<PAGE> 1
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
---------
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the period ended September 30, 1998
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 1-14094
MEADOWBROOK INSURANCE GROUP, INC.
(Exact name of registrant as specified in its charter)
Michigan 38-2626206
(State of Incorporation) (IRS Employer Identification No.)
26600 Telegraph Road, Southfield, Michigan 48034
(Address, zip code of principal executive offices)
(248) 358-1100
(Registrant's telephone number, including area code)
---------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
The aggregate number of shares of the Registrant's Common Stock, $.01 par value,
outstanding on November 10, 1998 was 8,724,916.
Total number of Pages: 17
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<PAGE> 2
TABLE OF CONTENTS
PAGE
----
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Condensed Consolidated Statements of Income 3-4
Consolidated Statements of Comprehensive Income 5
Condensed Consolidated Balance Sheet 6
Condensed Consolidated Statement of Cash Flows 7
Notes to Consolidated Financial Statements
and Management Representation 8
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9-15
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 16
SIGNATURES 17
2
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PART I - FINANCIAL INFORMATION
ITEM 1
FINANCIAL STATEMENTS
MEADOWBROOK INSURANCE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Revenues:
Net premium earned $ 63,798,186 $ 48,904,304
Net commissions and fees 23,738,702 18,211,486
Net investment income 7,016,588 6,040,876
------------ ------------
Total Revenues 94,553,476 73,156,666
Expenses:
Loss and loss adjustment expenses 79,978,085 54,204,463
Reinsurance recoveries (38,904,143) (26,672,414)
------------ ------------
Net loss and loss adjustment expenses 41,073,942 27,532,049
Other operating expenses 21,330,346 12,550,406
Salaries and employee benefits 26,666,362 19,814,568
Interest on notes payable 1,228,178 366,281
Amortization of intangible assets 728,172 326,469
------------ ------------
Total Expenses 91,027,000 60,589,773
Income before income taxes 3,526,476 12,566,893
Federal income taxes:
Current 45,992 1,505,312
Deferred (99,735) 1,415,187
------------ ------------
Total income taxes (53,743) 2,920,499
------------ ------------
Net income $ 3,580,219 $ 9,646,394
============ ============
Earnings per share:
Basic $ 0.41 $ 1.11
Diluted $ 0.39 $ 1.05
Weighted average number of common shares outstanding:
Basic 8,693,843 8,657,102
Diluted 9,065,665 9,153,515
</TABLE>
3
<PAGE> 4
MEADOWBROOK INSURANCE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE QUARTER ENDED SEPTEMBER 30,
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Revenues:
Net premium earned $ 23,785,029 $ 17,150,037
Net commissions and fees 7,459,454 7,165,417
Net investment income 2,532,096 2,063,833
------------ ------------
Total Revenues 33,776,579 26,379,287
Expenses:
Loss and loss adjustment expenses 34,138,610 19,092,358
Reinsurance recoveries (14,564,271) (10,692,945)
------------ ------------
Net loss and loss adjustment expenses 19,574,339 8,399,413
Other operating expenses 9,344,058 6,321,932
Salaries and employee benefits 10,021,549 7,216,872
Interest on notes payable 600,290 258,256
Amortization of intangible assets 361,254 145,149
------------ ------------
Total Expenses 39,901,490 22,341,622
Income before income taxes (6,124,911) 4,037,665
Federal income taxes:
Current (2,053,662) 529,585
Deferred (504,675) 330,051
------------ ------------
Total income taxes (2,558,337) 859,636
------------ ------------
Net income $ (3,566,574) $ 3,178,029
============ ============
Earnings per share:
Basic $ (0.41) $ 0.37
Diluted $ (0.39) $ 0.35
Weighted average number of common shares outstanding:
Basic 8,732,043 8,660,043
Diluted 9,049,201 9,175,575
</TABLE>
4
<PAGE> 5
MEADOWBROOK INSURANCE GROUP, INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(UNAUDITED)
<TABLE>
<CAPTION>
1998
-----------
<S> <C>
Net Income $ 3,580,219
Other comprehensive income, net of tax:
Unrealized gains on securities:
Unrealized holding gains arising during the period 1,349,551
Less: reclassification adjustment for gains included in net income (42,618)
-----------
Other comprehensive income 1,306,933
-----------
Comprehensive income $ 4,887,152
===========
1997
-----------
Net Income $ 9,646,394
Other comprehensive income, net of tax:
Unrealized gains on securities:
Unrealized holding gains arising during the period 2,387,756
Less: reclassification adjustment for gains included in net income (51,960)
-----------
Other comprehensive income 2,335,796
-----------
Comprehensive income $11,982,190
===========
</TABLE>
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE QUARTER ENDED SEPTEMBER 30,
(UNAUDITED)
<TABLE>
<CAPTION>
1998
-----------
<S> <C>
Net Income $(3,566,574)
Other comprehensive income, net of tax:
Unrealized gains on securities:
Unrealized holding gains arising during the period 1,563,799
Less: reclassification adjustment for losses included in net income 4,215
-----------
Other comprehensive income 1,568,014
-----------
Comprehensive income $(1,998,560)
===========
1997
-----------
Net Income $ 3,178,029
Other comprehensive income, net of tax:
Unrealized gains on securities:
Unrealized holding gains arising during the period 2,169,863
Less: reclassification adjustment for gains included in net income (31,604)
-----------
Other comprehensive income 2,138,259
-----------
Comprehensive income $ 5,316,288
===========
</TABLE>
5
<PAGE> 6
MEADOWBROOK INSURANCE GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
ASSETS
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
1998 1997
-------------- -------------
<S> <C> <C>
Investments:
Debt securities available for sale, at fair value
(cost of $149,613,203 and $137,613,515) $155,323,373 $141,465,353
Equity securities available for sale, at fair value
(cost of $5,570,177 and $4,951,545) 6,352,707 5,612,207
Cash and cash equivalents 46,922,502 20,214,994
------------ ------------
Total investments and cash and cash equivalents 208,598,582 167,292,554
Premiums and agent balances receivable 62,261,107 51,132,125
Reinsurance recoverable on:
Paid losses 11,839,881 9,887,997
Unpaid losses 54,607,849 38,192,571
Deferred policy acquisition costs 8,324,126 6,608,500
Prepaid reinsurance premiums 37,173,917 27,231,424
Intangible assets 20,766,195 9,636,559
Other assets 25,037,181 18,660,514
------------ ------------
Total assets $428,608,838 $328,642,244
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Reserve for losses and loss adjustment expenses $136,685,383 $ 98,978,937
Unearned premiums 77,209,724 59,168,204
Notes payable, bank 34,236,507 11,464,179
Other liabilities 60,626,874 43,584,518
Commitments and contingencies (Note 1) - -
------------ ------------
Total liabilities 308,758,488 213,195,838
------------ ------------
SHAREHOLDERS' EQUITY:
Common stock, $.01 stated value; authorized 20,000,000 shares;
8,729,916 and 8,660,164 shares issued and outstanding 87,299 86,602
Additional paid-in capital 73,362,479 72,650,671
Retained earnings 42,115,390 39,730,884
Accumulated other comprehensive income 4,285,182 2,978,249
------------ ------------
Total shareholders' equity 119,850,350 115,446,406
------------ ------------
Total liabilities and shareholders' equity $428,608,838 $328,642,244
============ ============
</TABLE>
6
<PAGE> 7
MEADOWBROOK INSURANCE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
------------ -------------
<S> <C> <C>
Net cash provided by (used in) operating activities $ 17,167,688 $(11,833,453)
------------ ------------
Cash flows from investing activities:
Purchase of debt securities available for sale (33,668,627) (12,297,046)
Purchase of equity securities available for sale (4,239,098) (3,832,224)
Proceeds from maturity of debt securities held to maturity - 4,611,894
Proceeds from sale of debt securities held to maturity - 1,690,955
Proceeds from sale of debt securities available for sale 21,883,175 12,201,662
Proceeds from sale of equity securities available for sale 3,614,626 460,691
Proceeds from the sale of fixed assets - 389,157
Capital expenditures (3,723,661) (1,937,852)
Purchase of subsidiaries (18,373,026) (12,351,543)
Net cash of acquired subsidiaries 23,018,998 10,853,614
------------ ------------
Net cash used in investing activities (11,487,613) (210,692)
------------ ------------
Cash flows from financing activities:
Proceeds from bank loan 22,772,328 14,349,507
Dividends paid on common stock (520,964) (483,341)
Retirement of common stock (1,227,412) (222,041)
Issuance of common stock 3,481 89,610
------------ ------------
Net cash provided by financing activities 21,027,433 13,733,735
Increase in cash and cash equivalents 26,707,508 1,689,590
Cash and cash equivalents, beginning of period 20,214,994 19,002,241
------------ ------------
Cash and cash equivalents, end of period $ 46,922,502 $ 20,691,831
============ ============
</TABLE>
7
<PAGE> 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1
- ------
On June 26, 1995, two shareholders and an officer of a former agent (the
"Primary Plaintiffs") of Star Insurance Company ("Star"), which is a subsidiary
of the Company, and a former spouse of one shareholder and an employee of the
former agent (the "Individual Plaintiffs") initiated legal proceedings against,
among others, Star and Meadowbrook. All of the plaintiffs requested injunctive
relief, compensatory damages, punitive and exemplary damages, and attorney's
fees in an unspecified amount. The Nevada Insurance Department revoked the
license of one of the Primary Plaintiffs and one of the Individual Plaintiffs
and denied further licensing of the other Primary Plaintiffs.
The Company is vigorously defending itself and has filed counterclaims against
all of the plaintiffs. On April 1, 1998, the court issued an order dismissing
all claims of the Primary Plaintiffs with prejudice. The court's order is
subject to appeal. The case will proceed on the claims of the Individual
Plaintiffs, as well as the counterclaims of Meadowbrook and Star against the
Primary Plaintiffs and Individual Plaintiffs.
While the Company believes that it has meritorious defenses and counterclaims in
this lawsuit, there can be no assurance that the Company's results of operations
and financial condition will not be materially adversely affected by this
lawsuit. The ultimate outcome of the lawsuit cannot be determined at this time,
and the Company is unable to estimate the range of possible loss, if any.
MANAGEMENT REPRESENTATION
In the opinion of management, the financial statements reflect all adjustments
of a normal recurring nature necessary for a fair presentation of the interim
periods. Preparation of financial statements under GAAP requires management to
make estimates. Actual results could differ from those estimates. Interim
results are not necessarily indicative of results expected for the entire year.
These financial statements should be read in conjunction with the Company's 1997
Form 10-K, as filed with the Securities and Exchange Commission.
Certain statements made by the Company in this document may constitute
forward-looking statements. Actual results could differ materially from those
projected in forward-looking statements. These forward-looking statements
involve risk and uncertainties including, but not limited to the following: the
frequency and severity of claims; uncertainties inherent in reserve estimates;
catastrophic events; a change in the demand for, pricing of, or supply of
reinsurance or insurance; increased competitive pressure; changing rates of
inflation: general economic conditions; and Year 2000 expense estimates.
8
<PAGE> 9
PART I - FINANCIAL INFORMATION
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE PERIODS ENDED SEPTEMBER 30, 1998 AND 1997
RESULTS OF OPERATIONS
ACQUISITION
On July 30, 1998, the Company acquired for $13.7 million in cash all of the
outstanding stock of Florida Preferred Administrators, Inc. ("Florida
Preferred"), a third party administrator, and Southeastern Holding Corporation,
the holding company of Ameritrust Insurance Corporation ("Ameritrust"), both of
which are located in Sarasota, Florida. This transaction was accounted for as a
purchase and the operating results of Florida Preferred and Ameritrust were
consolidated into the Company's financial statements beginning July 31st of this
quarter. Goodwill of $5.5 million was recorded as part of this transaction,
which is being amortized over a 20 year period on a straight-line basis.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
- -----------------------------------------------------
Net income for the nine months ended September 30, 1998 was $3.6 million, a
decrease of $6.1 million, or 62.9%, from $9.6 million for the same period in
1997. The decrease in net income reflects one-time charges made this quarter,
and increased expenses for investments made in personnel and technology for
future growth, offset partially by contributions made by our recent
acquisitions. Specifically, net earned premiums increased $14.9 million and
losses and loss adjustment expenses increased $13.5 million from 1997 due to
growth in existing business, a one-time charge for loss reserve strengthening,
partially offset by an aberration which increased losses during the prior year.
Commissions and fees have increased $5.5 million over the prior year from
acquisitions. Non-claims related expenses have increased a total of $16.9
million, as a result of additional expenses from growth in existing operations,
acquisitions, information technology initiatives, a one-time charge for
receivable write-offs, and an aberration which reduced expense during the prior
year.
REVENUE
Revenue for the nine months ended September 30, 1998 was $94.6 million, an
increase of $21.4 million, or 29.2%, from 1997's revenue of $73.2 million.
9
<PAGE> 10
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1998 1997
-------- --------
<S> <C> <C>
(In Thousands)
Risk management fees & commissions $ 23,739 $ 18,212
Net earned premiums 63,798 48,904
Net investment income 7,016 6,041
-------- --------
$ 94,553 $ 73,157
</TABLE>
Risk Management Fees and Commissions
The Company's risk management fees and commission income generated from its
managed program operations and retail agency operations consists of the
following:
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1998 1997
------- -------
<S> <C> <C>
(In Thousands)
Commissions $10,522 $ 6,213
Management fees 5,977 5,069
Claims fees 5,922 5,614
Loss control fees 734 905
Reinsurance placement 555 404
Miscellaneous fees & charges 29 7
------- -------
$23,739 $18,212
</TABLE>
Net fees and commission income increased by $5.5 million, or 30.4%, to $23.7
million for the nine month period ended September 30, 1998 from $18.2 million
for the same period in 1997. The entire $5.5 million increase is the result of
additional revenue generated from recent acquisitions made during 1997 and 1998,
primarily the Crest Financial acquisition made in July 1997 and the Villari
acquisition made last quarter.
Insurance Premiums
The Company's gross premiums written increased by $38.6 million, or 39.8%, to
$135.5 million for the nine months ended September 30, 1998 from $96.9 million
for the same period in 1997, primarily due to growth in existing programs and
new programs started in 1998. Existing business grew by $21.8 million, or 27.9%,
to $100.1 million. New business generated $18.3 million in additional premium in
1998. This growth was partially offset by a $1.7 million decrease in premium on
discontinued programs from prior years, which includes the surety bond program.
The growth in existing business reflects new programs added in the latter half
of 1997.
Net premiums written increased by $13.9 million, or 27.5%, to $64.6 million for
the nine months ended September 30, 1998 from $50.7 million for the same period
in 1997. Existing business grew by $10.5 million and new business generated $4.0
million in additional premium. These increases were partially offset by $1.2
million in decreased premium as the result of discontinued programs. The greater
increase of gross over net
10
<PAGE> 11
written premium reflects the addition of new programs in which the Company
retains limited or no risk.
Net premiums earned increased by $14.9 million, or 30.5%, to $63.8 million for
the nine months ended September 30, 1998 from $48.9 million for the same period
in 1997. Existing business grew by $12.6 million, reflecting expansion of core
programs, the acquisition of Crest in 1997, and new programs added in the prior
year. New business in 1998 generated $3.3 million in additional premium, which
includes the recent acquisition of Ameritrust. These increases were partially
offset by $1.5 million in decreased premium as the result of discontinued
programs.
Net Investment Income
Net investment income increased by $976,000 or 16.2%, to $7.0 million for the
nine months ended September 30, 1998 from $6.0 million for the same period in
the prior year. The pre-tax weighted average yield on invested assets was 5.3%
for the first nine months of both 1998 and 1997. The Company's investment
philosophy is one of maximizing after-tax earnings through significant
investments in tax-exempt bonds. Accordingly, the weighted average yield on
invested assets on an after-tax basis was 4.6% in 1998, which is slightly below
the prior year of 4.8%. This is a temporary result of the addition of the
Ameritrust investment portfolio, which consisted primarily of cash and
short-term investments. The Company expects this rate to return to a normalized
rate next quarter when Ameritrust's investment portfolio mix becomes fully
integrated.
EXPENSES
Total expenses increased $30.4 million, or 50.2%, to $91.0 million at September
30, 1998 from $60.6 million for the same period in 1997.
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1998 1997
-------- --------
<S> <C> <C>
(In Thousands)
Losses and LAE incurred $ 41,074 $ 27,532
Salaries and employee benefits 26,666 19,815
Other operating expenses 21,331 12,551
Interest on notes payable 1,228 366
Amortization of intangible assets 728 326
-------- --------
$ 91,027 $ 60,590
</TABLE>
Losses and Loss Adjustment Expenses (LAE) Incurred
Losses and LAE incurred increased by $13.5 million, or 49.2%, to $41.1 million
for the nine months ended September 30, 1998 from $27.5 million for the same
period in 1997. The growth in losses and LAE is partially offset by an
aberration in 1997 which increased losses for the run off of claims on the
surety bond book of business. Adjusting for the aberration, losses and LAE
incurred increased by 66.8%, rather than 49.2%, from the
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<PAGE> 12
prior year. This increase is mainly the result of growth in the Company's earned
premium (including the additional premium from the Ameritrust and Crest
acquisitions) and a $7.3 million one-time charge for reserve strengthening. This
reserve strengthening was required for three reasons: less favorable than
anticipated development of prior year reserves, unexpected increases in recent
claims activity on several large programs, and an increase in projected ultimate
loss ratios for the most recent accident years due to pricing pressure
experienced in the market. Analyzing losses and LAE in relation to earned
premium utilizing GAAP insurance ratios adjusted in 1998 for the one-time charge
and in 1997 for the aberration, the loss and LAE ratio for the first nine months
of 1998 is 56.7%, compared to 54.6% for the same period in 1997. This remaining
increase of approximately two points is the result of increased claim frequency
in several programs which involved risk sharing partners.
Salaries and Employee Benefits
Salaries and employee benefits increased by $6.9 million, or 34.6%, to $26.7
million for the nine months ended September 30, 1998 compared to $19.8 million
for the same period in 1997. Over half, or $3.7 million, of the increase is the
result of additional staff from acquisitions. The remainder of the increase is
due to new associates added to handle the growth in our core business and new
business, as well as information technology initiatives.
Other Operating Expenses
Other operating expenses increased by $8.8 million, or 70.0%, to $21.3 million
for the nine months ended September 30, 1998 from $12.5 million for the same
period in 1997. Analyzing expenses utilizing GAAP insurance ratios, the expense
ratio increased to 31.9% in 1998, from 28.6% in 1997. A major part of this
increase is due to an aberration in expenses during 1997. Underwriting expenses
were reduced by a $2.9 million ceding commission from the Connecticut Surety
arrangement in the prior year. Adjusting for this aberration, expenses increased
by $5.9 million, or 38.3%, from the prior year as a result of acquisitions,
additional expenses from growth in existing operations, information technology
consulting fees, and a one-time $1.3 million write-off of uncollectible agency
loans and premium receivables related to discontinued programs.
Interest Expense
Interest expense of $1.2 million and $366,000 was recorded for the nine months
ended September 30, 1998 and 1997, respectively. This interest related to use of
the Company's line of credit. The increase in interest expense is a result of a
higher average daily loan balance during the first three quarters of 1998 as
compared to 1997. The outstanding balance on this line was $34.2 million at
September 30, 1998, as compared to $14.3 million at September 30, 1997. The
Company drew on this line of credit during 1998 primarily to meet acquisition
cash flow needs.
12
<PAGE> 13
Amortization Expense
Amortization expense of $728,000 and $326,000 was recorded for the nine months
ended September 30, 1998 and 1997, respectively. This increase in amortization
is related to the goodwill recorded on the various acquisitions made since July
1997.
Federal Income Taxes
The provision for income taxes was a $54,000 benefit for the nine months ended
September 30, 1998, and a $2.9 million provision for the same period in 1997,
representing effective tax rates of (1.5)% and 23.2%, respectively.
Historically, the Company's tax rates are significantly lower than the 34%
corporate rate due to its heavily tax-exempt investment portfolio. The decrease
in the effective tax rate in 1998 is the result of the higher level of
tax-exempt interest in proportion to total underwriting results experienced this
year.
For the Three Months Ended September 30, 1998 and 1997
- ------------------------------------------------------
The quarter ended September 30, 1998 had a net loss of $3.6 million, an decrease
of $6.7 million, from net income of $3.2 million for the same period in 1997.
Revenue increased by $7.4 million, expenses increased by $17.6 million, and
taxes decreased by $3.4 million. The net loss experienced this quarter was
primarily due to one-time charges for reserve strengthening and receivable
write-offs.
Revenue
Revenue increased by $7.4 million, or 28.0%, to $33.8 million for the quarter
ended September 30, 1998 compared to $26.4 million for the same period in 1997.
Earned premium increased by $6.6 million, or 38.7%, while net fees and
commissions increased by $294,000, or 4.1%, and net investment income increased
by $468,000, or 22.7%, for the quarter. Earned premium from existing business
grew by $3.5 million and new business in 1998 generated $2.8 million in
additional earned premium. The increase in net fees and commissions for the
quarter is the result of additional fee revenue from acquisitions, offset
partially by an anomaly in producer commissions during third quarter of 1997.
Investment income has grown as a result of increases in cash and invested
assets, due to increased operating cash flow and additional cash and investments
from acquisitions.
Expenses
Expenses increased by $17.6 million, or 78.6%, to $39.9 million for the quarter
ended September 30, 1998 compared to $22.3 million for the same period in 1997.
Net losses and LAE incurred increased by $11.2 million, salaries and employee
benefits increased by $2.8 million, and all other operating expenses increased
by $3.6 million. Losses and LAE have increased as a result of growth in earned
premium, the $7.3 million one-time charge for reserve strengthening (explained
previously in the year-to-date section), and increased claim frequency in
several programs which involved risk sharing partners. Salaries and
13
<PAGE> 14
employee benefits have increased primarily due to the additional employees from
acquisitions, and in part due to new associates added to handle the growth in
our core business and new business, as well as information technology
initiatives. All other operating expenses, including interest and amortization,
are up from 1997 as a result of additional expenses from acquisitions, growth in
existing operations, information technology consulting fees, and a one-time $1.3
million write-off of uncollectible agency loans and premium receivables related
to discontinued programs.
Federal Income Taxes
The provision for income taxes was a $2.6 million benefit for the quarter ended
September 30, 1998, and a $860,000 provision for the same period in 1997,
representing effective tax rates of (41.8)% and 21.3%, respectively.
Historically, the Company's tax rates are significantly lower than the 34%
corporate rate due to its heavily tax-exempt investment portfolio. The decrease
in the effective tax rate in 1998 is the result of the higher level of
tax-exempt interest in proportion to total underwriting results experienced this
quarter.
LIQUIDITY AND CAPITAL RESOURCES
The principal sources of funds for the Company are insurance premiums,
investment income, proceeds from the maturity and sale of invested assets, risk
management fees and agency commissions. Funds are primarily used for the payment
of claims, commissions, salaries and employee benefits, and other operating
expenses. In addition, the Company has a high volume of intercompany
transactions due to the payment of management fees by the insurance subsidiaries
to the risk management subsidiaries. Such fees are subject to regulatory
approval by state insurance departments.
Cash flow provided by operations for the nine months ended September 30, 1998
was $17.2 million as compared to $11.8 million used in operations for the same
period in 1997. Cash flow has significantly improved from the prior year since
1997 reflects negative cash flow from the Connecticut Surety transaction,
combined with the run off of bonds and other discontinued programs. At September
30, 1998, the Company held $46.9 million in cash and cash equivalents.
The Company has one unsecured line of credit totaling $50.0 million, of which
$34.2 million was outstanding at September 30, 1998, $11.5 million was
outstanding at December 31, 1997 and $14.3 million at September 30, 1997. The
line expires on January 1, 2000. The Company drew on this line of credit during
1998 primarily to meet acquisition cash flow needs.
14
<PAGE> 15
IMPACT OF YEAR 2000
The Company is modifying or replacing all hardware and software that is not Year
2000 compliant. The Company is utilizing both internal and external resources to
program or replace and test the hardware and software for Year 2000
modifications. The Company is currently 70% Year 2000 compliant and anticipates
that all critical systems will be completed by mid 1999. The Company estimates
that between hardware, software, and internal/external personnel costs it will
spend an immaterial amount on the Year 2000 initiative.
15
<PAGE> 16
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8K
- ---------------------------------------
(A) The following documents are filed as part of this Report:
Exhibit
No. Description
- ------- -----------
10.11 Revolving Credit Agreement between Meadowbrook Insurance
Group, Inc. and Comerica Bank dated as of July 24, 1998
11 Statement re computation of per share earnings
27 Financial Data Schedule
(B) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant during the quarter ended
September 30, 1998.
16
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Meadowbrook Insurance Group, Inc.
By: /s/ Joseph C. Henry
----------------------------------
Office of the President and
Acting Chief Financial Officer
Dated: November 12, 1998
17
<PAGE> 18
Exhibit Index
-------------
Exhibit
No. Description
------- -----------
10.11 Revolving Credit Agreement between Meadowbrook Insurance
Group, Inc. and Comerica Bank dated as of July 24, 1998
11 Statement re computation of per share earnings
27 Financial Data Schedule
<PAGE> 1
================================================================================
MEADOWBROOK INSURANCE GROUP, INC.
REVOLVING CREDIT AGREEMENT
DATED AS OF JULY 24, 1998
COMERICA BANK, AS AGENT
================================================================================
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TABLE OF CONTENTS
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1. DEFINITIONS ..........................................................................................1
2. REVOLVING CREDIT .....................................................................................16
2.1 Revolving Credit Commitment ..............................................................16
2.2 Accrual of Interest and Maturity .........................................................16
2.3 Requests for Advances and Requests for Refundings and Conversions
of Revolving Credit Advances..............................................................17
2.4 Disbursement of Revolving Credit Advances ................................................18
2.5 Prime-based Advance in Absence of Election or Upon Default ...............................19
2.6 Revolving Credit Facility Fee ............................................................20
2.7 Reduction of Indebtedness; Revolving Credit Aggregate Commitment .........................20
2.8 Optional Reduction or Termination of Revolving Credit Aggregate
Commitment................................................................................20
2.9 Extension of Revolving Credit Maturity Date ..............................................21
3. LETTERS OF CREDIT ....................................................................................21
3.1 Letters of Credit ........................................................................21
3.2 Conditions to Issuance ...................................................................22
3.3 Notice ...................................................................................23
3.4 Letter of Credit Fees ....................................................................23
3.5 Other Letter of Credit Fees ..............................................................24
3.6 Draws and Demands for Payment Under Letters of Credit . ..................................24
3.7 Obligations Irrevocable ..................................................................26
3.8 Risk Under Letters of Credit .............................................................27
3.9 Indemnification ..........................................................................28
3.10 Right of Reimbursement ...................................................................28
4. MARGIN ADJUSTMENTS; INTEREST PAYMENTS ................................................................29
4.1 Margin Adjustments .......................................................................29
4.2 Prime-based Interest Payments ............................................................30
4.3 Eurocurrency-based Interest Payments .....................................................30
4.4 Interest Payments on Conversions .........................................................30
4.5 Interest on Default ......................................................................30
4.6 Prepayment of Revolving Credit Advances ..................................................31
5. CONDITIONS ...........................................................................................31
5.1 Execution of Notes and this Agreement ....................................................31
5.2 Corporate Authority ......................................................................31
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5.3 Collateral Documents and Guaranties ......................................................32
5.4 Compliance with Certain Documents and Agreements .........................................32
5.5 Opinion of Counsel .......................................................................32
5.6 Company's Certificate ....................................................................32
5.7 Payment of Fees ..........................................................................33
5.8 Existing Credit Facilities ...............................................................33
5.9 Other Documents and Instruments ..........................................................33
5.10 Continuing Conditions ....................................................................33
6. REPRESENTATIONS AND WARRANTIES .......................................................................34
6.1 Corporate Authority ......................................................................34
6.2 Due Authorization - Company ..............................................................34
6.3 Due Authorization - Guarantors ...........................................................34
6.4 Liens ....................................................................................34
6.5 Taxes ....................................................................................34
6.6 No Defaults ..............................................................................35
6.7 Enforceability of Agreement and Loan Documents -- Company ................................35
6.8 Enforceability of Loan Documents -- Guarantors ...........................................35
6.9 Compliance with Laws .....................................................................35
6.10 Non-contravention--Company ...............................................................36
6.11 Non-contravention--Guarantors ............................................................36
6.12 No Litigation ............................................................................36
6.13 Consents, Approvals and Filings, Etc .....................................................36
6.14 Agreements Affecting Financial Condition .................................................37
6.15 No Investment Company or Margin Stock ....................................................37
6.16 ERISA ....................................................................................37
6.17 Conditions Affecting Business or Properties ..............................................37
6.18 Environmental and Safety Matters .........................................................37
6.19 Subsidiaries .............................................................................38
6.20 Accuracy of Information ..................................................................38
7. AFFIRMATIVE COVENANTS ...............................................................................38
7.1 Financial Statements .....................................................................38
7.2 Certificates; Other Information ..........................................................39
7.3 Payment of Obligations ...................................................................40
7.4 Conduct of Business and Maintenance of Existence .........................................40
7.5 Maintenance of Property; Insurance .......................................................40
7.6 Inspection of Property; Books and Records, Discussions ...................................40
7.7 Notices ................................................................................41
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7.8 Hazardous Material Laws...................................................................41
7.9 Maintain Base Net Worth ..................................................................42
7.10 Fixed Charge Coverage Ratio ..............................................................42
7.11 Senior Funded Debt to Adjusted EBITDA Ratio ..............................................42
7.12 Senior Funded Debt to Total Capitalization Ratio .........................................42
7.13 Net Premium and Gross Premium Ratio ......................................................42
7.14 Taxes ....................................................................................42
7.15 Governmental and Other Approvals .........................................................42
7.16 Compliance with ERISA ....................................................................42
7.17 ERISA Notices ............................................................................43
7.18 Use of Proceeds ..........................................................................43
7.19 Future Subsidiaries . ....................................................................43
8. NEGATIVE COVENANTS ...................................................................................43
8.1 Limitation on Debt .......................................................................44
8.2 Limitation on Liens ......................................................................45
8.3 Limitation on Guarantee Obligations ......................................................45
8.4 Acquisitions .............................................................................45
8.5 Limitation on Mergers, or Sale of Assets .................................................46
8.6 Restricted Payments ......................................................................46
8.7 Limitation on Investments, Loans and Advances ............................................46
8.8 Transactions with Affiliates .............................................................47
8.9 Limitation on Negative Pledge Clauses ....................................................47
8.10 Prepayment of Debts ......................................................................47
8.11 Subordinated Debt ........................................................................47
8.12 Reinsurance Contracts ....................................................................47
8.13 Investment Portfolio .....................................................................47
8.14 NAIC Ratio Tests .........................................................................47
8.15 Intangible Assets ........................................................................47
9. DEFAULTS .............................................................................................48
9.1 Events of Default ........................................................................48
9.2 Exercise of Remedies .....................................................................50
9.3 Rights Cumulative ........................................................................50
9.4 Waiver by Company of Certain Laws ........................................................50
9.5 Waiver of Defaults .......................................................................50
9.6 Set Off ..................................................................................51
10. PAYMENTS, RECOVERIES AND COLLECTIONS .................................................................51
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10.1 Payment Procedure .........................................................................51
10.2 Application of Proceeds of Collateral .....................................................53
10.3 Pro-rata Recovery .........................................................................53
11. CHANGES IN LAW OR CIRCUMSTANCES; INCREASED COSTS .....................................................53
11.1 Reimbursement of Prepayment Costs .........................................................53
11.2 Agent's Eurocurrency Lending Office .......................................................54
11.3 Circumstances Affecting Eurocurrency-based Rate Availability ..............................54
11.4 Laws Affecting Eurocurrency-based Advance Availability ....................................54
11.5 Increased Cost of Eurocurrency-based Advances .............................................55
11.6 Indemnity .................................................................................56
11.7 Other Increased Costs .....................................................................56
11.8 Substitution of Banks .....................................................................57
12. AGENT ................................................................................................57
12.1 Appointment of Agent ......................................................................57
12.2 Deposit Account with Agent ................................................................58
12.3 Scope of Agent's Duties ...................................................................58
12.4 Successor Agent ...........................................................................58
12.5 Agent in its Individual Capacity ..........................................................59
12.6 Credit Decisions ..........................................................................59
12.7 Agent's Fees ..............................................................................59
12.8 Authority of Agent to Enforce Notes and This Agreement ....................................60
12.9 Indemnification ...........................................................................60
12.10 Knowledge of Default ......................................................................60
12.11 Agent's Authorization; Action by Banks ....................................................61
12.12 Enforcement Actions by the Agent ..........................................................61
13. MISCELLANEOUS ........................................................................................61
13.1 Accounting Principles .....................................................................61
13.2 Consent to Jurisdiction ...................................................................61
13.3 Law of Michigan ...........................................................................62
13.4 Interest ..................................................................................62
13.5 Closing Costs and Other Costs; Indemnification ............................................62
13.6 Notices ...................................................................................63
13.7 Further Action ............................................................................64
13.8 Successors and Assigns; Participations; Assignments .......................................64
13.9 Indulgence ................................................................................67
13.10 Counterparts...............................................................................67
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13.11 Amendment and Waiver .......................................................................67
13.12 Confidentiality ............................................................................68
13.13 Withholding Taxes ..........................................................................68
13.14 Taxes and Fees .............................................................................68
13.15 WAIVER OF JURY TRIAL .......................................................................68
13.16 Complete Agreement; Conflicts ..............................................................69
13.17 Severability ...............................................................................69
13.18 Table of Contents and Headings .............................................................69
13.19 Construction of Certain Provisions .........................................................69
13.20 Independence of Covenants ..................................................................69
13.21 Reliance on and Survival of Various Provisions .............................................69
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TABLE OF CONTENTS
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(Continued)
SCHEDULES
Schedule 1.1 Pricing Matrix
Schedule 1.2 Percentages
Schedule 5.2 List of Jurisdictions in which Company and/
or Subsidiaries do business
Schedule 6.9 Compliance with Laws
Schedule 6.12 Litigation
Schedule 6.16 Employee Pension Benefit Plans
Schedule 6.18 Environmental Matters
Schedule 6.19 Subsidiaries
Schedule 6.20 Contingent Obligations
Schedule 8.1 Existing Debt
Schedule 8.2 Permitted Liens
Schedule 13.6 Notices
EXHIBITS
A FORM OF REQUEST FOR REVOLVING CREDIT ADVANCE
B FORM OF REVOLVING CREDIT NOTE
C FORM OF NOTICE OF LETTERS OF CREDIT
D FORM OF COVENANT COMPLIANCE REPORT
E FORM OF ASSIGNMENT AGREEMENT
F FORM OF GUARANTY (including Exhibit "A" - Joinder Agreement)
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<PAGE> 8
REVOLVING CREDIT AGREEMENT
--------------------------
This Revolving Credit Agreement ("Agreement") is made as of the 24th
day of July, 1998, by and among the financial institutions from time to time
signatory hereto (individually a "Bank," and any and all such financial
institutions collectively the "Banks"), Comerica Bank, as agent for the Banks
(in such capacity, "Agent"), and Meadowbrook Insurance Group, Inc., a Michigan
corporation (the "Company");
COMPANY, AGENT AND BANKS AGREE:
1. DEFINITIONS
For the purposes of this Agreement the following terms will have the
following meanings:
"Account Party(ies)" shall mean, with respect to any Letter of Credit,
the account party or parties (which shall be the Company, individually, or a
Subsidiary jointly and severally with Company) named in an application to the
Issuing Bank for the issuance of such Letter of Credit.
"Adjusted EBITDA" shall mean as of any date of determination, net
income of Company, Meadowbrook, Inc., ASI, Inc., any Subsidiary which is not an
Insurance Subsidiary or a Subsidiary regulated by any regulatory agency that
regulates insurance companies and Crest Financial Corporation (excluding in the
calculation thereof the net income of Williamsburg National Insurance Company)
for the four preceding fiscal quarters ending on such date of determination,
plus, to the extent deducted in determining net income, depreciation and
amortization for such period, taxes on income for such period and Interest
Expense for such period, plus an amount equal to fifty percent (50%) of the sum
of net income of American Indemnity Insurance Company Ltd. for the four
preceding fiscal quarters ending on such date of determination, plus, to the
extent deducted in determining such net income, depreciation and amortization
for such period, taxes on income for such period and Interest Expense for such
period, plus the greater of (i) fifty percent (50%) of the amount available to
be distributed by Star Insurance Company and Williamsburg National Insurance
Company to Company as of such date of determination and (ii) one hundred percent
(100%) of the change in the amount available for distribution by Star Insurance
Company and Williamsburg National Insurance Company from the amount available to
be distributed as of the last day of the preceding fiscal quarter.
"Advance(s)" shall mean, as the context may indicate, a borrowing
requested by Company, and made by the Banks under Section 2.1 hereof, including
without limitation any readvance, refunding or conversion of such borrowing
pursuant to Section 2.3 hereof, any advance in respect of a Letter of Credit
under Section 3.6 hereof (including without limitation the unreimbursed amount
of any draws under any Letters of Credit), and shall include, as applicable, a
Eurocurrency-based Advance and a Prime-based Advance.
<PAGE> 9
"Affected Lender" shall have the meaning set forth in Section 11.8.
"Affiliate" shall mean, with respect to any Person, any other Person or
group acting in concert in respect of the first Person that, directly or
indirectly, through one or more intermediaries, controls, or is controlled by,
or is under common control with such first Person. For purposes of this
definition, "control" (including, with correlative meanings, the terms
"controlled by" and "under common control with"), as used with respect to any
Person or group of Persons, shall mean the possession, directly or indirectly,
of the power to direct or cause the direction of management and policies of such
Person, whether through the ownership of voting securities or by contract or
otherwise. Unless otherwise specified to the contrary herein, or the context
requires otherwise, Affiliate shall refer to the Company's Affiliates.
"Agent" shall mean Comerica Bank, in its capacity as agent for the
Banks hereunder, or any successor agent appointed in accordance with Section
12.4 hereof.
"Agent's Fees" shall mean those agency, and other fees and expenses
required to be paid by Company to Agent under Section 12.7 hereof.
"Alternate Base Rate" shall mean, for any day, an interest rate per
annum equal to the Federal Funds Effective Rate in effect on such day, plus one
percent (1%).
"Applicable Interest Rate" shall mean the Eurocurrency-based Rate or
the Prime-based Rate, as selected by Company from time to time subject to the
terms and conditions of this Agreement.
"Applicable L/C Fee Percentage" shall mean, as of any date of
determination thereof, the applicable percentage used to calculate the Letter of
Credit Fees due and payable hereunder, determined by reference to the
appropriate columns in the pricing matrix attached to this Agreement as Schedule
1.1.
"Banks" shall mean Comerica Bank and such other financial institutions
from time to time parties hereto as lenders and shall include any assignee which
becomes a Bank pursuant to Section 13.8 hereof.
"Base Net Worth" shall mean (i) $115,000,000, plus (ii) (on a
cumulative basis) for each fiscal quarter ending on or after the Effective Date,
the sum of (A) seventy five percent (75%) of Net Income (if positive), earned in
each fiscal quarter commencing after December 31, 1997 and (B) one hundred
percent (100%) of the cash proceeds of the issuance of any Equity Interests of
Company (net of reasonable and customary costs and expenses of issuance) during
such fiscal quarter.
"Business Day" shall mean any day on which commercial banks are open
for domestic and international business in Detroit, London and New York.
2
<PAGE> 10
"Capitalized Lease" shall mean, as applied to any Person, any lease of
any property (whether real, personal or mixed) with respect to which the
discounted present value of the rental obligations of such Person as lessee
thereunder, in conformity with GAAP, is required to be capitalized on the
balance sheet of that Person.
"Cash and Cash Equivalents" shall mean as of any date, (a) cash that is
then owned by Company and (b) any of the following then owned by Company: (i)
commercial paper of any United States issuer having a rating of P-1 (or the
equivalent thereof) or higher then given by Moody's Investors Service Inc. or
A-I (or the equivalent thereof) or higher then given by Standard & Poor's
Ratings Group, (ii) direct obligations of, and obligations fully guaranteed by,
the United States of America, and (iii) certificates of deposit of any
commercial bank that is a member of the Federal Reserve System and that has
capital surplus and undivided profits (as shown on its most recently published
statement of condition) aggregating not less than $100,000,000 provided that
each of the foregoing has a maturity date not later than 180 days after the date
of acquisition thereof by Company.
"Comerica Bank" shall mean Comerica Bank, a Michigan banking
corporation, its successors or assigns.
"Commonly Controlled Entity" shall mean an entity, whether or not
incorporated, which is under common control with the Company within the meaning
of Section 4001 of ERISA or which is part of a group which includes the Company
and which is treated as a single employer under Section 414 of the Internal
Revenue Code.
"Company" is defined in the Preamble.
"Consolidated" or "Consolidating" shall mean, when used with reference
to any financial term in this Agreement, the aggregate for two or more Persons
of the amounts signified by such term for all such Persons determined on a
consolidated basis in accordance with GAAP. Unless otherwise specified herein,
references to Consolidated financial statements or data of Company includes
consolidation with its Subsidiaries in accordance with GAAP.
"Contractual Obligation" shall mean as to any Person, any provision of
any security issued by such Person or of any agreement, instrument or other
undertaking which such Person is a party or by which it or any of its property
is bound.
"Covenant Compliance Report" shall mean the report to be furnished by
Company to the Agent pursuant to Section 7.2(a) hereof, in the form of attached
Exhibit D and certified by a Responsible Officer, in which report Company shall
set forth, among other things, detailed calculations and the resultant ratios or
financial tests with respect to the financial covenants contained in Sections
7.9 through 7.13 and 8.14 of this Agreement.
3
<PAGE> 11
"De Minimis Matters" shall mean environmental or other matters, the
existence of which and any liability which may result therefrom, would not,
individually or in the aggregate, reasonably be expected to have a material
adverse effect on the financial condition or businesses of the Company and its
Subsidiaries (taken as a whole) or on the ability of the Company and
Subsidiaries (taken as a whole) to pay their debts, as such debts become due.
"Debt" shall mean, as of any applicable date of determination, all
items of indebtedness, obligation or liability of a Person, whether matured or
unmatured, liquidated or unliquidated, direct or indirect, absolute or
contingent, joint or several, that should be classified as liabilities in
accordance with GAAP, including without limitation, any items so classified on a
balance sheet and any reimbursement obligations in respect of letters of credit,
obligations in respect of bankers acceptances, provided, however that for
purposes of calculating the aggregate Debt of such Person and its Subsidiaries
(if any), the direct and indirect and absolute and contingent obligations of
such Person (whether direct or contingent) shall be determined without
duplication.
"Default" shall mean any event which with the giving of notice or the
passage of time, or both, would constitute an Event of Default under this
Agreement.
"Dividends Paid or Payable" shall mean for any period the aggregate
amount of dividends and other payments and distributions in respect of the
capital stock of the Guarantor and/or New Subsidiaries that is or is available
to be paid to Company during such period.
"Dollars" and the sign "$" shall mean lawful money of the United States
of America.
"Effective Date" shall mean the date on which all the conditions
precedent set forth in Sections 5.1 through 5.10 have been satisfied.
"Equity Interests" means, with respect to any Person, any and all
shares, share capital, interests, participations, warrants, options or other
equivalents (however designated) of capital stock of a corporation and any and
all equivalent ownership interests in a Person (other than a corporation).
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended, or any successor act or code and the regulations in effect from time
to time thereunder.
"Eurocurrency-based Advance" shall mean an Advance which bears interest
at the Eurocurrency-based Rate.
"Eurocurrency-based Rate" shall mean, with respect to any
Eurocurrency-Interest Period, the per annum interest rate which is equal to the
sum of the Margin plus the quotient of:
(A) the per annum interest rate at which deposits in eurodollars
are offered to Agent's Eurocurrency Lending Office by other
prime banks in the eurodollar market in an amount comparable
to the relevant Eurocurrency-based Advance and for a period
4
<PAGE> 12
equal to the relevant Eurocurrency-Interest Period at
approximately 11:00 a.m. Detroit time two (2) Business Days
prior to the first day of such Eurocurrency-Interest Period,
divided by
(B) an amount equal to one minus the stated maximum rate
(expressed as a decimal) of all reserve requirements
(including, without limitation, any marginal, emergency,
supplemental, special or other reserves) that is specified on
the first day of such Eurocurrency-Interest Period by the
Board of Governors of the Federal Reserve System (or any
successor agency thereto) for determining the maximum reserve
requirement with respect to eurodollar funding (currently
referred to as "eurocurrency liabilities" in Regulation D of
such Board) maintained by a member bank of such System, all as
conclusively determined (absent manifest error) by the Agent,
such sum to be rounded upward, if necessary, to the nearest
whole multiple of 1/16th of 1%.
"Eurocurrency-Interest Period" shall mean the Interest Period
applicable to a Eurocurrency-based Advance.
"Eurocurrency Lending Office" shall mean, (a) with respect to the
Agent, Agent's office located at Grand Cayman, British West Indies or such other
branch or branches of Agent, domestic or foreign, as it may hereafter designate
as a Eurocurrency Lending Office by notice to Company and the Banks, and (b) as
to each of the Banks, its office, branch or affiliate located at its address set
forth in Agent's administrative questionnaire completed by such Bank (or
identified thereon as a Eurocurrency Lending Office), or at such other office,
branch or affiliate of such Bank as it may hereafter designate as its
Eurocurrency Lending Office by notice to Company and Agent.
"Event of Default" shall mean each of the Events of Default specified
in Section 9.1 hereof.
"Federal Funds Effective Rate" shall mean, for any day, a fluctuating
interest rate per annum equal 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 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 it, all as conclusively determined by the Agent, such sum to be
rounded upward, if necessary, to the nearest whole multiple of 1/16th of 1%.
"Fees" shall mean the Revolving Credit Facility Fee, the Letter of
Credit Fees, the Agent's Fees, and the other fees and charges payable by Company
to the Banks or Agent hereunder.
"Financial Statements" shall mean all those balance sheets, earnings
statements and other financial data (whether of the Company or the Subsidiaries)
which have been furnished to the Agent
5
<PAGE> 13
or the Banks for the purposes of, or in connection with, this Agreement and the
transactions contemplated hereby,
"Fixed Charge Coverage" shall mean as of any date of determination, a
ratio, the numerator of which is Adjusted EBITDA for the four preceding fiscal
quarters ending on such date of determination, and the denominator of which is
Interest Expense of Company for such period, plus an amount equal to all
principal payments payable during such period by Company with respect to Funded
Debt, plus all dividends paid or payable during such period by Company or any of
its Subsidiaries.
"Funded Debt" shall mean for any Person as of any date of
determination, the sum, without duplication, of (a) all indebtedness of such
Person for borrowed money or for the deferred purchase price of property or
services as of such date (other than trade liabilities incurred in the ordinary
course of business and payable in accordance with customary practices) or which
is evidenced by a note, bond, debenture or similar instrument, (b) all
obligations of such Person under Capitalized Leases as of such date, (c) all
obligations of such Person in respect of letters of credit, acceptances or
similar obligations issued or created for the account of such Person as of such
date, unless such obligations are secured in full by cash or marketable
securities, and (d) all liabilities secured by any lien on any property owned by
such Person as of such date even though such Person has not assumed or otherwise
become liable for the payment thereof, in each case determined in accordance
with GAAP.
"GAAP" shall mean generally accepted accounting principles in the
United States of America, as in effect on the date hereof, consistently applied.
"Governmental Obligations" means noncallable direct general obligations
of the United States of America or obligations the payment of principal of and
interest on which is unconditionally guaranteed by the United States of America.
"Gross Premiums Ratio" shall mean for any Person as of any date of
determination a ratio the numerator of which is gross premiums written of such
Person for the four preceding fiscal quarters ending on such date of
determination and the denominator of which is Statutory Surplus of such Person
as of such date.
"Guarantee Obligation" shall mean as to any Person (the "guaranteeing
person") any obligation of the guaranteeing person in respect of any obligation
of another Person (including, without limitation, any bank under any letter of
credit), the creation of which was induced by a reimbursement agreement, counter
indemnity or similar obligation issued by the guaranteeing person, in either
case guaranteeing or in effect guaranteeing any Debt, leases, dividends or other
obligations (the "primary obligations") of any other third Person (the "primary
obligor") in any manner, whether directly or indirectly, including, without
limitation, any obligation of the guaranteeing person, whether or not
contingent, (i) to purchase any such primary obligation or any property
constituting direct or indirect security therefor, (ii) to advance or supply
funds (1) for the
6
<PAGE> 14
purchase or payment of any such primary obligation or (2) to maintain working
capital or equity capital of the primary obligor or otherwise to maintain the
net worth or solvency of the primary obligor, (iii) to purchase property,
securities or services primarily for the purpose of assuring the owner of any
such primary obligation of the ability of the primary obligor to make payment of
such primary obligation or (iv) otherwise to assure or hold harmless the owner
of any such primary obligation against loss in respect thereof; provided,
however, that the term Guarantee Obligation shall not include endorsements of
instruments for deposit or collection in the ordinary course of business. The
amount of any Guarantee Obligation of any guaranteeing person shall be deemed to
be the lower of (a) an amount equal to the stated or determinable amount of the
primary obligation in respect of which such Guarantee Obligation is made and (b)
the maximum amount for which such guaranteeing person may be liable pursuant to
the terms of the instrument embodying such Guarantee Obligation, unless such
primary obligation and the maximum amount for which such guaranteeing person may
be liable are not stated or determinable, in which case the amount of such
Guarantee Obligation shall be such guaranteeing person's maximum reasonably
anticipated liability in respect thereof as determined by the Company in good
faith.
"Guarantor(s)" shall mean each Subsidiary of the Company (other than
the Insurance Subsidiaries) and each Person otherwise becoming a Subsidiary of
the Company (other than an Insurance Subsidiary) subsequent to the date hereof
or otherwise entering into a Guaranty (by joinder agreement or otherwise) from
time to time and shall as of the date of execution of this Agreement consist of
the Subsidiaries listed on Schedule 6.19 hereto.
"Guaranty" shall mean the Guaranty to be made by each of the Guarantors
(whether by execution thereof, or by execution of the Joinder Agreement attached
as "Exhibit A" to the form of such Guaranty) in favor of the Agent for the
ratable benefit of the Banks, substantially in the form of Exhibit F, as amended
or otherwise modified from time to time.
"Hazardous Material" shall mean and include any hazardous, toxic or
dangerous waste, substance or material defined as such in (or for purposes of)
the Hazardous Material Laws.
"Hazardous Material Law(s)" shall mean all laws, codes, ordinances,
rules, regulations, orders, decrees and directives issued by any federal, state,
provincial, local, foreign or other governmental or quasi-governmental
authority or body (or any agency, instrumentality or political subdivision
thereof) pertaining to any hazardous, toxic or dangerous waste, substance or
material on or about any facilities owned, leased or operated by Company or any
of its Subsidiaries, or any portion thereof including, without limitation, those
relating to soil, surface, subsurface ground water conditions and the condition
of the ambient air; and any state and local laws and regulations pertaining to
any hazardous, toxic or dangerous waste, substance or material and/or asbestos;
any so-called "superfund" or "superlien" law; and any other federal, state,
provincial, foreign or local statute, law, ordinance, code, rule, regulation,
order or decree regulating, relating to, or imposing liability or standards of
conduct concerning, any hazardous, toxic or dangerous waste, substance or
material, as now or at any time hereafter in effect.
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<PAGE> 15
"Hedging Transaction" means each interest rate swap transaction, basis
swap transaction, forward rate transaction, commodity swap transaction, equity
transaction, equity index transaction, foreign exchange transaction, cap
transaction, floor transaction (including any option with respect to any of
these transactions and any combination of any of the foregoing) entered into by
the Company from time to time pursuant to an Interest Rate Protection Agreement;
provided that such transaction is entered into for risk management purposes and
not for speculative purposes.
"Hereof", "hereto", "hereunder" and similar terms shall refer to this
Agreement and not to any particular paragraph or provision of this Agreement.
"Indebtedness" shall mean all indebtedness and liabilities (including
without limitation interest, fees and other charges) arising under this
Agreement or any of the other Loan Documents, whether direct or indirect,
absolute or contingent, of Company or any Subsidiary to any of the Banks or to
the Agent, in any manner and at any time, whether evidenced by the Notes,
arising under any Guaranty or any of the other Loan Documents, due or hereafter
to become due, now owing or that may hereafter be incurred by Company or any
Subsidiary to, any of the Banks or the Agent, and any judgments that may
hereafter be rendered on such indebtedness or any part thereof, with interest
according to the rates and terms specified, or as provided by law, any payment
obligations, if any, under Hedging Transactions evidenced by Interest Rate
Protection Agreements, and any and all consolidations, amendments, renewals,
replacements, substitutions or extensions of any of the foregoing; provided,
however that for purposes of calculating the Indebtedness outstanding under the
Notes or any of the other Loan Documents, the direct and indirect and absolute
and contingent obligations of the Company and the Subsidiaries (whether direct
or contingent) shall be determined without duplication.
"Insurance Subsidiaries" shall mean Savers Property and Casualty
Insurance Company, Star Insurance Company, American Indemnity Insurance Co.
Ltd., Williamsburg National Insurance Company and any other Subsidiary of
Company engaged in the issuance of insurance policies.
"Interest Expense" shall mean for any Person for any period (without
duplication with respect to any other Person), all interest paid, payable or
accrued during such period by such Person on indebtedness of the such Person
determined on a consolidated basis in accordance with GAAP.
"Interest Period" shall mean with respect to a Eurocurrency-based
Advance, one (1), two (2), three (3) or six (6) months (or any lesser or greater
number of days agreed to in advance by Company, Agent and the Banks) as selected
by Company pursuant to Section 2.3, provided, however, that any
Eurocurrency-Interest Period which commences on the last Business Day of a
calendar month (or on any day for which there is no numerically corresponding
day in the appropriate subsequent calendar month) shall end on the last Business
Day of the appropriate subsequent calendar month. Each Interest Period which
would otherwise end on a day which is not a Business Day shall end on the next
succeeding Business Day or, if such next succeeding Business Day falls in the
next succeeding calendar month, on the next preceding Business Day, and no
Interest
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<PAGE> 16
Period which would end after the Revolving Credit Maturity Date shall be
permitted with respect to any Advance.
"Interest Rate Protection Agreement" means any interest rate swap, cap,
floor, collar, forward rate agreement, foreign currency agreement or other rate
protection transaction, or any combination of such transaction or agreements or
any option with respect to any such transactions or agreements now existing or
hereafter entered into between Company and any Bank or an Affiliate of a Bank.
"Internal Revenue Code" shall mean the Internal Revenue Code of 1986,
as amended from time to time, and the regulations promulgated thereunder.
"Investment" shall mean, when used with respect to any Person, (a) any
loan, investment or advance made by such Person to any other Person (including,
without limitation, any contingent obligation) in respect of any capital stock,
Debt, obligation or liability of such other Person and (b) any other investment
made by such Person (however acquired) in stock or other ownership interests in
any other Person, including, without limitation, any investment made in exchange
for the issuance of shares of stock of such Person.
"Issuing Bank" shall mean Comerica Bank in its capacity as issuer of
one or more Letters of Credit hereunder.
"Issuing Office" shall mean Issuing Bank's office located at One
Detroit Center, 500 Woodward Avenue, Detroit, Michigan 48226-3239 or such other
office as Issuing Bank shall designate as its Issuing Office.
"Joinder Agreement (Guaranty)" shall mean a joinder agreement in the
form attached as "Exhibit A" to the form of the Guaranty (Exhibit F to this
Agreement), to be executed and delivered by any Person required to be a
Guarantor pursuant to Section 7.19 of this Agreement.
"Letter of Credit Agreement" shall mean, in respect of each Letter of
Credit, the application and related documentation satisfactory to the Issuing
Bank of an Account Party or Account Parties requesting Issuing Bank to issue
such Letter of Credit, as amended from time to time.
"Letter of Credit Fees" shall mean the fees payable to Agent for the
accounts of the Banks in connection with Letters of Credit pursuant to Section
3.4 hereof.
"Letter of Credit Obligations" shall mean at any date of determination,
the sum of (a) the aggregate undrawn amount of all Letters of Credit then
outstanding, (b) the aggregate face amount of all Letters of Credit requested
but not yet issued as of such date and (c) the aggregate amount of Reimbursement
Obligations which have not been reimbursed by the Company as of such date.
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<PAGE> 17
"Letter of Credit Payment" shall mean any amount paid or required to be
paid by the Issuing Bank in its capacity hereunder as issuer of a Letter of
Credit as a result of a draft or other demand for payment under any Letter of
Credit.
"Letter(s) of Credit" shall mean any standby or trade letters of credit
issued by Issuing Bank at the request of or for the account of an Account Party
or Account Parties pursuant to Article 3 hereof.
"Lien" shall mean any pledge, assignment, hypothecation, mortgage,
security interest, deposit arrangement, option, trust receipt, conditional sale
or title retaining contract, sale and leaseback transaction, financing statement
or comparable notice or other filing or recording, Capitalized Lease,
subordination or any claim or right, or any other type of lien, charge,
encumbrance, preferential or priority arrangement or other claim or right,
whether based on common law or statute.
"Loan Documents" shall mean, collectively, this Agreement, the Notes,
the Letter of Credit Agreements, the Letters of Credit, the Guaranty(ies) any
Interest Rate Protection Agreement and any other documents, certificates,
instruments or agreements executed pursuant to or in connection with any such
document or this Agreement, as such documents may be amended from time to time.
"Majority Banks" shall mean at any time Banks holding 66-2/3% of the
aggregate principal amount of the Indebtedness then outstanding under the Notes,
or, if no Indebtedness is then outstanding, Banks holding 66-2/3% of the
Percentages.
"Margin" shall mean, as of any date of determination thereof, the
applicable interest rate margin determined in accordance with the provisions of
Section 4.1 hereof by reference to the appropriate columns in the pricing matrix
attached to this Agreement as Schedule 1.1.
"Material Adverse Effect" shall mean a material adverse effect on (a)
the business, operations, property, or financial condition of the Company and
its Subsidiaries taken as a whole, (b) the ability of the Company to perform its
obligations under this Agreement, the Notes or any other Loan Document to which
it is a party, or (c) the validity or enforceability of this Agreement, any of
the Notes or any of the other Loan Documents or the rights or remedies of the
Agent or the Banks hereunder or thereunder.
"Material Subsidiary" shall mean each Subsidiary (a) the purchase price
for which was equal to or greater than Two Million Five Hundred Thousand Dollars
($2,500,000) (including in purchase price Funded Debt assumed in connection with
the acquisition or formation of such Subsidiary) or (b) which has annual
revenues equal to or in excess of Four Million Dollars ($4,000,000).
"Multiemployer Plan" shall mean a Pension Plan which is a multiemployer
plan as defined in Section 4001(a)(3) of ERISA.
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<PAGE> 18
"NAIC" shall mean the National Association of Insurance Commissioners
and any successor thereto.
"Net Income" shall mean the net income (or loss) of Company and its
Consolidated Subsidiaries for any period determined in accordance with GAAP.
"Net Premium Ratio" shall mean for any Person as of any date of
determination a ratio the numerator of which is Net Written Premiums of such
Person for the four preceding fiscal quarters ending on such date of
determination and the denominator of which is Statutory Surplus of such Person
as of such date.
"Net Written Premiums" shall mean with respect to any Subsidiary of the
Company, such Subsidiary's gross written premiums, plus reinsurance assumed
premiums less reinsurance ceded premiums.
"Net Worth" shall mean, as of any applicable date of determination, the
excess of (i) the book value of all assets of Company and its Consolidated
Subsidiaries after all appropriate deductions in accordance with GAAP
(including, without limitation, reserves for doubtful receivables, obsolescence,
depreciation and amortization), over (ii) all Debt of Company and its
Consolidated Subsidiaries.
"New Subsidiaries" shall mean Subsidiaries acquired or established
after the date of execution of this Agreement which are not Insurance
Subsidiaries and are not regulated by any regulatory agency which regulates
insurance companies.
"Notes" shall mean the Revolving Credit Notes and the Term Notes.
"Percentage" shall mean, with respect to any Bank, its percentage
share, as set forth on Schedule 1.2 hereto, of the Revolving Credit Aggregate
Commitment and Letters of Credit, as the context indicates, as such Exhibit may
be revised from time to time by Agent in accordance with provisions of Section
13.8.
"Permitted Acquisition" shall mean (i) any acquisition of a Person
within the insurance business for which the purchase price does not exceed Five
Hundred Thousand Dollars ($500,000) and (b) any acquisition by the Company or
any Subsidiary of all or substantially all of the assets of another Person, or
of a division or line of business of another Person, or shares of stock or other
ownership interests of another Person, which in the case of this subclause (b)
satisfies and/or is conducted in accordance with the following requirements:
(a) Such acquisition is of a business or Person engaged in a line
of business which is compatible with, or complementary to, the
business of the Company and its Subsidiaries;
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<PAGE> 19
(b) The Company shall have delivered to the Agent and the Banks
not less than thirty (30) nor more than ninety (90) days prior
to the date of such acquisition, notice of such acquisition
together with Pro Forma Projected Financial Information;
(c) Both immediately before and after such acquisition no Default
or Event of Default shall have occurred and be continuing; and
(d) The board of directors (or other Person(s) exercising similar
functions) of the seller of the assets or issuer of the shares
of stock or other ownership interests being acquired shall not
have disapproved such transaction or recommended that such
transaction be disapproved.
"Permitted Investments" shall mean with respect to any Person:
(a) Governmental Obligations;
(b) Obligations of a state of the United States, the District
of Columbia or any possession of the United States, or any political
subdivision thereof, which are described in Section 103(a) of the
Internal Revenue Code and are graded in any of the highest three (3)
major grades as determined by at least one Rating Agency; or secured,
as to payments of principal and interest, by a letter of credit
provided by a financial institution or insurance provided by a bond
insurance company which in each case is itself or its debt is rated in
one of the highest three (3) major grades as determined by at least one
Rating Agency;
(c) Banker's acceptances, commercial accounts, demand deposit
accounts, certificates of deposit, or depository receipts issued by or
maintained with any Bank or a bank, trust company, savings and loan
association, savings bank or other financial institution whose deposits
are insured by the Federal Deposit Insurance Corporation and whose
reported capital and surplus equal at least $250,000,000, provided that
such minimum capital and surplus requirement shall not apply to demand
deposit accounts maintained by the Company or any of its Subsidiaries
in the ordinary course of business;
(d) Commercial paper rated at the time of purchase within the
two highest classifications established by not less than two Rating
Agencies, and which matures within 270 days after the date of issue;
(e) Secured repurchase agreements against obligations itemized
in paragraph (a) above, and executed by a bank or trust company or by
members of the association of primary dealers or other recognized
dealers in United States government securities, the market value of
which must be maintained at levels at least equal to the amounts
advanced;
(f) Any fund or other pooling arrangement which exclusively
purchases and holds the investments itemized in (a) through (e) above;
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<PAGE> 20
(g) Securities held in its investment portfolio;
(h) Equity interests in entities which are not Subsidiaries to
the extent not exceeding $2,500,000 in the aggregate.
"Permitted Liens" shall mean with respect to any Person:
(a) Liens for taxes not yet due or which are being contested
in good faith by appropriate proceedings, provided that adequate
reserves with respect thereto are maintained on the books of such
Person in conformity with GAAP;
(b) carriers', warehousemen's, mechanics', materialmen's,
repairmen's, landlord's liens or other like Liens arising in the
ordinary course of business which are not overdue for a period of more
than 60 days or which are being contested in good faith by appropriate
proceedings;
(c) pledges or deposits in connection with workers'
compensation, unemployment insurance and other social security
legislation and deposits securing liability to insurance carriers under
insurance or self-insurance arrangements;
(d) deposits to secure (i) the performance of bids, trade
contracts (other than for borrowed money), statutory obligations,
surety and appeal bonds, performance bonds and other obligations of a
like nature or (ii) the performance of leases permitted hereunder, in
each case given or incurred on terms, in amounts and otherwise in the
ordinary course of business;
(e) easements, rights-of-way, restrictions and other similar
encumbrances incurred the ordinary course of business which, in the
aggregate, are not substantial in amount and which do not in any case
materially detract from the value of the property subject thereto or
materially interfere with the ordinary conduct of the business of such
Person; and
(f) Liens in favor of Comerica Bank, in its individual
capacity and not as Issuing Bank, to secure obligations with respect to
letters of credit issued by Comerica Bank for the benefit of such
Person.
"Person" shall mean a natural person, corporation, limited liability
company, partnership, limited liability partnership, trust, incorporated or
unincorporated organization, joint venture, joint stock company, or a government
or any agency or political subdivision thereof or other entity of any kind.
"Prime-based Advance" shall mean an Advance which bears interest at the
Prime-based Rate.
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<PAGE> 21
"Prime-based Rate" shall mean, for any day, that rate of interest which
is equal to the greater of (i) the Prime Rate less the Margin, and (ii) the
Alternate Base Rate.
"Prime Rate" shall mean the per annum rate of interest announced by the
Agent, at its main office from time to time as its "prime rate" (it being
acknowledged that such announced rate may not necessarily be the lowest rate
charged by the Agent to any of its customers), which Prime Rate shall change
simultaneously with any change in such announced rate.
"Pro Forma Projected Financial Information" shall mean, as to any
proposed acquisition, a statement executed by a Responsible Officer of the
Company (supported by reasonable detail) setting forth the total consideration
to be paid or incurred in connection with the proposed acquisition and, pro
forma combined projected financial information for the Company and its
consolidated Subsidiaries and the acquisition target (if applicable), consisting
of projected balance sheets as of the proposed effective date of the acquisition
or the closing date and as of the end of at least the next succeeding three (3)
fiscal years of Company following the acquisition and projected statements of
income for each of those years, including sufficient detail to permit
calculation of the amounts and the ratios described in Sections 7.9 through 7.13
and 8.14 hereof, as projected as of the effective date of the acquisition and
for those fiscal years and accompanied by (i) a statement setting forth a
calculation of the ratios and amounts so described, (ii) a statement in
reasonable detail specifying all material assumptions underlying the projections
and (iii) such other information as any Bank shall reasonably request.
"Purchasing Lender" shall have the meaning set forth in Section 11.8.
"Rating Agency" shall mean Moody's Investor Services, Standard and
Poor's Ratings Group or any other nationally recognized statistical rating
organization which is acceptable to the Agent.
"Regulatory Agency" shall mean any state board, commission, department
or other regulatory body which regulates insurance companies or insurance
holding companies.
"Reimbursement Obligation(s)" shall mean the obligation of an Account
Party or Account Parties under each Letter of Credit Agreement to reimburse the
Issuing Bank for each payment made by the Issuing Bank under the Letter of
Credit issued pursuant to such Letter of Credit Agreement, together with all
other sums, fees, charges and amounts which may be owing to the Issuing Bank
under such Letter of Credit Agreement.
"Request for Revolving Credit Advance" shall mean a Request for
Revolving Credit Advance issued by Company under Section 2.3 of this Agreement
in the form annexed hereto as Exhibit A, as amended or otherwise modified.
"Requirement of Law" shall mean as to any Person, the certificate of
incorporation and bylaws, the partnership agreement or other organizational or
governing documents of such Person and any law, treaty, rule or regulation or
determination of an arbitration or a court or other
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<PAGE> 22
Governmental Authority, in each case applicable to or binding upon such Person
or any of its property or to which such Person or any of its property is
subject.
"Responsible Officer" shall mean the chief executive officer or the
president of the Company, or any other officer having substantially the same
authority and responsibility; or with respect to compliance with financial
covenants, the chief financial officer or the treasurer of the Company, or any
other officer having substantially the same authority and responsibility.
"Revolving Credit" shall mean the revolving credit loan to be advanced
to the Company by the Banks pursuant to Article 2 hereof, in an aggregate amount
(subject to the terms hereof), not to exceed, at any one time outstanding, the
Revolving Credit Aggregate Commitment.
"Revolving Credit Advance" shall mean a borrowing requested by Company
and made by the Banks under Section 2.1 of this Agreement, including without
limitation any readvance, refunding or conversion of such borrowing pursuant to
Section 2.3 hereof and any advance in respect of a Letter of Credit under
Section 3.6 hereof, and shall include, as applicable, a Eurocurrency-based
Advance and/or a Prime-based Advance.
"Revolving Credit Aggregate Commitment" shall mean Fifty Million
Dollars ($50,000,000), subject to reduction or termination under Section 2.8 or
9.2 hereof.
"Revolving Credit Facility Fee" shall mean the fees payable to Agent
for distribution to the Banks pursuant to Section 2.6 hereof.
"Revolving Credit Maturity Date" shall mean the earlier to occur of (i)
July 1, 2001, as such date may be extended from time to time pursuant to
Section 2.9 hereof, and (ii) the date on which the Revolving Credit Aggregate
Commitment shall be terminated pursuant to Section 2.8 or Section 9.2 hereof.
"Revolving Credit Notes" shall mean the revolving credit notes
described in Section 2.1 hereof, made by Company to each of the Banks in the
form annexed to this agreement as Exhibit B, as such notes may be amended or
supplemented from time to time, and any other notes issued in substitution,
replacement or renewal thereof from time to time.
"SAP" shall mean statutory accounting principals formulated by the NAIC
and permitted under the laws of Michigan or with respect to any Insurance
Subsidiary not incorporated under the laws of Michigan under the laws of such
Subsidiary's place of incorporation.
"Senior Funded Debt" shall mean, as of any date of determination,
Funded Debt of Company and its Consolidated Subsidiaries other than Subordinated
Debt.
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<PAGE> 23
"Statutory Surplus" of any Person shall mean the statutory surplus of
such Person computed in the, manner required for page 3, column 1, line 25 of
its annual statement of condition and affairs prepared in accordance with SAP.
"Subordinated Debt" shall mean Debt of the Company which has been
subordinated in right of payment and priority to the Indebtedness, all on terms
and conditions satisfactory to the Agent and the Majority Banks.
"Subordinated Debt Documents" shall mean and include any documents
evidencing Subordinated Debt, in each case, as the same may be amended, modified
or supplemented from time to time in compliance with the terms of this
Agreement.
"Subsidiary(ies)" shall mean any other corporation, association, joint
stock company, business trust, limited liability company or any other business
entity of which more than fifty percent (50%) of the outstanding voting stock,
share capital, membership or other interests, as the case may be, is owned
either directly or indirectly by any Person or one or more of its Subsidiaries,
or the management of which is otherwise controlled, directly, or indirectly
through one or more intermediaries, or both, by any Person and/or its
Subsidiaries. Unless otherwise specified to the contrary herein, Subsidiary(ies)
shall refer to the Company's Subsidiary(ies).
"Tangible Net Worth" shall mean, as of any applicable date of
determination, the excess of (i) the book value of all assets of Company and its
Consolidated Subsidiaries (other than patents, patent rights, trademarks, trade
names, franchises, copyrights, licenses, goodwill, and similar intangible
assets) after all appropriate deductions in accordance with GAAP (including,
without limitation, reserves for doubtful receivables, obsolescence,
depreciation and amortization), over (ii) all Debt of Company and its
Consolidated Subsidiaries.
"Total Capitalization" shall mean, as of any date of determination
thereof, the sum of the outstanding principal amount of the Consolidated Funded
Debt as of such date plus Tangible Net Worth as of such date, plus the
outstanding principal amount of Subordinated Debt as of such date.
2. REVOLVING CREDIT
2.1 Revolving Credit Commitment. Subject to the terms and conditions of
this Agreement (including Section 2.3 hereof), each Bank severally and for
itself alone agrees to make Advances of the Revolving Credit to Company from
time to time on any Business Day during the period from the Effective Date
hereof until (but excluding) the Revolving Credit Maturity Date in an aggregate
amount not to exceed at any one time outstanding each such Bank's Percentage of
the Revolving Credit Aggregate Commitment. All of such Advances hereunder shall
be evidenced by the Revolving Credit Notes, under which advances, repayments and
readvances may be made, subject to the terms and conditions of this Agreement.
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<PAGE> 24
2.2 Accrual of Interest and Maturity. The Revolving Credit Notes, and
all principal and interest outstanding thereunder, shall mature and become due
and payable in full on the Revolving Credit Maturity Date, and each Advance
evidenced by the Revolving Credit Notes from time to time outstanding hereunder
shall, from and after the date of such Advance, bear interest at its Applicable
Interest Rate. The amount and date of each Revolving Credit Advance, its
Applicable Interest Rate, its Interest Period, and the amount and date of any
repayment shall be noted on Agent's records, which records may be kept
electronically and which will be conclusive evidence thereof, absent manifest
error; provided, however, that any failure by the Agent to record any such
information shall not relieve Company of its obligation to repay the outstanding
principal amount of such Advance, all interest accrued thereon and any amount
payable with respect thereto in accordance with the terms of this Agreement and
the Loan Documents.
2.3 Requests for Advances and Requests for Refindings and Conversions
of Revolving Credit Advances. Company may request a Revolving Credit Advance,
refund any Revolving Credit Advance in the same type of Revolving Credit Advance
or convert any Revolving Credit Advance to any other type of Revolving Credit
Advance only after delivery to Agent of a Request for Revolving Credit Advance
executed by a person authorized by the Company to make such requests on behalf
of Company subject to the following and to the remaining provisions hereof:
(a) each such Request for Revolving Credit Advance shall set forth
the information required on the Request for Revolving Credit Advance
including without limitation:
(i) the proposed date of Revolving Credit Advance, which must be a
Business Day;
(ii) whether the Revolving Credit Advance is a refunding or
conversion of an outstanding Revolving Credit Advance; and
(iii) whether such Revolving Credit Advance is to be a Prime-based
Advance or a Eurocurrency-based Advance, and, except in the
case of a Prime-based Advance, the Interest Period applicable
thereto;
(b) each such Request for Revolving Credit Advance shall be
delivered to Agent by 11:00 a.m. (Detroit time) three (3) Business Days
prior to the proposed date of Revolving Credit Advance, except in the
case of a Prime-based Advance, for which the Request for Revolving
Credit Advance must be delivered by 1:00 p.m. (Detroit time) on such
proposed date;
(c) the principal amount of such requested Revolving Credit
Advance, plus the principal amount of all other Advances then
outstanding hereunder, plus the Letter of Credit Obligations, less the
principal amount of any outstanding Revolving Credit Advance to be
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<PAGE> 25
refunded by the requested Revolving Credit Advance shall not exceed the
then applicable Revolving Credit Aggregate Commitment;
(d) (x) in the case of a Prime-based Advance, the principal amount
of the initial funding of such Advance, as opposed to any refunding or
conversion thereof, shall be at least Two Hundred Fifty Thousand
Dollars ($250,000) and (y) in the case of a Eurocurrency-based Advance,
the principal amount of such Advance, plus the amount of any other
outstanding Indebtedness under this Agreement to be then combined
therewith having the same Interest Period shall be at least Five
Hundred Thousand Dollars ($500,000) and at any one time there shall not
be in effect more than four (4) Interest Periods with respect to the
Revolving Credit;
(e) each Request for Revolving Credit Advance shall constitute and
include a certification by the Company as of the date thereof that:
(i) both before and after the Revolving Credit Advance, the
obligations of the Company and the Guarantors set forth in
this Agreement and the other Loan Documents, as applicable,
are valid, binding and enforceable obligations of such
parties;
(ii) to the best knowledge of Company all conditions to Advances of
the Revolving Credit have been satisfied;
(iii) there is no Default or Event of Default in existence, and none
will exist upon the making of the Advance;
(iv) the representations and warranties contained in this Agreement
and the other Loan Documents are true and correct in all
material respects and shall be true and correct in all
material respects as of and immediately after the making of
the Advance; and
(v) the execution of such Revolving Credit Advance will not
violate the material terms and conditions of any material
contract, agreement or other borrowing of Company or any of
its Subsidiaries.
Agent, acting on behalf of the Banks, may, at its option, lend under
this Section 2 upon the telephone request of an authorized officer of Company
and, in the event Agent, acting on behalf of the Banks, makes any such Advance
upon a telephone request, the requesting officer shall, if so requested by
Agent, fax to Agent, on the same day as such telephone request, a Request for
Advance. Company hereby authorizes Agent to disburse Advances under this Section
2.3 pursuant to the telephone instructions of any person purporting to be a
person identified by name on a written list of persons authorized by the Company
to make Requests for Advance on behalf of the Company. Notwithstanding the
foregoing, the Company acknowledges that Company shall bear all risk of loss
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<PAGE> 26
resulting from disbursements made upon any telephone request. Each telephone
request for an Advance shall constitute a certification of the matters set forth
in the Request for Advance form as of the date of such requested Advance.
2.4 Disbursement of Revolving Credit Advances.
(a) Upon receiving any Request for a Revolving Credit Advance
from Company under Section 2.3 hereof, Agent shall promptly notify each
Bank by wire, telecopy, telex or by telephone (confirmed by wire,
telecopy or telex) of the amount of such Revolving Credit Advance to be
made and the date such Advance is to be made by said Bank pursuant to
its Percentage of the Revolving Credit Advance. Unless such Bank's
commitment to make Revolving Credit Advances hereunder shall have been
suspended or terminated in accordance with this Agreement, each Bank
shall send the amount of its Percentage of the Advance in same day
funds in Dollars to Agent at the office of Agent located at One Detroit
Center, 500 Woodward Avenue, Detroit, Michigan 48226-3239 not later
than 3:00 p.m. (Detroit time) on the date of such Advance.
(b) Subject to submission of a Request for Revolving Credit
Advance delivered in accordance with Section 2.3 hereof by Company
without exceptions noted in the compliance certification therein and to
the other terms and conditions hereof, Agent shall make available to
Company the aggregate of the amounts so received by it from the Banks
under this Section 2.4, in like funds, not later than 4:00 p.m.
(Detroit time) on the date of such Revolving Credit Advance by credit
to an account of Company maintained with Agent or to such other account
or third party as Company may reasonably direct.
(c) Unless Agent shall have been notified by any Bank prior to
the date of any proposed Revolving Credit Advance that such Bank does
not intend to make available to Agent such Bank's Percentage of the
Revolving Credit Advance, Agent may assume that such Bank has made such
amount available to Agent on such date, as aforesaid and may, in its
sole discretion and without obligation to do so, in reliance upon such
assumption, make available to Company a corresponding amount. If such
amount is not in fact made available to Agent by such Bank in
accordance with Section 2.4(a), as aforesaid, Agent shall be entitled
to recover such amount on demand from such Bank. If such Bank does not
pay such amount forthwith upon Agent's demand therefor, the Agent shall
promptly notify Company, and Company shall pay such amount to Agent.
Agent shall also be entitled to recover from such Bank or from Company,
as the case may be but without duplication, interest on such amount in
respect of each day from the date such amount was made available by
Agent to Company to the date such amount is recovered by Agent, at a
rate per annum equal to:
(i) in the case of such Bank, the Federal Funds Effective Rate
for the first two (2) Business Days such amount remains
unpaid and at the rate of interest applicable to the
Revolving Credit Advances thereafter; or
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(ii) in the case of Company, the rate of interest then
applicable to the Revolving Credit Advance.
The obligation of any Bank to make any Revolving Credit Advance
hereunder shall not be affected by the failure of any other Bank to
make any Revolving Credit Advance hereunder, and no Bank shall have any
liability to the Company, the Agent, any other Bank, or any other party
for another Bank's failure to make any loan or Revolving Credit Advance
hereunder.
2.5 Prime-based Advance in Absence of Election or Upon Default. If, as
to any outstanding Eurocurrency-based Advance, Agent has not received payment on
the last day of the Interest Period applicable thereto, or does not receive a
timely Request for Revolving Credit Advance meeting the requirements of Section
2.3 hereof with respect to the refunding or conversion of such Advance, or,
subject to Section 5.6 hereof, if on such day a Default or Event of Default
shall exist, the principal amount thereof which is not then prepaid shall be
converted automatically to a Prime-based Advance and the Agent shall thereafter
promptly notify Company of said action.
2.6 Revolving Credit Facility Fee. From the Effective Date to the
Revolving Credit Maturity Date, the Company shall pay to the Agent on behalf of
Banks a Revolving Credit Facility Fee quarterly in arrears commencing October 1,
1998 (in respect of the prior fiscal quarter or portion thereof), and on the
first day of each fiscal quarter thereafter. The Revolving Credit Facility Fee
shall be the sum of the fifteen one hundredths of one percent (.15%) per annum
multiplied by Revolving Credit Aggregate Commitment (whether used or unused)
then in effect without giving effect to any reductions therein based on the
amount of the Environmental Reserve, computed on a daily basis. The Revolving
Credit Facility Fee shall be computed on the basis of a year of three hundred
sixty (360) days and assessed for the actual number of days elapsed. Whenever
any payment of the Revolving Credit Facility Fee shall be due on a day which is
not a Business Day, the date for payment thereof shall be extended to the next
Business Day. Upon receipt of such payment, Agent shall make prompt payment to
each Bank of its share of the Revolving Credit Facility Fee based upon its
respective Percentage. It is expressly understood that the Revolving Credit
Facility Fees described in this Section are not refundable under any
circumstances.
2.7 Reduction of Indebtedness; Revolving Credit Aggregate Commitment.
If at any time and for any reason the aggregate principal amount of Revolving
Credit Advances hereunder to Company, plus the Letter of Credit Obligations
which shall be outstanding at such time, shall exceed the Revolving Credit
Aggregate Commitment then in effect, the Company shall immediately reduce any
pending request for an Advance on such day by the amount of such excess and, to
the extent any excess remains thereafter, immediately repay an amount of the
Indebtedness equal to such excess and, to the extent such Indebtedness consists
of Letter of Credit Obligations, provide cash collateral on the basis set forth
in Section 10.2 hereof. Company acknowledges that, in connection with any
repayment required hereunder, it shall also be responsible for the reimbursement
of any prepayment or other costs required under Section 12.1 hereof; provided,
however, that Company shall, in order to reduce any such prepayment costs and
expenses, first prepay such portion of the Indebtedness then carried as a
Prime-based Advance, if any.
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2.8 Optional Reduction or Termination of Revolving Credit Aggregate
Commitment. The Company may, upon at least five (5) Business Days' prior written
notice to Agent, permanently reduce the Revolving Credit Aggregate Commitment in
whole at any time, or in part from time to time, without premium or penalty,
provided that: (i) each partial reduction of the Revolving Credit Aggregate
Commitment shall be in an aggregate amount equal to at least Two Million Dollars
($2,000,000) or a larger integral multiple of One Million Dollars ($1,000,000);
(ii) each reduction shall be accompanied by the payment of the Revolving Credit
Facility Fee, if any, accrued to the date of such reduction; (iii) the Company
shall prepay in accordance with the terms hereof the amount, if any, by which
the sum of the aggregate unpaid principal amount of Revolving Credit Advances,
plus the Letter of Credit Obligations, exceeds the then applicable Revolving
Credit Aggregate Commitment, taking into account the aforesaid reductions
thereof, together with accrued but unpaid interest on the principal amount of
such prepaid Advances to the date of prepayment; (iv) if the termination or
reduction of the Revolving Credit Aggregate Commitment requires the prepayment
of a Eurocurrency-based Advance, the termination or reduction may be made only
on the last Business Day of the then current Interest Period applicable to such
Advance; and (v) no reduction shall reduce the amount of the Revolving Credit
Aggregate Commitment to an amount which is less than the Letter of Credit
Obligations at such time. Reductions of the Revolving Credit Aggregate
Commitment and any accompanying prepayments of the Revolving Credit Notes shall
be distributed by Agent to each Bank in accordance with such Bank's Percentage
thereof, and will not be available for reinstatement by or readvance to the
Company. Any reductions of the Revolving Credit Aggregate Commitment hereunder
shall reduce each Bank's portion thereof proportionately (based upon the
applicable Percentages), and shall be permanent and irrevocable. Any payments
made pursuant to this Section shall be applied first to outstanding Prime-based
Advances under the Revolving Credit and then to Eurocurrency-based Advances.
2.9 Extension of Revolving Credit Maturity Date. (a) Provided that no
Default or Event of Default has occurred and is continuing, Company may, by
written notice to Agent (with sufficient copies for each Bank) (which notice
shall be irrevocable and which shall not be deemed effective unless actually
received by Agent) prior to April 1st, but not before March 1st, of each fiscal
year, request that the Banks extend the then applicable Revolving Credit
Maturity Date to a date that is one year later than the Revolving Credit
Maturity Date then in effect (each such request, a "Request"). Each Bank shall,
not later than May 31st of such fiscal year, give written notice to the Agent
stating whether such Bank is willing to extend the Revolving Credit Maturity
Date as requested. If Agent has received the aforesaid written approvals of such
Request from each of the Banks, then, effective upon the date of Agent's receipt
of all such written approvals from the Banks, as aforesaid, the Revolving Credit
Maturity Date shall be so extended for an additional one year period, the term
Revolving Credit Maturity Date shall mean such extended date and Agent shall
promptly notify the Company that such extension has occurred.
(b) If (i) any Bank gives the Agent written notice that it is
unwilling to extend the Revolving Credit Maturity Date as requested or (ii) any
Bank fails to provide written approval to Agent of such a Request on or before
May 31st of such fiscal year, then (w) the Banks shall be
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deemed to have declined to extend the Revolving Credit Maturity Date, (x) the
then-current Revolving Credit Maturity Date shall remain in effect (with no
further right on the part of Company to request extensions thereof under this
Section 2.9), and (y) the commitments of the Banks to make Advances of the
Revolving Credit hereunder shall terminate on the Revolving Credit Maturity Date
then in effect, and Agent shall promptly notify Company thereof.
3. LETTERS OF CREDIT
3.1 Letters of Credit. Subject to the terms and conditions of this
Agreement, Issuing Bank shall through its Issuing Office, at any time and from
time to time from and after the date hereof until thirty (30) days prior to the
Revolving Credit Maturity Date, upon the written request of an Account Party
accompanied by a duly executed Letter of Credit Agreement, and such other
documentation related to the requested Letter of Credit as the Issuing Bank may
reasonably require, issue Letters of Credit for the account of such Account
Party, in an aggregate amount for all Letters of Credit issued hereunder at any
one time outstanding not to exceed an amount equal to the then applicable
Revolving Credit Aggregate Commitment minus the aggregate principal amount of
Revolving Credit Advances at such time outstanding. Each Letter of Credit shall
be in a minimum face amount of Five Thousand Dollars ($5,000) (or such lesser
amount as the Issuing Bank, in its sole discretion, may permit) and shall have
an expiration date not later than the earlier of (i) twenty four months from the
date of issuance thereof, and (ii) ten (10) Business Days prior to the Revolving
Credit Maturity Date. The submission of all applications and the issuance of
each Letter of Credit hereunder shall be subject in all respects to applicable
provisions of U.S. law and regulations, including without limitation, the
Trading With the Enemy Act, Export Administration Act, International Emergency
Economic Powers Act, and the Regulations of the Office of Foreign Assets Control
of the U.S. Department of the Treasury.
3.2 Conditions to Issuance. No Letter of Credit shall be issued at the
request and for the account of any Account Party unless, as of the date of
issuance of such Letter of Credit:
(a) the face amount of the Letter of Credit requested, plus the
Letter of Credit Obligations, does not exceed an amount equal to the
then applicable Revolving Credit Aggregate Commitment minus the
aggregate principal amount of Revolving Credit Advances at such time
outstanding;
(b) the obligations of Company and the Subsidiaries set forth in
this Agreement and the Loan Documents are valid, binding and
enforceable obligations of Company and each of the Subsidiaries and the
valid, binding and enforceable nature of this Agreement and the other
Loan Documents has not been disputed by Company or any of the
Subsidiaries;
(c) both immediately before and immediately after issuance of the
Letter of Credit requested, no Default or Event of Default exists;
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(d) the representations and warranties contained in this Agreement
and the other Loan Documents are true in all material respects as if
made on such date;
(e) the execution of the Letter of Credit Agreement with respect to
the Letter of Credit requested will not violate the terms and
conditions of any material contract, agreement or other borrowing of
Company or any Subsidiary;
(f) the Account Party requesting the Letter of Credit shall have
delivered to Issuing Bank at its Issuing Office (with a copy sent by
Account Party to the Agent), not less than three (3) Business Days
prior to the requested date for issuance (or such shorter time as the
Issuing Bank, in its sole discretion, may permit), the Letter of Credit
Agreement related thereto, together with such other documents and
materials as may be required pursuant to the terms thereof, and the
terms of the proposed Letter of Credit shall be satisfactory to Issuing
Bank and its Issuing Office;
(g) no order, judgment or decree of any court, arbitrator or
governmental authority shall purport by its terms to enjoin or restrain
Issuing Bank from issuing the requested Letter of Credit, or any Bank
from taking an assignment of its Percentage thereof pursuant to Section
3.6 hereof, and no law, rule, regulation, request or directive (whether
or not having the force of law) shall prohibit or request that Issuing
Bank refrain from issuing, or any Bank refrain from taking an
assignment of its Percentage of, the Letter of Credit requested or
letters of credit generally;
(h) there shall have been no introduction of or change in the
interpretation of any law or regulation that would make it unlawful or
unduly burdensome for the Issuing Bank to issue or for any Bank to take
an assignment of its Percentage of the requested Letter of Credit, no
declaration of a general banking moratorium by banking authorities in
the United States, Michigan or the respective jurisdictions in which
the Banks, the applicable Account Party and the beneficiary of the
requested Letter of Credit are located (each a "Banking Authority"),
and no establishment of any new material restrictions by any Banking
Authority on transactions involving letters of credit or on banks
materially affecting the issuance of letters of credit by banks; and
(i) Issuing Bank shall have received the facing fee required in
connection with the issuance of such Letter of Credit pursuant to
Section 3.4(b) hereof.
Each Letter of Credit Agreement submitted to Issuing Bank pursuant hereto shall
constitute the certification by the Company and the Account Party of the matters
set forth in this Section 3.2 (a) through (f). The Issuing Bank shall be
entitled to rely on such certification without any duty of inquiry.
3.3 Notice. The Issuing Bank will deliver to the Agent, concurrently or
promptly following its delivery of any Letter of Credit, a true and complete
copy of each Letter of Credit.
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Promptly upon its receipt thereof, Agent shall give notice, substantially in the
form attached as Exhibit C, to each Bank of the issuance of each Letter of
Credit, specifying the amount thereof and the amount of such Bank's Percentage
thereof.
3.4 Letter of Credit Fees. Company shall pay to the Agent for
distribution to the Issuing Bank and the Banks in accordance with the
Percentages, Letter of Credit Fees as follows:
(a) A per annum Letter of Credit Fee with respect to the undrawn
amount of each Letter of Credit issued pursuant hereto in the amount of
the Applicable L/C Fee Percentage (determined with reference to
Schedule 1.1 of this Agreement), exclusive of the facing fee to be
paid to Issuing Bank under Section 3.4(b) hereof.
(b) A facing fee of the lesser of (i) one eighth percentage point
(1/8%) per annum on the undrawn amount of each Letter of Credit or (ii)
$500.00, to be paid by the Company to the Issuing Bank for its own
account.
(c) If any change in any law or regulation or in the interpretation
thereof by any court or administrative or governmental authority
charged with the administration thereof shall either (i) impose, modify
or cause to be deemed applicable any reserve, special deposit,
limitation or similar requirement against letters of credit issued by
or participated in, or assets held by, or deposits in or for the
account of, Issuing Bank or any Bank or (ii) impose on Issuing Bank or
any of the Banks any other condition regarding this Agreement or the
Letters of Credit, and the result of any event referred to in clause
(i) or (ii) above shall be to increase in an amount deemed material by
Issuing Bank or such Bank the cost or expense to Issuing Bank or the
Banks of issuing or maintaining or participating in any of the Letters
of Credit (which increase in cost or expense shall be determined by the
Issuing Bank's or such Bank's reasonable allocation of the aggregate of
such cost increases and expense resulting from such events), then, upon
demand by the Issuing Bank or such Bank, as the case may be, the
Company shall, within thirty days following demand for payment, pay to
Issuing Bank or such Bank, as the case may be, from time to time as
specified by the Issuing Bank or such Bank, additional amounts which
shall be sufficient to compensate the Issuing Bank or such Bank for
such increased cost and expense, together with interest on each such
amount from thirty days after the date demanded until payment in full
thereof at the Prime-based Rate. A certificate as to such increased
cost or expense incurred by the Issuing Bank or such Bank, as the case
may be, as a result of any event mentioned in clause (i) or (ii) above,
shall be promptly submitted to the Company and shall be conclusive
evidence, absent manifest error, as to the amount thereof.
(d) All payments by the Company to the Agent for distribution to
the Issuing Bank or the Banks under this Section 3.4 shall be made in
Dollars and in immediately available funds at the principal office of
the Agent or such other office of the Agent as may be designated from
time to time by written notice to the Company by the Agent. The fees
described in clause (a) above shall be nonrefundable under all
circumstances and shall be
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payable quarterly in advance (or such lesser period, if applicable, for
Letters of Credit issued with stated expiration dates of less than one
year) upon the issuance of each such Letter of Credit, and shall be
calculated on the basis of a 360 day year and assessed for the actual
number of days from the date of the issuance thereof to the stated
expiration thereof.
3.5 Other Letter of Credit Fees. In connection with the Letters of
Credit, and in addition to the Letter of Credit Fees, the Company and the
applicable Account Party shall pay, for the sole account of the Issuing Bank,
standard documentation, administration, payment and cancellation charges
assessed by Issuing Bank or its Issuing Office, at the times, in the amounts and
on the terms set forth or to be set forth from time to time in the standard fee
schedule of Issuing Office in effect from time to time.
3.6 Draws and Demands for Payment Under Letters of Credit.
(a) The Company and each applicable Account Party agree to pay to
the Agent for the account of the Issuing Bank, on the day on which the
Issuing Bank shall honor a draft or other demand for payment presented
or made under any Letter of Credit, an amount equal to the amount paid
by the Issuing Bank in respect of such draft or other demand under such
Letter of Credit and all reasonable expenses paid or incurred by the
Issuing Bank relative thereto. Unless the Company or the applicable
Account Party shall have made such payment to the Agent for the account
of the Issuing Bank on such day, upon each such payment by the Issuing
Bank, the Agent shall be deemed to have disbursed to the Company, and
the Company shall be deemed to have elected to substitute for its
Reimbursement Obligation, a Prime-based Advance from the Banks in an
amount equal to the amount so paid by the Issuing Bank in respect of
such draft or other demand under such Letter of Credit. Such
Prime-based Advance shall be disbursed notwithstanding any failure to
satisfy any conditions for disbursement of any Advance set forth in
Article 2 hereof and, to the extent of the Prime-based Advance so
disbursed, the Reimbursement Obligation of the Company or the
applicable Account Party to the Agent under this Section 3.6 shall be
deemed satisfied.
(b) If the Issuing Bank shall honor a draft or other demand for
payment presented or made under any Letter of Credit, the Issuing Bank
shall provide notice thereof to the Company and the applicable Account
Party on the date such draft or demand is honored, and to each Bank on
such date unless the Company or applicable Account Party shall have
satisfied its Reimbursement Obligation under Section 3.6(a) by payment
to the Agent on such date. The Issuing Bank shall further use
reasonable efforts to provide notice to the Company or applicable
Account Party prior to honoring any such draft or other demand for
payment, but such notice, or the failure to provide such notice, shall
not affect the rights or obligations of the Issuing Bank with respect
to any Letter of Credit or the rights and obligations of the parties
hereto, including without limitation the obligations of the Company or
applicable Account Party under Section 3.6(a) hereof
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(c) Upon issuance by the Issuing Bank of each Letter of Credit
hereunder, each Bank shall automatically acquire a pro rata risk
participation interest in such Letter of Credit and related Letter of
Credit Payment based on its respective Percentage. Each Bank, on the
date a draft or demand under any Letter of Credit is honored, shall
make its Percentage share of the amount paid by the Issuing Bank, and
not reimbursed by the Company or applicable Account Party by payment to
the Agent on such day, available in immediately available funds at the
principal office of the Agent for the account of the Issuing Bank. If
and to the extent such Bank shall not have made such pro rata portion
available to the Agent, such Bank, the Company and the applicable
Account Party severally agree to pay to the Issuing Bank forthwith on
demand such amount together with interest thereon, for each day from
the date such amount was paid by the Issuing Bank until such amount is
so made available to the Agent for the account of the Issuing Bank at a
per annum rate equal to the interest rate applicable during such period
to the related Advance disbursed under Section 3.6(a) in respect of
the Reimbursement Obligation of the Company and the applicable Account
Party. If such Bank shall pay such amount to the Agent for the account
of the Issuing Bank together with such interest, such amount so paid
shall constitute a Prime-based Advance by such Bank disbursed in
respect of the Reimbursement Obligation of the Company or applicable
Account Party under Section 3.6(a) for purposes of this Agreement,
effective as of the date such amount was paid by the Issuing Bank. The
failure of any Bank to make its pro rata portion of any such amount
paid by the Issuing Bank available to the Agent for the account of the
Issuing Bank shall not relieve any other Bank of its obligation to make
available its pro rata portion of such amount, but no Bank shall be
responsible for failure of any other Bank to make such pro rata portion
available to the Agent for the account Issuing Bank.
(d) Nothing in this Agreement shall be construed to require or
authorize any Bank other than the Issuing Bank to issue any Letter of
Credit, it being recognized that the Issuing Bank shall be the sole
issuer of Letters of Credit under this Agreement.
3.7 Obligations Irrevocable. The obligations of Company and any Account
Party to make payments to Agent for the account of the Issuing Bank or of the
Banks with respect to Reimbursement Obligations under Section 3.6 hereof, shall
be unconditional and irrevocable and not subject to any qualification or
exception whatsoever, including, without limitation:
(a) Any lack of validity or enforceability of any Letter of Credit
or any documentation relating to any Letter of Credit or to any
transaction related in any way to such Letter of Credit (the "Letter of
Credit Documents");
(b) Any amendment, modification, waiver, consent, or any
substitution, exchange or release of or failure to perfect any interest
in collateral or security, with respect to any of the Letter of Credit
Documents;
(c) The existence of any claim, setoff, defense or other right
which the Company or any Account Party may have at any time against any
beneficiary or any transferee of any
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Letter of Credit (or any persons or entities for whom any such
beneficiary or any such transferee may be acting), the Agent, the
Issuing Bank or any other Bank or any other person or entity, whether
in connection with any of the Letter of Credit Documents, the
transactions contemplated herein or therein or any unrelated
transactions;
(d) Any draft or other statement or document presented under any
Letter of Credit proving to be forged, fraudulent or invalid in any
respect or any statement therein being untrue or inaccurate in any
respect;
(e) Absent gross negligence or willful misconduct on the part of
the Issuing Bank or Banks, any failure, omission, delay or lack on the
part of the Agent, the Issuing Bank or any other Bank or any party to
any of the Letter of Credit Documents to enforce, assert or exercise
any right, power or remedy conferred upon the Agent, the Issuing Bank,
any other Bank or any such party under this Agreement, any of the Loan
Documents or any of the Letter of Credit Documents, or any other acts
or omissions on the part of the Agent, the Issuing Bank, any other Bank
or any such party; or
(f) Absent gross negligence or willful misconduct on the part of
the Issuing Bank or Banks, any other event or circumstance that would,
in the absence of this Section 3.7, result in the release or discharge
by operation of law or otherwise of Company or any Account Party from
the performance or observance of any obligation, covenant or agreement
contained in Section 3.6.
No setoff, counterclaim, reduction or diminution of any obligation or any
defense of any kind or nature which Company or any Account Party has or may have
against the beneficiary of any Letter of Credit shall be available hereunder to
Company or any Account Party against the Agent, the Issuing Bank or any other
Bank. Nothing contained in this Section 3.7 shall be deemed to prevent Company
or the Account Parties, after satisfaction in full of the absolute and
unconditional obligations of Company and the Account Parties hereunder, from
asserting in a separate action any claim, defense, set off or other right which
they (or any of them) may have against Agent, the Issuing Bank or any Bank.
3.8 Risk Under Letters of Credit. (a) In the handling of Letters of
Credit and any security therefor, or any documents or instruments given in
connection therewith, and notwithstanding the granting of risk participation
hereunder, the Issuing Bank shall have the sole right to take or refrain from
taking any and all actions under or upon the Letters of Credit.
(b) Subject to other terms and conditions of this Agreement,
Issuing Bank shall issue the Letters of Credit and shall hold the
documents related thereto in its own name and shall make all
collections thereunder and otherwise administer the Letters of Credit
in accordance with Issuing Bank's regularly established practices and
procedures and, Issuing Bank will have no further obligation with
respect thereto. In the administration of Letters of Credit, Issuing
Bank shall not be liable for any action taken or omitted on the advice
of
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counsel, accountants, appraisers or other experts selected by Issuing
Bank with due care and Issuing Bank may rely upon any notice,
communication, certificate or other statement from Company, any Account
Party, beneficiaries of Letters of Credit, or any other Person which
Issuing Bank believes to be authentic. Issuing Bank, will, upon
request, furnish the Banks with copies of Letter of Credit Agreements,
Letters of Credit and documents related thereto.
(c) In connection with the issuance and administration of Letters
of Credit and the assignments hereunder, Issuing Bank makes no
representation and shall, subject to Section 3.7 hereof, have no
responsibility with respect to (i) the obligations of Company or any
Account Party or, the validity, sufficiency or enforceability of any
document or instrument given in connection therewith, (ii) the
financial condition of, any representations made by, or any act or
omission of Company, the applicable Account Party or any other Person,
or (iii) any failure or delay in exercising any rights or powers
possessed by Issuing Bank in its capacity as issuer of Letters of
Credit, in the absence of its gross negligence or willful misconduct.
Each of the Banks expressly acknowledge that they have made and will
continue to make their own evaluations of Company's creditworthiness
without reliance on any representation of Issuing Bank or Issuing
Bank's officers, agents and employees.
(d) If at any time Agent or the Issuing Bank shall recover any part
of any unreimbursed amount for any draw or other demand for payment
under a Letter of Credit, or any interest thereon, Agent or the Issuing
Bank, as the case may be, shall receive same for the pro rata benefit
of the Banks in accordance with their respective Percentage interests
therein and shall promptly deliver to each Bank its share thereof, less
such Bank's pro rata share of the costs of such recovery, including
court costs and attorney's fees. If at any time any Bank shall receive
from any source whatsoever any payment on any such unreimbursed amount
or interest thereon in excess of such Bank's Percentage share of such
payment, such Bank will promptly pay over such excess to Agent, for
redistribution in accordance with this Agreement.
3.9 Indemnification. (a) The Company and each Account Party hereby
indemnifies and agrees to hold harmless the Banks, the Issuing Bank and the
Agent, and their respective officers, directors, employees and agents, from and
against any and all claims, damages, losses, liabilities, costs or expenses of
any kind or nature whatsoever which the Banks, the Issuing Bank or the Agent or
any such Person may incur or which may be claimed against any of them by reason
of or in connection with any Letter of Credit, and none of the Issuing Bank, any
Bank or the Agent or any of their respective officers, directors, employees or
agents shall be liable or responsible for: (i) the use which may be made of any
Letter of Credit or for any acts or omissions of any beneficiary in connection
therewith; (ii) the validity, sufficiency or genuineness of documents or of any
endorsement thereon, even if such documents should in fact prove to be in any or
all respects invalid, insufficient, fraudulent or forged; (iii) payment by the
Issuing Bank to the beneficiary under any Letter of Credit against presentation
of documents which do not strictly comply with the terms of any Letter of Credit
(unless such payment resulted from the gross negligence or willful misconduct of
the Issuing Bank), including failure of any documents to bear any reference or
adequate reference
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to such Letter of Credit; (iv) any error, omission, interruption or delay in
transmission, dispatch or delivery of any message or advice, however
transmitted, in connection with any Letter of Credit; or (v) any other event or
circumstance whatsoever arising in connection with any Letter of Credit;
provided, however, that with respect to subparagraphs (a)(i) through (a)(v)
hereof, Company and Account Parties shall not be required to indemnify the
Issuing Bank, the other Banks and the Agent and such other persons, and the
Issuing Bank shall be liable to the Company and the Account Parties to the
extent, but only to the extent, of any direct, as opposed to consequential or
incidental, damages suffered by Company and the Account Parties which were
caused by the Issuing Bank's gross negligence, willful misconduct or wrongful
dishonor of any Letter of Credit after the presentation to it by the beneficiary
thereunder of a draft or other demand for payment and other documentation
strictly complying with the terms and conditions of such Letter of Credit.
(b) It is understood that in making any payment under a Letter of
Credit the Issuing Bank will rely on documents presented to it under such Letter
of Credit as to any and all matters set forth therein without further
investigation and regardless of any notice or information to the contrary. It is
further acknowledged and agreed that Company or an Account Party may have rights
against the beneficiary or others in connection with any Letter of Credit with
respect to which the Banks are alleged to be liable and it shall be a condition
of the assertion of any liability of the Banks under this Section that Company
or applicable Account Party shall contemporaneously pursue all remedies in
respect of the alleged loss against such beneficiary and any other parties
obligated or liable in connection with such Letter of Credit and an elated
transactions.
3.10 Right of Reimbursement. Each Bank agrees to reimburse the Issuing
Bank on demand (by payment to the Agent for the account of the Issuing Bank),
pro rata in accordance with their Percentages, for (i) the reasonable
out-of-pocket costs and expenses of the Issuing Bank to be reimbursed by Company
or any Account Party pursuant to any Letter of Credit Agreement or any Letter of
Credit, to the extent not reimbursed by Company or Account Party and (ii) any
and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, fees, expenses or disbursements of any kind and nature
whatsoever which may be imposed on, incurred by or asserted against Issuing Bank
(in its capacity as issuer of any Letter of Credit) in any way relating to or
arising out of this Agreement, any Letter of Credit, any documentation or any
transaction relating thereto, or any Letter of Credit Agreement, except to the
extent that such liabilities, losses, costs or expenses were incurred by Issuing
Bank as a result of Issuing Bank's gross negligence or willful misconduct or
wrongful dishonor of any Letter of Credit.
4. MARGIN ADJUSTMENTS; INTEREST PAYMENTS
4.1 Margin Adjustments. Adjustments in the Margin and the Applicable
L/C Fee Percentage, shall be implemented on a quarterly basis as follows:
(a) Such adjustments shall be given prospective effect only,
effective (i) as to all Prime-based Advances outstanding hereunder, and
the Applicable L/C Fee Percentage, upon the required date of delivery
of the financial statements under Sections 7.1(a) and 7.1(b)
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hereunder, in each case establishing applicability of the appropriate
adjustment, and (ii) as to each Eurocurrency-based Advance outstanding
hereunder, effective upon the expiration of the applicable Interest
Period(s), if any, in effect on the date of the delivery of such
financial statements, in each case with no retroactivity or claw-back.
In the event Company fails timely to deliver the financial statements
required under Section 7.1(a) or 7.1(b), then from the date
delivery of such financial statements was required until such financial
statements are delivered, the margins and fee percentages shall be
those set forth under the Level 1 Column of the pricing matrix attached
to this Agreement as Schedule 1.1.
(b) With respect to Eurocurrency-based Advances outstanding
hereunder, an adjustment hereunder, after becoming effective, shall
remain in effect only through the end of the applicable Interest
Period(s) for such Eurocurrency-based Advances if any; provided,
however, that upon any change in the Margin level then in effect, as
aforesaid, or the occurrence of any other event which under the terms
hereof causes such adjustment no longer to be applicable, then any such
subsequent adjustment or no adjustment, as the case may be, shall be
effective (and said pricing shall thereby be adjusted up or down, as
applicable) with the commencement of each Interest Period following
such change or event, all in accordance with the preceding
subparagraph.
(c) Such Margin adjustments under this Section 4.1 shall be made
irrespective of, and in addition to, any other interest rate
adjustments hereunder.
(d) From the date hereof until the required date of delivery under
Section 7.1(b) of the Company's financial statements for the fiscal
quarter ending March 31, 1998, the margins and fee percentages shall be
those set forth under the Level III column of the pricing matrix
attached to this Agreement as Schedule 1.1.
(e) Following a Permitted Acquisition, in determining the ratio of
Senior Funded Debt to Adjusted EBITDA (for the purpose of determining
the Margin only), as of the first repricing date following such
Permitted Acquisition, (i) Senior Funded Debt shall not include Funded
Debt of the New Subsidiary formed or acquired in connection with such
Permitted Acquisition and (ii) Adjusted EBITDA shall be delivered
without giving effect to the net income and related items for the New
Subsidiary formed or acquired in connection with such Permitted
Acquisition.
4.2 Prime-based Interest Payments. Interest on the unpaid balance of
all Prime-based Advances from time to time outstanding shall accrue until paid
at a per annum interest rate equal to the Prime-based Rate, and shall be
payable in immediately available funds quarterly commencing on the first day of
the fiscal quarter next succeeding the fiscal quarter during which the initial
Advance is made and on the first day of each fiscal quarter thereafter. Interest
accruing at the Primebased Rate shall be computed on the basis of a 360 day year
and assessed for the actual number of days elapsed, and in such computation
effect shall be given to any change in the interest rate resulting from a change
in the Prime-based Rate on the date of such change in the Prime-based Rate.
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4.3 Eurocurrency-based Interest Payments. Interest on each
Eurocurrency-based Advance having a related Eurocurrency-Interest Period of
three (3) months or less shall accrue at its Eurocurrency-based Rate and shall
be payable in immediately available funds on the last day of the Interest Period
applicable thereto. Interest shall be payable in immediately available funds on
each Eurocurrency-based Advance outstanding from time to time having a
Eurocurrency-Interest Period of six (6) months or longer, at intervals of three
(3) months after the first day of the applicable Interest Period, and shall also
be payable on the last day of the Interest Period applicable thereto. Interest
accruing at the Eurocurrency-based Rate shall be computed on the basis of a 360
day year and assessed for the actual number of days elapsed from the first day
of the Interest Period applicable thereto to, but not including, the last day
thereof.
4.4 Interest Payments on Conversions. Notwithstanding anything to the
contrary in Sections 4.2 and 4.3, all accrued and unpaid interest on any Advance
refunded or converted pursuant to Section 2.3 hereof shall be due and payable in
full on the date such Advance is refunded or converted.
4.5 Interest on Default. Notwithstanding anything to the contrary set
forth in Sections 4.2 and 4.3, in the event and so long as any Event of Default
shall exist under this Agreement, interest shall be payable daily on the
principal amount of all Advances from time to time outstanding (and, to the
extent delinquent, on all other monetary obligations of Company hereunder and
under the other Loan Documents) at a per annum rate equal to the Applicable
Interest Rate (calculated on the basis of the maximum Margins) in respect of
each such Advance, plus, in the case of Eurocurrency-based Advances, two percent
(2%) per annum for the remainder of the then existing Interest Period, if any,
and at all other such times and for all Prime-based Advances, at a per annum
rate equal to the Prime-based Rate, plus two percent (2%).
4.6 Prepayment of Revolving Credit Advances. Company may prepay all or
part of the outstanding balance of any Prime-based Revolving Credit Advance(s)
at any time, provided that the amount of any partial prepayment shall be at
least Five Hundred Thousand Dollars ($500,000) and the aggregate balance of
Prime-based Revolving Credit Advance(s) remaining outstanding, if any, shall be
at least Two Hundred Fifty Thousand Dollars ($250,000). Company may prepay all
or part of any Eurocurrency-based Revolving Credit Advance (subject to not less
than three (3) Business Days' notice to Agent) only on the last day of the
Interest Period applicable thereto, provided that the amount of any such partial
prepayment shall be at least Fifty Thousand Dollars ($50,000), and the unpaid
portion of such Advance which is refunded or converted under Section 2.3 shall
be at least Five Hundred Thousand Dollars ($500,000). Any prepayment made in
accordance with this Section shall be without premium, penalty or prejudice to
the right to reborrow under the terms of this Agreement. Any other prepayment of
all or any portion of the Revolving Credit, whether by acceleration, mandatory
or required prepayment or otherwise, shall be subject to Section 11. 1 hereof,
but otherwise without premium, penalty or prejudice. All prepayments of
Revolving Credit Advances shall be made to the Agent for distribution ratably to
the Banks.
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5. CONDITIONS
The obligations of Banks to make Advances or loans pursuant to this
Agreement and the obligation of the Issuing Bank to issue Letters of Credit are
subject to the following conditions:
5.1 Execution of Notes and this Agreement. Company shall have executed
and delivered to Agent for the account of each Bank, the Revolving Credit Notes
this Agreement and the other Loan Documents to which it is a party (including
all schedules, exhibits, certificates, opinions, financial statements and other
documents to be delivered pursuant hereto), and such Notes, and this Agreement
and the other Loan Documents shall be in full force and effect.
5.2 Corporate Authority. Agent shall have received, with a counterpart
thereof for each Bank:
(a) In connection with the Company, a certificate of Responsible
Officer as to:
(i) resolutions of the board of directors of the Company
evidencing approval of the transactions contemplated by this
Agreement and the Notes and authorizing the execution and delivery
thereof and the borrowing of Advances and the requesting of Letters
of Credit hereunder,
(ii) the incumbency and signature of the officers of the
Company executing any Loan Document,
(iii) a certificate of good standing or continued existence (or
the equivalent thereof) from the State of Michigan, and from every
state or other jurisdiction listed on Schedule 5.2 hereof if issued
by such jurisdiction, subject to the limitations (as to
qualification and authorization to do business) contained in
Section 6.1, and
(iv) copies of Company's articles of incorporation and bylaws
or other constitutional documents, as in effect on the Effective
Date;
(b) in connection with each Guarantor, a certificate from an
authorized officer of such Guarantor as to:
(i) resolutions of the board of directors or members or
managers, as the case may be, of each such Guarantor evidencing
approval of the transactions contemplated by the Loan Documents to
which such Guarantor is a party and authorizing the execution and
delivery thereof,
(ii) the incumbency and signature of the officers or members or
managers, as the case may be, of such Guarantor executing any Loan
Document to which such Guarantor is a party,
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(iii) a certificate of good standing from the state or other
jurisdiction of such Guarantor's incorporation, and from every
state or other jurisdiction in which such Guarantor is qualified to
do business, if issued by such jurisdiction, subject to the
limitations (as to qualification and authorization to do business)
contained in Section 7.1, hereof, and
(iv) copies of Guarantor's articles of incorporation and bylaws
or other constitutional documents, as in effect on the Effective
Date.
5.3 Collateral Documents and Guaranties. As security for all
Indebtedness of Company to the Banks hereunder the Agent shall have received the
Guaranty executed and delivered by each of the Guarantors.
5.4 Compliance with Certain Documents and Agreement. The Company and
each Guarantor (and any of their respective Subsidiaries or Affiliates) shall
have each performed and complied in all material respects with all agreements
and conditions contained in this Agreement, other Loan Documents, or any
agreement or other document executed thereunder and required to be performed or
complied with by each of them (as of the applicable date) and none of such
parties shall be in material default in the performance or compliance with any
of the terms or provisions hereof or thereof.
5.5 Opinion of Counsel. Company and each Guarantor shall furnish Agent
prior to the initial Advance under this Agreement, and with signed copies for
each Bank, opinions of counsel to the Company and such Guarantor, dated the date
hereof, and covering such matters as reasonably required by and otherwise
reasonably satisfactory in form and substance to the Agent and each of the
Banks.
5.6 Company's Certificate. The Agent shall have received, with a signed
counterpart for each Bank, a certificate of a Responsible Officer of Company
dated the date of the making of Advances hereunder, stating that to the best of
his or her knowledge after due inquiry, (a) the conditions of paragraphs 5.1 and
5.3 hereof have been fully satisfied; (b) the representations and warranties
made by Company, each Guarantor or any other party to any of the Loan Documents
(excluding the Agent and Banks) in this Agreement or any of the other Loan
Documents, and the representations and warranties of any of the foregoing which
are contained in any certificate, document or financial or other statement
furnished at any time hereunder or thereunder or in connection herewith or
therewith shall have been true and correct in all material respects when made
and shall be true and correct in all material respects on and as of the
Effective Date; and (c) no Default or Event of Default shall have occurred and
be continuing, and there shall have been no material adverse change in the
financial condition, properties, business, results or operations of the Company
and its Subsidiaries taken as a whole from December 31, 1997 to the date of the
making of the first borrowing hereunder.
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5.7 Payment of Fees. Company shall have paid to the Agent all fees,
costs and expenses required hereunder to be paid to Agent upon execution of this
Agreement.
5.8 Existing Credit Facilities. All existing Debt, other than Debt
expressly permitted hereunder, together with all interest, all prepayment
premiums and other amounts due and payable with respect thereto, shall have been
paid in full and the related commitments terminated or amounts necessary to pay
and discharge such Debt in full shall have been delivered into cash escrow
arrangements satisfactory to Banks in their sole discretion; and all Liens
securing payment of any such Debt have been released and the Agent shall have
received all Uniform Commercial Code Form UCC-3 terminations statements or other
instruments as may be suitable or appropriate in connection therewith.
5.9 Other Documents and Instruments. The Agent shall have received,
with a photocopy for each Bank, such other instruments and documents as each of
the Banks may reasonably request in connection with the making of Advances or
issuance of Letters of Credit hereunder, and all such instruments and documents
shall be satisfactory in form and substance to Agent and each Bank.
5.10 Continuing Conditions. The obligations of the Banks to make
Advances (including the initial Advance) under this Agreement and the obligation
of the Issuing Bank to issue any Letters of Credit shall be subject to the
continuing conditions that:
(a) All conditions of Sections 5.1 through 5.9 shall have been and
remain satisfied as of the date of the Advance or the request for the Letter of
Credit;
(b) No Default or Event of Default shall exist as of the date of the
Advance or the request for the Letter of Credit; and
(c) Each of the representations and warranties contained in this
Agreement and in each of the other Loan Documents shall be true and correct in
all material respects as of the date of the Advance or Letter of Credit.
6. REPRESENTATIONS AND WARRANTIES
Company represents and warrants and such representations and warranties
shall be deemed to be continuing representations and warranties until the
Revolving Credit Maturity Date and thereafter until the expiration of all
Letters of Credit and the final payment in full of the Indebtedness and the
performance by Company of all other obligations under this Agreement:
6.1 Corporate Authority. Company is a corporation duly organized and
existing in good standing under the laws of the State of Michigan; each
Subsidiary is a corporation or other business entity duly organized and existing
in good standing under the laws of the jurisdiction of its incorporation; and
each of the Company and its Subsidiaries is duly qualified and authorized to do
business as a foreign corporation in each jurisdiction where the character of
its assets or the nature
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of its activities makes such qualification necessary and where failure to be so
qualified would have a material adverse effect on their respective businesses.
6.2 Due Authorization - Company. Execution, delivery and performance of
this Agreement, the other Loan Documents and any other documents and instruments
required under or in connection with this Agreement or the other Loan Documents
(or to be so executed and delivered), and the issuance of the Notes by Company
are within its corporate powers, have been duly authorized, are not in
contravention of law or the terms of the Company's organizational documents and,
except as have been previously obtained or as referred to in Section 6.13,
below, do not require the consent or approval, material to the transactions
contemplated by this Agreement and the other Loan Documents, of any governmental
body, agency or authority.
6.3 Due Authorization - Guarantors. Execution, delivery and performance
of the Guaranty and all other documents and instruments required of Guarantors
under or in connection with this Agreement and the other Loan Documents (or to
be so executed and delivered), and to which each Guarantor is a party, are
within the corporate powers or limited liability company of each such Guarantor,
have been duly authorized, are not in contravention of law or the terms of such
Guarantor's organizational documents, and, except as have been previously
obtained (or as referred to in Section 6.13 below), do not require the consent
or approval, material to the transactions contemplated by this Agreement and the
other Loan Documents, of any governmental body, agency or authority not
previously obtained.
6.4 Liens. There are no security interests in, liens, mortgages, or
other encumbrances on and no financing statements on file with respect to any of
the property owned, pledged, mortgaged or otherwise encumbered (or to be
encumbered) by Company or any of its Subsidiaries except for Liens permitted
pursuant to Section 8.2.
6.5 Taxes. Company and each of its Subsidiaries has filed on or before
their respective due dates or within the applicable grace periods, all federal,
state and foreign tax returns which are required to be filed or has obtained
extensions for filing such tax returns and is not delinquent in filing such
returns in accordance with such extensions and has paid all taxes which have
become due pursuant to those returns or pursuant to any assessments received by
any such party, as the case may be, to the extent such taxes have become due,
except to the extent such tax payments are being actively contested in good
faith by appropriate proceedings and with respect to which adequate provision
has been made on the books of Company or such Subsidiary as maybe required by
GAAP.
6.6 No Defaults. There exists no material default under the provisions
of any instrument evidencing any indebtedness for borrowed money of the Company
or any Subsidiary which is permitted hereunder or of any agreement relating
thereto.
6.7 Enforceability of Agreement and Loan Documents -- Company. This
Agreement, each of the other Loan Documents to which Company is a party, and all
other certificates, agreements and documents executed and delivered by Company
under or in connection herewith or therewith have
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each been duly executed and delivered by its duly authorized officers and
constitute the valid and binding obligations of Company, enforceable in
accordance with their respective terms, except as enforcement thereof may be
limited by applicable bankruptcy, reorganization, insolvency, fraudulent
conveyance, moratorium or similar laws affecting the enforcement of creditor's
rights, generally and by general principles of equity (regardless of whether
enforcement is considered in a proceeding in law or equity).
6.8 Enforceability of Loan Documents -- Guarantors. The Loan Documents
to which each of the Guarantors is a party, and all certificates, documents and
agreements executed in connection therewith by the Guarantors have each been
duly executed and delivered by the duly authorized officers or members or
managers, as the case may be, of the Guarantors and constitute the valid and
binding obligations of such Guarantors, enforceable in accordance with their
respective terms, except as enforcement thereof may be limited by applicable
bankruptcy, reorganization, insolvency, fraudulent conveyance, moratorium or
similar laws affecting the enforcement of creditor's rights, generally and by
general principles of equity (regardless of whether enforcement is considered in
a proceeding in law or equity).
6.9 Compliance with Laws. Except as disclosed on Schedule 6.9, each of
the Company and each of its Subsidiaries has complied with all applicable
federal, state and local laws, ordinances, codes, rules, regulations and
guidelines (including consent decrees and administrative orders) except to the
extent that failure to comply therewith would not materially interfere with the
conduct of the business of Company and each of the Subsidiaries taken as a
whole, or would not have a Material Adverse Effect; except for such matters as
are not likely to have a Material Adverse Effect, and except as set forth in
Schedule 6.9 hereof, and without limiting the generality of Section 6.12, there
have been no past, and there is no pending or threatened, litigation, action,
proceeding or controversy affecting the Company or any of the Subsidiaries, and
no pending or threatened complaint, notice or inquiry to the Company or any of
the Subsidiaries, regarding potential liability of the Company or any of the
Subsidiaries, or any officer, director, agent or employee of the Company or any
of the Subsidiaries; and, to the knowledge of the Company, no facts or situation
exists that could form the basis for any such litigation, action, proceeding,
controversy, complaint, notice or inquiry.
6.10 Non-contravention -- Company. The execution, delivery and
performance of this Agreement and the other Loan Documents and any other
documents and instruments required under or in connection with this Agreement by
Company are not in contravention of the terms of any indenture, agreement or
undertaking to which Company or any of its Subsidiaries is a party or by which
its or their properties are bound or affected where such violation would
reasonably be expected to have a Material Adverse Effect.
6.11 Non-contravention -- Guarantors. The execution, delivery and
performance of those Loan Documents signed by the Guarantors, and any other
documents and instruments required under or in connection with this Agreement or
any other Loan Document by the Guarantors are not in contravention of the terms
of any indenture, agreement or undertaking to which any Guarantor or
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Company is a party or by which it or its properties are bound or affected where
such violation would reasonably be expected to have a material adverse effect.
6.12 No Litigation. Except for De Minimis Matters or as set forth on
Schedule 6.12 hereof, there is no suit, action, proceeding, including, without
limitation, any bankruptcy proceeding, or governmental investigation pending
against or to the knowledge of Company, affecting Company or any Subsidiary
(other than any suit, action or proceeding in which Company or such Subsidiary
is the plaintiff and in which no counterclaim or cross-claim against Company or
such Subsidiary has been filed), nor has Company or any Subsidiary or any of its
or their officers, members, managers, or directors, as the case may be, been
subject to any suit, action, proceeding or governmental investigation as a
result of which any such officer, member, manager or director is or may be
entitled to indemnification by Company or a Subsidiary, as applicable, which
suits, if resolved adversely to Company, such Guarantor or such Subsidiary, are
reasonably likely to have a Material Adverse Effect. Except as set forth on
Schedule 6.12, there is not outstanding against Company or any Subsidiary any
judgment, decree, injunction, rule, or order of any court, government,
department, commission, agency, instrumentality or arbitrator nor is Company or
any Subsidiary in violation of any applicable law, regulation, ordinance, order,
injunction, decree or requirement of any governmental body or court where such
violation would reasonably be expected to have a Material Adverse Effect.
6.13 Consents, Approvals and Filings, Etc. Except as have been
previously obtained, no authorization, consent, approval, license, qualification
or formal exemption from, nor any filing, declaration or registration with, any
court, governmental agency or regulatory authority or any securities exchange or
any other person or party (whether or not governmental) is required in
connection with the execution, delivery and performance: (i) by Company of this
Agreement, any of the other Loan Documents to which it is a party, or any other
documents or instruments to be executed and or delivered by Company in
connection therewith or herewith; (ii) by any Guarantor, of any of the other
Loan Documents to which such Subsidiary is a party. All such authorizations,
consents, approvals, licenses, qualifications, exemptions, filings, declarations
and registrations which have previously been obtained or made, as the case may
be, are in full force and effect and are not the subject of any attack, or to
the knowledge of Company threatened attack (in any material respect) by appeal
or direct proceeding or otherwise.
6.14 Agreements Affecting Financial Condition. Neither the Company nor
any Subsidiary is party to any agreement or instrument or subject to any charter
or other corporate restriction which has a Material Adverse Effect.
6.15 No Investment Company or Margin Stock. Neither the Company nor any
Subsidiary is an "investment company" within the meaning of the Investment
Company Act of 1940, as amended. Neither the Company nor any Subsidiary is
engaged principally, or as one of its important activities, directly or
indirectly, in the business of extending credit for the purpose of purchasing or
carrying margin stock. None of the proceeds of any of the Advances will be used
by the Company nor any Subsidiary to purchase or carry margin stock or will be
made available by the Company or
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any of its Subsidiaries in any manner to any other Person to enable or assist
such Person in purchasing or carrying margin stock. Terms for which meanings are
provided in Regulation U of the Board of Governors of the Federal Reserve System
or any regulations substituted therefor, as from time to time in effect, are
used in this paragraph with such meanings.
6.16 ERISA. Neither Company nor any Subsidiary maintains or contributes
to any Pension Plan subject to Title IV of ERISA, except as set forth on
Schedule 6.16 hereto; and there is no accumulated funding deficiency within the
meaning of ERISA, or any existing liability with respect to any of the Pension
Plans owed to the Pension Benefit Guaranty Corporation or any successor thereto,
and no "reportable event" or "prohibited transaction", as defined in ERISA, has
occurred with respect to any Pension Plan, and all such Pension Plans are in
material compliance with the requirements of the Internal Revenue Code and
ERISA.
6.17 Conditions Affecting Business or Properties. Neither the
respective businesses nor the properties of Company nor any Subsidiary is
affected by any fire, explosion, accident, strike, lockout or other dispute,
drought, storm, hail, earthquake, embargo, Act of God or other casualty (whether
or not covered by insurance).
6.18 Environmental and Safety Matter. Except as set forth in Schedules
6.18 and 6.12 and except for such matters as are not likely to have a Material
Adverse Effect:
(a) all facilities and property (including underlying groundwater)
owned or leased by the Company or any of its Subsidiaries, have been,
and continue to be, owned or leased by the Company and the Subsidiaries
in material compliance with all Hazardous Material Laws;
(b) to the best knowledge of the Company, there have been no past,
and there are no pending or threatened
(i) claims, complaints, notices or requests for
information received by the Company or any of its Subsidiaries
with respect to any alleged violation of any Hazardous Material
Law, or
(ii) complaints, notices or inquiries to the Company or
any of its Subsidiaries regarding potential liability under any
Hazardous Material Law; and
(c) no conditions exist at, on or under any property now or
previously owned or leased by the Company or any of its Subsidiaries
which, with the passage of time, or the giving of notice or both,
would give rise to liability under any Hazardous Material Law.
6.19 Subsidiaries. As of the Effective Date, and except as disclosed on
Schedule 7.19 hereto, the Company has no Subsidiaries.
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6.20 Accuracy of Information. (a) Each of the Company's financial
statements previously furnished to Agent and the Banks prior to the date of this
Agreement, has been prepared in accordance with GAAP and is complete and correct
in all material respects and fairly presents (subject to year-end audit
adjustments in the case of interim statements) the financial condition of
Company and the results of its operations for the periods covered thereby.
(b) Since December 31, 1997 there has been no material adverse
change in the financial condition of Company or its Subsidiaries taken as a
whole; to the best knowledge of Company, neither Company nor any of its
Subsidiaries has any contingent obligations (including any liability for taxes)
not disclosed by or reserved against in the December 31, 1997 balance sheets, as
applicable, except as set forth on Schedule 6.20 hereof, and at the present time
there are no unrealized or anticipated losses from any present commitment of
Company or any of its Subsidiaries which in the aggregate is likely to have a
Material Adverse Effect.
7. AFFIRMATIVE COVENANTS
Company covenants and agrees that it will, and, as applicable, it will
cause each of its Subsidiaries, until the Revolving Credit Maturity Date and
thereafter until expiration of all Letters of Credit and final payment in full
of the Indebtedness and the performance by the Company of all other obligations
under this Agreement and the other Loan Documents:
7.1 Financial Statements. Furnish to the Agent with sufficient copies
for each Bank:
(a) as soon as available and in any event within one hundred twenty
(120) days after the end of each of Company's fiscal years, (i) a
copy of Company's consolidated financial statements for each
fiscal year including consolidated balance sheets as of the end of
such fiscal year and related consolidated statements of income and
retained earnings for such fiscal year, each prepared in
accordance with GAAP and audited by independent certified public
accountants selected by Company and reasonably acceptable to Agent
and (ii) a copy of Company's consolidating financial statements
for each fiscal year including consolidating balance sheets as of
the end of such fiscal year and related consolidating statements
of income and retained earnings for such fiscal year, each
prepared in accordance with GAAP and certified by an officer of
Company;
(b) as soon as available and in any event within forty five (45) days
after the end of each fiscal quarter, a copy of Company's
consolidated and consolidating financial statements for such
fiscal quarter, including consolidated and consolidating balance
sheets as of the end of such fiscal quarter and the related
statements of income and retained earnings for such fiscal
quarter, each prepared in accordance with generally accepted
accounting principles and practices consistently applied and
certified (subject to year-end audit adjustments) by an officer of
Company;
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(c) as soon as available and in any event within forty five (45) days
after the end of each fiscal quarter (excluding the fourth fiscal
quarter of each fiscal year), a copy of each Insurance
Subsidiary's financial statements for such fiscal quarter,
including a balance sheet as of the end of such fiscal quarter and
the related statements of income and retained earnings for such
fiscal quarter, each prepared in accordance with SAP and certified
by an officer of the applicable Insurance Subsidiary;
(d) as soon as available and in any event within one hundred twenty
(120) days after the end of each fiscal year of each Insurance
Subsidiary, a copy of such Insurance Subsidiary's financial
statements for such fiscal year, including a balance sheet as of
the end of such fiscal year and the related statements of income
and retained earnings for such fiscal year, each prepared in
accordance with SAP and certified by an officer of the applicable
Insurance Subsidiary;
(e) as soon as available, copies of all financial statements related
to Company and/or any of its Subsidiaries filed with any
Regulatory Agency;
(f) copies of Company's reports on Form 8-K (as soon as available),
10-Q (within sixty days after the end of each fiscal quarter of
Company) and 10-K (within one hundred twenty days after the end of
each fiscal year of Company) filed with the federal Securities and
Exchange Commission;
(g) as soon as available, copies of all reports with respect to
Company and/or any of its Subsidiaries prepared by any Regulatory
Agency or rating agency;
all such financial statements to be complete and correct in all material
respects and to be prepared in reasonable detail and in accordance with GAAP, or
SAP, as applicable, throughout the periods reflected therein and with prior
periods (except as approved by such officer and disclosed therein).
7.2 Certificates; Other Information. Furnish to the Agent with
sufficient copies for each Bank (except in connection with clause (b)(ii) below,
which copies shall be provided to each Bank on request):
(a) Within 45 days after and as the end of each quarter, a
Covenant Compliance Certificate substantially in form attached hereto
as Exhibit D;
(b) promptly and in form to be reasonably satisfactory to Majority
Banks, such additional financial and/or other information, or other
reports as any Bank may from time to time reasonably request.
7.3 Payment of Obligations. Pay, discharge or otherwise satisfy at or
before maturity or before they become delinquent, as the case may be, all of
its material obligations of whatever nature, except where the amount or validity
thereof is currently being contested in good faith by appropriate
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proceedings and reserves in conformity with GAAP with respect thereto have been
provided on the books of the Company.
7.4 CONDUCT of Business and Maintenance of Existence.
(a) Continue to engage solely in the business as now conducted by
it and preserve, renew and keep in full force and effect its existence;
(b) take all reasonable action to maintain all rights, privileges
and franchises necessary or desirable in the normal conduct of its
business except as otherwise permitted pursuant to Section 8.4; and
(c) comply with all Contractual Obligations and Requirements of
Law, except to the extent that failure to comply therewith could not,
in the aggregate, reasonably be expected to have a Material Adverse
Effect.
7.5 Maintenance of Property; Insurance. Keep all property useful and
necessary in its business in good working order and maintain insurance coverage
on its physical assets and against other business risks in such amounts and of
such types as are customarily carried by companies similar in size and nature
(including without limitation casualty and public liability and property damage
insurance), and in the event of acquisition of additional property, real or
personal, or of incurrence of additional risks of any nature, increase such
insurance coverage in such manner and to such extent as prudent business
judgment and present practice or any applicable Requirements of Law would
dictate.
7.6 Inspection of Property; Books and Records, Discussions.
Permit Agent and each Bank, through their authorized attorneys,
accountants and representatives (a) to examine Company's and each Subsidiary's
books, accounts, records, ledgers and assets and properties of every kind and
description wherever located at all reasonable times during normal business
hours, upon oral or written request of Agent or such Bank; and (b) permit Agent
and each Bank or their authorized representatives, at reasonable times and
intervals, to visit all of their respective offices, discuss their respective
financial matters with their respective officers and independent certified
public accountants, and, by this provision, Company authorizes such accountants
to discuss the finances and affairs of Company and its Subsidiaries (provided
that Company is given an opportunity to participate in such discussions) and
examine any of its or their books and other corporate records. Notwithstanding
the foregoing, all information furnished to the Agent or the Banks hereunder
shall be subject to the undertaking of the Banks set forth in Section 13.12
hereof.
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7.7 Notices. Promptly give notice to the Agent of:
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(a) the occurrence of any Default or Event of Default of which the
Company or any Subsidiaries has knowledge;
(b) any (i) default or event of default under any Contractual
Obligation of the Company or any Subsidiary or (ii) litigation,
investigation or proceeding which may exist at any time between the
Company or any Subsidiary and any Governmental Authority, which in
either case, if not cured or if adversely determined, as the case may
be, would have a Material Adverse Effect;
(c) the following events, as soon as possible and in any event
within 30 days after the Company knows or has reason to know thereof:
(i) the occurrence or expected occurrence of any "reportable event" as
defined in ERISA with respect to any Pension Plan, or any withdrawal
from or the termination, reorganization or insolvency of any
Multiemployer Plan or (ii) the institution of proceedings or the taking
of any other action by the Pension Benefit Guaranty Corporation or the
Company or any Commonly Controlled Entity or any Multiemployer Plan
with respect to the withdrawal from or the terminating, reorganization
or insolvency of any Pension Plan;
(d) a material adverse change in the business, operations,
property, or financial condition of the Company or any of its
Subsidiaries taken as a whole;
(e) promptly after becoming aware of the taking by the Internal
Revenue Service or any foreign taxing jurisdiction of a written tax
position which could reasonably be expected to have a Material Adverse
Effect upon the Company (or any such tax position taken by the Company)
setting forth the details of such position and the financial impact
thereof.
Each notice pursuant to this Section shall be accompanied by a statement of a
Responsible Officer setting forth details of the occurrence referred to therein
and stating what action the Company proposes to take with respect thereto.
7.8 Hazardous Material Laws.
(a) Use and operate all of its facilities and properties in
material compliance with all material Hazardous Material Laws, keep all
necessary permits, approvals, certificates, licenses and other
authorizations relating to environmental matters in effect and remain
in material compliance therewith, and handle all Hazardous Materials in
material compliance with all applicable Hazardous Material Laws;
(b) Promptly notify Agent and provide copies upon receipt of all
written claims, complaints, notices or inquiries received by the
Company or any of its Subsidiaries of a material nature relating to its
facilities and properties or compliance with Hazardous Material Laws,
and shall promptly cure and have dismissed with prejudice to the
satisfaction of the
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Majority Banks any actions and proceedings relating to compliance with
Hazardous Material Laws to which the Company or any of its Subsidiaries
is named as a party;
(c) Provide such information and certifications which any Bank may
reasonably request from time to time to evidence compliance with this
Section 7.8.
7.9 Maintain Base Net Worth. Maintain at all times a Net Worth of not
less than the Base Net Worth.
7.10 Fixed Charge Coverage Ratio. Maintain, as of the end of each
fiscal quarter, a Fixed Charge Coverage Ratio of not less than 2.0 to 1.0.
7.11 Senior Funded Debt to Adjusted EBITDA Ratio. Maintain, as of the
end of each fiscal quarter, a ratio of Senior Funded Debt to Adjusted EBITDA of
not more than 4.75 to 1.0.
7.12 Senior Funded Debt to Total Capitalization Ratio. Maintain, as of
the end of each fiscal month, a ratio of Senior Funded Debt to Total
Capitalization of not more than .35 to 1.0.
7.13 Net Premium and Gross Premium Ratio. Cause each Insurance
Subsidiary to maintain at all times a Net Premium Ratio of not more than 2.5 to
1.0 and a Gross Premium Ratio of not more than 3.5 to 1.0.
7.14 Taxes. Pay and discharge all taxes and other governmental charges,
and all material contractual obligations calling for the payment of money,
before the same shall become overdue, unless and to the extent only that such
payment is being contested in good faith by appropriate proceedings and is
reserved for, as required by GAAP on its balance sheet, or where the failure to
pay any such matter could not have a Material Adverse Effect.
7.15 Governmental and Other Approvals. Apply for, obtain and/or
maintain in effect, as applicable, all authorizations, consents, approvals,
licenses, qualifications, exemptions, filings, declarations and registrations
(whether with any court, governmental agency, regulatory authority, securities
exchange or otherwise) which are necessary in connection with the execution,
delivery and performance: (i) by Company, of this Agreement, the other Loan
Documents, or any other documents or instruments to be executed and/or delivered
by Company in connection therewith or herewith; and (11) by each of the
Subsidiaries, of the Loan Documents to which it is party.
7.16 Compliance with ERISA. Comply in all material respects with all
requirements imposed by ERISA as presently in effect or hereafter promulgated or
the Internal Revenue Code, including, but not limited to, the minimum funding
requirements of any Pension Plan.
7.17 ERISA Notices. Promptly notify Agent upon the occurrence of any of
the following events:
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(a) the termination of any Pension Plan subject to Subtitle C of
Title IV of ERISA;
(b) the appointment of a trustee by a United States District Court
to administer any Pension Plan subject to Title IV of ERISA;
(c) the commencement by the Pension Benefit Guaranty Corporation,
or any successor thereto, of any proceeding to terminate any Pension
Plan subject to Title IV of ERISA;
(d) the failure of the Company or any Subsidiary to make any
payment in respect of any Pension Plan required under Section 412 of
the Internal Revenue Code;
(e) the withdrawal of the Company or any Subsidiary from any
multiemployer plan (as defined in Section 3(37) of ERISA; or
(f) the occurrence of a "reportable event" which is required to be
reported by the Company under Section 4043 of ERISA or a "prohibited
transaction" as defined in Section 406 of ERISA or Section 4975 of the
Internal Revenue Code which is likely to have a Material Adverse
Effect.
7.18 Use of Proceeds. Use all Advances of the Revolving Credit for
working capital financing, to refinance existing debt and to finance Permitted
Acquisitions. Company shall not use any portion of the proceeds of any such
advances for the purpose of purchasing or carrying any "margin stock" (as
defined in Regulation G of the Board of Governors of the Federal Reserve System)
in any manner which violates the provisions of Regulation G, T, U or X of said
Board of Governors or for any other purpose in violation of (x) any applicable
statute or regulation or (y) the terms and conditions of this Agreement.
7.19 Future Subsidiaries.
With respect to each Person which becomes a Material Subsidiary
subsequent to the Effective Date (other than an Insurance Subsidiary), on the
date such new Material Subsidiary is created or acquired, cause such new
Material Subsidiary to execute and deliver to the Agent, a Joinder Agreement
whereby such Material Subsidiary becomes obligated as a Guarantor under the
Guaranty.
8. NEGATIVE COVENANTS.
Company covenants and agrees that, until the Revolving Credit Maturity
Date and thereafter until expiration of all Letters of Credit and final payment
in full of the Indebtedness and the performance by Company and the Subsidiaries
of all other obligations under this Agreement and the other Loan Documents, it
will not, and will not permit any of the Subsidiaries, to:
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8.1 Limitation on Debt. Create, incur, assume or suffer to exist any
Debt, except:
(a) Indebtedness in respect of the Notes, the Letters of Credit
and other obligations of the Company or any Subsidiary under this
Agreement and the other Loan Documents to which it is a party;
(b) any Debt set forth in Schedule 8.1(b) attached hereto and
any renewals or refinancing of such Debt in amounts not exceeding the
scheduled amounts (less any required amortization according to the
terms thereof), on substantially the same terms and otherwise in
compliance with this Agreement;
(c) Debt of Company or a Subsidiary other than pursuant to this
Agreement and other than Debt set forth in Schedule 8.1(c) attached
hereto incurred to finance the acquisition of fixed or capital assets
(whether pursuant to a loan or a Capitalized Lease) in an aggregate
amount not exceeding $1,000,000 at any time outstanding, and any
renewals or refinancing of such Debt in amounts not exceeding the
scheduled amounts (less any required amortization according to the
terms thereof), on substantially the same terms and otherwise in
compliance with this Agreement;
(d) Debt in respect of taxes, assessments or governmental charges
to the extent that payment thereof shall not at the time be required to
be made in accordance with Section 7.14;
(e) Debt in respect to letters of credit issued by Comerica Bank
in its individual capacity and not as Issuing Bank in favor of Company
or any of its Subsidiaries;
(f) current unsecured trade, utility or nonextraordinary accounts
payable (including without limitation, short term Debt owed to vendors)
arising in the ordinary course of Company's or such Subsidiary's
businesses;
(g) Subordinated Debt;
(h) Indebtedness under any Interest Rate Protection Agreements;
(i) intercompany loans from the Company to wholly owned
Subsidiaries, but only to the extent permitted under the other
applicable terms and limitations of this Agreement, including but not
limited to Section 8.7 hereof;
(j) Funded Debt assumed pursuant to a Permitted Acquisition,
provided that such Debt was not entered into, extended or renewed in
contemplation of such acquisition (including Debt secured by Liens
permitted by 8.2(c)), provided that the aggregate amount of all such
Debt shall not exceed $6,000,000 at any one time outstanding;
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(k) additional Debt not exceeding $600,000 in aggregate principal
amount at any one time outstanding.
8.2 Limitation on Liens. Create, incur, assume or suffer to exist any
Lien upon any of its property, assets or revenues, whether now owned or
hereafter acquired, except for:
(a) Permitted Liens;
(b) Liens securing Debt permitted by Section 8.1(c) incurred to
finance the acquisition of fixed or capital assets, provided that (i)
such Liens shall be created substantially simultaneously with the
acquisition of such fixed or capital assets, (ii) such Liens do not at
any time encumber any property other than the property financed by such
Debt, (iii) the amount of Debt secured thereby is not increased and
(iv) the principal amount of Debt secured by any such Lien shall at no
time exceed 100% of the original purchase price of such property;
(c) any Lien securing indebtedness assumed pursuant to a Permitted
Acquisition, provided that such Lien is limited to the property so
acquired, and was not entered into, extended or renewed in
contemplation of such acquisition;
(d) Liens in favor of Agent, as security for the Indebtedness;
(e) attachments, judgements and other similar Liens, for sums not
exceeding, in the aggregate, $500,000 (excluding any portion thereof
which is covered by adequate insurance with a reputable carrier and
which insurer has accepted a tender of defense and indemnification
without reservation of rights) arising in connection with court
proceedings, provided that the execution or other enforcement of such
Liens is effectively stayed and claims secured thereby are being
actively contested in good faith and by appropriate proceedings);
(f) other Liens, existing on the Effective Date, set forth on
Schedule 8.2.
8.3 Limitation on Guarantee Obligations. Create, incur, assume or
suffer to exist any Guarantee Obligation except pursuant to the Loan Documents.
8.4 Acquisitions. Other than Permitted Acquisitions, purchase or
otherwise acquire or become obligated for the purchase of all or substantially
all or any material portion of the assets or business interests of any Person,
firm or corporation, or any shares of stock (or other ownership interests) of
any corporation, trusteeship or association, or any business or going concern,
or in any other manner effectuate or attempt to effectuate an expansion of
present business by acquisition.
8.5 Limitation on Mergers, or Sale of Assets. Enter into any merger or
consolidation or convey, sell, lease, assign, transfer or otherwise dispose of
any of its property, business or assets
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(including, without limitation, receivables and leasehold interests), whether
now owned or hereafter acquired, except:
(a) inventory leased or sold in the ordinary course of business;
(b) obsolete or worn out property, property no longer useful in
the conduct of Company's or any Subsidiary's business or property from
closed offices, in each case disposed of in the ordinary course of
business; and
(c) mergers in which the Company or a Subsidiary is the surviving
corporation and which otherwise meet the definition of "Permitted
Acquisition".
8.6 Restricted Payments. Declare or make, or permit any Subsidiary to,
declare or make any distributions, dividend, payment or other distribution of
assets, properties, cash, rights, obligations or securities (collectively,
"Distributions") on account of any membership interests or any shares of any
class of its capital stock, as applicable, or purchase, redeem or otherwise
acquire for value any membership interests or any shares of its capital stock,
as applicable, or any warrants, rights or options to acquire such shares or
membership interests, now or hereafter outstanding; except:
(a) Company's Subsidiaries may make Distributions to Company;
(b) so long as no Default or Event of Default has occurred and is
continuing or would occur after giving effect thereto, Distributions by
Company to its shareholders during any single fiscal year (together
with redemptions of Company's stock during such fiscal year) not
exceeding five percent (5%) of Company's contributed equity capital
(determined in accordance with GAAP) determined as of the last day of
the fiscal year preceding such fiscal year.
8.7 Limitation on Investments, Loans and Advances. Make any advance,
loan, extension of credit or capital contribution to, or purchase any stock,
bonds, notes, debentures or other securities, of or any assets constituting a
business unit of, or make any other investment in, any Person, except:
(a) Permitted Investments,
(b) extensions of trade credit in the ordinary course of business;
(c) (i) loans and advances to officers and employees for
relocation expenses which are required to be repaid within one year of
the date made and (ii) other loans and advances to officers and
employees of the Company or any Subsidiary in the ordinary course of
business in an aggregate amount, not to exceed $250,000 at any one time
outstanding; and
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(d) intercompany loans, advances or Investments to Company's
Subsidiaries;
8.4. (e) Permitted Acquisitions permitted pursuant to Section
In valuing any Investments for the purpose of applying the limitations set forth
in this Section 8.7 (except as otherwise expressly provided herein), such
Investment shall be taken at the original cost thereof, without allowance for
any subsequent write-offs or appreciation or depreciation, but less any amount
repaid or recovered on account of capital or principal.
8.8 Transactions with Affiliates. Enter into any transaction,
including, without limitation, any purchase, sale, lease or exchange of property
or the rendering of any service, with any Affiliate of the Company or any
Subsidiary unless such transaction is otherwise permitted under this Agreement,
is in the ordinary course of the Company's or such Subsidiary's business and is
upon fair and reasonable terms no less favorable to the Company or such
Subsidiary than it would obtain in a comparable arms length transaction with a
Person not a Subsidiary.
8.9 Limitation on Negative Pledge Clauses. Enter into any agreement,
document or instrument which would restrict or prevent Company and its
Subsidiaries from granting Agent on behalf of Banks liens upon, security
interests in and pledges of their respective assets which are senior in priority
to all other Liens.
8.10 Prepayment of Debts. Prepay, purchase, redeem or defease any Debt
for money borrowed or any capital leases excluding, subject to the terms hereof,
the Indebtedness.
8.11 Subordinated Debt. Amend or modify any document evidencing any
Subordinated Debt or make any payment with respect to the Subordinated Debt
except for regularly scheduled payments of principal and interest, subject to
the blockage provisions contained in the Subordinated Debt Documents.
8.12 Reinsurance Contracts. Enter into any reinsurance contract with
any person for an amount that exceeds 10% of the aggregate dollar value of such
reinsurance contract unless such person has a rating of at least A- as
determined by A.M. Best Company, has a rating of at least A by Standard &
Poor's, is a syndicate in Lloyds of London or is a reinsurer which has provided
security to collateralize its obligations in compliance with applicable
insurance regulations.
8.13 Investment Portfolio. Permit or suffer any material change in
either the quality of its investments or its investment policies.
8.14 NAIC Ratio Tests. Permit or suffer any of the Subsidiaries of the
Company to at any time be outside the recommended range for more than four of
the NAIC ratio tests.
8.15 Intangible Assets. Permit as of any date the intangible assets of
Company and its Consolidated Subsidiaries (determined in accordance with GAAP)
to be greater than an amount
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equal to thirty percent (30%) of Net Worth as of such date plus the outstanding
principal amount of the Subordinated Debt as of such date.
9. DEFAULTS
9.1 Events of Default. The occurrence of any of the following events
shall constitute an Event of Default hereunder:
(a) non-payment when due of (i) the principal or interest under
any of the Notes issued hereunder in accordance with the terms thereof,
(ii) any Reimbursement Obligation, or (iii) any Fees, and in the case
of interest payments and Fees, continuance thereof for three (3)
Business Days;
(b) non-payment of any money by Company under this Agreement or by
Company or any Subsidiary under any of the Loan Documents to which it
is a party, other than as set forth in subsection (a), above within
five Business Days after notice from Agent that the same is due and
payable;
(c) default in the observance or performance of any of the
conditions, covenants or agreements of Company set forth in Sections
2.7, 3.6, 7 (in its entirety) or 8 (in its entirety);
(d) default in the observance or performance of any of the other
conditions, covenants or agreements set forth in this Agreement by
Company and continuance thereof for a period of thirty (30) consecutive
days;
(e) any representation or warranty made by Company or any
Subsidiary herein or in any instrument submitted pursuant hereto or by
any other party to the Loan Documents proves untrue or misleading in
any material adverse respect when made;
(f) default in the observance or performance of or failure to
comply with any of the conditions, covenants or agreements of Company
or any Subsidiary set forth in any of the other Loan Documents, and the
continuance thereof beyond any period of grace or cure specified in any
such document;
(g) default (i) in the payment of any indebtedness for borrowed
money (other than Indebtedness hereunder) of Company or any Subsidiary
in excess of One Hundred Thousand Dollars ($100,000) in the aggregate
when due (whether by acceleration or otherwise) and continuance thereof
beyond any applicable period of cure or (ii) failure to comply with the
terms of any other obligation of Company or any Subsidiary with respect
to any indebtedness for borrowed money (other than Indebtedness
hereunder) in excess of One Hundred Thousand Dollars ($100,000) in the
aggregate, which with the giving of notice or passage
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of time or both would permit the holder or holders thereto to
accelerate such other indebtedness for borrowed money or terminate its
commitment thereunder, as applicable;
(h) the rendering of any judgment(s) for the payment of money in
excess of the sum of One Hundred Thousand Dollars ($100,000)
individually or in the aggregate against Company or any Subsidiary, and
such judgments shall remain unpaid, unvacated, unbonded or unstayed by
appeal or otherwise for a period of forty five (45) consecutive days,
except as covered by adequate insurance with a reputable carrier and an
action is pending in which an active defense is being made with respect
thereto;
(i) the occurrence of a "reportable event", as defined in ERISA,
which is determined to constitute grounds for termination by the
Pension Benefit Guaranty Corporation of any Pension Plan subject to
Title IV of ERISA maintained or contributed to by or on behalf of the
Company or any of its Subsidiaries for the benefit of any of its
employees or for the appointment by the appropriate United States
District Court of a trustee to administer such Pension Plan and such
reportable event is not corrected and such determination is not revoked
within sixty (60) days after notice thereof has been given to the plan
administrator of such Pension Plan (without limiting any of Agent's or
any Bank's other rights or remedies hereunder), or the institution of
proceedings by the Pension Benefit Guaranty Corporation to terminate
any such Pension Plan or to appoint a trustee by the appropriate United
States District Court to administer any such Pension Plan, which in
either case could reasonably be expected to have a Material Adverse
Effect;
(j) the Company or any Subsidiary shall be dissolved or liquidated
(or any judgment, order or decree therefor shall be entered) or; if a
creditors' committee shall have been appointed for the business of
Company or any Subsidiary; or if Company or any Subsidiary shall have
made a general assignment for the benefit of creditors or shall have
been adjudicated bankrupt, or shall have filed a voluntary petition in
bankruptcy or for reorganization or to effect a plan or arrangement
with creditors or shall fail to pay its debts generally as such debts
become due in the ordinary course of business (except as contested in
good faith and for which adequate reserves are made in such party's
financial statements); or shall file an answer to a creditor's petition
or other petition filed against it, admitting the material allegations
thereof for an adjudication in bankruptcy or for reorganization; or
shall have applied for or permitted the appointment of a receiver or
trustee or custodian for any of its property or assets; or such
receiver, trustee or custodian shall have been appointed for any of its
property or assets (otherwise than upon application or consent of
Company or any of its Subsidiaries); or if an order shall be entered
approving any petition for reorganization of Company or any Subsidiary;
or the Company or any Subsidiary shall take any action (corporate or
other) authorizing or in furtherance any of the actions described above
in this subsection;
(k) a "Change in Control" under and as defined in any Subordinated
Debt Documents shall have occurred;
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(l) any of the Insurance Subsidiaries shall be prohibited by any
Regulatory Agency from issuing new insurance policies in any
jurisdiction;
(m) any of the Insurance Subsidiaries shall fail to maintain such
catastrophe reinsurance as a prudent insurance company would deem
necessary, as determined by Bank;
(n) if the operation of Company or any of its Subsidiaries shall
become subject to the control of any Regulatory Agency, other than in
the normal course of business.
9.2 Exercise of Remedies. If an Event of Default has occurred and is
continuing hereunder: (a) the Agent shall, upon being directed to do so by the
Majority Banks, declare the Revolving Credit Aggregate Commitment terminated;
(b) the Agent shall, upon being directed to do so by the Majority Banks, declare
the entire unpaid principal Indebtedness, including the Notes, immediately due
and payable, without presentment, notice or demand, all of which are hereby
expressly waived by Company; (c) upon the occurrence of any Event of Default
specified in subsection 9.1(j), above, and notwithstanding the lack of any
declaration by Agent under preceding clause (b), the entire unpaid principal
Indebtedness, including the Notes, shall become automatically and immediately
due and payable, and the Revolving Credit Aggregate Commitment shall be
automatically and immediately terminated; (d) the Agent shall, upon being
directed to do so by the Majority Banks, demand immediate delivery of cash
collateral, and the Company and each Account Party agrees to deliver such cash
collateral upon demand, in an amount equal to the maximum amount that may be
available to be drawn at any time prior to the stated expiry of all outstanding
Letters of Credit, and (e) the Agent shall, if directed to do so by the Majority
Banks or the Banks, as applicable (subject to the terms hereof), exercise any
remedy permitted by this Agreement, the other Loan Documents or law.
9.3 Rights Cumulative. No delay or failure of Agent and/or Banks in
exercising any right, power or privilege hereunder shall affect such right,
power or privilege, nor shall any single or partial exercise thereof preclude
any further exercise thereof, or the exercise of any other power, right or
privilege. The rights of Agent and Banks under this Agreement are cumulative and
not exclusive of any right or remedies which Banks would otherwise have.
9.4 Waiver by Company of Certain Laws. To the extent permitted by
applicable law, Company hereby agrees to waive, and does hereby absolutely and
irrevocably waive and relinquish the benefit and advantage of any valuation,
stay, appraisement, extension or redemption laws now existing or which may
hereafter exist, which, but for this provision, might be applicable to any sale
made under the judgment, order or decree of any court, on any claim for interest
on the Notes, or any security interest or mortgage contemplated by or granted
under or in connection with this Agreement. These waivers have been voluntarily
given, with full knowledge of the consequences thereof.
9.5 Waiver of Defaults. No Event of Default shall be waived by the
Banks except in a writing signed by an officer of the Agent in accordance with
Section 13.11 hereof. No single or partial exercise of any right, power or
privilege hereunder, nor any delay in the exercise thereof, shall
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preclude other or further exercise of their rights by Agent or the Banks. No
waiver of any Event of Default shall extend to any other or further Event of
Default. No forbearance on the part of the Agent or the Banks in enforcing any
of their rights shall constitute a waiver of any of their rights. Company
expressly agrees that this Section may not be waived or modified by the Banks or
Agent by course of performance, estoppel or otherwise.
9.6 Set Off.
Upon the occurrence and during the continuance of any Event of Default,
each Bank may at any time and from time to time, without notice to the Company
but subject to the provisions of Section 10.3 hereof, (any requirement for such
notice being expressly waived by the Company) set off and apply against any and
all of the obligations of the Company now or hereafter existing under this
Agreement, whether owing to such Bank or any other Bank or the Agent, any and
all deposits (general or special, time or demand, provisional or final) at any
time held and other indebtedness at any time owing by such Bank to or for the
credit or the account of the Company and any property of the Company from time
to time in possession of such Bank, irrespective of whether or not such deposits
held or indebtedness owing by such Bank may be contingent and unmatured and
regardless of whether any Collateral then held by Agent or any Bank is adequate
to cover the Indebtedness. Promptly following any such setoff, such Bank shall
give written notice to Agent and to Company of the occurrence thereof. The
Company hereby grants to the Banks and the Agent a lien on and security interest
in all such deposits, indebtedness and property as collateral security for the
payment and performance of all of the obligations of the Company under this
Agreement. The rights of each Bank under this Section 9.6 are in addition to the
other rights and remedies (including, without limitation, other rights of
setoff) which such Bank may have.
10. PAYMENTS, RECOVERIES AND COLLECTIONS
10.1 Payment Procedure.
(a) All payments by Company of principal of, or interest on, the
Notes, or of Fees, shall be made without setoff or counterclaim on the
date specified for payment under this Agreement not later than 12:00
noon (Detroit time) in immediately available funds to Agent, for the
ratable account of the Banks, at Agent's office located at One Detroit
Center, Detroit, Michigan 48226-3239, (care of Agent's Eurocurrency
Lending Office, for Eurocurrency-based Advances). Upon receipt by the
Agent of each such payment, the Agent shall make prompt payment in like
funds received to each Bank as appropriate, or, in respect of
Eurocurrency-based Advances, to such Bank's Eurocurrency Lending
Office.
(b) Unless the Agent shall have been notified by Company prior to
the date on which any payment to be made by Company is due that Company
does not intend to remit such payment, the Agent may, in its sole
discretion and without obligation to do so, assume that the Company has
remitted such payment when so due and the Agent may, in reliance upon
such assumption, make available to each Bank on such payment date an
amount equal
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to such Bank's share of such assumed payment. If Company has not in
fact remitted such payment to the Agent each Bank shall forthwith on
demand repay to the Agent the amount of such assumed payment made
available or transferred to such Bank, together with the interest
thereon, in respect of each day from and including the date such amount
was made available by the Agent to such Bank to the date such amount is
repaid to the Agent at a rate per annum equal to (i) for Prime-based
Advances, the Federal Funds Effective Rate (daily average), as the same
may vary from time to time, and (ii) with respect to Eurocurrency-based
Advances, Agent's aggregate marginal cost (including the cost of
maintaining any required reserves or deposit insurance and of any fees,
penalties, overdraft charges or other costs or expenses incurred by
Agent) of carrying such amount.
(c) Subject to the definition of Interest Period, whenever any
payment to be made hereunder shall otherwise be due on a day which is
not a Business Day, such payment shall be made on the next succeeding
Business Day and such extension of time shall be included in computing
interest, if any, in connection with such payment.
(d) All payments to be made by the Company under this Agreement or
any of the Notes shall be made without set-off or counterclaim, as
aforesaid, and without deduction for or on account of any present or
future withholding or other taxes of any nature imposed by any
governmental authority or of any political subdivision thereof or any
federation or organization of which such governmental authority may at
the time of payment be a member, unless Company is compelled by law to
make payment subject to such tax. In such event, Company shall:
(i) pay to the Agent for Agent's own account and/or, as the
case may be, for the account of the Banks such
additional amounts as may be necessary to ensure that
the Agent and/or such Bank or Banks receive a net amount
equal to the full amount which would have been
receivable had payment not been made subject to such
tax; and
(ii) remit such tax to the relevant taxing authorities
according to applicable law, and send to the Agent or
the applicable Bank or Banks, as the case may be, such
certificates or certified copy receipts as the Agent or
such Bank or Banks shall reasonably require as proof of
the payment by the Company, of any such taxes payable by
the Company.
As used herein, the terms "tax", "taxes" and "taxation" include all
existing or future income, stamp or other taxes (excluding, in the case of the
Agent and each Bank, net income and franchise taxes imposed on the Agent or such
Bank by the jurisdiction under the laws of which the Agent or such Bank is
organized or any political subdivision or taxing authority thereof or therein,
or by any jurisdiction in which such Bank's domestic lending office or
Eurocurrency Lending Office, as the case may be, is located or any political
subdivision or taxing authority thereof or therein) levies,
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imposts, duties, charges, fees, deductions and withholdings and any restrictions
or conditions resulting in a charge together with interest thereon and fines and
penalties with respect thereto which may be imposed by reason of any violation
or default with respect to the law regarding such tax, assessed as a result of
or in connection with the transactions hereunder, or the payment and or receipt
of funds hereunder, or the payment or delivery of funds into or out of any
jurisdiction other than the United States (whether assessed against Company,
Agent or any of the Banks).
10.2 Application of Proceeds of Collateral. Notwithstanding anything to
the contrary in this Agreement, after an Event of Default, the proceeds of any
Collateral, together with any offsets, voluntary payments by Company or any
Subsidiary or others and any other sums received or collected in respect of the
Indebtedness, shall be applied, first, to the Notes and any Reimbursement
Obligations on a pro rata basis (or in such order and manner as determined by
the Majority Banks; subject, however, to the applicable Percentages of the loans
held by each of the Banks), next, to any other Indebtedness on a pro rata basis,
and then, if there is any excess, to Company or the applicable Subsidiary, as
the case may be. The application of such proceeds and other sums to the Notes
and the Reimbursement Obligations shall be based on each Bank's Percentage of
the aggregate of the loans.
10.3 Pro-rata Recovery. If any Bank shall obtain any payment or other
recovery (whether voluntary, involuntary, by application of offset or otherwise)
on account of principal of, or interest on, any of the Indebtedness in excess of
its pro rata share of payments then or thereafter obtained by all Banks upon
principal of and interest on all Indebtedness, such Bank shall purchase from the
other Banks such participations in the Notes and/or Reimbursement Obligation
held by them as shall be necessary to cause such purchasing Bank to share the
excess payment or other recovery ratably in accordance with the Percentage with
each of them; provided, however, that if all or any portion of the excess
payment or other recovery is thereafter recovered from such purchasing holder,
the purchase shall be rescinded and the purchase price restored to the extent of
such recovery, but without interest.
11. CHANGES IN LAW OR CIRCUMSTANCES; INCREASED COSTS
11.1 Reimbursement of Prepayment Costs. If Company makes any payment of
principal with respect to any Eurocurrency-based Advance on any day other than
the last day of the Interest Period applicable thereto (whether voluntarily, by
acceleration, or otherwise), or if Company fails to borrow any
Eurocurrency-based Advance after notice has been given by Company to Agent in
accordance with the terms hereof requesting such Advance, or if Company fails to
make any payment of principal or interest in respect of a Eurocurrency-based
Advance when due, then Company shall reimburse Agent and Banks, as the case may
be on demand for any resulting loss, cost or expense incurred by Agent and
Banks, as the case may be as a result thereof, including, without limitation,
any such loss, cost or expense incurred in obtaining, liquidating, employing or
redeploying deposits from third parties, whether or not Agent and Banks, as the
case may be shall have funded or committed to fund such Advance. Such amount
payable by Company to Agent and Banks, as the case may be may include, without
limitation, an amount equal to the excess, if any, of
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(a) the amount of interest which would have accrued on the amount so prepaid, or
not so borrowed, refunded or converted, for the period from the date of such
prepayment or of such failure to borrow, refund or convert, through the last day
of the relevant Interest Period, at the applicable rate of interest for said
Advance(s) provided under this Agreement, over (b) the amount of interest (as
reasonably determined by Agent and Banks, as the case may be) which would have
accrued to Agent and Banks, as the case may be on such amount by placing such
amount on deposit for a comparable period with leading banks in the interbank
eurodollar market. Calculation of any amounts payable to any Bank under this
paragraph shall be made as though such Bank shall have actually funded or
committed to fund the relevant Advance through the purchase of an underlying
deposit in an amount equal to the amount of such Advance and having a maturity
comparable to the relevant Interest Period; provided, however, that any Bank may
fund any Eurocurrency-based Advance in any manner it deems fit and the foregoing
assumptions shall be utilized only for the purpose of the calculation of amounts
payable under this paragraph. Upon the written request of Company, Agent and
Banks shall deliver to Company a certificate setting forth the basis for
determining such losses, costs and expenses, which certificate shall be
conclusively presumed correct, absent manifest error.
11.2 Agent's Eurocurrency Lending Office. For any Advance to which the
Eurocurrency-based Rate is applicable, if Agent shall designate a Eurocurrency
Lending Office which maintains books separate from those of the rest of Agent,
Agent shall have the option of maintaining and carrying the relevant Advance on
the books of such Eurocurrency Lending Office.
11.3 Circumstances Affecting Eurocurrency-based Rate Availability. If
with respect to any Interest Period, Agent or the Banks (after consultation with
Agent) shall determine that, by reason of circumstances affecting the interbank
markets generally, deposits in eurodollars in the applicable amounts are not
being offered to the Agent for such Interest Period, then Agent shall forthwith
give notice thereof to the Company. Thereafter, until Agent notifies Company
that such circumstances no longer exist, the obligation of the Banks to make
Eurocurrency-based Advances, and the right of Company to convert an Advance to
or refund an Advance as a Eurocurrency-based Advance shall be suspended, and the
Company shall repay in full (or cause to be repaid in full) the then outstanding
principal amount of each such Eurocurrency-based Advance covered hereby together
with accrued interest thereon, any amounts payable (but not yet paid) under
Section 11.1, hereof, and all other amounts payable hereunder on the last day
of the then current Interest Period applicable to such Advance. Upon the date
for repayment as aforesaid and unless Company notifies Agent to the contrary
within two (2) Business Days after receiving a notice from Agent pursuant to
this Section, such outstanding principal amount shall be converted to a
Prime-based Advance as of the last day of such Interest Period.
11.4 Laws Affecting Eurocurrency-based Advance Availability. In the
event that any applicable law, rule or regulation (whether domestic or foreign)
now or hereafter in effect and whether or not currently applicable to any Bank
or the Agent or any interpretation or administration thereof by any governmental
authority charged with the interpretation or administration thereof, or
compliance by the Agent or any of the Banks (or any of their respective
Eurocurrency Lending Offices) with any request or directive (whether or not
having the force of law) of any such authority,
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shall make it unlawful or impossible for any of the Banks (or any of their
respective Eurocurrency Lending Offices) to honor its obligations hereunder to
make or maintain any Advance with interest at the Eurocurrency-based Rate, such
Bank or the Agent shall forthwith give notice thereof to Company and the Agent.
Thereafter the Agent shall so notify Company and the right of Company to convert
an Advance or refund an Advance as a Eurocurrency-based Advance, shall be
suspended and thereafter Company may select as Applicable Interest Rates only
those which remain available and which are permitted to be selected hereunder,
and if any of the Banks may not lawfully continue to maintain an Advance to the
end of the then current Interest Period applicable thereto as a
Eurocurrency-based Advance, Company shall immediately prepay such Advance,
together with interest to the date of payment, and any amounts payable under
Sections 11.1 or 11.6 with respect to such prepayment and the applicable
Advance shall immediately be converted to a Prime-based Advance and the
Prime-based Rate shall be applicable thereto.
11.5 Increased Cost of Eurocurrency-based Advances. In the event that
any change in applicable law, rule or regulation (whether domestic or foreign)
now or hereafter in effect and whether or not currently applicable to any Bank
or the Agent or any interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by Agent or any of the Banks (or any of
their respective Eurocurrency Lending Offices) with any request or directive
(whether or not having the force of law) made by any such authority, central
bank or comparable agency after the date hereof:
(a) shall subject the Agent or any of the Banks (or any of their
respective Eurocurrency Lending Offices) to any tax, duty or other
charge with respect to any Advance or any Note or shall change the
basis of taxation of payments to the Agent or any of the Banks (or any
of their respective Eurocurrency Lending Offices) of the principal of
or interest on any Advance or any Note or any other amounts due under
this Agreement in respect thereof (except for changes in the rate of
tax on the overall net income or revenues of the Agent or of any of the
Banks (or any of their respective Eurocurrency Lending Offices) imposed
by the United States of America or the jurisdiction in which such
Bank's principal executive office is located); or
(b) shall impose, modify or deem applicable any reserve
(including, without limitation, any imposed by the Board of Governors
of the Federal Reserve System), special deposit or similar requirement
against assets of, deposits with or for the account of, or credit
extended by the Agent or any of the Banks (or any of their respective
Eurocurrency Lending Offices) or shall impose on the Agent or any of
the Banks (or any of their respective Eurocurrency Lending Offices) or
the interbank markets any other condition affecting any Advance or any
of the Notes;
and the result of any of the foregoing is to increase the costs to the Agent or
any of the Banks of making, funding or maintaining any part of the Indebtedness
hereunder as a Eurocurrency-based Advance or to reduce the amount of any sum
received or receivable by the Agent or any of the Banks under this Agreement or
under the Notes in respect of a Eurocurrency-based Advance then Agent
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or such Bank, as the case may be, shall promptly notify the Company of such fact
and demand compensation therefor and, within fifteen (15) days after such
notice, Company agrees to pay to Agent or such Bank such additional amount or
amounts as will compensate Agent or such Bank or Banks for such increased cost
or reduction. A certificate of Agent or such Bank setting forth the basis for
determining such additional amount or amounts necessary to compensate such Bank
or Banks shall accompany such demand for payment and shall be conclusively
presumed to be correct save for manifest error.
For purposes of this Section, a change in law, rule, regulation,
interpretation, administration, request or directive shall include, without
limitation, any change made or which becomes effective on the basis of a law,
rule, regulation, interpretation, administration, request or directive presently
in force, the effective date of which change is delayed by the terms of such
law, rule, regulation, interpretation, administration, request or directive.
11.6 Indemnity. The Company will indemnify Agent and each of the Banks
against any loss or expense which may arise or be attributable to the Agent's
and each Bank's obtaining, liquidating or employing deposits or other funds
acquired to effect, fund or maintain the Advances (a) as a consequence of any
failure by the Company to make any payment when due of any amount due hereunder
in connection with a Eurocurrency-based Advance, (b) due to any failure of the
Company to borrow on a date specified therefor in a Request for Revolving Credit
Advance or (c) due to any payment or prepayment of any Eurocurrency-based
Advance on a date other than the last day of the Interest Period for such
Advance, whether required by another provision of this Agreement or otherwise.
The Agent's and each Bank's (as applicable) calculations of any such loss or
expense shall be furnished to the Company and shall be conclusively presumed
correct, absent manifest error.
11.7 Other Increased Costs. In the event that after the date hereof the
adoption of or any change in any applicable law, treaty, rule or regulation
(whether domestic or foreign) now or hereafter in effect and whether or not
presently applicable to any Bank or Agent, or any interpretation or
administration thereof by any governmental authority charged with the
interpretation or administration thereof, or compliance by any Bank or Agent
with any guideline, request or directive of any such authority (whether or not
having the force of law), including any risk based capital guidelines, affects
or would affect the amount of capital required or expected to be maintained by
such Bank or Agent (or any corporation controlling such Bank or Agent) and such
Bank or Agent, as the case may be, determines that the amount of such capital is
increased by or based upon the existence of such Bank's or Agent's obligations
or Advances hereunder and such increase has the effect of reducing the rate of
return on such Bank's or Agent's (or such controlling corporation's) capital as
a consequence of such obligations or Advances hereunder to a level below that
which such Bank or Agent (or such controlling corporation) could have achieved
but for such circumstances (taking into consideration its policies with respect
to capital adequacy) by an amount deemed by such Bank or Agent to be material
(collectively, "Increased Costs"), then Agent or such Bank shall notify the
Company, and thereafter the Company shall pay to such Bank or Agent, as the case
may be, from time to time, upon request by such Bank or Agent, additional
amounts sufficient to compensate such
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Bank or Agent (or such controlling corporation) for any increase in the amount
of capital and reduced rate of return which such Bank or Agent reasonably
determines to be allocable to the existence of such Bank's or Agent's
obligations or Advances hereunder. A statement as to the amount of such
compensation, prepared in good faith and in reasonable detail by such Bank or
Agent, as the case may be, shall be submitted by such Bank or by Agent to the
Company, reasonably promptly after becoming aware of any event described in this
Section 11.7 and shall be conclusive, absent manifest error in computation.
11.8 Substitution of Banks. If (i) the obligation of any Bank to make
Eurocurrency-based Advances has been suspended pursuant to Section 11.3 or
Section 11.4 or (ii) any Bank has demanded compensation under Section 11.5 (in
each case, an "Affected Lender"), Company shall have the right, with the
assistance of the Agent, to seek a substitute lender or lenders (which may be
one or more of the Banks (the "Purchasing Lender" or "Purchasing Lenders") to
purchase the Notes and assume the commitment (including without limitation its
participations in Letters of Credit) under this Agreement of such Affected
Lender. The Affected Lender shall be obligated to sell its Notes and assign its
commitment to such Purchasing Lender or Purchasing Lenders within fifteen days
after receiving notice from Company requiring it to do so, at an aggregate price
equal to the outstanding principal amount thereof plus unpaid interest accrued
thereon up to but excluding the date of the sale. In connection with any such
sale, and as a condition thereof, Company shall pay to the Affected Lender all
fees accrued for its account hereunder to but excluding the date of such sale,
plus, if demanded by the Affected Lender at least two Business Days prior to
such sale, (i) the amount of any compensation which would be due to the Affected
Lender under Section 11.1 if Company has prepaid the outstanding
Eurocurrency-based Advances of the Affected Lender on the date of such sale and
(ii) any additional compensation accrued for its account under Section 11.5 to
but excluding said date. Upon such sale, the Purchasing Lender or Purchasing
Lenders shall assume the Affected Lender's commitment and the Affected Lender
shall be released from its obligations hereunder to a corresponding extent. If
any Purchasing Lender is not already one of the Banks, the Affected Lender, as
assignor, such Purchasing Lender, as assignee, Company and the Agent shall enter
into an Assignment Agreement pursuant to Section 13.8 hereof, whereupon such
Purchasing Lender shall be a Bank party to this Agreement, shall be deemed to be
an assignee hereunder and shall have all the rights and obligations of a Bank
with a Percentage equal to its ratable share of the Revolving Credit Aggregate
Commitment of the Affected Lender. In connection with any assignment pursuant to
this Section 11.8, the Purchasing Lender shall pay to the Agent the
administrative fee for processing such assignment referred to in Section 13.8.
Upon the consummation of any sale pursuant to this Section 11.8, the Affected
Lender, the Agent and Company shall make appropriate arrangements so that, if
required, each Purchasing Lender receives a new Notes, as applicable.
12. AGENT
12.1 Appointment of Agent. Each Bank and the holder of each Note
irrevocably appoints and authorizes the Agent to act on behalf of such Bank or
holder under this Agreement and the other Loan Documents and to exercise such
powers hereunder and thereunder as are specifically delegated to Agent by the
terms hereof and thereof, together with such powers as may be reasonably
incidental
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thereto, including without limitation the power to execute or authorize the
execution of financing or similar statements or notices, and other documents. In
performing its functions and duties under this Agreement, the Agent shall act
solely as agent of the Banks and does not assume and shall not be deemed to have
assumed any obligation towards or relationship of agency or trust with or for
Company. Each Bank agrees (which agreement shall survive any termination of this
Agreement) to reimburse Agent for all reasonable out-of-pocket expenses
(including house and outside attorneys' fees and disbursements) incurred by
Agent hereunder or in connection herewith or with an Event of Default or in
enforcing the obligations of Company under this Agreement or the other Loan
Documents or any other instrument executed pursuant hereto, and for which Agent
is not reimbursed by Company, pro rata according to such Bank's Percentage, but
excluding any such expense resulting from Agent's gross negligence or wilful
misconduct. Agent shall not be required to take any action under the Loan
Documents, or to prosecute or defend any suit in respect of the Loan Documents,
unless indemnified to its satisfaction by the Banks against loss, costs,
liability and expense (excluding liability resulting from its gross negligence
or wilful misconduct). If any indemnity furnished to Agent shall become
impaired, it may call for additional indemnity and cease to do the acts
indemnified against until such additional indemnity is given.
12.2 Deposit Account with Age. Company hereby authorizes Agent, in
Agent's sole discretion, to charge its general deposit account(s), if any,
maintained with Agent for the amount of any principal, interest, or other
amounts or costs due under this Agreement when the same become due and payable
under the terms of this Agreement or the Notes.
12.3 Scope of Agent's Duties. The Agent shall have no duties or
responsibilities except those expressly set forth herein, and shall not, by
reason of this Agreement or otherwise, have a fiduciary relationship with any
Bank (and no implied covenants or other obligations shall be read into this
Agreement against the Agent). None of Agent, its Affiliates nor any of their
respective directors, officers, employees or agents shall be liable to any Bank
for any action taken or omitted to be taken by it or them under this Agreement
or any document executed pursuant hereto, or in connection herewith or therewith
with the consent or at the request of the Majority Banks (or all of the Banks
for those acts requiring consent of all of the Banks) (except for its or their
own wilful misconduct or gross negligence), nor be responsible for or have any
duties to ascertain, inquire into or verify (a) any recitals or warranties made
by the Company, or any Subsidiary or Affiliate of the Company, or any officer
thereof contained herein or therein, (b) the effectiveness, enforceability,
validity or due execution of this Agreement or any document executed pursuant
hereto or any security thereunder, (c) the performance by Company of its
obligations hereunder or thereunder, or (d) the satisfaction of any condition
hereunder or thereunder, including without limitation the making of any Advance
or the issuance of any Letter of Credit. Agent and its Affiliates shall be
entitled to rely upon any certificate, notice, document or other communication
(including any cable, telegraph, telex, facsimile transmission or oral
communication) believed by it to be genuine and correct and to have been sent or
given by or on behalf of a proper person. Agent may treat the payee of any Note
as the holder thereof. Agent may employ agents and may consult with legal
counsel (who may be counsel for Company), independent public accountants and
other experts selected by it and shall not be liable to the Banks (except as to
money or property received by them or their authorized agents),
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for the negligence or misconduct of any such agent selected by it with
reasonable care or for any action taken or omitted to be taken by it in good
faith in accordance with the advice of such counsel, accountants or experts.
12.4 Successor Agent. Agent may resign as such at any time upon at
least 30 days prior notice to Company and all Banks. If Agent at any time shall
resign or if the office of Agent shall become vacant for any other reason,
Majority Banks shall, by written instrument, appoint successor agent(s)
satisfactory to such Majority Banks, and, so long as no Default or Event of
Default has occurred and is continuing, to Company. Such successor agent shall
thereupon become the Agent hereunder, as applicable, and shall be entitled to
receive from the prior Agent such documents of transfer and assignment as such
successor Agent may reasonably request. Any such successor Agent shall be a
commercial bank organized under the laws of the United States or any state
thereof and shall have a combined capital and surplus of at least $500,000,000.
If a successor is not so appointed or does not accept such appointment before
the resigning Agent's resignation becomes effective, the resigning Agent may
appoint a temporary successor to act until such appointment by the Majority
Banks is made and accepted or if no such temporary successor is appointed as
provided above by the resigning Agent, the Majority Banks shall thereafter
perform all of the duties of the resigning Agent hereunder until such
appointment by the Majority Banks is made and accepted. Such successor Agent
shall succeed to all of the rights and obligations of the resigning Agent as if
originally named. The resigning Agent shall duly assign, transfer and deliver to
such successor Agent all moneys at the time held by the resigning Agent
hereunder after deducting therefrom its expenses for which it is entitled to be
reimbursed. Upon such succession of any such successor Agent, the resigning
agent shall be discharged from its duties and obligations hereunder, except for
its gross negligence or wilful misconduct arising prior to its resignation
hereunder, and the provisions of this Article 13 shall continue in effect for
the benefit of the resigning Agent in respect of any actions taken or omitted to
be taken by it while it was acting as Agent.
12.5 Agent in its Individual Capacity. Comerica Bank, its Affiliates
and their respective successors and assigns, shall have the same rights and
powers hereunder as any other Bank and may exercise or refrain from exercising
the same as though Comerica Bank were not the Agent. Comerica Bank and its
Affiliates may (without having to account therefor to any Bank) accept deposits
from, lend money to, and generally engage in any kind of banking, trust,
financial advisory or other business with Company (or its Subsidiaries) as if
Comerica Bank were not acting as Agent hereunder, and may accept fees and other
consideration therefor without having to account for the same to the Banks.
12.6 Credit Decisions. Each Bank acknowledges that it has,
independently of Agent and each other Bank and based on the financial statements
of Company and such other documents, information and investigations as it has
deemed appropriate, made its own credit decision to extend credit hereunder from
time to time. Each Bank also acknowledges that it will, independently of Agent
and each other Bank and based on such other documents, information and
investigations as it shall deem appropriate at any time, continue to make its
own credit decisions as to exercising or
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not exercising from time to time any rights and privileges available to it under
this Agreement or any document executed pursuant hereto.
12.7 Agent's Fees. Company shall pay to Agent the annual agency fee and
such other fees and charges in the amounts and at the times set forth in the
letter agreement between Company and Agent dated July 20, 1998, as such letter
may be amended or restated with the Company's prior written consent from time to
time. The Agent's Fees described in this Section 12.7 shall not be refundable
under any circumstances.
12.8 Authority of Agent to Enforce Notes and This Agreement. Each Bank,
subject to the terms and conditions of this Agreement, authorizes the Agent with
full power and authority as attorney-in-fact to institute and maintain actions,
suits or proceedings for the collection and enforcement of the Notes and to file
such proofs of debt or other documents as may be necessary to have the claims of
the Banks allowed in any proceeding relative to Company, or any of its
Subsidiaries, or their respective creditors or affecting their respective
properties, and to take such other actions which Agent considers to be necessary
or desirable for the protection, collection and enforcement of the Notes, this
Agreement or the other Loan Documents.
12.9 Indemnification. The Banks agree to indemnify the Agent and its
Affiliates (to the extent not reimbursed by Company, but without limiting any
obligation of Company to make such reimbursement), ratably according to their
respective Percentages, from and against any and all claims, damages, losses,
liabilities, costs or expenses of any kind or nature whatsoever (including,
without limitation, fees and disbursements of counsel) which may be imposed on,
incurred by, or asserted against the Agent and its Affiliates in any way
relating to or arising out of this Agreement, any of the other Loan Documents or
the transactions contemplated hereby or any action taken or omitted by the Agent
and its Affiliates under this Agreement or any of the Loan Documents; provided,
however, that no Bank shall be liable for any portion of such claims, damages,
losses, liabilities, costs or expenses resulting from the Agent's or its
Affiliates's gross negligence or willful misconduct. Without limitation of the
foregoing, each Bank agrees to reimburse the Agent and its Affiliates promptly
upon demand for its ratable share of any out-of-pocket expenses (including,
without limitation, fees and expenses of counsel) incurred by the Agent and its
Affiliates in connection with the preparation, execution, delivery,
administration, modification, amendment or enforcement (whether through
negotiations, legal proceedings or otherwise) of, or legal advice in respect of
rights or responsibilities under, this Agreement or any of the other Loan
Documents, to the extent that the Agent and its Affiliates is not reimbursed for
such expenses by Company, but without limiting the obligation of Company to make
such reimbursement. Each Bank agrees to reimburse the Agent and its Affiliates
promptly upon demand for its ratable share of any amounts owing to the Agent and
its Affiliates by the Banks pursuant to this Section, provided that, if the
Agent or its Affiliates is subsequently reimbursed by the Company for such
amounts, it shall refund to the Banks on a pro rata basis the amount of any
excess reimbursement. If the indemnity furnished to the Agent and its Affiliates
under this Section shall, in the judgment of the Agent, be insufficient or
become impaired, the Agent may call for additional indemnity from the Banks and
cease, or not commence, to take any action until such additional indemnity is
furnished.
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12.10 Knowledge of Default. It is expressly understood and agreed that
the Agent shall be entitled to assume that no Event of Default has occurred and
is continuing, unless the officers of the Agent immediately responsible for
matters concerning this Agreement shall have been notified in a writing
specifying such Event of Default and stating that such notice is a "notice of
default" by a Bank or by Company. Upon receiving such a notice, the Agent shall
promptly notify each Bank of such Event of Default and provide each Bank with a
copy of such notice and, shall endeavor to provide such notice to the Banks
within three (3) Business Days (but without any liability whatsoever in the
event of its failure to do so). Agent shall also furnish the Banks, promptly
upon receipt, with copies of all other notices or other information required to
be provided by Company hereunder.
12.11 Agent's Authorization; Action by Banks. Except as otherwise
expressly provided herein, whenever the Agent is authorized and empowered
hereunder on behalf of the Banks to give any approval or consent, or to make any
request, or to take any other action on behalf of the Banks (including without
limitation the exercise of any right or remedy hereunder or under the other Loan
Documents), the Agent shall be required to give such approval or consent, or to
make such request or to take such other action only when so requested in writing
by the Majority Banks or the Banks, as applicable hereunder. Action that may be
taken by Majority Banks or all of the Banks, as the case may be (as provided for
hereunder) may be taken (i) pursuant to a vote at a meeting (which may be held
by telephone conference call) as to which all of the Banks have been given
reasonable advance notice, or (ii) pursuant to the written consent of the
requisite Percentages of the Banks as required hereunder, provided that all of
the Banks are given reasonable advance notice of the requests for such consent.
12.12 Enforcement Actions by the Agent. Except as otherwise expressly
provided under this Agreement or in any of the other Loan Documents and subject
to the terms hereof, Agent will take such action, assert such rights and pursue
such remedies under this Agreement and the other Loan Documents as the Majority
Banks or all of the Banks, as the case may be (as provided for hereunder), shall
direct; provided, however, that the Agent shall not be required to act or omit
to act if, in the judgment of the Agent, such action or omission may expose the
Agent to personal liability or is contrary to this Agreement, any of the Loan
Documents or applicable law. Except as expressly provided above or elsewhere in
this Agreement or the other Loan Documents, no Bank (other than the Agent,
acting in its capacity as agent) shall be entitled to take any enforcement
action of any kind under any of the Loan Documents.
13. MISCELLANEOUS
13.1 Accounting Principles. Where the character or amount of any asset or
liability or item of income or expense is required to be determined or any
consolidation or other accounting computation is required to be made for the
purposes of this Agreement, it shall be done, unless otherwise specified herein,
in accordance with GAAP. Furthermore, all financial statements required to be
delivered hereunder, subject to year-end audit adjustments thereto, shall be
prepared in accordance with GAAP.
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13.2 Consent to Jurisdiction. Company, Agent and Banks hereby irrevocably
submit to the non-exclusive jurisdiction of any United States Federal Court or
Michigan state court sitting in Detroit, Michigan in any action or proceeding
arising out of or relating to this Agreement or any of the Loan Documents and
Company, Agent and Banks hereby irrevocably agree that all claims in respect of
such action or proceeding may be heard and determined in any such United States
Federal Court or Michigan state court. Company irrevocably consents to the
service of any and all process in any such action or proceeding brought in any
court in or of the State of Michigan by the delivery of copies of such process
to Company at its address specified on the signature page hereto or by certified
mail directed to such address or such other address as may be designated by
Company in a notice to the other parties that complies as to delivery with the
terms of Section 13.6. Nothing in this Section shall affect the right of the
Banks and the Agent to serve process in any other manner permitted by law or
limit the right of the Banks or the Agent (or any of them) to bring any such
action or proceeding against Company or any Subsidiary or any of its or their
property in the courts with subject matter jurisdiction of any other
jurisdiction. Company hereby irrevocably waives any objection to the laying of
venue of any such suit or proceeding in the above described courts.
13.3 Law of Michigan. This Agreement and the Notes have been delivered at
Detroit, Michigan, and shall be governed by and construed and enforced in
accordance with the laws of the State of Michigan (without regard to its
conflict of laws provisions). Whenever possible each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
13.4 Interest. In the event the obligation of Company to pay interest on
the principal balance of the Notes is or becomes in excess of the maximum
interest rate which Company is permitted by law to contract or agree to pay,
giving due consideration to the execution date of this Agreement, then, in that
event, the rate of interest applicable with respect to such Bank's Percentage
shall be deemed to be immediately reduced to such maximum rate and all previous
payments in excess of the maximum rate shall be deemed to have been payments in
reduction of principal and not of interest.
13.5 Closing Costs and Other Costs, Indemnification. (a) Company agrees
to pay, or reimburse the Agent for payment of, on demand (i) all reasonable
closing costs and expenses, including, by way of description and not limitation,
house and outside attorney fees (but without duplication of fees and expenses
for the same services provided to the same party) and advances, appraisal and
accounting fees, and lien search fees incurred by Agent in connection with the
commitment, consummation and closing of the loans contemplated hereby or in
connection with the administration of this Agreement or any amendment,
refinancing or restructuring of the credit arrangements provided under this
Agreement, (ii) all stamp and other taxes and fees payable or determined to be
payable in connection with the execution, delivery, filing, recording or
amendment of this Agreement and the Loan Documents and the consummation of the
transactions contemplated
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<PAGE> 72
hereby, and any and all liabilities with respect to or resulting from any delay
in paying or omitting to pay such taxes or fees, (iii) in connection with any
Default or Event of Default, all reasonable costs and expenses of the Agent or
any of the Banks (including reasonable fees and expenses of house and outside
counsel (but without duplication of fees and expenses for the same services) and
whether incurred through negotiations, legal proceedings or otherwise) in
connection with the amendment, waiver or enforcement of this Agreement, or the
Loan Documents or in connection with any refinancing or restructuring of the
credit arrangements provided under this Agreement and (iv) all reasonable costs
and expenses of the Agent or any of the Banks (including reasonable fees and
expenses of house and outside counsel (but without duplication of fees and
expenses for the same services) in connection with any action or proceeding
relating to a court order, injunction or other process or decree restraining or
seeking to restrain the Agent or any of the Banks from paying any amount under,
or otherwise relating in any way to, any Letter of Credit and any and all costs
and expenses which any of them may incur relative to any payment under any
Letter of Credit. At Agent's option, all of said amounts required to be paid by
Company, if not paid when due, may be charged by Agent as a Prime-based Advance
against the Indebtedness.
(b) Company agrees to indemnify and save Agent and each of the Banks
harmless from all loss, cost, damage, liability or expenses, including
reasonable house and outside attorneys' fees and disbursements (but without
duplication of fees and expenses for the same services), incurred by Agent and
the Banks by reason of an Event of Default, or enforcing the obligations of
Company or any Subsidiary under this Agreement or any of the other Loan
Documents or in the prosecution or defense of any action or proceeding
concerning any matter growing out of or connected with this Agreement or any of
the Loan Documents, excluding, however, any loss, cost, damage, liability or
expenses arising solely as a result of the gross negligence or willful
misconduct of the party seeking to be indemnified under this Section 13.5(b).
(c) Company agrees to defend, indemnify and hold harmless Agent and
each of the Banks, and their respective employees, agents, officers and
directors from and against any and all claims, demands, penalties, fines,
liabilities, settlements, damages, costs or expenses of whatever kind or nature
arising out of or related to (i) the presence, disposal, release or threatened
release of any Hazardous Materials on, from or affecting any premises owned or
occupied by Company or any of its Subsidiaries, (ii) any personal injury
(including wrongful death) or property damage (real or personal) arising out of
or related to such Hazardous Materials, (iii) any lawsuit or other proceeding
brought or threatened, settlement reached or governmental order or decree
relating to such Hazardous Materials, (iv) the cost of removal of all Hazardous
Materials from all or any portion of any premises owned by Company or its
Subsidiaries, (v) the taking of necessary precautions to protect against the
release of Hazardous Materials on or affecting any premises owned by Company or
any of its Subsidiaries, (vi) complying with all Hazardous Material Laws and/or
(vii) any violation of Hazardous Material Laws, including without limitation,
reasonable attorneys and consultants fees, investigation and laboratory fees,
environmental studies required by Agent or any Bank in connection with the
violation of Hazardous Material Laws (whether before or after the occurrence of
any Default or Event of Default hereunder), court costs and litigation expenses,
excluding however, those arising as a result of its or their gross negligence or
willful misconduct. The
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<PAGE> 73
obligations of Company under this Section 13.5(c) shall be in addition to any
and all other obligations and liabilities the Company may have to Agent or any
of the Banks at common law or pursuant to any other agreement.
13.6 Notices. Except as expressly provided otherwise in this Agreement,
all notices and other communications provided to any party hereto under this
Agreement or any other Loan Document shall be in writing and shall be given by
personal delivery, by mail, by reputable overnight courier, by telex or by
facsimile and addressed or delivered to it at its address set forth on Schedule
13.6 or at such other address as may be designated by such party in a notice to
the other parties that complies as to delivery with the terms of this Section
13.6. Any notice, if personally delivered or if mailed and properly addressed
with postage prepaid and sent by registered or certified mail, shall be deemed
given when received or when delivery is refused; any notice, if given to a
reputable overnight courier and properly addressed, shall be deemed given two
(2) Business Days after the date on which it was sent, unless it is actually
received sooner by the named addressee; and any notice, if transmitted by telex
or facsimile, shall be deemed given when received (answer back confirmed in the
case of telexes and receipt confirmed in the case of telecopies). Agent may,
but, except as specifically provided herein, shall not be required to, take any
action on the basis of any notice given to it by telephone, but the giver of any
such notice shall promptly confirm such notice in writing or by telex or
facsimile, and such notice will not be deemed to have been received until such
confirmation is deemed received in accordance with the provisions of this
Section set forth above. If such telephonic notice conflicts with any such
confirmation, the terms of such telephonic notice shall control.
13.7 Further Action. Company, from time to time, upon written request of
Agent will make, execute, acknowledge and deliver or cause to be made, executed,
acknowledged and delivered, all such further and additional instruments, and
take all such further action as may reasonably be required to carry out the
intent and purpose of this Agreement or the Loan Documents, and to provide for
Advances under and payment of the Notes, according to the intent and purpose
herein and therein expressed.
13.8 Successors and Assigns; Participations; Assignment
(a) This Agreement shall be binding upon and shall inure to the benefit
of Company and the Banks and their respective successors and assigns,
(b) The foregoing shall not authorize any assignment by Company, of its
rights or duties hereunder, and no such assignment shall be made (or effective)
without the prior written approval of the Banks.
(c) The Company and Agent acknowledge that each of the Banks may at any
time and from time to time, subject to the terms and conditions hereof, assign
or grant participations in such Bank's rights and obligations hereunder and
under the other Loan Documents to any commercial bank, savings and loan
association, insurance company, pension fund, mutual fund, loan or debt
66
<PAGE> 74
fund, commercial finance company or other similar financial institution, the
identity of which institution is approved by Company and Agent, such approval
not to be unreasonably withheld or delayed; provided, however, that (i) the
approval of Company shall not be required upon the occurrence and during the
continuance of a Default or Event of Default, and (ii) the approval of Company
and Agent shall not be required for any such sale, transfer, assignment or
participation to the Affiliate of an assigning Bank, any other Bank or any
Federal Reserve Bank. The Company authorizes each Bank to disclose to any
prospective assignee or participant, once approved by Company and Agent, any and
all financial information in such Bank's possession concerning the Company which
has been delivered to such Bank pursuant to this Agreement; provided that each
such prospective participant shall execute a confidentiality agreement
consistent with the terms of Section 13.12 hereof
(d) Each assignment by a Bank of any portion of its rights and
obligations hereunder and under the other Loan Documents shall be made pursuant
to an Assignment Agreement substantially (as determined by Agent) in the form
attached hereto as Exhibit E (with appropriate insertions acceptable to Agent)
and shall be subject to the terms and conditions hereof, and to the following
restrictions:
(i) each assignment shall cover all of the Notes issued by
Company hereunder to the assigning Bank (and not any
particular note or notes), and shall be for a fixed and
not varying percentage thereof, with the same percentage
applicable to each such Note;
(ii) each assignment shall be in a minimum amount of the
lesser of (X) Five Million Dollars ($5,000,000) and (Y)
the entire remaining amount of assigning Bank's interest
in the Revolving Credit (and participations in any
outstanding Letters of Credit);
(iii) no assignment shall be effective unless Agent has
received from the assignee (or from the assigning Bank)
an assignment fee of $3,500 for each such assignment.
In connection with any assignment, Company and Agent shall be entitled to
continue to deal solely and directly with the assigning Bank in connection with
the interest so assigned until (x) the Agent shall have received a notice of
assignment duly executed by the assigning Bank and an Assignment Agreement (with
respect thereto) duly executed by the assigning Bank and each assignee; and (y)
the assigning Bank shall have delivered to the Agent the original of each Note
held by the assigning Bank under this Agreement. From and after the date on
which the Agent shall notify Company and the assigning Bank that the foregoing
conditions shall have been satisfied and all consents (if any) required shall
have been given, the assignee thereunder shall be deemed to be a party to this
Agreement. To the extent that rights and obligations hereunder shall have been
assigned to such assignee as provided in such notice of assignment (and
Assignment Agreement), such assignee shall have the rights and obligations of a
Bank under this Agreement and the other Loan Documents
67
<PAGE> 75
(including without limitation the right to receive fees payable hereunder in
respect of the period following such assignment). In addition, the assigning
Bank, to the extent that rights and obligations hereunder shall have been
assigned by it as provided in such notice of assignment (and Assignment
Agreement), but not otherwise, shall relinquish its rights and be released from
its obligations under this Agreement and the other Loan Documents.
Within five (5) Business Days following Company's receipt of notice from the
Agent that Agent has accepted and executed a notice of assignment and the duly
executed Assignment Agreement, Company shall, to the extent applicable, execute
and deliver to the Agent in exchange for any surrendered Note, new Note(s)
payable to the order of the assignee in an amount equal to the amount assigned
to it pursuant to such notice of assignment (and Assignment Agreement), and with
respect to the portion of the Indebtedness retained by the assigning Bank, to
the extent applicable, new Note(s) payable to the order of the assigning Bank in
an amount equal to the amount retained by such Bank hereunder shall be executed
and delivered by the Company. Agent, the Banks and the Company acknowledge and
agree that any such new Note(s) shall be given in renewal and replacement of the
surrendered Notes and shall not effect or constitute a novation or discharge of
the Indebtedness evidenced by any surrendered Note, and each such new Note may
contain a provision confirming such agreement. In addition, promptly following
receipt of such Notes, Agent shall prepare and distribute to Company and each of
the Banks a revised Schedule 1.2 to this Agreement setting forth the applicable
new Percentages of the Banks (including the assignee Bank), taking into account
such assignment.
(e) Each Bank agrees that any participation agreement permitted
hereunder shall comply with all applicable laws and shall be subject to the
following restrictions (which shall be set forth in the applicable Participation
Agreement):
(i) such Bank shall remain the holder of its Notes
hereunder, notwithstanding any such participation;
(ii) except as expressly set forth in this Section 13.8(e)
with respect to rights of setoff and the benefits of
Section 11 hereof, a participant shall have no direct
rights or remedies hereunder;
(iii) a participant shall not reassign or transfer, or grant
any sub-participations in its participation interest
hereunder or any part thereof; and
(iv) such Bank shall retain the sole right and responsibility
to enforce the obligations of the Company relating to
the Notes and the other Loan Documents, including,
without limitation, the right to proceed against any
Guaranties, or cause Agent to do so (subject to the
terms and conditions hereof), and the right to approve
any amendment, modification or waiver of any provision
of this Agreement without the consent of the
participant, except for those matters covered by Section
13.11 (a) through (e) and (h) hereof
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<PAGE> 76
(provided that a participant may exercise approval
rights over such matters only on an indirect basis,
acting through such Bank, and Company, Agent and the
other Banks may continue to deal directly with such Bank
in connection with such Bank's rights and duties
hereunder).
Company agrees that each participant shall be deemed to have the right of setoff
under Section 9.6 hereof in respect of its participation interest in amounts
owing under this Agreement and the other Loan Documents to the same extent as if
the Indebtedness were owing directly to it as a Bank under this Agreement, shall
be subject to the pro rata recovery provisions of Section 10.3 hereof and shall
be entitled to the benefits of Section 11 hereof. The amount, terms and
conditions of any participation shall be as set forth in the participation
agreement between the issuing Bank and the Person purchasing such participation,
and none of the Company, the Agent and the other Banks shall have any
responsibility or obligation with respect thereto, or to any Person to whom any
such participation may be issued. No such participation shall relieve any
issuing Bank of any of its obligations under this Agreement or any of the other
Loan Documents, and all actions hereunder shall be conducted as if no such
participation had been granted.
(f) Nothing in this Agreement, the Notes or the other Loan Documents,
expressed or implied, is intended to or shall confer on any Person other than
the respective parties hereto and thereto and their successors and assignees and
participants permitted hereunder and thereunder any benefit or any legal or
equitable right, remedy or other claim under this Agreement, the Notes or the
other Loan Documents.
13.9 Indulgence. No delay or failure of Agent and the Banks in exercising
any right, power or privilege hereunder shall affect such right, power or
privilege nor shall any single or partial exercise thereof preclude any further
exercise thereof, nor the exercise of any other right, power or privilege. The
rights of Agent and the Banks hereunder are cumulative and are not exclusive of
any rights or remedies which Agent and the Banks would otherwise have.
13.10 Counterparts. This Agreement may be executed in several
counterparts, and each executed copy shall constitute an original instrument,
but such counterparts shall together constitute but one and the same instrument.
13.11 Amendment and Waiver. No amendment or waiver of any provision of
this Agreement or any other Loan Document, nor consent to any departure by
Company or any Subsidiary therefrom, shall in any event be effective unless the
same shall be in writing and signed by the Majority Banks (or by the Agent at
the written request of the Majority Banks) or, if this Agreement expressly so
requires with respect to the subject matter thereof, by all Banks (and, with
respect to any amendments to this Agreement or the other Loan Documents, by
Company or the Subsidiaries which are signatories thereto), and then such waiver
or consent shall be effective only in the specific instance and for the specific
purpose for which given; provided, however, that no amendment, waiver or consent
shall, unless in writing and signed by all the Banks, do any of the following:
(a) increase any Bank's commitments hereunder, (b) reduce the principal of, or
interest
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<PAGE> 77
on, the Notes or any Fees or other amounts payable hereunder, (c) postpone any
date fixed for any payment of principal of, or interest on, the Notes or any
Fees or other amounts payable hereunder, (d) waive any Event of Default
specified in Sections 9.1(a) or (b) hereof, (e) release any guaranty or
similar undertaking provided by any Person except as shall be otherwise
expressly permitted in this Agreement or any other Loan Document; (f) terminate
or modify any indemnity provided to the Banks hereunder or under the other Loan
Documents, except as shall be otherwise expressly provided in this Agreement or
any other Loan Document, (g) take any action which requires the approval or
consent of all Banks pursuant to the terms of this Agreement or any other Loan
Document, (h) change the aggregate unpaid principal amount of the Notes which
shall be required for the Banks or any of them to take any action under this
Agreement or any Loan Document or (i) change the definition of "Majority Banks"
or this Section 12.11; provided further, however, that no amendment, waiver, or
consent shall, unless in writing and signed by the Agent in addition to all the
Banks, affect the rights or duties of the Agent under this Agreement or any
other Loan Document. All references in this Agreement to "Banks" or "the Banks"
shall refer to all Banks, unless expressly stated to refer to Majority Banks.
13.12 Confidentiality. Each Bank agrees that it will not disclose without
the prior consent of Company (other than to its employees, its Subsidiaries,
another Bank or to its auditors or counsel) any information with respect to
Company, which is furnished pursuant to this Agreement or any of the other Loan
Documents and will not use such information for its financial benefit outside of
the corporate lending relationship; provided that any Bank may disclose any such
information (a) as has become generally available to the public or has been
lawfully obtained by such Bank from any third party under no duty of
confidentiality to Company, (b) as may be required or appropriate in any report,
statement or testimony submitted to, or in respect to any inquiry, by, any
municipal, state or federal regulatory body having or claiming to have
jurisdiction over such Bank, including the Board of Governors of the Federal
Reserve System of the United States, the Office of the Comptroller of the
Currency or the Federal Deposit Insurance Corporation or similar organizations
(whether in the United States or elsewhere) or their successors, (c) as may be
required or appropriate in respect to any summons or subpoena or in connection
with any litigation, (d) in order to comply with any law, order, regulation or
ruling applicable to such Bank, and (e) to any permitted transferee or assignee
or to any approved participant of, or with respect to, the Notes, as aforesaid.
13.13 Withholding Taxes. If any Bank is not incorporated under the laws
of the United States or a state thereof, such Bank shall promptly deliver to the
Agent two executed copies of (i) Internal Revenue Service Form 1001 specifying
the applicable tax treaty between the United States and the jurisdiction of such
Bank's domicile which provides for the exemption from withholding on interest
payments to such Bank, (ii) Internal Revenue Service Form 4224 evidencing that
the income to be received by such Bank hereunder is effectively connected with
the conduct of a trade or business in the United States or (iii) other evidence
satisfactory to the Agent and Company that such Bank is exempt from United
States income tax withholding with respect to such income. Such Bank shall amend
or supplement any such form or evidence as required to insure that it is
accurate, complete and non-misleading at all times. Promptly upon notice from
the Agent of any determination by the Internal Revenue Service that any payments
previously made to such Bank hereunder were subject to United States income tax
withholding when made, such Bank shall pay to the Agent the
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<PAGE> 78
excess of the aggregate amount required to be withheld from such payments over
the aggregate amount actually withheld by the Agent.
13.14 Taxes and Fees. Should any tax (other than as a result of a Bank's
failure to comply with Section 14.13 or a tax based upon the net income or
capitalization of any Bank or the Agent by any jurisdiction where a Bank or
Agent is located), recording or filing fee become payable in respect of this
Agreement or any of the other Loan Documents or any amendment, modification or
supplement hereof or thereof, the Company agrees to pay the same, together with
any interest or penalties thereon arising from the Company's act or omission,
and agrees to hold the Agent and the Banks harmless with respect thereto.
Notwithstanding the foregoing, nothing contained in this Section 13.14 shall
affect or reduce the rights of any Bank or the Agent under Section 11.7 hereof.
13.15 WAIVER OF JURY TRIAL. THE BANKS, THE AGENT AND THE COMPANY AFTER
CONSULTING OR HAVING HAD THE OPPORTUNITY TO CONSULT WITH COUNSEL, KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY
JURY IN ANY LITIGATION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY
RELATED INSTRUMENT OR AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT OR ANY COURSE OF CONDUCT, DEALING, STATEMENTS (WHETHER ORAL OR
WRITTEN) OR ACTION OF ANY OF THEM. NEITHER THE BANKS, THE AGENT, NOR COMPANY
SHALL SEEK TO CONSOLIDATE, BY COUNTERCLAIM OR OTHERWISE, ANY SUCH ACTION IN
WHICH A JURY TRIAL HAS BEEN WAIVED WITH ANY OTHER ACTION IN WHICH A JURY TRIAL
CANNOT BE OR HAS NOT BEEN WAIVED. THESE PROVISIONS SHALL NOT BE DEEMED TO HAVE
BEEN MODIFIED IN ANY RESPECT OR RELINQUISHED BY THE BANKS AND THE AGENT OR
COMPANY EXCEPT BY A WRITTEN INSTRUMENT EXECUTED BY ALL OF THEM.
13.16 Complete Agreement; Conflicts. This Agreement, the Notes, any
Requests for Revolving Credit Advance and the Loan Documents contain the entire
agreement of the parties hereto, superseding all prior agreements, discussions
and understandings relating to the subject matter hereof, and none of the
parties shall be bound by anything not expressed in writing. In the event of any
conflict between the terms of this Agreement and the other Loan Documents, this
Agreement shall govern.
13.17 Severability. In case any one or more of the obligations of Company
under this Agreement, the Notes or any of the other Loan Documents shall be
invalid, illegal or unenforceable in any jurisdiction, the validity, legality
and enforceability of the remaining obligations of Company shall not in any way
be affected or impaired thereby, and such invalidity, illegality or
unenforceability in one jurisdiction shall not affect the validity, legality or
enforceability of the obligations of Company under this Agreement, the Notes or
any of the other Loan Documents in any other jurisdiction.
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<PAGE> 79
13.18 Table of Contents and Headings. The table of contents and the
headings of the various subdivisions hereof are for convenience of reference
only and shall in no way modify or affect any of the terms or provisions hereof.
13.19 Construction of Certain Provisions. If any provision of this
Agreement or any of the Loan Documents refers to any action to be taken by any
Person, or which such Person is prohibited from taking, such provision shall be
applicable whether such action is taken directly or indirectly by such Person,
whether or not expressly specified in such provision.
13.20 Independence of Covenants. Each covenant hereunder shall be given
independent effect (subject to any exceptions stated in such covenant) so that
if a particular action or condition is not permitted by any such covenant
(taking into account any such stated exception), the fact that it would be
permitted by an exception to, or would be otherwise within the limitations of,
another covenant shall not avoid the occurrence of a Default or an Event of
Default.
13.21 Reliance on and Survival of Various Provisions. All terms,
covenants, agreements, representations and warranties of Company or any party to
any of the Loan Documents made herein or in any of the Loan Documents or in any
certificate, report, financial statement or other document furnished by or on
behalf of Company or any Subsidiary in connection with this Agreement or any of
the Loan Documents shall be deemed to have been relied upon by the Banks,
notwithstanding any investigation heretofore or hereafter made by any Bank or on
such Bank's behalf, and those covenants and agreements of Company set forth in
Section 11.6 hereof (together with any other indemnities of Company or any
Subsidiary contained elsewhere in this Agreement or in any of the other Loan
Documents) and of Banks set forth in Section 12.9 hereof shall survive the
repayment in full of the Indebtedness and the termination of the Revolving
Credit Aggregate Commitment.
* * *
[Signatures follow on succeeding pages]
<PAGE> 80
WITNESS the due execution hereof as of the day and year first above
written.
COMERICA BANK, MEADOWBROOK INSURANCE GROUP,
as Agent INC.
By: By:
------------------------ -------------------------
Its: Its:
----------------------- ------------------------
BANKS: COMERICA BANK
By:
-------------------------
Its:
------------------------
[SIGNATURE PAGE TO CREDIT AGREEMENT]
<PAGE> 81
SCHEDULE 1.1
APPLICABLE MARGINS
<TABLE>
<CAPTION>
BASIS FOR PRICING LEVEL I LEVEL II LEVEL III LEVEL IV
----------------- ---------- -------- --------- --------
<S> <C> <C> <C> <C>
Funded Debt to EBITDA >3.75:1.0 >2.50:1 >1.5:1 <1.5:1.0
-
but but
<3.75:1 <2.5:1
- -
---------- -------- --------- --------
Prime-based Margin -1/4% -1/2% -3/4% -1%
---------- -------- --------- --------
Eurocurrency Margin 1.45% 1.20% .95% .70%
---------- -------- --------- --------
Letter of Credit Fee 1.30% 1.05% .80% .55%
---------- -------- --------- --------
</TABLE>
<PAGE> 82
SCHEDULE 1.2
PERCENTAGES
Bank Percentage
---- ----------
Comerica Bank 100%
----------
Total 100%
<PAGE> 83
EXHIBIT A
REQUEST FOR REVOLVING CREDIT ADVANCE
------------------------------------
No. Dated:
---------- -------------
To: Comerica Bank - Agent
Re: Credit Agreement dated as of July 24, 1998 (as amended or otherwise
modified from time to time, the "Agreement") by and among the lenders from
time to time parties thereto (collectively, the "Banks"), Comerica Bank, as
Agent for the Banks (the "Agent"), and Meadowbrook Insurance Group, Inc.
(the "Company")
Pursuant to the Agreement, the Company requests an Advance from Banks as
follows:
A. Date of Advance:
--------------------
B. Amount of Advance:
$
----------------
[ ] Comerica Bank Account No.
----------------
[ ] Other:
-----------------------------------
-----------------------------------
C. Type of Activity:
1. Advance [ ]
2. Refunding [ ]
3. Conversion [ ]
D. Interest Rate:
1. Prime-based Rate [ ]
2. Eurocurrency-based Rate [ ]
E. Interest Period (for Eurocurrency-based Advances only):
1. One (1) Month [ ]
2. Two (2) Months [ ]
3. Three (3) Months [ ]
4. Six (6) Months [ ]
<PAGE> 84
The Company certifies to the matters specified in Section 2.3(e) of the
Agreement.
MEADOWBROOK INSURANCE GROUP, INC.
By:
------------------------------
Its:
-----------------------------
2
<PAGE> 85
EXHIBIT B
REVOLVING CREDIT NOTE
$ July 24, 1998
__________________
On the Revolving Credit Maturity Date, FOR VALUE RECEIVED, Meadowbrook
Insurance Group, Inc., a Michigan corporation ("Company"), promises to pay to
the order of [insert Bank] ("Bank") at Detroit, Michigan, in care of Agent, in
lawful money of the United States of America, the sum of [Insert amount derived
from Percentages] Dollars ($_______), or so much of said sum as may from time to
time have been advanced and then be outstanding hereunder pursuant to the
Revolving Credit and Term Loan Agreement dated as of July 24, 1998, made by and
among the Company, certain banks, including the Bank, and Comerica Bank as Agent
for such banks, as the same may be amended or otherwise modified from time to
time (the "Agreement"), together with interest thereon as hereinafter set forth.
Each of the Advances made hereunder shall bear interest at the
Applicable Interest Rate from time to time applicable thereto under the
Agreement or as otherwise determined thereunder, and interest shall be computed,
assessed and payable as set forth in the Agreement.
This Note is a note under which advances (including refundings and
conversions) repayments and readvances may be made from time to time, but only
in accordance with the terms and conditions of the Agreement. This Note
evidences borrowings under, is subject to, is secured in accordance with, and
may be accelerated or matured under, the terms of the Agreement, to which
reference is hereby made. Definitions and terms of the Agreement are hereby
incorporated by reference herein.
This Note shall be interpreted and the rights of the parties hereunder
shall be determined under the laws of, and enforceable in, the State of Michigan
(without regard to its conflict of laws principles).
Company hereby waives presentment for payment, demand, protest and
notice of dishonor and nonpayment of this Note and agrees that no obligation
hereunder shall be discharged by reason of any extension, indulgence, release,
or forbearance granted by any holder of this Note to any party now or hereafter
liable hereon or any present or subsequent owner of any property, real or
personal, which is now or hereafter security for this Note.
<PAGE> 86
Nothing herein shall limit any right granted Bank by any other
instrument or by law.
MEADOWBROOK INSURANCE GROUP, INC.
By:
------------------------------
Its:
-----------------------------
2
<PAGE> 87
EXHIBIT C
NOTICE OF LETTERS OF CREDIT
TO: Members of the Bank Group
RE: Credit Agreement dated as of July 24, 1998 (as amended or otherwise
modified from time to time, the "Agreement") by and among the lenders from
time to time parties thereto (collectively, the "Banks"), Comerica Bank, as
Agent for the Banks (the "Agent"), and Meadowbrook Insurance Group, Inc.
(the "Company")
On ______, 19__,(1) Issuing Bank, in accordance with Article 3 of the
Agreement, issued its Letter of Credit number_________ , in favor
of _______(2) for the account of Company. The face amount of such Letter of
Credit is $________________. The amount of each Bank's participation in
the Letter of Credit is as follows: (3)
Comerica Bank $____________________
__________________________ $____________________
__________________________ $____________________
This notification is delivered this ______ day of _______,________,
pursuant to Section 3.3 of the Agreement. Except as otherwise defined,
capitalized terms used herein have the meanings given them in the Agreement.
Signed:
COMERICA BANK, AS AGENT
By:______________________________
Its:_____________________________
_____________________________
(1) Date of Issuance
(2) Beneficiary
(3) Amounts based on Percentages
<PAGE> 88
EXHIBIT D
COVENANT COMPLIANCE REPORT
To: Comerica Bank, as Agent
Re: Credit Agreement dated as of July 24, 1998 (as amended or otherwise
modified from time to time, the "Agreement") by and among the lenders
from time to time parties thereto (collectively, the "Banks"),
Comerica Bank, as Agent for the Banks (the "Agent"), and Meadowbrook
Insurance Group, Inc. (the "Company")
This Covenant Compliance Report ("Report") is furnished pursuant to Section
7.2 of the Agreement and sets forth various information as of __________, 19__
(the "Computation Date").
1. Tangible Net Worth. On the Computation Date, Tangible Net Worth which
is required to be not less than $__________, was $___________as computed in the
supporting documents attached hereto as Schedule 1.
2. Fixed Charge Coverage. On the Computation Date, the Fixed Charge
Coverage Ratio, which is required to be not less than to 1.0 as of the
fiscal quarter then ending was _____ to 1.0 as computed in the supporting
documents attached as Schedule 2.
3. Senior Funded Debt to Adjusted EBITDA Ratio. On the Computation Date,
the Senior Funded Debt to Adjusted EBITDA Ratio, which is required to be not
more than ______ to 1.0 as of the fiscal quarter then ending was _______ to 1.0,
as computed in the supporting documents attached hereto as Schedule 3.
4. Senior Funded Debt to Total Capitalization Ratio. On the Computation
Date, the Senior Funded Debt to Total Capitalization Ratio which is required to
be not more than ___ to 1.0 as of the fiscal quarter then ending, was ___
to 1.0, as computed in the supporting documents attached hereto as Schedule 4.
5. Net Premium and Gross Premium Ratios. On the Computation Date, the Net
Premium Ratio, which is required to be not more than ________ 1.0 was ________to
1.0 and the Gross Premium Ratio which is required to be not more than to 1.0 was
_______ to 1.0 as computed in the supporting documents attached as
Schedule 5.
The undersigned officer of Company hereby certifies that:
A. All of the information set forth in this Report (and in any Schedule
attached hereto) is true and correct in all material respects.
<PAGE> 89
B. As of the Computation Date, the Company and its Subsidiaries have observed
and performed all of their covenants and other agreements contained in the
Agreement and in the Notes and any other Loan Documents to be observed,
performed and satisfied by them.
C. I have reviewed the Agreement and this Report is based on an examination
sufficient to assure that this Report is accurate.
D. Except as stated in Schedule 6 hereto (which shall describe any existing
Default or Event of Default and the notice and period of existence thereof and
any action taken with respect thereto or contemplated to be taken by Company),
no Default or Event or Default has occurred and is continuing on the date of
this Report.
Capitalized terms used in this Report and in the schedules hereto, unless
specifically defined to the contrary, have the meanings given to them in the
Agreement.
IN WITNESS WHEREOF, Company has caused this Report to be executed and
delivered by its duly authorized officer this ____ day of____________ , 19___.
MEADOWBROOK INSURANCE GROUP, INC.
By:______________________________
Its:_____________________________
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<PAGE> 90
EXHIBIT E
ASSIGNMENT AGREEMENT
Date: ____________
To: COMERICA BANK, in its capacity as Agent ("Agent")
Re: Credit Agreement dated as of July 24, 1998 (as amended or otherwise
modified from time to time, the "Credit Agreement") by and among the
lenders from time to time parties thereto (collectively, the "Banks"),
Comerica Bank, as Agent for the Banks (the "Agent"), and Meadowbrook
Insurance Group, Inc. (the "Company")
Ladies and Gentlemen:
Reference is made to Sections 13.8 (c) and (d) of the Credit Agreement.
Unless otherwise defined herein or the context otherwise requires, all initially
capitalized terms used herein without definition shall have the meanings
specified in the Credit Agreement.
This Agreement constitutes notice to each of you of the proposed assignment
and delegation by ___________ (the "Assignor") to ___________ (the "Assignee"),
and the Assignor hereby sells and assigns to the Assignee, and the Assignee
hereby purchases and assumes from the Assignor, as of the Effective Date (as
defined below), a __% undivided interest in each of Assignor's rights and
obligations under the Credit Agreement, its Notes (including any participations
in any outstanding Letters of Credit) and the other Loan Documents such that,
after giving effect to the foregoing assignment and assumption, [and the other
assignments by Assignor to ________ on the date hereof, the Assignee's interest
in the Revolving Credit shall equal $_______ and the Assignee's Percentage shall
equal __%.
The Assignor hereby instructs the Agent to make all payments from and
including the Effective Date hereof in respect of the interest assigned hereby,
directly to the Assignee. The Assignor and the Assignee agree that all interest
and fees accrued up to, but not including, the Effective Date of the assignment
and delegation being made hereby are the property of the Assignor, and not the
Assignee. The Assignee agrees that, upon receipt of any such interest or fees
accrued up to the Effective Date, or any other payments in respect of the
interest assigned hereby applicable to the period prior to the Effective Date,
the Assignee will promptly remit the same to the Assignor in the same funds
received by the Assignee.
The Assignor and the Assignee agree that all interest and fees accruing
from and after the Effective Date of the assignment and delegation being made
hereby are the property of the Assignee, and not the Assignor. The Assignor
agrees that, upon receipt of any such interest or fees accruing from and after
the Effective Date or any other payments in respect of the interest assigned
hereby
<PAGE> 91
applicable to the period from and after the Effective Date, the Assignor will
promptly remit the same to the Assignee in the same funds received by the
Assignor.
The Assignee hereby confirms that it has received a copy of the Credit
Agreement and the exhibits and schedules referred to therein, and all other Loan
Documents which it considers necessary, together with copies of the other
documents which were required to be delivered under the Credit Agreement as a
condition to the making of the loans thereunder. The Assignee acknowledges and
agrees that it: (a) has made and will continue to make such inquiries and has
taken and will take such care on its own behalf as would have been the case had
its Commitment been granted and its loans been made directly by such Assignee to
the Company without the intervention of the Agent, the Assignor or any other
Bank; and (b) has made and will continue to make, independently and without
reliance upon the Agent, the Assignor or any other Bank, and based on such
documents and information as it has deemed appropriate, its own credit analysis
and decisions relating to the Credit Agreement. The Assignee further
acknowledges and agrees that neither the Agent, nor the Assignor has made any
representations or warranties about the creditworthiness of the Company or any
other party to the Credit Agreement or any other of the Loan Documents, or with
respect to the legality, validity, sufficiency or enforceability of the Credit
Agreement, or any other of the Loan Documents. This assignment shall be made
without recourse to or warranty by the Assignor, except as set forth herein.
Assignee represents and warrants that it is a Person to which assignments
are permitted pursuant to Sections 13.8(c) and (d) of the Credit Agreement.
Assignor represents and warrants, as of the Effective Date, that it is the
legal and beneficial owner of the interest being assigned and delegated by it
hereunder and that such interest is free and clear of any pledge, encumbrance or
other adverse claim or interest created by Assignor.
Except as otherwise provided in the Credit Agreement, effective as of the
Effective Date:
(a) the Assignee: (i) shall be deemed automatically to have become a party
to the Credit Agreement and the other Loan Documents, to have assumed
all of the Assignor's obligations thereunder to the extent of the
Assignee's percentage referred to in the second paragraph of this
Assignment Agreement, and to have all the rights and obligations of a
party to the Credit Agreement and the other Loan Documents, as if it
were an original signatory thereto to the extent specified in the
second paragraph hereof, and (ii) agrees to be bound by the terms and
conditions set forth in the Credit Agreement and the other Loan
Documents as if it were an original signatory thereto; and
(b) the Assignor's obligations under the Credit Agreement and the other
Loan Documents shall be reduced by the Percentage referred to in the
second paragraph of this Assignment Agreement.
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<PAGE> 92
As used herein, the term "Effective Date" means the date on which all of
the following have occurred or have been completed, as reasonably determined by
the Agent:
(1) the delivery to the Agent of an original of this Assignment Agreement
executed by the Assignor and the Assignee;
(2) the payment to the Agent, of all accrued fees, expenses and other items
for which reimbursement is then owing under the Credit Agreement;
(3) payment to the Agent of the $3,500 assignment fee referred to in
Section 13.8(d)(iii) of the Credit Agreement;
(4) all other restrictions and items noted in Sections 13.8(c) and (d) of
the Credit Agreement have been completed.
On the Effective Date the Assignee shall pay to the Assignor an amount
equal to the outstanding principal amount of the indebtedness owed to it by the
Company under the Agreement in respect of the interest being assigned hereby.
The Agent shall notify the Assignor and the Assignee, along with
Company, of the Effective Date.
The Assignee hereby advises each of you of the following administrative
details with respect to the assigned loans:
(A) Address for Notices:
Institution Name:
Address:
Attention:
Telephone:
Facsimile:
(B) Payment Instructions:
(C) Proposed effective date of assignment.
The Assignor has delivered to the Agent (or is delivering to Agent
concurrently herewith), the original of each Note held by the Assignor under the
Credit Agreement.
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<PAGE> 93
Please evidence your consent to and acceptance of the proposed assignment
and delegation set forth herein by signing and returning counterparts hereof to
the Assignor and the Assignee.
[ASSIGNOR BANK]
By:
-------------------------------------
Its:
------------------------------------
[ASSIGNEE BANK]
By:
-------------------------------------
Its:
------------------------------------
ACCEPTED AND CONSENTED TO
this day of
------- ---------
COMERICA BANK, as Agent
By:
------------------------------
Its:
-----------------------------
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<PAGE> 94
EXHIBIT F
GUARANTY
This GUARANTY is made as of the 24th day of July, 1998 by each of the
undersigned guarantors (the "Guarantors"), to Comerica Bank, as Agent ("Agent")
for and on behalf of the Banks (as defined below).
RECITALS
A. Pursuant to that certain Credit Agreement dated as of July 24, 1998 (as
amended or otherwise modified from time to time, the "Credit Agreement") by and
among Meadowbrook Insurance Group, Inc., a Michigan corporation (the "Company"),
Agent and the banks which are named in and signatories to the Credit Agreement
("Banks"), the Banks have agreed to extend credit to Company on the terms set
forth in the Credit Agreement, with such credit consisting of (i) the Revolving
Credit in an aggregate amount, subject to the terms of the Credit Agreement, of
up to Fifty Million Dollars ($50,000,000) at any one time outstanding, to be
evidenced by the Revolving Credit Notes made or to be made by the Company to the
Banks ("Revolving Credit Notes"); and (ii) a facility for the issuance of
letter(s) of credit ("Letter(s) of Credit") for the account of the Company,
individually, or jointly and severally with other Account Parties pursuant to
Section 3 of the Credit Agreement, subject to specified availability thereunder.
B. As a condition to entering into and performing their respective
obligations under the Credit Agreement, the Banks and the Agent have required
that the Guarantors provide to Agent, for and on behalf of the Banks, this
Guaranty.
C. Each of the Guarantors desires to see the success of the Company and,
furthermore, shall receive direct and/or indirect benefits from extensions of
credit made or to be made pursuant to the Credit Agreement to the Company.
D. The Agent is acting as Agent for the Banks pursuant to the terms of the
Credit Agreement.
NOW, THEREFORE, as a continuing inducement to the Agent and the Banks to
enter into and perform its obligations under the Credit Agreement, each of the
Guarantors has executed and delivered this guaranty ("Guaranty").
1. Definitions. Unless otherwise provided herein, all capitalized terms
used in this Guaranty shall have the meanings specified in the Credit Agreement.
The term "Banks" as used herein shall include any successors or permitted
assigns of the Banks, in accordance with the Credit Agreement.
<PAGE> 95
2. Guaranty. Each of the Guarantors hereby guarantees to the Banks the
punctual payment to the Banks when due, whether by acceleration or otherwise, of
all amounts, including, without limitation, principal, interest (including
interest accruing on or after the filing of any petition in bankruptcy, or the
commencement of any insolvency, reorganization or like proceeding by such
Guarantor, whether or not a claim for post-filing or post-petition interest is
allowed in such a proceeding), and all other liabilities and obligations, direct
or indirect, absolute or contingent, due or to become due, now existing or
hereafter incurred, which may arise under, out of, or in connection with:
(a) any and all Revolving Credit Notes made or to be made to the
order of the Banks (or any of them) by the Company, from time to time
pursuant to the terms and conditions of the Credit Agreement;
(b) any and all Letter of Credit Agreements executed or to be
executed by the Company or the other Account Parties and any of them, from
time to time pursuant to the Credit Agreement, and any Letters of Credit
issued or to be issued thereunder;
(c) any Interest Rate Protection Agreements;
(d) all other Indebtedness (as defined in the Credit Agreement) of
the Company and/or any Account Party, under or in connection with the
Credit Agreement or the other Loan Documents, whether such Indebtedness is
now existing or hereafter arising; and
(e) all extensions, renewals and amendments of or to the Revolving
Credit Notes (collectively, and any of such notes, the "Notes"), Letter of
Credit Agreements, Letters of Credit, Interest Rate Protection Agreements,
or such other Indebtedness, or any replacements or substitutions therefor;
whether on account of principal, interest, reimbursement obligations, fees,
indemnities, and reasonable costs and expenses (including without limitation,
all reasonable fees and disbursements of counsel to the Agent or any Bank) or
otherwise, and hereby agrees that if Company shall fail to pay any of such
amounts when and as the same shall be due and payable, or shall fail to perform
and discharge any covenant, representation or warranty in accordance with the
terms of the Notes, the Credit Agreement, the Letter of Credit Agreements, the
Letters of Credit or any of the other Loan Documents (subject, in each case, to
any applicable periods of grace or cure), each such Guarantor will forthwith pay
to the Agent, on behalf of the Banks, an amount equal to any such amount or
cause Company to perform and discharge any such covenant, representation or
warranty, as the case may be, and will pay any and all damages that may be
incurred or suffered in consequence thereof by Agent or any of the Banks and all
reasonable expenses, including reasonable attorneys' fees, that may be incurred
by Agent in enforcing such covenant, representation or warranty of Company, and
in enforcing the covenants and agreements of this Guaranty.
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<PAGE> 96
3. Unconditional Character of Guaranty. The obligations of each of the
Guarantors under this Guaranty, to the full extent of its guaranty of
Indebtedness hereunder, shall be absolute and unconditional, and shall be a
guaranty of payment and not of collection, irrespective of the validity,
regularity or enforceability of the Notes, the Credit Agreement, the Letter of
Credit Agreements, the Letters of Credit or any of the other Loan Documents, or
any provision thereof, the absence of any action to enforce the same, any waiver
or consent with respect to or any amendment of any provision thereof, the
recovery of any judgment against any Person or action to enforce the same, any
failure or delay in the enforcement of the obligations of Company under the
Notes, the Credit Agreement, the Letter of Credit Agreements, the Letters of
Credit or any of the other Loan Documents, or any setoff, counterclaim,
recoupment, limitation, defense or termination, whether with or without notice
to such Guarantor. Each of the Guarantors hereby waives diligence, demand for
payment, filing of claims with any court, any proceeding to enforce any
provision of the Notes executed by Company, or the Credit Agreement, the Letter
of Credit Agreements, the Letters of Credit or any of the other Loan Documents,
any right to require a proceeding first against Company, or against any other
guarantor or other party providing collateral, or to exhaust any security for
the performance of the obligations of Company, any protest, presentment, notice
or demand whatsoever, and such Guarantor hereby covenants that this Guaranty
shall not be terminated, discharged or released except, subject to Section 6.5
hereof, upon final payment in full (subject to no revocation or rescission) of
all amounts due and to become due from Company or any Account Party, as and to
the extent described above, and only to the extent of any such payment,
performance and discharge. Each of the Guarantors further covenants that no
security now or subsequently held by the Agent or the Banks for the payment of
the Indebtedness evidenced by the Notes made by Company, under the Credit
Agreement, or for the payment of any other Indebtedness of Company, to the Agent
or the Banks under the Credit Agreement, the Letter of Credit Agreements, the
Letters of Credit or the other Loan Documents, whether in the nature of a
security interest, pledge, lien, assignment, setoff, suretyship, guaranty,
indemnity, insurance or otherwise, and no act, omission or other conduct of
Agent or the Banks in respect of such security, shall affect in any manner
whatsoever the unconditional obligation of this Guaranty, and that the Agent and
each of the Banks, in their respective sole discretion and without notice to
Company, may release, exchange, enforce, apply the proceeds of and otherwise
deal with any such security without affecting in any manner the unconditional
obligation of this Guaranty.
Without limiting the generality of the foregoing, such obligations, and
the rights of the Agent to enforce the same on behalf of the Banks, by
proceedings, whether by action at law, suit in equity or otherwise, shall not be
in any way affected by (i) any insolvency, bankruptcy, liquidation,
reorganization, readjustment, composition, dissolution, winding up or other
proceeding involving or affecting Company, or others, or (ii) any change in the
ownership of the capital stock of Company, or any other party providing
collateral for any indebtedness covered by this Guaranty, or any of their
respective Affiliates.
Each of the Guarantors hereby waives to the fullest extent possible under
applicable law:
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<PAGE> 97
(a) any defense based upon the doctrine of marshaling of assets or upon
an election of remedies by Agent or the Banks, including, without limitation, an
election to proceed by non-judicial rather than judicial foreclosure;
(b) any defense based upon any statute or rule of law which provides
that the obligation of a surety must be neither larger in amount nor in other
respects more burdensome than that of the principal;
(c) any duty on the part of Agent or any of the Banks to disclose to
such Guarantor any facts Agent or the Banks may now or hereafter know about the
Company, regardless of whether Agent or any Bank has reason to believe that any
such facts materially increase the risk beyond that which such Guarantor intends
to assume or has reason to believe that such facts are unknown to such Guarantor
or has a reasonable opportunity to communicate such facts to such Guarantor,
since such Guarantor acknowledges that it is fully responsible for being and
keeping informed of the financial condition of Company and of all circumstances
bearing on the risk of nonpayment of any Indebtedness hereby guaranteed;
(d) any claim for reimbursement, contribution, exoneration, indemnity or
subrogation, or any other similar claim, which such guarantor may have or obtain
against the Company, by reason of the existence of this Guaranty, or by reason
of the payment by such Guarantor of any Indebtedness or the performance of this
Guaranty or of any other Loan Documents, until the Indebtedness has been repaid
and discharged in full and no commitment to extend any credit under the Credit
Agreement or any of the Loan Documents (whether optional or obligatory), or any
Letter of Credit, remains outstanding, and any amounts paid to such Guarantor on
account of any such claim at any time when the obligations of such Guarantor
under this Guaranty shall not have been fully and finally paid shall be held by
such Guarantor in trust for Agent and the Banks, segregated from other funds of
such Guarantor, and forthwith upon receipt by such Guarantor shall be turned
over to Agent in the exact form received by such Guarantor (duly endorsed to
Agent by such Guarantor, if required), to be applied to such Guarantor's
obligations under this Guaranty, whether matured or unmatured, in such order and
manner as Agent may determine; and
(e) any other event or action (excluding compliance by such Guarantor
with the provisions hereof) that would result in the discharge by operation of
law or otherwise of such Guarantor from the performance or observance of any
obligation, covenant or agreement contained in this Guaranty.
The Agent and each of the Banks may deal with Company, and any security
held by them for the obligations of Company or any other Account Party (as
aforesaid), in the same manner and as freely as if this Guaranty did not exist
and the Agent shall be entitled, on behalf of Banks, without notice to the
Guarantors, among other things, to grant to the Company, such extension or
extensions of time to perform any act or acts as may seem advisable to such
Agent (on behalf of the Banks) at any time and from time to time, and to permit
the Company or any other Account Party to incur additional indebtedness to
Agent, the Banks, or any of them, without terminating, affecting or
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<PAGE> 98
impairing the validity or enforceability of this Guaranty or the obligations of
the Guarantors hereunder.
The Agent may proceed, either in its own name (on behalf of the Banks) or
in the name of any of the Guarantors, or otherwise, to protect and enforce any
or all of its rights under this Guaranty by suit in equity, action at law or by
other appropriate proceedings, or to take any action authorized or permitted
under applicable law, and shall be entitled to require and enforce the
performance of all acts and things required to be performed hereunder by the
Guarantors. Each and every remedy of the Agent and of the Banks shall, to the
extent permitted by law, be cumulative and shall be in addition to any other
remedy given hereunder or now or hereafter existing at law or in equity.
No waiver or release shall be deemed to have been made by the Agent or any
of the Banks of any of its rights hereunder unless the same shall be in writing
and signed by all of the Banks or on behalf of the Banks by the Agent, and any
such waiver shall be a waiver or release only with respect to the specific
matter involved and shall in no way impair the rights of the Agent or any of the
Banks or the obligations of the Guarantors under this Guaranty in any other
respect at any other time.
At the option of the Agent, any of the Guarantors may be joined in any
action or proceeding commenced by the Agent against Company, or any of the other
parties providing collateral for any indebtedness covered by this Guaranty in
connection with or based upon the Notes made by Company, the Credit Agreement,
the Letter of Credit Agreements, the Letters of Credit or any of the other Loan
Documents or other Indebtedness, or any provision thereof, and recovery may be
had against any such Guarantor in such action or proceeding or in any
independent action or proceeding against such Guarantor, without any requirement
that the Agent or the Banks first assert, prosecute or exhaust any remedy or
claim against Company, and/or any of the other parties providing collateral for
any Indebtedness covered by this Guaranty, or any other Indebtedness.
As a separate, additional and continuing obligation, each of the
Guarantors unconditionally and irrevocably undertakes and agrees with Agent
that, should the amounts referred to in Section 2 of this Guaranty not be
recoverable from such Guarantor in its capacity as a guarantor under this
Guaranty for any reason whatsoever (including, without limitation, by reason of
any provision of the Notes, the Credit Agreement, any Letter of Credit Agreement
or Letter of Credit, or any of the other Loan Documents being or becoming void,
unenforceable, or otherwise invalid under any applicable law) then,
notwithstanding any knowledge thereof by the Agent and the Banks or any of them
at any time, such Guarantor as sole, original and independent obligor, upon
demand by Agent, will make payment to Agent of all such amounts by way of a full
indemnity.
4. Representations and Warranties. Each of the Guarantors (a) ratifies,
confirms and, by reference thereto (as fully as though such matters were
expressly set forth herein), represents and warrants with respect to itself
those matters set forth in Section 6 of the Credit Agreement, and (b) agrees not
to engage in any action or inaction, the result of which would cause a violation
of any term or condition of the Credit Agreement.
5
<PAGE> 99
5. Miscellaneous.
5.1 Governing Law. This Guaranty has been delivered in Michigan and
shall be interpreted and the rights of the parties hereunder shall be determined
under the laws of, and be enforceable in, the State of Michigan (without regard
to its conflict of laws provisions), each of the Guarantors hereby consenting to
the jurisdiction of state and all federal courts sitting in such state.
5.2 Severability. If any term or provision of this Guaranty, or the
application thereof to any circumstance, shall, to any extent, be invalid or
unenforceable, the remainder of this Guaranty, or the application of such term
or provision to circumstances other than those as to which it is held invalid or
unenforceable, as the case may be, shall not be affected thereby, and each term,
provision and obligation of this Guaranty shall be valid and enforceable to the
fullest extent permitted by law.
5.3 Notice. All notices and other communications to be made or given
pursuant to this Guaranty shall be sufficient if made or given in conformity
with Section 13.6 of the Credit Agreement.
5.4 Right of Offset. Each of the Guarantors acknowledges the rights of
the Agent and of each of the Banks, upon the occurrence and during the
continuance of an Event of Default, to offset against the Indebtedness of such
Guarantor to the Banks under this Guaranty, any amount owing by the Agent or the
Banks, or either or any of them to such Guarantor, whether represented by any
deposit of such Guarantor with the Agent or any of the Banks or otherwise.
5.5 Release. Upon the satisfaction of the obligations of the
Guarantors hereunder, and when the Guarantors are not subject to any obligation
under the Credit Agreement or any of the other Loan Documents, the Agent shall
deliver to the Guarantors, upon written request therefor, a written release of
this Guaranty; provided however that the effectiveness of this Guaranty shall
continue or be reinstated, as the case may be, in the event that any payment
received or credit given by the Agent or the Banks, or any of them, is returned,
disgorged, rescinded or required to be recontributed to any party as an
avoidable preference, impermissible setoff, fraudulent conveyance, restoration
of capital or otherwise under any applicable state, federal or national law of
any jurisdiction, including without limitation laws pertaining to bankruptcy or
insolvency, and this Guaranty shall thereafter be enforceable against the
Guarantors as if such returned, disgorged, recontributed or rescinded payment or
credit had not been received or given by the Agent or the Banks, and whether or
not the Agent or any Bank relied upon such payment or credit or changed its
position as a consequence thereof.
5.6 Amendments. The terms of this guaranty may not be waived, altered,
modified, amended, supplemented or terminated in any manner whatsoever except as
provided herein and in accordance with the Credit Agreement. In accordance with
Section 7.19 of the Credit Agreement, all Subsidiaries of the Company created or
otherwise acquired after the Effective Date shall become obligated as Guarantors
hereunder (each as fully as though an original signatory hereto)
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<PAGE> 100
by executing and delivering to Agent and the Banks that certain joinder
agreement in the form attached to this Guaranty as Exhibit A.
5.7 Consent to Jurisdiction. Each of the Guarantors and each of the
Agent and the Banks (by accepting the benefits hereof) hereby irrevocably submit
to the non-exclusive jurisdiction of any United States Federal Court or Michigan
state court sitting in Detroit, Michigan in any action or proceeding arising out
of or relating to this Guaranty and each of the Guarantors and the Agent and the
Banks hereby irrevocably agree that claims in respect of such action or
proceeding may be heard and determined in any such United States Federal Court
or Michigan state court. Each of the Guarantors irrevocably consents to the
service of any and all process in any such action or proceeding brought in any
court in or of the State of Michigan by the delivery of copies of such process
to such Guarantor at its address specified on the signature page hereto or by
certified mail directed to such address or such other address as may be
designated by the Guarantor in a notice to the other parties that complies as to
delivery with the terms of Section 5.3. Nothing in this Section shall affect the
right of the Banks and the Agent to serve process in any other manner permitted
by law or limit the right of the Banks or the Agent (or any of them) to bring
any such action or proceeding against any of the Guarantors or any of its or
their property in the courts of any other jurisdiction. Each of the Guarantors
hereby irrevocably waives any objection to the laying of venue of any such suit
or proceeding in the above described courts.
5.8 Joint and Several Obligation, etc. The obligation of each
of the Guarantors under this Guaranty shall be several and also joint, each with
all and also each with any one or more of the others, and may be enforced
against each severally, any two or more jointly, or some severally and some
jointly. Any one or more of the Guarantors may be released from its obligations
hereunder with or without consideration for such release and the obligations of
the other Guarantors hereunder shall be in no way affected thereby. Agent, on
behalf of Banks, may fail or elect not to prove a claim against any bankrupt or
insolvent Guarantor and thereafter, Agent and the Bank may, without notice to
any Guarantors, extend or renew any part or all of any indebtedness of any of
the Guarantors, and may permit any of the Guarantors to incur additional
indebtedness, without affecting in any manner the unconditional obligation of
the remaining Guarantors. Such action shall not affect any right of contribution
among the Guarantors.
5.9 WAIVER OF JURY TRIAL. THE BANKS (BY ACCEPTING THE BENEFITS
HEREOF), THE AGENT (BY ACCEPTING THE BENEFITS HEREOF) AND EACH OF THE GUARANTORS
AFTER CONSULTING OR HAVING HAD THE OPPORTUNITY TO CONSULT WITH COUNSEL,
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT ANY OF THEM MAY HAVE TO
A TRIAL BY JURY IN ANY LITIGATION BASED UPON OR ARISING OUT OF THIS GUARANTY OR
ANY OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY COURSE OF CONDUCT,
DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTION OF ANY OF THEM. NEITHER
THE BANKS, THE AGENT, NOR ANY OF THE GUARANTORS SHALL SEEK TO CONSOLIDATE, BY
COUNTERCLAIM OR OTHERWISE, ANY SUCH ACTION IN WHICH A JURY TRIAL HAS BEEN WAIVED
7
<PAGE> 101
WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED.
THESE PROVISIONS SHALL NOT BE DEEMED TO HAVE BEEN MODIFIED IN ANY RESPECT OR
RELINQUISHED BY THE BANKS AND THE AGENT OR THE GUARANTORS EXCEPT BY A WRITTEN
INSTRUMENT EXECUTED BY ALL OF THEM.
5.10 Limitation under Applicable Insolvency Laws. Notwithstanding
anything to the contrary contained herein, it is the intention of each of the
Guarantors, Agent and the Banks that the amount of each Guarantor's obligations
hereunder shall be in, but not in excess of, the maximum amount thereof not
subject to avoidance or recovery by operation of applicable law governing
bankruptcy, reorganization, arrangement, adjustment of debts, relief of debtors,
dissolution, insolvency, fraudulent transfers or conveyances or other similar
laws (collectively, "Applicable Insolvency Laws"). To that end, but only in the
event and to the extent that a Guarantor's obligations hereunder or any payment
made pursuant thereto would, but for the operation of the foregoing proviso, be
subject to avoidance or recovery under Applicable Insolvency Laws, the amount of
such Guarantor's obligations hereunder shall be limited to the largest amount
which, after effect thereto, would not, under Applicable Insolvency Laws, render
such Guarantor's respective obligations hereunder unenforceable or avoidable or
subject to recovery under Applicable Insolvency Laws. To the extent any payment
actually made hereunder exceeds the limitation contained in this Section 5.10,
then the amount of such excess shall, from and after the time of payment by the
Guarantors (or any of them), be reimbursed by the Banks upon demand by such
Guarantor. The foregoing proviso is intended solely to preserve the rights of
the Agent and the Banks hereunder against the Guarantors to the maximum extent
permitted by Applicable Insolvency Laws and neither Company nor any Guarantor
nor any other Person shall have any right or claim under this Section 5.10 that
would not otherwise be available under Applicable Insolvency Laws. To effectuate
the foregoing, the parties to this Agreement acknowledge and agree that the
provisions of this Section 5.10 only apply to Guarantors which are Domestic
Subsidiaries of the Company.
[signature follows on succeeding page]
8
<PAGE> 102
IN WITNESS WHEREOF, the undersigned each of the Guarantors has executed
this Guaranty as of the date first above written.
MEADOWBROOK, INC.
a Michigan corporation
By:
-----------------------------
Its:
----------------------------
MEADOWBROOK OF FLORIDA, INC.,
a Florida corporation
By:
-----------------------------
Its:
----------------------------
ASSOCIATION SELF INSURANCE SERVICES,
INC., an Alabama corporation
By:
-----------------------------
Its:
----------------------------
CREST FINANCIAL CORPORATION,
a Nevada corporation
By:
-----------------------------
Its:
----------------------------
9
<PAGE> 103
Signature Page Guaranty
EXHIBIT A
to Guaranty
JOINDER AGREEMENT
THIS JOINDER AGREEMENT IS DATED as of ____________,199_ by ______________,
a ____________________ corporation ("New Guarantor").
WHEREAS, pursuant to Section 7.19 of that certain Credit Agreement dated as
of July 24, 1998 (as amended or otherwise modified from time to time, the
"Credit Agreement") by and among Meadowbrook Insurance Group, Inc. ("Company"),
the Banks signatory thereto and Comerica Bank, as Agent for the Banks (in such
capacity, "Agent"), and pursuant to Section 5.6 of that certain Guaranty dated
as of July 24, 1998 (as amended or otherwise modified from time to time the
Guaranty") executed and delivered by the Guarantors named therein ("Guarantors")
in favor of Agent, for and on behalf of the Banks, the New Guarantor must
execute and deliver a Joinder agreement in accordance with the Credit Agreement
and the Guaranty.
NOW THEREFORE, as a further inducement to Banks to continue to provide
credit accommodations to Company and the Account Parties (as defined in the
Credit Agreement), New Guarantor hereby covenants and agrees as follows:
1. All capitalized terms used herein shall have the meanings assigned to
them in the Credit Agreement unless expressly defined to the contrary.
2. New Guarantor hereby enters into this Joinder Agreement in order to
comply with Section 7.19 of the Credit Agreement and Section 5.6 of
the Guaranty and does so in consideration of the Advances made or to
be made from time to time under the Credit Agreement (and the other
Loan Documents, as defined in the Credit Agreement), from which New
Guarantor shall derive direct and indirect benefit as with the other
Guarantors (all as set forth and on the same basis as in the
Guaranty).
3. New Guarantor shall be considered, and deemed to be, for all purposes
of the Credit Agreement, the Guaranty and the other Loan Documents, a
Guarantor under the Guaranty as fully as though New Guarantor had
executed and delivered the Guaranty at the time originally executed
and delivered under the Credit Agreement and hereby ratifies and
confirms its obligations under the Guaranty, all in accordance with
the terms thereof.
4. No Default or Event of Default (each such term being defined in the
Credit Agreement) has occurred and is continuing under the Credit
Agreement.
5. This Joinder Agreement shall be governed by the laws of the State of
Michigan and shall be binding upon New Guarantor and its successors
and assigns.
<PAGE> 104
IN WITNESS WHEREOF, the undersigned New Guarantor has executed and
delivered this Joinder Agreement as of ______________, 199_.
[NEW GUARANTOR]
By:
-------------------------
Its:
------------------------
<PAGE> 105
REVOLVING CREDIT AGREEMENT
DATED: JULY 24, 1998
COMERICA BANK AS AGENT
SCHEDULE 5.2
LIST OF JURISDICTIONS IN WHICH COMPANY AND/OR ITS SUBSIDIARIES DO BUSINESS
The Company and/or its Subsidiaries do business in all fifty (50) states of the
United States of America and in the District of Columbia.
<PAGE> 106
REVOLVING CREDIT AGREEMENT
DATED: JULY 24, 1998
COMERICA BANK AS AGENT
SCHEDULE 6.9
COMPLIANCE WITH LAWS
The Company is a corporation duly organized, existing and in good standing under
the laws of the State of Michigan. Further, the Company is not in contravention
of law or of the terms of its Articles of Incorporation or By-Laws.
<PAGE> 107
REVOLVING CREDIT AGREEMENT
DATED: JULY 24, 1998
COMERICA BANK AS AGENT
SCHEDULE 6.12
ENVIRONMENTAL MATTERS
The Company and its Subsidiaries own no real estate and have no known
environmental contamination in any of their leasehold premises.
<PAGE> 108
REVOLVING CREDIT AGREEMENT
DATED: JULY 24, 1998
COMERICA BANK AS AGENT
SCHEDULE 6.16 (PAGE 36)
Meadowbrook Inc., a wholly owned subsidiary of Meadowbrook Insurance Group,
Inc., maintains the Meadowbrook, Inc. 401 (K) Profit Sharing Plan. As of July
24, 1998, there is no accumulated funding deficiency.
<PAGE> 109
REVOLVING CREDIT AGREEMENT
DATED: JULY 24, 1998
COMERICA BANK AS AGENT
SCHEDULE 6.19
SUBSIDIARIES
The Company has the following subsidiaries:
Star Insurance Company (MI)
Savers Property & Casualty Insurance Company (MO)
American Indemnity Insurance Company, Ltd. (Bermuda)
Crest Financial Corporation (NV)
Williamsburg National Insurance Company (CA)
American Highway carriers Association (CA)
Liberty Premium Finance, Inc. (CA)
Interline Insurance Services Inc. (CA)
Commercial Carriers Insurance Agency, Inc. (CA)
Meadowbrook, Inc. (MI)
Meadowbrook Intermediaries, Inc. (NY)
Meadowbrook Risk Management, Inc. (NY)
Meadowbrook Risk Management, Ltd. (Barbados)
Meadowbrook Risk Management Limited (Bermuda)
Meadowbrook International (Bermuda)
Meadowbrook of Nevada, Inc. (NV)
Meadowbrook Insurance Agency, Inc. (OH)
Association Self Insurance Services, Inc. (AL)
Meadowbrook of Florida, Inc. (FL)
<PAGE> 110
REVOLVING CREDIT AGREEMENT
DATED: JULY 24, 1998
COMERICA BANK AS AGENT
SCHEDULE 6.20 (PAGE 37)
As of July 24, 1998, Meadowbrook Insurance Group, Inc. is unaware of any
unrealized or anticipated losses from any present commitment of the Company or
any of its subsidiaries, which in the aggregate is likely to have a Material
Adverse Effect.
<PAGE> 111
REVOLVING CREDIT AGREEMENT
DATED: JULY 24, 1998
COMERICA BANK AS AGENT
SCHEDULE 8.1(c) (PAGE 43)
<TABLE>
<CAPTION>
PRINCIPAL CURRENT
SELLER AMOUNT PORTION
- ------ ----------- ------------
<S> <C> <C>
Accordia of Michigan $ 484,318 $ 484,318
Association of Self Insurance
Services Inc. $ 25,683 $ 25,683
</TABLE>
<PAGE> 112
REVOLVING CREDIT AGREEMENT
DATED: JULY 24, 1998
COMERICA BANK AS AGENT
SCHEDULE 9.2
PERMITTED LIENS
None.
<PAGE> 113
REVOLVING CREDIT AGREEMENT
DATED: JULY 24, 1998
COMERICA BANK AS AGENT
SCHEDULE 13.6
NOTICES
NOTICES TO THE BANK OR AGENT SHALL BE SENT TO:
Comerica Bank
One Detroit Center, MC3239
500 Woodward Avenue, 6th Floor
Detroit, MI 48226
Facsimile: (313) 222-5759
Attention: Ms. Leslie Zimmerman
NOTICES TO THE COMPANY SHALL BE SENT TO:
Meadowbrook Insurance Group, Inc.
26600 Telegraph Road, Suite 300
Southfield, MI 48034
Facsimile: (248) 358-1614
Attention: Michael G. Costello, Esq.
Vice President, General Counsel
<PAGE> 114
SCHEDULE 13.6
Comerica Bank
One Detroit Center, MC3239
500 Woodward Avenue, 6th Floor
Detroit, Michigan 48226
Attention: Ms. Leslie Zimmerman
Meadowbrook Insurance Group, Inc.
26600 Telegraph Road
Southfield, MI 48034
Attention: Michael G. Costello, Esq.
<PAGE> 115
EXHIBIT G
MEADOWBROOK INSURANCE GROUP, INC.
COVENANT COMPLIANCE REPORTING WORKSHEET
<TABLE>
<S><C>
I. SECTION 7.11 MAXIMUM FUNDED DEBT/ ADJUSTED EBITDA
Tested: On a rolling 4 quarter basis
Defined as the Sum of:
Outstanding balance under $50MM Facility
+ Short & Long term contract debt and lease obligations
+ Letters of Credit (except those secured by cash or marketable securities)
+ Notes payable subordinated to the bank are excluded
TOTAL FUNDED DEBT: A
Divided by the sum of
Adj. EBITDA:
+ EBITDA from MIG (Holding Co. only)
+ EBITDA from Meadowbrook, Inc.; ASI; and any unregulated subsidiaries
+ 50% EBITDA from American Indemnity Insurance Co. LTD
+ EBITDA from Crest Financial Corporation (excluding Williamsburg)
+ The greater of: 50% of amount available for distribution to MIG from Star & Williamsburg OR
+ 100% of the change in amt. available for distribution to MIG from Star & Williamsburg
TOTAL ADJUSTED EBITDA: B
TOTAL A/B
Adjusted EBITDA is calculated on a rolling four quarter basis:
(A) (B) (C) (D) (A-D)
Period Q1 Q2 Q3 Q4 Total
EBITDA from:
MIG (Holding Co. only)
Mead., Inc., ASI & and any unregulated subs.
50% of American Indemnity
Crest (exc. Williamsburg)
Distribution from insurance subsidiaries
TOTAL ADJUSTED EBITDA
Max. Funded Debt/ Adj. EBITDA ______________
Required: < or = 4.75:1.0
Note: At first repricing date after an acquisition, neither EBITDA of the acquired company nor funded debt associated with the
acquisition will be factored into the calculation. At subsequent repricings (during first twelve months of acquisition), the
aforementioned funded debt and EBITDA (annualized) will be included in the calculation.
II. SECTION 8.15 LIMITATION OF INTANGIBLE ASSETS
Intangible Assets of company and subsidiaries (determined in accordance with GAAP) shall not exceed
30% of Net Worth plus outstanding principal amount of Subordinated Debt as of such date
Intangible Assets E
30% of Net Worth plus outstanding subordinated debt F
E should not exceed F
</TABLE>
<PAGE> 116
<TABLE>
<S><C>
II. SECTION 7.9 MINIMUM NET WORTH
Tested: Quarterly
Defined at end of quarter to be tested as:
GAAP net book value of all Meadowbrook Insurance Group Inc. and subsidiaries
Required Net Worth:
Base GAAP Net Worth $115,000,000
+ 75% of cumulative consolidated GAAP net income from 12/31/97 and thereafter
Total Required
III. SECTION 7.12 MAXIMUM FUNDED DEBT/TOTAL CAPITALIZATION
Tested on a rolling 4 quarter basis
TOTAL FUNDED DEBT: A
Divided by the sum of
Total Capitalization:
Tangible Net Worth GAAP Book Value less Intangible Assets (Patents, Patent Rights, Trademarks,
Trade Name Franchises, Copyrights, Licenses, Goodwill)
+ Funded Debt as defined above A
+ Subordinated notes payable which meet the requirement for exclusion under funded debt
TOTAL CAPITALIZATION C
TOTAL A/C
Max. Funded Debt/Total Cap ____________
Required: < or = .35:1.0
IV. SECTION 7.10 MINIMUM FIXED CHARGE COVERAGE
Tested on a rolling 4 quarter basis
TOTAL ADJUSTED EBITDA: B
Divided by the sum of
Fixed Charges:
Current Maturities of MIG
+ interest expense for MIG
+ dividends paid or payable by MIG and/or operating subsidiaries
TOTAL FIXED CHARGES: D
TOTAL B/D
Fixed charges are calculated on a rolling four quarter basis:
(A) (B) (C) (D) (A-D)
Period Q1 Q2 Q3 Q4 Total
Current Maturities of MIG
Interest expense for MIG
Dividends paid or payable by MIG &/or op. subs.
TOTAL FIXED CHARGES
Min. Fixed Charge Coverage __________
Required: > or = 2.00:1.0
</TABLE>
<PAGE> 117
<TABLE>
<S><C>
V. SECTION 7.13 MAXIMUM GROSS/NET WRITTEN PREMIUM/STATUTORY SURPLUS
Tested: Quarterly on a rolling 4 quarter basis.
Star Insurance Company:
(A) (B) (C) (D) (A-D)
Period Q1 Q2 Q3 Q4 Total
Gross Written Premiums
+ Reinsurance Prem. Assumed
- Reinsurance Prem. Ceded
Net Written Premiums
Statutory Surplus*
*calculated on a SAP basis
Gross Written Premium/Surplus ___________ Net Written Premium/Surplus __________
Required: < or = 3.50:1.0 Required: < or = 2.50:1.0
Savers Property and Casualty
(A) (B) (C) (D) (A-D)
Period Q1 Q2 Q3 Q4 Total
Gross Written Premiums
+ Reinsurance Prem. Assumed
- Reinsurance Prem. Ceded
Net Written Premiums
Statutory Surplus*
*calculated on a SAP basis
Gross Written Premium/Surplus ___________
Required: < or = 3.50:1.0 Net Written Premium/Surplus _________
Required: < or = 2.50:1.0
Williamsburg National Insurance Company
(A) (B) (C) (D) (A-D)
Period Q1 Q2 Q3 Q4 Total
Gross Written Premiums
+ Reinsurance Prem. Assumed
- Reinsurance Prem. Ceded
Net Written Premiums
Statutory Surplus
*calculated on a SAP basis
Gross Written Premium/Surplus ___________ Net Written Premium/Surplus _________
Required: < or = 3.50:1.0 Required: < or = 2.50:1.0
VI. SECTION 8.14 NAIC IRIS RATIOS
Tested: Annually - upon receipt of the NAIC Ratio Report
Star Insurance Company, Savers Property and Casualty, Williamsburg National Insurance Company
and any acquired regulated subsidiaries will not be allowed to be outside of the recommended
NAIC range for more than four of the NAIC ratio tests.
In compliance
Yes or No
</TABLE>
<PAGE> 1
EXHIBIT 11
MEADOWBROOK INSURANCE GROUP, INC. AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ------
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
--------------------------------------------
<S> <C> <C> <C>
Net income applicable to common
shareholders $3,580,219
==========
BASIC EPS
Income applicable to common
shareholders 8,693,843 $0.41
=====
EFFECT OF DILUTIVE SECURITIES
Options 371,822
---------
DILUTED EPS
Income applicable to common
shareholders 9,065,665 $0.39
========= =====
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
--------------------------------------------
<S> <C> <C> <C>
Net income applicable to common
shareholders $9,646,394
==========
BASIC EPS
Income applicable to common
shareholders 8,657,102 $1.11
EFFECT OF DILUTIVE SECURITIES
Options 496,413
---------
DILUTED EPS
Income applicable to common
shareholders 9,153,515 $1.05
========= =====
</TABLE>
<PAGE> 2
EXHIBIT 11
MEADOWBROOK INSURANCE GROUP, INC. AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ------
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
----------------------------------------
<S> <C> <C> <C>
Net income applicable to common
shareholders $(3,566,574)
===========
BASIC EPS
Income applicable to common
shareholders 8,732,043 $(0.41)
======
EFFECT OF DILUTIVE SECURITIES
Options 317,158
----------
DILUTED EPS
Income applicable to common
shareholders 9,049,201 $(0.39)
========== ======
<CAPTION>
FOR THE QUARTER ENDED SEPTEMBER 30, 1997
----------------------------------------
<S> <C> <C> <C>
Net income applicable to common
shareholders $3,178,029
==========
BASIC EPS
Income applicable to common
shareholders 8,660,043 $0.37
=====
EFFECT OF DILUTIVE SECURITIES
Options 515,532
---------
DILUTED EPS
Income applicable to common
shareholders 9,175,575 $0.35
========= =====
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<DEBT-HELD-FOR-SALE> 155,323
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 6,353
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 161,676
<CASH> 46,923
<RECOVER-REINSURE> 11,840
<DEFERRED-ACQUISITION> 8,324
<TOTAL-ASSETS> 428,609
<POLICY-LOSSES> 136,685
<UNEARNED-PREMIUMS> 77,210
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 34,237
0
0
<COMMON> 87
<OTHER-SE> 119,763
<TOTAL-LIABILITY-AND-EQUITY> 428,609
63,798
<INVESTMENT-INCOME> 6,973
<INVESTMENT-GAINS> 43
<OTHER-INCOME> 23,739
<BENEFITS> 41,074
<UNDERWRITING-AMORTIZATION> 5,251
<UNDERWRITING-OTHER> 44,702
<INCOME-PRETAX> 3,526
<INCOME-TAX> (54)
<INCOME-CONTINUING> 3,580
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,580
<EPS-PRIMARY> 0.41
<EPS-DILUTED> 0.39
<RESERVE-OPEN> 60,786<F1>
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 82,077<F1>
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>Before reinsurance recoverable.
</FN>
</TABLE>
