EXHIBIT 10(M)
CREDIT AGREEMENT
dated as of December 29, 1995
between
DONEGAL GROUP INC.
and
FLEET NATIONAL BANK OF CONNECTICUT
TABLE OF CONTENTS
ARTICLE 1. DEFINITIONS; ACCOUNTING TERMS.................................................................1
Section 1.1. Definitions...................................................................................1
Section 1.2. Accounting Terms.............................................................................12
Section 1.3. Rounding.....................................................................................12
Section 1.4. Exhibits and Schedules.......................................................................13
Section 1.5. References to "Borrower and its Subsidiaries"................................................13
Section 1.6. Miscellaneous Terms..........................................................................13
ARTICLE 2. THE CREDIT...................................................................................13
Section 2.1. The Revolving Loans..........................................................................13
Section 2.2. The Revolving Note...........................................................................13
Section 2.3. Procedure for Borrowing......................................................................14
Section 2.4. Termination or Optional Reduction of Commitment..............................................15
Section 2.5. Mandatory Annual Reduction of Commitment.....................................................16
Section 2.6. Maturity of Revolving Loans..................................................................16
Section 2.7. Optional Prepayments.........................................................................16
Section 2.8. Interest on the Revolving Loans..............................................................17
Section 2.9. Fees.........................................................................................18
Section 2.10. Payments Generally...........................................................................18
Section 2.11. Capital Adequacy. ..........................................................................18
Section 2.12. Increased Costs..............................................................................19
Section 2.13. Illegality...................................................................................20
Section 2.14. Payments to be Free of Deductions............................................................20
Section 2.15. Computations.................................................................................21
ARTICLE 3. CONDITIONS PRECEDENT.........................................................................21
Section 3.1. Documentary Conditions Precedent.............................................................21
Section 3.2. Additional Conditions Precedent to Each Loan.................................................23
Section 3.3. Deemed Representations.......................................................................24
ARTICLE 4. REPRESENTATIONS AND WARRANTIES...............................................................24
Section 4.1. Incorporation, Good Standing and Due
Qualification................................................................................24
Section 4.2. Corporate Power and Authority; No Conflicts..................................................24
Section 4.3. Legally Enforceable Agreements...............................................................25
Section 4.4. Litigation...................................................................................25
Section 4.5. Financial Statements.........................................................................25
Section 4.6. Ownership and Liens..........................................................................26
Section 4.7. Taxes........................................................................................26
Section 4.8. ERISA........................................................................................27
Section 4.9. Subsidiaries and Ownership of Stock..........................................................27
Section 4.10. Credit Arrangements..........................................................................28
Section 4.11. Operation of Business........................................................................28
Section 4.12. No Default on Outstanding Judgments or Orders................................................28
Section 4.13. No Defaults on Other Agreements..............................................................28
Section 4.14. Governmental Regulation......................................................................29
Section 4.15. Consents and Approvals.......................................................................29
Section 4.16. Partnerships.................................................................................29
Section 4.17. Environmental Protection.....................................................................29
Section 4.18. Copyrights, Patents, Trademarks, Etc.........................................................30
Section 4.19. Compliance with Laws.........................................................................30
Section 4.20. Events of Default............................................................................30
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Section 4.21. No Adverse Change............................................................................30
Section 4.22. Use of Proceeds..............................................................................30
ARTICLE 5. AFFIRMATIVE COVENANTS........................................................................31
Section 5.1. Maintenance of Existence and Domicile of
Insurance Subsidiaries.......................................................................31
Section 5.2. Conduct of Business..........................................................................31
Section 5.3. Maintenance of Properties....................................................................31
Section 5.4. Maintenance of Records.......................................................................31
Section 5.5. Maintenance of Insurance.....................................................................31
Section 5.6. Compliance with Laws.........................................................................32
Section 5.7. Right of Inspection..........................................................................32
Section 5.8. Reporting Requirements.......................................................................32
(a) Annual GAAP Statements of Borrower...........................................................32
(b) Annual SAP Financial Statements..............................................................33
(c) Quarterly GAAP Statements of Borrower........................................................34
(d) Quarterly SAP Statements.....................................................................34
(e) Annual/Quarterly Reports.....................................................................34
(f) SEC Filings..................................................................................35
(g) Notice of Litigation.........................................................................35
(h) Notices of Default...........................................................................35
(i) Actuarial Report Confirming Reserves.........................................................35
(j) Other Filings................................................................................35
(k) Additional Information.......................................................................36
Section 5.9. Certificates.................................................................................36
(a) Officers' Certificate........................................................................36
Section 5.10. Compliance with Agreements...................................................................36
Section 5.11. Use of Proceeds..............................................................................37
ARTICLE 6. NEGATIVE COVENANTS...........................................................................37
Section 6.1. Debt.........................................................................................37
Section 6.2. Guaranties, Etc..............................................................................37
Section 6.3. Liens........................................................................................37
Section 6.4. Investments..................................................................................38
Section 6.5. Mergers and Consolidations and Acquisitions of
Assets.......................................................................................39
Section 6.6. Sale of Assets...............................................................................39
Section 6.7. Stock of Subsidiaries, Etc...................................................................39
Section 6.8. Transactions with Affiliates.................................................................39
Section 6.9. Capital Expenditures.........................................................................39
Section 6.10. Minimum Statutory Surplus of Insurance
Subsidiaries.................................................................................40
Section 6.11. Minimum Statutory Surplus of Donegal Mutual..................................................40
Section 6.12. Minimum Consolidated GAAP Net Worth..........................................................40
Section 6.13. Minimum Fixed Charge Coverage................................................................40
Section 6.14. Minimum X.X.Xxxx Rating......................................................................40
Section 6.15. Minimum Ownership of Donegal Group...........................................................40
ARTICLE 7. EVENTS OF DEFAULT............................................................................41
Section 7.1. Events of Default............................................................................41
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Section 7.2. Remedies.....................................................................................43
ARTICLE 8. MISCELLANEOUS................................................................................44
Section 8.1. Amendments and Waivers.......................................................................44
Section 8.2. Usury........................................................................................44
Section 8.3. Expenses; Indemnities........................................................................44
Section 8.4. Term; Survival...............................................................................46
Section 8.5. Assignment; Participations...................................................................46
Section 8.6. Notices......................................................................................46
Section 8.7. Setoff.......................................................................................47
Section 8.8. Jurisdiction; Immunities.....................................................................47
Section 8.9. Table of Contents; Headings..................................................................47
Section 8.10. Severability.................................................................................48
Section 8.11. Counterparts.................................................................................48
Section 8.12. Integration..................................................................................48
Section 8.13. Governing Law................................................................................48
Section 8.14. Confidentiality..............................................................................48
Section 8.15. Authorization of Third Parties to Deliver
Opinions, Etc................................................................................49
Section 8.16. Borrower's Waivers...........................................................................49
Schedule 1.1 Commitments and Lending Offices
Schedule 4.4 Litigation
Schedule 4.6 Liens
Schedule 4.9 Subsidiaries
Schedule 4.10 Credit Arrangements
Schedule 4.15 Consents and Approvals
Schedule 4.16 Partnerships
Schedule 6.8 Permitted Transaction with Affiliates
Exhibit A Revolving Note
Exhibit B Notice of Borrowing
Exhibit C Officer's Certificate
Exhibit D Form of Opinion of Counsel to Borrower
CREDIT AGREEMENT dated as of December 29, 1995 between DONEGAL GROUP
INC., a Delaware corporation (the "Borrower"), and FLEET NATIONAL BANK OF
CONNECTICUT (the "Bank").
The Borrower desires that the Bank extend credit as provided
herein, and the Bank is prepared to extend such credit. Accordingly,
the Borrower and the Bank agree as follows:
ARTICLE 1. DEFINITIONS; ACCOUNTING TERMS.
Section 1.1.Definitions. As used in this Agreement, the following terms
have the following meanings (terms defined in the singular to have a correlative
meaning when used in the plural and vice versa):
"Acquisition" means the acquisition to be effected in accordance with
the terms and conditions of the Acquisition Agreement pursuant to which Borrower
will acquire Pioneer Insurance and Delaware Insurance.
"Acquisition Agreement" means the Agreement dated as of December 21,
1995 between Borrower and Donegal Mutual.
"Acquisition Pro-Formas" means financial projections, prepared by the
Borrower on a GAAP and SAP basis, showing the consolidated and consolidating
balance sheets and statements of operations of Borrower and its Subsidiaries
giving effect to the Acquisition.
"Affiliate" means, as to any Person, any other Person which directly or
indirectly controls, or is under common control with, or is controlled by, such
Person. As used in this definition, "control" (including, with its correlative
meanings, "controlled by" and "under common control with") shall mean
possession, directly or indirectly, of power to direct or cause the direction of
management or policies (whether through ownership of securities or partnership
or other ownership interests, by contract or otherwise), provided that, in any
event: (i) any Person which owns directly or indirectly 20% or more of the
securities having ordinary voting power for the election of directors or other
governing body of a corporation or 20% or more of the partnership or other
ownership interests of any other Person (other than as a limited partner of such
other Person) will be deemed to control such corporation or other Person; and
(ii) each director and officer shall be deemed to be an Affiliate of the Person.
"Agreement" means this Credit Agreement, as amended or supplemented
from time to time. References to Articles, Sections, Exhibits, Schedules and the
like refer to the Articles, Sections, Exhibits, Schedules and the like of this
Agreement unless otherwise indicated.
"A.M. Best Rating" means the most recent rating announced by
A.M. Best (or any successor thereto) or, if such rating is no longer
announced by A.M. Best (or its successor), the most recent rating
announced by another rating agency selected by the Bank.
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"Applicable Interest Rate" means for any Revolving Loan, the
Base Rate, plus the Applicable Margin, or Eurodollar Rate, plus the
Applicable Margin,for such Revolving Loan.
"Applicable Margin" means, with respect to Base Rate Loans or
Eurodollar Rate Loans, the percentage per annum set forth below in the column
entitled "Base Rate" or "Eurodollar Rate", as appropriate:
Base Rate Eurodollar Rate
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0.00% 1.70%
"Anniversary Date" means December 29 of each calendar year, commencing
December 29, 1996.
"Atlantic States" means Atlantic States Insurance Company, a
Pennsylvania stock casualty insurance company.
"Available Dividends" at the end of any fiscal quarter means the
portion of Statutory Surplus of the Insurance Subsidiaries that is permitted by
applicable laws and regulations to be distributed to shareholders.
"Base Rate" means, for any Interest Period or any other period, a
fluctuating interest rate per annum as shall be in effect from time to time,
which rate per annum shall at all times be equal to the rate of interest
announced publicly by the Bank in Hartford, Connecticut, from time to time, as
the Bank's base rate or prime rate.
"Base Rate Loan" means a Revolving Loan which bears interest at the
Base Rate, plus the Applicable Margin.
"Borrowing" means a borrowing consisting of a Revolving Loan from the
Bank under this Agreement.
"Business Day" means any day (other than a Saturday, Sunday or legal
holiday) on which commercial banks are not authorized or required to close in
Connecticut, except that, with respect to Borrowings, notices, determinations
and payments with respect to a Eurodollar Rate Loan, such day shall be a
"Business Day" only if it is also a day for trading by and between banks in the
London interbank Eurodollar market.
"Capital Expenditures" means, for any period, the Dollar amount of
gross expenditures (including payments in respect of Capital Lease Obligations)
made for fixed assets, real property, plant and equipment, and all renewals,
improvements and replacements thereto (but not repairs thereof) incurred during
such period, all as determined in accordance with GAAP.
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"Capital Lease" means any lease which has been or should be capitalized
on the books of the lessee in accordance with GAAP.
"Capital Lease Obligation" means the obligation of the lessee under a
Capital Lease. The amount of a Capital Lease Obligation at any date is the
amount at which the lessee's liability under the related Capital Lease would be
required to be shown on its balance sheet at such date in accordance with GAAP.
"Closing Date" means the date this Agreement has been executed by the
Borrower and the Bank.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Combined Statutory Net Income" means, for any period the combined net
income of each of the Insurance Subsidiaries that appears, or should appear, on
the SAP Financial Statements. On the annual SAP Financial Statements form for
the year ended December 31, 1994, the net income amount appears on line 16,
column (1) on page 4 thereof.
"Combined Statutory Surplus" means, for any period, the positive
surplus of each of the Insurance Subsidiaries that appears, or should appear, on
the SAP Financial Statements of each Insurance Subsidiary, combined. On the
annual SAP Financial Statements form prescribed for the year ended December 31,
1994, such amount appears on line 32, column (1) on page 4 thereof.
"Commitment" means the commitment of the Bank to make Revolving Loans
hereunder as set forth in Schedule 1.1, as the same may be reduced from time to
time pursuant to Sections 2.4 and 2.5.
"Commitment Period" means the period from and including the date hereof
to but not including the Revolving Loan Termination Date or such earlier date as
the Commitment shall terminate as provided herein.
"Consolidated GAAP Net Worth" means the sum of (a) the capital stock
and additional paid-in capital of the Borrower and its Subsidiaries on a
consolidated basis, plus (without duplication) (b) the amount of retained
earnings (or, in the case of a deficit, minus the deficit), minus (c) treasury
stock, plus or minus (d) any other account which is customarily added or
deducted in determining shareholders' equity, all of which shall be determined
on a consolidated basis in accordance with GAAP.
"Debt" means, with respect to any Person: (a) indebtedness of
such Person for borrowed money; (b) indebtedness for the deferred
purchase price of Property or services (except trade payables in the
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ordinary course of business); (c) Unfunded Vested Liabilities of such Person (if
such Person is not the Borrower, determined in a manner analogous to that of
determining Unfunded Vested Liabilities of the Borrower); (d) the face amount of
any outstanding letters of credit issued for the account of such Person; (e)
obligations arising under acceptance facilities; (f) guaranties, endorsements
(other than for collection in the ordinary course of business) and other
contingent obligations to purchase or to provide funds for payment of the
obligations of another Person, to supply funds to invest in any Person to cause
such Person to maintain a minimum working capital or net worth or otherwise
assure the creditors of such Person against loss; (g) obligations secured by any
Lien on Property of such Person; and (h) Capital Lease Obligations.
"Default" means any event which with the giving of notice or lapse of
time, or both, would become an Event of Default.
"Default Rate" means a percentage per annum equal at all times to the
lesser of 2% per annum above the Applicable Interest Rate in effect from time to
time or the highest rate permitted by law.
"Delaware Insurance" means Delaware American Insurance Company, a
Delaware stock casualty insurance company.
"Distributions" means (a) dividends or other distributions in respect
of capital stock of a Person (except distributions in such stock) and (b) the
redemption or acquisition of such stock or of warrants, rights or other options
to purchase such stock (except when solely in exchange for such stock) unless
made, contemporaneously, from the net proceeds of a sale of such stock; in
either case valued at the greater of book or fair market value of the Property
being dividended, distributed or otherwise transferred as a Distribution.
"Dollars" and the sign "$" mean lawful money of the United
States of America.
"Donegal Mutual" means Donegal Mutual Insurance Company, a mutual
casualty insurance company organized under the laws of the Commonwealth of
Pennsylvania.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, including any rules and regulations promulgated
thereunder.
"ERISA Affiliate" means any corporation or trade or business which is a
member of the same controlled group of corporations (within the meaning of
Section 414(b) of the Code) as the Borrower or is under common control (within
the meaning of Section 414(c) of the Code) with the Borrower.
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"Eurodollar Rate" means, for the Interest Period for each Eurodollar
Rate Loan comprising part of the same Borrowing, an interest rate per annum
equal to (x) the rate quoted by the Bank at which deposits in Dollars are
offered by prime commercial banks to prime commercial banks in the London
interbank Eurodollar market two Business Days before the first day of such
Interest Period for a period equal to such Interest Period and in an amount
equal to the Borrowing, divided by (y) one (1) minus the Reserve Requirement for
each such Eurodollar Rate Loan for such Interest Period.
"Eurodollar Rate Loan" means a Revolving Loan which bears interest at
the Eurodollar Rate, plus the Applicable Margin.
"Event of Default" has the meaning given such term in Section 7.1.
"Fixed Charge Coverage Ratio" at the end of any fiscal quarter means
the ratio of (a) the sum of (i) Available Dividends, minus dividends paid by
each Insurance Subsidiary to the Borrower for the immediately preceding four
fiscal quarters (ending on such date), plus (ii) total taxes paid by the
Insurance Subsidiaries to the Borrower pursuant to any intercorporate tax
sharing agreement, plus (iii) an amount equal to the consolidated GAAP EBIT of
the Borrower and all Subsidiaries, except the Insurance Subsidiaries, for the
immediately preceding four fiscal quarters (ending on such date), minus (iv)
total taxes (determined in accordance with GAAP) paid by the Borrower on a
consolidated basis for the immediately preceding four fiscal quarters (ending on
such date) to (b) total Fixed Charges of the Borrower and its Subsidiaries on a
consolidated basis for the immediately preceding four fiscal quarters (ending on
such date).
"Fixed Charges" means, with respect to any Person for any period, the
sum of (a) the Interest Expense, plus (b) rental payments (other than the
interest component of rental payments under Capital Leases included in Interest
Expense) under all leases of such Person, plus (c) scheduled principal payments
of Debt owed by such Person during such period.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect from time to time, applied on a basis consistent
with those used in the preparation of the financial statements referred to in
Section 4.5 (except for changes concurred in by the Borrower's independent
public accountants).
"GAAP EBIT" means, with respect to any Person, for any period, an
amount equal to Net Income for such period, plus (without duplication to the
extent deducted in determining Net Income) the sum of (a) Interest Expense for
such period, plus (b) income tax expense deducted in determining Net Income for
such period, all of which
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shall be determined in accordance with GAAP and eliminating intercompany
balances and transactions, as applicable.
"Insurance Commissioner" means with respect to any Insurance
Subsidiary, the head of any insurance regulatory authority and/or such insurance
regulatory authority in the relevant place of domicile of such Subsidiary at the
relevant time.
"Insurance Subsidiary" means any of Atlantic States, Southern
Insurance, Pioneer Insurance and Delaware Insurance, and any other insurance
company Subsidiaries of Borrower hereafter owned or acquired.
"Interest Expense" means, with respect to any Person for any period,
the consolidated interest expense, including the interest portion of rental
payments under Capital Leases, as determined on a consolidated basis in
accordance with GAAP.
"Interest Period" means (a) for each Eurodollar Rate Loan comprising
part of the same Borrowing, the period commencing on the date of such Eurodollar
Rate Loan or on the last day of the preceding Interest Period, as the case may
be, and ending on the numerically corresponding day of the last month of the
period selected by the Borrower pursuant to the following provisions: the
duration of each Eurodollar Rate Loan Interest Period shall be one (1), two (2),
three (3) or six (6) months, in each case as the Borrower may select, upon
notice received by the Bank not later than 11:00 a.m. (Connecticut time) on the
third Business Day prior to the first day of such Interest Period; and (b) for
each Base Rate Loan comprising part of the same Borrowing, the period commencing
on the date of such Base Rate Loan or on the last day of the preceding Interest
Period, as the case may be, pursuant to notice received by the Bank not later
than 11:00 a.m. (Connecticut time) on any Business Day selected by the Borrower
as the first day of such Interest Period, and ending on the ninetieth (90th) day
after the date of such Base Rate Loan or the last day of the preceding Interest
Period, as the case may be; provided, however, that:
(i) all Eurodollar Rate Loans comprising part of the same
Borrowing shall be of the same duration;
(ii) whenever the last day of any Interest Period would
otherwise occur on a day other than a Business Day, the
last day of such Interest Period shall be extended to occur
on the next succeeding Business Day; provided that, if such
extension would cause the last day of such Interest Period
to occur in the next following calendar month, the last day
of such Interest Period shall occur on the next preceding
Business Day; and
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(iii) no Interest Period for any Revolving Loan shall extend beyond
the Revolving Loan Termination Date.
"Investment" means, with respect to any Person, any investment by or of
such Person, whether by means of purchase or other acquisition of capital stock
or other Securities of any other Person or by means of loan, advance (other than
advances to employees for moving and travel expenses, drawing accounts and
similar expenditures made in the ordinary course of business), capital
contribution or other debt or equity participation or interest, in any other
Person, including any partnership and joint venture interests of such Person in
any other Person.
"Investment Grade Securities" means any Securities having a fixed
maturity which have a rating by the NAIC of 1 or 2 or, if the NAIC rating
categories in effect on the Closing Date change, such other rating or ratings of
such Securities determined by the NAIC to be symbolic of investment grade
quality.
"Lending Office" means, for each type of Revolving Loan, the lending
office of the Bank (or of an affiliate of the Bank) designated as such for such
type of Revolving Loan on Schedule 1.1 or such other office of the Bank (or of
an affiliate of the Bank) as the Bank may from time to time specify to the
Borrower as the office through which its Revolving Loans of such type are to be
made and maintained.
"Lien" means any lien (statutory or otherwise), security interest,
mortgage, deed of trust, priority, pledge, charge, conditional sale, title
retention agreement, financing lease or other encumbrance or similar right of
others, or any agreement to give any of the foregoing.
"Loan Documents" mean this Agreement, the Revolving Note and any other
documents, agreements, reports, and instruments now or hereafter executed in
connection herewith or contemplated hereby.
"Materially Adverse Effect" means any material adverse effect upon the
business, assets, liabilities, financial condition, results of operations or, as
far as the Borrower can reasonably foresee, prospects of the Borrower and its
Subsidiaries taken as a whole, or upon the ability of the Borrower or any of its
Subsidiaries to perform in all material respects its obligations under this
Agreement or any Loan Document resulting from any act, omission, situation,
status, event, or undertaking, either singly or taken together.
"Multiemployer Plan" means a Plan defined as such in Section 3(37) of
ERISA to which contributions have been made by the Borrower or any ERISA
Affiliate and which is covered by Title IV of ERISA.
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"NAIC" means the National Association of Insurance Commissioners or any
successor thereto, or in lieu thereof, any other association, agency or other
organization performing substantially similar advisory, coordination or other
like functions among insurance departments, insurance commissions and similar
governmental authorities of the various states of the United States of America
toward the promotion of uniformity in the practices of such governmental
authorities.
"Net Income" means, as applied to any Person for any period, the
aggregate amount of net income of such Person, after taxes, for such period, as
determined in accordance with GAAP.
"Notice of Borrowing" means the certificate, in the form of Exhibit B
hereto, to be delivered by the Borrower to the Bank pursuant to Sections 2.3 and
3.2(e) and shall include any accompanying certifications or documents.
"Obligations" means all indebtedness, obligations and liabilities of
the Borrower and its Subsidiaries, if any, to the Bank under this Agreement or
the Revolving Note.
"PBGC" means the Pension Benefit Guaranty Corporation and any entity
succeeding to any or all of its functions under ERISA.
"Person" means an individual, partnership, corporation, limited
liability company, business trust, joint stock company, trust, unincorporated
association, joint venture, governmental authority or other entity of whatever
nature.
"Pioneer Insurance" means Pioneer Insurance Company, an Ohio stock
casualty insurance company.
"Plan" means any employee benefit or other plan established or
maintained, or to which contributions have been made, by the Borrower or any
ERISA Affiliate and which is covered by Title IV of ERISA.
"Prohibited Transaction" means any transaction set forth in Section 406
of ERISA or Section 4975 of the Code for which there is no applicable statutory
or regulatory exemption (including a class exemption or an individual
exemption).
"Property" means any interest of any kind in property or assets,
whether real, personal or mixed, and whether tangible or intangible.
"Regulations D, X and U" means Regulations D, X and U of the Board of
Governors of the Federal Reserve System, as amended or supplemented from time to
time.
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"Regulatory Change" means any change after the date of this Agreement
in United States federal, state or foreign laws or regulations (including
Regulation D) or the adoption or making after such date of any orders, rulings,
interpretations, directives, guidelines or requests applying to a class of banks
including the Bank, of or under any United States federal, state, or foreign
laws or regulations (whether or not having the force of law) by any court or
governmental or monetary authority charged with the interpretation or
administration thereof.
"Reportable Event" means any of the events set forth in Section 4043(c)
of ERISA as to which events the PBGC by regulation has not waived the
requirement of Section 4043(a) of ERISA that it be notified within 30 days of
the occurrence of such event, provided that a failure to meet the minimum
funding standard of Section 412 of the Code or Section 302 of ERISA shall be a
Reportable Event regardless of any waivers given under Section 412(d) of the
Code.
"Reserve Requirement" means for any Eurodollar Rate Loans for any
quarterly period (or, as the case may be, shorter period) as to which interest
is payable hereunder, the average maximum rate at which reserves (including any
marginal, supplemental or emergency reserves) are required to be maintained
during such period under Regulation D by member banks of the Federal Reserve
System in Boston, Massachusetts with deposits exceeding one billion Dollars
against "Eurocurrency liabilities" (as such term is used in Regulation D) or
nonpersonal Dollar time deposits in an amount of $100,000 or more. Without
limiting the effect of the foregoing, the Reserve Requirement shall reflect any
other reserves required to be maintained by such member banks by reason of any
Regulatory Change against: (i) any category of liabilities which includes
deposits by references to which the Eurodollar Rate is to be determined as
provided in the definition of "Eurodollar Rate", as applicable, in this Article
1, or (ii) any category of extensions of credit or other assets which include
Eurodollar Rate Loans.
"Revolving Loan" or "Revolving Loans" has the meaning specified
in Section 2.1. Each Revolving Loan shall be a Base Rate Loan or a
Eurodollar Rate Loan.
"Revolving Loan Termination Date" means December 29, 2002; provided,
however, if not fewer than sixty (60) days nor more than ninety (90) days prior
to either or both of the first and second Anniversary Date, the Borrower
requests the Bank to extend the Revolving Loan Termination Date for an
additional year and if the Bank in its sole discretion in writing within thirty
(30) days of such request, grants such request, the Revolving Loan Termination
Date means the date to which the Revolving Loan Termination Date has been so
extended. If such date is not a Business Day, the Revolving Loan Termination
Date shall be the next preceding Business Day.
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"Revolving Note" means a promissory note of the Borrower, in the form
of Exhibit A hereto, evidencing the Revolving Loans made by the Bank hereunder.
"SAP" means, for each Insurance Subsidiary, the statutory accounting
practices permitted or prescribed by any applicable Insurance Commissioner for
the preparation of annual statements and other financial reports by casualty
insurance companies selling the same lines of insurance as such Insurance
Subsidiary.
"SAP Financial Statements" means, for each Insurance Subsidiary, the
financial statements which have been submitted or are required to be submitted
to the applicable Insurance Commissioner.
"Securities" means any capital stock, share, voting trust certificate,
bonds, debentures, notes or other evidences of indebtedness, limited partnership
interests, or any warrant, option or other right to purchase or acquire any of
the foregoing.
"Senior Officer" means the (a) chief executive officer, (b) chief
financial officer or (c) the president of the Person designated.
"SFAS No. 115" means Statement of Financial Accounting Standards
No. 115, Accounting for Certain Investments in Debt and Equity
Securities, issued by the Financial Accounting Standards Board in
May, 1993.
"Southern Insurance" means Southern Insurance Company of Virginia, a
Virginia stock casualty insurance company.
"Statutory Net Income" with respect to any Insurance Subsidiary, means,
for any period the net income that appears, or should appear, on the SAP
Financial Statements of such Insurance Subsidiary. On the annual SAP Financial
Statements form prescribed for the year ended December 31, 1994, the net income
amount appears on line 16, column (1) on page 4 thereof.
"Statutory Surplus" with respect to any Insurance Subsidiary, means,
for any period, the surplus that appears, or should appear, on the SAP Financial
Statements of such Insurance Subsidiary. On the annual SAP Financial Statements
form prescribed for the year ended December 31, 1994, such amount appears on
line 32, column (1) on page 4 thereof.
"Subsidiary" means with respect to any Person, any corporation,
partnership or joint venture whether now existing or hereafter organized or
acquired: (i) in the case of a corporation, of which a majority of the
securities having ordinary voting power for the election of directors (other
than securities having such power only
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by reason of the happening of a contingency) are at the time owned by such
Person and/or one or more Subsidiaries of such Person or (ii) in the case of a
partnership or joint venture, in which such Person is a general partner or joint
venturer or of which a majority of the partnership or other ownership interests
are at the time owned by such Person and/or one or more of its Subsidiaries.
Unless the context otherwise requires, references in this Agreement to
"Subsidiary" or "Subsidiaries" shall be deemed to be references to a Subsidiary
or Subsidiaries of the Borrower or of a Subsidiary of the Borrower.
"Total Invested Assets" means, as at any date of determination, the
aggregate value of all Borrower's and the Insurance Subsidiaries' portfolios of
stocks, bonds, mortgage loans, real estate, policy loans and other assets
classified as invested assets under and valued in accordance with SAP as at such
date.
"Unfunded Vested Liabilities" means, with respect to any Plan, the
amount (if any) by which the present value of all vested benefits under the Plan
exceeds the fair market value of all Plan assets allocable to such benefits, as
determined on the most recent valuation date of the Plan and in accordance with
the provisions of ERISA for calculating the potential liability of the Borrower
or any ERISA Affiliate to the PBGC or the Plan under Title IV of ERISA.
Section 1.2. Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP, applied on a
consistent basis, and all financial data required to be delivered hereunder
shall be prepared in accordance with GAAP, applied on a consistent basis; except
as otherwise specifically prescribed herein. In the event that GAAP changes
during the term of this Agreement such that the financial covenants contained in
Article 6 would then be calculated in a different manner or with different
components (a) the Borrower and the Bank agree to enter into good faith
negotiations to amend this Agreement in such respects as are necessary to
conform those covenants as criteria for evaluating the Borrower's financial
condition to substantially the same criteria as were effective prior to such
change in GAAP and (b) the Borrower shall be deemed to be in compliance with the
financial covenants contained in such Sections during the sixty (60) days
following any such change in GAAP if and to the extent that the Borrower would
have been in compliance therewith under GAAP as in effect immediately prior to
such change; provided, however, if an amendment shall not be agreed upon within
sixty (60) days or such longer period as shall be agreed to by the Bank, for
purposes of determining compliance with such covenants until such amendment
shall be agreed upon, such terms shall be construed in accordance with GAAP as
in effect on the Closing Date applied on a basis consistent with the application
used in preparing the financial statements for the year ended December 31,
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1994 but assuming that SFAS No. 115 had been adopted by the Borrower
for such year.
Section 1.3. Rounding. Any financial ratios required to be maintained
by Borrower pursuant to this Agreement shall be calculated by dividing the
appropriate component by the other component, carrying the result to one place
more than the number of places by which such ratio is expressed in this
Agreement and rounding the result up or down to the nearest number (with a
round-up if there is no nearest number) to the number of places by which such
ratio is expressed in this Agreement.
Section 1.4. Exhibits and Schedules. All Exhibits and Schedules to this
Agreement, either as originally existing or as the same may from time to time be
supplemented, modified or amended, are incorporated herein by this reference. A
matter disclosed on any Schedule shall be deemed disclosed on all Schedules.
Section 1.5. References to "Borrower and its Subsidiaries". Any
reference herein to "Borrower and its Subsidiaries" or the like shall refer
solely to Borrower during such times, if any, as the Borrower shall have no
Subsidiaries.
Section 1.6. Miscellaneous Terms. The term "or" is
disjunctive; the term "and" is conjunctive. The term "shall" is
mandatory, the term "may" is permissive. Masculine terms also apply
to females; feminine terms also apply to males. The term "including"
is by way of example and not limitation.
ARTICLE 2. THE CREDIT.
Section 2.1. The Revolving Loans. Subject to the terms and conditions
of this Agreement, the Bank agrees to make revolving loans to the Borrower
(hereinafter collectively referred to as the "Revolving Loan" or "Revolving
Loans") from time to time from and including the date hereof until the earlier
of the Revolving Loan Termination Date or the termination of the Commitment of
the Bank, up to, but not exceeding in the aggregate principal amount at any one
time outstanding, the amount of TWENTY MILLION AND NO/00 DOLLARS ($20,000,000).
Each Borrowing under this Section 2.1 of (i) a Base Rate Loan shall be in the
principal amount of not less than $200,000 or any greater amount which is an
integral multiple thereof; or (ii) a Eurodollar Rate Loan shall be in the
principal amount of not less than $1,000,000 or any greater amount which is an
integral multiple thereof. During the Commitment Period and subject to the
foregoing limitations, the Borrower may borrow, repay and reborrow Revolving
Loans, all in accordance with the terms and conditions of this Agreement.
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Section 2.2. The Revolving Note.
(a) The Revolving Loans of the Bank shall be evidenced by a single
promissory note in favor of the Bank in the form of Exhibit A, dated the
date of this Agreement, and duly completed and executed by the Borrower.
(b) The Bank is authorized to record and, prior to any transfer of
the Revolving Note, endorse on a schedule forming a part thereof
appropriate notations evidencing the date, the type, the amount and the maturity
of each Revolving Loan made by it which is evidenced by such Revolving Note and
the date and amount of each payment of principal made by the Borrower with
respect thereto; provided, that failure to make any such endorsement or notation
shall not affect the Obligations of the Borrower hereunder or under the
Revolving Note. The Bank is hereby irrevocably authorized by the Borrower to so
endorse the Revolving Note and to attach to and make a part of the Revolving
Note a continuation of any such schedule as and when required. The Bank may, at
its option, record and maintain such information in its internal records rather
than on such schedule.
Section 2.3. Procedure for Borrowing.
(a) The Borrower shall give the Bank a Notice of Borrowing, in the form
of Exhibit B hereto, prior to 11:00 a.m. (Connecticut time), on the date of
a Borrowing of a Base Rate Loan and at least three (3) Business Days before a
Borrowing of a Eurodollar Rate Loan, specifying:
(i) the date of such Borrowing, which shall be a Business Day,
(ii) the principal amount of such Borrowing,
(iii) whether the Revolving Loan comprising such Borrowing is to
be a Base Rate Loan or a Eurodollar Rate Loan, and
(iv) if a Eurodollar Rate Loan, the Interest Period with respect to
such Borrowing.
(b) No Notice of Borrowing shall be revocable by the Borrower.
(c) It is understood that if the Borrower elects an Interest Period
with respect to a Eurodollar Rate Loan of six months, the Eurodollar Rate
quoted to the Borrower two Business Days preceding the first day of the Interest
Period will be based on the Bank's good faith estimate of its costs of funding
such Revolving Loan and that the actual interest rate for the Interest Period
for such Revolving Loan may vary from that quoted to reflect the Bank's actual
costs of funding on the date of the Revolving Loan.
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(d) There shall be no more than four (4) Interest Periods relating to
Eurodollar Rate Loans outstanding at any time.
(e) If the Bank makes a new Revolving Loan hereunder on a day on which
the Borrower is to repay an outstanding Revolving Loan from the Bank, the
Bank shall apply the proceeds of its new Revolving Loan to make such repayment
and only an amount equal to the excess (if any) of the amount being borrowed
over the amount being repaid shall be made available by the Bank to the
Borrower.
(f) Notwithstanding anything to the contrary herein contained, if, upon
the expiration of any Interest Period applicable to any Borrowing of a
Revolving Loan, the Borrower shall fail to give a new Notice of Borrowing as set
forth in this Section 2.3, the Borrower shall be deemed to have given a new
Notice of Borrowing of a Base Rate Loan in principal amount equal to the
outstanding principal amount of such Revolving Loan, and the proceeds of the new
Borrowing shall be applied directly to repay such outstanding principal amount
on the day of such Borrowing.
Section 2.4. Termination or Optional Reduction of Commitment. The
Commitment shall terminate on the Revolving Loan Termination Date and any
Revolving Loans then outstanding (together with accrued interest thereon) shall
be due and payable on such date. No termination of the Commitment hereunder
shall relieve the Borrower of any of its outstanding Obligations to the Bank
hereunder or otherwise. The Borrower shall have the right, upon prior written
notice of at least five (5) Business Days to the Bank, to terminate or, from
time to time, reduce the Commitment, provided that (i) any such reduction of the
Commitment shall be accompanied by the prepayment of the Revolving Note,
together with accrued interest thereon to the date of such prepayment and any
amount due pursuant to Section 2.7, to the extent, if any, that the aggregate
unpaid principal amount thereof then outstanding exceeds the Commitment as then
reduced and (ii) any such termination of the Commitment shall be accompanied by
prepayment in full of the unpaid principal amount of the Revolving Note,
together with accrued interest thereon to the date of such prepayment and any
amount due pursuant to Section 2.7. Any such partial reduction of the Commitment
shall be in an aggregate principal amount of $500,000 or any whole multiple
thereof and shall reduce permanently the Commitment then in effect hereunder.
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Section 2.5. Mandatory Annual Reduction of Commitment.
(a) On each Anniversary Date, commencing on December 29, 1998 (the
"Amortization Commencement Date"), until the Revolving Loan Termination Date,
the Commitment of the Bank shall be reduced automatically by an amount equal to
$4,000,000; provided, however, if the Bank on or prior to either or both of the
first and second Anniversary Dates has granted any request of the Borrower to
extend the Revolving Loan Termination Date for an additional year (as described
in the definition of Revolving Loan Termination Date), the Amortization
Commencement Date shall be extended to the immediately succeeding such
Anniversary Date.
(b) On the effective date of each reduction of the Commitment of the
Bank pursuant to Section 2.5(a), the Borrower shall repay such principal amount
(together with accrued interest thereon and any amount due pursuant to Section
2.7(b), of outstanding Revolving Loans, if any, as may be necessary so that
after such repayment, the aggregate unpaid principal amount of the Revolving
Loans does not exceed the Commitment as then reduced.
Section 2.6. Maturity of Revolving Loans. Each Revolving Loan shall
mature, and the principal amount thereof shall be due and payable, on the last
day of the Interest Period applicable to such Revolving Loan, or such earlier
date as provided herein.
Section 2.7. Optional Prepayments.
(a) The Borrower may, upon notice to the Bank not later than 2:00 p.m.
(Connecticut time) on the date of payment, prepay the Base Rate Loans, without
premium or penalty, in whole at any time or from time to time in part by paying
the principal amount being prepaid together with accrued interest thereon to the
date of prepayment.
(b) The Borrower may, upon at least three (3) Business Days' notice to
the Bank, prepay the Eurodollar Rate Loans, in whole at any time or from time to
time in part, by paying the principal amount being prepaid together with (i)
accrued interest thereon to the date of prepayment and (ii) if such prepayment
occurs on a date that is not the last day of the Interest Period applicable to
such Revolving Loan, any amounts as shall be sufficient (in the reasonable
opinion of the Bank) to compensate the Bank for any loss, cost or expense which
the Bank may incur as a result of such prepayment, including without limitation,
any loss, cost or expense incurred by reason of funds liquidation or
reemployment of deposits or other funds acquired by the Bank to fund or maintain
such Eurodollar Rate Loan and any administrative costs, expenses or charges of
the Bank as a result thereof. Without limiting the effect of the preceding
sentence, such compensation shall include an amount equal to the excess, if any,
of (i) the amount of interest that otherwise would have accrued on the
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principal amount so prepaid for the period from the date of such prepayment to
the last day of the then current Interest Period for such Eurodollar Rate Loan
at the applicable rate of interest for such Eurodollar Rate Loan provided for
herein over (ii) the amount of interest that otherwise would have accrued on
such principal amount at a rate per annum equal to the interest component of the
amount the Bank would have bid in the London interbank market for Dollar
deposits of leading banks in amounts comparable to such principal amount and
with maturities comparable to such period (as reasonably determined by the
Bank), if the Bank has match-funded such Eurodollar Rate Loan, or the Bank's
cost of funds, if the Bank has not match-funded. The Bank will furnish to the
Borrower a certificate setting forth the basis and amount of each request by the
Bank for compensation under this Section 2.7.
Section 2.8. Interest on the Revolving Loans.
(a) Each Base Rate Loan shall bear interest on the outstanding principal
amount thereof, for each day from the date such Base Rate Loan is made
until it becomes due, at a rate per annum equal to the Base Rate for such day,
plus the Applicable Margin. Interest shall be payable on the last day of the
Interest Period applicable thereto. Such interest shall accrue from and
including the date of such Borrowing to but excluding the date of any repayment
thereof and shall be computed on the basis of a fraction, the numerator of which
is the actual number of days elapsed from the date of Borrowing and the
denominator of which is three hundred sixty five (365). Overdue principal of
and, to the extent permitted by law, overdue interest on the Base Rate Loans
shall bear interest for each day until paid at a percentage per annum equal to
the Default Rate.
(b) Each Eurodollar Rate Loan shall bear interest on the unpaid
principal amount thereof, for each day from the date such Eurodollar Rate
Loan is made until it becomes due, at a rate per annum equal to the Eurodollar
Rate for the relevant Interest Period, plus the Applicable Margin. Interest
shall be payable on the last day of the Interest Period applicable thereto;
provided, that if such Interest Period is longer than ninety (90) days, interest
shall be payable every ninety (90) days and on the last day of such Interest
Period. Such interest shall accrue from and including the date of such Borrowing
to but excluding the date of any repayment thereof and shall be computed on the
basis of a fraction, the numerator of which is the actual number of days elapsed
from the date of Borrowing and the denominator of which is three hundred sixty
(360). Overdue principal of and, to the extent permitted by law, overdue
interest on the Eurodollar Rate Loans shall bear interest for each day until
paid at a percentage per annum equal to the Default Rate.
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Section 2.9. Fees.
(a) The Borrower shall pay a $60,000 facility fee to the Bank, all
of which facility fee shall be paid on the Closing Date.
(b) The Borrower shall pay to the Bank a non-use fee for the
Commitment Period, payable in arrears at the rate of 3/10 of 1% per annum
on the average daily unused portion of the Bank's Commitment, which non-use fee
shall be payable quarterly on the first Business Day of January, April, July and
October of each year beginning January, 1996.
(c) The fees required by paragraphs (a) and (b) of this Section
shall not be refundable.
Section 2.10. Payments Generally. All payments under this Agreement
shall be made in Dollars in immediately available funds not later than 2:00
p.m.(Connecticut time) on the due date (each such payment made after such time
on such due date to be deemed to have been made on the next succeeding Business
Day) to the Bank at its address set forth on the signature pages hereof or at
such other address as it may hereafter designate by notice to the Borrower for
the account of the Lending Office of the Bank specified by the Bank on Schedule
1.1 hereto. The Borrower shall, at the time of making each payment under this
Agreement, specify to the Bank the principal or other amount payable by the
Borrower under this Agreement to which such payment is to be applied (and in the
event that it fails to so specify, or if a Default or Event of Default has
occurred and is continuing, the Bank may apply such payment as it may elect in
its sole discretion). If the due date of any payment under this Agreement would
otherwise fall on a day which is not a Business Day, such date shall be extended
to the next succeeding Business Day and such extension of time shall in such
case be included in the computation of such payment; provided that, if such
extension would cause the last day of an Interest Period to occur in the next
following calendar month, the last day of such Interest Period shall occur on
the next preceding Business Day.
Section 2.11. Capital Adequacy. If after the date hereof, either (i)
the introduction of, or any change in, or in the interpretation or enforcement
of, any law, regulation, order, ruling, interpretation, directive, guideline or
request or (ii) the compliance with any order, ruling, interpretation,
directive, guideline or request from any central bank or other governmental
authority (whether or not having the force of law) issued, announced, published,
promulgated or made after the date hereof (including, in any event, any law,
regulation, order, ruling, interpretation, directive, guideline or request
contemplated by the report dated July, 1988 entitled "International Convergence
of Capital Measurement and Capital Standards" issued by the Basle Committee on
Banking
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Regulation and Supervisory Practices) affects or would affect the amount of
capital required or expected to be maintained by the Bank or any corporation
controlling the Bank and the Bank reasonably determines that the amount of such
required or expected capital is increased by or based upon the existence of the
Bank's Revolving Loans hereunder or the Bank's commitment to lend hereunder,
then, upon demand by the Bank, the Borrower shall be liable for, and shall pay
to the Bank, within thirty (30) days following demand from time to time by the
Bank, additional amounts sufficient to compensate the Bank in the light of such
circumstances for the effects of such law, regulation, order, ruling,
interpretation, directive, guideline or request, to the extent that the Bank
reasonably determines such increase in capital to be allocable to the existence
of the Bank's Revolving Loans hereunder or of the Bank's commitment to lend
hereunder. A certificate substantiating such amounts and identifying the event
giving rise thereto, submitted to the Borrower by the Bank, shall be conclusive,
absent manifest error. The Bank shall promptly notify the Borrower of any event
of which it has knowledge occurring after the date of this Agreement which will
entitle the Bank to compensation pursuant to this Section, and the Bank shall
take any reasonable action available to it consistent with its internal policy
and legal and regulatory restrictions (including the designation of a different
Lending Office, if any) that will avoid the need for, or reduce the amount of,
such compensation and will not in the reasonable judgment of the Bank be
otherwise disadvantageous to the Bank.
Section 2.12. Increased Costs. If after the date hereof, due to either
(i) the introduction of or any change in or in the interpretation or enforcement
of, any law, regulation, order, ruling, directive, guideline or request, or (ii)
the compliance with any order, ruling, directive, guideline or request from any
central bank or other governmental authority (whether or not having the force of
law) issued, announced, published, promulgated or made after the date hereof,
there shall be any increase in the cost to the Bank of agreeing to make or
making, funding or maintaining Eurodollar Rate Loans, then the Borrower shall be
liable for, and shall from time to time, within thirty (30) days following a
demand by the Bank, pay to the Bank for the account of the Bank additional
amounts sufficient to compensate the Bank for such increased cost; provided,
however, that before making any such demand, the Bank agrees to use reasonable
efforts (consistent with its internal policy and legal and regulatory
restrictions) to designate a different Lending Office if the making of such a
designation would allow the Bank or its Lending Office to continue to perform
its obligations to make Eurodollar Rate Loans or to continue to fund or maintain
Eurodollar Rate Loans and would not, in the reasonable judgment of the Bank, be
otherwise disadvantageous to the Bank. A certificate substantiating the amount
of such increased cost, submitted to the Borrower by the Bank, shall be
conclusive, absent manifest error.
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Section 2.13. Illegality. Notwithstanding any other provision of this
Agreement, if after the date hereof the introduction of, or any change in or in
the interpretation or enforcement of, any law, regulation, order, ruling,
directive, guideline or request shall make it unlawful, or any central bank or
other governmental authority shall assert that it is unlawful, for the Bank or
its Lending Office to perform its obligations hereunder to make Eurodollar Rate
Loans or to continue to fund or maintain Eurodollar Rate Loans hereunder, then,
on notice thereof by the Bank to the Borrower, (i) the obligation of the Bank to
make Eurodollar Rate Loans shall terminate (and the Bank shall make all of its
Revolving Loans as Base Rate Loans notwithstanding any election by the Borrower
to have the Bank make Eurodollar Rate Loans) and (ii) if legally permissible, at
the end of the current Interest Period for such Eurodollar Rate Loans, otherwise
five (5) Business Days after such notice and demand, all Eurodollar Rate Loans
of the Bank then outstanding will automatically convert into Base Rate Loans;
provided, however, that before making any such demand, the Bank agrees to use
reasonable efforts (consistent with its internal policy and legal and regulatory
restrictions) to designate a different Lending Office if the making of such a
designation would allow the Bank or its Lending Office to continue to perform
its obligations to make Eurodollar Rate Loans and would not, in the judgment of
the Bank, be otherwise disadvantageous to the Bank. A certificate describing
such introduction or change in or in the interpretation or enforcement of such
law, regulation, order, ruling, directive, guideline or request, submitted to
the Borrower by the Bank, shall be conclusive evidence of such introduction,
change, interpretation or enforcement, absent manifest error. The Bank and the
Borrower agree to negotiate in good faith in order to agree upon a mutually
acceptable mechanism to provide that Eurodollar Rate Loans made by the Bank as
to which the foregoing conditions occur shall convert into Base Rate Loans.
Section 2.14. Payments to be Free of Deductions. All payments by the
Borrower under this Agreement shall be made without setoff or counterclaim and
free and clear of, and without deduction for, any taxes (other than any taxes
imposed on or measured by the gross income or profits of the Bank), levies,
imposts, duties, charges, fees, deductions, withholdings, compulsory loans,
restrictions or conditions of any nature now or hereafter imposed or levied by
any country or any political subdivision thereof or taxing or other authority
therein unless the Borrower is compelled by law to make such deduction or
withholding. If any such obligation is imposed upon the Borrower with respect to
any amount payable by it hereunder, it will pay to the Bank, on the date on
which such amount becomes due and payable hereunder and in Dollars, such
additional amount as shall be necessary to enable the Bank to receive the same
net amount which it would have received on such due date had no such obligation
been imposed upon the Borrower. If the Bank is at any time, or any permitted
assignee of the Bank hereunder (an "Assignee"), is
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organized under the laws of any jurisdiction other than the United States or any
state or other political subdivision thereof, the Bank or the Assignee shall
deliver to the Borrower on the date it becomes a party to this Agreement, and at
such other times as may be necessary in the determination of the Borrower in its
reasonable discretion, such certificates, documents or other evidence, properly
completed and duly executed by the Bank or the Assignee (including, without
limitation, Internal Revenue Service Form 1001 or Form 4224 or any other
certificate or statement of exemption required by Treasury Regulations Section
1.1441-4(a) or Section 1.1441-6(c) or any successor thereto) to establish that
the Bank or the Assignee is not subject to deduction or withholding of United
States Federal Income Tax under Section 1441 or 1442 of the Internal Revenue
Code or otherwise (or under any comparable provisions of any successor statute)
with respect to any payments to the Bank or the Assignee of principal, interest,
fees or other amounts payable hereunder. Borrower shall not be required to pay
any additional amount to the Bank or any Assignee under this Section 2.14 if the
Bank or such Assignee shall have failed to satisfy the requirements of the
immediately preceding sentence; provided that if the Bank or any Assignee shall
have satisfied such requirements on the date it became a party to this
Agreement, nothing in this Section 2.14 shall relieve Borrower of its obligation
to pay any additional amounts pursuant to this Section 2.14 in the event that,
as a result of any change in applicable law, the Bank or such Assignee is no
longer properly entitled to deliver certificates, documents or other evidence at
a subsequent date establishing the fact that the Bank or the Assignee is not
subject to withholding as described in the immediately preceding sentence.
Section 2.15. Computations. All computations of interest and like
payments hereunder on the Revolving Loans shall, in the absence of clearly
demonstrable error, be considered correct and binding on the Borrower and the
Bank, unless within thirty (30) Business Days after receipt of any notice by the
Bank of such outstanding amount, the Borrower notifies the Bank to the contrary.
ARTICLE 3. CONDITIONS PRECEDENT.
Section 3.1. Documentary Conditions Precedent. The Commitment of the
Bank to make Revolving Loans under this Agreement is subject to the condition
precedent that the Borrower shall have delivered the following, in form and
substance satisfactory to the Bank:
(a) a Revolving Note for the account of the Bank duly executed by
the Borrower;
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(b) a certificate of the Secretary or Assistant Secretary of the
Borrower, dated the Closing Date, attesting on behalf of the Borrower to
all corporate action taken by the Borrower, including resolutions of its Board
of Directors authorizing the execution, delivery and performance of this
Agreement, the Revolving Note and each other document to be delivered pursuant
to this Agreement, and attesting to the names and true signatures of the
officers of the Borrower authorized to sign this Agreement, the Revolving Note,
and the other documents to be delivered by the Borrower under this Agreement;
(c) a certificate of a Senior Officer of the Borrower, dated the
Closing Date, certifying on behalf of the Borrower that (i) the
representations and warranties in Article 4 are true, complete and correct in
all material respects on such date as though made on and as of such date, (ii)
no event has occurred and is continuing which constitutes a Default or Event of
Default, (iii) the Borrower has performed and complied with all agreements and
conditions contained in this Agreement which are required to be performed or
complied with by the Borrower at or before the Closing Date, and (iv) there has
been no material adverse change in the financial condition, operations,
Properties, business, or as far as the Borrower can reasonably foresee,
prospects of the Borrower and its Subsidiaries, if any, taken as a whole, since
September 30, 1995;
(d) a certificate of a Senior Officer of the Borrower, substantially in
the form of Exhibit C, which certificate shall include information required
to establish that the Borrower will be in compliance with the covenants set
forth in this Agreement, after giving effect to the Acquisition and the
transactions contemplated herein;
(e) a certificate of good standing for the Borrower as of a recent date
by the Secretary of State of its jurisdiction of incorporation and each
state where the Borrower, by the nature of its business, is required to qualify
to do business, except where the failure to be so qualified would not have a
Materially Adverse Effect;
(f) a certificate or similar instrument from the appropriate tax
authority in the State of Delaware and, if different, its principal place
of business, as to the payment by the Borrower of all taxes owed;
(g) a certificate of good standing for each of the Insurance
Subsidiaries as of a recent date by the Secretary of State or Insurance
Commissioner of its jurisdiction of incorporation and each state where such
Insurance Subsidiary, by the nature of its business, is required to qualify to
do business, except where the failure to be so qualified would not have a
Materially Adverse Effect;
(h) with respect to each Insurance Subsidiary, a certificate or
similar instrument from the appropriate tax authority in its
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jurisdiction of incorporation and, if different, its principal place
of business, as to the payment by such Insurance Subsidiary of all
taxes owed;
(i) a certificate of authority from each Insurance Commissioner
certifying that each Insurance Subsidiary is duly licensed and in good
standing with the applicable Insurance Commissioner;
(j) a favorable opinion of Duane, Morris & Heckscher, counsel to the
Borrower, dated the Closing Date, in substantially the form set forth in
Exhibit D hereto;
(k) a certificate of a Senior Officer of the Borrower certifying that
each consent, license, approval and notice required in connection with the
execution, delivery, performance, validity and enforceability of this Agreement
and each other document and instrument required to be delivered in connection
herewith and the consummation of the Acquisition is in full force and effect;
(l) all corporate and legal proceedings and all instruments and
agreements in connection with the transactions contemplated by this
Agreement shall be satisfactory in form and substance to the Bank and the Bank
shall have received any and all other information and documents with respect to
the Borrower which it may reasonably request;
(m) payment to the Bank of the facility fee in the amount of $60,000;
(n) payment to Day, Xxxxx & Xxxxxx, special counsel to the Bank, of
its legal fees and disbursement; and
(o) a true and complete copy of the Acquisition Agreement (and any
amendments) as in effect on the Closing Date, certified by a Senior Officer
of the Borrower.
Section 3.2. Additional Conditions Precedent to Each Loan. The
obligation of the Bank to make the Revolving Loans pursuant to a Borrowing
(including the initial Borrowing), unless waived by the Bank, shall be subject
to the further conditions precedent that on the date of such Revolving Loan:
(a) the representations and warranties contained in Article 4 of this
Agreement are true and correct in all material respects on and as of the
date of such Revolving Loan as though made on and as of such date (or, if such
representation or warranty is expressly stated to have been made as of a
specific date, as of such specific date);
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(b) the Borrower has performed and complied with and is in compliance
with all agreements and conditions contained in this Agreement which are
required to be performed or complied with by the Borrower;
(c) there does not exist any Default or Event of Default under this
Agreement; and
(d) the Bank shall have received a Notice of Borrowing in the form of
Exhibit B, except to the extent otherwise provided in Section 2.3(f).
Section 3.3. Deemed Representations. Each Notice of Borrowing hereunder
and acceptance by the Borrower of the proceeds of such Borrowing shall
constitute a representation and warranty that the statements contained in
Section (a) are true and correct both on the date of such Notice of Borrowing
and, unless the Borrower otherwise notifies the Bank prior to such Borrowing, as
of the date of such Borrowing.
ARTICLE 4. REPRESENTATIONS AND WARRANTIES.
The Borrower hereby represents and warrants the following:
Section 4.1. Incorporation, Good Standing and Due Qualification. The
Borrower is duly incorporated, validly existing and in good standing under the
laws of the jurisdiction of incorporation, has the power and authority to own
its assets and to transact the business in which it is now engaged, and is duly
qualified as a foreign corporation and in good standing under the laws of each
other jurisdiction in which such qualification is required, except where the
failure to be so qualified would not have a Materially Adverse Effect. The
Borrower has all requisite power and authority to execute and deliver and to
perform all of its obligations under this Agreement, the Revolving Note and the
other writings contemplated hereby.
Section 4.2. Corporate Power and Authority; No Conflicts. The
execution, delivery and performance by the Borrower of this Agreement and the
Revolving Note have been duly authorized by all necessary corporate action and
do not and will not (a) require any consent or approval of its shareholders; (b)
violate any provisions of its certificate of incorporation or by-laws; (c)
violate any provision of, or require any filing, registration, consent or
approval under, any law, rule, regulation (including without limitation,
Regulation U and X), order, writ, judgment, injunction, decree, determination or
award presently in effect having applicability to and binding upon the Borrower
or any Subsidiary, except with respect to filings described on Schedule 4.15,
which filings have been made; (d) result
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in a breach of or constitute a default or require any consent under any
indenture, mortgage or loan or credit agreement or any other material agreement,
lease or instrument to which the Borrower or any Subsidiary is a party or by
which it or its Properties may be bound; or (e) result in, or require, the
creation or imposition of any Lien upon or with respect to any of the Properties
now owned or hereafter acquired by the Borrower.
Section 4.3. Legally Enforceable Agreements. This Agreement and the
Revolving Note constitute the legal, valid and binding obligations of the
Borrower enforceable against the Borrower in accordance with their respective
terms, except to the extent that such enforcement may be limited by applicable
bankruptcy, insolvency and other similar laws affecting creditors' rights
generally and by general principles of equity.
Section 4.4. Litigation. Except as disclosed on Schedule 4.4, there are
no actions, suits or proceedings or investigations (other than routine
examinations performed by insurance regulatory authorities) pending or, as far
as the Borrower can reasonably foresee, threatened against or affecting , the
Borrower or any of its Subsidiaries, or any Property of any of them before any
court, governmental agency or arbitrator, which if determined adversely to the
Borrower or any Subsidiary would in any one case or in the aggregate, have a
Materially Adverse Effect.
Section 4.5. Financial Statements.
(a) The consolidated balance sheets of the Borrower and its
Subsidiaries as of December 31, 1994 and December 31, 1993 and the related
consolidated statements of operations, stockholders' equity, and cash flows of
the Borrower and its Subsidiaries for the fiscal years then ended, and the
accompanying footnotes, together with the opinion thereon of KPMG Peat Marwick,
independent certified public accountants, and the unaudited interim consolidated
balance sheet of the Borrower and its Subsidiaries as at June 30, 1995 and the
related consolidated statements of operations, stockholders' equity and cash
flows for the six month period then ended, copies of which have been furnished
to the Bank, fairly present the financial condition of the Borrower and its
Subsidiaries, taken as a whole, as at such dates and the results of the
operations of the Borrower and its Subsidiaries, taken as a whole, for the
periods covered by such statements, all in accordance with GAAP consistently
applied (subject to year-end accruals and audit adjustments and the absence of
footnotes in the case of the interim financial statements). There are no
liabilities of the Borrower or any Subsidiary, fixed or contingent, which are
material but are not reflected in the financial statements or in the notes
thereto, other than liabilities arising in the ordinary course of the Borrower's
business since December 31, 1994, and other than this Agreement and the
Revolving Note. No written information,
-25-
exhibit or report furnished by the Borrower to the Bank in connection with the
negotiation of this Agreement contained any material misstatement of fact or
omitted to state any fact necessary to make the statements contained therein not
materially misleading. Since December 31, 1994, no event or circumstance has
occurred that would have a Materially Adverse Effect.
(b) The Acquisition Pro-Formas have been prepared in good faith and on
reasonable assumptions.
Section 4.6. Ownership and Liens. Each of the Borrower and its
Subsidiaries has good and valid title to, or valid leasehold interests in, its
material Properties and assets, real and personal, including the material
Properties and assets, and leasehold interests reflected in the financial
statements referred to in Section (other than any Properties or assets disposed
of in the ordinary course of business of the Borrower and its Subsidiaries), and
none of the material Properties and assets owned by the Borrower or its
Subsidiaries, and none of its leasehold interests is subject to any Lien, except
as disclosed in such financial statements or in Schedule , or as may be
permitted hereunder.
Section 4.7. Taxes. Each of the Borrower and its Subsidiaries has filed
all federal and state tax returns and all other material local tax returns
required to be filed, has paid all due and payable taxes, assessments and
governmental charges and levies, including interest and penalties, imposed upon
it or upon its Properties, and has made adequate provision for the payment of
such taxes, assessments and other charges accruing but not yet due and payable,
except with respect to taxes which are being contested in good faith by the
Borrower or its Subsidiaries and for which such Person has established and
maintains adequate reserves for payment. To the best knowledge of Borrower,
there is no tax assessment contemplated or proposed by any governmental agency
against the Borrower or any of its Subsidiaries that would have a Materially
Adverse Effect, other than, as of each date subsequent to the Closing Date, such
contemplated or proposed tax assessments with respect to which (i) Borrower has
promptly notified Bank in writing of its knowledge and (ii) the Borrower or the
appropriate Subsidiary of the Borrower has in good faith commenced, and
thereafter diligently pursued, appropriate proceedings in opposition to such
assessment.
Section 4.8. ERISA. Each of the Borrower and its Subsidiaries is in
compliance in all material respects with all applicable provisions of ERISA.
Within the three-year period prior to the date hereof, neither a Reportable
Event nor a Prohibited Transaction has occurred with respect to any Plan; no
notice of intent to terminate a Plan has been filed nor has any Plan been
terminated; no circumstance exists which constitutes grounds under Section 4042
of ERISA entitling the PBGC to institute proceedings to terminate, or appoint
-26-
a trustee to administer, a Plan, nor has the PBGC instituted any such
proceedings; neither the Borrower nor any ERISA Affiliate has completely or
partially withdrawn under Sections 4201 or 4204 of ERISA from a Multiemployer
Plan; each of the Borrower and its ERISA Affiliates has met its minimum funding
requirements under ERISA with respect to all of its Plans and there are no
Unfunded Vested Liabilities and neither the Borrower nor any ERISA Affiliate has
incurred any material liability to the PBGC under ERISA other than for premium
payments incurred in the normal course of operating the Plans.
Section 4.9. Subsidiaries and Ownership of Stock.
(a) Schedule 4.9 correctly sets forth the names of all Subsidiaries of
the Borrower. Except as otherwise indicated on Schedule 4.9, all of the
outstanding shares of capital stock, or all of the units of equity interest, as
the case may be, of each Subsidiary are owned of record, except for qualifying
shares held by the directors of the Subsidiaries, and beneficially by the
Borrower or a Subsidiary of the Borrower, as disclosed on said Schedule; there
are no outstanding options, warrants or other rights to purchase capital stock
of any such Subsidiary; and all such shares or equity interests so owned are
duly authorized, validly issued, fully paid, non-assessable, and were issued in
compliance with all applicable state and federal securities and other laws, and
are free and clear of all Liens, except as may be permitted hereunder and except
for restrictions imposed upon the sale of stock of the Insurance Subsidiaries of
the Borrower by the Insurance Commissioner or other insurance regulatory
authorities.
(b) Each Subsidiary of the Borrower is a corporation duly incorporated,
validly existing and in good standing under the laws of its jurisdiction of
incorporation, has the power and authority to own its assets and to transact the
business in which it is now engaged, and is duly qualified as a foreign
corporation and in good standing under the laws of each other jurisdiction in
which such qualification is required, except where the failure to be so
qualified would not have a Materially Adverse Effect.
(c) Each Subsidiary of the Borrower is in compliance with all laws and
other requirements applicable to its business and has obtained all
authorizations, consents, approvals, orders, licenses, and permits from, and
each Subsidiary has accomplished all filings, registrations, and qualifications
with, or obtained exemptions from any of the foregoing from, any governmental or
public agency that are necessary for the transaction of its business, except
where the failure to be in such compliance, obtain such authorizations,
consents, approvals, orders, licenses, and permits, accomplish such filings,
registrations, and qualifications, or obtain such exemptions, would not have a
Materially Adverse Effect.
-27-
Section 4.10. Credit Arrangements. Schedule is a complete and correct
list of all credit agreements, indentures, guaranties, Capital Leases,
mortgages, and other instruments, agreements and arrangements presently in
effect providing for or relating to extensions of credit (including agreements
and arrangements for the issuance of letters of credit or for acceptance
financing) in respect of which the Borrower or any of its Subsidiaries is in any
manner directly or contingently obligated, other than trade payables in the
ordinary course of business of the Borrower and its Subsidiaries; and the
maximum principal or face amounts of the credit in question, which are
outstanding and which can be outstanding, are therein set forth and are
correctly stated as of the date hereof, and all Liens given or agreed to be
given as security therefor are therein set forth and are correctly described or
indicated in such Schedule.
Section 4.11. Operation of Business. Each of the Borrower and its
Subsidiaries possesses all licenses, permits and franchises, or rights thereto,
necessary to conduct its business as now conducted and as presently proposed to
be conducted, the absence of which would have a Materially Adverse Effect, and
neither the Borrower nor any of its Subsidiaries is in violation in any material
respect of any valid rights of others with respect to any of the foregoing.
Section 4.12. No Default on Outstanding Judgments or Orders. Each of
the Borrower and its Subsidiaries has satisfied all material judgments and
neither the Borrower nor any Subsidiary is in default with respect to any
judgment, writ, injunction, decree, rule or regulation of any court, arbitrator
or federal, state, municipal or other governmental authority, commission, board,
bureau, agency or instrumentality, domestic or foreign, which would, in any one
case or in the aggregate, have a Materially Adverse Effect.
Section 4.13. No Defaults on Other Agreements. Neither the Borrower nor
any of its Subsidiaries is a party to any indenture, mortgage or loan or credit
agreement or any lease or other agreement or instrument or subject to any
charter or corporate restriction which would have a Materially Adverse Effect.
Neither the Borrower nor any of its Subsidiaries is in default in any material
respect in the performance, observance or fulfillment of any of the obligations,
covenants or conditions contained in any agreement or instrument material to its
business to which it is a party.
Section 4.14. Governmental Regulation. Neither the Borrower nor any of
its Subsidiaries is subject to regulation under the Investment Company Act of
1940, as amended, or any statute or regulation limiting its ability to incur
indebtedness for money borrowed as contemplated hereby.
Section 4.15. Consents and Approvals. No authorization, consent,
approval, order, license or permit from, or filing,
-28-
registration or qualification with, or exemption by, any governmental or public
body or authority, or any subdivision thereof, or any other Person, including
without limitation, any Insurance Commissioner, is required to authorize, or is
required in connection with the execution, delivery and performance by the
Borrower of, or the legality, validity, binding effect or enforceability of,
this Agreement, the Revolving Note or the Acquisition Agreement, except the
consents, approvals or other similar actions listed on Schedule 4.15 attached
hereto. Such consents, approvals or other similar actions have been obtained and
have not been modified, amended, rescinded or revoked, and are in full force and
effect.
Section 4.16. Partnerships. Except as set forth in Schedule
4.16, neither the Borrower nor any of its Subsidiaries is a partner
in any partnership.
Section 4.17. Environmental Protection. Each of the Borrower and its
Subsidiaries has obtained all material permits, licenses and other
authorizations which are required under all environmental laws, including laws
relating to emissions, discharges, releases or threatened releases of
pollutants, contaminants, chemicals or industrial, toxic or hazardous substances
or wastes into the environment (including without limitation, ambient air,
surface water, ground water, or land), or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport, or
handling of pollutants, contaminants, chemicals, or industrial, toxic or
hazardous substances or wastes, except to the extent failure to have any such
permit, license or authorization would not reasonably be expected to have a
Materially Adverse Effect. Each of the Borrower and its Subsidiaries is in
compliance with all terms and conditions of the required permits, licenses and
authorizations, and is also in compliance with all other limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in the environmental laws or contained in any
regulation, code, plan, order, decree, judgment, injunction, notice or demand
letter issued, entered, promulgated or approved thereunder, except to the extent
failure to comply would not reasonably be expected to have a Materially Adverse
Effect. None of the Properties of the Borrower or its Subsidiaries, either owned
or leased, have been included or, as far as the Borrower can reasonably foresee,
proposed for inclusion on the National Priorities List adopted pursuant to the
Comprehensive Environmental Response Compensation and Liability Act, as amended,
or on any similar list or inventory of sites requiring response or cleanup
actions adopted by any other federal, state or local agency.
-29-
Section 4.18. Copyrights, Patents, Trademarks, Etc. Each of the
Borrower and its Subsidiaries is duly licensed or otherwise entitled to use all
patents, trademarks, service marks, trade names, and copyrighted materials which
are used in the operation of its business as presently conducted, except where
the failure to be so licensed or entitled would not have a Materially Adverse
Effect. No claim is pending or, as far as the Borrower can reasonably foresee,
threatened against the Borrower or any of its Subsidiaries contesting the use of
any such patents, trademarks, service marks, trade names or copyrighted
materials, nor does the Borrower know of any valid basis for any such claims,
other than claims which, if adversely determined, would not have a Materially
Adverse Effect.
Section 4.19. Compliance with Laws. Neither the Borrower nor any of its
Subsidiaries is in violation of any laws, ordinances, rules or regulations,
applicable to it, of any federal, state or municipal governmental authorities,
instrumentalities or agencies, including without limitation, the United States
Occupational Safety and Health Act of 1970, as amended, except where such
violation would not have a Materially Adverse Effect.
Section 4.20. Events of Default. No Default or Event of Default ha
occurred and is continuing.
Section 4.21. No Adverse Change. Since September 30, 1995,
there has occurred no event which would have a Materially Adverse Effect.
Section 4.22. Use of Proceeds. The Borrower shall use the proceeds of
each Revolving Loan (i) to acquire 100% of the shares of capital stock of
Pioneer Insurance and Delaware Insurance from Donegal Mutual, (ii) to make
surplus contributions to the Insurance Subsidiaries, (iii) to acquire all or
substantially all of the assets or capital stock of any other insurance
corporation and (iv) for other general corporate purposes; provided, however,
that the Borrower shall use at least $10,000,000 of the proceeds of the
Revolving Loan for the purposes described in clause (i) above. No part of such
proceeds shall be used to purchase or carry, or to extend credit to others for
the purpose of purchasing or carrying, any "margin stock" (as such term is
defined in Regulation G of the Board of Governors of the Federal Reserve System)
in violation of Regulations U and X. Neither Borrower nor any of its
Subsidiaries is engaged principally, or as one of its important activities, in
the business of extending credit for the purpose of purchasing or carrying any
such "margin stock."
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ARTICLE 5. AFFIRMATIVE COVENANTS
During the term of this Agreement, and until performance, payment
and/or satisfaction in full of the Obligations, the Borrower covenants and
agrees that it shall, and shall cause each of its Subsidiaries to, unless the
Bank otherwise consents in writing:
Section 5.1. Maintenance of Existence and Domicile of Insurance
Subsidiaries. Preserve and maintain its corporate existence and good standing in
the jurisdiction of its incorporation, and qualify and remain qualified as a
foreign corporation in each jurisdiction in which such qualification is required
from time to time, except where failure to be so qualified would not have a
Materially Adverse Effect; and preserve and maintain the domicile of each of its
Insurance Subsidiaries as in effect on the date hereof.
Section 5.2. Conduct of Business. Continue to engage in a business of
the same general type as conducted by it on the date of this Agreement.
Section 5.3. Maintenance of Properties. Maintain, keep and preserve all
of its material Properties (tangible and intangible), necessary or useful in the
conduct of its business, in good working order and condition, ordinary wear and
tear excepted, except that the failure to maintain, preserve and protect a
particular item of depreciable Property that is not of significant value, either
intrinsically or to the operations of Borrower and its Subsidiaries, taken as a
whole, shall not constitute a violation of this covenant.
Section 5.4. Maintenance of Records. Keep accurate and complete records
and books of account, in which complete entries will be made in accordance with
GAAP and SAP, reflecting all financial transactions of the Borrower and its
Subsidiaries.
Section 5.5. Maintenance of Insurance. Maintain insurance (subject to
customary deductibles and retentions) with financially sound and reputable
insurance companies, in such amounts and with such coverages (including without
limitation public liability insurance, fire, hazard and extended coverage
insurance on all of its assets, necessary workers' compensation insurance and
all other coverages as are consistent with industry practice) as are maintained
by companies of established reputation engaged in similar businesses and
similarly situated.
Section 5.6. Compliance with Laws. Comply in all respects with all
applicable laws, rules, regulations and orders, except where the failure to so
comply would not have a Materially Adverse Effect. Such compliance shall
include, without limitation, paying all taxes, assessments and governmental
charges imposed upon it or upon its Property (and all penalties and other costs,
if any, related
-31-
thereto), unless contested in good faith by appropriate proceedings and for
which adequate reserves have been set aside.
Section 5.7. Right of Inspection. From time to time upon prior notice
and in accordance with customary standards and practices within the banking
industry (including, without limitation, upon any Event of Default or whenever
the Bank may have reasonable cause to believe that an Event of Default has
occurred), the Borrower shall permit the Bank or any agent or representative
thereof, to examine and make copies and abstracts from the records and books of
account of, and visit the Properties of, the Borrower and its Subsidiaries to
discuss the affairs, finances and accounts of the Borrower and any such
Subsidiaries with any of their respective officers and directors and the
Borrower's independent accountants, and to make such verification concerning the
Borrower and its Subsidiaries as may be reasonable under the circumstances, and
furnish promptly to the Bank true copies of all financial information that may
reasonably be requested by the Bank; provided, that the Bank shall use
reasonable efforts to not materially interfere with the business of the Borrower
and its Subsidiaries and to treat as confidential any and all information
obtained pursuant to this Section , except to the extent disclosure is required
by any law, regulation, order, ruling, directive, guideline or request from any
central bank or other government authority (whether or not having the force of
law).
Section 5.8. Reporting Requirements. The Borrower shall, and shall
cause each of its Subsidiaries, as applicable, to, furnish to the Bank:
(a) Annual GAAP Statements of Borrower. Within one hundred twenty (120)
days following the end of Borrower's fiscal year (or such earlier date as
the Borrower's Form 10-K is filed with the Securities and Exchange Commission)
copies of:
(i) the consolidated and consolidating (including the Borrower on a
parent-only basis) balance sheets of the Borrower and its Subsidiaries as
at the close of such fiscal year, and
(ii) the consolidated and consolidating (including the Borrower on a
parent-only basis) statements of operations and statements of stockholders'
equity and cash flows, in each case of the Borrower and its Subsidiaries for
such fiscal year,
in each case setting forth in comparative form the figures for the
preceding fiscal year and prepared in accordance with GAAP, all in reasonable
detail and accompanied by an opinion thereon of KPMG Peat Marwick or other firm
of independent public accountants of recognized national standing selected by
the
-32-
Borrower and reasonably acceptable to the Bank, to the effect that the
financial statements have been prepared in accordance with GAAP (except for
changes in application in which such accountants concur) and present fairly in
all material respects in accordance with GAAP the financial condition of the
Borrower and its Subsidiaries as of the end of such fiscal year and the results
of its operations for the fiscal year then ended and that the examination of
such accountants in connection with such financial statements has been made in
accordance with generally accepted auditing standards and, accordingly, included
such tests of the accounting records and such other auditing procedures as were
considered necessary under the circumstances.
(b) Annual SAP Financial Statements. As soon as available, and in any
event within one hundred twenty (120) days following the end of the fiscal
year of each Insurance Subsidiary (or such earlier date as such are filed with
the applicable insurance regulatory authority), copies of audited SAP Financial
Statements for each such Insurance Subsidiary, in each case setting forth in
comparative form the figures for the preceding fiscal year and prepared in
accordance with SAP, all in reasonable detail and accompanied by an opinion
thereon of KPMG Peat Marwick or other firm of independent public accountants of
recognized national standing selected by the Borrower and reasonably acceptable
to the Bank, to the effect that the financial statements have been prepared in
accordance with SAP (except for changes in application in which such accountants
concur) and present fairly in all material respects in accordance with SAP the
financial condition of such Insurance Subsidiary as of the end of such fiscal
year and the results of its operations for the fiscal year then ended and that
the examination of such accountants in connection with such financial statements
has been made in accordance with generally accepted auditing standards and,
accordingly, included such tests of the accounting records and such other
auditing procedures as were considered necessary under the circumstances.
(c) Quarterly GAAP Statements of Borrower. As soon as available, and in
any event within sixty (60) days after the end of each quarterly fiscal
period of the Borrower (other than the fourth fiscal quarter of any fiscal
year), copies of:
(i) the consolidated and consolidating (including the Borrower on a
parent-only basis) balance sheets of the Borrower and its Subsidiaries as
at the end of such fiscal quarter, and
(ii) the consolidated and consolidating (including the Borrower on a
parent-only basis) statements of operations and consolidated statements of
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stockholders' equity and cash flows, in each case of the Borrower and its
Subsidiaries for such fiscal quarter and the portion of such fiscal year ended
with such fiscal quarter,
in each case setting forth in comparative form the figures for the
preceding fiscal year and prepared in accordance with GAAP all in reasonable
detail and certified as presenting fairly in accordance with GAAP the financial
condition of the Borrower and its Subsidiaries as of the end of such period and
the results of operations for such period by a Senior Officer of such company,
subject only to normal year-end accruals and audit adjustments and the absence
of footnotes.
(d) Quarterly SAP Statements. As soon as available, and in any event
within sixty (60) days following the end of each fiscal quarter of each
Insurance Subsidiary (or such earlier date as such are filed with the applicable
insurance regulatory authority), copies of the unaudited SAP Financial
Statements for each quarterly fiscal period of each such Insurance Subsidiary,
in each case setting forth in comparative form the figures for the preceding
fiscal year and prepared in accordance with SAP, all in reasonable detail and
certified as presenting fairly in accordance with SAP the financial condition of
such Insurance Subsidiary, as of the end of such period and results of
operations for such period by a Senior Officer of such Insurance Subsidiary,
subject to normal year-end accruals and audit adjustments.
(e) Annual/Quarterly Reports. Concurrently with the delivery of the
financial statements required pursuant to subsections (a) and (c) of this
Section, copies of all reports required to be filed with the Insurance
Commissioner in connection with the filing of such financial statements.
(f) SEC Filings. Promptly after the same are available, copies of each
annual report, proxy or financial statement or other report or
communication sent to the stockholders of the Borrower and copies of all annual,
regular, periodic and special reports and registration statements which the
Borrower may file or be required to file with the Securities and Exchange
Commission under Sections 13 and 15(d) of the Securities Exchange Act of 1934.
(g) Notice of Litigation. Promptly after the commencement thereof,
notice of any action, suit and proceeding before any court or governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, against the Borrower or any of its Subsidiaries (A) not arising out of
an insurance policy issued by the Borrower or any of its
-34-
Subsidiaries, which, if determined adversely to the Borrower or such
Subsidiary, would have a Materially Adverse Effect, (B) arising out of an
insurance policy issued by any of the Subsidiaries of the Borrower or by any of
its Subsidiaries, which demands relief, net of reinsurance obtained by the
Borrower or its Subsidiaries with respect to such insurance policy, which, if
determined adversely to the Borrower or such Subsidiary would have a Materially
Adverse Effect, or (C) commenced by any creditor or lessor under any written
credit agreement with respect to borrowed money in excess of $500,000 or
material lease which asserts a default thereunder on the part of the Borrower or
any of its Subsidiaries.
(h) Notices of Default. As soon as practicable and in any event within
fifteen (15) days after the occurrence of each Default or Event of Default,
a written notice setting forth the details of such Default or Event of Default
and the action which is proposed to be taken by the Borrower with respect
thereto.
(i) Actuarial Report Confirming Reserves. As soon as available, and in
any event within one hundred twenty (120) days after the close of each
fiscal year of the Borrower, a report confirming the adequacy of the SAP
reserves of each Insurance Subsidiary from KPMG Peat Marwick or an actuarial
firm of recognized national standing or the actuarial division of any other
accounting firm of recognized national standing acceptable to the Bank.
(j) Other Filings. Promptly upon the filing thereof and at any time
upon the reasonable request of the Bank, permit the Bank the opportunity to
review copies of all reports, including annual reports, and notices which the
Borrower or any Subsidiary files with or receives from the PBGC or the U.S.
Department of Labor under ERISA; and as soon as practicable and in any event
within fifteen (15) days after the Borrower or any if its Subsidiaries knows or
has reason to know that any Reportable Event or Prohibited Transaction has
occurred with respect to any Plan or that the PBGC or Donegal Mutual, the
Borrower or any such Subsidiary has instituted or will institute proceedings
under Title IV of ERISA to terminate any Plan, the Borrower will deliver to the
Bank a certificate of a Senior Officer of the Borrower setting forth details as
to such Reportable Event or Prohibited Transaction or Plan termination and the
action the Borrower proposes to take with respect thereto.
(k) Additional Information. Such additional information as the
Bank may reasonably request concerning the Borrower and its Subsidiaries
and for that purpose all pertinent books, documents and vouchers relating to its
business, affairs and Properties, including investments as shall from time to
time be designated by the Bank.
-35-
Section 5.9. Certificates.
(a) Officers' Certificate. Simultaneously with each delivery
of financial statements pursuant to Section (a) and (d), the Borrower shall
deliver to the Bank a certificate of its Chief Financial Officer which will
(i) certify on behalf of the Borrower that such officer has
reviewed the Agreement and the condition and transactions of the Borrower
and its Subsidiaries for the period covered by such financial statements, and
state that to the best of his knowledge the Borrower has observed or performed
all of its covenants and other agreements, and satisfied every condition,
contained in this Agreement and the Revolving Note, and no Default or Event of
Default has occurred and is continuing or, if a Default or Event of Default has
occurred and is continuing, a statement as to the nature thereof and the action
which is proposed to be taken with respect thereto, and
(ii) include information (with detailed calculations in the
form set out in Exhibit C) required to establish whether the Borrower was
in compliance with the covenants set forth in this Agreement during the period
covered by the financial statements then being delivered.
Section 5.10. Compliance with Agreements. Promptly and fully comply
with all contractual obligations under all agreements, mortgages, indentures,
leases and/or instruments to which any one or more of the Borrower and its
Subsidiaries is a party, whether such agreements, mortgages, indentures, leases
or instruments are with the Bank or another Person, except where such failure to
so comply would not have a Materially Adverse Effect.
Section 5.11.Use of Proceeds. Use the proceeds of the Revolving Loans
only for the purposes described in Section 4.22.
ARTICLE 6. NEGATIVE COVENANTS.
During the term of this Agreement, and until performance, payment
and/or satisfaction in full of the Obligations, the Borrower covenants and
agrees that Borrower shall not, and shall not permit its Subsidiaries to, unless
the Bank otherwise consents in writing:
Section 6.1. Debt. Create, incur, assume or suffer to exist any
Debt, except:
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(a) Debt of the Borrower under this Agreement and the Revolving Note;
(b) Debt permitted under Section;
(c) Capital Lease Obligations, subject to the limitations of Section
6.9; and
(d) Debt of the Borrower or its Subsidiaries existing as of the date of
this Agreement and described on Schedule 4.10, as the same may be refinanced
or extended from time to time, so long as there is no increase in the
principal amount outstanding thereunder or the rate of interest or fees payable
in respect thereof.
Section 6.2. Guaranties, Etc. Assume, guarantee, endorse or otherwise
be or become directly or contingently responsible or liable (including, but not
limited to, an agreement to purchase any obligation, or to supply or advance any
funds (other than Investments permitted pursuant to Section 6.4), or an
agreement to cause such Person to maintain a minimum working capital or net
worth or otherwise to assure the creditors of any Person against loss) for the
obligations of any Person, except guaranties by endorsement of negotiable
instruments for deposit or collection or similar transactions in the ordinary
course of business.
Section 6.3. Liens. Create, incur, assume or suffer to exist
any Lien, upon or with respect to any of its Properties, now owned or
hereafter acquired, except:
(a) Liens for taxes or assessments or other government charges or
levies if not yet due and payable or if due and payable, if they are being
contested in good faith by appropriate proceedings and for which appropriate
reserves are maintained;
(b) Liens imposed by law, such as mechanic's, materialmen's, landlord's,
warehousemen's and carrier's Liens, and other similar Liens, securing
obligations incurred in the ordinary course of business which are not past due
for more than forty-five (45) days, or which are being contested in good faith
by appropriate proceedings and for which appropriate reserves have been
established;
(c) Liens under workers' compensation, unemployment insurance,
social security or similar legislation (other than ERISA);
(d) judgment and other similar Liens arising in connection with court
proceedings; provided that the execution or other enforcement of such Liens is
effectively stayed and the claims secured thereby are being actively contested
in good faith and by appropriate proceedings;
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(e) easements, rights-of-way, restrictions and other similar
encumbrances which, in the aggregate, do not materially interfere with the
occupation, use and enjoyment by the Borrower or any of its Subsidiaries of the
Property or assets encumbered thereby in the normal course of its business or
materially impair the value of the Property subject thereto;
(f) Liens referred to in Schedule 4.6; and
(g) Liens consisting of pledges or deposits of Property to secure
performance in connection with operating leases made in the ordinary course
of business to which Borrower or a Subsidiary is a party as lessee, provided the
aggregate value of all such pledges and deposits in connection with any such
lease does not at any time exceed fifteen percent (15%) of the annual fixed
rentals payable under such lease.
Section 6.4. Investments. Permit total consolidated Investment of
Borrower and its Insurance Subsidiaries in Investment Grade Securities, as of
the end of any fiscal quarter, to be less than ninety seven percent (97%) of the
aggregate amount of Total Invested Assets; provided, however, for the purpose of
this Section, "Total Invested Assets" shall not include Debt of any Insurance
Subsidiary evidenced by surplus notes held by the Borrower.
Section 6.5. Mergers and Consolidations and Acquisitions of Assets.
Merge or consolidate with any Person (whether or not Borrower or any Subsidiary
is the surviving entity), or acquire all or substantially all of the assets or
any of the capital stock of any Person; provided that (a) any Subsidiary (other
than any Insurance Subsidiary) may merge into the Borrower or any other
Subsidiary, and the Borrower may merge or consolidate with or acquire all or
substantially all of the assets of another Person if, after giving effect to
such transaction, (i) the Borrower is the corporation which survives such merger
or acquisition, and (ii) no Default or Event of Default would exist.
Section 6.6. Sale of Assets. Sell, lease or otherwise dispose of all
or substantially all of its assets, including through any reinsurance
arrangements, except in the ordinary course of business.
Section 6.7. Stock of Subsidiaries, Etc. Pledge, assign, hypothecate,
transfer, convey, sell or otherwise dispose of, encumber or grant any security
interest in, or deliver to any other Person, any shares of capital stock of its
Subsidiaries, or permit any such Subsidiaries to issue any additional shares of
its capital stock to any Person other than the Borrower or any Subsidiaries,
except directors' qualifying shares; provided, however, the Borrower may sell
some or all of the shares of capital stock of any of its Subsidiaries (other
than Atlantic States and Southern Insurance), and permit or permit any such
Subsidiaries (other than Atlantic States
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and Southern Insurance) to issue and sell additional shares of its capital stock
to any Person other than the Borrower or any Subsidiaries, so long as such sale
of stock is made in exchange for cash or, with respect to any Subsidiary with a
book value of less than $10,000,000, other consideration, in an amount equal to
the fair market value of such shares.
Section 6.8. Transactions with Affiliates. Enter into any transaction
of any kind with any Affiliate of the Borrower, or any Person that owns or holds
five percent (5%) or more of the outstanding common stock of the Borrower, other
than (a) transactions between or among Borrower and its wholly owned
Subsidiaries or between or among its wholly owned Subsidiaries, (b) transactions
between the Borrower and Donegal Mutual as described on Schedule 6.8, or (c)
transactions on terms at least as favorable to the Borrower or its Subsidiaries
as would be the case in an arm's-length transaction between unrelated parties of
equal bargaining power.
Section 6.9. Capital Expenditures. Make or permit to be made any
Capital Expenditure in any fiscal year, or commit to make any Capital
Expenditure in any fiscal year, which when added to the aggregate Capital
Expenditures of the Borrower and its Subsidiaries theretofore made or committed
to be made in that fiscal year, would exceed $5,000,000.
Section 6.10. Minimum Statutory Surplus of Insurance Subsidiaries. As
of the end of any fiscal quarter, permit the Combined Statutory Surplus to be
less than an amount equal to the sum of (a) $50,000,000 plus (b) 50% of any
cumulative positive Combined Statutory Net Income, after dividends to the
Borrower, for each fiscal quarter following the fiscal quarter ended December
31, 1994, plus (c) any contributions to surplus made by the Borrower to any
Insurance Subsidiary, from Revolving Loans, during each fiscal quarter following
the fiscal quarter ended December 31, 1994, plus (d) 50% of any contributions to
surplus made by the Borrower to any Insurance Subsidiary, other than from
Revolving Loans, during each fiscal quarter following the fiscal quarter ended
December 31, 1994.
Section 6.11. Minimum Statutory Surplus of Donegal Mutual. As of the
end of any fiscal quarter, permit the Statutory Surplus of Donegal Mutual to be
less than an amount equal to the sum of (a) $60,000,000 plus (b) 50% of any
positive Statutory Net Income of Donegal Mutual for each fiscal quarter
following the fiscal quarter ended December 31, 1994.
Section 6.12. Minimum Consolidated GAAP Net Worth. As of the end of any
fiscal quarter, permit Consolidated GAAP Net Worth of the Borrower and its
Subsidiaries to be less than an amount equal to the sum of (a) $58,000,000 plus
(b) 50% of any cumulative positive Net Income of the Borrower and its
Subsidiaries for each fiscal quarter
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following the fiscal quarter ended December 31, 1994, plus (c) the amount of
paid-in capital resulting from any issuance by the Borrower of its capital stock
after the date of this Agreement.
Section 6.13. Minimum Fixed Charge Coverage. As of the end of
each fiscal quarter during the periods set forth below, permit the Fixed
Charge Coverage Ratio to be less than 1.2 to 1.
Section 6.14 Minimum X.X.Xxxx Rating. Permit the A.M. Best Rating
of Atlantic States to be less than "A-" at any time, or permit the A.M.
Best Rating of Southern Insurance to be less than "B+" at any time on or after
the date, if any, that a rating is announced by A.M. Best for Southern
Insurance.
Section 6.15. Minimum Ownership of Donegal Group. At any time, cease to
have at least 51% of the Borrower's securities having voting power for the
election of directors of the Borrower owned of record and beneficially by
Donegal Mutual.
ARTICLE 7. EVENTS OF DEFAULT.
Section 7.1. Events of Default. Any of the following events shall be
an "Event of Default":
(a) the Borrower shall fail to pay any principal amount of the
Revolving Loan when due, whether at stated maturity, by acceleration, by
notice of prepayment or otherwise, or Borrower shall fail to pay any premium or
interest, or any fees or other amounts payable hereunder, within five days after
the date due;
(b) any written statement, representation or warranty made by the
Borrower in this Agreement, or the Revolving Note, or which is contained in
any certificate, document, financial or other written statement furnished at any
time under or in connection with this Agreement or the Revolving Note shall
prove to have been incorrect in any material respect on or as of the date made;
(c) the Borrower shall (i) fail to perform or observe any term,
covenant, or agreement contained in Section 4.22, Section 5.8(i) or Article
6; or (ii) fail to perform or observe any term, covenant, or agreement on its
part to be performed or observed (other than the obligations specifically
referred to elsewhere in this Section 7.1) in this Agreement (including without
limitation any such term, covenant or agreement contained in Article 5 hereof)
or the Revolving Note and such failure shall continue unremedied for thirty (30)
consecutive days. The Bank shall use reasonable efforts to give the Borrower
notice of any Default or Event of Default under this Section 7.1(c); provided,
however, that failure to give any such notice shall
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not impair or otherwise adversely affect the Bank's rights and
remedies hereunder;
(d) the Borrower or any Subsidiary shall (i) fail to pay any
indebtedness, including but not limited to indebtedness for borrowed money
(other than the payment Obligations described in (a) above), of the Borrower or
such Subsidiary, as the case may be, or any interest or premium thereon, when
due (whether by scheduled maturity, required prepayment, acceleration, demand or
otherwise); or (ii) fail to perform or observe any term, covenant or condition
on its part to be performed or observed under any agreement or instrument
relating to any such indebtedness, when required to be performed or observed and
such failure continues after any applicable notice and grace period, if the
effect of such failure to perform or observe is to accelerate, or to permit the
acceleration of the maturity of such indebtedness, or (iii) any such
indebtedness shall be declared to be due and payable, or required to be prepaid
(other than by a regularly scheduled required prepayment), prior to the stated
maturity thereof; provided, however, that it shall not be a Default or Event of
Default under this Section 7.1(d) unless the aggregate principal amount of all
such indebtedness as described in clauses (i) through (iii) above shall exceed
$100,000;
(e) the Borrower or any Subsidiary (i) shall generally not, or be
unable to, or shall admit in writing its inability to, pay its debts as
such debts become due; or (ii) shall make an assignment for the benefit of
creditors or petition or apply to any tribunal for the appointment of a
custodian, receiver or trustee for it or a substantial part of its assets; or
(iii) shall commence any proceeding under any bankruptcy, reorganization,
arrangement, readjustment of debt, dissolution or liquidation law or statute of
any jurisdiction, whether now or hereafter in effect; or (iv) shall have had any
such petition or application filed or any such proceeding shall have been
commenced against it in which an adjudication or appointment is made or order
for relief is entered, or which petition, application or proceeding remains
undismissed for a period of sixty (60) days or more; or (v) shall be the subject
of any proceeding under which its assets may be subject to seizure, forfeiture
or divestiture (other than a proceeding in respect of a Lien permitted under
this Agreement); or (vi) by any act or omission shall indicate its consent to,
approval of or acquiescence in any such petition, application or proceeding or
order for relief or the appointment of a custodian, receiver or trustee for all
or any substantial part of its Property; or (vii) shall suffer any such
custodianship, receivership or trusteeship to continue undischarged for a period
of sixty (60) days or more;
(f) (A) Any Insurance Commissioner shall apply for an order pursuant
any section of the applicable insurance code, directing the rehabilitation,
conservation or liquidation of any Insurance
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Subsidiary, and any such application shall not be dismissed or otherwise
terminated during a period of sixty (60) consecutive days, or a court of
competent jurisdiction shall enter an order granting the relief sought; or (B)
any Insurance Commissioner shall file a complaint or petition pursuant any
applicable insurance code seeking the dissolution of any Insurance Subsidiary,
and such complaint or petition is not dismissed or otherwise terminated for a
period of sixty (60) consecutive days, or a court of competent jurisdiction
shall order the dissolution of any Insurance Subsidiary;
(g) one or more judgments, decrees or orders for the payment of money
in excess of $100,000 in the aggregate shall have been rendered against the
Borrower or any of its Subsidiaries (excluding judgments which are covered by
insurance other than self-insurance and excluding judgments rendered against any
Insurance Subsidiary which judgments have been both (i) rendered in the ordinary
course of business in connection with its insurance and reinsurance obligations,
and (ii) adequately reserved against) and such judgments, decrees or orders
shall continue unsatisfied and in effect for a period of sixty (60) consecutive
days without being vacated, discharged, satisfied or stayed or bonded pending
appeal;
(h) any of the following events shall occur or exist with respect to the
Borrower or any ERISA Affiliate: (i) any Prohibited Transaction involving any
Plan; (ii) any Reportable Event shall occur with respect to any Plan; (iii) the
filing under Section 4041 of ERISA of a notice of intent to terminate any Plan
or the termination of any Plan (other than in a "standard termination" referred
to in Section 4041 of ERISA); (iv) any event or circumstance exists which would
constitute grounds entitling the PBGC to institute proceedings under Section
4042 of ERISA for the termination of, or for the appointment of a trustee to
administer any Plan, or the institution by the PBGC of any such proceedings; (v)
complete or partial withdrawal under Section 4201 or 4204 of ERISA from a
Multiemployer Plan or the reorganization, insolvency or termination of any
Multiemployer Plan; and in each case above, such event or condition, together
with all other such events or conditions, if any, would in the reasonable
opinion of the Bank subject the Borrower to any tax, penalty or other liability
to a Plan, Multiemployer Plan, the PBGC or otherwise (or any combination
thereof) which in the aggregate exceed or may exceed $500,000; or
(i) this Agreement or the Revolving Note shall at any time after its
execution and delivery and for any reason cease to be in full force and
effect or shall be declared null and void, or the validity or enforceability
thereof shall be contested by the Borrower or the Borrower shall deny it has any
further liability or obligation hereunder.
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Section 7.2. Remedies. Without limiting any other rights or remedies of
the Bank provided for elsewhere in this Agreement or the Revolving Note, or by
applicable law, or in equity, or otherwise, if any Event of Default shall occur
and be continuing, the Bank may by notice to the Borrower, (i) declare the
Commitment to be terminated, whereupon the same shall forthwith terminate, (ii)
declare all amounts owing under this Agreement and the Revolving Note (whether
or not such Obligations be contingent or unmatured) to be forthwith due and
payable, whereupon all such amounts shall become and be forthwith due and
payable, without presentment, demand, protest or further notice of any kind, all
of which are hereby expressly waived by the Borrower; provided that, in the case
of an Event of Default referred to in Section 7.1(e) and Section 7.1(f) above
with respect to the Borrower, the Commitment shall be immediately terminated,
and all such amounts shall be immediately due and payable without notice,
presentment, demand, protest or other formalities of any kind, all of which are
hereby expressly waived by the Borrower.
ARTICLE 8. MISCELLANEOUS.
Section 8.1. Amendments and Waivers. No amendment or waiver of any
provision of this Agreement or the Revolving Note nor consent to any departure
by the Borrower therefrom, shall in any event be effective unless the same shall
be in writing and signed by the Bank and the Borrower, and then such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given. No failure on the part of the Bank to exercise, and no
delay in exercising, any right hereunder shall operate as a waiver thereof or
preclude any other or further exercise thereof or the exercise of any other
right. The remedies herein provided are cumulative and not exclusive of any
remedies provided by law.
Section 8.2. Usury. Anything herein to the contrary notwithstanding,
the Obligations of the Borrower with respect to this Agreement and the Revolving
Note shall be subject to the limitation that payments of interest shall not be
required to the extent that receipt thereof would be contrary to provisions of
law applicable to the Bank limiting rates of interest which may be charged or
collected by the Bank.
Section 8.3. Expenses; Indemnities.
(a) Unless otherwise agreed in writing, the Borrower shall reimburse
the Bank on demand for all reasonable costs, expenses and charges
(including without limitation reasonable fees and charges of its attorneys)
incurred by the Bank in connection with the preparation and negotiation of this
Agreement and the Revolving Note. The Borrower further agrees to pay the Bank on
demand for all reasonable costs, expenses and charges (including without
limitation, reasonable fees and charges of external legal counsel for the Bank
and costs
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allocated by the Bank's internal legal department) incurred by the Bank in
connection with the performance, modification and amendment of this Agreement
and the Revolving Note provided, however, that Borrower shall not be liable for
any such costs allocated by the Bank's internal legal department arising prior
to the date of the first Borrowing pursuant to a Notice of Borrowing. The
Borrower further agrees to pay on demand all reasonable costs and expenses
(including reasonable counsel fees and expenses), if any, in connection with the
enforcement, including without limitation the enforcement of judgments (whether
through negotiations, legal proceedings or otherwise) of this Agreement or the
Revolving Note or any other document to be delivered under this Agreement. Until
paid, the amount of any cost, expense or charge shall constitute, together with
all accrued interest thereon, part of the Obligations.
(b) The Borrower hereby agrees to indemnify the Bank upon demand at any
time, against any and all losses, costs or expenses which the Bank may at
any time or from time to time sustain or incur as a consequence of (i) any
failure by the Borrower to pay, punctually on the due date thereof, any amount
payable by the Borrower to the Bank or (ii) the acceleration, in accordance with
the terms of this Agreement, of the time of payment of any of the Obligations of
the Borrower. Such losses, costs or expenses may include, without limitation,
(i) any costs incurred by the Bank in carrying funds to cover any overdue
principal, overdue interest, or any other overdue sums payable by the Borrower
to the Bank or (ii) any losses incurred or sustained by the Bank in liquidating
or reemploying funds acquired by the Bank from third parties, except to the
extent caused by the Bank's negligence or willful misconduct.
(c) The Borrower agrees to indemnify the Bank and its directors,
officers, employees, agents and Affiliates from, and hold each of them
harmless against, any and all losses, liabilities, claims, damages, costs or
expenses incurred by any of them arising out of or by reason of any
investigation or litigation or other proceedings (including any threatened
investigation or litigation or other proceedings) relating to any transaction
contemplated by this Agreement, any actions or omissions of the Borrower or any
Subsidiary or any of their respective directors, officers, employees or agents
in connection with this Agreement, or any actual or proposed use by the Borrower
or any Subsidiary of the proceeds of the Revolving Loans, including without
limitation, the reasonable fees and disbursements of counsel incurred in
connection with any such investigation or litigation or other proceedings (but
excluding any such losses, liabilities, claims, damages or expenses incurred by
reason of the negligence or willful misconduct of the Person to be indemnified).
(d) The Borrower agrees to indemnify the Bank and its directors,
officers, employees, agents and Affiliates from, and hold each of
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them harmless against, any and all losses, liabilities, claims, damages, costs
or expenses (including without limitation, reasonable fees and disbursements of
counsel, engineers or similar professionals) which may be incurred by or
asserted against the Bank or any such party in connection with or arising out of
or relating to (i) the Bank's compliance with any environmental law with respect
to the Properties or operations of the Borrower or its Subsidiaries, (ii) any
natural resource damages, governmental fines or penalties or other amounts
mandated by any governmental authority, court order, demand or decree in
connection with the disposal by the Borrower or its Subsidiaries either on-site
or off-site (including leakage or seepage from any such site including third
party treatment facilities) of pollutants, contaminants or hazardous wastes and
(iii) any personal injury or property damage to third parties resulting from
such pollutants, contaminants or hazardous wastes.
Section 8.4. Term; Survival. This Agreement shall continue in full
force and effect as long as any Obligations are owing by the Borrower to the
Bank. No termination of this Agreement shall in any way affect or impair the
rights and obligations of the parties hereto relating to any transactions or
events prior to such termination date, and all warranties and representations of
the Borrower shall survive such termination. All representations and warranties
made hereunder and in any document, certificate, or statement delivered pursuant
hereto or in connection herewith shall survive the execution and delivery of
this Agreement or the Revolving Note. The obligations of the Borrower under
Section 8.3 shall survive the repayment of the Revolving Loans and the
termination of the Commitment.
Section 8.5. Assignment; Participations. This Agreement shall be
binding upon, and shall inure to the benefit of, the Borrower, the Bank and
their respective successors and assigns, except that the Borrower may not assign
or transfer its rights or obligations hereunder. The Bank may sell
participations in, or upon ten (10) days' notice to the Borrower may assign all
or any part of, any Revolving Loan to another lender, in which event (a) in the
case of an assignment, the assignee shall have, to the extent of such assignment
(unless otherwise provided therein), the same rights, benefits and obligations
as it would have if it were the Bank hereunder; and (b) in the case of a
participation, the participant shall have no rights under this Agreement or the
Revolving Note. The agreement executed by the Bank in favor of the participant
shall not give the participant the right to require the Bank to take or omit to
take any action hereunder except action directly relating to (i) the extension
of a regularly scheduled payment date with respect to any portion of the
principal of or interest on any amount outstanding hereunder allocated to such
participant, (ii) the reduction of the principal amount allocated to such
participant or (iii) the reduction of the rate of interest payable on such
amount or any amount of fees
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payable hereunder to a rate or amount, as the case may be, below that which the
participant is entitled to receive under its agreement with the Bank. The Bank
may furnish any information concerning the Borrower in the possession of the
Bank from time to time to assignees and participants (including prospective
assignees and participants); provided that the Bank shall require any such
prospective assignee or such participant (prospective or otherwise) to agree in
writing to maintain the confidentiality of such information.
Section 8.6. Notices. All notices, requests, demands and other
communications provided for herein shall be in writing and shall be (i) hand
delivered; (ii) sent by certified, registered or express United States mail,
return receipt requested, or reputable next-day courier service; or (iii) given
by telex, telecopy, telegraph or similar means of electronic communication. All
such communications shall be effective upon the receipt thereof. Notices shall
be addressed to the Borrower and the Bank at their respective addresses set
forth on the signature pages of this Agreement, or to such other address as the
Borrower or the Bank shall theretofore have transmitted to the other party in
writing by any of the means specified in this Section.
Section 8.7. Setoff. The Borrower agrees that, in addition to (and
without limitation of) any right of setoff, banker's lien or counterclaim the
Bank may otherwise have, the Bank shall be entitled, at its option, to offset
balances (general or special, time or demand, provisional or final, and
regardless of whether such balances are then due to the Borrower) held by it for
the account of the Borrower at any of the Bank's offices, in Dollars or in any
other currency, against any amount payable by the Borrower under this Agreement
or the Revolving Note that is not paid when due, taking into account any
applicable grace period, in which case it shall promptly notify the Borrower
thereof; provided that the Bank's failure to give such notice shall not affect
the validity thereof.
Section 8.8. Jurisdiction; Immunities.
(a) The Borrower hereby irrevocably submits to the jurisdiction of any
Connecticut State or United States Federal court sitting in Connecticut over any
action or proceeding arising out of or relating to this Agreement or the
Revolving Note, and the Borrower hereby irrevocably agrees that all claims in
respect of such action or proceeding may be heard and determined in such
Connecticut State or Federal court. The Borrower irrevocably consents to the
service of any and all process in any such action or proceeding by the mailing
of copies of such process to the Borrower at its address specified in Section .
The Borrower agrees that a final judgment in any such action or proceeding shall
be conclusive and may be enforced in other jurisdictions by suit on the judgment
or in any other manner provided by law. The Borrower further waives any
objection to venue in such
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State and any objection to an action or proceeding in such State on the basis of
forum non conveniens. The Borrower further agrees that any action or proceeding
brought against the Bank shall be brought only in Connecticut State or United
States Federal courts sitting in Connecticut.
(b) Nothing in this Section shall affect the right of the Bank to serve
legal process in any other manner permitted by law or affect the right of the
Bank to bring any action or proceeding against the Borrower or its Property in
the courts of any other jurisdictions.
Section 8.9. Table of Contents; Headings. Any table of contents and
the headings and captions hereunder are for convenience only and shall not
affect the interpretation or construction of this Agreement.
Section 8.10. Severability. The provisions of this Agreement are
intended to be severable. If for any reason any provision of this Agreement
shall be held invalid or unenforceable in whole or in part in any jurisdiction,
such provision shall, as to such jurisdiction, be ineffective to the extent of
such invalidity or unenforceability without in any manner affecting the validity
or enforceability thereof in any other jurisdiction or the remaining provisions
hereof in any jurisdiction, unless the ineffectiveness of such provision would
(a) result in such a material change to the performance of this Agreement as to
be unreasonable or (b) materially and adversely frustrate the objectives of the
parties as expressed in this Agreement as originally written, in which event,
the parties agree to negotiate in good faith an amendment to this Agreement to
achieve its intended purpose.
Section 8.11. Counterparts. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one
and the same instrument, and any party hereto may execute this Agreement by
signing any such counterpart.
Section 8.12. Integration. This Agreement and the Revolving Note set
forth the entire agreement between the parties hereto relating to the
transactions contemplated hereby and thereby and supersede any prior oral or
written statements or agreements with respect to such transactions.
Section 8.13. Governing Law. This Agreement shall be governed by, and
interpreted and construed in accordance with, the laws of the State of
Connecticut.
Section 8.14. Confidentiality. Subject to the following sentence, the
Bank and any assignee of the Bank becoming a party to this Agreement agrees
to use its best efforts, consistent with its normal operating procedures, to
retain in confidence and not disclose
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without the prior written consent of the Borrower any written information about
the Borrower and its Subsidiaries obtained pursuant to the requirements of this
Agreement and identified in writing by the Borrower as "non-public," except as
permitted under Section 8.5 of this Agreement. Notwithstanding the foregoing,
the Bank (a) may disclose or otherwise use such information to the extent that
such information is required in any application, report, statement or testimony
submitted to any governmental agency having or claiming to have jurisdiction
over the Bank, (b) may disclose or otherwise use such information to the extent
that such information is required in response to any summons or subpoena or in
connection with any litigation affecting the Bank, (c) may disclose or otherwise
use such information to the extent that such information is reasonably believed
by the Bank (after notification to the Borrower, unless such notification is
prohibited by law) to be required in order to comply with any law, order,
regulation, or ruling applicable to the Bank, and (D) may disclose or otherwise
use such information to the extent that such information becomes publicly
available.
Section 8.15. Authorization of Third Parties to Deliver Opinions, Etc.
The Borrower hereby authorizes and directs each Person whose preparation or
delivery to the Bank of any opinion, report or other information is a condition
or covenant under this Agreement (including under Articles 4, 5 and 6) to so
prepare or deliver such opinion, report or other information for the benefit of
the Bank. The Borrower agrees to confirm such authorizations and directions
provided for in this Section 8.15 from time to time as may be requested by the
Bank.
Section 8.16. Borrower's Waivers. THE BORROWER ACKNOWLEDGES THAT IT
HAS BEEN ADVISED BY COUNSEL OF ITS CHOICE WITH RESPECT TO THIS TRANSACTION
AND THIS AGREEMENT AND THAT IT MAKES THE FOLLOWING WAIVER KNOWINGLY AND
VOLUNTARILY:
(a) THE BORROWER IRREVOCABLY WAIVES TRIAL BY JURY IN ANY COURT AND IN
ANY SUIT, ACTION OR PROCEEDING OR ANY MATTER ARISING IN CONNECTION WITH OR
IN ANY WAY RELATED TO THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, THE
REVOLVING NOTE OR ANY OF THE BORROWER'S DOCUMENTS RELATED THERETO AND THE
ENFORCEMENT OF ANY OF THE BANK'S RIGHTS AND REMEDIES.
[Remainder of page intentionally left blank]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first above written.
DONEGAL GROUP, INC.
By:/s/ Xxxxx X. Xxxxxxx
------------------------------------------
Name: Xxxxx X. Xxxxxxx
Title: Senior Vice President and CFO
Address for Notices:
0000 Xxxxx Xxxx
X.X. Xxx 000
Xxxxxxxx, XX 00000-0000
Attn: Senior Vice President and CFO
Telecopier No.: (000) 000-0000
With a copy to:
Xxxxxxxxx X. Xxxxxx, Esq.
Duane, Morris & Heckscher
0000 Xxx Xxxxxxx Xxxxx
Xxxxxxxxxxxx, XX 00000
Telecopier No.: 000-000-0000
SHAWMUT BANK CONNECTICUT, N.A.
By:/s/ Xxxx X. Xxxxxxxxxx
------------------------------------------
Name: Xxxx X. Xxxxxxxxxx
Title: Assistant Vice President
Address for Notices:
Insurance Industry Department
000 Xxxx Xxxxxx, XXX 000
Xxxxxxxx, XX 00000
Attn: Xxxx X. Xxxxxxxxxx
Telecopier No.: (000) 000-0000
-49-
With a copy to:
Xxxxxxx X. XxxXxxxxx, Esq.
Day, Xxxxx & Xxxxxx
CityPlace I
Xxxxxxxx, XX 00000-0000
Telecopier No.: (000) 000-0000
SCHEDULE 1.1
COMMITMENTS AND LENDING OFFICES
-------------------------------------------------------------------------------------------------------------------------
Percentage of
Name and Address of Commitment Aggregate
Bank Amount Commitments Type of Loans
-------------------------------------------------------------------------------------------------------------------------
Fleet National Bank of $20,000,000 100% Base Rate,
Connecticut Eurodollar Rate
000 Xxxx Xxxxxx
Xxxxxxxx, XX 00000
-------------------------------------------------------------------------------------------------------------------------
SCHEDULE 4.4
LITIGATION
NONE
SCHEDULE 4.6
LIENS
NONE
SCHEDULE 4.9
SUBSIDIARIES
------------------------------------------------------------------------------------------------------------------------------
No. of
State of Shares %
Name Incorporation Owned Owner Ownership
------------------------------------------------------------------------------------------------------------------------------
Atlantic States Pennsylvania 470,000 Donegal Group 100%
Insurance Company Inc.
------------------------------------------------------------------------------------------------------------------------------
Delaware American Delaware 50,000 Donegal Group 100%
Insurance Company Inc.
------------------------------------------------------------------------------------------------------------------------------
Pioneer Insurance Ohio 1,000,000 Donegal Group 100%
Company1 Inc.
------------------------------------------------------------------------------------------------------------------------------
Southern Insurance Virginia 1,000,000 Donegal Group 100%
Company of Inc.
Virginia
------------------------------------------------------------------------------------------------------------------------------
Atlantic Insurance Maryland 100 Donegal Group, 100%
Services Inc. Inc.
------------------------------------------------------------------------------------------------------------------------------
1 Pioneer Insurance Company will only become a Subsidiary of the Borrower after
consummation of the acquisition by the Borrower of 100% of its capital stock
pursuant to the terms of an acquisition agreement to be entered into between
Donegal Mutual and the Borrower.
SCHEDULE 4.10
CREDIT ARRANGEMENTS
NONE
SCHEDULE 4.15
CONSENTS AND APPROVALS
NONE
SCHEDULE 4.16
PARTNERSHIPS
NONE
SCHEDULE 6.8
PERMITTED TRANSACTION WITH AFFILIATES
The Borrower and its wholly owned Subsidiaries engage in transactions with
Donegal Mutual Insurance Company ("Donegal Mutual"), the owner of approximately
59% of the outstanding Common Stock of the Borrower, and the wholly owned
subsidiaries of Donegal Mutual pursuant to the following agreements:
1. Services Allocation Agreement dated September 29, 1986 between Donegal
Mutual, the Borrower and Atlantic States Insurance Company ("Atlantic
States").
2. Proportional Reinsurance Agreement dated September 29, 1986 between
Donegal Mutual and Atlantic States, as amended October 1, 1988, July
16, 1992 and December 31, 1995.
3. Proposed Stock Purchase Agreement between Donegal Mutual and the
Borrower relating to Pioneer Insurance Company ("Pioneer").
4. The Borrower pays quarterly cash dividends to the holders of its
Common Stock, which include Donegal Mutual.
5. Multi-Line Excess of Loss Reinsurance Agreement effective January 1,
1994 between Donegal Mutual and Southern.
6. Property-Catastrophe Excess of Loss Reinsurance Agreement effective
January 1, 1994 between Donegal Mutual and Southern.
7. Proportional Reinsurance Agreement dated January 1, 1989 between
Donegal Mutual and Southern.
8. Multi-Line Excess of Loss Reinsurance Agreement effective January 1,
1996 between Donegal Mutual and Delaware American Insurance Company.
9. Lease dated January 1, 1990 between Donegal Mutual and the Borrower
relating to office equipment and automobiles.
10. Property-Catastrophe Excess of Loss Reinsurance Agreement effective
July 1, 1994 between Donegal Mutual and Delaware American.
11. Property-Catastrophe Excess of Loss Reinsurance Agreement effective
January 1, 0000 xxxxxxx Xxxxxxx Xxxxxx xxx Xxxxxxxx Xxxxxx.
12. Property-Catastrophe Excess of Loss Reinsurance Agreement effective
January 1, 1994 between Donegal Mutual and Pioneer.
13. Multi-Line Excess of Loss Reinsurance Agreement effective January 1,
1994 between Donegal Mutual and Pioneer.
-7-
14. Quota Share Reinsurance Agreement effective June 1, 1995 for workers
compensation business between Donegal Mutual and Delaware American.
15. Workers Compensation Aggregate Excess of Loss Reinsurance Agreement
effective January 1, 1996 between Donegal Mutual and Delaware
American.
16. Workers Compensation Aggregate Excess of Loss Reinsurance Agreement
effective January 1, 1996 between Donegal Mutual and Pioneer.
EXHIBIT A
REVOLVING NOTE
$20,000,000.00 Hartford, Connecticut
________ __, 199_
DONEGAL GROUP INC. (the "Borrower"), for value received, hereby
unconditionally promises to pay to the order of FLEET NATIONAL BANK OF
CONNECTICUT, a national banking association (the "Bank") at its office located
at 000 Xxxx Xxxxxx, Xxxxxxxx, Xxxxxxxxxxx 00000, for the account of the
appropriate Lending Office of the Bank, the principal sum of TWENTY MILLION AND
NO/100 Dollars ($20,000,000) or, if less, the unpaid principal amount loaned by
the Bank to the Borrower pursuant to the Agreement referred to below, in lawful
money of the United States of America and in immediately available funds, on the
date(s) and in the manner provided in said Agreement. The Borrower also promises
to pay interest on the unpaid principal balance hereof, for the period such
balance is outstanding, at said principal office for the account of said Lending
Office, in like money, at the rates of interest, on the date(s) and in the
manner provided in said Agreement; and to pay interest on any overdue principal
and interest at the Default Rate.
The date, type, amount and maturity date for each Revolving Loan made by the
Bank to the Borrower under the Agreement referred to below, and each payment of
principal thereof, shall be recorded by the Bank on its books and, prior to any
transfer of this Revolving Note (or, at the discretion of the Bank, at any other
time), endorsed by the Bank on the schedule attached hereto or any continuation
thereof or otherwise recorded and maintained in its internal records.
This is the Revolving Note referred to in that certain Credit Agreement (as
amended from time to time, the "Agreement") dated as of _______ __, 199_ between
the Borrower and the Bank and evidences the Revolving Loans made by the Bank
thereunder and is entitled to the benefits thereof. All terms not defined herein
shall have the meanings given to them in the Agreement.
The Agreement provides for the acceleration of the maturity of this
Revolving Note upon the occurrence of certain Events of Default and for
prepayments on the terms and conditions specified therein.
The Borrower waives presentment, notice of dishonor, protest and any other
notice or formality with respect to this Revolving Note.
No waiver of any right or remedy under this Revolving Note shall in any
event be effective unless the same shall be in writing and signed by the Bank
and the Borrower, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
-2-
In accordance with the provisions of the Agreement, the Borrower shall
reimburse the Bank on demand for all reasonable costs, expenses and charges
(including without limitation, reasonable fees and charges of external legal
counsel for the Bank and costs allocated by the Bank's internal legal
department) incurred by the Bank in connection with the preparation, performance
or enforcement of this Revolving Note.
This Revolving Note shall be binding on the Borrower and its permitted
successors and assigns and shall inure to the benefit of the Bank and its
permitted successors and assigns, provided that the Borrower may not delegate
any obligations hereunder without the prior written consent of the Bank.
This Revolving Note shall be governed by, and interpreted and construed in
accordance with, the laws of the State of Connecticut.
IN WITNESS WHEREOF, the undersigned has caused this Revolving Note to be
duly executed as of the day and year first above written.
DONEGAL GROUP INC.
By:
---------------------------------
Print Name:
Print Title:
Schedule to
Revolving Note
REVOLVING LOANS AND PAYMENTS
Amount and Payments Unpaid
Type of Maturity Principal/ Principal Notation
Date Loan Date Interest Balance By
EXHIBIT B
Notice of Borrowing
______________, 19___
Fleet National Bank of Connecticut
000 Xxxx Xxxxxx
Xxxxxxxx, Xxxxxxxxxxx 00000
Attention:
Re: Credit Agreement dated as of December 29, 1995 (the "Agreement")
between Donegal Group Inc. (the "Borrower") and
Fleet National Bank of Connecticut
Ladies and Gentlemen:
Pursuant to Section 2.3 of the Agreement, the undersigned Borrower hereby
gives you irrevocable notice that the Borrower requests a Revolving Loan under
the Agreement, and in that connection Borrower sets forth below the information
relating to such Revolving Loan:
Borrowing Date: _________________________
Aggregate Principal
Amount: _________________________
Type of Loan (Base
Rate or Eurodollar
Rate): __________________________
Interest Period: __________________________
As required by Section 3.2 of the Agreement, the undersigned officer on
behalf of the Borrower hereby certifies that:
-2-
(a) the representations and warranties contained in Article 4 of the
Agreement are true and correct in all material respects on and as of the date
hereof (or, if such representation or warranty is expressly stated to have been
made as of a specific date, as of such specific date);
(b) the Borrower has performed and complied with and is in compliance with
all of the terms, covenants and conditions of the Agreement;
(c) there does not exist any Default or Event of Default under the
Agreement; and
(d) each of the other conditions precedent set forth in Section 3.2 have
been satisfied and complied with.
All capitalized terms used in this notice not otherwise defined herein shall
have the same meaning as assigned to them in the Agreement.
DONEGAL GROUP INC.
By:
---------------------------------
Print Name:
Print Title:
EXHIBIT C
OFFICER'S CERTIFICATE
DONEGAL GROUP INC.
______ __, 199_
Pursuant to Section 5.9(a) of the Credit Agreement dated as of December 29,
1995 (the "Credit Agreement") between Donegal Group Inc. (the "Borrower") and
Fleet National Bank of Connecticut (the "Bank"),
I, _______________, DO HEREBY CERTIFY on behalf of the Borrower that:
1. I am the duly elected, qualified and acting Chief Financial
Officer of the Borrower; and
2. Attached hereto as Attachment 1 is a true and correct copy of the
consolidated and consolidating SAP and GAAP financial statements
of the Borrower and its Subsidiaries as of the close of the
fiscal [year/quarter] ended __________, 199_; and
3. I have reviewed the Credit Agreement and the condition and
transactions of the Borrower and its Subsidiaries for the fiscal
[year/quarter] ended _____, 199_, and to the best of my knowledge
the Borrower has observed and performed all of its covenants and
other agreements, and satisfied every condition contained in the
Credit Agreement and the Revolving Note, and I have not obtained
knowledge of any condition or event which constitutes a Default
or an Event of Default, except as set forth on Attachment 2
attached hereto; and
4. Attached hereto as Attachment 3 is true and correct information
(with detailed calculations) establishing that the Borrower was
in compliance with the covenants set forth in the Credit
Agreement during the fiscal [year/quarter] ended __________ ___,
199_.
Except as otherwise defined herein, terms used herein shall have the meanings
set forth in the Credit Agreement, pursuant to which this certificate is
delivered.
IN WITNESS WHEREOF, I have signed this certificate as of the date
hereof on behalf of ________.
By:
----------------------------------------
Print Name:
Title: Chief Financial Officer
ATTACHMENT 1
to
Officer's Certificate
Financial Statements
--------------------
for the period ended
_____________ __, 199_
ATTACHMENT 2
to
Officer's Certificate
Defaults and Events of Default
------------------------------
Note: If a Default or Event of Default has occurred and is continuing,
a statement as to the nature thereof and the action proposed to
be taken by the Borrower with respect thereto as required.
ATTACHMENT 3 to
Officer's Certificate
Page 1 of 4
Computations and Information
Showing Compliance with
Sections 6.9 to 6.15
of the
Credit Agreement
Except as otherwise defined herein, terms used herein shall have the meanings
set forth in the Credit Agreement.
Section 6.9. Capital Expenditures
--------------------
1. Aggregate Capital Expenditures actually made, or committed to be made,
during the fiscal year beginning [fill in date of start of fiscal year]
= ________________
2. Line 1 does not exceed $5,000,000.
Section 6.10. Minimum Statutory Surplus of Insurance Subsidiaries
---------------------------------------------------
1. Positive Combined Statutory Surplus of Insurance Subsidiaries
as of the fiscal quarter ended ____ __, 199__
= ________________
2. Positive Combined Statutory Net Income for each fiscal quarter following the
fiscal quarter ended December 31, 1994 was:
[Include data for each quarter, as applicable]
2a. The sum of positive Combined Statutory Net Income for each of the
quarters set forth in Line 2 above
= ________________
2b. 50% of line 2a
= ________________
3. Contributions to surplus made by Borrower to the Insurance Subsidiaries from
Revolving Loans during each fiscal quarter following the fiscal quarter ended
December 31, 1994 were:
[Include data for each quarter, as applicable]
3a. The sum of the contributions to surplus for each of the quarters
set forth in line 3 above = ________________
4. Contributions to surplus made by Borrower to the Insurance Subsidiaries other
than from Revolving Loans during each fiscal quarter following the fiscal
quarter ended December 31, 1994 were:
[Include data for each quarter, as applicable]
4a. The sum of the contributions to surplus for each of the quarters
ATTACHMENT 3 to
Officer's Certificate
Page 2 of 4
set forth in line 4 above = ________________
4b. 50% of line 4a = ________________
5. The sum of $50,000,000 and line 2b and line 3a and 4b
= ________________
6. Line 1 is not less than line 5.
Section 6.11. Minimum Statutory Surplus of Donegal Mutual
1. Statutory Surplus of Donegal Mutual
as of the fiscal quarter ended ____ __, 199__
= ________________
2. Positive Statutory Net Income of Donegal Mutual for each fiscal quarter
following the fiscal quarter ended December 31, 1994 was:
[Include data for each quarter, as applicable]
2a. The sum of positive Statutory Net Income of Donegal Mutual
for each of the quarters set forth in Line 2 above
= _______________
2b. 50% of line 2a = _______________
3. The sum of $60,000,000 and line 2b = _______________
4. Line 1 is not less than line 3.
ATTACHMENT 3 to
Officer's Certificate
Page 3 of 4
Section 6.12. Minimum Consolidated GAAP Net Worth
1. Consolidated GAAP Net Worth as of the fiscal quarter ended
______________, 199__. = _______________
2. Consolidated positive Net Income for each
fiscal quarter following the fiscal quarter ended December 31, 1994 was:
[Include data for each quarter, as applicable]
2a. The sum of the positive Net Income for each of the quarters
set forth in Line 2 above = _______________
2b. 50% of line 2a = _______________
3. Paid-in capital resulting from any issuance by Borrower of its
capital stock = _______________
4. The sum of $58,000,000 and line 2b and line 3 = _______________
5. Line 1 is not less than line 4.
Section 6.13. Minimum Fixed Charge Coverage.
1. Available Dividends minus dividends paid by Insurance Subsidiaries to the
Borrower for the immediately preceding four fiscal quarters ended on
[fill in ending date for fiscal quarter] = _______________
2. Total taxes paid by the Insurance Subsidiaries to the Borrower
pursuant to any intercorporate tax sharing agreement for the
fiscal quarters (ended on [fill in ending date for fiscal quarter])
= _______________
3. Consolidated GAAP EBIT of the Borrower and Subsidiaries
(except Insurance Subsidiaries) for the immediately preceding four
fiscal quarters (ended on [fill in ending date for fiscal quarter])
= _______________
4. The sum of lines 1, 2 and line 3 = _______________
5. Fixed Charges for the immediately preceding four fiscal quarters
(ended on [fill in ending date for fiscal quarter]) = _______________
6. The ratio of line 4 to line 5 = ___ : ___
7. The ratio in line 5 is not less than 1.2 to 1.0.
Section 6.14. Minimum Credit Ratings.
ATTACHMENT 3 to
Officer's Certificate
Page 4 of 4
1. The A.M. Best Rating of Atlantic States = ________________
2. The A.M. Best Rating of Southern Insurance, if any = ________________
3. The rating in line 1 is not less than "A-" and the rating in line 2, if any,
is not less than "B+".
Section 6.15. Minimum Ownership of Donegal Group.
1. Percentage ownership by Donegal Mutual of voting
securities of Borrower = _________________
2. The amount in line 1 is not less than 51%.
EXHIBIT D
December 29, 1995
Fleet National Bank of Connecticut
Insurance Industry Department
000 Xxxx Xxxxxx, XXX 000
Xxxxxxxx, XX 00000
Attn: Xxxx X. Xxxxxxxxxx
Re: Credit Agreement between Donegal Group Inc.
and Fleet National Bank of Connecticut
--------------------------------------
Gentlemen:
We have acted as counsel to Donegal Group Inc. (the "Company"), a Delaware
corporation, in connection with the execution and delivery of the Credit
Agreement (the "Credit Agreement") dated as of December 29, 1995 between the
Company and Fleet National Bank of Connecticut ("Fleet") pursuant to which Fleet
agrees to make revolving loans (the "Revolving Loans") to the Company from time
to time not to exceed in the aggregate principal amount at any one time
outstanding the amount of $20,000,000 in consideration of a promissory note from
the Company (the "Revolving Note") and we furnish this opinion to you pursuant
to Section 3.1(j) of the Credit Agreement. All capitalized terms used herein
shall have the respective meanings assigned to them in the Credit Agreement.
As such counsel, we have examined: (i) the organizational documents of the
Company and its Subsidiaries as in effect on the date hereof and minutes of
actions taken by the Board of Directors of the Company at a meeting thereof held
on December 21, 1995, as made available to us by an officer of the Company; (ii)
executed copies of the Credit Agreement and the Revolving Note (collectively,
the "Loan
Fleet National Bank of Connecticut
Page 2
December 29, 1995
Documents"), each dated as of the date hereof and the Acquisition Agreement
dated as of December 21, 1995 between the Company and Donegal Mutual Insurance
Company (iii) such other documents, corporate records and questions of law as we
have deemed necessary to the rendering of the opinions expressed herein. As to
certain factual matters, we have relied upon certificates of officers of the
Company. We have assumed the genuineness of all signatures, other than officers
of the Company, and the authenticity of all documents submitted to us as
originals and the conformity to original documents of documents submitted to us
as copies.
For purposes of the opinions expressed herein, we have relied only on the
federal laws of the United States and the laws of the State of Delaware and the
Commonwealths of Pennsylvania and Virginia, and our opinions are expressly
limited to such laws. We are admitted to practice law in the State of Delaware
and the Commonwealth of Penn- sylvania, but are not admitted to practice law in
the Commonwealth of Virginia.
As used in this letter, the term "our knowledge" and words of like import
mean that in the course of our representation of the Company no information has
come to the attention of any of the attorneys of Duane, Morris & Heckscher who
have performed substantive work for the Company which would give us actual
knowledge or actual notice that any legal opinion or stated factual assumption
is inaccurate in any material respect, or that any document or other instrument
upon which we have relied is inaccurate or incomplete in any material respect.
Based upon the foregoing, and solely in reliance thereon, we are of the
opinion that:
a. The Company and each of its Subsidiaries are each duly organized, validly
existing and in good standing under the laws of their respective states of
incorporation and have the requisite corporate power and authority to own their
respective assets and transact the respective businesses in which they are now
engaged and, with respect to the Company, to execute and deliver the Loan
Documents and any documents and certificates necessary in connection with the
Loan Documents, and to perform the obligations contemplated by the Loan
Documents.
2. The Company and each of its Subsidiaries are each duly qualified as a
foreign corporation and in good standing under the laws of each other
jurisdiction in which such qualification is required, except where the failure
to be so qualified would not have a Materially Adverse Effect. The Company is
the record owner, with the exception of directors qualifying shares, and
beneficial owner of all of the issued and outstanding shares of capital stock of
Atlantic
Fleet National Bank of Connecticut
Page 3
December 29, 1995
States Insurance Company, Delaware American Insurance Company and Southern
Insurance Company of Virginia, free and clear of any Lien, and all such shares
have been duly issued and are fully paid and non-assessable.
3. The Loan Documents have been duly and validly executed and delivered by
duly authorized officers of the Company and, assuming due execution thereof by
Fleet, constitute the legal, valid and binding obligations of the Company
enforceable against the Company in accordance with their respective terms,
except to that extent that such enforcement may be limited by applicable
bankruptcy, insolvency and other similar laws affecting creditors' rights
generally and by general principles of equity.
4. The Acquisition Agreement has been duly and validly executed and
delivered by duly authorized officers of the Company and constitutes the legal,
valid and binding obligation of the Company enforceable against the Company in
accordance with its terms, except to the extent that such enforcement may be
limited by applicable bankruptcy, insolvency and other similar laws affecting
creditors' rights generally and by general principles of equity.
5. The execution, delivery and performance by the Company of the Loan
Documents have been duly authorized by all necessary corporate action on the
part of the Company and do not (i) require any consent or approval of the
stockholders of the Company; (ii) violate any provisions of the Certificate of
Incorporation or By-laws of the Company; (iii) violate any provision of any law,
rule or regulation (including, without limitation, Regulations U and X of the
Board of Governors of the Federal Reserve System) or, to our knowledge, after
due inquiry, any order, writ, judgment, injunction, decree, determination or
award presently in effect having applicability to and binding upon the Company
or any of its Subsidiaries; (iv) to our knowledge, after due inquiry, result in
a breach of or constitute a default or require any consent under any agreement
or instrument to which the Company or any Subsidiary is a party or by which the
Properties of the Company or any of its Subsidiaries may be bound or affected;
(v) result in, or require, the creation or imposition of any Lien upon or with
respect to any of the Properties now owned by the Company or any of its
Subsidiaries; or (vi) require the authorization, consent, approval, order,
license or permit from, or filing, registration or qualification with, or
exemption by, any governmental or public body or authority, or any subdivision
thereof, or any other Person under any law, act, rule, regulation or otherwise,
to authorize, or in connection with the execution, delivery and performance by
the Company of, or the legality, validity, binding effect or enforceability of,
the Loan Documents or the Acquisition Agreement, except the authorizations,
consents, approvals, orders, licenses,
Fleet National Bank of Connecticut
Page 4
December 29, 1995
filings or permits described in Schedule 4.15 of the Credit Agreement which have
been obtained and are in full force and effect.
6. To the best of our knowledge, based on our inquiry of the President of
the Company and our knowledge of those matters as to which this firm has been
engaged by the Company for legal consultation or representation, except as
described in Schedule 4.4 to the Credit Agreement, there are no actions, suits
or proceedings or investigations (other than routine examinations performed by
regulatory authorities) pending or threatened against or affecting the Company
or any of its Subsidiaries, or any Property of any of them before any court,
governmental agency or arbitrator, which if determined adversely to the Company
or any of its Subsidiaries would in any one case or in the aggregate have a
Materially Adverse Effect.
7. Neither the Company nor any of its Subsidiaries is subject to regulation
under the Investment Company Act of 1940, as amended, or any statute or
regulation limiting the Company's ability to incur indebtedness for money
borrowed as contemplated by the Credit Agreement.
This opinion is being rendered solely for the purposes contemplated by
Section 3.1(j) of the Credit Agreement, and relates only to the matters
specifically set forth herein. Without our prior written consent, this opinion
may not be relied upon, utilized or quoted for any other purpose or by any other
person.
Sincerely,
DUANE, MORRIS & HECKSCHER
By:/s/ Xxxxxxxxx X. Xxxxxx
-----------------------
A Partner
FWD:pfs
cc: Xxxxxx X. Xxxxxxxx
Xxxxx X. Xxxxxxx
