<PAGE>
--------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT
(DATE OF EARLIEST EVENT REPORTED)
DECEMBER 30, 1997
HCC INSURANCE HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
STATE OR OTHER COMMISSION IRS EMPLOYER
JURISDICTION FILE NUMBER: IDENTIFICATION
OF INCORPORATION: NUMBER:
DELAWARE 0-20766 NO. 76-0336636
13403 NORTHWEST FREEWAY
HOUSTON, TEXAS 77040-6094
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER,
INCLUDING AREA CODE - (713) 690-7300
--------------------------------------
<PAGE>
ITEM 5. OTHER EVENTS.
Effective as of December 30, 1997, HCC Insurance Holdings, Inc. ("HCCH")
executed a $120,000,000 revolving credit facility (the "Facility") with Wells
Fargo Bank (Texas), National Association as agent and lender and NationsBank of
Texas, N.A. as documentation agent and lender. Borrowings under the Facility
may be made from time-to-time by HCCH for general corporate purposes until the
expiration of the Facility on December 30, 1999. Outstanding loans under the
Facility bear interest at HCCH's option at rates related to current LIBOR or the
announced prime rate of Wells Fargo. The loan is secured in part by the pledge
of the stock of Avemco Insurance Company and Houston Casualty Company, two of
HCCH's subsidiaries. HCCH has made standard affirmative and negative covenants
consistent with facilities of this type. The initial funding from this Facility
will be used, among other things, to refinance existing outstanding loans with
Wells Fargo and NationsBank of Texas, N.A.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits
10.1 Loan Agreement ($120,000,000 Revolving Loan Facility) dated as of
December 30, 1997 among HCC Insurance Holdings, Inc. as Borrower, Wells Fargo
Bank (Texas), National Association, as Agent and as a Lender, NationsBank of
Texas, N.A. as Documentation Agent and as a Lender, and the Other Lenders Now or
Hereafter Parties Hereto.
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 hereunto duly authorized.
HCC INSURANCE HOLDINGS, INC.
--------------------------------------
(Registrant)
/s/ Frank J. Bramanti
--------------------------------------
Frank J. Bramanti
Dated: January 8, 1998 Executive Vice President
<PAGE>
LOAN AGREEMENT
($120,000,000 REVOLVING LOAN FACILITY)
DATED AS OF DECEMBER 30, 1997
AMONG
HCC INSURANCE HOLDINGS, INC.
AS BORROWER,
WELLS FARGO BANK (TEXAS), NATIONAL ASSOCIATION,
AS AGENT AND AS A LENDER,
NATIONSBANK OF TEXAS, N.A.,
AS DOCUMENTATION AGENT AND AS A LENDER,
AND
THE OTHER LENDERS NOW OR HEREAFTER
PARTIES HERETO
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 CERTAIN DEFINED TERMS . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2. COMMITMENTS AND LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.1 LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.2 TERMINATIONS OR REDUCTIONS OF COMMITMENTS. . . . . . . . . . . . . . 15
2.3 COMMITMENT FEES . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.4 SEVERAL OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.5 NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.6 USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3. BORROWINGS, PAYMENTS, PREPAYMENTS AND INTEREST OPTIONS. . . . . . . . . . . 17
3.1 BORROWINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.2 PREPAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.3 INTEREST OPTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.4 CAPITAL ADEQUACY. . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.5 LIMITATION ON CHARGES; SUBSTITUTE LENDERS; NON-DISCRIMINATION . . . . 22
4. PAYMENTS; PRO RATA TREATMENT; COMPUTATIONS, ETC.. . . . . . . . . . . . . . 23
4.1 PAYMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.2 PRO RATA TREATMENT. . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.3 CERTAIN ACTIONS, NOTICES, ETC.. . . . . . . . . . . . . . . . . . . . 24
4.4 NON-RECEIPT OF FUNDS BY AGENT . . . . . . . . . . . . . . . . . . . . 25
4.5 SHARING OF PAYMENTS, ETC. . . . . . . . . . . . . . . . . . . . . . . 25
5. CONDITIONS PRECEDENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.1 INITIAL LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.2 ALL LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6. REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . . . . . . . . . 28
6.1 ORGANIZATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.2 FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . 28
6.3 ENFORCEABLE OBLIGATIONS; AUTHORIZATION. . . . . . . . . . . . . . . . 29
6.4 OTHER DEBT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.5 LITIGATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.6 TITLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.7 TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
-i-
<PAGE>
6.8 REGULATIONS G, U AND X. . . . . . . . . . . . . . . . . . . . . . . . 30
6.9 SUBSIDIARIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.10 NO UNTRUE OR MISLEADING STATEMENTS. . . . . . . . . . . . . . . . . . 30
6.11 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.12 INVESTMENT COMPANY ACT. . . . . . . . . . . . . . . . . . . . . . . . 30
6.13 PUBLIC UTILITY HOLDING COMPANY ACT. . . . . . . . . . . . . . . . . . 30
6.14 SOLVENCY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.15 FISCAL YEAR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.16 COMPLIANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
6.17 ENVIRONMENTAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . 31
7. AFFIRMATIVE COVENANTS.. . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.1 TAXES, EXISTENCE, REGULATIONS, PROPERTY, ETC. . . . . . . . . . . . . 31
7.2 FINANCIAL STATEMENTS AND INFORMATION. . . . . . . . . . . . . . . . . 32
7.3 FINANCIAL TESTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.4 INSPECTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.5 FURTHER ASSURANCES. . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.6 BOOKS AND RECORDS . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.7 INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.8 NOTICE OF CERTAIN MATTERS . . . . . . . . . . . . . . . . . . . . . . 33
7.9 ERISA INFORMATION AND COMPLIANCE. . . . . . . . . . . . . . . . . . . 34
8. NEGATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.1 BORROWED MONEY INDEBTEDNESS . . . . . . . . . . . . . . . . . . . . . 35
8.2 LIENS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.3 CONTINGENT LIABILITIES. . . . . . . . . . . . . . . . . . . . . . . . 37
8.4 MERGERS AND CONSOLIDATIONS. . . . . . . . . . . . . . . . . . . . . . 38
8.5 DISPOSITION OF ASSETS . . . . . . . . . . . . . . . . . . . . . . . . 38
8.6 REDEMPTION, DIVIDENDS AND DISTRIBUTIONS . . . . . . . . . . . . . . . 38
8.7 NATURE OF BUSINESS. . . . . . . . . . . . . . . . . . . . . . . . . . 39
8.8 TRANSACTIONS WITH RELATED PARTIES . . . . . . . . . . . . . . . . . . 39
8.9 LOANS AND INVESTMENTS . . . . . . . . . . . . . . . . . . . . . . . . 39
8.10 ORGANIZATIONAL DOCUMENTS. . . . . . . . . . . . . . . . . . . . . . . 39
8.11 UNFUNDED LIABILITIES. . . . . . . . . . . . . . . . . . . . . . . . . 39
8.12 CAPITAL EXPENDITURES. . . . . . . . . . . . . . . . . . . . . . . . . 39
8.13 ACQUISITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
8.14 SUBORDINATED INDEBTEDNESS . . . . . . . . . . . . . . . . . . . . . . 40
9. DEFAULTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
9.1 EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . 40
9.2 RIGHT OF SETOFF . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
9.3 REMEDIES CUMULATIVE . . . . . . . . . . . . . . . . . . . . . . . . . 43
-ii-
<PAGE>
10. AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
10.1 APPOINTMENT, POWERS AND IMMUNITIES. . . . . . . . . . . . . . . . . . 43
10.2 RELIANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
10.3 DEFAULTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
10.4 MATERIAL WRITTEN NOTICES. . . . . . . . . . . . . . . . . . . . . . . 45
10.5 RIGHTS AS A LENDER. . . . . . . . . . . . . . . . . . . . . . . . . . 45
10.6 INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
10.7 NON-RELIANCE ON AGENT AND OTHER LENDERS . . . . . . . . . . . . . . . 45
10.8 FAILURE TO ACT. . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
10.9 RESIGNATION OR REMOVAL OF AGENT . . . . . . . . . . . . . . . . . . . 46
10.10 NO PARTNERSHIP. . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
10.11 NO WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
11. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
11.1 WAIVER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
11.2 NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
11.3 EXPENSES, ETC.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
11.4 INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
11.5 AMENDMENTS, ETC.. . . . . . . . . . . . . . . . . . . . . . . . . . . 48
11.6 SUCCESSORS AND ASSIGNS. . . . . . . . . . . . . . . . . . . . . . . . 49
11.7 LIMITATION OF INTEREST. . . . . . . . . . . . . . . . . . . . . . . . 51
11.8 SURVIVAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
11.9 CAPTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
11.10 COUNTERPARTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
11.11 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
11.12 SEVERABILITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
11.13 TAX FORMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
11.14 ARBITRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
11.15 CONFLICTS BETWEEN THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS . . . . 55
11.16 DISCLOSURE TO OTHER PERSONS; CONFIDENTIALITY. . . . . . . . . . . . . 55
</TABLE>
EXHIBITS
A -- Request for Extension of Credit
B -- Rate Designation Notice
C -- Note
D -- Assignment and Acceptance
E -- Compliance Certificate
F -- Subsidiaries as of the Effective Date
G -- Existing Borrowed Money Indebtedness
H -- Existing Liens
-iii-
<PAGE>
LOAN AGREEMENT
THIS LOAN AGREEMENT is made and entered into as of December 30, 1997
(the "EFFECTIVE DATE"), by and among HCC INSURANCE HOLDINGS, INC., a Delaware
corporation (together with its permitted successors, herein called the
"BORROWER"); each of the lenders which is or may from time to time become a
party hereto (individually, a "LENDER" and, collectively, the "LENDERS"),
NATIONSBANK OF TEXAS, N.A., as Documentation Agent, and WELLS FARGO BANK
(TEXAS), NATIONAL ASSOCIATION ("WELLS FARGO"), a national banking
association, as agent for the Lenders (in such capacity, together with its
successors in such capacity, the "AGENT").
The parties hereto agree as follows:
1. DEFINITIONS.
1.1 CERTAIN DEFINED TERMS.
Unless a particular term, word or phrase is otherwise defined or the
context otherwise requires, capitalized terms, words and phrases used herein
or in the Loan Documents (as hereinafter defined) have the following meanings
(all definitions that are defined in this Agreement in the singular have the
same meanings when used in the plural and VICE VERSA):
ACCOUNTS, GENERAL INTANGIBLES and INVENTORY shall have the respective
meanings assigned to them in the Uniform Commercial Code enacted in the State
of Texas in force on the Effective Date.
ADDITIONAL INTEREST means the aggregate of all amounts accrued or paid
pursuant to the Notes or any of the other Loan Documents (other than interest
on the Notes at the Stated Rate) which, under applicable laws, are or may be
deemed to constitute interest on the indebtedness evidenced by the Notes.
ADJUSTED LIBOR means, with respect to each Interest Period applicable to
a LIBOR Borrowing, a rate per annum equal to the quotient, expressed as a
percentage, of (a) LIBOR with respect to such Interest Period divided by (b)
1.0000 minus the Eurodollar Reserve Requirement in effect on the first day of
such Interest Period.
AFFILIATE means any Person controlling, controlled by or under common
control with any other Person. For purposes of this definition, "CONTROL"
(including "CONTROLLED BY" and "UNDER COMMON CONTROL WITH") means the
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 otherwise.
-1-
<PAGE>
AGREEMENT means this Loan Agreement, as it may from time to time be
amended, modified, restated or supplemented.
AIC means AVEMCO Insurance Company, a Maryland corporation.
ANNUAL FINANCIAL STATEMENTS means the annual financial statements of a
Person, including all notes thereto, which statements shall include a balance
sheet as of the end of such fiscal year and an income statement and a
statement of cash flows for such fiscal year, all setting forth in
comparative form the corresponding figures from the previous fiscal year, all
prepared in conformity with GAAP in all material respects, and accompanied by
the opinion of independent certified public accountants of recognized
national standing, which shall state that such financial statements present
fairly in all material respects the financial position of such Person and, if
such Person has any Subsidiaries, its consolidated Subsidiaries as of the
date thereof and the results of its operations for the period covered thereby
in conformity with GAAP or, as applicable, statutory financial standards. To
the extent required by Agent or the Majority Lenders, Annual Financial
Statements shall also include an unaudited consolidating balance sheet and
income statement for Borrower, in Proper Form, certified by the chief
financial officer or other authorized officer of Borrower as true, correct
and complete in all material respects.
ASSIGNMENT AND ACCEPTANCE shall have the meaning ascribed to such term
in SECTION 11.6 hereof.
AVEMCO means Avemco Corporation, a Delaware corporation.
BANKRUPTCY CODE means the United States Bankruptcy Code, as amended, and
any successor statute.
BASE RATE means for any day a rate per annum equal to the lesser of (a)
the greater of (1) the Prime Rate for that day or (2) the Federal Funds Rate
for that day plus 1/2 of 1% or (b) the Ceiling Rate. If for any reason Agent
shall have determined (which determination shall create a rebuttable
presumption as to the accuracy thereof) that it is unable to ascertain the
Federal Funds Rate for any reason, including, without limitation, the
inability or failure of Agent to obtain sufficient quotations in accordance
with the terms hereof (and in such event, Agent shall furnish written
evidence to Borrower showing how Agent made such determination), the Base
Rate shall, until the circumstances giving rise to such inability no longer
exist, be the lesser of (a) the Prime Rate or (b) the Ceiling Rate.
BASE RATE BORROWING means that portion of the principal balance of the
Loans at any time bearing interest at the Base Rate.
BORROWED MONEY INDEBTEDNESS means, with respect to any Person, without
duplication, (i) all obligations of such Person for borrowed money, (ii) all
obligations of such Person evidenced by bonds, debentures, notes or similar
instruments, (iii) all obligations of such Person under conditional sale or
other title retention agreements relating to Property purchased by such
-2-
<PAGE>
Person, (iv) all obligations of such Person issued or assumed as the deferred
purchase price of property or services (excluding obligations of such Person
to creditors for raw materials, inventory, services and supplies and deferred
payments for services to employees and former employees incurred in the
ordinary course of such Person's business), (v) all capital lease obligations
of such Person, (vi) all obligations of others secured by any lien on
property or assets owned or acquired by such Person, whether or not the
obligations secured thereby have been assumed, (vii) Interest Rate Risk
Indebtedness of such Person (to the extent treated as Indebtedness under
GAAP), (viii) all obligations of such Person in respect of outstanding
letters of credit issued for the account of such Person and (ix) all
guarantees of such Person of any of the foregoing.
BUSINESS DAY means any day other than a day on which commercial banks
are authorized or required to close in Houston, Texas and San Francisco,
California.
CAPITAL EXPENDITURES means, with respect to any Person for any period,
expenditures in respect of fixed or capital assets by such Person, including
capital lease obligations incurred during such period (to the extent not
already included), which would be reflected as additions to Property, plant
or equipment on a balance sheet of such Person and its consolidated
Subsidiaries, if any, prepared in accordance with GAAP; but EXCLUDING
expenditures during such period for the repair or replacement of any fixed or
capital asset which was destroyed or damaged, in whole or in part, to the
extent financed by the proceeds of an insurance policy maintained by such
Person. Capital Expenditures shall not include Permitted Investments or the
assets owned by any Person acquired by way of a Permitted Investment or
assets comprising substantially all of an entire business which is acquired
by the applicable Person.
CASH FLOW COVERAGE RATIO means, as of the end of any fiscal year, the
ratio of (a) the sum of the maximum aggregate dividends that the insurance
company Subsidiaries of Borrower are permitted by applicable regulatory
authorities to pay to Borrower in the applicable fiscal year PLUS all cash
dividends received from agency operations of Subsidiaries of Borrower in the
applicable fiscal year to (b) the sum of Interest Expense of Borrower and its
Subsidiaries for the applicable fiscal year PLUS scheduled principal payments
paid or payable by Borrower and its Subsidiaries for the applicable fiscal
year PLUS dividends paid by Borrower to its shareholders for the applicable
fiscal year.
CEILING RATE means, on any day, the maximum nonusurious rate of interest
permitted for that day by whichever of applicable federal or Texas (or any
jurisdiction whose usury laws are deemed to apply to the Notes or any other
Loan Documents despite the intention and desire of the parties to apply the
usury laws of the State of Texas) laws permits the higher interest rate,
stated as a rate per annum. On each day, if any, that Chapter 1D establishes
the Ceiling Rate, the Ceiling Rate shall be the "weekly rate ceiling" (as
defined in Section 303 of the Texas Finance Code ) for that day. Agent may
from time to time, as to current and future balances, implement any other
ceiling under the Texas Finance Code or Chapter 1D by notice to Borrower, if
and to the extent permitted by the Texas Finance Code or Chapter 1D. Without
notice to Borrower or any other person or entity, the Ceiling Rate shall
automatically fluctuate upward and downward as
-3-
<PAGE>
and in the amount by which such maximum nonusurious rate of interest
permitted by applicable law fluctuates.
CHANGE OF CONTROL means a change resulting when any Unrelated Person or
any Unrelated Persons acting together which would constitute a Group together
with any Affiliates or Related Persons thereof (in each case also
constituting Unrelated Persons) shall at any time either (i) Beneficially Own
more than 50% of the aggregate voting power of all classes of Voting Stock of
Borrower or (ii) succeed in having sufficient of its or their nominees
elected to the Board of Directors of Borrower such that such nominees, when
added to any existing directors remaining on the Board of Directors of
Borrower after such election who is an Affiliate or Related Person of such
Person or Group, shall constitute a majority of the Board of Directors of
Borrower. As used herein (a) "BENEFICIALLY OWN" means "beneficially own" as
defined in Rule 13d-3 of the Securities Exchange Act of 1934, as amended, or
any successor provision thereto; PROVIDED, HOWEVER, that, for purposes of
this definition, a Person shall not be deemed to Beneficially Own securities
tendered pursuant to a tender or exchange offer made by or on behalf of such
Person or any of such Person's Affiliates until such tendered securities are
accepted for purchase or exchange; (b) "GROUP" means a "group" for purposes
of Section 13(d) of the Securities Exchange Act of 1934, as amended; (c)
"UNRELATED PERSON" means at any time any Person other than Borrower or any
Subsidiary of Borrower and other than any trust for any employee benefit plan
of Borrower or any Subsidiary of Borrower; (d) "RELATED PERSON" of any Person
shall mean any other Person owning (1) 5% or more of the outstanding common
stock of such Person or (2) 5% or more of the Voting Stock of such Person;
and (e) "VOTING STOCK" of any Person shall mean capital stock of such Person
which ordinarily has voting power for the election of directors (or persons
performing similar functions) of such Person, whether at all times or only so
long as no senior class of securities has such voting power by reason of any
contingency.
CHAPTER 1D means Chapter 1D of Title 79, Texas Rev. Civ. Stats. 1925, as
amended.
CODE means the Internal Revenue Code of 1986, as amended, as now or
hereafter in effect, together with all regulations, rulings and
interpretations thereof or thereunder by the Internal Revenue Service.
COLLATERAL means all Property, tangible or intangible, real, personal or
mixed, now or hereafter subject to the Security Documents.
COMBINED RATIO means, for any period, the sum of the Loss Ratio for such
period PLUS the Expense Ratio for such period.
COMPLIANCE CERTIFICATE shall have the meaning given to it in SECTION 7.2
hereof.
CONTROLLED GROUP means all members of a controlled group of corporations
and all trades or businesses (whether or not incorporated) under common
control which, together with Borrower, are treated as a single employer under
Section 414 of the Code.
-4-
<PAGE>
CORPORATION means any corporation, limited liability company,
partnership, joint venture, joint stock association, business trust and other
business entity.
DEBT TO CAPITALIZATION RATIO means, as of the end of any fiscal
quarter, the ratio of (a) Indebtedness as of such date to (b) the sum of
Indebtedness as of such date PLUS Stockholder's Equity as of such date.
DEFAULT means an Event of Default or an event which with notice or lapse
of time or both would, unless cured or waived, become an Event of Default.
DOLLARS and $ means lawful money of the United States of America.
ENVIRONMENTAL CLAIM means any third party (including Governmental
Authorities and employees) action, lawsuit, claim or proceeding (including
claims or proceedings at common law or under the Occupational Safety and
Health Act or similar laws relating to safety of employees) which seeks to
impose liability for (i) noise; (ii) pollution or contamination of the air,
surface water, ground water or land or the clean-up of such pollution or
contamination; (iii) solid, gaseous or liquid waste generation, handling,
treatment, storage, disposal or transportation; (iv) exposure to Hazardous
Substances; (v) the safety or health of employees or (vi) the manufacture,
processing, distribution in commerce or use of Hazardous Substances. An
"ENVIRONMENTAL CLAIM" includes, but is not limited to, a common law action,
as well as a proceeding to issue, modify or terminate an Environmental
Permit, or to adopt or amend a regulation to the extent that such a
proceeding attempts to redress violations of an applicable permit, license,
or regulation as alleged by any Governmental Authority.
ENVIRONMENTAL LIABILITIES includes all liabilities arising from any
Environmental Claim, Environmental Permit or Requirement of Environmental Law
under any theory of recovery, at law or in equity, and whether based on
negligence, strict liability or otherwise, including but not limited to:
remedial, removal, response, abatement, investigative, monitoring, personal
injury and damage to property or injuries to persons, and any other related
costs, expenses, losses, damages, penalties, fines, liabilities and
obligations, and all costs and expenses necessary to cause the issuance,
reissuance or renewal of any Environmental Permit including reasonable
attorneys' fees and court costs.
ENVIRONMENTAL PERMIT means any permit, license, approval or other
authorization under any applicable Legal Requirement relating to pollution or
protection of health or the environment, including laws, regulations or other
requirements relating to emissions, discharges, releases or threatened
releases of pollutants, contaminants or hazardous substances or toxic
materials or wastes into ambient air, surface water, ground water or land, or
otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling of pollutants,
contaminants or Hazardous Substances.
-5-
<PAGE>
ERISA means the Employee Retirement Income Security Act of 1974,
as amended from time to time, and all rules, regulations, rulings and
interpretations adopted by the Internal Revenue Service or the U.S.
Department of Labor thereunder.
EURODOLLAR RATE means for any day during an Interest Period for a LIBOR
Borrowing a rate per annum equal to the lesser of (a) the sum of (1) the
Adjusted LIBOR in effect on the first day of such Interest Period plus (2)
one percent (1%) or (b) the Ceiling Rate. Each Eurodollar Rate is subject to
adjustments for reserves, insurance assessments and other matters as provided
for in SECTION 3.3 hereof.
EURODOLLAR RESERVE REQUIREMENT means, on any day, that percentage
(expressed as a decimal fraction and rounded, if necessary, to the next
highest one ten thousandth [.0001]) which is in effect on such day for
determining all reserve requirements (including, without limitation, basic,
supplemental, marginal and emergency reserves) applicable to "Eurocurrency
liabilities," as currently defined in Regulation D. Each determination of
the Eurodollar Reserve Requirement by Agent shall create a rebuttable
presumption as to the accuracy thereof, and may be computed using any
reasonable averaging and attribution method.
EVENT OF DEFAULT shall have the meaning assigned to it in SECTION 9 hereof.
EXPENSE RATIO means, for any period, the ratio of (a) Statutory Net
Operating Expenses for the 12 months ending on the last day of the immediately
preceding calendar quarter to (b) Statutory Net Written Premiums for the 12
months ending on the last day of the immediately preceding calendar quarter,
tested at the end of each calendar quarter.
FEDERAL FUNDS RATE means, for any day, a fluctuating interest rate per
annum equal for such day to the weighted average of the rates on overnight
Federal funds transactions with members of the Federal Reserve System arranged
by Federal funds brokers, as published for such day (or, if such day is not a
Business Day, for the next preceding Business Day) by the Federal Reserve Bank
of New York, or, if such rate is not so published for any such day which is a
Business Day, the average of the quotations for such day on such transactions
received by Agent from three Federal funds brokers of recognized standing
selected by Agent in its sole and absolute discretion.
FINANCING STATEMENTS means all such Uniform Commercial Code financing
statements as Agent shall reasonably require, in Proper Form, duly executed by
Borrower (or any other applicable Obligor) to give notice of and to perfect or
continue perfection of Agent's Liens in any applicable Collateral, as any of the
foregoing may from time to time be amended, modified, supplemented or restated.
FUNDING LOSS means, with respect to (a) Borrower's payment of principal
of a LIBOR Borrowing on a day other than the last day of the applicable
Interest Period; (b) Borrower's failure to borrow a LIBOR Borrowing on the
date specified by Borrower; (c) Borrower's failure to make any prepayment of
the Loans (other than Base Rate Borrowings) on the date specified
-6-
<PAGE>
by Borrower, or (d) any cessation of a Eurodollar Rate to apply to the Loans
or any part thereof pursuant to SECTION 3.3, in each case whether voluntary
or involuntary, any loss, expense, penalty, premium or liability actually
incurred by any Lender (including but not limited to any actual loss or
reasonable expense incurred by reason of the liquidation or reemployment of
deposits or other funds acquired by any Lender to fund or maintain a Loan),
but excluding loss of margin or profit for the period after such payment or
failure to borrow or prepay and excluding losses resulting from the gross
negligence or willful misconduct of the applicable Lender.
GAAP means, as to a particular Person, such accounting practice as, in
the opinion of independent certified public accountants of recognized
national standing regularly retained by such Person, conforms at the time to
generally accepted accounting principles, consistently applied for all
periods after the Effective Date so as to present fairly the financial
condition, and results of operations and cash flows, of such Person. If any
change in any accounting principle or practice is required by the Financial
Accounting Standards Board, all reports and financial statements required
hereunder may be prepared in accordance with such change so long as Borrower
provides to Agent such disclosures of the impact of such change as Agent may
reasonably require. No such change in any accounting principle or practice
shall, in itself, cause a Default or Event of Default hereunder (but
Borrower, Agent and Lenders shall negotiate in good faith to replace any
financial covenants hereunder to the extent such financial covenants are
affected by such change in accounting principle or practice).
GOVERNMENTAL AUTHORITY means any foreign governmental authority, the United
States of America, any State of the United States, and any political subdivision
of any of the foregoing, and any central bank, agency, department, commission,
board, bureau, court or other tribunal having jurisdiction over Agent, any
Lender, any Obligor or their respective Property.
HAZARDOUS SUBSTANCE means petroleum products, and any hazardous or toxic
waste or substance defined or regulated as such from time to time by any law,
rule, regulation or order described in the definition of "Requirements of
Environmental Law".
HCC means Houston Casualty Company, a Texas corporation.
INDEBTEDNESS means, for any Person, (i) all obligations of such Person for
Borrowed Money Indebtedness (or which has been incurred in connection with the
acquisition of property) and (ii) preferred stock having a mandatory redemption
prior to the maturity of the Obligations.
INTEREST EXPENSE means, for any Person, the sum of (i) all interest on
Indebtedness paid or due and payable (including the portion of rents payable
under capital leases allocable to interest) plus (ii) all debt discount and
expense amortized or required to be amortized during such period.
INTEREST OPTIONS means the Base Rate and each Eurodollar Rate, and
"INTEREST OPTION" means any of them.
-7-
<PAGE>
INTEREST PAYMENT DATES means (a) FOR BASE RATE BORROWINGS, January 31,
1998 and the last Business Day of each January, April, July and October
thereafter prior to the Revolving Loan Maturity Date, and the Revolving Loan
Maturity Date; and (b) FOR LIBOR BORROWINGS, the end of the applicable Interest
Period (and if such Interest Period exceeds three months' duration, quarterly,
commencing on the first quarterly anniversary of the first day of such Interest
Period), and the Revolving Loan Maturity Date.
INTEREST PERIOD means, for each LIBOR Borrowing, a period commencing on the
date such LIBOR Borrowing began and ending on the numerically corresponding day
which is, subject to availability as set forth in SECTION 3.3(c)(iii), 1, 2, 3,
6 or 12 months thereafter, as Borrower shall elect in accordance herewith;
PROVIDED, (1) unless Agent shall otherwise consent, no Interest Period with
respect to a LIBOR Borrowing shall commence on a date earlier than three (3)
Business Days after this Agreement shall have been fully executed; (2) any
Interest Period with respect to a LIBOR Borrowing which would otherwise end on a
day which is not a LIBOR Business Day shall be extended to the next succeeding
LIBOR Business Day, unless such LIBOR Business Day falls in another calendar
month, in which case such Interest Period shall end on the next preceding LIBOR
Business Day; (3) any Interest Period with respect to a LIBOR Borrowing which
begins on the last LIBOR Business Day of a calendar month (or on a day for which
there is no numerically corresponding day in the calendar month at the end of
such Interest Period) shall end on the last LIBOR Business Day of the
appropriate calendar month; (4) no Interest Period for a Loan shall ever extend
beyond the Revolving Loan Maturity Date, and (5) Interest Periods shall be
selected by Borrower in such a manner that the Interest Period with respect to
any portion of the Loans which shall become due shall not extend beyond such due
date.
INTEREST RATE RISK AGREEMENT means an interest rate swap agreement,
interest rate cap agreement, interest rate collar agreement or similar
arrangement entered into by Borrower for the purpose of reducing Borrower's
exposure to interest rate fluctuations and not for speculative purposes,
approved in writing by Agent (such approval not to be unreasonably withheld), as
it may from time to time be amended, modified, restated or supplemented.
INTEREST RATE RISK INDEBTEDNESS means all obligations and Indebtedness of
Borrower with respect to the program for the hedging of interest rate risk
provided for in any Interest Rate Risk Agreement.
INVESTMENT means the purchase or other acquisition of any securities or
Indebtedness of, or the making of any loan, advance, transfer of Property (other
than transfers in the ordinary course of business) or capital contribution to,
or the incurring of any liability (other than trade accounts payable arising in
the ordinary course of business), contingently or otherwise, in respect of the
Indebtedness of, any Person; PROVIDED, HOWEVER, that the purchase by Borrower or
any of its Subsidiaries of any Indebtedness of Borrower or any of its
Subsidiaries for the purpose of retiring such Indebtedness shall not be deemed
to be an Investment.
-8-
<PAGE>
LEGAL REQUIREMENT means any law, statute, ordinance, decree, requirement,
order, judgment, rule, or regulation (or interpretation of any of the foregoing)
of, and the terms of any license or permit issued by, any Governmental
Authority, whether presently existing or arising in the future.
LIBOR means, for each Interest Period for any LIBOR Borrowing, the rate per
annum (rounded upwards, if necessary, to the nearest 1/100th of 1%) appearing on
Telerate Page 3750 (or if such Telerate Page shall not be available, any
successor or similar service as may be selected by Agent and Borrower as the
London interbank rate for deposits in United States dollars) as of 11:00 London
time (or as soon thereafter as practicable) on the day two LIBOR Business Days
prior to the first day of such Interest Period for deposits in United States
dollars having a term comparable to such Interest Period and in an amount
comparable to the principal amount of the LIBOR Borrowing to which such Interest
Period relates. If none of such Telerate Page 3750 nor any successor or similar
service is available, then "LIBOR" shall mean, with respect to any Interest
Period for any applicable LIBOR Borrowing, the rate of interest per annum,
rounded upwards, if necessary, to the nearest 1/100th of 1%, quoted by Agent at
or before 11:00 London time (or as soon thereafter as practicable), on the date
two LIBOR Business Days before the first day of such Interest Period, to be the
arithmetic average of the prevailing rates per annum at the time of
determination and in accordance with the then existing practice in the
applicable market, for the offering to Agent by one or more prime banks selected
by Agent in its sole discretion, in the London interbank market, of deposits in
United States dollars for delivery on the first day of such Interest Period and
having a maturity equal to the length of such Interest Period and in an amount
equal (or as nearly equal as may be) to the LIBOR Borrowing to which such
Interest Period relates. Each determination by Agent of LIBOR shall create a
rebuttable presumption as to the accuracy thereof, and may be computed using any
reasonable averaging and attribution method.
LIBOR BORROWING means each portion of the principal balance of the Loans at
any time bearing interest at a Eurodollar Rate.
LIBOR BUSINESS DAY means a Business Day on which transactions in United
States dollar deposits between lenders may be carried on in the London interbank
market.
LIEN means any mortgage, pledge, charge, encumbrance, security interest,
collateral assignment or other lien or restriction of any kind, whether based on
common law, constitutional provision, statute or contract, and shall include
reservations, exceptions, encroachments, easements, rights of way, covenants,
conditions, restrictions and other title exceptions.
LOANS means the loans provided for by SECTION 2.1 hereof.
LOAN DOCUMENTS means, collectively, this Agreement, the Notes, the Notice
of Entire Agreement, all instruments, certificates and agreements now or
hereafter executed or delivered by any Obligor to Agent or any Lender pursuant
to any of the foregoing or in connection with
-9-
<PAGE>
the Obligations or any commitment regarding the Obligations, and all
amendments, modifications, renewals, extensions, increases and rearrangements
of, and substitutions for, any of the foregoing.
LOSS AND LOSS ADJUSTMENT EXPENSES means the total of all claims incurred by
an insurance or reinsurance company under a policy or policies, whether paid or
unpaid (including a provision for claims that have occurred but have not yet
been reported to the insurer or reinsurer) and the total expense of settling
claims, including legal and other fees and the portion of general expense
allocated to claim settlement costs.
LOSS RATIO means, for any period, the ratio of (a) the sum of Loss and Loss
Adjustment Expenses for the 12 months ending on the last day of the immediately
preceding calendar quarter to (b) Net Earned Premiums for the 12 months ending
on the last day of the immediately preceding calendar quarter, tested at the end
of each calendar quarter.
MAJORITY LENDERS means Lenders having greater than 66-2/3% of the Revolving
Loan Commitments or, if the Revolving Loan Commitments are terminated, Lenders
having greater than 66-2/3% of the outstanding Loans.
MATERIAL ADVERSE EFFECT means relative to any occurrence of whatever nature
(including any adverse determination in any litigation, arbitration or
governmental investigation or proceeding), resulting in (i) a material adverse
effect on the financial condition, business, operations, or assets of Borrower
and its Subsidiaries, on a consolidated basis, from those reflected in the
financial statements furnished to Agent referred to in SECTION 6.2 hereof or
from the facts represented or warranted in this Agreement or any other Loan
Document, (ii) a material impairment of the ability of Borrower and its
Subsidiaries, on a consolidated basis, to perform their obligations under the
Loan Documents or (iii) a material impairment of the validity or enforceability
of the Loan Documents the result of which is a material adverse effect on the
ability of Lenders to collect the Obligations when due.
NET EARNED PREMIUMS means the portion of Net Written Premiums during or
prior to a given period which is actually earned during such period.
NET WRITTEN PREMIUMS means the total of all premiums received or to be
received for insurance underwritten and reinsurance assumed during a given
period less the total premium paid or to be paid for reinsurance ceded to others
during such period.
NOTES shall have the meaning assigned to such term in SECTION 2.5 hereof.
NOTICE OF ENTIRE AGREEMENT means a notice of entire agreement, in Proper
Form, executed by Borrower and Agent, as the same may from time to time be
amended, modified, supplemented or restated.
OBLIGATIONS means, as at any date of determination thereof, the sum of the
following: (i) the aggregate principal amount of Loans outstanding hereunder on
such date, PLUS (ii) all other
-10-
<PAGE>
outstanding liabilities, obligations and indebtedness of any Obligor under
any Loan Document on such date.
OBLIGORS means Borrower, Avemco, HCC, AIC and USSIC.
ORGANIZATIONAL DOCUMENTS means, with respect to a corporation, the
certificate of incorporation, articles of incorporation and bylaws of such
corporation; with respect to a partnership, the partnership agreement
establishing such partnership and with respect to a trust, the instrument
establishing such trust; in each case including any and all modifications
thereof as of the date of the Loan Document referring to such Organizational
Document and any and all future modifications thereof.
PAST DUE RATE means, on any day, a rate per annum equal to the lesser of
(i) the Ceiling Rate for that day or (ii) the Base Rate plus three percent (3%).
PBGC means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
PERMITTED DIVIDENDS means (i) dividends or distributions by a Subsidiary
of Borrower to Borrower (or to another Subsidiary of Borrower) or redemption by
a Subsidiary of any of its stock held by Borrower (or by another Subsidiary of
Borrower), (ii) dividends paid in stock and stock splits and (iii) so long as no
Default or Event of Default shall have occurred and be continuing (or would
result therefrom), dividends or distributions by Borrower not exceeding, in the
aggregate in any applicable fiscal year, $25,000,000.
PERMITTED INVESTMENT means Investments permitted under the terms of SECTION
8.9 hereof.
PERMITTED LIENS means Liens permitted under the provisions of SECTION 8.2
hereof.
PERSON means any individual, Corporation, trust, unincorporated
organization, Governmental Authority or any other form of entity.
PLAN means an employee pension benefit plan which is covered by Title IV of
ERISA or subject to the minimum funding standards under Section 412 of the Code
and is either (a) maintained by Borrower or any member of the Controlled Group
for employees of Borrower or any member of the Controlled Group or (b)
maintained pursuant to a collective bargaining agreement or any other
arrangement under which more than one employer makes contributions and to which
Borrower or any member of the Controlled Group is then making or accruing an
obligation to make contributions or has within the preceding five plan years
made contributions.
PRIME RATE means, on any day, the prime rate for that day as determined
from time to time by Wells Fargo at its principal office in San Francisco,
California. The Prime Rate is a reference rate and does not necessarily
represent the lowest or best rate or a favored rate, and Wells Fargo, Agent and
each Lender disclaims any statement, representation or warranty to the
-11-
<PAGE>
contrary. Wells Fargo, Agent or any Lender may make commercial loans or other
loans at rates of interest at, above or below the Prime Rate.
PRINCIPAL OFFICE means 201 Third Street, 8th Floor, San Francisco,
California 94103.
PROPER FORM means in form reasonably satisfactory to Agent.
PROPERTY means any interest in any kind of property or asset, whether real,
personal or mixed, tangible or intangible.
QUARTERLY DATES means the last Business Day of each March, June, September
and December.
QUARTERLY FINANCIAL STATEMENTS means the quarterly financial statements of
a Person, which statements shall include a balance sheet as of the end of such
fiscal quarter, an income statement for the period ended on such fiscal quarter
and for the fiscal year to date and a statement of cash flows for the fiscal
year to date, subject to normal year-end adjustments, prepared in accordance
with GAAP in all material respects except that such statements are condensed and
exclude detailed footnote disclosures and certified by the chief financial
officer or other authorized officer of such Person as fairly presenting, in all
material respects, the financial position of such person as of such date. To
the extent required by Agent or the Majority Lenders, Quarterly Financial
Statements shall also include an unaudited consolidating balance sheet and
income statement for Borrower, in Proper Form, certified by the chief financial
officer or other authorized officer of Borrower as true, correct and complete in
all material respects.
RATE DESIGNATION DATE means that Business Day which is (a) in the case of
Base Rate Borrowings, 9:00 a.m., San Francisco, California time, on the date of
such borrowing and (b) in the case of LIBOR Borrowings, 9:00 a.m., San
Francisco, California time, on the date three LIBOR Business Days preceding the
first day of any proposed Interest Period.
RATE DESIGNATION NOTICE means a written notice substantially in the form of
EXHIBIT B.
REGULATION D means Regulation D of the Board of Governors of the Federal
Reserve System from time to time in effect and includes any successor or other
regulation relating to reserve requirements applicable to member banks of the
Federal Reserve System.
REGULATORY CHANGE means with respect to any Lender, any change on or after
the date of this Agreement in any Legal Requirement (including, without
limitation, Regulation D) or the adoption or making on or after such date of any
interpretation, directive or request applying to a class of lenders including
such Lender under any Legal Requirements (whether or not having the force of
law) by any Governmental Authority.
REQUEST FOR EXTENSION OF CREDIT means a request for extension of credit
duly executed by the chief executive officer, president, chief financial
officer, any vice president or treasurer of
-12-
<PAGE>
Borrower or any other officer of Borrower duly authorized in writing by
Borrower, appropriately completed and substantially in the form of EXHIBIT A
attached hereto.
REQUIREMENTS OF ENVIRONMENTAL LAW means all requirements imposed by any law
(including for example and without limitation The Resource Conservation and
Recovery Act and The Comprehensive Environmental Response, Compensation, and
Liability Act), rule, regulation, or order of any federal, state or local
executive, legislative, judicial, regulatory or administrative agency, board or
authority in effect at the applicable time which relate to (i) noise; (ii)
pollution, protection or clean-up of the air, surface water, ground water or
land; (iii) solid, gaseous or liquid waste generation, treatment, storage,
disposal or transportation; (iv) exposure to Hazardous Substances; (v) the
safety or health of employees or (vi) regulation of the manufacture, processing,
distribution in commerce, use, discharge or storage of Hazardous Substances.
REVOLVING LOAN AVAILABILITY PERIOD means, for each Revolving Loan Lender,
the period from and including the Effective Date to (but not including) the
Revolving Loan Termination Date.
REVOLVING LOAN LENDER means each Lender with (i) prior to the Revolving
Loan Termination Date, a Revolving Loan Commitment and (ii) on and after the
Revolving Loan Termination Date, any outstanding Revolving Loan Obligations.
REVOLVING LOAN COMMITMENT means, as to any Lender, the obligation, if any,
of such Lender to make Loans in an aggregate principal amount at any one time
outstanding up to (but not exceeding) the amount, if any, set forth opposite
such Lender's name on the signature pages hereof under the caption "Revolving
Loan Commitment", or otherwise provided for in an Assignment and Acceptance
Agreement (as the same may be reduced from time to time pursuant to SECTION 2.2
hereof).
REVOLVING LOAN COMMITMENT PERCENTAGE means, as to any Revolving Loan
Lender, the percentage equivalent of a fraction the numerator of which is the
amount of such Lender's Revolving Loan Commitment and the denominator of which
is the aggregate amount of the Revolving Loan Commitments of all Lenders.
REVOLVING LOAN MATURITY DATE means the maturity of the Notes, December 30,
1999.
REVOLVING LOAN OBLIGATIONS means, as at any date of determination thereof,
the aggregate principal amount of Loans outstanding hereunder.
REVOLVING LOAN TERMINATION DATE means the earlier of (a) the Revolving Loan
Maturity Date or (b) the date specified by Agent in accordance with SECTION 9.1
hereof.
SECRETARY'S CERTIFICATE means a certificate, in Proper Form, of the
Secretary or an Assistant Secretary of a corporation as to (a) the resolutions
of the Board of Directors of such corporation authorizing the execution,
delivery and performance of the documents to be executed by such
-13-
<PAGE>
corporation; (b) the incumbency and signature of the officer of such
corporation executing such documents on behalf of such corporation, and (c)
the Organizational Documents of such corporation.
SECURITY AGREEMENTS means security agreements, each in Proper Form,
executed or to be executed in favor of Agent, securing the Obligations, covering
all of the issued and outstanding equity interests in HCC and AIC, as the same
may from time to time be amended, modified, restated or supplemented.
SECURITY DOCUMENTS means, collectively, the Security Agreements and any and
all security documents now or hereafter executed and delivered by any Obligor to
secure all or any part of the Obligations, as any of them may from time to time
be amended, modified, restated or supplemented.
STATED RATE means the effective weighted per annum rate of interest
applicable to the Loans; PROVIDED, that if on any day such rate shall exceed the
Ceiling Rate for that day, the Stated Rate shall be fixed at the Ceiling Rate on
that day and on each day thereafter until the total amount of interest accrued
at the Stated Rate on the unpaid principal balances of the Notes plus the
Additional Interest equals the total amount of interest which would have accrued
if there had been no Ceiling Rate. Without notice to Borrower or any other
Person, the Stated Rate shall automatically fluctuate upward and downward in
accordance with the provisions of this definition.
STATUTORY NET OPERATING EXPENSES means statutory policy acquisition costs
and other underwriting expense, net of miscellaneous income or loss, including
equity in earnings (loss) of Subsidiaries for the period of time in question.
STATUTORY NET WRITTEN PREMIUMS means the total of all premiums received or
to be received for insurance underwritten and reinsurance assumed during a given
period less the total premium paid or to be paid for reinsurance ceded to others
during such period.
STOCKHOLDERS' EQUITY means the consolidated stockholders' equity of
Borrower and its Subsidiaries determined in accordance with GAAP.
SUBORDINATED INDEBTEDNESS means all Indebtedness of a Person which has been
subordinated on terms and conditions satisfactory to the Majority Lenders, in
their sole discretion, to all Indebtedness of such Person to Lenders, whether
now existing or hereafter incurred. Indebtedness shall not be considered as
"Subordinated Indebtedness" unless and until Agent shall have received copies of
the documentation evidencing or relating to such Indebtedness together with a
subordination agreement, in Proper Form, duly executed by the holder or holders
of such Indebtedness and evidencing the terms and conditions of subordination
required by the Majority Lenders.
-14-
<PAGE>
SUBSIDIARY means, as to a particular parent Corporation, any Corporation of
which more than 50% of the indicia of equity rights (whether outstanding capital
stock or otherwise) is at the time directly or indirectly owned by, such parent
Corporation.
TAXES shall have the meaning ascribed to it in SECTION 4.1(d).
UNFUNDED LIABILITIES means, with respect to any Plan, at any time, the
amount (if any) by which (a) the present value of all benefits under such Plan
exceeds (b) the fair market value of all Plan assets allocable to such benefits,
all determined as of the then most recent actuarial valuation report for such
Plan, but only to the extent that such excess represents a potential liability
of any member of the Controlled Group to the PBGC or a Plan under Title IV of
ERISA. With respect to multi-employer Plans, the term "Unfunded Liabilities"
shall also include asserted withdrawal liability under Section 4201 of ERISA to
all multi-employer Plans to which Borrower or any member of a Controlled Group
for employees of Borrower contributes.
USSIC means U.S. Specialty Insurance Company, a Maryland corporation.
1.2 MISCELLANEOUS. The words "HEREOF," "HEREIN," and "HEREUNDER" and
words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not any particular provision of this Agreement. The
term "ANNUALIZED" as used herein shall mean the multiplication of the applicable
amount for any given period by a fraction, the numerator of which is 365 and the
denominator of which is the number of days elapsed in such period.
2. COMMITMENTS AND LOANS.
2.1 LOANS. Each Lender severally agrees, subject to all of the terms
and conditions of this Agreement (including, without limitation, SECTIONS 5.1
AND 5.2 hereof), to make Loans to Borrower, from time to time on or after the
Effective Date and during the Revolving Loan Availability Period, in an
aggregate principal amount at any one time outstanding up to but not exceeding
such Lender's Revolving Loan Commitment Percentage of the aggregate of the
Revolving Loan Commitments. Subject to the conditions in this Agreement, any
such Loan repaid prior to the Revolving Loan Termination Date may be reborrowed
pursuant to the terms of this Agreement; PROVIDED, that any and all such Loans
shall be due and payable in full at the end of the Revolving Loan Availability
Period. Borrower, Agent and the Lenders agree pursuant to Chapter 346 ("CHAPTER
346") of the Texas Finance Code, that Chapter 346 (which relates to open-end
line of credit revolving loan accounts) shall not apply to this Agreement, the
Revolving Notes or any Revolving Loan Obligation and that neither the Revolving
Notes nor any revolving Loan Obligation shall be governed by Chapter 346 or
subject to its provisions in any manner whatsoever. The aggregate of all Loans
to be made by the Lenders in connection with a particular borrowing shall be
equal to $500,000 or an integral multiple of $100,000 in excess thereof.
-15-
<PAGE>
2.2 TERMINATIONS OR REDUCTIONS OF COMMITMENTS.
(a) MANDATORY. On the Revolving Loan Termination Date, all Revolving
Loan Commitments shall be terminated in their entirety.
(b) OPTIONAL. Borrower shall have the right to terminate or reduce the
unused portion of the Revolving Loan Commitments at any time or from time to
time, PROVIDED that (i) Borrower shall give notice of each such termination or
reduction to Agent as provided in SECTION 4.3 hereof and (ii) each such partial
reduction shall be in an integral multiple of $5,000,000.
(c) NO REINSTATEMENT. No termination or reduction of the Revolving Loan
Commitments may be reinstated without the written approval of Agent and the
Lenders.
2.3 COMMITMENT FEES.
(a) Borrower shall pay to Agent for the account of each Revolving Loan
Lender revolving loan commitment fees for the period from the Effective Date to
and including the Revolving Loan Termination Date at a rate per annum equal
0.20%. Revolving loan commitment fees shall be computed (on the basis of the
actual number of days elapsed in a year composed of 365 or 366 days, as the case
may be) on each day and shall be based on the excess of (x) the aggregate amount
of each Revolving Loan Lender's Revolving Loan Commitment for such day over (y)
the aggregate unpaid principal balance of such Lender's Revolving Note on such
day. Accrued revolving loan commitment fees shall be payable in arrears on the
Quarterly Dates prior to the Revolving Loan Termination Date and on the
Revolving Loan Termination Date.
(b) All past due fees payable under this Section shall bear interest at
the Past Due Rate.
2.4 SEVERAL OBLIGATIONS. The failure of any Lender to make any Loan
to be made by it on the date specified therefor shall not relieve any other
Lender of its obligation to make its Loan on such date, but neither Agent nor
any Lender shall be responsible or liable for the failure of any other Lender
to make a Loan to be made by such other Lender. Notwithstanding anything
contained herein to the contrary, (a) no Lender shall be required to make or
maintain Loans at any time outstanding if, as a result, the total Revolving
Loan Obligations held by such Lender shall exceed the lesser of (1) such
Lender's Revolving Loan Commitment Percentage of all Revolving Loan
Obligations and (2) such Lender's Revolving Loan Commitment Percentage of
the aggregate of the Revolving Loan Commitments and (b) if a Revolving Loan
Lender fails to make a Loan as and when required hereunder, then upon each
subsequent event which would otherwise result in funds being paid to the
defaulting Lender, the amount which would have been paid to the defaulting
Lender shall be divided among the non-defaulting Lenders ratably according to
their respective shares of the outstanding Revolving Loan Commitment
Percentages until the Revolving Loan Obligations of each Revolving Loan
Lender (including the defaulting Lender) are equal to such Lender's Revolving
Loan Commitment Percentage of the total Revolving Loan Obligations.
-16-
<PAGE>
2.5 NOTES. The Loans made by each Lender shall be evidenced by a
single promissory note of Borrower in substantially the form of EXHIBIT C
hereto payable to the order of such Lender in a principal amount equal to the
Revolving Loan Commitment of such Lender, and otherwise duly completed. The
promissory notes described in this Section are each, together with all
renewals, extensions, modifications, amendments, increases and/or and
replacements thereof and substitutions therefor, called a "NOTE" and
collectively called the "NOTES". Each Lender is hereby authorized by Borrower
to endorse on the schedule (or a continuation thereof) that may be attached
to each Note of such Lender, to the extent applicable, the date, amount, type
of and the applicable period of interest for each Loan made by such Lender to
Borrower hereunder, and the amount of each payment or prepayment of principal
of such Loan received by such Lender, PROVIDED, that any failure by such
Lender to make any such endorsement shall not affect the obligations of
Borrower under such Note or hereunder in respect of such Loan.
2.6 USE OF PROCEEDS. The proceeds of the Loans shall be used to
refinance existing Borrowed Money Indebtedness of Borrower, to finance
acquisitions and for other working capital and general corporate purposes.
Neither Agent nor any Lender shall have any responsibility as to the use of any
proceeds of the Loans.
3. BORROWINGS, PAYMENTS, PREPAYMENTS AND INTEREST OPTIONS.
3.1 BORROWINGS. Borrower shall give Agent notice of each borrowing to
be made hereunder as provided in SECTION 4.3 hereof and Agent shall promptly
notify each Lender of such request. Not later than 11:00 a.m., San Francisco,
California time on the date specified for each such borrowing hereunder, each
Lender shall make available the amount of the Loan, if any, to be made by it on
such date to Agent at its Principal Office, in immediately available funds, for
the account of Borrower. Such amounts received by Agent will be held in an
account maintained by Borrower with Agent. The amounts so received by Agent
shall, subject to the terms and conditions of this Agreement, be made available
to Borrower by wiring or otherwise transferring, in immediately available funds,
such amount to an account designated by Borrower.
3.2 PREPAYMENTS.
(a) OPTIONAL PREPAYMENTS. Except as provided in SECTION 3.3 hereof,
Borrower shall have the right to prepay, on any Business Day, in whole or in
part, without the payment of any penalty or fee, any Loans at any time or from
time to time, PROVIDED that Borrower shall give Agent notice of each such
prepayment as provided in SECTION 4.3 hereof. Each optional prepayment on a
Loan shall be in an amount equal to an integral multiple of $2,000,000 or an
integral multiple of $100,000 in excess thereof.
(b) INTEREST PAYMENTS. Accrued and unpaid interest on the unpaid
principal balance of the Loans shall be due and payable (i) on the date of any
prepayment permitted hereunder and (ii) on the Interest Payment Dates.
-17-
<PAGE>
(c) MANDATORY PREPAYMENTS. Borrower will make a prepayment on the Loans
equal to the amount by which the aggregate net proceeds received by Borrower and
its Subsidiaries in connection with the sale, transfer or otherwise disposition
of assets in any fiscal year exceeds $30,000,000. Such prepayment shall be due
and payable concurrently with the receipt of the applicable net proceeds by
Borrower or its applicable Subsidiary.
3.3 INTEREST OPTIONS
(a) OPTIONS AVAILABLE. The outstanding principal balance of the Notes
shall bear interest at the Base Rate; PROVIDED, that (1) all past due amounts,
both principal and accrued interest, shall bear interest at the Past Due Rate,
and (2) subject to the provisions hereof, Borrower shall have the option of
having all or any portion of the principal balances of the Notes from time to
time outstanding bear interest at a Eurodollar Rate. The records of Agent and
each of the Lenders with respect to Interest Options, Interest Periods and the
amounts of Loans to which they are applicable shall create a rebuttable
presumption as to the accuracy thereof, and Agent and Lenders agree to furnish
written evidence to Borrower upon request of Borrower with respect to such
matters. Interest on the Loans shall be calculated at the Base Rate except
where it is expressly provided pursuant to this Agreement that a Eurodollar Rate
is to apply. Interest on the amount of each advance against the Notes shall be
computed on the amount of that advance and from the date it is made.
Notwithstanding anything in this Agreement to the contrary, for the full term of
the Notes the interest rate produced by the aggregate of all sums paid or agreed
to be paid to the holders of the Notes for the use, forbearance or detention of
the debt evidenced thereby (including all interest on the Notes at the Stated
Rate plus the Additional Interest) shall not exceed the Ceiling Rate.
(b) DESIGNATION AND CONVERSION. Borrower shall have the right to
designate or convert its Interest Options in accordance with the provisions
hereof. PROVIDED no Event of Default has occurred and is continuing and subject
to the last sentence of SECTION 3.3(a) and the provisions of SECTION 3.3(c),
Borrower may elect to have a Eurodollar Rate apply or continue to apply to all
or any portion of the principal balance of the Notes. Each change in Interest
Options shall be a conversion of the rate of interest applicable to the
specified portion of the Loans, but such conversion shall not change the
respective outstanding principal balances of the Notes. The Interest Options
shall be designated or converted in the manner provided below:
i) Borrower shall give Agent telephonic notice, promptly confirmed by a
Rate Designation Notice (and Agent shall promptly inform each Lender
thereof). Each such telephonic and written notice shall specify the
amount of the Loan which is the subject of the designation, if any;
the amount of borrowings into which such borrowings are to be
converted or for which an Interest Option is designated; the
proposed date for the designation or conversion and the Interest
Period or Periods, if any, selected by Borrower. Such telephonic
notice shall be irrevocable and shall be given to Agent no later
than the applicable Rate Designation Date.
-18-
<PAGE>
ii) No more than ten (10) LIBOR Borrowings shall be in effect with
respect to the Loans at any time.
iii) Each designation or conversion of a LIBOR Borrowing shall occur on a
LIBOR Business Day.
iv) Each request for a LIBOR Borrowing shall be in the amount equal to
an integral multiple of $2,000,000 or an integral multiple of
$100,000 in excess thereof.
v) Each designation of an Interest Option with respect to the Revolving
Notes shall apply to all of the Revolving Notes ratably in
accordance with their respective outstanding principal balances. If
any Lender assigns an interest in any of its Notes when any LIBOR
Borrowing is outstanding with respect thereto, then such assignee
shall have its ratable interest in such LIBOR Borrowing.
(c) SPECIAL PROVISIONS APPLICABLE TO LIBOR BORROWINGS.
i) OPTIONS UNLAWFUL. If the adoption of any applicable Legal
Requirement after the Effective Date or any change after the Effective Date in
any applicable Legal Requirement or in the interpretation or administration
thereof by any Governmental Authority or compliance by any Lender with any
request or directive (whether or not having the force of law) issued after the
Effective Date by any central bank or other Governmental Authority shall at any
time make it unlawful or impossible for any Lender to permit the establishment
of or to maintain any LIBOR Borrowing, the commitment of such Lender to
establish or maintain such LIBOR Borrowing shall forthwith be canceled and
Borrower shall forthwith, upon demand by Agent to Borrower, (1) convert the
LIBOR Borrowing of such Lender with respect to which such demand was made to a
Base Rate Borrowing; (2) pay all accrued and unpaid interest to date on the
amount so converted; and (3) pay any amounts required to compensate each Lender
for any additional cost or expense which any Lender may incur as a result of
such adoption of or change in such Legal Requirement or in the interpretation or
administration thereof and any Funding Loss which any Lender may incur as a
result of such conversion. If, when Agent so notifies Borrower, Borrower has
given a Rate Designation Notice specifying a LIBOR Borrowing but the selected
Interest Period has not yet begun, as to the applicable Lender such Rate
Designation Notice shall be deemed to be of no force and effect, as if never
made, and the balance of the Loans made by such Lender specified in such Rate
Designation Notice shall bear interest at the Base Rate until a different
available Interest Option shall be designated in accordance herewith.
ii) INCREASED COST OF BORROWINGS. If the adoption after the Effective
Date of any applicable Legal Requirement or any change after the Effective Date
in any applicable Legal Requirement or in the interpretation or administration
thereof by any Governmental Authority or compliance by any Lender with any
request or directive (whether or not having the force of law) issued after the
Effective Date by any central bank or Governmental Authority shall at any time
as a result of any portion of the principal balances of the Notes being
maintained on the basis of a Eurodollar Rate:
-19-
<PAGE>
(1) subject any Lender to any Taxes, or any deduction or
withholding for any Taxes, on or from any payment due under
any LIBOR Borrowing or other amount due hereunder, other
than income and franchise taxes of the United States or its
political subdivisions or such other jurisdiction in which
the applicable Lender has its principal office or applicable
lending office; or
(2) change the basis of taxation of payments due from Borrower
to any Lender under any LIBOR Borrowing (other than by a
change in the rate of taxation of the overall net income of
such Lender); or
(3) impose, modify, increase or deem applicable any reserve
requirement (excluding that portion of any reserve
requirement included in the calculation of the applicable
Eurodollar Rate), special deposit requirement or similar
requirement (including, but not limited to, state law
requirements and Regulation D) against assets of any Lender,
or against deposits with any Lender, or against loans made
by any Lender, or against any other funds, obligations or
other property owned or held by any Lender; or
(4) impose on any Lender any other condition regarding any LIBOR
Borrowing;
and the result of any of the foregoing is to materially increase the cost to any
Lender of agreeing to make or of making, renewing or maintaining such LIBOR
Borrowing, or reduce the amount of principal or interest received by any Lender,
then, within 15 Business Days after demand by the applicable Lender (accompanied
by a statement setting forth in reasonable detail the applicable Lender's basis
therefor), Borrower shall pay to Agent additional amounts which shall compensate
each Lender for such increased cost or reduced amount. The determination by any
Lender of the amount of any such increased cost, increased reserve requirement
or reduced amount shall create a rebuttable presumption as to the accuracy
thereof. Borrower shall have the right, if it receives from Agent any notice
referred to in this paragraph, upon three Business Days' notice to Agent (which
shall notify each affected Lender), either (i) to repay in full (but not in
part) any borrowing with respect to which such notice was given, together with
any accrued interest thereon, or (ii) to convert the LIBOR Borrowing which is
the subject of the notice to a Base Rate Borrowing; PROVIDED, that any such
repayment or conversion shall be accompanied by payment of (x) the amount
required to compensate each Lender for the increased cost or reduced amount
referred to in the preceding paragraph; (y) all accrued and unpaid interest to
date on the amount so repaid or converted, and (z) any Funding Loss which any
Lender may incur as a result of such repayment or conversion. Each Lender will
notify Borrower through Agent of any event occurring after the date of this
Agreement which will entitle such Lender to compensation pursuant to this
Section as promptly as practicable after it obtains knowledge thereof and
determines to request such compensation, and (if so requested by Borrower
through Agent) will designate a different lending office of such Lender for the
applicable LIBOR Borrowing or will take such other action as Borrower may
reasonably request if such designation or action is consistent with the internal
policy of such Lender and legal and regulatory restrictions, will avoid
-20-
<PAGE>
the need for, or reduce the amount of, such compensation and will not, in the
sole opinion of such Lender, be materially disadvantageous to such Lender
(PROVIDED that such Lender shall have no obligation so to designate a
different lending office which is located in the United States of America).
iii) INADEQUACY OF PRICING AND RATE DETERMINATION. If, for any reason
with respect to any Interest Period, Agent (or, in the case of CLAUSE 3 below,
the applicable Lender) shall have determined (which determination shall create a
rebuttable presumption as to the accuracy thereof) that:
(1) Agent is unable through its customary general practices to
determine any applicable Eurodollar Rate, or
(2) by reason of circumstances affecting the applicable market,
generally, Agent is not being offered deposits in United
States dollars in such market, for the applicable Interest
Period and in an amount equal to the amount of any
applicable LIBOR Borrowing requested by Borrower.
then Agent shall give Borrower written notice thereof (accompanied by a
statement setting forth in reasonable detail the applicable Lender's basis
therefor) and thereupon, (A) any Rate Designation Notice previously given by
Borrower designating the applicable LIBOR Borrowing which has not commenced as
of the date of such notice from Agent shall be deemed for all purposes hereof to
be of no force and effect, as if never given, and (B) until Agent shall notify
Borrower that the circumstances giving rise to such notice from Agent no longer
exist, each Rate Designation Notice requesting the applicable Eurodollar Rate
shall be deemed a request for a Base Rate Borrowing, and any applicable LIBOR
Borrowing then outstanding shall be converted, without any notice to or from
Borrower, upon the termination of the Interest Period then in effect with
respect to it, to a Base Rate Borrowing.
iv) FUNDING LOSSES. Borrower shall indemnify each Lender against and
hold each Lender harmless from any Funding Loss. This indemnity shall, subject
to the provisions of SECTION 3.5 hereof, survive the payment of the Notes. A
certificate of such Lender (explaining in reasonable detail the amount and
calculation of the amount claimed) as to any additional amounts payable pursuant
to this paragraph submitted to Borrower shall create a rebuttable presumption as
to the accuracy thereof.
(d) FUNDING OFFICES; ADJUSTMENTS AUTOMATIC; CALCULATION YEAR. Any
Lender may, if it so elects, fulfill its obligation as to any LIBOR Borrowing by
causing a branch or affiliate of such Lender to make such Loan and may transfer
and carry such Loan at, to or for the account of any branch office or affiliate
of such Lender; PROVIDED, that in such event for the purposes of this Agreement
such Loan shall be deemed to have been made by such Lender and the obligation of
Borrower to repay such Loan shall nevertheless be to such Lender and shall be
deemed held by it for the account of such branch or affiliate. Without notice
to Borrower or any other Person, each rate required to be calculated or
determined under this Agreement shall automatically
-21-
<PAGE>
fluctuate upward and downward in accordance with the provisions of this
Agreement. Interest at the Prime Rate shall be computed on the basis of the
actual number of days elapsed in a year consisting of 365 or 366 days, as the
case may be. All other interest required to be calculated or determined
under this Agreement shall be computed on the basis of the actual number of
days elapsed in a year consisting of 360 days, unless the Ceiling Rate would
thereby be exceeded, in which event, to the extent necessary to avoid
exceeding the Ceiling Rate, the applicable interest shall be computed on the
basis of the actual number of days elapsed in the applicable calendar year in
which accrued.
(e) FUNDING SOURCES. Notwithstanding any provision of this Agreement to
the contrary, each Lender shall be entitled to fund and maintain its funding of
all or any part of the Loans in any manner it sees fit, it being understood,
however, that for the purposes of this Agreement all determinations hereunder
(other than determinations of Funding Losses, which are limited to actual
losses) shall be made as if each Lender had actually funded and maintained each
LIBOR Borrowing during each Interest Period through the purchase of deposits
having a maturity corresponding to such Interest Period and bearing an interest
rate equal to the Eurodollar Rate for such Interest Period.
3.4 CAPITAL ADEQUACY. If any Lender shall have determined that the
adoption after the Effective Date of any applicable law, rule, regulation or
treaty regarding capital adequacy, or any change therein after the Effective
Date, or any change in the interpretation or administration thereof after the
Effective Date by any Governmental Authority, central bank or comparable agency
charged with the interpretation or administration thereof, or compliance by any
Lender with any request or directive after the Effective Date regarding capital
adequacy (whether or not having the force of law) of any such Governmental
Authority, central bank or comparable agency has or would have the effect of
reducing the rate of return on such Lender's capital as a consequence of its
obligations hereunder, under the Notes or other Obligations held by it to a
level below that which such Lender could have achieved but for such adoption,
change or compliance by an amount deemed by such Lender to be material, then
from time to time, upon satisfaction of the conditions precedent set forth in
this Section, after demand by such Lender (with a copy to Agent) as provided
below, Borrower shall pay (subject to SECTION 11.7 hereof) to such Lender such
additional amount or amounts as will compensate such Lender for such reduction.
The certificate of any Lender setting forth such amount or amounts as shall be
necessary to compensate it and the basis thereof and reasons therefor shall be
delivered as soon as practicable to Borrower and shall create a rebuttable
presumption as to the accuracy thereof. Borrower shall pay the amount shown as
due on any such certificate within five (5) Business Days after the delivery of
such certificate. In preparing such certificate, a Lender may employ such
assumptions and allocations of costs and expenses as it shall in good faith deem
reasonable and may use any reasonable averaging and attribution method.
3.5 LIMITATION ON CHARGES; SUBSTITUTE LENDERS; NON-DISCRIMINATION.
Anything in SECTIONS 3.3 or 3.4 notwithstanding:
-22-
<PAGE>
(1) Borrower shall not be required to pay to any Lender
reimbursement with regard to any costs or expenses described in such
Sections, unless such Lender notifies Borrower of such costs or expenses
within 90 days after the date paid or incurred but in no event more than 90
days after the repayment of the Loans and the termination of the Revolving
Loan Commitments;
(2) none of the Lenders shall be permitted to pass through to
Borrower charges and costs under such Sections on a discriminatory basis
(i.e., which are not also passed through by such Lender to all other
customers of such Lender similarly situated where such customer is subject
to documents providing for such pass through); and
(3) if any Lender (including, without limitation, the Agent)
elects to pass through to Borrower any material charge or cost under such
Sections or elects to terminate the availability of LIBOR Borrowings for
any material period of time, Borrower may, within 60 days after the date of
such event and so long as no Default shall have occurred and be continuing,
elect to terminate such Lender as a party to this Agreement; PROVIDED that,
concurrently with such termination Borrower shall (i) if Agent and each of
the other Lenders shall consent, pay that Lender all principal, interest
and fees and other amounts owed to such Lender through such date of
termination or (ii) have arranged for another financial institution
approved by Agent (such approval not to be unreasonably withheld) as of
such date, to become a substitute Lender for all purposes under this
Agreement in the manner provided in SECTION 11.6; PROVIDED FURTHER that,
prior to substitution for any Lender, Borrower shall have given written
notice to Agent of such intention and the Lenders shall have the option,
but no obligation, for a period of 60 days after receipt of such notice, to
increase their Revolving Loan Commitments in order to replace the affected
Lender in lieu of such substitution.
4. PAYMENTS; PRO RATA TREATMENT; COMPUTATIONS, ETC.
4.1 PAYMENTS.
(a) Except to the extent otherwise provided herein, all payments of
principal, interest Obligations and other amounts to be made by Borrower
hereunder, under the Notes and under the other Loan Documents shall be made in
Dollars, in immediately available funds, to Agent at the Principal Office (or in
the case of a successor Agent, at the principal office of such successor Agent
in the United States), not later than 11:00 a.m., San Francisco, California time
on the date on which such payment shall become due (each such payment made after
such time on such due date to be deemed to have been made on the next succeeding
Business Day).
(b) Borrower shall, at the time of making each payment hereunder, under
any Note or under any other Loan Document, specify to Agent the Loans or other
amounts payable by Borrower hereunder or thereunder to which such payment is to
be applied. Each payment received by Agent hereunder, under any Note or under
any other Loan Document for the account of a Lender shall be paid promptly to
such Lender, in immediately available funds. If Agent fails
-23-
<PAGE>
to send to any Lender the applicable amount by the close of business on the
date any such payment is received by Agent if such payment is received prior
to 11:00 a.m., San Francisco, California time (or on the next succeeding
Business Day with respect to payments which are received after 11:00 a.m.,
San Francisco, California time), Agent shall pay to the applicable Lender
interest on such amount from such date at the Federal Funds Rate. Borrower,
the Lenders and Agent acknowledge and agree that this provision and each
other provision of this Agreement or any of the other Loan Documents relating
to the application of amounts in payment of the Obligations shall be subject
to the provisions of SECTION 4.2(d) regarding PRO RATA application of amounts
after an Event of Default shall have occurred and be continuing.
(c) If the due date of any payment hereunder or under any Note falls on
a day which is not a Business Day, the due date for such payments (except as
otherwise provided in SECTION 3.3 hereof) shall be extended to the next
succeeding Business Day and interest shall be payable for any principal so
extended for the period of such extension.
(d) All payments by the Borrower hereunder or under any other Loan
Document shall be made free and clear of and without deduction for or on
account of any present or future income, stamp, or other taxes, fees, duties,
withholding or other charges of any nature whatsoever imposed by any taxing
authority excluding in the case of each Lender taxes imposed on or measured
by its net income or franchise taxes imposed by the jurisdiction in which it
is organized or through which it acts for purposes of this Agreement (such
non-excluded items being hereinafter referred to as "TAXES"). If as a result
of any change in law (or the interpretation thereof) after the date that the
applicable Lender became a "Lender" under this Agreement any withholding or
deduction from any payment to be made to, or for the account of, a Lender by
the Borrower hereunder or under any other Loan Document is required in
respect of any Taxes pursuant to any applicable law, rule, or regulation,
then the Borrower will (i) pay to the relevant authority the full amount
required to be so withheld or deducted; (ii) to the extent available,
promptly forward to the Agent an official receipt or other documentation
reasonably satisfactory to the Agent evidencing such payment to such
authority; and (iii) pay to the Agent, for the account of each affected
Lender, such additional amount or amounts as are necessary to ensure that the
net amount actually received by such Lender will equal the full amount such
Lender would have received had no such withholding or deduction been
required. Each Lender shall determine such additional amount or amounts
payable to it (which determination shall create a rebuttable presumption as
to the accuracy thereof), and in such event, Agent shall furnish written
evidence to Borrower showing how Agent made such determination. If a Lender
becomes aware that any such withholding or deduction from any payment to be
made by the Borrower hereunder or under any other Loan Document is required,
then such Lender shall promptly notify the Agent and the Borrower thereof
stating the reasons therefor and the additional amount required to be paid
under this Section. Each Lender shall execute and deliver to the Agent and
Borrower such forms as it may be required to execute and deliver pursuant to
SECTION 11.13 hereof. To the extent that any such withholding or deduction
results from the failure of a Lender to provide a form required by SECTION
11.13 hereof (unless such failure is due to some prohibition under applicable
Legal Requirements), the Borrower shall have no obligation to pay the
additional amount required by CLAUSE (iii) above. Anything in this Section
notwithstanding, if any Lender
-24-
<PAGE>
elects to require payment by the Borrower of any material amount under this
Section, the Borrower may, within 60 days after the date of receiving notice
thereof and so long as no Default shall have occurred and be continuing, elect
to terminate such Lender as a party to this Agreement; PROVIDED that,
concurrently with such termination the Borrower shall (i) if the Agent and each
of the other Lenders shall consent, pay that Lender all principal, interest and
fees and other amounts owed to such Lender through such date of termination or
(ii) have arranged for another financial institution approved by the Agent (such
approval not to be unreasonably withheld) as of such date, to become a
substitute Lender for all purposes under this Agreement in the manner provided
in SECTION 11.6; PROVIDED FURTHER that, prior to substitution for any Lender,
the Borrower shall have given written notice to the Agent of such intention and
the Lenders shall have the option, but no obligation, for a period of 60 days
after receipt of such notice, to increase their Commitments in order to replace
the affected Lender in lieu of such substitution.
4.2 PRO RATA TREATMENT. Except to the extent otherwise provided herein:
(a) each borrowing from the Lenders under SECTION 2.1 hereof shall be made
ratably from the Revolving Loan Lenders in accordance with their respective
Revolving Loan Commitments; (b) each payment of revolving loan commitment fees
shall be made for the account of the Revolving Loan Lenders, and each
termination or reduction of the Revolving Loan Commitments of the Revolving Loan
Lenders under SECTION 2.2 hereof shall be applied, PRO RATA, according to the
Revolving Loan Lenders' respective Revolving Loan Commitments, and (c) each
payment by Borrower of principal of or interest on the Loans shall be made to
Agent for the account of the Lenders PRO RATA in accordance with the respective
unpaid principal amounts of such Loans held by the Lenders.
4.3 CERTAIN ACTIONS, NOTICES, ETC. Notices to Agent of any termination
or reduction of Revolving Loan Commitments and of borrowings and optional
prepayments of Loans shall be irrevocable and shall be effective only if
received by Agent not later than 9:00 a.m., San Francisco, California time on
the number of Business Days prior to the date of the relevant termination,
reduction, borrowing and/or prepayment specified below:
Number of Business Days
Prior notice
------------
Borrowing at the Base Rate same day
Repayment of Base Rate Borrowing same day
Borrowing at Eurodollar Rate 3 LIBOR Business Days
Repayment of LIBOR Borrowing
prior to last day of the applicable 1 LIBOR Business day
Interest Period
-25-
<PAGE>
Termination or Reduction of
Revolving Loan Commitments 2 days
Each such notice of termination or reduction shall specify the amount of the
applicable Revolving Loan Commitment to be terminated or reduced. Each such
notice of borrowing or prepayment shall specify the amount of the Loans to be
borrowed or prepaid and the date of borrowing or prepayment (which shall be a
Business Day). Agent shall promptly notify the affected Lenders of the contents
of each such notice. Any selection of a Eurodollar Rate with respect to a Loan
shall be subject to the advance notice requirements set forth in SECTION 3.3
hereof.
4.4 NON-RECEIPT OF FUNDS BY AGENT. Unless Agent shall have been
notified by a Lender or Borrower (the "PAYOR") prior to the day on which such
Lender is to make payment to Agent of the proceeds of a Loan to be made by it
hereunder or Borrower is to make a payment to Agent for the account of one or
more of the Lenders, as the case may be (such payment being herein called the
"REQUIRED PAYMENT"), which notice shall be effective upon receipt, that the
Payor does not intend to make the Required Payment to Agent, Agent may assume
that the Required Payment has been made and may, in reliance upon such
assumption (but shall not be required to), make the amount thereof available to
the intended recipient on such date and, if the Payor has not in fact made the
Required Payment to Agent, the recipient of such payment shall, on demand, pay
to Agent the amount made available by Agent, together with interest thereon in
respect of the period commencing on the date such amount was so made available
by Agent until the date Agent recovers such amount at a rate per annum equal to
the Federal Funds Rate for such period.
4.5 SHARING OF PAYMENTS, ETC. If a Lender shall obtain payment of any
principal of or interest on any Loan made by it under this Agreement or on any
other Obligation then due to such Lender hereunder, through the exercise of any
right of set-off (including, without limitation, any right of setoff or lien
granted under SECTION 9.2 hereof), banker's lien, counterclaim or similar right,
or otherwise, it shall promptly purchase from the other Lenders participations
in the Loans made or other Obligations held, by the other Lenders in such
amounts, and make such other adjustments from time to time as shall be equitable
to the end that all the Lenders shall share the benefit of such payment (net of
any expenses which may be incurred by such Lender in obtaining or preserving
such benefit) PRO RATA in accordance with the unpaid Obligations then due to
each of them. To such end all the Lenders shall make appropriate adjustments
among themselves (by the resale of participations sold or otherwise) if such
payment is rescinded or must otherwise be restored. Borrower agrees, to the
fullest extent it may effectively do so under applicable law, that any Lender so
purchasing a participation in the Loans made or other Obligations held, by other
Lenders may exercise all rights of set-off, bankers' lien, counterclaim or
similar rights with respect to such participation as fully as if such Lender
were a direct holder of Loans or other Obligations in the amount of such
participation. Nothing contained herein shall require any Lender to exercise
any such right or shall affect the right of any Lender to exercise, and retain
the benefits of exercising, any such right with respect to any other
indebtedness or obligation of Borrower.
-26-
<PAGE>
5. CONDITIONS PRECEDENT.
5.1 INITIAL LOANS. The obligation of each Lender to make its initial
Loans hereunder is subject to the following conditions precedent, each of which
shall have been fulfilled or waived to the satisfaction of Agent:
(a) AUTHORIZATION AND STATUS. Agent shall have received from the
appropriate Governmental Authorities certified copies of the Organizational
Documents (other than by-laws) of each Obligor, and evidence satisfactory to
Agent of all action taken by each Obligor authorizing the execution, delivery
and performance of the Loan Documents and all other documents related to this
Agreement to which it is a party (including, without limitation, a certificate
of the secretary of each such party which is a corporation setting forth the
resolutions of its Board of Directors authorizing the transactions contemplated
thereby and attaching a copy of its bylaws), together with such certificates as
may be appropriate to demonstrate the qualification and good standing of and
payment of taxes by each Obligor in the jurisdiction of its organization and in
each other jurisdiction where the failure in which to qualify would have a
Material Adverse Effect.
(b) INCUMBENCY. Each Obligor shall have delivered to Agent a
certificate in respect of the name and signature of each of the officers (i) who
is authorized to sign on its behalf the applicable Loan Documents related to any
Loan and (ii) who will, until replaced by another officer or officers duly
authorized for that purpose, act as its representative for the purposes of
signing documents and giving notices and other communications in connection with
any Loan. Agent and each Lender may conclusively rely on such certificates
until they receive notice in writing from the applicable Obligor to the
contrary.
(c) NOTES. Agent shall have received the appropriate Notes of Borrower
for each Lender, duly completed and executed.
(d) LOAN DOCUMENTS. Each Obligor shall have duly executed and delivered
the Loan Documents to which it is a party (in such number of copies as Agent
shall have requested). Each such Loan Document shall be in substantially the
form furnished to the Lenders prior to their execution of this Agreement,
together with such changes therein as Agent may approve.
(e) SECURITY MATTERS. All such action as Agent shall have requested to
perfect the Liens created pursuant to the Security Documents shall have been
taken, including, without limitation, where applicable, the filing and recording
of the Security Documents with the appropriate Governmental Authorities. Agent
shall also have received evidence satisfactory to it that the Liens created by
the Security Documents constitute first priority Liens, except for the
exceptions expressly provided for herein, including, without limitation,
delivery of all applicable stock certificates (with stock powers executed in
blank), Uniform Commercial Code search reports and executed releases of any
prior Liens (except as permitted by SECTION 8.2).
-27-
<PAGE>
(f) FEES AND EXPENSES. Borrower shall have paid to Agent all unpaid fees
in the amounts previously agreed upon in writing among Borrower and Agent; and
shall have in addition paid to Agent all amounts payable under SECTION 11.3
hereof, on or before the date of this Agreement, except for amounts which Agent,
in its sole discretion, agrees may be paid at a later date.
(g) INSURANCE. Borrower shall have delivered to Agent certificates of
insurance satisfactory to Agent evidencing the existence of all insurance
required to be maintained by each Obligor by this Agreement and the Security
Documents.
(h) OPINIONS OF COUNSEL. Agent shall have received such opinions of
counsel to Obligors as Agent shall reasonably request with respect to Obligors
and the Loan Documents.
(i) CONSENTS. Agent shall have received evidence satisfactory to Agent
that all material consents of each Governmental Authority and of each other
Person, if any, reasonably required in connection with (a) the Loans and (b) the
execution, delivery and performance of this Agreement and the other Loan
Documents have been satisfactorily obtained.
(j) PAYMENT OF CERTAIN OUTSTANDING INDEBTEDNESS. Agent shall have
received evidence satisfactory to Agent that all existing Borrowed Money
Indebtedness owing by any Obligors (other than Indebtedness permitted under
SECTION 8.1 hereof) shall have been paid in full (or will be paid in full out of
the initial advance hereunder) and that any credit availability under any
facility for Borrowed Money Indebtedness to which any Obligor are a party as the
borrower shall have been terminated.
(k) OTHER DOCUMENTS. Agent shall have received such other documents
consistent with the terms of this Agreement and relating to the transactions
contemplated hereby as Agent may reasonably request.
5.2 ALL LOANS. The obligation of each Lender to make any Loan to be
made by it hereunder is subject to (a) the accuracy, in all material respects,
on the date of such Loan of all representations and warranties of each Obligor
contained in this Agreement and the other Loan Documents (except for such
representations and warranties which expressly refer to a prior date in which
case they shall be true and correct as of such earlier date); PROVIDED, HOWEVER,
that for purposes of this Section, in each representation and warranty in
ARTICLE 6 hereof that makes reference to a Schedule, the representation under
this Section that such representation and warranty in ARTICLE 6 hereof is true
on and as of the date of making of such Loan shall take into account subsequent
amendments to any Schedule referred to therein and matters arising after the
date hereof which do not otherwise give rise to or constitute a Default
hereunder; (b) Agent shall have received the following, all of which shall be
duly executed and in Proper Form: (1) a Request for Extension of Credit as to
the Loan no later than 9:00 a.m., San Francisco, California time on the Business
Day on which such Request for Extension of Credit must be given under SECTION
4.3 hereof, and (2) such other documents as Agent may reasonably require;
(c) prior to the making of such Loan, there shall have occurred no event having
a Material Adverse Effect;
-28-
<PAGE>
(d) no Default or Event of Default shall have occurred and be continuing;
(e) the making of such Loan shall not be illegal or prohibited by any Legal
Requirement, and (f) Borrower shall have paid all fees and expenses of the
type described in SECTION 11.3 hereof and all other fees owed to Agent or any
Lender under the Loan Documents which are due and payable, in each case,
prior to or on the date of such Loan or such issuance (except for amounts
which Agent or the applicable Lender, as the case may be, in their sole
discretion, agree may be paid at a later date). The submission by the
Borrower of a Request for Extension of Credit shall be deemed to be a
representation and warranty that the conditions precedent to the applicable
Loan have been satisfied. Selection of a new interest rate at the expiration
of an Interest Period shall not constitute a new Loan hereunder.
6. REPRESENTATIONS AND WARRANTIES.
To induce the Lenders to enter into this Agreement and to make the Loans,
Borrower represents and warrants (such representations and warranties to survive
any investigation and the making of the Loans) to the Lenders and Agent as
follows:
6.1 ORGANIZATION. Each Obligor (a) is duly incorporated, validly
existing and in good standing under the laws of the jurisdiction of its
organization; (b) has all necessary power and authority to conduct its business
as presently conducted, and (c) is duly qualified to do business and in good
standing in the jurisdiction of its organization and in all jurisdictions in
which the failure to so qualify would reasonably be expected to have a Material
Adverse Effect.
6.2 FINANCIAL STATEMENTS. Borrower has furnished to Agent (i) audited
financial statements (including a balance sheet) as to Borrower which fairly
present in all material respects, in accordance with GAAP, the consolidated
financial condition and the results of operations of Borrower as at the end of
Borrower's fiscal year ending in 1996 and (ii) unaudited financial statements
(including a balance sheet) as to Borrower which fairly present in all material
respects, in accordance with GAAP (subject to year-end adjustments and the
absence of notes), the consolidated financial condition and the results of
operations of Borrower as at the end of the fiscal quarter ended June 30, 1997.
No events, conditions or circumstances have occurred from the date that the
financial statements were delivered to Agent through the Effective Date which
would cause said financial statements to be misleading in any material respect.
There are no material instruments or liabilities which should, in accordance
with GAAP, be reflected in such financial statements provided to Agent which are
not so reflected.
6.3 ENFORCEABLE OBLIGATIONS; AUTHORIZATION. The Loan Documents are
legal, valid and binding obligations of each applicable Obligor, enforceable in
accordance with their respective terms, except as may be limited by bankruptcy,
insolvency and other similar laws and judicial decisions affecting creditors'
rights generally and by general equitable principles. The execution, delivery
and performance of the Loan Documents (a) have all been duly authorized by all
necessary action; (b) are within the power and authority of each applicable
Obligor; (c) to the best of Borrower's knowledge, do not and will not contravene
or violate any Legal Requirement applicable to any applicable Obligor or the
Organizational Documents of any applicable Obligor,
-29-
<PAGE>
the contravention or violation of which would reasonably be expected to have
a Material Adverse Effect; (d) do not and will not result in the breach of,
or constitute a default under, any material agreement or instrument by which
any Obligor or any of its Property may be bound the contravention or
violation of which would reasonably be expected to have a Material Adverse
Effect, and (e) do not and will not result in the creation of any Lien upon
any material Property of any Obligor except for Permitted Liens. All
necessary permits, registrations and consents for such making and performance
have been obtained, except where the failure to obtain the same would not
have a Material Adverse Effect. Except as otherwise expressly stated in the
Security Documents, the Liens of the Security Documents will constitute valid
and perfected first and prior Liens on the Property described therein,
subject to no other Liens whatsoever except Permitted Liens covering
Collateral other than equity interests in the Subsidiaries of Borrower.
6.4 OTHER DEBT. After giving effect to the initial advance hereunder
(and the payment of certain existing Indebtedness of Obligors thereby), no
Obligor is in default in the payment of any other Indebtedness or under any
agreement, mortgage, deed of trust, security agreement or lease to which it is a
party and which would constitute an Event of Default under SECTION 9.1(b).
6.5 LITIGATION. There is no litigation or administrative proceeding, to
the knowledge of any executive officer of Borrower, pending or threatened
against, nor any outstanding judgment, order or decree against, Borrower or any
of its Subsidiaries before or by any Governmental Authority which does or would
reasonably be expected to have a Material Adverse Effect. No Obligor is in
default with respect to any judgment, order or decree of any Governmental
Authority where such default would have a Material Adverse Effect.
6.6 TITLE. Each Obligor has indefeasible title to all of its material
Property necessary in the ordinary course of its business, free and clear of all
Liens except Permitted Liens.
6.7 TAXES. Each Obligor has filed all federal and other material tax
returns required to have been filed and paid all federal taxes and all other
material taxes due and payable, except (i) those for which extensions have been
obtained and those which are being contested in good faith and (ii) taxes,
assessments, levies or other charges imposed by any Governmental Authority
(other than federal income taxes) with respect to which the failure to make
payments could not, by reason of the amount thereof or of remedies available to
such Governmental Authorities, reasonably be expected to have a Material Adverse
Effect.
6.8 REGULATIONS G, U AND X. None of the proceeds of any Loan will be
used for the purpose of purchasing or carrying directly or indirectly any margin
stock or for any other purpose which would constitute this transaction a
"purpose credit" within the meaning of Regulations G, U and X of the Board of
Governors of the Federal Reserve System, as any of them may be amended from time
to time.
6.9 SUBSIDIARIES. As of the Effective Date, Borrower has no
Subsidiaries other than those set forth on EXHIBIT F hereto.
-30-
<PAGE>
6.10 NO UNTRUE OR MISLEADING STATEMENTS. No representation or warranty
made by Borrower in any Loan Document or in any document, instrument or other
writing furnished to the Lenders by or on behalf of any Obligor in connection
with the transactions contemplated in any Loan Document contains any untrue
material statement of material fact or omits to state any such material act (of
which any executive officer of Borrower has knowledge) necessary to make the
representations, warranties and other statements contained herein or in such
other document, instrument or writing not misleading in any material respect on
the date when made or deemed made.
6.11 ERISA. With respect to each Plan, Borrower and each member of the
Controlled Group have fulfilled their obligations, including obligations under
the minimum funding standards of ERISA and the Code and are in compliance in all
material respects with the provisions of ERISA and the Code. No event has
occurred which could result in a liability of Borrower or any member of the
Controlled Group to the PBGC or a Plan (other than to make contributions in the
ordinary course) that would reasonably be expected to have a Material Adverse
Effect. There have not been any nor are there now existing any events or
conditions that would cause the Lien provided under Section 4068 of ERISA to
attach to any Property of Borrower or any member of the Controlled Group.
Unfunded Liabilities as of the date hereof do not exceed $500,000. No
"prohibited transaction" (for which there is not an exemption) has occurred with
respect to any Plan.
6.12 INVESTMENT COMPANY ACT. No Obligor is an investment company within
the meaning of the Investment Company Act of 1940, as amended, or, directly or
indirectly, controlled by or acting on behalf of any Person which is an
investment company, within the meaning of said Act.
6.13 PUBLIC UTILITY HOLDING COMPANY ACT. No Obligor is an "affiliate" or
a "subsidiary company" of a "public utility company," or a "holding company," or
an "affiliate" or a "subsidiary company" of a "holding company," as such terms
are defined in the Public Utility Holding Company Act of 1935, as amended.
6.14 SOLVENCY. None of Borrower, any other Obligor, or Borrower and its
Subsidiaries on a consolidated basis, is "insolvent," as such term is used and
defined in (i) the Bankruptcy Code and (ii) the fraudulent conveyance statutes
of the State of Texas or of any other applicable jurisdiction.
6.15 FISCAL YEAR. The fiscal year of each Obligor ends on December 31.
6.16 COMPLIANCE. To the best knowledge of any executive officer of
Borrower, Borrower and each of its Subsidiaries is in compliance with all Legal
Requirements applicable to it, except to the extent that the failure to comply
therewith would not reasonably be expected to have a Material Adverse Effect.
-31-
<PAGE>
6.17 ENVIRONMENTAL MATTERS. Each Obligor has, to the best knowledge of
Borrower's executive officers, obtained and maintained in effect all
Environmental Permits (or the applicable Person has initiated the necessary
steps to transfer the Environmental Permits into its name or obtain such
permits), the failure to obtain which would reasonably be expected to have a
Material Adverse Effect. Each Obligor and its Properties, business and
operations have been and are, to the best knowledge of Borrower's executive
officers, in compliance with all applicable Requirements of Environmental Law
and Environmental Permits, the failure to comply with which would reasonably be
expected to have a Material Adverse Effect. Each Obligor and its Properties,
business and operations are not, to the best knowledge of Borrower's executive
officers (after making reasonable inquiry of the personnel and records of their
respective Corporations), subject to any (a) Environmental Claims or (b)
Environmental Liabilities, in either case direct or contingent, arising from or
based upon any act, omission, event, condition or circumstance occurring or
existing on or prior to the date hereof which would reasonably be expected to
have a Material Adverse Effect. None of the officers of Borrower have received
nor is aware of any Obligor receiving any notice of any violation or alleged
violation of any Requirements of Environmental Law or Environmental Permit or
any Environmental Claim in connection with its Properties, liabilities,
condition (financial or otherwise), business or operations which would
reasonably be expected to have a Material Adverse Effect. Borrower does not
know of any event or condition with respect to currently enacted Requirements of
Environmental Laws presently scheduled to become effective in the future with
respect to any of the Properties of any Obligor which would reasonably be
expected to have a Material Adverse Effect, for which the applicable Person has
not made good faith provisions in its business plan and projections of financial
performance.
7. AFFIRMATIVE COVENANTS.
Borrower covenants and agrees with Agent and the Lenders that prior to the
termination of this Agreement it will do or cause to be done, and cause each of
its Subsidiaries to do or cause to be done, each and all of the following:
7.1 TAXES, EXISTENCE, REGULATIONS, PROPERTY, ETC. At all times (a) pay
when due all taxes and governmental charges of every kind upon it or against its
income, profits or Property, unless and only to the extent that the same shall
be contested diligently in good faith and adequate reserves in accordance with
GAAP have been established therefor and, in the case of Subsidiaries which are
not Obligors, the failure to pay would reasonably be expected to have a Material
Adverse Effect; (b) do all things necessary to preserve its existence,
qualifications, rights and franchises in all jurisdictions where such failure to
qualify would reasonably be expected to have a Material Adverse Effect;
(c) comply with all applicable Legal Requirements (including without limitation
Requirements of Environmental Law) in respect of the conduct of its business and
the ownership of its Property, the noncompliance with which would reasonably be
expected to have a Material Adverse Effect; and (d) cause its Property to be
protected, maintained and kept in good repair (ordinary wear and tear excepted)
and make all replacements and additions to such Property as may be reasonably
necessary to conduct its business properly and efficiently except where the
failure to do so would not reasonably be expected to have a Material Adverse
Effect.
-32-
<PAGE>
7.2 FINANCIAL STATEMENTS AND INFORMATION. Furnish to Agent ten (10)
copies of each of the following: (a) as soon as available and in any event
within 100 days after the end of each applicable fiscal year, beginning with the
fiscal year ending on December 31, 1997, Annual Financial Statements of
Borrower; (b) as soon as available and in any event within 60 days after the end
of each fiscal quarter, Quarterly Financial Statements of Borrower; (c)
concurrently with the financial statements provided for in SUBSECTIONS 7.2(a)
and (b) hereof, such schedules, computations and other information, in
reasonable detail, as may be reasonably required by Agent to demonstrate
compliance with the covenants set forth herein or reflecting any non-compliance
therewith as of the applicable date, all certified and signed by the president,
chief financial officer or treasurer of Borrower (or other authorized officer
approved by Agent) as true and correct in all material respects to the best
knowledge of such officer and, concurrently with the financial statements
provided for in SUBSECTIONS 7.2(a) and (b) hereof commencing with the Annual
Financial Statement prepared as of December 31, 1997, a compliance certificate
("COMPLIANCE CERTIFICATE") in the form of EXHIBIT E hereto, duly executed by
such authorized officer; (d) as soon as available and in any event within 90
days after the end of each applicable fiscal year, beginning with the fiscal
year ending on December 31, 1997, financial statements prepared on a statutory
basis for HCC, AIC and USSIC; (e) within fifteen (15) days of their becoming
publicly available, each financial statement, report, notice or definitive proxy
statements sent by Borrower or any of its Subsidiaries to shareholders generally
and each regular or periodic report and each registration statement or
prospectus filed by Borrower or any of its Subsidiaries with any securities
exchange or the Securities and Exchange Commission or any successor agency; (f)
within thirty (30) days after the end of each fiscal year, projections of the
consolidated financial statements of Borrower and its Subsidiaries for the
following fiscal year; (g) at the request of Agent or the Majority Lenders,
independent actuarial reserve adequacy reports for HCC, AIC and USSIC which
complies with all applicable Legal Requirements, and (h) such other financial
projections and other information relating to the condition (financial or
otherwise), operations or business of any Obligor as from time to time may be
reasonably requested by Agent (or any Lender through Agent). Each delivery of a
financial statement pursuant to this SECTION 7.2 shall constitute a restatement
of the representations contained in the last two sentences of SECTION 6.2 with
respect to the period of time from the date of such most recently delivered
financial statements.
7.3 FINANCIAL TESTS.
(a) Borrower will have and maintain (in each case, on a consolidated
basis for Borrower and its Subsidiaries):
(i) STOCKHOLDERS EQUITY - Stockholders' Equity at all times of
not less than $275,000,000.
(ii) DEBT TO CAPITALIZATION RATIO - a Debt to Capitalization
Ratio at the end of each fiscal quarter of not greater than 35%.
-33-
<PAGE>
(iii) CASH FLOW COVERAGE RATIO - a Cash Flow Coverage Ratio at the
end of each fiscal year of not less than 1.50 to 1.00.
(iv) COMBINED RATIO - a Combined Ratio at all times of not
greater than 105%.
(b) Borrower will cause HCC and AIC to maintain at all times a statutory
capital surplus (on a consolidated basis with all of their respective
Subsidiaries) of not less than $225,000,000 and $50,000,000, respectively.
7.4 INSPECTION. Permit Agent and each Lender upon five (5) Business
Days' prior notice (unless a Default or an Event of Default has occurred which
is continuing, in which case no prior notice is required) to inspect its
Property, to examine its files, books and records, except privileged
communication with legal counsel (both inside and outside) and classified
governmental material, and make and take away copies thereof, and to discuss its
affairs with its officers and accountants, all during normal business hours and
at such intervals and to such extent as Agent or such Lender may reasonably
desire. Unless an Event of Default has occurred which is continuing, Agent and
Lenders shall not exercise their rights hereunder more than once each calendar
year and Agent or the applicable Lender, as the case may be, shall pay its own
costs and expenses relating to the exercise of the rights under this Section.
7.5 FURTHER ASSURANCES. Promptly execute and deliver, at Borrower's
expense, any and all other and further instruments which may be reasonably
requested by Agent to cure any defect in the execution and delivery of any Loan
Document in order to effectuate the transactions expressly contemplated by the
Loan Documents, and in order to grant, preserve, protect and perfect the
validity and priority of the security interests created by the Security
Documents.
7.6 BOOKS AND RECORDS. Maintain accounting records which permit
financial statements to be prepared in accordance with GAAP.
7.7 INSURANCE. Borrower will (and will cause each of its Subsidiaries
to) maintain insurance with such insurers, on such of its Property, with
responsible companies in such amounts, with such deductibles and against such
risks as are usually carried by owners of similar businesses and properties in
the same general areas in which the applicable Person operates, and furnish
Agent satisfactory evidence thereof promptly upon request.
7.8 NOTICE OF CERTAIN MATTERS. Give Agent written notice of the
following within five Business Days after any executive officer of Borrower
shall become aware of the same:
(a) the issuance by any court or governmental agency or authority of any
injunction, order or other restraint prohibiting, or having the effect of
prohibiting, the performance of this Agreement, any other Loan Document, or the
making of the Loans or the initiation of any litigation, or any claim or
controversy which would reasonably be expected to result in the initiation of
any litigation, seeking any such injunction, order or other restraint;
-34-
<PAGE>
(b) the filing or commencement of any action, suit or proceeding,
whether at law or in equity or by or before any court or any Governmental
Authority involving claims in excess of $5,000,000 (exclusive of claims covered
by insurance and exclusive of claims made in the ordinary course of the
insurance business of such Person) or which would reasonably be expected to
result in a Default hereunder;
(c) any Event of Default or Default, specifying the nature and extent
thereof and the action (if any) which is proposed to be taken with respect
thereto;
(d) the incurrence of material burdensome restrictions under contracts
or applicable law which would reasonably be expected to have a Material Adverse
Effect and any other event (including strikes, labor disputes or loss of use of
material patents or trademarks) which could reasonably be expected to have a
Material Adverse Effect; and
Borrower will also notify Agent in writing at least 30 days prior to the date
that any Obligor changes its name or the location of its chief executive office
or principal place of business or the place where it keeps its books and
records.
7.9 ERISA INFORMATION AND COMPLIANCE. Furnish to Agent (i) within five
(5) days after receipt, a copy of any notice of complete or partial withdrawal
liability under Title IV of ERISA which would reasonably be expected to have a
Material Adverse Effect and any notice from the PBGC under Title IV of ERISA of
an intent to terminate or appoint a trustee to administer any Plan which would
reasonably be expected to have a Material Adverse Effect, (ii) if requested by
Agent, promptly after the filing thereof with the United States Secretary of
Labor or the PBGC or the Internal Revenue Service, copies of each annual and
other report with respect to each Plan or any trust created thereunder, (iii)
within five (5) days after becoming aware of the occurrence of any "reportable
event," as such term is defined in Section 4043 of ERISA which would reasonably
be expected to have a Material Adverse Effect, for which the disclosure
requirements of Regulation Section 4043 promulgated by the PBGC have not been
waived, or of any "prohibited transaction," as such term is defined in Section
4975 of the Code, in connection with any Plan or any trust created thereunder
which would reasonably be expected to have a Material Adverse Effect, a written
notice signed by the President or the principal financial officer of Borrower or
the applicable member of the Controlled Group specifying the nature thereof,
what action Borrower or the applicable member of the Controlled Group is taking
or proposes to take with respect thereto, and, when known, any action taken by
the PBGC, the Internal Revenue Service or the Department of Labor with respect
thereto, (iv) within five (5) days after the filing or receiving thereof by
Borrower or any member of the Controlled Group of any notice of the institution
of any proceedings or other actions which may result in the termination of any
Plan which would reasonably be expected to have a Material Adverse Effect, and
(v) each request for waiver of the funding standards or extension of the
amortization periods required by Sections 303 and 304 of ERISA or Section 412 of
the Code within five (5) days after the request is submitted by Borrower or any
member of the Controlled Group to the Secretary of the Treasury, the Department
of Labor or the Internal Revenue Service, as the case may be. To the extent
required under applicable statutory funding requirements, Borrower will fund, or
-35-
<PAGE>
will cause the applicable member of the Controlled Group to fund, all current
service pension liabilities as they are incurred under the provisions of all
Plans from time to time in effect, and comply with all applicable provisions of
ERISA, in each case, except to the extent that failure to do the same would not
reasonably be expected to have a Material Adverse Effect. Except to the extent
that failure to do the same would not reasonably be expected to have a Material
Adverse Effect, Borrower covenants that it shall and shall cause each member of
the Controlled Group to (1) make contributions to each Plan in accordance with
the time limits imposed by ERISA and in an amount sufficient to comply with the
contribution obligations under such Plan and the minimum funding standards
requirements of ERISA; (2) prepare and file in accordance with the time limits
imposed by ERISA all notices and reports required under the terms of ERISA
including but not limited to annual reports; and (3) pay in accordance with the
time limits imposed by ERISA all required PBGC premiums.
8. NEGATIVE COVENANTS.
Borrower covenants and agrees with Agent and the Lenders that prior to the
termination of this Agreement it will not, and will not suffer or permit any of
its Subsidiaries to, do any of the following without the prior written consent
of the Majority Lenders:
8.1 BORROWED MONEY INDEBTEDNESS. Create, incur, suffer or permit to
exist, or assume or guarantee, directly or indirectly, or become or remain
liable with respect to any Borrowed Money Indebtedness, whether direct,
indirect, absolute, contingent or otherwise, except the following:
(i) Indebtedness under this Agreement and the other Loan Documents and
Indebtedness secured by Liens permitted by SECTION 8.2 hereof;
(ii) the liabilities existing on the date of this Agreement and disclosed
in the financial statements delivered on or prior to the Effective
Date pursuant to SECTION 6.2 hereof and set forth on EXHIBIT G
hereto, and all renewals, extensions and replacements (but not
increases) of any of the foregoing;
(iii) the Interest Rate Risk Indebtedness;
(iv) current liabilities incurred in the ordinary course of business;
(v) purchase money Indebtedness not to exceed $15,000,000 in the
aggregate at any one time outstanding; and
(vi) other unsecured Indebtedness not to exceed $10,000,000 in the
aggregate at any one time outstanding.
8.2 LIENS. Create or suffer to exist any Lien upon any of its Property
now owned or hereafter acquired, or acquire any Property upon any conditional
sale or other title retention
-36-
<PAGE>
device or arrangement or any purchase money security agreement; or in any
manner directly or indirectly sell, assign, pledge or otherwise transfer any
of its Accounts or General Intangibles; PROVIDED, HOWEVER, that Borrower or
any of its Subsidiaries may create or suffer to exist the following:
(i) artisans' or mechanics' Liens arising in the ordinary course of
business, but only to the extent that payment thereof shall not at
the time be overdue by more than 30 days or, if overdue by more
than 30 days, the payment thereof is being diligently contested in
good faith and adequate reserves computed in accordance with GAAP
have been set aside therefor;
(ii) normal encumbrances and restrictions on, and defects in, title
including, without limitation, easements, rights-of-way,
restrictions and similar encumbrances, which do not secure Borrowed
Money Indebtedness and which would not be reasonably expected to
have, in the aggregate, a Material Adverse Effect;
(iii) Liens in favor of Agent or any Lender under the Loan Documents,
including, without limitation, Liens securing Interest Rate Risk
Indebtedness owed to one or more of the Lenders (but not to any
Person which is not, at the time the Interest Rate Risk
Indebtedness is incurred, a Lender);
(iv) Liens incurred or deposits made in the ordinary course of business
(1) in connection with workmen's compensation, unemployment
insurance, social security and other like laws, or (2) to secure
insurance in the ordinary course of business, the performance of
bids, tenders, contracts, leases, licenses, statutory obligations,
surety, appeal and performance bonds and other similar obligations
incurred in the ordinary course of business, not, in any of the
cases specified in this clause (2), incurred in connection with the
borrowing of money, the obtaining of advances or the payment of the
deferred purchase price of Property;
(v) attachments, judgments and other similar Liens arising in
connection with court proceedings, PROVIDED that the execution and
enforcement of such Liens are effectively stayed and the claims
secured thereby are being actively contested in good faith with
adequate reserves made therefor in accordance with GAAP;
(vi) Liens imposed by law, such as carriers', warehousemen's,
mechanics', materialmen's, landlord's, repairmen's, vendors' and
other similar liens, incurred in good faith in the ordinary course
of business and securing obligations which are not yet overdue by
more than 30 days or which are being contested in good faith by
appropriate proceedings if adequate reserves with respect thereto
are maintained in accordance with GAAP;
(vii) zoning restrictions, easements, licenses, reservations, provisions,
covenants, conditions, waivers, and restrictions on the use of
Property, and which do not in
-37-
<PAGE>
any case singly or in the aggregate materially impair the present
use or value of the Property subject to any such restriction or
materially interfere with the ordinary conduct of the business of
Borrower or any of its Subsidiaries to the extent that it would
cause a Material Adverse Effect;
(viii) Liens securing obligations in respect of capital leases covering
the property subject to the applicable capital lease provided that
such capital leases are permitted under the other provisions of
this Agreement;
(ix) existing Liens as of Effective Date as set forth on EXHIBIT H
hereto;
(x) Liens for taxes, fees, assessments or other governmental charges,
but only to the extent that payment thereof shall not at the time
be due or if due, the payment thereof is being diligently contested
in good faith and adequate reserves computed in accordance with
GAAP have been set aside therefor;
(xi) Liens securing purchase money Indebtedness permitted under SECTION
8.1 hereof and covering the Property so purchased;
(xii) Liens arising from precautionary Uniform Commercial Code financing
statement filings with respect to operating leases or consignment
arrangements otherwise permitted hereunder entered into by Borrower
or any of its Subsidiaries in the ordinary course of business;
(xiii) licenses, leases and subleases permitted under this Agreement and
granted to others that do not interfere in any material respect
with the business or operations of Borrower and its Subsidiaries
taken as a whole; and
(xiv) extensions, renewals and replacements of Liens referred to in
CLAUSES (i) through (xiii) above; PROVIDED that any such extension,
renewal or replacement Lien shall be limited to the Property or
assets covered by the Lien extended, renewed or replaced and that
the Borrowed Money Indebtedness secured by any such extension,
renewal or replacement Lien shall be in an amount not greater than
the amount of the Indebtedness secured by the Lien extended,
renewed or replaced.
8.3 CONTINGENT LIABILITIES. Directly or indirectly guarantee the
performance or payment of, or purchase or agree to purchase, or assume or
contingently agree to become or be secondarily liable in respect of, any
obligation or liability of any other Person (other than Subsidiaries) except for
(a) the endorsement of checks or other negotiable instruments in the ordinary
course of business; (b) obligations disclosed to Agent in the financial
statements delivered on or prior to the Effective Date pursuant to SECTION 6.2
hereof (but not increases of such obligations after the Effective Date); (c)
those liabilities permitted under SECTION 8.1 hereof and (d) other contingent
liabilities not relating to Borrowed Money Indebtedness arising in the ordinary
course of the insurance company business.
-38-
<PAGE>
8.4 MERGERS AND CONSOLIDATIONS. In any single transaction or series
of transactions, directly or indirectly: (a) liquidate or dissolve; (b) be a
party to any merger or consolidation unless and so long as (i) no Default or
Event of Default has occurred that is then continuing, (ii) immediately
thereafter and giving effect thereto, no event will occur and be continuing
which constitutes a Default, (iii) the applicable Obligor (or one of such
Obligors if such merger is between Obligors) subject to such merger is the
surviving Person and (iv) Agent is given at least 30 days' prior notice of
such merger or consolidation. The provisions of this Section are subject to
the restrictions set forth in SECTION 8.13 hereof. Notwithstanding of the
foregoing (a) any Subsidiary of Borrower may merge with Borrower or any
Obligor provided that Borrower or such Obligor is the surviving entity, or
with one or more Subsidiaries of Borrower provided that if any merger is
between a wholly-owned Subsidiary of Borrower and a Subsidiary of Borrower
which is not a wholly-owned Subsidiary, such wholly-owned Subsidiary of
Borrower shall be the surviving entity, (b) any Subsidiary of Borrower may
sell all or substantially all of its assets (upon voluntary liquidation or
otherwise) to Borrower or any other Obligor or, so long as such Subsidiary is
not an Obligor, to another wholly-owned Subsidiary of Borrower, (c) any
inactive Subsidiary of Borrower or a Subsidiary of Borrower which is not
material to the operations of Borrower and its Subsidiaries taken as a whole
may be liquidated or dissolved so long as the applicable Subsidiary is not an
Obligor, and (d) mergers, consolidations or dissolutions by any Subsidiary of
Borrower to change its state of incorporation or to change the form of entity
are not prohibited.
8.5 DISPOSITION OF ASSETS. Sell, convey or lease all or any part of
its assets, except as permitted by SECTION 8.4 hereof and except for (a)
sales of Inventory in the ordinary course of business, (b) transfers
resulting from casualty or condemnation of property, (c) intercompany sales
or transfers of goods, (d) any sale or other transfer of any property or
assets not otherwise permitted hereunder provided that the net proceeds of
all such sales and transfers shall not exceed $25,000,000 in the aggregate
during any fiscal year of Borrower, (e) licenses or sublicenses of
intellectual property and general intangibles and licenses, leases or
subleases of other Property in the ordinary course of business and which do
not materially interfere with the business or operation of any Obligor and
which does not otherwise have a Material Adverse Effect, (f) sales/leaseback
transactions (provided that Borrower and its Subsidiaries shall not, in the
aggregate, consummate more than three (3) sales/leasebacks with respect to
Property owned by Borrower or its Subsidiaries as of the Effective Date, and
(g) sales of any investment assets (including, without limitation, stocks,
bonds, cash equivalents, etc.) in the ordinary course of business.
8.6 REDEMPTION, DIVIDENDS AND DISTRIBUTIONS. At any time: (a)
redeem, retire or otherwise acquire, directly or indirectly, any equity
interest in Borrower other than stock repurchases not exceeding, in the
aggregate, $50,000,000 (on a cumulative basis from and after the Effective
Date) or (b) make any distributions of any Property or cash to the owner of
any of the equity interests in Borrower or any of its Subsidiaries other than
Permitted Dividends.
8.7 NATURE OF BUSINESS. Change the general nature of its business
from insurance, insurance services and related operations.
-39-
<PAGE>
8.8 TRANSACTIONS WITH RELATED PARTIES. Enter into any material
transaction or material agreement with any officer, director or holder of any
equity interest in Borrower or any of its Subsidiaries (or any Affiliate of
any such Person) unless the same is upon terms substantially similar to those
obtainable from wholly unrelated sources (to the best knowledge of the
executive officers of Borrower; PROVIDED that the foregoing shall not
prohibit Borrower or any Subsidiary from entering into transactions otherwise
permitted by any other provision of this Agreement or by and among Borrower
and its Subsidiaries. Notwithstanding the foregoing, Borrower and its
Subsidiaries shall be entitled to make the following payments and/or enter
into the following transactions: (i) the payment of reasonable and customary
fees and reimbursement arrangements with respect to the procurement of
services from any Subsidiary in the ordinary course of business; (ii) the
payment of reasonable and customary fees and reimbursement of expenses
payable to officers and directors of Borrower and its Subsidiaries; and (iii)
the payment of reasonable lease payments for the use of vehicles, office
space, equipment and other Property in which any officer or director of
Borrower or any Subsidiary has a direct or indirect ownership interest).
8.9 LOANS AND INVESTMENTS. Make any loan, advance, extension of
credit or capital contribution to, or make or have any Investment in, any
Person, or make any commitment to make any such extension of credit or
Investment, except to the extent such loans, advances, extensions of credit,
capital contributions or Investments are not prohibited by applicable Legal
Requirements.
8.10 ORGANIZATIONAL DOCUMENTS. Amend, modify, restate or supplement
any of its Organizational Documents if such action would reasonably be
expected to have a Material Adverse Effect, unless such action shall be
consented to in writing by Agent, which consent shall not be unreasonably
withheld.
8.11 UNFUNDED LIABILITIES. Incur any Unfunded Liabilities after the
Effective Date or allow any Unfunded Liabilities in excess of $2,000,000, in
the aggregate, to arise or exist.
8.12 CAPITAL EXPENDITURES. Permit Capital Expenditures of Borrower and
its Subsidiaries to exceed $30,000,000 in the aggregate for any period of 12
months.
8.13 ACQUISITIONS. Without the prior written consent of the Majority
Lenders, acquire any real Property or any material personal Property
(including any acquisition of equity interests in another Person other than
an Obligor) after the Effective Date from any Person other than an Obligor if
the aggregate consideration for a single transaction would exceed $50,000,000
or if the aggregate consideration for the applicable transaction plus the
aggregate consideration for all acquisitions of real Property or material
personal Property (including any acquisition of equity interests in another
Person other than an Obligor) previously consummated during the applicable
fiscal year from any Person other than an Obligor would exceed $100,000,000.
8.14 SUBORDINATED INDEBTEDNESS. Except as expressly permitted in
writing by the Majority Lenders, Borrower will not amend, modify or obtain or
grant a waiver of any provision
-40-
<PAGE>
of any document or instrument evidencing any Subordinated Indebtedness or
purchase, redeem, retire or otherwise acquire for value, deposit any monies
with any Person with respect to or make any payment or prepayment of the
principal of or any other amount owing in respect of, any Subordinated
Indebtedness (other than scheduled payments under payment terms approved by
Agent and the Majority Lenders in writing).
9. DEFAULTS.
9.1 EVENTS OF DEFAULT. If any one or more of the following events
(herein called "EVENTS OF DEFAULT") shall occur, then Agent may (and at the
direction of the Majority Lenders, shall) do any or all of the following: (1)
without notice to Borrower or any other Person, declare the Revolving Loan
Commitments terminated (whereupon the Revolving Loan Commitments shall be
terminated) and/or accelerate the Revolving Loan Termination Date to a date
as early as the date of termination of the Revolving Loan Commitments; (2)
declare the principal amount then outstanding of and the unpaid accrued
interest on the Loans and all fees and all other amounts payable hereunder,
under the Notes and under the other Loan Documents to be forthwith due and
payable, whereupon such amounts shall be and become immediately due and
payable, without notice (including, without limitation, notice of
acceleration and notice of intent to accelerate), presentment, demand,
protest or other formalities of any kind, all of which are hereby expressly
waived by Borrower; PROVIDED that in the case of the occurrence of an Event
of Default with respect to Borrower or any of its Subsidiaries referred to in
CLAUSE (f), (g) or (h) of this SECTION 9.1, the Revolving Loan Commitments
shall be automatically terminated and the principal amount then outstanding
of and unpaid accrued interest on the Loans and all fees and all other
amounts payable hereunder, under the Notes and under the other Loan Documents
shall be and become automatically and immediately due and payable, without
notice (including, without limitation, notice of acceleration and notice of
intent to accelerate), presentment, demand, protest or other formalities of
any kind, all of which are hereby expressly waived by Borrower, and (3)
exercise any or all other rights and remedies available to Agent or any of
the Lenders under the Loan Documents, at law or in equity:
(a) PAYMENTS - (i) any Obligor shall fail to make any payment or
required prepayment of any installment of principal on the Loans payable
under the Notes, this Agreement or the other Loan Documents when due or
(ii) any Obligor fails to make any payment or required prepayment of
interest with respect to the Loans or any other fee or amount under the
Notes, this Agreement or the other Loan Documents when due and such failure
to pay continues unremedied for a period of three Business Days; or
(b) OTHER OBLIGATIONS - Borrower or any of its Subsidiaries shall
default in the payment when due of any principal of or interest on any
Indebtedness having an outstanding principal amount of at least $2,500,000
(other than the Loans) and such default shall continue beyond any
applicable period of grace; or any event or condition shall occur which
results in the acceleration of the maturity of any Indebtedness having an
outstanding principal amount of at least $2,500,000 (other than the Loans)
or enables (or, with the giving of notice or lapse of time or both, would
enable) the holder of any
-41-
<PAGE>
such Indebtedness or any Person acting on such holder's behalf to
accelerate the maturity thereof and such event or condition shall not
be cured within any applicable period of grace; or
(c) REPRESENTATIONS AND WARRANTIES - any representation or
warranty made or deemed made by or on behalf of any Obligor in this
Agreement or any other Loan Document or in any certificate furnished or
made by any Obligor to Agent or the Lenders in connection herewith or
therewith shall prove to have been incorrect, false or misleading in any
material respect as of the date thereof or as of the date as of which the
facts therein set forth were stated or certified or deemed stated or
certified; or
(d) AFFIRMATIVE COVENANTS - (i) default shall be made in the due
observance or performance of any of the covenants or agreements contained
in SECTIONS 7.3 or 7.8(c) hereof or (ii) default is made in the due
observance or performance of any of the other covenants and agreements
contained in SECTION 7 hereof or any other affirmative covenant of any
Obligor contained in this Agreement or any other Loan Document and such
default continues unremedied for a period of 30 days after (x) notice
thereof is given by Agent to Borrower or (y) such default otherwise becomes
known to any executive officer of Borrower, whichever is earlier; or
(e) NEGATIVE COVENANTS - default is made in the due observance or
performance by Borrower of any of the other covenants or agreements
contained in SECTION 8 of this Agreement or of any other negative covenant
of any Obligor contained in this Agreement or any other Loan Document; or
(f) INVOLUNTARY BANKRUPTCY OR RECEIVERSHIP PROCEEDINGS - a
receiver, conservator, liquidator or trustee of Borrower or any of its
Subsidiaries or of any of its Property is appointed by the order or decree
of any court or agency or supervisory authority having jurisdiction, and
such decree or order remains in effect for more than 90 days; or Borrower
or any of its Subsidiaries is adjudicated bankrupt or insolvent; or any of
such Person's Property is sequestered by court order and such order remains
in effect for more than 90 days; or a petition is filed against Borrower or
any of its Subsidiaries under any state or federal bankruptcy,
reorganization, arrangement, insolvency, readjustment or debt, dissolution,
liquidation or receivership law or any jurisdiction, whether now or
hereafter in effect, and is not dismissed within 90 days after such filing;
or
(g) VOLUNTARY PETITIONS OR CONSENTS - Borrower or any of its
Subsidiaries commences a voluntary case or other proceeding or order
seeking liquidation, reorganization, arrangement, insolvency, readjustment
of debt, dissolution, liquidation or other relief with respect to itself or
its debts or other liabilities under any bankruptcy, insolvency or other
similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official of it or
any substantial part of its Property, or consents to any such relief or to
the appointment of or taking
-42-
<PAGE>
possession by any such official in an involuntary case or other
proceeding commenced against it, or fails generally to, or cannot, pay
its debts generally as they become due (taking into account applicable
grace periods) or takes any corporate action to authorize or effect any
of the foregoing; or
(h) ASSIGNMENTS FOR BENEFIT OF CREDITORS OR ADMISSIONS OF
INSOLVENCY - Borrower or any of its Subsidiaries makes an assignment for
the benefit of its creditors, or admits in writing its inability to pay its
debts generally as they become due, or consents to the appointment of a
receiver, trustee, or liquidator of such Person or of all or any
substantial part of its Property; or
(i) UNDISCHARGED JUDGMENTS - a final non-appealable judgment or
judgments for the payment of money exceeding, in the aggregate, $2,500,000
(exclusive of amounts covered by insurance and exclusive of judgments in
the ordinary course of the insurance business of such Person) is rendered
by any court or other governmental body against Borrower or any of its
Subsidiaries and such Person does not discharge the same or provide for its
discharge in accordance with its terms, or procure a stay of execution
thereof within 90 days from the date of entry thereof; or
(j) SECURITY DOCUMENTS - any Security Document for any reason
ceases to create a valid and perfected Lien of the first priority (subject
to the Permitted Liens), required thereby on any of the Collateral
purported to be covered thereby and securing that portion of the
Obligations which is therein designated as being secured, or any Obligor
(or any other Person who may have granted or purported to grant such Lien)
will so state in writing; or
(k) CONCEALMENT - Borrower or any of its Subsidiaries shall have
concealed, removed, or permitted to be concealed or removed, any part of
its Property, with intent to hinder, delay or defraud its creditors or any
of them, or shall have made any transfer of its Property to or for the
benefit of a creditor at a time when other creditors similarly situated
have not been paid; or
(l) OWNERSHIP OF CERTAIN SUBSIDIARIES - Borrower, Avemco, HCC and
AIC shall cease to own, in the aggregate, all of the issued and outstanding
equity interests in and to Avemco, HCC, AIC and USSIC; or
(m) BEST RATINGS - any of HCC, AIC or USSIC shall fail to maintain
an A.M. Best rating of at least "A"; or
(n) CHANGE OF CONTROL - there should occur any Change of Control.
9.2 RIGHT OF SETOFF. Upon the occurrence and during the continuance
of any Event of Default, each Lender (with the approval of the Majority
Lenders) is hereby authorized at any time and from time to time, without
notice to any Obligor (any such notice being expressly
-43-
<PAGE>
waived by Borrower and the other Obligors), to setoff and apply any and all
deposits (general or special, time or demand, provisional or final (but
excluding the funds held in accounts clearly designated as escrow or trust
accounts held by Borrower or any other Obligor for the benefit of Persons
which are not Affiliates of any Obligor, whether or not such setoff results
in any loss of interest or other penalty, and including without limitation
all certificates of deposit) at any time held, and any other funds or
Property at any time held, and other Indebtedness at any time owing by such
Lender to or for the credit or the account of Borrower or any other Obligor
against any and all of the Obligations irrespective of whether or not such
Lender or Agent will have made any demand under this Agreement, the Notes or
any other Loan Document. Should the right of any Lender to realize funds in
any manner set forth hereinabove be challenged and any application of such
funds be reversed, whether by court order or otherwise, the Lenders shall
make restitution or refund to Borrower pro rata in accordance with their
Revolving Loan Commitments. Each Lender agrees to promptly notify Borrower
and Agent after any such setoff and application, provided that the failure to
give such notice will not affect the validity of such setoff and application.
The rights of Agent and the Lenders under this Section are in addition to
other rights and remedies (including without limitation other rights of
setoff) which Agent or the Lenders may have. This Section is subject to the
terms and provisions of SECTIONS 4.5 and 11.7 hereof.
9.3 REMEDIES CUMULATIVE. No remedy, right or power conferred upon
Agent or any Lender is intended to be exclusive of any other remedy, right or
power given hereunder or now or hereafter existing at law, in equity, or
otherwise, and all such remedies, rights and powers shall be cumulative.
10. AGENT.
10.1 APPOINTMENT, POWERS AND IMMUNITIES. Each Lender hereby
irrevocably appoints and authorizes Agent to act as its agent hereunder and
under the other Loan Documents with such powers as are specifically delegated
to Agent by the terms hereof and thereof, together with such other powers as
are reasonably incidental thereto. Any Loan Documents executed in favor of
Agent shall be held by Agent for the ratable benefit of the Lenders. Agent
("Agent" as used in this SECTION 10 shall include reference to its Affiliates
and its own and its Affiliates' respective officers, shareholders, directors,
employees and agents) (a) shall not have any duties or responsibilities
except those expressly set forth in this Agreement and the other Loan
Documents, and shall not by reason of this Agreement or any other Loan
Document be a trustee or fiduciary for any Lender; (b) shall not be
responsible to any Lender for any recitals, statements, representations or
warranties contained in this Agreement or any other Loan Document, or in any
certificate or other document referred to or provided for in, or received by
any of them under, this Agreement or any other Loan Document, or for the
value, validity, effectiveness, genuineness, enforceability, execution,
filing, registration, collectibility, recording, perfection, existence or
sufficiency of this Agreement or any other Loan Document or any other
document referred to or provided for herein or therein or any Property
covered thereby or for any failure by any Obligor or any other Person to
perform any of its obligations hereunder or thereunder, and shall not have
any duty to inquire into or pass upon any of the foregoing matters; (c) shall
-44-
<PAGE>
not be required to initiate or conduct any litigation or collection
proceedings hereunder or under any other Loan Document except to the extent
requested by the Majority Lenders; (d) shall not be responsible for any
mistake of law or fact or any action taken or omitted to be taken by it
hereunder or under any other Loan Document or any other document or
instrument referred to or provided for herein or therein or in connection
herewith or therewith, including, without limitation, pursuant to its own
negligence, except for its own gross negligence or willful misconduct; (e)
shall not be bound by or obliged to recognize any agreement among or between
Borrower and any Lender to which Agent is not a party, regardless of whether
Agent has knowledge of the existence of any such agreement or the terms and
provisions thereof; (f) shall not be charged with notice or knowledge of any
fact or information not herein set out or provided to Agent in accordance
with the terms of this Agreement or any other Loan Document; (g) shall not be
responsible for any delay, error, omission or default of any mail, telegraph,
cable or wireless agency or operator, and (h) shall not be responsible for
the acts or edicts of any Governmental Authority. Agent may employ agents
and attorneys-in-fact and shall not be responsible for the negligence or
misconduct of any such agents or attorneys-in-fact selected by it with
reasonable care. In any foreclosure proceeding concerning any Collateral,
each holder of an Obligation if bidding for its own account or for its own
account and the accounts of other Lenders is prohibited from including in the
amount of its bid an amount to be applied as a credit against the Obligations
held by it or the Obligations held by the other Lenders; instead, such holder
must bid in cash only. However, in any such foreclosure proceeding, Agent
may (but shall not be obligated to) submit a bid for all Lenders (including
itself) in the form of a credit against the Obligations, and Agent or its
designee may (but shall not be obligated to) accept title to such collateral
for and on behalf of all Lenders.
10.2 RELIANCE. Agent shall be entitled to rely upon any certification,
notice or other communication (including any thereof by telephone, telex,
telegram or cable) believed by it to be genuine and correct and to have been
signed or sent by or on behalf of the proper Person or Persons, and upon
advice and statements of legal counsel (which may be counsel for Borrower),
independent accountants and other experts selected by Agent. Agent shall
not be required in any way to determine the identity or authority of any
Person delivering or executing the same. As to any matters not expressly
provided for by this Agreement or any other Loan Document, Agent shall in all
cases be fully protected in acting, or in refraining from acting, hereunder
and thereunder in accordance with instructions of the Majority Lenders, and
any action taken or failure to act pursuant thereto shall be binding on all
of the Lenders. Pursuant to instructions of the requisite Lenders, Agent
shall have the authority to execute releases of the Security Documents on
behalf of the Lenders without the joinder of any Lender. If any order, writ,
judgment or decree shall be made or entered by any court affecting the
rights, duties and obligations of Agent under this Agreement or any other
Loan Document, then and in any of such events Agent is authorized, in its
sole discretion, to rely upon and comply with such order, writ, judgment or
decree which it is advised by legal counsel of its own choosing is binding
upon it under the terms of this Agreement, the relevant Loan Document or
otherwise; and if Agent complies with any such order, writ, judgment or
decree, then it shall not be liable to any Lender or to any other Person by
reason of such compliance even though such order, writ, judgment or decree
may be subsequently reversed, modified, annulled, set aside or vacated.
-45-
<PAGE>
10.3 DEFAULTS. Agent shall not be deemed to have knowledge of the
occurrence of a Default (other than the non-payment of principal of or
interest on Loans) unless Agent has received notice from a Lender or Borrower
specifying such Default and stating that such notice is a "NOTICE OF
DEFAULT." In the event that Agent receives such a Notice of Default, Agent
shall give prompt notice thereof to the Lenders (and shall give each Lender
prompt notice of each such non-payment). Agent shall (subject to SECTION
10.7 hereof) take such action with respect to such Notice of Default as shall
be directed by the Majority Lenders and within its rights under the Loan
Documents and at law or in equity, PROVIDED that, unless and until Agent
shall have received such directions, Agent may (but shall not be obligated
to) take such action, or refrain from taking such action, permitted hereby
with respect to such Notice of Default as it shall deem advisable in the best
interests of the Lenders and within its rights under the Loan Documents, at
law or in equity.
10.4 MATERIAL WRITTEN NOTICES. In the event that Agent receives any
written notice of a material nature from the Borrower or any Obligor under
the Loan Documents, Agent shall promptly inform each of the Lenders thereof.
10.5 RIGHTS AS A LENDER. With respect to its Revolving Loan
Commitments and the Loans made, Wells Fargo in its capacity as a Lender
hereunder shall have the same rights and powers hereunder as any other Lender
and may exercise the same as though it were not acting in its agency
capacity, and the term "LENDER" or "LENDERS" shall, unless the context
otherwise indicates, include Agent in its individual capacity. Agent may
(without having to account therefor to any Lender) accept deposits from, lend
money to and generally engage in any kind of banking, trust, letter of
credit, agency or other business with Borrower (and any of its Affiliates) as
if it were not acting as Agent, and Agent may accept fees and other
consideration from Borrower (in addition to the fees heretofore agreed to
between Borrower and Agent) for services in connection with this Agreement or
otherwise without having to account for the same to the Lenders.
10.6 INDEMNIFICATION. The Lenders agree to indemnify Agent (to the
extent not reimbursed under SECTION 11.3 or SECTION 11.4 hereof, but without
limiting the obligations of Borrower under said SECTIONS 11.3 and 11.4),
ratably in accordance with the Lenders' respective Revolving Loan
Commitments, for any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind and nature whatsoever, REGARDLESS OF WHETHER CAUSED IN WHOLE OR IN PART
BY THE NEGLIGENCE OF ANY INDEMNIFIED PARTIES, which may be imposed on,
incurred by or asserted against Agent in any way relating to or arising out
of this Agreement or any other Loan Document or any other documents
contemplated by or referred to herein or therein or the transactions
contemplated hereby or thereby (including, without limitation, the costs and
expenses which Borrower is obligated to pay under SECTIONS 11.3 and 11.4
hereof, interest, penalties, attorneys' fees and amounts paid in settlement,
but excluding, unless a Default has occurred and is continuing, normal
administrative costs and expenses incident to the performance of its agency
duties hereunder) or the enforcement of any of the terms hereof or thereof or
of any such other documents; PROVIDED that no Lender shall be liable for any
of the foregoing to the extent they
-46-
<PAGE>
arise from the gross negligence or willful misconduct of the party to be
indemnified. The obligations of the Lenders under this SECTION 10.6 shall
survive the termination of this Agreement and the repayment of the
Obligations.
10.7 NON-RELIANCE ON AGENT AND OTHER LENDERS. Each Lender agrees that
it has received current financial information with respect to Borrower and
each other Obligor that it has, independently and without reliance on Agent
or any other Lender and based on such documents and information as it has
deemed appropriate, made its own credit analysis of Borrower and each other
Obligor and decision to enter into this Agreement and that it will,
independently and without reliance upon Agent or any other Lender, and based
on such documents and information as it shall deem appropriate at the time,
continue to make its own analysis and decisions in taking or not taking
action under this Agreement or any of the other Loan Documents. Agent shall
not be required to keep itself informed as to the performance or observance
by any Obligor of this Agreement or any of the other Loan Documents or any
other document referred to or provided for herein or therein or to inspect
the properties or books of any Obligor. Except for notices, reports and other
documents and information expressly required to be furnished to the Lenders
by Agent hereunder or under the other Loan Documents, Agent shall not have
any duty or responsibility to provide any Lender with any credit or other
information concerning the affairs, financial condition or business of any
Obligor (or any of their affiliates) which may come into the possession of
Agent.
10.8 FAILURE TO ACT. Except for action expressly required of Agent
hereunder or under the other Loan Documents, Agent shall in all cases be
fully justified in failing or refusing to act hereunder and thereunder unless
it shall receive further assurances to its satisfaction by the Lenders of
their indemnification obligations under SECTION 10.6 hereof against any and
all liability and expense which may be incurred by it by reason of taking or
continuing to take any such action.
10.9 RESIGNATION OR REMOVAL OF AGENT. Subject to the appointment and
acceptance of a successor Agent as provided below, Agent may resign at any
time by giving notice thereof to the Lenders and Borrower, and Agent may be
removed at any time with or without cause by the Majority Lenders; PROVIDED,
that Agent shall continue as Agent until such time as any successor shall
have accepted appointment as Agent hereunder. Upon any such resignation or
removal, (i) the Majority Lenders without the consent of Borrower shall have
the right to appoint a successor Agent so long as such successor Agent is
also a Lender at the time of such appointment and (ii) the Majority Lenders
shall have the right to appoint a successor Agent that is not a Lender at the
time of such appointment so long as Borrower consents to such appointment
(which consent shall not be unreasonably withheld). If no successor Agent
shall have been so appointed by the Majority Lenders and accepted such
appointment within 30 days after the retiring Agent's giving of notice of
resignation or the Majority Lenders' removal of the retiring Agent, then the
retiring Agent may, on behalf of the Lenders, appoint a successor Agent. Any
successor Agent shall be a bank which has an office in the United States and
a combined capital and surplus of at least $250,000,000. Upon the acceptance
of any appointment as Agent hereunder by a successor Agent, such successor
Agent shall thereupon succeed to and become vested with all the rights,
-47-
<PAGE>
powers, privileges and duties of the retiring Agent and the retiring Agent
shall be discharged from its duties and obligations hereunder and under any
other Loan Documents. Such successor Agent shall promptly specify by notice
to Borrower its Principal Office referred to in SECTION 3.1 and SECTION 4
hereof. After any retiring Agent's resignation or removal hereunder as
Agent, the provisions of this SECTION 10 shall continue in effect for its
benefit in respect of any actions taken or omitted to be taken by it while it
was acting as Agent.
10.10 NO PARTNERSHIP. Neither the execution and delivery of this
Agreement nor any of the other Loan Documents nor any interest the Lenders,
Agent or any of them may now or hereafter have in all or any part of the
Obligations shall create or be construed as creating a partnership, joint
venture or other joint enterprise between the Lenders or among the Lenders
and Agent. The relationship between the Lenders, on the one hand, and Agent,
on the other, is and shall be that of principals and agent only, and nothing
in this Agreement or any of the other Loan Documents shall be construed to
constitute Agent as trustee or other fiduciary for any Lender or to impose on
Agent any duty, responsibility or obligation other than those expressly
provided for herein and therein.
10.11 NO WAIVER. None of the provisions of this Section 10 shall be
construed as limiting or otherwise waiving any rights or remedies which
Borrower or any other Obligor may have against Agent or any Lender.
11. MISCELLANEOUS.
11.1 WAIVER. No waiver of any Default or Event of Default shall be a
waiver of any other Default or Event of Default. No failure on the part of
Agent, any Lender or Borrower or any other Obligor to exercise and no delay
in exercising, and no course of dealing with respect to, any right, power or
privilege under any Loan Document shall operate as a waiver thereof, nor
shall any single or partial exercise of any right, power or privilege
thereunder preclude any other or further exercise thereof or the exercise of
any other right, power or privilege. The remedies provided in the Loan
Documents are cumulative and not exclusive of any remedies provided by law or
in equity.
11.2 NOTICES. All notices and other communications provided for herein
(including, without limitation, any modifications of, or waivers or consents
under, this Agreement) shall be given or made by telex, telegraph, telecopy
(confirmed by mail), cable or other writing and telexed, telecopied,
telegraphed, cabled, mailed or delivered to the intended recipient at the
"Address for Notices" specified below its name on the signature pages hereof
(or provided for in an Assignment and Acceptance); or, as to any party
hereto, at such other address as shall be designated by such party in a
notice (given in accordance with this Section) (i) as to Borrower, to Agent,
(ii) as to Agent, to Borrower and to each Lender, and (iii) as to any Lender,
to Borrower and Agent. Except as otherwise provided in this Agreement, all
such notices or communications shall be deemed to have been duly given when
(i) transmitted by telex or telecopier or delivered to the telegraph or cable
office, (ii) personally delivered (iii) one Business Day after deposit with
an overnight mail or delivery service, postage prepaid or (iv) three
-48-
<PAGE>
Business Days' after deposit in a receptacle maintained by the United States
Postal Service, postage prepaid, registered or certified mail, return receipt
requested, in each case given or addressed as aforesaid.
11.3 EXPENSES, ETC. Whether or not any Loan is ever made, Borrower
shall pay or reimburse within 10 days after written demand (a) Agent for
paying the reasonable fees and expenses of outside legal counsel to Agent in
connection with the preparation, negotiation, execution and delivery of this
Agreement (including the exhibits and schedules hereto), the other Loan
Documents and the making of the Loans hereunder, and any modification,
supplement or waiver of any of the terms of this Agreement or any other Loan
Document; (b) Agent for any lien search fees; (c) Agent for reasonable
out-of-pocket expenses incurred by Agent in connection with the preparation,
documentation, administration and syndication of the Loans or any of the Loan
Documents (including, without limitation, the marketing, printing,
duplicating, mailing and similar expenses) of the Loans; (d) Agent for paying
all transfer, stamp, documentary or other similar taxes, assessments or
charges levied by any governmental or revenue authority in respect of this
Agreement or any other Loan Document or any other document referred to herein
or therein; (e) Agent for paying all costs, expenses, taxes, assessments and
other charges incurred in connection with any filing, registration, recording
or perfection of any security interest contemplated by this Agreement or any
document referred to herein and (f) following the occurrence and during the
continuation of an Event of Default, any Lender or Agent for paying all
amounts reasonably expended, advanced or incurred by such Lender or Agent to
satisfy any obligation of any Obligor under this Agreement or any other Loan
Document, to protect Collateral, to collect the Obligations or to enforce,
protect, preserve or defend the rights of the Lenders or Agent under this
Agreement or any other Loan Document, including, without limitation,
reasonable fees and expenses incurred in connection with such Lender's or
Agent's participation as a member of a creditor's committee in a case
commenced under the Bankruptcy Code or other similar law, fees and expenses
incurred in connection with lifting the automatic stay prescribed in Section
362 of the Bankruptcy Code and reasonable fees and expenses incurred in
connection with any action pursuant to Section 1129 of the Bankruptcy Code
and all other customary and reasonable out-of-pocket expenses incurred by
such Lender or Agent in connection with such matters, together with interest
thereon at the Base Rate on each such amount until the earlier of payment or
ten (10) days after written demand therefor, and if such amount has not been
paid within ten (10) days after written demand therefor, at the Past Due Rate
until the date of reimbursement to such Lender or Agent.
11.4 INDEMNIFICATION. Borrower shall indemnify each of Agent, the
Lenders, and each Affiliate thereof and their respective directors, officers,
employees and agents from, and hold each of them harmless against, any and
all losses, liabilities, claims or damages to which any of them may become
subject, REGARDLESS OF WHETHER CAUSED IN WHOLE OR IN PART BY THE NEGLIGENCE
OF ANY INDEMNIFIED PARTIES, insofar as such losses, liabilities, claims or
damages arise out of or result from any (i) actual or proposed use by
Borrower of the proceeds of any extension of credit by any Lender hereunder;
(ii) breach by any Obligor of this Agreement or any other Loan Document;
(iii) violation by any Obligor of any Legal Requirement; (iv) investigation,
litigation or other proceeding relating to any of the
-49-
<PAGE>
foregoing, and Borrower shall reimburse Agent, each Lender, and each
Affiliate thereof and their respective directors, officers, employees and
agents, within five (5) days after demand for any reasonable expenses
(including reasonable legal fees) incurred in connection with any such
investigation or proceeding, or (v) taxes (excluding income taxes, franchise
taxes or any similar taxes) payable or ruled payable by any Governmental
Authority in respect of the Obligations or any Loan Document, together with
interest and penalties, if any; PROVIDED that Borrower shall not be required
to indemnify any party seeking indemnification for any claims, damages,
losses, liabilities, costs or expenses to the extent, but only to the extent,
caused by (i) the willful misconduct or gross negligence of the party seeking
indemnification or (ii) disputes between or among any and all of Agent and
Lenders. Nothing in this Section is intended to limit the obligations of
Borrower under any other provision of this Agreement. Agent and each Lender,
respectively, shall indemnify Borrower and hold Borrower harmless from and
against the gross negligence or willful misconduct of Agent or such Lender,
as the case may be.
11.5 AMENDMENTS, ETC. No amendment or modification of this Agreement,
the Notes or any other Loan Document shall in any event be effective against
Borrower unless the same shall be agreed or consented to in writing by
Borrower. No amendment, modification or waiver of any provision of this
Agreement, the Notes or any other Loan Document, nor any consent to any
departure by Borrower therefrom, shall in any event be effective against the
Lenders unless the same shall be agreed or consented to in writing by the
Majority Lenders, and each such waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given; PROVIDED,
that no amendment, modification, waiver or consent shall, unless in writing
and signed by each Lender affected thereby, do any of the following: (a)
increase any Revolving Loan Commitment of any of the Lenders (or reinstate
any termination or reduction of the Revolving Loan Commitments) or subject
any of the Lenders to any additional obligations; (b) reduce the principal
of, or interest on, any Loan or fee hereunder; (c) postpone or extend the
Revolving Loan Maturity Date, the Revolving Loan Termination Date, the
Revolving Loan Availability Period or any scheduled date fixed for any
payment of principal of, or interest on, any Loan, fee or other sum to be
paid hereunder or waive any Event of Default described in SECTION 9.1(a)
hereof; (d) change the percentage of any of the Revolving Loan Commitments or
of the aggregate unpaid principal amount of any of the Loans, or the
percentage of Lenders, which shall be required for the Lenders or any of them
to take any action under this Agreement (including, without limitation, the
definition of "Majority Lenders"); (e) change any provision contained in
SECTIONS 3.4, 11.3 OR 11.4 hereof or this SECTION 11.5; (f) release
substantially all of the security for the Obligations or release Collateral
(exclusive of Collateral with respect to which Agent is obligated to provide
a release pursuant to this Agreement or any of the other Loan Documents or by
law) in any one (1) calendar year ascribed an aggregate value on the most
recent financial statements of Borrower delivered to Agent in excess of
$1,000,000, or (g) modify the provisions of SECTIONS 4.1(b) or 4.2 hereof
regarding PRO RATA application of amounts after an Event of Default shall
have occurred and be continuing. Notwithstanding anything in this SECTION
11.5 to the contrary, no amendment, modification, waiver or consent shall be
made with respect to SECTION 10 without the consent of Agent to the extent it
affects Agent, as Agent.
-50-
<PAGE>
11.6 SUCCESSORS AND ASSIGNS.
(a) This Agreement shall be binding upon and inure to the benefit of
Borrower, Agent and the Lenders and their respective successors and assigns;
PROVIDED, HOWEVER, that Borrower may not assign or transfer any of its rights
or obligations hereunder without the prior written consent of all of the
Lenders, and any such assignment or transfer without such consent shall be
null and void. Each Lender may sell participations to any Person in all or
part of any Loan, or all or part of its Notes or Revolving Loan Commitments,
in which event, without limiting the foregoing, the provisions of the Loan
Documents shall inure to the benefit of each purchaser of a participation;
PROVIDED, HOWEVER, the PRO RATA treatment of payments, as described in
SECTION 4.2 hereof, shall be determined as if such Lender had not sold such
participation. Any Lender that sells one or more participations to any
Person shall not be relieved by virtue of such participation from any of its
obligations to Borrower under this Agreement relating to the Loans. In the
event any Lender shall sell any participation, such Lender shall retain the
sole right and responsibility to enforce the obligations of Borrower relating
to the Loans, including, without limitation, the right to approve any
amendment, modification or waiver of any provision of this Agreement other
than amendments, modifications or waivers with respect to (i) any fees
payable hereunder to the Lenders, (ii) the amount of principal or the rate of
interest payable on, or the dates fixed for the scheduled repayment of
principal of, the Loans and (iii) the release of the Liens on all or
substantially all of the Collateral.
(b) Each Lender may assign to one or more Lenders or any other Person
all or a portion of its interests, rights and obligations under this
Agreement; PROVIDED, HOWEVER, that (i) the aggregate amount of the Revolving
Loan Commitments of the assigning Lender subject to each such assignment
shall in no event be less than $5,000,000; (ii) other than in the case of an
assignment to another Lender (that is, at the time of the assignment, a party
hereto) or to an Affiliate of such Lender or to a Federal Reserve Bank, Agent
and, so long as no Event of Default shall have occurred and be continuing,
Borrower must each give its prior written consent, which consents shall not
be unreasonably withheld, and (iii) the parties to each such assignment shall
execute and deliver to Agent, for its acceptance an Assignment and Acceptance
in the form of EXHIBIT D hereto (each an "ASSIGNMENT AND ACCEPTANCE") with
blanks appropriately completed, together with any Note or Notes subject to
such assignment and a processing and recording fee of $3,000 paid by the
assignee (for which Borrower will have no liability). Upon such execution,
delivery and acceptance, from and after the effective date specified in each
Assignment and Acceptance, (A) the assignee thereunder shall be a party
hereto and, to the extent provided in such Assignment and Acceptance, have
the rights and obligations of a Lender hereunder and (B) the Lender
thereunder shall, to the extent provided in such Assignment and Acceptance,
be released from its obligations under this Agreement (and, in the case of an
Assignment and Acceptance covering all or the remaining portion of an
assigning Lender's rights and obligations under this Agreement, such Lender
shall cease to be a party hereto except in respect of provisions of this
Agreement which survive payment of the Obligations and termination of the
Commitments). Notwithstanding anything contained in this Agreement to the
contrary, any Lender may at any time assign all or any portion of its rights
under this Agreement and the Notes
-51-
<PAGE>
issued to it as collateral to a Federal Reserve Bank; provided that no such
assignment shall release such Lender from any of its obligations hereunder.
(c) By executing and delivering an Assignment and Acceptance, the
Lender assignor thereunder and the assignee thereunder confirm to and agree
with each other and the other parties hereto as follows: (i) other than the
representation and warranty that it is the legal and beneficial owner of the
interest being assigned thereby free and clear of any adverse claim, such
Lender assignor makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or representations
made in or in connection with this Agreement or any of the other Loan
Documents or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of this Agreement or any of the other Loan Documents or
any other instrument or document furnished pursuant thereto; (ii) such Lender
assignor makes no representation or warranty and assumes no responsibility
with respect to the financial condition of Borrower or the performance or
observance by Borrower of any of its obligations under this Agreement or any
of the other Loan Documents or any other instrument or document furnished
pursuant hereto; (iii) such assignee confirms that it has received a copy of
this Agreement, together with copies of the financial statements referred to
in SECTION 6.2 hereof and such other documents and information as it has
deemed appropriate to make its own credit analysis and decision to enter into
such Assignment and Acceptance; (iv) such assignee will, independently and
without reliance upon Agent, such Lender assignor or any other Lender and
based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not taking
action under this Agreement and the other Loan Documents; (v) such assignee
appoints and authorizes Agent to take such action as agent on its behalf and
to exercise such powers under this Agreement and the other Loan Documents as
are delegated to Agent by the terms hereof, together with such powers as are
reasonably incidental thereto; and (vi) such assignee agrees that it will
perform in accordance with their terms all obligations that by the terms of
this Agreement and the other Loan Documents are required to be performed by
it as a Lender.
(d) The entries in the records of Agent as to each Assignment and
Acceptance delivered to it and the names and addresses of the Lenders and the
Revolving Loan Commitments of, and principal amount of the Loans owing to,
each Lender from time to time shall create a rebuttable presumption as to the
accuracy thereof and Borrower, Agent and the Lenders may treat each Person
the name of which is recorded in the books and records of Agent as a Lender
hereunder for all purposes of this Agreement and the other Loan Documents.
(e) Upon Agent's receipt of an Assignment and Acceptance executed by
an assigning Lender and the assignee thereunder, together with any Note or
Notes subject to such assignment and the written consent to such assignment
(to the extent consent is required), Agent shall, if such Assignment and
Acceptance has been completed with blanks appropriately filled, (i) accept
such Assignment and Acceptance, (ii) record the information contained therein
in its records and (iii) give prompt notice thereof to Borrower. Within
fifteen (15) Business Days after receipt of notice (and provided that
Borrower has consented to the applicable assignment to the extent Borrower's
consent is required with respect thereto), Borrower, at its own expense (but
without
-52-
<PAGE>
incurring any expense or cost incurred by Agent or any Lender), shall execute
and deliver to Agent in exchange for the surrendered Notes new Notes to the
order of such assignee in an amount equal to the Revolving Loan Commitments
assumed by it pursuant to such Assignment and Acceptance and, if the
assigning Lender has retained Revolving Loan Commitments hereunder, new Notes
to the order of the assigning Lender in an amount equal to the Revolving Loan
Commitment retained by it hereunder. Such new Notes shall be in an aggregate
principal amount equal to the aggregate principal amount of such surrendered
Notes, shall be dated the effective date of such Assignment and Acceptance
and shall otherwise be in substantially the form of the respective Note.
Thereafter, such surrendered Notes shall be marked renewed and substituted
and the originals thereof delivered to Borrower (with copies, certified by
Borrower as true, correct and complete, to be retained by Agent).
(f) Any Lender may, in connection with any assignment or participation
or proposed assignment or participation pursuant to this SECTION 11.6,
disclose to the assignee or participant or proposed assignee or participant,
any information relating to Borrower furnished to such Lender by or on behalf
of Borrower.
11.7 LIMITATION OF INTEREST. Borrower and the Lenders intend to
strictly comply with all applicable federal and Texas laws, including
applicable usury laws (or the usury laws of any jurisdiction whose usury laws
are deemed to apply to the Notes or any other Loan Documents despite the
intention and desire of the parties to apply the usury laws of the State of
Texas). Accordingly, the provisions of this SECTION 11.7 shall govern and
control over every other provision of this Agreement or any other Loan
Document which conflicts or is inconsistent with this Section, even if such
provision declares that it controls. As used in this Section, the term
"interest" includes the aggregate of all charges, fees, benefits or other
compensation which constitute interest under applicable law, PROVIDED that,
to the maximum extent permitted by applicable law, (a) any non-principal
payment shall be characterized as an expense or as compensation for something
other than the use, forbearance or detention of money and not as interest,
and (b) all interest at any time contracted for, reserved, charged or
received shall be amortized, prorated, allocated and spread, in equal parts
during the full term of the Obligations. In no event shall Borrower or any
other Person be obligated to pay, or any Lender have any right or privilege
to reserve, receive or retain, (a) any interest in excess of the maximum
amount of nonusurious interest permitted under the laws of the State of Texas
or the applicable laws (if any) of the United States or of any other
jurisdiction, or (b) total interest in excess of the amount which such Lender
could lawfully have contracted for, reserved, received, retained or charged
had the interest been calculated for the full term of the Obligations at the
Ceiling Rate. The daily interest rates to be used in calculating interest at
the Ceiling Rate shall be determined by dividing the applicable Ceiling Rate
per annum by the number of days in the calendar year for which such
calculation is being made. None of the terms and provisions contained in
this Agreement or in any other Loan Document (including, without limitation,
SECTION 9.1 hereof) which directly or indirectly relate to interest shall
ever be construed without reference to this SECTION 11.7, or be construed to
create a contract to pay for the use, forbearance or detention of money at an
interest rate in excess of the Ceiling Rate. If the term of any Obligation
is shortened by reason of acceleration of maturity as a result of any Default
or by any other cause, or by reason of any required or permitted prepayment,
and if for that (or any other) reason any Lender at any time,
-53-
<PAGE>
including but not limited to, the stated maturity, is owed or receives
(and/or has received) interest in excess of interest calculated at the
Ceiling Rate, then and in any such event all of any such excess interest
shall be canceled automatically as of the date of such acceleration,
prepayment or other event which produces the excess, and, if such excess
interest has been paid to such Lender, it shall be credited PRO TANTO against
the then-outstanding principal balance of Borrower's obligations to such
Lender, effective as of the date or dates when the event occurs which causes
it to be excess interest, until such excess is exhausted or all of such
principal has been fully paid and satisfied, whichever occurs first, and any
remaining balance of such excess shall be promptly refunded to its payor.
11.8 SURVIVAL. The obligations of Borrower under SECTIONS 3.4, 11.3
AND 11.4 hereof and all other obligations of Borrower in any other Loan
Document (to the extent stated therein as surviving) and the obligations of
the Lenders under SECTION 10.5 and 11.7 hereof, shall, notwithstanding
anything herein to the contrary, survive the repayment of the Loans and the
termination of the Revolving Loan Commitments.
11.9 CAPTIONS. Captions and section headings appearing herein are
included solely for convenience of reference and are not intended to affect
the interpretation of any provision of this Agreement.
11.10 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
agreement and any of the parties hereto may execute this Agreement by signing
any such counterpart.
11.11 GOVERNING LAW. THIS AGREEMENT AND (EXCEPT AS THEREIN PROVIDED)
THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE APPLICABLE LAWS OF THE STATE OF TEXAS AND THE UNITED STATES OF
AMERICA FROM TIME TO TIME IN EFFECT.
11.12 SEVERABILITY. Whenever possible, each provision of the Loan
Documents shall be interpreted in such manner as to be effective and valid
under applicable law. If any provision of any Loan Document shall be
invalid, illegal or unenforceable in any respect under any applicable law,
the validity, legality and enforceability of the remaining provisions of such
Loan Document shall not be affected or impaired thereby.
11.13 TAX FORMS. Each Lender which is organized under the laws of a
jurisdiction outside the United States shall, on the day of the initial
borrowing from each such Lender hereunder and from time to time thereafter if
requested by Borrower or Agent, provide Agent and Borrower with the forms
prescribed by the Internal Revenue Service of the United States certifying as
to such Lender's status for purposes of determining exemption from United
States withholding taxes with respect to all payments to be made to such
Lender hereunder or other documents satisfactory to such Lender, Borrower and
Agent indicating that all payments to be made to such Lender hereunder are
not subject to United States withholding tax or are subject to such tax at a
rate reduced by an applicable tax treaty. Unless Borrower and Agent shall
have
-54-
<PAGE>
received such forms or such documents indicating that payments hereunder are
not subject to United States withholding tax or are subject to such tax at a
rate reduced by an applicable tax treaty, Borrower or Agent shall withhold
taxes from such payments at the applicable statutory rate.
11.14 ARBITRATION.
(a) Upon the demand of any party, any Dispute shall be resolved by
binding arbitration (except as set forth in CLAUSE (e) below) in accordance
with the terms of this Agreement. A "DISPUTE" shall mean any action,
dispute, claim or controversy of any kind, whether in contract or tort,
statutory or common law, legal or equitable, now existing or hereafter
arising under or in connection with, or in any way pertaining to, any of the
Loan Documents, or any past, present or future extensions of credit and other
activities, transactions or obligations of any kind related directly or
indirectly to any of the Loan Documents, including without limitation, any of
the foregoing arising in connection with the exercise of any self-help,
ancillary or other remedies pursuant to any of the Loan Documents. Any party
may by summary proceedings bring an action in court to compel arbitration of
a Dispute. Any party who fails or refuses to submit to arbitration following
a lawful demand by any other party shall bear all costs and expenses incurred
by such other party in compelling arbitration of any Dispute.
(b) Arbitration proceedings shall be administered by the American
Arbitration Association ("AAA") or such other administrator as the parties
shall mutually agree upon in accordance with the AAA Commercial Arbitration
Rules. All Disputes submitted to arbitration shall be resolved in accordance
with the Federal Arbitration Act (Title 9 of the United States Code),
notwithstanding any conflicting choice of law provision in any of the Loan
Documents. The arbitration shall be conducted at a location in Texas
selected by the AAA or other administrator. If there is any inconsistency
between the terms hereof and any such rules, the terms and procedures set
forth herein shall control. All statutes of limitation applicable to any
Dispute shall apply to any arbitration proceeding. All discovery activities
shall be expressly limited to matters directly relevant to the Dispute being
arbitrated. Judgment upon any award rendered in an arbitration may be
entered in any court having jurisdiction; provided however, that nothing
contained herein shall be deemed to be a waiver by any party that is a bank
of the protections afforded to it under 12 U.S.C. Section 91 or any similar
applicable state law.
(c) No provision hereof shall limit the right of any party to exercise
self-help remedies such as setoff, foreclosure against or sale of any real or
personal property collateral or security, or to obtain provisional or
ancillary remedies, including without limitation injunctive relief,
sequestration, attachment, garnishment or the appointment of a receiver, from
a court of competent jurisdiction before, after or during the pendency of any
arbitration or other proceeding. The exercise of any such remedy shall not
waive the right of any party to compel arbitration hereunder.
(d) Arbitrators must be active members of the Texas State Bar with
expertise in the substantive laws applicable to the subject matter of the
Dispute. Arbitrators are empowered to resolve Disputes by summary rulings in
response to motions filed prior to the final arbitration
-55-
<PAGE>
hearing. Arbitrators (i) shall resolve all Disputes in accordance with the
substantive law of the state of Texas, (ii) may grant any remedy or relief
that a court of the state of Texas could order or grant within the scope
hereof and such ancillary relief as is necessary to make effective any award,
and (iii) shall have the power to award recovery of all costs and fees, to
impose sanctions and to take such other actions as they deem necessary to the
same extent a judge could pursuant to the Federal Rules of Civil Procedure,
the Texas Rules of Civil Procedure or other applicable law. Any Dispute in
which the amount in controversy is $5,000,000 or less shall be decided by a
single arbitrator who shall not render an award of greater than $5,000,000
(including damages, costs, fees and expenses). By submission to a single
arbitrator, each party expressly waives any right or claim to recover more
than $5,000,000. Any Dispute in which the amount in controversy exceeds
$5,000,000 shall be decided by majority vote of a panel of three arbitrators;
provided however, that all three arbitrators must actively participate in all
hearings and deliberations.
(e) Notwithstanding anything herein to the contrary, in any
arbitration in which the amount in controversy exceeds $25,000,000, the
arbitrators shall be required to make specific, written findings of fact and
conclusions of law. In such arbitrations (i) the arbitrators shall not have
the power to make any award which is not supported by substantial evidence or
which is based on legal error, (ii) an award shall not be binding upon the
parties unless the findings of fact are supported by substantial evidence and
the conclusions of law are not erroneous under the substantive law of the
state of Texas, and (iii) the parties shall have in addition to the grounds
referred to in the Federal Arbitration Act for vacating, modifying or
correcting an award the right to judicial review of (A) whether the findings
of fact rendered by the arbitrators are supported by substantial evidence,
and (B) whether the conclusions of law are erroneous under the substantive
law of the state of Texas. Judgment confirming an award in such a proceeding
may be entered only if a court determines the award is supported by
substantial evidence and not based on legal error under the substantive law
of the state of Texas.
(f) To the maximum extent practicable, the AAA, the arbitrators and
the parties shall take all action required to conclude any arbitration
proceeding within 180 days of the filing of the Dispute with the AAA. No
arbitrator or other party to an arbitration proceeding may disclose the
existence, content or results thereof, except for disclosures of information
by a party required in the ordinary course of its business, by applicable law
or regulation, or to the extent necessary to exercise any judicial review
rights set forth herein. If more than one agreement for arbitration by or
between the parties potentially applies to a Dispute, the arbitration
provision most directly related to the Loan Documents or the subject matter
of the Dispute shall control. This arbitration provision shall survive
termination, amendment or expiration of any of the Loan Documents or any
relationship between the parties.
11.15 CONFLICTS BETWEEN THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. In
the event of any conflict between the terms of this Agreement and the terms
of any of the other Loan Documents, the terms of this Agreement shall control.
11.16 DISCLOSURE TO OTHER PERSONS; CONFIDENTIALITY. Agent and each
Lender agree that it may deliver copies of any financial statements and other
documents or information delivered to it and disclose any other information
disclosed to it by or on behalf of Borrower or any
-56-
<PAGE>
Subsidiary of Borrower in connection with or pursuant to this Agreement and
the other Loan Documents only to:
(i) its and its affiliates' directors, officers, employees and
professional consultants;
(ii) any other Lender;
(iii) any Person to which such Lender offers to sell its Note or
any part thereof, provided that each such Person agrees in writing to
observe the confidentiality standards described in this Section;
(iv) any Person to which such Lender sells or offers to sell a
participation in all or any part of its Note, PROVIDED that each such
Person agrees in writing to observe the confidentiality standards described
in this Section;
(v) any federal or state regulatory authority having jurisdiction
over it;
(vi) any other Person to which such delivery or disclosure may be
legally required in response to any subpoena or other legal process or
investigative demand (in which event the Agent or the applicable Lender, as
the case may be, shall immediately notify Borrower), and
(vii) any other Person in connection with any litigation involving
any obligation, right or remedy of Agent or any Lender under the Loan
Documents.
Subject to the foregoing, Agent and each Lender hereby agrees to use its best
efforts to hold in confidence and not to disclose any Confidential
Information; PROVIDED, that such Person will be free, after notice to
Borrower, to correct any false or misleading information which may become
public concerning its relationship to Borrower. For the purpose of this
Section, the term "CONFIDENTIAL INFORMATION" shall mean information about
Borrower or any Subsidiary of Borrower furnished by Borrower or any such
Subsidiary, but does not include any information which (i) is publicly known,
or otherwise known to such holder, at the time of disclosure; (ii)
subsequently becomes publicly known, but not through any act or omission by
such holder, or (iii) otherwise becomes known to such holder other than
through disclosure by Borrower or any Subsidiary of Borrower from any Person
which is not subject to a confidentiality agreement with Borrower or the
applicable Subsidiary of Borrower.
-57-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the Effective Date.
HCC INSURANCE HOLDINGS, INC.,
a Delaware corporation
By:
-------------------------------------------
Frank J. Bramanti,
Executive Vice President
Address for Notices:
13403 Northwest Freeway
Houston, Texas 77040
Attention: President
Telecopy No.: (713) 462-2401
-58-
<PAGE>
WELLS FARGO BANK (TEXAS), NATIONAL
ASSOCIATION, as Agent and as a Lender
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
Address for Notices:
Revolving Loan Commitment: Wells Fargo Bank, N.A.
Commercial Bank Loan Center
$80,000,000 Agency Dept., 2840
201 3rd Street, 8th Floor
San Francisco, California 94103
Attention: Manager
Telecopy No.: (415) 512-9408
with a copy to:
1000 Louisiana, 3rd Floor
Houston, Texas 77002
Attention: Manager, Commercial Banking Group
Telecopy No.: (713) 250-7041
-59-
<PAGE>
NATIONSBANK OF TEXAS, N.A.,
as Documentation Agent and as a Lender
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
Address for Notices:
Revolving Loan Commitment: 901 Main Street
Dallas, Texas 75202
$40,000,000 Attention: Yun Chung
Telecopy No.: (214) 508-0944
with a copy to:
NationsBank of Texas, N.A.
700 Louisiana, 8th Floor
Houston, Texas 77002-2518
Attention: Mr. John O'Neill
Telecopy No.: (713) 247-6360
-60-
