Fifth Amendment to First Restated Credit Agreement
Fifth
Amendment to First Restated Credit Agreement
This
FIFTH AMENDMENT TO FIRST RESTATED CREDIT AGREEMENT (this “Fifth
Amendment”),
dated
as of February 20, 2008, is among HALLMARK FINANCIAL SERVICES, INC., a
Nevada corporation (“Borrower”),
AMERICAN
HALLMARK INSURANCE COMPANY OF TEXAS,
a Texas
insurance corporation (“AHIC”),
PHOENIX
INDEMNITY INSURANCE COMPANY,
an
Arizona insurance corporation (“PIIC”),
each
other Obligor, and THE FROST NATIONAL BANK, a national banking association
(“Lender”).
RECITALS:
Borrower,
AHIC, PIIC, and Lender have previously entered into the First Restated Credit
Agreement dated as of January 27, 2006 (such agreement, together with all
amendments and restatements, the “Credit
Agreement”).
Borrower
has requested an extension of the maturity date and modifications to the
financial covenants.
Lender
has agreed to amend the Credit Agreement, subject to the terms of this Fifth
Amendment.
AGREEMENT:
NOW,
THEREFORE, in consideration of the premises and mutual covenants herein
contained, the parties hereto agree as follows:
ARTICLE
I
Definitions
1.1 Definitions.
All
capitalized terms not otherwise defined herein have the same meanings as in
the
Credit Agreement.
ARTICLE
II
Amendments
to Credit Agreement
2.1 Amendments
to Credit Agreement Section 1.1.
(a) The
definition of “Eurodollar
Rate”
is
deleted in its entirety and the following is substituted in
lieu
thereof:
“Eurodollar
Rate”
means
the sum of the Eurodollar Basis plus 1.90%.
(b) The
definition of “Revolving
Facility L/C Expiration Date”
is
deleted in its entirety and the following is substituted in
lieu
thereof:
“Revolving
Facility L/C Expiration Date”
means
the first to occur of (a) January 27, 2010, (b) the date the
Revolving Facility L/C Commitment is terminated pursuant to either Section 2.6
or
9.2,
and
(c) the date the Obligations are accelerated.
(c) The
definition of “Premium
Finance Loan Maturity Date”
is
deleted in its entirety and the following is substituted in
lieu
thereof:
“Premium
Finance Loan Maturity Date”
means
the first to occur of (a) January 27, 2010, (b) the date the
Premium Finance Commitment is terminated pursuant to either Section 2.6
or
9.2,
and
(c) the date the Obligations are accelerated.
(d) The
definition of “Revolving
Loan Maturity Date”
is
deleted in its entirety and the following is substituted in
lieu
thereof:
“Revolving
Loan Maturity Date”
means
the first to occur of (a) January 27, 2013, (b) the date the
Revolving Commitment is terminated pursuant to either Section 2.6
and
9.2,
and
(c) the date the Obligations are accelerated.
(e) The
definition of “Termination
Date”
is
deleted in its entirety and the following is substituted in
lieu
thereof:
“Termination
Date”
means
January 27, 2010.
2.2 Amendment
to Credit Agreement Section 6.2(a)(i)(B).
Credit
Agreement Section 6.2(a)(i)(B)
is
deleted in its entirety and the following is substituted in
lieu
thereof:
(B)
if
required by ▇▇▇▇▇▇▇▇-▇▇▇▇▇, an attestation report of Auditors as to Borrower’s
internal controls pursuant to Section 404 of ▇▇▇▇▇▇▇▇-▇▇▇▇▇ expressing a
conclusion to which Lender does not object;
2.3 Amendment
to Credit Agreement Section 6.2(c).
Credit
Agreement Section 6.2(c)
is
deleted in its entirety and the following is substituted in
lieu
thereof:
(c) Annual
Budget.
As soon
as available, but in any event within 60 days after the first day of each fiscal
year of Borrower, a copy of the annual consolidated operating budget of Borrower
and Subsidiaries for such fiscal year in form and substance satisfactory to
Lender.
2.4 Amendment
to Credit Agreement Section 6.2(f).
Credit
Agreement Section 6.2(f)
is
deleted in its entirety and the following is substituted in
lieu
thereof:
(f) Notice
of Litigation.
Promptly upon becoming aware of the existence of any Litigation, other
than that arising in the normal course of business related to policies of
insurance issued to its policyholders and in which the amount in controversy
is
within policy limits,
before
any Governmental Authority, arbitrator or mediator (but no later than 10
business days after the filing thereof) involving it, (i) which could reasonably
be expected to involve its payment payment of $250,000.00 or more, or (ii)
which, under normal operating standards, could result in a reserve being
established in excess of $250,000.00 a written notice specifying the nature
thereof and whether it will contest such proceeding.
2
2.5 Amendment
to Credit Agreement Section 6.2(i).
Credit
Agreement Section 6.2(i)
is
deleted in its entirety and the following is substituted in
lieu
thereof:
(i) Investment
Policy.
Within
5 days after any material amendment to or restatement of any Investment Policy
of any RIC, a copy of such material amendment or restatement as approved by
the
board of directors or other appropriate governance body of such
RIC.
2.6 Amendment
to Credit Agreement Section 7.1.
Credit
Agreement Section 7.1
is
deleted in its entirety and the following is substituted in
lieu
thereof:
7.1 AHIC
Total Adjusted Capital.
Borrower shall not permit Total Adjusted Capital of AHIC to be less than the
greater of (a) $73,000,000 and (b) the amount required for Risk-Based Capital
of
AHIC to equal 250%, as at the last day of any fiscal quarter of
AHIC.
2.7 Amendment
to Credit Agreement Section 7.2.
Credit
Agreement Section 7.2
is
deleted in its entirety and the following is substituted in
lieu
thereof:
7.2 PIIC
Total Adjusted Capital.
Borrower shall not permit Total Adjusted Capital of PIIC to be less than the
greater of (a) $38,000,000 and (b) the amount required for Risk-Based Capital
of
PIIC to equal 250%, as at the last day of any fiscal quarter of
PIIC.
2.8 Amendment
to Credit Agreement Section 7.4.
Credit
Agreement Section 7.4
is
deleted in its entirety and the following is substituted in
lieu
thereof:
7.4 Consolidated
Net Worth.
Borrower shall not permit Consolidated Net Worth to be less than $206,800,000
as
at the last day of any fiscal quarter of Borrower.
2.9 Revolving
Note.
Exhibit A
to the
Credit Agreement is deleted in its entirety and a new Exhibit A,
in the
form of Exhibit A
attached
hereto, is substituted in
lieu
thereof.
2.10 Amendment
to Credit Agreement Exhibit J.
Exhibit
J
(Compliance Certificate) is deleted in its entirety and a new Exhibit
J,
in the
form of attached Exhibit
J,
is
substituted in
lieu
thereof.
2.11 Amendment
to Credit Agreement Schedule 8.1.
Schedule 8.1
(Subsidiaries) is deleted in its entirety and a new Schedule 8.1,
in the
form of attached Schedule 8.1,
is
substituted in
lieu
thereof.
3
2.12 Amendment
to Credit Agreement Schedule 8.5.
Schedule 8.5
(Existing Debt) is deleted in its entirety and a new Schedule 8.5,
in the
form of attached Schedule 8.5,
is
substituted in
lieu
thereof.
2.13 Amendment
to Credit Agreement Schedule 8.10.
Schedule 8.10
(Licensed Jurisdictions) is deleted in its entirety and a new Schedule 8.10,
in the
form of attached Schedule 8.10,
is
substituted in
lieu
thereof.
2.14 Amendment
to Credit Agreement Schedule 8.19.
Schedule 8.19
(Reinsurance Agreements) is deleted in its entirety and a new Schedule 8.19,
in the
form of attached Schedule 8.19,
is
substituted in
lieu
thereof.
ARTICLE
III
Conditions
Precedent
3.1 Conditions.
The
effectiveness of this Fifth Amendment is subject to the satisfaction of the
following conditions precedent:
(a) Documents.
Lender
shall have received the following in number of counterparts and copies as Lender
may request:
(i) Fifth
Amendment.
This
Fifth Amendment executed by Borrower, each other Obligor and
Lender.
(ii) Third
Restated Revolving Note.
The
duly executed Third Restated Revolving Note, in the form of attached
Exhibit A,
payable
to the order of Lender and in an amount equal to the Revolving
Commitment.
(iii) Second
Amendment to Pledge and Security Agreement.
The
Second Amendment to Pledge and Security Agreement executed by
Borrower.
(iv) Financing
Statements.
Financing amendments filed in the respective jurisdictions to reflect the change
in legal names of (i) Texas General Agency, Inc. to TGA Insurance Managers,
Inc.
and (ii) Hallmark General Agency, Inc. to American Hallmark Insurance Services,
Inc.
(v) Obligor
Proceedings.
Evidence that all corporate, limited liability company and partnership
proceedings of each Obligor and each other Person (other than Lender) taken
in
connection with the transactions contemplated by this Fifth Amendment and the
other Loan Documents shall be reasonably satisfactory in form and substance
to
Lender; and Lender shall have received copies of all documents or other evidence
which Lender may reasonably request in connection with such
transactions.
(vi) Expenses.
Reimbursement for reasonable Attorney Costs incurred through the date
hereof.
4
(vii) Other
Documents.
In form
and substance satisfactory to Lender, such other documents, instruments and
certificates as Lender may reasonably require in connection with the
transactions contemplated hereby.
(b) No
Default.
No
Default or Event of Default shall exist.
(c) Representations
and Warranties.
(i) All
of
the representations and warranties contained in Article VIII
of the
Credit Agreement, as amended hereby, and in the other Loan Documents shall
be
true and correct on and as of the date of this Fifth Amendment with the same
force and effect as if such representations and warranties had been made on
and
as of such date, except to the extent such representations and warranties speak
to a specific date.
(ii) All
of
the representations and warranties contained in Article VI
shall be
true and correct on and as of the date hereof and subject to any waiver
previously delivered by Lender to Borrower.
ARTICLE
IV
Waivers
4.1 Security
Agreement.
Section
3(h)
of that
certain Security Agreement between Texas General Agency, Inc. and Lender dated
as of January 30, 2006 (as amended, the "TGA
Security Agreement")
provides that
Debtor shall not permit any Organizational Information of the Debtor to change.
Texas
General Agency, Inc. has changed its legal name to TGA Insurance Managers,
Inc.
Subject
to the effectiveness of this Amendment, the Lender waives the requirement of
TGA
Security Agreement Section
3(h)
with
respect to the change in legal name of Texas General Agency, Inc. to TGA
Insurance Managers, Inc.
4.2 Security
Agreement.
Section
3(h)
of the
that certain Security Agreement between Hallmark General Agency, Inc. and Lender
dated as of June 29, 2005 (as amended, the "Hallmark
Pledge Agreement")
provides that that Debtor shall not permit any Organizational Information of
the
Debtor to change. Hallmark General Agency, Inc. has changed its legal name
to
American Hallmark Insurance Services, Inc.
Subject
to the effectiveness of this Amendment, the Lender waives the requirement of
Hallmark Security Agreement Section 3(h)
with
respect to the change in legal name of Hallmark General Agency, Inc. to American
Hallmark Insurance Services, Inc.
4.3 Limited
Waivers.
The
waivers provided in Sections 4.1
and
4.2
do not
constitute a waiver of any other requirement of any Loan Document.
5
ARTICLE
V
Ratification
5.1 Ratification.
The
terms and provisions set forth in this Fifth Amendment shall modify and
supersede all inconsistent terms and provisions set forth in the Credit
Agreement and except as expressly modified and superseded by this Fifth
Amendment, the terms and provisions of the Credit Agreement and the other Loan
Documents are ratified and confirmed and shall continue in full force and
effect. Each Obligor agrees that the Credit Agreement, as amended hereby, and
the other Loan Documents to which it is a party or subject shall continue to
be
legal, valid, binding and enforceable in accordance with their respective
terms.
ARTICLE
VI
Representations
and Warranties
6.1 Representations
and Warranties of all Obligors.
Each
Obligor hereby represents and warrants to Lender that (a) the execution,
delivery and performance of this Fifth Amendment and any and all other Loan
Documents executed and/or delivered in connection herewith have been authorized
by all requisite action on the part of such Obligor and will not violate any
organizational document of such Obligor, (b) the representations and
warranties contained in the Credit Agreement, as amended hereby, and each other
Loan Document are true and correct on and as of the date hereof as though made
on and as of the date hereof, except to the extent such representations and
warranties speak to a specific date, (c) no Default or Event of Default
exists, and (d) such Obligor is in full compliance with all covenants and
agreements contained in the Credit Agreement, as amended hereby, and the other
Loan Documents to which it is a party or it or its property is
subject.
ARTICLE
VII
Miscellaneous
7.1 Reference
to Credit Agreement.
Each of
the Loan Documents, including the Credit Agreement and any and all other
agreements, documents, or instruments now or hereafter executed and delivered
pursuant to the terms hereof or pursuant to the terms of the Credit Agreement
as
amended hereby, are hereby amended so that any reference in such Loan Documents
to the Credit Agreement shall mean a reference to the Credit Agreement as
amended hereby.
7.2 Severability.
The
provisions of this Fifth Amendment are intended to be severable. If for any
reason any provision of this Fifth Amendment shall be held invalid
or unenforceable
in whole or in part in any jurisdiction, such provision shall, as to such
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without in any manner affecting the
validity or enforceability thereof in any other jurisdiction or the remaining
provisions hereof in any jurisdiction.
6
7.3 Counterparts.
This
Fifth Amendment may be executed in any number of counterparts, all of which
taken together shall constitute one and the same instrument, and any party
hereto may execute this Fifth Amendment by signing any such
counterpart.
7.4 GOVERNING
LAW.
THIS FIFTH AMENDMENT AND THE OTHER LOAN DOCUMENTS SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS. THE LOAN
DOCUMENTS ARE PERFORMABLE IN SAN ANTONIO, BEXAR COUNTY, TEXAS, AND BORROWER,
EACH L/C RIC AND LENDER WAIVE THE RIGHT TO BE SUED ELSEWHERE. BORROWER, EACH
L/C
RIC AND LENDER AGREE THAT THE STATE AND FEDERAL COURTS OF TEXAS LOCATED IN
SAN
ANTONIO, TEXAS SHALL HAVE JURISDICTION OVER PROCEEDINGS IN CONNECTION WITH
THIS
FIFTH AMENDMENT AND THE OTHER LOAN DOCUMENTS.
7.5 ENTIRE
AGREEMENT.
THIS WRITTEN AGREEMENT, TOGETHER WITH THE OTHER LOAN DOCUMENTS, REPRESENTS
THE
FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE
OF
PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES HERETO.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
|
The
Remainder of This Page Is Intentionally Left Blank.
|
7
Executed
as of the date first written above.
|
BORROWER:
|
HALLMARK
FINANCIAL SERVICES, INC.
|
|
|
By:
|
||
|
▇▇▇▇▇▇▇
▇. ▇▇▇▇▇▇▇▇
|
||
|
Chief
Accounting Officer
|
||
|
L/C
RICs:
|
AMERICAN
HALLMARK INSURANCE COMPANY OF TEXAS
|
|
|
PHOENIX
INDEMNITY INSURANCE COMPANY
|
||
|
By:
|
||
|
|
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ | |
|
Chief
Financial Officer and
Treasurer
|
||
8
OTHER
OBLIGORS:
ACO
HOLDINGS, INC.
ALLRISK
INSURANCE AGENCY, INC.
AMERICAN
HALLMARK AGENCIES, INC.
AMERICAN
HALLMARK GENERAL AGENCY, INC.
EFFECTIVE
CLAIMS MANAGEMENT, INC.
HALLMARK
CLAIMS SERVICE, INC.
HALLMARK
FINANCE CORPORATION
AMERICAN
HALLMARK INSURANCE SERVICES, INC. (formerly known as Hallmark General Agency,
Inc.)
HALLMARK
UNDERWRITERS, INC.
|
By:
|
|
|
|
▇▇▇▇▇▇▇
▇. ▇▇▇▇▇▇▇▇
|
|
Chief
Financial Officer and Treasurer
|
AEROSPACE
CLAIMS MANAGEMENT GROUP, INC.
AEROSPACE
HOLDINGS, LLC
AEROSPACE
SPECIAL RISK, INC.
TGA
INSURANCE MANAGERS, INC. (formerly known as Texas General Agency,
Inc.)
TGA
SPECIAL RISK, INC.
|
By:
|
|
|
▇▇▇▇▇▇▇
▇. ▇▇▇▇▇▇▇▇
|
|
|
Vice
President
|
AEROSPACE
FLIGHT, INC.
|
By:
|
|
|
▇▇▇▇▇
▇. ▇▇▇▇
|
|
|
Secretary
|
AEROSPACE
INSURANCE MANAGERS, INC.
|
By:
|
|
|
▇▇▇▇▇▇▇
▇. ▇▇▇▇▇▇▇▇
|
|
|
Senior
Vice President
|
PAN
AMERICAN ACCEPTANCE
CORPORATION
|
By:
|
|
|
▇▇▇
▇▇▇▇▇
|
|
|
Secretary
& Treasurer
|
9
|
LENDER:
|
THE
FROST NATIONAL BANK
|
|
|
By:
|
||
|
Print
Name:
|
||
|
Print
Title:
|
10