, condition (financial
or otherwise) or results of operations of such party.
3.1(b) Divestiture to NewCo. Prior to the Closing,
Statewide shall have taken action to divest itself of certain
assets and liabilities by transfer to NewCo as described herein
on terms and conditions reasonably satisfactory to Acceptance and
without material tax consequence to Statewide.
3.2 Capital Structure. The authorized capital stock of
Statewide consists of 100,000 shares of common stock. As of the
date hereof, there are 157.5 shares of said common stock issued
and outstanding (exclusive of Treasury stock). There are no
options, warrants or other rights or agreements of any kind for
the issuance or sale by Statewide of any shares of capital stock
or any security convertible into or exchangeable for shares of
capital stock of Statewide. Schedule 3.2 sets forth the name,
address and Social Security or Tax Identification Number of each
shareholder of Statewide, and the number of shares of Statewide
Common Stock owned by such shareholder.
3.3 Authority. As of the Closing Date and the Effective
Date, the execution and delivery of this Agreement, and the
consummation of the transactions contemplated hereby, shall have
been duly and validly authorized by Statewide; shall have been
approved by the Board of Directors of Statewide, and shall have
been approved by the requisite vote of the holders of Statewide
Common Stock. This Agreement has been duly executed and
delivered by Statewide and, subject to the satisfaction of waiver
of the conditions set forth in Article VIII, constitutes a valid
and binding obligation of Statewide, enforceable against it in
accordance with the terms hereof.
3.4 No Conflicting Agreements, Etc. The execution and
delivery of this Agreement does not, and the consummation of the
transactions contemplated hereby in compliance with the
provisions hereof will not, conflict with, or result in any
violation of, or default (with or without notice or lapse of
time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation or to a loss of a
material benefit under, or result in the creation of any lien,
security interest, charge or encumbrance upon any of the
properties or assets of Statewide under, any provision of (a) the
Articles of Incorporation or By-laws of Statewide, or (b) any
loan or credit agreement, note, mortgage, indenture, lease or
other agreement, permit, franchise, license, order, law,
ordinance, rule or regulation applicable to Statewide or its
properties or assets, other than, in the case of clause (b), any
such conflicts, violations, defaults, rights or liens, security
interests, charges or encumbrances that have been waived or that,
individually or in the aggregate, would not have a Material
Adverse Effect on Statewide and would not materially impair the
ability of Statewide to perform its obligations hereunder, or
other than as set forth on Schedule 3.4.
3.5 Consents and Approvals. To the knowledge of Statewide,
no consent, approval, order or authorization of, or registration,
declaration of filing with, any court, administrative agency or
commission or other governmental authority or agency, domestic or
foreign (a "Governmental Entity"), is required by or with respect
to Statewide in connection with the execution and delivery of
this Agreement or the consummation of the transactions
contemplated hereby, except for (a) such notification or filings
as may be required under state insurance laws and regulations,
(b) such filings and approvals as may be required under the "blue
sky" laws of various states, and (c) the filing with the
Securities and Exchange Commission ("SEC") under Sections 13 and
14 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the regulations promulgated thereunder, of
such reports as may be required in connection with this Agreement
and the transactions contemplated hereby.
3.6 Financial Statements. Set forth in Schedule 3.6 is the
pro forma balance sheet of Statewide (after the divestiture
described in Section 1.2) as of March 31, 1994, giving effect to
the divestiture of certain assets and liabilities described in
Section 1.2, prepared in a manner consistent with generally
accepted accounting principles ("GAAP"), and such balance sheet
presents fairly the financial position of Statewide (after the
divestiture described in Section 1.2) at March 31, 1994.
3.7 Absence of Undisclosed Liabilities. Except as and to
the extent reflected or reserved against in the pro forma balance
sheet referred to in Section 3.6, or set forth in Schedule 3.7,
or any other Schedule attached hereto, Statewide does not have,
as of the Closing Date or the Effective Date, any material
liabilities or obligations of any nature, whether absolute,
accrued, contingent or otherwise, of the nature which would be
required to appear on the pro forma balance sheet, or in the
notes thereto, prepared as of such date in accordance with GAAP;
which exceed in the aggregate $50,000; or would have a Material
Adverse Effect on Statewide.
3.8 Litigation. There is no suit, action or proceeding
pending or, to the knowledge of Statewide threatened, against or
affecting Statewide that is reasonably likely to have a Material
Adverse Effect on Statewide (and Statewide is not aware of any
basis for any such suit, action or proceeding) except as and to
the extent reflected or reserved against in the pro forma balance
sheet referred to in Section 3.6 or in Schedule 3.7 or any other
Schedule attached hereto, nor is there any judgment, decree,
injunction, rule or order of any Governmental Entity outstanding
against Statewide, having, or which, insofar as reasonably can be
foreseen, in the future would have, any such effect.
3.9 Contracts; Defaults; Indebtedness. To the knowledge
of Statewide, Statewide is not in violation of or in default in
respect of (nor does there exist any condition which upon the
passage of time would cause such a violation of or default in
respect of) any loan or credit agreement, note, mortgage,
indenture, lease, franchise, license or any other contract,
agreement, instrument, arrangement or understanding, to which it
is a party, guarantor, surety or otherwise obligated therefor, or
by which it or any of its properties or assets is bound, except
for violations or defaults which would not, individually or in
the aggregate, have a Material Adverse Effect on Statewide. Set
forth on Schedule 3.9 is a list of (i) all material credit or
loan agreements, notes, mortgages, indentures and other debt
instruments and the respective unpaid principal amounts
outstanding thereunder, and (ii) any material agreement or
understanding entered into other than in the ordinary course of
business, to which Statewide is a party.
3.10 Benefit Plans. Statewide has not adopted any
collective bargaining agreement or any bonus, pension, profit
sharing, deferred compensation, incentive compensation, stock
ownership, stock purchase, stock option, phantom stock,
retirement, vacation, severance, disability, death benefit,
hospitalization, insurance or other plan, arrangement or
understanding providing benefits to any current or former
employee or director of Statewide (collectively, "Benefit Plans")
except as set forth in Schedule 3.10 or Schedule 3.13. Schedule
3.10 lists each (a) employment, severance or collective
bargaining agreement binding Statewide not terminable on 60 days'
or less notice; (b) agreement with any director, executive
officer or other key employee of Statewide (i) the benefits of
which are contingent, or the terms of which are materially
altered, upon the occurrence of a transaction involving Statewide
of the nature of any of the transactions contemplated by this
Agreement, (ii) providing any term of employment or compensation
guarantee, (iii) providing severance benefits or other benefits
after the termination of employment of such director, executive
officer or key employee, (iv) relating to the grant or
acquisition of Statewide capital stock or options to purchase
Statewide capital stock (whether or not pursuant to a Benefit
Plan), or (v) compensation of the nature described in Item 402 of
SEC Regulation S-K; (c) agreement or plan binding upon
Statewide, including any stock option plan, stock appreciation
right plan, restricted stock plan or stock purchase or savings
plan, any of the benefits of which will be increased, or the
vesting of the benefits of which will be accelerated, by the
occurrence of any of the transactions contemplated by this
Agreement or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated
by this Agreement; and (d) each Benefit Plan pursuant to which
Statewide capital stock or options to purchase Statewide capital
stock may be acquired by participants therein.
3.11 Taxes. Statewide has filed all tax returns required to
be filed by it and has paid, or has set up an adequate reserve
for the payment of, all taxes, assessments or penalties required
to be paid in respect of the periods covered by such returns, and
the pro forma balance sheet attached as Schedule 3.6 reflects an
adequate reserve for all taxes payable by Statewide for all
taxable periods and portions thereof through the date of such
balance sheet. Statewide is not delinquent in the payment of any
material tax, assessment, penalty or governmental charge. No
material deficiencies for any taxes, and no assessments, charges
or penalties related to any tax matter, have been proposed,
asserted or assessed against Statewide which remain unpaid or
which have not been settled, and no requests for waivers of the
time to assess any such tax, assessment or penalty have been
requested for any taxable year of Statewide for which the statute
of limitations has not expired. As used in this Agreement,
"taxes" shall include all federal, state, local and foreign-
income, property, sales, excise and other taxes of any nature
whatsoever.
3.12 Compliance with Laws. To the knowledge of Statewide,
Statewide has not violated or failed to comply with any statute,
law, ordinance, regulation, rule or order of any federal, state
or local governments, domestic or foreign, or any Governmental
Entity, or any judgment, decree or order of any court or other
Governmental Entity, applicable to its business or operations
except for violations and failures to comply that could not,
individually or in the aggregate, reasonably be expected to
result in a Material Adverse Effect on Statewide.
3.13 Employee Benefit Plans, Employment Practices. Schedule
3.13 (or Schedule 3.10) hereto identifies each employee benefit
program, plan, or arrangement under which Statewide has any
outstanding obligation or a liability to any employees, former
employees, consultants or agents of Statewide or the dependants
or beneficiaries of such persons. To the knowledge of Statewide,
where required by law or applicable regulation, each such benefit
program, plan or arrangement is, except as disclosed in Schedule
3.13 (or Schedule 3.10), in compliance with the Employee
Retirement Income Security Act of 1974, as amended, and any
regulations promulgated thereunder, and with the Code and any
regulations promulgated thereunder. Except as set forth on
Schedule 3.13 (or Schedule 3.10), no current or former employee
of Statewide has made any claim or brought to the attention of
Statewide, a set of facts which such employee believes supports a
claim involving the employment practices and conditions of
Statewide which will result in any material liability to
Statewide for a violation of applicable federal, state or local
law or regulations. Statewide has furnished to Acceptance its
current employee manual or manuals and all similar documents
defining rules and regulations of, or relating to, employment at
Statewide. Except as set forth in Schedule 3.13 (or Schedule
3.10), no employees of Statewide have "fixed term" employment
contracts, and, subject to any and all restrictions as might be
imposed by a court of competent jurisdiction under statutory or
common law, to the knowledge of Statewide, all such employees may
be discharged with or without a cause.
3.14 Disclosure. Neither this Agreement nor any of the
Schedules attached hereto, nor any document, statement,
certificate or schedule to be furnished to Acceptance pursuant
hereto, knowingly contains or will knowingly contain any untrue
statement of any material fact or, when viewed collectively,
omits or will omit to state any known material fact required to
be stated herein or therein or necessary in order to make the
statements contained herein or therein, in light of the
circumstances under which they were made, not misleading.
3.15 Proprietary Information. Statewide has, over a number
of years, developed a data base of information relating to the
Statewide Non-Standard Auto Program, including information
regarding agents and agent relationships, policyholders,
reinsurers, underwriting and loss information, premiums, losses
and loss adjustment expenses, and related information, along with
statistical analyses of such information, both on a current and
historical basis, utilized in Statewide's operations (such
information, in the aggregate called the "Proprietary
Information"). The Proprietary Information is proprietary to
Statewide, and no other party is entitled to use the Proprietary
Information. Statewide has not licensed or otherwise authorized
use of the Proprietary Information by any other party. The
Proprietary Information is essential to the continued operation
of Statewide's business, and constitutes a material part of the
value of Statewide. Upon consummation of the Merger, Statewide's
title to the Proprietary Information shall be unimpaired, and
Acceptance shall have exclusive use of the Proprietary
Information in its operations, provided, however, it is expressly
understood and agreed between the parties hereto that NewCo and
the shareholders of Statewide intend, and shall have the right,
to engage in any and all forms of insurance and insurance-related
businesses unrelated to the Statewide Non-Standard Auto Program,
and, as to NewCo and any and all of the shareholders of
Statewide, they shall have the right, in perpetuity, to utilize
any and all of the Proprietary Information, so long as it is not
used in any manner as to be in competition with the Statewide
Non-Standard Auto Program remaining in Statewide after the
divestiture described in Section 1.2 hereof.
3.16 Insurance. Schedule 3.16 sets forth insurance policies
in force, with the termination date thereof, protecting
Statewide's assets and protecting Statewide from liability to
third parties, including any Errors & Omissions insurance
covering the acts of employees or other representatives of
Statewide. Statewide will maintain the effectiveness of such
insurance policies until the Effective Date, and, with respect to
the Errors & Omissions insurance, for a period ending four years
after the Effective Date for all acts of Statewide occurring
prior to the Effective Date.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ACCEPTANCE
Acceptance represents and warrants to, and agrees with
Statewide, as follows:
4.1 Organization; Standing and Power. Acceptance is a
corporation duly organized, validly existing and is in good
standing under the laws of the State of Delaware and has the
requisite power and authority to carry on its business as now
being conducted. Acceptance is duly qualified and holds any
required license to do business and is in good standing in each
jurisdiction in which the nature of its business or the ownership
or leasing of its properties makes such qualification or license
necessary, other than in such jurisdiction where the failure to
be so qualified or licensed would not have a Material Adverse
Effect on Acceptance.
4.2 Capital Structure. The authorized capital stock of
Acceptance consists of 5,000,000 shares of Preferred Stock, no
par value, of which none are issued and outstanding, and
20,000,000 shares of Common Stock, $.40 par value, of which
9,692,134 are issued and outstanding, 35,559 shares of Common
Stock are held by Acceptance in its treasury, 4,867,463 shares of
Common Stock are reserved for issuance pursuant to the exercise
through January 27, 1997 of publicly traded Warrants, 97,376
shares of Common Stock are reserved for issuance pursuant to the
exercise through April 1, 1997, of outstanding warrants, 427,220
shares of Common Stock are reserved for issuance pursuant to the
exercise, from time to time, of outstanding options, and there
were no other shares of Common Stock or Preferred Stock
outstanding. All outstanding shares of Acceptance capital stock
are validly issued, fully paid and nonassessable and not subject
to preemptive rights. There are no options, warrants or other
rights or agreements of any kind for the issuance or sale by
Acceptance of any shares of capital stock or any security
convertible into or exchangeable for shares of capital stock of
Acceptance.
4.3 Authority. Acceptance has all requisite power and
authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of
this Agreement by Acceptance and the consummation by Acceptance
of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of Acceptance.
This Agreement has been duly executed and delivered by Acceptance
and, subject to satisfaction or waiver of the conditions set
forth in Article VIII, constitutes a valid and binding obligation
of Acceptance enforceable against Acceptance in accordance with
its terms. The shares of Acceptance Common Stock to be issued by
Acceptance in connection with the Merger will, upon issuance and
delivery, be duly authorized, validly existing, fully paid and
nonassessable and are and will be free of any preemptive rights
of the shareholders of Acceptance and free of any claim, lien or
encumbrance created by or based on a claim against Acceptance.
4.4 No Conflicting Agreements, Etc. The execution and
delivery of this Agreement do not, and the consummation of the
transactions contemplated hereby will not, conflict with or
result in any violation of or default (with or without notice or
lapse of time, or both) under, give rise to a right of
termination, cancellation or acceleration of any obligation or to
loss of a material benefit under, or result in the creation of
any lien, security interest, charge or encumbrance upon any of
the properties or assets of Acceptance under any provision of (a)
the Certificate of Incorporation or By-laws of Acceptance, or (b)
any loan or credit agreement, note, mortgage, indenture, lease,
or other agreement, permit, franchise, license, judgment, order,
law, ordinance, rule or regulation applicable to Acceptance or
its properties or assets, other than, in the case of clause (b),
any such conflicts, violations or defaults that have been waived
or that, individually or in the aggregate, would not have a
Material Adverse Effect on Acceptance and would not materially
impair the ability of Acceptance to perform its obligations
hereunder.
4.5 Consents and Approvals. To the best knowledge of
Acceptance after due inquiry, no consent, approval, order or
authorization of, or registration, declaration or filing with,
any court, administrative agency or commission or other
Governmental Entity is required by or with respect to Acceptance
or any of its Subsidiaries in connection with the execution and
delivery of this Agreement by Acceptance or the consummation by
Acceptance of the transactions contemplated hereby, except for
(a) such filings as may be required under state insurance laws
and regulations, (b) such filings and approvals as may be
required under the "blue sky" laws of various states, and (c) the
filing with the SEC of such reports under Sections 13 and 14 of
the Exchange Act, and the regulations thereunder, as may be
required in connection with this Agreement and the transactions
contemplated hereby.
4.6 Financial Statements. At the earliest date possible,
and in no event later than five days prior to the Closing Date,
Acceptance will have furnished to Statewide its audited
consolidated balance sheets as of December 31, 1993 and
consolidated statements of operations, consolidated statements of
stockholders' equity and consolidated statements of cash flows
for the year then ended, prepared in accordance with GAAP. Such
consolidated balance sheet presents fairly the financial position
of Acceptance and its Subsidiaries, and such statement of
operations presents fairly the results of operations and retained
earnings of Acceptance and its Subsidiaries for the period
indicated.
4.7 Absence of Undisclosed Liabilities. Except as and to
the extent reflected or reserved against in the balance sheet
referred to in Section 4.6 hereof, Acceptance does not have as of
the Closing Date or the Effective Date, any material liabilities
or obligations of any nature, whether absolute, accrued,
contingent or otherwise, of the nature which would be required to
appear on a balance sheet, or in the notes thereto, prepared as
of such dates in accordance with GAAP, or which would have any
Material Adverse Effect on Acceptance. There is no suit, action
or proceeding pending, or, to the knowledge of Acceptance
threatened, against or effecting Acceptance that is reasonably
likely to have a Material Adverse Effect on Acceptance (and
Acceptance is not aware of any basis for any such suit, action or
proceeding), nor is there any judgment, decree, injunction, rule
or order of any Governmental Entity outstanding against
Acceptance, having, or which, insofar as reasonably can be
foreseen, in the future would have, any such effect.
4.8 SEC Filings. Since January 1, 1991, Acceptance has
filed with the SEC all annual, quarterly and current reports, and
proxy statements and registration statements (including all
amendments, exhibits and schedules thereto and documents
incorporated by reference therein) required to be filed by
Acceptance under the Securities Act and the Exchange Act, and the
rules and regulations promulgated by the SEC thereunder
("Reports"). To the best knowledge of Acceptance, after due
inquiry, the Reports (including all Reports filed with the SEC
after the date hereof) as of their respective dates (as amended
through the date hereof) did not contain any untrue statement of
a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in
view of the circumstances under which they were made, not
misleading.
4.9 Contracts; Defaults; Indebtedness. Acceptance is not
in violation of or in default in respect of (nor does there exist
any condition which upon the passage of time would cause such a
violation of or default in respect of) any loan or credit
agreement, note, mortgage, indenture, lease, franchise, license
or any other contract, agreement, instrument, arrangement or
understanding, to which it is a party, guarantor, surety or
otherwise obligated therefor, or by which it or any of its
properties or assets is bound, except for violations or defaults
which would not, individually or in the aggregate, have a
Material Adverse Effect on Acceptance.
4.10 Taxes. Acceptance has filed all tax returns required
to be filed by it and has paid, or has set up an adequate reserve
for the payment of, all taxes, assessments or penalties required
to be paid in respect of the periods covered by such returns, and
Acceptance's most recent audited consolidated financial
statements reflect an adequate reserve for all taxes payable by
Acceptance for all taxable periods and portions thereof through
the date of such consolidated financial statements. Acceptance
is not delinquent in the payment of any material tax, assessment,
penalty or governmental charge. No material deficiencies for any
taxes and no assessments, charges or penalties related to any tax
matter have been proposed, asserted or assessed against
Acceptance which remain unpaid or which have not been settled,
and no requests for waivers of the time to assess any such tax,
assessment or penalty have been requested for any taxable year of
Acceptance for which the Statute of Limitations has not expired.
As used in this Agreement, "taxes" shall include all federal,
state, local and foreign income, property, sales, excise and
other taxes of any nature whatsoever.
4.11 Compliance With Laws. To the best knowledge of
Acceptance after due inquiry, Acceptance has not violated or
failed to comply with any statute, law, ordinance, regulation,
rule or order of any federal, state or local governments,
domestic or foreign, or any Governmental Entity, or any judgment,
decree or order of any court or Governmental Entity, applicable
to its business or operations except for violations and failures
to comply that could not, individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect on
Acceptance.
4.12 Disclosure. Neither this Agreement nor any of the
schedules attached hereto, nor any document, statement,
certificate or schedule to be furnished to Statewide pursuant
hereto, knowingly contains or will knowingly contain any untrue
statement of any material fact, when viewed collectively, or
omits or will omit to state any known material fact required to
be stated herein or therein or necessary in order to make the
statements contained herein or therein, in light of the
circumstances under which they were made, not misleading.
<PAGE>
ARTICLE V
COVENANTS OF STATEWIDE RELATING TO CONDUCT
OF STATEWIDE'S BUSINESS
During the period from the date of this Agreement and
continuing until the Closing Date and Effective Date, Statewide
agrees, except as expressly contemplated by this Agreement or to
the extent that Acceptance shall otherwise consent in writing,
that:
5.1 Ordinary Course. Statewide will (except for the
divestiture contemplated by Section 1.2) carry on its businesses
in the usual, regular and ordinary course in substantially the
same manner as heretofore conducted and, to the extent consistent
therewith, use all reasonable efforts to preserve intact its
current business organizations, keep available the services of
the current officers and employees and preserve its relationships
with agents, insureds, reinsurers, suppliers and others having
business dealings with them to the end that their goodwill and
ongoing businesses shall be unimpaired at the Closing Date and
Effective Date.
5.2 Dividends; Changes in Stock. Statewide shall not, and
shall not propose to (i) declare or pay any dividends on, or make
other distributions in respect of, any of its capital stock;
(ii) split, combine or reclassify any of its capital stock or
issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for shares of capital
stock of Statewide; (iii) repurchase or otherwise acquire any
shares of its capital stock; or (iv) issue, deliver or sell, or
authorize, propose or commit to the issuance, delivery or sale
of, any shares of its capital stock of any class, or any
securities convertible into, or any rights, warrants or options
to acquire, any such shares or convertible securities.
5.3 No Acquisitions. Statewide shall not (i) acquire or
agree to acquire by merging or consolidating with, or by
purchasing a substantial portion of the assets of, or by any
other manner, any business or any corporation, partnership,
association or other business organization or division thereof,
or (ii) acquire or agree to acquire any assets other than in the
ordinary course of business.
5.4 No Dispositions. Except for the divestiture of certain
assets described in Section 1.2, Statewide shall not sell, lease,
pledge or otherwise dispose of, or agree to sell, lease, pledge
or otherwise dispose of, any of its assets other than
dispositions of worn out or obsolete properties in the ordinary
course of business consistent with past practices.
5.5 No Indebtedness. Statewide shall not incur any
indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities of Statewide or
guarantee any debt securities of others.
5.6 Other Actions. Statewide shall not take or omit to
take any action, which action or omission would, or is reasonably
likely to, result in (i) any of the representations and
warranties of Statewide set forth in this Agreement that are
qualified as to materiality becoming untrue, (ii) any of such
representations and warranties that are not so qualified becoming
untrue in any material respect or (iii) any of the conditions to
the Merger set forth in Article VIII not being satisfied.
Without limiting the foregoing, Statewide shall not take or omit
to take any action, which action or omissions would, or is
reasonably likely to, (a) increase the compensation payable to
its officers or employees (except for increases consistent with
past practice), (b) grant any severance or termination pay to, or
enter into any employment or severance agreement with, any
director, officer or other employee of Statewide other than in
the ordinary course of business consistent with past practices,
(c) establish, adopt, enter into or make any new grants or awards
under or amend any Benefit Plan, (d) constitute a breach of or
default under any contract or agreement to which it is a party,
guarantor, surety or otherwise obligated therefor, or to which
any of its assets may be subject, (e) violate any applicable law,
regulation, ordinance, order, injunction or decree of any
Governmental Entity, (f) constitute a failure to file all
required reports and returns with any Governmental Entity, or (g)
constitute a failure to promptly pay all taxes, assessments,
penalties or tax payments lawfully levied or assessed against it
or any of its properties.
5.7 Advice of Changes. Statewide shall promptly advise
Acceptance orally and in writing of any change or event having,
or which, insofar as can reasonably be foreseen would have, a
Material Adverse Effect on Statewide.
ARTICLE VI
ACCEPTANCE COVENANTS RELATING TO CONDUCT OF BUSINESS
During the period from the date of this Agreement and
continuing until the Closing Date and Effective Date, Acceptance
agrees (except as expressly contemplated by this Agreement or to
the extent that Statewide shall otherwise consent in writing)
that:
6.1 Ordinary Course. Acceptance shall carry on its
business in the usual, regular and ordinary course in
substantially the same manner as heretofore conducted and, to the
extent consistent therewith, use all reasonable efforts to
preserve intact its current business organizations, keep
available the services of the current officers and employees and
preserve their relationships with agents, insureds, reinsurers,
suppliers and others having business dealings with them to the
end that its goodwill and ongoing businesses shall be unimpaired
at the Closing Date and Exchange Date.
6.2 Changes in Stock. Acceptance shall not, and shall not
propose to, split, combine or reclassify any of its capital stock
or issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for shares of capital
stock of Acceptance or issue, deliver or sell, or authorize,
propose or commit to the issuance, delivery or sale of, any
shares of its capital stock of any class, or any securities
convertible into, or any rights, warrants or options to acquire,
any such shares or convertible securities, if the consequence
thereof would have a Material Adverse Effect upon the value of,
or the rights represented by, the Merger Consideration.
6.3 Other Action. Acceptance shall not take or omit to
take any action, which action or omission would, or is reasonably
likely to, result in (i) any of the representations and
warranties of Acceptance set forth in this Agreement that are
qualified as to materiality becoming untrue, (ii) any of such
representations and warranties that are not so qualified becoming
untrue in any material respect or (iii) any of the conditions to
the Merger set forth in Article VIII not being satisfied or (iv)
a Material Adverse Effect upon Acceptance or upon the value of,
or the rights represented by, the Merger Consideration. Without
limiting the foregoing, Acceptance shall not take or omit to take
any action, which action or omission would, or is reasonably
likely to (a) constitute a breach of or default under any
contract or agreement to which it is a party, guarantor, surety
or otherwise obligated therefor, or to which any of its assets
may be subject, (b) violate any applicable law, regulation,
ordinance, order, injunction or decree of any Governmental
Entity, (c) constitute a failure to file all required reports and
returns with any Governmental Entity, or (d) constitute a failure
to promptly pay all taxes, assessments, penalties or tax payments
lawfully levied or assessed against it for any of its properties.
6.4 Advice of Changes. Acceptance shall promptly advise
Statewide orally and in writing of any change or event having, or
which, insofar as can reasonably be foreseen would have, a
Material Adverse Effect on Acceptance, or upon the value of, or
the rights represented by, the Merger Consideration.
ARTICLE VII
ADDITIONAL AGREEMENTS
7.1 Pre-Closing Divestiture by Statewide. Prior to the
Closing Date and Effective Date, Statewide shall take such action
as may be necessary to divest those Statewide assets and
liabilities which relate to Statewide's current business other
than the assets and liabilities relating to the Statewide Non-
Standard Auto Program, as provided in Section 1.2, by transfer to
NewCo. The assets and liabilities relating to the Statewide Non-
Standard Automobile Program, and the agents' balances, if left in
Statewide as provided in Section 1.2, will constitute the assets
and liabilities of Statewide at the time of Closing and at the
Effective Date. Schedule 7.1(a) sets forth a list of the assets
and liabilities of Statewide at the Closing and at the Effective
Date, after the divestiture described in this Section 7.1, and
Schedule 7.1(b) sets forth the assets and liabilities to be
transferred to NewCo in connection with the divestiture by
Statewide described in this Section 7.1
7.2 Restrictive Legend. Statewide agrees that, prior to
registration of the Acceptance Common Stock pursuant to Section
7.7(a), the Acceptance Common Stock received in the Merger shall
not be sold, assigned, pledged, hypothecated or otherwise
transferred unless such stock is registered under the Securities
Act and applicable state blue sky laws or unless an exemption
from such registration is available. Acceptance shall cause a
legend in substantially the following form to be placed on the
Acceptance Common Stock issued pursuant to the Merger.
THESE SECURITIES HAVE NOT BEEN REGISTERED PURSUANT TO
THE SECURITIES ACT OF 1933 AS AMENDED, OR THE STATE
SECURITIES OR BLUE SKY LAWS OF ANY JURISDICTION AND MAY
NOT BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED OR
OTHERWISE DISPOSED OF UNLESS SUCH SECURITIES ARE FIRST
REGISTERED PURSUANT TO ALL SUCH APPLICABLE LAWS OR
UNLESS ACCEPTANCE INSURANCE COMPANIES INC. (THE
"COMPANY") RECEIVES A WRITTEN OPINION OF COUNSEL,
ACCEPTABLE TO THE COMPANY, TO THE EFFECT THAT SUCH
REGISTRATION IS NOT REQUIRED.
7.3 Access to Information. Acceptance and Statewide shall
each afford to the other, and to their respective accountants,
counsel, financial advisors and other representatives, reasonable
access during normal business hours during the period prior to
the Closing Date and Effective Date, to all their respective
officers, accountants, lawyers, properties, books, contracts,
commitments and records and, during such period, each shall
furnish promptly to the other all other information concerning
their respective businesses, properties and personnel that other
parties hereto may reasonably request. The parties hereto agree
that no investigation pursuant to this Section 7.3 shall be
deemed to modify any representation or warranty made in this
Agreement.
7.4 Best Efforts. Upon the terms and subject to the
conditions set forth in this Agreement, the parties hereto agree
to use their best efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, and to assist and
cooperate with the other party hereto in doing, all things
necessary, proper or advisable to consummate and make effective,
in the most expeditious manner practicable, the Merger,
including, but not limited to, (a) the obtaining of all necessary
actions or nonactions, waivers, consents and approvals from
governmental agencies or authorities and the making of all
necessary registrations and filings (including, but not limited
to, filings with governmental authorities or agencies, if any)
and the taking of all reasonable steps as may be necessary to
obtain an approval or waiver from, or to avoid an action or
proceeding by, any governmental authority or agency, (b) the
obtaining of all necessary consents, approvals or waivers from
third parties, (c) the defending of any lawsuits or other legal
proceedings, whether judicial or administrative, challenging this
Agreement or the consummation of the transactions contemplated
hereby, and (d) the execution and delivery of any additional
documents necessary to consummate the transactions contemplated
by this Agreement. In connection with and without limiting the
foregoing, Statewide, Acceptance and their respective boards of
directors shall (i) if any state takeover law or similar law or
regulation is or becomes applicable to the Merger, take all
reasonable action necessary to ensure that the Merger may be
consummated as promptly as practicable on the terms contemplated
by this Agreement and otherwise to minimize the effect of such
statute or regulation on the Merger, and (ii) take all reasonable
action by Statewide and Acceptance, respectively, necessary to
ensure that Statewide and Acceptance may consummate the Merger
and the other transactions contemplated by this Agreement.
7.5 Statewide Shareholder Approval. The Statewide Board of
Directors will take action to submit the Merger to the Statewide
shareholders for their approval and will recommend approval of
the Merger to the Statewide shareholders. Acceptance will
furnish materials containing information with respect to
Acceptance and to the Merger for submission to the Statewide
shareholders in connection with their vote on the Merger.
7.6 Fees and Expenses. Except as provided below, all costs
and expenses incurred in connection with the Merger, this
Agreement and the transactions contemplated hereby shall be paid
by Statewide on its own behalf and by Acceptance on its own
behalf, including such costs or expenses, whether or not the
Merger is consummated.
7.7 Securities Filings and Registrations.
7.7(a) Registration for Resales. As promptly as
practicable following the Closing of the Merger, Acceptance will
include the shares of Acceptance Common Stock issued in
connection with the Merger in a shelf Registration Statement on
Form S-3 filed with the SEC, in order to permit the Acceptance
Common Stock received in the Merger to be sold in open market
transactions by the holders thereof, and will update and maintain
the effectiveness of the Registration Statement for a period of
three years after the Closing Date. Acceptance also shall take
such action as may be necessary under state securities laws to
permit the sale of the Acceptance Common Stock received in the
Merger under such Registration Statement. Acceptance will cause
the Acceptance Common Stock received in the Merger to be listed
for trading on the NYSE, upon official notice of issuance.
7.7(b) Exchange Act Filings. For a period of three (3)
years after the Closing Date, Acceptance will timely file with
the SEC all reports required to be filed by Acceptance pursuant
to the Exchange Act and the rules and regulations promulgated
thereunder, provided that Acceptance may request and rely upon
extensions of time to file any such reports which Acceptance
deems reasonably necessary.
7.8 Limitation on Sale of Acceptance Common Stock.
For a period of three years after the Closing Date, the number of
shares of Acceptance Common Stock received in connection with the
Merger which may be sold by any holder thereof in open market
sale transactions on the NYSE ("Open Market Sales") during any
trading day following the Closing shall not exceed ten thousand
(10,000) shares, and the number of such Open Market Sales shall
not exceed fifty thousand (50,000) shares during any five
consecutive trading days. Acceptance may take such action with
its stock registrar and transfer agent, or otherwise, as may be
required to insure compliance with this Section 7.8.
ARTICLE VIII
CONDITIONS PRECEDENT
8.1 Conditions To Each Party's Obligation To
Consummate The Merger. The respective obligation of each party
to effect the Merger is subject to the satisfaction prior to the
Closing Date of the following conditions:
8.1(a) Approvals. All authorizations, consents, orders or
approvals of, or declarations or filings with, or terminations or
expirations of waiting periods imposed by, any Governmental
Entity necessary for the consummation of the transactions
contemplated by this Agreement shall have been filed, shall have
occurred or shall have been obtained.
8.1(b) No Injunctions or Restraints. No temporary
restraining order, preliminary or permanent injunction or other
order issued by any court of competent jurisdiction, or other
legal restraint or prohibition preventing the consummation of the
Merger, shall be in effect; provided, however, that each of the
parties hereto shall have used its best efforts to prevent the
entry of any such injunction or other order and to appeal as
promptly as possible any injunction or other order that may be
entered.
8.1(c) Approval by Statewide Shareholders. The Merger
shall have been approved by the requisite vote of the Statewide
shareholders required by the Arizona Law.
8.2 Conditions to Obligation of Acceptance. The
obligation of Acceptance to consummate the Merger is subject to
the following conditions:
8.2(a) Material Performance. Statewide shall have
performed in all material respects all obligations to be
performed by it under this Agreement prior to the Closing Date.
8.2(b) No Adverse Changes. There shall have occurred no
events resulting in a Material Adverse Effect, or any development
that is reasonably likely to result in a Material Adverse Effect,
on Statewide.
8.2(c) Representations and Warranties. All of the
representations and warranties of Statewide set forth in this
Agreement that are qualified as to materiality shall be true and
correct and any such representations and warranties that are not
so qualified shall be true and correct in any material respect,
in each case as if such representations and warranties were made
as of such time.
8.2(d) Dissenters. The holders of not more than 10% of the
outstanding shares of Statewide Common Stock immediately prior to
the Closing Date and Effective Date shall have validly elected to
exercise their dissenters' rights under the Arizona Law.
8.3 Conditions to Obligation of Statewide. The
obligation of Statewide to consummate the Merger is subject to
the following conditions:
8.3(a) Material Performance. Acceptance shall have
performed in all material respects all obligations to be
performed by it under this Agreement prior to the Closing Date.
8.3(b) Representations and Warranties. All of the
representations and warranties of Acceptance set forth in this
Agreement that are qualified as to materiality shall be true and
correct and any such representations and warranties that are not
so qualified shall be true and correct in any material respect,
in each case as if such representations and warranties were made
as of such time.
8.3(c) No Adverse Changes. There shall have occurred no
events resulting in a Material Adverse Effect, or any development
that is reasonably likely to result in a Material Adverse Effect,
on Acceptance, or upon the value of, or the rights represented
by, the Merger Consideration.
ARTICLE IX
TERMINATION AND AMENDMENT
9.1 Termination. This Agreement may be terminated at
any time prior to the Closing Date:
9.1(a) By Mutual Consent. By mutual written consent of the
parties.
9.1(b) By Any Party. By either Acceptance or Statewide (i)
if any condition set forth in Section 8.1 is not satisfied prior
to the Closing Date or (ii) if the Closing Date shall not have
occurred on or prior to March 31, 1994, or such other date as may
be agreed to by the parties; provided, that the right to
terminate this Agreement under this Section 9.1(b)(ii) shall not
be available to any party whose failure to fulfill any obligation
under this Agreement has been the cause of or resulted in the
failure to consummate the Merger on or before such date.
9.1(c) By Statewide. By Statewide (i) if Acceptance fails
to perform in any material respect any of its obligations under
this Agreement, or (ii) if any of the conditions set forth in
Section 8.3 hereof shall not have been satisfied or waived.
9.1(d) By Acceptance. By Acceptance (i) if Statewide fails
to perform in any material respect any of its obligations under
this Agreement, or (ii) if any of the conditions set forth in
Section 8.2 hereof shall not have been satisfied or waived.
9.2 Amendment. This Agreement may be amended by
mutual written consent of the parties hereto.
ARTICLE X
SURVIVAL OF REPRESENTATIONS AND
WARRANTIES; INDEMNIFICATION
10.1 Survival of Representations and Warranties. All
of the representations, warranties and covenants made by the
parties herein, or in any written statement, certificate,
Schedule or Exhibit hereto, or in any other document delivered by
them pursuant hereto, in connection with the transactions
contemplated hereby, shall survive the execution and delivery of
this Agreement and the Closing until expiration of any applicable
limitations period.
10.2 Indemnification by Statewide. Statewide shall
indemnify and hold Acceptance harmless and shall cause NewCo to
join in such indemnification, from any and all losses,
liabilities, claims, damages, costs, expenses and fees, including
all reasonable attorneys' fees and court costs incurred by
Acceptance resulting from or relating to the breach by Statewide
of any of its representation, warranties or covenants made
herein or in connection herewith, or any breach or failure by
Statewide to perform or comply with any agreement or covenant
under this Agreement or any agreement delivered pursuant to this
Agreement; or for any claim made against Acceptance or the
Statewide assets held at Closing arising out of any liability
existing or action taken prior to Closing and which is not
identified with particularity in the pro forma balance sheet
attached as Schedule 3.6 or the list of Statewide liabilities set
forth in Schedule 3.7 or Schedule 7.1(a). If any legal
proceeding shall be instituted, or any claim or demand shall be
made, against Acceptance with respect to which Acceptance
proposes to demand indemnification hereunder, Statewide and NewCo
shall be given prompt and timely notice thereof and shall have
the right to participate in the defense, compromise or settlement
thereof through their own attorneys and at their own expense
(subject, however, to the entire control of such defense,
compromise or settlement by Acceptance) and, in connection
therewith, Acceptance shall fully cooperate to make available to
Statewide and NewCo all pertinent information under their control
or relating thereto. Notwithstanding the preceding sentence, if
Statewide or NewCo acknowledge responsibility for any such
proceeding, claim or demand ("Claims"), they shall have the right
to assume, at their expense, entire control of the defense,
compromise or settlement thereof; provided, however, that the
right of Statewide or NewCo to so assume control shall (i) as to
claims of less than One Million Dollars ($1,000,000.00) be
conditioned upon, at the request of Acceptance, a reasonable
showing of their ability to satisfy any such Claim; and (ii) as
to Claims of One Million Dollars ($1,000,000.00) or more be
conditioned upon, at the request of Acceptance, the posting of an
indemnity or similar bond or other evidence satisfactory to
Acceptance of Statewide's or NewCo's ability to satisfy in full
the amount of such claim; and further provided that in the event
such control is so assumed by Statewide or NewCo, Acceptance
shall have the right to participate in the defense, compromise or
settlement thereof through their own attorneys and at their own
expense and, in connection therewith, Statewide and NewCo shall
cooperate fully to make available to Acceptance all pertinent
information under their control or relating thereto. If
Statewide and NewCo refuse to accept responsibility for
indemnification, and it is later determined by final judgment of
a court of competent jurisdiction that such indemnification is
owed by Statewide or NewCo, Statewide or NewCo shall reimburse
Acceptance for all costs and expenses, including, but not limited
to, court costs and reasonable attorneys' fees, incurred in
connection with making such demand and obtaining indemnification.
10.3 Indemnification by Acceptance. Acceptance shall
indemnify and hold Statewide, NewCo and Robert S. Katz, as
guarantor ("Katz") harmless from any and all losses, liabilities
claims, damages, costs, expenses and fees, including all
reasonable attorneys' fees and court costs incurred by Statewide,
NewCo or Katz resulting from or relating to the breach by
Acceptance of any of its representations, warranties or covenants
made herein or in connection herewith, or any breach or failure
by Acceptance to perform or comply with any agreement or covenant
under this Agreement or any agreement delivered pursuant to this
Agreement; or for any claim made against Statewide, NewCo or Katz
or the Statewide assets divested and distributed to NewCo
pursuant to Section 1.2 arising out of any liability or
obligation existing or action taken prior to Closing which is
identified with particularity in the pro forma balance sheet
attached as Schedule 3.6 or the list of Statewide liabilities set
forth in Schedule 3.7 or Schedule 7.1(a) or any liability
occurring or for action taken subsequent to Closing. If any
legal proceeding shall be instituted, or any claim or demand
shall be made, against Statewide, NewCo or Katz with respect to
which Statewide, NewCo or Katz propose to demand indemnification
hereunder, Acceptance shall be given prompt and timely notice
thereof and shall have the right to participate in the defense,
compromise or settlement thereof through its own attorneys and at
its own expense (subject, however, to the entire control of such
defense, compromise or settlement by Statewide, NewCo and/or
Katz) and, in connection therewith, Statewide, NewCo and Katz
shall fully cooperate to make available to Acceptance all
pertinent information under their control or relating thereto.
Notwithstanding the preceding sentence, if Acceptance
acknowledges responsibility for any such proceeding, claim or
demand ("Claims"), it shall have the right to assume, at its
expense, entire control of the defense, compromise or settlement
thereof; provided, however, that the right of Acceptance to so
assume control shall (i) as to claims of less than One Million
Dollars ($1,000,000.00) be conditioned upon, at the request of
Statewide, NewCo and/or Katz, a reasonable showing of its ability
to satisfy any such Claim; and (ii) as to Claims of One Million
Dollars ($1,000,000.00) or more be conditioned upon, at the
request of Statewide, NewCo and/or Katz, the posting of an
indemnity or similar bond or other evidence satisfactory to
Statewide, NewCo and/or Katz of Acceptance's ability to satisfy
in full the amount of such claim; and further provided that in
the event such control is so assumed by Acceptance, Statewide,
NewCo and/or Katz shall have the right to participate in the
defense, compromise or settlement thereof through their own
attorneys and at their own expense and, in connection therewith,
Acceptance shall cooperate fully to make available to Statewide,
NewCo and Katz all pertinent information under its control or
relating thereto. If Acceptance refuses to accept responsibility
for indemnification, and it is later determined by final judgment
of a court of competent jurisdiction that such indemnification is
owed by Acceptance, Acceptance shall reimburse Statewide, NewCo
and/or Katz for all costs and expenses, including, but not
limited to, court costs and reasonable attorneys' fees, incurred
in connection with making such demand and obtaining
indemnification.
ARTICLE XI
GENERAL PROVISIONS
11.1 Notices. All notices and other communications
hereunder shall be in writing and shall be deemed given if
delivered personally or sent by overnight courier to the parties
at the following addresses (or at such other address for a party
as shall be specified by like notice):
11.2(a) If to Acceptance:
Acceptance Insurance Companies Inc.
Suite 600 North
222 South 15th Street
Omaha, NE 68102
Attn: Kenneth C. Coon
Chairman and President
With a copy to:
Crosby, Guenzel, Davis, Kessner & Kuester
134 S. 13th Street, Suite 400
Lincoln, NE 68508
Attn: Donn E. Davis, Esq.
11.2(b) If to Statewide or NewCo:
Statewide Insurance Corp., Inc.
4041 N. Central Avenue, Suite 1900
P. O. Box 52166
Phoenix, AZ 85072
Attn: Robert S. Katz
President
With a copy to:
Fogel and Lamber, P.A.
One Windsor Professional Building
2627 North Third Street
Phoenix, AZ 85004-1197
Attn: Sherman D. Fogel
11.2 Counterparts. This Agreement may be executed in
one or more counterparts, all of which shall be considered one
and the same agreement and shall become effective when one or
more counterparts have been signed by each of the parties and
delivered to the other party, it being understood that both
parties need not sign the same counterpart.
11.3 Entire Agreement; No Third-Party Beneficiaries.
This Agreement (including the documents and instruments referred
to herein) constitutes the entire agreement and supersedes all
prior agreements and understandings, both written and oral,
between the parties with respect to the subject matter hereof and
is not intended to confer upon any person other than the parties
hereto any rights or remedies hereunder.
11.4 Governing Law. This Agreement shall be governed
by, and construed in accordance with, the laws of the State of
Delaware applicable to contracts made and to be performed in the
State of Delaware.
11.5 Publicity. Any press release announcing the
execution of this Agreement or consummation of the transactions
contemplated herein shall be a joint press release and thereafter
Statewide and Acceptance shall consult with each other in issuing
any press releases or otherwise making public statements with
respect to the transactions contemplated hereby and in making any
filings with any federal or state governmental or regulatory
agency or with any national securities exchange with respect
thereto and shall use their best efforts to agree on the text of
any such press release or the contents of any such public
announcement; provided, however, that if Acceptance reasonably
determines that laws and regulations governing public companies
require it to issue any public statement, or to make any filing
with the SEC or the NYSE, it shall be authorized to do so.
11.6 Assignment. Neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by
any of the parties. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of, and be
enforceable by, the parties hereto and their respective
successors and assigns; provided, however, that Acceptance may
assign its rights and liabilities hereunder to one or more of
Acceptance's operating subsidiaries, provided, however, in the
event of any such assignment by Acceptance, Acceptance shall
remain liable to Statewide and NewCo with respect to all of its
representations, warranties, covenants and indemnifications given
hereunder or in connection herewith.
11.7 Enforcement of the Agreement. The parties hereto
agree that irreparable damage would occur in the event that any
of the provisions of this Agreement are not performed in
accordance with their specific terms or were otherwise breached.
It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions hereto in
any court of the United States or any state having jurisdiction,
this being in addition to any other remedy to which they are
entitled at law or in equity.
IN WITNESS WHEREOF, Acceptance and Statewide have
caused this Agreement to be executed as of the date first written
above.
ACCEPTANCE INSURANCE COMPANIES, INC.
/s/ Kenneth C. Coon
By _____________________________________
Kenneth C. Coon
Chairman and Chief Executive Officer
STATEWIDE INSURANCE CORP. OF PHOENIX,
INC. (formerly Statewide Insurance
Corp.)
/s/ Robert S. Katz
By _____________________________________
Robert S. Katz
President
STATE OF ARIZONA )
) SS.
County of Maricopa )
On the 31st day of March, 1994, before me, the undersigned
officer, personally appeared ROBERT S. KATZ, President of
STATEWIDE INSURANCE CORP., known to me (or satisfactorily proven)
to be the person who executed the foregoing document, and
acknowledged to me that he executed same for the purposes
contained threin.
IN WITNESS WHEREOF, I hereunto set my hand and official
seal.
/s/ Dixie Lee Williams
________________________________________
NOTARY PUBLIC
My Commission Expires:
5-18-96
______________________.
<PAGE>
STATE OF ARIZONA )
) SS.
County of Maricopa )
On the 31st day of March, 1994, before me, the undersigned
officer, personally appeared KENNETH C. COON, Chairman and Chief
Executive Officer of ACCEPTANCE INSURANCE COMPANIES, INC., known
to me (or satisfactorily proven) to be the person who executed
the foregoing document, and acknowledged to me that he executed
same for the purposes contained threin.
IN WITNESS WHEREOF, I hereunto set my hand and official
seal.
/s/ Dixie Lee Williams
________________________________________
NOTARY PUBLIC
My Commission Expires:
5-18-96
______________________.
<PAGE>
EXHIBIT 2 SCHEDULES
Pursuant to Item 601(b)(2) of Regulation S-K, the following
schedules are not included in Exhibit 2. Set forth below is a
list of the omitted schedules and a brief description of the
content thereof. Upon request, the registrant will provide the
Commission with copies of any omitted schedule appearing below.
NUMBER DESCRIPTION
3.1 Statewide Authority to do Business
3.2 Statewide Shareholders
3.4 Statewide Conflicting Agreements, Etc.
3.6 Statewide Pro Forma Balance Sheet at March 31, 1994
3.7 Statewide Undisclosed Liabilities
3.9 Statewide Contracts and Indebtedness
3.10 Statewide Benefit Plans
3.13 Statewide Employee Obligations
3.16 Statewide Insurance Coverage
7.1(a) Statewide Retained Assets and Liabilities
7.1(b) Statewide Divested Assets and Liabilities
EXHIBIT 10.1
ACCEPTANCE INSURANCE COMPANIES INC.
__________________________________________
$35,000,000
CREDIT AGREEMENT
dated as of March 31, 1994
NBD BANK, N.A.
FIRST NATIONAL BANK OF OMAHA
FIRSTIER BANK, N.A.
COMERICA BANK
and
NBD BANK, N.A., as Agent
<PAGE>
THIS CREDIT AGREEMENT, dated as of March 31, 1994
(this "Agreement"), is by and among ACCEPTANCE INSURANCE COMPANIES
INC., a Delaware corporation (the "Company"), the Banks set forth
on the signature pages hereof (collectively, the "Banks" and
individually, a "Bank") and NBD Bank, N.A., a national bank, as
agent for the Banks (in such capacity, the "Agent").
INTRODUCTION
The Company desires to obtain a revolving
credit facility in the aggregate principal amount of $35,000,000 in
order to refinance all existing indebtedness of the Company and its
Subsidiaries to the Banks and to provide funds for the Company's
general corporate purposes, and the Banks are willing to establish
such a credit facility in favor of the Company on the terms and
conditions herein set forth.
In consideration of the premises and of the
mutual agreements herein contained, the parties hereto agree as
follows:
ARTICLE I.
DEFINITIONS
1.1 Certain Definitions. As used herein the
following terms shall have the following respective meanings:
"Affiliate", when used with respect to any person,
shall mean any other person which, directly or indirectly, controls
or is controlled by or is under common control with such person.
For purposes of this definition "control" (including the
correlative meanings of the terms "controlled by" and "under common
control with"), with respect to any person, shall mean possession,
directly or indirectly, of the power to direct or cause the
direction of the management and policies of such person, whether
through the ownership of voting securities or by contract or
otherwise.
"Applicable Margin" shall mean, for purposes of
determining the Eurodollar Rate applicable to Eurodollar Loans
outstanding during any fiscal quarter of the Company (a) if the
Leverage Ratio is greater than 0.50 to 1.00, one and three-quarters
percent (1 3/4%); (b) if the Leverage Ratio is equal to 0.50 to
1.00 or is less than 0.50 to 1.00 but greater than 0.40 to 1.00,
one and one-half percent (1 1/2%); (c) if the Leverage Ratio is
equal to 0.40 to 1.00 or is less than 0.40 to 1.00 but greater than
0.30 to 1.00, one and one-quarter percent (1 1/4%); and (d) if the
Leverage Ratio is equal to or less than 0.30 to 1.00, one percent
(1%). Each change in the Applicable Margin in accordance with this
definition shall become effective on the first day of each fiscal
quarter of the Company. Notwithstanding anything in this Agreement
to the contrary, and without limiting the rights of the Agent or
the Banks under this Agreement in the event of such occurrence, if
the Company shall have failed to deliver to the Agent the financial
statements for any fiscal quarter of the Company as required under
Section 5.1(d)(ii), or for any fiscal year of the Company as
required under Section 5.1(d)(iii), prior to the first day of the
second fiscal quarter of the Company immediately following such
fiscal quarter or fiscal year, as the case may be, then, until such
time as the Company shall have delivered such financial statements,
the "Applicable Margin" for such following fiscal quarter shall
mean one and three-quarters percent (1 3/4%), and upon delivery of
such financial statements for such preceding fiscal quarter or
fiscal year, as the case may be, the Applicable Margin shall be
adjusted (if necessary) in accordance with this definition and the
Relevant Ratio, subject to the other rights of the Agent and the
Banks under this Agreement.
"Available Income" shall mean, for any period, the
sum of (a) interest income of the Company for such period, plus (b)
Tax Sharing Payments received by the Company during such period,
plus (c) Dividends Receivable during such period, plus (d) Proceeds
Of Assets Held For Disposition received during such period, plus
(e) Proceeds From Employee Stock Purchases received during such
period.
"Base Credit Amount" shall mean, as of any date, the
greater of (a) $25,000,000 and (b) the greatest aggregate principal
amount of Loans ever outstanding at any one time prior to such
date. The Base Credit Amount shall automatically increase upon the
making of Loans that cause the aggregate principal amount of Loans
outstanding to exceed $25,000,000 by a greater amount than ever
before.
"Borrowing" shall mean the aggregation of Loans of
the Banks to be made to the Company, or continuations and
conversions of any Loans, made pursuant to Article II on a single
date and, in the case of any Eurodollar Rate Loans, for a single
Interest Period, which Borrowings may be classified for purposes of
this Agreement by reference to the type of Loans comprising the
related Borrowing, e.g., a "Eurodollar Rate Borrowing" is a
Borrowing comprised of Eurodollar Rate Loans and a "Floating Rate
Borrowing" is a Borrowing comprised of "Floating Rate Loans."
"Business Day" shall mean a day other than a
Saturday, Sunday or other day on which the Agent is not open to the
public for carrying on substantially all of its banking functions
in Detroit, Michigan.
"Capital Expenditures" shall mean, with respect to
any period, the Dollar amount of all gross expenditures (including
the capitalized portion of obligations for such period under
Capital Leases) made for fixed assets, real property, plant and
equipment and all renewals thereof and improvements and
replacements thereto (but not repairs thereof) and all other
expenditures made or committed to be made during such period that
are required to be capitalized in accordance with Generally
Accepted Accounting Principles.
"Capital Lease" of any person shall mean any lease
which, in accordance with generally accepted accounting principles,
is or should be capitalized on the books of such person.
"Cash Available For Debt Service" shall mean, for
any period, the sum of (a) Available Income for such period, plus
(b) Proceeds From Equity Transactions during such period, minus (c)
New Investments in Subsidiaries during such period.
"Code" shall mean the Internal Revenue Code of 1986,
as amended from time to time, and the regulations thereunder.
"Combined Ratio" of any person shall mean the sum of
the following ratios: (a)(i) losses, plus (ii) loss adjustment
expenses incurred, divided by net premiums earned, and (b) expenses
other than loss adjustment expenses, divided by net premiums
written, all as determined in accordance with SAP.
"Commitment" shall mean, with respect to any Bank,
the commitment of each such Bank to make Revolving Credit Loans
pursuant to Section 2.1, in amounts not exceeding in aggregate
principal amount outstanding at any time the respective commitment
amounts for each such Bank set forth next to the name of each such
Bank in the signature pages hereof, as such amounts may be reduced
from time to time pursuant to Section 2.2.
"Consolidated" or "consolidated" shall mean, when
used with reference to any financial term in this Agreement, the
aggregate for two or more persons of the amounts signified by such
term for all such persons determined on a consolidated basis in
accordance with generally accepted accounting principles.
"Contingent Liabilities" of any person shall mean,
as of any date, all obligations of others for which such person is
contingently liable, as guarantor, surety, accommodation party,
partner or in any other capacity, or in respect of which
obligations such person assures a creditor against loss or agrees
to take any action to prevent any such loss (other than
endorsements of negotiable instruments for collection in the
ordinary course of business), including without limitation all
reimbursement obligations of such person in respect of any letters
of credit, surety bonds or similar obligations and all obligations
of such person to advance funds to, or to purchase assets, property
or services from, any other person in order to maintain the
financial condition of such other person.
"Debt" of any person shall mean all obligations of
such person for borrowed money.
"Default" shall mean any event or condition which
might become an Event of Default with notice or lapse of time or
both.
"Dividends Receivable" shall mean, for any period,
the aggregate amount of dividends and other payments and
distributions in respect of the capital stock of the Guarantors,
and any other direct Subsidiary of the Company from time to time,
that is or is available to be paid to the Company during such
period.
"Dollars" and "$" shall mean the lawful money of the
United States of America.
"Effective Date" shall mean the effective date
specified in the final paragraph of this Agreement.
"Environmental Laws" at any date shall mean all
provisions of law, statutes, ordinances, rules, regulations,
judgments, writs, injunctions, decrees, orders, awards and
standards promulgated by the government of the United States of
America or any foreign government or by any state, province,
municipality or other political subdivision thereof or therein, or
by any court, agency, instrumentality, regulatory authority or
commission of any of the foregoing concerning the protection of, or
regulating the discharge of substances into, the environment.
"ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended from time to time, and the
regulations thereunder.
"ERISA Affiliate" shall mean, with respect to any
person, any trade or business (whether or not incorporated) which,
together with such person or any Subsidiary of such person, would
be treated as a single employer under Section 414 of the Code.
"Eurodollar Business Day" shall mean, with respect
to any Eurodollar Rate Loan, a day which is both a Business Day and
a day on which dealings in Dollar deposits are carried out in the
interbank market selected by the Agent with respect to such
Eurodollar Rate Loan.
"Eurodollar Interest Period" shall mean, with
respect to any Eurodollar Rate Loan, the period commencing on the
day such Eurodollar Rate Loan is made or converted to a Eurodollar
Rate Loan and ending on the day which is one, two, three, six or
twelve months thereafter, as the Company may elect under Section
2.7, and each subsequent period commencing on the last day of the
immediately preceding Eurodollar Interest Period and ending on the
day which is one, two, three, six or twelve months thereafter, as
the Company may elect under Section 2.7, provided, however, that
(a) any Eurodollar Interest Period which commences on the last
Eurodollar Business Day of a calendar month (or on any day for
which there is no numerically corresponding day in the appropriate
subsequent calendar month) shall end on the last Eurodollar
Business Day of the appropriate subsequent calendar month, (b) each
Eurodollar Interest Period which would otherwise end on a day which
is not a Eurodollar Business Day shall end on the next succeeding
Eurodollar Business Day or, if such next succeeding Eurodollar
Business Day falls in the next succeeding calendar month, on the
next preceding Eurodollar Business Day, and (c) no Eurodollar
Interest Period which would end after the Termination Date shall be
permitted.
"Eurodollar Rate" shall mean, with respect to any
Eurodollar Rate Loan and the related Eurodollar Interest Period,
the per annum rate that is equal to the sum of:
(a) the Applicable Margin, plus
(b) the rate per annum obtained by dividing (i) the
per annum rate of interest at which deposits in Dollars for such
Eurodollar Interest Period and in an aggregate amount comparable to
the amount of such Eurodollar Rate Loan to be made by the Agent in
its capacity as a Bank hereunder are offered to the Agent by other
prime banks in the London or Nassau interbank market, selected in
the Agent's discretion, at approximately 11:00 a.m. London or
Nassau time, as the case may be, on the second Eurodollar Business
Day prior to the first day of such Eurodollar Interest Period by
(ii) an amount equal to one minus the stated maximum rate
(expressed as a decimal) of all reserve requirements (including,
without limitation, any marginal, emergency, supplemental, special
or other reserves) that are specified on the first day of such
Eurodollar Interest Period by the Board of Governors of the Federal
Reserve System (or any successor agency thereto) for determining
the maximum reserve requirement with respect to eurocurrency
funding (currently referred to as "Eurocurrency liabilities" in
Regulation D of such Board) maintained by a member bank of such
System;
all as conclusively determined by the Agent, such sum to be rounded
up, if necessary, to the nearest whole multiple of one one-
hundredth of one percent (1/100 of 1%).
"Eurodollar Rate Loan" shall mean any Loan which
bears interest at the Eurodollar Rate.
"Event of Default" shall mean any of the events or
conditions described in Section 6.1.
"Federal Funds Rate" shall mean the per annum rate
established and announced by the Agent from time to time as the
opening federal funds rate paid by the Agent in its regional
federal funds market for overnight borrowings from other banks.
"Floating Rate" shall mean the per annum rate equal
to the greater of (a) the Prime Rate in effect from time to time,
and (b) the sum of one percent (1%) per annum plus the Federal
Funds Rate in effect from time to time; which Floating Rate shall
change simultaneously with any change in such Prime Rate or Federal
Funds Rate, as the case may be.
"Floating Rate Loan" shall mean any Loan which bears
interest at the Floating Rate.
"Generally Accepted Accounting Principles" shall
mean generally accepted accounting principles applied on a basis
consistent with that reflected in the financial statements referred
to in Section 4.6.
"Guarantors" shall mean Acceptance Insurance
Holdings Inc., a Nebraska corporation, and The Redland Group, Inc.,
an Iowa corporation; and "Guarantor" shall mean any one of such
Guarantors.
"Guaranties" shall mean the Guaranty Agreements
entered into by each of the Guarantors for the benefit of the Agent
and the Banks in substantially the form of Exhibit D hereto, as
amended or modified from time to time; and "Guaranty" shall mean
any one of such Guaranties.
"Indebtedness" of any person shall mean, as of any
date, (a) all obligations of such person for borrowed money, (b)
all obligations of such person as lessee under any Capital Lease,
(c) all obligations which are secured by any Lien existing on any
asset or property of such person whether or not the obligation
secured thereby shall have been assumed by such person, (d) all
obligations of such person for the unpaid purchase price for goods,
property or services acquired by such person, except for trade
accounts payable arising in the ordinary course of business that
are not past due, (e) all obligations of such person to purchase
goods, property or services where payment therefor is required
regardless of whether delivery of such goods or property or the
performance of such services is ever made or tendered (generally
referred to as "take or pay contracts"), (f) all liabilities of
such person in respect of Unfunded Benefit Liabilities under any
Plan of such person or of any ERISA Affiliate, (g) all obligations
of such person in respect of any interest rate or currency swap,
rate cap or other similar transaction (valued in an amount equal to
the highest termination payment, if any, that would be payable by
such person upon termination for any reason on the date of
determination), and (h) all obligations of others similar in
character to those described in clauses (a) through (g) of this
definition for which such person is contingently liable, as
guarantor, surety, accommodation party, partner or in any other
capacity, or in respect of which obligations such person assures a
creditor against loss or agrees to take any action to prevent any
such loss (other than endorsements of negotiable instruments for
collection in the ordinary course of business), including without
limitation all reimbursement obligations of such person in respect
of letters of credit, surety bonds or similar obligations and all
obligations of such person to advance funds to, or to purchase
assets, property or services from, any other person in order to
maintain the financial condition of such other person.
"Insurance Subsidiaries" shall mean Acceptance
Insurance Company, a Nebraska corporation, Redland Insurance
Company, an Iowa corporation, Acceptance Indemnity Insurance
Company, a Nebraska corporation, Phoenix Indemnity Insurance
Company, an Arizona corporation, and any other Subsidiary of the
Company now owned or hereafter acquired that writes insurance; and
"Insurance Subsidiary" shall mean any one of the Insurance
Subsidiaries.
"Interest Expense" of any person shall mean, for any
period, all interest paid or payable during such period by such
person on Indebtedness of such person.
"Interest Payment Date" shall mean (a) with respect
to any Eurodollar Rate Loan, the last day of each Interest Period
with respect to such Eurodollar Rate Loan and, in the case of any
Interest Period exceeding three months, those days that occur
during such Interest Period at intervals of three months after the
first day of such Interest Period, and (b) the last Business Day of
each March, June, September and December occurring after the date
hereof, commencing with the first such Business Day occurring after
the date of this Agreement.
"Interest Period" shall mean any Eurodollar Interest
Period.
"Leverage Ratio" shall mean, for purposes of
determining the Applicable Margin for any fiscal quarter (the
"Application Quarter") of the Company, the ratio of the
Consolidated Debt of the Company and its Subsidiaries to the
Consolidated Tangible Net Worth of the Company and its Subsidiaries
as of the last day of the next to last fiscal quarter of the
Company preceding the Application Quarter.
"Lien" shall mean any pledge, assignment,
hypothecation, mortgage, security interest, deposit arrangement,
option, conditional sale or title retaining contract, sale and
leaseback transaction, financing statement filing, lessor's or
lessee's interest under any lease, subordination of any claim or
right, or any other type of lien, charge, encumbrance, preferential
arrangement or other claim or right.
"Loan" shall mean any Revolving Credit Loan. Any
such Loan or portion thereof may also be denominated as a Floating
Rate Loan or a Eurodollar Rate Loan and such Loans are referred to
herein as "types" of Loans.
"Multiemployer Plan" shall mean any "multiemployer
plan" as defined in Section 4001(a)(3) of ERISA or Section 414(f)
of the Code.
"NAIC" shall mean the National Association of
Insurance Commissioners (or any successor thereto).
"New Investments in Subsidiaries" shall mean, with
respect to any period, the aggregate amount of additional capital
investments made by the Company in Subsidiaries of the Company
during such period.
"Note" shall mean any Revolving Credit Note.
"Overdue Rate" shall mean (a) in respect of
principal of Floating Rate Loans, a rate per annum that is equal to
the sum of three percent (3%) per annum plus the Floating Rate, (b)
in respect of principal of Eurodollar Rate Loans, a rate per annum
that is equal to the sum of three percent (3%) per annum plus the
per annum rate in effect thereon until the end of the then current
Interest Period for such Loan and, thereafter, a rate per annum
that is equal to the sum of three percent (3%) per annum plus the
Floating Rate, and (c) in respect of other amounts payable by the
Company hereunder (other than interest), a per annum rate that is
equal to the sum of three percent (3%) per annum plus the Floating
Rate.
"PBGC" shall mean the Pension Benefit Guaranty
Corporation and any entity succeeding to any or all of its
functions under ERISA.
"Permitted Liens" shall mean Liens permitted by
Section 5.2(i) hereof.
"Person" or "person" shall include an individual, a
corporation, an association, a partnership, a trust or estate, a
joint stock company, an unincorporated organization, a joint
venture, a trade or business (whether or not incorporated), a
government (foreign or domestic) and any agency or political
subdivision thereof, or any other entity.
"Plan" shall mean, with respect to any person, any
pension plan (including a Multiemployer Plan) subject to Title IV
of ERISA or to the minimum funding standards of Section 412 of the
Code which has been established or maintained by such person, any
Subsidiary of such person or any ERISA Affiliate, or by any other
person if such person, any Subsidiary of such person or any ERISA
Affiliate could have liability with respect to such pension plan.
"Pledge Agreements" shall mean the Pledge Agreements
entered into by each of the Pledgors for the benefit of the Banks
and the Agent pursuant to this Agreement in substantially the form
of Exhibit E-1, E-2 and E-3 hereto, respectively, as amended or
modified from time to time; and "Pledge Agreement" shall mean any
one of such Pledge Agreements.
"Pledgors" shall mean each of the Company and the
Guarantors; and "Pledgor" shall mean any one of the Pledgors.
"Prime Rate" shall mean the per annum rate announced
by the Agent from time to time as its "prime rate" (it being
acknowledged that such announced rate may not necessarily be the
lowest rate charged by the Agent to any of its customers); which
Prime Rate shall change simultaneously with any change in such
announced rate.
"Proceeds From Employee Stock Purchases" shall mean,
with respect to any period, the aggregate amount of cash proceeds
received by the Company during such period from sales of capital
stock of the Company to Company employees through the employee
stock purchase plan.
"Proceeds From Equity Transactions" shall mean, with
respect to any period, the aggregate amount of cash proceeds
received by the Company during such period from sales of stock.
"Proceeds Of Assets Held For Disposition" shall
mean, with respect to any period, the aggregate amount of cash
proceeds (net of transaction costs) received by the Company during
such period from the sale or other disposition of Company assets
held at the holding company level.
"Prohibited Transaction" shall mean any transaction
involving any Plan which is proscribed by Section 406 of ERISA or
Section 4975 of the Code.
"Reportable Event" shall mean a reportable event as
described in Section 4043(b) of ERISA including those events as to
which the thirty (30) day notice period is waived under Part 2615
of the regulations promulgated by the PBGC under ERISA.
"Required Banks" shall mean, at any time, Banks
holding not less than (i) 65% of the aggregate principal amount of
the Loans then outstanding or (ii) 65% of the Commitments if no
Loans are then outstanding.
"Revolving Credit Loan" shall mean any borrowing
under Section 2.4 evidenced by a Revolving Credit Note and made
pursuant to Section 2.1.
"Revolving Credit Note" shall mean any promissory
note of the Company evidencing the Revolving Credit Loans, in
substantially the form annexed hereto as Exhibit A, as amended or
modified from time to time and together with any promissory note or
notes issued in exchange or replacement therefor.
"SAP" shall mean statutory accounting principles
formulated by the NAIC and permitted under the laws of Nebraska or,
with respect to any insurance Subsidiary of the Company not
incorporated under the laws of Nebraska, under the laws of such
Subsidiary's place of incorporation.
"Security Documents" shall mean, collectively, the
Guaranties, the Pledge Agreements and all other related agreements
and documents, including assignments separate from certificates,
stock powers and similar documents, delivered pursuant to this
Agreement or otherwise entered into by any person to secure the
Loans.
"Senior Debt" of any person shall mean, with respect
to any period, the average aggregate outstanding amount of
Indebtedness of such person during such period other than
Subordinated Debt.
"Statutory Surplus" of any person shall mean the
statutory surplus of such person computed in the manner required
for page 3, column 1, line 26 of its annual statement of condition
and affairs prepared in accordance with SAP.
"Subordinated Debt" of any person shall mean, as of
any date, that Indebtedness of such person for borrowed money which
is expressly subordinate and junior in right and priority of
payment to the Loans and other Indebtedness of such person to the
Banks and the Agent in manner and by agreement satisfactory in form
and substance to the Required Banks.
"Subsidiary" of any person shall mean any other
person (whether now existing or hereafter organized or acquired) in
which (other than directors qualifying shares required by law) at
least a majority of the securities or other ownership interests of
each class having ordinary voting power or analogous right (other
than securities or other ownership interests which have such power
or right only by reason of the happening of a contingency), at the
time as of which any determination is being made, are owned,
beneficially and of record, by such person or by one or more of the
other Subsidiaries of such person or by any combination thereof.
"Tangible Net Worth" of any person shall mean, as of
any date, (a) the amount of any capital stock, paid in capital and
similar equity accounts plus (or minus in the case of a deficit)
the capital surplus and retained earnings of such person and the
amount of any foreign currency translation adjustment account shown
as a capital account of such person, less (b) the net book value of
all items of the following character which are included in the
assets of such person: (i) goodwill, including, without
limitation, the excess of cost over book value of any asset, (ii)
organization or experimental expenses, (iii) unamortized debt
discount and expense, (iv) patents, trademarks, tradenames and
copyrights, (v) treasury stock, (vi) deferred taxes and deferred
charges, (vii) franchises, licenses and permits, and (viii) other
assets which are deemed intangible assets under Generally Accepted
Accounting Principles.
"Tax Sharing Agreement" shall mean the agreement
dated April 12, 1990 among the Company and its Subsidiaries
relating to the allocation of income taxes among them, as such
agreement is in effect on the Effective Date, a copy of which is
attached hereto as Exhibit F.
"Tax Sharing Payments" shall mean, with respect to
any period, the excess, if any, of the aggregate amount of payments
received by the Company from its Subsidiaries under the Tax Sharing
Agreement during such period over the aggregate amount of payments
made by the Company to the Internal Revenue Service during such
period.
"Termination Date" shall mean the earlier to occur
of (a) March 31, 1998 (or, if agreed to in writing by all the Banks
on or before March 31, 1995, March 31, 1999) and (b) the date on
which the Commitments shall be terminated pursuant to Section 2.2
or 6.2.
"Unfunded Benefit Liabilities" shall mean, with
respect to any Plan as of any date, the amount of the unfunded
benefit liabilities determined in accordance with Section
4001(a)(18) of ERISA.
1.2 Other Definitions; Rules of Construction. As
used herein, the terms "Agent", "Bank", "Banks", "Company" and
"this Agreement" shall have the respective meanings ascribed
thereto in the introductory paragraph of this Agreement. Such
terms, together with the other terms defined in Section 1.1, shall
include both the singular and the plural forms thereof and shall be
construed accordingly. All computations required hereunder and all
financial terms used herein shall be made or construed in
accordance with Generally Accepted Accounting Principles unless
such principles are inconsistent with the express requirements of
this Agreement; provided that, if the Company notifies the Agent
that the Company wishes to amend any covenant in Article V to
eliminate the effect of any change in Generally Accepted Accounting
Principles in the operation of such covenant (or if the Agent
notifies the Company that the Required Banks wish to amend Article
V for such purpose), then the Company's compliance with such
covenant shall be determined on the basis of Generally Accepted
Accounting Principles in effect immediately before the relevant
change in Generally Accepted Accounting Principles became
effective, until either such notice is withdrawn or such covenant
is amended in a manner satisfactory to the Company and the Required
Banks. Use of the terms "herein", "hereof", and "hereunder" shall
be deemed references to this Agreement in its entirety and not to
the Section or clause in which such term appears. References to
"Sections" and "subsections" shall be to Sections and subsections,
respectively, of this Agreement unless otherwise specifically
provided.
<PAGE>
ARTICLE II.
THE COMMITMENTS AND THE LOANS
2.1 Commitment of the Banks. Each Bank agrees, for
itself only, subject to the terms and conditions of this Agreement,
to make Revolving Credit Loans to the Company, from time to time
from and including the Effective Date to but excluding the
Termination Date, not to exceed in aggregate principal amount at
any time outstanding the amount of the respective Commitment of
such Bank as of the date any such Loan is made.
2.2 Termination and Reduction of Commitments. (a)
The Company shall have the right to terminate or reduce the
Commitments at any time and from time to time at its option,
provided that (i) the Company shall give notice of such termination
or reduction to the Agent (with sufficient executed copies for each
Bank) specifying the amount and effective date thereof, (ii) each
partial reduction of the Commitments shall be in a minimum amount
of $500,000 and in an integral multiple of $100,000 and shall
reduce the Commitments of all of the Banks proportionately in
accordance with the respective commitment amounts for each such
Bank set forth in the signature pages hereof next to name of each
such Bank, (iii) no such termination or reduction shall be
permitted with respect to any portion of the Commitments as to
which a request for a Revolving Credit Loan pursuant to Section 2.4
is then pending and (iv) the Commitments may not be terminated if
any Revolving Credit Loans are then outstanding and may not be
reduced below the principal amount of Revolving Credit Loans then
outstanding. The Commitments or any portion thereof terminated or
reduced pursuant to this Section 2.2 may not be reinstated.
2.3 Fees. (a) The Company agrees to pay to the
Banks a commitment fee on the daily average of the difference
between (i) the Base Credit Amount and (ii) the aggregate principal
amount of Loans outstanding, for the period from the Effective Date
to but excluding the Termination Date, at a rate equal to three-
eighths of one percent (3/8 of 1%) per annum. The Company further
agrees to pay to the Banks an additional commitment fee on the
daily average of the excess, if any, of (i) the aggregate
Commitments of the Banks (as they may be reduced from time to time
pursuant to Section 2.2) over (ii) the Base Credit Amount, for the
period from the Effective Date to but excluding the Termination
Date, at a rate equal to three-sixteenths of one percent (3/16 of
1%) per annum. Accrued commitment fees shall be payable quarterly
in arrears on the last Business Day of each June, September,
December, and March, commencing on the first such day occurring
after the date hereof, and on the Termination Date.
(b) The Company further agrees to pay to the
Bank a fee for increasing the Base Credit Amount. Such fee shall
be payable on each date that the Base Credit Amount is increased
and shall in each case be in the amount equal to the rate of three-
sixteenths of one percent (3/16 of 1%) per annum of the difference
between the Base Credit Amount before giving effect to such
increase and the Base Credit Amount after giving effect to such
increase, accrued for a period of time equal to the period from the
Effective Date to the date of such increase in the Base Credit
Amount.
(c) The Company further agrees to pay to the
Banks a facility fee for this Agreement in the amount of $31,000.
Such facility fee shall be payable on or prior to the Effective
Date.
(d) The Company further agrees to pay to the
Agent such fees for arranging this Agreement and agency fees for
its services as Agent under this Agreement in such amounts as may
from time to time be agreed upon by the Company and the Agent.
2.4 Disbursement of Loans. (a) The Company shall
give the Agent notice of each requested Borrowing in substantially
the form of Exhibit B hereto (with sufficient executed copies for
each Bank) not later than 10:00 a.m. Detroit time (i) three
Eurodollar Business Days prior to the date such Borrowing is
requested to be made if such Borrowing is to be made as a
Eurodollar Rate Borrowing, and (ii) on the date such Borrowing is
requested to be made if such Borrowing is to be made as a Floating
Rate Borrowing, which notice shall specify whether a Eurodollar
Rate Borrowing or Floating Rate Borrowing is requested and, in the
case of each requested Eurodollar Rate Borrowing, the Interest
Period to be initially applicable to such Borrowing. The Agent
shall as soon as practicable provide notice of such requested
Borrowing to each Bank. The Company hereby directs and authorizes
the Agent to disburse the proceeds of the initial Borrowing
hereunder to the Banks in amounts sufficient to repay all then
existing indebtedness of the Company and its Subsidiaries to the
Banks. The initial Borrowing hereunder shall be in an amount at
least sufficient to make such repayment to the Banks. Subject to
the terms and conditions of this Agreement, the remaining proceeds
of the initial Borrowing and the proceeds of each subsequent
Borrowing shall be made available to the Company by depositing the
proceeds thereof, in immediately available funds, in an account
maintained and designated by the Company at the principal office of
the Agent.
(b) Each Bank, on the date any Borrowing is
requested to be made, shall make its pro rata share of such
Borrowing available in immediately available funds at the principal
office of the Agent for disbursement to the Company. Unless the
Agent shall have received notice from any Bank prior to the date
such Borrowing is requested to be made under this Section 2.4 that
such Bank will not make available to the Agent such Bank's pro rata
portion of such Borrowing, the Agent may assume that such Bank has
made such portion available to the Agent on the date such Borrowing
is requested to be made in accordance with this Section 2.4. If
and to the extent such Bank shall not have so made such pro rata
portion available to the Agent, the Agent may (but shall not be
obligated to) make such amount available to the Company, and such
Bank and the Company severally agree to pay to the Agent forthwith
on demand such amount together with interest thereon, for each day
from the date such amount is made available to the Company by the
Agent until the date such amount is repaid to the Agent, at a rate
per annum equal to the interest rate applicable to such Borrowing
during such period. If such Bank shall pay such amount to the
Agent together with interest, such amount so paid shall constitute
a Loan by such Bank as a part of the related borrowing for purposes
of this Agreement. The failure of any Bank to make its pro rata
portion of any such Borrowing available to the Agent shall not
relieve any other Bank of its obligation to make available its pro
rata portion of such Borrowing on the date such Borrowing is
requested to be made, but no Bank shall be responsible for failure
of any other Bank to make such pro rata portion available to the
Agent on the date of any such Borrowing.
(c) All Revolving Credit Loans made under this
Section 2.4 shall be evidenced by the Revolving Credit Notes. All
such Loans shall be due and payable and bear interest as provided
in Article III. Each Bank is hereby authorized by the Company to
record on the schedules attached to the Revolving Credit Notes, or
in its books and records, the date, and amount of each Loan and the
duration of the related Interest Period (if applicable), the amount
of each payment or prepayment of principal thereon, and the other
information provided for on such schedule, which schedule or books
and records, as the case may be, shall constitute prima facie
evidence of the information so recorded, provided, however, that
failure of any Bank to record, or any error in recording, any such
information shall not relieve the Company of its obligation to
repay the outstanding principal amount of the Revolving Credit
Loans, all accrued interest thereon and other amounts payable with
respect thereto in accordance with the terms of the Notes and this
Agreement. Subject to the terms and conditions of this Agreement,
the Company may borrow Revolving Credit Loans under this
Section 2.4, prepay Revolving Credit Loans pursuant to Section 3.1
and reborrow Revolving Credit Loans under this Section 2.4.
2.5 Conditions for First Disbursement. The
obligation of the Banks to make the first Borrowing hereunder is
subject to receipt by each Bank and the Agent of the following
documents, and completion of the following matters, in form and
substance satisfactory to each Bank and the Agent:
(a) Charter Documents. Certificates of recent
date of the appropriate authority or official of the Company's and
each Guarantor's state of incorporation (listing all charter
documents of each such person on file in that office if such
listing is available) and certifying as to the good standing and
corporate existence of each such person together with copies of
such charter documents of each such person, certified as of a
recent date by such authority or official and certified as true and
correct as of the Effective Date by a duly authorized officer of
each such person;
(b) By-Laws and Corporate Authorizations.
Copies of the by-laws of each of the Company and the Guarantors,
together with all authorizing resolutions and evidence of other
corporate action taken by each such person to authorize the
execution, delivery and performance by it of this Agreement, the
Revolving Credit Notes and the Security Documents to which it is a
party and the consummation by it of the transactions contemplated
hereby, certified as true and correct as of the Effective Date by
a duly authorized officer of each such person;
(c) Incumbency Certificate. A certificate of
incumbency of each of the Company and the Guarantors, containing,
and attesting to the genuineness of, the signatures of those
officers authorized to act on behalf of each such person in
connection with this Agreement, the Revolving Credit Notes and the
Security Documents to which it is a party and the consummation by
it of the transactions contemplated hereby, certified as true and
correct as of the Effective Date by a duly authorized officer of
each such person;
(d) Notes. The Revolving Credit Notes duly
executed on behalf of the Company for each Bank;
(e) Security Documents. The Guaranties duly
executed on behalf of the Guarantors and the Pledge Agreements duly
executed on behalf of the Pledgors granting to the Banks and the
Agent the collateral intended to be provided pursuant to Section
2.10, together with the original certificates representing all
shares of stock subject to the Pledge Agreements and an equal
number of assignments separate from certificates executed in blank;
(f) Legal Opinion. The favorable written
opinion of Crosby, Guenzel, Davis, Kessner & Kuester, general
counsel for the Company and the Guarantors, with respect to each of
the matters set forth in Article IV (other than Sections 4.6, 4.7,
4.9, 4.10, 4.12, 4.13 and 4.14) and as to such other matters as the
Banks and the Agent may reasonably request;
(g) Consents, Approvals, Etc. Copies of all
governmental and nongovernmental consents, approvals,
authorizations, declarations, registrations or filings, if any,
required on the part of the Company or any Guarantor in connection
with the execution, delivery and performance of this Agreement, the
Revolving Credit Notes, the Security Documents or the transactions
contemplated hereby or as a condition to the legality, validity or
enforceability of this Agreement, the Revolving Credit Notes or any
of the Security Documents, certified as true and correct and in
full force and effect as of the Effective Date by a duly authorized
officer of the Company, or, if none is required, a certificate of
such officer to that effect;
(h) Fees. The payment in full, in immediately
available funds, of all fees required to be paid by the Company
under this Agreement on or before the Effective Date hereunder;
(i) Termination of Existing Bank Facilities.
All existing credit facilities provided by the Banks or any of them
or First Bank to the Company and its Subsidiaries shall be
terminated;
(j) Subrogation and Contribution Agreement.
A subrogation and contribution agreement duly executed on behalf of
the Company and the Guarantors; and
(k) Other Documents and Matters. Such other
documents, and completion of such other matters, as the Agent may
reasonably request.
2.6 Further Conditions for Disbursement. The
obligation of the Banks to make any Borrowing (including the first
Borrowing), or any continuation or conversion under Section 2.7, is
further subject to the satisfaction of the following conditions
precedent:
(a) The representations and warranties
contained in Article IV hereof and in the Security Documents shall
be true and correct on and as of the date such Borrowing is made
(both before and after such Borrowing is made) as if such
representations and warranties were made on and as of such date;
and
(b) No Default or Event of Default shall exist
or shall have occurred and be continuing on the date such Borrowing
is made (whether before or after such Borrowing is made).
The Company shall be deemed to have made a representation and
warranty to the Banks at the time of the making of each Loan to the
effects set forth in clauses (a) and (b) of this Section 2.6. For
purposes of this Section 2.6, the representations and warranties
contained in Section 4.6 shall be deemed made with respect to both
the financial statements referred to therein and the most recent
financial statements delivered pursuant to Section 5.1(d)(ii) and
(iii).
2.7 Subsequent Elections as to Borrowings. The
Company may elect (a) to continue a Floating Rate Borrowing, or a
portion thereof, as a Floating Rate Borrowing, or (b) to convert a
Floating Rate Borrowing, or a portion thereof, to a Eurodollar Rate
Borrowing, or (c) to convert a Eurodollar Rate Borrowing, or a
portion thereof, to a Floating Rate Borrowing, in each case by
giving notice thereof to the Agent (with sufficient executed copies
for each Bank) in substantially the form of Exhibit C hereto not
later than 10:00 a.m. Detroit time three Eurodollar Business Days
prior to the date any such continuation of or conversion to a
Eurodollar Rate Borrowing is to be effective and not later than
10:00 a.m. Detroit time on the date such continuation or conversion
is to be effective in all other cases, provided that, if a
continuation of a Borrowing as, or a conversion of a Borrowing to,
a Eurodollar Rate Borrowing is requested, such notice shall also
specify the Interest Period to be applicable thereto upon such
continuation or conversion. The Agent shall as soon as practicable
provide notice of such election to the Banks. If the Company shall
not timely deliver such a notice with respect to any outstanding
Eurodollar Rate Borrowing, the Company shall be deemed to have
elected to convert such Borrowing to a Floating Rate Borrowing on
the last day of the then current Interest Period with respect to
such Borrowing.
2.8 Limitation of Requests and Elections.
Notwithstanding any other provision of this Agreement to the
contrary, if, upon receiving a request for a continuation of a
Eurodollar Rate Borrowing as a Eurodollar Rate Borrowing, or a
request for conversion of a Floating Rate Borrowing to a Eurodollar
Rate Borrowing, (a) deposits in Dollars for periods comparable to
the Interest Period elected by the Company are not available to one
or more of the Banks in the relevant interbank market, (b) the
Eurodollar Rate will not adequately and fairly reflect the cost to
any Bank of making, funding or maintaining the related Eurodollar
Rate Borrowing or (c) by reason of national or international
financial, political or economic conditions or by reason of any
applicable law, treaty or other international agreement, rule or
regulation (whether domestic or foreign) now or hereafter in
effect, or the interpretation or administration thereof by any
governmental authority charged with the interpretation or
administration thereof, or compliance by any Bank with any
guideline, request or directive of such authority (whether or not
having the force of law), including without limitation exchange
controls, it is impracticable, unlawful or impossible for, or shall
limit or impair the ability of any Bank to make or fund the
relevant Borrowing or to continue such Borrowing as a Borrowing of
the then existing type or to convert a Borrowing to such a
Borrowing, then the Company shall not be entitled, so long as such
circumstances continue, to request a Borrowing of the affected type
pursuant to Section 2.4 or a continuation of or conversion to a
Borrowing of the affected type pursuant to Section 2.7. In the
event that such circumstances no longer exist, the Banks shall
again consider requests for Borrowings of the affected type
pursuant to Section 2.4, and requests for continuations of and
conversions to Borrowings of the affected type pursuant to Section
2.7.
2.9 Minimum Amounts; Limitation on Number of
Borrowings; Etc. Except for (a) Borrowings which exhaust the
entire remaining amount of the Commitments, and (b) payments
required pursuant to Section 3.7, each Borrowing and each
continuation or conversion pursuant to Section 2.7 and each
prepayment thereof shall be (i) in the case of Eurodollar Rate
Borrowings, in a minimum amount of $500,000 and in an integral
multiple of $100,000 and (ii) in the case of Floating Rate
Borrowings, in a minimum amount of $100,000 and in an integral
multiple thereof.
2.10 Security and Collateral. To secure the payment
when due of the Revolving Credit Notes and all other obligations of
the Company under this Agreement to the Banks and the Agent, the
Guarantors shall execute and deliver the Guaranties to the Banks
and the Agent, and the Pledgors shall execute and deliver to the
Banks and the Agent the Pledge Agreements pledging all capital
stock of the Pledged Subsidiaries described therein.
ARTICLE III.
PAYMENTS AND PREPAYMENTS OF BORROWINGS
3.1 Principal Payments and Prepayments.
(a) Unless earlier payment is required under
this Agreement, the Company shall pay to the Banks on the
Termination Date the entire outstanding principal amount of the
Loans.
(b) The Company may at any time and from time
to time prepay all or a portion of the Loans, without premium or
penalty, provided that the Company may not prepay any portion of
any Loan as to which an election for a continuation of or a
conversion to a Eurodollar Rate Loan is pending pursuant to Section
2.7.
3.2 Interest Payments. The Company shall pay
interest to the Banks on the unpaid principal amount of each Loan,
for the period commencing on the date such Loan is made until such
Loan is paid in full, on each Interest Payment Date and at maturity
(whether at stated maturity, by acceleration or otherwise), and
thereafter on demand, at the following rates per annum:
(a) During such periods that such Loan is a
Floating Rate Loan, the Floating Rate.
(b) During such periods that such Loan is a
Eurodollar Rate Loan, the Eurodollar Rate applicable to such Loan
for each related Eurodollar Interest Period.
Notwithstanding the foregoing paragraphs (a) and (b), if the
Required Banks shall so require at any time, the Company shall pay
interest on demand by the Agent at the Overdue Rate on the
outstanding principal amount of any Loan and any other amount
payable by the Company hereunder (other than interest) which is not
paid in full when due (whether at stated maturity, by acceleration
or otherwise) for the period commencing on the due date thereof
until the same is paid in full.
3.3 Payment Method. (a) All payments to be made by
the Company hereunder will be made in Dollars and in immediately
available funds to the Agent for the account of the Banks at its
address set forth next to its name in the signature pages hereof
not later than 1:00 p.m. Detroit time on the date on which such
payment shall become due. Payments received after 1:00 p.m.
Detroit time shall be deemed to be payments made prior to 1:00 p.m.
on the next succeeding Business Day (or Eurodollar Business Day
with respect to payments in respect of Eurodollar Rate Loans).
(b) At the time of making each such payment,
the Company shall, subject to the other terms and conditions of
this Agreement, specify to the Agent that Borrowing or other
obligation of the Company hereunder to which such payment is to be
applied. In the event that the Company fails to so specify the
relevant obligation or if an Event of Default shall have occurred
and be continuing, the Agent may apply such payments as it may
determine in its sole discretion to obligations of the Company to
the Banks arising under this Agreement or otherwise.
(c) On the day such payments are deemed
received, the Agent shall remit to the Banks their pro rata shares
of such payments in immediately available funds. In the case of
payments of principal and interest on any Borrowing, such pro rata
shares shall be determined with respect to each such Bank by the
ratio which the outstanding principal balance of its Loan included
in such Borrowing bears to the outstanding principal balance of the
Loans of all of the Banks included in such Borrowing, and in the
case of fees paid pursuant to Section 2.3 and other amounts payable
hereunder (other than the Agent's fees payable pursuant to Section
2.3(d) and amounts payable to any Bank under Section 3.6, 3.7 or
3.8), such pro rata shares shall be determined with respect to each
such Bank by the ratio which the Commitment of such Bank bears to
the Commitments of all the Banks.
3.4 No Setoff or Deduction. All payments of
principal of and interest on the Loans and other amounts payable by
the Company hereunder shall be made by the Company without setoff
or counterclaim, and, subject to the next succeeding sentence, free
and clear of, and without deduction or withholding for, or on
account of, any present or future taxes, levies, imposts, duties,
fees, assessments, or other charges of whatever nature, imposed by
any governmental authority, or by any department, agency or other
political subdivision or taxing authority. If any such taxes,
levies, imposts, duties, fees, assessments or other charges are
imposed, the Company will pay such additional amounts as may be
necessary so that payment of principal of and interest on the Loans
and other amounts payable hereunder, after withholding or deduction
for or on account thereof, will not be less than any amount
provided to be paid hereunder and, in any such case, the Company
will furnish to the Banks certified copies of all tax receipts
evidencing the payment of such amounts within 45 days after the
date any such payment is due pursuant to applicable law.
3.5 Payment on Non-Business Day; Payment
Computations. Except as otherwise provided in this Agreement to
the contrary, whenever any installment of principal of, or interest
on, any Loan or any other amount due hereunder becomes due and
payable on a day which is not a Business Day, the maturity thereof
shall be extended to the next succeeding Business Day and, in the
case of any installment of principal, interest shall be payable
thereon at the rate per annum determined in accordance with this
Agreement during such extension. Computations of interest and
other amounts due under this Agreement shall be made on the basis
of a year of 365 or 366 days, as the case may be, for the actual
number of days elapsed, including the first day but excluding the
last day of the relevant period.
3.6 Additional Costs. (a) In the event that any
applicable law, treaty or other international agreement, rule or
regulation (whether domestic or foreign) now or hereafter in effect
and whether or not presently applicable to any Bank or the Agent,
or any interpretation or administration thereof by any
governmental authority charged with the interpretation or
administration thereof, or compliance by any Bank or the Agent with
any guideline, request or directive of any such authority (whether
or not having the force of law), shall (i) affect the basis of
taxation of payments to any Bank or the Agent of any amounts
payable by the Company under this Agreement (other than taxes
imposed on the overall net income of any Bank or the Agent by the
jurisdiction, or by any political subdivision or taxing authority
of any such jurisdiction, in which such Bank or the Agent, as the
case may be, has its principal office), or (ii) shall impose,
modify or deem applicable any reserve, special deposit or similar
requirement against assets of, deposits with or for the account of,
or credit extended by any Bank or the Agent, or (iii) shall impose
any other condition with respect to this Agreement, the
Commitments, the Notes or the Loans, and the result of any of the
foregoing is to increase the cost to any Bank of making, funding or
maintaining any Eurodollar Rate Loan or to reduce the amount of any
sum receivable by any Bank or the Agent, as the case may be,
thereon, then the Company shall pay to such Bank or the Agent, as
the case may be, from time to time, upon request by such Bank (with
a copy of such request to be provided to the Agent) or the Agent,
additional amounts sufficient to compensate such Bank or the Agent,
as the case may be, for such increased cost or reduced sum
receivable to the extent such Bank or the Agent is not compensated
therefor in the computation of the interest rate applicable to such
Eurodollar Rate Loan. A statement as to the amount of such
increased cost or reduced sum receivable, prepared in good faith
and in reasonable detail by such Bank or the Agent, as the case may
be, and submitted by such Bank or the Agent, as the case may be, to
the Company, shall be conclusive and binding for all purposes
absent demonstrable error in computation.
(b) In the event that any applicable law, treaty or
other international agreement, rule or regulation (whether domestic
or foreign) now or hereafter in effect and whether or not presently
applicable to any Bank or the Agent, or any interpretation or
administration thereof by any governmental authority charged with
the interpretation or administration thereof, or compliance by any
Bank or the Agent with any guideline, request or directive of any
such authority (whether or not having the force of law), including
any risk-based capital guidelines, affects or would affect the
amount of capital required or expected to be maintained by such
Bank or the Agent (or any corporation controlling such Bank or the
Agent) and such Bank or the Agent, as the case may be, determines
that the amount of such capital is increased by or based upon the
existence of such Bank's or the Agent's obligations hereunder and
such increase has the effect of reducing the rate of return on such
Bank's or the Agent's (or such controlling corporation's) capital
as a consequence of such obligations hereunder to a level below
that which such Bank or the Agent (or such controlling corporation)
could have achieved but for such circumstances (taking into
consideration its policies with respect to capital adequacy) by an
amount deemed by such Bank or the Agent to be material, then the
Company shall pay to such Bank or the Agent, as the case may be,
from time to time, upon request by such Bank (with a copy of such
request to be provided to the Agent) or the Agent, additional
amounts sufficient to compensate such Bank or the Agent (or such
controlling corporation) for any increase in the amount of capital
and reduced rate of return which such Bank or the Agent reasonably
determines to be applicable to the existence of such Bank's or the
Agent's obligations hereunder. A statement as to the amount of
such compensation, prepared in good faith and in reasonable detail
by such Bank or the Agent, as the case may be, and submitted by
such Bank or the Agent to the Company, shall be conclusive and
binding for all purposes absent demonstrable error in computation.
3.7 Illegality and Impossibility. In the event
that any applicable law, treaty or other international agreement,
rule or regulation (whether domestic or foreign) now or hereafter
in effect and whether or not presently applicable to any Bank, or
any interpretation or administration thereof by any governmental
authority charged with the interpretation or administration
thereof, or compliance by any Bank with any guideline, request or
directive of such authority (whether or not having the force of
law), including without limitation exchange controls, shall make it
unlawful or impossible for any Bank to maintain any Loan under this
Agreement, the Company shall, upon receipt of notice thereof from
such Bank, repay in full the then outstanding principal amount of
each Loan so affected, together with all accrued interest thereon
to the date of payment and all amounts owing to such Bank under
Section 3.8, (a) on the last day of the then current Interest
Period applicable to such Loan if such Bank may lawfully continue
to maintain such Loan to such day, or (b) immediately if such Bank
may not continue to maintain such Loan to such day. Nothing in
this Section 3.7 shall prohibit the Company from, subject to the
other terms and conditions of this Agreement, using the proceeds of
any Borrowing of a type not then effected as contemplated by this
Section 3.7 to make any repayment of any Borrowing of a type so
effected as required under this Section 3.7.
3.8 Indemnification. If the Company makes any
payment of principal with respect to any Eurodollar Rate Borrowing
on any other date than the last day of an Interest Period
applicable thereto (whether pursuant to Section 3.7, Section 6.2 or
otherwise), or if the Company fails to borrow any Eurodollar Rate
Borrowing after notice has been given to the Banks in accordance
with Section 2.4, or if the Company fails to make any payment of
principal or interest in respect of a Eurodollar Rate Borrowing
when due, the Company shall reimburse each Bank on demand for any
resulting loss or expense incurred by each such Bank, including
without limitation any loss incurred in obtaining, liquidating or
employing deposits from third parties. A statement as to the
amount of such loss or expense, prepared in good faith and in
reasonable detail by such Bank and submitted by such Bank to the
Company, shall be conclusive and binding for all purposes absent
demonstrable error in computation. Calculation of all amounts
payable to any Bank under this Section 3.8 shall be made as though
such Bank shall have actually funded or committed to fund the
relevant Eurodollar Rate Borrowing through the purchase of an
underlying deposit in an amount equal to the amount of the Loan to
be made by such Bank as part of such Borrowing in the relevant
market and having a maturity comparable to the related Interest
Period and through the transfer of such deposit to a domestic
office of such Bank in the United States; provided, however, that
such Bank may fund any Eurodollar Rate Loan in any manner it sees
fit and the foregoing assumption shall be utilized only for the
purpose of calculation of amounts payable under this Section 3.8.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to the Banks and
the Agent that:
4.1 Corporate Existence and Power. The Company is
a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware, and is duly qualified to
do business, and is in good standing, in all additional
jurisdictions where such qualification is necessary under
applicable law. The Company has all requisite corporate power to
carry on its business as now being conducted and as proposed to be
conducted, and to execute and deliver this Agreement, the Revolving
Credit Notes and the Security Documents to which it is a party and
to engage in the transactions contemplated by this Agreement.
4.2 Corporate Authority. The execution, delivery
and performance by the Company of this Agreement and the Revolving
Credit Notes, and the execution, delivery and performance by each
of the Company and the Guarantors of the Security Documents to
which it is a party, have been duly authorized by all necessary
corporate action and are not in contravention of any law, rule or
regulation, or any judgment, decree, writ, injunction, order or
award of any arbitrator, court or governmental authority, or of the
terms of any such person's charter or by-laws, or of any contract
or undertaking to which any such person is a party or by which any
such person or any of its property may be bound or affected.
4.3 Binding Effect. This Agreement is, and the
Revolving Credit Notes and the Security Documents to which the
Company or either Guarantor is a party when delivered hereunder
will be, legal, valid and binding obligations of the Company or
such Guarantor, as the case may be, enforceable against each such
person in accordance with their respective terms.
4.4 Subsidiaries. Schedule 4.4 hereto correctly
sets forth the corporate name, jurisdiction of incorporation and
ownership of each Subsidiary of the Company. Each such Subsidiary
and each corporation becoming a Subsidiary of the Company after the
date hereof is and will be a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation and is and will be duly qualified to do business in
each additional jurisdiction where such qualification is or may be
necessary under applicable law. Each Subsidiary of the Company has
and will have all requisite corporate power to own or lease the
properties used in its business and to carry on its business as now
being conducted and as proposed to be conducted, and to execute and
deliver the Security Documents to which it is a party and to engage
in the transactions contemplated thereby. All outstanding shares
of capital stock of each class of each Subsidiary of the Company
have been and will be validly issued and are and will be fully paid
and nonassessable and, except as otherwise indicated in Schedule
4.4 hereto or disclosed in writing to the Agent and the Banks from
time to time, are and will be owned, beneficially and of record, by
the Company or another Subsidiary of the Company free and clear of
any Liens.
4.5 Litigation. Except as set forth in Schedule
4.5 hereto, there is no action, suit or proceeding pending or, to
the best of the Company's knowledge, threatened against or
affecting the Company or any of its Subsidiaries before or by any
court, governmental authority or arbitrator, which if adversely
decided might result, either individually or collectively, in any
material adverse change in the business, properties, operations or
condition, financial or otherwise, of the Company or any of its
Subsidiaries or in any material adverse effect on the legality,
validity or enforceability of this Agreement, the Revolving Credit
Notes or the Security Documents and, to the best of the Company's
knowledge, there is no basis for any such action, suit or
proceeding.
4.6 Financial Condition. The consolidated balance
sheet of the Company and its Subsidiaries and the consolidated
statements of income, retained earnings and cash flows of the
Company and its Subsidiaries for the fiscal year ended December 31,
1992 and reported on by Deloitte & Touche, independent certified
public accountants, and the interim consolidated balance sheet and
interim consolidated statements of income, retained earnings and
cash flows of the Company and its Subsidiaries, as of or for the 9-
month period ended on September 30, 1993, copies of which have been
furnished to the Banks, fairly present, and the financial
statements of the Company and its Subsidiaries delivered pursuant
to Section 5.1(d) will fairly present, the consolidated financial
position of the Company and its Subsidiaries as at the respective
dates thereof, and the consolidated results of operations of the
Company and its Subsidiaries for the respective periods indicated,
all in accordance with Generally Accepted Accounting Principles
consistently applied (subject, in the case of said interim
statements, to year-end audit adjustments). There has been no
material adverse change in the business, properties, operations or
condition, financial or otherwise, of the Company or any of its
Subsidiaries since December 31, 1992. There is no material
Contingent Liability of the Company or any of its Subsidiaries that
is not reflected in such financial statements or in the notes
thereto.
4.7 Use of Loans. The Company will use the
proceeds of the Loans to refinance all existing indebtedness of the
Company and its Subsidiaries to the Banks and for the Company's
other corporate purposes. Neither the Company nor any of its
Subsidiaries extends or maintains, in the ordinary course of
business, credit for the purpose, whether immediate, incidental, or
ultimate, of buying or carrying margin stock (within the meaning of
Regulation U of the Board of Governors of the Federal Reserve
System), and no part of the proceeds of any Loan will be used for
the purpose, whether immediate, incidental, or ultimate, of buying
or carrying any such margin stock or maintaining or extending
credit to others for such purpose. After applying the proceeds of
each Loan, such margin stock will not constitute more than 25% of
the value of the assets (either of the Company alone or of the
Company and its Subsidiaries on a consolidated basis) that are
subject to any provisions of this Agreement or any Security
Document that may cause the Loans to be deemed secured, directly or
indirectly, by margin stock.
4.8 Consents, Etc. Except for such consents,
approvals, authorizations, declarations, registrations or filings
delivered by the Company pursuant to Section 2.5(g), if any, each
of which is in full force and effect, no consent, approval or
authorization of or declaration, registration or filing with any
governmental authority or any nongovernmental person or entity,
including without limitation any creditor, lessor or stockholder of
the Company or any of its Subsidiaries, is required on the part of
the Company or any Guarantor in connection with the execution,
delivery and performance of this Agreement, the Revolving Credit
Notes, the Security Documents or the transactions contemplated
hereby or as a condition to the legality, validity or
enforceability of this Agreement, the Revolving Credit Notes or any
of the Security Documents.
4.9 Taxes. The Company and its Subsidiaries have
filed all tax returns (federal, state and local) required to be
filed and have paid all taxes shown thereon to be due, including
interest and penalties, or have established adequate financial
reserves on their respective books and records for payment thereof.
Neither the Company nor any of its Subsidiaries knows of any actual
or proposed tax assessment or any basis therefor, and no extension
of time for the assessment of deficiencies in any federal or state
tax has been granted by the Company or any such Subsidiary.
4.10 Title to Properties. Except as otherwise
disclosed in the latest balance sheet delivered pursuant to Section
4.6 or 5.1(d)of this Agreement, the Company or one or more of its
Subsidiaries have good and marketable fee simple title to all of
the real property, and a valid and indefeasible ownership interest
in all of the other properties and assets (including, without
limitation, the collateral subject to the Security Documents to
which any of them is a party) reflected in said balance sheet or
subsequently acquired by the Company or any such Subsidiary. All
of such properties and assets are free and clear of any Lien,
except for Permitted Liens.
4.11 ERISA. The Company, its Subsidiaries, their
ERISA Affiliates and their respective Plans are in compliance in
all material respects with those provisions of ERISA and of the
Code which are applicable with respect to any Plan. No Prohibited
Transaction and no Reportable Event has occurred with respect to
any such Plan. None of the Company, any of its Subsidiaries or any
of their ERISA Affiliates is an employer with respect to any
Multiemployer Plan. The Company, its Subsidiaries and their ERISA
Affiliates have met the minimum funding requirements under ERISA
and the Code with respect to each of their respective Plans, if
any, and have not incurred any liability to the PBGC or any Plan.
The execution, delivery and performance of this Agreement, the
Revolving Credit Notes and the Security Documents does not
constitute a Prohibited Transaction. There is no material Unfunded
Benefit Liability, with respect to any Plan of the Company, its
Subsidiaries or their ERISA Affiliates.
4.12 Disclosure. No report or other information
furnished in writing by or on behalf of the Company or any of its
Subsidiaries to any Bank or the Agent in connection with the
negotiation or administration of this Agreement contains any
material misstatement of fact or omits to state any material fact
or any fact necessary to make the statements contained therein not
misleading in light of the circumstances in which they were made.
Neither this Agreement, the Revolving Credit Notes, the Security
Documents nor any other document, certificate, or report or
statement or other information furnished to any Bank or the Agent
by or on behalf of the Company or any of its Subsidiaries in
connection with the transactions contemplated hereby contains any
untrue statement of a material fact or omits to state a material
fact in order to make the statements contained herein and therein
not misleading in light of the circumstances in which they were
made. There is no fact known to the Company which materially and
adversely affects, or which in the future may (so far as the
Company can now foresee) materially and adversely affect, the
business, properties, operations or condition, financial or
otherwise, of the Company or any of its Subsidiaries, which has not
been set forth in this Agreement or in the other documents,
certificates, statements, reports and other information furnished
in writing to the Banks by or on behalf of the Company in
connection with the transactions contemplated hereby.
4.13 Environmental Matters. The Company and each of
its Subsidiaries is in compliance with all Environmental Laws in
jurisdictions in which the Company or any such Subsidiary owns or
operates, or has owned or operated, a facility or site, or arranges
or has arranged for disposal or treatment of hazardous substances,
solid waste, or other wastes, accepts or has accepted for transport
any hazardous substances, solid wastes or other wastes or holds or
has held any interest in real property or otherwise. No demand,
claim, notice, action, administrative proceeding, investigation or
inquiry whether brought by any governmental authority, private
person or entity or otherwise, arising under, relating to or in
connection with any Environmental Laws is pending or threatened
against the Company or any of its Subsidiaries, any real property
in which the Company or any such Subsidiary holds or has held an
interest or any past or present operation of the Company or any
such Subsidiary. Neither the Company nor any of its Subsidiaries
(a) is the subject of any federal or state investigation evaluating
whether any remedial action is needed to respond to a release of
any toxic substances, radioactive materials, hazardous wastes or
related materials into the environment, (b) has received any notice
of any toxic substances, radioactive materials, hazardous waste or
related materials in, or upon any of its properties in violation of
any Environmental Laws, (c) knows of any basis for any such
investigation, notice or violation, or (d) owns or operates, or has
owned or operated, property which appears on the United States
National Priority List or any other governmental listing which
identifies sites for remedial clean-up or investigatory actions.
No release, threatened release or disposal of hazardous waste,
solid waste or other wastes is occurring or has occurred on, under
or to any real property in which the Company or any of its
Subsidiaries holds any interest or performs any of its operations,
in violation of any Environmental Law.
4.14 Integrated Operation. The Company, the
Guarantors, the other Pledgor and the other Subsidiaries of the
Company are engaged as an integrated group in the insurance
business. The integrated operation requires financing on such a
basis that credit is supplied to the Company for the continued
successful operation of the integrated group as a whole, and each
of the Guarantors has requested the Banks to make credit available
to the Company for the purpose of financing the integrated
operations of the Company, the Guarantors and the other
Subsidiaries of the Company, with each of such entities expecting
to derive benefit, directly or indirectly, from the credit extended
by the Banks to the Company, both in each entity's separate
capacity and as a member of the integrated group, in as much as the
successful operation and condition of each such entity is dependent
upon the continued successful performance of the functions of the
integrated group as a whole.
<PAGE>
ARTICLE V.
COVENANTS
5.1 Affirmative Covenants. The Company covenants
and agrees that, until the Termination Date and thereafter until
the payment in full of the principal of and accrued interest on the
Revolving Credit Notes and the performance of all other obligations
of the Company under this Agreement, unless the Required Banks
shall otherwise consent in writing, it shall, and shall cause each
of its Subsidiaries to:
(a) Preservation of Corporate Existence, Etc.
Do or cause to be done all things necessary to preserve, renew and
keep in full force and effect its legal existence and its
qualification as a foreign corporation in good standing in each
jurisdiction in which such qualification is necessary under
applicable law, and the rights, licenses, permits (including those
required under Environmental Laws), franchises, patents,
copyrights, trademarks and trade names material to the conduct of
its businesses; and defend all of the foregoing against all claims,
actions, demands, suits or proceedings at law or in equity or by or
before any governmental instrumentality or other agency or
regulatory authority.
(b) Compliance with Laws, Etc. Comply in all
material respects with all applicable laws, rules, regulations and
orders of any governmental authority, whether federal, state, local
or foreign (including without limitation ERISA, the Code and
Environmental Laws), in effect from time to time; and pay and
discharge promptly when due all taxes, assessments and governmental
charges or levies imposed upon it or upon its income, revenues or
property, before the same shall become delinquent or in default, as
well as all lawful claims for labor, materials and supplies or
otherwise, which, if unpaid, might give rise to Liens upon such
properties or any portion thereof, except to the extent that
payment of any of the foregoing is then being contested in good
faith by appropriate legal proceedings and with respect to which
adequate financial reserves have been established on the books and
records of the Company or any of its Subsidiaries.
(c) Maintenance of Properties; Insurance.
Maintain, preserve and protect all property that is material to the
conduct of the business of the Company or any of its Subsidiaries
and keep such property in good repair, working order and condition
and from time to time make, or cause to be made all needful and
proper repairs, renewals, additions, improvements and replacements
thereto necessary in order that the business carried on in
connection therewith may be properly conducted at all times in
accordance with customary and prudent business practices for
similar businesses; and to maintain in full force and effect
insurance with responsible and reputable insurance companies or
associations in such amounts, on such terms and covering such
risks, including fire and other risks insured against by extended
coverage, as is usually carried by companies engaged in similar
businesses and owning similar properties similarly situated and
maintain in full force and effect public liability insurance,
insurance against claims for personal injury or death or property
damage occurring in connection with any of its activities or any
properties owned, occupied or controlled by it, in such amount as
it shall reasonably deem necessary, and maintain such other
insurance as may be required by law or as may be reasonably
requested by the Agent for purposes of assuring compliance with
this Section 5.1(c).
(d) Reporting Requirements. Furnish to the
Agent (with a copy for each of the Banks) the following:
(i) Promptly and in any event within
three calendar days after becoming aware of the occurrence of (A)
any Default or Event of Default, (B) the commencement of any
material litigation against, by or affecting the Company, or any of
its Subsidiaries, and any material developments therein, or (C)
entering into any material contract or undertaking that is not
entered into in the ordinary course of business or (D) any
development in the business or affairs of the Company or any of its
Subsidiaries which has resulted in or which is likely, in the
reasonable judgment of the Company, to result in a material adverse
change in the business, properties, operations or condition,
financial or otherwise of the Company or any of its Subsidiaries,
a statement of the chief financial officer of the Company setting
forth details of each such Default or Event of Default or such
litigation, material contract or undertaking or development and the
action which the Company or such Subsidiary, as the case may be,
has taken and proposes to take with respect thereto;
(ii) As soon as available and in any event
within 45 days after the end of each of the first three fiscal
quarters of each fiscal year of the Company, the consolidated
balance sheet of the Company and its Subsidiaries as of the end of
such quarter, and the related consolidated statements of income,
retained earnings and cash flows of the Company and its
Subsidiaries for the period commencing at the end of the previous
fiscal year and ending with the end of such quarter, setting forth
in each case in comparative form the corresponding figures for the
corresponding date or period of the preceding fiscal year, all in
reasonable detail and duly certified (subject to year-end audit
adjustments) by the chief financial officer of the Company as
having been prepared in accordance with Generally Accepted
Accounting Principles, together with a certificate of the chief
financial officer of the Company stating (A) that no Default or
Event of Default has occurred and is continuing or, if a Default or
Event of Default has occurred and is continuing, a statement
setting forth the details thereof and the action which the Company
has taken and proposes to take with respect thereto, and (B) that
a computation (which computation shall accompany such certificate
and shall be in reasonable detail) showing compliance with
Sections 5.2(a), (b), (c), (d) and (e) is in conformity with the
terms of this Agreement;
(iii) As soon as available and in any event
within 90 days after the end of each fiscal year of the Company, a
copy of the consolidated balance sheet of the Company and its
Subsidiaries as of the end of such fiscal year and the related
consolidated statements of income, retained earnings and cash flows
of the Company and its Subsidiaries for such fiscal year, with a
customary audit report of Deloitte & Touche, or other independent
certified public accountants of comparable standing selected by the
Company, without qualifications unacceptable to the Required Banks,
together with a certificate of the chief financial officer of the
Company stating (A) that no Default or Event of Default has
occurred and is continuing or, if a Default or Event of Default has
occurred and is continuing, a statement setting forth the details
thereof and the action which the Company has taken and proposes to
take with respect thereto, and (B) that a computation (which
computation shall accompany such certificate and shall be in
reasonable detail) showing compliance with Sections 5.2(a), (b),
(c), (d) and (e) is in conformity with the terms of this Agreement;
(iv) As soon as available and in any event
within 45 days after the end of each of the first three fiscal
quarters of each Insurance Subsidiary's fiscal year, the quarterly
statement of the condition and affairs of each such Insurance
Subsidiary, including all schedules of investments, all in
reasonable detail and duly certified by the chief financial officer
of the Company as having been prepared in accordance with SAP;
(v) As soon as available and in any event
within 90 days after the end of each Insurance Subsidiary's fiscal
year, the annual statement of the condition and affairs of each
such Insurance Subsidiary, including all schedules of investments,
all in reasonable detail and duly certified by the chief financial
officer of the Company as having been prepared in accordance with
SAP;
(vi) Promptly after the sending, filing or
receipt thereof, copies of all reports, proxy statements and
financial statements which the Company or any of its Subsidiaries
sends to or files with any of their respective security holders or
any securities exchange or the Securities and Exchange Commission
or any successor agency thereof, or with the NAIC or other
regulators, and all reports, notices, inquiries and other material
documents received by the Company or any of its Subsidiaries from
the NAIC or other regulators;
(vii) Promptly and in any event within 10
calendar days after receiving or becoming aware thereof (A) a copy
of any notice of intent to terminate any Plan of the Company, its
Subsidiaries or any ERISA Affiliate filed with the PBGC, (B) a
statement of the chief financial officer of the Company setting
forth the details of the occurrence of any Reportable Event with
respect to any such Plan, (C) a copy of any notice that the
Company, any of its Subsidiaries or any ERISA Affiliate may receive
from the PBGC relating to the intention of the PBGC to terminate
any such Plan or to appoint a trustee to administer any such Plan,
or (D) a copy of any notice of failure to make a required
installment or other payment within the meaning of Section 412(n)
of the Code or Section 302(f) of ERISA with respect to any such
Plan;
(viii) Promptly and in any event within
10 days after receipt, a copy of any management letter or
comparable analysis prepared by the auditors of the Company or any
of its Subsidiaries; and
(ix) Promptly such other information
respecting the business, properties, operations, or condition,
financial or otherwise, of the Company or any of its Subsidiaries
as the Agent (whether on behalf of itself or any Bank) may from
time to time request.
(e) Accounting; Access to Records, Books, Etc.
Maintain a system of accounting established and administered in
accordance with sound business practices to permit preparation of
financial statements in accordance with Generally Accepted
Accounting Principles and SAP and to comply with the requirements
of this Agreement and, at any reasonable time and from time to
time, permit any Bank or the Agent or any agents or representatives
thereof to examine and make copies of and abstracts from the
records and books of account of, and visit the properties of, the
Company and its Subsidiaries, and to discuss the affairs, finances
and accounts of the Company and its Subsidiaries with its
directors, officers, employees and independent auditors, and by
this provision the Company hereby authorizes such persons to
discuss such affairs, finances and accounts with any Bank or the
Agent.
(f) Additional Collateral. Promptly execute
and deliver, or cause to be executed and delivered, additional
Security Documents, within 30 days after request therefor by the
Agent, sufficient to pledge to the Agent for the benefit of the
Banks and the Agent any and all direct equity interests of the
Company or either Guarantor in any Insurance Subsidiaries acquired
after the Effective Date. The Company shall notify the Agent in
writing (with sufficient copies for the Banks), within 10 days
after the occurrence thereof, of any event or condition that may
require additional action of any nature in order to create or
preserve the effectiveness and perfected status of the liens and
security interests of the Banks and the Agent with respect to the
collateral described in Section 2.10, including, without
limitation, any after acquired collateral of such type. This
Section 5.1(f) shall not affect the obligations of the Company or
rights of the Banks under Section 5.2(h).
(g) Further Assurances. Execute and deliver,
or cause to be executed and delivered, within 30 days after request
therefor by the Agent all further instruments and documents and
take all further action that may be necessary or desirable, or that
the Agent may request, in order to give effect to, and to aid in
the exercise and enforcement of the rights and remedies of the
Banks and the Agent under, this Agreement, the Notes and the
Security Documents.
5.2 Negative Covenants. Until the Termination Date
and thereafter until the payment in full of the principal of and
accrued interest on the Revolving Credit Notes and the performance
of all other obligations of the Company under this Agreement, the
Company agrees that, unless the Required Banks shall otherwise
consent in writing, it shall not, and shall not permit any of its
Subsidiaries to:
(a) Written Premiums to Statutory Surplus.
Permit or suffer the ratio of (i) the net written premiums of any
Subsidiary of the Company to (ii) the Statutory Surplus of such
Subsidiary to be greater than 3.00 to 1.00 as of the end of any
fiscal quarter of the Company, in each case determined for the
period of the four fiscal quarters of the Company then ended.B
(b) Combined Ratio. Permit or suffer the
Consolidated Combined Ratio of the Company and its Subsidiaries to
be in excess of 1.05 to 1.00 for each of any two consecutive fiscal
years of the Company.
(c) Capital Expenditures. Permit or suffer
the aggregate amount of Capital Expenditures made or committed to
be made by the Company and its Subsidiaries during any fiscal
quarter of the Company to be greater than $500,000. If the
aggregate amount of Capital Expenditures made or committed to be
made by the Company and its Subsidiaries during any fiscal quarter
is less than $500,000, such occurrence shall not increase the
amount of Capital Expenditures permitted in any subsequent fiscal
quarter.
(d) Coverage Ratios. Permit or suffer both of
the following to occur with respect to any fiscal quarter of the
Company:
(i) The ratio of (A) Available Income to
(B) Interest Expense of the Company to be less than 3.00 to 1.00 as
of the last day of any fiscal quarter of the Company, in each case
determined for the period of the four fiscal quarters of the
Company then ended; and
(ii) The ratio of (A) Cash Available For
Debt Service to (B) the sum of Interest Expense of the Company plus
25% of Senior Debt to be less than 2.00 to 1.00 as of the last day
of any fiscal quarter of the Company, in each case determined for
the period of the four fiscal quarters of the Company then ended.
(e) Consolidated Statutory Surplus. Permit or
suffer the Consolidated Statutory surplus of the Company and its
Subsidiaries to at any time be equal to or less than 90% of the
greatest Consolidated Statutory Surplus of the Company and its
Subsidiaries as of any previous fiscal year end of the Company
since (and including) December 31, 1993.
(f) NAIC Ratio Requirements. Permit or suffer
any of the Subsidiaries of the Company to fall outside the
recommended ranges of more than four of the NAIC ratio tests (other
than excess capital contributions)in any fiscal year of the
Company.
(g) Investment Quality. Permit or suffer any
material change in either (i) the quality of the investments or
(ii) the investment policies of the Company or any of its
Subsidiaries.
(h) Merger; Acquisitions; Etc. Purchase or
otherwise acquire, whether in one or a series of transactions, all
or a substantial portion of the business, assets, rights, revenues
or property, real, personal or mixed, tangible or intangible, of
any person, or all or a substantial portion of the capital stock or
other ownership interest in any other person, provided that,
subject to the provisions of Section 5.1(f), this Section 5.2(h)
shall not prohibit any such purchase or acquisition (i) in which
the total consideration paid or exchanged therefor is capital stock
of the Company or capital stock of any Subsidiaries of the Company
not subject to a Pledge Agreement or (ii) with respect to which the
aggregate Indebtedness incurred or assumed by the Company and its
Subsidiaries does not exceed $5,000,000; nor merge or consolidate
or amalgamate with any other person or take any other action having
a similar effect, nor enter into any joint venture or similar
arrangement with any other person.
(i) Disposition of Assets. Sell, lease,
license, transfer, assign or otherwise dispose of all or a material
portion of its business, assets, rights, revenues or property,
real, personal or mixed, tangible or intangible, whether in one or
a series of transactions, other than sales in the ordinary course
of business of securities owned by the Company or any of its
Subsidiaries for investment purposes.
(j) Nature of Business. Make any substantial
change in the nature of its business from that engaged in on the
date of this Agreement or engage in any other businesses other than
those in which it is engaged on the date of this Agreement.
(k) Reinsurance Contracts. Enter into any
reinsurance contract with any person having a rating of less than
A- as determined by A.M. Best Company (or ISI equivalent for
European reinsurers) that exceeds 15% of the aggregate dollar value
of all reinsurance contracts, except (a) reinsurance contracts with
Lloyd's of London and Minnesota Workers Compensation Reinsurance
Association, and (b) if the Subsidiary shall retain in cash,
irrevocable letters of credit or investment grade marketable
securities an amount equal to 100% of the ceded unearned premiums
plus ceded losses payable including loss reserve.
(l) Stock of Subsidiaries. Sell, pledge
(other than pursuant to the Pledge Agreements), create a security
interest in or otherwise dispose of or transfer any shares of
capital stock of any of its Subsidiaries, or issue any additional
shares of capital stock.
(m) Indebtedness. Create, incur, assume or in
any manner become liable in respect of, or suffer to exist, any
Indebtedness other than:
(i) The Loans and other indebtedness to
the Banks hereunder;
(ii) Indebtedness in aggregate outstanding
principal amount not exceeding $500,000 which is secured by one or
more liens permitted by Section 5.2(n)(vi);
(iii) Indebtedness of any Subsidiary of the
Company owing to the Company or to any other Subsidiary of the
Company;
(iv) Unsecured current Indebtedness
constituting obligations for the unpaid purchase price of goods,
property or services in aggregate outstanding principal amount not
exceeding $500,000 incurred in the ordinary course of business (A)
to a seller of inventory purchased for sale in the ordinary course
of business of the Company or any of its Subsidiaries, (B) to a
seller of other property used in the business of the Company or any
of its Subsidiaries or (C) to a provider of services to the Company
or any of its Subsidiaries; and
(v) Subordinated Debt of the Company or
any of its Subsidiaries; and
(vi) The other Indebtedness described in
Schedule 5.2(m) hereto, having the same terms as those existing on
the date of this Agreement, but no extension or renewal thereof
shall be permitted.
(n) Liens. Create, incur or suffer to exist
any Lien on any of the assets, rights, revenues or property, real,
personal or mixed, tangible or intangible, whether now owned or
hereafter acquired, of the Company or any of its Subsidiaries,
other than:
(i) Liens for taxes not delinquent or for
taxes being contested in good faith by appropriate proceedings and
as to which adequate financial reserves have been established on
its books and records;
(ii) Liens (other than any Lien imposed by
ERISA or any Environmental Law) created and maintained in the
ordinary course of business which are not material in the
aggregate, and which would not have a material adverse effect on
the business or operations of the Company or any of its
Subsidiaries and which constitute (A) pledges or deposits under
worker's compensation laws, unemployment insurance laws or similar
legislation, (B) good faith deposits in connection with bids,
tenders, contracts or leases to which the Company or any of its
Subsidiaries is a party for a purpose other than borrowing money or
obtaining credit, including rent security deposits, (C) liens
imposed by law, such as those of carriers, warehousemen and
mechanics, if payment of the obligation secured thereby is not yet
due, (D) Liens securing taxes, assessments or other governmental
charges or levies not yet subject to penalties for nonpayment, and
(E) pledges or deposits to secure public or statutory obligations
of the Company or any of its Subsidiaries, or surety, customs or
appeal bonds to which the Company or any of its Subsidiaries is a
party;
(iii) Liens affecting real property which
constitute minor survey exceptions or defects or irregularities in
title, minor encumbrances, easements or reservations of, or rights
of others for, rights of way, sewers, electric lines, telegraph and
telephone lines and other similar purposes, or zoning or other
restrictions as to the use of such real property, provided that all
of the foregoing, in the aggregate, do not at any time materially
detract from the value of said properties or materially impair
their use in the operation of the businesses of the Company or any
of its Subsidiaries;
(iv) Liens created pursuant to the
Security Documents and Liens expressly permitted by the Security
Documents;
(v) Each Lien described in
Schedule 5.2(n) hereto may be suffered to exist upon the same terms
as those existing on the date hereof, but no extension or renewal
thereof shall be permitted;
(vi) Any Lien created to secure payment of
a portion of the purchase price of any tangible fixed asset
acquired by the Company or any of its Subsidiaries, or payments
under any Capital Lease for the Lease of any tangible fixed asset
leased by the Company or any of its Subsidiaries, may be created or
suffered to exist upon such fixed asset if the outstanding
principal amount of the Indebtedness secured by such Lien does not
at any time exceed the purchase price of such fixed asset and the
aggregate principal amount of all Indebtedness secured by such
Liens, plus the capitalized amount of all such capital Leases does
not exceed $500,000, provided that such Lien does not encumber any
other asset at any time owned by the Company or such Subsidiary;
and
(vii) Liens in favor of the Company or any
of its Subsidiaries as security for Indebtedness permitted by
Section 5.2(m)(iii); and
(viii) The interest or title of a lessor
under any lease otherwise permitted under this Agreement with
respect to the property subject to such lease to the extent
performance of the obligations of the Company or its Subsidiary
thereunder are not delinquent.
(o) Contingent Liabilities. Create, incur,
assume, or in any manner become liable in respect of, or suffer to
exist, any Contingent Liabilities.
(p) Inconsistent Agreements. Enter into any
agreement containing any provision which would be violated or
breached by this Agreement or any of the transactions contemplated
hereby or by performance by the Company or any of its Subsidiaries
of its obligations in connection therewith.
(q) Dividends and Other Restricted Payments.
Make, pay, declare or authorize any dividend, payment or other
distribution in respect of any class of its capital stock or any
dividend, payment or distribution in connection with the
redemption, purchase, retirement or other acquisition, directly, of
any shares of it capital stock other than such dividends, payments
or other distributions to the extent payable solely in shares of
the capital stock of the Company or to the extent payable to the
Company by a Subsidiary of the Company.
(r) Transactions with Affiliates. Enter into,
become a party to, or become liable in respect of, any contract or
undertaking with any Affiliate except in the ordinary course of
business and on terms not less favorable to the Company or such
Subsidiary than those which could be obtained if such contract or
undertaking were an arms length transaction with a person other
than an Affiliate.
(s) Payments and Modification of Subordinated
Debt. Make any optional payment, prepayment or redemption of any
Subordinated Debt, nor amend or modify, or consent or agree to any
amendment or modification, which would shorten any maturity or
increase the amount of any payment of principal or increase the
rate (or require earlier payment) of interest on any such
Subordinated Debt, nor amend any agreement under which any
Subordinated Debt is issued or created or otherwise related
thereto, nor enter into any agreement or arrangement providing for
the defeasance of any Subordinated Indebtedness.
(t) Tax Sharing Agreement. Permit or suffer
the Tax Sharing Agreement to be amended or modified or any
provision thereof to be waived, or permit or suffer any Subsidiary
of the Company to enter into any other tax sharing arrangement.
(u) Negative Pledge Prohibition. Enter into
any agreement with any person (other than pursuant to this
Agreement) that prohibits the Company or any of its Subsidiaries
from acting to, or in any way limits the ability of the Company or
any of its Subsidiaries to, create, incur, assume or suffer to
exist any Lien upon any capital stock of any Insurance Subsidiary.
ARTICLE VI.
DEFAULT
6.1 Events of Default. The occurrence of any one
of the following events or conditions shall be deemed an "Event of
Default" hereunder unless waived pursuant to Section 8.1:
(a) Nonpayment. The Company shall fail to pay
when due any principal of or interest on the Notes or any fees or
any other amount payable hereunder; or
(b) Misrepresentation. Any representation or
warranty made by the Company in Article IV hereof or in any
Security Document or any other certificate, report, financial
statement or other document furnished by or on behalf of the
Company in connection with this Agreement, shall prove to have been
incorrect in any material respect when made or deemed made; or
(c) Certain Covenants. The Company shall fail
to perform or observe any term, covenant or agreement contained in
Article V hereof; or
(d) Other Defaults. The Company shall fail to
perform or observe any other term, covenant or agreement contained
in this Agreement or in the Security Documents, and any such
failure shall remain unremedied for 15 calendar days after notice
thereof shall have been given to the Company by the Agent (or such
longer period of time as may be specified in such Security
Document); or
(e) Cross Default. The Company or any of its
Subsidiaries shall fail to pay any part of the principal of, the
premium, if any, or the interest on, or any other payment of money
due under any of its Indebtedness (other than Indebtedness
hereunder), beyond any period of grace provided with respect
thereto, which individually or together with other such
Indebtedness as to which any such failure exists has an aggregate
outstanding principal amount in excess of $500,000; or if the
Company or any of its Subsidiaries fails to perform or observe any
other term, covenant or agreement contained in, or if any other
event or condition occurs or exists under, any agreement, document
or instrument evidencing or securing any such Indebtedness having
such aggregate outstanding principal amount, or under which any
such Indebtedness was incurred, issued or created, beyond any
period of grace, if any, provided with respect thereto if the
effect of such failure is either (i) to cause, or permit the
holders of such Indebtedness (or a trustee on behalf of such
holders) to cause, any payment in respect of such Indebtedness to
become due prior to its due date or (ii) to permit the holders of
such Indebtedness (or a trustee on behalf of such holders) to
accelerate the maturity of such indebtedness, whether or not such
failure to perform shall be waived by the holders (or a trustee) of
such Indebtedness; or
(f) Judgments. One or more judgments or
orders for the payment of money in an aggregate amount of
$2,000,000 shall be rendered against the Company or any of its
Subsidiaries, or any other judgment or order (whether or not for
the payment of money) shall be rendered against or shall affect the
Company or any of its Subsidiaries which causes or could cause a
material adverse change in the business, properties, operations or
condition, financial or otherwise, of the Company or any of its
Subsidiaries or which does or could have a material adverse effect
on the legality, validity or enforceability of this Agreement, the
Notes or any Security Document, and either (i) such judgment or
order shall have remained unsatisfied and the Company or such
Subsidiary shall not have taken action necessary to stay
enforcement thereof by reason of pending appeal or otherwise, prior
to the expiration of the applicable period of limitations for
taking such action or, if such action shall have been taken, a
final order denying such stay shall have been rendered, or (ii)
enforcement proceedings shall have been commenced by any creditor
upon any such judgment or order; or
(g) ERISA. The occurrence of a Reportable
Event that results in or could result in liability of the Company,
or any of its Subsidiaries or their ERISA Affiliates to the PBGC or
to any Plan and such Reportable Event is not corrected within
thirty (30) days after the occurrence thereof; or the occurrence of
any Reportable Event which could constitute grounds for termination
of any Plan of the Company, or any of its Subsidiaries or their
ERISA Affiliates by the PBGC or for the appointment by the
appropriate United States District Court of a trustee to administer
any such Plan and such Reportable Event is not corrected within
thirty (30) days after the occurrence thereof; or the filing by the
Company, any of its Subsidiaries or any of their ERISA Affiliates
of a notice of intent to terminate a Plan or the institution of
other proceedings to terminate a Plan; or the Company, any of its
Subsidiaries or any of their ERISA Affiliates shall fail to pay
when due any liability to the PBGC or to a Plan; or the PBGC shall
have instituted proceedings to terminate, or to cause a trustee to
be appointed to administer, any Plan of the Company, any of its
Subsidiaries or any of their ERISA Affiliates; or any person
engages in a Prohibited Transaction with respect to any Plan which
results in or could result in liability of the Company, any of its
Subsidiaries or any of their ERISA Affiliates, or any Plan of the
Company, any of its Subsidiaries or their ERISA Affiliates or
fiduciary of any such Plan; or failure by the Company, any of its
Subsidiaries or any of their ERISA Affiliates to make a required
installment or other payment to any Plan within the meaning of
Section 302(f) of ERISA or Section 412(n) of the Code that results
in or could result in liability of the Company, any of its
Subsidiaries or any of their ERISA Affiliates to the PBGC or any
Plan; or the withdrawal of the Company, any of its Subsidiaries or
any of their ERISA Affiliates from a Plan during a plan year in
which it was a "substantial employer" as defined in Section
4001(9a)(2) of ERISA; or the Company, any of its Subsidiaries or
any of their ERISA Affiliates becomes an employer with respect to
any Multiemployer Plan without the prior written consent of the
Required Banks; or
(h) Insolvency, Etc. The Company or any of
its Subsidiaries shall be dissolved or liquidated (or any judgment,
order or decree therefor shall 77be entered), or shall generally
not pay its debts as they become due, or 77shall admit in writing
its inability to pay its debts generally, or shal77l make a general
assignment for the benefit of creditors, or sh77all institute, or
there shall be instituted against the Company or any77 of its
Subsidiaries, any proceeding or case seeking to adjudicate i77t a
bankrupt or insolvent or seeking liquidation, winding up,
reorganiza77tion, arrangement, adjustment, protection, relief or
composition of it or77 its debts under any law relating to
bankruptcy, insolvency or reorga77nization or relief or protection
of debtors or seeking the entry of an o77rder for relief, or the
appointment of a receiver, trustee, custodian or77 other similar
official for it or for any substantial part of its 77assets,
rights, revenues or property, and, if such proceeding is instituted
against the Company or such Subsidiary and is being contested by
the Company or such Subsidiary, as the case may be, in good faith
by appropriate proceedings, such proceeding shall remain
undismissed or unstayed for a period of 60 days; or the Company or
such Subsidiary shall take any action (corporate or other) to
authorize or further any of the actions described above in this
subsection; or
(i) Security Documents. Any event of default
described in any Security Document shall have occurred and be
continuing, or any material provision of any Security Document
shall at any time for any reason cease to be valid and binding and
enforceable against any obligor thereunder, or the validity,
binding effect or enforceability thereof shall be contested by any
person, or any obligor, shall deny that it has any or further
liability or obligation thereunder, or any material provision
thereof shall be terminated, invalidated or set aside, or be
declared ineffective or inoperative or in any way cease to give or
provide to the Banks and the Agent the benefits purported to be
created thereby; or
(j) Termination of Employment of Kenneth C.
Coon. Kenneth C. Coon shall cease to be employed by the Company as
chief executive officer or shall cease to perform the management
functions performed by him for the Company as of the Effective
Date; or
(k) Regulatory Action. The Company or any of
its Insurance Subsidiaries shall be prohibited by any state board,
commission, department, agency, authority or other regulatory body
from issuing insurance policies in any jurisdiction; or
(l) Maintenance of Catastrophic Reinsurance.
The Company or any of its Insurance Subsidiaries shall fail to
maintain such catastrophic reinsurance as a prudent insurance
company would deem necessary.
6.2 Remedies.
(a) Upon the occurrence and during the
continuance of any Event of Default, the Agent may and, upon being
directed to do so by the Required Banks, shall by notice to the
Company terminate the Commitments or declare the outstanding
principal of, and accrued interest on, the Notes and all other
amounts owing under this Agreement to be immediately due and
payable, or both, whereupon the Commitments shall terminate
forthwith and all such amounts shall become immediately due and
payable, or both, as the case may be, provided that in the case of
any event or condition described in Section 6.1(h) with respect to
the Company, the Commitments shall automatically terminate
forthwith and all such amounts shall automatically become
immediately due and payable without notice; in all cases without
demand, presentment, protest, diligence, notice of dishonor or
other formality, all of which are hereby expressly waived.
(b) The Agent may and, upon being directed to
do so by the Required Banks, shall, in addition to the remedies
provided in Section 6.2(a), exercise and enforce any and all other
rights and remedies available to it or the Banks, whether arising
under this Agreement, the Notes or any Security Document or under
applicable law, in any manner deemed appropriate by the Agent,
including suit in equity, action at law, or other appropriate
proceedings, whether for the specific performance (to the extent
permitted by law) of any covenant or agreement contained in this
Agreement or in the Notes or any Security Document or in aid of the
exercise of any power granted in this Agreement, the Notes or any
Security Document.
(c) Upon the occurrence and during the
continuance of any Event of Default, each Bank may at any time and
from time to time, without notice to the Company (any requirement
for such notice being expressly waived by the Company) set off and
apply against any and all of the obligations of the Company now or
hereafter existing under this Agreement any and all deposits
(general or special, time or demand, provisional or final) at any
time held and other indebtedness at any time owing by such Bank to
or for the credit or the account of the Company and any property of
the Company from time to time in possession of such Bank,
irrespective of whether or not such Bank shall have made any demand
hereunder and although such obligations may be contingent and
unmatured. The Company hereby grants to the Banks and the Agent a
lien on and security interest in all such deposits, indebtedness
and property as collateral security for the payment and performance
of the obligations of the Company under this Agreement. The rights
of such Bank under this Section 6.2(c) are in addition to other
rights and remedies (including, without limitation, other rights of
setoff) which the Banks may have.
ARTICLE VII.
THE AGENT AND THE BANKS
7.1 Appointment and Authorization. Each Bank
hereby irrevocably appoints and authorizes the Agent to take such
action as agent on its behalf and to exercise such powers under
this Agreement, the Notes and the Security Documents as are
delegated to the Agent by the terms hereof or thereof, together
with all such powers as are reasonably incidental thereto. The
provisions of this Article VII are solely for the benefit of the
Agent and the Banks, and the Company shall not have any rights as
a third party beneficiary of any of the provisions hereof. In
performing its functions and duties under this Agreement, the Agent
shall act solely as agent of the Banks and do[Bes not assume and
shall not be deemed to have assumed any obligation towards or
relationship of agency or trust with or for the Company.
7.2 Agent and Affiliates. NBD Bank, N.A. in its
capacity as a Bank hereunder shall have the same rights and powers
hereunder as any other Bank and may exercise or refrain from
exercising the same as though it were not the Agent. NBD Bank,
N.A. and its affiliates may (without having to account therefor to
any Bank) accept deposits from, lend money to, and generally engage
in any kind of banking, trust, financial advisory or other business
with the Company or any of its Subsidiaries as if it were not
acting as Agent hereunder, and may accept fees and other
consideration therefor without having to account for the same to
the Banks.
7.3 Scope of Agent's Duties. The Agent shall have
no duties or responsibilities except those expressly set forth
herein, and shall not, by reason of this Agreement, have a
fiduciary relationship with any Bank, and no implied covenants,
responsibilities, duties, obligations or liabilities shall be read
into this Agreement or shall otherwise exist against the Agent. As
to any matters not expressly provided for by this Agreement
(including, without limitation, collection and enforcement actioned
under the Notes and the Security Documents), the Agent shall not be
required to exercise any discretion or take any action, but the
Agent shall take such action or omit to take any action pursuant to
the reasonable written instructions of the Required Banks and may
request instructions from the Required Banks. The Agent shall in
all cases be fully protected in acting, or in refraining from
acting, pursuant to the written instructions of the Required Banks
(or all of the Banks, as the case may be, in accordance with the
requirements of this Agreement), which instructions and any action
or omission pursuant thereto shall be binding upon all of the
Banks; provided, however, that the Agent shall not be required to
act or omit to act if, in the judgment of the Agent, such action or
omission may expose the Agent to personal liability or is contrary
to this Agreement, the Notes, the Security Documents or applicable
law.
7.4 Reliance by Agent. The Agent shall be entitled
to rely upon any certificate, notice, document or other
communication (including any cable, telegram, telex, facsimile
transmission or oral communication) believed by it to be genuine
and correct and to have been sent or given by or on behalf of a
proper person. The Agent may treat the payee of any Note as the
holder thereof unless and until the Agent receives written notice
of the assignment thereof pursuant to the terms of this Agreement
signed by such payee and the Agent receives the written agreement
of the assignee that such assignee is bound hereby to the same
extent as if it had been an original party hereto. The Agent may
employ agents (including without limitation collateral agents) and
may consult with legal counsel (who may be counsel for the
Company), independent public accountants and other experts selected
by it and shall not be liable to the Banks, except as to money or
property received by it or its authorized agents, for the
negligence or misconduct of any such agent selected by it with
reasonable care or for any action taken or omitted to be taken by
it in good faith in accordance with the advice of such counsel,
accountants or experts.
7.5 Default. The Agent shall not be deemed to have
knowledge of the occurrence of any Default or Event of Default,
unless the Agent has received written notice from a Bank or the
Company specifying such Default or Event of Default and stating
that such notice is a "Notice of Default". In the event that the
Agent receives such a notice, the Agent shall give written notice
thereof to the Banks.
7.6 Liability of Agent. Neither the Agent nor any
of its directors, officers, agents, or employees shall be liable to
the Banks for any action taken or not taken by it or them in
connection herewith with the consent or at the request of the
Required Banks or in the absence of its or their own gross
negligence or willful misconduct. Neither the Agent nor any of its
directors, officers, agents or employees shall be responsible for
or have any duty to ascertain, inquire into or verify (i) any
recital, statement, warranty or representation contained in this
Agreement, any Note or any Security Document, or in any
certificate, report, financial statement or other document
furnished in connection with this Agreement, (ii) the performance
or observance of any of the covenants or agreements of the Company,
(iii) the satisfaction of any condition specified in Article II
hereof, or (iv) the validity, effectiveness, legal enforceability,
value or genuineness of this Agreement, the Notes, any Security
Document or any other instrument or document furnished in
connection herewith.
7.7 Nonreliance on Agent and Other Banks. Each
Bank acknowledges and agrees that it has, independently and without
reliance on the Agent or any other Bank, and based on such
documents and information as it has deemed appropriate, made its
own credit analysis of the Company and decision to enter into this
Agreement and that it will, independently and without reliance upon
the Agent or any other Bank, and based on such documents and
information as it shall deem appropriate at the time, continue to
make its own analysis and decision in taking or not taking action
under this Agreement. The Agent shall not be required to keep
itself informed as to the performance or observance by the Company
of this Agreement, the Notes or the Security Documents or any other
documents referred to or provided for herein or to inspect the
properties or books of the Company and, except for notices,
reports and other documents and information expressly required to
be furnished to the Banks by the Agent hereunder, the Agent shall
not have any duty or responsibility to provide any Bank with any
information concerning the affairs, financial condition or business
of the Company or any of its Subsidiaries which may come into the
possession of the Agent or any of its affiliates.
7.8 Indemnification. The Banks agree to indemnify
the Agent (to the extent not reimbursed by the Company, but without
limiting any obligation of the Company to make such reimbursement),
ratably according to the respective principal amounts of the Loans
then outstanding made by each of them (or if no Loans are at the
time outstanding, ratably according to the respective amounts of
their Commitments), from and against any and all claims, damages,
losses, liabilities, costs or expenses of any kind or nature
whatsoever (including, without limitation, fees and disbursements
of counsel) which may be imposed on, incurred by, or asserted
against the Agent in any way relating to or arising out of this
Agreement or the transactions contemplated hereby or any action
taken or omitted by the Agent under this Agreement, provided,
however, that no Bank shall be liable for any portion of such
claims, damages, losses, liabilities, costs or expenses resulting
from the Agent's gross negligence or willful misconduct. Without
limitation of the foregoing, each Bank agrees to reimburse the
Agent promptly upon demand for its ratable share of any out-of-
pocket expenses (including without limitation fees and expenses of
counsel) incurred by the Agent in connection with the preparation,
execution, delivery, administration, modification, amendment or
enforcement (whether through negotiations, legal proceedings or
otherwise) of, or legal advice in respect of rights or
responsibilities under, this Agreement, to the extent that the
Agent is not reimbursed for such expenses by the Company, but
without limiting the obligation of the Company to make such
reimbursement. Each Bank agrees to reimburse the Agent promptly
upon demand for its ratable share of any amounts owing to the Agent
by the Banks pursuant to this Section. If the indemnity furnished
to the Agent under this Section shall, in the judgment of the
Agent, be insufficient or become impaired, the Agent may call for
additional indemnity from the Banks and cease, or not commence, to
take any action until such additional indemnity is furnished.
7.9 Successor Agent. The Agent may resign as such
at any time upon ten days' prior written notice to the Company and
the Banks. In the event of any such resignation, the Banks shall,
by an instrument in writing delivered to the Company and the Agent,
appoint a successor, which shall be a commercial bank organized
under the laws of the United States or any State thereof and having
a combined capital and surplus of at least $500,000,000. If a
successor is not so appointed or does not accept such appointment
before the Agent's resignation becomes effective, the retiring
Agent may appoint a temporary successor to act until such
appointment by the Banks is made and accepted or if no such
temporary successor is appointed as provided above by the retiring
Agent, the Banks shall thereafter perform all the duties of the
Agent hereunder until such appointment by the Banks is made and
accepted. Any successor to the Agent shall execute and deliver to
the Company and the Banks an instrument accepting such appointment
and thereupon such successor Agent, without further act, deed,
conveyance or transfer shall become vested with all of the
properties, rights, interests, powers, authorities and obligations
of its predecessor hereunder with like effect as if originally
named as Agent hereunder. Upon request of such successor Agent,
the Company and the retiring Agent shall execute and deliver such
instruments of conveyance, assignment and further assurance and do
such other things as may reasonably be required for more fully and
certainly vesting and confirming in such successor Agent all such
properties, rights, interests, powers, authorities and obligations.
The provisions of this Article VII shall thereafter remain
effective for such retiring Agent with respect to any actions taken
or omitted to be taken by such Agent while acting as the Agent
hereunder.
7.10 Sharing of Payments. The Banks agree among
themselves that, in the event that any Bank shall obtain payment in
respect of any Loan or any other obligation owing to the Banks
under this Agreement through the exercise of a right of set-off,
banker's lien, counterclaim or otherwise in excess of its ratable
share of payments received by all of the Banks on account of the
Loans and other obligations (or if no Loans are outstanding,
ratably according to the respective amounts of the Commitments),
such Bank shall promptly purchase from the other Banks
participations in such Loans and other obligations in such amounts,
and make such other adjustments from time to time, as shall be
equitable to the end that all of the Banks share such payment in
accordance with such ratable shares. The Banks further agree among
themselves that if payment to a Bank obtained by such Bank through
the exercise of a right of set-off, banker's lien, counterclaim or
otherwise as aforesaid shall be rescinded or must otherwise be
restored, each Bank which shall have shared the benefit of such
payment shall, by repurchase of participations theretofore sold,
return its share of that benefit to each Bank whose payment shall
have been rescinded or otherwise restored. The Company agrees that
any Bank so purchasing such a participation may, to the fullest
extent permitted by law, exercise all rights of payment, including
set-off, banker's lien or counterclaim, with respect to such
participation as fully as if such Bank were a holder of such Loan
or other obligation in the amount of such participation. The Banks
further agree among themselves that, in the event that amounts
received by the Banks and the Agent hereunder are insufficient to
pay all such obligations or insufficient to pay all such
obligations when due, the fees and other amounts owing to the Agent
in such capacity shall be paid therefrom before payment of
obligations owing to the Banks under this Agreement. Except as
otherwise expressly provided in this Agreement, if any Bank or the
Agent shall fail to remit to the Agent or any other Bank an amount
payable by such Bank or the Agent to the Agent or such other Bank
pursuant to this Agreement on the date when such amount is due,
such payments shall be made together with interest thereon for each
date from the date such amount is due until the date such amount is
paid to the Agent or such other Bank at a rate per annum equal to
the rate at which borrowings are available to the payee in its
overnight federal funds market. It is further understood and
agreed among the Banks and the Agent that if the Agent shall engage
in any other transactions with the Company and shall have the
benefit of any collateral or security therefor which does not
expressly secure the obligations arising under this Agreement
except by virtue of a so-called dragnet clause or comparable
provision, the Agent shall be entitled to apply any proceeds of
such collateral or security first in respect of the obligations
arising in connection with such other transaction before
application to the obligations arising under this Agreement.
ARTICLE VIII.
MISCELLANEOUS
8.1 Amendments, Etc. (a) This Agreement may
be amended from time to time and any provision hereof may be waived
by the parties hereto. No such amendment, modification,
termination or waiver of any provision of this Agreement nor any
consent to any departure therefrom shall be effective unless the
same shall be in writing and signed by the Company and the Required
Banks and, to the extent any rights or duties of the Agent may be
affected thereby, the Agent, provided, however, that no such
amendment, modification, termination, waiver or consent shall,
without the consent of the Agent and all of the Banks, (i)
authorize or permit the extension of time for, or any reduction of
the amount of, any payment of the principal of, or interest on, the
Notes, or any fees or other amount payable hereunder, (ii) amend,
extend or terminate the respective Commitments of any Bank set
forth on the signature pages hereof or modify the provisions of
this Section regarding the taking of any action under this Section
or the provisions of Section 7.10 or the definition of Required
Banks or any provision of this Agreement requiring the consent of
all of the Banks, (iii) provide for the discharge of any collateral
subject to any Security Document, or (iv) modify any other
provision of this Agreement which by its terms requires the consent
of all of the Banks.
(b) Any such amendment, waiver or consent
shall be effective only in the specific instance and for the
specific purpose for which given.
(c) Notwithstanding anything herein to the
contrary, no Bank that is in default of any of its obligations,
covenants or agreements under this Agreement shall be entitled to
vote (whether to consent or to withhold its consent) with respect
to any amendment, modification, termination or waiver of any
provision of this Agreement or any departure therefrom or any
direction from the Banks to the Agent, and, for purposes of
determining the Required Banks at any time when any of the Banks
are in default under this Agreement, the Commitments and Loans of
such defaulting Banks shall be disregarded.
8.2 Notices. (a) Except as otherwise provided in
Section 8.2(c) hereof, all notices and other communications
hereunder shall be in writing and shall be delivered or sent to the
Company at Suite 600 North, 222 S. 15th Street, Omaha, Nebraska,
Attention: William J. Gerber, Facsimile No. (402) 345-9190, and to
the Agent and the Banks at the respective addresses for notices set
forth on the signatures pages hereof, or to such other address as
may be designated by the Company, the Agent or any Bank by notice
to the other parties hereto. All notices and other communications
shall be deemed to have been given at the time of actual delivery
thereof to such address, or, unless sooner delivered, (i) if sent
by certified or registered mail, postage prepaid, to such address,
on the third day after the date of mailing, (ii) if sent by telex,
upon receipt of the appropriate answerback, or (iii) if sent by
facsimile transmission, upon confirmation of receipt by telephone
at the number specified for confirmation, provided, however, that
notices to the Agent shall not be effective until received.
(b) Notices by the Company to the Agent with
respect to terminations or reductions of the Commitments pursuant
to Section 2.2, requests for Borrowings pursuant to Section 2.4,
and requests for continuations or conversions of Borrowings
pursuant to Section 2.7 shall be irrevocable and binding on the
Company.
(c) Any notice to be given by the Company to
the Agent pursuant to Sections 2.2, 2.4 or 2.7 and any notice to be
given by the Agent or any Bank hereunder, may be given by
telephone, and all such notices given by the Company must be
immediately confirmed in writing in the manner provided in Section
8.2(a). Any such notice given by telephone shall be deemed
effective upon receipt thereof by the party to whom such notice is
to be given.
8.3 No Waiver By Conduct; Remedies Cumulative. No
course of dealing on the part of the Agent or any Bank, nor any
delay or failure on the part of the Agent or any Bank in exercising
any right, power or privilege hereunder shall operate as a waiver
of such right, power or privilege or otherwise prejudice the
Agent's or such Bank's rights and remedies hereunder; nor shall any
single or partial exercise thereof preclude any further exercise
thereof or the exercise of any other right, power or privilege. No
right or remedy conferred upon or reserved to the Agent or any Bank
under this Agreement, the Notes or any Security Document is
intended to be exclusive of any other right or remedy, and every
right and remedy shall be cumulative and in addition to every other
right or remedy granted thereunder or now or hereafter existing
under any applicable law. Every right and remedy granted by this
Agreement, the Notes or any Security Document or by applicable law
to the Agent or any Bank may be exercised from time to time and as
often as may be deemed expedient by the Agent or any Bank and,
unless contrary to the express provisions of this Agreement, any
Security Document, irrespective of the occurrence or continuance of
any Default or Event of Default.
8.4 Reliance on and Survival of Various Provisions.
All terms, covenants, agreements, representations and warranties of
the Company made herein or in any Security Document or in any
certificate, report, financial statement or other document
furnished by or on behalf of the Company in connection with this
Agreement shall be deemed to be material and to have been relied
upon by the Banks, notwithstanding any investigation heretofore or
hereafter made by any Bank or on such Bank's behalf, and those
covenants and agreements of the Company set forth in Sections 3.6,
3.8 and 8.5 hereof shall survive the repayment in full of the Notes
and the termination of the Commitments.
8.5 Expenses; Indemnification. (a) The Company
agrees to pay, or reimburse the Agent for the payment of, on
demand, (i) the reasonable fees and expenses of counsel to the
Agent, including without limitation the fees and expenses of
Messrs. Dickinson, Wright, Moon, Van Dusen & Freeman, in
connection with the preparation, execution, delivery and
administration of this Agreement, the Notes and the Security
Documents and in connection with advising the Agent as to its
rights and responsibilities with respect thereto; provided that the
Company's liability with respect to fees of counsel for the Bank in
connection with the foregoing matters shall not exceed $18,000,
(ii) the reasonable fees of counsel to the Agent in connection with
any amendments, waivers or consents in connection therewith, (iii)
all stamp and other taxes and fees payable or determined to be
payable in connection with the execution, delivery, filing or
recording of this Agreement, the Notes or the Security Documents
(or the verification of filing, recording, perfection or priority
thereof) or the consummation of the transactions contemplated
hereby, and any and all liabilities with respect to or resulting
from any delay in paying or omitting to pay such taxes or fees, and
(iv) all reasonable costs and expenses of the Agent and the Banks
(including reasonable fees and expenses of counsel and whether
incurred through negotiations, legal proceedings or otherwise) in
connection with any Default or Event of Default or the enforcement
of, or the exercise or preservation of any rights under, this
Agreement, the Notes or any Security Document or in connection with
any refinancing or restructuring of the credit arrangements
provided under this Agreement.
(b) The Company hereby indemnifies and agrees
to hold harmless the Banks and the Agent, and their respective
officers, directors, employees and agents, from and against any and
all claims, damages, losses, liabilities, costs or expenses of any
kind or nature whatsoever (including reasonable attorneys fees and
disbursements incurred in connection with any investigative,
administrative or judicial proceeding whether or not such person
shall be designated as a party thereto) which the Banks or the
Agent or any such person may incur or which may be claimed against
any of them by reason of or in connection with entering into this
Agreement or the transactions contemplated hereby, including
without limitation those arising under Environmental Laws;
provided, however, that the Company shall not be required to
indemnify any such Bank and the Agent or such other person, to the
extent, but only to the extent, that such claim, damage, loss,
liability, cost or expense is attributable to the gross negligence
or willful misconduct of such Bank or the Agent, as the case may
be.
8.6 Successors and Assigns. This Agreement shall
be binding upon and inure to the benefit of the parties hereto and
their respective successors and assigns, provided that the Company
may not, without the prior consent of the Banks, assign its rights
or obligations hereunder or under the Notes or any Security
Document and the Banks shall not be obligated to make any Loan
hereunder to any entity other than the Company. No Bank may assign
or sell any of its rights hereunder or under the Notes without the
prior written consent of the Company and the Agent.
8.7 Counterparts. This Agreement may be executed
in any number of counterparts, all of which taken together shall
constitute one and the same instrument, and any of the parties
hereto may execute this Agreement by signing any such counterpart.
8.8 Governing Law. This Agreement is a contract
made under, and shall be governed by and construed in accordance
with, the law of the State of Michigan applicable to contracts made
and to be performed entirely within such State and without giving
effect to choice of law principles of such State. The Company and
the Banks further agree that any legal or equitable action or
proceeding with respect to this Agreement, the Notes or any
Security Document or the transactions contemplated hereby may be
brought in any court of the State of Michigan, or in any court of
the United States of America sitting in Michigan, and the Company
and the Banks hereby submit to and accept generally and
unconditionally the jurisdiction of those courts with respect to
its person and property, and, in the case of the Company,
irrevocably consents to the service of process in connection with
any such action or proceeding by personal delivery to such agent or
to the Company, as the case may be, or by the mailing thereof by
registered or certified mail, postage prepaid to the Company at its
address for notices pursuant to Section 8.2. Nothing in this
paragraph shall affect the right of the Banks and the Agent to
serve process in any other manner permitted by law or limit the
right of the Banks or the Agent to bring any such action or
proceeding against the Company or property in the courts of any
other jurisdiction. The Company and the Banks hereby irrevocably
waive any objection to the laying of venue of any such action or
proceeding in the above described courts.
8.9 Table of Contents and Headings. The table of
contents and the headings of the various subdivisions hereof are
for the convenience of reference only and shall in no way modify
any of the terms or provisions hereof.
8.10 Construction of Certain Provisions. If any
provision of this Agreement refers to any action to be taken by any
person, or which such person is prohibited from taking, such
provision shall be applicable whether such action is taken directly
or indirectly by such person, whether or not expressly specified in
such provision.
8.11 Integration and Severability. This Agreement
embodies the entire agreement and understanding between the Company
and the Agent and the Banks, and supersedes all prior agreements
and understandings, relating to the subject matter hereof. In case
any one or more of the obligations of the Company under this
Agreement, the Notes or any Security Document shall be invalid,
illegal or unenforceable in any jurisdiction, the validity,
legality and enforceability of the remaining obligations of the
Company shall not in any way be affected or impaired thereby, and
such invalidity, illegality or unenforceability in one jurisdiction
shall not affect the validity, legality or enforceability of the
obligations of the Company under this Agreement, the Notes or any
Security Document in any other jurisdiction.
8.12 Independence of Covenants. All covenants
hereunder shall be given independent effect so that if a particular
action or condition is not permitted by any such covenant, the fact
that it would be permitted by an exception to, or would be
otherwise within the limitations of, another covenant shall not
avoid the occurrence of a Default or an Event of Default if such
action is taken or such condition exists.
8.13 Interest Rate Limitation. Notwithstanding any
provisions of this Agreement, the Notes or any Security Document,
in no event shall the amount of interest paid or agreed to be paid
by the Company exceed an amount computed at the highest rate of
interest permissible under applicable law. If, from any
circumstances whatsoever, fulfillment of any provision of this
Agreement, the Notes or any Security Document at the time
performance of such provision shall be due, shall involve exceeding
the interest rate limitation validly prescribed by law which a
court of competent jurisdiction may deem applicable hereto, then,
ipso facto, the obligations to be fulfilled shall be reduced to an
amount computed at the highest rate of interest permissible under
applicable law, and if for any reason whatsoever any Bank shall
ever receive as interest an amount which would be deemed unlawful
under such applicable law such interest shall be automatically
applied to the payment of principal of the Loans outstanding
hereunder (whether or not then due and payable) and not to the
payment of interest, or shall be refunded to the Company if such
principal and all other obligations of the Company to the Banks
have been paid in full.
8.14 WAIVER OF JURY TRIAL. THE BANKS AND THE AGENT
AND THE COMPANY, AFTER CONSULTING OR HAVING HAD THE OPPORTUNITY TO
CONSULT WITH COUNSEL, KNOWINGLY, VOLUNTARILY AND INTENTIONALLY
WAIVE ANY RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN ANY
LITIGATION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY
RELATED INSTRUMENT OR AGREEMENT OR ANY OF THE TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT OR ANY COURSE OF CONDUCT, DEALING,
STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF ANY OF THEM.
NEITHER ANY BANK, THE AGENT, NOR THE COMPANY SHALL SEEK TO
CONSOLIDATE, BY COUNTERCLAIM OR OTHERWISE, ANY SUCH ACTION IN WHICH
A JURY TRIAL HAS BEEN WAIVED WITH ANY OTHER ACTION IN WHICH A JURY
TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. THESE PROVISIONS SHALL NOT
BE DEEMED TO HAVE BEEN MODIFIED IN ANY RESPECT OR RELINQUISHED BY
ANY PARTY HERETO EXCEPT BY A WRITTEN INSTRUMENT EXECUTED BY SUCH
PARTY.
[Signature blocks begin on next page.]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be duly executed and delivered on the 31st day of
March, 1994, which shall be the Effective Date of this Agreement,
notwithstanding the day and year first above written.
ACCEPTANCE INSURANCE COMPANIES INC.
/s/ William J. Gerber
By_________________________________
VP
Its__________________________
Commitment NBD BANK, N.A., individually and
Amount: $15,750,000 as Agent
/s/ John Carter
By____________________________
Its Vice President
Address for Notices:
611 Woodward Avenue
Detroit, Michigan 48226
Attention: Michigan Banking
Division
Telex No.: 230729
Answerback: NATIONBANK-DET
Facsimile No.: (313) 225-1761
Facsimile Confirmation
No.: (313) 225-1763
<PAGE>
Commitment FIRST NATIONAL BANK OF OMAHA
Amount: $7,000,000
/s/ R. W. Tritsch
By____________________________
Its Senior Vice President
Address for Notices:
One First National Center
Omaha, Nebraska 68102
Attention: Suzi Kenealy
Telex No.: 484410
Answerback: FIRSTNATBK-OMA
Facsimile No.: (402) 633-3519
Facsimile Confirmation
No.: (402) 341-0500 Ext. 3506
Commitment FIRSTIER BANK, N.A.
Amount: $7,000,000
/s/ James E. Stewart
By____________________________
Its Vice President
Address for Notices:
1700 Farnum
Omaha, Nebraska 68102
Attention: James E. Stewart
Facsimile No.: (402) 348-6841
Facsimile Confirmation
No.: (402) 348-6175
<PAGE>
Commitment COMERICA BANK
Amount: $5,250,000
/s/ Jon Sasinowski
By____________________________
Its Vice President
Address for Notices:
500 Woodward Avenue
6th Floor
Detroit, Michigan 48226
Attention: Jon Sasinowski
Facsimile No.: (313) 222-5759
Facsimile Confirmation
No.: (313) 222-4865
<PAGE>
EXHIBIT 10.1 EXHIBITS AND SCHEDULES
Pursuant to Item 601 of Regulation S-K, the following exhibits
and schedules are not included in Exhibit 10.1. Set forth below is
a list of the omitted exhibits and schedules and a brief
description of the content thereof. Upon request, the registrant
will provide the Commission with copies of any omitted exhibit and
schedule appearing below.
EXHIBITS DESCRIPTION
Exhibit A Revolving Credit Note
Exhibit B Request for Borrowing
Exhibit C Request for Continuation or Conversion of
Borrowing
Exhibit D Guaranty Agreement
Exhibits E-1, E-2
and E-3 Pledge Agreements
Exhibit F Tax Sharing Agreement
SCHEDULES
Schedule 4.4 Subsidiaries
Schedule 4.5 Litigation
Schedule 5.2(m) Indebtedness
Schedule 5.2(n) Liens
EXHIBIT 11
<TABLE>
<CAPTION>
ACCEPTANCE INSURANCE COMPANIES INC.
COMPUTATION OF INCOME PER SHARE
for the three months ended March 31, 1994 and 1993
(in thousands, except per share data)
(unaudited)
Three Months(a)
--------------------
1994 1993
-------- --------
<S> <C> <C>
PRIMARY EARNINGS PER SHARE:
Net income $ 1,969 $ 1,552
Adjustment for interest expense reduction and interest
income from assumed proceeds 607 525
-------- --------
Adjusted net income $ 2,576 $ 2,077
======== ========
Weighted average number of shares outstanding 9,714 6,321
Adjustment for shares issuable 3,491 2,295
-------- --------
Adjusted weighted average number of shares outstanding 13,205 8,616
======== ========
Primary earning per share $ .20 $ .24
======== ========
FULLY DILUTED EARNINGS PER SHARE:
Net income $ 1,969 $ 1,552
Adjustment for interest expense reduction and interest
income from assumed proceeds 597 635
Adjustment for addback of interest on convertible note(b) - 208
-------- --------
<PAGE>
Adjusted net income $ 2,566 $ 2,395
======== ========
Weighted average number of shares outstanding 9,954 6,321
Adjustment for shares issuable 3,445 3,096
Adjustment for convertible note(b) - 875
-------- --------
Adjusted weighted average number of shares outstanding 13,399 10,292
======== ========
Fully diluted earnings per share $ .19 $ .23
======== ========
<FN>
(a) As of March 31, 1994 and 1993, the number of shares of the Company's
common stock obtainable on exercise of outstanding options and warrants in
the aggregate exceeds 20% of the common shares outstanding. Therefore, the
method of calculating earnings per share has been adjusted accordingly as
provided by APB Opinion No. 15.
(b) The inclusion of these items in the calculation is submitted in
accordance with Regulation S-K item 601 (b)(11) although it is contrary
to paragraph 40 of APB Opinion No. 15 because it produces an anti-dilutive
result.
</TABLE>
