Exhibit 10.19
THIRD AMENDED AND RESTATED LOAN AGREEMENT
THIS THIRD AMENDED AND RESTATED LOAN AGREEMENT ("Loan Agreement") is
made as of the 31st day of October, 2002, by and among DIRECT GENERAL
CORPORATION, a Tennessee corporation whose address is ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ (formerly known as Direct Corporation) ("DGC" or
"Borrower"), DIRECT GENERAL FINANCIAL SERVICES INC., a Tennessee corporation
whose address is ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ("DGFS"),
FIRST TENNESSEE BANK NATIONAL ASSOCIATION, a national banking association
organized and existing under the statutes of the United States of America, with
offices at ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ("FTBNA"), for itself
and as agent for the other Banks hereinafter named, and HIBERNIA NATIONAL BANK,
a national banking association organized and existing under the laws of the
United States of America, with offices at ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ("Hibernia").
Recitals of Fact
DGC owns all of the common stock of DGFS, licensed as a premium finance
company under the provisions of Tennessee Premium Finance Company Act of 1980
(Title 56, Chapter 37 of Tennessee Code Annotated), of Direct Insurance Company,
a Tennessee corporation, licensed as an insurance company under the laws of the
State of Tennessee, and of the Agency Subsidiaries (hereinafter defined).
Prior to the execution of the Second Loan Agreement (hereinafter
defined), DGC requested that FTBNA, Hibernia, and Dresdner Bank AG, New York and
Grand Cayman Branches ("Dresdner") commit to make advances to it on a revolving
credit basis in an amount not to exceed at any one time outstanding the
aggregate principal sum of Fifteen Million Dollars ($15,000,000.00). FTBNA,
Hibernia, and Dresdner severally agreed to make such advances in proportion to
their Facility Commitments, subject to the terms and conditions set forth in
that certain Second Amended and Restated Loan Agreement, dated as of September
8, 1999 (as subsequently amended, the "Second Loan Agreement"), as amended by
that certain First Amendment to Second Amended and Restated Loan Agreement,
dated as of April __, 2001, that certain First Amendment to Loan Documents,
dated July __, 2001, and that certain Second Amendment to Loan Documents, dated
September 18, 2001. The Second Loan Agreement superseded and replaced in all
respects the First Loan Agreement (hereinafter defined).
Prior to the execution of the First Loan Agreement, DGC requested that
FTBNA, Hibernia, and Dresdner commit to make advances to it on a revolving
credit basis in an amount not to exceed at any one time outstanding the
aggregate principal sum of Fifteen Million Dollars ($15,000,000.00). FTBNA,
Hibernia, and Dresdner severally agreed to make such advances in proportion to
their Facility Commitments, subject to the terms and conditions set forth in
that certain First Amended and Restated Loan Agreement, dated as of July 31,
1998 (the "First Loan Agreement"). The First Loan Agreement superseded and
replaced in all respects the Original Loan Agreement (hereinafter defined).
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Prior to the execution of the Original Loan Agreement, DGC requested
that FTBNA, Hibernia, and Dresdner commit to make advances to it on a revolving
credit basis in an amount not to exceed at any one time outstanding the
aggregate principal sum of Fifteen Million Dollars ($15,000,000.00). FTBNA,
Hibernia, and Dresdner severally agreed to make such advances in proportion to
their Facility Commitments, subject to the terms and conditions set forth in
that certain Loan Agreement, dated October 3, 1996 (the "Original Loan
Agreement").
DGC has requested certain modifications to the terms of the
aforedescribed loan, including a reduction in the amount of the loan, and
Dresdner has ceased to participate in the loan. Therefore, in order to set forth
the terms and conditions of the Banks' Loan Amounts, the parties hereby enter
into this Loan Agreement.
NOW, THEREFORE, incorporating the Recitals of Fact set forth above and
in consideration of the mutual agreements herein contained, the parties agree as
follows:
Agreements
SECTION 1: DEFINITIONS AND ACCOUNTING TERMS
1.1 CERTAIN DEFINED TERMS. For the purposes of this Loan Agreement, the
following terms shall have the following meanings (such meanings to be
applicable equally to both the singular and plural forms of such terms) unless
the context otherwise requires:
"Advances" means advances of principal on the Loan by the Banks under
the terms of this Loan Agreement to DGC pursuant to Section 2.1.
"Affiliated Insurers" means, collectively, Affiliated Life Insurers and
Affiliated P&C Insurers.
"Affiliated Life Insurers" means Direct Life Insurance Company, a
Georgia corporation, and any other life insurance company wholly owned, directly
or indirectly, by DGC.
"Affiliated P&C Insurers" means DIC, DGIC, Direct General Insurance
Company of Mississippi, a Mississippi corporation, Direct General Insurance
Company of Louisiana, a Louisiana corporation and any other property and
casualty insurance company wholly owned, directly or indirectly, by DGC.
"Agency Subsidiaries" means, collectively, Direct General Insurance
Agency, Inc., a Tennessee corporation, Direct General Insurance Agency, Inc., an
Arkansas corporation, Direct General Insurance Agency, Inc., a Mississippi
corporation, Direct General Insurance Agency of Louisiana, Inc., a Louisiana
corporation, Direct General Agency of Kentucky, Inc., a Kentucky corporation,
Direct Adjusting Company, Inc., a Tennessee corporation, Direct Administration,
Inc., a Tennessee corporation, Direct General Insurance Agency, Inc., a Texas
corporation, and Direct General Consumer Products, Inc., a Tennessee
corporation.
"Agent" means FTBNA, and any successor appointed pursuant to the
provisions of Section 9 hereof.
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"Allowable Investments" shall mean, as to Affiliated Insurers, (a) any
investment in DGFS, another Affiliated Insurer, or in any Agency Subsidiary,
subject to any required prior approval or consent of the applicable insurance
regulatory authorities, (b) real estate owned and occupied by Affiliated
Insurers or Related Persons, (c) investments in real estate owned by DGC, and
(d) any investments expressly permitted by the insurance department regulations
and/or statutes of any state where any Affiliated Insurer is domiciled;
provided, however, that, notwithstanding the foregoing, (i) investments in
shares of stock of real estate companies (as permitted by clause (4)(B) of
Section 56-3-402, Tennessee Code Annotated) shall not be Allowable Investments;
(ii) municipal or corporate debt or securities which are either not rated by
▇▇▇▇▇'▇ Investors Service or Standard and Poor's Corporation or are rated less
than Baa2 by Moody's or less than BBB by Standard and Poor's shall not be
Allowable Investments; and (iii) nonliquid investments such as real estate and
real estate-related entities shall not be Allowable Investments except as
expressly permitted in clauses (b) and (c) of this paragraph.
"Banks" means, collectively, FTBNA (acting for itself and not as
Agent), Hibernia and any successor or assignee which at any time is a holder of
a Note.
"Business Day" means any day which is neither a Saturday or Sunday nor
any holiday upon which a Bank located in Memphis, Tennessee, or Baton Rouge,
Louisiana, is authorized or permitted to be closed.
"Commissioner" means, with respect to Tennessee, the Tennessee
Commissioner of Commerce and Insurance, and with respect to any other state the
administrative head of the department of such state charged with responsibility
for regulation of insurance companies.
"DGFS Banks" means, collectively, the Banks together with U.S. Bank
National Association, Regions Bank, Carolina First Bank and Bank One, NA (main
office - Chicago, Illinois.
"DGFS Loan" means the loan indebtedness from time to time outstanding
pursuant to the DGFS Loan Agreement, as the same may be amended, modified,
extended and/or restated from time to time.
"DGFS Loan Agreement" means that certain Eighth Amended and Restated
Loan Agreement dated October 31, 2002, among DGFS, as Borrower, DGC and others,
as guarantors, the Agent and the DGFS Banks, as the same may be amended,
modified, extended and/or restated from time to time.
"DGIC" means Direct General Insurance Company, a South Carolina
corporation.
"DIC" means Direct Insurance Company, a Tennessee corporation.
"Effective Date" shall mean the date set forth in the first paragraph
of this Loan Agreement.
"Event of Default" has the meaning assigned to that phrase in
Section 8.
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"FTBNA Note" means the Third Restated Note executed by DGC to FTBNA
which evidences FTBNA's Loan Amount and its proportion of the Loan,
substantially in the form attached hereto as EXHIBIT "C," as such note may be
modified, renewed or extended from time to time; and any other note or notes
executed at any time to evidence the indebtedness of DGC to FTBNA under this
Loan Agreement, in whole or in part, and any renewals, modifications and
extensions thereof, in whole or in part.
"GAAP" shall mean generally accepted accounting principles applied on a
basis consistent with the financial statements heretofore furnished to Agent.
"Guarantor" shall mean DGFS.
"Guaranty Agreement" shall mean the Third Amended and Restated Guaranty
Agreement executed by DGFS, dated as of the Effective Date, guaranteeing the
payment of indebtednesses of DGC to the Banks not to exceed Seven Million Five
Hundred Thousand Dollars ($7,500,000), plus interest and costs of collection.
"Hibernia Note" means the Third Restated Note executed by DGC to
Hibernia which evidences Hibernia's Loan Amount and its proportion of the Loan,
substantially in the form attached hereto as EXHIBIT "C," as such note may be
modified, renewed or extended from time to time; and any other note or notes
executed at any time to evidence the indebtedness of DGC to Hibernia under this
Loan Agreement, in whole or in part, and any renewals, modifications and
extensions thereof, in whole or in part.
"Installment Arrangement" means an agreement or arrangement (however
evidenced) pursuant to which a Policyholder agrees to pay an Agency Subsidiary
the premium cost on an insurance policy at a future date in one or more
installments, together with a service charge.
"Insurance Guaranty Fund" means the fund established under the statutes
or laws of any state to provide for the payment of claims against insolvent
insurance companies, including but not limited to the Tennessee Insurance
Guaranty Association Act (Tennessee Code Annotated Section ▇▇-▇▇-▇▇▇, et seq.).
"Junior Facility" means that certain credit facility between DGFS, DGC,
and ZC Specialty Insurance Company, as further described in the November 11,
2002 draft of the Junior Secured Credit Facility Term Sheet, which Borrower
contemplates entering into subsequent to the date hereof.
"Lien" means any interest in Property securing an obligation owed to,
or a claim by, a Person, whether such interest is based on the common law,
statute or contract, and including but not limited to the security interest or
lien arising from a deed of trust, mortgage, encumbrance, pledge, conditional
sale or trust receipt or a lease, consignment or bailment for security purposes,
and including but not limited to reservations, exceptions, encroachments,
easements, rights-of-way, covenants, conditions, restrictions, leases, and other
title exceptions and encumbrances affecting Property.
"Loan" means the aggregate indebtedness of DGC from time to time
outstanding pursuant to the provisions of this Loan Agreement.
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"Loan Agreement" means this Third Amended and Restated Loan Agreement
among DGC, DGFS, the Agent and the Banks.
"Loan Amounts" means, with respect ot each Bank, the amount of
Borrower's indebtedness to each under their respective Notes, as set forth on
EXHIBIT "B" hereto.
"Loan Documents" means this Loan Agreement, the Notes, the Security
Agreement, the Guaranty Agreement, the Pledge and Security Agreement and any
other instrument or document now or hereafter evidencing or securing the Loan.
"NAIC" means National Association of Insurance Commissioners.
"Notes" means the FTBNA Note and the Hibernia Note.
"Permitted Encumbrances" shall mean and include:
(a) liens for taxes, assessments or similar governmental
charges not in default or being contested in good faith by appropriate
proceedings;
(b) workmen's, vendors', mechanics' and materialmen's liens
and other liens imposed by law incurred in the ordinary course of
business, and easements and encumbrances which are not substantial in
character or amount and do not materially detract from the value or
interfere with the intended use of the properties subject thereto and
affected thereby;
(c) liens in respect of pledges or deposits under social
security laws, workmen's compensation laws, unemployment insurance or
similar legislation and in respect of pledges or deposits to secure
bids, tenders, contracts (other than contracts for the payment of
money), leases or statutory obligations;
(d) the security interest in favor of the Agent for the
benefit of the DGFS Banks, securing the DGFS Loan;
(e) those certain other liens and encumbrances as set out on
EXHIBIT "D" hereto; and
(f) liens arising in connection with the Junior Facility.
"Person" means an individual, partnership, corporation, trust,
unincorporated organization, association, joint venture or a government or
agency or political subdivision thereof.
"Pledge and Security Agreement" means the Third Amended and Restated
Pledge and Security Agreement of even date herewith, pursuant to which DGC has
granted to Agent for the benefit of the Banks a security interest in all of the
stock in all Agency Subsidiaries and all Affiliated Insurers directly owned by
DGC, as security for its obligations under the Guaranty Agreement.
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"Policyholder" means an owner of an insurance policy the premiums on
which are financed by DGFS under a Premium Finance Agreement or by an Agency
Subsidiary under an Installment Arrangement.
"Premium Finance Agreement" means an agreement (however evidenced) by
which a Policyholder agrees to pay DGFS the premium cost on an insurance policy
at a future date in one or more installments, together with a finance charge.
"Property" means any interest in any kind of property or asset, whether
real, personal or mixed, tangible or intangible.
"Receivable" means all accounts and accounts receivable of DGFS; all
amounts owed to DGFS under any Premium Finance Agreement, any other agreement or
any instrument evidencing indebtedness of any Policyholder to DGFS; all amounts
owed to an Agency Subsidiary by any Policyholder pursuant to an Installment
Arrangement and assigned by the Agency Subsidiary to DGFS; and the amount of any
unearned premium at any time owed by an insurer or by an Insurance Guaranty Fund
to a Policyholder (and assigned to DGFS) or owed to DGFS.
"Reinsurer" means an insurance company which reinsures risks and policy
liabilities of an Affiliated Insurer and to which the Affiliated Insurer cedes
risk and policy liabilities under a contract of reinsurance.
"Related Person" means DGC, DGFS, the Agency Subsidiaries, any
Affiliated Insurer and any other Person (a) which now or hereafter directly or
indirectly through one or more intermediaries controls, or is controlled by, or
is under common control with, DGC, DGFS, any Agency Subsidiary, or any
Affiliated Insurer, or (b) which now or hereafter beneficially owns or holds
five percent (5%) or more of the capital stock of DGC, DGFS, any Agency
Subsidiary, or any Affiliated Insurer, or (c) five percent (5%) or more of the
capital stock, partnership interest or other form of ownership interest of which
is beneficially owned or held by DGC, DGFS, any Agency Subsidiary, or any
Affiliated Insurer. For the purposes hereof, "control" shall mean possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of voting
stock or interests, by contract or otherwise.
"Required Banks" shall mean Banks which hold, in the aggregate,
sixty-six percent (66%) (in principal dollar amount) of the outstanding Loan
indebtedness.
"Securities Purchase Agreement" means that certain Series A Convertible
Preferred Securities Purchase Agreement among DGC, SSM Venture Partners, L.P.,
Noro-▇▇▇▇▇▇ Partners II, L.P., and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ dated December 2, 1994.
"Security Agreement" means the Third Restated Security Agreement of
even date herewith, pursuant to which DGFS has assigned and pledged Receivables
and other contractual rights to the Agent for the benefit of the Banks as
security for the Loan.
"Statutory Accounting Basis" means a basis of accounting or financial
reporting which is prescribed or permitted by the state of domicile of the
reporting entity and is in accordance with
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the NAIC Accounting Practices and Procedures Manual in effect for the period
covered by the financial report or statement.
"Subordinated Debt" means any indebtedness owed by DGC or DGFS to any
Person which indebtedness has, by formal, binding agreement, in form and
substance satisfactory to the Required Banks, been deferred and subordinated in
priority of payment to the indebtedness and obligations of DGC and DGFS to the
Banks, which shall specifically include the Junior Facility and any classes of
preferred DGC stock which now or in the future could be classified as debt.
"Tangible Net Worth" means the excess of the book value of the assets
of DGC or DGFS, as applicable, over its liabilities calculated in accordance
with GAAP, provided, however, that in performing such calculation there shall be
(a) excluded from the assets of DGC or DGFS, as applicable, (i) start-up costs,
goodwill and covenants not to compete, and (ii) receivables from employees or
Related Persons other than unearned premiums due or claims receivable from
Affiliated Insurers and Agency Subsidiaries in the ordinary course of business,
and (b) included, as equity of DGC and DGFS (and excluded from liabilities), any
Subordinated Debt.
1.2 DEFINED TERMS RELATING TO FINANCIAL STANDARDS PERTAINING TO
AFFILIATED INSURERS. For purposes of Section 8 hereof, the following terms shall
have the following meanings, construed on the Statutory Accounting Basis:
"Affiliated Insurer Liquid Assets" means cash, plus cash equivalents,
plus Allowable Investments (but excluding from Allowable Investments investments
by any Affiliated Insurer in DGC, DGFS or any Related Person, real estate owned
by Affiliated Insurers or upon which an Affiliated Insurer holds a mortgage, and
investments permitted by subparagraph (16) of Section 56-3-402 of Tennessee Code
Annotated, as in effect from time to time), plus amounts due Affiliated Insurers
from DGFS, plus amounts due from Reinsurers, plus any amounts paid as Federal
income tax which are receivable or recoverable, minus amounts due to Reinsurers.
"Available Dividend" means, with respect to any Affiliated Insurer for
any consecutive four (4) fiscal quarters, the aggregate maximum amount of
dividends that is or would be permitted by the insurance regulatory authority of
its jurisdiction of domicile, under applicable requirements of law (without the
necessity of any consent, approval or other action of such insurance regulatory
authority involving the granting of permission or the exercise of discretion by
such insurance regulatory authority), to be paid by such Affiliated Insurer to
DGC in respect of such four (4) quarter period as if such period were a fiscal
year (whether or not such dividends are actually declared or paid).
"Capital Adequacy Ratio" means the ratio (on a rolling twelve (12)
month basis) of net written premiums to policyholder surplus.
"DGC Liquid Assets" means, on an unconsolidated basis, the sum of (a)
Affiliated Insurer Liquid Assets (as defined in Section 1.2), plus (b) cash of
DGC and DGFS, plus cash equivalents of DGC and DGFS, plus municipal or corporate
debt securities of DGC and DGFS rated Baa2 or better by ▇▇▇▇▇'▇ Investors
Service or BBB or better by Standard and Poor's Corporation, plus U.S. Treasury
and U.S. Government Agency obligations of DGC and DGFS,
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plus any other investments requested by DGC and approved by the Required Banks,
all marked to market unless determined under GAAP to be held to maturity, and on
a consolidating basis for all such companies.
"Liquidity Ratio" means the ratio of (a) Affiliated Insurers Liquid
Assets minus aggregate loss reserves of all Affiliated Insurers, plus DGC Liquid
Assets, to (b) aggregate unearned premiums of all Affiliated Insurers.
"NAIC Risk Based Capital" means the results of the formula and
methodology adopted by NAIC, as amended from time to time, for measuring capital
adequacy after considering the risk of particular assets and lines of business.
1.3 ACCOUNTING TERMS. All accounting terms not specifically defined
herein with respect to Affiliated Insurers or with respect to the business of
insurance shall be construed on a Statutory Accounting Basis (unless otherwise
herein specified). All other accounting terms not specifically defined herein
shall be construed in accordance with GAAP.
SECTION 2: TERMS OF THE LOAN
2.1 THE NOTES. The Loan shall be evidenced by the Notes, and shall bear
interest and shall be due and payable as therein set out.
2.2 FEES AND CHARGES. (a) On the Effective Date, DGC agrees to pay to
the Agent for the benefit of the Banks an extension fee equal to One Hundred
Four Thousand Dollars ($104,000.00). On June 30, 2003, and on the last day of
each September, December, March and June thereafter, DGC agrees to pay in
advance to the Agent for the benefit of the Banks an extension fee equal to two
percent (2.0%) of the then outstanding Loan amount on a per annum basis. DGC and
DGFS agree that the extension fee is fair and reasonable considering the
condition of the money market, the creditworthiness of DGC, the interest rate to
be paid, and the nature of the security for the Loan.
(b) In the event that DGC and Banks shall hereafter mutually agree to
extend the term of the Loan, they may also agree at that time as to additional
fees to be paid to the Banks, but not to exceed the maximum permitted by
applicable law.
2.3 PREPAYMENTS OR TERMINATION OF THE LOAN. Subject to the terms and
conditions hereof and of the Notes, DGC may at any time, at its option, prepay
the Loan without any prepayment premium, provided that the Loan and all interest
thereon (and any other indebtedness which may then be outstanding and which is
secured by the collateral which secures the Loan) shall have been paid in full,
Agent shall thereupon at DGC's request release its security interest under the
Security Agreement and the Pledge Agreement (though not under any other security
agreement or instrument held by the Agent to secure any other loan indebtedness,
including, but not limited to, the DGFS Loan).
2.4 PRO RATA TREATMENT AND PAYMENTS. (a) [Intentionally Deleted]
(b) All payments (including prepayments) to be made by DGC on account
of principal, interest and fees shall be made without set-off or counterclaim
and shall be made to the Agent,
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for the account of the Banks at the Agent's office located at ▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, in lawful money of the United States of
America and in immediately available funds. The Agent shall promptly distribute
such payments upon receipt in like funds as received in proportion to their
respective Loan Amounts; provided, however, that in the event that the
indebtedness of DGC to the Banks at any time is not in proportion to their
respective Loan Amounts (as a result of receipt by a Bank of a payment not
shared pro rata with the other Banks, expense incurred in connection herewith
not borne proportionately by the Banks or otherwise), further payments shall be
paid to the Bank or Banks to which DGC's indebtedness is disproportionately
greater than such Banks' pro rata share until such proportionality is
reestablished.
(c) [Intentionally Deleted]
(d) Each Bank agrees to bear its pro rata share of the risks of the
collectibility of the Loan, of DGC's and DGFS's financial condition, of any
fraud or forgery of DGC or DGFS, of the non-enforceability of the Loan
Documents, of usury or claims of usury, whether valid or invalid, and of the
adequacy of the security for the Loan; and the Banks shall share in accordance
with their respective Loan Amounts any losses and expenses sustained or incurred
in connection with the Loan. If under any bankruptcy, insolvency, fraudulent
transfer or other law affecting the rights of creditors generally, any Bank is
required by a court to return any sum previously collected by that Bank, the
other Banks will promptly repay to such Bank their pro rata shares of such sums.
(e) Notwithstanding the foregoing or any other provision set forth in
this Loan Agreement, DGC shall be permitted to prepay in whole, but not in part,
the indebtedness evidenced by any Note if DGC incurs expenses pursuant to the
terms of such Note in addition to principal and interest required to be paid
under such Note, as long as no Event of Default, or any event which, with
notice, lapse of time, or both, would constitute an Event of Default, shall have
occurred and be continuing hereunder or under any of the Loan Documents. Any
such prepayment shall be made in accordance with the terms and provisions of the
applicable Note, after two (2) Business Days' prior written notice to Agent, and
shall be accompanied by all accrued and unpaid interest on such Note and other
amounts owing thereunder. Upon the prepayment of any such Note(s), the aggregate
commitment amount set forth in Section 2.1(a) hereof shall be reduced by an
amount equal to the Loan Amount of the Bank(s) to which the prepaid Note(s) was
payable. This Section 2.4(e) sets forth the only circumstances under which any
one or more of the Notes may be prepaid in any manner other than on a pro rata
basis with all of the Notes.
SECTION 3: PLACE AND TIME OF PAYMENT, ETC.
3.1 [INTENTIONALLY OMITTED.]
3.2 PLACE OF PAYMENTS. All payments of principal and interest on the
Loan and all payments of fees required hereunder shall be made to the Agent, at
its address listed in Section 10.2 of this Agreement in immediately available
funds.
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3.3 TIME OF PAYMENTS. All payments of principal, interest or fees shall
be made so as to be received by Agent not later than 10:30 A.M. central time
(standard or daylight savings, as applicable) on the date such payment is due.
If so received by Agent, Agent shall use its reasonable efforts to send to each
Bank such Bank's pro rata share of such payment, as applicable, prior to 2:00
P.M. central time (standard or daylight savings, as applicable) on the date
received.
3.4 PAYMENT ON NON-BUSINESS DAYS. Whenever any payment of principal,
interest or fees to be made on the indebtednesses evidenced by the Notes shall
fall due on a day which is not a Business Day, such payment shall be made on the
next succeeding Business Day.
SECTION 4: CONDITIONS OF LENDING
4.1 CONDITIONS PRECEDENT TO CLOSING AND FUNDING THE LOAN. The
obligations of the Banks to fund their respective Loan Amounts from and after
the Effective Date are subject to the condition precedent that the Agent shall
have received, on or before the Effective Date, or such later date acceptable to
the Agent and Banks in their sole discretion, all of the following in form and
substance satisfactory to the Agent:
(a) This Loan Agreement.
(b) The Notes.
(c) The Security Agreement, together with such financing
statements or amendments thereto as Agent may require to perfect its
security interest therein.
(d) The Guaranty Agreement, unconditionally guaranteeing the
indebtedness of DGC.
(e) The Pledge and Security Agreement.
(f) Certified corporate resolutions of DGC and DGFS.
(g) The opinion of counsel for DGC and DGFS (i) that the
transactions herein contemplated have been duly authorized on behalf of
such corporations by all requisite corporate authority, (ii) that this
Loan Agreement and the other instruments and documents herein referred
to have been duly authorized, validly executed and are in full force
and effect, (iii) that, insofar as the laws of the State of Tennessee
are concerned, the Agent, for the benefit of the Banks, has a duly
perfected first security interest in all collateral described in the
Security Agreement and the Pledge and Security Agreement, (iv) that DGC
and DGFS are duly organized, validly existing and in good standing in
the state of their incorporation, (v) that to the best knowledge of
such counsel DGC, DGFS and all Agency Subsidiaries and all Affiliated
Insurers are in compliance in all material respects with all insurance
laws and regulations and premium finance company laws and regulations
of the State of Tennessee, and (vi) pertaining to such other matters as
the Agent may require.
(h) Current financial statements of DGC and DGFS in form
satisfactory to the Agent.
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(i) UCC lien searches from such recording offices as Agent
shall specify, evidencing the priority of the Agent's lien under the
Security Agreement over any other liens or encumbrances.
(j) A notification of assignment of interest in unearned
premium, in form satisfactory to the Agent, signed by each insurer
issuing policies, the premiums of which are financed under Premium
Finance Agreements or Installment Arrangements and evidence of the
delivery of such notice to the insurance guaranty funds of the states
in which such insurers are doing business, if required in order to
perfect a security interest in amounts payable from the insurance
guaranty fund of said state.
(k) Such other information and documentation as Agent shall
deem to be necessary or desirable in connection with the funding of the
Loan.
4.2 CONDITIONS PRECEDENT TO ALL ADVANCES. The obligation of the Agent
and the Banks to make Advances pursuant hereto shall be subject to the following
additional conditions precedent:
(a) DGC shall have furnished to the Agent each of the items
referred to in Section 4.1 hereof, all of which shall remain in full
force and effect as of the date of such Advance (notwithstanding that
the Agent may not have required any such item to be furnished on or
prior to the Effective Date).
(b) DGC shall not be in default of any of the terms and
provisions hereof, or any instrument or document now or at any time
hereafter evidencing or securing all or any part of the Loan or DGFS
Loan indebtedness. Each of the Warranties and Representations of DGC
and DGFS, as set out in Section 5 hereof shall remain true and correct
in all material respects as of the date of such Advance.
SECTION 5: REPRESENTATIONS AND WARRANTIES
DGC and DGFS jointly and severally represent and warrant that:
5.1 INCORPORATION. Each of DGC, DGFS, the Agency Subsidiaries and the
Affiliated Insurers is a corporation duly organized, validly existing and in
good standing under the laws of the State of its incorporation; each has the
power and authority to own its properties and assets and is duly qualified to
carry on its business in every jurisdiction wherein such qualification is
necessary.
5.2 POWER AND AUTHORITY. The execution, delivery and performance of the
Loan Agreement, the Notes and the Pledge and Security Agreement, by DGC, of the
Guaranty Agreement and of the Security Agreement by DGFS have been duly
authorized by all requisite action and will not violate any provision of law,
any order of any court or other agency of government, the Charter or Certificate
of Incorporation or Bylaws of DGC or DGFS, any provision of any indenture,
agreement or other instrument to which DGC or DGFS is a party, or by which DGC's
and DGFS's respective properties or assets are bound, or be in conflict with,
result in a breach of, or constitute (with due notice or lapse of time or both)
a default under any such indenture, agreement or other instrument, or result in
the creation or imposition of any lien, charge or encumbrance of any nature
whatsoever upon any of the properties or assets of DGC or
-11-
DGFS, except for liens and other encumbrances provided for and securing the
indebtedness covered by this Loan Agreement.
5.3 FINANCIAL CONDITION. (a) Copies of the following financial
statements have been furnished to the Agent: (i) DIC audited (Statutory Basis)
financial statements for the year ended December 31, 2001; (ii) DGC audited
(GAAP Basis) consolidated financial statements for the year ended December 31,
2001; (iii) DGFS preliminary unaudited (GAAP Basis) balance sheet and income
statement for the period ended June 30, 2002; and (iv) DGC preliminary unaudited
(GAAP Basis) consolidated financial statements for the period ended June 30,
2002.
(b) There has been no material adverse change in the business,
properties or condition, financial or otherwise, of DGC, DGFS, or any Affiliated
Insurer since June 30, 2002.
5.4 TITLE TO ASSETS. Except as disclosed in EXHIBIT "E," DGC, DGFS,
each Affiliated Insurer and each Agency Subsidiary has good and marketable title
to all properties and assets as reflected in the balance sheets of the financial
statements referred to in Section 5.3. None of the Receivables is evidenced by a
Negotiable Instrument (as defined in the Uniform Commercial Code in effect in
the state of Tennessee); and the Agent has valid, perfected security interests
for the benefit of the Banks in the collateral described in the Security
Agreement and the Security and Pledge Agreement, which are subject in priority
only to the liens in favor of the Agent securing the DGFS Loan.
5.5 LITIGATION. Except as disclosed in EXHIBIT "E," there is no action,
suit or proceeding at law or in equity or by or before any governmental
instrumentality or other agency now pending, or, to the knowledge of DGC or DGFS
threatened against or affecting DGC, DGFS, any Affiliated Insurer or any Agency
Subsidiary (other than those provided for, if any, in financial statements
referred to in Section 5.3), not otherwise covered by insurance which would
otherwise materially affect the financial condition of DGFS, DGC or any
Affiliated Insurer.
5.6 TAXES. Except as disclosed on EXHIBIT "E," each of DGC, DGFS, the
Agency Subsidiaries and Affiliated Insurers has filed or caused to be filed all
federal, state or local tax returns which are required to be filed, and has paid
all taxes as shown on said returns or on any assessment received by it, to the
extent that such taxes have become due, except (i) as otherwise permitted by the
provisions hereof, or (ii) those taxes or assessments the nonpayment of which
would not have a material adverse effect on the financial condition of Borrower,
DGC or any Affiliated Insurer; provided that, in either case, such amount shall
not exceed the aggregate amount of Two Hundred Thousand Dollars ($200,000.00).
5.7 CONTRACTS OR RESTRICTIONS. None of DGC, DGFS, any Agency
Subsidiary, or any Affiliated Insurer is a party to any agreement or instrument
or subject to any charter or other corporate restrictions materially adversely
affecting its business, properties or assets, operations or condition (financial
or otherwise).
5.8 NO DEFAULT. None of DGC, DGFS, any Agency Subsidiary or any
Affiliated Insurer is in default in the performance, observance or fulfillment
of any of the obligations, covenants, or conditions contained in any agreement
or instrument to which it is a party, which default if not cured would
materially and substantially affect the financial condition, property or
operations of
-12-
any such Person. As of the Effective Date, except as discussed in EXHIBIT "E,"
none of DGC, DGFS, any Agency Subsidiary or any Affiliated Insurer is in default
in the performance, observance or fulfillment of any of the obligations,
covenants, or conditions contained in this Loan Agreement.
5.9 PATENTS AND TRADEMARKS. Each of DGC, DGFS, the Agency Subsidiaries
and Affiliated Insurers possesses all patents, trademarks, trade names,
copyrights, and licenses necessary to the conduct of its business.
5.10 ERISA. Each of DGC, DGFS, the Agency Subsidiaries and Affiliated
Insurers is in material compliance with all applicable provisions of the
Employees Retirement Income Security Act of 1974 ("ERISA") and all other laws,
state or federal, applicable to any employees' retirement plan maintained or
established by it.
5.11 SUBSIDIARIES. Neither Borrower, any Agency Subsidiary nor any
Affiliated Insurer owns all or a substantial part of the stock (or other
ownership interest) in any corporation (or other form of business organization),
except for that of another Agency Subsidiary or Affiliated Insurer. DGC owns,
directly or indirectly, all of the outstanding stock in the Affiliated Insurers,
DGFS (exclusive of DGIC's preferred stock in DGFS) and the Agency Subsidiaries.
DGC does not own all or a substantial part of the stock (or other ownership
interest) in any other corporation (or other forms of business organization),
except for Direct Insurance Agency Midwest, Inc., a Minnesota corporation.
5.12 FORM OF PREMIUM FINANCE AGREEMENT. The forms of Premium Finance
Agreement furnished to the Agent by DGFS, are the forms which are used for all
presently outstanding Premium Finance Agreements, and such forms are the same
forms attached as Exhibits "G-1," "G-2" and "G-3" to the DGFS Loan Agreement
executed in connection with the DGFS Loan and such forms have not been revised
or amended since the date of such DGFS Loan Agreement except for non-substantive
formatting changes. As of the date hereof, there are no Installment Arrangements
in use by Borrower or any Agency Subsidiary.
SECTION 6: AFFIRMATIVE COVENANTS
DGC and DGFS covenant and agree that from the Effective Date and until
payment in full of the principal of and interest on indebtednesses evidenced by
the Notes, unless the Required Banks shall otherwise consent in writing, DGC and
DGFS will:
6.1 BUSINESS AND EXISTENCE. Perform all things necessary to preserve
and keep in full force and effect each of DGC's, DGFS's, each Agency
Subsidiary's and each Affiliated Insurer's existence, rights, licenses and
franchises, comply in all material respects with all laws applicable to each
such Person (including, but not limited to, licensing laws of the states in
which they conduct business), and continue to conduct and operate their
respective businesses substantially as conducted and operated during the present
and preceding calendar years, except as allowed by Section 7.7 hereof.
6.2 MAINTAIN PROPERTY. Maintain, preserve, and protect all leases,
franchises, and trade names and preserve all the remainder of the properties
used or useful in the conduct of the business of DGC, DGFS, the Agency
Subsidiaries and Affiliated Insurers substantially as
-13-
conducted and operated during the present and preceding fiscal year (subject to
normal wear and tear), so that the business carried on in connection therewith
may be properly conducted at all times.
6.3 OBLIGATIONS, TAXES, LIENS AND INSURANCE. Pay and cause each
Affiliated Insurer to pay, all of their respective indebtednesses and
obligations promptly in accordance with normal terms and practices of their
businesses; maintain such insurance coverage as is customary for similar
businesses; and pay and discharge or cause to be paid and discharged promptly
all taxes, assessments, and governmental charges or levies imposed upon them or
upon any of their income and profits, or upon any of their properties, real,
personal or mixed, or upon any part thereof, before the same shall become in
default, as well as all lawful claims for labor, materials, and supplies which
otherwise, if unpaid, might become a lien or charge upon such properties or any
part thereof; provided, however, that no such Person shall be required to pay
and discharge or to cause to be paid and discharged any such tax, assessment,
trade payable, charge, levy or claim so long as the validity thereof shall be
contested in good faith by appropriate proceedings satisfactory to Agent, and
Agent shall be furnished, if Agent shall so request, bond or other security
protecting it against loss in the event that such contest should be adversely
determined.
6.4 FINANCIAL REPORTS AND OTHER DATA. Furnish or cause to be furnished
to each of the Banks as soon as available and in any event:
(a) Within one hundred fifty (150) days after the end of each
fiscal year of DGC an unqualified audit of DGC and its subsidiaries on
a consolidated and consolidating basis, as of the close of such fiscal
year, including a balance sheet and statement of income and surplus,
with notes thereon, together with the unqualified audit report and
opinion of an independent Certified Public Accountant acceptable to the
Required Banks, showing the financial condition of DGC and its
subsidiaries at the close of such year and the results of operations
during such year, such financial statements to be prepared in
accordance with GAAP;
(b) Within sixty-five (65) days after the end of each fiscal
year of each Affiliated Insurer unaudited financial statements prepared
on a Statutory Accounting Basis in the form required to be filed with
the Commissioner;
(c) Within ninety (90) days after the end of each fiscal year
of DGC unaudited, consolidated and consolidating financial statements
of DGC;
(d) Within one hundred fifty (150) days after the end of each
fiscal year of each Affiliated Insurer, an audit of such Affiliated
Insurer and its subsidiaries, as prescribed by its state of domicile,
as of the close of such fiscal year, together with the audit report and
opinion of said independent Certified Public Accountant, showing the
financial condition of such Affiliated Insurer and its subsidiaries at
the close of such year and the results of operations during such year,
such financial statements to be prepared on the Statutory Accounting
Basis and to contain no qualifications which are unacceptable to the
Required Banks;
(e) Within forty-five (45) days after the end of each fiscal
quarter, financial statements of DGC, such financial statements to
include an income statement and balance sheet, certified as accurate by
an officer of DGC; and
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(f) Within forty-five (45) days after the end of each fiscal
quarter, quarterly financial statements for each Affiliated Insurer
prepared on a Statutory Accounting Basis, in the form required to be
filed with the Commissioner.
6.5 NOTICE OF DEFAULT. At the time of DGC's or DGFS's first knowledge
or notice, promptly furnish Agent with written notice of the occurrence of any
event or the existence of any condition which constitutes or upon written notice
or lapse of time or both would constitute an Event of Default under the terms of
this Loan Agreement.
6.6 FURTHER ASSURANCES. Furnish such other information regarding the
operations, business affairs and financial condition of DGC, DGFS, each Agency
Subsidiary and each Affiliated Insurer, and execute and/or deliver all such
other instruments and documents as any Bank may reasonably request, including,
but not limited to, originals of premium finance contracts and any other
instrument or document at any time evidencing or governing any indebtedness of a
Policyholder to DGFS, written confirmation of requests for Advances, true and
exact copies of its books of account and tax returns, and all information
furnished to any governmental authority, and permit the copying of the same.
6.7 RIGHT OF INSPECTION; FIELD AUDIT. Permit any person designated by
any Bank, at that Bank's expense, to visit and inspect any of the properties,
books and financial reports of DGC, DGFS, the Agency Subsidiaries and Affiliated
Insurers, and to discuss their affairs, finances and accounts with their
principal officers, at all such reasonable times and as often as such Bank may
reasonably request. The parties recognize and acknowledge that the Agent intends
to engage the services of an independent audit firm to audit the Receivables,
procedures and systems of DGC at an anticipated frequency of once per year.
6.8 NOTICE OF ADVERSE CHANGE IN ASSETS. At the time of DGC's or DGFS's
first knowledge or notice, immediately notify Agent of any information that may
adversely affect in any material manner the assets or business operations of
DGC, DGFS, any Agency Subsidiary or any Affiliated Insurer, including, but not
limited to, any change of a state insurance law or regulation or the application
thereof by the Commissioner, and administrative or judicial proceedings
initiated or threatened against DGC, DGFS, any Agency Subsidiary or any
Affiliated Insurer by any governmental agency or instrumentality.
6.9 CHANGES IN MATTERS DISCLOSED. At the time of DGC's or DGFS's first
knowledge or notice, immediately notify Agent of any material adverse
developments or changes in any of the matters referred to in Sections 5.4, 5.5,
5.6 and 5.8 hereof.
6.10 COMPLIANCE CERTIFICATE. Furnish to each of the Banks concurrently
with the furnishing of each financial statement or report required hereunder, a
Compliance Certificate substantially in the form of EXHIBIT "G" attached hereto,
together with all supporting documentation.
6.11 MINIMUM CONSOLIDATED NET INCOME. Maintain, beginning December 31,
2002, as to DGC on a consolidated basis, on a rolling four (4) quarter basis, as
of the end of each fiscal quarter net income after taxes (GAAP basis) of at
least Ten Million Dollars ($10,000,000.00).
-15-
6.12 LOAN AMOUNT TO NET WORTH. Maintain as to DGC at all times
beginning on the Effective Date a ratio of (i) the sum of the total disbursed
and unpaid principal balances of the Loan, the DGFS Loan and Junior Facility
outstanding from time to time, to (ii) Tangible Net Worth (as defined in Section
1), of less than 3.0 to 1.0, declining to 2.25 to 1.0 upon the closing of the
Junior Facility or completion of an initial public offering by DGC of not less
than Fifty Million Dollars ($50,000,000.00).
6.13 TANGIBLE NET WORTH. Maintain at all times beginning on the
Effective Date a Tangible Net Worth (as defined in Section 1) of not less than
(a) as to DGFS, Six Million Five Hundred Thousand Dollars ($6,500,000.00); and
(b) as to DGC, Forty-Four Million Dollars ($44,000,000.00), and provided further
that, with respect to DGC only, such Tangible Net Worth calculation shall be (x)
decreased by (i) 100% of the goodwill purchase price associated with DGC's
contemplated purchase of Cash Register, Inc. and (ii) 100% of the amount of any
treasury stock purchase of DGC common stock currently held by Mutual Service
Casualty Insurance Company, and (y) (i) commencing in DGC's fiscal fourth
quarter, increased by 25% of all future net income after taxes, measured at the
end of each fiscal quarter, and (ii) increased by 50% of the amount of any
equity proceeds realized from any equity placement or offering.
6.14 RATIO OF ELIGIBLE RECEIVABLES TO DEBT. Maintain at all times after
the Effective Date a ratio of (a) Eligible Receivables, to (b) the aggregate
unpaid principal balances of the DGFS Loan plus the DGFS's net indebtedness to
insurers related to premiums financed on behalf of insureds plus the aggregate
unpaid principal balance of the Junior Facility that has been advanced to DGFS,
of not less than 1.05 to 1.0. For purposes hereof, "Eligible Receivables" shall
have the meaning ascribed thereto in the DGFS Loan Agreement.
6.15 RATIO OF UNEARNED PREMIUMS TO LOAN AMOUNT. Maintain at all times
after the Effective Date a ratio of (a) unearned premiums assigned to DGFS as
collateral for Policyholder obligations under Premium Finance Agreements and
Installment Arrangements, and pledged by DGFS to the Agent as collateral for the
DGFS Loan, plus receivables from insurers qualifying under clause (b) of the
definition of Eligible Receivables, to (b) the aggregate outstanding Loan
amount, of not less than 1.1 to 1.0, provided that the amount of unearned
premiums shall be decreased by the amount of any monthly premium settlements
which are greater than 30 days past due from DGFS to any Affiliated Insurer. For
purposes hereof, "Eligible Receivables" shall have the meaning ascribed thereto
in the DGFS Loan Agreement.
6.16 DEBT SERVICE COVERAGE RATIO. Maintain as to DGC as of the end of
each fiscal quarter, beginning December 31, 2002, a ratio (the "Debt Service
Coverage Ratio") of (a) net income plus interest plus taxes plus depreciation
plus amortization (herein "EBITDA") of DGC on a consolidated basis for such
quarter and the three (3) preceding fiscal quarters to (b) Debt Service
(hereinafter defined) during the same period of four (4) fiscal quarters, of not
less than 1.50 to 1.0. For purposes hereof, "Debt Service" shall mean the sum of
(w) all scheduled principal payments plus paid interest plus accrued interest as
to the Loans, (x) all interest and borrowing costs incurred in connection with
the Junior Facility, (y) preferred stock dividends and (z) the amount of
principal payment requirements on this Loan.
6.17 NOTIFICATION OF PREMIUM FINANCE. Promptly upon the extension of
credit under a Premium Finance Agreement or Installment Arrangement, send to the
insurer issuing the policy
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the premiums on which are being financed, a copy of the specific Premium Finance
Agreement or Installment Arrangement, as applicable, or otherwise notify said
insurer of the assignment by the insured to DGFS of the rights to unearned
premiums.
6.18 MINIMUM CAPITAL SURPLUS OF AFFILIATED INSURERS. Maintain as to DGC
at all times hereafter, commencing December 31, 2002, a minimum capital surplus
(including surplus notes) of all Affiliated Insurers on a combined GAAP basis of
not less than Forty-Five Million Dollars ($45,000,000.00), increased by the
amount of any capital surplus realized from DGFS's and/or DGC's closing of the
Junior Facility.
SECTION 7: NEGATIVE COVENANTS
Each of DGC, DGFS and the Agency Subsidiaries covenants and agrees that
at all times from and after the Effective Date, unless the Required Banks shall
otherwise consent in writing, it will not, either directly or indirectly:
7.1 INDEBTEDNESS. Incur, create, assume or permit to exist against DGC,
DGFS, any Agency Subsidiary or any Affiliated Insurer any indebtedness or
liability, including, but not limited to, indebtedness evidenced by notes,
bonds, debentures or similar obligations, except:
(a) Indebtedness of DGC to the Banks pursuant to this Loan
Agreement;
(b) Trade accounts payable, taxes payable, accrued employees'
bonuses and withheld amounts, accrued liabilities with respect to
contributions to pension plans and other similar short-term obligations
incurred by DGC, DGFS, the Agency Subsidiaries or any Affiliated
Insurer in the normal course of operating its business (and not for
borrowed money), provided that the amount of such obligations shall not
be unduly large, in the reasonable judgment of the Agent, considering
the size and nature of its business, and provided that it shall not be
in default with respect to any of such obligations;
(c) Indebtedness of DGFS to the DGFS Banks pursuant to the
DGFS Loan;
(d) Leases of offices, furniture and equipment in the ordinary
course of business;
(e) Indebtedness of DGFS and/or DGC pursuant to the Junior
Facility; and
(f) A loan or loans to Borrower from FTB not to exceed Four
Million Dollars ($4,000,000.00);
provided, however, the Agency Subsidiaries may incur indebtedness owed to one or
more institutional lenders for the purpose of funding short-term working capital
needs not to exceed in the aggregate Two Million Dollars ($2,000,000.00).
7.2 MORTGAGES, LIENS, ETC. Create, assume or suffer to exist any
mortgage, pledge, lien, charge or other encumbrance of any nature whatsoever on
any of the assets of DGC, DGFS, any Agency Subsidiary or any Affiliated Insurer,
now or hereafter owned, except for:
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(a) Liens securing payment of the Notes;
(b) Liens securing the DGFS Loan;
(c) Junior, subordinated Liens securing payment of the Junior
Facility; and
(d) Permitted Encumbrances.
7.3 GUARANTEES. Guarantee or otherwise in any way become or be
responsible for, or permit any Affiliated Insurer to guarantee or otherwise in
any way become or be responsible for, the indebtedness or obligations of any
other Person, by any means whatsoever, whether by agreement to purchase the
indebtedness of any other Person or agreement for the furnishing of funds to any
other Person, for the purpose of paying or discharging the indebtedness of any
other Person, or otherwise, without the prior written consent of the Required
Banks, except for the endorsement of negotiable instruments by DGC, DGFS, the
Agency Subsidiaries or Affiliated Insurers in the ordinary course of business
for collection, except for the obligation of DGFS pursuant to the Guaranty
Agreement, except for the liability (whether direct or contingent) of DGC, DGFS
and the Agency Subsidiaries for the DGFS Loan, except for the guaranty by DGC of
indebtedness of the Agency Subsidiaries permitted under Section 7.1 hereof and
except for the guaranty by DGC of any obligation of any Agency Subsidiaries or
Affiliated Insurers, and except for any guaranty given in connection with the
Junior Facility, provided such obligation is not prohibited by this Loan
Agreement and does not cause DGC to be in default under any other provision of
this Loan Agreement.
7.4 SALE OF ASSETS. Sell, lease, transfer or dispose of all or a
substantial part of its assets, or permit any Affiliated Insurer to sell, lease,
transfer or dispose of all or a substantial part of its assets, except for sales
in the ordinary course of business and sales or leases of DIC-owned real estate,
computers or other fixed assets.
7.5 LOANS AND INVESTMENTS. Make, or permit an Affiliated Insurer to
make any loans to or investments in, or purchase any stock, other securities or
evidence of indebtedness of any Person, except for (a) the ownership by DGC,
directly or indirectly, of all of the stock in DGFS, the Affiliated Insurers and
the Agency Subsidiaries, (b) the investment by DGFS or any of the Agency
Subsidiaries in DGFS or any of the Agency Subsidiaries, (c) the purchase of
insurance agencies or insurance companies at an aggregate price (excluding
capital and surplus) (for the Affiliated Insurers, the Agency Subsidiaries and
DGC, taken as a whole) not to exceed Four Million Five Hundred Thousand Dollars
($4,500,000.00), (d) as to Affiliated Insurers, Allowable Investments, and (e)
as may occur in connection with the Junior Facility.
7.6 SALE OF RECEIVABLES. Sell, discount or otherwise dispose of any of
its Receivables or any promissory note or obligation held by it, with or without
recourse, except for (a) an Agency Subsidiary's assignment sale of Receivables
to DGFS, and (b) provided that the Required Banks shall have consented in
writing, such consent not to be unreasonably withheld, DGFS's sale from time to
time to Affiliated Insurers of Receivables which are identified in a written
notice given to Agent at least thirty (30) days prior to such sale, for cash at
a price equal to the full face amount of such Receivables, with the entire cash
purchase price to be used to repay the outstanding balance of the DGFS Loan.
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7.7 NEW BUSINESS. Directly or indirectly whether in its own name or
through one or more subsidiaries (a) expand, acquire or enter into any business
other than (i) the business of DGC and its subsidiaries of providing any type of
insurance, related financial products or related business (such as auto club)
and (ii) the Agency Subsidiaries providing or offering products and services not
related to the insurance business (such as payday loans, consumer loans,
personal communication equipment, tax filing services, money transfer services)
provided that DGFS, DGC and the Agency Subsidiary will not, in the aggregate,
invest more than Two Million Dollars ($2,000,000.00), either directly or as
joint venturers, in such activities; or (b) enter into any management contract
whereby the effective management or control of DGC or any of its subsidiaries is
delegated to third parties, without the prior written consent of the Required
Banks.
7.8 CONSOLIDATION OR MERGER; ACQUISITION OF ASSETS. Enter into any
transaction of merger or consolidation, acquire any other business or
corporation, or acquire all or substantially all of the property or assets of
any other Person, except as permitted by Section 7.5 hereof or except as
permitted by Section 8.20 hereof; provided, however, that any such transaction
or acquisition permitted by Section 7.5 or Section 8.20 shall only be permitted
if such transaction (i) does not cause or result in an Event of Default and (ii)
does not cause or result in an event which with notice, lapse of time or both
may become an Event of Default hereunder.
7.9 DIVIDENDS, REDEMPTIONS AND OTHER PAYMENTS. Declare or pay, or set
apart any funds for the payment of, any dividends on any shares of capital stock
of DGC or DGFS (except as hereinafter set out), or apply any funds, properties,
or assets of DGC or DGFS to or set apart any funds properties or assets for, the
purchase, redemption or other retirement of or make any other distribution
(whether by reduction of capital or otherwise) in respect of, any shares of
capital stock of DGC or DGFS (common or preferred), provided, however, that DGC
shall be permitted to redeem shares of shareholders to the extent that the
expenditures required by such redemption(s) do not result in a violation of any
of the financial covenants set forth in this Loan Agreement or otherwise cause
the occurrence of a default hereunder. Notwithstanding the foregoing, DGC and
DGFS shall be permitted to pay dividends to the holders of the preferred stock
held by SSM Venture Partners, L.P., Noro-▇▇▇▇▇▇ Partners II, L.P., ▇▇▇▇▇ ▇.
▇▇▇▇▇▇ and ▇▇▇▇▇ Capital, provided that no Event of Default nor any event which
with notice, lapse of time or both may become an Event of Default hereunder
shall have occurred and be continuing, and that such payment will not result in
an Event of Default hereunder.
7.10 [INTENTIONALLY DELETED.]
7.11 [INTENTIONALLY DELETED.]
7.12 [INTENTIONALLY DELETED.]
SECTION 8: EVENTS OF DEFAULT
An "Event of Default" shall exist if any of the following shall occur:
8.1 PAYMENT OF PRINCIPAL, INTEREST. If DGC defaults in the payment of
principal or interest due on the Notes on June 30, 2004; or DGC defaults for
more than ten (10) days after the same shall be due, in the payment of principal
or interest due at any other time on the Notes or for more than ten (10) days
after demand by the Agent in the payment of any fees due under this
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Loan Agreement; or DGC, DGFS or any Agency Subsidiary shall default beyond any
cure period applicable thereto in the prompt payment when due of any other
indebtednesses, liabilities, or obligations to the Banks and/or DGFS Banks,
whether now existing or hereafter created or arising, direct or indirect,
absolute or contingent, including, but not limited to, the DGFS Loan.
8.2 PAYMENT OR PERFORMANCE OF OTHER OBLIGATIONS. DGC shall default,
beyond any cure period applicable thereto, with respect to the Securities
Purchase Agreement or DGC's preferred stock provisions adopted pursuant thereto;
or DGC, DGFS, any Agency Subsidiary or any Affiliated Insurer defaults, beyond
any cure period applicable thereto, with respect to any other agreement if such
default or the consequences thereof will or may, in the reasonable judgment of
the Required Banks, have a material adverse effect on the business or operations
of DGC (considered separately), or of the Affiliated Insurers (considered as a
whole), or of DGC (considered separately), or of DGC and its subsidiaries on a
consolidated basis, or of DGC, DGFS and Affiliated Insurers, as a whole; or DGC
or DGFS defaults, beyond any cure period applicable thereto, with respect to any
settlement with insurers for policies financed when due, or the payment or
performance of any other obligation incurred in connection with any indebtedness
for borrowed money, if the effect of such default is to accelerate the maturity
of such indebtedness, or if the effect of such default is to cause such
indebtedness to become due prior to its stated maturity; or DGC, DGFS, any
Agency Subsidiary, or any Affiliated Insurer shall default in the payment or
performance of any other duty, liability or obligation at any time owed to the
Banks or any of them.
8.3 REPRESENTATION OR WARRANTY. Any representation or warranty made by
DGC or DGFS herein, or in any report, certificate, financial statement or other
writing furnished in connection with or pursuant to this Loan Agreement shall
prove to be false, misleading or incomplete in any material respect on the date
as of which made.
8.4 [INTENTIONALLY DELETED.]
8.5 LIQUIDITY RATIO. If the Liquidity Ratio shall at any time be less
than 1.0 to 1.0.
8.6 [INTENTIONALLY DELETED.]
8.7 [INTENTIONALLY DELETED.]
8.8 RISK BASED CAPITAL. If NAIC Risk Based Capital (measured annually)
of the Affiliated P&C Insurers on a consolidated basis, computed in accordance
with standards adopted by NAIC, as amended from time to time, shall at any time
be less than two hundred fifty percent (250%) of the "authorized control level"
as defined under such standards.
8.9 CAPITAL ADEQUACY RATIO. If the Affiliated P&C Insurers' Capital
Adequacy Ratio exceeds 4.0 to 1.0 on a combined basis, as measured quarterly
during the term hereof, beginning December 31, 2003.
8.10 [INTENTIONALLY DELETED.]
8.11 [INTENTIONALLY DELETED.]
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8.12 ALLOWABLE INVESTMENTS. If any Affiliated Insurer shall make any
loans to, investments in, or purchase any stock, securities or evidence of
indebtedness of, a Person other than Allowable Investments.
8.13 REINSURER RATING. If as to any nonaffiliated Reinsurer to which an
Affiliated Insurer cedes risk and policy liabilities by agreement, as of the
date when an Affiliated Insurer enters into any such agreement, such Reinsurer
shall fail to have an A.M. Best rating of:
(i) A- or better, or
(ii) B+ or better, provided that the aggregate risk to an
Affiliated Insurer on account of such Reinsurer does not exceed ten
percent (10%) of the pro rata share being reinsured. [EXAMPLE:
Reinsurer buys a 25% participation from Affiliated Insurer; Affiliated
Insurer's risk may not exceed 2.5% of Affiliated Insurer's total policy
value.]
Failure to comply with the above rating requirement shall not be an Event of
Default, however, if:
(a) such Reinsurer having a noncomplying rating shall have furnished to
an Affiliated Insurer an irrevocable letter of credit that is issued by a bank
that meets the eligibility standards of the NAIC's Securities Valuation Office
and that is in an amount, updated quarterly, not less than the sum of (i) the
unearned premiums of such Reinsurer on policies ceded by an Affiliated Insurer,
plus (ii) claims of Affiliated Insurers for losses due from such Reinsurer; or
(b) an Affiliated Insurer retains funds in a funds withheld account
equal to or greater than such sum.
8.14 [INTENTIONALLY DELETED.]
8.15 BANKRUPTCY, ETC. DGC, DGFS, any Agency Subsidiary or any
Affiliated Insurer shall make an assignment for the benefit of creditors, file a
petition in bankruptcy, petition or apply to any tribunal for the appointment of
a custodian, receiver or any trustee for it or a substantial part of its assets,
or shall commence any proceeding under any bankruptcy, reorganization,
arrangement, readjustment of debt, dissolution or liquidation law or statute of
any jurisdiction, whether now or hereafter in effect; or if there shall have
been filed any such petition or application, or any such proceeding shall have
been commenced against DGC, DGFS, any Agency Subsidiary or any Affiliated
Insurer, in which an order for relief is entered or which remains undismissed
for a period of sixty (60) days or more; or if the Commissioner shall initiate
or take action to place DGC, DGFS, any Agency Subsidiary or any Affiliated
Insurer in receivership, in rehabilitation or under the supervision of any
court-appointed trustee or administrator; or if the Commissioner shall place
DGC, DGFS, any Agency Subsidiary or any Affiliated Insurer under any cease and
desist order or other judicial or administrative decree which materially and
adversely affects its business or operations; or DGC, DGFS, any Agency
Subsidiary or any Affiliated Insurers by any act or omission shall indicate its
consent to, approval of or acquiescence in any such petition, application or
proceeding or order for relief or the appointment of a custodian, receiver or
any trustee for it or any substantial part of any of its properties, or shall
suffer any such custodianship, receivership or trusteeship to continue
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undischarged for a period of sixty (60) days or more; or DGC, DGFS, any Agency
Subsidiary or any Affiliated Insurer shall generally not pay its debts as such
debts become due.
8.16 COMPLIANCE WITH LAWS. If an Affiliated Insurer shall at any time
fail in any material respect to comply with all insurance laws, rules and
regulations of the states in which it operates or does business.
8.17 CONCEALMENT OF PROPERTY, ETC. DGC, DGFS, or any Agency Subsidiary
or any Affiliated Insurer shall have concealed, removed, or permitted to be
concealed or removed, any part of its property, with intent to hinder, delay or
defraud its creditors or any of them, or made or suffered a transfer of any of
its property which may be fraudulent under any bankruptcy, fraudulent conveyance
or similar law; or shall have made any transfer of its property to or for the
benefit of a creditor at a time when other creditors similarly situated have not
been paid; or shall have suffered or permitted, while insolvent, any creditor to
obtain a lien upon any of its property through legal proceedings or distraint
which is not vacated within ninety (90) days from the date thereof.
8.18 [INTENTIONALLY DELETED.]
8.19 [INTENTIONALLY DELETED.]
8.20 CHANGE IN OWNERSHIP. There shall occur any change in the ownership
of the capital stock of DGC, DGFS or Affiliated Insurers, except for (a) changes
in ownership of stock in DGC which, in the aggregate, for all such changes, do
not exceed forty-nine percent (49%) of DGC's outstanding stock, (b) changes in
ownership of stock in DGC resulting from conversion of shares of preferred stock
in DGC into common stock of DGC or the transfer or assignment of such preferred
stock, in the manner contemplated by the Securities Purchase Agreement, (c)
changes in ownership of stock in DGC resulting from a public offering of the
stock of DGC, or (d) changes in ownership of stock in any Agency Subsidiary or
Affiliated Insurer, provided that the ultimate direct or indirect ownership
remains with DGC.
8.21 LOAN DOCUMENTS TERMINATED OR VOID. This Loan Agreement, the Notes,
the Guaranty Agreement or any instrument securing this Loan Agreement, the Notes
or the Guaranty Agreement shall, at any time after their respective execution
and delivery and for any reason, cease to be in full force and effect or shall
be declared to be null and void; or DGC or DGFS shall deny that either of them
has any or further liability, or shall seek to discontinue or terminate its
obligations, under this Loan Agreement and the Notes, or under the Guaranty
Agreement, respectively.
8.22 COVENANTS. DGC or DGFS defaults in the performance or observance
of any other covenant, agreement or undertaking on its part to be performed or
observed, contained herein, in the Security Agreement, the Pledge and Security
Agreement, the DGFS Loan Agreement, or in any other instrument or document which
now or hereafter evidences or secures all or any part of the Loan indebtedness
or the DGFS Loan indebtedness, and such failure or default shall continue for
thirty (30) days after written notice by Agent to DGC of such failure or
default.
8.23 REMEDY. Upon the occurrence of any Event of Default, and after any
notice and cure period applicable thereto, which has not been waived pursuant to
Section 10.1 hereof, each
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Bank shall, at its option, be relieved of any obligation to make further
Advances under this Agreement; and the Agent, at the direction of the Required
Banks, shall declare the entire principal balance of all of the Notes, all
accrued interest thereon and all other amounts due to the Banks under this Loan
Agreement to be immediately due and payable for all purposes. The Agent may, and
at the direction of the Required Banks shall, thereupon exercise all rights and
remedies available to it under the Loan Documents or available at law or in
equity. Without limiting the generality of the foregoing, upon the occurrence of
an Event of Default, and after any notice and cure period applicable thereto,
regardless of whether the maturity of the Loans shall have been accelerated, the
Agent may, and at the direction of the Required Banks shall, give notice to
Policyholders to pay any installments coming due under Premium Finance
Agreements or Installment Arrangements to Agent, may collect any and all such
installments, may exercise any right or power granted to DGFS or any Agency
Subsidiary to cancel policies of insurance (including, but not limited to the
power granted in the Premium Finance Agreements), may collect and file claims to
collect unearned premiums from insurers and/or Insurance Guaranty Funds, whether
acting in the name and on behalf of the Policyholders, DGFS, an Agency
Subsidiary, Agent or the Banks. Further, the Agent on behalf of the Banks shall
have the right to the appointment of a receiver to take possession of DGC's and
DGFS's premises, properties, assets, books and records, without consideration of
the value of the collateral pledged as security for the Notes or the solvency of
any person liable for the payment of the amounts then owing, and all amounts
collected by the receiver shall, after expenses of the receivership, be applied
to the payment of the Notes, and interest thereon in the proportions described
elsewhere in this Loan Agreement; and the Agent shall have the right to do the
same without the appointment of a receiver. All such rights and remedies are
cumulative and nonexclusive, and may be exercised by the Agent concurrently or
sequentially, in such order as the Agent may choose or the Required Banks may
direct.
SECTION 9: THE AGENT.
The Banks hereby agree among themselves (and DGC and DGFS by their
execution hereof hereby acknowledges such agreement) as follows:
9.1 APPOINTMENT. Each Bank hereby appoints First Tennessee Bank
National Association as the Agent hereunder, and under the other Loan Documents,
and each agrees that the Agent is authorized to act as its agent hereunder, and
under the other Loan Documents. Agent agrees to act as the agent upon the
express conditions contained in this Section 9 and the other Loan Documents. The
provisions of this Section 9 are solely for the benefit of the Agent, and
neither DGC nor DGFS shall have any rights as a third party beneficiary of any
of the provisions hereof or thereof. In performing its functions and duties
hereunder and under the other Loan Documents, the Agent shall act solely as the
agent of the Banks and does not assume and shall not be deemed to have assumed
any obligation towards or relationship of agency or trust with or for DGC or
DGFS.
9.2 AGENT ENTITLED TO ACT AS A BANK. The agency created hereunder shall
in no way impair or affect any of the rights and powers of, or impose any duties
or obligations upon, First Tennessee Bank National Association in its capacity
as a lender pursuant to this Loan Agreement. With respect to its interests in
the Loan, said Bank shall have the same rights and powers hereunder as any other
Bank and may exercise the same as though it were not performing
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the duties and functions delegated to it hereunder and the term "Bank" or
"Banks" or any similar term shall, unless the context clearly otherwise
indicates, include First Tennessee Bank National Association in its individual
capacity. As long as such arrangements do not otherwise violate this Loan
Agreement, said Bank (and each of its affiliates) may lend money to and
generally engage in any kind of business with DGFS, DGC, any Affiliated Insurer
and the Agency Subsidiaries as if it were not the Agent.
9.3 EXCULPATORY PROVISIONS.
(A) POWERS AND GENERAL IMMUNITY OF THE AGENT.
(i) Each Bank irrevocably authorizes the Agent to take such
action on such Bank's behalf and to exercise such powers hereunder and
under the other Loan Documents as are specifically delegated to the
Agent by the terms hereof and thereof, together with such powers as are
reasonably incidental thereto. The Agent shall have only those duties
and responsibilities to such Bank which are expressly specified in this
Loan Agreement and the other Loan Documents and it may perform such
duties by or through its agents or employees. The duties of the Agent
shall be mechanical and administrative in nature; the Agent shall not
have by reason of this Loan Agreement a fiduciary relationship in
respect of any of the Banks, and nothing in this Loan Agreement,
express or implied, is intended to or shall be so construed as to
impose upon the Agent any obligations in respect of this Loan Agreement
or the other Loan Documents except as expressly set forth herein or
therein.
(ii) In performing its functions and duties hereunder on
behalf of the Banks, the Agent shall exercise the same care which it
would in dealing with loans for its own account, but the Agent shall
not be responsible to any Bank for the execution, effectiveness,
genuineness, validity, enforceability, collectibility or sufficiency of
this Loan Agreement, the other Loan Documents or any notes or for any
representations, warranties, recitals or statements made herein or
therein or made in any written or oral statement or in any financial or
other statements, instruments, reports, certificates or any other
documents in connection herewith or therewith furnished by the Agent to
the Banks or by or on behalf of DGC or DGFS to the Agent or any Bank or
be required to ascertain or inquire as to the performance or observance
of any of the terms, conditions, provisions, covenants or agreements
contained herein or therein or as to the use of the proceeds of the
Loans or the existence or possible existence of any Event of Default.
(iii) Neither the Agent nor any of its officers, directors,
employees or agents shall be liable to the Banks for any action taken
or omitted under this Loan Agreement or the other Loan Documents or in
connection herewith or therewith, except to the extent such liability
has arisen from the Agent's willful misconduct or gross negligence.
Without prejudice to the generality of the foregoing, the Agent shall
be entitled to rely, and shall be fully protected in relying, on any
communication, instrument or document believed by it to be genuine and
correct and to have been signed or sent by the proper Person or
Persons, and shall be entitled to rely and shall be protected in
relying on opinions and judgments of attorneys (who may be attorneys
for DGC or DGFS), accountants, experts and other professional advisors
selected by it. Subject to the first sentence of this clause
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(iii), no Bank shall have any right of action whatsoever against the
Agent as a result of the Agent acting or (where so instructed)
refraining from acting under this Loan Agreement or the other Loan
Documents in accordance with the instructions of the Required Banks or
all of the Banks, as applicable. The Agent shall be entitled to refrain
from exercising any power, discretion or authority vested in it under
this Loan Agreement or the other Loan Documents unless and until it has
obtained the instructions of the Required Banks or the Banks, as
applicable, and no Bank shall have any right of action whatsoever
against the Agent as a result of the Agent's failure to act in the
absence of instructions from the Required Banks or the Banks, as
applicable.
(B) REPRESENTATIONS AND WARRANTIES; NO RESPONSIBILITY FOR APPRAISAL OF
CREDITWORTHINESS.
(i) Each Bank represents and warrants to Agent that it has
made its own independent investigation of the financial condition and
affairs of DGC, DGFS, Affiliated Insurers and the Agency Subsidiaries
in connection with the making of the Loan and has made and shall
continue to make its own appraisal of the creditworthiness of DGC and
its subsidiaries. Except as provided in this Agreement, the Agent shall
not have any duty or responsibility either initially or on a continuing
basis to make any such investigation or any such appraisal on behalf of
the Banks or to provide any Bank with any credit or other information
with respect thereto whether coming into its possession before the
initial borrowing hereunder or any time or times thereafter and shall
further have no responsibility with respect to the accuracy of or the
completeness of the information provided to the Banks.
(ii) Each Bank hereby represents and warrants to Agent that:
(1) Such Bank has, independently and without reliance
upon Agent and based on the financial and other information of
DGC, DGFS, Affiliated Insurers and the Agency Subsidiaries
heretofore delivered to such Bank and on such other documents
and information as such Bank has deemed appropriate, made its
own credit analysis and decision to make its Loan, and shall
continue to do so without reliance on Agent; and such Bank
acknowledges that Agent has not made and does not make any
representations or warranties or assume any responsibility
with respect to the validity, genuineness, enforceability (as
against any Person other than Agent) or collectibility of the
Loan, this Loan Agreement or the other Loan Documents; and
(2) Such Bank is making its Loan in the ordinary
course of its lending business for its own account and not
with a view to or for sale in connection with any distribution
thereof provided that the disposition of such Bank's property
shall at all times be and remain within such Bank's control.
(C) RIGHT TO INDEMNITY. Each Bank will reimburse and indemnify the
Agent, ratably according to the respective principal amounts of the Notes then
held by each of them, for and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind or nature whatsoever which may be imposed on,
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incurred by, or asserted against the Agent, acting pursuant hereto, in any way
relating to or arising out of any of the Loan Documents or any action taken or
omitted by the Agent under any of the Loan Documents in proportion to each
Bank's respective pro rata share of the Loan; provided, however, that no Bank
shall be liable for any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
resulting from the Agent's gross negligence or willful misconduct. The
obligations of the Banks under this Paragraph (c) shall survive the payment in
full of the Loan and the termination of this Loan Agreement and the resignation
of the Agent.
(D) BANKS TREATED AS OWNERS. The Agent may deem and treat each Bank as
the owner of its respective interests in the Loan as reflected herein for all
purposes hereof unless and until a written notice of the assignment or transfer
thereof shall have been filed with the Agent. Any request, authority or consent
of any Person or entity who, at the time of making such request or giving such
authority or consent, is the owner of interests in the Loan shall be conclusive
and binding on any subsequent holder, transferee or assignee of such interests.
(E) AUTHORIZATION OF LOAN DOCUMENTS; EXERCISE OF REMEDIES. Each Bank
hereby authorizes the Agent to enter into, and approves and ratifies the
execution by the Agent of, this Loan Agreement and the other Loan Documents and
authorizes the Agent to take all action contemplated thereby. Each Bank agrees
that no Bank shall have any right to seek to enforce its Note, to exercise any
rights under the Guaranty Agreement or to realize upon the security granted by
this Loan Agreement or any of the other Loan Documents, it being understood and
agreed that such rights and remedies may be exercised by the Agent for the
benefit of itself and the other Banks upon the respective terms set forth herein
and therein. At the direction of the Required Banks, the Agent may proceed to
protect and enforce all or any of the rights, remedies, powers and privileges
under this Loan Agreement and the other Loan Documents, notwithstanding that
such Agent is not a holder of all of the Notes. The Agent may proceed by action
at law, suit in equity or other appropriate proceedings whether for specific
performance of any covenant contained in this Loan Agreement or the other Loan
Documents or in aid of the exercise of any power granted to the Banks or the
Agent herein or therein; provided, however, that no Bank shall be entitled to
realize upon the collateral for the Loan or exercise remedies hereunder or under
the other Loan Documents with respect to such collateral, but that all such
actions shall be taken by the Agent, on behalf of the Banks, at the direction of
the Required Banks.
9.4 DOCUMENTS AND INFORMATION. Following the Effective Date, Agent will
cause a copy of each of the executed Loan Documents to be mailed to each of the
Banks at their addresses specified in the first paragraph of this Loan
Agreement. Agent and each of the Banks (the "Disclosing Bank") agrees to use
reasonable good faith efforts to disclose to each of the other Banks, as soon as
practicable after discovery, any information or communication (a) which the
Disclosing Bank has reason to believe is not known by the other Banks, and (b)
which the Disclosing Bank has reason to believe may have a material and adverse
effect upon the business or operations of DGC, DGFS, Agency Subsidiaries and/or
Affiliated Insurers and/or upon the collateral security for the Loan, and as a
result, may impair the repayment of the Loan as and when due; provided, however,
that neither the Agent nor the other Banks shall have any liability as a result
of its or their failure to disclose any information pursuant to this section,
nor shall any
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Bank assert any such failure by another Bank as a defense to any claim asserted
against a Bank under the provisions of this Agreement.
9.5 RESIGNATION. The Agent may resign at anytime by giving thirty (30)
days' prior written notice thereof to each Bank and DGC; provided that prior to
relinquishing its duties, the Agent will make reasonable efforts to find a
successor agent acceptable to the Required Banks. Upon any such resignation, the
Required Banks shall have the right, upon five (5) days' notice to DGC, to
appoint a successor Agent. Upon acceptance of appointment, the successor Agent
shall succeed to and become vested with all rights, powers, privileges and
duties of the retiring Agent, and the retiring Agent shall be discharged from
its duties and obligations under this Loan Agreement. Except in the case of the
Agent's gross negligence or willful misconduct, First Tennessee Bank cannot be
removed as Agent hereunder unless First Tennessee Bank shall consent to such
removal.
9.6 ASSIGNMENTS AND PARTICIPATIONS. Without the prior written consent
of each other Bank, no Bank shall be permitted to sell, assign or transfer its
Note or its share of the Loan indebtedness. Notwithstanding the foregoing, any
Bank shall be permitted to sell, assign or transfer its Note and its shares of
the Loan indebtedness to an affiliate of such Bank without obtaining such
consent, provided that such Bank (including its affiliates) shall at all times
retain for its own account not less than fifty percent (50%) of its Note.
SECTION 10: MISCELLANEOUS
10.1 ENTIRE AGREEMENT/AMENDMENTS. As of the Effective Date, this Loan
Agreement supersedes and replaces any and all prior agreements and
understandings relating to the subject matter hereof including, without
limitation, the Second Loan Agreement, the First Loan Agreement and the Original
Loan Agreement. The provisions of this Loan Agreement, the Notes or any other
Loan Documents may be amended, modified or waived only by an instrument in
writing signed by the Required Banks; provided that without the unanimous
written consent or approval of all of the Banks neither the Agent nor any other
Bank may amend the Loan Documents (a) to increase the amount of any Bank's Note;
(b) to change the rate of interest on any Note (other than in the manner
specified therein); (c) to reduce the amount of any fee due or to become due
pursuant to the Loan Documents; (d) to extend or modify the maturity of the
Loan; (e) to postpone the due date of any payment due under any Note; (f) to
release DGFS as Guarantor; (g) to modify the Security Agreement or Pledge and
Security Agreement in such manner as to change the description of the collateral
for the Loan; (h) to change the ratable distribution of payments to the Banks;
(i) to change the definition of "Required Banks"; (j) to release or subordinate
any portion of or collateral for the Loan; or (k) to amend this Section 10.1 and
Section 10.16 hereof.
10.2 NOTICES. All notices and other communications provided for
hereunder shall be in writing and shall be mailed, certified mail, return
receipt requested, or delivered in person, or sent by nationally recognized
overnight courier service, marked for next-day delivery, if to DGC, DGFS or the
Agency Subsidiaries, to it at ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇; if to the Agent, to it at ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇,
Attention: Metropolitan Division; if to the other Banks, to them at their
addresses specified in the initial paragraph of this Loan Agreement; or as to
any such person at such other address as shall be
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designated by such person in a written notice to the other parties hereto
complying as to delivery with the terms of this Section 10.2. All such notices
and other communications shall be effective (i) if mailed, when received or
three (3) Business Days after mailing, whichever is earlier; or (ii) if
delivered, upon delivery; or (iii) if sent by overnight courier service, on the
day scheduled for delivery.
10.3 [INTENTIONALLY DELETED.]
10.4 NO WAIVER, CUMULATIVE REMEDIES. No failure to exercise and no
delay in exercising, on the part of the Agent or the Banks, any right, power or
privilege hereunder, shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, power or privilege hereunder preclude any other
or further exercise thereof or the exercise of any other right, power or
privilege. Waiver of any right, power, or privilege hereunder or under any
instrument or document now or hereafter securing the indebtedness evidenced
hereby or under any guaranty at any time given with respect thereto is a waiver
only as to the specified item. The rights and remedies herein provided are
cumulative and not exclusive of any rights or remedies provided by law.
10.5 INDEMNIFICATION. DGC and DGFS jointly and severally agree to
indemnify Agent and Banks from and against any and all claims, losses and
liabilities, including, without limitation, reasonable attorneys' fees, growing
out of or resulting from this Agreement (including, without limitation,
enforcement of this Agreement), except claims, losses or liabilities resulting
solely and directly from Agent's or Banks' negligence or misconduct and except
for claims asserted by DGC and/or DGFS against Agent and/or the Banks. The
indemnification provided for in this Section shall survive the payment in full
of the Loan.
10.6 SURVIVAL OF AGREEMENTS. All agreements, representations and
warranties made herein shall survive the delivery of the Notes. This Loan
Agreement shall be binding upon, and inure to the benefit of, the parties hereto
and their respective successors and assigns, except that DGC shall not have the
right to assign its rights hereunder or any interest therein.
10.7 LIENS; SETOFF BY AGENT OR BANKS. DGC and DGFS hereby grant to the
Agent and the Banks a continuing lien, as security for the Notes and all other
indebtednesses of DGC and/or DGFS to the Agent and the Banks, upon any and all
of its moneys, securities and other property and the proceeds thereof, now or
hereafter held or received by or in transit to, the Agent and the Banks from or
for DGC and/or DGFS, and also upon any and all deposits (general or special,
matured or unmatured) and credits of DGC and DGFS against the Agent or the
Banks, at any time existing. Upon the occurrence of any Event of Default as
specified above, and after any notice and cure period applicable thereto, the
Agent and the Banks are hereby authorized at any time and from time to time,
without prior notice to DGC or DGFS (but with prompt post set-off notice) to set
off, appropriate, and apply any and all items hereinabove referred to against
any or all indebtednesses of DGC and/or DGFS to the Banks. Any amount recovered
by any Bank, whether as a result of the exercise of the right of setoff or
otherwise, shall be distributed among the Banks pro rata in accordance with the
provisions of Section 2.6 hereof.
10.8 GOVERNING LAW. This Loan Agreement shall be governed and construed
in accordance with the laws of the State of Tennessee; except (a) that the
provisions hereof which
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relate to the payment of interest shall be governed by (i) the laws of the
United States or, (ii) the laws of the State of Tennessee, whichever permits the
Banks to charge the higher rate, as more particularly set out in the Notes, and
(b) to the extent that the Liens in favor of the Agent and the Banks, the
perfection thereof, and the rights and remedies of the Agent and the Banks with
respect thereto, shall, under mandatory provisions of law, be governed by the
laws of a state other than Tennessee.
10.9 EXECUTION IN COUNTERPARTS. This Loan Agreement may be executed in
any number of counterparts, each of which when so executed shall be deemed to be
an original and all of which taken together shall constitute but one and the
same instrument. Telecopies of executed documents will be deemed originals for
the purpose of closing the Loan; provided that originals are promptly forwarded
following the closing.
10.10 TERMINOLOGY; SECTION HEADINGS. All personal pronouns used in this
Loan Agreement whether used in the masculine, feminine, or neuter gender, shall
include all other genders; the singular shall include the plural, and vice
versa. Section headings are for convenience only and neither limit nor amplify
the provisions of this Loan Agreement.
10.11 ENFORCEABILITY OF AGREEMENT. Should any one or more of the
provisions of this Loan Agreement be determined to be illegal or unenforceable,
all other provisions, nevertheless, shall remain effective and binding on the
parties hereto.
10.12 INTEREST LIMITATIONS. (a) The Loan and the Notes evidencing the
Loan, including any renewals or extensions thereof, may provide for the payment
of any interest rate (i) permissible at the time the contract to make the Loan
is executed, (ii) permissible at the time the Loan is made or any advance
thereunder is made, or (iii) permissible at the time of any renewal or extension
of the Loan or the Notes.
(b) It is the intention of the Agent, the Banks and DGC to comply
strictly with applicable usury laws; and, accordingly, in no event and upon no
contingency shall the Agent or the Banks ever be entitled to receive, collect,
or apply as interest any interest, fees, charges or other payments equivalent to
interest, in excess of the maximum rate which the Banks may lawfully charge
under applicable statutes and laws from time to time in effect; and in the event
that the holder of a Note ever receives, collects, or applies as interest any
such excess, such amount which, but for this provision, would be excessive
interest, shall be applied to the reduction of the principal amount of the
indebtedness thereby evidenced; and if the principal amount of the indebtedness
evidenced thereby, and all lawful interest thereon, is paid in full, any
remaining excess shall forthwith be paid to DGC, or other party lawfully
entitled thereto. In determining whether or not the interest paid or payable,
under any specific contingency, exceeds the highest rate which the Banks may
lawfully charge under applicable law from time to time in effect, DGC, the Agent
and the Banks shall, to the maximum extent permitted under applicable law,
characterize any non-principal payment as a reasonable loan charge, rather than
as interest. Any provision hereof, or of any other agreement among the Agent and
the Banks and DGC, that operates to bind, obligate, or compel DGC to pay
interest in excess of such maximum rate shall be construed to require the
payment of the maximum rate only. The provisions of this paragraph shall be
given precedence over any other provision contained herein or in any other
agreement among the Agent, the Banks and DGC that is in conflict with the
provisions of this paragraph.
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(c) The Notes shall be governed and construed according to the statutes
and laws of the State of Tennessee from time to time in effect, except to the
extent that Section 85 of Title 12 of the United States Code (or other
applicable federal statue) may permit the charging of a higher rate of interest
than applicable state law, in which event such applicable federal statute, as
amended and supplemented from time to time shall govern and control the maximum
rate of interest permitted to be charged hereunder; it being intended that, as
to the maximum rate of interest which may be charged, received, and collected
hereunder, those applicable statutes and laws, whether state or federal, from
time to time in effect, which permit the charging of a higher rate of interest,
shall govern and control; provided, always, however, that in no event and under
no circumstances shall DGC be liable for the payment of interest in excess of
the maximum rate permitted by such applicable law, from time to time in effect.
10.13 NON-CONTROL. In no event shall the existence of Agent's or the
Banks' rights hereunder be deemed to indicate that the Agent or the Banks are in
control of the business, management or properties of DGC or has power over the
daily management functions and operating decisions made by DGC.
10.14 FEES AND EXPENSES. DGC and DGFS jointly and severally agree to
pay, or reimburse the Agent for, the actual out-of-pocket expenses, including
reasonable counsel fees and fees of any accountants, auditors, inspectors or
other similar experts, as deemed necessary by the Agent, incurred by the Agent
in connection with the development, preparation, execution, amendment,
recording, administration (excluding the salary of Agent's employees and Agent's
normal and usual overhead expenses) or enforcement of, or the preservation of
any rights under this Loan Agreement, the Notes, and any other Loan Document,
including, but not limited to, the fees and expenses of the auditors referred to
in Section 6.7 hereof; provided, however, that DGC shall not be responsible for
paying the costs of such audits more than once per year unless an Event of
Default shall have occurred.
10.15 TIME OF ESSENCE. Time is of the essence of this Loan Agreement,
the Notes, and the other instruments and documents executed and delivered in
connection herewith.
10.16 COMPROMISES, RELEASES, ETC. DGC and DGFS hereby authorize the
Banks from time to time, without notice to anyone, to make any sales, pledges,
surrenders, compromises, settlements, releases, indulgences, alterations,
substitutions, exchanges, changes in, modifications, or other dispositions
including, without limitation, cancellations, of all or any part of the Loan
indebtedness, or of any contract or instrument evidencing any thereof, or of any
security or collateral therefor, and/or to take any security for or other
guaranties upon any of said indebtedness; and the liability of DGFS shall not be
in any manner affected, diminished, or impaired thereby, or by any lack of
diligence, failure, neglect, or omission on the part of Agent or the other Banks
to make any demand or protest, or give any notice of dishonor or default, or to
realize upon or protect any of said indebtedness or any collateral or security
therefor. The Banks shall have the exclusive right to determine how, when, and
what application of payments and credits, if any, shall be made on the Loan and
extensions of credit or any part thereof, and shall be under no obligation, at
any time, to first resort to, make demand on, file a claim against, or exhaust
its remedies against DGC, or its property or estate, or to resort to or exhaust
its remedies against any collateral, security, property, liens, or other rights
whatsoever. It is expressly agreed that Agent, acting at the direction of the
Required Banks, may at any time make demand for
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payment on, or bring suit against, DGC and/or DGFS, jointly or severally,
(without the necessity of joining all such parties), and, with the unanimous
consent of the Banks, may compound with either DGC or DGFS for such sums or on
such terms as it may see fit, and without notice or consent, the same being
hereby expressly waived, release DGFS or DGC from all further liability to it,
without thereby impairing its rights in any respect to demand, ▇▇▇ for, and
collect the balance of the indebtedness from any other party not so released.
The Banks agree that any action pursuant to this Section 10.16 shall be only by
unanimous consent of the Banks.
10.17 JOINDER OF GUARANTOR. DGFS joins herein for the purpose of
acknowledging and consenting to the terms and provisions hereof (and especially
the provisions of Section 10.16), and does further absolutely and
unconditionally guarantee the payment and performance of each and every
obligation and undertaking of DGC hereunder.
10.18 VENUE OF ACTIONS. (a) As an integral part of the consideration
for the making of the Loan, it is expressly understood and agreed that no suit
or action shall be commenced by the Borrower, by any Guarantor, or by any
successor, personal representative or assignee of any of them, with respect to
the Loan contemplated hereby, or with respect to this Loan Agreement or any
other Loan Document, other than in a state court of competent jurisdiction in
and for Shelby County, Tennessee, Davidson County, Tennessee, or in the United
States District Court for the Western District or Middle District of Tennessee,
and not elsewhere, and, to the extent permitted by applicable law, Borrower and
Guarantors hereby agree and consent that any action or proceeding may be brought
by Agent or any of the Banks in such courts and waive any objections that they
may now or hereafter have to the venue of any such action or proceeding in any
such court or that such action or proceeding was brought in an inconvenient
court and agree not to plead or claim the same. Further, Borrower and Guarantors
agree that service of process in any action or proceeding described in this
Section 10.18 or otherwise brought in connection with the Loan may be effected
by mailing a copy thereof by registered or certified mail (or any substantially
similar form of mail), postage prepaid, to the Borrower at its address set forth
in Section 10.2 hereof or at such other address of which the Agent shall have
been notified pursuant thereto and to ▇▇▇▇▇, ▇▇▇▇▇▇▇ & ▇▇▇▇▇, LLP, ▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, Attention: ▇▇▇▇ ▇▇▇▇▇▇▇▇.
Borrower and Guarantors also agree that nothing herein shall affect the right to
effect service of process in any other manner permitted by law. Nothing in this
paragraph contained shall prohibit Agent or Banks from instituting suit in any
court of competent jurisdiction (where Borrower and/or any Guarantor is doing
business or is qualified to do business) for the enforcement of their rights
hereunder or in any other Loan Document.
(b) To the maximum extent not prohibited by law, each party to this
Agreement hereby waives any right which it may have to claim or recover
consequential damages in any legal action or proceeding with respect to, or in
any way arising out of, the Loan or this Loan Agreement, or any other legal
action or proceeding referred to in this Section 10.18.
10.19 WAIVER OF RIGHT TO TRIAL BY JURY. EACH PARTY TO THIS AGREEMENT
HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION
OR CAUSE OF ACTION (a) ARISING UNDER THIS AGREEMENT OR ANY OTHER INSTRUMENT,
DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR (b) IN
ANY WAY CONNECTED WITH
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OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM
WITH RESPECT TO THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT
EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED HERETO
OR THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING; AND EACH
PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO
THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH
ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER
OF THEIR RIGHT TO TRIAL BY JURY.
10.20 CONFLICT. In the event of any conflict between the provisions
hereof and the provisions of the Security Agreement or the Pledge and Security
Agreement, during the continuance of this Agreement the provisions of this
Agreement shall control.
10.21 ACKNOWLEDGMENTS. The Borrower and each Guarantor hereby
acknowledge that:
(a) it has been advised by counsel in the negotiation,
execution and delivery of this Loan Agreement and the other Loan
Documents;
(b) neither the Agent nor any Bank has any fiduciary
relationship with, or fiduciary duty to, the Borrower or any Guarantor
arising out of or in connection with the Loan, this Loan Agreement or
any of the other Loan Documents, and the relationship between the Agent
and the Banks, on the one hand, and the Borrower and the Guarantor, on
the other hand, in connection herewith or therewith is solely that of
debtor and creditor; and
(c) no joint venture is created hereby or by the other Loan
Documents or otherwise exists by virtue of the transactions
contemplated hereby among the Banks or among the Borrower and the
Guarantor and the Banks or among the Borrower and the Guarantor and the
Agent.
10.22 MODIFICATION OF LOAN DOCUMENTS TO REFLECT JUNIOR FACILITY. Banks
will in good faith facilitate the modification of the Loan Documents to evidence
the terms of the Junior Facility.
[SEPARATE SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, DGC, DGFS, the Banks and the Agent have caused this
Agreement to be executed by their duly authorized officers, all as of the day
and year first above written.
BORROWER:
DIRECT GENERAL CORPORATION
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
--------------------------------------
Title: Senior Vice President
-----------------------------------
GUARANTOR:
DIRECT GENERAL FINANCIAL SERVICES, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
--------------------------------------
Title: Senior Vice President
-----------------------------------
BANKS:
FIRST TENNESSEE BANK NATIONAL ASSOCIATION
By: /s/ ▇▇▇ ▇▇▇▇▇▇▇
--------------------------------------
Title: Senior Vice President
-----------------------------------
HIBERNIA NATIONAL BANK
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇ Rack
--------------------------------------
Title: Senior Vice President
-----------------------------------
AGENT:
FIRST TENNESSEE BANK NATIONAL ASSOCIATION
By: /s/ ▇▇▇ ▇▇▇▇▇▇▇
--------------------------------------
Title: Senior Vice President
-----------------------------------
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