Exhibit 10.38
EIGHTH AMENDMENT TO THE CREDIT AGREEMENT
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EIGHTH AMENDMENT TO THE CREDIT AGREEMENT (this "Amendment"), dated as
of December 18, 2001, among CERES GROUP, Inc., a Delaware corporation (the
"Borrower"), the lending institutions party to the Credit Agreement referred to
below (each a "Bank" and, collectively, the "Banks"), and JPMORGAN CHASE BANK,
as Administrative Agent (the "Administrative Agent"). All capitalized terms used
herein and not otherwise defined herein shall have the respective meanings
provided such terms in the Credit Agreement referred to below.
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Borrower, the Banks and the Administrative Agent are party
to a Credit Agreement, dated as of February 17, 1999 (as amended, modified and
supplemented prior to the date hereof, the "Credit Agreement");
WHEREAS, the Borrower desires to make a minimum public offering of
14,000,000 shares of the common stock of the Borrower for net proceeds equal to
no less than $30,000,000 to be applied to (i) prepay a portion of the
outstanding A-1 Term Loans, (ii) redeem all of the Pyramid Seller Preferred
Stock with $5,000,000 of the proceeds of such public offering and (iii) make a
capital contribution to certain Regulated Insurance Companies, as further
described in this Amendment.
WHEREAS, the Borrower further desires to incur on or after the Eighth
Amendment Effective Date incremental senior secured bank financing pursuant to
additional A-2 Term Loans in an amount equal to $2,500,000 to be extended under
the A-2 Term Loan Facility, which additional loans, if granted, shall be used to
repay and terminate an equivalent amount of the commitments under the Revolving
Loan Facility. The Borrower has agreed to place up to $2,500,000 of the proceeds
of the public offering of the common stock of the Borrower in an escrow account
and to apply such proceeds to repay the outstanding Revolving Loans (and reduce
the Revolving Loan Commitments) if the additional A-2 Term Loans are not granted
by a certain date.
WHEREAS, the Borrower has requested certain amendments to the Credit
Agreement in connection with such public offering and the incurrence of such
additional loans and the Banks have agreed to such amendments on the terms and
conditions set forth herein;
NOW, THEREFORE, it is agreed:
1. Section 1.01(c) of the Credit Agreement is hereby amended by (i)
inserting the words "with the Additional A-2 Term Loans, if any, " immediately
after the term "collectively" appearing in the first parenthetical contained
therein, (ii) inserting the words "other than the Additional A-2 Term Loans
which shall be incurred by the Borrower pursuant to a single drawing on the
Additional A-2 Term Loan Closing Date and used for the purposes described in
Section 5.05(e)" immediately before the semicolon appearing at the end of
sub-clause (i) thereof
and (iii) deleting the text "Sixth Amendment Effective Date" appearing in
sub-clause (iv) thereof and inserting the text "Additional A-2 Term Loan Closing
Date" in lieu thereof.
2. Section 2.02 is hereby further amended by (i) deleting the existing
sub-clauses (d) and (e) contained therein in their entirety and (ii) inserting
the following new sub-clauses (d) and (e) in lieu thereof:
"(d) The Total Revolving Loan Commitment shall be permanently
reduced by $2,500,000 on the Revolver Pay-Down Date.
(e) The Total A-2 Term Loan Commitment shall terminate on the
Additional A-2 Term Loan Closing Date, after giving effect to
the incurrence of the Additional A-2 Term Loans on such date."
3. Section 3.01 of the Credit Agreement is hereby amended by (i)
inserting the text "(a)" immediately before the text appearing in such section
and (ii) inserting the following new clause (b) at the end of same:
"(b) Notwithstanding anything to the contrary contained in Section
3.01(a), (i) $10,000,000 of the Offering Proceeds shall be
applied by the Borrower on the Eighth Amendment Effective Date
to prepay the outstanding A-1 Term Loans of each Bank with an
A-1 Term Loan Commitment on a pro rata basis and (ii) (x)
$2,500,000 of the Additional A-2 Term Loans, or (y) if the
Additional A-2 Term Loan Closing Date has not occurred by the
Revolver Pay-Down Date, $2,500,000 of the Revolver Pay-Down
Proceeds, shall be applied by the Borrower on the Revolver
Pay-Down Date to prepay the outstanding Revolving Loans of
each Bank with a Revolving Loan Commitment on a pro rata
basis."
4. Section 3.02(i)(a)(x) of the Credit Agreement is hereby amended by
deleting the table contained therein in its entirety and inserting the following
table in lieu thereof:
"Scheduled Repayment Date Amount
------------------------- ------
February 17, 2000 $3,000,000
May 17, 2000 $1,000,000
August 17, 2000 $1,000,000
November 17, 2000 $1,000,000
February 17, 2001 $1,000,000
May 17, 2001 $1,500,000
August 17, 2001 $1,500,000
November 17, 2001 $1,500,000
February 17, 2002 $500,000
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May 17, 2002 $500,000
August 17, 2002 $750,000
November 17, 2002 $750,000
February 17, 2003 $937,500
May 17, 2003 $937,500
August 17, 2003 $937,500
November 17, 2003 $937,500
February 17, 2004 $937,500
May 17, 2004 $937,500
August 17, 2004 $937,500
November 17, 2004 $937,500
February 17, 2005 $8,500,000"
5. Section 3.02(i)(a)(y) of the Credit Agreement is hereby amended by
inserting the following text immediately before the table contained therein:
"(i) if the Additional A-2 Term Loan Closing Date occurs:
A-2 Term Loan Scheduled Amount
----------------------- ------
Repayment Date
--------------
June 17, 2002 $332,500
September 17, 2002 $332,500
December 17, 2002 $332,500
March 17, 2003 $375,000
June 17, 2003 $375,000
September 17, 2003 $375,000
December 17, 2003 $375,000
March 17, 2004 $500,000
June 17, 2004 $500,000
September 17, 2004 $500,000
December 17, 2004 $500,000
March 17, 2005 $1,125,000
June 17, 2005 $1,125,000
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September 17, 2005 $1,125,000
December 17, 2005 $1,125,000
March 17, 2006 $1,500,000
June 17, 2006 $2,002,500
(ii) if the Additional A-2 Term Loan Closing Date does not occur:"
6. Section 3.02(i) of the Credit Agreement is hereby further amended by
inserting the following new sub-clauses (e) and (f) immediately after sub-clause
(d) appearing therein:
"(e) In addition to any of the mandatory repayments pursuant to
this Section 3.02(i), on the third Business Day after the date
of receipt thereof by the Borrower or any of its Subsidiaries,
the Borrower shall repay the principal amount of the Term
Loans, in an amount equal to:
(A) 25% of the cash proceeds (net of underwriting discounts
and commissions and all other reasonable costs associated with
such transaction) from any sale or issuance after the Eighth
Amendment Effective Date of equity or cash contributions to
the Borrower (other than (i) the Revolver Pay-Down Proceeds
and (ii) proceeds from the exercise of warrants and from the
exercise of equity awards issued pursuant to compensation and
other equity incentive plans existing on, or established by
the Borrower, after the Eighth Amendment Effective Date);
(B) if the Offering Proceeds exceed $52,500,000 (the "Maximum
Proceeds Amount"), 15% of any cash proceeds received by the
Borrower in excess of the Maximum Proceeds Amount shall be
applied by the Borrower to prepay the principal amount of the
Term Loans on a pro rata basis; and
(C) 100% of the cash proceeds (net of underwriting discounts
and conditions, loan fees and all other reasonable costs
associated with such transaction) from any incurrence of any
Indebtedness by the Borrower or any Subsidiary of the Borrower
(other than Indebtedness permitted by Section 7.04 as in
effect on the Eighth Amendment Effective Date).
(f) In addition to any of the mandatory repayments pursuant to
this Section 3.02(i), upon the occurrence of the Redemption
Prepayment Event, the Redemption Price shall be applied by the
Borrower to repay the principal amount of the Term Loans."
7. Section 5.05 of the Credit Agreement is hereby amended by inserting
the following new clause (e) at the end of said section:
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"(e) The proceeds of all Additional A-2 Term Loans, if any, shall
be utilized by the Borrower on the Additional A-2 Term Loan
Closing Date to repay an equivalent principal amount of
outstanding Revolving Loans."
8. Section 7.06 of the Credit Agreement is hereby amended by (i)
deleting the word "and" appearing at the end of sub-clause (k) of said section,
(ii) deleting the period appearing at the end of clause (l) of same and
inserting the text "; and" in lieu thereof, and (iii) inserting the following
new clause (m) immediately after said clause (l):
"(m) The capital contribution to certain Regulated Insurance
Companies of the Offering Proceeds not otherwise applied
pursuant to the terms of the Eighth Amendment; provided that
until the Revolver Pay-Down Date has occurred, an amount equal
to at least $2,500,000 of the Offering Proceeds shall be held
in an escrow account pledged to and in form and substance
satisfactory to the Administrative Agent"
9. Section 7.08(a) of the Credit Agreement is hereby amended by (i)
deleting the term "and" appearing at the end of sub-clause (i) contained
therein, (ii) deleting the period appearing at the end of sub-clause (ii)
contained therein and inserting the text "; and" in lieu thereof and (iii)
inserting the following new sub-clause (iii) immediately after sub-clause (ii)
appearing therein:
"(iii) the Borrower may redeem no later than 5 days after the Eighth
Amendment Effective Date all of the Pyramid Seller Preferred
Stock with an amount equal to $5,000,000 (the "Redemption
Price") of the Offering Proceeds; provided that if none of the
Pyramid Seller Preferred Stock is redeemed during such period
(such an event, the "Redemption Prepayment Event"), the
Redemption Price shall be applied by the Borrower to repay the
Term Loans pursuant to Section 3.02(i)(f)."
10. Section 7.13 of the Credit Agreement is hereby amended by (i)
deleting the text "Thereafter through December 31, 2002" and "Thereafter"
appearing at the end of the column entitled "Year" appearing therein and the
text "$160,000,000" and "$200,000,000" appearing at the end of the column
"Amount" appearing therein and (ii) inserting the following text at the end of
said section:
"At the end of each fiscal quarter after December 31, 2001,
the Borrower shall not permit its Consolidated Net Worth to be less
than the sum of (i) $85,000,000 plus (ii) 80% of the difference between
the Offering Proceeds and the sum of (a) fees paid by the Borrower for
the benefit of the Banks pursuant to this Amendment and (b) the
Redemption Price plus (iii) 50% of the aggregate Consolidated Net
Income of the Borrower for the period from January 1, 2002 through the
end of such fiscal quarter, provided that in the event the Consolidated
Net Income for such period is negative, for purposes of this clause
(iii) only, Consolidated Net Income for such period shall be deemed to
be zero."
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11. Section 7.17 of the Credit Agreement is hereby amended by deleting
the table appearing therein in its entirety and inserting the following table in
lieu thereof:
"Period Ratio
------- -----
June 30, 2000 through
June 30, 2001 1.05:1.00
Thereafter through
June 30, 2002 1.05:1.00
Thereafter through
June 30, 2003 1.05:1.00
Thereafter through
June 30, 2004 1.10:1.00
Thereafter through
June 30, 2005 1.10:1.00
Thereafter through
March 30, 2006 1.10:1.00"
12. Section 9 of the Credit Agreement is hereby amended by inserting in
the appropriate alphabetical order the following new definitions:
"`Additional A-2 Term Loans' shall mean the additional
financing, if any, of no less than $2,500,000 of additional A-2 Term
Loans provided to the Borrower by the Banks with an A-2 Term Loan
Commitment.
`Additional A-2 Term Loan Closing' shall mean the granting of
the Additional A-2 Term Loans by the Banks with an A-2 Term Loan
Commitment.
`Addition A-2 Term Loan Closing Date' shall mean the date of
the Additional A-2 Term Loan Closing.
`Ceres Common Stock' shall mean the authorized and unissued
common stock of the Borrower.
`Eighth Amendment' shall mean the Eighth Amendment to this
Agreement, dated as of December __, 2001.
`Eighth Amendment Effective Date' shall have the meaning
provided in the Eighth Amendment.
`Maximum Proceeds Amount' shall have the meaning provided in
Section 3.02(i)(e)(B) of the Credit Agreement.
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`Offering' shall mean a public offering of Ceres Common Stock
of a minimum of 14,000,000 shares (but no more than 17,000,000 shares)
for net proceeds (net of underwriting discounts and commissions and all
other reasonable costs associated with such transaction) of no less
than $30,000,000 (the "Offering Proceeds").
`Offering Closing Date' shall mean the date on or before the
Eighth Amendment Effective Date that the Ceres Common Stock included in
the Offering is priced.
`Offering Proceeds' shall have the meaning set forth in the
definition of "Offering".
`Redemption Price' shall have the meaning provided in Section
7.08(a)(iii).
`Redemption Prepayment Event' shall have the meaning provided
in Section 7.08(a)(iii).
`Revolver Pay-Down Date' shall mean the earlier of (i) the
Additional A-2 Term Loan Closing Date and (ii) February 17, 2002.
`Revolver Pay-Down Proceeds' shall mean $2,500,000 of the
Offering Proceeds that shall be held by the Borrower in an escrow
account in form and substance satisfactory to the Administrative Agent
to repay the outstanding Revolving Loans on the Revolver Pay-Down Date
if the Additional A-2 Term Loan Closing has not occurred on such date."
13. Section 9 of the Credit Agreement is hereby further amended by
inserting the following text immediately before the period appearing at the end
of the definition of "Applicable Percentage" appearing therein:
"; PROVIDED that (i) for the purposes of the A-2 Term Loans other than
the Additional A-2 Term Loans, "Applicable Percentage" shall mean (a)
with respect to Base Rate Loans, 3.00%, and (b) with respect to
Eurodollar Loans, 4.00% and (ii) for the purposes of the Additional A-2
Term Loans, "Applicable Percentage" shall mean (a) with respect to Base
Rate Loans, 3.50% and (b) with respect to Eurodollars Loans, 4.50%."
14. Section 9 of the Credit Agreement is hereby further amended by
deleting the definition of "Change of Control" in its entirety and inserting the
following definition in lieu thereof:
" `Change of Control' shall mean (a) 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; (b) any Person (together with its Affiliates) other than
Insurance Partners and its Affiliates
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(collectively), shall own directly or indirectly 30% or more on a fully
diluted basis of the voting or economic equity interests of the
Borrower; or (c) a majority of the Board of Directors of the Borrower
shall cease to consist of Continuing Directors."
15. Section 9 of the Credit Agreement is hereby further amended by
inserting the following text immediately prior to the period appearing at the
end of the definition of "Consolidated Net Worth" appearing therein:
"; PROVIDED that goodwill shall be excluded from the calculation of
Consolidated Net Worth for the purposes of Section 7.13 hereof."
16. Notwithstanding anything to the contrary contained in the Credit
Agreement, the Borrower and the Banks hereby acknowledge and agree that the
outstanding Revolving Loans shall be repaid and the Total Revolving Loan
Commitment shall be permanently reduced on February 17, 2002 (the "Revolver
Pay-Down Date") in an amount equal to $2,500,000 from either (x) the Additional
A-2 Term Loans or (y) the Offering Proceeds if the Additional A-2 Term Closing
Date has not occurred by the Revolver Pay-Down Date.
17. Annexes I and V to the Credit Agreement are hereby amended by
deleting same in their entirety and inserting the attached Annexes I and V in
lieu thereof; provided that if Additional A-2 Term Loan Closing Date occurs,
Annex I shall be replaced by Annex I-A on such date and provided further that if
the Additional A-2 Term Loan Closing Date does not occur Annex I shall be
replaced by Annex I-B on the Revolver Pay-Down Date.
18. In order to induce the Banks to enter into this Amendment, the
Borrower represents and warrants that (i) all of the representations and
warranties contained in the Credit Agreement or in the other Credit Documents
are true and correct in all material respects on and as of the Eighth Amendment
Effective Date, both before and after giving effect to this Amendment unless any
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, (ii)
there exists no Default or Event of Default on the Eighth Amendment Effective
Date, both before and after giving effect to this Amendment and (iii) at the
time of the incurrence of the Additional A-2 Term Loans (and immediately after
giving effect thereto), the consummation of same shall not (a) contravene any
provision of any applicable law, statute, rule or regulation or any applicable
order, writ, injunction or decree of any court or governmental instrumentality,
(b) conflict or be inconsistent with or result in any breach of the terms,
covenants, conditions or provisions of, or constitute a default under, or result
in the creation or imposition of (or the obligation to create or impose) any
Lien upon any of the material properties or assets of the Borrower or any of its
Subsidiaries pursuant to the terms of any indenture, mortgage, deed of trust,
credit agreement or loan agreement, or any other material agreement, contract or
instrument to which the Borrower or any of its Subsidiaries is a party or by
which it or any of its material property or assets is bound or to which it may
be subject or (c) violate any provision of the certificate of incorporation,
by-laws, certificate of limited partnership, limited partnership agreement or
any equivalent organizational document of the Borrower or any of its
Subsidiaries.
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19. This Amendment shall become effective as of the date (the "Eighth
Amendment Effective Date") when the following conditions are satisfied:
(i) the Borrower and each of the Banks shall have signed a
counterpart hereof (whether the same or different
counterparts) and shall have delivered (including by way of
facsimile transmission) the same to the Administrative Agent
at its Notice Office (such date, the "Signing Date"), provided
that the Borrower shall have paid on or prior to such Signing
Date all reasonable out-of-pocket costs and expenses of the
Banks incurred prior to the Signing Date (including, without
limitation, the fees and disbursements of White & Case LLP);
(ii) the Borrower shall have received at least $30,000,000 of
Offering Proceeds for the Offering;
(iii) the Borrower shall have transferred $2,500,000 of the Offering
Proceeds to an escrow account in form and substance
satisfactory to the Administrative Agent to be applied to
repay the outstanding Revolving Loans on February 17, 2002 if
the Bank with the A-2 Term Loan Commitment shall not have
provided additional financing in the amount of $2,500,000 to
the Borrower by such date;
(iv) the Borrower shall have applied (a) $10,000,000 of the
Offering Proceeds to prepay the outstanding A-1 Term Loans of
each Bank with an A-1 Term Loan Commitment on a pro rata basis
and (b) 15% of any amount of the Offering Proceeds received by
the Borrower that is in excess of $52,500,000 to prepay the
Term Loans on a pro rata basis;
(v) the Borrower shall have paid to the Administrative Agent for
the benefit of the Banks an amendment fee equal to 0.25% of
the sum of (a) the aggregate principal amount of such Bank's
outstanding Term Loans plus (b) such Bank's Revolving Loan
Commitment as of the Eighth Amendment Effective Date; and
(vi) the Borrower shall have delivered to the Administrative Agent
a certified copy of resolutions adopted by the Borrower
authorizing the increase in the Total A-2 Term Loan Commitment
contemplated by this Amendment.
20. From and after the Eighth Amendment Effective Date, all references
in the Credit Agreement and each of the Credit Documents to the Credit Agreement
shall be deemed to be references to the Credit Agreement as amended hereby.
21. This Amendment is limited as specified and shall not constitute a
modification, acceptance or waiver of any other provision of the Credit
Agreement or any other Credit Document.
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22. This Amendment may be executed in any number of counterparts and by
the different parties hereto on separate counterparts, each of which
counterparts when executed and delivered shall be an original, but all of which
counterparts shall together constitute one and the same instrument. A complete
set of counterparts shall be lodged with the Borrower and the Administrative
Agent.23. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
NEW YORK.
* * *
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IN WITNESS WHEREOF, each of the parties hereto has caused a
counterpart of this Amendment to be duly executed and delivered as of the date
hereof.
CERES GROUP, INC.
By: /s/ Xxxxx X. Xxxxxxx
------------------------------------
Title: Sr. VP & Treasurer
JPMORGAN CHASE BANK,
Individually and as Administrative Agent
By: /s/ Xxxxx X. Xxxxxxx
------------------------------------
Title: Vice President
DRESDNER BANK AG, NEW YORK
BRANCH AND GRAND CAYMAN BRANCH
By: /s/ Xxxxxxxx Xxxxxx
-------------------------------------
Title: Vice President
By: /s/ Xxxxx X. Xxxxxxx-Engenmann
------------------------------------
Title: Director
KEYBANK NATIONAL ASSOCIATION
By: /s/ Xxxxxxx X. Xxxxxx
------------------------------------
Title: Vice President
FIRSTAR BANK MILWAUKEE, N.A.
By: /s/ Xxxx Xxxxxx
------------------------------------
Title: Senior Vice President
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FLEET NATIONAL BANK
By: /s/ Xxxx Xxxxxxxxxxx
------------------------------------
Title: Director
THE CIT GROUP/EQUIPMENT
FINANCING, INC.
By: /s/ Xxxxx X. Xxxxxxxx
------------------------------------
Title: Senior Credit Analyst
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ANNEX I
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LIST OF BANKS AND COMMITMENTS
-----------------------------
X-0 Xxxx X-0 Term Revolving
Bank Loan Commitment Loan Commitment Loan Commitment
---- --------------- --------------- --------------------
JPMorgan Chase Bank $ 9,000,000 $ 0.00 $ 775,000
KeyBank $ 3,000,000 $ 0.00 $ 250,000
Dresdner Bank AG, $ 9,000,000 $ 0.00 $ 500,000
New York Branch and
Grand Cayman Branch
Firstar Bank Milwaukee, N.A $ 3,000,000 $ 0.00 $ 500,000
Fleet National Bank $ 6,000,000 $ 0.00 $ 500,000
The CIT Group/Equipment Financing, Inc. $ 0.00 $ 10,000,000 $ 0.00
Total $ 30,000,000 $ 10,000,000 $ 2,500,000
===== ============== ============== ==============
ANNEX I-A
LIST OF BANKS AND COMMITMENTS
-----------------------------
X-0 Xxxx X-0 Term Revolving
Bank Loan Commitment Loan Commitment Loan Commitment
---- --------------- --------------- ---------------
JPMorgan Chase Bank $ 9,000,000 $ 0.00 $ 0.00
KeyBank $ 3,000,000 $ 0.00 $ 0.00
Dresdner Bank AG, $ 9,000,000 $ 0.00 $ 0.00
New York Branch and
Grand Cayman Branch
Firstar Bank Milwaukee, N.A $ 3,000,000 $ 0.00 $ 0.00
Fleet National Bank $ 6,000,000 $ 0.00 $ 0.00
The CIT Group/Equipment Financing, Inc. $ 0.00 $ 12,500,000 $ 0.00
Total $ 30,000,000 $ 12,500,000 $ 0.00
===== ============== ============== ==============
ANNEX I-B
LIST OF BANKS AND COMMITMENTS
-----------------------------
X-0 Xxxx X-0 Term Revolving
Bank Loan Commitment Loan Commitment Loan Commitment
---- --------------- --------------- ---------------
JPMorgan Chase Bank $ 9,000,000 $ 0.00 $ 0.00
KeyBank $ 3,000,000 $ 0.00 $ 0.00
Dresdner Bank AG, $ 9,000,000 $ 0.00 $ 0.00
New York Branch and
Grand Cayman Branch
Firstar Bank Milwaukee, N.A $ 3,000,000 $ 0.00 $ 0.00
Fleet National Bank $ 6,000,000 $ 0.00 $ 0.00
The CIT Group/Equipment Financing, Inc. $ 0.00 $ 10,000,000 $ 0.00
Total $ 30,000,000 $ 10,000,000 $ 0.00
===== ============== ============== ==============
