EXHIBIT 4.1
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FIRST RESTATED CREDIT AGREEMENT
AMONG
HALLMARK FINANCIAL SERVICES, INC.,
AS BORROWER,
AMERICAN HALLMARK INSURANCE COMPANY OF TEXAS,
AND
PHOENIX INDEMNITY INSURANCE COMPANY
AND
THE FROST NATIONAL BANK,
AS LENDER
JANUARY 27, 2006
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TABLE OF CONTENTS
Section Page
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ARTICLE I DEFINITIONS ....................................... 1
1.1 Definitions. ...................................... 1
1.2 Additional Definitions. ........................... 19
1.3 Construction. ..................................... 19
ARTICLE II REVOLVING LOANS ................................... 20
2.1 Revolving Loans. .................................. 20
2.2 Revolving Borrowings. ............................. 20
2.3 Repayment. ........................................ 21
2.4 Voluntary Prepayments. ............................ 21
2.5 Mandatory Prepayments. ............................ 21
2.6 Termination and Reduction of Commitments. ......... 21
2.7 Interest on Revolving Loans Generally. ............ 22
2.8 Computations. ..................................... 22
2.9 Interest After an Event of Default. ............... 22
2.10 Payments Generally. ............................... 22
2.11 Booking the Revolving Loans. ...................... 23
2.12 Collateral. ....................................... 23
ARTICLE III LETTER OF CREDIT FACILITIES........................ 24
3.1 Letters of Credit. ................................ 24
3.2 Procedures for Issuance and Amendment of Letters of
Credit; Auto-Renewal Letters of Credit............. 26
3.3 Drawings and Reimbursements. ...................... 27
3.4 Obligations Absolute. ............................. 27
3.5 Role of Lender. ................................... 28
3.6 Cash Collateral. .................................. 29
3.7 Letter of Credit Fees. ............................ 29
3.8 Fronting Fee and Documentary and Processing Charges
Payable to Lender.................................. 29
3.9 Conflict with L/C Agreements. ..................... 30
3.10 Letters of Credit Issued for L/C RIC. ............. 30
3.11 Existing Letters of Credit. ....................... 30
ARTICLE IV TAXES, YIELD PROTECTION AND ILLEGALITY ............ 30
4.1 Taxes. ............................................ 30
4.2 Illegality. ....................................... 32
4.3 Inability to Determine Rates. ..................... 32
4.4 Increased Cost and Reduced Return; Capital
Adequacy; Reserves on Eurodollar Rate Loans........ 32
4.5 Matters Applicable to all Requests for Compensation 33
4.6 Survival. ......................................... 33
ARTICLE V CONDITIONS PRECEDENT .............................. 33
5.1 Conditions Precedent to Restatement of Existing
Agreement, Initial Revolving Loan and L/C Credit
Extension.......................................... 33
5.2 Conditions Precedent to all Revolving Loans and L/C
Credit Extensions.................................. 37
5.3 Conditions Precedent to all Revolving Loans for
Permitted Acquisitions............................. 38
ARTICLE VI AFFIRMATIVE COVENANTS ............................. 38
6.1 General Covenants. ................................ 38
6.2 Accounts, Reports and Other Information. .......... 39
6.3 Inspection. ....................................... 43
6.4 Compliance with ERISA. ............................ 43
6.5 Performance of Obligations. ....................... 43
6.6 Maintenance of Priority of Bank Liens. ............ 43
6.7 Indemnity. ........................................ 43
6.8 Convertible Note. ................................. 45
6.9 Use of Proceeds. .................................. 45
ARTICLE VII NEGATIVE COVENANTS ................................ 45
7.1 AHIC Total Adjusted Capital. ...................... 45
7.2 PIIC Total Adjusted Capital. ...................... 45
7.3 Net Underwriting Gain. ............................ 45
7.4 Consolidated Net Worth. ........................... 45
7.5 Fixed Charges Coverage Ratio. ..................... 45
7.6 Limitation on Debt. ............................... 46
7.7 Limitation on Liens. .............................. 46
7.8 Burdensome Agreements. ............................ 46
7.9 Disposition of Assets. ............................ 46
7.10 Acquisition of Assets. ............................ 46
7.11 Merger and Consolidation. ......................... 48
7.12 Loans and Investments. ............................ 48
7.13 ERISA. ............................................ 48
7.14 Assignment. ....................................... 48
7.15 Transactions with Affiliates. ..................... 48
7.16 Business. ......................................... 48
7.17 Activities of Hallmark Trust I. ................... 48
7.18 2005 Documents. ................................... 48
7.19 Convertible Notes. ................................ 49
ARTICLE VIII REPRESENTATIONS AND WARRANTIES .................... 49
8.1 Organization and Qualification. ................... 49
8.2 Financial Statements. ............................. 49
8.3 Compliance With Laws and Other Matters. ........... 50
8.4 Litigation. ....................................... 50
8.5 Debt. ............................................. 50
8.6 Title to Properties. .............................. 50
8.7 Authorization; Validity. .......................... 50
8.8 Taxes. ............................................ 50
8.9 Use of Proceeds. .................................. 51
8.10 Possession of Franchises, Licenses, Etc. .......... 51
8.11 Leases. ........................................... 51
8.12 Disclosure. ....................................... 51
8.13 ERISA. ............................................ 52
8.14 Regulatory Acts. .................................. 52
8.15 Solvency. ......................................... 52
8.16 Environmental Matters. ............................ 52
8.17 Investments. ...................................... 53
8.18 Intellectual Property, Etc. ....................... 53
8.19 Reinsurance Agreements. ........................... 53
8.20 Retrocession Agreements. .......................... 53
8.21 2005 Documents. ................................... 53
8.22 Subordination; 2005 Documents. .................... 54
8.23 Subordination; Convertible Notes. ................. 54
8.24 Survival of Representations and Warranties, Etc. .. 54
ARTICLE IX EVENTS OF DEFAULT ................................. 54
9.1 Default. .......................................... 54
9.2 Remedies. ......................................... 57
9.3 Application of Funds. ............................. 58
ARTICLE X MISCELLANEOUS ..................................... 58
10.1 Notices. .......................................... 58
10.2 Expenses. ......................................... 59
10.3 Waivers. .......................................... 59
10.4 Determinations by Lender. ......................... 59
10.5 Set-Off. .......................................... 59
10.6 Assignment. ....................................... 60
10.7 Amendment and Waiver. ............................. 61
10.8 Confidentiality. .................................. 61
10.9 Counterparts. ..................................... 61
10.10 Severability. ..................................... 61
10.11 Interest and Charges. ............................. 62
10.12 Exception to Covenants. ........................... 62
10.13 Restatement. ...................................... 62
10.14 USA Patriot Act Notice. ........................... 62
10.15 Existing Agreement Waivers. ....................... 63
10.16 GOVERNING LAW. .................................... 63
10.17 WAIVER OF JURY TRIAL. ............................. 64
10.18 ENTIRE AGREEMENT. ................................. 64
SIGNATURES..................................................... S-1
EXHIBITS AND SCHEDULES
Exhibit A Revolving Note
Exhibit B Pledge Agreement - Borrower
Exhibit C Pledge Agreement - Subsidiary
Exhibit D Security Agreement - Borrower
Exhibit E Security Agreement - Subsidiary
Exhibit F Guaranty Agreement
Exhibit G Revolving Loan Notice
Exhibit H Confirmation Agreement
Exhibit I Subordination Agreement
Exhibit J Compliance Certificate
Exhibit K Notice of Final Agreement
Exhibit L Subordination Agreement I
Exhibit M Subordination Agreement II
Schedule 3.11 Existing Letters of Credit
Schedule 8.1 Subsidiaries
Schedule 8.4 Existing Litigation
Schedule 8.5 Existing Debt
Schedule 8.10 Licensed Jurisdictions
Schedule 8.13 Plans
Schedule 8.16 Environmental Matters
Schedule 8.17 Existing Investments
Schedule 8.19 Reinsurance Agreements
Schedule 8.20 Retrocession Agreements
Schedule 10.1 Notice Addresses
FIRST RESTATED CREDIT AGREEMENT
THIS FIRST RESTATED CREDIT AGREEMENT is dated as of January 27, 2006
(this agreement, together with all amendments and restatements, this
"Agreement"), among HALLMARK FINANCIAL SERVICES, INC., a Nevada corporation
("Borrower"), THE FROST NATIONAL BANK, a national banking association
("Lender"), and each L/C RIC. Each L/C RIC is a party to this Agreement
to acknowledge and agree to its obligations pursuant to Articles III, IV,
and X.
BACKGROUND
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Borrower, each L/C RIC and Lender have previously entered into the
Credit Agreement dated as of June 29, 2005 (such agreement, together with
all amendments and restatements, the "Existing Agreement"). Borrower has
requested that Lender restate the Existing Agreement and make a revolving
credit facility available to Borrower and make available Letters of Credit
for the account of Borrower. Borrower and each L/C RIC have requested that
Lender restate the Existing Agreement and make available Letters of Credit
for the account of Borrower and each L/C RIC. Lender has agreed to do so,
subject to the terms and conditions of this Agreement.
AGREEMENT
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In consideration of the mutual covenants and agreements contained
herein, and other good and valuable consideration, receipt of which is
acknowledged by the parties hereto, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. For purposes of this Agreement:
"Aerospace" means Aerospace Holdings, LLC, a Texas limited liability
company.
"Aerospace Purchase Agreement" means the Purchase Agreement dated as of
December 12, 2005, among Borrower, Donnell Children Revocable Trust and
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇.
"Affiliate" means any Person that directly, or indirectly, through one
or more intermediaries, Controls or is Controlled By or is Under Common
Control with any other Person.
"Agreement Date" means the date of this Agreement.
"AHIC" means American Hallmark Insurance Company of Texas, a Texas
insurance corporation.
"Applicable Law" means (a) in respect of any Person, all provisions of
Laws and orders of Governmental Authorities applicable to such Person and
its properties, including, without limiting the foregoing, all orders and
decrees of all Governmental Authorities and arbitrators in proceedings or
actions to which the Person in question is a party, and (b) in respect of
contracts relating to interest or finance charges that are made or performed
in the State of Texas, "Applicable Law" means the Laws of the United States
of America, including without limitation 12 U.S.C. SS85 and 86, and any
other statute of the United States of America now or at any time hereafter
prescribing the maximum rates of interest on loans and extensions of credit,
and the Laws of the State of Texas, and any other Laws of the State of Texas
now or at any time hereafter prescribing maximum rates of interest on loans
and extensions of credit.
"Attorney Costs" means and includes all fees, expenses and
disbursements of any law firm or other external counsel and, without
duplication, the allocated cost of internal legal services and all expenses
and disbursements of internal counsel.
"Auditors" means KPMG LLP, or other independent certified public
accountants selected by Borrower and reasonably acceptable to Lender and
that are a Registered Public Accounting Firm.
"Authorized Control Level" means "Authorized Control Level" as defined
by NAIC from time to time and as applied in the context of the Risk-Based
Capital Guidelines promulgated by NAIC (or any term substituted therefor by
NAIC).
"Authorized Signatory" means such senior personnel of Borrower,
any Subsidiary of Borrower or an Obligor as may be duly authorized and
designated in writing by Borrower, such Subsidiary or such Obligor to
execute documents, agreements and instruments on behalf of Borrower, such
Subsidiary or such Obligor.
"Bank Liens" means Liens in favor of or for the benefit of Lender
securing all or any of the Obligations, including, but not limited to,
rights in any Collateral created in favor of Lender, whether by mortgage,
pledge, hypothecation, assignment, transfer, or other granting or creation
of Liens.
"Business Day" means any day other than a Saturday, Sunday, or other
day on which commercial banks are authorized to close under the Laws of, or
are in fact closed in, the state where Lender's office is located and, if
such day relates to any Eurodollar Rate Loan, means any such day on which
dealings in Dollar deposits are conducted by and between banks in the
applicable offshore Dollar interbank market.
"Capital Leases" means capital leases and subleases, as defined in the
Financial Accounting Standards Board Statement of Financial Accounting
Standards No. 13, dated November 1976, as amended.
"Cash Capex" means any capital expenditure (determined in accordance
with GAAP) the source of funds for which was not or is not proceeds of any
Debt (whether or not subordinate to any other obligation of any Person), any
operating lease or any equity issuance.
"Code" means the Uniform Commercial Code as in effect in Texas.
"Collateral" means any assets of any Person in which at any time Lender
shall be granted a Bank Lien to secure the Obligations.
"Commitment" means each of the Revolving Commitment, Revolving Facility
L/C Commitment and the TGA L/C Commitment.
"Compliance Certificate" means a compliance certificate, substantially
in the form of Exhibit J.
"Confirmation Agreement" means the Confirmation Agreement,
substantially in the form of Exhibit H.
"Consolidated Interest Expenses" means, for any period, for Borrower
and its Subsidiaries on a consolidated basis, the sum of (a) all interest,
premium payments, debt discount, fees, charges and related expenses of
Borrower and its Subsidiaries in connection with borrowed money (including
that attributable to Capital Leases) or in connection with the deferred
purchase price of assets, in each case to the extent treated as interest in
accordance with GAAP, and (b) the portion of rent expense of Borrower and
its Subsidiaries with respect to such period under Capital Leases that is
treated as interest in accordance with GAAP.
"Consolidated Net Income" means, with respect to Borrower and its
Subsidiaries for any period, the net income (or loss) of Borrower and its
Subsidiaries for such period (excluding any extraordinary gains and any
gains from discontinued operations but including extraordinary losses for
such period), all determined in accordance with GAAP.
"Consolidated Net Worth" means, as of any date of determination,
the sum of (a) consolidated shareholders' equity of Borrower and its
Subsidiaries determined in accordance with GAAP, plus (b) the aggregate
unpaid principal amount of all 2005 Debentures; provided, all 2005
Debentures, all 2005 Preferred Securities and the 2005 Guaranty are
subordinate to the Obligations as provided in the 2005 Documents (as the
2005 Documents existed on June 29, 2005).
"Contingent Debt" means, for any Person:
(a) guarantees, endorsements (other than endorsements of
negotiable instruments for collection in the ordinary course of
business) and other contingent liabilities (whether direct or indirect)
in connection with the obligations of any other Person;
(b) obligations under any contract providing for the making of
loans, advances or capital contributions to any other Person, or for
the purchase of any property from any other Person, in each case in
order to enable such other Person primarily to maintain working
capital, net worth or any other balance sheet condition or to pay
Debts, Dividends or expenses;
(c) obligations under any contract to rent or lease (as lessee)
any real or personal property (other than operating leases) if such
contract (or any related document) provides that the obligation to make
payments thereunder is absolute and unconditional under conditions not
customarily found in commercial leases then in general use or requires
that the lessee purchase or otherwise acquire securities or obligations
of the lessor;
(d) obligations under contracts for the purchase of property if
such contract (or any related document) provides that the obligation to
make payments thereunder is contingent upon the occurrence of certain
events or the existence of certain facts;
(e) obligations in respect of letters of credit; and
(f) obligations under any other contract which, in economic
effect, is substantially equivalent to a guaranty, including but
not limited to "keep well" or "capital maintenance" agreements.
"Control" or "Controlled By" or "Under Common Control" means
possession, directly or indirectly, of power to direct or cause the
direction of management or policies (whether through ownership of voting
securities, by contract or otherwise); provided that, in any event any
Person which beneficially owns, directly or indirectly, 10% or more (in
number of votes) of the securities having ordinary voting power for the
election of directors of a corporation or managers of a limited liability
company or other governance board of an entity shall be conclusively
presumed to control such corporation or limited liability company.
"Convertible Notes" means (a) the Convertible Promissory Note to be
dated not later than February 10, 2006, in the original principal amount of
$12,550,000 made by Borrower and payable to the order of Newcastle Special
Opportunity Fund I, L.P, a Delaware limited partnership, and (b) the
Convertible Promissory Note to be dated not later than February 10, 2006, in
the original principal amount of $12,450,000, made by Borrower and payable
to the order of Newcastle Special Opportunity Fund II, L.P., a Delaware
limited partnership.
"Current Financials" means the most recent annual Financial Statements
of Borrower or any of its Subsidiaries.
"Debt" means, at any time, for any Person, (a) Capital Leases,
(b) Contingent Debt, (c) debt created, issued, incurred or assumed for money
borrowed or for the deferred purchase price of property purchased, (d) all
debt, obligations and liabilities secured by any Lien upon any property
owned by such Person, even though it has not assumed or become liable for
the payment of same, and (e) liabilities in respect of unfunded vested
benefits under any Plans; provided, that, for purposes of Section 7.5, Debt
shall not include the unpaid principal amount of (i) the 2005 Debentures
or the obligations with respect to the 2005 Guaranty if at the time of
determination all amounts owed with respect to the 2005 Debentures and the
2005 Guaranty are subordinated to all Obligations on terms acceptable to
Lender, (ii) the Newcastle Note if at the time of determination all amounts
owed with respect to the Newcastle Note are subordinated to all Obligations
on terms acceptable to Lender, and (iii) the Convertible Notes if at the
time of determination all amounts owed with respect to the Convertible Notes
are subordinated to all Obligations on terms acceptable to Lender.
"Debtor Relief Laws" means any applicable liquidation, conservatorship,
bankruptcy, moratorium, rearrangement, insolvency, fraudulent conveyance,
reorganization or similar debtor relief Laws affecting the rights of
creditors generally from time to time in effect.
"Default" means any of the events specified in Section 9.1 that would,
with the giving of notice or the passage of time, become an Event of
Default.
"Default Rate" means for any date a simple per annum interest rate
equal to the lesser of (a) the Eurodollar Rate in effect at such time, plus
2%, and (b) the Highest Lawful Rate.
"Disposition" and "Dispose" mean any sale, lease, abandonment,
transfer, disposal, exchange or other transfer of any ownership or leasehold
interest in or control of any asset.
"Dividends" means, with respect to any Person, any dividend on any
class of its capital stock or other equity interest now or hereafter
outstanding, any distribution of cash or property to owners of any shares of
such stock or other equity interest, any retirement, redemption, purchase or
other acquisition, directly or indirectly, of any shares of any class of its
capital stock or other equity interest now or hereafter outstanding.
"Dollars" and the sign "$" mean lawful money of the United States of
America.
"Domestic Subsidiary" means any Subsidiary that is organized under the
Laws of the United States or any political subdivision of the United States.
"EBITDA" means, for any period, for Borrower and its Subsidiaries on a
consolidated basis, an amount equal to Consolidated Net Income for such
period plus (a) the following to the extent deducted in calculating such
Consolidated Net Income: (i) Consolidated Interest Expenses for such period,
(ii) the provision for federal, state, local and foreign income Taxes
payable by Borrower and its Subsidiaries for such period, (iii) the amount
of depreciation and amortization expense and (iv) other expenses of Borrower
and its Subsidiaries reducing such Consolidated Net Income which do not
represent a cash item in such period or any future period, and minus
(b) all non-cash items increasing Consolidated Net Income for such period.
"Environment" means ambient air, surface water and groundwater
(including potable water, navigable water and wetlands), the land surface or
subsurface strata, real property improvements or as otherwise defined in any
Environmental Law.
"Environmental Claim" means any written accusation, allegation, notice
of violation, claim, demand, order, directive, consent decree, cost recovery
action or other cause of action by, or on behalf of, any Governmental
Authority or any Person for damages, injunctive or equitable relief,
personal injury (including sickness, disease or death), Remedial Action
costs, property damage, natural resource damages, nuisance, pollution, any
adverse effect on the Environment caused by any Hazardous Material, or for
fines, penalties or restrictions, resulting from or based upon: (a) the
existence, or the continuation of the existence, of a Release; (b) exposure
to any Hazardous Material; (c) the presence, use, handling, transportation,
storage, treatment or disposal of any Hazardous Material; or (d) the
violation or alleged violation of any Environmental Law or Environmental
Permit.
"Environmental Law" means any and all applicable domestic Laws,
judgments, injunctions, notices or binding agreements issued, promulgated
or entered into by any Governmental Authority, relating in any way to the
Environment, preservation or reclamation of natural resources, the
management, Release or threatened Release of any Hazardous Material or
to health and safety matters, including the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended by the
Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C. SS 9601 et
seq. (collectively "CERCLA"), the Solid Waste Disposal Act, as amended by
the Resource Conservation and Recovery Act of 1976 and Hazardous and Solid
Waste Amendments of 1984, 42 U.S.C. SS 6901 et seq., the Federal Water
Pollution Control Act, as amended by the Clean Water Act of 1977, 33 U.S.C.
SS 1251 et seq., the Clean Air Act of 1970, 42 U.S.C. SS 7401 et seq., as
amended, the Toxic Substances Control Act of 1976, 15 U.S.C. SS 2601 et
seq., the Occupational Safety and Health Act of 1970, as amended by
29 U.S.C. SS 651 et seq., the Emergency Planning and Community Right-to-Know
Act of 1986, 42 U.S.C. SS 11001 et seq., the Safe Drinking Water Act of
1974, as amended by 42 U.S.C. SS 300(f) et seq., the Hazardous Materials
Transportation Act, 49 U.S.C. SS 5101 et seq., and any similar or
implementing Law.
"Environmental Permit" means any permit, approval, authorization,
certificate, license, variance, filing or permission required by or from
any Governmental Authority pursuant to any Environmental Law.
"ERISA" means the Employee Retirement Income Security Act of 1974.
"Eurodollar Basis" means for any day a rate per annum equal to the
"London Interbank Offered Rate" for a three-month term, as published in the
"Money Rates" column of The Wall Street Journal, Central Edition, from time
to time, or if any reason such rate is no longer available:
(a) for any day the rate per annum (rounded upward to the nearest
1/100 of 1%) equal to the rate determined by Lender to be the offered
rate that appears on the page of the Telerate screen (or any successor
thereto) that displays an average British Bankers Association Interest
Settlement Rate for deposits in Dollars (for delivery on the date of
determination) with a three-month term, determined as of approximately
11:00 a.m. (London time) on the date of determination, or
(b) if the rate referenced in clause (a) does not appear on such
page or service or such page or service shall not be available, for any
day the rate per annum (rounded upward to the nearest 1/100 of 1%)
equal to the rate determined by Lender to be the offered rate on such
other page or other service that displays an average British Bankers
Association Interest Settlement Rate for deposits in Dollars (for
delivery on date of determination) with a three-month term, determined
as of approximately 11:00 a.m. (London time).
The Eurodollar Basis shall change effective as of the date of any
change as published in The Wall Street Journal, Central Edition, or as
determined by Lender, as appropriate. The Eurodollar Basis is a reference
rate and does not necessarily represent the lowest or best rate actually
charged to any customer of Lender.
"Eurodollar Rate" means the sum of the Eurodollar Basis plus 2.00%.
"Eurodollar Rate Loan" means a Revolving Loan when it bears interest
at a rate based on the Eurodollar Rate.
"Event of Default" means any of the events specified in Section 9.1,
provided there has been satisfied any requirement in connection with such
event for the giving of notice, or the lapse of time, or the happening of
any further specified condition, event or act.
"Existing Debt" means the Debt of Borrower and its Subsidiaries
existing on the Agreement Date, which is described on Schedule 8.5,
including renewals (but not increases) thereof.
"Existing Investments" means the Investments of Borrower and its
Subsidiaries existing on the Agreement Date, which are described on
Schedule 8.17.
"Existing Litigation" means the Litigation involving or otherwise
affecting Borrower and its Subsidiaries existing on the Agreement Date.
"Federal Funds Rate" means, for any day, the 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
on such day, as published by the Federal Reserve Bank on the Business Day
next succeeding such day; provided that (a) if such day is not a Business
Day, the Federal Funds Rate for such day shall be such rate on such
transactions on the next preceding Business Day as so published on the next
succeeding Business Day, and (b) if no such rate is so published on such
next succeeding Business Day, the Federal Funds Rate for such day shall be
the average rate (rounded upward, if necessary, to a whole multiple of 1/100
of 1%) charged to Frost on such day on such transactions as determined by
Lender.
"Financial Statements" includes, but is not limited to, balance sheets,
profit and loss statements, reconciliations of capital and surplus and/or
partnership capital accounts, as appropriate, and statements of changes in
financial position or cash flow, prepared in comparative form with respect
to the corresponding period of the preceding fiscal year and prepared in
accordance with SAP or GAAP, as appropriate.
"Fixed Charges" means the sum of (a) Consolidated Interest Expenses
for the four fiscal quarter period ended on the date of determination, plus
(b) scheduled principal payments of Debt which would be classified as a
current liability on a consolidated balance sheet of Borrower and its
consolidated Subsidiaries payable during the four fiscal quarter period
beginning on the day following the date of determination, plus (c) Cash
Capex actually paid by Borrower and its consolidated Subsidiaries during the
four fiscal quarter period ended on the date of determination, plus (d) the
aggregate amount of Taxes actually paid by Borrower and its consolidated
Subsidiaries during the four fiscal quarter period ended on the date of
determination, plus (e) cash Dividends actually paid by Borrower during the
four fiscal quarter period ended on the date of determination.
"Fixed Charges Coverage Ratio" means the ratio (rounded to two decimal
places) determined as at the last day of the most recent fiscal quarter of
Borrower of (a) EBITDA for the four fiscal quarter period ended on the last
day of such fiscal quarter, to (b) Fixed Charges determined as at the last
day of such fiscal quarter.
"Foreign Subsidiary" means any Subsidiary that is organized under
the Laws of a jurisdiction other than the United States or a political
subdivision of the United States.
"GAAP" means generally accepted accounting principles applied on a
consistent basis, set forth in the Opinions of the Accounting Principles
Board of the American Institute of Certified Public Accountants and/or in
statements of the Financial Accounting Standards Board, which are applicable
in the circumstances as of the date in question, and the requisite that such
principles be applied on a consistent basis shall mean that the accounting
principles observed in a current period are comparable in all material
respects to those applied in a preceding period.
"Governmental Authority" means any nation or government, any state or
other political subdivision thereof, any agency, authority, instrumentality,
regulatory body, court, administrative tribunal, central bank or other
entity exercising executive, legislative, judicial, taxing, regulatory or
administrative powers or functions of or pertaining to government.
"Guarantor" means each Domestic Subsidiary (whether now or hereafter
existing) of Borrower (other than a RIC).
"Guaranty" means a Guaranty Agreement, substantially in the form of
Exhibit F, duly executed by each Guarantor.
"Hallmark Trust I" means Hallmark Statutory Trust I, a special purpose
statutory Delaware business trust established by Borrower, of which Borrower
holds all the common securities, which is the issuer of the 2005 Preferred
Securities, and which purchased from Borrower the 2005 Debentures with the
net proceeds of the issuance and sale of the 2005 Preferred Securities.
"Hallmark Trust I Declaration of Trust" means the Amended and Restated
Declaration of Trust of Hallmark Trust I, dated as of June 21, 2005,
together with all amendments and restatements.
"Hazardous Materials" means all explosive or radioactive substances or
wastes, hazardous or toxic substances or wastes, pollutants, solid, liquid
or gaseous wastes, including petroleum or petroleum distillates, asbestos or
asbestos-containing materials, polychlorinated biphenyls ("PCBs") or PCB-
containing materials or equipment, radon gas, infectious or medical wastes
and all other substances or wastes of any nature regulated pursuant to any
Environmental Law.
"Highest Lawful Rate" means at the particular time in question the
maximum rate of interest which, under Applicable Law, Lender is then
permitted to charge on the Obligations. If the maximum rate of interest
which, under Applicable Law, Lender is permitted to charge on the
Obligations shall change after the date hereof, the Highest Lawful Rate
shall be automatically increased or decreased, as the case may be, from time
to time as of the effective time of each change in the Highest Lawful Rate
without notice to Borrower. For purposes of determining the Highest Lawful
Rate under Applicable Law, the indicated rate ceiling shall be the
lesser of (a)(i) the "weekly ceiling", as that expression is defined in
Section 303.003 of the Texas Finance Code, as amended, or (ii) if available
in accordance with the terms thereof and at Lender's option after notice to
Borrower and otherwise in accordance with the terms of Section 303.103 of
the Texas Finance Code, as amended, the "annualized ceiling" and (b)(i) if
the amount outstanding under this Agreement is less than $250,000, 24% per
annum, or (ii) if the amount under this Agreement is equal to or greater
than $250,000, 28% per annum.
"Insurance Business" means one or more aspects of the business of
selling, issuing or underwriting insurance or reinsurance.
"Insurance Contract" means any insurance contract or policy issued
by a RIC, but shall not include any Reinsurance Agreement or Retrocession
Agreement.
"Insurance Regulator" means, when used with respect to any RIC, the
Governmental Authority, insurance department or similar administrative
authority or agency located in (a) each state in which such RIC is domiciled
or (b) to the extent asserting regulatory jurisdiction over such RIC, the
Governmental Authority, insurance department, authority or agency in each
state in which such RIC is licensed, and shall include any Federal insurance
regulatory department, authority or agency that may be created and that
asserts regulatory jurisdiction over such RIC.
"Interest Payment Date" means each Payment Date and the Revolving Loan
Maturity Date.
"Internal Control Event" means a material weakness in, or fraud that
involves management or other employees who have a significant role in,
Borrower's "disclosure controls and procedures" or "internal controls over
financial reporting", in each case as described in Rule 13a-15 or Rule 15d-
15 promulgated under the Securities Act of 1934.
"Investment" means, as to any Person, any direct or indirect
acquisition or investment by such Person, whether by means of (a) the
purchase or acquisition of all or substantially all of the assets of any
Person, (b) any direct or indirect purchase or other acquisition of, or a
beneficial interest in, any equity interest or other securities of any other
Person, or (c) any direct or indirect loan, advance, or capital contribution
to or investment in any other Person, including without limitation the
incurrence or sufferance of Debt or accounts receivable of any other Person
that are not current assets or do not arise from Dispositions to that other
Person in the ordinary course of business.
"Investment Grade Securities" means and includes (a) securities that
are direct obligations of the United States of America, the payment of which
is backed by the full faith and credit of the United States of America,
(b) debt securities or debt instruments with a rating of A or higher by S&P,
A2 or higher by Moody's, Class (1) or higher by NAIC or the equivalent of
such rating by S&P, Moody's or NAIC, or if none of S&P, Moody's and NAIC
shall then exist, the equivalent of such rating by any other nationally
recognized securities rating agency, but excluding any debt securities
or instruments constituting loans or advances among Borrower and its
wholly-owned Subsidiaries, and (c) any fund investing exclusively in
investments of the type described in clauses (a) and (b), which funds may
also hold immaterial amounts of cash pending investment and/or distribution.
"Investment Policy" means the written policies and procedures
which govern the acquisition and maintenance of Investments and the cash
management procedures of Borrower and each of its Subsidiaries, as such
written policies and procedures exist on the Agreement Date.
"L/C Agreements" means all agreements related to any letter of credit
issued by Lender or any Affiliate of Lender for the account of Borrower, any
L/C RIC or any other Obligor, including but not limited to, any Letter of
Credit Application, any reimbursement agreement, and any amendment or
restatement thereof.
"L/C Credit Extension" means, with respect to any Letter of Credit, the
issuance thereof, the extension of the expiry date thereof (including with
respect to any Auto-Renewal Letter of Credit) or the increase of the amount
thereof.
"L/C RIC" means AHIC and PIIC.
"Laws" means, collectively, all international, foreign, Federal, state
and local constitutions, statutes, treaties, rules, guidelines, regulations,
ordinances, codes and administrative or judicial precedents or authorities,
including the interpretation or administration thereof by any Governmental
Authority charged with the enforcement, interpretation or administration
thereof, and all applicable administrative orders, directed duties,
requests, licenses, authorizations and permits of, and agreements with, any
Governmental Authority, in each case whether or not having the force of law.
"Lender's Office" means Lender's address and, as appropriate, account
as set forth on Schedule 10.1, or such other address or account as Lender
may from time to time notify Borrower.
"Letter of Credit" means any letter of credit issued hereunder. Each
Letter of Credit shall be a standby letter of credit.
"Letter of Credit Application" means an application and agreement for
the issuance or amendment of a Letter of Credit in the form from time to
time in use by Lender.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien
or charge of any kind (including any agreement to give or not to give any of
the foregoing), any conditional sale or other title retention agreement,
any financing or other lease in the nature thereof, and the filing of or
agreement to give any financing statement or other similar form of public
notice under the Laws of any jurisdiction.
"Litigation" means any proceeding, claim, lawsuit and/or investigation
conducted or threatened by or before any Governmental Authority, including,
but not limited to, proceedings, claims, lawsuits, and/or investigations
under or pursuant to any environmental, occupational, safety and health,
antitrust, unfair competition, securities, Tax, or other Law, or under or
pursuant to any contract, agreement or other instrument.
"Litigation Report" means a report, certified to be true, correct and
complete by an Authorized Officer of Borrower and each of its Subsidiaries
which is a party to any Litigation, describing all Litigation relating to
Insurance Business of Borrower and each of its Subsidiaries, in format
acceptable to Lender.
"Loan Documents" means this Agreement, the Revolving Note, the Security
Documents, the Guaranties, the L/C Agreements and all other documents and
instruments executed and delivered to Lender by any Obligor or any other
Person in connection with this Agreement.
"Loss Report" means a quarterly summarization of losses, allocated loss
adjustment expenses and related reserves in format acceptable to Lender and
within the ability of Borrower to produce.
"Mannequin" means Mannequin Life PCC Limited, a Guernsey protected cell
company.
"Material Adverse Change or Effect" means (a) a material adverse
change in, or a material adverse effect upon, the operations, business,
properties, liabilities (actual or contingent), condition (financial or
otherwise) or prospects of Borrower or Borrower and its Subsidiaries taken
as a whole; (b) a material impairment of the ability of any Obligor to
perform its obligations under any Loan Document to which it is a party; or
(c) a material adverse effect upon the legality, validity, binding effect
or enforceability against any Obligor of any Loan Document to which it is a
party or its property is subject.
"Maximum Amount" means the maximum amount of interest which, under
Applicable Law, Lender is permitted to charge on the Obligations.
"Moody's" means ▇▇▇▇▇'▇ Investors Service, Inc.
"NAIC" means the National Association of Insurance Commissioners or any
successor organization thereto.
"NAIC Tests" means the ratios and other financial measurements
developed by NAIC under its Insurance Regulatory Information System, as in
effect from time to time.
"Net Underwriting Gain" means, at any date with respect to a RIC, net
underwriting gain (or loss) as shown on line 8 of the Statement of Income of
such RIC as would be prepared as of such date utilizing the identical format
promulgated by NAIC and utilized by such RIC in preparing the December 31,
2004, annual statements filed with the applicable Insurance Regulator, or
if such format is changed after the Agreement Date, the same type of
information, computed in the same manner, as contained in line 8 of the
Statement of Income of such RIC dated as of December 31, 2004.
"Newcastle Note" means the Promissory Note dated January 3, 2006, made
by Borrower, payable to the order of Newcastle Partners, L.P., a Texas
limited partnership, in the original principal amount of $12,500,000.00,
together with all amendments and restatements thereto.
"Notice of Final Agreement" means the Arbitration and Notice of Final
Agreement, substantially in the form of Exhibit K.
"Obligor" means Borrower and each other Person liable for performance
of any of the Obligations or the property of which secures the performance
of any of the Obligations.
"Off-Balance Sheet Liabilities" means, with respect to any Person as of
any date of determination thereof, without duplication and to the extent not
included as a liability on the consolidated balance sheet of such Person and
its Subsidiaries in accordance with GAAP: (a) with respect to any asset
securitization transaction (including any accounts receivable purchase
facility) (i) the unrecovered investment of purchasers or transferees of
assets so transferred and (ii) any other payment, recourse, repurchase,
hold harmless, indemnity or similar obligation of such Person or any of its
Subsidiaries in respect of assets transferred or payments made in respect
thereof, other than limited recourse provisions that are customary for
transactions of such type and that neither (x) have the effect of limiting
the loss or credit risk of such purchasers or transferees with respect to
payment or performance by the obligors of the assets so transferred nor
(y) impair the characterization of the transaction as a true sale under
applicable Laws (including Debtor Relief Laws); (b) the monetary obligations
under any financing lease or so-called "synthetic," tax retention or off-
balance sheet lease transaction which, upon the application of any Debtor
Relief Law to such Person or any of its Subsidiaries, would be characterized
as indebtedness; (c) the monetary obligations under any sale and leaseback
transaction which does not create a liability on the consolidated balance
sheet of such Person and its Subsidiaries; or (d) any other monetary
obligation arising with respect to any other transaction which (i) upon
the application of any Debtor Relief Law to such Person or any of its
Subsidiaries, would be characterized as indebtedness or (ii) is the
functional equivalent of or takes the place of borrowing but which does not
constitute a liability on the consolidated balance sheet of such Person and
its Subsidiaries (for purposes of this clause (d), any transaction
structured to provide tax deductibility as interest expense of any Dividend,
coupon or other periodic payment will be deemed to be the functional
equivalent of a borrowing).
"PAAC" means Pan American Acceptance Corporation, a Texas corporation.
"PAAC Purchase Agreement" means the PAAC Purchase Agreement dated as of
November 23, 2005, among Borrower, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Donate ▇. ▇▇▇▇▇▇▇▇▇
and ▇▇▇▇▇ ▇. ▇▇▇▇▇.
"Payment Date" means the first Business Day of each calendar quarter.
"PBGC" means the Pension Benefit Guaranty Corporation established under
ERISA.
"PCAOB" means the Public Company Accounting Oversight Board, or any
entity succeeding to any of its principal functions.
"Permitted Acquisition" means the acquisition of all or substantially
all of the assets or all of the equity of an insurance agency, managing
general agency or property and casualty insurance company, so long as in
each case (a) there exists no Default or Event of Default both before and
after giving effect to any such acquisition, (b) all of the authorized,
issued and outstanding equity of each acquired insurance agency or managing
general agency and all voting rights (including voting rights arising upon
the occurrence of a contingency) with respect to such insurance agency or
managing general agency will be owned by Borrower, (c) all of the
authorized, issued and outstanding equity of each acquired property and
casualty insurance company and all voting rights (including voting rights
arising upon the occurrence of a contingency) with respect to such property
and casualty insurance company will be owned by either Borrower or a wholly-
owned RIC which is a Domestic Subsidiary, (d) such acquired assets are
acquired by either Borrower or a wholly-owned Subsidiary that is a Guarantor
(with respect to assets of an insurance agency or managing general agency)
or a RIC which is a Domestic Subsidiary (with respect to assets of a
property and casualty insurance company), (e) Borrower provides Lender with
information and a Compliance Certificate demonstrating pro forma compliance
with the terms of this Agreement through the Revolving Loan Maturity Date,
after giving effect to such acquisition, including, without limitation, each
provision of Sections 7.1 through 7.6, (f) the aggregate cash portion of the
consideration for all such acquisitions does not exceed $5,000,000 during
any fiscal year of Borrower or $10,000,000 over the term of this Agreement,
(g) each acquisition is consummated pursuant to a negotiated acquisition
agreement on a non-hostile basis pursuant to an acquisition agreement
approved by the board of directors or other applicable governing body of the
entity to be acquired prior to the commencement thereof, (h) Borrower or the
Guarantor acquiring the assets or equity of an insurance agency or managing
general agency, and each acquired insurance agency and managing general
agency executes and delivers, or causes to be executed and delivered, each
of the documents applicable to it described in Sections 7.10(a) - (i) and
(i) Borrow executes and delivers, or causes to be executed and delivered,
each of the documents applicable to it described in Sections 7.10 (a), (d),
(e), (f), (g) and (i) (with respect to the acquisition of equity of a
property and casualty insurance company). For purposes of determining
compliance with clause (f), (y) the cash portion of the consideration
paid for each acquisition of assets or equity of a property and casualty
insurance company shall be deemed to exclude an amount up to and not greater
than an amount equal to the sum of the amount of the paid in capital of such
entity (in the case of the acquisition of equity of such entity) plus the
amount of the surplus as regards policyholders (without duplication of the
amount of the paid in capital of such entity) being acquired (all determined
in accordance with SAP as at the date of the acquisition), and (z) the cash
portion of the consideration for each acquisition of assets or equity of a
property and casualty insurance company shall be deemed to be allocated
first to the surplus as regards policyholders (without duplication of the
amount of the paid in capital of such entity) being acquired.
"Permitted Debt" means (a) Existing Debt, (b) the Obligations,
(c) trade accounts payable and other similar obligations incurred in the
ordinary course of business, (d) intercompany balances in the ordinary
course of business among Borrower and its Domestic Subsidiaries; provided,
that all amounts owed by any Obligor to its Subsidiaries shall be
subordinated to all Obligations on terms acceptable to Lender, (e) Capital
Leases of Borrower and each of its Subsidiaries in an aggregate principal
amount not to exceed $200,000 at any time, (f) the 2005 Debentures;
provided, that all amounts owed with respect to the 2005 Debentures shall be
subordinated to all Obligations on terms acceptable to Lender, and; provided
further, the aggregate principal amount of all 2005 Debentures shall not
exceed $30,928,000, (g) the 2005 Guaranty; provided, that all amounts owed
with respect to the 2005 Guaranty shall be subordinated to all Obligations
on terms acceptable to Lender, (h) contingent purchase price payable
pursuant to the Aerospace Purchase Agreement; provided, the aggregate
amount of such contingent purchase price shall not exceed $2,500,000,
(i) contingent purchase price payable pursuant to the TGA Purchase
Agreement; provided, the aggregate amount of such contingent purchase price
shall not exceed $8,000,000, (j) Debt evidenced by the TGA Notes; provided,
the aggregate principal amount of all TGA Notes shall not exceed
$23,750,000, (k) Debt evidenced by the Convertible Notes; provided, (i)
the aggregate principal amount of the Convertible Notes shall not exceed
$25,000,000, and (ii) the Convertible Notes are in form, payable on terms
and subordinate to the Obligations on terms acceptable to Lender,
(l) obligations of Borrower pursuant to the TGA Purchase Agreement related
to non-competition payments in an aggregate amount not to exceed $2,000,000,
and (m) other Debt of Borrower and Subsidiaries in an aggregate amount not
to exceed $400,000 at any time and that is subordinated to the Obligations
on terms acceptable to Lender in its discretion.
"Permitted Investments" means (a) Investment Grade Securities,
(b) Existing Investments, (c) travel advances to employees in the ordinary
course of business, (d) equity contributions made by Borrower in existing
Subsidiaries that are either Guarantors or RICs that are Domestic
Subsidiaries, if such equity contribution results in an increase in
shareholders' or members' equity of such Subsidiary receiving such equity
contribution, (e) the purchase by Borrower of surplus debentures issued by a
RIC that is a Domestic Subsidiary if the original principal amount of such
surplus debenture is not less than the consideration paid by Borrower, and
(f) other Investments of Borrower and Subsidiaries that do not, as at any
date of determination, exceed in the aggregate $500,000 (the value of each
such Investment to be the greater of (1) the then current market value of
such Investment, and (2) the purchase price of such Investment).
"Permitted Liens" means (a) Bank Liens, (b) pledges or deposits made to
secure payment of workmen's compensation, or to participate in any fund in
connection with workmen's compensation, unemployment insurance, pensions, or
other social security programs (excluding any Liens in respect of ERISA),
(c) good-faith pledges or deposits made to secure performance of bids,
tenders, contracts (other than for the repayment of borrowed money), or
leases, or to secure statutory obligations, surety or appeal bonds, or
indemnity, performance, or other similar bonds in the ordinary course of
business, (d) encumbrances consisting of zoning restrictions, easements, or
other restrictions on the use of real property, none of which impair the use
of such property by any Obligor or any of its Subsidiaries in the operation
of its business in any manner which would have a Material Adverse Effect,
(e) the following, if the validity or amount thereof is being contested in
good faith and by appropriate and lawful proceedings and so long as levy and
execution thereon have been stayed and continue to be stayed: claims and
Liens for Taxes due and payable; claims and Liens upon, and defects of title
to, real or personal property or other legal process prior to adjudication
of a dispute on the merits, including mechanic's and materialmen's Liens;
and adverse judgments on appeal, (f) set-off, charge-back and other rights
of depository and collection banks and other financial institutions with
respect to money or instruments of Borrower or its Subsidiaries on deposit
with or in possession of such institutions, (g) Liens granted by PAAC to
secure loans the proceeds of which are used by PAAC to fund its premium
finance operations; provided, such Liens do not attach to any property other
than Premium Finance Agreements and related general intangibles and
proceeds, (h) encumbrances pursuant to the TGA Trust Documents, and (i)
Liens arising under Capital Leases permitted under this Agreement.
"Person" means and includes an individual, a partnership, a joint
venture, a limited liability company, a corporation, a trust, an
unincorporated organization, and a government or any department,
Governmental Authority, agency or political subdivision thereof.
"PIIC" means Phoenix Indemnity Insurance Company, an Arizona insurance
corporation.
"Plan" means any plan subject to Title IV of ERISA and maintained for
employees of any Obligor or any of its Subsidiaries, or of any member of
a controlled group of corporations, as the term "controlled group of
corporations" is defined in Section 1563 of the Internal Revenue Code of
1986, as amended, of which any Obligor or any of its Subsidiaries is a part.
"Pledge Agreements" means the Pledge Agreement executed by Borrower,
substantially in the form of Exhibit B, and the Pledge Agreement executed
by a Subsidiary, substantially in the form of Exhibit C.
"Premium Finance Agreement" means an agreement by which an insured
or prospective insured promises to pay to PAAC the amount advanced to an
insurance company (or to a third party for the benefit of an insurance
company) by PAAC in payment of premium on an insurance contract.
"Prime Rate" means for any day a per annum rate of interest equal
to the "prime rate," as published in the "Money Rates" column of The Wall
Street Journal, Central Edition, from time to time, or if for any reason
such rate is no longer available, the rate established by Lender as its
prime rate. The Prime Rate shall change effective as of the date of any
change as published in The Wall Street Journal, Central Edition, or as
established by Lender, as appropriate. The Prime Rate is a reference rate
and does not necessarily represent the lowest or best rate actually charged
to any customer of Lender.
"Prime Rate Loan" means a Revolving Loan when it bears interest at a
rate based on the Prime Rate.
"Principal Office" means the location of Lender's chief executive
office.
"Registered Public Accounting Firm" means an accounting firm that (a)
has registered with the PCAOB pursuant to the provisions of Section 102 of
▇▇▇▇▇▇▇▇-▇▇▇▇▇ and whose registration has not been withdrawn, terminated,
revoked or suspended and (b) meets the "independence" requirements of
Section 10A of the Securities Exchange Act of 1934.
"Reinsurance Agreement" means any agreement, contract, treaty or other
arrangement whereby one or more insurers, as reinsurers, assume liabilities
under insurance policies or agreements issued by another insurance or
reinsurance company or companies.
"Release" means any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping, disposing,
depositing, dispersing, emanating or migrating of any Hazardous Material in,
into, onto or through the Environment.
"Remedial Action" means (a) "remedial action" as such term is defined
in CERCLA, 42 U.S.C. Section 9601(24), and (b) all other actions required
by any Governmental Authority or voluntarily undertaken to: (i) cleanup,
remove, treat, ▇▇▇▇▇ or in any other way address any Hazardous Material in
the Environment; (ii) prevent the Release or threat of Release, or minimize
the further Release of any Hazardous Material so it does not migrate or
endanger or threaten to endanger public health, welfare or the Environment;
or (iii) perform studies and investigations in connection with, or as a
precondition to, (i) or (ii) above.
"Reportable Event" means a reportable event as defined in
Section 4043(b) of Title IV of ERISA or PBGC regulations issued thereunder,
other than a reportable event not subject to Section 4043's notification
requirements pursuant to PGBC's regulations.
"Retrocession Agreement" means any agreement, contract, treaty or
other arrangement whereby one or more insurers or reinsurers, as
retrocessionaires, assume liabilities of reinsurers under a Reinsurance
Agreement or other retrocessionaires under another retrocession agreement.
"Revolving Borrowing" means a borrowing by Borrower of Revolving Loans
made by Lender pursuant to Section 2.1.
"Revolving Commitment" means $20,000,000.
"Revolving Facility L/C" means a Letter of Credit issued pursuant to
Section 3.1(a)(i).
"Revolving Facility L/C Commitment" means $5,000,000.
"Revolving Facility L/C Expiration Date" means the first to occur of
(a) January ___, 2008, (b) the date the Revolving Facility L/C Commitment
is terminated pursuant to either Section 2.6 or 9.2, and (c) the date the
Obligations are accelerated.
"Revolving Facility L/C Obligations" means, as at any date of
determination, the aggregate undrawn amount of all outstanding Revolving
Facility L/Cs plus the aggregate of all Unreimbursed Amounts with respect
to Revolving Facility L/Cs.
"Revolving Facility Outstanding Amount" means, as of any date of
determination, the sum of (a) the aggregate outstanding principal amount of
all Revolving Loans, after giving effect to any Revolving Borrowing and any
principal payment of Revolving Loans occurring on such date, and (b) the
Revolving Facility L/C Obligations on such date, after giving effect to any
L/C Credit Extension and any other changes in the aggregate amount of the
Revolving Facility L/C Obligations on such date, including as a result of
payment of any Unreimbursed Amount.
"Revolving Loan Maturity Date" means the first to occur of
(a) January ___, 2011, (b) the date the Revolving Commitment is terminated
pursuant to either Section 2.6 and 9.2, and (c) the date the Obligations are
accelerated.
"Revolving Loan Notice" means a notice of a Revolving Borrowing request
pursuant to Section 2.2(a), substantially in the form of Exhibit G.
"Revolving Note" means the promissory note made by Borrower in favor of
Lender evidencing the Revolving Loans made by Lender, substantially in the
form of Exhibit A.
"RIC" means any Subsidiary, whether now owned or hereafter acquired,
that is authorized or admitted to carry on or transact Insurance Business in
any jurisdiction, is regulated by any Insurance Regulator, and is required
by any Insurance Regulator to file an annual statement in the form
prescribed by NAIC for a property and casualty insurance company.
"Risk-Based Capital" means for a RIC, the ratio (expressed as a
percentage), at any time, of the Total Adjusted Capital of such RIC to the
Authorized Control Level of such RIC.
"S&P" means Standard & Poor's Ratings Group, a division of ▇▇▇▇▇▇-
▇▇▇▇, Inc., a New York corporation.
"SAP" means the statutory accounting and reporting practices prescribed
by the insurance Laws or Insurance Regulator (or other similar Governmental
Authority) with respect to each RIC.
"▇▇▇▇▇▇▇▇-▇▇▇▇▇" means the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act of 2002.
"SEC" means the Securities and Exchange Commission, or any Governmental
Authority succeeding to any of its principal functions.
"Securities Laws" means the Securities Act of 1933, the Securities
Exchange Act of 1934, ▇▇▇▇▇▇▇▇-▇▇▇▇▇ and the applicable accounting and
auditing principles, rules, standards and practices promulgated, approved
or incorporated by the SEC or the PCAOB.
"Security Agreements" means the Security Agreement executed by
Borrower, substantially in the form of Exhibit D, and each Security
Agreement executed by a Subsidiary, substantially in the form of Exhibit E.
"Security Documents" means, collectively, the Pledge Agreements, the
Security Agreements and any and all other documents, instruments, financing
statements, public notices and the like executed and delivered in connection
with any of the Bank Liens or the Collateral.
"Solvent" means, with respect to any Person, that the fair value of the
assets of such Person (both at fair valuation and at present fair saleable
value) is, on the date of determination, greater than the total amount of
liabilities (including contingent and unliquidated liabilities) of such
Person as of such date and that, as of such date, such Person is able to pay
all liabilities of such Person as such liabilities mature and such Person
does not have unreasonably small capital with which to carry on its
business. In computing the amount of contingent or unliquidated liabilities
at any time, such liabilities will be computed at the amount which, in light
of all the facts and circumstances existing at such time, represents the
amount that can reasonably be expected to become an actual or matured
liability discounted to present value at rates believed to be reasonable
by such Person.
"Special Counsel" means the law firm of ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ &
▇▇▇▇▇▇ P.C., or such other legal counsel as Lender may select.
"Subordination Agreement" means the Subordination Agreement,
substantially in the form of Exhibit I.
"Subordination Agreement I" means the Subordination Agreement among
Newcastle Special Opportunity Fund I, L.P., Borrower and Lender,
substantially in the form of Exhibit L.
"Subordination Agreement II" means the Subordination Agreement among
Newcastle Special Opportunity Fund II, L.P., Borrower and Lender,
substantially in the form of Exhibit M.
"Subsidiary" of a Person means a corporation, partnership, joint
venture, limited liability company or other business entity of which a
majority of the shares of securities or other interests having ordinary
voting power for the election of directors or other governing body (other
than securities or interests having such power only by reason of the
happening of a contingency) are at the time beneficially owned, or the
management of which is otherwise Controlled, directly or indirectly through
one or more intermediaries, or both, by such Person. Unless otherwise
specified, all references to a "Subsidiary" or to "Subsidiaries" refers to a
Subsidiary or Subsidiaries of Borrower. For purposes of the Loan Documents,
Hallmark Trust I is deemed to be a Subsidiary of Borrower.
"Taxes" means all taxes, assessments, fees or other charges from time
to time or at any time imposed by any Laws or by any Governmental Authority.
"Termination Date" means January 27, 2008.
"TGA" means Texas General Agency, Inc., a Texas corporation.
"TGA Account" means a brokerage account, securities account or similar
account, together with all property on deposit or subject thereto, and all
related agreements, in form and substance satisfactory to Lender.
"TGA Facility Documents" means all L/C Agreements and all other
agreements between Lender and Borrower related to the TGA L/C Commitment and
the TGA L/Cs, including all reimbursement agreements and agreements securing
or guaranteeing performance of such agreements. Each TGA Facility Document
is a Loan Document.
"TGA L/C" means a Letter of Credit issued for the benefit of all
sellers a party to the TGA Purchase Agreement and having an expiry date of
January 4, 2008.
"TGA L/C Commitment" means $25,000,000.
"TGA Note" means a promissory note in the form of Exhibit A to the TGA
Purchase Agreement (without giving effect to any amendment to or restatement
of such form after the Agreement Date).
"TGA Obligations" means all obligations, indebtedness and liabilities
under the TGA Facility Documents now or hereafter owing by Borrower or any
other Person to or for the benefit of Lender, whether joint or several,
fixed or contingent, including principal, interest, expenses of collection
and foreclosure and attorneys' fees that Borrower is responsible for
pursuant to Section 10.2. Without limiting the generality of the foregoing,
"TGA Obligations" includes interest, fees and other amounts that would
accrue after the commencement by or against Borrower, any Affiliate thereof
or any other Person (other than Lender, any Assignee or any Participant) of
any proceeding under any Debtor Relief Laws naming such Person as the debtor
in such proceeding, regardless of whether such interest, fees and other
amounts are allowed claims in such proceeding. TGA Obligations are
Obligations.
"TGA Purchase Agreement" means the Purchase Agreement dated as of
November 9, 2005, among Borrower, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Donate ▇. ▇▇▇▇▇▇▇▇▇
and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇.
"TGA Trust Documents" means all agreements pursuant to which Borrower
establishes and maintains with Lender a trust account for the benefit of
the sellers under the TGA Purchase Agreement to secure the performance of
Borrower of the TGA Notes and payment by Borrower of amounts due with
respect to non-competition covenants in the TGA Purchase Agreement.
"TGASR" means TGA Special Risk, Inc., a Texas corporation.
"Total Adjusted Capital" means "Total Adjusted Capital" as defined
by NAIC from time to time and as applied in the context of the Risk-Based
Capital Guidelines promulgated by NAIC (or any term substituted therefor by
NAIC).
"2005 Debentures" means the $30,928,000 aggregate principal amount of
Junior Subordinated Debt Securities due June 15, 2035 issued by Borrower to
Hallmark Trust I.
"2005 Documents" means any equity security of Hallmark Trust I,
any 2005 Debenture, any 2005 Preferred Security, the 2005 Indenture, the
Hallmark Trust I Declaration of Trust, the 2005 Guaranty, any document
evidencing or governing any equity or Debt of Hallmark Trust I and all other
documents and instruments executed and delivered by Borrower or Hallmark
Trust I in connection with any of the foregoing.
"2005 Guaranty" means the Guaranty Agreement dated June 21, 2005,
made by Borrower in favor of JPMorgan Chase Bank, National Association,
as Guarantee Trustee, together with all amendments and restatements.
"2005 Indenture" means the Indenture dated June 21, 2005, between
Borrower and JPMorgan Chase Bank, National Association, as Trustee, together
with all amendments and restatements.
"2005 Preferred Securities" means the $30,000,000 Preferred Securities
issued by Hallmark Trust I.
1.2 Additional Definitions. The following additional terms have
the meaning specified in the indicated Section or other provision of this
Agreement:
Term Section/Provision
---------------------------- -----------------------------
Agreement Introductory Paragraph
Assignee Section 10.6(c)
Auto-Renewal Letter of Credit Section 3.2(c)
Borrower Introductory Paragraph
Cash Collateralize Section 3.6(a)
Eurocurrency liabilities Section 4.4(c)
Existing Agreement Background
Existing Non-Compliance Section 10.15(f)
Indemnified Matters Section 6.7
Indemnified Taxes Section 4.1(a)
Indemnitees Section 6.7
Information Section 10.8
Lender Introductory Paragraph
Nonrenewal Notice Date Section 3.2(c)
Other Taxes Section 4.1(b)
Participant Section 10.6(b)
Participation Section 10.6(b)
Properties Section 8.16(a)
Revolving Facility L/C Fee Section 3.7(a)
Revolving Loan Section 2.1
TGA L/C Fee Section 3.7(b)
Unreimbursed Amount Section 3.3
1.3 Construction. Unless otherwise expressly provided in this
Agreement or the context requires otherwise, (a) the singular shall include
the plural, and vice versa, (b) words of a gender include the other gender,
(c) all accounting terms shall be construed in accordance with GAAP or SAP,
as the context requires, (d) all references to time are San Antonio time,
(e) monetary references are to Dollars, (f) all references to "Articles,"
"Sections," "Exhibits," and "Schedules" are to the Articles, Sections,
Exhibits, and Schedules of and to this Agreement, (g) headings used in
this Agreement and each other Loan Document are for convenience only and
shall not be used in connection with the interpretation of any provision
hereof or thereof, (h) references to any Person include that Person's
heirs, personal representatives, successors, and permitted assigns,
that Person as a debtor-in possession, and any receiver, trustee,
liquidator, conservator, custodian, or similar party appointed for such
Person or all or substantially all of its assets, (i) references to any
Law include every amendment or restatement to it, rule and regulation
adopted under it, and successor or replacement for it, and (j) references
to a particular Loan Document include each amendment, modification, or
supplement to or restatement of it made in accordance with this Agreement
and such Loan Document.
ARTICLE II
REVOLVING LOANS
2.1 Revolving Loans. Subject to the terms and conditions of this
Agreement, Lender agrees to make loans (each such loan, a "Revolving Loan"),
to Borrower from time to time on any Business Day during the period from the
Agreement Date to the Termination Date, in an aggregate amount not to exceed
at any time outstanding the Revolving Commitment; provided, however, that
after giving effect to any Revolving Borrowing, the Revolving Facility
Outstanding Amount shall not exceed the Revolving Commitment. Prior to the
Termination Date, Borrower may borrow, repay and reborrow Revolving Loans,
all in accordance with this Agreement.
2.2 Revolving Borrowings.
(a) Revolving Borrowings. Each Revolving Borrowing shall be
made upon Borrower's irrevocable notice to Lender, which may be given by
telephone. Each such notice must be received by Lender not later than
2:00 p.m. (i) one Business Day prior to the requested date of any Revolving
Borrowing of Eurodollar Rate Loans and (ii) one Business Day prior to the
requested date of any Revolving Borrowing of Prime Rate Loans (subject to
Section 2.7). Each such telephonic notice must be confirmed promptly by
delivery to Lender of a written Revolving Loan Notice appropriately
completed and signed by an Authorized Signatory of Borrower. Each Revolving
Loan Notice (whether telephonic or written) shall specify (i) the requested
date of the Revolving Borrowing, as the case may be (which shall be a
Business Day), (ii) the principal amount of the Revolving Loan to be
borrowed and (iii) whether such Revolving Borrowing will be a Eurodollar
Rate Loan or a Prime Rate Loan. Each Revolving Loan shall be in the
principal amount of $100,000 or any whole multiple of $25,000 in excess
thereof or the unused portion of the Revolving Commitment.
(b) Funding. Upon satisfaction of the applicable conditions
set forth in Article V, Lender shall make the proceeds of each Revolving
Borrowing available to Borrower by crediting the account of Borrower on
the books of Lender with the amount of such funds.
2.3 Repayment. The principal of all Revolving Loans shall be due
and payable on the following dates and in the following amounts:
Payment Date Payment Amount
---------------------------- ---------------------------------
Each Payment Date after the An amount equal to 1/20th of
Termination Date the aggregate principal amount
of all Revolving Loans outstanding
on the Termination Date
The Revolving Loan Maturity The remaining unpaid principal
Date of all Revolving Loans
2.4 Voluntary Prepayments. Borrower may at any time or from time to
time voluntarily prepay the Revolving Loans in whole or in part without
premium or penalty. Each voluntary prepayment shall be accompanied by all
accrued and unpaid interest thereon. Any voluntary prepayment of the
Revolving Loans made after the Termination Date shall be applied to the
unpaid scheduled installment payments of the Revolving Loans in the inverse
order of maturity.
2.5 Mandatory Prepayments. On each date that the Revolving Facility
Outstanding Amount exceeds the Revolving Commitment, Borrower shall prepay
the Revolving Loans in an amount equal to such excess (each such prepayment
made after the Termination Date shall be applied to the unpaid scheduled
installment payments of the Revolving Loans in the inverse order of
maturity) or, if no Revolving Loans are outstanding, Cash Collateralize the
Revolving Facility L/C Obligations in an amount equal to such excess. On
each date that the Revolving Facility L/C Obligations exceed the Revolving
Facility L/C Commitment, Borrower shall Cash Collateralize the Revolving
Facility L/C Obligations in an amount equal to such excess. Each mandatory
prepayment shall be accompanied by all accrued and unpaid interest thereon.
2.6 Termination and Reduction of Commitments.
(a) Borrower shall have the right to terminate or reduce the
Revolving Commitment, Revolving Facility L/C Commitment and TGA L/C
Commitment at any time. Each reduction shall be in the minimum amount
of $500,000 and a whole multiple of $100,000 in excess thereof.
(b) On the Termination Date, the Revolving Commitment and
Revolving L/C Commitment shall automatically reduce to zero and terminate.
On February 10, 2006, the TGA L/C Commitment shall terminate. If on
or before February 10, 2006, (a) the TGA L/C has not been issued, and
(b) Borrower has either (i) established the TGA Trust Documents or (ii) made
other arrangements to secure performance of Borrower of the TGA Notes and
payment by Borrower of amounts due with respect to non-competition covenants
in the TGA Purchase Agreement, the TGA L/C Commitment shall automatically
reduce to zero and Lender shall have no obligation to issue the TGA L/C.
(c) Borrower shall not have any right to rescind any termination
or reduction. Once terminated or reduced, the Revolving Commitment,
Revolving Facility L/C Commitment and TGA L/C Commitment, respectively,
may not be reinstated.
2.7 Interest on Revolving Loans Generally.
(a) Subject to the provisions of Section 2.7(b) and Section 2.9,
each Revolving Loan shall bear interest on the outstanding principal amount
thereof from the applicable borrowing date or such other date on which it
becomes a Eurodollar Rate Loan (as applicable) to but not including the
date on which another interest rate becomes applicable to it pursuant to
the terms of this Agreement at a rate per annum equal to the lesser of (i)
the Highest Lawful Rate and (ii) the Eurodollar Rate.
(b) Subject to the provisions of Section 2.9, if at any time
Lender has notified Borrower that the provisions of Sections 4.2 or 4.3
apply, each Revolving Loan shall bear interest on the outstanding principal
amount thereof from the date on which Lender determines or is notified that
the provisions of Sections 4.2 or 4.3 apply to and including the date on
which Lender notifies Borrower that the provisions of Sections 4.2 and 4.3
no longer apply at a rate per annum equal to the lesser of (i) the Highest
Lawful Rate and (ii) the Prime Rate. Borrower may not elect that any
Revolving Loan be a Prime Rate Loan unless Lender has notified Borrower
that the provisions of Sections 4.2 or 4.3 apply.
(c) Interest on the Revolving Loans shall be due and payable in
arrears on each Interest Payment Date and at such other times as may be
specified herein. Interest hereunder shall be due and payable in accordance
with the terms hereof before and after judgment, and before and after the
commencement of any proceeding under any Debtor Relief Law.
2.8 Computations. Subject to Section 10.11, interest on the Revolving
Loans, fees and any other amounts due hereunder shall be calculated on
the basis of actual days elapsed over a year of 360 days, unless such
calculation would result in a rate greater than the highest rate permitted
by Applicable Law, in which case interest shall be computed on the basis of
a year of 365 days or 366 days in a leap year, as the case may be. Nothing
herein shall be deemed to obligate Lender to obtain the funds for any
Revolving Loan in any particular place or manner or to constitute a
representation by Lender that it has obtained or will obtain the funds
for any Revolving Loan in any particular place or manner.
2.9 Interest After an Event of Default. (a) If an Event of Default
exists (other than an Event of Default specified in Section 9.1(e) or (f)),
at the option of Lender, and (b) after an Event of Default specified in
Section 9.1(e) or (f) and during any continuance thereof, automatically and
without any action by Lender, the Obligations shall bear interest at a rate
per annum equal to the lesser of (i) the Default Rate and (ii) the Highest
Lawful Rate. Such interest shall be payable on the earlier of demand or
the Revolving Loan Maturity Date and shall accrue until the earlier of (a)
waiver or cure (to the satisfaction of Lender) of the applicable Event of
Default, (b) agreement by Lender to rescind the charging of interest at the
Default Rate, or (c) payment in full of the Obligations. Lender shall not
be required to accelerate the maturity of the Revolving Loans, to exercise
any other rights or remedies under the Loan Documents, or to give notice to
Borrower of the decision to charge interest at the Default Rate. Lender
will undertake to notify Borrower, after the effective date, of the decision
to charge interest at the Default Rate.
2.10 Payments Generally. (a) Each payment (including prepayments) by
Borrower of the principal of or interest on the Revolving Loans and any
other amount owed under this Agreement or any other Loan Document shall be
made not later than 2:00 p.m. on the date specified for payment under this
Agreement to Lender at Lender's Office, in Dollars constituting immediately
available funds. All payments received by Lender after 2:00 p.m. shall be
deemed received on the next succeeding Business Day and any applicable
interest or fee shall continue to accrue.
(b) If any payment under this Agreement or any other Loan Document
shall be specified to be made upon a day which is not a Business Day, it
shall be made on the next succeeding day which is a Business Day. Any
extension of time shall in such case be included in computing interest
and fees, if any, in connection with such payment.
(c) Borrower agrees to pay principal, interest, fees and all other
amounts due under the Loan Documents without deduction for set-off or
counterclaim or any deduction whatsoever.
(d) If some but less than all amounts due from Borrower are
received by Lender, Lender shall apply such amounts in the following order
of priority: (i) to the payment of Lender's expenses incurred under the
Loan Documents then due and payable, if any; (ii) to the payment of all
other fees under the Loan Documents then due and payable; (iii) to the
payment of interest then due and payable on the Revolving Loans; (iv) to
the payment of all other amounts not otherwise referred to in this Section
2.10(d) then due and payable under the Revolving Loan Documents; and (v) to
the payment of principal then due and payable on the Revolving Loans (each
payment made after the Termination Date shall be applied to the unpaid
scheduled installment payments of the Revolving Loans in the inverse order
of maturity).
2.11 Booking the Revolving Loans. Lender may make, carry or transfer
each Revolving Loan at, to or for the account of any of its branch offices
or the office of any Affiliate.
2.12 Collateral.
(a) Obligations. Payment of the Obligations is secured on the
Agreement Date by (i) a perfected first priority security interest in
(A) all of the authorized, issued and outstanding capital stock and other
equity interests of each Domestic Subsidiary, and (B) not less than 65% of
all of the authorized, issued and outstanding capital stock and other equity
interests of each Foreign Subsidiary (other than Mannequin or any protected
cell a part of Mannequin), (ii) a perfected first priority security interest
(subject only to Permitted Liens) in current and future assets and
properties of Borrower and all of its Domestic Subsidiaries (other than
a RIC, except as provided in Section 3.6), and (iii) Guaranties of the
Obligations by each Domestic Subsidiary (other than a RIC). Borrower shall
cause each Domestic Subsidiary (other than a RIC) of Borrower created or
acquired after the Agreement Date to execute and deliver to Lender a
Guaranty, Security Agreement, Pledge Agreement (if applicable) and such
other documents as are required to grant to Lender and perfect the Lien
granted pursuant to such Security Agreement and Pledge Agreement. Borrower
shall, and shall cause each Domestic Subsidiary to, execute and deliver to
Lender a Pledge Agreement or amendment to an existing Pledge Agreement and
such other documents as are required to grant and perfect a first priority
security interest in not less than 65% of all of the authorized, issued and
outstanding capital stock and other equity interests of each first tier
Foreign Subsidiary (other than Mannequin or any protected cell a part of
Mannequin) in which Borrower or a Domestic Subsidiary has an interest.
(b) TGA Obligations. Payment of the TGA Obligations (if the TGA
L/C is issued) shall be secured (i) as described in Section 2.12(a), and
(ii) not later than February 10, 2006 and thereafter by a perfected first
priority security interest in the TGA Account and all property subject to
the TGA Account. Notwithstanding any provision of any Loan Document, the
TGA Account and the property subject to the TGA Account are not collateral
for performance for any Obligation other than the TGA Obligations.
ARTICLE III
LETTER OF CREDIT FACILITIES
3.1 Letters of Credit.
(a) (i) Subject to the terms and conditions of this
Agreement, Lender agrees, (A) on any Business Day during the period
from the Agreement Date until the Revolving Facility L/C Commitment
Expiration Date, to issue Revolving Facility L/Cs for the account of
Borrower and each L/C RIC, and to amend or renew Revolving Facility L/Cs
previously issued by it, in accordance with Section 3.1(b), and (B) to honor
drafts under the Revolving Facility L/Cs; provided that Lender shall not be
obligated to make any L/C Credit Extension with respect to any Revolving
Facility L/C, if as of the date of and before or after giving effect to
such L/C Credit Extension, (1) the Revolving Facility L/C Obligations would
exceed the Revolving Facility L/C Commitment, or (2) the Revolving Facility
Outstanding Amount would exceed the Revolving Commitment. Within the
foregoing limits, and subject to the terms and conditions hereof, Borrower's
ability to obtain Revolving Facility L/Cs shall be fully revolving, and
accordingly Borrower and each L/C RIC may, during the foregoing period,
obtain Revolving Facility L/Cs to replace Revolving Facility L/Cs that have
expired or that have been drawn upon and reimbursed. The Revolving Facility
L/C Commitment is a subfacility of the Revolving Commitment and not in
addition to the Revolving Commitment.
(i) Subject to the terms and conditions of this Agreement,
Lender agrees (A) on any Business Day during the period from the
Agreement Date until February 10, 2006, to issue the TGA L/C for
the account of Borrower, and (B) to honor drafts under the TGA L/C;
provided that Lender shall not be obligated to issue the TGA L/C if the
face amount of the TGA L/C exceeds the TGA L/C Commitment. Lender has
no obligation to increase the undrawn amount of or extend the expiry
date of the TGA L/C. The TGA L/C shall not be an Auto-Renewal Letter
of Credit. The TGA L/C Commitment is in addition to and not a
subfacility of the Revolving Commitment.
(b) Lender shall be under no obligation to make any L/C Credit
Extension if:
(i) any order, judgment or decree of any Governmental
Authority or arbitrator shall by its terms purport to enjoin or
restrain Lender from issuing, amending or renewing such Letter of
Credit, or any Law applicable to Lender or any request or directive
(whether or not having the force of law) from any Governmental
Authority with jurisdiction over Lender shall prohibit, or request that
Lender refrain from, the issuance, amendment or renewal of letters of
credit generally or such Letter of Credit in particular or shall impose
upon Lender with respect to such Letter of Credit any restriction,
reserve or capital requirement (for which Lender is not otherwise
compensated hereunder) not in effect on the Agreement Date, or shall
impose upon Lender any unreimbursed loss, cost or expense which was not
applicable on the Agreement Date and which Lender in good ▇▇▇▇▇ ▇▇▇▇▇
material to it;
(ii) the expiry date of any requested Revolving Facility L/C
would occur (A) after the first to occur of (1) one year after the date
of issuance and (2) January 27, 2011, or (B) in the case of an Auto-
Renewal Letter of Credit, more than five years after the initial
issuance date of such Auto-Renewal Letter of Credit;
(iii) the expiry date of the TGA L/C would occur after
January 4, 2008;
(iv) the L/C Credit Extension would violate one or more
policies of Lender;
(v) any Revolving Facility L/C is to be used for a purpose
other than (A) to assure the performance of Borrower or an L/C RIC
pursuant to a Reinsurance Agreement to which Borrower and/or such L/C
RIC is a party, or (B) as may be agreed to by Lender in its discretion;
(vi) the TGA L/C is to be used for any purpose other than
to assure the performance of Borrower of the TGA Notes and payment by
Borrower of amounts due with respect to non-competition covenants in
the TGA Purchase Agreement;
(vii) such Letter of Credit is to be denominated in a
currency other than Dollars;
(viii) the face amount of such Letter of Credit (including
the face amount of any Auto-Renewal Letter of Credit) is less than
$100,000;
(ix) Lender has not received the Revolving L/C Fee or TGA
L/C Fee with respect to such L/C Credit Extension; or
(x) such Letter of Credit contains any provisions for
automatic reinstatement of the stated amount after a drawing
thereunder.
(c) Lender shall be under no obligation to amend or renew any
Letter of Credit if (i) Lender would have no obligation at such time to
issue such Letter of Credit in its amended or renewed form under the terms
hereof, or (ii) the beneficiary of such Letter of Credit does not accept the
proposed amendment or renewal to such Letter of Credit.
(d) Lender shall have no obligation to issue the TGA L/C unless
Lender has received all of the TGA Facility Documents, all in form and
substance satisfactory to Lender, and the TGA Account, and all property
subject to the TGA Account, are subject to a perfected first priority
security interest in favor of Lender. Lender shall have no obligation to
issue the TGA L/C if the TGA Trust Documents are effective or if Borrower
has made other arrangements to secure performance of Borrower of the TGA
Notes and payment by Borrower of amounts due with respect to non-competition
covenants in the TGA Purchase Agreement.
3.2 Procedures for Issuance and Amendment of Letters of Credit; Auto-
Renewal Letters of Credit.
(a) Each Letter of Credit shall be issued or amended, as the case
may be, upon the request of Borrower and the applicable L/C RIC (if such L/C
RIC is a party to the respective Reinsurance Agreement or other agreement to
which the requested Revolving Facility L/C relates) delivered to Lender in
the form of a Letter of Credit Application, appropriately completed and
signed by an Authorized Signatory of Borrower and such L/C RIC (if
applicable), together with a copy of the Reinsurance Agreement or other
agreements to which the requested Revolving Facility L/C relates and such
other documents and information as Lender may request. Such Letter of
Credit Application must be received by Lender not later than 2:00 p.m. at
least three Business Days (or such other date and time as Lender may agree
in a particular instance in its sole discretion) prior to the proposed
issuance date or date of amendment, as the case may be. In the case of a
request for an initial issuance of a Letter of Credit, such Letter of Credit
Application shall specify in form and detail reasonably satisfactory to
Lender: (i) the proposed issuance date of the requested Letter of Credit
(which shall be a Business Day); (ii) the amount thereof; (iii) the expiry
date thereof; (iv) the name and address of the beneficiary thereof; (v)
the documents to be presented by such beneficiary in case of any drawing
thereunder (if any); (vi) the full text of any certificate to be presented
by such beneficiary in case of any drawing thereunder (if any); and
(vii) such other matters as Lender may reasonably require. In the case of a
request for an amendment of any outstanding Letter of Credit, such Letter of
Credit Application shall specify in form and detail reasonably satisfactory
to Lender: (i) the Letter of Credit to be amended; (ii) the proposed date of
amendment thereof (which shall be a Business Day); (iii) the nature of the
proposed amendment; and (iv) such other matters as Lender may reasonably
require.
(b) Unless Lender has received written notice from Borrower or the
appropriate L/C RIC, at least one Business Day prior to the requested date
of issuance or amendment of the applicable Letter of Credit, that one or
more applicable conditions contained in this Article III shall not then be
satisfied, then, subject to the terms and conditions hereof, Lender shall,
on the requested date, issue a Letter of Credit for the account of Borrower,
or Borrower and the applicable L/C RIC, or enter into the applicable
amendment, as the case may be, in each case in accordance with Lender's
usual and customary business practices.
(c) If Borrower and the applicable L/C RIC (if such L/C RIC is a
party to the respective Reinsurance Agreement or other agreement to which
the respective Revolving Facility L/C relates) so request in any applicable
Letter of Credit Application, Lender may, in its sole and absolute
discretion, agree to issue a Revolving Facility L/C that has automatic
renewal provisions (each, an "Auto-Renewal Letter of Credit"); provided that
any such Auto-Renewal Letter of Credit must permit Lender to prevent any
such renewal at least once in each twelve-month period (commencing with the
date of issuance of such Revolving Facility L/C and in no event later than
seven Business Days prior to the expiry date of such Revolving Facility L/C)
by giving prior notice to the beneficiary thereof not later than a day (the
"Nonrenewal Notice Date") in each such twelve-month period to be agreed upon
at the time such Revolving Facility L/C is issued (or if no date is agreed
to at issuance, the day seven Business Days prior to the expiry date of such
Revolving Facility L/C). Unless otherwise directed by Lender, Borrower
shall not be required to make a specific request to Lender for any such
renewal.
(d) Promptly after its delivery of any Letter of Credit or any
amendment to a Letter of Credit to an advising bank with respect thereto or
to the beneficiary thereof, Lender will also deliver to Borrower a true and
complete copy of such Letter of Credit or amendment.
3.3 Drawings and Reimbursements. (a) Upon receipt from the
beneficiary of any Revolving Facility L/C of any notice of a drawing
under such Revolving Facility L/C, Lender shall notify Borrower and
the applicable L/C RIC thereof. Not later than the Business Day
immediately following the date of any payment by Lender under a Revolving
Facility L/C, Borrower and the applicable L/C RIC, jointly and severally,
shall reimburse Lender in an amount equal to the sum of the amount of such
drawing (which, if no Default or Event of Default exists before and after
giving effect thereto and subject to the other conditions of this Agreement,
can be made with the proceeds of a Revolving Loan), plus interest on the
amount of such payment, which interest shall accrue at the lesser of (i) the
Prime Rate (if no Default or Event of Default exists) or the Default Rate
(if a Default or Event of Default exists), and (ii) the Highest Lawful Rate.
(b) Upon receipt from the beneficiaries of the TGA L/C of any
notice of a drawing under the TGA L/C, Lender shall notify Borrower thereof.
Not later than the Business Day immediately following the date of any
payment by Lender under the TGA L/C, Borrower shall reimburse Lender in an
amount equal to the sum of the amount of such drawing, plus interest on the
amount of such payment, which interest shall accrue at the lesser of (i) the
Prime Rate (if no Default or Event of Default exists) or the Default Rate
(if a Default or Even of Default exists), and (ii) the Highest Lawful Rate.
If Borrower fails to reimburse Lender as provided in the preceding sentence,
Lender may withdraw funds (and sell or liquidate cash equivalents and other
non-cash items) on deposit pursuant to the TGA Trust Documents and apply
such funds to the amount described in the preceding sentence.
(c) If Borrower or the applicable L/C RIC fails to so reimburse
Lender by the time specified in Section 3.3(a) or Borrower fails to so
reimburse Lender by the time specified in Section 3.3(b), the amount of the
unreimbursed drawing (the "Unreimbursed Amount") shall be due and payable on
demand (together with interest) and shall bear interest at the Default Rate.
3.4 Obligations Absolute. The obligation of Borrower and the applicable
L/C RIC to reimburse Lender for each drawing under each Revolving Facility
L/C and Borrower to reimburse Lender for each drawing under the TGA L/C
shall be absolute, unconditional and irrevocable, and shall be paid strictly
in accordance with the terms of this Agreement and the applicable L/C
Agreements under all circumstances, including the following:
(a) any lack of validity or enforceability of such Letter of
Credit, this Agreement, any TGA Facility Document or any other Loan
Document;
(b) the existence of any claim, counterclaim, setoff, defense or
other right that Borrower or the applicable L/C RIC may have at any time
against any beneficiary or any transferee of such Letter of Credit (or any
Person for whom any such beneficiary or any such transferee may be acting),
Lender or any other Person, whether in connection with this Agreement, the
transactions contemplated hereby or by such Letter of Credit or any
agreement or instrument relating thereto, or any unrelated transaction;
(c) any draft, demand, certificate or other document presented
under such Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect; or any loss or delay in the transmission or
otherwise of any document required in order to make a drawing under such
Letter of Credit;
(d) any payment by Lender under such Letter of Credit against
presentation of a draft or certificate that does not strictly comply with
the terms of such Letter of Credit; or any payment made by Lender under such
Letter of Credit to any Person purporting to be a trustee in bankruptcy,
debtor-in-possession, assignee for the benefit of creditors, liquidator,
receiver or other representative of or successor to any beneficiary or any
transferee of such Letter of Credit, including any arising in connection
with any proceeding under any Debtor Relief Law; or
(e) any other circumstance or happening whatsoever, whether or not
similar to any of the foregoing, including any other circumstance that might
otherwise constitute a defense available to, or a discharge of, Borrower or
the applicable RIC.
Borrower and the applicable L/C RIC shall promptly examine a copy of
each Letter of Credit and each amendment thereto that is delivered to it
and, in the event of any claim of noncompliance with Borrower's instructions
or other irregularity, Borrower will immediately (but in no event later than
the Business Day immediately following the date on which Borrower receives a
copy of such Letter of Credit or amendment) notify Lender. Borrower and the
applicable L/C RIC shall be conclusively deemed to have waived any such
claim against Lender and its correspondents unless such notice is given as
aforesaid.
3.5 Role of Lender. Borrower and each L/C RIC agree that, in paying any
drawing under a Letter of Credit, Lender shall not have any responsibility
to obtain any document (other than any sight draft, certificates and
documents expressly required by the Letter of Credit) or to ascertain or
inquire as to the validity or accuracy of any such document or the authority
of the Person executing or delivering any such document. None of Lender,
any of its Affiliates nor any correspondent, Participant or Assignee of
Lender, shall be liable or responsible for any of the matters described in
Section 3.4; provided, however, that anything in such clauses to the
contrary notwithstanding, Borrower and the applicable L/C RIC may have a
claim against Lender, and Lender may be liable to Borrower and the
applicable L/C RIC, to the extent, but only to the extent, of any direct, as
opposed to consequential or exemplary, damages suffered by Borrower and the
applicable L/C RIC which Borrower and the applicable L/C RIC prove were
caused by Lender's willful misconduct or gross negligence or Lender's
willful failure to pay under any Letter of Credit after the presentation to
it by the beneficiary of a sight draft and certificate(s) strictly complying
with the terms and conditions of such Letter of Credit. In furtherance and
not in limitation of the foregoing, Lender may accept documents that appear
on their face to be in order, without responsibility for further
investigation, regardless of any notice or information to the contrary,
and Lender shall not be responsible for the validity or sufficiency of any
instrument transferring or assigning or purporting to transfer or assign a
Letter of Credit or the rights or benefits thereunder or proceeds thereof,
in whole or in part, which may prove to be invalid or ineffective for any
reason.
3.6 Cash Collateral.
(a) Revolving Facility L/Cs. Upon the request of Lender, if an
Event of Default exists, Borrower and the applicable L/C RIC, jointly and
severally, shall immediately Cash Collateralize the then outstanding amount
of all Revolving Facility L/C Obligations. Section 2.5 sets forth certain
additional requirements to deliver Cash Collateral hereunder. For purposes
of this Section 3.6(a) and Section 2.5, "Cash Collateralize" means to pledge
and deposit with or deliver to Lender, as collateral for Revolving Facility
L/C Obligations, cash or deposit account balances (in an amount not
less than the Revolving Facility L/C Obligations, or if the Cash
Collateralization is required pursuant to Section 2.5, in the amount
required by Section 2.5) pursuant to documentation in form and substance
satisfactory to Lender. Derivatives of such term have corresponding
meanings. Borrower and each L/C RIC hereby grant to Lender a security
interest in all such cash, deposit accounts and all balances therein and all
proceeds of the foregoing. Cash Collateral shall be maintained in blocked,
non-interest bearing deposit accounts at Lender under the control of Lender.
The obligations imposed on an L/C RIC pursuant to this Section 3.6(a) shall
be limited to the extent necessary in order for the L/C RIC to comply with
all relevant insurance Laws and may be subject to regulatory approval. Upon
each request by Lender for Cash Collateral, Borrower and the applicable L/C
RIC shall deliver to Lender evidence satisfactory to Lender that the
performance by such L/C RIC complies with applicable insurance Laws and
has received any necessary consent from any applicable Insurance Regulator.
(b) TGA L/C. Not later than February 10, 2006 (if Lender has
issued or will issue the TGA L/C), Borrower shall deposit with Lender,
subject to the terms of the TGA Account, cash or cash equivalents (which
cash equivalents are subject to the approval of Lender) in an aggregate
principal amount of $25,000,000. Borrower hereby grants to Lender a
security interest in all such cash, deposit accounts, securities and
all balances therein and all proceeds of the foregoing.
3.7 Letter of Credit Fees.
(a) Revolving Facility L/C Fees. Borrower and the applicable L/C
RIC, jointly and severally, shall pay to Lender a Letter of Credit fee (the
"Revolving Facility L/C Fee") for each Revolving Facility L/C equal to
1.00% times the face amount of such Revolving Facility L/C. The Revolving
Facility L/C Fee is due and payable on the date of issuance, the date of
renewal (including the date of renewal of each Auto-Renewal Letter of
Credit), the date of extension of the expiry date and the date of any
amendment to a Revolving Facility L/C if the effect of such amendment is to
renew such Revolving Facility L/C, extend the expiry date or increase the
maximum amount available to be drawn under such Revolving Facility L/C.
(b) TGA L/C Fees. Borrower shall pay to Lender a Letter of Credit
fee (the "TGA L/C Fee") for the TGA L/C equal to 1.00% times the face amount
of the TGA L/C. The TGA L/C Fee is due and payable on the date of issuance
of the TGA L/C.
3.8 Fronting Fee and Documentary and Processing Charges Payable to
Lender. Borrower and the applicable L/C RIC, jointly and severally, shall
pay to Lender the customary issuance, presentation, amendment and other
processing fees, and other standard costs and charges, of Lender relating to
L/C Credit Extensions (with respect to Revolving Facility L/Cs) as from time
to time in effect. Borrower shall pay to Lender the customary issuance,
presentation, amendment and other processing fees, and other standard costs
and charges, of Lender relating to L/C Credit Extensions (with respect to
the TGA L/C) as from time to time in effect. Such customary fees and
standard costs and charges are due and payable on demand and are
nonrefundable.
3.9 Conflict with L/C Agreements. In the event of any conflict between
the terms hereof and the terms of any L/C Agreement, the terms hereof shall
control.
3.10 Letters of Credit Issued for L/C RIC. Notwithstanding that a
Letter of Credit issued or outstanding hereunder is in support of any
obligations of, or is for the account of, an L/C RIC, Borrower shall be
obligated to reimburse Lender hereunder for any and all drawings under such
Letter of Credit. Borrower hereby acknowledges that the issuance of Letters
of Credit for the account of an L/C RIC inures to the benefit of Borrower,
and that Borrower's business derives substantial benefits from the
businesses of each L/C RIC.
3.11 Existing Letters of Credit. Borrower and each L/C RIC acknowledge
and agree that each Letter of Credit described on Schedule 3.11 was issued
pursuant to the Existing Agreement, is outstanding and shall be a Letter of
Credit subject to this Agreement.
ARTICLE IV
TAXES, YIELD PROTECTION AND ILLEGALITY
4.1 Taxes.
(a) Except as provided in this Section 4.1, any and all payments
by Borrower or any L/C RIC (with respect to such L/C RIC's obligations
pursuant to Article III or any L/C Agreement) to or for the account of
Lender under any Loan Document shall be made free and clear of and without
deduction for any and all present or future income, stamp or other Taxes,
duties, levies, imposts, deductions, assessments, fees, withholdings or
similar charges, now or hereafter imposed, and all liabilities with
respect thereto, excluding, in the case of Lender, or its Principal Office,
applicable lending office, or any branch or Affiliate thereof, Taxes imposed
on or measured by its net income (including net income Taxes imposed by
means of a backup withholding tax), franchise Taxes, branch Taxes, Taxes on
doing business or Taxes measured by or imposed upon the overall capital or
net worth of Lender or its Principal Office, applicable lending office, any
branch or Affiliate thereof, in each case imposed: (i) by the jurisdiction
under the Laws of which Lender, its Principal Office, applicable lending
office, branch or Affiliate is organized or is located, or in which the
principal executive office of Lender is located, or any nation within which
such jurisdiction is located or any political subdivision thereof, or (ii)
by reason of any present or former connection between the jurisdiction
imposing such Tax and Lender or its Principal Office, applicable lending
office, branch or Affiliate other than a connection arising solely from
Lender having executed, delivered or performed its obligation under, or
received payment under or enforced this Agreement pursuant to the Laws of
such jurisdiction (all such Taxes, duties, levies, imposts, deductions,
assessments, fees, withholdings or similar charges, and liabilities being
hereinafter referred to as "Indemnified Taxes"). If Borrower or any L/C RIC
(with respect to such L/C RIC's obligations pursuant to Article III or any
L/C Agreement) shall be required by any Laws to deduct any Indemnified Taxes
from or in respect of any sum payable under any Loan Document to Lender, (i)
the sum payable shall be increased as necessary to yield to Lender an amount
equal to the sum it would have received had no such deductions been made,
(ii) Borrower and such L/C RIC shall make such deductions, (iii) Borrower
and such L/C RIC shall pay the full amount deducted to the relevant taxation
authority or other Governmental Authority in accordance with Applicable
Laws, and (iv) promptly (but in no event later than thirty days) after the
date of such payment, Borrower and such L/C RIC shall furnish to Lender the
original or a certified copy of a receipt evidencing payment thereof.
(b) In addition, Borrower and each L/C RIC (with respect to such
L/C RIC's obligations pursuant to Article III or any L/C Agreement) shall
pay any and all present or future stamp, court or documentary taxes and any
other excise or property taxes or charges or similar levies which arise from
any payment made under any Loan Document or from the execution, delivery,
performance, enforcement or registration of, or otherwise with respect to,
any Loan Document (hereinafter referred to as "Other Taxes").
(c) If Borrower or any L/C RIC (with respect to such L/C RIC's
obligations pursuant to Article III or any L/C Agreement) shall be required
to deduct or pay any Indemnified Taxes or Other Taxes from or in respect of
any sum payable under any Loan Document to Lender, Borrower and such L/C RIC
shall also pay to Lender, at the time interest on the Obligations is paid,
such additional amount that Lender specifies as necessary to preserve the
after-tax yield (after factoring in all Taxes, including Taxes imposed on or
measured by net income) Lender would have received if such Indemnified Taxes
or Other Taxes had not been imposed.
(d) BORROWER AND EACH L/C RIC (WITH RESPECT TO SUCH L/C RIC'S
OBLIGATIONS PURSUANT TO ARTICLE III OR ANY L/C AGREEMENT) SHALL INDEMNIFY
LENDER FOR (i) THE FULL AMOUNT OF INDEMNIFIED TAXES AND OTHER TAXES
(INCLUDING ANY INDEMNIFIED TAXES OR OTHER TAXES IMPOSED OR ASSERTED BY
ANY JURISDICTION ON AMOUNTS PAYABLE UNDER THIS SECTION) PAID BY LENDER,
(ii) AMOUNTS PAYABLE UNDER SECTION 4.1(c) AND (iii) ANY LIABILITY (INCLUDING
PENALTIES, INTEREST AND EXPENSES) ARISING THEREFROM OR WITH RESPECT THERETO,
IN EACH CASE WHETHER OR NOT SUCH INDEMNIFIED TAXES OR OTHER TAXES WERE
CORRECTLY OR LEGALLY IMPOSED OR ASSERTED BY THE RELEVANT GOVERNMENTAL
AUTHORITY. PAYMENT UNDER THIS SECTION 4.1(d) SHALL BE MADE WITHIN THIRTY
DAYS AFTER THE DATE LENDER MAKES A DEMAND THEREFOR.
(e) If Lender determines, in its reasonable discretion, that it
has received a refund of any Indemnified Taxes or Other Taxes as to which
it has been indemnified by Borrower or an L/C RIC or with respect to which
Borrower or an L/C RIC has paid additional amounts pursuant to this Section,
it shall pay to Borrower or such L/C RIC, as appropriate, an amount equal
to such refund (but only to the extent of indemnity payments made, or
additional amounts paid, by Borrower or such L/C RIC under this Section with
respect to the Indemnified Taxes or Other Taxes giving rise to such refund),
net of all out-of-pocket expenses of Lender and without interest (other than
any interest paid by the relevant Governmental Authority with respect to
such refund), provided that Borrower and such L/C RIC, upon the request
of Lender, jointly and severally, agree to repay the amount paid over to
Borrower (plus any penalties, interest or other charges imposed by the
relevant Governmental Authority) to Lender in the event Lender is required
to repay such refund to such Governmental Authority. Neither this Section
nor any other Loan Document shall be construed to require Lender to make
available its tax returns (or any other information relating to its taxes
that it deems confidential) to Borrower, any L/C RIC or any other Person.
4.2 Illegality. If Lender determines that any change in Law on or after
the Agreement Date has made it unlawful, or that any Governmental Authority
on or after the Agreement Date has asserted that it is unlawful, for Lender
or its applicable lending office to make, maintain or fund Eurodollar Rate
Loans, or materially restricts the authority of Lender to purchase or sell,
or to take deposits of, Dollars in the applicable offshore Dollar market, or
to determine or charge interest rates based upon the Eurodollar Basis, then,
on notice thereof by Lender to Borrower, any obligation of Lender to make or
maintain Eurodollar Rate Loans shall be suspended until Lender notifies
Borrower that the circumstances giving rise to such determination no longer
exist. Upon the date of such notice, all Eurodollar Rate Loans shall
convert to Prime Rate Loans. Lender agrees to designate a different lending
office if such designation will avoid the need for such notice and will not,
in the good faith judgment of Lender, otherwise be materially
disadvantageous to Lender.
4.3 Inability to Determine Rates. If (a) Lender reasonably determines
in connection with any request for or maintenance of a Eurodollar Rate Loan
or any determination of the Eurodollar Basis that (i) Dollar deposits are
not being offered to banks in the applicable offshore Dollar market for the
applicable amount and applicable term, or (ii) adequate and reasonable means
do not exist for determining the Eurodollar Basis, or (b) Lender notifies
Borrower that the Eurodollar Basis for such Eurodollar Rate Loan does not
adequately and fairly reflect the cost to Lender of funding or maintaining
such Eurodollar Rate Loan, Lender will promptly notify Borrower.
Thereafter, the obligation of Lender to make or maintain Eurodollar Rate
Loans shall be suspended until Lender notifies Borrower that Lender revokes
such notice. Upon the date of such notice, all Eurodollar Rate Loans shall
convert to Prime Rate Loans.
4.4 Increased Cost and Reduced Return; Capital Adequacy; Reserves on
Eurodollar Rate Loans.
(a) If Lender in good faith determines that as a result of the
introduction of or any change in or in the interpretation of any Law on or
after the Agreement Date, or Lender's compliance therewith, there shall be
any increase in the cost to Lender of agreeing to make or making, funding or
maintaining Eurodollar Rate Loans, or a reduction in the amount received or
receivable by Lender in connection with any of the foregoing (excluding for
purposes of this Section 4.4(a) any such increased costs or reduction in
amount resulting from (i) Indemnified Taxes or Other Taxes (as to which
Section 4.1 shall govern), (ii) changes in the basis of taxation of overall
net income or overall gross income by the United States or any political
subdivision of either thereof under the Laws of which Lender is organized
or has its Principal Office or applicable lending office, and (iii) reserve
requirements contemplated by Section 4.4(c)), then from time to time within
five Business Days after demand of Lender, Borrower shall pay to Lender
such additional amounts as will compensate Lender for increased cost or
reduction.
(b) If Lender in good faith determines that the introduction
of any Law regarding capital adequacy or any change therein or in the
interpretation thereof on or after the Agreement Date, or compliance by
Lender (or its lending office) therewith, has the effect of reducing the
rate of return on the capital of Lender or any corporation controlling
Lender with respect to this Agreement as a consequence of Lender's
obligations hereunder (taking into consideration its policies with respect
to capital adequacy and Lender's desired return on capital), then from time
to time within five Business Days after demand of Lender, Borrower shall
pay to Lender such additional amounts as will compensate Lender for such
reduction.
(c) Borrower shall pay to Lender, as long as Lender shall be
required under regulations of the Federal Reserve Board to maintain
reserves with respect to liabilities or assets consisting of or including
Eurocurrency funds or deposits (currently known as "Eurocurrency
liabilities"), additional costs on the unpaid principal amount of each
Eurodollar Rate Loan equal to the actual costs of such reserves allocated to
such Eurodollar Rate Loan by Lender (as determined by Lender in good faith,
which determination shall constitute prima facie evidence as to the facts
thereof), which shall be due and payable on each date on which interest is
payable on such Eurodollar Rate Loan, provided Borrower shall have received
at least fifteen days' prior notice of such additional interest from Lender.
If Lender fails to give notice fifteen days prior to the relevant Payment
Date, such additional interest shall be due and payable fifteen days from
receipt of such notice.
(d) If Lender claims any additional amounts payable pursuant to
this Section 4.4, it shall use its reasonable best efforts (consistent with
its internal policy and legal and regulatory restrictions) to change the
jurisdiction of its applicable lending office, if the making of such a
change would avoid the need for, or reduce the amount of, any such
additional amounts which may thereafter accrue and would not, in the
reasonable judgment of Lender, be disadvantageous to Lender.
4.5 Matters Applicable to all Requests for Compensation. Any demand or
notice delivered by Lender to Borrower or any L/C RIC claiming compensation
under this Article IV shall be in writing and shall certify (a) that one
of the events described in this Article IV has occurred, describing in
reasonable detail the nature of such event and (b) as to the amount or
amounts for which Lender seeks compensation hereunder, setting forth in
reasonable detail the basis for and calculations of such compensation.
Such certification shall be conclusive in the absence of manifest error.
In determining such amount, Lender may use any reasonable averaging and
attribution methods.
5.6 Survival. All of Borrower's and each L/C RIC's obligations under
this Article IV shall survive termination of the Commitments and payment in
full of all Obligations.
ARTICLE V
CONDITIONS PRECEDENT
5.1 Conditions Precedent to Restatement of Existing Agreement, Initial
Revolving Loan and L/C Credit Extension. The obligation of Lender to
restate the Existing Agreement, make the initial Revolving Loan and to make
the initial L/C Credit Extension is subject to (i) receipt by Lender of the
following items which are to be delivered, in form and substance reasonably
satisfactory to Lender and (ii) satisfaction of the following conditions, in
form and substance reasonably satisfactory to Lender:
(a) Borrower Certificate. A certificate of officers acceptable
to Lender of Borrower certifying as to (i) the incumbency of the officers
signing such certificate and the Loan Documents to which it is a party, (ii)
an original certified copy of its Articles of Incorporation or Certificate
of Incorporation, as applicable, certified as true, complete and correct as
of a date acceptable to Lender by the appropriate authority of the State of
Nevada, (iii) a copy of its By-Laws, as in effect on the Agreement Date,
(iv) a copy of the resolutions of its Board of Directors authorizing it to
execute, deliver and perform the Loan Documents to which it is a party,
(v) an original certificate or certificates of good standing, existence
and qualification issued by the appropriate authority or authorities of the
States of Nevada and Texas (certified as of a date acceptable to Lender),
(vi) the accuracy of the representations and warranties in the Loan
Documents, (vii) no Default or Event of Default exists, and (viii) no
Material Adverse Change having occurred.
(b) Obligor and L/C RIC Certificate. A certificate of officers
acceptable to Lender of each Obligor (other than Borrower) and each L/C
RIC certifying as to (i) the incumbency of the officers signing such
certificate and the Loan Documents to which it is a party, (ii) if a
corporation, an original certified copy of its Articles of Incorporation
or Certificate of Incorporation, as applicable, certified as true, complete
and correct as of a date acceptable to Lender by the appropriate authority
of its state of incorporation, (iii) if a limited liability company,
an original certified copy of its Articles of Organization (or similar
organization and governance document), certified as true, complete and
correct as of a date acceptable to Lender by the appropriate authority
of its state of organization, (iv) if a limited partnership, an original
certified copy of its Certificate of Limited Partnership (or similar
organization or governance document), certified as true, complete and
correct as of a date acceptable to Lender by the appropriate authority
of its jurisdiction of organization, (v) if a corporation, a copy of its
By-Laws, as in effect on the Agreement Date, (vi) if a limited liability
company, a copy of its operating agreement (or similar organization and
governance document), as in effect on the Agreement Date, (vii) if a
limited partnership, a copy of its partnership agreement (or similar
organization or governance document), as in effect on the Agreement Date,
(viii) a copy of the resolutions of the appropriate governance board
authorizing it to execute, deliver and perform the Loan Documents to which
it is a party, and (ix) an original certificate or certificates of good
standing and existence issued by the appropriate authority or authorities
of its state of organization and the state in which its chief executive
office is located (certified as of a date acceptable to Lender).
(c) Subsidiary Certificate. A certificate of officers acceptable
to Lender of each Subsidiary (other than an Obligor) of each Obligor
certifying as to (i) if a corporation, an original certified copy of its
Articles of Incorporation, certified as true, complete and correct as of a
date acceptable to Lender by the appropriate authority of its state of
incorporation, (ii) if a limited liability company, an original certified
copy of its Articles of Organizations (or similar organization and
governance document), certified as true, complete and correct as of a
date acceptable to Lender by the appropriate authority of its state of
organization, (iii) if a corporation, a copy of its By-Laws, as in effect
on the Agreement Date, (iv) if a limited liability company, a copy of its
operating agreement (or similar organization and governance document), as in
effect on the Agreement Date, and (v) if a Foreign Subsidiary (other than
Mannequin), an original certified copy of its organizational and governance
documents, certified as true, complete and correct as of a date reasonably
acceptable to Lender by the appropriate authority of the jurisdiction of
organization (as to organization and governance documents filed with such
authority) or an officer of such Foreign Subsidiary acceptable to Lender
(as to organization and governance documents not filed with such authority),
together with an English language translation, if applicable.
(d) Revolving Note. The duly executed Revolving Note, payable
to the order of Lender and in an amount equal to the Revolving Commitment.
(e) Security Documents. The duly executed and completed (i)
First Amendment to Pledge Agreement executed by Borrower, dated as of the
Agreement Date, granting to Lender, a first priority Lien in the Collateral
set forth therein, together with stock certificates evidencing all of the
equity interest of each directly owned Subsidiary of Borrower not previously
delivered to Lender (which certificates shall not contain any restriction
on transfer not acceptable to Lender), (ii) undated, blank stock powers
executed by Borrower of the stock or other equity interest evidenced by
such certificates (with signatures guaranteed as required by Lender); (iii)
confirmations of all Liens in all equity interest of each directly owned
Subsidiary of Borrower; (iv) Pledge Agreements executed by each Subsidiary
(other than a RIC) that owns an equity interest in an other Subsidiary,
dated as of the Agreement Date, granting to Lender, a first priority Lien
in the Collateral set forth therein, together with stock certificates
evidencing all of the equity interest of such other Subsidiary (or, if such
Subsidiary is a Foreign Subsidiary, evidencing 65% of all of the equity
interest of such Foreign Subsidiary) not previously delivered to Lender
(which certificates shall not contain any restriction on transfer not
acceptable to Lender), (v) undated, blank stock powers executed by such
Subsidiary of the stock or other equity interest evidenced by such
certificates (with signatures guaranteed as required by Lender); (vi)
confirmations of all Liens in all equity interest of such other Subsidiary
of Borrower; and (vii) Security Agreements, executed by each Subsidiary
(other than a RIC) acquired or created after the date of the Existing
Agreement, dated as of the Agreement Date, granting to Lender a first
priority Lien in the Collateral set forth therein. No Obligor shall be
required to grant a security interest in equity of Mannequin or any cell
of Mannequin.
(f) Guaranty Supplement. A duly executed supplement to the
Guaranty (in the form of Exhibit F) for each Domestic Subsidiary (other
than a RIC) acquired or created after the date of the Existing Agreement.
(g) Confirmation Agreement. The Confirmation Agreement, duly
executed by each party thereto.
(h) Subordination Agreement. The Subordination Agreement, duly
executed by each party thereto.
(i) Governance Document Waiver. Waivers of any equity interest
transfer restrictions contained in the organization and governance documents
of each Subsidiary any equity of which is subject to a Bank Lien, duly
executed by each party thereto.
(j) Aerospace Purchase Agreement. A certificate signed by an
Authorized Signatory of Borrower, certifying as to the completeness and
correctness of an attached copy of the Aerospace Purchase Agreement and
related agreements.
(k) PAAC Purchase Agreement. A certificate signed by an
Authorized Signatory of Borrower, certifying as to the completeness and
correctness of an attached copy of the PAAC Purchase Agreement and related
agreements.
(l) TGA Purchase Agreement. A certificate signed by an Authorized
Signatory of Borrower, certifying as to the completeness and correctness of
an attached copy of the TGA Purchase Agreement and related agreements.
(m) Expenses. Reimbursement for Attorney Costs incurred through
the date hereof.
(n) UCC and Lien Searches. Searches of the Uniform Commercial
Code, Tax lien and other records as Lender may require.
(o) Opinions of Borrower's, each RIC's and Other Obligors'
Counsel. Opinions of counsel to Borrower, each RIC and each other Obligor
addressed to Lender, dated the Agreement Date and covering such matters
incident to the transactions contemplated hereby as Lender or Special
Counsel may reasonably request.
(p) Obligor Proceedings. Evidence that all corporate, limited
liability company and partnership proceedings of each Obligor and each
other Person (other than Lender) taken in connection with the transactions
contemplated by this Agreement and the other Loan Documents shall be
reasonably satisfactory in form and substance to Lender and Special Counsel;
and Lender shall have received copies of all documents or other evidence
which Lender or Special Counsel may reasonably request in connection with
such transactions.
(q) Current Financial Statements. A copy of the Current
Financials, including (i) the audited annual consolidated Financial
Statements, showing the financial condition and results of operations of
Borrower and its consolidation Subsidiaries as of, and for the year ended
on, December 31, 2004, together with the opinion of Auditors containing
only qualifications and emphasis acceptable to Lender, (ii) the unaudited
consolidated Financial Statements, showing the financial condition and
results of operations of Borrower and its consolidated Subsidiaries as of,
and for the fiscal quarter ended on, September 30, 2005, (iii) the annual
financial statements of each RIC prepared in the form of convention blanks
prescribed by NAIC, as filed with the Insurance Regulator of such RIC's
jurisdiction of organization, for the year ended on December 31, 2004, and
(iii) the quarterly financial statements of each RIC prepared in the form of
convention blanks prescribed by NAIC, as filed with the Insurance Regulator
of such RIC's jurisdiction of organization, for the quarter ended on
September 30, 2005.
(r) Compliance Certificate. A Compliance Certificate, dated the
Agreement Date and signed by an Authorized Signatory of Borrower, confirming
compliance with the financial covenants set forth therein as of the most
recent determination date.
(s) Reinsurance Agreements and Retrocession Agreements. If
requested by Lender, a copy of each Reinsurance Agreement and Retrocession
Agreement to which Borrower or any Subsidiary is a party or it or its
property is subject.
(t) Insurance Evidence that insurance required by the Loan
Documents is in effect.
(u) Investment Portfolio and Policy. A schedule of all Existing
Investments and a copy of the complete currently effective Investment Policy
of each RIC, and Lender shall be satisfied with the investment portfolio of
each RIC and the Investment Policy of each RIC.
(v) Notice of Final Agreement. The Notice of Final Agreement
executed by all parties thereto.
(w) Other Documents. In form and substance satisfactory to Lender
and Special Counsel, such other documents, instruments and certificates as
Lender may reasonably require in connection with the transactions
contemplated hereby.
5.2 Conditions Precedent to all Revolving Loans and L/C Credit
Extensions. The obligation of Lender to make each Revolving Loan (including
the initial Revolving Loan) and to make each L/C Credit Extension (including
the initial L/C Credit Extension) is subject to fulfillment of the following
conditions immediately prior to or contemporaneously with each such
Revolving Loan or L/C Credit Extension:
(a) Representations and Warranties. All of the representations
and warranties of Borrower, each of its Subsidiaries and each other Obligor
under this Agreement and each other Loan Document, which, pursuant to
Section 8.24, are made at and as of the time of each Revolving Loan and each
L/C Credit Extension, shall be true and correct when made, except to the
extent applicable to a specific date, both before and after giving effect to
the application of the proceeds of such Revolving Loan and L/C Credit
Extension.
(b) No Default or Event of Default. There shall not exist a
Default or Event of Default.
(c) Notices; Documents. Lender shall have received all notices
and documents required by Articles II and III as a condition to the related
Revolving Loan or L/C Credit Extension.
(d) Litigation. There shall be no Litigation pending against, or,
to Borrower's or any Obligor's knowledge, threatened against Borrower, any
other Obligor, or any Subsidiary, or in any other manner relating directly
and adversely to Borrower, any other Obligor, or any Subsidiary, or any of
their respective properties, in any court or before any arbitrator of any
kind or before or by any Governmental Authority which could reasonably be
expected to have a Material Adverse Effect.
(e) Material Adverse Change. There shall have occurred no change
in the business, assets, operations, prospects or conditions (financial
or otherwise) of Borrower, any other Obligor, or any Subsidiary since
December 31, 2004, which caused or could reasonably be expected to cause
a Material Adverse Effect.
5.3 Conditions Precedent to all Revolving Loans for Permitted
Acquisitions. The obligation of Lender to make each Revolving Loan
(including the initial Revolving Loan) any proceeds of which will be used to
make a Permitted Acquisition is subject to receipt by Lender of each of the
documents and performance by Borrower of each of the acts required by the
Loan Documents and Lender as a condition to the making of such Revolving
Loan.
ARTICLE VI
AFFIRMATIVE COVENANTS
From the date hereof and so long as this Agreement is in effect
and until payment in full of the Obligations, the termination of the
Commitments, and the performance of all other obligations of each Obligor
under this Agreement and each other Loan Document, Borrower will, and will
cause each Subsidiary to:
6.1 General Covenants.
(a) Payment of Taxes and Claims. Pay and discharge all lawful
Taxes imposed upon its income or profits or upon any of its property before
the same shall be in default, and all lawful claims for labor, rentals,
materials and supplies which, if unpaid, might become a Lien upon its
property or any part thereof; provided, however, that it shall not be
required to pay or discharge any such Tax, assessment or claim so long as
the validity thereof shall be contested in good faith by appropriate
proceedings, and adequate book reserves shall be established with respect
thereto, and it shall pay such Tax, charge or claim before any property
subject thereto shall be sold to satisfy a Lien.
(b) Maintenance of Existence. Do all things necessary to preserve
and keep in full force and effect its existence as a corporation, limited
liability company or partnership, as appropriate (except, as to
Subsidiaries, as permitted by Section 7.9).
(c) Preservation of Property. Keep its properties which are
necessary to continue business, whether owned in fee or otherwise, or
leased, in good operating condition, ordinary wear and tear excepted, and
comply with all material leases to which it is a party or under which it
occupies or uses property so as to prevent any material loss or forfeiture
thereunder.
(d) Insurance. Maintain in force with financially sound and
reputable insurers, policies with respect to its property and business
against such casualties and contingencies (including public liability,
larceny, embezzlement or other criminal misappropriation insurance) and in
such amounts as is customary in the case of entities engaged in the same or
similar lines of business of comparable size and financial strength.
(e) Compliance with Applicable Laws. Comply in all material
respects with the requirements of all applicable Laws and orders of any
Governmental Authority, except where contested in good faith and by proper
proceedings or where the failure to so comply could not reasonably be
expected to have a Material Adverse Effect.
(f) Licenses. Obtain and maintain all material licenses, permits,
franchises or other governmental authorizations necessary to the ownership
of its properties or to the conduct of its business.
6.2 Accounts, Reports and Other Information. Maintain a system of
accounting in accordance with GAAP or SAP, as appropriate, consistently
applied, and furnish, or cause to be furnished, to Lender the following:
(a) Annual Financial Statements.
(i) As soon as available, but in any event within 160 days
after the last day of each fiscal year of Borrower, annual consolidated
and consolidating Financial Statements (such consolidated Financial
Statements to be audited), showing the consolidated and consolidating
financial condition and results of operations of Borrower and its
consolidated Subsidiaries as of, and for the year ended on, such
last day, accompanied by (A) an opinion of Auditors containing only
qualifications (including qualifications as to the scope of the
examination) and emphasis acceptable to Lender, which opinion shall
state that said consolidated Financial Statements have been prepared in
accordance with GAAP consistently applied, and that the examination of
Auditors in connection with such consolidated Financial Statements has
been made in accordance with generally accepted auditing standards and
applicable Securities Laws and that said consolidated Financial
Statements present fairly the consolidated financial condition of
Borrower and its consolidated Subsidiaries and their results of
operations; (B) an attestation report of Auditors as to Borrower's
internal controls pursuant to Section 404 of ▇▇▇▇▇▇▇▇-▇▇▇▇▇ expressing
a conclusion to which Lender does not object; (C) a certificate of the
chief financial officer of Borrower, which certificate shall state that
said Financial Statements present fairly the financial condition of
Borrower and its consolidated Subsidiaries and their results of
operations; and (D) a description of all Contingent Debt and Off-
Balance Sheet Liabilities of Borrower and its Subsidiaries.
(ii) As soon as available, but in any event within 60 days
after the last day of each fiscal year of Borrower, unaudited annual
consolidated and consolidating Financial Statements (such consolidated
and consolidating Financial Statements shall be in a format, prepared
in a manner and based on assumptions and procedures as are reasonably
acceptable to Lender), showing the consolidated and consolidating
financial condition and results of operations of Borrower and its
consolidated Subsidiaries as of, and for the year ended on, such last
day, accompanied by (A) a certificate of the chief financial officer of
Borrower, which certificate shall state that said Financial Statements
present fairly the financial condition of Borrower and its consolidated
Subsidiaries and their results of operations; and (B) a description of
all Contingent Debt and Off-Balance Sheet Liabilities of Borrower and
its Subsidiaries.
(iii) With respect to each RIC, within 15 days after the
first to occur of (A) the required filing date (as established by Law
or the applicable Insurance Regulator), and (B) the date on which
actually filed, audited annual Financial Statements, prepared by
Auditors in accordance with SAP, showing the financial condition and
results of operations of such RIC, as of, and for the year ended on,
such last day, accompanied by (1) an opinion of Auditors containing
only qualifications (including qualifications as to the scope of the
examination) and emphasis acceptable to Lender, which opinion shall
state that said Financial Statements have been prepared in accordance
with SAP consistently applied, and that the examination of the
Auditors in connection with such Financial Statements has been made
in accordance with generally accepted auditing standards and that said
Financial Statements present fairly the financial condition of such
RIC, and its results of operations; and (2) a description of all
Contingent Debt and Off-Balance Sheet Liabilities of such RIC.
(iv) With respect to each RIC, within 15 days after the
first to occur of (A) the required filing date (as established by Law
or the applicable Insurance Regulator), and (B) the date on which
actually filed, annual Financial Statements prepared in the form of
convention blanks prescribed by NAIC, as filed with each Insurance
Regulator.
(v) With respect to each RIC, as soon as available and in
any event within 15 days after the required filing date (as established
by Law or the applicable Insurance Regulator), a copy of the "Statement
of Actuarial Opinion" and "Management Discussion and Analysis" for such
RIC (prepared in accordance with SAP) for each fiscal year of such RIC
and as filed with the applicable Insurance Regulator in compliance with
the requirements thereof (or a report containing equivalent information
for such RIC, if such RIC is not so required to file the foregoing with
the applicable Insurance Regulator).
(vi) Within 60 days after the end of each fiscal year of
Borrower, a Litigation Report for such fiscal year.
(b) Quarterly Financial Statements.
(i) Within 60 days after the last day of each fiscal quarter
(excluding the last fiscal quarter of each fiscal year) of Borrower,
(A) unaudited consolidated and consolidating Financial Statements
(which consolidated and consolidating Financial Statements shall be
in format, prepared in a manner and based on such assumptions and
procedures as are acceptable to Lender), showing the consolidated and
consolidating financial condition and results of operations of Borrower
and its consolidated Subsidiaries as of, and for the quarter ended on,
such last day (subject to year-end adjustment), and which shall include
an income statement for the fiscal year through such last day, prepared
in accordance with GAAP; (B) a certificate of the chief financial
officer of Borrower, which certificate shall state that said Financial
Statements present fairly the financial condition of Borrower and its
consolidated Subsidiaries and their results of operations; and (C) a
description of all Contingent Debt and Off-Balance Sheet Liabilities
of Borrower and its Subsidiaries.
(ii) With respect to each RIC, within 60 days after the last
day of each fiscal quarter (including the last fiscal quarter of each
fiscal year) of such RIC, unaudited quarterly Financial Statements,
prepared in accordance with SAP, showing the financial condition and
results of operations of such RIC as of, and for the quarter ended on,
such last day (subject to year-end adjustment), and which shall include
an income statement for the fiscal year through such last day, and in
the form of quarterly financial statements prescribed by NAIC, and
including a report with respect to "Invested Assets" as set forth on
Schedule D on such financial statements, together with a description
of all Contingent Debt and Off-Balance Sheet Liabilities of such RIC.
(iii) Within 60 days after the end of each fiscal quarter of
Borrower, a Loss Report as at the last day of such quarter.
(iv) Within 60 days after the end of each fiscal quarter of
Borrower, a Compliance Certificate executed by an Authorized Signatory
who is a senior financial officer of Borrower.
(c) Annual Budget. As soon as available, but in any event within
60 days prior to the end of each fiscal year of Borrower, a copy of the
annual consolidated operating budget of Borrower and Subsidiaries for the
succeeding fiscal year in form and substance satisfactory to Lender.
(d) Other Reports. Promptly upon request by Lender, a copy of
(i) such financial statements, reports, notices or proxy statements sent
by it to stockholders requested by Lender, (ii) such regular or periodic
reports and any registration statements, prospectuses and written
communications in respect thereof filed by it with any state insurance
department, any securities exchange, or with the SEC or any successor
agency requested by Lender, and (iii) all press releases concerning it.
(e) Notice of Default. Promptly upon the happening of any
condition or event which constitutes an Event of Default or Default, a
written notice specifying the nature and period of existence thereof and
what action it is taking and propose to take with respect thereto.
(f) Notice of Litigation. Promptly upon becoming aware of the
existence of any Litigation before any Governmental Authority, arbitrator or
mediator (but no later than 10 days after the filing thereof) involving it,
(i) which could reasonably be expected to involve its payment of $250,000 or
more, or (ii) which, under normal operating standards, could result in a
reserve being established in excess of $250,000 a written notice specifying
the nature thereof and whether it will contest such proceeding.
(g) Notice of Claimed Default. Promptly upon becoming aware that
the holder of any note or any evidence of indebtedness or other security or
payee of any obligation in an amount of $100,000 or more has given notice
or taken any action with respect to a claimed default or event of default
thereunder, a written notice specifying the notice given or action taken
by such holder and the nature of the claimed default or event of default
thereunder and what action it is taking or proposes to take with respect
thereto.
(h) Notice from Governmental Authority. Promptly upon receipt
thereof, information with respect to and copies of any notices received from
any Governmental Authority relating to an order, ruling, statute or other
Law or information which could reasonably be expected to have a Material
Adverse Effect.
(i) Investment Policy. Within (i) 90 days after the last day of
each fiscal year of each RIC, a copy of the Investment Policy of such RIC
applicable to the current fiscal year of such RIC, as approved by the board
of directors or other appropriate governance body of such RIC, and (ii)
within 5 days after any amendment to or restatement of any Investment Policy
of any RIC, a copy of such amendment or restatement as approved by the board
of directors or other appropriate governance body of such RIC.
(j) Reinsurance Agreements and Retrocession Agreements. Not later
than (i) 10 days prior to the termination of each Reinsurance Agreement and
Retrocession Agreement, a copy of the slip or other document, agreement or
correspondence with each reinsurer, retrocessionaire, reinsurance broker or
agent which will amend, restate or supersede such terminating Reinsurance
Agreement or Retrocession Agreement, and (ii) 30 days after the first to
occur of (A) execution, and (B) the effective date of each Reinsurance
Agreement and Retrocession Agreement, a copy of each such Reinsurance
Agreement and Retrocession Agreement, certified to be complete and correct
by an Authorized Signatory of the RIC a party to such agreement acceptable
to Lender.
(k) Auditors' Reports. Promptly upon receipt thereof, a copy of
(i) each other report or "management letter" submitted to Borrower or any
of its Subsidiaries by Auditors in connection with any annual, interim or
special audit made by them of the books of Borrower or such Subsidiary and
(ii) each report submitted to Borrower or any of its Subsidiaries by any
Auditors to the extent that such report, in the good faith opinion of
Borrower or such Subsidiary, identifies a condition, situation or event
that has or is reasonably likely to have a Material Adverse Effect.
(l) Internal Control Event. Promptly upon the occurrence of an
Internal Control Event, a written notice specifying the nature and period
of existence thereof and what action it is taking and proposes to take with
respect thereto.
(m) Reserve Adequacy Report. Promptly following a reasonable
request from Lender, a report prepared (at the expense of Borrower) by an
independent actuarial consulting firm of recognized professional standing
reasonably satisfactory to Lender reviewing the adequacy of reserves and
surplus of each RIC determined in accordance with SAP, which firm shall
be provided access to or copies of all reserve and surplus analyses and
valuations relating to the Insurance Business of each RIC in the possession
of or available to Borrower or any of its Subsidiaries.
(n) Other Regulatory Statements and Reports. Promptly (i)
after receipt thereof, copies of all triennial examinations and risk
adjusted capital reports of any RIC, delivered to such Person by any
Insurance Regulator, insurance commission or similar Governmental Authority,
(ii) after receipt thereof, a copy of the final report to each RIC from the
NAIC for each fiscal year, as to such RIC's compliance or noncompliance with
each of the NAIC Tests, (iii) after receipt thereof, a copy of any notice
of termination, cancellation or recapture of any Reinsurance Agreement or
Retrocession Agreement to which a RIC is a party to the extent such
termination, cancellation or recapture is likely to have a Material Adverse
Effect, (iv) and in any event within ten Business Days after receipt
thereof, copies of any notice of actual suspension, termination or
revocation of any license of any RIC by any Insurance Regulator, including
any request by an Insurance Regulator which commits a RIC to take or refrain
from taking any action and which, if such RIC fails to comply with such
request, could affect the authority of such RIC to conduct its business, and
(v) and in any event within thirty Business Days after Borrower or any of
its Subsidiaries obtains knowledge thereof, notice of any actual change in
the insurance Laws enacted in any state in which any RIC is domiciled which
could reasonably be expected to have a Material Adverse Effect.
(o) A.M. Best. Not later than 15 days after receipt by Borrower,
a copy of (i) each A.M. Best report, if any, with respect to Borrower or any
of its Subsidiaries, and (ii) all correspondence from A.M. Best to Borrower
or any of its Subsidiaries the contents of which (A) relate to a probable
downgrade of the A.M. Best rating of any RIC or (B) describe or relate to
a circumstance that could reasonably be expected to have a Material Adverse
Effect.
(p) Requested Information. With reasonable promptness, such other
data, including any management reports to the Board of Directors of Borrower
or any of its Subsidiaries, and information as from time to time may be
reasonably requested by Lender.
6.3 Inspection. (a) If no Event of Default exists, upon three Business
Day's prior notice, and as often as may be reasonably requested, and (b) if
an Event of Default exists, upon request by Lender, permit Lender or any
representatives of Lender to visit and inspect any of its properties, to
examine all books of account, records, reports and other papers, to make
copies and extracts therefrom, and to discuss the affairs, finances and
accounts with its officers, employees and Auditors (and by this provision
Borrower authorizes Auditors to discuss with Lender and its representatives
the finances and affairs of Borrower and its Subsidiaries). All reasonable
costs and expenses of Lender related to the first such inspection during
each fiscal year conducted when no Event of Default exists shall be a part
of the Obligations and paid by Borrower to Lender within ten days after
demand by Lender. All costs and expenses of Lender related to each such
inspection conducted when an Event of Default exists shall be a part of the
Obligations and paid by Borrower to Lender within ten days after demand by
Lender.
6.4 Compliance with ERISA. Comply with ERISA in all material respects,
and (a) at all times make contributions within the time limits imposed by
Law to meet the minimum funding standards set forth in ERISA with respect
to any Plan; (b) notify Lender as soon as reasonably practicable of any fact
which it knows or should know, including but not limited to any Reportable
Event, arising in connection with any Plan which could reasonably be
expected to result in termination thereof by the PBGC or for the appointment
by a Governmental Authority of a trustee to administer the Plan; and (c)
furnish to Lender upon such request such additional information concerning
any Plan as Lender may reasonably request.
6.5 Performance of Obligations. Perform all of its obligations under
the Loan Documents.
6.6 Maintenance of Priority of Bank Liens. Upon the request of Lender
from time to time, it shall perform such acts and duly authorize, execute,
acknowledge, deliver, file, and record such additional assignments,
pledge agreements, security agreements and other agreements, documents,
instruments, and certificates as Lender may deem necessary or appropriate in
order to perfect and maintain the Bank Liens in favor of Lender and preserve
and protect the rights of Lender in respect of the Collateral.
6.7 Indemnity. BORROWER SHALL DEFEND, PROTECT, INDEMNIFY AND HOLD
HARMLESS LENDER AND ITS AFFILIATES, AND EACH OF THEIR RESPECTIVE (INCLUDING
SUCH AFFILIATES') OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS,
SHAREHOLDERS AND CONSULTANTS (INCLUDING, WITHOUT LIMITATION, THOSE RETAINED
IN CONNECTION WITH THE SATISFACTION OR ATTEMPTED SATISFACTION OF ANY OF
THE CONDITIONS SET FORTH HEREIN) OF EACH OF THE FOREGOING (COLLECTIVELY,
"INDEMNITEES") FROM AND AGAINST ANY AND ALL LIABILITIES, OBLIGATIONS,
LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, CLAIMS, COSTS,
EXPENSES AND DISBURSEMENTS OF ANY KIND OR NATURE WHATSOEVER (INCLUDING,
WITHOUT LIMITATION, THE REASONABLE ATTORNEY COSTS OF COUNSEL FOR SUCH
INDEMNITEES IN CONNECTION WITH ANY INVESTIGATIVE, ADMINISTRATIVE OR JUDICIAL
PROCEEDING, WHETHER OR NOT SUCH INDEMNITEES SHALL BE DESIGNATED A PARTY
THERETO), IMPOSED ON, INCURRED BY, OR ASSERTED AGAINST SUCH INDEMNITEES
(WHETHER DIRECT, INDIRECT OR CONSEQUENTIAL AND WHETHER BASED ON ANY FEDERAL,
STATE, OR LOCAL LAWS AND REGULATIONS, UNDER COMMON LAW OR AT EQUITABLE
CAUSE, OR ON CONTRACT, TORT OR OTHERWISE, ARISING FROM OR CONNECTED WITH THE
PAST, PRESENT OR FUTURE OPERATIONS OF BORROWER OR ANY OF ITS SUBSIDIARIES OR
THEIR RESPECTIVE PREDECESSORS IN INTEREST, OR THE PAST, PRESENT OR FUTURE
ENVIRONMENTAL CONDITION OF PROPERTY OF BORROWER OR ANY OF ITS SUBSIDIARIES),
IN ANY MANNER RELATING TO OR ARISING OUT OF THIS AGREEMENT, THE OTHER LOAN
DOCUMENTS, OR ANY ACT, EVENT OR TRANSACTION OR ALLEGED ACT, EVENT OR
TRANSACTION RELATING OR ATTENDANT THERETO, THE MAKING OF ANY REVOLVING LOANS
AND L/C CREDIT EXTENSIONS, INCLUDING IN CONNECTION WITH, OR AS A RESULT, IN
WHOLE OR IN PART, OF ANY NEGLIGENCE OF LENDER (OTHER THAN THOSE MATTERS
RAISED EXCLUSIVELY BY A PARTICIPANT AGAINST LENDER AND NOT BORROWER), OR
THE USE OR INTENDED USE OF THE PROCEEDS OF ANY LOAN OR LETTER OF CREDIT
HEREUNDER, OR IN CONNECTION WITH ANY INVESTIGATION OF ANY POTENTIAL MATTER
COVERED HEREBY, BUT EXCLUDING ANY CLAIM OR LIABILITY THAT ARISES AS THE
RESULT OF THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF ANY INDEMNITEE,
AS FINALLY JUDICIALLY DETERMINED BY A COURT OF COMPETENT JURISDICTION
(COLLECTIVELY, "INDEMNIFIED MATTERS"). IN ADDITION, BORROWER SHALL
PERIODICALLY, UPON REQUEST, REIMBURSE EACH INDEMNITEE FOR ITS REASONABLE
LEGAL AND OTHER ACTUAL EXPENSES (INCLUDING THE REASONABLE COST OF ANY
INVESTIGATION AND PREPARATION) INCURRED IN CONNECTION WITH ANY INDEMNIFIED
MATTER. THE REIMBURSEMENT, INDEMNITY AND CONTRIBUTION OBLIGATIONS UNDER
THIS SECTION SHALL BE IN ADDITION TO ANY LIABILITY WHICH BORROWER MAY
OTHERWISE HAVE, SHALL EXTEND UPON THE SAME TERMS AND CONDITIONS TO EACH
INDEMNITEE, AND SHALL BE BINDING UPON AND INURE TO THE BENEFIT OF ANY
SUCCESSORS, ASSIGNS, HEIRS AND PERSONAL REPRESENTATIVES OF BORROWER, LENDER
AND ALL OTHER INDEMNITEES. THIS SECTION SHALL SURVIVE ANY TERMINATION OF
THIS AGREEMENT AND PAYMENT OF THE OBLIGATIONS.
6.8 Convertible Note. On the date of issuance of each Convertible Note,
Borrower shall execute and deliver to Lender a certificate signed by an
Authorized Signatory of Borrower, certifying as to the completeness and
correctness of an attached copy of each Convertible Note and related
agreements.
6.9 Use of Proceeds. Borrower shall use (a) the proceeds of the
Revolving Loans to (i) provide working capital to Borrower and Guarantors,
(ii) to acquire capital stock of or make capital contributions to a Person
that is either a Subsidiary on the Agreement Date or became a Subsidiary
after the Agreement Date as permitted by and in compliance with this
Agreement, which capital contribution will result in an increase of
paid-in surplus of such Subsidiary in an amount equal to such capital
contribution, (iii) to acquire surplus debentures issued by a RIC that
is a Domestic Subsidiary of Borrower on the Agreement Date, (iv) to
make loans to Domestic Subsidiaries, (v) subject to Section 5.3, to make
Permitted Acquisitions, and (vi) to provide all or a portion of the cash
purchase price payable by Borrower at closing pursuant to the TGA
Purchase Agreement and the PAAC Purchase Agreement, (b) the Revolving
Facility L/Cs and proceeds of the Revolving Facility L/Cs to secure
the performance of Borrower and/or an L/C RIC pursuant to Reinsurance
Agreements to which it is or they are a party or such other purpose as
Lender may permit in its discretion, and (c) the TGA L/C and proceeds of the
TGA L/C to secure the performance of Borrower of the TGA Notes and payment
by Borrower of amounts due with respect to non-competition covenants in the
TGA Purchase Agreement, and for no other purpose.
ARTICLE VII
NEGATIVE COVENANTS
From the date hereof and so long as this Agreement is in effect
and until payment in full of the Obligations, the termination of the
Commitments, and the performance of all other obligations of each Obligor
under this Agreement and each other Loan Document:
7.1 AHIC Total Adjusted Capital. Borrower shall not permit Total
Adjusted Capital of AHIC to be less than the greater of (a) $55,000,000 and
(b) the amount required for Risk-Based Capital of AHIC to equal 250%, as at
the last day of any fiscal quarter of AHIC.
7.2 PIIC Total Adjusted Capital. Borrower shall not permit Total
Adjusted Capital of PIIC to be less than the greater of (a) $30,000,000 and
(b) the amount required for Risk-Based Capital of PIIC to equal 250%, as at
the last day of any fiscal quarter of PIIC.
7.3 Net Underwriting Gain. Borrower shall not permit the sum of Net
Underwriting Gain of any RIC for any four consecutive fiscal quarters of
such RIC to be equal to or less than zero.
7.4 Consolidated Net Worth. Borrower shall not permit Consolidated Net
Worth to be less than $110,000,000 as at the last day of any fiscal quarter
of Borrower.
7.5 Fixed Charges Coverage Ratio. Borrower shall not permit the Fixed
Charges Coverage Ratio to be less than 1.25 to 1.00 as at the last day of
any fiscal quarter of Borrower.
7.6 Limitation on Debt. Borrower shall not, and shall not permit any
Subsidiary to, create, incur, assume, become or be liable in any manner in
respect of, or suffer to exist, any Debt except Permitted Debt.
7.7 Limitation on Liens. Borrower shall not, and shall not permit any
Subsidiary to, create or suffer to be created or to exist any Lien upon any
of its properties or assets except Permitted Liens.
7.8 Burdensome Agreements. Borrower shall not, and shall not permit
any Subsidiary to, enter into any agreement (other than this Agreement or
any other Loan Document) that limits the ability (a) of any Subsidiary to
pay Dividends to Borrower or to otherwise transfer property to Borrower,
(b) of any Subsidiary to guarantee the Obligations or (c) of Borrower or any
Subsidiary to create, incur, assume or suffer to exist Liens on property of
such Person.
7.9 Disposition of Assets. Borrower shall not, and shall not permit
any Subsidiary to, directly or indirectly, Dispose of all or any portion of
any of its properties (including any capital stock of any Subsidiary and
equity interests constituting Collateral) and assets except (a) Dispositions
pursuant to its Investment Policy in the ordinary course of business for
full and fair consideration, (b) other Dispositions in the ordinary course
of business for full and fair consideration, (c) mergers of Subsidiaries of
Borrower described in the proviso to Section 7.11, and (d) Dispositions not
in the ordinary course of business if (i) no single asset Disposed of or
single transaction including a Disposition has a value (valued at the
greater of market or book (determined in accordance with GAAP) value) less
than $100,000 and (ii) the aggregate value (valued at the greater of market
or book (determined in accordance with GAAP) value) of all such Dispositions
by Borrower and its Subsidiaries during any fiscal year of Borrower is less
than $250,000.
7.10 Acquisition of Assets. Borrower shall not, and shall not permit
any Subsidiary to, acquire any assets, property or business of any Person,
or participate in any joint venture, or create or acquire any Subsidiary,
except (a) Permitted Acquisitions, (b) the acquisition of all capital stock
and other equity interest in TGA and TGASR pursuant to the TGA Purchase
Agreement (without giving effect to any amendment to or restatement of such
agreement after the Agreement Date); provided, not later than February 10,
2006, Borrower executes and delivers, and causes each Person acquired
pursuant to the TGA Purchase Agreement to execute and deliver, each of the
documents applicable to it described in Sections 7.10(a) - (i), (c) the
acquisition of all capital stock and other equity interest in PAAC pursuant
to the PAAC Purchase Agreement (without giving effect to any amendment to or
restatement of such agreement after the Agreement Date); provided, not later
than February 10, 2006, Borrower executes and delivers, and causes each
Person acquired pursuant to the PAAC Purchase Agreement to execute and
deliver, each of the documents applicable to it described in Sections
7.10(a) - (i), and (d) Borrower may form new direct wholly-owned
Subsidiaries which are corporations or limited liability companies which
will engage in the insurance agency or managing general agency business
and new property and casualty insurance companies that are wholly-owned
Subsidiaries of Borrower or another RIC if prior to each such new Subsidiary
conducting any activities other than (i) filing its organizational documents
with the appropriate authority of one of the United States, (ii) adopting
its bylaws, operating agreement or other governance document and (iii)
obtaining consideration for the issuance of its equity in an aggregate
amount equal to the lesser of (A) the minimum initial capital required by
Law and (B) $5,000, such new Subsidiary delivers to Lender (in such number
of counterparts as Lender may reasonably require):
(a) A certificate of officers acceptable to Lender of such
Subsidiary certifying as to (i) the incumbency of the officers signing
such certificate and the Loan Documents to which it is a party, (ii) if a
corporation, an original certified copy of its Articles of Incorporation or
Certificate of Incorporation, as applicable, certified as true, complete and
correct by the appropriate authority of its state of incorporation as of a
date not more than ten days prior to the date such certificate is delivered
to Lender, (iii) if a limited liability company, an original certified copy
of its Articles of Organizations (or similar organization and governance
document), certified as true, complete and correct by the appropriate
authority of its state of organization as of a date not more than ten
days prior to the date such certificate is delivered to Lender, (iv) if
a corporation, a copy of its By-Laws, as in effect on the date such
certificate is delivered to Lender, (v) if a limited liability company,
a copy of its operating agreement (or similar organization and governance
document), as in effect on the date such certificate is delivered to
Lender, (vi) a copy of the resolutions of the appropriate governance board
authorizing it to execute, deliver and perform the Loan Documents to which
it is a party, and (vii) an original certificate of good standing and
existence issued by the appropriate authority of its state of organization
(certified as of a date not more than ten days prior to the date such
certificate is delivered to Lender).
(b) The duly executed and completed Security Agreement of such
Subsidiary (other than a RIC), granting to Lender, for the benefit of
Lender, a first priority Lien in the Collateral set forth therein.
(c) The duly executed Guaranty of such Subsidiary (other than a
RIC).
(d) The duly executed and completed (i) Pledge Agreement (or
amendment to the Pledge Agreement), granting to Lender a first priority Lien
in all equity of such Subsidiary, together with stock or other certificates
evidencing all of the equity interest of such Subsidiary (which certificates
shall not contain any restriction on transfer not acceptable to Lender),
(ii) undated, blank stock powers and (iii) confirmations of all Liens in all
equity interest of such Subsidiary (other than with respect to any equity of
a RIC owned by another RIC).
(e) Reimbursement of Lender's reasonable expenses related to the
formation of such new Subsidiary, including Attorney Costs.
(f) Searches of the Uniform Commercial Code, Tax lien and other
records as Lender may require.
(g) Opinions of counsel to Borrower and such Subsidiary addressed
to Lender and covering such matters incident to such new Subsidiary and the
Loan Documents as Lender or Special Counsel may reasonably request.
(h) A Notice of Final Agreement executed by such Subsidiary.
(i) In form and substance satisfactory to Lender and Special
Counsel, such other documents, instruments and certificates as Lender may
reasonably require in connection with the formation of such new Subsidiary.
7.11 Merger and Consolidation. Borrower shall not, and shall not permit
any Subsidiary to, directly or indirectly consolidate with or merge into any
other Person, permit any other Person to consolidate with or merge into it,
or acquire any Person (other than acquisitions permitted by Section 7.10);
provided, so long as no Default or Event of Default exists at the time of or
immediately after giving effect thereto, (a) Subsidiaries may merge with and
into Borrower or any other direct wholly-owned Subsidiary of Borrower so
long as Borrower or such other direct wholly-owned Subsidiary of Borrower is
the survivor and the surviving Subsidiary is a Guarantor; and (b) a RIC may
merge with and into another RIC that is a Domestic Subsidiary.
7.12 Loans and Investments. Borrower shall not, and shall not permit
any of its Subsidiaries to, make any Investment except (a) Permitted
Investments, and (b) acquisitions permitted by Section 7.10.
7.13 ERISA. Borrower shall not, and shall not permit any Subsidiary to,
make funding contributions with respect to any Plan that are less than the
minimum required by ERISA or the regulations thereunder, or permit any Plan
ever to be subject to involuntary termination proceeding by the PBGC
pursuant to ERISA S 4042(a).
7.14 Assignment. Borrower shall not, and shall not permit any
Subsidiary to, directly or indirectly, assign or transfer, or attempt to do
so, any rights, duties or obligations under the Loan Documents, except in
connection with a merger of a Subsidiary described in the proviso to
Section 7.11.
7.15 Transactions with Affiliates. Borrower shall not, and shall
not permit any Subsidiary to, carry on any transaction with any of their
respective Affiliates except (a) at arm's length and in the ordinary course
of business and (b) the transactions related to the Newcastle Note and the
Convertible Notes.
7.16 Business. Borrower shall not, and will not permit any Subsidiary
to, engage in any material line or lines of business activity or any
businesses other than (a) lines of business activity and businesses engaged
in on the Agreement Date, and (b) Insurance Business activities related to
homeowners insurance and general aviation insurance.
7.17 Activities of Hallmark Trust I. Neither Borrower nor any of its
Subsidiaries shall permit Hallmark Trust I to engage in any business
activity other than as described in the Hallmark Trust I Declaration of
Trust (as such agreement existed on June 21, 2005).
7.18 2005 Documents. Borrower shall not, and shall not permit any of
its Subsidiaries to, change, amend or restate (or take any action or fail to
take any action the result or which is an effective amendment, change or
restatement) or accept any waiver or consent with respect to, any 2005
Document, that would result in (a) an increase in the principal, interest,
overdue interest, fees or other amounts payable under any 2005 Document, (b)
an acceleration of any date fixed for payment or prepayment of principal,
interest, fees or other amounts payable under any 2005 Document (including,
without limitation, as a result of any redemption), (c) a change in any of
the subordination provisions of any 2005 Document, or (d) any other change
in any term or provision of any 2005 Document that could reasonably be
expected to have an adverse effect on the interest of Lender.
7.19 Convertible Notes. Borrower shall not amend or restate (or take
any action or fail to take any action the result or which is an effective
amendment, change or restatement) or accept any waiver or consent with
respect to, any Convertible Note, that would result in (a) an increase in
the principal, interest, overdue interest, fees or other amounts payable
under any Convertible Note, (b) an acceleration of any date fixed for
payment or prepayment of principal, interest, fees or other amounts payable
under any Convertible Note (including, without limitation, as a result of
any redemption, but excluding any conversion of principal of or interest on
a Convertible Note into common stock of Borrower), (c) a change in any of
the subordination provisions of Subordination Agreement I or Subordination
Agreement II, or (d) any other change in any term or provision of any
Convertible Note that could reasonably be expected to have an adverse
effect on the interest of Lender.
ARTICLE VIII
REPRESENTATIONS AND WARRANTIES
Borrower represents, warrants, and covenants to Lender as follows:
8.1 Organization and Qualification. Borrower and each of its
Subsidiaries (a) is a corporation, limited liability company or limited
partnership duly organized, validly existing, and in good standing under
the Laws of its jurisdiction of organization; (b) is duly licensed and in
good standing as a foreign corporation, limited liability company or
limited partnership in each jurisdiction in which the nature of the business
transacted or the property owned is such as to require licensing as such;
and (C) possesses all requisite corporate, limited liability company or
limited partnership (respectively) power, authority and legal right, to
execute, deliver and comply with the terms of the Loan Documents to be
executed by it, all of which have been duly authorized and approved by all
necessary corporate, limited liability company or limited partnership action
(respectively) and for which no approval or consent of any Governmental
Authority which has not been obtained is required. No proceeding is pending
for the forfeiture of any Borrower's or any such Subsidiary's organization
documents or its dissolution. The issued and outstanding capital stock,
limited liability company interest and partnership interest of Borrower
and each Subsidiary is duly authorized validly issued, fully paid and
nonassessable, and free of the preemptive rights of shareholders and other
equity holders. Schedule 8.1 sets forth the respective jurisdiction of
organization and percentage ownership as of the Agreement Date of each
Subsidiary. Borrower has no direct or indirect Subsidiary other than those
set forth on Schedule 8.1. Neither a material portion of the operations nor
a material portion of the assets of Borrower or any Subsidiary are conducted
or located in a jurisdiction other than such Person's jurisdiction of
organization.
8.2 Financial Statements. The financial statements described in
Section 5.1(q) heretofore furnished to Lender are complete and correct
in all material respects and prepared in accordance with GAAP or SAP, as
appropriate, and fairly present the financial condition of the Persons
described therein as of the dates indicated and for the periods involved.
There are no Contingent Debts, liabilities for Taxes, unusual forward or
long-term commitments or unrealized or anticipated losses from any
unfavorable commitments, any of which are material in amount in relation
to the financial condition of Borrower or any Subsidiary, except (a) as
disclosed on such financial statements, and (b) Contingent Debt under the
Aerospace Purchase Agreement. The description of all Off-Balance Sheet
Liabilities of Borrower and Subsidiaries heretofore furnished to Lender
is complete and correct in all material respects. Since the date of the
Financial Statements described in Section 5.1(q) or the Current Financials,
there has been no Material Adverse Change or Internal Control Event.
8.3 Compliance With Laws and Other Matters. The execution, delivery
and performance and compliance with the terms of the Loan Documents will not
cause Borrower or any Subsidiary to be, (a) in violation of its corporate
charter or bylaws, certificate of organization, operating agreement,
certificate of limited partnership, partnership agreement or other
organization and governance document, (b) in violation of any Law in any
respect which could have any Material Adverse Effect, or (c) in default (nor
has any event occurred which, with notice or lapse of time or both, could
constitute a default) under any material agreement (including any agreement
related to any Debt or such Person).
8.4 Litigation. There is no Litigation pending against or, to the
knowledge of Borrower, threatened against or affecting any Borrower or any
Subsidiary or their respective assets or properties which involves the
probability of any final judgment or liability which may result in a
Material Adverse Change. Schedule 8.4 is a complete and correct description
of all Existing Litigation where the amount in controversy is equal to or
greater than $250,000. Borrower's good faith estimate of the aggregate
amount of all claims against Borrower and Subsidiaries pursuant to Existing
Litigation on the Agreement Date is as stated in a letter dated as of the
Agreement Date, from Borrower to Lender. There are no outstanding or unpaid
final judgments against Borrower or any Subsidiary.
8.5 Debt. Since the date of the latest of the Current Financials,
neither Borrower nor any of its Subsidiaries has incurred any Debt except
Permitted Debt. Schedule 8.5 is a complete and correct description of all
Existing Debt.
8.6 Title to Properties. Borrower and each Subsidiary have (a)
full corporate, limited liability or partnership (respectively) power,
authority and legal right to own and operate the properties which it now
owns or leases, and to carry on the lines of business in which it is now
engaged, and (b) good and marketable title to its owned properties, subject
to no Lien of any kind, except Permitted Liens.
8.7 Authorization; Validity. The Board of Directors, managers, partners
or other appropriate governance board of each Obligor has duly authorized
the execution and delivery of the Loan Documents to which such Obligor is
a party and the performance of their respective terms. No consent of the
stockholders, members, partners or other equityholders of any Obligor is
required as a prerequisite to the validity and enforceability of any Loan
Document. Each Obligor has full corporate, limited liability or partnership
(respectively) power, authority and legal right to execute and deliver and
to perform and observe the provisions of all Loan Documents to which such
Obligor is a party. Each of the Loan Documents is the legal, valid and
binding obligation of each Obligor which is a party thereto, enforceable in
accordance with its respective terms, subject as to enforcement of remedies
to any Debtor Relief Laws.
8.8 Taxes. Borrower and each Subsidiary have filed all federal and
state and all other material income Tax returns which are required to be
filed by such Person and have paid all Taxes as shown on said returns, and
all Taxes due and payable without returns and all assessments received to
the extent that such Taxes or assessments have become due and payable. All
Tax liabilities of Borrower and each Subsidiary are adequately provided for
on the books of such Person, including interest and penalties. No income
Tax liability of a material nature has been asserted by taxing authorities
for Taxes in excess of those already paid, except such Taxes being contested
in good faith by appropriate proceedings. There is no material action,
suit, proceeding, investigation, audit, or claim now pending or, to the
knowledge of Borrower or any Subsidiary, threatened by any Governmental
Authority regarding any Taxes relating to Borrower or such Subsidiary.
Neither Borrower nor any Subsidiary has entered into an agreement or waiver
or been requested to enter into an agreement or waiver extending any statute
of limitations relating to the payment or collection of Taxes of Borrower or
such Subsidiary, or is aware of any circumstances that would cause the
taxable years or other taxable periods of Borrower or such Subsidiary not to
be subject to the normally applicable statute of limitations.
8.9 Use of Proceeds. No Obligor is engaged principally, or as one
of its important activities, in the business of extending credit for the
purpose of purchasing or carrying margin stock (within the meaning of
Regulation U of the Board of Governors of the Federal Reserve System) and no
part of the proceeds of any Revolving Loan or Letter of Credit will be used
to purchase or carry any margin stock or to extend credit to others for the
purpose of purchasing or carrying any margin stock. None of the assets of
any Obligor are margin stock. No Obligor nor any agent acting on its behalf
has taken or will take any action which might cause this Agreement or any of
the Loan Documents to violate any regulation of the Board of Governors of
the Federal Reserve System or to violate the Securities Exchange Act of
1934, in each case as in effect now or as the same may hereafter be in
effect.
8.10 Possession of Franchises, Licenses, Etc. Borrower and each
Subsidiary possess all franchises, certificates, licenses, permits and
other authorizations from all Governmental Authorities, free from burdensome
restrictions, that (a) are necessary for the ownership, maintenance and
operation of its properties and assets, and (b) the loss of possession of
which could reasonably be expected to have a Material Adverse Effect, and
such Person is not in violation of any thereof. Schedule 8.10 lists with
respect to each RIC, as of the Agreement Date, all of the jurisdictions in
which such RIC holds licenses (including, without limitation, licenses or
certificates of authority from relevant Insurance Regulators), permits or
authorizations to transact Insurance Business, and indicates the line or
lines of insurance in which each such RIC is permitted to be engaged with
respect to each license therein listed. To the knowledge of Borrower, (a)
no such license is the subject of a proceeding for suspension, revocation or
limitation or any similar proceedings, (b) there is no sustainable basis for
such a suspension, revocation or limitation, and (c) no such suspension,
revocation or limitation is threatened by any relevant Insurance Regulator.
As of the Agreement Date, no RIC transacts any Insurance Business, directly
or indirectly, in any jurisdiction other than those listed on Schedule 8.10.
8.11 Leases. Borrower and each Subsidiary enjoy peaceful and
undisturbed possession of all leases necessary for the operation of its
properties and assets the loss of possession of which could reasonably be
expected to have a Material Adverse Effect. All such leases are valid and
subsisting and are in full force and effect.
8.12 Disclosure. Neither this Agreement nor any other document,
certificate or statement furnished to Lender by or on behalf of Borrower or
any Subsidiary in connection herewith contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make
the statements contained herein and therein not misleading. There is no
fact known to Borrower or any Subsidiary and not known to the public
generally which reasonably may be expected to materially adversely affect
its assets or in the future may reasonably be expected (so far as Borrower
or such Subsidiary can now foresee) to result in a Material Adverse Effect,
which has not been set forth in this Agreement or in the documents,
certificates and statements furnished to Lender by or on behalf of Borrower
or any Subsidiary prior to the date hereof in connection with the
transactions contemplated hereby.
8.13 ERISA. Schedule 8.13 sets forth each Plan. Neither Borrower nor
any Subsidiary has (a) incurred any material accumulated funding deficiency
within the meaning of ERISA, or (b) incurred any material liability to the
PBGC in connection with any Plan established or maintained by it. No
Reportable Event has occurred with respect to any Plan which could
reasonably be expected to result in a Material Adverse Change. No Plan
is in the process of termination.
8.14 Regulatory Acts. None of Borrower or any Subsidiary is an
"investment company" within the meaning of the Investment Company Act of
1940, as amended, or is subject to regulation under the Public Utility
Holding Act of 1935, the Federal Power Act, the Interstate Commerce Act,
or any other Law (other than Regulation X of the Board of Governors of the
Federal Reserve System and applicable insurance Laws) which regulates the
incurring by Borrower or any Subsidiary of debt, including, but not limited
to, Laws regulating common or contract carriers or the sale of electricity,
gas, steam, water, or other public utility services.
8.15 Solvency. Borrower and each Subsidiary is, and Borrower and
Subsidiaries on a consolidated basis are, Solvent.
8.16 Environmental Matters. Except as set forth in Schedule 8.16 or as
could not reasonably be expected to result in a Material Adverse Change or
Effect:
(a) The properties owned, operated or leased by Borrower and each
Subsidiary (the "Properties") do not contain any Hazardous Materials in
amounts or concentrations which (i) constitute, or constituted a violation
of, or (ii) could reasonably be expected to give rise to liability under,
Environmental Laws, which violations and liabilities, in the aggregate,
could reasonably be expected to result in a Material Adverse Change;
(b) All Environmental Permits have been obtained and are in
effect with respect to the Properties and operations of Borrower and each
Subsidiary, and the Properties and all operations of Borrower and each
Subsidiary are in compliance, and have been in compliance, with all
Environmental Laws and all necessary Environmental Permits, except to the
extent that such non compliance or failure to obtain any necessary permits,
in the aggregate, could not reasonably be expected to result in a Material
Adverse Change;
(c) Neither Borrower nor any Subsidiary has received any notice of
an Environmental Claim in connection with the Properties or the operations
of Borrower or such Subsidiary or with regard to any Person whose
liabilities for environmental matters Borrower or such Subsidiary has
retained or assumed, in whole or in part, contractually, which, in the
aggregate, could reasonably be expected to result in a Material Adverse
Change, nor does Borrower or any Subsidiary have knowledge that any such
notice will be received or is being threatened; and
(d) Hazardous Materials have not been transported from the
Properties, nor have Hazardous Materials been generated, treated, stored
or disposed of at, on or under any of the Properties in a manner that could
reasonably be expected to give rise to liability under any Environmental
Law, nor has Borrower or any Subsidiary retained or assumed any liability
contractually, with respect to the generation, treatment, storage or
disposal of Hazardous Materials, which transportation, generation,
treatment, storage or disposal, or retained or assumed liabilities, in the
aggregate, could reasonably be expected to result in a Material Adverse
Change.
8.17 Investments. Schedule 8.17 is a complete and correct description
of all Existing Investments as of the Agreement Date. Borrower has provided
to Lender a complete copy of the Investment Policy of Borrower and each RIC.
The Investment Policy of Borrower applies to each Subsidiary (other than a
RIC).
8.18 Intellectual Property, Etc. Borrower and each Subsidiary have
obtained all material patents, trademarks, service marks, trade names,
copyrights, licenses and other rights, free from burdensome restrictions,
that are necessary for the operation of their respective businesses as
presently conducted and as proposed to be conducted.
8.19 Reinsurance Agreements.
(a) Schedule 8.19 is a complete and correct list of all
Reinsurance Agreements to which Borrower or any Subsidiary is a party,
describing the names of all parties to each agreement, the date of each
agreement, and the termination date of each agreement.
(b) Except as set forth on Schedule F to the Annual Statements for
each RIC for its fiscal year ending December 31, 2004, there are no material
liabilities outstanding as of the Agreement Date under any Reinsurance
Agreement. Each Reinsurance Agreement is in full force and effect; no RIC
or, to the knowledge of Borrower, any other party thereto, is in breach of
or default under any such Reinsurance Agreement; and Borrower has no reason
to believe that the financial condition of any other party to any such
Reinsurance Agreement is impaired such that a default thereunder by such
party could reasonably be anticipated. Each Reinsurance Agreement is
qualified under all applicable Laws to receive the statutory credit assigned
to such Reinsurance Agreement in the relevant annual statement or quarterly
statement at the time prepared. Except as set forth on Schedule 8.19, each
Person to whom any RIC has ceded any material liability pursuant to any
Reinsurance Agreement on the Agreement Date has a rating of "A-" or better
by A.M. Best.
(c) As of the Agreement Date, there are no Reinsurance Agreements
between Borrower or any Subsidiary and Affiliates of Borrower, except as
described on Schedule 8.19.
8.20 Retrocession Agreements. Schedule 8.20 is a complete and correct
list of all Retrocession Agreements to which Borrower or any Subsidiary is a
party, describing the names of all parties to each agreement, the date of
each agreement and the termination date of each agreement.
8.21 2005 Documents. Attached as Exhibit N to the Existing Agreement
are true and correct copies of the Hallmark Trust I Declaration of Trust,
the 2005 Indenture, the 2005 Guaranty, and all exhibits and schedules to
such agreements. There are no agreements between or among any of the
parties to such agreements, any holder of any equity security or Debt of
Hallmark Trust I, any trustee of Hallmark Trust I, any holder of any 2005
Debenture or any other Person, or their respective Affiliates, related to
the subject matter of such agreements not contained in the documents
attached as Exhibit N to the Existing Agreement.
8.22 Subordination; 2005 Documents. The principal of and interest
on the 2005 Debentures and all obligations of Borrower and each of its
Subsidiaries in respect of and under the 2005 Debentures, the 2005
Indenture, the 2005 Preferred Securities, the Hallmark Trust I Declaration
of Trust and the 2005 Guaranty are subordinate in all respects to all of the
Obligations. No redemption, purchase, Dividend, payment, distribution or
other transfer of property shall be made to or for the benefit of any holder
of or in respect of any equity security or Debt of Hallmark Trust I, the
2005 Debentures, the 2005 Indenture, the 2005 Preferred Securities, the
Hallmark Trust I Declaration of Trust or the 2005 Guaranty other than, if
a Default or Event of Default does not exist prior or after giving effect
thereto, payments of regularly scheduled cash interest payments in respect
of the 2005 Debentures by Borrower and payments of regularly scheduled cash
interest payments in respect of 2005 Preferred Securities by Hallmark Trust
I. No obligation under any 2005 Document benefits from any collateral
(including any sinking fund or similar deposit arrangement) or guaranty
(except, with respect to the 2005 Preferred Securities, only, the 2005
Guaranty).
8.23 Subordination; Convertible Notes. The principal of, interest
on and other amounts payable with respect to the Convertible Notes are
subordinate to the Obligations as provided in Subordination Agreement I
or Subordination Agreement II, respectively. No redemption, purchase,
Dividend, payment, distribution or other transfer of property shall be made
to or for the benefit of any holder of or in respect of any Convertible Note
other than as permitted by Subordination Agreement I or Subordination
Agreement II, respectively. No obligation under any Convertible Note
benefits from any collateral (including any sinking fund or similar deposit
arrangement) or guaranty.
8.24 Survival of Representations and Warranties, Etc. All
representations and warranties made under this Agreement and the other Loan
Documents shall be deemed to be made at and as of the Agreement Date and at
and as of the date of the making of each Revolving Loan and each L/C Credit
Extension, and each shall be true and correct in all material respects
when made, except to the extent applicable to a specific date. All such
representations and warranties shall survive, and not be waived by, the
execution hereof by Lender any investigation or inquiry by Lender or by the
making of any Revolving Loan or L/C Credit Extension under this Agreement.
ARTICLE IX
EVENTS OF DEFAULT
9.1 Default. The term "Event of Default" as used herein, means the
occurrence and continuance of any one or more of the following events
(including the passage of time, if any, specified therefor):
(a) Revolving Loans; Unreimbursed Amount. The failure or refusal
of Borrower to pay any part of the principal of or interest on any Revolving
Loan or of Borrower or the applicable L/C RIC to pay any part of any
Unreimbursed Amounts on or before the date such payment is due;
(b) Other Obligations. The failure or refusal of (i) Borrower to
pay any part of the Obligations or (ii) an L/C RIC to pay any part of the
Revolving Facility L/C Obligations related to a Revolving Facility L/C
issued for the account of such L/C RIC (other than as referenced in
Section 9.1(a)) on or before the date such payment is due and such failure
shall continue for five days after such payment was due;
(c) Certain Covenants. The failure or refusal of any Obligor
punctually and properly to perform, observe and comply with any covenant,
agreement or condition contained in Article III, Article VII, Sections 6.2,
6.3 or 6.6;
(d) Other Covenants. The failure or refusal of any Obligor
punctually and properly to perform, observe and comply with any covenant,
agreement or condition contained in any of the Loan Documents (other than
covenants to pay the Obligations referenced in Sections 9.1(a) and (b) and
those referenced in Section 9.1(c)) and such failure shall not have been
remedied within ten days after the earlier of (i) notice thereof by Lender
(which may be telephonic) and (ii) actual knowledge thereof by any such
Obligor;
(e) Voluntary Debtor Relief. Any Obligor or any of its
Subsidiaries shall (i) execute an assignment for the benefit of creditors,
or (ii) admit in writing its inability, or be generally unable, to pay its
debts generally as they become due, or (iii) voluntarily seek the benefit or
benefits of any Debtor Relief Law, or (iv) voluntarily become a party to any
proceeding provided for by any Debtor Relief Law that would suspend or
otherwise affect any of the rights of Lender granted in the Loan Documents;
(f) Involuntary Proceedings. Any Obligor or any of its
Subsidiaries shall involuntarily (i) have an order, judgment or decree
entered against it or a material portion of its property by any Governmental
Authority pursuant to any Debtor Relief Law that would suspend or otherwise
affect any of the rights granted to Lender in any of the Loan Documents, or
(ii) have a petition filed against it or a material portion of its property
seeking the benefit or benefits provided for by any Debtor Relief Law that
would suspend or otherwise affect any of the rights granted to Lender in any
of the Loan Documents;
(g) Insurance Regulator. Any Insurance Regulator of any
jurisdiction suspends or takes any steps towards suspending the business
or operations of any Obligor or any of its Subsidiaries and any such event
could reasonably be expected to result in a Material Adverse Change;
(h) Internal Control Event; Securities Laws. An Internal Control
Event shall occur or any Governmental Authority shall allege a violation or
commence any action based on an alleged violation of any Securities Laws
by Borrower, any employee, officer or director of Borrower or Borrower's
auditor (with respect to actions of such auditor in its capacity as auditor
for Borrower) and any such event could reasonably be expected to result in
a Material Adverse Change;
(i) Judgments. Any Obligor or any of its Subsidiaries shall have
rendered against it a money judgment in an aggregate uninsured amount in
excess of $500,000 for which such Person has not set aside appropriate
reserves, and the same shall remain in effect and unstayed for a period of
sixty consecutive days (provided, no Default or Event of Default shall exist
if a money judgment in an aggregate uninsured amount in excess of $500,000
is rendered against any Obligor or any of its Subsidiaries with respect to
any Litigation described on Schedule 8.4 if, not later than five Business
Days after the entry of such judgment, such Obligor or Subsidiary is
released from all liability with respect to all of the uninsured amount of
such judgment and Borrower delivers to Lender evidence of such release in
form and substance satisfactory to Lender);
(j) Other Debt. (i) Any Obligor or any of its Subsidiaries
shall default (A) in the payment of principal of or interest on any
Debt in an aggregate amount, together with all other Debt in which
a default exists, in excess of $500,000, or (B) in the performance of
any other covenant, term or condition contained in any agreement with
respect to such Debt (if such default shall occur and be continuing beyond
any grace period with respect to such payment or performance), if the effect
of such default is to cause or permit the holder or holders of such Debt (or
any trustee on their behalf) to cause such Debt to become due, prepaid,
redeemed or purchased prior to its date of maturity; or (ii) any event
shall occur which either causes or permits the holder or holders of such
Debt (or any trustee on their behalf) to cause such Debt to become due,
prepaid, redeemed or purchased prior to its date of maturity;
(k) Misrepresentation. Any statement, representation or warranty
in the Loan Documents or in any record (as defined in Article 9 of the Texas
Business and Commerce Code) ever delivered to Lender pursuant to the Loan
Documents proves to be incorrect in any material respect when made;
(l) ERISA. Any Reportable Event under any Plan, or the
appointment by an appropriate Governmental Authority of a trustee to
administer any Plan, or the termination of any Plan within the meaning of
Title IV of ERISA, or any material accumulated funding deficiency within the
meaning of ERISA under any Plan, or the institution of proceedings by the
PBGC to terminate any Plan or to appoint a trustee to administer any Plan,
and any of such events could reasonably be expected to result in a Material
Adverse Change;
(m) Loan Documents. Any Loan Document shall at any time after its
execution and delivery and for any reason, cease to be in full force and
effect or be declared to be null and void (other than in accordance with
the terms hereof or thereof) or the validity or enforceability thereof be
contested by any Person party thereto (other than Lender) or any Person
(other than Lender) shall deny in writing that it has any liability or any
further liability or obligations under any Loan Document to which it is a
party; or any Security Document shall for any reason (other than pursuant to
the terms thereof) cease to create a valid and perfected first priority Lien
(other than Permitted Liens) in any Collateral;
(n) 2005 Documents. Any Person who is a holder of, or claims
to act for the benefit of any holder of, any equity security or Debt of
Hallmark Trust I, any 2005 Debenture, any 2005 Preferred Security, the 2005
Guaranty, or any other 2005 Document shall assert that any obligation under
any 2005 Document is not subordinate in any respect to the Obligations; any
payment or transfer of property shall be made under any 2005 Document (other
than payment of regularly scheduled cash interest payments in accordance
with the 2005 Debentures and 2005 Preferred Securities (as such agreements
existed on June 21, 2005) if no Default or Event of Default exists prior to
or after giving effect to such payment); a default shall occur under any
2005 Document; or the 2005 Indenture, 2005 Debentures or 2005 Preferred
Securities shall benefit from any collateral (including any sinking fund or
similar deposit arrangement) or guarantee (except, with respect to the 2005
Preferred Securities, only, the 2005 Guaranty);
(o) Newcastle Note. Any Person who is a holder of, or claims to
act for the benefit of any holder of, any interest in the Newcastle Note
shall assert that any obligation under the Newcastle Note is not subordinate
to the Obligations in accordance with the terms of the Subordination
Agreement; any payment or transfer of property shall be made under or with
respect to the Newcastle Note in violation of the Subordination Agreement; a
default shall occur under the Subordination Agreement; or the Newcastle Note
shall benefit from any collateral (including any sinking fund or similar
deposit arrangement) or guarantee;
(p) Convertible Note. Any Person who is a holder of, or claims
to act for the benefit of any holder of, any interest in any Convertible
Note shall assert that any obligation under any Convertible Note is not
subordinate to the Obligations in accordance with Subordination Agreement I
or Subordination Agreement II (respectively); any payment or transfer of
property shall be made under or with respect to any Convertible Note in
violation of Subordination Agreement I or Subordination Agreement II
(respectively); a default shall occur under Subordination Agreement I or
Subordination Agreement II; or any Convertible Note shall benefit from any
collateral (including any sinking fund or similar deposit arrangement) or
guarantee; or
(q) TGA Account. Lender is unable, for any reason, to apply funds
or property subject to the TGA Account to any TGA Obligation.
9.2 Remedies. If an Event of Default exists:
(a) With the exception of an Event of Default specified in
Section 9.1(e) or (f), Lender may terminate each or all of the Revolving
Commitment, the Revolving Facility L/C Commitment and TGA L/C Commitment
and/or declare the principal of and interest on the Revolving Loans and
Obligations and other amounts owed under the Loan Documents to be forthwith
due and payable without presentment, demand, protest or notice of any kind,
all of which are hereby expressly waived, anything in the Loan Documents to
the contrary notwithstanding.
(b) Upon the occurrence of an Event of Default specified in
Section 9.1(e) or (f), the principal of and interest on the Revolving
Loans and Obligations and other amounts and under the Loan Documents
shall thereupon and concurrently therewith become due and payable and
the Revolving Commitment, Revolving Facility L/C Commitment and TGA L/C
Commitment shall forthwith terminate, all without any action by Lender or
any holder of the Revolving Note and without presentment, demand, protest or
other notice of any kind, all of which are expressly waived, anything in the
Loan Documents to the contrary notwithstanding.
(c) Lender may exercise all of the post-default rights granted to
it under the Loan Documents or under Law.
(d) Lender may require that Borrower and the applicable L/C ▇▇▇
▇▇▇▇ Collateralize all Revolving Facility L/C Obligations.
(e) The rights and remedies of Lender hereunder shall be
cumulative and not exclusive.
9.3 Application of Funds. After the exercise of remedies provided
for in Section 9.2 (or after the Revolving Loans and other Obligations have
automatically become immediately due and payable), any amounts received on
account of the Obligations shall be applied by Lender in the following
order:
(a) First, to payment of that portion of the Obligations
constituting fees, indemnities, expenses and other amounts (including
Attorney Costs payable under Section 10.2 and amounts payable under
Article IV) payable under the Loan Documents to Lender;
(b) Second, to payment of that portion of the Obligations
constituting accrued and unpaid interest on the Revolving Loans;
(c) Third, to payment of that portion of the Obligations
constituting unpaid principal of the Revolving Loans in such order as
Lender elects in its discretion;
(d) Fourth, to Cash Collateralize the Revolving Facility L/C
Obligations;
(e) Fifth, to all other Obligations; and
(f) Last, to the balance, if any, after all of the Obligations
have been indefeasibly paid in full, to Borrower or as otherwise required by
Law;
Subject to Article III, amounts used to Cash Collateralize the
Revolving Facility L/C Obligations pursuant to clause Fourth above shall
be applied to satisfy drawings under such Revolving Facility L/Cs as they
occur. If any amount remains on deposit as Cash Collateral after all
Revolving Facility L/Cs have either been fully drawn or expired, such
remaining amount (to the extent such amount was paid by Borrower) shall
be applied to the other Obligations, if any, in the order set forth above.
Amounts constituting or received from the TGA Account or property subject to
the TGA Account shall be applied to the TGA Obligations, only, in the order
determined by Lender.
ARTICLE X
MISCELLANEOUS
10.1 Notices.
(a) All notices and other communications under this Agreement
(except in those cases where giving notice by telephone is expressly
permitted) shall be in writing and shall be deemed to have been given on
the date personally delivered or sent by telecopy (answerback received), or
three days after deposit in the mail, designated as certified mail, return
receipt requested, postage-prepaid, or one day after being entrusted to a
reputable commercial overnight delivery service, addressed to the party to
which such notice is directed at its address determined as provided in this
Section. All notices and other communications under this Agreement shall
be given if to Borrower or any L/C RIC, at the address specified on
Schedule 10.1, and if to Lender, at the address specified on Schedule 10.1.
(b) Any party hereto may change the address to which notices shall
be directed by giving ten days' written notice of such change to the other
parties.
10.2 Expenses. Borrower shall promptly pay:
(a) all reasonable out-of-pocket expenses and reasonable Attorney
Costs of Lender in connection with the preparation, negotiation, execution
and delivery of this Agreement and the other Loan Documents, the
transactions contemplated hereunder and thereunder, the making of the
Revolving Loans and L/C Credit Extensions hereunder, and the preparation,
negotiation, execution and delivery of any waiver, amendment or consent by
Lender relating to this Agreement or the other Loan Documents; and
(b) all costs, out-of-pocket expenses and Attorney Costs of Lender
incurred for enforcement, collection, restructuring, refinancing and "work-
out", or otherwise incurred in obtaining performance under the Loan
Documents, and all costs and out-of-pocket expenses of collection if default
is made in the payment of the Revolving Note or other Obligations which in
each case shall include without limitation fees and expenses of consultants,
counsel for Lender, and administrative fees for Lender.
10.3 Waivers. The rights and remedies of Lender under this Agreement and
the other Loan Documents shall be cumulative and not exclusive of any rights
or remedies which it would otherwise have. No failure or delay by Lender in
exercising any right shall operate as a waiver of such right. Any waiver or
indulgence granted by Lender shall not constitute a modification of any Loan
Document, except to the extent expressly provided in such written waiver or
indulgence, or constitute a course of dealing by Lender at variance with the
terms of any Loan Document such as to require further notice by Lender of
Lender's intent to require strict adherence to the terms of such Loan
Document in the future. Any such actions shall not in any way affect the
ability of Lender, in its discretion, to exercise any rights available to it
under this Agreement, any other Loan Document or under any other agreement,
whether or not Lender is a party thereto, relating to Borrower, its
Subsidiaries or other Obligors.
10.4 Determinations by Lender. Any material determination required or
expressly permitted to be made by Lender under this Agreement shall be made
in its reasonable judgment and in good faith, and shall when made, absent
manifest error, constitute prima facie evidence as to the accuracy thereof.
10.5 Set-Off. In addition to any rights now or hereafter granted under
Law and not by way of limitation of any such rights, during the existence of
an Event of Default, Lender and any subsequent holder of the Revolving Note
or other Obligations, and any Assignee or Participant in the Revolving Note
or other Obligation is hereby authorized by Borrower at any time or from
time to time, without notice to Borrower or any other Person, any such
notice being hereby expressly waived, to set-off, appropriate and apply any
deposits (general or special (except trust and escrow accounts), time or
demand, including without limitation Debt evidenced by certificates of
deposit, in each case whether matured or unmatured) and any other Debt at
any time held or owing by Lender or such holder, Assignee or Participant to
or for the credit or the account of Borrower, against and on account of the
Obligations and other liabilities of Borrower to Lender or such holder,
Assignee or Participant, irrespective of whether or not (a) Lender or such
holder, Assignee or Participant shall have made any demand hereunder or
required that Borrower or any L/C ▇▇▇ ▇▇▇▇ Collateralize any Revolving
Facility L/C Obligations, or (b) Lender or such holder, Assignee or
Participant shall have declared the principal of and interest on any
Revolving Loan and other amounts due hereunder to be due and payable as
permitted by Section 9.2 and although such obligations and liabilities, or
any of them, shall be contingent or unmatured. Any sums obtained by Lender
or any Assignee, Participant or subsequent holder of the Revolving Note or
other Obligation shall be subject to pro rata treatment of the Obligations
and other liabilities hereunder.
10.6 Assignment.
(a) None of Borrower, any L/C RIC nor any other Obligor may assign
or transfer any of its rights or obligations hereunder or under the other
Loan Documents without the prior written consent of Lender.
(b) Lender may at any time sell participations in all or
any part in any Commitment and/or the Revolving Loans (collectively,
"Participations") to any banks or other financial institutions
("Participants") provided that such Participation shall not confer on any
Person (other than the parties hereto) any right to vote on, approve or sign
amendments or waivers, or any other independent benefit or any legal or
equitable right, remedy or other claim under this Agreement or any other
Loan Documents, other than the right to vote on, approve, or sign amendments
or waivers or consents with respect to items that would result in (i) (A)
the extension of the date of maturity of the Revolving Loans, or (B) the
extension of the due date for any payment of principal, interest or fees
respecting the Revolving Loans, or (C) the reduction of the amount of any
installment of principal or interest on or the change or reduction of any
mandatory reduction required hereunder, or (D) a reduction of the rate of
interest on the Revolving Loans; or (ii) the release of security for the
Obligations (except pursuant to this Agreement). Notwithstanding the
foregoing, Borrower and each L/C RIC agree that Participants shall be
entitled to the benefits of Article IX and Section 10.5 as though they
were Lender. To the fullest extent it may effectively do so under Law,
Borrower agrees that any Participant may exercise any and all rights of
banker's lien, set-off and counterclaim with respect to its Participation
as fully as if such Participant were the holder of the Revolving Loans and
participation in the Revolving Facility L/C Obligations and TGA Obligations
in the amount of its Participation.
(c) Lender may assign to one or more financial institutions or
funds organized under the Laws of the United States, or any state thereof,
or under the Laws of any other country that is a member of the Organization
for Economic Cooperation and Development, or a political subdivision of any
such country, which is engaged in making, purchasing or otherwise investing
in commercial loans in the ordinary course of its business (each, an
"Assignee") its rights and obligations under this Agreement and the other
Loan Documents.
(d) Except as specifically set forth in this Section 10.6, nothing
in this Agreement or any 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 permitted hereunder
and thereunder any benefit or any legal or equitable right, remedy or other
claim under this Agreement or any other Loan Documents.
(e) Notwithstanding anything in this Section 10.6 to the contrary,
no Assignee or Participant shall be entitled to receive any greater payment
under Article IV than Lender would have been entitled to receive with
respect to the interest assigned or participated to such Assignee or
Participant.
10.7 Amendment and Waiver. The provisions of this Agreement may not be
amended, modified or waived except by the written agreement of Borrower and
Lender; provided, however, that no such amendment, modification or waiver
shall be made without the consent of any L/C RIC if it would alter the
rights, duties or obligations of such L/C RIC or amend, modify or waive any
provision of any L/C Agreement to which such L/C RIC is a party. Neither
this Agreement nor any term hereof may be amended orally, nor may any
provision hereof be waived orally but only by an instrument in writing the
parties required by this Section 10.7.
10.8 Confidentiality. Lender agrees to maintain the confidentiality
of the Information, except that Information may be disclosed (a) to its
and its Affiliates' directors, officers, employees and agents, including
accountants, legal counsel and other advisors (it being understood that the
Persons to whom such disclosure is made will be informed of the confidential
nature of such Information and instructed to keep such Information
confidential), (b) to the extent requested by any Governmental Authority
(including any self-regulatory authority, such as the NAIC), (c) to the
extent required by Laws or by any subpoena or similar legal process, (d) in
connection with the exercise of any remedies hereunder or under any other
Loan Document or any action or proceeding relating to this Agreement or any
other Loan Document or the enforcement of rights hereunder or thereunder,
(e) subject to an agreement containing provisions substantially the same
as those of this Section, to any Assignee of or Participant in, or any
prospective Assignee of or Participant in, any of its rights or obligations
under this Agreement, (f) with the written consent of Borrower or (g) to the
extent such Information (i) becomes publicly available other than as a
result of a breach of this Section or (ii) becomes available to Lender
on a nonconfidential basis from a source other than Borrower, any of
its Subsidiaries or any other Obligor. For purposes of this Section,
"Information" means all information received from Borrower, any other
Obligor or any Subsidiary relating to Borrower, any other Obligor or any
Subsidiary or any of their respective businesses, other than any such
information that is available to Lender on a nonconfidential basis prior to
disclosure by Borrower, any other Obligor or any Subsidiary, provided that,
in the case of information received from a Borrower, any other Obligor or
any Subsidiary after the date hereof, such information is clearly identified
at the time of delivery as confidential. Any Person required to maintain
the confidentiality of Information as provided in this Section shall be
considered to have complied with its obligation to do so if such Person has
exercised the same degree of care to maintain the confidentiality of such
Information as such Person would accord to its own confidential information.
10.9 Counterparts. This Agreement may be executed in any number of
counterparts, including via facsimile, each of which shall be deemed to be
an original, but all such separate counterparts shall together constitute
but one and the same instrument.
10.10 Severability. Any provision of this Agreement which is for
any reason prohibited or found or held invalid or unenforceable by any
Governmental Authority shall be ineffective to the extent of such
prohibition or invalidity or unenforceability without invalidating the
remaining provisions hereof in such jurisdiction or affecting the validity
or enforceability of such provision in any other jurisdiction.
10.11 Interest and Charges. It is not the intention of any parties
to this Agreement to make an agreement in violation of the Laws of any
applicable jurisdiction relating to usury. Regardless of any provision in
any Loan Document, Lender shall never be entitled to receive, collect or
apply, as interest on the Obligations, any amount in excess of the Maximum
Amount. If Lender ever receives, collects or applies, as interest, any such
excess, such amount which would be excessive interest shall be deemed a
partial repayment of principal by Borrower. In determining whether or not
the interest paid or payable, under any specific contingency, exceeds the
Maximum Amount, Borrower, each L/C RIC and Lender shall, to the maximum
extent permitted under Applicable Law, (a) characterize any nonprincipal
payment as an expense, fee or premium rather than as interest, (b) exclude
voluntary prepayments and the effect thereof, and (c) amortize, prorate,
allocate and spread in equal parts, the total amount of interest throughout
the entire contemplated term of the Obligations so that the interest rate is
uniform throughout the entire term of the Obligations; provided, however,
that if the Obligations are paid and performed in full prior to the end of
the full contemplated term thereof, and if the interest received for the
actual period of existence thereof exceeds the Maximum Amount, Lender shall
refund to Borrower or the applicable L/C RIC, as appropriate, or such other
Person legally entitled thereto the amount of such excess or credit the
amount of such excess against the total principal amount of the Obligations
owing, and, in such event, Lender shall not be subject to any penalties
provided by any Laws for contracting for, charging or receiving interest
in excess of the Maximum Amount. This Section shall control every other
provision of all agreements pertaining to the transactions contemplated by
or contained in the Loan Documents. The provisions of this Section 10.11
applicable to Lender are equally applicable to each Participant, Assignee
and any subsequent holder.
10.12 Exception to Covenants. No Obligor shall be deemed to be
permitted to take any action or fail to take any action which is permitted
as an exception to any of the covenants contained herein or which is within
the permissible limits of any of the covenants contained herein if such
action or omission would result in the breach of any other covenant
contained herein.
10.13 Restatement. This Agreement is a restatement of the Existing
Agreement, and, as such, except for the indebtedness and other than
obligations included in "Obligations" as defined in the Existing Agreement
(which indebtedness and obligations shall survive, be renewed and restated
by the terms of this Agreement), all terms and provisions of this Agreement
supersede in their entirety the terms and provisions of the Existing
Agreement. This Agreement is not intended as and shall not be construed
as a release or novation of any Obligation. All references in each Loan
Document to the "Credit Agreement" are deemed to be references to this
Agreement. All provisions of each Loan Document shall remain in full
force and effect, and such provisions are hereby ratified and confirmed,
regardless of whether any such Loan Document was executed prior to the
Agreement Date.
10.14 USA Patriot Act Notice. Lender hereby notifies Borrower and each
L/C RIC that pursuant to the requirements of the USA Patriot Act (Title III
of Pub.L. 107-56 (signed into law October 26, 2001)) (the "Act"), Lender is
required to obtain, verify and record information that identifies Borrower
and each L/C RIC, which information includes the name and address of
Borrower and each L/C RIC and other information that will allow Lender to
identify Borrower and each L/C RIC in accordance with the Act.
10.15 Existing Agreement Waivers.
(a) Debt. Existing Agreement Section 7.8 prohibits Borrower
from incurring any Debt (as defined in the Existing Agreement) other than
Permitted Debt (as defined in the Existing Agreement). The Newcastle Note
is not Permitted Debt.
(b) Acquisitions. Existing Agreement Section 7.12 prohibits
Borrower from acquiring any asset, except as permitted by Existing Agreement
Section 7.12. The acquisition by Borrower of member interest in Aerospace
is not permitted by Existing Agreement Section 7.12.
(c) Investments. Existing Agreement Section 7.14 prohibits
Borrower from making any Investment (as defined in the Existing Agreement)
except as permitted by Existing Agreement Section 7.14. The acquisition by
Borrower of member interest in Aerospace is not permitted by Existing
Agreement Section 7.14.
(d) Affiliate Transactions. Existing Agreement Section 7.17
prohibits Borrower from entering into certain transactions with Affiliates
(as defined in the Existing Agreement). The Newcastle Note is not permitted
by Existing Agreement Section 7.17.
(e) Business. Existing Agreement Section 7.18 prohibits Borrower
or any Subsidiary (as defined in the Existing Agreement) from engaging in
any line of business except as permitted by Existing Agreement Section 7.18.
The lines of business of Aerospace and Subsidiaries of Aerospace are not
permitted by Existing Agreement Section 7.18.
(f) Non-Compliance. Each non-compliance with the provisions of
the Existing Agreement described in Sections 10.15(a) - (e) is an "Existing
Non-Compliance."
(g) Waiver. Subject to the effectiveness of this Agreement,
Lender waives each Existing Non-Compliance.
(h) Limited Waiver. The waiver provided in Section 10.15(g) does
not constitute a waiver of any other requirement of any Loan Document or of
any Default or Event of Default, now or hereafter existing, under this
Agreement or any other Loan Document.
10.16 GOVERNING LAW. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL
BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF
TEXAS; PROVIDED, HOWEVER, IT IS AGREED THAT THE PROVISIONS OF CHAPTER 346
OF THE TEXAS FINANCE CODE SHALL NOT APPLY TO THE REVOLVING LOANS, THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS. THE LOAN DOCUMENTS ARE PERFORMABLE
IN SAN ANTONIO, BEXAR COUNTY, TEXAS, AND BORROWER, EACH L/C RIC AND LENDER
WAIVE THE RIGHT TO BE SUED ELSEWHERE. BORROWER, EACH L/C RIC AND LENDER
AGREE THAT THE STATE AND FEDERAL COURTS OF TEXAS LOCATED IN SAN ANTONIO,
TEXAS SHALL HAVE JURISDICTION OVER PROCEEDINGS IN CONNECTION WITH THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS.
10.17 WAIVER OF JURY TRIAL. EACH OF BORROWER, EACH L/C RIC AND LENDER
HEREBY KNOWINGLY VOLUNTARILY, IRREVOCABLY AND INTENTIONALLY WAIVE, TO THE
MAXIMUM EXTENT PERMITTED BY LAW, ALL RIGHT TO TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR CLAIM ARISING OUT OF OR RELATED TO ANY OF THE LOAN DOCUMENTS
OR THE TRANSACTIONS CONTEMPLATED THEREBY. THIS PROVISION IS A MATERIAL
INDUCEMENT TO LENDER ENTERING INTO THIS AGREEMENT AND MAKING ANY REVOLVING
LOANS AND ANY L/C CREDIT EXTENSION HEREUNDER.
10.18 ENTIRE AGREEMENT. THIS WRITTEN AGREEMENT, TOGETHER WITH THE OTHER
LOAN DOCUMENTS, REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS
BETWEEN THE PARTIES.
THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.
IN WITNESS WHEREOF, this Agreement is executed as of the date first set
forth above.
BORROWER: HALLMARK FINANCIAL SERVICES, INC.
By:
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L/C RIC: AMERICAN HALLMARK INSURANCE COMPANY OF TEXAS
By:
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PHOENIX INDEMNITY INSURANCE COMPANY
By:
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LENDER: THE FROST NATIONAL BANK
By:
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