1
Exhibit 10.1
[Conformed Copy with Exhibit F
Conformed as Executed]
CREDIT AGREEMENT
among
CERES GROUP, INC.,
VARIOUS LENDING INSTITUTIONS,
and
THE CHASE MANHATTAN BANK,
AS ADMINISTRATIVE AGENT
--------------------------------
Dated as of February 17, 1999
--------------------------------
$50,000,000
================================================================================
CHASE SECURITIES INC.,
AS LEAD ARRANGER AND BOOK MANAGER
DRESDNER BANK AG, NEW YORK
and
GRAND CAYMAN BRANCHES,
AS SYNDICATION AGENT
2
TABLE OF CONTENTS
-----------------
Page
----
SECTION 1. Amount and Terms of Credit .................................................. 1
1.01 Commitments ............................................................ 1
1.02 Minimum Amount of Each Borrowing; Maximum Number of Borrowings ......... 2
1.03 Notice of Borrowing .................................................... 2
1.04 Disbursement of Funds .................................................. 2
1.05 Notes .................................................................. 3
1.06 Conversions ............................................................ 4
1.07 Pro Rata Borrowings .................................................... 4
l.08 Interest................................................................ 5
1.09 Interest Periods ....................................................... 5
1.10 Increased Costs, Illegality, etc ....................................... 5
1.11 Compensation ........................................................... 8
1.12 Change of Lending Office ............................................... 9
1.13 Replacement of Banks ................................................... 9
1.14 Limitation on Additional Amounts, etc .................................. 10
SECTION 2. Fees; Commitments ........................................................... 10
2.01 Fees ................................................................... 10
2.02 Mandatory Reductions of Commitments .................................... 10
SECTION 3. Payments .................................................................... 11
3.01 Voluntary Prepayments .................................................. 11
3.02 Mandatory Repayments and Prepayments ................................... 11
3.03 Method and Place of Payment ............................................ 11
3.04 Net Payments ........................................................... 13
SECTION 4. Conditions Precedent ........................................................ 14
4.01 Effectiveness; Notes ................................................... 15
4.02 No Default; Representations and Warranties ............................. 15
4.03 Officer's Certificate .................................................. 15
4.04 Opinions of Counsel .................................................... 15
4.05 Corporate Proceedings .................................................. 15
4.06 Adverse Change, etc .................................................... 15
4.08 Capital Structure ...................................................... 16
4.09 Pledge Agreement ....................................................... 16
4.10 Consummation of the Transaction ........................................ 16
4.11 Transaction Documents .................................................. 17
4.12 Various Agreements ..................................................... 18
4.13 Financial Statements; Projections ...................................... 19
4.14 Approvals, etc ......................................................... 20
(i)
3
Page
----
4.15 Indebtedness ........................................................... 21
4.16 Payment of Fees ........................................................ 21
4.17 Notice of Borrowing .................................................... 21
4.18 Insurance Policies ..................................................... 21
SECTION 5. Representations, Warranties and Agreements .................................. 21
5.01 Corporate Status ....................................................... 21
5.02 Corporate Power and Authority .......................................... 22
5.03 No Contravention of Laws, Agreements or Organizational Documents ....... 22
5.04 Litigation and Contingent Liabilities .................................. 22
5.05 Use of Proceeds; Margin Regulations..................................... 23
5.06 Approvals .............................................................. 23
5.07 Investment Company Act ................................................. 23
5.08 Public Utility Holding Company Act ..................................... 23
5.09 True and Complete Disclosure; Projections and Assumptions .............. 23
5.10 Consummation of Transaction ............................................ 24
5.11 Financial Condition; Financial Statements .............................. 24
5.12 Security Interests ..................................................... 25
5.13 Tax Returns and Payments ............................................... 25
5.14 Compliance with ERISA .................................................. 25
5.15 Subsidiaries ........................................................... 26
5.16 Intellectual Property, etc ............................................. 27
5.17 Pollution and Other Regulations ........................................ 27
5.18 Labor Relations; Collective Bargaining Agreements ...................... 27
5.19 Capitalization ......................................................... 27
5.20 Representations and Warranties in Transaction Documents ................ 28
5.21 Indebtedness ........................................................... 28
5.22 Compliance with Statutes, etc .......................................... 28
5.23 Insurance Licenses ..................................................... 29
5.24 Year 2000 Compliance ................................................... 29
SECTION 6. Affirmative Covenants ....................................................... 29
6.01 Information Covenants .................................................. 29
6.02 Books, Records and Inspections ......................................... 32
6.03 Insurance .............................................................. 33
6.04 Payment of Taxes ....................................................... 33
6.05 Corporate Franchises ................................................... 33
6.06 Compliance with Statutes, etc .......................................... 33
6.07 ERISA .................................................................. 33
6.08 Performance of Obligations ............................................. 34
6.09 Good Repair ............................................................ 34
6.10 End of Fiscal Years; Fiscal Quarters 34
6.11 Maintenance of Licenses and Permits .................................... 34
6.12 Register ............................................................... 35
6.13 Approval and Payment of the Special Dividend ........................... 35
(ii)
4
Page
----
6.14 Payment of RCH Bridge Loan ............................................... 35
SECTION 7. Negative Covenants .......................................................... 35
7 01 Changes in Business .................................................... 36
7.02 Consolidation, Merger, Sale or Purchase of Assets 36
7.03 Liens .................................................................. 38
7.04 Indebtedness ........................................................... 39
7.05 Capital Expenditures ................................................... 40
7.06 Advances, Investments and Loans ........................................ 40
7.07 Prepayments of Indebtedness, Modifications of Agreements, etc .......... 42
7.08 Dividends, etc ......................................................... 42
7.09 Transactions with Affiliates ........................................... 43
7.10 Leverage Ratio ......................................................... 43
7.11 Interest Coverage Ratio ................................................ 43
7.12 Minimum Risk-Based Capital Ratio ....................................... 44
7.13 Minimum Consolidated Net Worth ......................................... 44
7.14 Issuance of Stock ...................................................... 44
7.15 Creation of Subsidiaries ............................................... 45
SECTION 8. Events of Default ........................................................... 45
8.01 Payments ............................................................... 45
8 02 Representations, etc ................................................... 45
8.03 Covenants .............................................................. 45
8.04 Default Under Other Agreements ......................................... 45
8.05 Bankruptcy, etc ........................................................ 46
8.06 ERISA .................................................................. 46
8.07 Pledge Agreement ....................................................... 47
8.08 Judgments .............................................................. 47
8.09 Ownership .............................................................. 47
SECTION 9. Definitions ................................................................. 47
SECTION 10. The Administrative Agent ................................................... 64
10.01 Appointment ............................................................ 64
10.02 Delegation of Duties ................................................... 64
10 03 Exculpatory Provisions ................................................. 65
10.04 Reliance by Administrative Agent ....................................... 65
10.05 Notice of Default ...................................................... 65
10.06 Non-Reliance ........................................................... 66
10.07 Indemnification ........................................................ 66
10.08 The Administrative Agent in its Individual Capacity .................... 67
10.09 Successor Administrative Agent ......................................... 67
(iii)
5
Page
SECTION 11. Miscellaneous .............................................................. 67
11.01 Payment of Expenses, etc ............................................. 67
11.02 Right of Setoff ...................................................... 68
11.03 Notices .............................................................. 68
11.04 Benefit of Agreement ................................................. 68
11.05 No Waiver; Remedies Cumulative ....................................... 71
11.06 Payments Pro Rata .................................................... 71
11.07 Calculations: Computations ........................................... 71
11.08 GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE ..................... 72
11.09 Counterparts ......................................................... 73
11.10 Effectiveness ........................................................ 73
11.11 Headings Descriptive ................................................. 73
11.12 Amendment or Waiver .................................................. 73
11.13 Survival ............................................................. 74
11.14 Domicile of Loans .................................................... 74
11.15 Confidentiality ...................................................... 74
11.16 WAIVER OF JURY TRIAL ................................................. 74
ANNEX 1 -- List of Banks and Commitments
ANNEX II -- Bank Addresses
ANNEX III -- Existing Indebtedness
ANNEX IV -- Plans
ANNEX V -- Subsidiaries
ANNEX VI -- Collective Bargaining Agreements
ANNEX VII -- Existing Liens
ANNEX VIII -- Existing Investment Commitments
ANNEX IX -- Capitalization
ANNEX X -- Non-Insurance Subsidiaries
ANNEX XI -- Permitted Affiliate Transactions
EXHIBIT A -- Form of Notice of Borrowing
EXHIBIT B-1 -- Form of Term Note
EXHIBIT B-2 -- Form of Revolving Note
EXHIBIT C-1 -- Form of Opinion of ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇.
EXHIBIT C-2 -- Form of Opinion of ▇▇▇▇▇▇▇▇▇, Will & ▇▇▇▇▇
EXHIBIT C-3 -- Form of Opinion of White & Case
EXHIBIT D -- Form of Officer's Certificate
EXHIBIT E -- Form of Section 3.04(b)(ii) Certificate
EXHIBIT F -- Form of Pledge Agreement
EXHIBIT G -- Form of Assignment and Assumption Agreement
(iv)
6
CREDIT AGREEMENT, dated as of February 17, 1999, among CERES GROUP,
INC., a Delaware corporation (the "Borrower"), the lending institutions listed
from time to time on Annex I hereto (each a "Bank" and, collectively, the
"Banks"), and THE CHASE MANHATTAN BANK, as Administrative Agent (the
"Administrative Agent"). Unless otherwise defined herein, all capitalized terms
used herein and defined in Section 9 are used herein as so defined.
W I T N E S S E T H:
--------------------
WHEREAS, subject to and upon the terms and conditions set forth herein,
the Banks are willing to make available to the Borrower the credit facilities
provided for herein.
NOW, THEREFORE, IT IS AGREED:
SECTION 1. AMOUNT AND TERMS OF CREDIT.
1.01 COMMITMENTS. Subject to and upon the terms and conditions herein
set forth, each Bank severally agrees to make a loan or loans (each a "Loan"
and, collectively, the "Loans") to the Borrower, which Loans shall be drawn, to
the extent such Bank has a commitment under such Facility, under the Term Loan
Facility and the Revolving Loan Facility, respectively, as set forth below:
(a) Each Loan under the Term Loan Facility (each, a "Term Loan" and,
collectively, the "Term Loans"):
(i) shall be incurred by the Borrower on the Initial Borrowing
Date;
(ii) shall be denominated in U.S. Dollars;
(iii) may, except as hereinafter provided, at the option of the
Borrower, be incurred and maintained as, and/or converted into, Base Rate
Loans or Eurodollar Loans, PROVIDED, that all Term Loans made as part of
the same Borrowing shall, unless otherwise specifically provided herein,
consist of Term Loans of the same Type;
(iv) shall not exceed for any Bank at the time of incurrence
thereof that aggregate principal amount which equals the Term Loan
Commitment, if any, of such Bank at such time; and
(v) once repaid, may not be reborrowed.
(b) Each Loan under the Revolving Loan Facility (each, a "Revolving
Loan" and, collectively, the "Revolving Loans"):
(i) may be incurred by the Borrower at any time and from time to
time after the Initial Borrowing Date and prior to the Revolving Loan
Maturity Date;
7
(ii) shall be denominated in U.S. Dollars;
(iii) may, except as hereinafter provided, at the option of the
Borrower, be incurred and maintained as, and/or converted into, Base Rate
Loans or Eurodollar Loans, PROVIDED, that all Revolving Loans made as part
of the same Borrowing shall, unless otherwise specifically provided
herein, consist of Revolving Loans of the same Type;
(iv) may be repaid and reborrowed in accordance with the provisions
hereof; and
(v) shall not exceed for any Bank at any time outstanding that
aggregate principal amount which equals the Revolving Loan Commitment, if
any, of such Bank at such time.
1.02 MINIMUM AMOUNT OF EACH BORROWING; MAXIMUM NUMBER OF BORROWINGS.
The aggregate principal amount of each Borrowing hereunder shall not be less
than $1,000,000 and, if in excess thereof, shall be in an integral multiple of
$500,000. More than one Borrowing may be incurred on any day; PROVIDED that at
no time shall there be outstanding more than eight Borrowings of Eurodollar
Loans.
1.03 NOTICE OF BORROWING. (a) Whenever the Borrower desires to incur
Loans under any Facility, it shall give the Administrative Agent at its Notice
Office, prior to 12:00 Noon (New York time), at least three Business Days' prior
written notice (or telephonic notice promptly confirmed in writing) of each
Borrowing of Eurodollar Loans and at least one Business Day's prior written
notice (or telephonic notice promptly confirmed in writing) of each Borrowing of
Base Rate Loans to be incurred hereunder. Each such notice (each, a "Notice of
Borrowing") shall, except as expressly provided in Section 1.10, be irrevocable,
and, in the case of each written notice and each written confirmation of
telephonic notice, shall be in the form of Exhibit A hereto, appropriately
completed to specify (i) the Facility pursuant to which such Borrowing is to be
made, (ii) the aggregate principal amount of the Loans to be made pursuant to
such Borrowing, (iii) the date of such Borrowing (which shall be a Business Day)
and (iv) whether such Borrowing shall consist of Base Rate Loans or Eurodollar
Loans and, if Eurodollar Loans, the Interest Period to be initially applicable
thereto. The Administrative Agent shall promptly give each Bank which is
required to make Loans of the Facility specified in the respective Notice of
Borrowing written notice (or telephonic notice promptly confirmed in writing) of
each proposed Borrowing, of such Bank's proportionate share thereof and of the
other matters covered by the Notice of Borrowing.
(b) Without in any way limiting the obligation of the Borrower to
confirm in writing any notice it may give hereunder by telephone, the
Administrative Agent may act prior to receipt of written confirmation without
liability upon the basis of such telephonic notice, believed by the
Administrative Agent in good faith to be from an Authorized Officer of the
Borrower. In each such case the Borrower hereby waives the right to dispute the
Administrative Agents record of the terms of any such telephonic notice.
1.04 DISBURSEMENT OF FUNDS. (a) Subject to the terms and conditions
herein set forth, no later than 11:00 A.M. (New York time) on the date specified
in each Notice of
8
Borrowing, each Bank with a Commitment under the respective Facility will make
available its PRO RATA share of each Borrowing requested to be made on such date
in the manner provided below. All amounts shall be made available to the
Administrative Agent in immediately available funds, denominated in U.S.
Dollars, at the Payment Office and the Administrative Agent will promptly make
available to the Borrower by depositing to the Borrower's account at the Payment
Office the aggregate of the amounts so made available in the type of funds
received. Unless the Administrative Agent shall have been notified by any Bank
prior to the date of Borrowing that such Bank does not intend to make available
to the Administrative Agent its portion of the Borrowing or Borrowings to be
made on such date, the Administrative Agent may assume that such Bank has made
such amount available to the Administrative Agent on such date of Borrowing, and
the Administrative Agent, in reliance upon such assumption, may (in its sole
discretion and without any obligation to do so) make available to the Borrower a
corresponding amount. If such corresponding amount is not in fact made available
to the Administrative Agent by such Bank and the Administrative Agent has made
available same to the Borrower, the Administrative Agent shall be entitled to
recover such corresponding amount from such Bank. If such Bank does not pay such
corresponding amount forthwith upon the Administrative Agent's demand therefor,
the Administrative Agent shall promptly notify the Borrower, and the Borrower
shall immediately pay such corresponding amount to the Administrative Agent. The
Administrative Agent shall also be entitled to recover from the Bank or the
Borrower, as the case may be, interest on such corresponding amount in respect
of each day from the date such corresponding amount was made available by the
Administrative Agent to the Borrower to the date such corresponding amount is
recovered by the Administrative Agent, at a rate per annum equal to (x) if paid
by such Bank, the overnight Federal Funds Effective Rate or (Y) if paid by the
Borrower, the then applicable rate of interest, calculated in accordance with
Section 1.08, for the respective Loans.
(b) Nothing in this Section 1.04 shall be deemed to relieve any Bank
from its obligation to fulfill its commitments hereunder or to prejudice any
rights which the Borrower may have against any Bank as a result of any default
by such Bank hereunder.
1.05 NOTES. (a) The Borrower's obligation to pay the principal of, and
interest on, all the Loans made to it by each Bank shall be evidenced (i) if
Term Loans, by a promissory note substantially in the form of Exhibit B-1 with
blanks appropriately completed in conformity herewith (each, a "Term Note" and,
collectively, the "Term Notes") and (ii) if Revolving Loans, by a promissory
note substantially in the form of Exhibit B-2 with blanks appropriately
completed in conformity herewith (each, a "Revolving Note" and, collectively,
the "Revolving Notes").
(b) The Term Note issued to each Bank that has a Term Loan Commitment
or outstanding Term Loans shall (i) be executed by the Borrower, (ii) be payable
to the order of such Bank or its registered assigns and be dated the Initial
Borrowing Date (or if issued thereafter, the date of issuance thereof), (iii) be
in a stated principal amount equal to the initial Term Loan Commitment of such
Bank and be payable in the principal amount of Term Loans evidenced thereby (or
in the case of a new Term Note issued pursuant to Section 11.04, the Term Loans
evidenced thereby at the time of issuance), (iv) mature on the Term Loan
Maturity Date, (v) bear interest as provided in the appropriate clause of
Section 1.08 in respect of the Base Rate Loans and Eurodollar Loans, as the case
may be, evidenced thereby, (vi) be subject to voluntary
9
prepayment as provided in Section 3.01, and mandatory repayment and prepayment
as provided in Section 3.02, and (vii) be entitled to the benefits of this
Agreement and the other Credit Documents.
(c) The Revolving Note issued to each Bank that has a Revolving Loan
Commitment shall (i) be executed by the Borrower, (ii) be payable to the order
of such Bank or its registered assigns and be dated the Initial Borrowing Date
(or if issued thereafter, the date of issuance thereof), (iii) be in a stated
principal amount equal to the Revolving Loan Commitment of such Bank and be
payable in the principal amount of the Revolving Loans evidenced thereby, (iv)
mature on the Revolving Loan Maturity Date, (v) bear interest as provided in the
appropriate clause of Section 1.08 in respect of the Base Rate Loans and
Eurodollar Loans, as the case may be, evidenced thereby, (vi) be subject to
voluntary prepayment as provided in Section 3.01, and mandatory prepayment as
provided in Section 3.02, and (vii) be entitled to the benefits of this
Agreement and the other Credit Documents.
(d) Each Bank will record on its internal records the amount of each
Loan made by it and each payment in respect thereof and will prior to any
transfer of any of its Notes endorse on the reverse side thereof the outstanding
principal amount of Loans evidenced thereby. Failure to make any such notation
or any error in any such notation shall not affect the Borrower's obligations in
respect of such Loans.
1.06 CONVERSIONS. The Borrower shall have the option to convert on any
Business Day, all or a portion at least equal to $1,000,000 (and, if in excess
thereof, an integral multiple of $500,000) of the outstanding principal amount
of the Loans of one Type pursuant to a Facility into a Borrowing or Borrowings
of the other Type of Loan under such Facility; provided that (i) no partial
conversion of a Borrowing of Eurodollar Loans shall reduce the outstanding
principal amount of the Eurodollar Loans pursuant to such Borrowing to less than
$1,000,000, (ii) Base Rate Loans may only be converted into Eurodollar Loans if
no Default or Event of Default is in existence on the date of the conversion,
(iii) Borrowings of Eurodollar Loans resulting from this Section 1.06 shall be
limited in number as provided in Section 1.02, (iv) Eurodollar Loans may only be
converted into Base Rate Loans on the last day of the Interest Period applicable
thereto and (v) each such conversion shall be made PRO RATA among the Loans of
each Bank of the Type being converted. Each such conversion shall be effected by
the Borrower by giving the Administrative Agent at its Notice Office, prior to
12:00 Noon (New York time), at least three Business Days' (or one Business Days
in the case of a conversion into Base Rate Loans) prior written notice (or
telephonic notice promptly confirmed in writing) (each a "Notice of Conversion")
specifying the Loans to be so converted, the Type of Loans to be converted into
and, if to be converted into a Borrowing of Eurodollar Loans, the Interest
Period to be initially applicable thereto. The Administrative Agent shall give
each Bank prompt notice of any such proposed conversion affecting any of its
Loans.
1.07 PRO RATA BORROWINGS. All Loans under this Agreement shall be made
by the Banks PRO RATA on the basis of their Term Loan Commitments and Revolving
Loan Commitments, as the case may be. It is understood that no Bank shall be
responsible for any default by any other Bank in its obligation to make Loans
hereunder and that each Bank shall be obligated to make the
10
Loans provided to be made by it hereunder, regardless of the failure of any
other Bank to fulfill its commitments hereunder.
1.08 INTEREST. (a) The unpaid principal amount of each Base Rate Loan
shall bear interest from the date of the Borrowing thereof until the earlier of
(i) the maturity (whether by acceleration or otherwise) of such Base Rate Loan
and (ii) the conversion of such Base Rate Loan to a Eurodollar Loan pursuant to
Section 106, at a rate per annum which shall at all times be the Applicable
Percentage then in effect for Base Rate Loans plus the Base Rate in effect from
time to time.
(b) The unpaid principal amount of each Eurodollar Loan shall bear
interest from the date of the Borrowing thereof until the earlier of (i) the
maturity (whether by acceleration or otherwise) of such Eurodollar Loan or (ii)
the conversion of such Eurodollar Loan to a Base Rate Loan pursuant to Section
1.06, at a rate per annum which shall at all times be the Applicable Percentage
then in effect for Eurodollar Loans plus the relevant Eurodollar Rate for the
Interest Period applicable to such Eurodollar Loan.
(c) Overdue principal and, to the extent permitted by law, overdue
interest in respect of each Loan and any other overdue amount payable hereunder
shall bear interest at a rate per annum equal to the greater of (x) the Base
Rate in effect from time to time plus the sum of (i) 2% and (ii) the Applicable
Percentage then in effect for Base Rate Loans and (y) the rate which is 2% in
excess of the rate then borne by such Loan.
(d) Interest shall accrue from and including the date of any Borrowing
to but excluding the date of any repayment thereof and shall be payable (i) in
respect of each Base Rate Loan, quarterly in arrears on the last Business Day of
each calendar quarter, (ii) in respect of each Eurodollar Loan, on the last day
of each Interest Period applicable thereto and, in the case of an Interest
Period of six months, on the date occurring three months after the first day of
such Interest Period and (iii) in respect of each Loan, on any conversion or
prepayment (on the amount so converted or prepaid), at maturity (whether by
acceleration or otherwise) and, after such maturity, on demand.
(e) All computations of interest hereunder shall be made in accordance
with Section 11.07(b) and (c).
(f) The Administrative Agent, upon determining the interest rate for
any Borrowing of Eurodollar Loans for any Interest Period, shall promptly notify
the Borrower and the Banks thereof
1.09 INTEREST PERIODS. At the time the Borrower gives a Notice of
Borrowing or Notice of Conversion in respect of the making of, or conversion
into, a Borrowing of Eurodollar Loans (in the case of the initial Interest
Period applicable thereto) or prior to 12:00 Noon (New York time) on the third
Business Day prior to the expiration of an Interest Period applicable to a
Borrowing of Eurodollar Loans, it shall have the right to elect by giving the
Administrative Agent written notice (or telephonic notice promptly confirmed in
writing) of the Interest Period to
11
be applicable to such Borrowing, which Interest Period shall, at the option of
the Borrower, be a one, two, three or six month period. Notwithstanding anything
to the contrary contained above:
(i) the initial Interest Period for any Borrowing of
Eurodollar Loans shall commence on the date of such Borrowing
(including the date of any conversion from a Borrowing of Base Rate
Loans) and each Interest Period occurring thereafter in respect of such
Borrowing shall commence on the day on which the next preceding
Interest Period expires;
(ii) if any Interest Period begins on a day for which there
is no numerically corresponding day in the calendar month at the end of
such Interest Period, such Interest Period shall end on the last
Business Day of such calendar month;
(iii) if any Interest Period would otherwise expire on a day
which is not a Business Day, such Interest Period shall expire on the
next succeeding Business Day, PROVIDED that if any Interest Period
would otherwise expire on a day which is not a Business Day but is a
day of the month after which no further Business Day occurs in such
month, such Interest Period shall expire on the next preceding Business
Day;
(iv) no Interest Period for a Borrowing under a Facility may
be elected if it would extend beyond the Maturity Date for such
Facility;
(v) no Interest Period may be elected at any time when a
Default or Event of Default is then in existence; and
(vi) no Interest Period with respect to any Borrowing of Term
Loans may be elected that would extend beyond any date upon which a
mandatory repayment of Term Loans is required to be made under Section
3.02(i)(a) if, after giving effect to the selection of such Interest
Period, the aggregate principal amount of Term Loans maintained as
Eurodollar Loans with Interest Periods ending after such date would
exceed the aggregate principal amount of Term Loans permitted to be
outstanding after such mandatory repayment.
If upon the expiration of any Interest Period, the Borrower has failed, or is
not permitted, to elect a new Interest Period to be applicable to the respective
Borrowing of Eurodollar Loans as provided above, the Borrower shall be deemed to
have elected to convert such Borrowing into a Borrowing of Base Rate Loans
effective as of the expiration date of such current Interest Period.
1.10 INCREASED COSTS, ILLEGALITY, ETC. (a) In the event that
(x) in the case of clause (i) below, the Administrative Agent or (y) in the case
of clauses (ii) and (iii) below, any Bank (other than a Defaulting Bank) shall
have determined (which determination shall, absent manifest error, be final and
conclusive and binding upon all parties hereto):
(i) on any date for determining the Eurodollar Rate for any
Interest Period, that, by reason of any changes arising after the
Effective Date affecting the interbank Eurodollar market, adequate and
fair means do not exist for ascertaining the applicable interest rate
on the basis provided for in the definition of Eurodollar Rate; or
12
(ii) at any time, that such Bank shall incur increased costs
or reductions in the amounts received or receivable hereunder in an
amount which such Bank in good ▇▇▇▇▇ ▇▇▇▇▇ material with respect to any
Eurodollar Loans (other than any increased cost or reduction in the
amount received or receivable resulting from the imposition of or a
change in the rate of taxes or similar charges) because of (x) any
change since the Effective Date in any applicable law, governmental
rule, regulation, guideline, order or request (whether or not having
the force of law), or in the interpretation or administration thereof
and including the introduction of any new law or governmental rule,
regulation, guideline, order or request (such as, for example, but not
limited to, a change in official reserve requirements, but, in all
events, excluding reserves required under Regulation D to the extent
included in the computation of the Eurodollar Rate) and/or (y) other
circumstances affecting the interbank Eurodollar market or the position
of such Bank in such market; or
(iii) at any time, that the making or continuance of any
Eurodollar Loan has become unlawful by compliance by such Bank in good
faith with any change since the Effective Date in any law, governmental
rule, regulation guideline or order, or the interpretation or
application thereof, or would conflict with any thereof not having the
force of law but with which such Bank customarily complies, or has
become impracticable as a result of a contingency occurring after the
Effective Date which materially adversely affects the interbank
Eurodollar market;
then, and in any such event, such Bank (or the Administrative Agent in the case
of clause (i) above) shall (x) on such date and (y) within 10 Business Days of
the date on which such event no longer exists give notice (by telephone
confirmed in writing) to the Borrower and to the Administrative Agent of such
determination (which notice the Administrative Agent shall promptly transmit to
each of the other Banks). Thereafter (x) in the case of clause (i) above,
Eurodollar Loans shall no longer be available until such time as the
Administrative Agent notifies the Borrower and the Banks that the circumstances
giving rise to such notice by the Administrative Agent no longer exist, and any
Notice of Borrowing or Notice of Conversion given by the Borrower with respect
to Eurodollar Loans which have not yet been incurred shall be deemed rescinded
by the Borrower or, in the case of a Notice of Borrowing, shall, at the option
of the Borrower, be deemed converted into a Notice of Borrowing for Base Rate
Loans to be made on the date of Borrowing contained in such Notice of Borrowing,
(y) in the case of clause (ii) above, the Borrower shall pay to such Bank, upon
written demand therefor, such additional amounts (in the form of an increased
rate of, or a different method of calculating, interest or otherwise as such
Bank shall determine) as shall be required to compensate such Bank for such
increased costs or reductions in amounts receivable hereunder (a written notice
as to the additional amounts owed to such Bank, showing the basis for the
calculation thereof which basis shall be reasonable and consistently applied,
submitted to the Borrower by such Bank shall, absent manifest error, be final
and conclusive and binding upon all parties hereto) and (z) in the case of
clause (iii) above, the Borrower shall take one of the actions specified in
Section 1.10(b) as promptly as possible and, in any event, within the time
period required by law.
(b) At any time that any Eurodollar Loan is affected by the
circumstances described in Section 1.10(a)(ii) or (iii), the Borrower may (and
in the case of a Eurodollar Loan
13
affected pursuant to Section 1.10(a)(iii) the Borrower shall) either (i) if the
affected Eurodollar Loan is then being made pursuant to a Borrowing, by giving
the Administrative Agent telephonic notice (confirmed promptly in writing)
thereof on the same date that the Borrower was notified by a Bank (other than a
Defaulting Bank) pursuant to Section l.10(a)(ii) or (iii), cancel said
Borrowing, convert the related Notice of Borrowing into one requesting a
Borrowing of Base Rate Loans or require the affected Bank to make its requested
Loan as a Base Rate Loan, or (ii) if the affected Eurodollar Loan is then
outstanding, upon at least one Business Day's notice to the Administrative
Agent, require the affected Bank to convert each such affected Eurodollar Loan
into a Base Rate Loan, PROVIDED that if more than one Bank is affected at any
time, then all affected Banks must be treated the same pursuant to this Section
1.10(b).
(c) If any Bank (other than a Defaulting Bank) shall have
determined that after the Effective Date the adoption or effectiveness of any
applicable law, rule or regulation regarding capital adequacy, or any change
therein, or any change in the interpretation or administration thereof by any
governmental authority, central bank or comparable agency charged by law with
the interpretation or administration thereof, or compliance by such Bank or its
parent corporation with any request or directive regarding capital adequacy
(whether or not having the force of law) of any such authority, central bank or
comparable agency, in each case made subsequent to the Effective Date, has or
would have the effect of reducing the rate of return on such Banks or its parent
corporations capital or assets as a consequence of such Bank's commitments or
obligations hereunder to a level below that which such Bank or its parent
corporation could have achieved but for such adoption, effectiveness, change or
compliance (taking into consideration such Banks or its parent corporations
policies with respect to capital adequacy), then from time to time, upon demand
by such Bank (with a copy to the Administrative Agent), the Borrower shall pay
to such Bank such additional amount or amounts as will compensate such Bank or
its parent corporation for such reduction. Each Bank (other than a Defaulting
Bank), upon determining in good faith that any additional amounts will be
payable pursuant to this Section 1.10(c), will give prompt written notice
thereof to the Borrower, which notice shall set forth the basis of the
calculation of such additional amounts, which basis must be reasonable and
consistently applied, although the failure to give any such notice shall not
release or diminish any of the Borrowers obligations to pay additional amounts
pursuant to this Section 1.10(c) upon the subsequent receipt of such notice.
1.11 COMPENSATION. The Borrower shall compensate each Bank
(other than a Defaulting Bank), upon its written request (which request shall
set forth the basis for requesting such compensation), for all reasonable
losses, expenses and liabilities (including, without limitation, any loss,
expense or liability incurred by reason of the liquidation or reemployment of
deposits or other funds required by such Bank to fund its Eurodollar Loans but
excluding any loss of anticipated profit with respect to such Loans) which such
Bank may sustain: (i) if for any reason (other than a default by such Bank or
the Administrative Agent) a Borrowing of Eurodollar Loans does not occur on a
date specified therefor in a Notice of Borrowing or Notice of Conversion
(whether or not withdrawn by the Borrower or deemed withdrawn pursuant to
Section 1.10(a)); (ii) if any repayment, prepayment or conversion of any of
its Eurodollar Loans occurs on a date which is not the last day of an Interest
Period applicable thereto; (iii) if any prepayment of any of its Eurodollar
Loans is not made on date specified in a notice of prepayment given by the
Borrower; or (iv) as a consequence of (x) any other failure by the
14
Borrower to repay its Loans when required by the terms of this Agreement or (y)
an election made pursuant to Section 1.10(b). Calculation of all amounts payable
to a Bank under this Section 1.11 shall be made as though that Bank had
actually funded its relevant Eurodollar Loan through the purchase of a
Eurodollar deposit bearing interest at the Eurodollar Rate in an amount equal to
the amount of that Loan, having a maturity comparable to the relevant Interest
Period and through the transfer of such Eurodollar deposit from an offshore
office of that Bank or other bank to a domestic office of that Bank in the
United States of America; provided, however, that each Bank may fund each of its
Eurodollar Loans in any manner it sees fit and the foregoing assumption shall be
utilized only for the calculation of amounts payable under this Section 1.11.
1.12 CHANGE OF LENDING OFFICE. Each Bank agrees that, upon the
occurrence of any event giving rise to the operation of Section 1.10(a)(ii) or
(iii) or 3.04 with respect to such Bank, it will, if requested by the Borrower,
use reasonable efforts (subject to overall policy considerations of such Bank)
to designate another lending office for any Loans affected by such event;
provided that such designation is made on such terms that, in the opinion of
such Bank, such Bank and its lending office suffer no economic, legal or
regulatory disadvantage, with the object of avoiding the consequence of the
event giving rise to the operation of any such Section. Nothing in this Section
1.12 shall affect or postpone any of the obligations of the Borrower or the
right of any Bank provided in Section 1.10 or 3.04.
1.13 REPLACEMENT OF BANKS. (x) If any Bank becomes a
Defaulting Bank or (y) upon the occurrence of any event giving rise to the
operation of Section 1.10(a)(ii) or (iii), Section 1.10(c) or Section 3.04 with
respect to any Bank which results in such Bank charging to the Borrower
increased costs, the Borrower shall have the right, if no Default or Event of
Default then exists, to replace such Bank (the "Replaced Bank") with one or more
other banks or financial institutions, none of whom shall constitute a
Defaulting Bank at the time of such replacement (collectively, the "Replacement
Bank") reasonably acceptable to the Administrative Agent (which acceptance shall
not be unreasonably withheld or delayed), PROVIDED that (i) at the time of any
replacement pursuant to this Section 1.13, the Replacement Bank shall enter into
one or more Assignment and Assumption Agreements pursuant to Section 11.04(b)
(and with all fees payable pursuant to said Section 11.04(b) to be paid by the
Replacement Bank) pursuant to which the Replacement Bank shall acquire all of
the Commitments and outstanding Loans of the Replaced Bank and, in connection
therewith, shall pay to the Replaced Bank in respect thereof an amount equal to
(A) the principal of, and all accrued interest on, all outstanding Loans of the
Replaced Bank, (B) all accrued, but theretofore unpaid, Fees owing to the
Replaced Bank pursuant to Section 2.01, (ii) all obligations (including, without
limitation, all such amounts, if any, due and owing under Section 1.11) of the
Borrower due and owing to the Replaced Bank (other than those specifically
described in clause (i) above in respect of which the assignment purchase price
has been, or is concurrently being, paid) shall be paid in fall to such Replaced
Bank concurrently with such replacement and (iii) no Bank may be replaced
pursuant to this Section 1.13 unless each other Bank which is a Defaulting Bank
or which is charging increased costs of the type described above, as the case
may be, is replaced substantially concurrently pursuant to this Section. Upon
the execution of the respective Assignment and Assumption Agreement, the payment
of amounts referred to in clauses (i) and (ii) above, recordation of the
assignment on the Register by the Administrative Agent pursuant to Section 6.13
and, if so requested by the Replacement Bank, delivery to the Replacement Bank
of the appropriate Note or Notes executed by the Borrower,
15
(x) the Replacement Bank shall become a Bank hereunder and the Replaced Bank
shall cease to constitute a Bank hereunder, except with respect to
indemnification provisions under this Agreement (including, without limitation,
Sections 1.10, 1.11, 3.04, 10.07 and 11.01) and any claims of the Borrower
against such Replaced Bank, which shall survive as to such Replaced Bank and (y)
Annex I hereto shall be deemed modified to reflect the changed Commitments
(and/or outstanding Term Loans, as the case may be) resulting from the
assignment from the Replaced Bank to the Replacement Bank.
1.14 LIMITATION ON ADDITIONAL AMOUNTS, ETC. Notwithstanding
anything to the contrary contained in Section 1.10 or 3.04 of this Agreement,
unless a Bank gives notice to the Borrower that it is obligated to pay an amount
under Section 1.10(a), 1.10(c) or 3.04 within 180 days after the later of (x)
the date the Bank incurs increased costs or reductions in the amounts received
or receivable or (y) the date such Bank has actual knowledge of its incurrence
of the increased costs or reductions in amounts received or receivable, then
such Bank shall only be entitled to be compensated for such amount by the
Borrower pursuant to said Section 1.10 or 3.04, as the case may be, to the
extent the costs or reductions in amounts received or receivable are incurred or
suffered on or after the date which occurs 180 days prior to such Bank giving
notice to the Borrower that it is obligated to pay the respective amounts
pursuant to said Section. This Section 1.14 shall have no applicability to any
Section of this Agreement other than said Sections 1.10 and 3.04.
SECTION 2. FEES; COMMITMENTS
2.01 FEES. (a) The Borrower shall pay to the Administrative
Agent for the account of each Bank (other than a Defaulting Bank) a commitment
fee (the "Commitment Fee") for the period from the Effective Date to and
including the date on which the Total Revolving Loan Commitment has been
terminated, computed at a rate equal to 3/4 of 1% per annum on the average daily
Unutilized Revolving Loan Commitment of each such Bank. Accrued Commitment Fees
shall be due and payable in arrears on the last Business Day of each calendar
quarter and the date upon which the Total Revolving Loan Commitment is
terminated.
(b) The Borrower shall pay to the Administrative Agent, for
the account of the Administrative Agent, when and as due, such fees as have
been, or are from time to time, separately agreed upon.
(c) All computations of fees shall be made in accordance with
Section 11.07(b).
2.02 MANDATORY REDUCTIONS OF COMMITMENTS. (a) The Total
Commitment (and the Commitment of each Bank) shall terminate in its entirety at
5:00 p.m. (New York time) on the Expiration Date unless the Initial Borrowing
Date has occurred on or before such date.
(b) The Total Term Loan Commitment shall terminate on the
Initial Borrowing Date, after giving effect to the incurrence of Term Loans on
such date.
16
(c) The Total Revolving Loan Commitment (and the Revolving
Loan Commitment of each Bank) shall terminate on the earlier of (i) the
Revolving Loan Maturity Date and (ii) the date on which a Change of Control
occurs.
SECTION 3. PAYMENTS.
3.01 VOLUNTARY PREPAYMENTS. The Borrower shall have the right
to prepay Loans, without premium or penalty (except for amounts payable pursuant
to Section 1.11), in whole or in part, from time to time on the following terms
and conditions: (i) the Borrower shall give the Administrative Agent at its
Notice Office written notice (or telephonic notice promptly confirmed in
writing) of its intent to prepay the Loans, whether such Loans are Term Loans or
Revolving Loans, the amount of such prepayment and (in the case of Eurodollar
Loans) the specific Borrowing(s) pursuant to which made, which notice shall be
received by the Administrative Agent (x) in the case of Base Rate Loans, no
later than 12:00 Noon (New York time) one Business Day prior to the date of such
prepayment, or (y) in the case of Eurodollar Loans, three Business Days prior to
the date of such prepayment, which notice shall promptly be transmitted by the
Administrative Agent to each of the Banks; (ii) each partial prepayment of any
Borrowing shall be in an aggregate principal amount of at least $250,000,
PROVIDED that no partial prepayment of Eurodollar Loans made pursuant to a
Borrowing shall reduce the aggregate principal amount of the Loans outstanding
pursuant to such Borrowing to an amount less than $1,000,000, (iii) each
prepayment in respect of any Loans made pursuant to a Borrowing shall be applied
PRO RATA among such Loans; and (iv) each prepayment of Term Loans pursuant to
this Section 3.01 shall reduce the then remaining Scheduled Repayments in the
inverse order of maturities.
3.02 MANDATORY REPAYMENTS AND PREPAYMENTS.
(i) Requirements:
(a) On each date set forth below, the Borrower shall be
required to repay the principal amount of Term Loans as is set forth opposite
such date (each such repayment, as the same may be reduced pursuant to Section
2.03, 3.01 and/or 3.02(ii)(a), a "Scheduled Repayment"):
Scheduled Repayment Date Amount
------------------------ ------
February 17, 2000 $3,000,000
May 17, 2000 $1,000,000
August 17, 2000 31,000,000
November 17, 2000 $1,000,000
February 17, 2001 $1,000,000
May 17, 2001 $l,500,000
August 17, 2001 $1,500,000
November 17, 2001 $1,500,000
February 17, 2002 $1,500,000
May 17, 2002 $2,250,000
August 17, 2002 $2,250,000
November 17, 2002 $2,250,000
17
February 17, 2003 $2,250,000
May 17, 2003 $2,250,000
August 17, 2003 $2,250,000
November 17, 2003 $2 250,000
February 17, 2004 $2,250,000
May 17, 2004 $2,250,000
August 17, 2004 $2,250,000
November 17, 2004 $2,250,000
February 17, 2005 $2,250,000
(b) On the 100th day following the last day of each fiscal
year of the Borrower (beginning with the fiscal year ending December 31, 1999),
the Borrower will prepay the principal of the Term Loans in an amount, if
positive, equal to Excess Cash Flow for such fiscal year, less any optional
prepayments made pursuant to Section 3.01 during such period, or in the 100-day
period prior to any prepayment being due under this Section 3.02 (i)(b).
(c) On the date on which any Change of Control occurs, the
outstanding principal amount of all Loans shall be due and payable in full.
(d) If on any date the outstanding principal amount of
Revolving Loans (after giving effect to all other repayments thereof on such
date) exceeds the Total Revolving Loan Commitment as then in effect, the
Borrower shall repay on such date the principal of the Revolving Loans in an
amount equal to such excess.
(ii) Application:
(a) Each mandatory prepayment of Term Loans pursuant to
Section 3.02(i)(b) shall be applied to reduce the then remaining Scheduled
Repayments in inverse order of maturity.
(b) With respect to each prepayment of Loans required by this
Section 3.02, the Borrower may designate the Types of Loans which are to be
prepaid and the specific Borrowing(s) pursuant to which made; PROVIDED that (i)
the Borrower shall first so designate all Base Rate Loans and Eurodollar Loans
with Interest Periods ending on the date of repayment prior to designating any
other Eurodollar Loans; (ii) if any prepayment of Eurodollar Loans made pursuant
to a single Borrowing shall reduce the outstanding Loans made pursuant to such
Borrowing to an amount less than $1,000,000, such Borrowing shall be immediately
converted into Base Rate Loans; and (iii) each prepayment of any Loans made
pursuant to a Borrowing shall be applied PRO RATA among such Loans. In the
absence of a designation by the Borrower as described in the preceding sentence,
the Administrative Agent shall, subject to the above, make such designation in
its sole discretion with a view, but no obligation, to minimize breakage costs
owing under Section 1.11.
3.03 METHOD AND PLACE OF PAYMENT. Except as otherwise
specifically provided herein, all payments under this Agreement and the Notes
shall be made to the Administrative Agent for the ratable account of the Banks
entitled thereto, not later than 1:00 P.M. (New York time) on the date when due
and shall be made in immediately available funds and in lawful money
18
of the United States of America at the Payment Office, it being understood that
written, telex or facsimile notice by the Borrower to the Administrative Agent
to make a payment from the funds in the Borrower's account at the Payment Office
shall constitute the making of such payment to the extent of such funds held in
such account. Any payments under this Agreement which are made later than 1:00
P.M. (New York time) shall be deemed to have been made on the next succeeding
Business Day. Whenever any payment to be made hereunder shall be stated to be
due on a day which is not a Business Day, the due date thereof shall be extended
to the next succeeding Business Day and, with respect to payments of principal,
interest shall be payable during such extension at the applicable rate in effect
immediately prior to such extension.
3.04 NET PAYMENTS. (a) All payments made by the Borrower
hereunder or under any Note will be made without setoff, counterclaim or other
defense. Except as provided in Section 3.04(b), all such payments will be made
free and clear of and without deduction or withholding for, any present or
future taxes, levies, imposts, duties, fees, assessments or other charges of
whatever nature now or hereafter imposed by any jurisdiction or by any political
subdivision or taxing authority thereof or therein with respect to such payments
(but excluding, except as provided in the second succeeding sentence, any tax
imposed on or measured by the net income or net profits of a Bank pursuant to
the laws of the jurisdiction in which it is organized or the jurisdiction in
which the principal office or applicable lending office of such Bank is located
or any subdivision thereof or therein) and all interest, penalties or similar
liabilities with respect to such non-excluded taxes, levies, imposts, duties,
fees, assessments or other charges (all such non-excluded taxes, levies,
imposts, duties, fees, assessments or other charges being referred to
collectively as "Taxes"). If any Taxes are so levied or imposed, the Borrower
agrees to pay the full amount of such Taxes, and such additional amounts as may
be necessary so that every payment of all amounts due under this Agreement or
under any Note, after withholding or deduction for or on account of any Taxes,
will not be less than the amount provided for herein or in such Note. If any
amounts are payable in respect of Taxes pursuant to the preceding sentence, the
Borrower agrees to reimburse each Bank, upon the written request of such Bank,
for taxes imposed on or measured by the net income or net profits of such Bank
pursuant to the laws of the jurisdiction in which such Bank is organized or in
which the principal office or applicable lending office of such Bank is located
or under the laws of any political subdivision or taxing authority of any such
jurisdiction in which such Bank is organized or in which the principal office or
applicable lending office of such Bank is located and for any withholding of
taxes as such Bank shall determine are payable by, or withheld from, such Bank,
in respect of such amounts so paid to or on behalf of such Bank pursuant to the
preceding sentence and in respect of any amounts paid to or on behalf of such
Bank pursuant to this sentence. The Borrower will furnish to the Administrative
Agent within 45 days after the date the payment of any Taxes is due pursuant to
applicable law certified copies of tax receipts evidencing such payment by the
Borrower. The Borrower agrees to indemnify and hold harmless each Bank, and
reimburse such Bank upon its written request, for the amount of any Taxes so
levied or imposed and paid by such Bank.
(b) Each Bank that is not a United States person (as such
term is defined in Section 7701(a)(30) of the Code) for U.S. Federal income tax
purposes agrees to deliver to the Borrower and the Administrative Agent on or
prior to the Effective Date, or in the case of a Bank that is an assignee or
transferee of an interest under this Agreement pursuant to Section 11.04(b)
(unless the respective Bank was already a Bank hereunder immediately prior to
such assignment
19
or transfer), on the date of such assignment or transfer to such Bank, (i) two
accurate and complete original signed copies of Internal Revenue Service Form
4224 or 1001 (or successor forms) certifying to such Bank's entitlement to a
complete exemption from United States withholding tax with respect to payments
to be made under this Agreement and under any Note, or (ii) if the Bank is not a
"bank" within the meaning of Section 881(c)(3)(A) of the Code and cannot deliver
either Internal Revenue Service Form 1001 or 4224 pursuant to clause (i) above,
(x) a certificate substantially in the form of Exhibit E (any such certificate,
a "Section 3.04(b)(ii) Certificate") and (y) two accurate and complete original
signed copies of Internal Revenue Service Form W-8 (or successor form)
certifying to such Bank's entitlement to a complete exemption from United States
withholding tax with respect to payments of interest to be made under this
Agreement and under any Note. In addition, each Bank agrees that from time to
time after the Effective Date, when a lapse in time or change in circumstances
renders the previous certification obsolete or inaccurate in any material
respect, it will deliver to the Borrower and the Administrative Agent two new
accurate and complete original signed copies of Internal Revenue Service Form
4224 or 1001, or Form W-8 and a Section 3.04(b)(ii) Certificate, as the case may
be, and such other forms as may be required in order to confirm or establish the
entitlement of such Bank to a continued exemption from or reduction in United
States withholding tax with respect to payments under this Agreement and any
Note, or it shall immediately notify the Borrower and the Administrative Agent
of its inability to deliver any such Form or Certificate, in which case such
Bank shall not be required to deliver any such Form or Certificate pursuant to
this Section 3.04(b). Notwithstanding anything to the contrary contained in
Section 3.04(a), but subject to Section 11.04(b) and the immediately succeeding
sentence, (x) the Borrower shall be entitled, to the extent it is required to do
so by law, to deduct or withhold income or similar taxes imposed by the United
States (or any political subdivision or taxing authority thereof or therein)
from interest, Fees or other amounts payable hereunder for the account of any
Bank which is not a United States person (as such term is defined in Section
7701(a)(30) of the Code) for U.S. Federal income tax purposes to the extent
that such Bank has not provided to the Borrower U.S. Internal Revenue Service
Forms that establish a complete exemption from such deduction or withholding and
(y) the Borrower shall not be obligated pursuant to Section 3.04(a) hereof to
gross-up payments to be made to a Bank in respect of income or similar taxes
imposed by the United States if (I) such Bank has not provided to the Borrower
the Internal Revenue Service Forms required to be provided to the Borrower
pursuant to this Section 3.04(b) or (II) in the case of a payment, other than
interest, to a Bank described in clause (ii) above, to the extent that such
Forms do not establish a complete exemption from withholding of such taxes.
Notwithstanding anything to the contrary contained in the preceding sentence or
elsewhere in this Section 3.04 and except as set forth in Section 11.04(b), the
Borrower agrees to pay any additional amounts and to indemnify each Bank in the
manner set forth in Section 3.04(a) (without regard to the identity of the
jurisdiction requiring the deduction or withholding) in respect of any Taxes
deducted or withheld by it as described in the immediately preceding sentence as
a result of any changes after the Effective Date in any applicable law, treaty,
governmental rule, regulation, guideline or order, or in the interpretation
thereof, relating to the deducting or withholding of such Taxes.
SECTION 4. CONDITIONS PRECEDENT. The obligation of the Banks
to make Loans to the Borrower hereunder is subject, at the time of the making of
each such Loan (except as otherwise hereinafter indicated), to the satisfaction
of each of the following conditions:
20
4.01 EFFECTIVENESS; NOTES. On or prior to the Initial
Borrowing Date, (i) the Effective Date shall have occurred, and (ii) there shall
have been delivered to the Administrative Agent for the account of each Bank the
appropriate Term Note and Revolving Note executed by the Borrower in the amount,
maturity and as otherwise provided herein.
4.02 NO DEFAULT; REPRESENTATIONS AND WARRANTIES. At the time
of the making of each Loan and also after giving effect thereto, (i) there shall
exist no Default or Event of Default and (ii) all representations and warranties
contained herein or in the other Credit Documents shall be true and correct in
all material respects with the same effect as though such representations and
warranties had been made on and as of the date of the making of such Loan,
unless stated to relate to a specific earlier date, in which case such
representations and warranties shall be true and correct in all material
respects as of such earlier date.
4.03 OFFICERS CERTIFICATE. On the Initial Borrowing Date, the
Administrative Agent shall have received an officer's certificate dated such
date, signed by an appropriate officer of the Borrower, stating that all of the
applicable conditions set forth in Sections 4.02, 4.06, 4.07, 4.10 and 4.14
exist as of such date.
4.04 OPINIONS OF COUNSEL. On the Initial Borrowing Date, the
Administrative Agent shall have received an opinion, or opinions, in form and
substance reasonably satisfactory to the Administrative Agent, addressed to each
of the Banks and dated the Initial Borrowing Date, from (i) ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇,
▇▇, counsel to the Borrower, which opinion shall cover the matters contained in
Exhibit C-1 hereto, (ii) ▇▇▇▇▇▇▇▇▇, Will & ▇▇▇▇▇, special counsel to the
Borrower, which opinion shall cover the matters contained in Exhibit C-2 hereto,
and (iii) White & Case, special counsel to the Banks, which opinion shall cover
the matters contained in Exhibit C-3 hereto.
4.05 CORPORATE PROCEEDINGS. (a) On the Initial Borrowing
Date, the Banks shall have received from the Borrower an officer's certificate,
dated the Initial Borrowing Date, signed by the President or any Vice President
of the Borrower, and attested to by the Secretary or any Assistant Secretary of
the Borrower, in the form of Exhibit D hereto with appropriate insertions,
together with (x) copies of the Certificate of Incorporation and By-Laws of the
Borrower and (y) the resolutions of the Borrower and the other documents
referred to in such certificate, and the foregoing shall be reasonably
satisfactory to the Administrative Agent.
(b) All corporate, tax and legal proceedings and all
instruments and agreements in connection with the transactions contemplated by
this Agreement, the other Credit Documents and the Transaction Documents shall
be reasonably satisfactory in form and substance to the Administrative Agent,
and the Administrative Agent shall have received all information and copies of
all certificates, documents and papers, including good standing certificates and
any other records of corporate proceedings and governmental approvals, if any,
which the Administrative Agent reasonably may have requested in connection
therewith, such documents and papers where appropriate to be certified by proper
corporate or governmental authorities
4.06 ADVERSE CHANGE, ETC. Neither the Administrative Agent nor
the Required Banks shall have become aware of any facts or conditions not
previously known or disclosed,
21
whether occurring prior to or after the Effective Date, and since December 31,
1997 nothing shall have occurred, which, when taken as a whole, the
Administrative Agent shall reasonably determine (i) has, or is reasonably likely
to have, a material adverse effect on the rights or remedies of the Banks or the
Administrative Agent under this Agreement or any other Credit Document, or on
the ability of the Borrower to perform its obligations to them, or (ii) has or
is reasonably likely to have a Material Adverse Effect.
4.07 LITIGATION. No actions, suits or proceedings shall be
pending or, to the knowledge of the Borrower, threatened against the Borrower
(i) with respect to this Agreement or any other Credit Document, the Transaction
Documents or the transactions contemplated hereby or thereby (including the
Acquisition) or (ii) which either the Administrative Agent or the Required Banks
shall determine has, or is reasonably likely to have, (x) a Material Adverse
Effect or (y) a material adverse effect on the rights or remedies of the Banks
or the Administrative Agent hereunder or under any other Credit Document or on
the ability of the Borrower to perform its obligations to them hereunder or
under any other Credit Documents.
4.08 CAPITAL STRUCTURE. The corporate and capital structure
(and all agreements related thereto) of the Borrower and all organizational
documents of the Borrower shall be reasonably satisfactory to the Administrative
Agent, and Insurance Partners and/or its affiliates shall own at least 25% of
the equity of the Borrower on a fully diluted basis and shall be the largest
single shareholder of the Borrower.
4.09 PLEDGE AGREEMENT. On or prior to the Initial Borrowing
Date, the Borrower shall have duly authorized, executed and delivered a Pledge
Agreement substantially in the form of Exhibit G hereto (as modified, amended or
supplemented from time to time in accordance with the terms thereof and hereof,
the "Pledge Agreement"), which Pledge Agreement shall be in full force and
effect, and shall have delivered to the Collateral Agent, as pledgee thereunder:
(A) all of the Pledged Securities referred to therein,
endorsed in blank or together with undated stock powers executed
in blank, as appropriate;
(B) executed copies of Financing Statements (Form UCC-1)
in appropriate form for filing under the UCC of each jurisdiction
as may be reasonably necessary to perfect the security interests
purported to be created by the Pledge Agreement; and
(C) evidence that all other actions necessary or, in the
reasonable opinion of the Collateral Agent, desirable to perfect
and protect the security interests purported to be created by the
Pledge Agreement have been taken or will be taken promptly after
the Initial Borrowing Date.
4.10 CONSUMMATION OF THE TRANSACTION. (a) On the Initial
Borrowing Date, the Acquisition shall have been consummated in accordance with
the Acquisition Documents, which Acquisition Documents shall be in form and
substance reasonably satisfactory to the Administrative Agent, and all
applicable laws, and each of the conditions precedent to the consummation of the
Acquisition (including, without limitation, the accuracy in all material
respects of the representations and warranties contained in the Acquisition
Agreement) shall have
22
been satisfied to the satisfaction of the Administrative Agent and not waived
except with the reasonable consent of the Administrative Agent (which consent
shall not be unreasonably withheld or delayed).
(b) The Refinancing shall have been consummated in accordance
with the Refinancing Documents, which Refinancing Documents shall be in form and
substance reasonably satisfactory to the Administrative Agent, and all
applicable laws and each of the conditions precedent to the consummation of the
Refinancing (including without limitation the accuracy in all material respects
of the representations and warranties contained in the Refinancing Documents)
shall have been satisfied, to the satisfaction of the Administrative Agent and
shall not have been waived except with the reasonable consent of the
Administrative Agent (which consent shall not be unreasonably withheld or
delayed), and all commitments in connection with the existing funded
Indebtedness for borrowed money of the Borrower, Continental and Continental
Corporation (other than the existing mortgage on the home office of the
Borrower) shall have been terminated.
(c) Immediately prior to the consummation of the Transaction,
the Borrower shall have cash on hand of at least $8,160,000.
(d) The Borrower shall have received gross cash proceeds from
the Investment of at least $15,000,000 (it being understood and agreed that fees
and expenses of counsel to the Investment purchasers and other similar
transaction expenses, but excluding fees payable to the Investment purchasers,
may be paid or withheld from such gross cash proceeds), and all of the
documentation governing the terms of the Investment shall be reasonably
satisfactory to the Administrative Agent.
(e) Continental shall have entered into the Reinsurance
Transaction, and all of the terms and conditions relating to the Reinsurance
Transaction shall be reasonably satisfactory to the Administrative Agent.
(D The Borrower shall have incurred a loan in the aggregate
amount of $22,500,000 from RCH (the "RCH Bridge Loan"), and all of the terms and
conditions relative to the RCH Bridge Loan shall be reasonably satisfactory to
the Administrative Agent.
(g) The Borrower shall have used the aggregate amount received
from the Investment, the Reinsurance Transaction and the RCH Bridge Loan,
together with at least $8,160,000 of cash on hand, to make payments owing in
connection with the Transaction concurrently with utilizing any proceeds of
Loans pursuant to the this Agreement for such purpose.
4.11 TRANSACTION DOCUMENTS. On or before the Initial
Borrowing Date, there shall have been made available to the Administrative Agent
(with delivery of copies thereof to the Administrative Agent and the Banks
promptly following consummation of the Transaction), true and correct copies of
the Transaction Documents and all terms of such Transaction Documents shall be
reasonably satisfactory in form and substance to the Administrative Agent and
the Required Banks. The representations and warranties set forth in the
Transaction Documents shall be true and correct in all material respects as if
made on and as of the Initial Borrowing Date,
23
unless stated to relate to a specific earlier date, in which case such
representations and warranties shall be true and correct in all material
respects as of such earlier date. Concurrently with the incurrence of the Term
Loans on the Initial Borrowing Date, the Transaction shall have been consummated
in substantial compliance with the terms of the Transaction Documents and all
Legal Requirements.
4.12 VARIOUS AGREEMENTS. On or prior to the Initial Borrowing
Date, there shall have been made available to the Administrative Agent (and
copies thereof shall have been made available to the Banks requesting same)
copies, certified as true and correct by an appropriate officer of the Borrower,
of:
(a) all Plans (and for each Plan that is required to file an
annual report on Internal Revenue Service Form 5500-series, a copy of the most
recent such report (including, to the extent required, the related financial and
actuarial statements and opinions and other supporting statements,
certifications, schedules and information), and for each Plan that is a
"single-employer plan," as defined in Section 4001(a)(15) of ERISA, the most
recently prepared actuarial valuation therefor) and any other "employee benefit
plans," as defined in Section 3(3) of ERISA, and any other material agreements,
plans or arrangements, with or for the benefit of current or former employees of
the Borrower or any of its Subsidiaries or any ERISA Affiliate (provided that
the foregoing shall apply in the case of any multiemployer plan, as defined in
4001(a)(3) of ERISA, only to the extent that any document described therein is
in the possession of the Borrower or any of its Subsidiaries or any ERISA
Affiliate or reasonably available thereto from the sponsor or trustee of any
such plan) (collectively, the "Plan Documents");
(b) all material employment agreements (or the forms thereof),
if any, with respect to the senior management of the Borrower or any of its
Subsidiaries including, without limitation, Continental and its Subsidiaries
(collectively, the "Management Agreements");
(c) all agreements, if any, (or the forms thereof) entered or
to be entered into by the Borrower or any of its Subsidiaries governing the
terms and relative rights of its capital stock and any agreements (or the forms
thereof) entered or to be entered into by stockholders relating to any such
entity with respect to its capital stock, but excluding agreements with
directors of any Subsidiaries of the Borrower relating to directors' qualifying
shares held by such directors (collectively, the "Stockholders Agreements");
(d) all tax sharing, tax allocation and other similar
agreements (or the forms thereof) entered or to be entered into by the Borrower
and/or any of its Subsidiaries (collectively, the "Tax Sharing Agreements");
(e) all material agreements entered into between the Borrower
and any of its Subsidiaries and/or among or between any of the Borrowers
Subsidiaries relating to the allocation of expenses incurred by the Borrower or
any such Subsidiary (collectively, the "Shared Expenses Agreements");
(f) all material contracts of the Borrower or any of its
Subsidiaries that are to remain in effect after giving effect to the
consummation of the Transaction, including, without
24
limitation, all management and/or service contracts entered into or to be
entered into between the Borrower and its Subsidiaries (collectively, the
"Material Contracts"); and
(g) all material Reinsurance Agreements of the Borrower and
each of its Subsidiaries;
all of which Plan Documents, Management Agreements, Stockholders Agreements, Tax
Sharing Agreements, Shared Expenses Agreements, Material Contracts and
Reinsurance Agreements shall be in form and substance reasonably satisfactory to
the Administrative Agent and the Required Banks.
4.13 FINANCIAL STATEMENTS; PROJECTIONS. Prior to the Initial
Borrowing Date, the Borrower shall have delivered or caused to be delivered to
the Administrative Agent with copies for each Bank:
(a)(i) the audited Annual Statement of Central Reserve Life
Insurance Company for the fiscal year ended December 31, 1997, prepared in
accordance with SAP and as filed with the respective Applicable Insurance
Regulatory Authority, which Annual Statement shall be reasonably satisfactory in
form and substance to the Administrative Agent and (ii) the unaudited Quarterly
Statement of Central Reserve Life Insurance Company for the quarter ended
September 30, 1998, prepared in accordance with SAP and as filed with the
respective Applicable Insurance Regulatory Authority, which Quarterly Statement
shall be reasonably satisfactory in form and substance to the Administrative
Agent;
(b)(i) the audited consolidated balance sheet of the Borrower
and its Subsidiaries for the fiscal year ended December 31, 1997, and the
related consolidated statements of income, of stockholder's equity and of cash
flows, in each case prepared in accordance with GAAP and (ii) the unaudited
consolidated balance sheet of the Borrower and its Subsidiaries for the fiscal
quarter ended September 30, 1998, and the related consolidated statements of
income, of stockholders' equity and of cash flows, in each case prepared in
accordance with GAAP;
(c)(i) the audited Annual Statement of Continental for the
fiscal year ended December 31, 1997, prepared in accordance with SAP and as
filed with the respective Applicable Insurance Regulatory Authority, which
Annual Statement shall be reasonably satisfactory in form and substance to the
Administrative Agent and (ii) the unaudited Quarterly Statement of Continental
for the quarter ended September 30, 1998, prepared in accordance with SAP and as
filed with the respective Applicable Insurance Regulatory Authority, which
Quarterly Statement shall be reasonably satisfactory in form and substance to
the Administrative Agent;
(d) projected financial statements for the Borrower and its
Subsidiaries reflecting the projected financial condition, income and expenses
of the Borrower and its Subsidiaries after giving effect to the Transaction and
the other transactions contemplated hereby, which projected financial statements
shall be reasonably satisfactory in form and substance to the Administrative
Agent;
25
(e) a closing funds flow statement in connection with the
Transaction, in form and substance satisfactory to the Administrative Agent; and
(f) a PRO FORMA balance sheet of Borrower, as of the Initial
Borrowing Date, after giving effect to the Transaction and the other
transactions contemplated hereby.
4.14 APPROVALS. ETC. On the Initial Borrowing Date the
following approvals shall have been obtained to the satisfaction of the Banks:
(i) all necessary and material governmental and third party
approvals, permits and licenses (including without limitation the
approval of the Departments of Insurance of the State of Ohio) in
connection with the Transaction and this Agreement and the transactions
contemplated by the Transaction Documents and otherwise referred to
herein or therein (including without limitation the Acquisition and the
pledge of stock of the subsidiaries of the Borrower), to the extent
such approvals, consents, permits and licenses are required to be
obtained or made prior to the Initial Borrowing Date, shall have been
obtained and remain in full force and effect, and all applicable
waiting periods shall have expired, in each case without any action
being taken by any competent authority (including any court having
jurisdiction) which restrains, prevents or imposes, in the reasonable
judgment of the Required Banks or the Administrative Agent, materially
adverse conditions upon the consummation of the Transaction or any such
agreement or transaction;
(ii) the Form A filed by the Borrower with the Insurance
Department of the State of Nebraska, together with the approval of such
Insurance Department of such Form A (and all stipulations or conditions
relating to such approval), which approvals (and stipulations and
conditions, if any) shall (x) specify the Insurance Department's intent
to approve the Special Dividend once it has been declared by the New
Continental Board of Directors and (y) be reasonably satisfactory to
the Administrative Agent:
(iii) all necessary shareholder approvals required in
connection with the Transaction shall have been obtained and remain in
full force and effect;
(iv) all regulatory approvals in connection with the pledge of
the stock of each Regulated Insurance Company shall have been obtained
and remain in full force and effect.
(v) the payment of management fees to the Borrower or any of
its Subsidiaries pursuant to service contracts entered into between the
Borrower and certain Subsidiaries of the Borrower shall have been
approved by each Applicable Insurance Regulatory Authority.
4.15 INDEBTEDNESS. On the Initial Borrowing Date and after
giving effect to the consummation of the Transaction, the only Indebtedness for
borrowed money of the Borrower and its Subsidiaries shall consist of the
Indebtedness incurred pursuant to the Credit Documents (other than the existing
mortgage on the home office of the Borrower).
26
4.16 PAYMENT OF FEES. On the Initial Borrowing Date, all
costs, fees and expenses (including, without limitation, reasonable legal fees
and expenses), and all other compensation contemplated by this Agreement or the
other Credit Documents, due to the Administrative Agent or any Banks shall have
been paid to the extent due.
4.17 NOTICE OF BORROWING. The Administrative Agent shall
have received a Notice of Borrowing satisfying the requirements of Section 1.03
with respect to all Borrowings of Loans.
4.18 INSURANCE POLICIES. On the Initial Borrowings Date, the
Administrative Agent shall have received evidence of insurance complying with
the requirements of Section 6.03 for the business and properties of the Borrower
and its Subsidiaries, in form and substance reasonably satisfactory to the
Administrative Agent.
The acceptance of the benefits of the Loans on the Initial
Borrowing Date and on the date of each Loan thereafter shall constitute a
representation and warranty by the Borrower to each of the Banks that all of the
applicable conditions specified in this Section 4 exist or have been satisfied
(unless expressly waived by the Banks) as of such date. All of the certificates,
legal opinions and other documents and papers referred to in this Section 4,
unless otherwise specified, shall be delivered to the Administrative Agent at
its Notice Office for the account of each of the Banks.
SECTION 5. REPRESENTATIONS, WARRANTIES AND AGREEMENTS. In
order to induce the Banks to enter into this Agreement and to make the Loans
provided for herein, the Borrower makes the following representations and
warranties to, and agreements with, the Banks, all of which shall survive the
execution and delivery of this Agreement and the making of the Loans (with the
making of the Loans being deemed to constitute a representation and warranty
that the matters specified in this Section 5 are true and correct in all
material respects on and as of the date of the making of the Loans (after giving
effect to the consummation of the Transaction on such date) unless such
representation and warranty expressly indicates that it is being made as of any
other specific date in which case such representation and warranty shall be true
and correct in all material respects as of such other specified date):
5.01 CORPORATE STATUS. The Borrower and each of its
Subsidiaries (i) is a duly organized and validly existing corporation in good
standing under the laws of the jurisdiction of its organization and has the
corporate or other organizational power and authority to own its property and
assets and to transact the business in which it is engaged and presently
proposes to engage and (ii) has been duly qualified and is authorized to do
business and is in good standing in all jurisdictions where it is required to be
so qualified and where the failure to be so qualified would have a Material
Adverse Effect.
5.02 CORPORATE POWER AND AUTHORITY. The Borrower has the
corporate power and authority to execute, deliver and carry out the terms and
provisions of the Transaction Documents to which it is a party and has taken all
necessary corporate action to authorize the execution, delivery and performance
of the Transaction Documents to which it is a party. The Borrower and each of
its Subsidiaries has duly executed and delivered each Transaction
27
Document to which it is a party and each such Transaction Document constitutes
the legal, valid and binding obligation of the Borrower enforceable against the
Borrower in accordance with its terms, except to the extent that enforceability
thereof may be limited by applicable bankruptcy, insolvency, moratorium or
similar laws affecting creditors rights generally and general principles of
equity regardless of whether enforcement is sought in a proceeding in equity or
at law.
5.03 NO CONTRAVENTION OF LAWS, AGREEMENTS OR ORGANIZATIONAL
DOCUMENTS. Neither the execution, delivery and performance by the Borrower of
the Transaction Documents to which it is a party nor compliance with the terms
and provisions thereof, nor the consummation of the transactions contemplated
therein (i) will contravene any applicable provision of any law, statute, rule,
regulation, order, writ, injunction or decree of any court or governmental
instrumentality, (ii) will conflict or be inconsistent with or result in any
breach of any of the terms, covenants, conditions or provisions of, or
constitute a default under, or (other than pursuant to the Pledge Agreement)
result in the creation or imposition of (or the obligation to create or impose)
any Lien upon any of the property or assets of the Borrower or any of its
Subsidiaries pursuant to the terms of any indenture, mortgage, deed of trust,
loan agreement, credit agreement or any other material instrument to which the
Borrower or any of its Subsidiaries is a party or by which it or any of its
property or assets are bound or to which it may be subject or (iii) will violate
any provision of the Articles of Incorporation or By-Laws of the Borrower or any
of its Subsidiaries.
5.04 LITIGATION AND CONTINGENT LIABILITIES. (a) There are no
actions, suits or proceedings pending, or threatened in a writing of which the
Borrower is aware, involving the Borrower or any of its Subsidiaries (including,
without limitation, with respect to the Transaction, this Agreement or any
documentation executed in connection therewith or herewith) (i) which has or is
reasonably likely to have a Material Adverse Effect or (ii) that would
reasonably be expected to have a material adverse effect on the rights or
remedies of the Banks or on the ability of the Borrower to perform its
obligations to the Banks hereunder and under the other Credit Documents to which
it is, or will be, a party. Additionally, there does not exist any judgment,
order or injunction prohibiting or imposing material adverse conditions upon the
making of any Loan hereunder.
(b) Except as fully reflected in the financial statements
described in Section 5.11(b) (including the footnotes thereto), the Indebtedness
incurred under this Agreement and all obligations incurred in the ordinary
course of business since the date of the financial statements described in
Section 5.11(b), there were as of the Initial Borrowing Date (and after giving
effect to the Loans made on such date), no liabilities or obligations with
respect to the Borrower or any of its Subsidiaries of any nature whatsoever
(whether absolute, accrued, contingent or otherwise and whether or not due), and
the Borrower does not know of any basis for the assertion against the Borrower
or any of its Subsidiaries of any such liability or obligation, which, in the
case of any of the foregoing referred to in this clause (b), either individually
or in the aggregate, are or would be reasonably likely to have a Material
Adverse Effect.
5.05 USE OF PROCEEDS; MARGIN REGULATIONS. (a) The proceeds of
all Term Loans shall be utilized solely to effect the Transaction and to pay
costs and expenses in connection therewith
28
(b) The proceeds of all Revolving Loans shall be utilized for
general corporate and working capital purposes.
(c) Neither the making of any Loan hereunder, nor the use of
the proceeds thereof, will violate or be inconsistent with the provisions of
Regulation T, U or X of the Board of Governors of the Federal Reserve System and
no part of the proceeds of any Loan will be used to purchase or carry any Margin
Stock or to extend credit for the purpose of purchasing or carrying any Margin
Stock.
5.06 APPROVALS. Except for filings and approvals made or
obtained on or prior to the Initial Borrowing Date, no order, consent, approval,
license, authorization, or validation of, or filing, recording or registration
with, or exemption by, any foreign or domestic governmental or public body or
authority, or any subdivision thereof, is required to authorize or is required
prior to the Initial Borrowing Date in connection with (i) the execution,
delivery and performance of any Transaction Document by the Borrower or (ii) the
legality, validity, binding effect or enforceability of any Transaction Document
against the Borrower.
5.07 INVESTMENT COMPANY ACT. Neither the Borrower nor any of
its Subsidiaries is an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended.
5.08 PUBLIC UTILITY HOLDING COMPANY ACT. Neither the Borrower
nor any of its Subsidiaries is a "holding company," or a "subsidiary company" of
a "holding company," or an "affiliate" of a "holding company" or of a
"subsidiary company" of a "holding company," within the meaning of the Public
Utility Holding Company Act of 1935, as amended.
5.09 TRUE AND COMPLETE DISCLOSURE; PROJECTIONS AND
ASSUMPTIONS. All factual information (taken as a whole) heretofore or
contemporaneously furnished by or on behalf of the Borrower or any of its
Subsidiaries to the Administrative Agent or any Bank (including, without
limitation, all information contained in the Transaction Documents) for purposes
of or in connection with this Agreement or any transaction contemplated herein
is, and all other factual information (taken as a whole) hereafter furnished by
or on behalf of any such Persons in writing to the Administrative Agent will be,
true and accurate in all material respects on the date as of which such
information is dated and not incomplete by omitting to state any material fact
necessary to make such information (taken as a whole) not misleading at such
time in light of the circumstances under which such information was provided.
The projections contained in such materials are based on good faith estimates
and assumptions believed by the Borrower to be reasonable and attainable at the
time made, it being recognized by the Banks that such Projections as to future
events are not to be viewed as facts and that actual results during the period
or periods covered by any such Projections may differ from the projected
results.
5.10 CONSUMMATION OF TRANSACTION. As of the Initial Borrowing
Date and concurrently with the initial Loans under this Agreement, (i) the
Transaction has been consummated in accordance with, in all material respects,
the terms and conditions of the Transaction Documents and all applicable laws
and (ii) the Borrower is the direct owner of 100% of the outstanding capital
stock of Continental, free and clear of all Liens (other than Liens
29
created pursuant to the Pledge Agreement). All material consents and approvals
of, and material filings and registrations with, and all other material actions
in respect of, all governmental agencies, authorities or instrumentalities
required in order to consummate the Transaction in accordance with the terms and
conditions of the Transaction Documents and all applicable laws have been, or
prior to the time required, will have been, obtained, given, filed or taken
(with no concessions, agreements or understandings having been made or entered
into by the Borrower or any of its Subsidiaries in connection therewith other
than those disclosed to the Banks prior to the Effective Date and found
reasonably acceptable by the Administrative Agent) and are or will be in full
force and effect. All applicable waiting periods with respect thereto have, or,
prior to the time when required, will have, expired without, in all such cases,
any action being taken by any competent authority which restrains, prevents, or
imposes material adverse conditions upon the consummation of the Transaction.
Additionally, there does not exist any judgment, order, or injunction
prohibiting or imposing material adverse conditions upon the Transaction or the
making of the Loans or the performance by the Borrower and its Subsidiaries of
their obligations under the Transaction Documents.
5.11 FINANCIAL CONDITION; FINANCIAL STATEMENTS. (a) On and
as of the Initial Borrowing Date, on a PRO FORMA basis after giving effect to
the Transaction and all Indebtedness incurred, and to be incurred, on or prior
to the Initial Borrowing Date, and Liens created, and to be created, on or prior
to the Initial Borrowing Date, in connection with this Agreement, with respect
to each of the Borrower (on a stand-alone basis) and the Borrower and its
Subsidiaries (on a consolidated basis) (x) the sum of the assets, at a fair
valuation, of each of the Borrower (on a stand-alone basis) and the Borrower and
its Subsidiaries (on a consolidated basis) will exceed their debts, (y) the
Borrower (on a stand-alone basis) and the Borrower and its Subsidiaries (on a
consolidated basis) will not have incurred nor intended to, or believe that they
will, incur debts beyond their ability to pay such debts as such debts mature
and (z) the Borrower (on a stand alone basis), and the Borrower and its
Subsidiaries (on a consolidated basis) will have sufficient capital with which
to conduct their business. For purposes of this Section 5.11(a), "debt" means
any liability on a claim, and "claim" means (i) right to payment whether or not
such a right is reduced to judgment, liquidated, unliquidated, fixed,
contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured
or unsecured; or (ii) right to an equitable remedy for breach of performance if
such breach gives rise to a payment, whether or not such right to an equitable
remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed,
undisputed, secured or unsecured.
(b) The financial statements and PRO FORMA balance sheet
(after giving effect to the Transaction and the other transactions contemplated
hereby) delivered to the Administrative Agent pursuant to Section 4.13 present
fairly in all material respects the financial position of the respective Persons
referred to in such Sections at the dates of said statements and the results of
operations for the periods covered thereby (or, in the case of the pro forma
balance sheet, present a good faith estimate of the consolidated PRO FORMA
financial condition of each of the Borrower and its Subsidiaries and the
Borrower and its Subsidiaries at the date thereof). All such financial
statements have been prepared in accordance with SAP or GAAP, as indicated in
Section 4.13, consistently applied except to the extent provided in the notes to
said financial statements. The projections contained in such materials are based
on good faith estimates and assumptions believed by the Borrower to be
reasonable and attainable at the time made, it being recognized by
30
the Banks that such Projections as to future events are not to be viewed as
facts and that actual results during the period or periods covered by any such
Projections may differ from the projected results.
(c) Since October 27, 1998, nothing has occurred which, when
taken as a whole, has or is reasonably likely to have a Material Adverse Effect.
5.12 SECURITY INTERESTS. On and after the Initial Borrowing
Date, the Pledge Agreement creates, as security for the Obligations, valid and
enforceable perfected security interests in and Liens on all of the Collateral
subject thereto, superior to and prior to the rights of all third persons and
subject to no other Liens other than Liens permitted pursuant to Sections
7.03(a), (b), (f), (g) and (h), in favor of the Collateral Agent for the benefit
of the Banks. At all times on or after the Initial Borrowing Date, the Borrower
has good and marketable title to all Collateral free and clear of all Liens
(except as created pursuant to the Pledge Agreement). No filings or recordings
are required in order to perfect the security interests created under the Pledge
Agreement except for filings or recordings which shall have been made, or
provided for to the reasonable satisfaction of the Administrative Agent, upon or
prior to the Initial Borrowing Date.
5.13 TAX RETURNS AND PAYMENTS. The Borrower and each of its
Subsidiaries has filed all federal income tax returns and all other tax returns,
domestic and foreign, required to be filed by it and has paid all material taxes
and assessments payable by it which have become due, other than those not yet
delinquent and except for those contested in good faith. The Borrower and each
of its Subsidiaries has paid, or has provided adequate reserves (in the good
faith judgment of the management of such Person) for the payment of, all
federal, state and foreign income taxes applicable for all prior fiscal years
and for the current fiscal year to the date hereof. There is no material action,
suit, proceeding, investigation, audit, or claim now pending or, to the
knowledge of the Borrower or any of its Subsidiaries, threatened by any
authority regarding any taxes relating to the Borrower or any of its
Subsidiaries. Neither the Borrower nor any of its Subsidiaries has entered into
an agreement or waiver or been requested to enter into an agreement or waiver
extending any statute of limitations relating to the payment or collection of
taxes of the Borrower or any of its Subsidiaries, or is aware of any
circumstances that would cause the taxable years or other taxable periods of the
Borrower or any of its Subsidiaries not to be subject to the normally applicable
statute of limitations.
5.14 COMPLIANCE WITH ERISA. (a) Annex IV sets forth each
Plan; each Plan (and each related trust, insurance contract or fund) is in
substantial compliance with its terms and with all applicable laws, including
without limitation ERISA and the Code; each Plan (and each related trust, if
any) which is intended to be qualified under Section 401(a) of the Code has
received a determination letter" from the Internal Revenue Service to the effect
that it meets the requirements of Sections 401(a) and 501(a) of the Code; no
Reportable Event has occurred; no Plan which is a multiemployer plan (as defined
in Section 4001(a) (3) of ERISA) is insolvent or in reorganization; no Plan has
an Unfunded Current Liability; no Plan which is subject to Section 412 of the
Code or Section 302 of ERISA has an accumulated funding deficiency, within the
meaning of such sections of the Code or ERISA, or has applied for or received a
waiver of an accumulated funding deficiency or an extension of any amortization
period, within the meaning of Section 412 of the Code or Section 303 of 304 of
ERISA; all contributions required to be made with respect to a
31
Plan have been timely made except to the extent of any such contribution which,
if not timely made, would not result in a material liability to the Borrower,
any Subsidiary of the Borrower or any ERISA Affiliate; neither the Borrower nor
any Subsidiary of the Borrower nor any ERISA Affiliate has incurred any material
liability (including any indirect, contingent or secondary liability) to or on
account of a Plan pursuant to Section 409, 502(i), 502(1), 515, 4062, 4063,
4064, 4069, 4201, 4204, or 4212 of ERISA or Section 401(a)(29), 4971 or 4975 of
the Code or expects to incur any material amount of such liability under any of
the foregoing sections with respect to any Plan; no condition exists which
presents a material risk to the Borrower or any Subsidiary of the Borrower or
any ERISA Affiliate of incurring a material amount of liability to or on account
of a Plan pursuant to the foregoing provisions of ERISA and the Code; no
proceedings have been instituted by the PBGC to terminate or appoint a trustee
to administer any Plan which is subject to Title IV of ERISA in a distress
termination; no action, suit, proceeding. hearing, audit or investigation with
respect to the administration, operation or the investment of assets of any Plan
(other than routine claims for benefits or relating to qualified domestic
relations orders) is pending, expected or threatened; no Plan is a multiemplover
plan (as defined in Section 4001(a)(3) of ERISA); neither the Borrower nor any
Subsidiary of the Borrower nor any ERISA Affiliate has incurred any material
liability as a result of any group health plan (as defined in Section 607(1) of
ERISA or Section 4980B(g)(2) of the Code) other than a multiemployer plan
described in Section 3(37) of ERISA which covers or has covered employees or
former employees of the Borrower, any Subsidiary of the Borrower, or any ERISA
Affiliate having not been operated in compliance with the provisions of Part 6
of subtitle B of Title I of ERISA and Section 4980B of the Code; no lien imposed
under the Code or ERISA on the assets of the Borrower or any Subsidiary of the
Borrower or any ERISA Affiliate exists or is likely to arise on account of any
Plan; and the Borrower and its Subsidiaries may cease contributions to or
terminate any employee benefit plan maintained by any of them without incurring
any material liability.
5.15 SUBSIDIARIES. (a) Annex V hereto lists each Subsidiary of
the Borrower (and the direct and indirect ownership interest of the Borrower
therein) and also identifies the owner thereof in each case existing on the
Initial Borrowing Date (after giving effect to the Transaction). All such
Subsidiaries are direct or indirect Wholly-Owned Subsidiaries of the Borrower.
(b) There are no restrictions on the Borrower or any of its
Subsidiaries which prohibit or otherwise restrict the transfer of cash or other
assets from any Subsidiary of the Borrower to the Borrower, other than
prohibitions or restrictions existing under or by reason of (i) this Agreement
or the other Credit Documents, (ii) Legal Requirements, (iii) customary
non-assignment provisions in contracts entered into in the ordinary course of
business and consistent with past practices, and (iv) purchase money obligations
for property acquired in the ordinary course of business, so long as such
obligations are permitted under this Agreement.
5.16 INTELLECTUAL PROPERTY, ETC. The Borrower and each of its
Subsidiaries have obtained all material patents, trademarks, servicemarks, trade
names, copyrights, licenses and other rights, free from burdensome restrictions,
that are necessary for the operation of their respective businesses as presently
conducted and as proposed to be conducted.
32
5.17 POLLUTION AND OTHER REGULATIONS. The Borrower and each
of its Subsidiaries are in compliance with all laws and regulations relating to
pollution and environmental control, equal employment opportunity and employee
safety in all domestic and foreign jurisdictions in which the Borrower and each
of its Subsidiaries is presently doing business, and the Borrower will comply
and cause each of its Subsidiaries to comply with all such laws and regulations
which may be imposed in the future in jurisdictions in which the Borrower or
such Subsidiary may then be doing business; in each case other than those the
non-compliance with which would not reasonably be expected to have a Material
Adverse Effect.
5.18 LABOR RELATIONS; COLLECTIVE BARGAINING AGREEMENTS. (a)
Set forth on Annex VI is a list and description (including dates of termination)
of all Collective Bargaining Agreements between or applicable to the Borrower
or any of its Subsidiaries and any union, labor organization or other bargaining
agent in respect of the employees of the Borrower and/or any Subsidiary on the
Initial Borrowing Date.
(b) Neither the Borrower nor any of its Subsidiaries is
engaged in any unfair labor practice that is reasonably likely to have a
Material Adverse Effect. (i) There is no significant unfair labor practice
complaint pending against the Borrower or any of its Subsidiaries or threatened
in writing against any of them, before the national Labor Relations Board, and
no significant grievance or significant arbitration proceeding arising out of or
under any Collective Bargaining Agreement is now pending against the Borrower or
any of its Subsidiaries or threatened in writing against any of them, (ii) there
is no significant strike, labor dispute, slowdown or stoppage is pending against
the Borrower or any of its Subsidiaries or threatened in a writing of which the
Borrower is aware against the Borrower or any of its Subsidiaries and (iii) to
the best knowledge of the Borrower, no union representation question exists with
respect to the employees of the Borrower or any of its Subsidiaries, except
(with respect to any matter specified in clause (i), (ii) or (iii) above, either
individually or in the aggregate) such as is not reasonably likely to have a
Material Adverse Effect.
5.19 CAPITALIZATION. (a) On the Initial Borrowing Date, and
after giving effect to the Transaction and the other transactions contemplated
hereby, the authorized capital stock of the Borrower consists of 2,000,000
shares of non-voting preferred stock, $.001 par value per share, none of which
shall be issued and outstanding and 30,000,000 shares of common stock, $.001 par
value per share, 11,495,172 of which are issued and outstanding. As of the
Initial Borrowing Date, all such outstanding shares of the Borrower have been
duly and validly issued and are fully paid and nonassessable. Except as set
forth on Schedule IX, neither the Borrower nor any of its Subsidiaries has
outstanding any securities convertible into or exchangeab1e for its capital
stock or outstanding any rights to subscribe for or to purchase, or any options
for the purchase of or any agreements providing for the issuance (contingent or
otherwise) of, or any calls, commitments or claims of any character relating to,
its capital stock except, in the case of the Borrower, for options, warrants and
grants outstanding in the aggregate amounts set forth on Annex IX.
(b) On the Initial Borrowing Date and after giving effect to
the Transaction and the other transactions contemplated hereby, the authorized
capital stock of Central Reserve Life Insurance Company shall consist of
3,000,000 shares of common stock, $2.00 par value per
33
share, and all of the issued and outstanding shares of such common stock are
owned by the Borrower. All such outstanding shares have been duly and validly
issued, are fully paid and nonassessable. Central Reserve Life Insurance Company
does not have outstanding any securities convertible into or exchangeable for
its capital stock or outstanding any rights to subscribe for or to purchase, or
any options for the purchase of, or any agreements providing for the issuance
(contingent or otherwise) of, or any calls, commitments or claims of any
character relating to, its capital stock.
(c) On the Initial Borrowing Date, and after giving effect to
the Transaction and the other transactions contemplated hereby, the authorized
capital stock of Continental Corporation consists of 10,000,000 shares of common
stock, $0.01 par value per share, 4,294,869 of which shall be issued and
outstanding and are owned by the Borrower. As of the Initial Borrowing Date, all
such outstanding shares of Continental Corporation have been duly and validly
issued and are fully paid and nonassessable. Continental Corporation does not
have outstanding any securities convertible into or exchangeable for its capital
stock or outstanding any rights to subscribe for or to purchase, or any options
for the purchase of, or any agreements providing for the issuance (contingent or
otherwise) of, or any calls, commitments or claims of any character relating to,
its capital stock.
(d) On the Initial Borrowing Date, and after giving effect to
the Transaction and the other transactions contemplated hereby, the authorized
capital stock of Continental consists of 6,500,000 shares of common stock, $1.00
par value per share, 4,196,569 of which shall be issued and outstanding and are
owned by Continental Corporation. As of the Initial Borrowing Date, all such
outstanding shares of Continental have been duly and validly issued and are
fully paid and nonassessable. Continental does not have outstanding any
securities convertible into or exchangeable for its capital stock or outstanding
any rights to subscribe for or to purchase, or any options for the purchase of,
or any agreements providing for the issuance (contingent or otherwise) of, or
any calls, commitments or claims of any character relating to, its capital
stock.
5.20 REPRESENTATIONS AND WARRANTIES IN TRANSACTION DOCUMENTS.
All representations and warranties set forth in the Transaction Documents were
true and correct in all material respects as of the time such representations
and warranties were made and shall be true and correct in all material respects
as of the Initial Borrowing Date as if such representations and warranties were
made on and as of such date, unless stated to relate to a specific earlier date,
in which case such representations and warranties shall be true and correct in
all material respects as of such earlier date.
5.21 INDEBTEDNESS. Annex III sets forth a true and complete
list of all Indebtedness for borrowed money of the Borrower and its Subsidiaries
as of the Initial Borrowing Date (after giving effect to the Transaction), in
each case showing the aggregate principal amount thereof, the name of the lender
in respect thereof and the name of the respective borrower and any other entity
which has directly or indirectly guaranteed such Indebtedness.
5.22 COMPLIANCE WITH STATUTES, ETC. The Borrower and each of
its Subsidiaries is in compliance with all applicable statutes, regulations and
orders of, and all applicable restrictions imposed by, all governmental bodies,
domestic or foreign, in respect of the conduct of its business
34
and the ownership of its property (including compliance with all applicable
environmental laws), except such noncompliances as would not, in the aggregate,
reasonably be expected to have a Material Adverse Effect.
5.23 INSURANCE LICENSES. Each Regulated Insurance Company has
obtained and maintains in full force and effect all licenses and permits from
all regulatory authorities necessary to operate in the jurisdictions in which
such Regulated Insurance Company operates, in each case other than such licenses
and permits the failure to obtain or maintain, individually or in the aggregate,
is not reasonably likely to have a Material Adverse Effect.
5.24 YEAR 2000 COMPLIANCE. Any reprogramming required to
permit the proper functioning, in and following the year 2000, of (i) the
Borrower's and its Subsidiaries' computer systems and (ii) equipment containing
embedded microchips (including systems and equipment supplied by others or with
which Borrower's or its Subsidiaries' systems interface) and the testing of all
such systems and equipment, as so reprogrammed, will be completed in all
material respects by June 30, 1999. The cost to the Borrower and its
Subsidiaries of such reprogramming and testing and of the reasonably foreseeable
consequences of year 2000 to the Borrower and its Subsidiaries (including,
without limitation, reprogramming errors and the failure of others' systems or
equipment) is not reasonably likely to result in a Default or a Material Adverse
Effect. Except for such of the reprogramming referred to in the preceding
sentence as may be necessary, the computer and management information systems of
the Borrower and its Subsidiaries are and, with ordinary course upgrading and
maintenance, will continue for the term of this Agreement to be, sufficient to
permit the Borrower to conduct its business without a Material Adverse Effect.
SECTION 6. AFFIRMATIVE COVENANTS. The Borrower hereby
covenants and agrees that on the Initial Borrowing Date and thereafter, for so
long as this Agreement is in effect and until the Loans, together with interest,
Fees and all other Obligations incurred hereunder, are paid in full:
6.01 INFORMATION COVENANTS. The Borrower will furnish or cause
to be furnished to each Bank:
(a) ANNUAL FINANCIAL STATEMENTS. (i) As soon as available and
in any event within 100 days after the close of each fiscal year of
the Borrower, (x) the consolidated balance sheet of the Borrower and
its Subsidiaries, in each case, as at the end of such fiscal year and
the related consolidated statements of income, of stockholders equity
and of cash flows for such fiscal year and (y) the consolidating
balance sheet of the Borrower and each of its Subsidiaries as at the
end of the fiscal year and the related consolidating statements of
income, of stockholders' equity and of cash flows for such fiscal year;
in each case prepared in accordance with GAAP and setting forth
comparative figures for the preceding fiscal year, and, in the case of
such consolidated statements, examined by independent certified public
accountants of recognized national standing whose opinion shall not be
qualified as to the scope of audit or as to the status of the Borrower
and its Subsidiaries as a going concern, together with a certificate of
such accounting firm stating that in the course of its regular audit of
the business of the Borrower and its Subsidiaries, which audit was
conducted in accordance with GAAP, such accounting firm has obtained
35
no knowledge of any Default or Event of Default which has occurred and is
continuing or, if in the opinion of such accounting firm such a Default or Event
of Default has occurred and is continuing, a statement as to the nature thereof.
(ii) As soon as available and in any event within 75 days after the
close of each fiscal year of each Regulated Insurance Company, the Annual
Statement (prepared in accordance with SAP) for such fiscal year of such
Regulated Insurance Company, as filed with the Applicable Insurance Regulatory
Authority in compliance with the requirements thereof (or a report containing
equivalent information for any Regulated Insurance Company not so required to
file the foregoing with the Applicable Insurance Regulatory Authority) together
with the opinion thereon of the Chief Financial Officer or other Authorized
Officer of such Regulated Insurance Company stating that such Annual Statement
presents fairly in all material respects the financial condition and results of
operations of such Regulated Insurance Company in accordance with SAP.
(iii) As soon as available and in any event within 100 days after the
close of each fiscal year of the Borrower, a copy of the "Statement of Actuarial
Opinion" and "Management Discussion and Analysis" for each Regulated Insurance
Company (prepared in accordance with SAP) for such fiscal year and as filed with
the Applicable Regulatory Insurance Authority in compliance with the
requirements thereof (or a report containing equivalent information for any
Regulated Insurance Company not so required to file the foregoing with the
Applicable Regulatory Insurance Authority).
(b) QUARTERLY FINANCIAL STATEMENTS. (i) As soon as available and in any
event within 60 days after the close of each of the first three quarterly
accounting periods in each fiscal year of the Borrower, (x) the consolidated
balance sheet of the Borrower and its Subsidiaries, at the end of such fiscal
quarter and the related consolidated statements of income, of stockholder's
equity and of cash flows for such quarterly period and for the elapsed portion
of the fiscal year ended with the last day of such quarterly period and (y) the
consolidating balance sheet of the Borrower and each of its Subsidiaries as at
the end of such fiscal quarter and the related consolidating statements of
income, of stockholders' equity and of cash flows for such quarterly period and
for the elapsed portion of the fiscal year ended with the last day of such
quarterly period; in each case setting forth comparative figures for the related
periods in the prior fiscal year, and all of which shall be prepared in
accordance with GAAP and certified by the Chief Financial Officer or other
Authorized Officer of the Borrower, as the case may be, subject to changes
resulting from normal year-end audit adjustments.
(ii) As soon as available and in any event within 60 days after the
close of each of the first three quarterly accounting periods in each fiscal
year of each Regulated Insurance Company, quarterly financial statements
(prepared in accordance with SAP) for such fiscal period of such Regulated
Insurance Company, as filed with the Applicable Insurance Regulatory Authority,
together with the opinion thereon of the Chief Financial Officer or other
Authorized Officer of such Regulated Insurance Company stating that such
financial statements present fairly in all material respects the financial
condition and results of operations of such Regulated Insurance Company in
accordance with SAP.
36
(c) FINANCIAL PLANS, ETC. No later than 90 days following the first day
of each fiscal year of the Borrower, copies of the annual financial plan or
budget for such fiscal year prepared by management of the Borrower for its
internal use and distributed to the Board of Directors of the Borrower. Together
with each delivery of financial statements pursuant to Section 6.01(a)(ii) and
(b)(ii), a comparison of the current year to date financial results (other than
in respect of the balance sheets included therein) against the plans required to
be submitted pursuant to this clause (c) shall be presented.
(d) OFFICER'S CERTIFICATES. At the time of the delivery of the
financial statements provided for in Sections 6.01(a)(i) and (ii) and (b)(i)
and (ii), a certificate of the Chief Financial Officer or other Authorized
Officer of the Borrower to the effect that no Default or Event of Default exists
or, if any Default or Event of Default does exist, specifying the nature and
extent thereof, which certificate shall set forth (x) the calculations required
to establish whether the Borrower and its Subsidiaries were in compliance with
the provisions of Sections 7.10, 7.11, 7.12 and 7.13 as at the end of such
fiscal year or quarter, as the case may be, and (y) a summary of all outstanding
litigation at the end of such fiscal year or quarter and of all litigation
settled during the preceding fiscal quarter, in each case involving the Borrower
or any of its Subsidiaries, but only to the extent that any such litigation (i)
arises outside the ordinary course of business of the Borrower and its
Subsidiaries or (ii) would reasonably be expected to have a Material Adverse
Effect.
(e) NOTICE OF DEFAULT OR LITIGATION. Promptly, and in any event within
five Business Days after the Borrower or any of its Subsidiaries obtains
knowledge thereof, (x) notice of the occurrence of any event which constitutes
a Default or Event of Default, which notice shall specify the nature thereof,
the period of existence thereof and what action the Borrower proposes to take
with respect thereto and (y) promptly after the Borrower or any of its
Subsidiaries obtains knowledge thereof, notice of any outstanding litigation or
governmental or regulatory proceeding pending against the Borrower or any of its
Subsidiaries which would reasonably be expected to have a Material Adverse
Effect. or a material adverse effect on the ability of the Borrower to perform
its respective obligations hereunder or under any other Credit Document.
(f) AUDITORS' REPORTS. Promptly upon receipt thereof, a copy of (x)
each other report or "management letter" submitted to the Borrower or any of its
Subsidiaries by their independent accountants in connection with any annual,
interim or special audit made by them of the books of the Borrower or any of its
Subsidiaries and (y) each report submitted to the Borrower or any of its
Subsidiaries by any in dependent actuary.
(g) RESERVE ADEQUACY REPORT. Promptly following a request from the
Administrative Agent or the Required Banks (which request may only be made once
a year, unless an Event of Default has occurred and is continuing), a report
prepared by an independent actuarial consulting firm of recognized professional
standing reasonably satisfactory to the Administrative Agent and the Required
Banks reviewing the adequacy of reserves of each Regulated Insurance Company
determined in accordance with SAP, which firm shall be provided access to or
copies of all reserve analyses and valuations
37
relating to the insurance business of each Regulated Insurance Company
in the possession of or available to the Borrower or its Subsidiaries.
(h) OTHER REGULATORY STATEMENTS AND REPORTS. Promptly (A)
after receipt thereof, copies of all triennial examinations and risk
adjusted capital reports of any Regulated Insurance Company, delivered
to such Person by any Applicable Insurance Regulatory Authority,
insurance commission or similar regulatory authority, (B) after receipt
thereof, written notice of any assertion by any Applicable Insurance
Regulatory Authority or any governmental agency or agencies substituted
therefor, as to a violation of any Legal Requirement by any Regulated
Insurance Company which is likely to have a Material Adverse Effect,
(C) after receipt thereof, a copy of the final report to each Regulated
Insurance Company from the NAIC for each fiscal year, as to such
Regulated Insurance Company's compliance or noncompliance with each of
the NAIC Tests, (D) after receipt thereof, a copy of any notice of
termination, cancellation or recapture of any Reinsurance Agreement or
Retrocession Agreement to which a Regulated Insurance Company is a
party to the extent such termination or cancellation is reasonably
likely to have a Material Adverse Effect, (E) and in any event within
ten Business Days after receipt thereof, copies of any notice of actual
suspension, termination or revocation of any license of any Regulated
Insurance Company by any Applicable Insurance Regulatory Authority,
including any request by an Applicable Insurance Regulatory Authority
which commits a Regulated Insurance Company to take or refrain from
taking any action or which otherwise affects the authority of such
Regulated Insurance Company to conduct its business, and (F) and in any
event within ten Business Days after the Borrower or any of its
Subsidiaries obtains knowledge thereof, notice of any actual changes in
the insurance laws enacted in any state in which any Regulated
Insurance Company is domiciled which would reasonably be expected to
have a Material Adverse Effect.
(i) OTHER INFORMATION. Promptly upon transmission thereof,
copies of any final filings and final registrations with, and reports
to, the SEC by the Borrower or any of its Subsidiaries (other than any
registration statement on Form S-8) and copies of all financial
statements, proxy statements, notices and reports as the Borrower or
any of its Subsidiaries shall send to analysts generally or the holders
of their capital stock in their capacity as such holders (in each case
to the extent not theretofore delivered to the Banks pursuant to this
Agreement) and, with reasonable promptness, such other information or
existing documents (financial or otherwise) as the Administrative Agent
or any Bank may reasonably request from time to time.
6.02 BOOKS, RECORDS AND INSPECTIONS. The Borrower will, and
will cause each of its Subsidiaries to, permit officers and designated
representatives of the Administrative Agent or any Bank to visit and inspect any
of the properties or assets of the Borrower and any of its Subsidiaries in
whomsoever's possession (but only to the extent the Borrower or such Subsidiary
has the right to do so to the extent in the possession of another Person), and
to examine the books of account of the Borrower and any of its Subsidiaries and
discuss the affairs, finances and accounts of the Borrower and of any of its
Subsidiaries with, and be advised as to the same by, its and their officers and
independent accountants and independent actuaries, if any, all at such
38
reasonable times and intervals, upon reasonable prior notice and to such
reasonable extent as the Administrative Agent or any Bank may request.
6.03 INSURANCE. The Borrower will, and will cause each of its
Subsidiaries to, at all times maintain in full force and effect insurance in
such amounts, covering such risks and liabilities and with such deductibles or
self-insured retentions as are in accordance with normal industry practice.
6.04 PAYMENT OF TAXES. The Borrower will pay and discharge,
and will cause each of its Subsidiaries to pay and discharge, all taxes,
assessments and governmental charges or levies imposed upon it or upon its
income or profits, or upon any properties belonging to it, prior to the date on
which penalties attach thereto, and all lawful claims (other than claims
relating to the adjustment or settling, in the ordinary course of business, of
claims in respect of insurance policies or reinsurance contracts) which, if
unpaid, might become a Lien or charge upon any properties of the Borrower or any
of its Subsidiaries; PROVIDED that neither the Borrower nor any Subsidiary shall
be required to pay any such tax, assessment, charge, levy or claim (i) which is
being contested in good faith and by proper proceedings if it has maintained
adequate reserves (in the good faith judgment of the management of the Borrower)
with respect thereto in accordance with GAAP or (ii) if the aggregate amount of
all such unpaid taxes, assessments, charges, levies and claims not contested and
reserved against as provided in clause (i) above does not exceed $100,000.
6.05 CORPORATE FRANCHISES. The Borrower will do, and will
cause each Subsidiary to do, or cause to be done, all things reasonably
necessary to preserve and keep in full force and effect its corporate existence,
rights and authority; PROVIDED that any transaction permitted by Section 7.02
will not constitute a breach of this Section 6.05.
6.06 COMPLIANCE WITH STATUTES, ETC. The Borrower will, and
will cause each Subsidiary to, comply with all applicable statutes, regulations
and orders of, and all applicable restrictions imposed by, all governmental
bodies, domestic or foreign, in respect of the conduct of its business and the
ownership of its property (including applicable statutes, regulations, orders
and restrictions relating to environmental standards and controls) other than
those the noncompliance with which would not reasonably be expected to have a
Material Adverse Effect.
6.07 ERISA. As soon as possible and, in any event, within 10
Business Days after the Borrower, any Subsidiary of the Borrower or any ERISA
Affiliate knows or has reason to know of the occurrence of any of the following,
the Borrower will deliver to each of the Banks a certificate of the chief
financial officer, another authorized officer or the general counsel of the
Borrower setting forth the full details as to such occurrence and the action, if
any, that the Borrower, such Subsidiary or such ERISA Affiliate is required or
proposes to take, together with any notices required, or proposed to be given
to or filed with or by the Borrower, the Subsidiary, the ERISA Affiliate, the
PBGC, a Plan participant or the Plan administrator with respect thereto: that a
Reportable Event has occurred; that an accumulated funding deficiency, within
the meaning of Section 412 of the Code or Section 302 of ERISA, has been
incurred or an application may be or has been made for a waiver or modification
of the minimum funding standard (including any required installment payments) or
an extension of any amortization period under Section 412 of
39
the Code or Section 303 or 304 of ERISA with respect to a Plan; that any
contribution required to be made with respect to a Plan has not been timely made
except to the extent that any such untimely contribution would not result in a
material liability to the Borrower, any Subsidiary of the Borrower or any ERISA
Affiliate; that a Plan has been or may be terminated, reorganized, partitioned
or declared insolvent under Title IV of ERISA; that a Plan has an Unfunded
Current Liability; that proceedings may be or have been instituted to terminate
or appoint a trustee to administer a Plan which is subject to Title IV of ERISA;
that a proceeding has been instituted pursuant to Section 515 of ERISA to
collect a delinquent contribution to a Plan; that the Borrower, any Subsidiary
of the Borrower or any ERISA Affiliate will or may incur any material amount of
liability (including any indirect, contingent, or secondary liability) to or on
account of the termination of or withdrawal from a Plan under Section 4062,
4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or with respect to a Plan under
Section 401(a)(29), 4971, 4975 or 4980 of the Code or Section 409 or 502(i) or
502(1) of ERISA or with respect to a group health plan (as defined in Section
607(1) of ERISA or Section 4980B(g)(2) of the Code) under Section 4980B of the
Code; or that the Borrower or any Subsidiary of the Borrower may incur any
material liability pursuant to any employee welfare benefit plan (as defined in
Section 3(1) of ERISA) that provides death, health or severance benefits to
retired employees or other former employees (other than as required by Section
601 of ERISA or applicable state law) or any Plan. At the request of any Bank,
the Borrower will promptly deliver to such Bank a complete copy of the annual
report (on Internal Revenue Service Form 5500-series) of each Plan (including,
to the extent required, the related financial and actuarial statements and
opinions and other supporting statements, certifications, schedules and
information) required to be filed with the Internal Revenue Service. In
addition to any certificates or notices delivered to the Banks pursuant to the
first sentence hereof, if requested by the Banks, copies of annual reports and
any material notices received by the Borrower, any Subsidiary of the Borrower or
any ERISA Affiliate with respect to any Plan shall be delivered to the Banks no
later than 10 Business Days after the date such notice has been received by the
Borrower, the Subsidiary or the ERISA Affiliate, as applicable.
6.08 PERFORMANCE OF OBLIGATIONS. The Borrower will, and will
cause each of its Subsidiaries to, perform in all material respects all of its
obligations under the terms of each mortgage, indenture, security agreement,
other debt instrument and material contract by which it is bound or to which it
is a party.
6.09 GOOD REPAIR. The Borrower will, and will cause each of
its Subsidiaries to, ensure that its material properties and equipment used or
useful in its business in whomsoever's possession they may be, are kept in good
repair, working order and condition, normal wear and tear excepted, and that
from time to time there are made in such properties and equipment all needful
and proper repairs, renewals, replacements, extensions, additions, betterments
and improvements thereto, to the extent and in the manner customary for
companies in similar businesses.
6.10 END OF FISCAL YEARS; FISCAL QUARTERS. The Borrower will,
for financial reporting purposes, cause (i) each of its, and each of its
Subsidiaries', fiscal years to end on December 31 of each year and (ii) each of
its, and each of its Subsidiaries', fiscal quarters to end on March 31, June 30,
September 30 and December 31 of each year.
40
6.11 MAINTENANCE OF LICENSES AND PERMITS. The Borrower will,
and will cause each of its Subsidiaries to, maintain all permits, licenses and
consents as may be required for the conduct of its business by any state,
federal or local government agency or instrumentality except where failure to
maintain the same would not reasonably be expected to have a Material Adverse
Effect.
6.12 REGISTER. The Borrower hereby designates the
Administrative Agent to serve as its agent, solely for purposes of this Section
6.13, to maintain a register (the "Register") on which it will record the
Commitments from time to time of each of the Banks, the Loans made by each of
the Banks and each repayment in respect of the principal amount of the Loans of
each Bank. Failure to make any such recordation, or any error in such
recordation shall not affect the obligations of the Borrower in respect of such
Loans. With respect to any Bank, the transfer of the Commitments of such Bank
and the rights to the principal of, and interest on, any Loan made pursuant to
such Commitments shall not be effective until such transfer is recorded on the
Register maintained by the Administrative Agent with respect to ownership of
such Commitments and Loans and prior to such recordation all amounts owing to
the transferor with respect to such Commitments and Loans shall remain owing to
the transferor. The registration of assignment or transfer of all or part of any
Commitments and Loans shall be recorded by the Administrative Agent on the
Register only upon the acceptance by the Administrative Agent of a properly
executed and delivered Assignment and Assumption Agreement pursuant to Section
11.04(b). Coincident with the delivery of such an Assignment and Assumption
Agreement to the Administrative Agent for acceptance and registration of
assignment or transfer of all or part of a Loan, or as soon thereafter as
practicable, the assigning or transferor Bank shall surrender the Note
evidencing such Loan, and thereupon one or more new Notes in the same aggregate
principal amount shall be issued to the assigning or transferor Bank and/or the
new Bank. The Borrower agrees to indemnify the Administrative Agent from and
against any and all losses, claims, damages and liabilities of whatsoever nature
which may be imposed on, asserted against or incurred by the Administrative
Agent in performing its duties under this Section 6.13 (but excluding any such
losses, liabilities, claims, damages or expenses to the extent incurred by
reason of the gross negligence or willful misconduct of the Administrative
Agent).
6.13 APPROVAL AND PAYMENT OF THE SPECIAL DIVIDEND.
Immediately, and in any event within one Business Day after the Initial
Borrowing Date, Continental will elect a new board of directors (the "New
Continental Board of Directors") and such New Board of Directors will declare
the issuance of a special cash dividend or distribution from Continental to
Continental Corporation in an aggregate amount of at least $22,500,000, and
Continental Corporation will declare the issuance of a special cash dividend or
distribution from Continental Corporation to the Borrower in an equal amount
(collectively, the "Special Dividend"), and such Special Dividend will be paid
in full.
6.14 PAYMENT OF RCH BRIDGE LOAN. The Borrower will use the
proceeds of the Special Dividend to pay off the RCH Bridge Loan in full.
SECTION 7. NEGATIVE COVENANTS. The Borrower hereby covenants
and agrees that on the Initial Borrowing Date and thereafter, for so long as
this Agreement is in effect and
41
until the Loans together with interest, Fees and all other Obligations incurred
hereunder, are paid in full:
7.01 CHANGES IN BUSINESS. (a) The Borrower will not permit any
of its Subsidiaries to engage in any business other than the issuance of life
and health insurance and annuity contracts and activities, directly or
indirectly, related thereto.
(b) The Borrower will engage in no business other than (i) the
ownership of the capital stock and other equity interests in its Subsidiaries,
(ii) the incurrence of Indebtedness permitted to be incurred by it under Section
7.04, (iii) acquisitions permitted under Section 7.02(h) and (iv) the entering
into and performing of its obligations under the Transaction Documents.
7.02 CONSOLIDATION, MERGER, SALE OR PURCHASE OF ASSETS. The
Borrower will not, and will not permit any of its Subsidiaries to, wind up,
liquidate or dissolve its affairs, or enter into any transaction of merger or
consolidation, or sell or otherwise dispose of any of its property or assets
(including the sale of capital stock of any of its Subsidiaries, but excluding
any sale or disposition of property or assets (including, without limitation,
the sale of obsolete assets) in the ordinary course of business), or purchase,
lease or otherwise acquire (in one transaction or a series of related
transactions) all or any part of the property or assets of any Person (excluding
any purchases, leases or other acquisitions of property or assets in, and for
use in, the ordinary course of business) or agree to do any of the foregoing at
any future time, except that the following shall be permitted:
(a) The Transaction;
(b) Capital Expenditures by the Borrower and its Subsidiaries
to the extent permitted by Section 7.05;
(c) The investments, acquisitions and transfers or
dispositions of property permitted pursuant to Section 7.06;
(d) The merger or consolidation or liquidation of any
Wholly-Owned Subsidiary of the Borrower with or into another
Wholly-Owned Subsidiary of the Borrower;
(e) Any Regulated Insurance Company may enter into any
Insurance Contract, Reinsurance Agreement or Retrocession Agreement in
the ordinary course of business in accordance with its normal
underwriting, indemnity and retention policies, PROVIDED that no
Regulated Insurance Company shall enter into any Financial Reinsurance
Agreements;
(f) The Borrower or any of its Subsidiaries may enter into
leases of property or assets in the ordinary course of business not
otherwise in violation of this Agreement;
(g) Each of the Borrower and its Subsidiaries may sell assets,
PROVIDED that (w) each such sale shall be for an amount at least equal
to the fair market value thereof (as determined in good faith by
senior management of the Borrower), (x) each such sale results in
consideration in the form of cash, (y) the aggregate sale proceeds
from all assets
42
subject to such sales pursuant to this clause and (g) in any fiscal year shall
not exceed 10% of the Consolidated Net Worth of the Borrower as of the first day
of such fiscal year provided that (i) on a PRO FORMA basis (the PRO FORMA
adjustments made by the Borrower pursuant to this clause (i) shall be subject to
the reasonable satisfaction of the Administrative Agent) determined as if such
asset sale had been consummated on the date occurring twelve months prior to the
last day of the most recently ended fiscal quarter of the Borrower with respect
to any asset sale, the Borrower and its Subsidiaries would have been in
compliance with Sections 7.10 through 7.13 of this Agreement as of, or for the
relevant period ended on, the last day of such fiscal quarter and (ii) on a PRO
FORMA basis (the PRO FORMA adjustments made by the Borrower pursuant to this
clause (ii) shall be subject to the reasonable satisfaction of the
Administrative Agent) determined as if such asset sale had been consummated the
covenants contained in Sections 7.10 through 7.13 will continue to be met for
the twelve-month period following the last day of the fiscal quarter ended after
the date of the consummation of such asset sale;
(h) So long as no Default or Event of Default then exists or would
result therefrom, the Borrower and its Subsidiaries may acquire assets or the
capital stock of any Person (any such acquisitions permitted by this clause (h),
a "Permitted Acquisition"), PROVIDED, that (i) such Person (or the assets so
acquired) was, immediately prior to such acquisition, engaged (or used)
primarily in the businesses permitted pursuant to Section 7.01(a), (ii) each
such acquisition shall be for an amount not greater than the fair market value
thereof (as determined in good faith by the Board of Directors of the Borrower),
(iii) the aggregate amount expended by the Borrower and its Subsidiaries for
Permitted Acquisitions (after giving effect to any reinsurance or similar
arrangement) shall not in any fiscal year exceed 10% of the Consolidated Net
Worth of the Borrower and its Subsidiaries as of the first day of such fiscal
year, (iv) on a PRO FORMA basis (the PRO FORMA adjustments made by the Borrower
pursuant to this clause (iv) shall be subject to the reasonable satisfaction of
the Administrative Agent) determined as if such acquisition had been consummated
on the date occurring twelve months prior to the last day of the most recently
ended fiscal quarter of the Borrower, the Borrower and its Subsidiaries would
have been in compliance with Sections 7.10 through 7.13 of this Agreement as
of, or for the relevant period ended on, the last day of such fiscal quarter,
(v) on a PRO FORMA basis (the PRO FORMA adjustments made by the Borrower
pursuant to this clause (v) shall be subject to the reasonable satisfaction of
the Administrative Agent) determined as if such acquisition had been
consummated, the covenants contained in Sections 7.10 through 7.13 will
continue to be met for the twelve-month period following the last day of the
fiscal quarter ended after the date of the consummation of such acquisition and
(vi) no such acquisition shall be consummated on a "hostile" basis (i.e.,
without the consent of the Board of Directors of the Person to be acquired);
(i) The Borrower and its Subsidiaries may sell or exchange specific
items of equipment, so long as the purpose of each such sale or exchange is to
acquire (and results within 180 days of such sale or exchange in the acquisition
of) replacement items of equipment which are, in the reasonable business
judgment of the Borrower and its Subsidiaries, the functional equivalent of the
item of equipment so sold or exchanged;
43
(j) The Borrower or any of its Subsidiaries may sell assets so
long as (x) the Borrower or such Subsidiary immediately leases such
assets back and (y) the aggregate amount of such assets sold in any
fiscal year does not exceed $4,000,000; and
(k) The Borrower and its Subsidiaries may sell all of the
stock, or all or substantially all of the assets, of the Non-Regulated
Companies listed on Annex X, PROVIDED that (x) each such sale shall be
for an amount at least equal to the fair market value thereof (as
determined in good faith by senior management of the Borrower) and (y)
each such sale results in consideration in the form of cash.
To the extent the Required Banks (or all the Banks to the extent required by
Section 11.12) waive the provisions of this Section 7.02 with respect to the
disposition of any Collateral, or any Collateral is disposed of as permitted by
this Section 7.02, (i) such Collateral in each case shall be sold free and clear
of the Liens in favor of the Secured Creditors created by the Pledge Agreement
and (ii) if such Collateral includes all of the capital stock of a Subsidiary,
such capital stock shall be released from the Pledge Agreement; and the
Administrative Agent and the Collateral Agent shall be authorized to take such
actions as the Administrative Agent or the Collateral Agent reasonably deems
appropriate in connection therewith.
7.03 LIENS. The Borrower will not, and will not permit any of
its Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or
with respect to any property or assets of any kind (real or personal, tangible
or intangible) of the Borrower or any such Subsidiary whether now owned or
hereafter acquired, or sell any such property or assets subject to an
understanding or agreement, contingent or otherwise, to repurchase such property
or assets (including sales of accounts receivable or notes with recourse to the
Borrower or any of its Subsidiaries) or assign any right to receive income, or
file or permit the filing of any financing statement under the UCC or any other
similar notice of Lien under any similar recording or notice statute relating to
any such property, except:
(a) Liens for taxes not yet due or Liens for taxes being
contested in good faith and by appropriate proceedings for which
adequate reserves (in the good faith judgment of the management of the
Borrower) have been established;
(b) Liens in respect of property or assets of any of the
Borrower's Subsidiaries imposed by law which were incurred in the
ordinary course of business, such as carriers', warehousemen's and
mechanics' Liens and other similar Liens arising in the ordinary
course of business, and (x) which do not in the aggregate materially
detract from the value of such property or assets or materially impair
the use thereof in the operation of the business of the Borrower or
any Subsidiary or (y) which are being contested in good faith by
appropriate proceedings, which proceedings have the effect of
preventing the forfeiture or sale of the property or asset subject to
such Lien;
(c) Liens created by this Agreement or the other Credit Documents;
44
(d) Liens in existence on the Effective Date which are listed, and the
property subject thereto on the Effective Date described, in Annex VII, without
giving effect to any extensions or renewals thereof (provided that (i) the
securities subject to any such Lien may be replaced by other securities of no
greater principal amount and (ii) no such extension or renewal will increase the
obligations secured thereby or result in any such Lien attaching to any
additional property);
(e) Liens arising from judgments, decrees or attachments in
circumstances not constituting an Event of Default under Section 8.08;
(f) Liens (other than any Lien imposed by ERISA) incurred or deposits
made in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social security, or to
secure the performance of tenders, statutory obligations, surety and appeal
bonds, bids, leases, government contracts, performance and return-of-money
bonds, Reinsurance Agreements, Retrocession Agreements and other similar
obligations incurred in the ordinary course of business (exclusive of
obligations in respect of the payment for borrowed money);
(g) Leases or subleases granted to others not interfering in any
material respect with the business of the Borrower or any of its Subsidiaries
and any interest or title of a lessor under any lease not in violation of this
Agreement;
(h) Easements, rights-of-way, restrictions, minor defects or
irregularities in title and other similar charges or encumbrances not
interfering in any material respect with the ordinary conduct of the business of
the Borrower or any of its Subsidiaries;
(i) Liens arising from UCC financing statements regarding leases not in
violation of this Agreement;
(j) Liens on pledges or deposits of cash or securities made by any
Regulated Insurance Company as a condition to obtaining or maintaining any
licenses issued to it by any Applicable Insurance Regulatory Authority;
(k) Liens placed upon assets used in the ordinary course of business of
the Borrower or any of its Subsidiaries at the time of acquisition thereof by
the Borrower or any such Subsidiary or within 90 days thereafter to secure
Indebtedness incurred to pay all or a portion of the purchase price thereof,
provided that (x) the aggregate outstanding principal amount of all Indebtedness
secured by Liens permitted by this clause (k) shall not at any time exceed
$2,000,000 and (y) in all events, the Lien encumbering the assets so acquired
does not encumber any other asset (other than proceeds thereof) of the Borrower
or such Subsidiary; and
(j) Additional Liens incurred by the Borrower and its Subsidiaries so
long as the value of the property subject to such Liens, and the Indebtedness
and other obligations secured thereby, do not exceed $2,000,000.
45
7.04 INDEBTEDNESS. The Borrower will not, and will not permit
any of its Subsidiaries to, contract, create, incur, assume or suffer to exist
any Indebtedness, except:
(a) Indebtedness incurred pursuant to this Agreement and the
other Credit Documents;
(b) Capitalized Lease Obligations of the Borrower and its
Subsidiaries, provided that the aggregate Capitalized Lease Obligations
under all Capital Leases shall not exceed $5,000,000 at any time;
(c) Indebtedness in existence on the Effective Date which is
listed in Annex III, without giving effect to any subsequent extension,
renewal or refinancing thereof;
(d) Obligations of any Regulated Insurance Company with
respect to (i) letters of credit securing obligations under Reinsurance
Agreements entered into in the ordinary course of business of any such
Regulated Insurance Company, (ii) letters of credit issued in lieu of
deposits to satisfy Legal Requirements or (iii) letters of credit or
surety bonds issued in lieu of depositing securities with any
Applicable Insurance Regulatory Authority to satisfy regulatory
requirements in connection with life and health insurance and annuity
contracts; in any case to the extent (x) such letters of credit are not
drawn upon or, if and to the extent drawn upon, such drawing is
reimbursed no later than 10 days following receipt by the Borrower or
such Subsidiary of notice of payment on such letter of credit, (y) in
the case of (i) and (ii), the aggregate outstanding amount of such
obligations does not exceed $5,000,000 at any time and (z) in the case
of (iii), the aggregate outstanding amount of such obligations does not
exceed S5,000,000 at any time;
(e) Indebtedness of the Borrower under Interest Rate
Agreements entered into in respect of the Obligations;
(f) Permitted Subordinated PIK Indebtedness;
(g) indebtedness subject to liens permitted under Section
7.03(k), provided that the outstanding amount of such Indebtedness
shall not exceed at any time the amount provided in said Section
7.03(k); and
(h) The RCH Bridge Loan, provided that the aggregate principal
amount of such RCH Bridge Loan shall not exceed $22,500,000 and such
RCH Bridge Loan may not be outstanding at any time following the first
Business Day after the Initial Borrowing Date.
7.05 CAPITAL EXPENDITURES. The Borrower will not incur, and
will not permit any of its Subsidiaries to incur, Capital Expenditures, PROVIDED
that the Borrower and its Subsidiaries may incur Capital Expenditures so long as
the aggregate amount so incurred by the Borrower and its Subsidiaries (on a
consolidated basis) during any fiscal year does not exceed $2,000,000.
7.06 ADVANCES, INVESTMENTS AND LOANS. The Borrower will not,
and will not permit any of its Subsidiaries to, lend money or credit or make
advances to any Person, or
46
purchase or acquire any stock, obligations or securities of, or any other
interest in, or make any capital contribution to, any Person, except:
(a) The Transaction shall be permitted;
(b) The Borrower and its Subsidiaries which are not Regulated
Insurance Companies may invest in cash, Cash Equivalents and Investment
Grade Securities other than investments which are Risk Derivatives
(determined at the time of acquisition); PROVIDED that any investment
in Investment Grade Securities (other than U.S. Government Obligations)
issued by any single Issuer shall not exceed on the date such
investment is made an amount which, when added to all other investments
by all Regulated Insurance Companies and the Borrower in such Issuer
and outstanding on such date, is equal to 5% of Invested Assets at such
time;
(c) The Borrower and its Subsidiaries may acquire and hold
receivables owing to them in the ordinary course of business and
payable or dischargeable in accordance with customary trade terms;
(d) Loans and advances to employees for business-related
travel expenses, moving expenses and other similar expenses, in each
case incurred in the ordinary course of business;
(e) The transactions described in Section 7.02(d), (e) and (h)
shall be permitted;
(f) Regulated Insurance Companies may invest in (i) cash, (ii)
Cash Equivalents, (iii) Investment Grade Securities and (iv)
Non-Investment Grade Securities, provided that (A) no investment will
be made in (i) any debt securities which are Non-Investment Grade
Securities or (ii) any equity securities, at a time when, or if after
giving effect thereto, the aggregate principal amount of all
Non-Investment Grade Securities held by all Regulated Insurance
Companies plus the aggregate outstanding investment made by all
Regulated Insurance Companies in equity securities (other than
securities of Persons which are Affiliates of the Borrower on the
Effective Date) equals or exceeds or would equal or exceed 10% of
Invested Assets; (B) no investment will be made in any real estate or
loan secured by real estate (other than (I) credit tenant loans (as
defined by the NAIC), (II) those existing on the Effective Date
(without giving effect to any increase thereto) (III) loans secured by
owner-occupied real estate, if made at a time when, and if after giving
effect thereto, the aggregate of all such investments in mortgage loans
does not exceed, and would not exceed, 5% of Invested Assets; (C) no
investment (other than U.S. Government Obligations) in any single
Issuer shall exceed on the date such investment is made an amount
which, when added to all other investments by the Borrower and its
Subsidiaries in the same Issuer and outstanding on such date, is equal
to 5% of Invested Assets at such time; (D) all fixed income investments
must be NAIC Class (2) or better and (E) 80% of all investments must be
fixed income NAIC Class (2) or better;
(g) Any Regulated Insurance Company may make investments in
companies which are Wholly-Owned Subsidiaries of such Person (or any
other Subsidiary of such
47
Person created or acquired in accordance with Section 7.15) but only to
the extent that any such investment, at the time made, does not reduce
Statutory Surplus of such Regulated Insurance Company;
(h) Any Regulated Insurance Company may make investments
pursuant to commitments in effect as of the Effective Date and
described (as to matter and amount) on Annex VIII;
(i) Investments acquired by the Borrower or any of its
Subsidiaries (x) in exchange for any other investment held by the
Borrower or any such Subsidiary in connection with or as a result of a
bankruptcy, workout, reorganization or recapitalization of the issuer
of such other investment or (y) as a result of a foreclosure by the
Borrower or any of its Subsidiaries with respect to any secured
investment or other transfer of title with respect to any secured
investment in default;
(j) Any Regulated Insurance Company may make (i) policy loans
in the ordinary course of business and (ii) agent debit balances in the
ordinary course of business; and
(k) Investments existing on the Effective Date which are
identified on Annex VIII.
7.07 PREPAYMENTS OF INDEBTEDNESS, MODIFICATIONS OF
AGREEMENTS, ETC. The Borrower will not, and will not permit any of its
Subsidiaries to:
(a) make (or give any notice in respect thereof) any voluntary
or optional payment or prepayment or redemption or acquisition for
value of (including, without limitation, by way of depositing with the
trustee with respect thereto money or securities before due for the
purpose of payment when due) or exchange of, any Permitted Subordinated
PIK Indebtedness;
(b) amend or modify (or permit the amendment or modification
of) any of the terms or provisions of the Acquisition Documents or the
documents governing or evidencing any Permitted Subordinated PIK
Indebtedness;
(c) amend, modify or change in any manner adverse to the
interests of the Banks the Certificate of Incorporation (including,
without limitation, by the filing of any certificate of designation) or
By-Laws of the Borrower or any of its Subsidiaries, or any other
agreement entered into by the Borrower or any of its Subsidiaries with
respect to its capital stock, or enter into any new agreement with
respect to the capital stock of the Borrower (to the extent adverse to
the interests of the Banks) or any of its Subsidiaries; and/or
(d) amend, modify or terminate (or permit the amendment,
modification or termination of) the Tax Sharing Agreements in any
manner that would be material and adverse to the Administrative Agent
or the Banks.
7.08 DIVIDENDS, ETC. (a) The Borrower will not, and will not
permit any of its Subsidiaries to, declare or pay any dividends (other than
dividends payable solely in common
48
stock of such Person) or return any capital to, its stockholders or authorize or
make any other distribution, payment or delivery of property or cash to its
stockholders as such, or redeem, retire, purchase or otherwise acquire,
directly or indirectly, for a consideration, any shares of any class of its
capital stock now or hereafter outstanding (or any warrants for or options or
stock appreciation rights in respect of any of such shares), or set aside any
funds for any of the foregoing purposes, or purchase or otherwise acquire or
permit any of its Subsidiaries to purchase or otherwise acquire for
consideration any shares of any class of the capital stock of the Borrower or
any of its Subsidiaries, as the case may be, now or hereafter outstanding (or
any options or warrants or stock appreciation rights issued by such Person with
respect to its capital stock) (all of the foregoing "Dividends"), except that
any Subsidiary of the Borrower may pay cash dividends to its parent if such
parent is the Borrower or a Wholly-Owned Subsidiary of the Borrower.
(b) The Borrower will not, and will not permit any of its
Subsidiaries to, create or otherwise cause or suffer to exist any encumbrance or
restriction which prohibits or otherwise restricts (i) the ability of any
Subsidiary to (A) pay dividends or make other distributions or pay any
Indebtedness owed to the Borrower or any of its Subsidiaries, as applicable, (B)
make loans or advances to the Borrower or any Subsidiary, as applicable, (C)
transfer any of its properties or assets to the Borrower or any Subsidiary, as
applicable, or (D) guarantee the Obligations or (ii) the ability of the Borrower
or any Subsidiary of the Borrower to create, incur, assume or suffer to exist
any Lien upon its property or assets to secure the Obligations, other than
prohibitions or restrictions existing under or by reason of (I) this Agreement
and the other Credit Documents and (II) Legal Requirements.
7.09 TRANSACTIONS WITH AFFILIATES. Except as set forth in
Annex XI, the Borrower will not, and will not permit any Subsidiary to, enter
into any transaction or series of transactions with any Affiliate (excluding the
Borrower or any Wholly-Owned Subsidiary of the Borrower) other than in the
ordinary course of business and on terms and conditions substantially as
favorable to the Borrower or such Subsidiary as would be obtainable by the
Borrower or such Subsidiary at the time in a comparable arms-length transaction
with a Person other than an Affiliate.
7.10 LEVERAGE RATIO. The Borrower will not permit the ratio of
(i) Consolidated Indebtedness of the Borrower to (ii) Consolidated Total Capital
of the Borrower at any time during any period set forth below to be greater than
the ratio set forth opposite such period below:
Period Ratio
------ -----
Initial Borrowing Date through
December 31, 1999 0.50:1.00
Thereafter through
December 31, 2000 0.45:1.00
49
Thereafter through
December 31, 2001 0.40:1.00
Thereafter 0.35:1.00
7.11 INTEREST COVERAGE RATIO. The Borrower will not permit
the Interest Coverage Ratio for any Test Period ending during a period set forth
below to be less than the ratio set forth opposite such period below:
Period Ratio
------ -----
Initial Borrowing Date through
December 31, 1999 2.00:1.00
Thereafter through
December 31, 2000 2.50:1.00
Thereafter 3.00:1.00
7.12 MINIMUM RISK-BASED CAPITAL RATIO. The Borrower will not
permit the Risk-Based Capital Ratio for any Regulated Insurance Company to be
less than 125%.
7.13 MINIMUM CONSOLIDATED NET WORTH. The Borrower will not
permit its Consolidated Net Worth at any time during a period set forth below
to be less than the amount set forth opposite such period below:
Year Amount
---- ------
Initial Borrowing Date through
December 31, 1999 $35,000,000
Thereafter through
December 31, 2000 $40,000,000
Thereafter through
December 31, 2001 $50,000,000
Thereafter through
December 31, 2002 $60,000,000
Thereafter $70,000,000
7.14 ISSUANCE OF STOCK. (a) The Borrower will not directly or
indirectly issue, sell, assign, pledge, or otherwise encumber or dispose of any
shares of its capital stock or other equity securities (or warrants, rights or
options to acquire shares or other equity securities) of such Subsidiary, except
(i) the issuance of common stock (and warrants, options and other rights to
acquire common stock), so long as no Event of Default occurs under Section 8.09,
and (ii) the issuance of preferred stock, so long as (x) such preferred stock is
perpetual (I.E., such preferred
50
stock is not subject to any mandatory redemption or repurchase, contingent or
otherwise) and (y) such preferred stock does not require the payment of
dividends thereon in cash.
(b) The Borrower will not permit any of its Subsidiaries
directly or indirectly to issue, sell, assign, pledge, or otherwise encumber or
dispose of any shares of its capital stock or other equity securities (or
warrants, rights or options to acquire shares or other equity securities) of
such Subsidiary, except (i) to the Borrower or to a Wholly-Owned Subsidiary of
the Borrower, (ii) to qualify directors if required by applicable law and (iii)
pursuant to the Pledge Agreement.
7.15 CREATION OF SUBSIDIARIES. The Borrower shall not create
or acquire any Subsidiary other than (i) Regulated Insurance Companies which are
direct Subsidiaries of the Borrower and all of the capital stock of such
Subsidiary owned by the Borrower is pledged pursuant to the Pledge Agreement;
and (ii) Non-Regulated Insurance Companies which are not Subsidiaries of any
Regulated Insurance Company, so long as all of the capital stock of such
Subsidiary is pledged pursuant to the Pledge Agreement.
7.16 PARTNERSHIP AGREEMENTS. The Borrower will not enter into
any partnership agreement as a general partner.
SECTION 8. EVENTS OF DEFAULT. Upon the occurrence of any of
the following specified events (each an "Event of Default"):
8.01 PAYMENTS. The Borrower shall (i) default in the payment
when due of any principal of the Loans, (ii) default, and such default shall
continue for three or more Business Days, in the payment when due of any
interest on the Loans or any Fees or (iii) default, and such default shall
continue for three or more Business Days following notice or demand in respect
thereof, in the payment of any other amounts owing hereunder or under any other
Credit Document; or
8.02 REPRESENTATIONS, ETC. Any representation, warranty or
statement made or deemed made by the Borrower herein or in any other Credit
Document or in any statement or certificate delivered or required to be
delivered pursuant hereto or thereto shall prove to be untrue in any material
respect on the date as of which made or deemed made; or
8.03 COVENANTS. The Borrower shall (a) default in the due
performance or observance by it of any term, covenant or agreement contained in
Section 6.10 or 7, or (b) default in the due performance or observance by it of
any term, covenant or agreement (other than those referred to in Section 8.01 or
clause (a) of this Section 8.03) contained in this Agreement and such default
shall continue unremedied for a period of at least 30 days; or
8.04 DEFAULT UNDER OTHER AGREEMENTS. (a) The Borrower or any
of its Subsidiaries shall (i) default in any payment with respect to
Indebtedness (other than the Obligations), in excess of $2,500,000 individually
or in the aggregate, for the Borrower and its Subsidiaries, beyond the period of
grace, if any, provided in the instrument or agreement under which such
Indebtedness was created or (ii) default in the observance or performance of any
agreement or condition relating to any such Indebtedness or contained in any
instrument or
51
agreement evidencing, securing or relating thereto, or any other event shall
occur or condition exist, the effect of which default or other event or
condition is to cause, or to permit the holder or holders of such Indebtedness
(or a trustee or agent on behalf of such holder or holders) to cause (determined
without regard to whether any notice of acceleration, or any lapse of time prior
to the effectiveness of any notice of acceleration, is required), any such
Indebtedness to become due prior to its stated maturity; or (b) any such
Indebtedness of the Borrower or any of its Subsidiaries shall be declared to be
due and payable, or required to be prepaid other than by a regularly scheduled
required prepayment, prior to the stated maturity thereof; or
8.05 BANKRUPTCY, ETC. The Borrower or any of its Subsidiaries
shall commence a voluntary case concerning itself under Title 11 of the United
States Code entitled "Bankruptcy," as now or hereafter in effect, or any
successor thereto (the "Bankruptcy Code"); or an involuntary case is commenced
against the Borrower or any of its Subsidiaries and the petition is not
controverted within 10 days, or is not dismissed within 60 days, after
commencement of the case; or a custodian (as defined in the Bankruptcy Code) is
appointed for, or takes charge of, all or substantially all of the property of
the Borrower or any of its Subsidiaries; or the Borrower or any of its
Subsidiaries commences (including by way of applying for or consenting to the
appointment of, or the taking of possession by, a rehabilitator, receiver,
custodian, trustee, conservator or liquidator (collectively, a "conservator") of
itself or all or any substantial portion of its property) any other proceeding
under any reorganization, arrangement, adjustment of debt, relief of debtors,
dissolution, insolvency, liquidation, rehabilitation, conservatorship or similar
law of any jurisdiction whether now or hereafter in effect relating to the
Borrower or any of its Subsidiaries; or any such proceeding is commenced against
the Borrower or any of its Subsidiaries and remains undismissed for a period of
60 days; or the Borrower or any of its Subsidiaries is adjudicated insolvent or
bankrupt; or any order of relief or other order approving any such case or
proceeding is entered; or (a) any Regulated Insurance Company which is engaged
in the business of underwriting insurance and/or reinsurance in the United
States suffers any appointment of any conservator or the like for it or any
substantial part of its property, or (b) the Borrower or any of its Subsidiaries
(other than any Regulated Insurance Company described in the immediately
preceding clause (a)) suffers any appointment of any conservator or the like for
it or any substantial part of its property which continues undischarged or
unstayed for a period of 60 days; or the Borrower or any of its Subsidiaries
makes a general assignment for the benefit of creditors; or any corporate action
is taken by the Borrower or any of its Subsidiaries for the purpose of effecting
any of the foregoing; or
8.06 ERISA. (a) Any Plan shall fail to satisfy the minimum
funding standard required for any plan year or part thereof under Section 412 of
the Code or Section 302 of ERISA or a waiver of such standard or extension of
any amortization period is sought or granted under Section 412 of the Code or
Section 303 or 304 of ERISA, a Reportable Event shall have occurred, any Plan
which is subject to Title IV of ERISA shall have had or is likely to have a
trustee appointed by the PBGC to administer such Plan, any Plan which is
subject to Title IV of ERISA is, shall have been or is likely to be terminated
or to be the subject of termination proceedings under ERISA, any Plan shall have
an Unfunded Current Liability, a contribution required to be made with respect
to a Plan has not been timely made, the Borrower or any Subsidiary of the
Borrower or any ERISA Affiliate has incurred or is likely to incur any liability
to or on account of a Plan under Section 409, 502(i), 502(l), 515, 4062, 4063,
4064, 4069, 4201,
52
4204 or 4212 of ERISA or Section 401(a)(29), 4971 or 4975 of the Code or on
account of a group health plan (as defined in Section 607(1) of ERISA or
Section 4980B(g)(2) of the Code) under Section 4980B of the Code, or the
Borrower or any Subsidiary of the Borrower has incurred or is likely to incur
liabilities pursuant to one or more employee welfare benefit plans (as defined
in Section 3(1) of ERISA) that provide death, health or severance benefits to
retired employees or other former employees (other than as required by Section
601 of ERISA or applicable state law) or Plans; (b) there shall result from any
such event or events the imposition of a lien, the granting of a security
interest, or a liability or a material risk of incurring a liability; and (c)
such lien, security interest or liability, individually and/or in the aggregate,
in the opinion of the Required Banks, has had, or could reasonably be expected
to have, a Material Adverse Effect; or
8.07 PLEDGE AGREEMENT. Except in each case to the extent
resulting from the failure of the Collateral Agent to retain possession of the
Pledged Securities, the Pledge Agreement shall cease to be in full force and
effect, or shall cease to give the Collateral Agent the Liens, rights, powers
and privileges purported to be created thereby (including, without limitation, a
first priority perfected security interest in, and Lien on, all of the
Collateral subject thereto, in favor of the Collateral Agent, superior to and
prior to the rights of all third Persons and subject to no other Liens), or the
Borrower shall default in the due performance or observance of any term,
covenant or agreement on its part to be performed or observed pursuant to the
Pledge Agreement; or
8.08 JUDGMENTS. One or more judgments or decrees shall be
entered against the Borrower or any of its Subsidiaries involving a liability,
net of undisputed reinsurance, of $2,500,000 or more in the case of any one such
judgment or decree or in the aggregate for all such judgments and decrees for
the Borrower and its Subsidiaries and any such judgments or decrees shall not
have been vacated, discharged, stayed or bonded pending appeal within 60 days
from the entry thereof; or
8.09 OWNERSHIP. A Change of Control shall occur;
then, and in any such event, and at any time thereafter, if any Event of Default
shall then be continuing, the Administrative Agent shall, upon the written
request of the Required Banks, by written notice to the Borrower, take any or
all of the following actions, without prejudice to the rights of the
Administrative Agent or any Bank to enforce its claims against the Borrower,
except as otherwise specifically provided for in this Agreement (PROVIDED that
if an Event of Default specified in Section 8.05 shall occur with respect to the
Borrower, the result which would occur upon the giving of written notice by the
Administrative Agent as specified in clauses (i) and (ii) below shall occur
automatically without the giving of any such notice): (i) declare the Total
Commitment terminated, whereupon the Commitment of each Bank shall forthwith
terminate immediately; (ii) declare the principal of and any accrued interest in
respect of all Loans and all Obligations owing hereunder and under the other
Credit Documents to be, whereupon the same shall become, forthwith due and
payable without presentment, demand, protest or other notice of any kind, all of
which are hereby waived by the Borrower; and/or (iii) enforce, as Collateral
Agent (or direct the Collateral Agent to enforce), any or all of the Liens and
security interests created pursuant to the Pledge Agreement.
53
SECTION 9. DEFINITIONS. As used herein, the following terms
shall have the meanings herein specified unless the context otherwise requires.
Defined terms in this Agreement shall include in the singular number the plural
and in the plural the singular:
"Acquisition" shall mean the acquisition by the Borrower of
100% of the equity interests of Continental Corporation.
"Acquisition Agreement" shall mean the Stock Purchase
Agreement, dated as of November 4, 1998, by and between the Borrower and the
Seller.
"Acquisition Documents" shall mean the Acquisition Agreement
and all other agreements and documents relating to the Acquisition including the
Annexes and Exhibits to the Acquisition Agreement, in the form delivered
pursuant to Section 4.11 and as the same may be amended or modified pursuant to
the terms thereof and hereof
"Administrative Agent" shall have the meaning provided in the
first paragraph of this Agreement and shall include any successor to the
Administrative Agent appointed pursuant to Section 10.09.
"Affiliate" shall mean, with respect to any Person, any other
Person directly or indirectly controlling (including but not limited to all
directors and officers of such Person), controlled by, or under direct or
indirect common control with, such Person. A Person shall be deemed to control a
corporation if such Person possesses, directly or indirectly, the power (i) to
vote 10% or more of the securities having ordinary voting power for the election
of directors of such corporation or (ii) to direct or cause the direction of the
management and policies of such corporation, whether through the ownership of
voting securities, by contract or otherwise.
"Agreement" shall mean this Credit Agreement, as the same may
be from time to time modified, amended and/or supplemented.
"Annual Statement" shall mean the annual financial statement
required to be filed by any Regulated Insurance Company with the Applicable
Insurance Regulatory Authority.
"Applicable Insurance Regulatory Authority" shall mean, when
used with respect to any Regulated Insurance Company, the insurance department
or similar administrative authority or agency located in (x) each state in which
such Regulated Insurance Company is domiciled or (y) to the extent asserting
regulatory jurisdiction over such Regulated Insurance Company, the insurance
department, authority or agency in each state in which such Regulated Insurance
Company is licensed, and shall include any Federal insurance regulatory
department, authority or agency that may be created and that asserts regulatory
jurisdiction over such Regulated Insurance Company.
"Applicable Percentage" shall mean (a) with respect to Base
Rate Loans, 2.50% and (ii) with respect to Eurodollar Loans, 3.50%.
"Approved Bank" shall have the meaning provided in the
definition of "Cash Equivalents."
54
"Approved Company" shall have the meaning provided in the
definition of "Cash Equivalents".
"Assignment and Assumption Agreement" shall have the meaning
provided in Section 11.04(b).
"Authorized Officer" shall mean, as to any Person, any senior
officer of such Person designated as such in writing by such Person to, and
found acceptable by, the Administrative Agent.
"Bank" shall have the meaning provided in the first paragraph
of this Agreement.
"Bank Default" shall mean (i) the refusal (which has not been
retracted) of a Bank to make available its portion of any Borrowing or (ii) a
Bank having notified the Administrative Agent and/or the Borrower that it does
not intend to comply with the obligations under Section 1.01, in the case of
either clause (i) or (ii) above as a result of the appointment of a receiver or
conservator with respect to such Bank at the direction or request of any
regulatory agency or authority.
"Bankruptcy Code" shall have the meaning provided in Section
8.05.
"Base Rate" at any time shall mean the higher of(x) the rate
which is 1/2 of 1% in excess of the Federal Funds Effective Rate and (y) the
Prime Lending Rate as in effect from time to time.
"Base Rate Loans" shall mean each Loan bearing interest at the
rates provided in Section 1.08(a).
"Benchmark Statement" shall mean, as of any date, an annual
financial statement of the Regulated Insurance Companies as would be prepared as
of such date utilizing the identical format utilized by Central Reserve Life
Insurance Company in preparing its December 31, 1998 Annual Statement filed
with the Insurance Department of the State of Ohio, with each page, line item
and column of a Benchmark Statement to contain the same type of information,
computed in the same manner, as contained in the identically numbered page, line
item and column of such Annual Statement.
"Borrower" shall have the meaning provided in the first
paragraph of this Agreement.
"Borrowing" shall mean the incurrence of one Type of Loan
pursuant to a single Facility by the Borrower from all of the Banks having
Commitments with respect to such Facility, on a pro rata basis on a given date
(or resulting from conversions on a given date), having in the case of
Eurodollar Loans the same Interest Period, PROVIDED that Base Rate Loans
incurred pursuant to Section 1.10(b) shall be considered part of any related
Borrowing of Eurodollar Loans.
55
"Business Day" shall mean (i) for all purposes other than as
covered by clause (ii) below, any day, excluding Saturday, Sunday and any day
which shall be in the City of New York or the City of Cleveland, Ohio a legal
holiday or a day on which banking institutions are authorized by law or other
governmental actions to close, and (ii) with respect to all notices and
determinations in connection with, and payments of principal and interest on,
Eurodollar Loans, any day which is a Business Day described in clause (i) and
which is also a day for trading by and between banks in U.S. dollar deposits in
the interbank Eurodollar market.
"Capital Expenditures" shall mean expenditures (whether paid
in cash or accrued as liabilities and including in all events all amounts
expended or capitalized under Capital Leases but excluding any amount
representing capitalized interest) by the Borrower and its Subsidiaries that, in
conformity with GAAP, are or are required to be included in the property, plant
or equipment reflected in the consolidated balance sheet of the Borrower and its
Subsidiaries, PROVIDED that Capital Expenditures shall in any event include the
purchase price paid in connection with the acquisition of any Person (including
through the purchase of all of the capital stock or other ownership interests of
such Person or through merger or consolidation) to the extent allocable to
property, plant and equipment.
"Capital Lease" as applied to any Person, shall mean any lease
of any property (whether real, personal or mixed) by that Person as lessee
which, in conformity with GAAP, is, or is required to be, accounted for as a
capital lease on the balance sheet of that Person.
"Capitalized Lease Obligations" shall mean all obligations
under Capital Leases of the Borrower or any of its Subsidiaries in each case
taken at the amount thereof accounted for as liabilities in accordance with
GAAP.
"Cash Equivalents" shall mean (i) securities issued or
directly and fully guaranteed or insured by the United States of America or any
agency or instrumentality thereof (PROVIDED that the full faith and credit of
the United States of America is pledged in support thereof) having maturities of
not more than one year from the date of acquisition, (ii) U.S. dollar
denominated time deposits, certificates of deposit and bankers acceptances of
(x) any EDIC insured bank, in amounts up to the EDIC insured limit, (y) any Bank
having capital and surplus in excess of $500,000,000 or the U.S. dollar
equivalent thereof or (z) any bank whose short-term commercial paper rating from
S&P is at least A-1 or the equivalent thereof or from ▇▇▇▇▇'▇ is at least P-1 or
the equivalent thereof (any such bank, an "Approved Bank"), in each case with
maturities of not more than one year from the date of acquisition, (iii)
commercial paper issued by any Bank or Approved Bank or by the parent company of
any Bank or Approved Bank and commercial paper issued by, or guaranteed by, any
industrial or financial company with a short-term commercial paper rating of at
least A-l or the equivalent thereof by S&P or at least P-1 or the equivalent
thereof by Moody's (any such company, an "Approved Company"), or guaranteed by
any industrial company with a long term unsecured debt rating of at least A or
A2. or the equivalent of each thereof, from S&P or ▇▇▇▇▇'▇, as the case may be,
and in each case maturing within one year after the date of acquisition, (iv)
commercial paper of any United States municipal, state or local government rated
at least A-1 or the equivalent thereof by S&P or at least P-1 or the equivalent
thereof by ▇▇▇▇▇'▇ and maturing within one year after the date of acquisition,
(v) any fund or funds investing solely in investments of the type described in
clauses (i) through (iv)
56
above, and (vi) agreements to sell and repurchase direct obligations of, or
obligations that are fully guaranteed as to principal and interest by, the U.S.
Treasury, such agreements to be with primary treasury dealers, to be evidenced
by standard industry forms and to have maturities of not more than one year from
the date of commencement of the repurchase transaction.
"Change of Control" shall mean (a) Insurance Partners and its
Affiliates collectively shall cease to own directly or indirectly at least 25%
of the Borrower capital stock on a fully diluted basis; (b) the Borrower shall
cease to own directly or indirectly (other than as a result of a transaction
permitted under Section 7.02(d) hereof) 100% of the capital stock of
Continental; or (c) any Person (together with its affiliates shall own directly
or indirectly, on a fully diluted basis, more of the economic and voting
interest in the capital stock of the Borrower than that owned by Insurance
Partners and its Affiliates (collectively); or (d) a majority of the Board of
Directors of the Borrower shall cease to consist of Continuing Directors.
"Chase" shall mean The Chase Manhattan Bank.
"Code" shall mean the Internal Revenue Code of 1936, as
amended from time to time, and the regulations promulgated and rulings issued
thereunder. Section references to the Code are to the Code, as in effect at the
date of this Agreement and any subsequent provisions of the Code, amendatory
thereof, supplemental thereto or substituted therefor.
"Collateral" shall mean all of the Collateral as defined in
the Pledge Agreement.
"Collateral Agent" shall mean the Administrative Agent acting
as collateral agent for the Banks.
"Commitment" shall mean, with respect to each Bank, such Banks
Term Loan Commitment and Revolving Loan Commitment.
"Commitment Fee" shall have the meaning provided in Section
2.01(a).
"Company Action Level" shall mean "Company Action Level" as
defined by the NAIC from time to time and as applied in the context of the Risk
Based Capital Guidelines promulgated by the NAIC (or any term substituted
therefor by the NAIC).
"Consolidated EBIT" shall mean, for any period, the
Consolidated Net Income for such period, before interest expense and provision
for taxes based on income and without giving effect to any extraordinary gains
or losses or gains or losses from sales of assets other than inventory sold in
the ordinary course of business.
"Consolidated EBITDA" shall mean, for any period, Consolidated
EBIT, adjusted by adding thereto the amount of all amortization of intangibles
and depreciation, in each case that were deducted in arriving at Consolidated
EBIT for such period.
"Consolidated Indebtedness" shall mean, at any time and as to
any Person, all Indebtedness for borrowed money of such Person and its
Subsidiaries at such time determined on
57
a consolidated basis in accordance with GAAP but, in the case of the Borrower,
excluding the mortgage indebtedness listed on Annex III
"Consolidated Interest Expense" shall mean, for any period and
as to any Person, total interest expense (including that attributable to Capital
Leases in accordance with GAAP) of such Person and its Subsidiaries on a
consolidated basis including, without limitation, all commissions, discounts and
other fees and charges owed with respect to letters of credit and bankers'
acceptance financing and net costs under Interest Rate Agreements, but excluding
however, any amortization of deferred financing costs.
"Consolidated Net Income" shall mean, for any period, the
consolidated net after tax income of the Borrower and its Subsidiaries
determined in accordance with GAAP.
"Consolidated Net Worth" shall mean, with respect to any
Person, the Net Worth of such Person and its Subsidiaries determined on a
consolidated basis in accordance with GAAP after appropriate deduction for any
minority interests in Subsidiaries.
"Consolidated Total Capital" shall mean, at any time and as to
any Person, (i) the sum of Consolidated Indebtedness of such Person at such
time, and (ii) Consolidated Net Worth of such Person at such time.
"Continental" shall mean Continental General Life Insurance
Company, a Nebraska corporation and a Wholly-Owned Subsidiary of Continental
Corporation.
"Continental Corporation" shall mean Continental General
Corporation a Nebraska corporation.
"Contingent Obligations" shall mean, as to any Person, any
obligation of such Person guaranteeing or intended to guarantee any
Indebtedness, leases, dividends or other obligations ("primary obligations") of
any other Person (the "primary obligor") in any manner, whether directly or
indirectly, including, without limitation, any obligation of such Person,
whether or not contingent, (a) to purchase any such primary obligation or any
property constituting direct or indirect security therefor, (b) to advance or
supply funds (i) for the purchase or payment of any such primary obligation or
(ii) to maintain working capital or equity capital of the primary obligor or
otherwise to maintain the net worth or solvency of the primary obligor, (c) to
purchase property, securities or services primarily for the purpose of assuring
the owner of any such primary obligation of the ability of the primary obligor
to make payment of such primary obligation or (d) otherwise to assure or hold
harmless the owner of such primary obligation against loss in respect thereof;
PROVIDED, HOWEVER, that the term Contingent Obligation shall not include (x)
endorsements of instruments for deposit or collection in the ordinary course of
business or (y) obligations of any Regulated Insurance Company under Insurance
Contracts, Reinsurance Agreements or Retrocession Agreements. The amount of any
Contingent Obligation shall be deemed to be an amount equal to the stated or
determinable amount of the primary obligation in respect of which such
Contingent Obligation is made or, if not stated or determinable, the maximum
reasonably anticipated liability in respect thereof (assuming such Person is
required to perform thereunder) as determined by such Person in good faith.
58
"Continuing Directors" shall mean the directors of the
Borrower on the Initial Borrowing Date and each other director if such
director's nomination for the election to the Board of Directors of the Borrower
is recommended by a majority of the then Continuing Directors.
"Credit Documents" shall mean this Agreement, the Notes, and
the Pledge Agreement.
"Default" shall mean any event, act or condition which with
notice or lapse of time, or both, would constitute an Event of Default.
"Defaulting Bank" shall mean any Bank with respect to which a
Bank Default is in effect.
"Dividends" shall have the meaning provided in Section 7.08.
"Effective Date" shall have the meaning provided in Section
11.10.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time and the regulations promulgated and
rulings issued thereunder. Section references to ERISA are to ERISA, as in
effect at the date of this Agreement and any subsequent provisions of ERISA,
amendatory thereof, supplemental thereto or substituted therefor.
"ERISA Affiliate" shall mean each person (as defined in
Section 3(9) of ERISA) which together with the Borrower or a Subsidiary of the
Borrower would be deemed to be a "single employer" within the meaning of Section
414(b),(c), (m) or (o) of the Code.
"Eurodollar Loans" shall mean each Loan bearing interest at
the rates provided in Section 1.08(b).
"Eurodollar Rate" shall mean, with respect to each Interest
Period for a Eurodollar Loan, (i) the arithmetic average (rounded to the nearest
1/100 of 1%) of the offered quotation to first-class banks in the interbank
Eurodollar market by Chase for U.S. dollar deposits of amounts in same day funds
comparable to the outstanding principal amount of the Eurodollar Loan of Chase
for which an interest rate is then being determined with maturities comparable
to the Interest Period to be applicable to such Eurodollar Loan, determined as
of 10:00 A.M.. (New York time) on the date which is two Business Days prior to
the commencement of such Interest Period divided (and rounded upward to the next
whole multiple of 1/16 of 1%) by (ii) a percentage equal to 100% minus the then
stated maximum rate of all reserve requirements (including, without limitation,
any marginal, emergency, supplemental, special or other reserves) applicable to
any member bank of the Federal Reserve System in respect of Eurocurrency
liabilities as defined in Regulation D (or any successor category of liabilities
under Regulation D).
"Event of Default" shall have the meaning provided in Section
8.
59
"Excess Cash Flow" shall mean, for any fiscal year, the
excess (if any) of (a) Net Cash Flow for such fiscal year over (b) Fixed Charges
for such fiscal year.
"Expiration Date" shall mean February 28, 1999.
"Facility" shall mean any of the credit facilities
established under this Agreement, i.e., the Term Loan Facility and the Revolving
Loan Facility.
"Federal Funds Effective Rate" shall mean for any period, a
fluctuating interest rate equal for each day during such period to the weighted
average of the rates on overnight Federal Funds transactions with members of the
Federal Reserve System arranged by Federal Funds brokers, as published for such
day (or, if such day is not a Business Day, for the next preceding Business Day)
by the Federal Reserve Bank of New York, or, if such rate is not so published
for any day which is a Business Day, the average of the quotations for such day
on such transactions received by the Administrative Agent from three Federal
Funds brokers of recognized standing selected by the Administrative Agent.
"Fees" shall mean all amounts payable pursuant to, or referred
to in, Section 2.01.
"Financial Reinsurance Agreement" shall mean a reinsurance
agreement covering any transaction in which any Regulated Insurance Company
cedes business that does not meet the conditions for reinsurance accounting as
provided by the Financial Accounting Standards Board in Statement of Financial
Accounting Standards No. 113, as the same may be revised, replaced, or
supplemented from time to time.
"Fixed Charges" shall mean, for any period, the sum for such
period of (i) Consolidated Interest Expense, (ii) Scheduled Repayments made
during such period, (iii) taxes paid by the Borrower and its Subsidiaries during
such period, (iv) Capital Expenditures made by the Borrower and its Subsidiaries
during such period and (v) lease payments made by the Borrower and its
Subsidiaries during such period.
"Foreign Subsidiary" shall mean each Subsidiary of the
Borrower that is incorporated under the laws of any jurisdiction other than the
United States of America, any State thereof or any territory thereof
"GAAP" shall mean generally accepted accounting principles in
the United States of America; it being understood and agreed that determinations
in accordance with GAAP for purposes of Section 7, including defined terms as
used therein, are subject (to the extent provided therein) to Section 11.07(a).
"Governmental Authority" shall mean any nation or government,
any state or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"HR" shall mean Hannover Rechtsschutz Versicherungs AG, the
parent company of RCH.
60
"Indebtedness" of any Person shall mean (i) all indebtedness
of such Person for borrowed money, (ii) the deferred purchase price of assets or
services which in accordance with GAAP would be shown on the liability side of
the balance sheet of such Person, (iii) the face amount of all letters of credit
issued for the account of such Person and, without duplication, all drafts drawn
thereunder, (iv) all Indebtedness of a second Person secured by any Lien on any
property owned by such first Person, whether or not such Indebtedness has been
assumed, (v) all Capitalized Lease Obligations of such Person, (vi) all
obligations of such Person to pay a specified purchase price for goods or
services whether or not delivered or accepted i.e., take-or-pay and similar
obligations, (vii) all obligations of such Person under Interest Rate Agreements
and Other Hedging Agreements and (viii) all Contingent Obligations of such
Person; PROVIDED that Indebtedness shall not include trade payables (including
payables under insurance contracts and reinsurance payables) and accrued
expenses, in each case arising in the ordinary course of business.
"Initial Borrowing Date" shall mean the date upon which the
Term Loans are initially incurred hereunder.
"Insurance Business" shall mean one or more aspects of the
business of selling, issuing or underwriting insurance or reinsurance.
"Insurance Contract" shall mean any insurance contract or
policy issued by a Regulated Insurance Company but shall not include any
Reinsurance Agreement or Retrocession Agreement.
"Insurance Partners" shall mean Insurance Partners, LP and
Insurance Partners Offshore (Bermuda), L.P.
"Interest Coverage Ratio" shall mean, for any period, the
ratio of Consolidated EBITDA for such period to Consolidated Interest Expense of
the Borrower for such period.
"Interest Period" shall mean, with respect to any Eurodollar
Loan, the interest period applicable thereto, as determined pursuant to Section
1.09.
"Interest Rate Agreement" shall mean any interest rate swap
agreement, interest rate cap agreement, interest rate collar agreement, interest
rate hedging agreement or other similar agreement or arrangement.
"Invested Assets" shall mean, at any date for the Regulated
Insurance Companies (on a consolidated basis), the total amount as would be
shown on line 11, page 2, column 4 of a Benchmark Statement for the Regulated
Insurance Companies (on a consolidated basis) prepared as of such date.
"Investment" shall mean the issuance by the Borrower of
common stock on terms and conditions satisfactory to the Administrative Agent,
and the receipt by the Borrower in respect of such issuance of at least
$15,000,000.
61
"Investment Grade Securities" shall mean and include
(i) U. S. Government Obligations (other than Cash Equivalents), (ii) debt
securities or debt instruments with a rating of BBB- or higher by S&P, Baa3 or
higher by ▇▇▇▇▇'▇, Class (2) or higher by NAIC or the equivalent of such rating
by S&P, ▇▇▇▇▇'▇ or NAIC, or if none of S&P, ▇▇▇▇▇'▇ and NAIC shall then exist,
the equivalent of such rating by any other nationally recognized securities
rating agency, but excluding any debt securities or instruments constituting
loans or advances among the Borrower and its Wholly-Owned Subsidiaries, and
(iii) any fund investing exclusively in investments of the type described in
clauses (i) and (ii) which funds may also hold immaterial amounts of cash
pending investment and/or distribution.
"Issuer" shall mean any issuer of Investment Grade Securities
or Non-Investment Grade Securities acquired or proposed to be acquired by the
Borrower or any of its Subsidiaries pursuant to Section 7.06.
"Legal Requirements" shall mean all applicable laws, rules
and regulations made by any governmental body or regulatory authority
(including, without limitation, any Applicable Insurance Regulatory Authority)
having jurisdiction over the Borrower or a Subsidiary of the Borrower.
"Lien" shall mean any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including any agreement to give any of
the foregoing, any conditional sale or other title retention agreement or any
lease in the nature thereof).
"Loan" shall have the meaning provided in Section 1.01.
"Management Agreements" shall have the meaning provided in
Section 4.12.
"Margin Stock" shall have the meaning provided in Regulation
U.
"Material Adverse Effect" shall mean a material adverse
effect on the business, operations, property, condition (financial or
otherwise), material agreements, contracts, contingent liabilities or prospects
of the Borrower and its Subsidiaries taken as a whole after giving effect to the
Transaction.
"Material Contracts" shall have the meaning provided in
Section 4.12.
"Maturity Date" with respect to any Facility shall mean
either the Term Loan Maturity Date or the Revolving Loan Maturity Date, as the
case may be.
"▇▇▇▇▇'▇" shall mean ▇▇▇▇▇'▇ Investors Service, Inc. and its
successors
"NAIC" shall mean the National Association of Insurance
Commissioners or any successor organization thereto.
"NAIC Tests" shall mean the ratios and other financial
measurements developed by the NAIC under its Insurance Regulatory Information
System, as in effect from time to time.
62
"Net Cash Flow" shall mean, for any period, the sum for such
period of (i) cash dividends paid to the Borrower by its Subsidiaries, (ii) fees
paid to the Borrower by its Subsidiaries, (iii) net interest income of the
Borrower (determined on a stand-alone basis) and (iv) tax payments and payments
made under tax sharing arrangements, in each case by Subsidiaries of the
Borrower to the Borrower.
"Net Worth" shall mean, as to any Person, the sum of its
capital stock (including, without limitation, its preferred stock), capital in
excess of par or stated value of shares of its capital stock (including, without
limitation, its preferred stock), retained earnings and any other account which,
in accordance with GAAP, constitutes stockholders equity, but excluding (i) any
treasury stock and (ii) the effects of Financial Accounting Statement No. 115.
"New Continental Board of Directors" shall have the meaning
provided in Section 6.13.
"Non-Defaulting Bank" shall mean any Bank other than a
Defaulting Bank.
"Non-Investment Grade Securities" shall mean debt and equity
securities and debt and equity instruments that do not constitute Investment
Grade Securities or Cash Equivalents (but excluding any debt or equity
securities or instruments constituting loans or advances among the Borrower and
its Wholly-Owned Subsidiaries), it being understood that for the purposes of any
determination under Section 7.06(f), the amounts, if any, paid by such Regulated
Insurance Company to purchase such equity securities or warrants shall be
included in the principal amounts of Non-Investment Grade Securities.
"Non-Regulated Company" shall mean each Subsidiary of the
Borrower which is not a Regulated Insurance Company.
"Note" shall mean each Term Note and each Revolving Note.
"Notice of Borrowing" shall have the meaning provided in
Section 1.03.
"Notice of Conversion" shall have the meaning provided in
Section 1.06.
"Notice Office" shall mean the office of the Administrative
Agent at ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ or such other office as the
Administrative Agent may designate to the Borrower and the Banks from time to
time.
"Obligations" shall mean all amounts, direct or indirect,
contingent or absolute, of every type or description, and at any time existing,
owing to the Administrative Agent, the Collateral Agent or any Bank pursuant to
the terms of this Agreement or any other Credit Document.
"Other Hedging Agreements" shall mean any foreign exchange
contracts, currency swap agreements or other similar agreements or arrangements
designed to protect against fluctuations in currency values.
63
"Payment Office" shall mean the office of the Administrative
Agent c/o The Loan and Agency Services Group, One Chase ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇
▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇, Facsimile No.: (212)
552-7490 or such other office as the Administrative Agent may designate to the
Borrower and the Banks from time to time.
"PBGC" shall mean the Pension Benefit Guaranty Corporation
established pursuant to Section 4002 of ERISA, or any successor thereto.
"Permitted Acquisition" shall have the meaning provided in
Section 7.02(h).
"Permitted Covenant" shall mean (i) any periodic reporting
covenant, (ii) any covenant restricting payments by the Borrower with respect to
any securities of the Borrower which are junior to the Permitted Subordinated
PIK Indebtedness, (iii) any covenant the default of which can only result in an
increase in the amount of any redemption price, repayment amount or interest
rate, (iv) any covenant the default of which gives rise only to rights or
remedies which are subject to subordination terms reasonably acceptable to the
Agent, (v) any covenant providing board observance rights with respect to the
Borrower board of directors and (vi) any other covenant that does not adversely
affect the interests of the Banks (as reasonably determined by the
Administrative Agent.
"Permitted Subordinated PIK Indebtedness" shall mean any
subordinated promissory Indebtedness of the Borrower, so long as the terms of
any such subordinated Indebtedness (i) do not provide any collateral security,
(ii) do not provide any guaranty or other support by any Subsidiaries of the
Borrower, (iii) do not contain any mandatory put, redemption, repayment, sinking
fund or other similar provision, (iv) do not require the cash payment of
interest, (v) do not contain any covenants other than any Permitted Covenant,
(vi) do not grant the holders thereof any voting rights except for (x) voting
rights required to be granted to such holders under applicable law and (y)
limited customary voting rights on fundamental matters such as mergers,
consolidations, sales or substantial assets, or liquidations involving the
Borrowers and (vii) are otherwise reasonably satisfactory to the Administrative
Agent.
"Person" shall mean any individual, partnership, joint
venture, firm, corporation, association, trust or other enterprise or any
government or political subdivision or any agency, department or instrumentality
thereof.
"Plan" shall mean any pension plan as defined in Section 3(2)
of ERISA, which is maintained or contributed to by (or to which there is an
obligation to contribute of) the Borrower or a Subsidiary of the Borrower or an
ERISA Affiliate, and each such plan for the five year period immediately
following the latest date on which the Borrower, or a Subsidiary of the Borrower
or an ERISA Affiliate maintained, contributed to or had an obligation to
contribute to such plan.
"Plan Documents" shall have the meaning provided in Section
4.12(a).
"Pledge Agreement" shall have the meaning provided in Section
409.
"Pledged Securities" shall mean all the Pledged Securities as
defined in the Pledge Agreement.
64
"Pledged Notes" shall mean the Pledged Notes as defined in the
Pledge Agreement.
"Pledged Stock" shall mean the Pledged Stock as defined in the
Pledged Agreement.
"Prime Lending Rate" shall mean the rate which Chase announces
from time to time as its prime commercial lending rate, the Prime Lending Rate
to change when and as such prime commercial lending rate changes. The Prime
Lending Rate is a reference rate and does not necessarily represent the lowest
or best rate actually charged to any customer. Chase may make commercial loans
or other loans at rates of interest at, above or below the Prime Lending Rate.
"Quarterly Statement" shall mean the quarterly financial
statement required to be filed by any Regulated Insurance Company with the
Applicable Regulatory Insurance Authority.
"RCH Bridge Loan" shall have the meaning provided in Section
4.10(f).
"RCH" shall mean the Reassurance Company of Hannover.
"Refinancing" shall mean the refinancing of all the existing
Indebtedness for borrowed money of the Borrower and Continental.
"Refinancing Documents" shall mean the documents related to
the Refinancing.
"Register" shall have the meaning provided in Section 6.13.
"Regulated Insurance Company" shall mean any Subsidiary of the
Borrower, whether now owned or hereafter acquired, that is authorized or
admitted to carry on or transact Insurance Business in any jurisdiction and is
regulated by any Applicable Insurance Regulatory Authority.
"Regulation D" shall mean Regulation D of the Board of
Governors of the Federal Reserve System as from time to time in effect and any
successor to all or a portion thereof establishing reserve requirements.
"Regulation U" shall mean Regulation U of the Board of
Governors of the Federal Reserve System as from time to time in effect and any
successor to all or a portion thereof establishing margin requirements.
"Reinsurance Agreement" shall mean any agreement, contract,
treaty or other arrangement whereby one or more insurers, as reinsurers, assume
liabilities under insurance policies or agreements issued by another insurance
or reinsurance company or companies.
"Reinsurance Transaction" shall mean a reinsurance transaction
entered into between Continental and RCH and/or HR pursuant to which
Continental shall receive a ceding allowance of an amount satisfactory to the
Administrative Agent.
65
"Replaced Bank" shall have the meaning provided in Section
1.13.
"Replacement Bank" shall have the meaning provided in Section
1.13.
"Reportable Event" shall mean an event described in Section
4043(c) of ERISA with respect to a Plan other than those events as to which the
30-day notice period is waived under subsection .13, .14, .16, .18, .19 or .20
of PBGC Regulation Section 2615.
"Required Banks" shall mean Non-Defaulting Banks the sum of
whose outstanding Term Loans and Revolving Loan Commitment (or, if after the
Total Revolving Loan Commitment has been terminated, outstanding Revolving
Loans) constitute a majority of the sum of (i) the total outstanding Term Loans
of Non-Defaulting Banks and (ii) the Total Revolving Loan Commitment less the
aggregate Revolving Loan Commitments of Defaulting Banks, if any, or, if after
the Total Revolving Loan Commitment has been terminated, the total outstanding
Revolving Loans of Non-Defaulting Banks)
"Retrocession Agreement" shall mean any agreement, contract,
treaty or other arrangement whereby one or more insurers or reinsurers, as
retrocessionaires, assume liabilities of reinsurers under a Reinsurance
Agreement or other retrocessionaires under another Retrocession Agreement.
"Revolving Loan" shall have the meaning provided in Section
1.01(b).
"Revolving Loan Commitment" shall mean, with respect to each
Bank, the amount set forth opposite such Bank's name in Annex I directly below
the column entitled "Revolving Loan Commitment," as the same may be reduced from
time to time or terminated pursuant to Sections 2.02, 2.03 and/or 8.
"Revolving Loan Facility" shall mean the Facility evidenced by
the Total Revolving Loan Commitment.
"Revolving Loan Maturity Date" shall mean February 17, 2002.
"Revolving Note" shall have the meaning provided in Section
1.05(a).
"Risk-Based Capital Ratio" shall mean, for any Regulated
Insurance Company, the ratio (expressed as a percentage), at any time, of the
Total Adjusted Capital of such Regulated Insurance Company to the Company Action
Level of such Regulated Insurance Company.
"Risk Derivatives" shall mean Z bonds, floaters/inverse
floaters, PAC II, PAC III, Ioettes, support bonds, Interest Only Investments,
Principal Only Investments residuals, inverse IO's, super floaters, any other
instruments with similar economic risk factors and any bonds backed in whole or
in part by any of the foregoing (including component or "kitchen sink" bonds).
"S&P" shall mean Standard & Poor's Ratings Group and its
successors.
66
"S&P Credit Rating" shall mean the rating level (it being
understood that a rating level shall include numerical modifiers and (+) and (-)
modifiers) assigned by S&P to the senior unsecured long-term debt of an Issuer.
"S&P Equivalent Rating" shall mean, with respect to any
Investment Grade Security or Non-Investment Grade Security, the rating given
such security by S&P or the S&P equivalent rating of the rating given such
security by ▇▇▇▇▇'▇ or NAIC, it being understood that if any such security is
rated by more than one of S&P, ▇▇▇▇▇'▇ and NAIC and any of such ratings (or the
S&P equivalent of such ratings) differ, then the S&P Equivalent Rating for such
security shall be the lower or lowest, as the case may be, of such ratings (or
the S&P equivalent of such ratings).
"SAP" shall mean, with respect to any Regulated Insurance
Company, the accounting procedures and practices prescribed or permitted by the
Applicable Insurance Regulatory Authority of the state in which such Regulated
Insurance Company is domiciled; it being understood and agreed that
determinations in accordance with SAP for purposes of Section 7, including
defined terms as used therein, are subject (to the extent provided therein) to
Section 11.07(a).
"Scheduled Repayments" shall have the meaning provided in
Section 3.02(i)(a).
"SEC" shall mean the Securities and Exchange Commission or any
successor thereto.
"SEC Regulation D" shall mean Regulation D as promulgated
under the Securities Act of 1933, as amended, as the same may be in effect from
time to time.
"Section 3.04(b)(ii) Certificate" shall have the meaning
provided in Section 3.04(b)(ii).
"Secured Creditors" shall have the meaning provided in the
Pledge Agreement.
"Seller" shall mean Western and Southern Life Insurance
Company, an Ohio corporation.
"Shared Expenses Agreements" shall have the meaning provided
in Section 4.12.
"Special Dividend" shall have the meaning provided in Section
6.13.
"Statutory Earnings" shall mean, for any period, for any
Regulated Insurance Company, (i) the total amount as would be shown on line 31,
page 4, column 1 of a Benchmark Statement for such Regulated Insurance Company
(i.e., net gain from operations, after taxes but before unrealized capital gains
and losses) prepared for such period less (ii) the undistributed earnings of
Subsidiaries of such Regulated Insurance Company to the extent included in such
total amount.
67
"Statutory Surplus" shall mean, at any date for any Regulated
Insurance Company, (a) the total amount as would be shown on line 38, page 3,
column 1 of a Benchmark Statement for such Regulated Insurance Company prepared
as of such date.
"Stockholders Agreements" shall have the meaning provided in
Section 4.12.
"Subsidiary" of any Person shall mean and include (i) any
corporation more than 50% of whose stock of any class or classes having by the
terms thereof ordinary voting power to elect a majority of the directors of such
corporation (irrespective of whether or not at the time stock of any class or
classes of such corporation shall have or might have voting power by reason of
the happening of any contingency) is at the time owned by such Person directly
or indirectly through Subsidiaries and (ii) any partnership, association, joint
venture or other entity in which such Person directly or indirectly through
Subsidiaries has more than a 50% equity or voting interest at the time. Unless
otherwise expressly provided, all references herein to "Subsidiary" shall mean a
Subsidiary of the Borrower.
"Tax Sharing Agreements" shall have the meaning provided in
Section 4.12.
"Taxes" shall have the meaning provided in Section 3.04(a).
"Term Loan" shall have the meaning provided in Section
1.01(a).
"Term Loan Commitment" shall mean, with respect to each Bank.
the amount set forth opposite such Bank's name in Annex I directly below the
column entitled "Term Loan Commitment," as the same may be terminated pursuant
to Sections 2.02, 2.03 and/or 8.
"Term Loan Facility" shall mean the Facility evidenced by the
Total Term Loan Commitment.
"Term Loan Maturity Date" shall mean February 17, 2005.
"Term Note" shall have the meaning provided in Section
1.05(a).
"Test Period" shall mean (i) for any determination made on and
prior to December 31, 1999, the period from April 1, 1999 to the last day of the
fiscal quarter of the Borrower then last ended, PROVIDED that the first Test
Period shall end on June 30, 1999, and (ii) for any determination made
thereafter, the four consecutive fiscal quarters of the Borrower ended on the
last day of the most recently ended fiscal quarter of the Borrower (taken as one
accounting period).
"Total Adjusted Capital" shall mean "Total Adjusted Capital"
as defined by the NAIC as of December 31, 1997 and as applied in the context of
the Risk Based Capital Guidelines promulgated by the NAIC.
"Total Commitment" shall mean the sum of the Total Term Loan
Commitment and the Total Revolving Loan Commitment.
68
"Total Revolving Loan Commitment" shall mean the sum of the
Revolving Loan Commitments of each of the Banks.
"Total Term Loan Commitment" shall mean the sum of the Term
Loan Commitments of each of the Banks.
"Total Unutilized Revolving Loan Commitment" shall mean, at
any time, (i) the Total Revolving Loan Commitment at such time less (ii) the sum
of the aggregate principal amount of all Revolving Loans outstanding at such
time.
"Transaction" shall mean, collectively, (i) the Acquisition,
(ii) the Refinancing, (iii) the Investment, (iv) the Reinsurance Transaction,
(v) the incurrence by the Borrower of the RCH Bridge Loan, (vi) the Special
Dividend, (vii) the incurrence by the Borrower of the Term Loans hereunder on
the Initial Borrowing Date and (viii) the payment of fees and expenses in
connection with the foregoing.
"Transaction Documents" shall mean, collectively, (i) the
Acquisition Documents, (ii) the documents and instruments governing the
Investment, (iii) the documents and instruments governing the Reinsurance
Transaction, (iv) the Refinancing Documents, (v) the documents and instruments
governing the RCH Bridge Loan and (vi) the Credit Documents.
"Type" shall mean any type of Loan determined with respect to
the interest option applicable thereto i.e., a Base Rate Loan or a Eurodollar
Loan
"UCC" shall mean the Uniform Commercial Code.
"Unfunded Current Liability" of any Plan shall mean the
amount, if any, by which the actuarial present value of the accumulated plan
benefits under the Plan as of the close of its most recent plan year exceeds the
fair market value of the assets allocable thereto, each determined in accordance
with Statement of Financial Accounting Standards No. 87, based upon the
actuarial assumptions used by the Plan's actuary in the most recent annual
valuation of the Plan.
"Unutilized Revolving Loan Commitment" with respect to any
Bank at any time shall mean such Bank's Revolving Loan Commitment at such time
LESS the aggregate outstanding principal amount of all Revolving Loans made by
such Bank.
"U.S Government Obligations" shall mean and include (A)
securities that are (x) direct obligations of the United States of America for
the timely payment of which its full faith and credit is pledged or (y)
obligations of a Person controlled or supervised by and acting as an agency or
instrumentality of the United States of America the timely payment of which is
unconditionally guaranteed as a full faith and credit obligation by the United
States of America, which, in either case, are not callable or redeemable at the
option of the issuer thereof and shall also include a depository receipt issued
by a bank (as defined in Section 3(a)(2) of the Securities Act of 1933, as
amended), as custodian with respect to any such U.S. Government Obligation or a
specific payment of principal of or interest on any such U.S. Government
Obligation held by such custodian for the account of the holder of such
depository receipt; PROVIDED that (except as
69
required by law) such custodian is not authorized to make any deduction from the
amount payable to the holder of such depository receipt from any amount received
by the custodian in respect of the U.S. Government Obligation or the specific
payment of principal of or interest on the U.S. Government Obligation evidenced
by such depository receipt and (B) to the extent in each case having an S&P
Equivalent Rating of AAA, obligations issued or guaranteed by the Federal Home
Loan Mortgage Corporation, the Federal National Mortgage Association, the
Government National Mortgage Association, the Student Loan Marketing Association
and the Federal Home Loan Bank.
"Wholly-Owned Subsidiary" of any Person shall mean any
Subsidiary of such Person to the extent all of the capital stock or other
ownership interests in such Subsidiary, other than directors' or nominees'
qualifying shares, is owned directly or indirectly by such Person.
"Written" or "in writing" shall mean any form of written
communication or a communication by means of telex, facsimile device, telegraph
or cable.
SECTION 10. The Administrative Agent.
10.01 APPOINTMENT. Each Bank hereby irrevocably designates and
appoints Chase as Administrative Agent (such term as used in this Section 10 to
include Chase acting as Collateral Agent) to act as specified herein and in the
other Credit Documents, and each such Bank hereby irrevocably authorizes Chase
as the Administrative Agent for such Bank, to take such action on its behalf
under the provisions of this Agreement and the other Credit Documents and to
exercise such powers and perform such duties as are expressly delegated to the
Administrative Agent by the terms of this Agreement and the other Credit
Documents, together with such other powers as are reasonably incidental thereto.
The Administrative Agent agrees to act as such upon the express conditions
contained in this Section 10. Notwithstanding any provision to the contrary
elsewhere in this Agreement, the Administrative Agent shall not have any duties
or responsibilities, except those expressly set forth herein or in the other
Credit Documents, nor any fiduciary relationship with any Bank, and no implied
covenants, functions, responsibilities, duties, obligations or liabilities shall
be read into this Agreement or otherwise exist against the Administrative Agent.
The provisions of this Section 10 are solely for the benefit of the
Administrative Agent and the Banks, and the Borrower shall not have any rights
as a third party beneficiary of any of the provisions hereof. In performing its
functions and duties under this Agreement, the Administrative Agent shall act
solely as agent of the Banks and does not assume and shall not be deemed to have
assumed any obligation or relationship of agency or trust with or for the
Borrower.
10.02 DELEGATION OF DUTIES. The Administrative Agent may
execute any of its duties under this Agreement or any other Credit Document by
or through agents or attorneys-in-fact and shall be entitled to advice of
counsel concerning all matters pertaining to such duties. The Administrative
Agent shall not be responsible for the negligence or misconduct of any agents or
attorneys-in-fact selected by it with reasonable care except to the extent
otherwise required by Section 10.03.
70
10.03 EXCULPATORY PROVISIONS. Neither the Administrative
Agent nor any of its officers, directors, employees, agents, attorneys-in-fact
or affiliates shall be (i) liable for any action lawfully taken or omitted to be
taken by it or such Person under or in connection with this Agreement (except
for its or such Person's own gross negligence or willful misconduct) or (ii)
responsible in any manner to any of the Banks for any recitals, statements,
representations or warranties made by the Borrower or any Subsidiary or any of
their respective officers contained in this Agreement, any other Credit Document
or in any certificate, report, statement or other document referred to or
provided for in, or received by the Administrative Agent under or in connection
with, this Agreement or any other Credit Document or for any failure of the
Borrower or any of its Subsidiaries or any of their respective officers to
perform its obligations hereunder or thereunder. The Administrative Agent shall
not be under any obligation to any Bank to ascertain or to inquire as to the
observance or performance of any of the agreements contained in, or conditions
of, this Agreement, or to inspect the properties, books or records of the
Borrower or any of its Subsidiaries. The Administrative Agent shall not be
responsible to any Bank for the effectiveness, genuineness, validity,
enforceability, collectibility or sufficiency of this Agreement or any Credit
Document 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 or made by the Administrative
Agent to the Banks or by or on behalf of the Borrower to the Administrative
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 of the existence or possible existence of any Default or Event of
Default.
10.04 RELIANCE BY ADMINISTRATIVE AGENT. The Administrative
Agent shall be entitled to rely, and shall be fully protected in relying, upon
any note, writing, resolution, notice, consent, certificate, affidavit, letter,
cablegram, telegram, facsimile transmission, telex or teletype message,
statement, order or other document or conversation believed by it to be genuine
and correct and to have been signed, sent or made by the proper Person or
Persons and upon advice and statements of legal counsel (including, without
limitation, counsel to the Borrower), independent accountants and other experts
reasonably selected by the Administrative Agent. The Administrative Agent shall
be fully justified in failing or refusing to take any action under this
Agreement or any other Credit Document unless it shall first receive such advice
or concurrence of the Required Banks as it deems appropriate or it shall first
be indemnified to its satisfaction by the Banks against any and all liability
and expense which may be incurred by it by reason of taking or continuing to
take any such action. The Administrative Agent shall in all cases be fully
protected in acting, or in refraining from acting, under this Agreement and the
other Credit Documents in accordance with a request of the Required Banks, and
such request and any action taken or failure to act pursuant thereto shall be
binding upon all the Banks.
10.05 NOTICE OF DEFAULT. The Administrative Agent shall not
be deemed to have knowledge or notice of the occurrence of any Default or Event
of Default hereunder unless the Administrative Agent has received notice from a
Bank or the Borrower referring to this Agreement, describing such Default or
Event of Default and stating that such notice is a "notice of default." In the
event that the Administrative Agent receives such a notice, the Administrative
Agent shall give prompt notice thereof to the Banks. The Administrative Agent
shall take such
71
action with respect to such Default or Event of Default as shall be reasonably
directed by the Required Banks, PROVIDED that unless and until the
Administrative Agent shall have received such directions, the Administrative
Agent may (but shall not be obligated to) take such action, or refrain from
taking such action, with respect to such Default or Event of Default as it shall
deem advisable in the best interests of the Banks.
10.06 NON-RELIANCE. Each Bank expressly acknowledges that
neither the Administrative Agent nor any of its officers, directors, employees,
agents, attorneys-in-fact or affiliates have made any representations or
warranties to it and that no act by the Administrative Agent hereinafter taken,
including any review of the affairs of the Borrower or any of its Subsidiaries,
shall be deemed to constitute any representation or warranty by the
Administrative Agent to any Bank Each Bank represents to the Administrative
Agent that it has, independently and without reliance upon the Administrative
Agent or any other Bank, and based on such documents and information as it has
deemed appropriate, made its own appraisal of and investigation into the
business, assets, operations, property, financial and other conditions,
prospects and creditworthiness of the Borrower and its Subsidiaries and made its
own decision to make its Loans hereunder and enter into this Agreement. Each
Bank also represents that it will, independently and without reliance upon the
Administrative Agent or any other Bank, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit analysis, appraisals and decisions in taking or not taking action under
this Agreement, and to make such investigation as it deems necessary to inform
itself as to the business, assets, operations, property, financial and other
conditions, prospects and creditworthiness of the Borrower and its Subsidiaries.
The Administrative Agent shall not have any duty or responsibility to provide
any Bank with any credit or other information concerning the business,
operations, assets, property, financial and other conditions, prospects or
creditworthiness of the Borrower or any Subsidiary which may come into the
possession of the Administrative Agent or any of its officers, directors,
employees, agents, attorneys-in-fact or affiliates.
10.07 INDEMNIFICATION. Each Bank agrees to indemnify the
Administrative Agent and the Collateral Agent in its respective capacities as
such ratably according to such Bank's respective Loans and Unutilized Revolving
Loan Commitment, from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, reasonable expenses or
disbursements of any kind whatsoever which may at any time (including, without
limitation, at any time following the payment of the Obligations) be imposed on,
incurred by or asserted against the Administrative Agent in its capacity as such
in any way relating to or arising out of this Agreement or any other Credit
Document, or any documents contemplated by or referred to herein or the
transactions contemplated hereby or any action taken or omitted to be taken by
the Administrative Agent under or in connection with any of the foregoing, but
only to the extent that any of the foregoing is not paid by the Borrower or any
of its Subsidiaries, PROVIDED that no Bank shall be liable to the Administrative
Agent for the payment of any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
resulting from the Administrative Agent's gross negligence or willful
misconduct. If any indemnity furnished to the Administrative Agent for any
purpose shall, in the opinion of the Administrative Agent, be insufficient or
become impaired, the Administrative Agent may call for additional indemnity and
cease, or not commence, to do the acts indemnified against
72
until such additional indemnity is furnished. The agreements in this Section
10.07 shall survive the payment of all Obligations.
10.08 THE ADMINISTRATIVE AGENT IN ITS INDIVIDUAL CAPACITY. The
Administrative Agent and its affiliates may make loans to, accept deposits from
and generally engage in any kind of business with the Borrower and its
Subsidiaries as though not acting as Administrative Agent hereunder. With
respect to the Loans made by it and all Obligations owing to it, the
Administrative Agent shall have the same rights and powers under this Agreement
as any Bank and may exercise the same as though it were not the Administrative
Agent, and the terms "Bank" and "Banks" shall include the Administrative Agent
in its individual capacity.
10.09 SUCCESSOR ADMINISTRATIVE AGENT. The Administrative
Agent may resign as the Administrative Agent upon 30 days' notice to the Banks
and the Borrower. Upon such resignation, the Required Banks shall, with the
consent of the Borrower (such consent not to be unreasonably withheld and such
consent shall not be required if an Event of Default has occurred and is
continuing), appoint from among the Banks a successor Administrative Agent for
the Banks, whereupon such successor agent shall succeed to the rights, powers
and duties of the Administrative Agent, and the term "Administrative Agent"
shall include such successor agent effective upon its appointment, and the
resigning Administrative Agent's rights, powers and duties as the Administrative
Agent shall be terminated, without any other or further act or deed on the part
of such former Administrative Agent or any of the parties to this Agreement.
After the retiring Administrative Agent's resignation hereunder as the
Administrative Agent, the provisions of this Section 10 shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was
Administrative Agent under this Agreement.
SECTION 11. MISCELLANEOUS.
11.01 PAYMENT OF EXPENSES, ETC. The Borrower hereby agrees
to: (i) whether or not the transactions herein contemplated are consummated, pay
all reasonable out-of-pocket costs and expenses of the Administrative Agent in
connection with the negotiation, preparation, syndication, execution and
delivery of the Credit Documents and the documents and instruments referred to
therein and any amendment, waiver or consent relating thereto (including,
without limitation, the reasonable fees and disbursements of White & Case); (ii)
whether or not the transactions herein contemplated are consummated, pay all
reasonable out-of-pocket costs and expenses of the Administrative Agent and each
of the Banks in connection with the enforcement of the Credit Documents and the
documents and instruments referred to therein (including, without limitation,
the reasonable fees and disbursements of counsel for the Administrative Agent
and for each of the Banks), (iii) pay and hold each of the Banks harmless from
and against any and all present and future stamp and other similar taxes with
respect to the foregoing matters and save each of the Banks harmless from and
against any and all liabilities with respect to or resulting from any delay or
omission to pay such taxes; and (iv) indemnify the Administrative Agent and each
Bank, and their respective officers, directors, employees, representatives and
agents (each, an "indemnified person") from and hold each of them harmless
against any and all losses, liabilities, claims, damages or expenses
(collectively, "Claims") incurred by any of them as a result of, or arising out
of, or in any way related to, or by reason of, any investigation, litigation or
other
73
proceeding (whether or not the Administrative Agent or any Bank is a party
thereto) related to the entering into and/or performance of any Credit Document
or other Transaction Document or the use of the proceeds of any Loans hereunder
or the Transaction or the consummation of any other transactions contemplated in
any Credit Document, including, without limitation, the reasonable fees and
disbursements of counsel incurred in connection with any such investigation,
litigation or other proceeding (but excluding any such losses, liabilities,
claims, damages or expenses to the extent incurred by reason of the gross
negligence or willful misconduct of the Person to be indemnified). No Bank shall
be liable for any damages arising from the use by others of information or other
materials obtained through electronic, telecommunications or other information
transmission systems.
11.02 RIGHT OF SETOFF. In addition to any rights now or
hereafter granted under applicable law or otherwise, and not by way of
limitation of any such rights, upon the occurrence and continuance of an Event
of Default, each Bank is hereby authorized at any time or from time to time,
without presentment, demand, protest or other notice of any kind to the Borrower
or to any other Person, any such notice being hereby expressly waived, to set
off and to appropriate and apply any and all deposits (general or special) and
any other Indebtedness at any time held or owing by such Bank (including,
without limitation, by branches and agencies of such Bank wherever located) to
or for the credit or the account of the Borrower against and on account of the
Obligations and liabilities of the Borrower to such Bank or any other Bank under
this Agreement or under any of the other Credit Documents, including, without
limitation, all interests in Obligations of the Borrower purchased by such Bank
or any other Bank pursuant to Section 11.06(b), and all other claims of any
nature or description arising out of or connected with this Agreement or any
other Credit Document, irrespective of whether or not such Bank shall have made
any demand hereunder and although said Obligations, liabilities or claims, or
any of them, shall be contingent or unmatured. Each Bank is hereby designated
the agent of all other Banks for purposes of effecting set off pursuant to this
Section 11.02 and the Borrower hereby grants to each Bank for such Bank's own
benefit and as agent for all other Banks a continuing security interest in any
and all deposits, accounts or moneys of the Borrower maintained from time to
time with such Bank.
11.03 NOTICES. Except as otherwise expressly provided herein,
all notices and other communications provided for hereunder shall be in writing
(including telegraphic, telex, facsimile or cable communication) and mailed,
telegraphed, telexed, telecopied, cabled or delivered, if to the Borrower, at
the address specified opposite its signature below; if to any Bank, at its
address specified for such Bank on Annex II hereto; or, at such other address as
shall be designated by any party in a written notice to the other parties
hereto. All such notices and communications shall be mailed, telegraphed,
telexed, telecopied, cabled or sent by overnight courier and shall be effective
when received.
11.04 BENEFIT OF AGREEMENT. (a) This Agreement shall be
binding upon and inure to the benefit of and be enforceable by the respective
successors and assigns of the parties hereto; provided, however, the Borrower
may not assign or transfer any of its rights or obligations hereunder without
the prior written consent of the Banks. Each Bank may at any time grant
participations in any of its rights hereunder or under any of its Notes to any
bank or other financial institution (other than Conseco Inc. and its
Subsidiaries); PROVIDED that in no event shall
74
any Bank participate any of its rights and obligations to any insurance company
which engages as a substantial part of its business in the same or in a
competitive line of business as that of the Borrower or any of the Regulated
Insurance Companies (as determined in good faith by the participating Bank at
the time of such participation); provided further in the case of any such
participation, the participant shall not have any rights under this Agreement or
any of the other Credit Documents, including rights of consent, approval or
waiver (the participant's rights against such Bank in respect of such
participation to be those set forth in the agreement executed by such Bank in
favor of the participant relating thereto) and all amounts payable by the
Borrower hereunder shall be determined as if such Bank had not sold such
participation, except that the participant shall be entitled to receive the
additional amounts under Sections 1.10, 1.11 and 3.04 of this Agreement to, and
only to, the extent that such Bank would be entitled to such benefits if the
participation had not been entered into or sold; and provided further, that no
Bank shall transfer, grant or assign any participation under which the
participant shall have rights to approve any amendment to or waiver of this
Agreement or any other Credit Document except to the extent such amendment or
waiver would (i) extend any Scheduled Repayment or the final scheduled maturity
of any Loan or Note in which such participant is participating (it being
understood that any waiver of the application of any prepayment or the method of
application of any prepayment to the amortization of, the Loans shall not
constitute an extension of a Scheduled Repayment or the final scheduled maturity
date), or reduce the rate or extend the time of payment of interest thereon or
Fees, or reduce the principal amount thereof, or increase such participant's
participating interest in any Commitment or Loan over the amount thereof then in
effect (it being understood that a waiver of any Default or Event of Default or
of a mandatory reduction in the Total Commitment or of a mandatory repayment or
prepayment shall not constitute a change in the terms of any Commitment and that
an increase in any Commitment shall be permitted without the consent of any
participant if such participant's participation is not increased as a result
thereof), (ii) release all or any material portion of the Collateral (except as
expressly provided in the Credit Documents) or (iii) consent to the assignment
or transfer by the Borrower of any of its rights and obligations under this
Agreement or any other Credit Document except in accordance with the terms
hereof and thereof.
(b) Notwithstanding the foregoing, any Bank may assign all or
a portion of its rights and obligations hereunder to a bank or other financial
institution (other than Conseco Inc. and any of its Subsidiaries) with the prior
written consent of the Administrative Agent and of the Borrower, neither of
which consents shall be unreasonably withheld, PROVIDED that in no event shall
any Bank assign any of its rights and obligations to any insurance company which
engages as a substantial part of its business in the same or in a competitive
line of business as that of the Borrower or any of the Regulated Insurance
Companies (as determined in good faith by the assigning Bank at the time of such
arrangement) No assignment of less than all of a Bank's rights and obligations
hereunder pursuant to the immediately preceding sentence shall, to the extent
such transaction represents an assignment to an institution other than one or
more Banks hereunder, be in an aggregate amount less than the minimum of
$5,000,000 unless otherwise agreed to by the Administrative Agent and the
Borrower in writing. If any Bank so sells or assigns all or a part of its rights
hereunder or under the Notes, any reference in this Agreement or the Notes to
such assigning Bank shall thereafter refer to such Bank and to the respective
assignee to the extent of their respective interests and the respective assignee
shall have, to the extent of such assignment
75
(unless otherwise provided therein), the same rights and benefits as it would if
it were such assigning Bank. Each assignment pursuant to this Section 11.04(b)
shall be effected by the assigning Bank and the assignee Bank executing an
Assignment and Assumption Agreement substantially in the form of Exhibit H
(appropriately completed) (the "Assignment and Assumption Agreement"). At the
time of any such assignment, (i) Annex I shall be deemed to be amended to
reflect the Commitments, if any, and outstanding Loans of the respective
assignee (which shall result in a direct reduction to the Commitments, if any,
and outstanding Loans of the assigning Bank) and of the other Banks, (ii) if any
such assignment occurs after the Initial Borrowing Date, at the request of the
assignor or the assignee the Borrower will issue new Notes to the respective
assignee and to the assigning Bank in conformity with the requirements of
Section 1.05, (iii) the Administrative Agent shall receive from the assigning
Bank and/or the assignee Bank or financial institution at the time of each
assignment the payment of a nonrefundable assignment fee of $3,500, which fee
shall not be required in the event of an assignment to a Bank or an Affiliate of
a Bank and (iv) the Administrative Agent shall receive from the assignee Bank
the Administrative Agent's administrative questionnaire completed by such
assignee Bank, provided that such transfer or assignment will not be effective
until recorded by the Administrative Agent on the Register pursuant to Section
6.13 hereof At the time of each assignment pursuant to this Section 11.04(b) to
a Person which is not already a Bank hereunder and which is not a United States
person (as such term is defined in Section 7701(a)(30) of the Code) for Federal
income tax purposes, the respective assignee Bank shall provide to the Borrower
and the Administrative Agent the appropriate Internal Revenue Service forms
(and, if applicable a Section 3.04(b)(ii) Certificate) described in Section
3.04(b) Each Bank and the Borrower agrees to execute such documents (including,
without limitation, amendments to this Agreement and the other Credit Documents)
as shall be necessary to effect the foregoing Promptly following any assignment
pursuant to this Section 11.04(b), the assigning Bank shall promptly notify the
Borrower and the Administrative Agent thereof Nothing in this Section 11.04
shall prevent or prohibit any Bank from pledging its Loans or Notes hereunder to
a Federal Reserve Bank in support of borrowings made by such Bank from such
Federal Reserve Bank.
(c) Notwithstanding any other provisions of this Section
11.04, no transfer or assignment of the interests or obligations of any Bank
hereunder or any grant of participations therein shall be permitted if such
transfer, assignment or grant would require the Borrower to file a registration
statement with the SEC or to qualify the Loans under the "Blue Sky" laws of any
State.
(d) Each Bank initially party to this Agreement hereby
represents, and each Person that becomes a Bank pursuant to an assignment
permitted by clause (b) above will upon its becoming party to this Agreement
represent, that it is a commercial lender, other financial institution or other
"accredited investor" (as defined in SEC Regulation D) which makes loans in the
ordinary course of its business or is acquiring the Loans without a view to
distribution of the Loans within the meaning of the federal securities laws, and
that it will make or acquire Loans for its own account in the ordinary course of
such business, PROVIDED that, subject to the preceding clauses (a) through (c),
the disposition of any promissory notes or other evidences of or interests in
Indebtedness held by such Bank shall at all times be within its exclusive
control.
76
11.05 NO WAIVER; REMEDIES CUMULATIVE. No failure or delay on
the part of the Administrative Agent or any Bank in exercising any right, power
or privilege hereunder or under any other Credit Document and no course of
dealing between the Borrower and the Administrative Agent or any Bank shall
operate as a waiver thereof nor shall any single or partial exercise of any
right, power or privilege hereunder or under any other Credit Document preclude
any other or further exercise thereof or the exercise of any other right, power
or privilege hereunder or thereunder. The rights and remedies herein expressly
provided are cumulative and not exclusive of any rights or remedies which the
Administrative Agent or any Bank would otherwise have. No notice to or demand on
the Borrower in any case shall entitle the Borrower to any other or further
notice or demand in similar or other circumstances or constitute a waiver of the
rights of the Administrative Agent or the Banks to any other or further action
in any circumstances without notice or demand.
11.06 PAYMENTS PRO RATA (a) The Administrative Agent agrees
that promptly after its receipt of each payment from or on behalf of the
Borrower in respect of any Obligations of the Borrower, it shall distribute such
payment to the Banks (other than any Bank that has consented in writing to waive
its PRO RATA share of such payment) PRO RATA based upon their respective shares,
if any, of the Obligations with respect to which such payment was received.
(b) Each of the Banks agrees that, if it should receive any
amount hereunder (whether by voluntary payment, by realization upon security, by
the exercise of the right of setoff or banker's lien, by counterclaim or cross
action, by the enforcement of any right under the Credit Documents, or
otherwise) which is applicable to the payment of the principal of or interest
on, the Loans or Fees, of a sum which with respect to the related sum or sums
received by other Banks is in a greater proportion than the total of such
Obligation then owed and due to such Bank bears to the total of such Obligation
then owed and due to all of the Banks immediately prior to such receipt, then
such Bank receiving such excess payment shall purchase for cash without recourse
or warranty from the other Banks an interest in the Obligations of the Borrower
to such Banks in such amount as shall result in a proportional participation by
all of the Banks in such amount, provided that if all or any portion of such
excess amount is thereafter recovered from such Bank, such purchase shall be
rescinded and the purchase price restored to the extent of such recovery, but
without interest.
(c) Notwithstanding anything to the contrary contained
herein, the provisions of the preceding Sections 11.06(a) and (b) shall be
subject to the express provisions of this Agreement which require, or permit,
differing payments to be made to Non-Defaulting Banks as opposed to Defaulting
Banks.
11.07 CALCULATIONS; COMPUTATIONS. (a) The financial
statements to be furnished to the Banks pursuant hereto shall be made and
prepared in accordance with GAAP or SAP, as the case may be, consistently
applied throughout the periods involved (except as set forth in the notes
thereto or as otherwise disclosed in writing by the Borrower to the Banks) In
addition, except as otherwise specifically provided herein, all computations
determining compliance with Section 7, including definitions used therein, shall
utilize accounting principles and policies in effect from time to time; PROVIDED
that (i) if any such accounting principle or policy (whether GAAP or SAP or
both) shall change after the Effective Date, the Borrower shall give reasonable
notice thereof to
77
the Administrative Agent and each of the Banks and if within 30 days following
such notice the Borrower, the Administrative Agent or the Required Banks shall
elect by giving written notice of such election to the other parties hereto,
such computations shall not give effect to such change unless and until this
Agreement shall be amended pursuant to Section 11.12 to give effect to such
change, and (ii) if at any time the computations determining compliance with
Section 7 utilize accounting principles different from those utilized in the
financial statements then being furnished to the Banks pursuant to Section 6.01,
such financial statements shall be accompanied by reconciliation work-sheets.
(b) All computations of interest on Eurodollar Loans and Fees
hereunder shall be made on the actual number of days elapsed over a year of 360
days.
(c) All computations of interest on Base Rate Loans hereunder
shall be made on the actual number of days elapsed over a year of 365/366 days.
11.08 GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE. (a)
THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF
THE PARTIES HEREUNDER AND THEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND
BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK. ANY LEGAL ACTION OR PROCEEDING
WITH RESPECT TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT MAY BE BROUGHT IN
THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES FOR THE SOUTHERN
DISTRICT OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, THE
BORROWER HEREBY IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY,
GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. THE
BORROWER HEREBY FURTHER IRREVOCABLY WAIVES ANY CLAIM THAT ANY SUCH COURTS LACK
JURISDICTION OVER THE BORROWER, AND AGREES NOT TO PLEAD OR CLAIM, IN ANY LEGAL
ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT
BROUGHT IN ANY OF THE AFORESAiD COURTS, THAT ANY SUCH COURT LACKS JURISDICTION
OVER THE BORROWER THE BORROWER FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF
PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING
BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE
PREPAID, TO THE BORROWER AT ITS ADDRESS FOR NOTICES PURSUANT TO SECTION 11.03,
SUCH SERVICE TO BECOME EFFECTIVE 30 DAYS AFTER SUCH MAILING. THE BORROWER HEREBY
IRREVOCABLY WAIVES ANY OBJECTION TO SUCH SERVICE OF PROCESS AND FURTHER
IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY ACTION OR PROCEEDING
HEREUNDER OR UNDER ANY OTHER CREDIT DOCUMENT THAT SERVICE OF PROCESS WAS IN ANY
WAY INVALID OR INEFFECTIVE. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE
ADMINISTRATIVE AGENT OR ANY BANK TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED
BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE
BORROWER IN ANY OTHER JURISDICTION.
78
(b) THE BORROWER HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH
IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE AFORESAID
ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR
ANY OTHER CREDIT DOCUMENT BROUGHT IN THE COURTS REFERRED TO IN CLAUSE (A) ABOVE
AND HEREBY FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY
SUCH COURT THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN
BROUGHT IN AN INCONVENIENT FORUM.
11.09 COUNTERPARTS. This Agreement may be executed in any
number of counterparts and by the different parties hereto on separate
counterparts, each of which when so executed and delivered shall be an original,
but all of which shall together constitute one and the same instrument. A set of
counterparts executed by all the parties hereto shall be lodged with the
Borrower and the Administrative Agent.
11.10 EFFECTIVENESS. This Agreement shall become effective on
the date (the "Effective Date") on which the Borrower and each of the Banks
shall have signed a copy hereof (whether the same or different copies) and shall
have delivered the same to the Administrative Agent at the Administrative Agents
Notice Office or, in the case of the Banks, shall have given to the
Administrative Agent telephonic (confirmed in writing), written, telex or
telecopy notice (actually received) at such office that the same has been signed
and mailed to it The Administrative Agent will give the Borrower and each Bank
prompt written notice of the occurrence of the Effective Date.
11.11 HEADINGS DESCRIPTIVE. The headings of the several
sections and subsections of this Agreement are inserted for convenience only and
shall not in any way affect the meaning or construction of any provision of this
Agreement.
11.12 AMENDMENT OR WAIVER. Neither this Agreement nor any
other Credit Document nor any terms hereof or thereof may be changed, waived,
discharged or terminated unless such change, waiver, discharge or termination is
in writing signed by the respective Credit Parties thereto and the Required
Banks, provided that no such change, waiver, discharge or termination shall,
without the consent of each Bank affected thereby (other than a Defaulting
Bank), (i) extend any Scheduled Repayment or the scheduled final maturity of any
Loan or Note (it being understood that any waiver of the application of any
prepayment or the method of application of any prepayment to the amortization of
the Loans shall not constitute an extension of any Scheduled Repayment or the
scheduled final maturity thereof), or reduce the rate or extend the time of
payment of interest thereon or Fees or reduce the principal amount thereof, (ii)
increase the Commitments of any Bank over the amount thereof then in effect (it
being understood that a waiver of any Default or Event of Default or of a
mandatory reduction in the Total Commitment or mandatory repayment or prepayment
shall not constitute a change in the terms of any Commitment of any Bank), (iii)
release all or any material portion of the Collateral (except as expressly
provided in the Credit Documents), (iv) amend, modify or waive any provision of
this Section 11.12, (v) reduce any percentage specified in, or otherwise modify,
the definition of Required Banks or (vi) consent to the assignment or transfer
by the Borrower of any of its rights and obligations under this Agreement. No
provision of Section 10 or any other
79
provision relating to the rights and/or obligations of the Administrative Agent
may be amended without the consent of the Administrative Agent.
11. 13 SURVIVAL. All indemnities set forth herein including,
without limitation, in Section 1.10, 1.11, 3.04, 10.07 or 11.01 shall survive
the execution and delivery of this Agreement and the making of the Loans, the
repayment of the Obligations and the termination of the Total Commitment.
11.14 DOMICILE OF LOANS. Subject to Section 11.04, each Bank
may transfer and carry its Loans at, to or for the account of any branch office,
subsidiary or affiliate of such Bank, PROVIDED that the Borrower shall not be
responsible for costs arising under Section 1.10 or 3.04 resulting from any such
transfer to the extent not otherwise applicable to such Bank prior to such
transfer.
11.15 CONFIDENTIALITY. Each Bank shall hold all non-public
information furnished by or on behalf of the Borrower in connection with such
Bank's evaluation of whether to become a Bank hereunder or obtained by such Bank
pursuant to the requirements of this Agreement ("Confidential Information") in
accordance with its customary procedure for handling confidential information of
this nature and in accordance with safe and sound banking or lending practices;
PROVIDED that any Bank and/or its affiliates may disclose any such Confidential
Information (a) to their respective affiliates, directors, officers, employees,
auditors or counsel for purposes related to the Transaction, PROVIDED that the
Bank disclosing such confidential information pursuant to this clause (a) shall
remain liable for any non-permitted disclosure of such information by any such
employee, director, agent, attorney, accountant or professional advisor, (b) as
has become generally available to the public other than as a result of
disclosure in violation of this Section 11.15, (c) as has become available to
such Bank or any such affiliate on a non-confidential basis from a source other
than the Borrower and its affiliates, provided that the source is not known by
such Bank to be prohibited from transmitting such information to such Bank by a
contractual, legal or fiduciary obligation, (d) as may be required or
appropriate in any report, statement or testimony submitted to any municipal,
state or Federal regulatory body having or claiming to have jurisdiction over
such Bank and/or its affiliates, (e) as may be required or appropriate in
respect to any summons or subpoena or in connection with any litigation or other
judicial process (it being understood that, to the extent reasonably practicable
under the circumstances, the Borrower shall be given prior notice and an
opportunity to contest any proposed disclosure pursuant to this clause (e)), (f)
in order to comply with any law, order, regulation or ruling applicable to such
Bank and/or its affiliates, and (g) to any permitted prospective or actual
syndicate member or participant in the Loans, provided that such prospective or
actual syndicate member or participant agrees with the respective assigning Bank
to be bound by the provisions of this Section 11.15. The provisions of this
Section 11.15 shall survive any termination of this Agreement
11.16 WAIVER OF JURY TRIAL. EACH OF THE PARTIES TO THIS
AGREEMENT HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE
CREDIT DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
80
IN WITNESS WHEREOF, each of the parties hereto has caused a
counterpart of this Agreement to be duly executed and delivered as of the date
first above written.
Address:
--------
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇,
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇ ▇▇▇▇▇
CERES GROUP, INC.,
By /s/ ▇▇▇ ▇▇▇▇▇
----------------------------------------
Title: Executive Vice President
THE CHASE MANHATTAN BANK,
Individually and as Administrative Agent
By /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
----------------------------------------
Title: Vice President
DRESDNER BANK AG NEW YORK BRANCH
AND GRAND CAYMAN BRANCH,
Individually and as Administrative Agent
By /s/ ▇▇▇▇▇ ▇▇▇▇▇
----------------------------------------
Title: Associate
By /s/ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
-----------------------------------------
Title: Vice President
KEYBANK NATIONAL ASSOCIATION
By /s/ ▇▇▇▇▇ ▇▇▇▇▇
-----------------------------------------
Title: Senior Vice President
81
FIRSTAR BANK MILWAUKEE, N.A.
By /s/ ▇▇▇▇ ▇▇▇▇▇▇
-----------------------------------------
Title: Vice President
BANKBOSTON, NA.
By /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
-----------------------------------------
Title: Managing Director
82
ANNEX I
-------
LIST OF BANKS AND COMMITMENTS
-----------------------------
Bank Term Loan Commitment Revolving Loan Commitment
---- -------------------- -------------------------
Chase Manhattan Bank $12,000,000 $3,000,000
KeyBank $4,000,000 $1,000,000
Dresdner Bank AG, $12,000,000 $3,000,000
New York Branch and
Grand Cayman Branch
Firstar Bank Milwaukee, N.A. $4,000,000 $1,000,000
BankBoston, N.A. $8,000,000 $2,000,000
Total $40,000,000 $10,000,000
=========== ===========
83
ANNEX II
--------
BANK ADDRESSES
--------------
Chase Manhattan Bank ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Telecopier: ▇▇▇-▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇
KeyBank, N.A. Mailcode: OH-01-27-0606
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Telecopier: ▇▇▇-▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Dresdner Bank AG, New York Branch and Grand ▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Telecopier: ▇▇▇-▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇
Firstar Bank Milwaukee, NA. ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇.▇. ▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Telecopier: ▇▇▇-▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇
BankBoston, N.A. ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Telecopier: ▇▇▇-▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
84
ANNEX III
LIST OF INDEBTEDNESS
--------------------
Mortgage Note payable to The Union Labor Life Insurance Company dated December
18, 1990 in the original principal amount of $9,000,000. The mortgage note is
due January 1, 2001 and pays an annual rate of interest of 9.5% amortized over a
thirty (30) year schedule.
85
ANNEX IV
EMPLOYEE BENEFIT PLANS
----------------------
Central Reserve Life Insurance Company employee severance plan
Central Reserve Life Insurance Company 401(K) plan
Central Reserve Life Insurance Company employee stock bonus plan
86
ANNEX V
SUBSIDIARIES
------------
-------------------------------------------------- ----------------------------------------------------
Entity Owner/Percentage
-------------------------------------------------- ----------------------------------------------------
-------------------------------------------------- ----------------------------------------------------
Central Reserve Life Insurance Ceres Group, Inc. / 100%
Company, an Ohio corporation
-------------------------------------------------- ----------------------------------------------------
CRL Asset Management Corporation, Ceres Group, Inc. / 100%
an Ohio corporation
-------------------------------------------------- ----------------------------------------------------
Western Reserve Administrative Ceres Group, Inc. / 100%
Services, Inc., an Ohio corporation
-------------------------------------------------- ----------------------------------------------------
Ceres Savers Plan, Inc., a Delaware Ceres Group, Inc. / 100%
corporation
-------------------------------------------------- ----------------------------------------------------
Ceres Net, Inc., a Delaware corporation Ceres Group, Inc. / 100%
-------------------------------------------------- ----------------------------------------------------
Ceres Health Care, Inc., a Delaware Ceres Group, Inc. / 100%
corporation
-------------------------------------------------- ----------------------------------------------------
Ceres Administrators, L.L.C., a Ceres Group, Inc. / 100%
Delaware limited liability company
-------------------------------------------------- ----------------------------------------------------
CRLTX Administrators Service Corp.. Central Reserve Life Insurance Company / 100%
a Texas corporation
-------------------------------------------------- ----------------------------------------------------
Provident American Health Insurance Central Reserve Life Insurance Company / 100%
a Pennsylvania corporation
-------------------------------------------------- ----------------------------------------------------
Continental General Corporation, a Ceres Group, Inc. / 100%
Nebraska corporation
-------------------------------------------------- ----------------------------------------------------
Continental General Insurance Continental General Corporation / 100%
Company, a Nebraska corporation
-------------------------------------------------- ----------------------------------------------------
Continental Agency Services, Inc., a Continental General Corporation / 100%
Nebraska corporation
-------------------------------------------------- ----------------------------------------------------
Continental Print & Photo Co., a Nebraska Continental General Corporation / 100%
corporation
-------------------------------------------------- ----------------------------------------------------
87
ANNEX VI
COLLECTIVE BARGAINING AGREEMENTS
--------------------------------
None
88
ANNEX VII
EXISTING LIENS
--------------
None
89
ANNEX VIII
EXISTING INVESTMENTS
--------------------
None, other than those set forth in the SAP financial statements of Continental
General Insurance Company and Central Reserve Life Insurance Company.
90
ANNEX IX
CAPITALIZATION
--------------
Ceres Group, Inc.
-----------------
1,000,000 warrants at $6 per share exercise price. Warrant dated
December 17, 1997 exercisable for 1,000,000 shares of common stock
(subject to adjustments) of Ceres Group, Inc.
3,650,000 warrants at $5.50 per share exercise price. Warrant dated
July 1, 1998 exercisable for 3,650,000 shares of common stock (subject
to adjustments) of Ceres Group, Inc.
Stock options issued to employees, officers and directors
Continental General Corporation
-------------------------------
None
91
ANNEX X
NON-INSURANCE SUBSIDIARIES
--------------------------
Ceres Savers Plan, Inc., a Delaware corporation
Ceres Net, Inc., a Delaware corporation
Ceres Health Care, Inc., a Delaware corporation
CRLTX Administrators Service Corp., a Texas corporation
Continental Agency Services, Inc., a Nebraska corporation
Continental Print & Photo Co., a Nebraska corporation
92
ANNEX XI
PERMITTED AFFILIATE TRANSACTIONS
--------------------------------
None
93
EXHIBIT A
---------
FORM OF NOTICE OF BORROWING
[Date]
The Chase Manhattan Bank,
as Administrative Agent for the Banks
party to the Credit Agreement referred
to below
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Ladies and Gentlemen:
The undersigned, CERES GROUP, INC., a Delaware corporation
(the "Borrower"), refers to the Credit Agreement, dated as of February 17, 1999
(as amended, modified or supplemented from time to time, the "Credit Agreement,"
the terms defined therein being used herein as therein defined), among the
undersigned, certain Banks from time to time party thereto, and you, as
Administrative Agent for such Banks, and hereby gives you notice, irrevocably
pursuant to Section 103(a) of the Credit Agreement, that the undersigned hereby
requests a Borrowing under the Credit Agreement, and in that connection sets
forth below the information relating to such Borrowing (the "Proposed
Borrowing") as required by Section 1.03(a) of the Credit Agreement.
(i) The Business Day of the Proposed Borrowing is _________,
_______.1/
(ii) The aggregate principal amount of the Proposed Borrowing
is $______
(iii) The Proposed Borrowing is to consist of [Base Rate
Loans] [Eurodollar Loans].
__________________
1/ Shall be a Business Day at least one Business Day in the case of Base Rate
Loans and three Business Days in the case of Eurodollar Loans, in each case,
after the date hereof.
94
Exhibit A
Page 2
[(iv) The initial Interest Period for the Proposed Borrowing is [one]
[two] [three] [six] month(s).]2/
The undersigned hereby certifies that the following statements are true
on the date hereof, and will be true on the date of the Proposed Borrowing:
(A) the representations and warranties contained in the Credit
Agreement or in the other Credit Documents are and will be true and
correct in all material respects, both before and after giving effect
to the Proposed Borrowing and to the application of the proceeds
thereof as though made on and as of such date, unless stated to relate
to a specific earlier date, in which case such representations and
warranties shall be true and correct in all material respects as of
such earlier date; and
(B) no Default or Event of Default has occurred and is
continuing, or would result from such Proposed Borrowing or from the
application of the proceeds thereof.
Very truly yours,
CERES GROUP, INC.,
By___________________________
Title:
_____________________
2/ To be included for a Proposed Borrowing of Eurodollar Loans.
95
EXHIBIT B-1
-----------
FORM OF TERM NOTE
-----------------
$_________________ New York, New York
___________, 1999
FOR VALUE RECEIVED, CERES GROUP, INC., a Delaware corporation
(the "Borrower"), hereby promises to pay to the order of _________________
__________________________ or its registered assigns (the "Bank"), in lawful
money of the United States of America in immediately available funds, at the
Administrative Agent's Payment Office (as defined in the Credit Agreement
referred to below) initially located at ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇
▇▇▇▇▇, on the Maturity Date (as defined in the Credit Agreement referred to
below) the principal sum of ________________ DOLLARS ($) or, if less, the then
unpaid principal amount of all Term Loans (as defined in the Credit Agreement)
made by the Bank pursuant to the Credit Agreement.
The Borrower also promises to pay interest on the unpaid
principal amount hereof in like money at said office from the date hereof until
paid at the rates and at the times provided in Section 1.08 of the Credit
Agreement.
This Note is one of the Term Notes referred to in the Credit
Agreement, dated as of February 17, 1999, among the undersigned, as Borrower,
the financial institutions from time to time party thereto (including the Bank),
and The Chase Manhattan Bank as Administrative Agent, (as amended, modified or
supplemented from time to time, the "Credit Agreement") and is entitled to the
benefits thereof and of the other Credit Documents (as defined in the Credit
Agreement). This Note is secured by and entitled to the benefits of the Pledge
Agreement (as defined in the Credit Agreement). As provided in the Credit
Agreement, this Note is subject to voluntary prepayment and mandatory repayment,
in whole or in part.
In case an Event of Default (as defined in the Credit
Agreement) shall occur and be continuing, the principal of and accrued interest
on this Note may become or be declared to be due and payable in the manner and
with the effect provided in the Credit Agreement.
The Borrower hereby waives presentment, demand, protest or
notice of any kind in connection with this Note.
THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE
GOVERNED BY THE LAW OF THE STATE OF NEW YORK.
CERES GROUP, INC.
By_________________________________
Name:
Title:
96
EXHIBIT B-2
-----------
FORM OF REVOLVING NOTE
----------------------
$_________________ New York, New York
____________, 1999
FOR VALUE RECEIVED, CERES GROUP, INC., a Delaware corporation
(the "Borrower"), hereby promises to pay to the order of _______________________
______________________________ or its registered assigns (the "Bank"), in lawful
money of the United States of America in immediately available funds, at the
Administrative Agent's Payment Office (as defined in the Credit Agreement
referred to below) initially located at ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇
▇▇▇▇▇, on the Maturity Date (as defined in the Credit Agreement referred to
below) the principal sum of ________________ DOLLARS ($______) or, if less,
the then unpaid principal amount of all Revolving Loans (as defined in the
Credit Agreement) made by the Bank pursuant to the Credit Agreement.
The Borrower also promises to pay interest on the unpaid
principal amount hereof in like money at said office from the date hereof until
paid at the rates and at the times provided in Section 1.08 of the Agreement
This Note is one of the Revolving Notes referred to in the
Credit Agreement, dated as of February 17, 1999, among the undersigned, as
Borrower, the financial institutions from time to time party thereto (including
the Bank), and The Chase Manhattan Bank, as Administrative Agent (as amended,
modified or supplemented from time to time, the "Credit Agreement") and is
entitled to the benefits thereof and of the other Credit Documents (as defined
in the Credit Agreement). This Note is secured by and entitled to the benefits
of the Pledge Agreement (as defined in the Credit Agreement). As provided in the
Credit Agreement, this Note is subject to voluntary prepayment and mandatory
repayment, in whole or in part.
In case an Event of Default (as defined in the Credit
Agreement) shall occur and be continuing, the principal of and accrued interest
on this Note may become or be declared to be due and payable in the manner and
with the effect provided in the Credit Agreement.
The Borrower hereby waives presentment, demand, protest or
notice of any kind in connection with this Note.
THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE
GOVERNED BY THE LAW OF THE STATE OF NEW YORK.
CERES GROUP, INC.,
By________________________
Name:
Title
97
EXHIBIT C-1
-----------
[CERES GROUP, INC. LETTERHEAD]
February 17, 1999
[CERES GROUP, INC. LOGO]
The Chase Manhattan Bank,
as Administrative Agent
for each of the Banks party
to the Credit Agreement referred
to below and to each Bank party
to such Credit Agreement
Ladies and Gentlemen:
I have served as Associate General Counsel to Ceres Group, Inc., a Delaware
corporation (the "Borrower"), in connection with the negotiation, execution and
delivery of the Credit Agreement, the other Loan Documents and the Transaction
Documents (each as hereinafter defined). This opinion is being delivered to you
at the request of the Borrower pursuant to Section 4.04 of the Credit
Agreement. Capitalized terms used herein and not otherwise defined herein, shall
have the same meanings herein as ascribed them in the Credit Agreement.
In my examination, I have assumed the genuineness of all signatures (except as
to the Borrower), including endorsements, the legal capacity of natural persons,
the authenticity of all documents submitted to me as originals, the conformity
to original documents of all documents submitted to me as certified or
photostatic copies, and the authenticity of the originals of such copies. As to
any facts material to this opinion which I did not independently establish or
verify, I have relied upon certificates, statements and representations of the
Borrower (including, without limitation, representations contained in the Loan
Documents and the Transaction Documents) and its officers and other
representatives and of public officials.
In rendering the opinions set forth herein, I have examined and relied on
originals or copies of the following:
(a) the Credit Agreement, dated as of the date hereof (the
"Credit Agreement"), among the Borrower, the financial
institutions party thereto (the "Banks"), and The Chase
Manhattan Bank, as Administrative Agent and Collateral Agent
for the Banks;
▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ Bank
February 17, 1999
Page 2
(b) the Term Notes of the Borrower, each dated the date hereof;
(c) the Revolving Notes of the Borrower, each dated the date
hereof;
(d) the Pledge Agreement, dated as of the date hereof, between
the Borrower and the Collateral Agent (the "Pledge
Agreement");
(e) the Acquisition Documents;
(f) the Subscription Agreements, as amended, related to the
Investment;
(g) the documents and instruments governing the Reinsurance
Transaction;
(h) the documents and instruments governing the RCH Bridge Loan;
(i) certified copies of (i) the Certificate of Incorporation
and By--Laws off the Borrower (the "Basic Documents"), and
(ii) resolutions adopted on February 8, 1999, by the Board of
Directors of the Borrower;
(j) certificate from public officials in the State of Ohio,
dated as of a recent date attesting to the existence of the
Borrower in such state;
(k) copies of those indentures, loan or credit agreements,
leases, guarantees, mortgages, security agreements, bonds,
notes and other agreements or instruments, and orders, writs,
judgments, awards, injunctions and decrees, which have been
certified by the Secretary of the Borrower as those
documents which affect or purport to affect the Borrower's
right to borrow money or to undertake and perform its
obligations under the Loan Documents and the Transaction
Documents (collectively, the "Other Agreements and Court
Orders").
(l) such other documents as we have deemed necessary or
appropriate as a basis for the opinions set forth below.
▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ Bank
February 17, 1999
Page 3
The documents set forth in clauses (a)-(d) shall hereinafter be referred to
collectively as the "Loan Documents" and the documents set forth in clauses
(e)-(h) shall be hereinafter referred to collectively as the "Transaction
Documents".
I am admitted to the bar in the State of Ohio. I express no opinion as to the
laws of any jurisdiction other than (i) the laws of the State of Ohio (excluding
any and all state securities or "blue-sky" laws, rules or regulations); and
(ii) the federal laws of the United States to the extent specifically referred
to herein (excluding any and all securities laws, rules or regulations)
My opinions are also subject to the following:
(a) I have assumed, with your permission and without any
independent investigation, that:
(i) Each of the Loan Documents constitutes valid and
binding obligation of each party to the Loan
Documents (other than the Borrower) enforceable
against such parties in accordance with their terms;
(ii) The Borrower (1) is a corporation validly existing
and in good standing under the laws of the State of
Delaware, (2) has the requisite corporate power and
authority to own its property and assets and to carry
on its business as now being conducted, and (3) is
qualified to do business as a foreign corporation in
the State of Ohio;
(iii) The execution and delivery by the Borrower of each of
the Loan Documents and the performance by the
Borrower of its obligations under each of such Loan
Documents do not violate any federal or New York law
or conflict with the Basic Documents.
(b) in rendering our opinions expressed below, I express no
opinion as to:
▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ Bank
February 17, 1999
Page 4
(i) the effect on the opinions herein stated of (1) the
compliance or non-compliance of any party (other
than the Borrower) to the Transaction Documents with
any state or federal laws or regulations applicable
to them, or (2) the legal or regulatory status or the
nature of the business of any party (including the
Borrower) other than any applicable Ohio insurance
laws, rules or regulations.
(ii) the applicability or effect of any fraudulent
transfer or similar law on the Transaction Documents
or any transactions contemplated thereby.
(iii) the agreements of the Borrower in the Transaction
Documents for payment or reimbursement of costs, fees
and expenses or indemnification for claims, losses or
liabilities to the extent any such provision may be
determined by a court or other tribunal to be in an
unreasonable amount, to constitute a penalty or to be
contrary to public policy;
(iv) the ordinances and statutes, the administrative
decisions and orders and rules and regulations of any
municipality, county or special district or other
political subdivision of the State of Ohio.
Based upon the foregoing and subject to the limitations, qualifications,
exceptions and assumptions set forth herein, we are of the opinion that:
1) Each of Central Reserve Life Insurance Company and Continental
General Insurance Company (a) is a corporation validly
existing and in good standing under the laws of the State of
Ohio and Nebraska, respectively, and (b) has the requisite
corporate power and authority to own its property and to carry
on its business as now being conducted. Each of Central
Reserve Life Insurance Company and, based upon the opinion of
▇▇▇▇▇▇, ▇▇▇▇▇ & ▇▇▇▇▇▇, Continental General Insurance Company
possesses the insurance licenses required to operate its
business.
▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ Bank
February 17, 1999
Page 5
2) The Borrower has the corporate power and authority to execute
and deliver each of the Transaction Documents and to perform
its obligations thereunder and has taken all necessary
corporate action to authorize the execution and delivery by it
of each such Transaction Document and the performance of its
obligations thereunder.
3) The Borrower has duly executed and delivered each of the
Transaction Documents, and each such Transaction Document
constitutes the valid and binding obligation of the Borrower
enforceable against it in accordance with their respective
terms, subject to the following qualifications: (a)
enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, or other laws of
general application relating to or affecting enforcement of
creditors' rights and equitable principles, and (b) I express
no opinion as to the enforceability of any rights to
contribution or indemnification provided for in the Loan
Documents.
4) The execution, delivery and performance by the Borrower of the
Loan Documents and the Transaction Documents, and compliance
by the Borrower with the terms and provisions thereof, will
not (i) violate any provision of federal or Ohio law, statute,
rule or regulation applicable to the Borrower, (ii) result in
any breach of, or constitute a default under, any of the Other
Agreements and Court Orders, or (iii) result in the creation
or imposition of (or the obligation to create or impose) any
Lien, other than Liens permitted under the Loan Documents,
upon any of the property or assets of the Borrower pursuant
to the terms of any of the Other Agreements and Court Orders,
or (iv) with respect to the Transaction Documents, contravene
with the Basic Documents.
5) No order, consent, approval, license, authorization or
validation of, or filing, recording or registration with or
exemption by, any governmental or public body or authority, or
any subdivision thereof, (except (i) as have been obtained or
made prior to the date hereof, or (ii) with respect to filing
or recording of the financing statements with respect to the
Loans as are contemplated in the Credit Agreement to be made
promptly thereafter, or (iii) as may be required to be
▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ Bank
February 17, 1999
Page 6
made or obtained by you as a result of your involvement in the
transactions contemplated by the Loan Documents), is required
to authorize, or is required in connection with, the execution
and delivery of any Loan Document or Transaction Document by
the Borrower and the performance by the Borrower of its
obligations thereunder that are required to be performed on or
before the date hereof with respect to the transaction
evidenced thereby.
6) There are no actions or proceedings pending or overtly
threatened in writing against the Borrower or any of its
Subsidiaries before any court, governmental agency or
arbitrator which could (i) affect the validity, binding effect
or enforceability of any of the Loan Documents or the
Transaction Documents, or (ii) have a Material Adverse Effect.
7) The Borrower is the record owner of all of the capital stock
of each of the Subsidiaries of the Borrower set forth on Annex
V of the Credit Agreement. All such capital stock has been
duly authorized and issued, is fully paid and non-assessable.
8) We have examined the financing statement (the "Financing
Statement") to be filed with the Secretary of State of Ohio
(the "Filing Office") with respect to the security interests
granted to the Collateral Agent pursuant to the Pledge
Agreement, and upon the filing of such Financing Statement in
the Filing Office, and assuming that the representations made
in the Loan Documents with respect to the location of the
Collateral in which a security interest can be granted under
the UCC and the chief executive office of the Borrower are and
remain true and correct: (a) all filings, registrations and
recordings necessary to perfect the security interest granted
to the Collateral Agent under the Pledge Agreement in respect
of all Collateral in which a security interest may be
perfected by filing financing statements will have been
accomplished; and (b) the security interests granted to the
Collateral Agent pursuant to the Pledge Agreement in and to
such Collateral will be perfected to the extent that such
security interests may be perfected by filing financing
statements under the UCC.
103
The Chase Manhattan Bank
February 17, 1999
Page 7
Whenever my opinion with respect to the existence or absence of facts is
indicated to be based on our knowledge or awareness, I am referring solely to my
actual knowledge in connection with the Loan Documents and the Transaction
Documents. Except as expressly set forth herein, I have not undertaken any
independent investigation to determine the existence or absence of such facts,
and no inference as to my knowledge concerning such facts should be drawn from
the fact that such representation has been undertaken by me.
This opinion is being furnished only to you and other Banks that are or may
become party to the Credit Agreement in accordance with its terms, and is solely
for the benefit of such Persons, and is not to be read, circulated, quoted,
relied upon or otherwise referred to for any purpose by any other Person without
my prior written consent.
Very truly yours,
/s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇.
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇.
Associate General Counsel
JFN/ss
104
EXHIBIT C-2
-----------
[▇▇▇▇▇▇▇▇▇, WILL & ▇▇▇▇▇ LETTERHEAD]
▇▇▇▇▇▇▇▇▇, WILL & ▇▇▇▇▇
February 17, 1999
The Chase Manhattan Bank,
as Administrative Agent
for each of the Banks party
to the Credit Agreement referred
to below and to each Bank party
to such Credit Agreement
Ladies and Gentlemen:
We have served as special New York counsel to Ceres Group, Inc., a
Delaware corporation (the "Borrower"), in connection with the negotiation,
execution and delivery of the Credit Agreement and the other Loan Documents
(each as hereinafter defined). This opinion is being delivered to you at the
request of the Borrower pursuant to Section 4.04 of the Credit Agreement. As
used herein, the term "UCC" means the Uniform Commercial Code as in effect in
the State of New York on the date hereof. Capitalized terms used herein and not
otherwise defined herein, shall have the same meanings herein as ascribed them
in the Credit Agreement.
In our examination we have assumed the genuineness of all signatures
(except as to the Borrower) including endorsements, the legal capacity of
natural persons, the authenticity of all documents submitted to us as originals,
the conformity to original documents of all documents submitted to us as
certified or photostatic copies, and the authenticity of the originals of such
copies. As to any facts material to this opinion which we did not independently
establish or verify, we have relied upon certificates, statements and
representations of the Borrower (including, without limitation, representations
contained in the Loan Documents) and its officers and other representatives and
of public officials.
In rendering the opinions set forth herein, we have solely examined
and relied on originals or copies of the following:
(a) the Credit Agreement, dated as of the date hereof (the "Credit
Agreement"), among the Borrower, the financial institutions
party thereto (the "Banks"), and The Chase Manhattan Bank, as
Administrative Agent and Collateral Agent for the Banks;
(b) the Term Notes of the Borrower, each dated the date hereof;
▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ Bank
February 17, 1999
Page 2
(c) the Revolving Notes of the Borrower, each dated the date
hereof;
(d) the Pledge Agreement, dated as of the date hereof, between the
Borrower and the Collateral Agent (the "Pledge Agreement");
(e) certified copies of (i) the certificate of incorporation and
by-laws of the Borrower (the "Basic Documents"), and (ii)
resolutions adopted on February 8, 1999, by the Board of
Directors of the Borrower;
(f) certificate from public officials in the state of Ohio dated
as of a recent date attesting to the existence of the Borrower
in such state; and
(g) such other documents as we have deemed necessary or
appropriate as a basis for the opinions set forth below.
The documents set forth in clauses (a)-(d) shall hereinafter be
referred to collectively as the "Loan Documents."
We are admitted to the bar in the State of New York. We express no
opinion as to the laws of any jurisdiction other than (i) the laws of the State
of New York (excluding any and all state insurance, securities or "blue-sky"
laws, rules or regulations); (ii) the Delaware General Corporations Law; and
(iii) the federal laws of the United States to the extent specifically referred
to herein (excluding any and all securities laws, rules or regulations).
Our opinions are also subject to the following:
(a) we have assumed, with your permission and without any independent
investigation that:
(i) each of the Loan Documents constitutes valid and binding
obligations of each party to the Loan Documents (other than the
Borrower) enforceable against such parties in accordance with their
terms;
(iv) The execution and delivery by the Borrower of each of the
Loan Documents and the performance by the Borrower of its obligations
under each of such Loan Documents do not (1) conflict with or
constitute a default under the Other Agreements and Court Orders (as
defined below), or (2) cause the creation or imposition of any Lien
under the terms of the Other Agreements and Court Orders (as defined
below), other than Liens permitted under the Loan Documents, upon any
of the property of the Borrower.
▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ Bank
February 17, 1999
Page 3
"Other Agreements and Court Orders" means, collectively, those
indentures, loan or credit agreements, leases, guarantees, mortgages,
security agreements, bonds, notes and other agreements or instruments,
and orders, writs, judgments, awards, injunctions and decrees, which
affect or purport to affect the Borrower's right to borrow money or to
undertake and perform its obligations under the Loan Documents.
(v) Each Regulated Insurance Company possesses the state
insurance licenses required to operate its business;
(b) in rendering our opinions expressed below, we express no opinion as
to:
(i) the effect on the opinions herein stated of (l) the
compliance or non-compliance of any party (other than the Borrower) to
the Loan Documents with any state or federal laws or regulations
applicable to them or (2) the legal or regulatory status or the nature
of the business of any party (including the Borrower) including,
without limitation, any applicable insurance laws, rules or
regulations.
(ii) the applicability or effect of any fraudulent transfer or
similar law on the Loan Documents or any transactions contemplated
thereby;
(iii) the agreements of the Borrower in the Loan Documents for
payment or reimbursement of costs, fees and expenses or
indemnification for claims, losses or liabilities to the extent any
such provision may be determined by a court or other tribunal to be in
an unreasonable amount, to constitute a penalty or to be contrary to
public policy;
(iv) the agreements of the Borrower in the Loan Documents to
the jurisdiction or venue of a particular court, or to the waiver of
the right to jury trial;
(v) the ordinances and statutes, the administrative decisions
and orders and rules and regulations of any municipality, county or
special district or other political subdivision of the State of New
York;
(vi) any of the waivers or remedies contained in the Pledge
Agreement, whether or not the Pledge Agreement deems any such waiver
or remedy commercially reasonable, if such waivers or remedies are
determined (1) not to be commercially reasonable within the meaning
of the uniform commercial code of any applicable jurisdiction or other
applicable law, (2) to conflict with mandatory provisions under the
uniform commercial code of any applicable jurisdiction or other
applicable law, or (3) to be taken in a manner determined to be
unreasonable or not performed in good faith or with fair dealing or
with honesty in-fact; or
▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ Bank
February 17, 1999
Page 4
(ix) certain other remedial provisions contained in the Pledge
Agreement which may be limited or rendered ineffective by applicable
laws or judicial decisions governing such provisions or holding their
enforcement to be unreasonable under the then-existing circumstances,
but such laws and judicial decisions do not, in our opinion, make the
remedies provided for in the Pledge Agreement inadequate for the
practical realization of the benefits provided thereby;
(c) Our opinions set forth in paragraphs 7 below are subject to the
following further qualifications, exclusions and assumptions:
(i) Our opinions are qualified by and subject to:
(1) in the case of proceeds, continuation of
perfection of the Collateral Agent's security interest is
limited to the extent set forth in Section 9-306 of the UCC;
(2) in the case of property which becomes collateral
after the date hereof, ▇▇▇▇▇▇▇ ▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
Bankruptcy Code (the "Bankruptcy Code") provides that a
transfer is not made until the debtor has rights in the
property transferred, so a security interest in after-acquired
property which is security for other than a contemporaneous
advance may be treated as a voidable preference under the
conditions (and subject to the exceptions) provided by Section
547;
(3) Section 552 of the Bankruptcy Code limits the
extent to which property acquired by a debtor after the
commencement of the case under the Bankruptcy Code may be
subject to a security interest arising from a security
agreement entered into by the debtor before the commencement
of such case;
(4) Section 364 of the Bankruptcy Code provides that
the extension of secured credit after the commencement of a
case under the Bankruptcy Code requires court approval;
(5) in the case of Collateral (as defined in the
Pledge Agreement), the Collateral Agent may not be entitled to
vote the Collateral or to receive dividends or other
distributions directly from the issuer thereof prior to
becoming record holder of the Collateral, nor may the
Collateral be sold or further transferred by the Collateral
Agent without registration under the Securities Act of 1933,
except pursuant to an exemption from registration
108
The Chase Manhattan Bank
February 17, 1999
Page 5
contained in such act, and qualification or exemption under
any applicable state securities or "blue sky" laws.
(ii) We express no opinion as to:
(1) the priority or, except as set forth in
paragraph 7, perfection of your security interests in or Liens
on any of the Collateral of the Borrower;
(2) the creation or perfection of any security
interest in any property excluded from the provisions of the
UCC pursuant to 9-104;
(3) the perfection of any security interest in
accounts that are an obligation of the federal government or
any agency or political subdivision thereof.
(iii) We have assumed with your permission that:
(1) the Borrower has right, title and interest in and
to the Collateral pledged by it;
(2) all items of collateral (including, without
limitation, money, shares of capital stock or additional
instruments) pledged under the Pledge Agreement, of which
possession must be obtained and retained by a secured party in
order to perfect its security interest pursuant to Section
9-103 and 9-304 of the UCC, are in your actual or constructive
possession and not in the possession of the Borrower or any of
its subsidiaries, affiliates or agents;
(3) none of the Borrower's chattel paper or
instruments contain provisions preventing the assignment
thereof;
Based upon the foregoing and subject to the limitations,
qualifications, exceptions and assumptions set forth herein, we are of the
opinion that:
1. The Borrower (a) is a corporation validly existing and in good
standing under the laws of the State of Delaware, (b) has the requisite
corporate power and authority to own its property and to carry on its business
as now being conducted, and (c) is qualified to do business as a foreign
corporation in the State of Ohio.
2. The Borrower has the corporate power and authority to execute and
deliver each of the Loan Documents and to perform its obligations thereunder and
has taken all necessary
▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ Bank
February 17, 1999
Page 6
corporate action to authorize the execution and delivery by it of each such Loan
Document and the performance of its obligations thereunder.
3. The Borrower has duly executed and delivered each of the Loan
Documents and each such Loan Document constitutes the valid and binding
obligation of the Borrower enforceable against it in accordance with their
respective terms subject to the following qualifications: (a) enforcement may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium, or
other laws of general application relating to or affecting enforcement of
creditors' rights and equitable principles, and (b) we express no opinion as to
the enforceability of any rights to contribution or indemnification provided for
in the Loan Documents.
4. The execution and delivery by the Borrower of each of the Loan
Documents and the performance by the Borrower if its obligations under such Loan
Documents do not (a) violate any federal or New York law (including, without
limitation, Regulations T, U and X of the Board of Governors of the Federal
Reserve System)(except with respect to any federal or state securities or "blue
sky" laws, as to which we express no opinion), or (b) conflict with the Basic
Documents.
5. The Pledge Agreement (the "Pledge Agreement") creates a valid
security interest in your favor as security for payment of the Obligations (as
defined in the Pledge Agreement) in the Stock (as defined in the Pledge
Agreement) in which a security interest may be granted under the UCC. Assuming
(i) the delivery to the Collateral Agent pursuant to the Pledge Agreement of the
equity interests representing the Stock along with undated stock powers duly
endorsed in blank and (ii) the continuous possession at all times hereafter by
the Collateral Agent of the Stock in good faith and without notice of any
adverse claim, the security interests created in favor of the Collateral Agent
under the Pledge Agreement with respect to such Stock constitute perfected
security interests in such Stock, subject to no other security interest therein
other than security interests, if any, that may be temporarily perfected for 21
days without possession or registration, as the case may be, pursuant to
Sections 9-304 and S-321 of the UCC.
6. The Borrower is not an "investment company" or a company
"controlled" by an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
7. The Borrower is not a "holding company", or a "subsidiary company"
of a "holding company", or an "affiliate" of a "holding company" or of a
"subsidiary company" of a "holding company" within the meaning of the Public
Utility Holding Company Act of 1935, as amended.
▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ Bank
February 17, 1999
Page 7
This opinion is being furnished only to you and other Banks
that are or may become party to the Credit Agreement in accordance with its
terms, and is solely for the benefit of such Persons, and is not to be read,
circulated, quoted, relied upon or otherwise referred to for any purpose by any
other Person without our prior written consent.
Very truly yours,
/s/ ▇▇▇▇▇▇▇▇▇, Will & ▇▇▇▇▇
MLB/JAJ
111
EXHIBIT C-3
-----------
[WHITE & CASE LETTERHEAD]
February 17, 1999
The Administrative Agent and various
lending institutions (collectively, the "Banks") party to
the Credit Agreement referred to below
re: Credit Agreement, dated as of February 17, 1999 (the
"Credit Agreement"), among Ceres Group. Inc.
(the "Borrower") and the Banks
Ladies and Gentlemen:
We have acted as special counsel to the Banks party to the
Credit Agreement in connection with the execution and delivery of the Credit
Agreement. This opinion is delivered to you pursuant to Section 4.04(ii) of the
Credit Agreement. Terms used herein which are defined in the Credit Agreement
shall have the respective meanings set forth in the Credit Agreement unless
otherwise defined herein.
In connection with this opinion, we have examined the
originals, or certified, conformed or reproduction copies, of all records,
agreements, instruments and documents as we have deemed relevant or necessary as
the basis for the opinions hereinafter expressed. In stating our opinion, we
have assumed the genuineness of all signatures on original or certified copies,
the authenticity of documents submitted to us as originals and the conformity to
original or certified copies of all copies submitted to us as certified or
reproduction copies.
We have also assumed, for purposes of the opinions expressed
herein, that the parties to the Credit Agreement have the corporate power and
authority to enter into and perform the Credit Agreement and that the Credit
Agreement has been duly authorized, executed and delivered by each such party.
Based upon the foregoing, and subject to the limitations set
forth herein, we are of the opinion that the Credit Agreement constitutes the
legal, valid and binding obligation of the Borrower enforceable in accordance
with its terms, except to the extent that enforcement may be limited by
applicable bankruptcy, insolvency, reorganization or other similar laws
affecting
112
creditors' rights generally and by equity principles (regardless of whether
enforcement is sought in equity or at law).
We have not been requested to render and, with your
permission, we express no opinion as to the applicability to the obligations of
the Borrower under the Credit Agreement of Section 548 of the Bankruptcy Code
and Article 10 of the New York Debtor & Creditor Law relating to fraudulent
transfers and obligations. We understand, without independent verification, that
the Banks have satisfied themselves on the basis of, among other things, the
financial information furnished to the Banks and their knowledge of the credit
facilities available to the Borrower that Borrower is not insolvent and that
Borrower will not be rendered insolvent by the transactions contemplated by the
Credit Agreement and that, after giving effect to such transactions, the
Borrower will not be left with unreasonably small capital with which to engage
in its anticipated business and that the Borrower will not have intended to
incur, nor will have believed it has incurred, debts beyond its ability to pay
as such debts mature.
This opinion is limited to the federal law of the United
States of America and the law of the State of New York.
Very truly yours,
/s/ White & Case
-2-
113
EXHIBIT D
---------
FORM OF OFFICERS' CERTIFICATE
-----------------------------
I, the undersigned, [President/Vice President] of Ceres Group,
Inc. a corporation organized and existing under the laws of the State of
Delaware (the "Company"), do hereby certify on behalf of the Company that:
1. This Certificate is furnished pursuant to Section 4.05 of
the Credit Agreement, dated as of February 17, 1999, among the Company, the
lenders from time to time party thereto, and The Chase Manhattan Bank, as
Administrative Agent (such Credit Agreement, as in effect on the date of this
Certificate, being herein called the "Credit Agreement"). Unless otherwise
defined herein, capitalized terms used in this Certificate shall have the
meanings set forth in the Credit Agreement.
2. The following named individuals are elected officers of the
Company, each holds the office of the Company set forth opposite his or her name
and has held such office since __________ ___, 19__.(3) The signature written
opposite the name and title of each such officer is his or her genuine
signature.
Name(4) Office Signature
------- ------ ---------
______________ ______________ ______________
______________ ______________ ______________
______________ ______________ ______________
3. Attached hereto as Exhibit A is a certified copy of the
Certificate of Incorporation of the Company, as filed in the Office of the
Secretary of State of the State of _________ on _____________ ,19____ together
with all amendments thereto adopted through the date hereof.
4. Attached hereto as Exhibit B is a true and correct copy of
the By-Laws of the Company which were duly adopted, are in full force and effect
on the date hereof, and have been in effect since _________, 19___.
___________________
3 Insert a date prior to the time of any corporate action relating to the
Credit Documents or related documentation.
4 Include name, office and signature of each officer who will sign any
Credit Document, including the officer who will sign the certification
at the end of this Certificate or related documentation.
114
Exhibit D
Page 2
5. Attached hereto as Exhibit C is a true and correct copy of
resolutions which were duly adopted on ___________, 19__ [by unanimous written
consent of the Board of Directors of the Company] [by a meeting of the Board of
Directors of the Company at which a quorum was present and acting throughout],
and said resolutions have not been rescinded, amended or modified. Except as
attached hereto as Exhibit C, no resolutions have been adopted by the Board of
Directors of the Company which deal with the execution, delivery or performance
of any of the Documents to which the Company is party.
6. On the date hereof, all of the applicable conditions set
forth in Sections 4.02, 4.06, 4.07, 4.10 and 4.14 of the Credit Agreement have
been satisfied.
7. Attached hereto as Exhibit D are true and correct copies of
all Acquisition Documents.
8. Attached hereto as Exhibit E are true and correct copies of
all Refinancing Documents.
9. Attached hereto as Exhibit F are true and correct copies of
all documents and instruments governing the Investment.
10. Attached hereto as Exhibit G are true and correct copies
of all documents and instruments governing the Reinsurance Transaction.
11. Attached hereto as Exhibit H are true and correct copies
of all RCH Bridge Loan documents.
12. Attached hereto as Exhibit I are true and correct copies
of all Plan Documents.
13. Attached hereto as Exhibit J are true and correct copies
of all Management Agreements.
14. Attached hereto as Exhibit K are true and correct copies
of all Stockholders Agreements.
15. Attached hereto as Exhibit L are true and correct copies
of all Tax Sharing Agreements.
16. Attached hereto as Exhibit M are true and correct copies
of all Shared Expenses Agreements.
17. Attached hereto as Exhibit N are true and correct copies
of all Material Contracts.
18. Attached hereto as Exhibit O are true and correct copies
of all material Reinsurance Agreements.
115
Exhibit D
Page 3
19. On the date hereof, the representations and warranties
contained in the Credit Agreement or in the other Credit Documents are true and
correct in all material respects with the same effect as though such
representations and warranties had been made on the date hereof, both before and
after giving effect to the incurrence of Loans on the date hereof and the
application of the proceeds thereof, unless stated to relate to a specific
earlier date, in which case such representations and warranties were true and
correct in all material respects as of such earlier date.
20. On the date hereof, no Default or Event of Default has
occurred and is continuing or would result from the Borrowing to occur on the
date hereof or from the application of the proceeds thereof.
21. There is no proceeding for the dissolution or liquidation
of the Company or threatening its existence.
IN WITNESS WHEREOF, I have hereunto set my hand this ____
day of 1999.
CERES GROUP, INC.,
By ________________________________
Name:
Title:
116
Exhibit D
Page 4
I, the undersigned, [Secretary/Assistant Secretary] of the Company, do hereby
certify on behalf of the Company that:
1. [Name of Person making above certifications] is the duly
elected and qualified [President/Vice President] of the Company and the
signature above is his or her genuine signature.
2. The certifications made by [name of Person making above
certifications] on behalf of the Company in Items 2, 3, 4, 5, and 21 above are
true and correct.
[N WITNESS WHEREOF, I have hereunto set my hand this ____ day
of ___, 1999.
CERES GROUP, INC.,
By _______________________
Name:
Title:
117
EXHIBIT E
---------
FORM OF SECTION 3.04(b)(ii) CERTIFICATE
---------------------------------------
Reference is hereby made to the Credit Agreement, dated as of
February 17, 1999, among CERES GROUP, INC., the financial institutions from time
to time party thereto and The Chase Manhattan Bank, as Administrative Agent (as
amended, modified or supplemented from time to time, the "Credit Agreement").
Pursuant to the provisions of Section 3.04(b)(ii) of the Credit Agreement, the
undersigned hereby certifies that it is not a "bank" as such term is used in
Section 881(c)(3)(A) of the Internal Revenue Code of 1986, as amended.
[NAME OF BANK]
By_________________________
Title:
Date: ______________ ___, 1999
118
[Conformed as Executed]
EXHIBIT F
---------
FORM OF PLEDGE AGREEMENT
------------------------
PLEDGE AGREEMENT, dated as of February 17, 1999 (as same may
be amended, amended and restated, modified or supplemented from time to time,
this "Agreement"), made by Ceres Group, Inc.(the "Pledgor"), and The Chase
Manhattan Bank, not in its individual capacity but solely as Collateral Agent
(including any successor collateral agent, the "Pledgee") for the benefit of (x)
the Banks and the Administrative Agent under, and any other lenders from time to
time party to, the Credit Agreement hereinafter referred to (such Banks, the
Administrative Agent and other lenders, if any, are hereinafter called the "Bank
Creditors") and (y) if The Chase Manhattan Bank, in its individual capacity
("Chase") and/or any Bank or any Affiliate of a Bank enters into one or more
interest rate agreements relating to the Loans (including, without limitation,
interest rate swaps, caps, floors, collars and similar agreements)
(collectively, the "Interest Rate Agreements") with, or guaranteed by the
Pledgor, Chase, any such Bank or Banks or a syndicate of financial institutions
organized by Chase or an affiliate of Chase (even if Chase or the respective
Bank subsequently ceases to be a Bank under the Credit Agreement for any
reason), so long as any such Bank or Affiliate participates in the extension of
such Interest Rate Agreements, and their subsequent assigns, if any
(collectively, the "Interest Rate Creditors", and the Interest Rate Creditors
together with the Bank Creditors, are hereinafter called the "Secured
Creditors"). Except as otherwise defined herein, terms used herein and defined
in the Credit Agreement shall be used herein as so defined.
W I T N E S S E T H:
--------------------
WHEREAS, the Pledgor, the financial institutions from time to
time party thereto (the "Banks") and The Chase Manhattan Bank, as Administrative
Agent (in its capacity as Administrative Agent, being herein referred to as the
"Administrative Agent") have entered into a Credit Agreement, dated as of
February 17, 1999, providing for the making of Loans to the Borrower (as used
herein, the term "Credit Agreement" means the Credit Agreement described above
in this paragraph, as the same may be amended, amended and restated, modified or
supplemented from time to time, and including any successor agreement extending
the maturity of, or restructuring of all or any portion of the Indebtedness
under such agreement or any successor agreements);
WHEREAS, the Pledgor may from time to time be party to one or
more Interest Rate Agreements with the Interest Rate Creditors;
WHEREAS, it is a condition precedent to the making of Loans to
the Pledgor under the Credit Agreement that the Pledgor shall have executed and
delivered to the Pledgee this Agreement; and
WHEREAS, the Pledgor will obtain benefits from the incurrence
of Loans by the Pledgor and the Pledgor's entering into Interest Rate Agreements
and, accordingly, desires to execute this Agreement in order to satisfy the
conditions precedent described in the preceding
119
Exhibit F
Page 2
paragraph and to induce the Banks to make Loans to the Pledgor and to induce the
Interest Rate Creditors to enter into Interest Rate Agreements with the Pledgor;
NOW, THEREFORE, in consideration of the benefits accruing to
the Pledgor, the receipt and sufficiency of which are hereby acknowledged, the
Pledgor hereby makes the following representations and warranties to the Pledgee
and hereby covenants and agrees with the Pledgee as follows:
1. SECURITY FOR OBLIGATIONS. This Agreement is made by the
Pledgor for the benefit of the Secured Creditors to secure:
(i) the full and prompt payment when due (whether at the
stated maturity, by acceleration or otherwise) of all obligations,
liabilities and indebtedness (including, without limitation,
indemnities, Fees and interest thereon) of the Pledgor owing to the
Bank Creditors, whether now existing or hereafter incurred under,
arising out of, or in connection with the Credit Agreement and the
other Credit Documents to which the Pledgor is a party, and the due
performance and compliance by the Pledgor with all of the terms,
conditions and agreements contained in the Credit Agreement and such
other Credit Documents (all such obligations, liabilities and
indebtedness under this clause (i) being herein collectively called
the "Credit Agreement Obligations");
(ii) the full and prompt payment when due (whether at stated
maturity, by acceleration or otherwise) of all obligations, liabilities
and indebtedness (including, without limitation, indemnities, fees and
interest thereon) of the Pledgor owing to the Interest Rate Creditors,
now existing or hereafter incurred under, arising out of or in
connection with any Interest Rate Agreement, whether such Interest Rate
Agreement is now in existence or hereinafter arising, and the due
performance and compliance with the terms, conditions and agreements of
each such Interest Rate Agreement by the Pledgor, and the due
performance and compliance by the Pledgor with all of the terms,
conditions and agreements contained in each such Interest Rate
Agreement (all such obligations, liabilities and indebtedness under
this clause (ii) being herein collectively called the "Interest Rate
Obligations");
(iii) any and all sums advanced by the Pledgee in order to
preserve the Collateral (as hereinafter defined) and/or preserve its
security interest therein;
(iv) in the event of any proceeding for the collection of the
Obligations (as defined below) or the enforcement of this Agreement,
after an Event of Default (such term, as used in this Agreement, shall
mean any Event of Default under, and as defined in, the Credit
Agreement or any payment default under any Interest Rate Agreement and
shall in any event include, without limitation, any payment default
(after the expiration of any applicable grace period) on any of the
Obligations (as defined below)) shall have occurred and be continuing,
the reasonable out-of-pocket expenses of retaking, holding, preparing
for sale or lease, selling or otherwise disposing of or realizing on
the Collateral, or of any exercise by the Pledgee of its rights
hereunder, together with reasonable attorneys' fees and court costs;
and
120
Exhibit F
Page 3
(v) all amounts paid by any Indemnitee to which such
Indemnitee has the right to reimbursement under Section 11 of this
Agreement.
all such obligations, liabilities, indebtedness, sums and expenses set forth in
clauses (i) through (v) of this Section 1 being collectively called the
"Obligations", it being acknowledged and agreed that the "Obligations" shall
include extensions of credit of the types described above, whether outstanding
on the date of this Agreement or extended from time to time after the date of
this Agreement.
2. DEFINITIONS; ANNEXES. (a) Unless otherwise defined herein,
all capitalized terms used herein and defined in the Credit Agreement shall be
used herein as therein defined. Reference to singular terms shall include the
plural and vice versa.
(b) The following capitalized terms used herein shall have the
definitions specified below:
"ADMINISTRATIVE AGENT" has the meaning set forth in the
Recitals hereto.
"ADVERSE CLAIM" has the meaning given such term in Section
8-102(a)(1) of the UCC.
"AGREEMENT" has the meaning set forth in the first paragraph
hereof.
"BANK CREDITORS" has the meaning set forth in the first
paragraph hereof.
"BANKS" has the meaning set forth in the Recitals hereto.
"CERTIFICATED SECURITY" has the meaning given such term in
Section 8-102(a)(4) of the UCC.
"CLEARING CORPORATION" has the meaning given such term in
Section 8-102(a)(5) of the UCC.
"COLLATERAL" has the meaning set forth in Section 3.1 hereof.
"COLLATERAL ACCOUNTS" means any and all accounts established
and maintained by the Pledgee in the name of the Pledgor to which Collateral may
be credited.
"CREDIT AGREEMENT" has the meaning set forth in the Recitals
hereto.
"CREDIT AGREEMENT OBLIGATIONS" has the meaning set forth in
Section 1 hereof.
"EVENT OF DEFAULT" has the meaning set forth in Section 1
hereof.
"FINANCIAL ASSET" has the meaning given such term in Section
8-102(a)(9) of the UCC.
"INDEMNITEES" has the meaning set forth in Section 11 hereof.
121
Exhibit F
Page 4
"INSTRUMENT" has the meaning given such term in Section
9-105(1)(i) of the UCC.
"INTEREST RATE AGREEMENTS" has the meaning set forth in the
first paragraph hereof.
"INTEREST "RATE OBLIGATIONS" has the meaning set forth in
Section 1 hereof.
"INVESTMENT PROPERTY" has the meaning given such term in
Section 9-115(f) of the UCC.
"LIMITED LIABILITY COMPANY ASSETS" means all assets, whether
tangible or intangible and whether real, personal or mixed (including, without
limitation, all limited liability company capital and interest in other limited
liability companies), at any time owned or represented by any Limited Liability
Company Interest.
"LIMITED LIABILITY COMPANY INTERESTS" means the entire limited
liability company membership interest at any time owned by the Pledgor in any
limited liability company which is a Subsidiary.
"NOTES" means (x) all intercompany notes at any time issued
to the Pledgor and (y) all surplus notes at any time issued to, or held by, the
Pledgor.
"OBLIGATIONS" has the meaning set forth in Section 1 hereof.
"PARTNERSHIP ASSETS" means all assets, whether tangible or
intangible and whether real, personal or mixed (including, without limitation,
all partnership capital and interest in other partnerships), at any time owned
or represented by any Partnership Interest.
"PARTNERSHIP INTEREST" means the entire general partnership
interest or limited partnership interest at any time owned by the Pledgor in any
general partnership or limited partnership, in each case which is a Subsidiary.
"PLEDGED NOTES" has the meaning set forth in Section 3.5
hereof.
"PLEDGEE" has the meaning set forth in the first paragraph
hereof.
"PLEDGOR" has the meaning set forth in the first paragraph
hereof.
"PROCEEDS" has the meaning given such term in Section 9-306(l)
of the UCC.
"REQUIRED BANKS" has the meaning given such term in the Credit
Agreement.
"SECURED CREDITORS" has the meaning set forth in the first
paragraph hereof.
"SECURED DEBT AGREEMENTS" has the meaning set forth in Section
5 hereof.
"SECURITIES ACCOUNT" has the meaning given such term in
Section 8-501(a) of the UCC.
122
Exhibit F
Page 5
"SECURITIES ACT" means the Securities Act of 1933, as amended,
as in effect from time to time.
"SECURITY" and "SECURITIES" means all Stock and Notes.
"SECURITY ENTITLEMENT" has the meaning given such term in
Section 8-102(a)(17) of the UCC.
"STOCK" means all of the issued and outstanding shares of
capital stock or other ownership interests of any Subsidiary at any time owned
by the Pledgor.
"TERMINATION DATE" has the meaning set forth in Section 19
hereof.
"UCC" means the Uniform Commercial Code as in effect in the
State of New York from time to time; PROVIDED that all references herein to
specific sections or subsections of the UCC are references to such sections or
subsections, as the case may be, of the Uniform Commercial Code as in effect in
the State of New York on the date hereof.
"UNCERTIFICATED SECURITY" has the meaning given such term in
Section 8-102(a)(18) of the UCC.
3. PLEDGE OF SECURITY INTEREST, ETC.
3.1. PLEDGE. To secure the Obligations now or hereafter owed
or to be performed by the Pledgor, the Pledgor does hereby grant, pledge and
assign to the Pledgee for the benefit of the Secured Creditors, and does hereby
create a continuing security interest (subject to those Liens permitted to exist
with respect to the Collateral pursuant to the terms of all Secured Debt
Agreements then in effect) in favor of the Pledgee for the benefit of the
Secured Creditors in, all of the right, title and interest in and to the
following, whether now existing or hereafter from time to time acquired
(collectively, the "Collateral"):
(a) each of the Collateral Accounts, including any and all
assets of whatever type or kind deposited by the Pledgor in such
Collateral Account, whether now owned or hereafter acquired, existing
or arising, including, without limitation, all Financial Assets,
Investment Property, moneys, checks, drafts, Instruments, Securities or
interests therein of any type or nature deposited or required by the
Credit Agreement or any other Secured Debt Agreement to be deposited in
such Collateral Account, and all investments and all certificates and
other Instruments (including depository receipts, if any) from time to
time representing or evidencing the same, and all dividends, interest,
distributions, cash and other property from time to time received,
receivable or otherwise distributed in respect of or in exchange for
any or all of the foregoing;
(b) all Securities of the Pledgor from time to time;
(c) all Limited Liability Company Interests of the Pledgor
from time to time and all of its right, title and interest in each
limited liability company to which each such interest relates, whether
now existing or hereafter acquired, including, without limitation:
123
Exhibit F
Page 6
(A) all the capital thereof and its interest in all profits,
losses, Limited Liability Company Assets and other distributions to
which the Pledgor shall at any time be entitled in respect of such
Limited Liability Company Interests;
(B) all other payments due or to become due to the Pledgor in
respect of Limited Liability Company Interests, whether under any
limited liability company agreement or otherwise, whether as
contractual obligations, damages, insurance proceeds or otherwise;
(C) all of its claims, rights, powers, privileges, authority,
options, security interests, liens and remedies, if any, under any
limited liability company agreement or operating agreement, or at law
or otherwise in respect of such Limited Liability Company Interests;
(D) all present and future claims, if any, of the Pledgor
against any such limited liability company for moneys loaned or
advanced, for services rendered or otherwise;
(E) all of the Pledgor's rights under any limited liability
company agreement or operating agreement or at law to exercise and
enforce every right, power, remedy, authority, option and privilege of
the Pledgor relating to such Limited Liability Company Interests,
including any power to terminate, cancel or modify any limited
liability company agreement or operating agreement, to execute any
instruments and to take any and all other action on behalf of and in
the name of the Pledgor in respect of such Limited Liability Company
Interests and any such limited liability company, to make
determinations, to exercise any election (including, but not limited
to, election of remedies) or option or to give or receive any notice,
consent, amendment, waiver or approval, together with full power and
authority to demand, receive, enforce, collect or receipt for any of
the foregoing or for any Limited Liability Company Asset, to enforce or
execute any checks, or other instruments or orders, to file any claims
and to take any action in connection with any of the foregoing; and
(F) all other property hereafter delivered in substitution for
or in addition to any of the foregoing, all certificates and
instruments representing or evidencing such other property and all
cash, securities, interest, dividends, rights and other property at any
time and from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all thereof;
(d) all Partnership Interests of the Pledgor from time to time and all
of its right, title and interest in each partnership to which each such interest
relates, whether now existing or hereafter acquired, including, without
limitation:
(A) all the capital thereof and its interest in all profits,
losses, Partnership Assets and other distributions to which the Pledgor
shall at any time be entitled in respect of such Partnership Interests;
124
Exhibit F
Page 7
(B) all other payments due or to become due to the
Pledgor in respect of Partnership Interests, whether under any
partnership agreement or otherwise, whether as contractual
obligations, damages, insurance proceeds or otherwise;
(C) all of its claims, rights, powers, privileges,
authority, options, security interests, liens and remedies, if
any, under any partnership agreement or operating agreement,
or at law or otherwise in respect of such Partnership
Interests;
(D) all present and future claims, if any, of the
Pledgor against any such partnership for moneys loaned or
advanced, for services rendered or otherwise;
(E) all of the Pledgor's rights under any partnership
agreement or operating agreement or at law to exercise and
enforce every right, power, remedy, authority, option and
privilege of the Pledgor relating to such Partnership
Interests, including any power to terminate, cancel or modify
any partnership agreement or operating agreement, to execute
any instruments and to take any and all other action on behalf
of and in the name of the Pledgor in respect of such
Partnership Interests and any such partnership, to make
determinations, to exercise any election (including, but not
limited to, election of remedies) or option or to give or
receive any notice, consent, amendment, waiver or approval,
together with full power and authority to demand, receive,
enforce, collect or receipt for any of the foregoing or for
any Partnership Asset, to enforce or execute any checks, or
other instruments or orders, to file any claims and to take
any action in connection with any of the foregoing (with all
of the foregoing rights only to be exercisable upon the
occurrence and during the continuation of an Event of
Default); and
(F) all other property hereafter delivered in
substitution for or in addition to any of the foregoing, all
certificates and instruments representing or evidencing such
other property and all cash, securities, interest, dividends,
rights and other property at any time and from time to time
received, receivable or otherwise distributed in respect of or
in exchange for any or all thereof;
(e) all rights, title and interests of the Pledgor under any
service or management contract entered into between the Pledgor and any
of its subsidiaries (including, without limitation, any payments made
to the Borrower thereunder).
(f) all Proceeds of any and all of the foregoing.
Nothing in this Agreement is to be construed as a pledge of
any tangible or intangible asset or right of a Regulated Insurance Company,
however, this Agreement includes the pledge of capital stock of each Regulated
Insurance Company.
3.2 PROCEDURES. (a) To the extent that the Pledgor at any time
or from time to time owns, acquires or obtains any right, title or interest in
any Collateral, such Collateral shall automatically (and without the taking of
any action by the Pledgor) be pledged pursuant to
125
Exhibit F
Page 8
Section 3.1 of this Agreement and, in addition thereto, the Pledgor shall (to
the extent provided below) take the following actions as set forth below (as
promptly as practicable and, in any event, within 10 days after it obtains such
Collateral) for the benefit of the Pledgee and the Secured Creditors:
(i) with respect to a Certificated Security (other than a
Certificated Security credited on the books of a Clearing Corporation),
the Pledgor shall physically deliver such Certificated Security to the
Pledgee, endorsed to the Pledgee or endorsed in blank;
(ii) with respect to an Uncertificated Security (other than an
Uncertificated Security credited on the books of a Clearing
Corporation), the Pledgor shall cause the issuer of such Uncertificated
Security to duly authorize and execute, and deliver to the Pledgee, an
agreement for the benefit of the Pledgee and the Secured Creditors
substantially in the form of Annex G hereto (appropriately completed to
the satisfaction of the Pledgee and with such modifications, if any, as
shall be satisfactory to the Pledgee) pursuant to which such issuer
agrees to comply with any and all instructions originated by the
Pledgee without further consent by the registered owner and not to
comply with instructions regarding such Uncertificated Security (and
any Partnership Interests and Limited Liability Company Interests
issued by such issuer) originated by any other Person other than a
court of competent jurisdiction;
(iii) with respect to a Certificated Security, Uncertificated
Security, Partnership Interest or Limited Liability Company Interest
credited on the books of a Clearing Corporation (including a Federal
Reserve Bank, Participants Trust Company or The Depository Trust
Company), the Pledgor shall promptly notify the Pledgee thereof and
shall promptly take all actions required (i) to comply with the
applicable rules of such Clearing Corporation and (ii) to perfect the
security interest of the Pledgee under applicable law (including, in
any event, under Sections 9-115 (4)(a) and (b), 9-115 (1)(e) and 8-106
(d) of the UCC). The Pledgor further agrees to take such actions as the
Pledgee deems necessary or desirable to effect the foregoing;
(iv) with respect to a Partnership Interest or a Limited
Liability Company Interest (other than a Partnership Interest or
Limited Liability Interest credited on the books of a Clearing
Corporation), (1) if such Partnership Interest or Limited Liability
Company Interest is represented by a certificate, the procedure set
forth in Section 3.2(a)(i), and (2) if such Partnership Interest or
Limited Liability Company Interest is not represented by a certificate,
the procedure set forth in Section 3.2(a)(ii);
(v) with respect to any Note, physical delivery of such Note
to the Pledgee, endorsed to the Pledgee or endorsed in blank; and
(vi) with respect to cash, to the extent not otherwise
provided in the Security Agreement, (i) establishment by the Pledgee of
a cash account in the name of the Pledgor over which the Pledgee shall
have exclusive and absolute control and dominion (and no withdrawals or
transfers may be made therefrom by any Person except with the prior
written consent of the Pledgee) and (ii) deposit of such cash in such
cash account.
126
Exhibit F
Page 9
(b) In addition to the actions required to be taken pursuant
to preceding Section 3.2(a), the Pledgor shall take the following additional
actions with respect to the Securities and Collateral (as defined below):
(i) with respect to all Collateral of the Pledgor whereby or
with respect to which the Pledgee may obtain "control" thereof within
the meaning of Section 8-106 of the UCC (or under any provision of the
UCC as same may be amended or supplemented from time to time, or under
the laws of any relevant State other than the State of New York), the
Pledgor shall take all reasonable actions as may be requested from time
to time by the Pledgee so that "control" of such Collateral is obtained
and at all times held by the Pledgee; and
(ii) the Pledgor shall from time to time cause appropriate
financing statements (on Form UCC-1 or other appropriate form) under
the Uniform Commercial Code as in effect in the various relevant
States, on form covering all Collateral hereunder (with the form of
such financing statements to be satisfactory to the Pledgee), to be
filed in the relevant filing offices so that at all times the Pledgee
has a security interest in all Collateral that is Investment Property,
which is perfected by the filing of such financing statements (in each
case to the maximum extent perfection by filing may be obtained under
the laws of the relevant States, including, without limitation, Section
9-115(4)(b) of the UCC).
3.3 SUBSEQUENTLY ACQUIRED COLLATERAL. If the Pledgor shall
acquire (by purchase, stock dividend or otherwise) any additional Collateral at
any time or from time to time after the date hereof, such Collateral shall
automatically (and without any further action being required to be taken) be
subject to the pledge and security interests created pursuant to Section 3.1
and, furthermore, the Pledgor will promptly thereafter take (or cause to be
taken) all action with respect to such Collateral in accordance with the
procedures set forth in Section 3.2, and will promptly thereafter deliver to the
Pledgee (i) a certificate executed by a principal executive officer of the
Pledgor describing such Collateral and certifying that the same has been duly
pledged in favor of the Pledgee (for the benefit of the Secured Creditors)
hereunder and (ii) supplements to Annexes A through F hereto as are necessary to
cause such annexes to be complete and accurate at such time.
3.4 TRANSFER TAXES. Each pledge of Collateral under Section
3.1 or Section 3.3 shall be accompanied by any transfer tax stamps required in
connection with the pledge of such Collateral.
3.5 DEFINITION OF PLEDGED NOTES. All Notes at any time pledged
or required to be pledged hereunder are hereinafter called the "Pledged Notes".
3.6 CERTAIN REPRESENTATIONS AND WARRANTIES REGARDING THE
COLLATERAL. The Pledgor represents and warrants that on the date hereof (i) each
Subsidiary of the Pledgor, and the direct ownership thereof is listed in Annex A
hereto; (ii) the Stock held by the Pledgor consists of the number and type of
shares of the stock of the corporations as described in Annex B hereto; (iii)
such Stock constitutes that percentage of the issued and outstanding capital
stock of the issuing corporation as is set forth in Annex B hereto; (iv) the
Notes held by the Pledgor consist of
127
Exhibit F
Page 10
the promissory notes described in Annex C hereto where the Pledgor is listed as
the lender; (v) the Limited Liability Company Interests held by the Pledgor
consist of the number and type of interests of the Persons described in Annex D
hereto; (vi) each such Limited Liability Company Interest constitutes that
percentage of the issued and outstanding equity interest of the issuing Person
as set forth in Annex D hereto; (vii) the Partnership Interests held by the
Pledgor consist of the number and type of interests of the Persons described in
Annex E hereto; (viii) each such Partnership Interest constitutes that
percentage or portion of the entire partnership interest of the Partnership as
set forth in Annex E hereto; (ix) the Pledgor has complied with the respective
procedure set forth in Section 3.2(a) with respect to each item of Collateral
described in Annexes A through E hereto; and (x) on the date hereof, the Pledgor
owns no other Securities, Limited Liability Company Interests or Partnership
Interests.
4. APPOINTMENT OF SUB-AGENTS; ENDORSEMENTS, ETC. The Pledgee
shall have the right to appoint one or more sub-agents for the purpose of
retaining physical possession of the Collateral, which may be held (in the
discretion of the Pledgee) in the name of the Pledgor, endorsed or assigned in
blank or in favor of the Pledgee or any nominee or nominees of the Pledgee or a
sub-agent appointed by the Pledgee.
5. VOTING, ETC., WHILE NO EVENT OF DEFAULT. Unless and until
there shall have occurred and be continuing an Event of Default (or a Default
under Section 8.05 of the Credit Agreement), the Pledgor shall be entitled to
exercise all voting rights attaching to any and all Collateral owned by it, and
to give consents, waivers or ratifications in respect thereof PROVIDED that no
vote shall be cast or any consent, waiver or ratification given or any action
taken which would violate, result in breach of any covenant contained in, or be
inconsistent with, any of the terms of this Agreement, the Credit Agreement, any
other Credit Document or any Interest Rate Agreement (collectively, the "Secured
Debt Agreements"), or which would have the effect of impairing the value of the
Collateral or any part thereof in any material respect or the position or
interests of the Pledgee or any Secured Creditor therein. All such rights of the
Pledgor to vote and to give consents, waivers and ratifications shall cease in
case an Event of Default (or a Default under Section 8.05 of the Credit
Agreement) shall occur and be continuing and Section 7 hereof shall become
applicable.
6. DIVIDENDS AND OTHER DISTRIBUTIONS. Unless and until an
Event of Default (or a Default under Section 8.05 of the Credit Agreement) shall
have occurred and be continuing, all cash dividends, cash distributions, cash
Proceeds and other cash amounts payable in respect of the Collateral shall be
paid to the Pledgor. Subject to Section 3.2 hereof, the Pledgee shall be
entitled to receive directly, and to retain as part of the Collateral:
(i) all other or additional stock, notes, limited liability
company interests, partnership interests, instruments or other
securities or property (including, but not limited to, cash dividends
other than as set forth above) paid or distributed by way of dividend
or otherwise in respect of the Collateral;
(ii) all other or additional stock, notes, limited liability
company interests, partnership interests, instruments or other
securities or property (including, but not limited
128
Exhibit F
Page 11
to, cash) paid or distributed in respect of the Collateral by way of
stock-split, spin-off, split-up, reclassification, combination of
shares or similar rearrangement; and
(iii) all other or additional stock, notes, limited liability
company interests, partnership interests, instruments or other
securities or property (including, but not limited to, cash) which may
be paid in respect of the Collateral by reason of any consolidation,
merger, exchange of stock, conveyance of assets, liquidation or similar
corporate reorganization.
Nothing contained in this Section 6 shall limit or restrict in any way the
Pledgee's right to receive the proceeds of the Collateral in any form in
accordance with Section 3 of this Agreement. All dividends, distributions or
other payments which are received by the Pledgor contrary to the provisions of
this Section 6 or Section 7 shall be received in trust for the benefit of the
Pledgee, shall be segregated from other property or funds of the Pledgor and
shall be forthwith paid over to the Pledgee as Collateral in the same form as so
received (with any necessary endorsement).
7. REMEDIES IN CASE OF AN EVENT OF DEFAULT OR CERTAIN
DEFAULTS. In case an Event of Default shall have occurred and be continuing, the
Pledgee shall be entitled to exercise all of the rights, powers and remedies
(whether vested in it by this Agreement or by any other Secured Debt Agreement
or by law) for the protection and enforcement of its rights in respect of the
Collateral, including, without limitation, all the rights and remedies of a
secured party upon default under the Uniform Commercial Code of the State of New
York, and the Pledgee shall be entitled, without limitation, to exercise any or
all of the following rights:
(i) to receive all amounts payable in respect of the
Collateral otherwise payable under Section 6 to the Pledgor;
(ii) to transfer all or any part of the Collateral into the
Pledgee's name or the name of its nominee or nominees;
(iii) to accelerate any Pledged Note which may be accelerated
in accordance with its terms, and take any other lawful action to
collect upon any Pledged Note (including, without limitation, to make
any demand for payment thereon);
(iv) to vote all or any part of the Collateral (whether or not
transferred into the name of the Pledgee) and give all consents,
waivers and ratifications in respect of the Collateral and otherwise
act with respect thereto as though it were the outright owner thereof
(the Pledgor hereby irrevocably constituting and appointing the Pledgee
the proxy and attorney-in-fact of the Pledgor, with full power of
substitution to do so);
(v) at any time or from time to time to sell, assign and
deliver, or grant options to purchase, all or any part of the
Collateral, or any interest therein, at any public or private sale,
without demand of performance, advertisement or notice of intention to
sell or of the time or place of sale or adjournment thereof or to
redeem or otherwise (all of which are hereby waived by the Pledgor),
for cash, on credit or for other property, for
129
Exhibit F
Page 12
immediate or future delivery without any assumption of credit risk, and
for such price or prices and on such terms as the Pledgee in its
absolute discretion may determine; PROVIDED that at least 10 days'
notice of the time and place of any such sale shall be given to the
Pledgor. The Pledgee shall not be obligated to make such sale of
Collateral regardless of whether any such notice of sale has
theretofore been given. Each purchaser at any such sale shall hold the
property so sold absolutely free from any claim or right on the part of
the Pledgor, and the Pledgor hereby waives and releases to the fullest
extent permitted by law any right or equity of redemption with respect
to the Collateral, whether before or after sale hereunder, all rights,
if any, of marshaling the Collateral and any other security for the
Obligations or otherwise, and all rights, if any, of stay and/or
appraisal which it now has or may at any time in the future have under
rule of law or statute now existing or hereafter enacted. At any such
sale, unless prohibited by applicable law, the Pledgee on behalf of all
Secured Creditors (or certain of them) may bid for and purchase (by
bidding in Obligations or otherwise) all or any part of the Collateral
so sold free from any such right or equity of redemption. Neither the
Pledgee nor any Secured Creditor shall be liable for failure to collect
or realize upon any or all of the Collateral or for any delay in so
doing nor shall any of them be under any obligation to take any action
whatsoever with regard thereto; and
(vi) to set-off any and all Collateral against any and all
Obligations, and to withdraw any and all cash or other Collateral from
any and all Collateral Accounts and to apply such cash and other
Collateral to the payment of any and all Obligations;
provided that, upon the occurrence of a Default under Section
8.05 of the Credit Agreement, the Pledgee may exercise the rights specified in
clause (i) above.
8. REMEDIES, ETC., CUMULATIVE. Each right, power and remedy
of the Pledgee provided for in this Agreement or any other Secured Debt
Agreement, or now or hereafter existing at law or in equity or by statute shall
be cumulative and concurrent and shall be in addition to every other such right,
power or remedy. The exercise or beginning of the exercise by the Pledgee or any
Secured Creditor of any one or more of the rights, powers or remedies provided
for in this Agreement or any other Secured Debt Agreement or now or hereafter
existing at law or in equity or by statute or otherwise shall not preclude the
simultaneous or later exercise by the Pledgee or any Secured Creditor of all
such other rights, powers or remedies, and no failure or delay on the part of
the Pledgee or any Secured Creditor to exercise any such right, power or remedy
shall operate as a waiver thereof. Unless otherwise required by the Credit
Documents, no notice to or demand on the Pledgor in any case shall entitle the
Pledgor to any other or further notice or demand in similar other circumstances
or constitute a waiver of any of the rights of the Pledgee or any Secured
Creditor to any other or further action in any circumstances without demand or
notice. The Secured Creditors agree that this Agreement may be enforced only by
the action of the Pledgee, acting upon the instructions of the Required Banks
(or, after the date on which all Credit Agreement Obligations have been paid in
full, the holders of at least a majority of the Interest Rate Obligations) and
that no other Secured Creditor shall have any right individually to seek to
enforce or to enforce this Agreement or to realize upon the security to be
granted hereby, it being understood and agreed that such rights and remedies may
be exercised by the Pledgee or the holders of at least a majority of the
Interest Rate Obligations,
130
Exhibit F
Page 13
as the case may be, for the benefit of the Secured Creditors upon the terms of
this Agreement and the other Credit Documents.
9. APPLICATION OF PROCEEDS. (a) All moneys collected by the
Pledgee upon any sale or other disposition of the Collateral pursuant to the
terms of this Agreement, together with all other moneys received by the Pledgee
hereunder, shall be applied as follows:
(i) first, to the payment of all Obligations owing the
Pledgee of the type provided in clauses (iii) and (iv) of the
definition of Obligations contained in Section 1 hereof;
(ii) second, to the extent proceeds remain after the
application pursuant to the preceding clause (i), an amount equal to
the outstanding Obligations shall be paid to the Secured Creditors as
provided in Section 9(c) hereof with each Secured Creditor receiving
an amount equal to its outstanding Obligations or, if the proceeds are
insufficient to pay in full all such Obligations, its Pro Rata Share
(as defined below) of the amount remaining to be distributed; and
(iii) third, to the extent proceeds remain after the
application pursuant to the preceding clauses (i) and (ii) and
following the termination of this Agreement pursuant to Section 19
hereof, to the Pledgor or, to the extent directed by the Pledgor or a
court of competent jurisdiction, to whomever may be lawfully entitled
to receive such surplus.
(b) For purposes of this Agreement, "Pro Rata Share" shall
mean, when calculating a Secured Creditor's portion of any distribution or
amount, that amount (expressed as a percentage) equal to a fraction the
numerator of which is the then unpaid amount of such Secured Creditor's
Obligations and the denominator of which is the then outstanding amount of all
Obligations.
(c) All payments required to be made to the Bank Creditors
hereunder shall be made to the Administrative Agent under the Credit Agreement
for the account of the Bank Creditors and all payments required to be made to
the Interest Rate Creditors hereunder shall be made directly to the respective
Interest Rate Creditors.
(d) For purposes of applying payments received in accordance
with this Section 9, the Pledgee shall be entitled to rely upon (i) the
Administrative Agent under the Credit Agreement and (ii) the Interest Rate
Creditors for a determination (which the Administrative Agent, each Interest
Rate Creditor and the Secured Creditors agree (or shall agree) to provide upon
request of the Collateral Agent) of the outstanding Obligations owed to the Bank
Creditors or the Interest Rate Creditors, as the case may be. Unless it has
actual knowledge (including by way of written notice from a Bank Creditor or an
Interest Rate Creditor) to the contrary, the Administrative Agent under the
Credit Agreement, in furnishing information pursuant to the preceding sentence,
and the Collateral Agent, in acting hereunder, shall be entitled to assume that
(x) no Credit Agreement Obligations other than principal, interest and regularly
accruing fees are owing to any Bank Creditor and (y) no Interest Rate Agreement,
or Interest Rate Obligations in respect thereof, are in existence.
131
Exhibit F
Page 14
(e) It is understood and agreed that the Pledgor shall remain
liable to the extent of any deficiency between the amount of the proceeds of the
Collateral hereunder and the aggregate amount of the Obligations.
10. PURCHASERS OF COLLATERAL. Upon any sale of the Collateral
by the Pledgee hereunder (whether by virtue of the power of sale herein granted,
pursuant to judicial process or otherwise), the receipt of the Pledgee or the
officer making the sale shall be a sufficient discharge to the purchaser or
purchasers of the Collateral so sold, and such purchaser or purchasers shall not
be obligated to see to the application of any part of the purchase money paid
over to the Pledgee or such officer or be answerable in any way for the
misapplication or nonapplication thereof
11. INDEMNITY. The Pledgor agrees (i) to indemnify and hold
harmless the Pledgee, each Secured Creditor and their respective successors,
assigns, employees, agents and servants (individually an "Indemnitee", and
collectively, the "Indemnitees") from and against any and all claims, demands,
losses, judgments and liabilities (including liabilities for penalties) of
whatsoever kind or nature, and (ii) to reimburse each Indemnitee for all
reasonable out-of-pocket costs and expenses, including reasonable attorneys'
fees, in each case arising out of or resulting from this Agreement or the
exercise by any Indemnitee of any right or remedy granted to it hereunder or
under any other Secured Debt Agreement (but excluding any claims, demands,
losses, judgments and liabilities (including liabilities for penalties) or
expenses of whatsoever kind or nature to the extent incurred or arising by
reason of gross negligence or willful misconduct of such Indemnitee). In no
event shall any Indemnitee hereunder be liable, in the absence of gross
negligence or willful misconduct on its part, for any matter or thing in
connection with this Agreement other than to account for monies or other
property actually received by it in accordance with the terms hereof. If and to
the extent that the obligations of the Pledgor under this Section 11 are
unenforceable for any reason, the Pledgor hereby agrees to make the maximum
contribution to the payment and satisfaction of such obligations which is
permissible under applicable law. The indemnity obligations of the Pledgor
contained in this Section 11 shall continue in full force and effect
notwithstanding the full payment of all the Notes issued under the Credit
Agreement, the termination of all Interest Rate Agreements and the payment of
all other Obligations and notwithstanding the discharge thereof.
12. FURTHER ASSURANCES; POWER OF ATTORNEY. (a) The Pledgor
agrees that it will join with the Pledgee in executing and, at the Pledgor's own
expense, file and refile under the Uniform Commercial Code such financing
statements, continuation statements and other documents in such offices as the
Pledgee (acting on its own or on the instructions of the Required Banks) may
reasonably deem necessary or appropriate and wherever required or permitted by
law in order to perfect and preserve the Pledgee's security interest in the
Collateral hereunder and hereby authorizes the Pledgee to file financing
statements and amendments thereto relative to all or any part of the Collateral
without the signature of the Pledgor where permitted by law, and agrees to do
such further acts and things and to execute and deliver to the Pledgee such
additional conveyances, assignments, agreements and instruments as the Pledgee
may reasonably require or deem advisable to carry into effect the purposes of
this Agreement or to further assure and confirm unto the Pledgee its rights,
powers and remedies hereunder or thereunder.
132
Exhibit F
Page 15
(b) The Pledgor hereby appoints the Pledgee the Pledgor's
attorney-in-fact, with full authority in the place and stead of the Pledgor and
in the name of the Pledgor or otherwise, from time to time after the occurrence
and during the continuance of an Event of Default, in the Pledgee's discretion
to take any action and to execute any instrument which the Pledgee may deem
necessary or advisable to accomplish the purposes of this Agreement.
13. THE PLEDGEE AS COLLATERAL AGENT. The Pledgee will hold in
accordance with this Agreement all items of the Collateral at any time received
under this Agreement. It is expressly understood and agreed that the obligations
of the Pledgee as holder of the Collateral and interests therein and with
respect to the disposition thereof and otherwise under this Agreement, are only
those expressly set forth in this Agreement. The Pledgee shall act hereunder on
the terms and conditions set forth herein and in Section 10 of the Credit
Agreement.
14. TRANSFER BY THE PLEDGOR. The Pledgor will not sell or
otherwise dispose of, grant any option with respect to, or mortgage, pledge or
otherwise encumber any of the Collateral or any interest therein (except in
accordance with the terms of this Agreement and the Credit Documents).
15 REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PLEDGOR.
(a) The Pledgor represents, warrants and covenants that:
(i) it is the legal, beneficial and record owner of, and has
good and valid title to, all Collateral consisting of one or more
Securities and that it has sufficient interest in all Collateral in
which a security interest is purported to be created hereunder for such
security interest to attach (subject, in each case, to no pledge, lien,
mortgage, hypothecation, security interest, charge, option, Adverse
Claim or other encumbrance whatsoever, except the liens and security
interests created by this Agreement);
(ii) it has full power, authority and legal right to pledge
all the Collateral pledged by it pursuant to this Agreement;
(iii) this Agreement has been duly authorized, executed and
delivered by the Pledgor and constitutes a legal, valid and binding
obligation of the Pledgor enforceable against the Pledgor in accordance
with its terms, except to the extent that the enforceability thereof
may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws generally affecting creditors' rights
and by equitable principles (regardless of whether enforcement is
sought in equity or at law);
(iv) except to the extent already obtained or made, no consent
of any other party (including, without limitation, any stockholder or
creditor of the Pledgor or any of its Subsidiaries) and no consent,
license, permit, approval or authorization of, exemption by, notice or
report to, or registration, filing or declaration with, any
governmental authority is required to be obtained by the Pledgor in
connection with (a) the execution, delivery or performance of this
Agreement, (b) the validity or enforceability of this Agreement (except
as set forth in clause (iii) above), (c) the perfection or
enforceability of the Pledgee's security interest in the Collateral or
(d) the exercise by the Pledgee of any of
133
Exhibit F
Page 16
its rights or remedies provided herein, except as may be required in
connection with the disposition of the Securities by laws affecting the
offering and sale of securities generally.
(v) the execution, delivery and performance of this Agreement
will not violate any provision of any applicable law or regulation or
of any order, judgment, writ, award or decree of any court, arbitrator
or governmental authority, domestic or foreign, applicable to the
Pledgor, or of the certificate of incorporation, operating agreement,
limited liability company agreement or by-laws of the Pledgor or of any
securities issued by the Pledgor or any of its Subsidiaries, or of any
mortgage, deed of trust, indenture, lease, loan agreement, credit
agreement or other contract, agreement or instrument or undertaking to
which the Pledgor or any of its Subsidiaries is a party or which
purports to be binding upon the Pledgor or any of its Subsidiaries or
upon any of their respective assets and will not result in the creation
or imposition of (or the obligation to create or impose) any lien or
encumbrance on any of the assets of the Pledgor or any of its
Subsidiaries except as contemplated by this Agreement (other than the
Liens created by the Collateral Documents);
(vi) all of the Collateral (consisting of Securities, Limited
Liability Company Interests or Partnership Interests) has been duly and
validly issued, is fully paid and non-assessable and is subject to no
options to purchase or similar rights;
(vii) each of the Pledged Notes constitutes, or when executed
by the obligor thereof will constitute, the legal, valid and binding
obligation of such obligor, enforceable in accordance with its terms,
except to the extent that the enforceability thereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws generally affecting creditors' rights and by equitable
principles (regardless of whether enforcement is sought in equity or at
law); and
(viii) the pledge, collateral assignment and delivery to the
Pledgee of the Collateral consisting of certificated securities
pursuant to this Agreement creates a valid and perfected first priority
security interest in such Securities, and the proceeds thereof subject
to no prior Lien or encumbrance or to any agreement purporting to grant
to any third party a Lien or encumbrance on the property or assets of
the Pledgor which would include the Securities (other than Permitted
Liens) and the Pledgee is entitled to all the rights, priorities and
benefits afforded by the UCC or other relevant law as enacted in any
relevant jurisdiction to perfect security interests in respect of such
Collateral; and
(ix) "control" (as defined in Section 8-106 of the UCC) has
been obtained by the Pledgee over all Collateral consisting of
Securities (including Notes which are Securities) with respect to which
such "control" may be obtained pursuant to Section 8-106 of the UCC.
(b) The Pledgor covenants and agrees that it will defend the
Pledgee's right, title and security interest in and to the Securities and the
proceeds thereof against the claims and demands of all persons whomsoever; and
the Pledgor covenants and agrees that it will have like title to and right to
pledge any other property at any time hereafter pledged to the Pledgee as
134
Exhibit F
Page 17
Collateral hereunder and will likewise defend the right thereto and security
interest therein of the Pledgee and the Secured Creditors.
(c) The Pledgor covenants and agrees that it will take no
action which would violate any of the terms of any Secured Debt Agreement.
16. CHIEF EXECUTIVE OFFICE; RECORDS. The chief executive
office of the Pledgor is located at the address specified in Annex F hereto. The
Pledgor will not move its chief executive office except to such new location as
the Pledgor may establish in accordance with the last sentence of this Section
16. The originals of all documents in the possession of the Pledgor evidencing
all Collateral, including but not limited to all Limited Liability Company
Interests and Partnership Interests, and the only original books of account and
records of the Pledgor relating thereto are, and will continue to be, kept at
such chief executive office at the location specified in Annex F hereto, or at
such new locations as the Pledgor may establish in accordance with the last
sentence of this Section 16. All Limited Liability Company Interests and
Partnership Interests are, and will continue to be, maintained at, and
controlled and directed (including, without limitation, for general accounting
purposes) from, such chief executive office location specified in Annex F
hereto, or such new locations as the Pledgor may establish in accordance with
the last sentence of this Section 16. The Pledgor shall not establish a new
location for such offices until (i) it shall have given to the Collateral Agent
not less than 30 days' prior written notice of its intention so to do, clearly
describing such new location and providing such other information in connection
therewith as the Collateral Agent may reasonably request and (ii) with respect
to such new location, it shall have taken all action, satisfactory to the
Collateral Agent, to maintain the security interest of the Collateral Agent in
the Collateral intended to be granted hereby at all times fully perfected and
in full force and effect. Promptly after establishing a new location for such
offices in accordance with the immediately preceding sentence, the Pledgor shall
deliver to the Pledgee a supplement to Annex F hereto so as to cause such Annex
F hereto to be complete and accurate.
17. PLEDGOR'S OBLIGATIONS ABSOLUTE, ETC. The obligations of
the Pledgor under this Agreement shall be absolute and unconditional and shall
remain in full force and effect without regard to, and shall not be released,
suspended, discharged, terminated or otherwise affected by, any circumstance or
occurrence whatsoever (other than termination of this Agreement pursuant to
Section 19 hereof), including, without limitation:
(i) any renewal, extension, amendment or modification of, or
addition or supplement to or deletion from any Secured Debt Agreement
(other than this Agreement in accordance with its terms), or any other
instrument or agreement referred to therein, or any assignment or
transfer of any thereof;
(ii) any waiver, consent, extension, indulgence or other
action or inaction under or in respect of any such agreement or
instrument or this Agreement (other than a waiver, consent or extension
with respect to this Agreement in accordance with its terms);
(iii) any furnishing of any additional security to the Pledgee
or its assignee or any acceptance thereof or any release of any
security by the Pledgee or its assignee;
135
Exhibit F
Page 18
(iv) any limitation on any party's liability or
obligations under any such instrument or agreement or any
invalidity or unenforceability, in whole or in part, of any such
instrument or agreement or any term thereof or
(v) any bankruptcy, insolvency, reorganization,
composition, adjustment, dissolution, liquidation or other like
proceeding relating to the Pledgor or any Subsidiary of the
Pledgor, or any action taken with respect to this Agreement by
any trustee or receiver, or by any court, in any such
proceeding, whether or not the Pledgor shall have notice or
knowledge of any of the foregoing.
18 REGISTRATION, ETC. (a) If an Event of Default shall
have occurred and be continuing and the Pledgor shall have received from
the Pledgee a written request or requests that the Pledgor cause any
registration, qualification or compliance under any Federal or state
securities law or laws to be effected with respect to all or any part of
the Collateral consisting of Securities, Limited Liability Company
Interests or Partnership Interests, the Pledgor as soon as practicable
and at its expense will use its best efforts to cause such registration
to be effected (and be kept effective) and will use its best efforts to
cause such qualification and compliance to be effected (and be kept
effective) as may be so requested and as would permit or facilitate the
sale and distribution of such Collateral consisting of Securities,
Limited Liability Company Interests or Partnership Interests, including,
without limitation, registration under the Securities Act of 1933, as
then in effect (or any similar statute then in effect), appropriate
qualifications under applicable blue sky or other state securities laws
and appropriate compliance with any other governmental requirements;
PROVIDED, that the Pledgee shall furnish to the Pledgor such information
regarding the Pledgee as the Pledgor may request in writing and as shall
be required in connection with any such registration, qualification or
compliance. The Pledgor will cause the Pledgee to be kept reasonably
advised in writing as to the progress of each such registration,
qualification or compliance and as to the completion thereof will
furnish to the Pledgee such number of prospectuses, offering circulars
and other documents incident thereto as the Pledgee from time to time
may reasonably request, and will indemnify, to the extent permitted by
law, the Pledgee and all other Secured Creditors participating in the
distribution of such Collateral consisting of Securities, Limited
Liability Company Interests or Partnership Interests against all claims,
losses, damages and liabilities caused by any untrue statement (or
alleged untrue statement) of a material fact contained therein (or in
any related registration statement, notification or the like) or by any
omission (or alleged omission) to state therein (or in any related
registration statement, notification or the like) a material fact
required to be stated therein or necessary to make the statements
therein not misleading, except insofar as the same may have been caused
by an untrue statement or omission based upon information furnished in
writing to the Pledgor by the Pledgee expressly for use therein.
(b) If at any time when the Pledgee shall determine to
exercise its right to sell all or any part of the Collateral consisting
of Securities, Limited Liability Company Interests or Partnership
Interests pursuant to Section 7, and such Collateral or the part thereof
to be sold shall not, for any reason whatsoever, be effectively
registered under the Securities Act of 1933, as then in effect, the
Pledgee may, in its sole and absolute discretion, sell such Collateral
or part thereof by private sale in such manner and under such
circumstances as the Pledgee may deem necessary or advisable in order
that such sale may legally be effected without such registration.
Without
136
Exhibit F
Page 19
limiting the generality of the foregoing, in any such event the Pledgee, in its
sole and absolute discretion: (i) may proceed to make such private sale
notwithstanding that a registration statement for the purpose of registering
such Collateral or part thereof shall have been filed under such Securities Act;
(ii) may approach and negotiate with a single possible purchaser to effect such
sale; and (iii) may restrict such sale to a purchaser who will represent and
agree that such purchaser is purchasing for its own account, for investment, and
not with a view to the distribution or sale of such Collateral or part thereof.
In the event of any such sale, the Pledgee shall incur no responsibility or
liability for selling all or any part of the Collateral at a price which the
Pledgee, in its sole and absolute discretion, may in good ▇▇▇▇▇ ▇▇▇▇ reasonable
under the circumstances, notwithstanding the possibility that a substantially
higher price might be realized if the sale were deferred until the registration
as aforesaid.
19. TERMINATION; RELEASE. (a) On the Termination Date (as
defined below), this Agreement shall terminate (provided that all indemnities
set forth herein including, without limitation, in Section 11 hereof shall
survive any such termination) and the Pledgee, at the request and expense of the
Pledgor, will execute and deliver to the Pledgor a proper instrument or
instruments acknowledging the satisfaction and termination of this Agreement
(including, without limitation, UCC termination statements and instruments of
satisfaction, discharge and/or reconveyance), and will duly assign, transfer and
deliver to the Pledgor (without recourse and without any representation or
warranty) such of the Collateral as may be in the possession of the Pledgee and
as has not theretofore been sold or otherwise applied or released pursuant to
this Agreement, together with any moneys at the time held by the Pledgee or any
of its sub-agents hereunder and, with respect to any Collateral consisting of an
Uncertificated Security (other than an Uncertificated Security credited on the
books of a Clearing Corporation), a Partnership Interest or a Limited Liability
Company Interest, a termination of the agreement relating thereto executed and
delivered by the issuer of such Uncertificated Security pursuant to Section
3.2(a)(ii) or by the respective partnership or limited liability company
pursuant to Section 3.2(a)(iv). As used in this Agreement, "Termination Date"
shall mean the date upon which the Total Commitments and all Interest Rate
Agreements have been terminated, no Note is outstanding (and all Loans have been
paid in full) and all other Obligations then due and payable have been paid in
full.
(b) In the event that any part of the Collateral is sold or
otherwise disposed of in connection with a sale or disposition permitted by the
Credit Agreement or is otherwise released at the direction of the Required Banks
(or all the Banks if required by Section 11.12 of the Credit Agreement), and the
proceeds of such sale or sales or from such release are applied in accordance
with the terms of the Credit Agreement to the extent required to be so applied,
the Pledgee, at the request and expense of the Pledgor will duly assign,
transfer and deliver to the Pledgor (without recourse and without any
representation or warranty) such of the Collateral as is then being (or has
been) so sold or released and as may be in possession of the Pledgee and has not
theretofore been released pursuant to this Agreement.
(c) At any time that the Pledgor desires that Collateral be
released as provided in the foregoing Section 19(a) or (b), it shall deliver to
the Pledgee a certificate signed by a principal executive officer of the Pledgor
stating that the release of the respective Collateral is permitted pursuant to
Section 19(a) or (b). If reasonably requested by the Pledgee (although the
Pledgee
137
Exhibit F
Page 20
shall have no obligation to make any such request), the Pledgor shall furnish
appropriate legal opinions (from counsel reasonably acceptable to the Pledgee)
to the effect set forth in the immediately preceding sentence. The Pledgee shall
have no liability whatsoever to any Secured Creditor as the result of any
release of Collateral by it as permitted by this Section 19.
(d) The Pledgee shall have no liability whatsoever to any
Secured Creditor as the result of any release of Collateral by it in accordance
with this Section 19.
20. NOTICES, ETC. All notices and other communications
hereunder shall be in writing and shall be delivered or mailed by first class
mail, postage prepaid, addressed:
(i) if to the Pledgor, at its address set forth opposite its
signature below;
(ii) if to the Pledgee, at:
The Chase Manhattan Bank
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇
Tel: (▇▇▇)▇▇▇-▇▇▇▇
Fax: (▇▇▇)▇▇▇-▇▇▇▇
(iii) if to any Bank (other than the Pledgee), at such address
as such Bank shall have specified in the Credit Agreement;
(iv) if to any Interest Rate Creditor, at such address as such
Interest Rate Creditor shall have specified in writing to the Borrower
and the Pledgee;
or at such address as shall have been furnished in writing by any Person
described above to the party required to give notice hereunder.
21. THE PLEDGEE. The Pledgee will hold, directly or indirectly
in accordance with this Agreement, all items of the Collateral at any time
received by it under this Agreement. It is expressly understood and agreed that
the obligations of the Pledgee with respect to the Collateral, interests therein
and the disposition thereof, and otherwise under this Agreement, are only those
expressly set forth in the UCC and this Agreement.
22. WAIVER; AMENDMENT. Except as contemplated in Section 25
hereof, none of the terms and conditions of this Agreement may be changed,
waived, discharged or terminated in any manner whatsoever unless such change,
waiver, discharge or termination is in writing duly signed by the Pledgor to be
bound thereby and the Collateral Agent (with the consent of the Required Banks
or, to the extent required by Section 11.12 of the Credit Agreement, all of the
Banks), PROVIDED, HOWEVER, that no such change, waiver, modification or variance
shall be made to Section 9 hereof or this Section 22 without the consent of each
Secured Creditor adversely affected thereby, PROVIDED FURTHER that any change,
waiver, modification or variance affecting the rights and benefits of a single
Class (as defined below) of Secured Creditors (and not all Secured Creditors in
a like or similar manner) shall require the written consent of the Requisite
138
Exhibit F
Page 21
Creditors of such Class of Secured Creditors. For the purpose of this
Agreement, the term "Class" shall mean each class of Secured
Creditors, i.e., whether (x) the Bank Creditors as holders of the
Credit Agreement Obligations, (y) the Interest Rate Creditors as
holders of the Interest Rate Obligations. For the purpose of this
Agreement, the term "Requisite Creditors" of any Class shall mean each
of (x) with respect to each of the Credit Agreement Obligations, the
Required Banks and (y) with respect to the Interest Rate Obligations,
the holders of 51% of all obligations outstanding from time to time
under the Interest Rate Agreements.
23. MISCELLANEOUS. This Agreement shall create a
continuing security interest in the Collateral and shall (i) remain in
full force and effect, subject to release and/or termination as set
forth in Section 19, (ii) be binding upon the Pledgor, its successors
and assigns; PROVIDED, HOWEVER, that the Pledgor shall not assign any
of its rights or obligations hereunder without the prior written
consent of the Pledgee (with the prior written consent of the Required
Banks, or to the extent required by Section 11.12 of the Credit
Agreement, all of the Banks), and (iii) inure, together with the
rights and remedies of the Pledgee hereunder, to the benefit of the
Pledgee, the Secured Creditors and their respective successors,
transferees and assigns. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK. The
headings of the several sections and subsections in this Agreement are
for purposes of reference only and shall not limit or define the
meaning hereof. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which
together shall constitute one instrument. In the event that any
provision of this Agreement shall prove to be invalid or
unenforceable, such provision shall be deemed to be severable from the
other provisions of this Agreement which shall remain binding on all
parties hereto.
24. WAIVER OF JURY TRIAL. The Pledgor hereby
irrevocably waives all right to a trial by jury in any action,
proceeding or counterclaim arising out of or relating to this
agreement or the transactions contemplated hereby.
25. RECOURSE. This Agreement is made with full
recourse to the Pledgor and pursuant to and upon all the
representations, warranties, covenants and agreements on the part of
the Pledgor contained herein and in the other Secured Debt Agreements
and otherwise in writing in connection herewith or therewith.
26. LIMITED OBLIGATIONS. It is the desire and intent
of the Pledgor and the Secured Creditors that this Agreement shall be
enforced against the Pledgor to the fullest extent permissible under
the laws and public policies applied in each jurisdiction in which
enforcement is sought.
27. PLEDGEE NOT A PARTNER OR LIMITED LIABILITY
COMPANY MEMBER. (a) Nothing herein shall be construed to make the
Pledgee or any other Secured Creditor liable as a member of any
limited liability company or partnership and neither the Pledgee nor
any other Secured Creditor by virtue of this Agreement or otherwise
(except as referred to in the following sentence) shall have any of
the duties, obligations or liabilities of a member of any limited
liability company or partnership. The parties hereto expressly agree
that, unless the Pledgee shall become the absolute owner of Collateral
consisting of a Limited Liability Company
139
Exhibit F
Page 22
Interest or Partnership Interest pursuant hereto, this Agreement shall not be
construed as creating a partnership or joint venture among the Pledgee, any
other Secured Creditor and/or the Pledgor.
(b) Except as provided in the last sentence of paragraph (a)
of this Section 28, the Pledgee, by accepting this Agreement, did not intend to
become a member of any limited liability company or partnership or otherwise be
deemed to be a co-venturer with respect to the Pledgor or any limited liability
company or partnership either before or after an Event of Default shall have
occurred. The Pledgee shall have only those powers set forth herein and the
Secured Creditors shall assume none of the duties, obligations or liabilities of
a member of any limited liability company or partnership or the Pledgor except
as provided in the last sentence of paragraph (a) of this Section 28.
(c) The Pledgee and the other Secured Creditors shall not be
obligated to perform or discharge any obligation of the Pledgor as a result of
the pledge hereby effected.
(d) The acceptance by the Pledgee of this Agreement, with all
the rights, powers, privileges and authority so created, shall not at any time
or in any event obligate the Pledgee or any other Secured Creditor to appear in
or defend any action or proceeding relating to the Collateral to which it is not
a party, or to take any action hereunder or thereunder, or to expend any money
or incur any expenses or perform or discharge any obligation, duty or liability
under the Collateral.
140
Exhibit F
Page 23
IN WITNESS WHEREOF, the Pledgor and the Pledgee have caused
this Agreement to be executed by their duly elected officers duly authorized as
of the date first above written.
ADDRESSES:
17800 Royalton Road, CERES GROUP, INC.,
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇ as Pledgor
Attention: ▇▇▇ ▇▇▇▇▇
By: /s/ ▇▇▇ ▇▇▇▇▇
-------------------------------
Title: Executive Vice President
THE CHASE MANHATTAN BANK,
as Collateral Agent and Pledgee
By /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
----------------------
Title: Vice President
141
ANNEX A
LIST OF SUBSIDIARIES
--------------------
Ceres Group, Inc.
-----------------
Central Reserve Life Insurance Company, an Ohio corporation
CRL Asset Management Corporation, an Ohio corporation
Western Reserve Administrative Services, Inc., an Ohio corporation
Ceres Net, Inc., a Delaware corporation
Ceres Healthcare, Inc., a Delaware corporation
Ceres Administrators, L.L.C., a Delaware limited liability company
Continental General Corporation, a Nebraska corporation
142
ANNEX B
LIST OF STOCK
-------------
Name of Issuing Corporation Type of Number of Certificate No. Percentage
Shares Shares --------------- Owned
------ ------ -----
Central Reserve Life Common 1,250,000 52 100%
Insurance Company Stock
CRL Asset Management Common 500 1 100%
Corporation, an Ohio Stock
Corporation
Western Reserve Common 100 3 100%
Administrative Services Inc., Stock
an Ohio Corporation
Ceres Net, Inc. Common 100 1 100%
Stock
Ceres Health Care, Inc. Common 100 1 100%
Stock
Ceres Savers Plan, Inc. Common 100 1 100%
Stock
Continental General Common 4,294,869 54844 100%
Corporation Stock
143
ANNEX C
LIST OF NOTES
-------------
None
144
ANNEX D
LIST OF LIMITED LIABILITY COMPANY INTERESTS
-------------------------------------------
Name of Issuer Percentage Ownership
-------------- --------------------
Ceres Administrators, L.L.C, 100%
a Delaware limited liability company
145
ANNEX E
LIST OF PARTNERSHIP INTERESTS
-----------------------------
None
146
ANNEX F
LIST OF CHIEF EXECUTIVE OFFICES
-------------------------------
Ceres Group, Inc.
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
147
ANNEX G
-------
Form of Agreement Regarding Uncertificated Securities' Limited Liability
------------------------------------------------------------------------
Company Interests and Partnership Interests
-------------------------------------------
AGREEMENT (as amended, modified or supplemented from time to
time, this "Agreement"), dated as of __________ __, ____, among the undersigned
pledgor (the "Pledgor"), THE CHASE MANHATTAN BANK, not in its individual
capacity but solely as Collateral Agent (the "Pledgee"), and ___________, as the
issuer of the Uncertificated Securities, Limited Liability Company Interests
and/or Partnership Interests (each as defined below) (the "Issuer").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Pledgor and the Pledgee are entering into a
Pledge Agreement, dated as of February 17, 1999 (as amended, amended and
restated, modified or supplemented from time to time, the "Pledge Agreement"),
under which, among other things, in order to secure the payment of the
Obligations (as defined in the Pledge Agreement), the Pledgor will pledge to the
Pledgee for the benefit of the Secured Creditors (as defined in the Pledge
Agreement), and grant a security interest in favor of the Pledgee for the
benefit of the Secured Creditors in, all of the right, title and interest of the
Pledgor in and to any and all (1) "uncertificated securities" (as defined in
Section 8-102(a)(18) of the Uniform Commercial Code, as adopted in the State of
New York) ("Uncertificated Securities"), (2) Partnership Interests (as defined
in the Pledge Agreement) and (3) Limited Liability Company Interests (as defined
in the Pledge Agreement), in each case issued from time to time by the Issuer,
whether now existing or hereafter from time to time acquired by the Pledgor
(with all of such Uncertificated Securities, Partnership Interests and Limited
Liability Company Interests being herein collectively called the "Issuer
Pledged Interests"); and
WHEREAS, the Pledgor desires the Issuer to enter into this
Agreement in order to perfect the security interest of the Pledgee under the
Pledge Agreement in the Issuer Pledged Interests, to vest in the Pledgee control
of the Issuer Pledge Interests and to provide for the rights of the parties
under this Agreement;
NOW THEREFORE, in consideration of the premises and the mutual
promises and agreements contained herein, and for other valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. The Pledgor hereby irrevocably authorizes and directs the
Issuer, and the Issuer hereby agrees, to comply with any and all instructions
and orders originated by the Pledgee (and its successors and assigns) regarding
any and all of the Issuer Pledged Interests without the further consent by the
registered owner (including the Pledgor), and not to comply with any
instructions or orders regarding any or all of the Issuer Pledged Interests
originated by any person
148
ANNEX G
Page 2
or entity other than the Pledgee (and its successors and assigns) or a court of
competent jurisdiction.
2. The Issuer hereby certifies that (i) no notice of any
security interest, lien or other encumbrance or claim affecting the Issuer
Pledged Interests (other than the security interest of the Pledgee) has been
received by it, and (ii) the security interest of the Pledgee in the Issuer
Pledged Interests has been registered in the books and records of the Issuer.
3. The Issuer hereby represents and warrants that (i) the
pledge by the Pledgor of, and the granting by the Pledgor of a security interest
in, the Issuer Pledged Interests to the Pledgee, for the benefit of the Secured
Creditors, does not violate the charter, by-laws, partnership agreement,
membership agreement or any other agreement governing the Issuer or the Issuer
Pledged Interests, and (ii) the Issuer Pledged Interests are fully paid and
nonassessable.
4. All notices, statements of accounts, reports, prospectuses,
financial statements and other communications to be sent to the Pledgor by the
Issuer in respect of the Issuer will also be sent to the Pledgee at the
following address:
The Chase Manhattan Bank
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
5. Until the Pledgee shall have delivered written notice to
the Issuer that all of the Obligations have been paid in full and this Agreement
is terminated, the Issuer will send any and all redemptions, distributions,
interest or other payments in respect of the Issuer Pledged Interests from the
Issuer for the account of the Pledgor only by wire transfers to the following
address:
The Chase Manhattan Bank
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇
ABA No.: ▇▇▇▇▇▇▇▇▇
Account in the Name of: Ceres Group. Inc.
Account No.: ▇▇▇-▇-▇▇▇▇▇
6. Except as expressly provided otherwise in Sections 4 and 5,
all notices, instructions, orders and communications hereunder shall be sent or
delivered by mail, telex, telecopy or overnight courier service and all such
notices and communications shall, when mailed, telexed, telecopied or sent by
overnight courier, be effective when deposited in the mails or delivered to the
overnight courier, prepaid and properly addressed for delivery on such or the
next Business Day, or sent by telex or telecopier, except that notices and
communications to the Pledgee shall not be effective until received by the
Pledgee. All notices and other communications shall be in writing and addressed
as follows:
149
ANNEX G
Page 3
(a) if to the Pledgor, at:
Ceres Group, Inc.
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇ ▇▇▇▇▇
Tel.: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
(b) if to the Pledgee, at:
The Chase Manhattan Bank
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
(c) if to the Issuer, at:
_____________________________
_____________________________
_____________________________
Attention: __________________
Telephone No.:_______________
Telecopier No.:______________
or at such other address as shall have been furnished in writing by any Person
described above to the party required to give notice hereunder. As used in this
Section 6, "Business Day" means any day other than a Saturday, Sunday, or other
day in which banks in New York are authorized to remain closed.
7. This Agreement shall be binding upon the successors and
assigns of the Pledgor and the Issuer and shall inure to the benefit of and be
enforceable by the Pledgee and its successors and assigns. This Agreement may be
executed in any number of counterparts, each of which shall be an original, but
all of which shall constitute one instrument. In the event that any provision of
this Agreement shall prove to be invalid or unenforceable, such provision shall
be deemed to be severable from the other provisions of this Agreement which
shall remain binding on all parties hereto. None of the terms and conditions of
this Agreement may be changed, waived, modified or varied in any manner
whatsoever except in writing signed by the Pledgee, the Issuer and the Pledgor
which at such time owns any Issuer Pledged Interests.
8. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without regard to its
principles of conflict of laws.
150
ANNEX G
Page 4
IN WITNESS WHEREOF, the Pledgor, the Pledgee and the Issuer
have cause this Agreement to be executed by their duly elected officers duly
authorized as of the date first above written.
CERES GROUP, INC.,
as Pledgor
By_________________________
Name:
Title:
THE CHASE MANHATTAN BANK,
not in its individual capacity but solely as Collateral
Agent and Pledgee
By_________________________
Name:
Title:
[ ],
the Issuer
By_________________________
Name.
Title:
151
EXHIBIT G
---------
FORM OF ASSIGNMENT AND ASSUMPTION AGREEMENT
--------------------------------------------
DATE: ______,_____
Reference is made to the Credit Agreement described in Item 2
of Annex I annexed hereto (as such Credit Agreement may hereafter be amended,
modified or supplemented from time to time, the "Credit Agreement"). Unless
defined in Annex I attached hereto, terms defined in the Credit Agreement are
used herein as therein defined. ________________ (the "Assignor") and
__________________ (the "Assignee") hereby agree as follows:
1. The Assignor hereby sells and assigns to the Assignee
without recourse and without representation or warranty (other than as expressly
provided herein), and the Assignee hereby purchases and assumes from the
Assignor, that interest in and to all of the Assignor's rights and obligations
under the Credit Agreement as of the date hereof which represents the percentage
interest specified in Item 4 of Annex I (the "Assigned Share") of all of the
outstanding rights and obligations under the Credit Agreement relating to the
Facilities listed in Item 4 of Annex I, including, without limitation, (i) in
the case of any assignment of all or any portion of the Assignor's outstanding
Term Loans, all rights and obligations with respect to the Assigned Share of
outstanding Term Loans, (ii) in the case of any assignment of all or any portion
of the Assignor's Revolving Loan Commitment, all rights and obligations with
respect to the Assigned Share of the Total Revolving Loan Commitment and of any
outstanding Revolving Loans
2. The Assignor (i) represents and warrants that it is the
legal and beneficial owner of the interest being assigned by it hereunder and
that such interest is free and clear of any liens or security interests; (ii)
makes no representation or warranty and assumes no responsibility with respect
to any statements, warranties or representations made in or in connection with
the Credit Agreement or the other Credit Documents or the execution, legality,
validity, enforceability, genuineness, sufficiency or value of the Credit
Agreement or the other Credit Documents or any other instrument or document
furnished pursuant thereto; and (iii) makes no representation or warranty and
assumes no responsibility with respect to the financial condition of the
Borrower or any of its Subsidiaries or the performance or observance by the
Borrower or any of its Subsidiaries of any of their respective obligations under
the Credit Agreement or the other Credit Documents or any other instrument or
document furnished pursuant thereto.
3. The Assignee (i) confirms that it has received a copy of
the Credit Agreement and the other Credit Documents, together with copies of the
financial statements referred to therein and such other documents and
information as it has deemed appropriate to make its own credit analysis and
decision to enter into this Assignment and Assumption Agreement; (ii) agrees
that it will, independently and without reliance upon the Administrative Agent,
the Assignor or any other Bank and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under the Credit Agreement; (iii) appoints and
authorizes the Administrative Agent and the Collateral Agent to take such action
as agent on its behalf and to exercise such powers under the Credit Agreement
152
Exhibit G
Page 2
and the other Credit Documents as are delegated to the Administrative Agent and
the Collateral Agent by the terms thereof together with such powers as are
reasonably incidental thereto; (iv) agrees that it will perform in accordance
with their terms all of the obligations which by the terms of the Credit
Agreement are required to be performed by it as a Bank; [and] (v) confirms that
it is a parent company and/or affiliate of the Assignor or an Eligible
Transferee under Section 11.04(b) of the Credit Agreement and that it is duly
authorized to enter into and perform the terms of this Assignment and Assumption
Agreement[; and (vi) attaches the Internal Revenue Service forms (and, if
applicable, a Section 3.04(b)(ii) Certificate) described in Section 11.04(b) of
the Credit Agreement].(5)
4. Following the execution of this Assignment and Assumption
Agreement by the Assignor and the Assignee, an executed original hereof
(together with all attachments) will be delivered to the Administrative Agent.
The effective date of this Assignment and Assumption Agreement shall be the
first date upon which each of the following conditions shall have been occurred:
(i) the execution hereof by the Assignor and the Assignee, (ii) to the extent
required by the Credit Agreement, the receipt of the consent of the
Administrative Agent, (iii) the receipt by the Administrative Agent of the
assignment fee referred to in Section 11.04(b) of the Credit Agreement and (iv)
the registration of the transfer on the Register as provided in Section 11.04(b)
of the Credit Agreement, or such later date as otherwise specified in Item 5 of
Annex I (the "Settlement Date").
5. Upon the delivery of a fully executed original hereof to
the Administrative Agent, as of the Settlement Date, (i) the Assignee shall be a
party to the Credit Agreement and, to the extent provided in this Assignment and
Assumption Agreement, have the rights and obligations of a Bank thereunder and
under the other Credit Documents and (ii) the Assignor shall, to the extent
provided in this Assignment and Assumption Agreement, relinquish its rights and
be released from its obligations under the Credit Agreement and the other Credit
Documents.
6. It is agreed that upon the effectiveness hereof, the
Assignee shall be entitled to (x) all interest on the Assigned Share of the
Loans at the rates specified in Item 6 of Annex I and (y) all Commitment Fees
(if applicable) on the Assigned Share of the Total Revolving Loan
Commitment at the rate specified in Item 7 of Annex I, such interest and, if
applicable, Commitment Fees to be paid by the Administrative Agent directly to
the Assignee. It is further agreed that all payments of principal made on the
Assigned Share of the Loans which occur on and after the Settlement Date will be
paid directly by the Administrative Agent to the Assignee. Upon the Settlement
Date, the Assignee shall pay to the Assignor an amount specified by the Assignor
in writing which represents the Assigned Share of the principal amount of the
respective Loans made by the Assignor pursuant to the Credit Agreement which are
outstanding on the Settlement Date, net of any closing costs, and which are
being assigned hereunder. The Assignor
------------------------
(5) If the Assignee is organized under the laws of a jurisdiction outside the
United States.
153
Exhibit G
Page 3
and the Assignee shall make all appropriate adjustments in payments under the
Credit Agreement for periods prior to the Settlement Date directly between
themselves.
7. THIS ASSIGNMENT AND ASSUMPTION AGREEMENT SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
154
Exhibit G
Page 4
IN WITNESS WHEREOF, the parties hereto have caused this
Assignment and Assumption Agreement to be executed by their respective officers
thereunto duly authorized, as of the date first above written, such execution
also being made on Annex I hereto.
[NAME OF ASSIGNOR],
as Assignor
By________________________
Name:
Title:
[NAME OF ASSIGNEE],
as Assignee
By________________________
Name:
Title:
155
Exhibit G
Page 5
Acknowledged and Agreed:
[THE CHASE MANHATTAN BANK, as Administrative Agent
By______________________
Name:
Title:
CERES GROUP, INC.,
By:______________________
Name:
Title:](6)
----------------------
(6) The consent of the Administrative Agent and the Borrower is required in
connection with assignments of Revolving Loan Commitments and/or
outstanding Term Loans pursuant to Section 11.04(b) of the Credit
Agreement (which consent shall not be unreasonably withheld).
156
ANNEX I
TO EXHIBIT G
------------
ANNEX I TO ASSIGNMENT AND ASSUMPTION AGREEMENT
1. The Borrower: Ceres Group, Inc. (the "Borrower").
2. Name and Date of Credit Agreement:
Credit Agreement, dated as of February 17, 1999, among Ceres Group,
Inc., lenders from time to time party thereto and The Chase Manhattan
Bank, as Administrative Agent.
3. Date of Assignment and Assumption Agreement:
4. Amounts (as of the date of item #3 above):
Outstanding
Outstanding Principal of Total
Principal of Revolving Revolving Loan
Term Loans Loans Commitment
---------- ----- ----------
a. Aggregate Amount for all Banks $__________ $__________ $__________
b. Assigned Share __________% __________% __________%
c. Amount of Assigned Share $__________ $__________ $_________
5. Settlement Date: ___________________.
6. Rate of Interest As set forth in Section 1.08 of the Credit
to the Assignee: Agreement (unless otherwise agreed to by the
Assignor and the Assignee)(7)
7. Commitment Fee As set forth in Section 2.01(a) of the Credit
to the Assignee: Agreement (unless otherwise agreed to by the
Assignor and the Assignee)(8)
-----------------------------
(7) The Borrower and the Administrative Agent shall direct the entire amount
of the interest to the Assignee at the rate set forth in Section 1.08 of
the Credit Agreement, with the Assignor and Assignee effecting any agreed
upon sharing of interest through payments by the Assignee to the Assignor.
(8) Insert "Not Applicable" in lieu of text if no portion of the Total
Revolving Loan Commitment is being assigned. Otherwise, the Borrower and
the Agent shall direct the entire amount of the Commitment Fee to the
Assignee at the rate set forth in Section 2.01(a) of the Credit Agreement,
with the Assignor and the Assignee effecting any agreed upon sharing of
the Commitment Fee through payment by the Assignee to the Assignor.
157
ANNEX I
TO EXHIBIT G
------------
Page 2
8. Notice:
ASSIGNEE:
----------------------------
----------------------------
----------------------------
----------------------------
Attention:
Telephone:
Telecopier:
Reference:
ASSIGNOR
----------------------------
----------------------------
----------------------------
----------------------------
Attention:
Telephone:
Telecopier:
Reference:
158
ANNEX I
TO EXHIBIT G
------------
Page 3
9. Payment Instructions:
ASSIGNEE.
----------------------------
----------------------------
----------------------------
----------------------------
Attention:
Telephone:
Telecopier:
Reference
ASSIGNOR
----------------------------
----------------------------
----------------------------
----------------------------
Attention:
Telephone:
Telecopier:
Reference:
Accepted and Agreed:
[NAME OF ASSIGNEE] [NAME OF ASSIGNOR]
By_________________________ By_________________________
------------------------- -------------------------
(Print Name and Title) (Print Name and Title)