Loan Agreement
As of March 17, 1997
Between
BORROWER
HALLMARK FINANCE CORPORATION
00000 Xxxxxx Xxxxxxx, Xxxxx 000
Xxxxxx, Xxxxx 00000
BANK
NATIONSBANK OF TEXAS, N.A.
000 Xxxx Xxxxxx, 0xx Xxxxx
X.X. Xxx 00000
Xxxxxx, Xxxxx 00000-0000
In consideration of the Loan or Loans described below and the
mutual covenants and agreements contained herein, and intending to be
legally bound hereby, Bank and Borrower agree as follows:
1.0 CERTAIN DEFINITIONS. In addition to any other terms defined
herein, the following terms shall have the meaning set forth with
respect thereto:
"ACO" means ACO Holdings, Inc., a Texas corporation which is wholly
owned by HFS.
"Adjusted Eligible Premium Finance Agreements" at any time, means
the Eligible Premium Finance Agreements adjusted to reflect the addition
or subtraction, as appropriate of: (a) amendments to any Eligible
Premium Finance Agreement; (b) miscellaneous corrections to Eligible
Premium Finance Agreements; (c) cash receipts (not otherwise included in
the definition of Eligible Premium Finance Agreements); (d) any Eligible
Premium Finance Agreement which has been canceled; (e) earned late
charges; (f) earned set up fees; (g) returned checks (uncollected net of
returned check charges); (h) interest and write-offs; (i) change in
unearned interest; and (j) return premiums in course of collections.
"Adjusted LIBO Rate" means, for any Interest Period, a rate of
interest per annum equal to the sum of two and eight-tenths of one
percent (2.80%) plus the LIBO Rate for the applicable Interest Period.
"Adjusted Prime Rate" means a rate of interest per annum equal to
the Prime Rate plus three-eighths of one percent (0.375%).
"Affiliate" of any person means any other person or entity (i)
which directly or indirectly through one or more intermediaries
controls, or is controlled by, or is under common control with, such
person or entity, (ii) which beneficially owns or holds 15% or more of
the equity of such person or entity, or (iii) of which 15% or more of
the equity is beneficially owned or held by such person or entity or a
subsidiary of such person or entity; "control" means the power to direct
the management and policies of such person or entity directly or
indirectly, whether through the ownership of equity, by contract or
otherwise.
"AH" means American Hallmark Insurance Company of Texas, a Texas
domiciled insurance company which is wholly owned by HFS.
"XXXX" means American Hallmark General Agency, Inc., a Texas
corporation which is wholly owned by ACO.
"Bank Reserve" means, for any period, the amount applicable to such
period as set forth in Schedule 1.0 attached hereto.
"Board" means the Board of Governors of the Federal Reserve System
of the United States of America or any successor governmental body.
"Borrowing Base" at any time, shall be equal to the remainder of
(i) the sum of (A) 60% of Adjusted Eligible Premium Finance Agreements
plus (B) 60% of Eligible Return Premiums as determined in accordance
with this Agreement, minus (ii) the Bank Reserve.
"Business Day" means (i) a day other than Saturday, Sunday or a day
on which Bank is authorized to be closed in the State of Texas, and (ii)
if the applicable Business Day relates to a LIBO Rate Tranche, a day on
which dealings in Dollar deposits are also carried on in the London
interbank market and banks are open for business in London.
"Combined Ratio" means a combined ratio of AH calculated in
accordance with accounting practices prescribed or permitted by the
Texas Department of Insurance or the National Association of Insurance
Commissioners.
"Consequential Loss" means any loss, cost, or expense incurred by
Bank because Borrower pays all or some portion of the Loan prior to the
last day of the applicable Interest Period and includes, without
limitation, the amount (if any) by which (i) the interest which would
have been payable on the prepaid amount had it not been paid prior to
the last day of the Interest Period exceeds (ii) the interest earned to
the extent Bank is able to redeposit the same so prepaid for the balance
of such Interest Period and also includes all expenses and penalties
incurred by Bank in so redepositing such sum.
"Contested in Good Faith" means, as to any payment, tax,
assessment, charge, levy, lien, encumbrance or claim, contesting the
amount, applicability or validity thereof in good faith by appropriate
proceedings or other appropriate actions promptly initiated and
diligently conducted in a manner satisfactory to Bank, provided (a) a
deposit of funds or other security satisfactory to Bank in the full
amount of such contested payment, tax, assessment, charge, levy, lien,
encumbrance or claim has been provided for in a manner satisfactory to
Bank, and (b) the enforcement of the contested payment, tax, assessment,
charge, levy, lien, encumbrance or claim is stayed in a manner
satisfactory to Bank pending the resolution of such contest.
"Default" means any act or occurrence specified in Section 9.0,
without regard to whether any requirement for notice or lapse of time,
or both, or any other condition has been satisfied.
"Dollars" or "$" means lawful money of the United States of
America.
"Dorinco Loan Documents" means that certain loan agreement dated as
of March 10, 1997, by and between HFS and Dorinco Reinsurance Company,
the promissory note, the security agreement, and all other documents,
instruments, security agreements, pledge agreements, negative pledge
agreements, certificates and agreements executed and/or delivered by
Borrower, any Guarantor or any third party to Dorinco Reinsurance
Company in connection with such loan agreement dated March 10, 1997.
"Eligible Premium Finance Agreements" means all amounts due from
makers pursuant to those Premium Finance Agreements prepared on a form
approved by the Texas Department of Insurance which comply with all
requirements of the Texas Insurance Code and the Texas Department of
Insurance Regulations and which have been created in the ordinary course
of Borrower's business and upon which Borrower's right to receive
payment is absolute, unconditional and not contingent upon the
fulfillment of any condition whatsoever, and shall not include any of
the following:
(a) any Premium Finance Agreement, the payment of which an insurer
or reinsurer has disputed or denied;
(b) any Premium Finance Agreement, the payment of which an insurer
or reinsurer has a right of setoff, defense or discount;
(c) any Premium Finance Agreement which reflects a transaction
having less than ten percent (10%) equity in the premium (i.e.,
representing the financing of more than 90% of the insurance premium of
the particular insurance product);
(d) any Premium Finance Agreement in default which has a balance
due from its maker after realization against all collateral securing
such Premium Finance Agreement;
(e) any Premium Finance Agreement arising out of the funding of an
insurance premium for an insurance product issued by, pursuant to, or in
the Texas Automobile Insurance Plan;
(f) any Premium Finance Agreement arising out of the funding of an
insurance premium for any insurance product originated by an agent doing
business outside of the State of Texas or which is an insurance product
otherwise governed by or subject to the laws of a state other than the
State of Texas;
(g) any Premium Finance Agreement arising out of a transaction
where the insurance product is issued or written by an entity other than
AH on behalf of State and County Mutual Fire Insurance Company;
(h) any Premium Finance Agreement which does not have 75% or more
of the premium balance reinsured by a third party insurance company with
an A.M. Best rating of A- or higher; or
(i) any Premium Finance Agreement arising out of a transaction
where the managing agent therefor is an entity other than XXXX
"Eligible Return Premiums" means amounts owed to Borrower by
insurers or reinsurers which are not more than 5 days past due from the
original due date as required by applicable Governmental Authorities,
the obligation of insurers or reinsurers to pay Borrower having arisen
from the cancellation of an insurance policy funded by Borrower;
provided, however, this definition shall not include any amounts
included in the definition of Eligible Premium Finance Agreements.
"Event of Default" means any act or occurrence specified in Section
9.0 hereof.
"Expiration Date" means 2 p.m. on September 17, 1998 or any other
date on which the Loans become due and payable pursuant to the terms of
this Agreement.
"GAAP" means those accounting principles applied on a consistent
basis generally accepted from time to time in the certified public
accounting profession (including those set forth in the Opinions of the
Accounting Principles Board of the American Institute of Certified
Public Accountants or statements of the Financial Accounting Standards
Board which may be applicable at the time in question); and "applied on
a consistent basis" means that the accounting principles observed in the
period covered by any report required under the terms of this Agreement
are compatible in all material respects with those applied in any
preceding period and report.
"Governmental Authority" means any nation or government, any
federal, state, local, or other political subdivision thereof, any
department, commission, board, bureau, agency, public authority,
instrumentality, court, or other entity exercising executive,
legislative, judicial, regulatory, or administrative functions of
government.
"Gross Premium" means the gross premium(s) of AH calculated in
accordance with accounting practices prescribed or permitted by the
Texas Department of Insurance or the National Association of Insurance
Commissioners.
"HCS" means Hallmark Claims Services, Inc., a Texas corporation
which is wholly owned by ACO.
"HFS" means Hallmark Financial Services, a Nevada corporation.
"Hazardous Materials" include all materials defined as hazardous
wastes or substances under any local, state or federal environmental
laws, rules or regulations, and petroleum, petroleum products, oil and
asbestos.
"Indebtedness" means (a) indebtedness or liability for borrowed
money; (b) obligations evidenced by bonds, debentures, notes, or other
similar instruments; (c) obligations for the deferred purchase price of
property or services (including trade obligations); (d) obligations as
lessee under leases which should have been or should be, in accordance
with GAAP, recorded as capital leases; (e) current liabilities in
respect of unfunded vested benefits under plans covered by Title IV of
the Employee Retirement Income Security Act of 1974; (f) obligations
under letters of credit; (g) obligations under acceptance facilities;
(h) all guarantees, endorsements (other than for collection or deposit
in the ordinary course of business), and other contingent obligations to
purchase, to provide funds for payment, to supply funds to invest in any
person or entity, or otherwise to assure a creditor against loss; (i)
obligations secured by any mortgage, lien, pledge or security interest
or other charge or encumbrance on property, whether or not the
obligations have been assumed; and (j) obligations to redeem or
repurchase any capital stock, warrants or stock equivalents.
"Interest Expense" means for any period the sum of (i) the
aggregate interest expense for such period determined in accordance with
GAAP, including the portion of any obligation allocable to interest
expense under a capital lease for such period plus (ii) bad debt expense
of Borrower, determined in a manner consistent with the Borrower's
internally prepared financial statements dated November 30, 1996.
"Interest Payment Date" means (i) the last Business Day of each
calendar month, or if earlier occurring in any calendar month with
respect to any LIBO Rate Tranche, the last day of the Interest Period
applicable to such LIBO Rate Tranche, and (ii) the Expiration Date.
"Interest Period" means for each LIBO Rate Tranche, the period
commencing on the date such LIBO Rate Tranche is made or, in the case of
a rollover to a successive Interest Period, the last day of the
immediately preceding Interest Period and, except as provided below,
ending three (3), six (6) or twelve (12) calendar months thereafter, as
Borrower may select in accordance with the terms of this Agreement;
provided that all Interest Periods are subject to the following terms
and conditions: (A) all Interest Periods which would otherwise end on a
day which is not a Business Day shall end on the next succeeding
Business Day unless such next succeeding Business Day falls in the next
succeeding calendar month, in which case such Interest Period shall end
on the next preceding Business Day; (B) no Interest Period may be
selected that ends later than the Expiration Date; (C) an Interest
Period once selected by Borrower shall be binding upon Borrower and
irrevocable; and (D) each Interest Period shall terminate on the
numerical day of the last calendar month of such Interest Period which
corresponds to the day such Interest Period began unless there is no
such corresponding day in such month, in which case such Interest Period
shall terminate on the last Business Day of such calendar month.
"Interest Rate Option" means the Adjusted LIBO Rate or the Adjusted
Prime Rate.
"Lending Office" means for each LIBO Rate Tranche the office of
Bank (or its Affiliate) designated for such LIBO Rate Tranche from time
to time by Bank.
"LIBO Rate" means, for each Interest Period, a rate per annum
(rounded upwards, if not already a whole multiple of 1/16 of one
percent, to the next higher 1/16 of one percent) determined by Bank to
be equal to the quotient obtained by dividing (a) the London Interbank
Offered Rate for the relevant Interest Period by (b) the remainder of
one (1) minus the applicable Reserve Requirement on the first day of the
relevant Interest Period (rounded upwards, if not already a whole
multiple of 1/16 of one percent, to the next higher 1/16 of one
percent).
"LIBO Rate Tranche" means each Tranche the interest on which is
calculated with reference to an Adjusted LIBO Rate.
"Loan(s)" means collectively any and all loans or advances
heretofore or hereafter made by Bank to Borrower.
"Loan Documents" means this Agreement, the Note, the Guaranty
Agreements, the Security Agreement, and all other documents,
instruments, guarantees, security agreements, deeds of trust, pledge
agreements, certificates and agreements executed and/or delivered by
Borrower, any Guarantor or third party to Bank in connection with any
Loan.
"London Interbank Offered Rate" means, for the relevant Interest
Period, the rate of interest per annum (rounded upwards, if not already
a whole multiple of 1/16 of one percent, to the next higher 1/16 of one
percent) equal to the rate at which Dollar deposits would be offered by
Bank (or its affiliate) at its in London, England (or if Bank, at the
time any determination is made, does not maintain an office in London,
England, the principal office of any affiliate of Bank in London,
England) to major banks in the London interbank market at 11:00 a. m.
London, England two (2) Business Days prior to the commencement of the
relevant Interest Period for a period of time equal or comparable to and
commencing on such Interest Period and in an amount equal or comparable
to the principal balance of the Loan to be disbursed or outstanding
during such Interest Period.
"Loss Ratio" means the loss ratio of AH calculated in accordance
with accounting practices prescribed or permitted by the Texas
Department of Insurance or the National Association of Insurance
Commissioners.
"Maximum Amount" means the lesser of $8,000,000 or the Borrowing
Base.
"Maximum Rate" means the higher of the maximum interest rate
allowed by applicable United States or Texas law as amended from time to
time and in effect on the date for which a determination of interest is
made.
"Net Operating Income Available For Distribution" of Borrower means
for any period an amount equal to the remainder of (i) Net Operating
Income for such period, minus (ii) any charges for federal, state, local
and foreign income taxes for such period; provided, however, in no event
shall such remainder be less than zero. As used herein, "Net Operating
Income" of Borrower means for any period an amount equal to the
remainder of (i) total revenues, minus (ii) the aggregate Interest
Expense for such period, minus (iii) normal and customary operating
expenses determined in accordance with GAAP.
"Net Premium" means the net premium of AH calculated in accordance
with accounting practices prescribed or permitted by the Texas
Department of Insurance or the National Association of Insurance
Commissioners.
"Notice of Borrowing" means an irrevocable notice signed by
Borrower requesting that a particular advance be made and specifying a
permitted Interest Rate Option to be applicable to all or a portion of
such advance and containing the information and delivered to Bank from
time to time as required by Section 2.5 and Section 2.6.
"Obligations" means the obligations of Borrower:
(a) to pay all Indebtedness arising out of this Agreement, any
future advances under this Agreement, and all renewals, extensions or
amendments of such Indebtedness or any part thereof or any such future
advances;
(b) to pay the principal of and interest on the Note in accordance
with the terms thereof, and all renewals, extensions, modifications and
amendments of such Note or any part thereof, and any future advances
made pursuant thereto;
(c) to pay any and all other Indebtedness of Borrower to Bank of
every kind, nature or description, direct or indirect, primary or
secondary, secured or unsecured (including overdrafts), joint or
several, absolute or contingent, due or to become due, now existing or
hereafter arising, regardless of how it may be evidenced, and all future
advances, whether or not presently contemplated by the parties;
(d) to perform fully all of the terms and provisions of each of the
instruments constituting the Loan Documents; and
(e) to reimburse Bank, on demand, for all of Bank's expenses and
costs, plus interest thereon at the Maximum Rate, from the date Bank
expends any funds until reimbursed, including the reasonable fees and
expenses of its counsel, incurred in connection with the preparation,
administration, amendment, modification, or enforcement of this
Agreement or any of the Loan Documents or other documents required
hereunder.
"Pledged Stock" means all of the following, whether now owned or
hereafter acquired: (i) all of Borrower's capital stock; (ii) all
certificates (if any), options, rights, warrants, coupons, and other
distributions issued as an addition to, in substitution or exchange for,
or on account of, such shares of capital stock, and (iii) all proceeds
of the foregoing.
"Premium Finance Agreement" means an agreement by which an insured
or prospective insured promises to pay Borrower the amount advanced
under the agreement to AH on behalf of State and County Mutual Fire
Insurance Company or to XXXX in payment of premium on an insurance
contract.
"Prime Rate" means the fluctuating rate of interest established by
Bank from time to time, at its discretion, whether or not such rate
shall be otherwise published. The Prime Rate is established by Bank as
an index and may or may not at any time be the best or lowest rate
charged by Bank on any loan.
"Prime Rate Tranche" means a Tranche the interest on which is
calculated with reference to an Adjusted Prime Rate.
"Reinsurance Agreements" means (a) that certain 100% Quota Share
Reinsurance Agreement effective July 1, 1996, between State and County
Mutual Fire Insurance Company and AH, (b) that certain Quota Share
Retrocession Agreement effective July 1, 1996, among AH, and the
subscribing reinsurers who are additional parties thereto, (c) that
certain Automobile Physical Damage Catastrophe Excess of Loss
Reinsurance Agreement effective July 1, 1996, among AH, and the
subscribing reinsurer who is an additional party thereto, (d) that
certain Guaranty Agreement effective July 1, 1996 between State and
County Mutual Fire Insurance Company and Xxxxxx Reinsurance Company; (e)
that certain Guaranty Agreement effective July 1, 1996 between State and
County Mutual Fire Insurance Company and Skandia America Reinsurance
Corporation; (f) that certain Guaranty Agreement effective July 1, 1996
between State and County Mutual Fire Insurance Company and Dorinco
Reinsurance Company; (g) that certain Guaranty of Performance and Hold
Harmless Agreement effective July 1, 1996 between Hallmark Financial and
Xxxxxx Reinsurance Company; (h) that certain Guaranty of Performance and
Hold Harmless Agreement effective July 1, 1996 between HFS and Skandia
America Reinsurance Corporation; (i) that certain Guaranty of
Performance and Hold Harmless Agreement effective July 1, 1996 between
HFS and Dorinco Reinsurance Company; and (j) all amendments and
modifications of, or substitutions and replacements for, each of the
foregoing documents.
"Regulation D" means Regulation D (12 C.F.R. 204) and all
amendments and supplements thereof and any successors or replacements
therefor as promulgated from time to time by the Board.
"Reserve Requirement" with respect to each Interest Period means
the daily average of the stated maximum rate (expressed as a decimal) at
which reserves (including all basic, supplemental, marginal, emergency,
special, and other reserves and taking into account any transitional
adjustments or other scheduled changes in reserve requirements during
such Interest Period) are required by the Board (including those under
Regulation D) to be maintained during such Interest Period with respect
to the LIBO Rate, for Eurocurrency liabilities (as such term is defined
in Regulation D) but without benefit or credit for prorations,
exemptions or offsets that might otherwise be available from time to
time under Regulation D. The Reserve Requirement shall reflect any
other reserves required to be maintained against with respect to LIBO
Rate Tranches (1) any category of liabilities that includes deposits by
reference to which the LIBO Rate is to be determined or (2) any category
of extension of credit or other assets that includes LIBO Rate Tranches.
"Solvent" means as of any time of determination with respect to a
person or entity (i) the fair market value of its assets exceeds the
amount of its liabilities (including contingent liabilities), (ii) the
present fair saleable value of its assets exceeds the probable liability
on existing debts as they become due, (iii) such person or entity is
then able and expects to be able to pay its debts (including contingent
liabilities) as they become due, and (iv) such person or entity has and
expects to have sufficient capital (having due regard for the prevailing
practice in the industry in which it is engaged) to carry on its
business as conducted or proposed to be conducted.
"Statutory Capital and Surplus" means capital and surplus
determined in accordance with statutory accounting practices from time
to time prescribed or permitted by the Texas Department of Insurance or
the National Association of Insurance Commissioners for stock property
and casualty insurance companies in Texas.
"Tangible Net Worth" means the sum of the excess of total assets
over Total Liabilities, each determined in accordance with GAAP
consistent with those applied in the preparation of the financial
statements previously furnished to Bank, excluding however, from the
determination of total assets all assets which would be classified as
intangible assets under GAAP.
"Total Liabilities" means as of any date the Indebtedness of
Borrower and its subsidiaries reflected on the balance sheet of Borrower
as of such date, determined in accordance with GAAP.
"Tranche" means either a LIBO Rate Tranche or a Prime Rate Tranche.
"Trigger Event" means the occurrence of one or more of the
following events:
(i) As of the end of any fiscal quarter, AH's Combined Ratio for the
four (4) immediately preceding fiscal quarters of AH's operations is
greater than 107%;
(ii) As of the end of any fiscal quarter, AH's Loss Ratio for the four
(4) immediately preceding fiscal quarters of AH's operations is greater
than 83%;
(iii) Borrower's Interest Coverage Ratio (as defined in Section 6.1
hereof) as of the end of any fiscal quarter is less than 1.80 to 1.0;
(iv) As of the date of any reporting period required by law or the
Texas Department of Insurance, the Tangible Net Worth of Borrower
(determined in accordance with GAAP) is less than the amount set forth
below for the calendar year indicated:
1997 - $7,890,000
1998 - $8,200,000; or
(v) As of the date of any reporting period required by law or the Texas
Department of Insurance, the Statutory Capital and Surplus of AH is less
than $4,200,000 or shall have decreased more than 15% from the
comparable reporting period of the preceding calendar year.
2.0 LOANS.
2.1 Loans. Bank agrees, subject to the terms and conditions hereof, to
extend to Borrower a revolving line of credit, pursuant to which Bank
will lend Borrower at any time and from time to time on or before the
Expiration Date, sums which may be repaid and reborrowed as provided
herein and which shall not exceed at any one time outstanding the
Maximum Amount. Whenever Borrower desires to borrow hereunder, it shall
deliver a Notice of Borrowing to Bank in the manner specified in Section
2.5 and Section 2.6 hereof and in a manner otherwise satisfactory to
Bank. Borrower agrees that the Loans shall be used solely to finance
Premium Finance Agreements.
2.2 Note. The obligation of Borrower to repay the aggregate principal
balance of all Loans hereunder outstanding at any one time shall be
evidenced by a promissory note (such instrument, together with any and
all renewals and extensions and rearrangements thereof being
collectively referred to herein as the "Note"). The Note shall (a) be
dated Xxxxx 00, 0000, (x) be payable in the manner described in
Section 2.3 hereof, (c) bear interest from the date thereof until paid
in the manner provided in the Note, (d) be entitled to the benefits of
this Agreement and the security provided for herein, and (e) be in such
form as is acceptable to Bank.
2.3 Amortization. Accrued interest on the unpaid principal balance of
the Note shall be due and payable in arrears on each Interest Payment
Date applicable to each Tranche. The unpaid principal balance of the
Note, and all accrued, unpaid interest thereon, shall be due and payable
on the Expiration Date.
2.4 Interest on the Loan and Other Obligations.
(a) Except as otherwise provided in subsections (b) and (c), the
outstanding principal balance of the Loan shall bear interest from the
date funded until paid, at a rate per annum equal to the lesser of
(x) the Maximum Rate or (y) the rate for each Tranche determined
according to the following:
(A) for the Prime Rate Tranche, a fluctuating rate per annum equal to
the Adjusted Prime Rate; or
(B) for each LIBO Rate Tranche, a rate equal to the Adjusted LIBO Rate.
(b) If, at any time with respect to the Prime Rate Tranche or during
the Interest Periods of LIBO Rate Tranche, the interest rate then in
effect with respect to such Tranche or Tranches would exceed the Maximum
Rate Bank could charge, then, notwithstanding the other provisions
hereof and Borrower's election, the interest rate chargeable with
respect to such affected Tranche or Tranches shall immediately become
the Maximum Rate, provided that such affected Tranche or Tranches shall
thereafter accrue interest at the Maximum Rate until such time as Bank
has received a sum equal to the amount of interest which would have
accrued on such affected Tranche or Tranches had such Tranche or
Tranches accrued interest at the interest rate otherwise applicable
thereto. So long as interest is calculated pursuant to this provision,
Borrower is not entitled to elect that any Tranche be, or to convert the
interest rate to the rate applicable to, a LIBO Rate Tranche and the
interest rate for the Prime Rate Tranche shall not be reinstated.
(c) All past due payments of principal and, past due interest to the
extent permitted by law, shall bear interest until paid at a default
rate equal to the Maximum Rate, or if there is no such Maximum Rate,
then at a rate equal to 6.0% above the interest rate then in effect.
(d) With respect to a LIBO Rate Tranche, in the event no selection of
an Interest Period is made by Borrower, the relevant Interest Period
shall be for three (3) calendar months.
(e) The amount of the monthly payment of interest shall be determined
by Bank, and Bank's determination thereof shall be conclusive and
binding, absent manifest error.
2.5 Procedure to Establish Interest Rates.
(a) Except as provided in subsection (g) hereof, the interest rate or
rates applicable to each Tranche shall be established pursuant to a
Notice of Borrowing which shall be delivered to Bank not later than
10:00 a.m. (Dallas, Texas time) on the date it is required to be
delivered. If the Interest Rate Option to be applicable is the Adjusted
Prime Rate, the Notice of Borrowing shall be delivered on the initial
funding date (in the case of the initial advance) or the date of
conversion (in the case of a conversion to a Prime Rate Tranche). If
the Interest Rate Option to be applicable is the Adjusted LIBO Rate, the
Notice of Borrowing shall be delivered not less than three (3) Business
Days prior to the initial funding date (in the case of the initial
advance) or the date of renewal or conversion (in the case of the
renewal of or conversion to a LIBO Rate Tranche).
(b) Each Notice of Borrowing shall specify (i) the principal amount of
the Loan applicable to the Tranche; (ii) the Interest Rate Option
selected; (iii) the effective date of the renewal or conversion of the
Interest Rate Option applicable to the Tranche involved, which shall be a
Business Day; and (iv) if the Interest Rate Option is the Adjusted LIBO
Rate, the Interest Period for such Tranche; provided that the minimum
principal amount of each Tranche shall be $250,000.
(c) Borrower may have in effect at any one time no more than twelve
(12) Tranches in the aggregate and so long as any Default or Event of
Default continues may not select the Adjusted LIBO Rate to apply to any
Tranche.
(d) No renewal or conversion of a LIBO Rate Tranche may be made except
on the last day of the Interest Period applicable thereto.
(e) The election of the Adjusted LIBO Rate is effective only for the
Interest Period specified; and after the end of such Interest Period,
unless Borrower has effectively elected a renewal or conversion, the
applicable Interest Rate Option shall be the Adjusted Prime Rate until
Borrower effectively elects a different interest rate.
(f) No election of or renewal of or conversion to an Adjusted LIBO Rate
may occur while any Default or Event of Default exists or if such
conversion would occur at a time when the Maximum Rate would be less
than the rate of interest which would be applicable to such LIBO Rate
Tranche.
(g) If Borrower does not specify in accordance with the terms hereof or
is not entitled to elect the type of rate to apply to a Tranche,
Borrower shall be deemed to have specified the Adjusted Prime Rate for
such Tranche.
2.6 Advances. Whenever Borrower desires to borrow hereunder, it shall
make its request by delivering to Bank a Notice of Borrowing in the form
of Exhibit A attached hereto. Bank shall be under no obligation to make
any advance to Borrower if the sum of the requested advance plus the
then outstanding principal balance of the Note will exceed the Maximum
Amount.
2.7 Mandatory Payment. In the event the aggregate principal balance of
advances outstanding under the Note exceeds the Maximum Amount, Borrower
shall immediately and without notice or demand of any kind, make such
payments as shall be necessary to reduce the principal balance of the
Note to or below the Maximum Amount.
2.8 Prepayments. Borrower may from time to time upon five (5) Business
Days' prior written notice to Bank and subject to any other limitations
in this Agreement prepay the Loan in whole or in part without penalty or
premium, except as may be incurred in connection with a prepayment of a
LIBO Rate Tranche prior to the end of the applicable Interest Period,
provided any partial prepayment shall be not less than One Hundred
Thousand And No/100 DOLLARS ($100,000) or an integral multiple thereof.
Prepayments of principal shall be applied first to the Prime Rate
Tranche and then to LIBOR Tranches selected by Borrower; provided that
Borrower shall select such LIBOR Tranches as will minimize the
Consequential Loss resulting from such prepayment; provided further,
that if a Default or an Event of Default exists or if Borrower fails to
select the Tranches to be prepaid, Bank may select such Tranches. Any
such prepayment shall be made subject to the requirements of
Section 2.12, 2.13 and 2.14.
2.9 Computations, Etc. Interest shall be computed on the basis of a
year of 360 days for the actual number of days (including the first day
but excluding the last day) occurring in the period for which such
interest is payable, unless such calculation would result in a usurious
rate, in which case interest shall be calculated on a per annum basis of
a year of 365 or 366 days, as the case may be. Each determination by
Bank of an interest rate or fee hereunder shall, except for manifest
error, be final, conclusive and binding for all purposes.
2.10 Usage Fee. Borrower will pay on the last day of each calendar
quarter commencing on September 30, 1997 and on the Expiration Date, a
usage fee accruing at a rate per annum of one-fourth of one percent
(0.25%) of the average daily unused portion of the Loan for the period
from and including July 1, 1997 through and including the Expiration
Date.
2.11 Loan Commitment Fee. Borrower has agreed to pay Bank a loan
commitment fee of $27,000 as compensation for Bank's commitment to
extend the Loan to Borrower. On the closing date Borrower shall pay
Bank the full amount of the commitment fee.
2.12 Payment of Funding Losses.
(a) Borrower shall indemnify Bank against any loss or expense incurred
by it as a result of any failure by Borrower to fulfill, on or before
the date specified for any renewal or conversion of the interest rate
applicable to any Tranche, the conditions thereof, including, without
limitation, any loss (including loss of anticipated profits) or expense
incurred by reason of the liquidation or re-employment of deposits or
other funds when such renewal or conversion of the interest rate
applicable to any Tranche is not made on such date as a result of such
failure. A certificate in reasonable detail as to the amount of any
such loss or expense submitted to Borrower shall be conclusive as to the
amount thereof except in cases of manifest error. A copy of any such
statement submitted by Bank shall be given to Borrower.
(b) If for any reason Bank receives all or part of its portion of the
principal amount of a LIBO Rate Tranche prior to the last day of the
Interest Period applicable thereto, Borrower shall pay Bank the amount
(if any) of the Consequential Loss occasioned by such payment. A
certificate of such Bank submitted to Borrower shall be conclusive
absent manifest error.
2.13 Change in Circumstances.
(a) If Bank determines (which determination shall be made in good faith
and shall be conclusive and binding upon Borrower) that (i) adequate and
reasonable means do not or will not exist for ascertaining the interest
rate, (ii) Dollar deposits in the relevant amounts and for the relevant
Interest Period are not available to Bank in the London interbank
market, or (iii) the LIBO Rate does not accurately reflect the cost of
funds to Bank, then Bank shall forthwith give notice of such
determination to Borrower, whereupon, until Bank notifies Borrower that
the circumstances giving rise to such suspension no longer exist, the
obligation of Bank to permit an Adjusted LIBO Rate election shall be
suspended and the Adjusted LIBO Rate shall be converted on the last day
of the then current applicable Interest Period to the Adjusted Prime
Rate.
(b) If after the date of this Agreement the introduction of or any
change in any applicable law, rule or regulation or in the
interpretation or administration thereof by any Governmental Authority
charged with the interpretation or administration thereof or compliance
by Bank with any request or directive (whether or not having the force
of law) of any authority makes it unlawful or not reasonably possible
for Bank (or its Lending Office) to make, maintain or fund the Loan,
Bank shall forthwith give notice thereof to Borrower. Before giving any
notice pursuant to this Section, Bank shall if possible designate a
different Lending Office if such designation will avoid the need for
giving such notice and in Bank's sole judgment will not be otherwise
disadvantageous to Bank. Upon receipt of such notice, the Adjusted
Prime Rate will be substituted for the Adjusted LIBO Rate. If
circumstances subsequently change so that Bank is not further affected,
the obligation to permit election of the Adjusted LIBO Rate shall be
reinstated upon written request of Borrower.
2.14 Capital Adequacy and Increased Costs.
(a) If after the date hereof (i) the adoption or implementation,
change, or phasing in of any law or regulation or in the interpretation
thereof by any domestic or foreign Governmental Authority charged with
the administration thereof or (ii) compliance with any directive,
guideline or request from any central bank or domestic or foreign
Governmental Authority (whether or not having the force of law)
promulgated or made after the date hereof, in either case, affects or
would affect the amount of capital required or expected to be maintained
by Bank or any corporation directly or indirectly controlling Bank, or
has or would have the effect of reducing the rate of return on such
capital or the asset value of the Loan made hereunder to a level below
that which Bank or such controlling corporation could have achieved but
for such adoption, implementation, change, phasing in, or compliance
(after taking into account Bank's or such corporation's policies
regarding capital adequacy) by an amount deemed by Bank to be material
to Bank or such corporation, then, within ten (10) days after
written demand by Bank (accompanied by a statement of the type referred
to below), Borrower shall pay to Bank such additional amount or amounts
as shall be sufficient to compensate Bank or such controlling
corporation for any such reduction.
(b) If any law, regulation, treaty, or directive hereafter enacted,
promulgated, approved, or issued or any change in any presently existing
law, regulation, treaty, or directive therein or in the interpretation
or application thereof by any Governmental Authority charged with the
administration thereof (whether or not having the force of law) or
compliance by Bank or any corporation directly or indirectly owning or
controlling Bank (in each case, the "Affected Person") with any request
or directive from any central bank or other Governmental Authority,
agency, or instrumentality
(i) subjects such Affected Person to any tax, duty, or other charge of
any kind whatsoever with respect to the Loan, or its obligations under
this Agreement to make the Loan, or any amounts payable to it hereunder
(and any additional income or franchise taxes resulting therefrom), or
changes the basis of taxation of payments to such Affected Person of
principal, interest, or any other amount payable hereunder in respect of
the Loan (except for imposition of, or change in the rate of, any tax
(A) on the overall net income of such Affected Person or direct
substitute for such tax, or (B) which would not have been imposed if
such Affected Person complied with any certification, information,
documentation or other reporting requirement); or
(ii) imposes, modifies, or makes applicable any reserve, special
deposit, compulsory loan, assessment, increased cost, or similar
requirement against assets held by, or deposits of, or advances or loans
or letters of credit by, or other credit extended by, or any other
acquisition of funds by, any office of such Affected Person in respect
of the Loan which is not otherwise expressly included in the
determination of the applicable rate or rates of interest hereunder,
and the result of any of the foregoing is to increase the cost of
making, renewing, or maintaining the Loan or to reduce any amount
receivable by Bank hereunder in respect of any of the foregoing then, in
any such case, Borrower shall promptly pay Bank upon demand any
additional amounts necessary to compensate Bank for such additional cost
(including any penalties, interest, and out-of-pocket expenses paid to
third parties, but excluding any late payment penalties which resulted
solely from Bank's inaction in seeking indemnification hereunder) or
reduction in such amount receivable.
(c) Bank will, if possible, designate a different lending office if
such will avoid the need for, or reduce the amount of, any compensation
hereunder and is not otherwise disadvantageous to Bank. This Section
shall apply and Bank is entitled to payment hereunder, notwithstanding
any possible invalidity or inapplicability of any event or provision
which may require payment hereunder. A statement setting forth the
calculations of any additional amounts payable submitted by Bank to
Borrower shall be conclusive absent manifest error. No delay by Bank in
demanding the payment of any additional amounts pursuant to this Section
shall constitute a waiver of its right to demand payment of such amounts
at any subsequent time. In determining the additional amount payable
pursuant to this Section, Bank shall take into account any transitional
adjustment or phase-in provisions of such reserve requirements which
would reduce the reserve requirement otherwise applicable; provided,
however, Bank, in its sole discretion, may determine the allocation of
reserve requirements. Each such determination made by Bank, and each
notification to Borrower under this Section, shall be presumptive as to
the matters therein set forth in the absence of manifest error in
calculation. Bank agrees to provide on request by Borrower such
certificates as are reasonably required, and take such other actions as
are reasonably necessary to claim such exemptions as Bank may be
entitled to claim in respect of all or a portion of any sums which are
otherwise required to be paid or deducted or withheld pursuant to this
Section. This Section shall not be construed, nor shall it operate, to
require Borrower to pay any sums not permitted or in excess of the
limits imposed by applicable law.
2.15 Collateral. The payment and performance of the Note and all of
the other Obligations of Borrower to Bank pursuant to the Loan Documents
shall be secured by the following:
(a) The collateral assignment of, and pledge and grant of a first
priority security interest against all of Borrower's assets, including,
without limitation, all of Borrower's Premium Finance Agreements (but
excluding those Premium Finance Agreements sold to Peregrine Premium
Finance L.C. prior to the date hereof) now existing or hereafter
created, and all accounts receivable now existing or hereafter created
(including those arising from the Reinsurance Agreements, Premium
Finance Agreements and unearned premium reimbursements), and all notes
receivable, general intangibles and chattel paper of Borrower pursuant
to the terms of an agreement (the "Security Agreement") which shall be
satisfactory to Bank.
(b) The unconditional guaranties of HFS, ACO, XXXX, HCS, and American
Hallmark Agencies, Inc. ("Guarantors") pursuant to the terms of one or
more guaranty agreements (each a "Guaranty Agreement") which shall be
satisfactory to Bank.
3.0 CONDITIONS PRECEDENT. The obligations of Bank as set forth herein
are subject to the satisfaction (in the opinion of Bank), unless waived
in writing by Bank, of each of the following conditions (Sections 3.1,
3.3, 3.4, 3.6 and 3.7 are conditions to closing and Sections 3.2, 3.5
and 3.8 are conditions to the initial funding):
3.1 Effectiveness of Loan Documents. Each of the Loan Documents shall
be in full force and effect.
3.2 Opinion. There shall have been delivered a favorable opinion of
counsel for Borrower and Guarantors covering such matters incident to
the Loan or the Loan Documents as Bank may reasonably request, including
those matters described in Sections 8.1, 8.2, 8.3, 8.4, 8.5, 8.6, 8.12
and 8.13 hereof.
3.3 Representations and Warranties. All representations and warranties
contained herein or in the documents referred to herein or otherwise
made in writing in connection herewith or therewith shall be true and
correct with the same force and effect as though such representations
and warranties have been made on and as of this date.
3.4 Documentation and Proceedings. Bank shall have received such
evidence as Bank requires of the existence, good standing, authority and
capacity of Borrower and each Guarantor to execute, deliver and perform
the Loan Documents.
3.5 Portfolio Audit. There shall have been delivered to Bank a
portfolio audit of Borrower's portfolio (currently owned by Peregrine
Premium Finance L.C.) of Premium Finance Agreements performed by an
independent entity which is satisfactory to Bank.
3.6 Expenses. Borrower shall have paid all reasonable expenses of Bank
in connection with the preparation of the Loan Documents and the making
of the Loan, including but not limited to, the fees and expenses of
counsel for Bank.
3.7 Closing of Dorinco Loan Transaction. HFS shall have consummated
the transactions contemplated by the Dorinco Loan Documents in form and
content satisfactory to Bank and shall have made an equity capital
contribution to Borrower in an amount not less than $7,000,000.
3.8 Form of Premium Finance Agreement Approved by the State Board of
Insurance. Bank shall have received such evidence as Bank requires of
the approval by the Texas State Board of Insurance of the form of
Premium Finance Agreement to be utilized by Borrower in its premium
finance business.
4.0 CONDITIONS PRECEDENT TO SUBSEQUENT LOANS. The obligation of Bank
to make each Loan to Borrower is subject, at the time of the funding of
each such Loan, to the satisfaction (in the opinion of Bank), unless
waived in writing by Bank, of each of the following conditions:
4.1 Effectiveness of Loan Documents. Each of the Loan Documents shall
be in full force and effect.
4.2 Availability. The sum of the then outstanding principal balance of
the Note and the amount of the requested Loan shall be equal to or less
than the Maximum Amount.
4.3 Representations and Warranties. All representations and warranties
contained herein or in the documents referred to herein or otherwise
made in writing in connection herewith or therewith shall be true and
correct with the same force and effect as though such representations
and warranties have been made on and as of the funding date.
4.4 No Default. There shall exist no event of default hereunder or
under the Dorinco Loan Documents and no condition, event or act which,
with the giving of notice or lapse of time or both, would constitute an
event of default hereunder or under the Dorinco Loan Documents.
4.5 Change in Condition. No adverse change in condition (financial or
otherwise) of Borrower or any Guarantor or any other event shall have
occurred which materially adversely affects (i) the condition (financial
or otherwise) of Borrower or any Guarantor, or (ii) the validity or
enforceability of any of the Loan Documents, or (iii) the ability of
Borrower or any Guarantor to meet and carry out its Obligations under
the Loan Documents or to perform the transactions contemplated hereby or
thereby.
5.0 AFFIRMATIVE COVENANTS. Until full payment and performance of all
Obligations of Borrower under the Loan Documents, Borrower will, unless
Bank consents otherwise in writing (and without limiting any requirement
of any other Loan Document):
5.1 Financial Statements and Other Information. Maintain a system of
accounting satisfactory to Bank and in accordance with GAAP applied on a
consistent basis throughout the period involved, permit Bank's officers
or authorized representatives to visit and inspect Borrower's books of
account and other records at such reasonable times and as often as Bank
may desire, and pay the reasonable fees and disbursements of any
accountants or other agents of Bank selected by Bank for the foregoing
purposes. Unless written notice of another location is given to Bank,
Borrower's books and records will be located at Borrower's chief
executive office set forth above. The financial statements described in
paragraphs (e), (f) and (g) below shall be prepared in form and content
acceptable to Bank and by independent certified public accountants
acceptable to Bank. In addition, Borrower will:
(a) Furnish to Bank a monthly borrowing base certificate in the form of
Exhibit B attached hereto, together with a "back-up tape" containing
comprehensive data regarding the portfolio of Premium Finance Agreements
and all information necessary to substantiate the calculation of the
Borrowing Base in such monthly borrowing base certificate, within thirty
(30) days following the end of each calendar month.
(b) Furnish to Bank an aging of its Premium Finance Agreements and
other accounts and notes receivable in the form of Exhibit D hereto
within thirty (30) days following the end of each calendar month.
(c) Upon request of Bank, furnish to Bank internally routinely prepared
monthly financial statements (including a balance sheet and an income
statement) of Borrower for each calendar month of each calendar year of
Borrower, within forty-five (45) days after the request is made by Bank.
(d) Furnish to Bank quarterly internally prepared consolidated and
consolidating financial statements (including a balance sheet and an
income statement) of HFS, ACO and Borrower for each fiscal quarter of
each fiscal year of HFS, ACO and Borrower, within forty-five (45) days
after the close of each such fiscal quarter.
(e) Furnish to Bank annual audited financial statements (including a
balance sheet, and statements of financial condition, income, cash flows
and changes in shareholders' equity) of Borrower for each fiscal year of
Borrower prepared in accordance with GAAP on an audited basis within one
hundred twenty (120) days following the end of Borrower's fiscal year.
(f) Furnish to Bank annual audited consolidated financial statements
(including a balance sheet, and statements of financial condition,
income, cash flows and changes in shareholders' equity) of AH, prepared
in accordance with statutory requirements and any other applicable
requirements of the Texas Department of Insurance within one hundred
twenty (120) days following each fiscal year of AH.
(g) Furnish to Bank annual audited financial statements (including a
balance sheet, and statements of financial condition, income, cash flows
and changes in shareholders' equity) of HFS prepared in accordance with
GAAP within one hundred twenty (120) days of the end of the fiscal year
of such entity.
(h) Furnish to Bank a copy of the annual report on Form 10-KSB filed
with the Securities and Exchange Commission of HFS as soon as available,
and in any event within one hundred twenty (120) days of the end of the
fiscal year of such entity.
(i) Furnish to Bank a compliance certificate in the form of Exhibit C
attached hereto for (and executed by an authorized representative of)
Borrower concurrently with and dated as of the date of delivery of each
of the financial statements as required in Sections 5.1(c), 5.1(d) and
5.1(e) above, containing (1) a certification that the financial
statements of even date are true and correct and that Borrower is not in
default under the terms of this Agreement, and (2) computations and
conclusions, in such detail as Bank may request, with respect to
compliance with this Agreement, and the other Loan Documents, including
computations of all quantitative covenants.
(j) Furnish to Bank promptly such additional information, reports and
statements respecting the business operations and financial condition of
Borrower and Guarantors, respectively, from time to time, as Bank may
reasonably request.
5.2 Quarterly Portfolio Audits. Submit to, and bear the expense of
(not to exceed $1,500.00 per audit), four portfolio audits of Borrower's
portfolio of Premium Finance Agreements performed by Bank or its
representatives or agents during any period of twelve (12) consecutive
calendar months. The portfolio audit delivered pursuant to Section 3.5
hereof shall be considered the first portfolio audit for purposes of
this Section.
5.3 Insurance. Maintain insurance with responsible insurance companies
on such of its properties, in such amounts and against such risks as is
customarily maintained by similar businesses operating in the same
vicinity, specifically to include fire and extended coverage insurance
covering all assets, workers compensation insurance and liability
insurance, all to be with such companies and in such amounts as are
satisfactory to Bank and providing for at least 30 days prior notice to
Bank of any cancellation thereof. Satisfactory evidence of such
insurance will be supplied to Bank prior to the initial funding under
the Loan and prior to each policy renewal.
5.4 Existence and Compliance. Maintain its existence, good standing
and qualification to do business, where required and comply with all
laws, regulations and governmental requirements including, without
limitation, (a) environmental laws applicable to it or to any of its
property, business operations and transactions, and (b) Chapter 24 of
the Insurance Code, Title 28 of the Texas Administrative Code, the Truth
in Lending Act and Regulation Z promulgated thereunder, and the rules,
regulations and orders of the Texas Department of Insurance and any
other Governmental Authority having jurisdiction over any aspect of the
business of Borrower.
5.5 Right to Receive Unearned Premiums. Notify the insurer whose
premiums are being financed of the existence of each insurance Premium
Finance Agreement within the time required by Section 24.22 of
Chapter 24 of the Insurance Code and give such notices and take all
other actions as may be necessary or required in order that Borrower
shall be entitled to receive all unearned premiums from such insurer or
reinsurer in the event a Premium Finance Agreement is canceled.
5.6 Notice of Adverse Conditions or Events. Promptly advise Bank in
writing of (i) any condition, event or act which comes to its attention
that would or might materially adversely affect Borrower's or any
Guarantor's financial condition or operations, any collateral, or Bank's
rights under the Loan Documents, (ii) any litigation filed by or against
Borrower or any Guarantor claiming an amount in excess of $100,000,
(iii) any event that has occurred that would constitute an event of
default under any Loan Documents or under any Dorinco Loan Documents,
and (iv) any uninsured or partially uninsured loss through fire, theft,
liability or property damage in excess of an aggregate of $100,000.
Borrower will advise Bank in writing of any change, amendment, renewal,
modification, cancellation or substitution of any Reinsurance Agreement
within ten (10) days thereof.
5.7 Taxes and Other Obligations. Pay all of its taxes, assessments and
other obligations, including, but not limited to taxes and assessments
and lawful claims which, if unpaid, might by law become a lien against
the assets of Borrower, as the same become due and payable, except to
the extent the same are being Contested in Good Faith.
5.8 Maintenance. Maintain all of its tangible property in good
condition and repair and make all necessary replacements thereof, and
preserve and maintain all licenses, trademarks, privileges, permits,
franchises, certificates and the like necessary for the operation of its
business.
5.9 Environmental. Immediately advise Bank in writing of (i) any and
all enforcement, cleanup, remedial, removal, or other governmental or
regulatory actions instituted, completed or threatened pursuant to any
applicable federal, state, or local laws, ordinances or regulations
relating to any Hazardous Materials affecting Borrower's business
operations; and (ii) all claims made or threatened by any third party
against Borrower relating to damages, contribution, cost recovery,
compensation, loss or injury resulting from any Hazardous Materials.
Borrower shall immediately notify Bank of any remedial action taken by
Borrower with respect to Borrower's business operations. Borrower will
not use or permit any other party to use any Hazardous Materials at any
of Borrower's places of business or at any other property owned by
Borrower except such materials as are incidental to Borrower's normal
course of business, maintenance and repairs and which are handled in
compliance with all applicable environmental laws; Borrower agrees to
permit Bank, its agents, contractors and employees to enter and inspect
any of Borrower's places of business or any other property of Borrower
at any reasonable times for the purposes of conducting an environmental
investigation and audit (including taking physical samples) to insure
that Borrower is complying with this covenant and Borrower shall
reimburse Bank on demand for the costs of any such environmental
investigation and audit. Borrower shall provide Bank, its agents,
contractors, employees and representatives with access to and copies of
any and all data and documents relating to or dealing with any Hazardous
Materials used, generated, manufactured, stored or disposed of by
Borrower's business operations within five (5) days of the request
therefor.
5.10 Delivery of Endorsed Premium Finance Agreements. Upon the
occurrence of a Default or an Event of Default or any Trigger Event,
within one (1) Business Day, Borrower shall immediately notify Bank of
the occurrence of such Default, Event of Default or Trigger Event and
deliver to Bank all Premium Finance Agreements of Borrower (excluding
those Premium Finance Agreements sold to Peregrine Premium Finance L.C.
prior to the date hereof), appropriately endorsed, with full recourse
and warranty and execute, acknowledge, and deliver to Bank and file or
cause to be filed any and all other documents, agreements and
instruments and do all other acts or things as Bank may reasonably
request in order more fully to effect the assignment of the Premium
Finance Agreements to Bank.
6.0 NEGATIVE COVENANTS. Until full payment and performance of all
Obligations of Borrower under the Loan Documents, Borrower will not,
without the prior written consent of Bank (and without limiting any
requirement of any other Loan Documents):
6.1 Interest Coverage Ratio. For any period specified below, permit
the ratio (the "Interest Coverage Ratio") of (i) the sum obtained by
adding (A) Borrower's pre-tax net income determined in accordance with
GAAP (before dividends, distributions, management fees and marketing
fees) for any period, plus (B) Interest Expense for such period, to (ii)
Interest Expense for such period to be less than 1.50 to 1.0. The
Interest Coverage Ratio shall be determined (i) as of the last day of
each fiscal quarter ending in 1997, for the period commencing on January
1, 1997 and ending on the last day of such fiscal quarter, and (ii) as
of the last day of each fiscal quarter ending in the period beginning
January 1, 1998 through and including the Expiration Date, for the
twelve-month period ending on the last day of such fiscal quarter.
6.2 Capital Expenditures. Make capital expenditures during each fiscal
year (including capitalized leases) exceeding $100,000 in the aggregate.
6.3 Minimum Tangible Net Worth. Permit the Tangible Net Worth of
Borrower at any time during 1997 to be less than $7,700,000 or at any
time during 1998 to be less than $8,000,000.
6.4 Transfer of Assets or Control. Sell, lease, assign or otherwise
dispose of or transfer any assets, except in the normal course of its
business, or enter into any merger or consolidation, or transfer control
or ownership of Borrower (other than a transfer made pursuant to the
Dorinco Loan Documents), or form or acquire any subsidiary.
6.5 Liens. Grant, suffer or permit any contractual or noncontractual
lien on or security interest in its assets, except (a) liens in favor of
Bank, (b) liens for taxes, assessments or similar charges, incurred in
the ordinary course of business that are not yet due and payable,
(c) liens of mechanics, materialmen, warehousemen, carriers, operators
and other like liens securing obligations incurred in the ordinary
course of business that are not yet due and payable; (d) landlord's
liens for rentals not yet due and payable; and (e) liens securing any
purchase money Indebtedness permitted hereunder (if any) if such liens
do not encumber any property other than the property for which such
Indebtedness was incurred and do not secure payment of any amount other
than the amount from time to time owing on the property for which such
Indebtedness was incurred and the Indebtedness initially secured by such
lien does not exceed $100,000.
6.6 Extensions of Credit. Make, or permit any subsidiary to make, any
loan or advance to any person or entity, except for loans by Borrower in
the ordinary course of business, or purchase or otherwise acquire, or
permit any subsidiary to purchase or otherwise acquire, any capital
stock, assets, obligations, or other securities of, make any capital
contribution to, or otherwise invest in or acquire any interest in any
entity, or participate as a partner or joint venturer with any person or
entity, except for (a) the purchase of direct obligations of the United
States or any agency thereof with maturities of less than one year,
(b) certificates of deposit issued by or money market deposits with
Merrill, Lynch, Xxxxxx, Xxxxxx & Xxxxx Incorporated or any bank or trust
company organized under the laws of the United States of America or any
state thereof and having combined capital, surplus and undivided profits
of not less than $500,000,000 (as of the date of its most recent
financial statements), and (c) repurchase agreements with respect to the
investments referred to in clauses (a) and (b) above with any bank or
trust company organized under the laws of the United States of America
or any state thereof having combined capital, surplus and undivided
profits of not less than $500,000,000 (as of the date of its most recent
financial statements).
6.7 Borrowings. Create, incur, assume or become liable in any manner
for any Indebtedness (for borrowed money, deferred payment for the
purchase of assets, lease payments, as surety or guarantor for the debt
for another, or otherwise) other than to Bank, except for (a) normal
trade debts incurred in the ordinary course of Borrower's business,
(b) intracompany debt and debt owed to insurers and reinsurers created
in the ordinary course of business which is offset dollar for dollar by
cash and receivables, and (c) and except for existing Indebtedness
disclosed to Bank in writing and acknowledged by Bank prior to the date
of this Agreement.
6.8 Character of Business. Change the general character of business as
conducted at the date hereof, or engage in any type of business not
reasonably related to its business as presently conducted.
6.9 Dividends, Distributions, Management Fees and Marketing Fees. Make
any distribution (other than dividends payable in capital stock of
Borrower) on any shares of any class of its capital stock or apply any
of its property or assets to the purchase, redemption or other
retirement of any shares of any class of its capital stock or in any way
amend its capital structure, or pay or become obligated to pay any
management, marketing or other similar fees to any person or entity;
provided, however, so long as no Default or Event of Default has
occurred and is continuing hereunder or under the Dorinco Loan
Documents, the Borrower may distribute cash dividends or pay management
or other similar fees to HFS in an amount not in excess of the Net
Operating Income Available For Distribution of Borrower.
6.10 Affiliate Transactions. Engage or permit any of its subsidiaries
to engage in any transaction with any Affiliate of Borrower, HFS or ACO
or any shareholder or investor in Borrower, or make an assignment or
other transfer of its properties or assets to any Affiliate, whether or
not any ordinary course of business, other than on terms and conditions
substantially as favorable to Borrower or any subsidiary of Borrower as
would be obtainable by Borrower or any such subsidiary at the time in a
comparable arms-length transaction with any party other than an
Affiliate.
6.11 Character of its Underwriting Guidelines. Change any material
underwriting guidelines utilized by Borrower as of the date hereof in
underwriting Premium Finance Agreements.
6.12 Amend the Dorinco Loan Documents. Amend or modify any material
terms or provisions of any of the Dorinco Loan Documents.
7.0 COVENANTS OF HALLMARK FINANCIAL SERVICES, INC.. Until full payment
and performance of all Obligations of Borrower under the Loan Documents,
or until Bank consents to the contrary and the Borrower receives the
prior written approval of the contrary from Bank, HFS and ACO will
comply or cause compliance with each of the following covenants:
7.1 Statutory Capital and Surplus. HFS will not permit at any time
AH's Statutory Capital and Surplus to be less than $2,650,000 as of the
date of any reporting period required by law or required by the Texas
Department of Insurance.
7.2 Minimum Tangible Net Worth. Neither HFS nor ACO will permit at
any time Borrower's Tangible Net Worth as of the date of any reporting
period required by law or required by the Texas Department of Insurance
during the following calendar years to be less than the following
amounts:
1997 $7,700,000
1998 $8,000,000
7.3 Transactions With Affiliates. All transactions between or among
HFS or ACO, any Affiliate(s), and any director, officer, employee and/or
agent of HFS or ACO, and Affiliate(s) shall be in good faith and
commercially reasonably.
7.4 Ratio of Gross Premium to Statutory Capital and Surplus. HFS shall
cause AH to maintain its ratio of Gross Premium to Statutory Capital and
Surplus at or below 10.0 to 1.0.
7.5 Ratio of Net Premium to Statutory Capital and Surplus. HFS shall
cause AH to maintain its ratio of Net Premium to Statutory Capital and
Surplus at or below 3.0 to 1.0.
7.6 Combined Ratio. HFS shall cause AH to maintain the average of AH's
Combined Ratio as of the end of any four (4) immediately preceding
fiscal quarters of AH's operations at 115% or below.
7.7 Loss Ratio. HFS shall cause AH to maintain the average of AH's
Loss Ratio as of the end of any four (4) immediately preceding fiscal
quarters of AH's operations at 87% or below.
7.8 Change in Ownership or Business. (i) Neither HFS nor ACO shall
permit AH, Borrower or XXXX to change the nature of its business or
materially change its ownership.
(ii) HFS shall not permit AH to write directly or indirectly the
following lines of business, or its equivalent: mortgage guaranty, ocean
marine, financial guaranty, medical malpractice, earthquake (as a
separate coverage), group accident and health, credit accident and
health (group and individual), other accident and health, workers'
compensation, products liability, aircraft (all perils), fidelity,
surety, boiler and machinery, credit, and international.
7.9 Dividends. HFS shall not pay or declare any cash or other
dividends or distributions on its corporate stock. ACO shall not, and
HFS shall not permit AH to, pay or declare any cash or other dividends
or distributions on its corporate stock if such payment or declaration
would result in an Event of Default hereunder or under the Dorinco Loan
Documents.
7.10 Intercompany Service Agreements. HFS shall not nor permit AH to
amend or adjust the commission structure of its intercompany service
agreements in place at the date of execution of this Agreement, to the
extent that it materially adversely affects AH financially.
7.11 Disposition of Assets, Security Interests and other Encumbrances.
Neither HFS nor ACO shall, nor permit AH, Borrower or XXXX to, sell,
assign, transfer or otherwise dispose of any of their respective assets
or properties or any interest therein, or create, incur or suffer to
exist any mortgage, security interest, lien, license or other
encumbrance upon any of their respective properties or assets, whether
now owned or hereafter acquired, except (a) security interests created
or arising pursuant to the Dorinco Loan Documents, (b) purchase money
security interests in equipment used in the normal course of their
respective businesses, (c) operating or capital equipment leases for use
in the ordinary course of business, (d) existing encumbrances disclosed
in HFS's consolidated and consolidating financial statements, and (e)
liens granted by Borrower to Bank under this Agreement and the other
Loan Documents.
7.12 Capital Stock. Neither HFS nor ACO shall, nor permit Borrower to,
purchase or retire any of its capital stock or issue or sell any capital
stock or otherwise change its capital structure or change the relative
rights, preferences or limitations relating to its capital stock.
7.13 Investments and Advances. Neither HFS nor ACO shall, nor permit AH
to make any investment in or advance to any person, firm or corporation,
other than advances (i) to or investments in any Affiliate(s), however,
any advance or investment by AH to any Affiliate(s) or HFS requires
Bank's prior written consent and (ii) to employees in the ordinary
course of business, not to exceed $50,000.00.
7.14 Guaranties. Neither HFS nor ACO shall, nor permit AH or any other
Affiliate(s) to become a guarantor, surety or otherwise liable for the
debts or other obligations of any other person, firm or corporation,
except for (i) Obligations to Bank, (ii) pledges of assets to secure
Indebtedness of HFS under the Dorinco Loan Documents, (iii) obligations
under the Reinsurance Agreements, and (iv) obligations of Affiliate(s),
provided the aggregate obligation of either HFS or AH on the obligations
of all other Affiliate(s) shall not exceed $500,000.00, further
provided, no single transaction shall exceed $200,000.00.
7.15 Affiliate(s) Stock. Neither HFS nor ACO shall permit any
Affiliate(s) (other than HFS) to consent to or approve or permit the
issuance of any additional shares of any class of capital stock of any
such Affiliate(s), or any securities convertible voluntarily by the
holder thereof or automatically upon the occurrence or non-occurrence of
any event or condition into, or exchangeable for, any such shares, or
any warrants, options, rights or other commitments entitling any person
to purchase or otherwise acquire any such shares other than to the
present owner of the capital stock of such Affiliate.
7.16 Other Miscellaneous Covenants. Neither HFS nor ACO shall, and HFS
shall not permit AH to:
(i) Create, incur or permit to exist or otherwise become liable for,
directly or indirectly, any indebtedness for borrowed money or for the
deferred purchase price of real or personal property in excess of, in
the aggregate, $500,000.00, or in any individual transaction,
$200,000.00, except (A) trade indebtedness incurred in the ordinary
course of business, (B) the Obligations and (C) the Indebtedness owing
under the Dorinco Loan Documents;
(ii) Merge or consolidate with any other company or companies;
enter into any joint venture or partnership with any person, firm or
corporation other than an Affiliate; or convey, lease or sell all or any
material portion of its property or assets or business to any other
person, firm or corporation, other than the purchase or sale of assets
in the ordinary course of business;
(iii) Consent to or approve or permit any material amendment,
restatement or substitution of the articles of incorporation and/or
bylaws of AH, it being hereby acknowledged by HFS that any such
amendment, restatement or substitution shall not be effective unless so
consented to by Bank and that Bank may give or withhold such consent in
each instance in Bank's sole and absolute discretion. For purposes of
this Section 7, and without limiting the scope of this Section 7, any
change in capital structure or in the relative rights, preferences or
limitations relating to capital stock shall be deemed a material change.
8.0 REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and
warrants to Bank as follows:
8.1 Good Standing. Borrower is a corporation, duly organized, validly
existing and in good standing under the laws of Texas and has the power
and authority to own its property and to carry on its business in each
jurisdiction in which Borrower does business. ACO is a corporation duly
organized, validly existing and in good standing under the laws of Texas
and has the power and authority to own its property and to carry on its
business in each jurisdiction in which it does business. HFS is a
corporation duly organized, validly existing and in good standing under
the laws of Nevada and has the power and authority to own its property
and to carry on its business in each jurisdiction in which it does
business. XXXX is a corporation duly organized, validly existing and in
good standing under the laws of Texas and has the power and authority to
own its property and to carry on its business in each jurisdiction in
which it does business. American Hallmark Agencies, Inc. is a
corporation duly organized, validly existing and in good standing under
the laws of Texas and has the power and authority to own its property
and to carry on its business in each jurisdiction in which it does
business. HCS is a corporation duly organized, validly existing and in
good standing under the laws of Texas and has the power and authority to
own its property and to carry on its business in each jurisdiction in
which it does business.
8.2 Authority and Compliance. Borrower has full power and authority to
execute and deliver the Loan Documents and to incur and perform the
obligations provided for therein, all of which have been duly authorized
by all proper and necessary action of the appropriate governing body of
Borrower. Each Guarantor has full power and authority to execute and
deliver the guaranty agreements to which each is a party and to incur
and perform the obligations provided for therein, all of which have been
duly authorized by all proper and necessary action of the appropriate
governing body of the Guarantors. No consent or approval of any public
authority or other third party is required as a condition to the
validity of any Loan Document, and Borrower and all Guarantors are in
compliance with all laws and regulatory requirements to which they are
subject.
8.3 Binding Agreement. This Agreement and the other Loan Documents
executed by Borrower constitute valid and legally binding obligations of
Borrower, enforceable in accordance with their terms. Each Guaranty
Agreement executed by a Guarantor constitutes a valid and legally
binding obligation of such Guarantor, enforceable in accordance with its
terms.
8.4 Concerning the Reinsurance Agreements. Each Reinsurance Agreement
is in full force and effect and is the valid and legally binding
obligation of the parties thereto enforceable in accordance with its
respective terms.
8.5 Litigation. There is no proceeding involving Borrower pending or,
to the knowledge of Borrower, threatened before any court or
Governmental Authority, agency or arbitration authority, except as
disclosed to Bank in writing and acknowledged by Bank prior to the date
of this Agreement.
8.6 No Conflicting Agreements. There is no charter, bylaw, stock
provision, partnership agreement or other document pertaining to the
organization, power or authority of Borrower or any Guarantor and no
provision of any existing agreement, mortgage, indenture or contract
binding on Borrower or any Guarantor or affecting their property, which
would conflict with or in any way prevent the execution, delivery or
carrying out of the terms of the Loan Documents to which they are
parties, including without limitation, the Dorinco Loan Documents.
8.7 Ownership of Assets. Borrower has good title to its assets, and
its assets are free and clear of liens, except those granted to Bank and
as disclosed to Bank in writing prior to the date of this Agreement.
8.8 Contingent Liabilities. There are no suretyship
agreements,guaranties or other contingent liabilities of Borrower, ACO
or HFS that have not been disclosed in writing to Bank.
8.9 Taxes. All taxes and assessments due and payable by Borrower have
been paid or are being Contested in Good Faith, and Borrower has filed
all tax returns which it is required to file.
8.10 Financial Statements. The financial statements of Borrower
heretofore delivered to Bank have been prepared in accordance with GAAP
applied on a consistent basis throughout the period involved and fairly
present Borrower's financial condition as of the date or dates thereof,
and there has been no material adverse change in Borrower's financial
condition or operations since September 30, 1996. To the best of
Borrower's knowledge, all factual information furnished by Borrower to
Bank in connection with this Agreement and the other Loan Documents is
and will be accurate and complete on the date as of which such
information is delivered to Bank and is not and will not be incomplete
by the omission of any material fact necessary to make such information
not misleading.
8.11 Environmental Matters. The conduct of Borrower's business
operations and the condition of Borrower's property does not and will
not violate any federal laws, rules or ordinances for environmental
protection, regulations of the Environmental Protection Agency, any
applicable local or state law, rule, regulation or rule of common law or
any judicial interpretation thereof relating primarily to the
environment or Hazardous Materials.
8.12 Licenses and Permits. Borrower has obtained all licenses, permits
and approvals required to engage in the business of insurance premium
financing which are required by the laws, rules and regulations of every
state in which Borrower engages in such business.
8.13 Use of Approved Premium Finance Agreement. The form of Premium
Finance Agreement used by Borrower in its insurance premium finance
business complies in all material respects with all applicable laws,
including, without limitation, Chapter 24 of the Insurance Code,
Chapters 3 and 4 of the Texas Credit Code (Tex. Rev. Civ. Stat.Xxx. art.
5069-3.01, et seq. and art 5069-4.01, et seq.) and shall be approved by
the Department of Insurance of Texas and by all other Governmental
Authorities required in order for Borrower to use such agreement in its
insurance premium finance business prior to the date of the initial
funding of the Loan hereunder.
8.14 Compliance with Applicable Laws. Borrower has complied with all
applicable laws (including without limitation Chapter 24 of the
Insurance Code, Title 28 of the Administrative Code, and the Truth in
Lending Act (the "Act") and all other statutes referenced in Chapter 24
of the Insurance Code), rules, regulations (including without limitation
Regulation Z promulgated under the Act) and orders of all Governmental
Authorities (including without limitation, the Department of Insurance)
having jurisdiction over any aspect of the business conducted by
Borrower.
8.15 Solvency. Borrower, each of the Guarantors and AH are Solvent both
before and after giving effect to the transactions contemplated by this
Agreement and the other Loan Documents.
8.16 Additional Information. No information, exhibit or report
furnished by Borrower to Bank in connection with any of the Loan
Documents contains any material misstatement of a fact or omits to state
a material fact or any fact necessary to make the statements contained
therein not materially misleading.
8.17 Continuation of Representation and Warranties. All representations
and warranties made under this Agreement shall be deemed to be made at
and as of the date hereof and at and as of the date of any future
advance under any Loan.
9.0 DEFAULT. Any of the following shall constitute Events of Default:
9.1 Nonpayment. Borrower shall default in the due and punctual payment
of any principal or interest of the Note when due and payable, whether
at maturity or otherwise.
9.2 Representations and Warranties. Any representation, warranty or
statement made by Borrower or any Guarantor herein or otherwise in
writing in connection herewith or in connection with any of the other
Loan Documents and the agreements referred to herein or therein or in
any financial statement, certificate or statement signed by any officer
or employee of Borrower or any Guarantor and furnished pursuant to any
provision of the Loan Documents shall be breached, or shall be
materially false, incorrect or incomplete when made.
9.3 Covenants Contained in Agreement. (a) Borrower shall default in
the due performance or observance of any term, covenant or agreement
(other than Sections 5.5, 5.10, 6.1, 6.2, 6.4, 6.6, 6.8, 6.9, 6.11 and
6.12 hereof) on its part to be performed or observed hereunder and the
default shall continue unremedied for a period of thirty (30) days
following notice thereof from Bank to Borrower; or (b) Borrower shall
default in the due performance or observance of any term, covenant or
agreement of Sections 5.5, 5.10, 6.1, 6.2, 6.4, 6.6, 6.8, 6.9, 6.11 and
6.12 hereof.
9.4 Default in Other Loan Documents. Borrower or any Guarantor shall
default in the due performance of or observance by it of any term,
covenant or agreement on its part to be performed pursuant to the terms
of any of the other Loan Documents and the default shall continue
unremedied beyond any grace or cure period therein provided.
9.5 Default under the Dorinco Loan Documents. An event of default
shall occur under the provisions of any Dorinco Loan Document the effect
of which is to permit the holder or holders of such instrument to cause
the indebtedness evidenced by such instrument to become due prior to its
stated maturity.
9.6 Default in Other Debt. An event of default shall occur under the
provisions of any instrument (other than the Loan Documents and the
indebtedness described in Schedule 9.6 attached hereto and made a part
hereof by this reference) evidencing indebtedness of Borrower or any
Guarantor for the payment of borrowed money or of any agreement relating
thereto the effect of which is to permit the holder or holders of such
instrument to cause the indebtedness evidenced by such instrument to
become due prior to its stated maturity.
9.7 Validity of Loan Documents. Any of the Loan Documents shall cease
to be a legal, valid and binding agreement enforceable against any party
executing the same in accordance with the respective terms thereof, or
shall in any way be terminated, or become or be declared ineffective or
inoperative, or shall in any way whatsoever cease to give or provide the
respective rights, remedies, powers and privileges intended to be
created thereby.
9.8 Bankruptcy. Borrower or any Guarantor shall suspend or discontinue
its business operations, or shall generally fail to pay its debts as
they mature, or shall file a petition commencing a voluntary case
concerning Borrower or any Guarantor under any chapter of the United
States Bankruptcy Code; or any involuntary case shall be commenced
against Borrower or any Guarantor under the United States Bankruptcy
Code; or Borrower or any Guarantor shall become insolvent (howsoever
such insolvency may be evidenced).
9.9 Judgments and Decrees. Borrower or any Guarantor shall suffer a
final judgment for the payment of money and shall not discharge the same
within a period of thirty (30) days unless, pending further proceedings,
execution has not been commenced, or, if commenced, has been effectively
stayed. Any order, judgment or decree shall be entered in any
proceeding against Borrower or any Guarantor decreeing the dissolution
or split up of Borrower or any Guarantor and such order shall remain
undischarged or unstayed for a period in excess of thirty (30) days
unless, pending further proceedings, dissolution or split up has not
commenced, or, if commenced, has been effectively stayed.
9.10 Drop in Rating of Reinsurance Companies Responsible for Repayment
of Unearned Premiums. The A.M. Best Company shall lower below "A-" the
rating of any reinsurance company responsible for the repayment of
unearned premiums to Borrower and, within ninety (90) days of the date
the rating of such reinsurance company falls below "A-," the Borrower
has not replaced the reinsurance agreement of such reinsurance company
with a reinsurance agreement with another reinsurance company having an
A.M. Best Company rating of "A-" or better covering the same reinsured
business.
9.11 Xx. Xxxxx Xxxxxxx and Xx. Xxxxx Xxxxxxxx to be Involved in Senior
Management. Neither Xxxxx X. Xxxxxxx nor Xxxxx X. Xxxxxxxx is devoting
her/his full time and effort to the management and operation of
Borrower.
9.12 Concerning the Reinsurance Agreements. At any time there is not in
force and effect (i) a Reinsurance Agreement reinsuring all new and
renewal business produced and underwritten through XXXX for and on
behalf of State and County Mutual Fire Insurance Company, Fort Worth,
Texas, ceded to AH and classified by AH as Private Passenger Automobile
business, including Physical Damage, Liability, Personal Injury
Protection and Uninsured/Underinsured Motorist, covering seventy-five
percent (75%) quota share; and (ii) a Reinsurance Agreement reinsuring
all new and renewal business produced and underwritten through XXXX for
and on behalf of State and County Mutual Fire Insurance Company, Fort
Worth, Texas, ceded to AH and classified by AH as Private Passenger
Automobile Physical Damage business, covering ninety-five percent (95%)
of $150,000 in excess of $100,000 of each loss occurrence.
9.13 Regulatory Action or Directive. At any time any Governmental
Authority delivers to Borrower, HFS, ACO, XXXX or AH, a cease and desist
order, letter of unsafe practices or conditions, an order of correction,
or similar directive under applicable law or commences any action which
could result in taking possession, reorganization or liquidation of
Borrower, HFS, ACO, AH, or XXXX, and such letter, action, order or other
directive is permitted to remain uncured or undismissed for more than
forty-five (45) days.
10.0 REMEDIES. Upon the occurrence of an event of default described in
Section 9.8 hereof, the entire principal of and accrued interest on the
Note shall forthwith be due and payable without demand, presentment for
payment, notice of nonpayment, protest, notice of protest, notice of
intent to accelerate, notice of acceleration and all other notices and
further actions of any kind, all of which are hereby expressly waived by
Borrower. In the event that any event of default described in
Sections 9.1 through 9.7 hereof or Section 9.9 through 9.13 hereof shall
occur and be continuing, Bank may, without demand or notice of its
election declare the entire unpaid balance of the Note and all other
indebtedness of Borrower to Bank, or any part thereof, immediately due
and payable, whereupon the principal of and accrued interest on such
Note and other indebtedness shall be forthwith due and payable without
demand, presentment for payment, notice of nonpayment, protest, notice
of protest, notice of intent to accelerate, notice of acceleration and
all other notices and further actions of any kind, all of which are
hereby expressly waived by Borrower. Upon the occurrence and during the
continuance of any such event of default, Bank may (a) exercise any and
all rights under or pursuant to any of the Loan Documents, and
(b) exercise any and all rights afforded to Bank by the laws of the
State of Texas or any other applicable jurisdiction or in equity or
otherwise, as Bank may deem appropriate.
11.0 NOTICES. All notices, requests or demands which any party is
required or may desire to give to any other party under any provision of
this Agreement must be in writing delivered to the other party at the
addresses set forth on the first page of this Agreement or to such other
address as any party may designate by written notice to the other party.
Each such notice, request and demand shall be deemed given or made
(a) if sent by mail, upon the earlier of the date of receipt or three
(3) days after deposit in the U.S. Mail, first class postage prepaid,
and (b) if sent by any other means, upon delivery.
12.0 COSTS, EXPENSES AND ATTORNEY'S FEES. Borrower shall pay to Bank
immediately upon demand the full amount of all costs and expenses,
including reasonable attorneys' fees, incurred by Bank in connection
with (a) negotiation and preparation of this Agreement and each of the
Loan Documents, and (b) Bank's continued administration thereof, and
(c) any modifications of or consents or waivers under or amendments to
or interpretations of or enforcement of this Agreement, the Note, the
other Loan Documents and the agreements described therein. Borrower
further agrees to indemnify Bank from and hold it harmless against any
and all losses, liabilities, claims, damages or expenses which Bank
suffers or incurs as a result of its entering into this Agreement, or
the consummation of the transactions contemplated by this Agreement and
the Loan Documents, or the use or contemplated use of the proceeds of
the Loan, including, without limitation, the fees and disbursements of
counsel incurred in connection with any litigation, arbitration or other
proceeding arising out of or by reason of any of the aftersaid.
13.0 MISCELLANEOUS. Borrower and Bank further covenant and agree as
follows, without limiting any requirement of any other Loan Document:
13.1 Cumulative Rights and No Waiver. Each and every right granted to
Bank under any Loan Document, or allowed it by law or equity shall be
cumulative of each other and may be exercised in addition to any and all
other rights of Bank, and no delay in exercising any right shall operate
as a waiver thereof, nor shall any single or partial exercise by Bank of
any right preclude any other or future exercise thereof or the exercise
of any other right. Borrower expressly waives any presentment, demand,
protest or other notice of any kind, including but not limited to
notice of intent to accelerate and notice of acceleration. No notice to
or demand on Borrower in any case shall, of itself, entitle Borrower to
any other or future notice or demand in similar or other circumstances.
13.2 Applicable Law. This Agreement and the rights and obligations of
the parties hereunder shall be governed by and interpreted in accordance
with the laws of Texas and applicable United States federal law and
shall be performable in Dallas County, Texas.
13.3 Amendment. No modification, consent, amendment or waiver of any
provision of this Agreement, nor consent to any departure by Borrower
therefrom, shall be effective unless the same shall be in writing and
signed by an officer of Bank, and then shall be effective only in the
specified instance and for the purpose for which given. This Agreement
is binding upon Borrower, its successors and assigns, and inures to the
benefit of Bank, its successors and assigns; however, no assignment or
other transfer of Borrower's rights or obligations hereunder shall be
made or be effective without Bank's prior written consent, nor shall it
relieve Borrower of any obligations hereunder. There is no third party
beneficiary of this Agreement.
13.4 Documents. All documents, certificates and other items required
under this Agreement to be executed and/or delivered to Bank shall be in
form and content satisfactory to Bank and its counsel.
13.5 Partial Invalidity. The unenforceability or invalidity of any
provision of this Agreement shall not affect the enforceability or
validity of any other provision herein and the invalidity or
unenforceability of any provision of any Loan Document to any person or
circumstance shall not affect the enforceability or validity of such
provision as it may apply to other persons or circumstances.
13.6 Indemnification. Notwithstanding anything to the contrary
contained in Section 13.7 hereof, Borrower shall indemnify, defend and
hold Bank and its successors and assigns harmless from and against any
and all claims, demands, suits, losses, damages, assessments, fines,
penalties, costs or other expenses (including reasonable attorneys'
fees and court costs) arising from or in any way related to any of the
transactions contemplated hereby, including but not limited to actual or
threatened damage to the environment, agency costs of investigation,
personal injury or death, or property damage, due to a release or
alleged release of Hazardous Materials, arising from Borrower's business
operations, any other property owned by Borrower or in the surface or
ground water arising from Borrower's business operations, or gaseous
emissions arising from Borrower's business operations or any other
condition existing or arising from Borrower's business operations
resulting from the use or existence of Hazardous Materials, whether such
claim proves to be true or false. Borrower further agrees that its
indemnity obligations shall include, but are not limited to, liability
for damages resulting from the personal injury or death of an employee
of Borrower, regardless of whether Borrower has paid the employee under
the workmen's compensation laws of any state or other similar federal
or state legislation for the protection of employees. The term "property
damage" as used in this paragraph includes, but is not limited to, damage
to any real or personal property of Borrower, Bank, and of any third
parties. Borrower's obligations under this paragraph shall survive the
repayment of the Loan and any deed in lieu of foreclosure or foreclosure
of any deed of trust, security agreement or other Loan Document securing
the Loan.
13.7 Survivability. All covenants, agreements, representations and
warranties made herein or in the other Loan Documents shall survive the
making of the Loan and shall continue in full force and effect so long
as the Loan is outstanding or the obligation of Bank to make any
advances under the Loan shall not have expired.
13.8 Accounting Terms. All accounting terms not specifically defined or
specified herein shall have the meanings generally attributed to such
terms under GAAP, as in effect from time to time, consistently applied,
with respect to the financial statements referenced in Section 7.9
hereof.
14.0 ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE
PARTIES HERETO INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR
RELATING TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT OR ANY RELATED
INSTRUMENTS, AGREEMENTS OR DOCUMENTS, INCLUDING ANY CLAIM BASED ON OR
ARISING FROM AN ALLEGED TORT, SHALL BE DETERMINED BY BINDING ARBITRATION
IN ACCORDANCE WITH THE FEDERAL ARBITRATION ACT (OR IF NOT APPLICABLE,
THE APPLICABLE STATE LAW), THE RULES OF PRACTICE AND PROCEDURE FOR THE
ARBITRATION OF COMMERCIAL DISPUTES OF J.A.M.S./ENDISPUTE OR ANY
SUCCESSOR THEREOF (J.A.M.S.), AND THE "SPECIAL RULES" SET FORTH BELOW.
IN THE EVENT OF ANY INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL.
JUDGMENT UPON ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING
JURISDICTION. ANY PARTY TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT MAY
BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL
ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THIS AGREEMENT APPLIES
IN ANY COURT HAVING JURISDICTION OVER SUCH ACTION.
14.1 Special Rules. THE ARBITRATION SHALL BE CONDUCTED IN THE COUNTY OF
BORROWER'S DOMICILE AT THE TIME OF THE EXECUTION OF THIS INSTRUMENT,
AGREEMENT OR DOCUMENT AND ADMINISTERED BY J.A.M.S. WHO WILL APPOINT AN
ARBITRATOR; IF J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM
ADMINISTERING THE ARBITRATION, THEN THE AMERICAN ARBITRATION ASSOCIATION
WILL SERVE. ALL ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90 DAYS
OF THE DEMAND FOR ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY, UPON
A SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH
HEARING FOR UP TO AN ADDITIONAL 60 DAYS.
14.2 Reservation of Rights. NOTHING IN THIS ARBITRATION PROVISION SHALL
BE DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE
STATUTES OF LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS
INSTRUMENT, AGREEMENT OR DOCUMENT; OR (II) BE A WAIVER BY BANK OF THE
PROTECTION AFFORDED TO IT BY 12 U.S.C. SEC. 91 OR ANY SUBSTANTIALLY
EQUIVALENT STATE LAW; OR (III) LIMIT THE RIGHT OF BANK HERETO (A) TO
EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED TO) SETOFF, OR (B)
TO FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY COLLATERAL, OR (C) TO
OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH AS (BUT NOT
LIMITED TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE APPOINTMENT OF
A RECEIVER. BANK MAY EXERCISE SUCH SELF HELP RIGHTS, FORECLOSE UPON
SUCH PROPERTY, OR OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES BEFORE,
DURING OR AFTER THE PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT
PURSUANT TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT. NEITHER THIS
EXERCISE OF SELF HELP REMEDIES NOR THE INSTITUTION OR MAINTENANCE OF AN
ACTION FOR FORECLOSURE OR PROVISIONAL OR ANCILLARY REMEDIES SHALL
CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING THE CLAIMANT IN
ANY SUCH ACTION, TO ARBITRATE THE MERITS OF THE CONTROVERSY OR CLAIM
OCCASIONING RESORT TO SUCH REMEDIES.
15.0 AGREEMENT CONTROLLING. In the event of a conflict between the
terms and provisions of this Agreement and the terms and provisions of
any of the other Loan Documents, the terms and provisions of this
Agreement shall control.
16.0 NOTICE OF FINAL AGREEMENT. THIS WRITTEN AGREEMENT AND THE OTHER
LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT
ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS
BETWEEN THE PARTIES.
[THIS SPACE IS INTENTIONALLY LEFT BLANK.]
HALLMARK FINANCE CORPORATION
By
Xxxxx X. Xxxxxxx, Executive Vice
President
HALLMARK FINANCIAL SERVICES, INC.
By
Xxxxx X. Xxxxxxx, Executive Vice
President
ACO HOLDINGS, INC.
By
Xxxxx X. Xxxxxxx, Executive Vice
President
NATIONSBANK OF TEXAS, N.A.
By
Xxxxx X. Xxxxx, Vice President
EXHIBIT A
FORM OF
NOTICE OF BORROWING
TO: NATIONSBANK OF TEXAS, N.A. under the Loan Agreement dated March 17,
1997, by and between HALLMARK FINANCE CORPORATION, and NATIONSBANK OF
TEXAS, N.A. ("Agreement")
Terms used herein which are defined in the Agreement have the same
meanings unless otherwise specified. Pursuant to Section 2.5 and
Section 2.6 of the Agreement, this Notice of Borrowing represents the
election of Borrower to select the following Interest Rate Options:
(I) Date of proposed Loan:\
(ii)Principal amount of requested Loan (Minimum Principal amount
$250,000). (If no Interest Rate Option is elected by Borrower, the
applicable Interest Rate Option shall be the Adjusted Prime Rate.):
Amount of requested Loan which will be
a Prime Rate Tranche:
Amount of requested Loan which will be
a LIBO Rate Tranche:
(iii) If the Interest Rate Option for any Tranche is the Adjusted LIBO
Rate, the Interest Period for such Tranche (options: three (3), six (6)
or twelve (12) calendar months):
(iv)Designate whether Loan is a new advance, or a conversion or renewal
of any existing LIBO Rate Tranche or a Prime Rate Tranche:
Borrower certifies that as of the date of the requested advance(s) all
of the conditions precedent contained in the Agreement have been
satisfied (or waived pursuant to the Agreement) and that all
representations and warranties of Borrower and each Guarantor set forth
in the Agreement are true and correct in all material respects on the
date of such advance(s) (other than representations and warranties which
expressly speak as of the closing date), and the Borrowing Base
Certificate most recently delivered pursuant to the Agreement may be
relied upon for this borrowing and is true and correct as of the date
thereof.
DATED this _____ day of ____________, 199__.
HALLMARK FINANCE CORPORATION
By
Title
EXHIBIT B
BORROWING BASE CERTIFICATE
Status as of , 199__
In accordance with the terms of the Loan Agreement dated March 17,
1997, by and between HALLMARK FINANCE CORPORATION, and NATIONSBANK OF
TEXAS, N.A., we hereby represent and warrant as follows:
Prior Period Balance of Premium Finance Agreements $
PLUS: PREMIUM FINANCE AGREEMENTS ISSUED
DURING THE PERIOD ENDING ___________, 19__ $
PLUS/LESS THE FOLLOWING ADJUSTMENTS:
(+/-) Premium Finance Agreement Amendments $
(+/-) Miscellaneous Premium Finance Agreement Corrections $
(+/-) Cash Receipts $
(+/-) Cancellations $
(+/-) Earned Late Charges $
(+/-) Earned Setup Fees $
(+/-) Returned Checks (Uncollected) $
(+/-) Returned Check Charges $
(+/-) Interest and Write-offs $
(-) Change in Unearned Interest $
(+) Return Premiums in Course of Collections $
Total Adjusted Eligible Premium Finance Agreements $
LESS THE FOLLOWING NON-ELIGIBLE PREMIUM FINANCE AGREEMENTS:
Premium Finance Agreements disputed or denied
by insurer or reinsurer $
Premium Finance Agreements subject to a right of
insurer or reinsurer to setoff, defense or discount $
Premium Finance Agreements with less than ten%
equity in the premium $
Premium Finance Agreements in default which have balances
due from makers after realization of all collateral $
Premium Finance Agreements resulting from TAIP $
Premium Finance Agreements funding policies outside Texas $
Premium Finance Agreements where AH is not the issuer on
behalf of State and County Mutual $
Premium Finance Agreements which do not have 75% or more
premium balances reinsured with third party reinsurer
with A. M. Best Rating of A- or higher $
Premium Finance Agreements where XXXX is not the
Managing Agent $
Return premiums in course of collection greater
than 5 days past due from the original due date as
required by applicable Governmental Authorities $
Total Adjusted Eligible Premium Finance Agreements $
LESS:
Bank Reserve $
CALCULATION OF BORROWING BASE:
[(Total Adjusted Eligible Premium Finance Agreements - Bank
Reserve) x 60%] = Maximum amount of borrowings
(not to exceed $8,000,000) $
LESS: Outstandings $
Available Amount/Overadvance Due Bank
(Amount of Borrowing Base - Outstandings) $
BORROWER:
HALLMARK FINANCE CORPORATION
By:
Title
EXHIBIT C
COMPLIANCE CERTIFICATE
This Compliance Certificate is delivered pursuant to Section 5.1(i)
of the Loan Agreement dated as of March 17, 1997 (together with all
amendments and modifications, if any, from time to time made thereto,
the "Loan Agreement"), between HALLMARK FINANCE CORPORATION (the
"Borrower") and NATIONSBANK OF TEXAS, N.A. Unless otherwise defined,
terms used herein have the meanings provided in the Loan Agreement.
The undersigned, being the duly elected, qualified and acting
of Borrower, on behalf of Borrower and solely in his or her
capacity as an officer of Borrower, hereby certifies and warrants that:
1. He or she is the of Borrower and that, as
such, he or she is authorized to execute this certificate on behalf of
Borrower.
2. As of , 199 , Borrower was not in default of any
of the provisions of the Loan Agreement during the period as to which
this compliance certificate relates as represented below:
(a) Interest Coverage Ratio:
net income before taxes,
dividends, distribution, + Interest Expense
management and marketing fees = Maximum 1.50 : 1.0
Interest Expense
Calculate here:
(b) Capital Expenditures: Maximum $100,000 per fiscal year
Fiscal Year 199 = $ (cumulative YTD)
(c) Minimum Tangible Net Worth: Minimum Tangible Net Worth
Minimum 1997 - $7,700,000
1998 - $8,000,000
Fiscal Year 199 = $
(d) Dividends, Distributions, Management Fees & Marketing Fees
YTD calculation of Net Operating Income for Distribution (see
page 6 of Loan Agreement for definition) = $
Actual Amount Distributed = $
3. As of , 199 , HFS was not in default of any of
the provisions of the Loan Agreement during the period as to which this
compliance certificate relates as represented below:
(a) Minimum Statutory Capital and Surplus: AH's Minimum Statutory
Capital and Surplus - $2,650,000
Fiscal Year 199 = $
(b) Ratio of Gross Premium to Statutory Capital and Surplus: AH is
required to maintain its ratio of Gross Premium to Statutory Capital and
Surplus at or below 10.0 to 1.0.
Calculate here:
(c) Ratio of Net Premium to Statutory Capital and Surplus: AH is
required to maintain its ratio of Net Premium to Statutory Capital and
Surplus at or below 3.0 to 1.0.
Calculate here:
(d) Combined Ratio: AH is required to maintain the average of AH's
Combined Ratio as of the end of any four (4) immediately preceding
fiscal quarters of AH's operations at 115% or below.
Calculate here:
Loss Ratio + Expense Ratio = %
% + % = %
(e) Loss Ratio: AH is required to maintain the average of AH's Loss
Ratio as of the end of any four (4) immediately preceding fiscal
quarters of AH's operations not to exceed 87% or below.
Calculate here:
4. As of , 199 , no Trigger Event (as defined in
the Loan Agreement) has occurred during the period as to which this
compliance certificate relates as represented below:
Trigger Events:
(a) AH's Combined Ratio as of the end of any four (4) immediately
preceding fiscal quarters of AH's operations is greater than 107%.
Calculate here:
(b) AH's Loss Ratio as of the end of any four (4) immediately
preceding fiscal quarters of AH's operations is greater than 83%.
Calculate here:
(c) Borrower's Interest Coverage Ratio as of the end of any fiscal
quarter is less than 1.80 to 1.0.
Calculate here:
(d) As of the date of any reporting period required by law or the
Texas Department of Insurance the Tangible Net Worth of Borrower
(determined in accordance with GAAP) is less than the amount set forth
below for the calendar year indicated:
1997 - $7,890,000
1998 - $8,200,000
Calculate here:
199 : $
(e) As of the date of any reporting period required by law or the
Texas Department of Insurance, the Minimum Statutory Capital and Surplus
is less than $4,200,000 or shall have decreased more than 15% from the
comparable reporting period of the preceding calendar year.
Calculate here:
IN WITNESS WHEREOF, the undersigned has executed and delivered this
certificate this day of , 199 .
BORROWER:
HALLMARK FINANCE CORPORATION
By:
Title
GUARANTOR:
HALLMARK FINANCIAL SERVICES, INC.
By:
Title
Period Ending:
EXHIBIT D
AGED STATUS ON PREMIUM FINANCE AGREEMENTS
Total 1-30 31-60 61-90 91+
January 31, 1997
New
Current
Late
Cancel without
Returns
Cancel with Dun
Refunds Due
SCHEDULE 1.0
BANK RESERVE
APPLICABLE PERIOD AMOUNT OF BANK RESERVE
March, 1997 $20,000.00
April, 1997 40,000.00
May, 1997 60,000.00
June, 1997 80,000.00
July, 1997 100,000.00
August, 1997 120,000.00
September, 1997 140,000.00
October, 1997 160,000.00
November, 1997 180,000.00
December, 1997 200,000.00
January, 1998 220,000.00
February, 1998 240,000.00
March, 1998 and thereafter 250,000.00
SCHEDULE 9.6
DEFAULT UNDER OTHER INDEBTEDNESS
In connection with the acquisition of the assets of Acadine Capital
Corporation ("ACC") in 1990, American Hallmark General Agency, Inc.
("XXXX") assumed the unpaid balance of a promissory note dated January
1, 1989, in the original principal amount of $982,000 payable by ACC to
White Enterprises, Inc. ("White"). By its terms, the note bears
interest at prime plus one percent until maturity and at the maximum
lawful rate thereafter. XXXX discontinued payment on the note in
November, 1992, at which time the unpaid principal balance was alleged
to be approximately $380,000. Pursuant to the terms of the note, all
unpaid principal and accrued unpaid interest became due on March 1,
1993. XXXX disputes the validity of the obligations evidenced by such
note. Further, XXXX believes that it has a right of offset with respect
to $240,000 which is on deposit with a subsidiary of White. Both White
and such subsidiary are currently in bankruptcy proceedings. XXXX also
believes that collection of the obligation is barred by the statute of
limitations.
