EXHIBIT 10.8.6
Arthur J. Gallagher & Co. and AJG Financial Services, Inc.
Sixth Amendment to Credit Agreement
Harris Trust and Savings Bank Citibank, N.A.
Chicago, Illinois New York, New York
Bank of America, N.A. LaSalle Bank National Association
Chicago, Illinois Chicago, Illinois
The Northern Trust Company
Chicago, Illinois
Ladies and Gentlemen:
This Sixth Amendment to Credit Agreement dated as of April 23, 2002, but
effective as of March 31, 2002 (herein, the "Amendment"), is entered into by and
between the undersigned, Arthur J. Gallagher & Co, a Delaware corporation
("Gallagher"), AJG Financial Services, Inc., a Delaware corporation ("AJG";
Gallagher and AJG being referred to herein collectively as the "Borrowers" and
individually as a "Borrower"), Citibank, N.A., Bank of America, N.A., LaSalle
Bank National Association, The Northern Trust Company and Harris Trust and
Savings Bank, individually and as Agent (the "Agent"). Reference is hereby made
to that certain Credit Agreement dated as of September 11, 2000, as amended,
between the Borrowers, the Banks and the Agent (the "Credit Agreement"). All
capitalized terms used herein without definition shall have the same meanings
herein as such terms have in the Credit Agreement.
The Borrowers desire to modify certain financial covenants and make certain
other amendments to the Credit Agreement, and the Banks are willing to do so
under the terms and conditions set forth in this Amendment.
Section 1. Amendments.
Subject to the satisfaction of the conditions precedent set forth in
Section 2 below, the Credit Agreement shall be and hereby is amended (effective
as of March 31, 2002) as follows:
1.1. Section 6.1 of the Credit Agreement shall be amended by
inserting the following new definitions in the appropriate alphabetical
order:
""Birchwood" means Birchwood Acres Limited Partnership,
LLP, a limited partnership.
"Capitalization" means, at any time the same is to be determined,
the sum of Funded Debt and Net Worth.
"Two Pierce" means HP Itasca Two Pierce L.L.C., a limited
liability company."
1.2. Section 9.5 of the Credit Agreement shall be amended and
restated in its entirety to read as follows:
"Section 9.5. Financial Reports. The Borrowers shall, and shall
cause each Subsidiary to, maintain a standard system of accounting
in accordance with GAAP and shall furnish to the Agent, each Bank
and their duly authorized representatives such information
respecting the business and financial condition of the Borrowers and
their Subsidiaries as the Agent or such Bank may reasonably request;
and without any request, shall furnish to the Agent and the Banks:
(a) as soon as available, and in any event within 45 days
after the close of each fiscal quarter accounting period of
Gallagher, a copy of the consolidated balance sheet of each Borrower
and its Subsidiaries as of the last day of such period and the
consolidated statements of income, retained earnings and cash flows
of each Borrower and its Subsidiaries for the fiscal quarter and for
the fiscal year-to-date period then ended, each in reasonable detail
showing in comparative form the figures for the corresponding date
and period in the previous fiscal year, prepared by each Borrower in
accordance with GAAP and certified to by its President or Chief
Financial Officer or Vice President and Treasurer;
(b) as soon as available, and in any event within 90 days
after the close of each annual accounting period of Gallagher, a
copy of the consolidated balance sheet of Gallagher and its
Subsidiaries as of the last day of the period then ended and the
consolidated statements of income, retained earnings and cash flows
of Gallagher and its Subsidiaries for the period then ended, and
accompanying notes thereto, each in reasonable detail showing in
comparative form the figures for the previous fiscal year,
accompanied by an unqualified opinion thereon of Ernst & Young LLP
or another firm of independent public accountants of recognized
national standing, selected by Gallagher and satisfactory to the
Required Banks, to the effect that the financial statements have
been prepared in accordance with GAAP and present fairly in
accordance with GAAP the consolidated financial condition of
Gallagher and its Subsidiaries as of the close of such fiscal year
and the results of their operations and cash flows for the fiscal
year then ended and that an examination of such accounts in
connection with such financial statements has been made in
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accordance with generally accepted auditing standards and,
accordingly, such examination included such tests of the
accounting records and such other auditing procedures as were
considered necessary in the circumstances;
(c) as soon as available, and in any event within 45 days
after the close of each fiscal quarter accounting period of
Gallagher, a listing of Gallagher's investments accounted for
under the equity method of accounting and each of these
investments' contingent commitments, each in reasonable detail
and prepared by Gallagher in accordance with GAAP and certified
to by its President or Chief Financial Officer or Vice
President and Treasurer;
(d) as soon as available, and in any event within 45 days
after the close of each fiscal quarter accounting period of
Gallagher and within 90 days after the close of each annual
accounting period of Gallagher, a summary of the assets and
liabilities of Gallagher's investments accounted for under the
equity method of accounting, in reasonable detail and prepared
by Gallagher in accordance with GAAP and certified to by its
President or Chief Financial Officer or Vice President and
Treasurer;
(e) within the period provided in subsection (b) above,
the written statement of the accountants who certified the
audit report thereby required that in the course of their audit
they have obtained no knowledge of any Default or Event of
Default, or, if such accountants have obtained knowledge of any
such Default or Event of Default, they shall disclose in such
statement the nature and period of the existence thereof;
(f) promptly after receipt thereof, any additional written
reports, management letters or other detailed information
contained in writing concerning significant aspects of either
Borrower's or any Subsidiary's operations and financial affairs
given to it by its independent public accountants;
(g) promptly after the sending or filing thereof, a copies
of all proxy statements, financial statements and reports which
each Borrower sends to its shareholders, and copies of all
regular, periodic and special reports and all registration
statements which either Borrower files with the Securities and
Exchange Commission or any successor thereto or with any
national securities exchange; and
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(h) promptly after knowledge thereof shall have come to
the attention of any responsible officer of either Borrower,
written notice of any threatened or pending litigation or
governmental proceeding or labor controversy against either
Borrower or any Subsidiary which, if adversely determined,
would have a material adverse effect on the financial
condition, Properties, business or operations of either
Borrower or any Subsidiary or of the occurrence of any Default
or Event of Default hereunder.
Each of the financial statements furnished to the Agent and the
Banks pursuant to subsections (a) and (b) of this Section shall
be accompanied by a Compliance Certificate signed by the
President, the Chief Financial Officer or the Vice President
and Treasurer of Gallagher to the effect that to the best of
such officer's knowledge and belief no Default or Event of
Default has occurred during the period covered by such
statements or, if any such Default or Event of Default has
occurred during such period, setting forth a description of
such Default or Event of Default and specifying the action, if
any, taken by the Borrowers to remedy the same. Such Compliance
Certificate shall also (i) set forth the calculations
supporting such statements in respect of Sections 9.7, 9.8, 9.9
and 9.12 of this Agreement and (ii) contain a "deconsolidating"
balance sheet and income statement (in a form reasonably
acceptable to the Agent) detailing the impact on Gallagher of
removing the equity investments in Birchwood and Two Pierce
from the consolidated financial statements of Gallagher as of
the applicable compliance reporting date and also detailing the
net effect of such removal on the calculation of the financial
covenants set forth in Sections 9.7, 9.8 and 9.9 hereof."
1.3. Section 9.7 of the Credit Agreement shall be amended and
restated in its entirety to read as follows:
"Section 9.7. Net Worth. Gallagher shall not at any time permit
its Net Worth to be less than $325,000,000 plus 50% of Net
Income for each fiscal year (if positive for such year)
completed as of the date of determination, commencing with the
fiscal year ending December 31, 2002."
1.4. Section 9.8 of the Credit Agreement shall be amended and
restated in its entirety to read as follows:
"Section 9.8. Funded Debt to Capitalization Ratio. Gallagher
shall not at any time permit the ratio of Funded Debt to
Capitalization to be more than 0.40 to 1.0. For purposes of
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determining Gallagher's compliance with this Section, Funded
Debt shall be deemed to exclude any Indebtedness for Borrowed
Money which is not a legal obligation of Gallagher and which is
associated with Gallagher's equity investments in Birchwood and
Two Pierce as shown on Gallagher's most recent quarterly
financial statements."
1.5. Section 9.9 of the Credit Agreement shall be amended and
restated in its entirety to read as follows:
"Section 9.9. Fixed Charge Coverage Ratio. Gallagher shall, as
of the last day of each of its fiscal quarters ending during
the periods set forth below, maintain its Fixed Charge Coverage
Ratio for the four fiscal quarters then ended at not less than:
Fixed Charge
Coverage Ratio
From and To and shall not be
Including: Including: less than:
10/1/01 12/31/01 1.50 to 1.0
1/1/02 3/31/02 1.25 to 1.0
4/1/02 all times thereafter 1.50 to 1.0
For purposes of determining Gallagher's compliance with this
Section, the figures used to calculate the Fixed Charge
Coverage Ratio will be adjusted to exclude from EBITDAR,
Capital Expenditures, Restricted Payments, or Indebtedness for
Borrowed Money, as appropriate, any portion of those respective
consolidated totals which are associated with Birchwood or Two
Pierce, provided that the Indebtedness for Borrowed Money
associated with Gallagher's investments in Birchwood and Two
Pierce and which is part of this consolidation is not a legal
obligation of Gallagher"
1.6. Section 9.10 of the Credit Agreement shall be amended and
restated in its entirety to read as follows:
"Section 9.10. Indebtedness for Borrowed Money. The Borrowers
shall not, nor shall they permit any Subsidiary to, issue,
incur, assume, create or have outstanding any Indebtedness for
Borrowed Money; provided, however, that the foregoing shall not
restrict nor operate to prevent:
(a) the Obligations;
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(b) purchase money indebtedness and Capitalized Lease
Obligations secured by Liens permitted by Section 9.11(d)
hereof in an amount not to exceed $25,000,000 at any one time
outstanding for the Borrowers and their Subsidiaries in the
aggregate;
(c) Indebtedness for Borrowed Money which is not a
legal obligation of Gallagher and which is associated with
Gallagher's equity investments in Birchwood and Two Pierce as
shown on Gallagher's most recent quarterly financial
statements; and
(d) Indebtedness for Borrowed Money other than that
which is permitted by either of the foregoing subsections (a)
or (b) or (c) provided such Indebtedness does not exceed
$25,000,000 at any time outstanding for the Borrowers and
their Subsidiaries in the aggregate."
1.7. Section 9.12 of the Credit Agreement shall be amended
and restated in its entirety to read as follows:
"Section 9.12. Investments, Acquisitions, Loans, Advances and
Guaranties. Neither Borrower shall, nor shall they permit any
Subsidiary to, directly or indirectly, make, retain or have
outstanding any investments (whether through purchase of stock
or obligations or otherwise) in, or loans or advances (other
than for travel advances, advances for relocation and other
similar cash advances made to employees in the ordinary course
of business) to, any other Person, or acquire all or any
substantial part of the assets or business of any other Person
or division thereof, or be or become liable as endorser,
guarantor, surety or otherwise for any debt, obligation or
undertaking of any other Person, or otherwise agree to provide
funds for payment of the obligations of another, or supply
funds thereto or invest therein or otherwise assure a creditor
of another against loss, or apply for or become liable to the
issuer of a letter of credit which supports an obligation of
another (other than Letters of Credit issued hereunder), or
subordinate any claim or demand it may have to the claim or
demand of any other Person; provided, however, that the
foregoing shall not apply to nor operate to prevent:
(a) investments in direct obligations of the United
States of America or of any agency or instrumentality thereof
whose obligations constitute full faith and credit obligations
of the United States of America, provided that any such
obligations shall mature within one year of the date of
issuance thereof;
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(b) investments in commercial paper rated at least
P-1 by Moody's Investors Services, Inc. and at least A-1 by
Standard & Poor's Corporation maturing within 270 days of the
date of issuance thereof;
(c) investments in certificates of deposit issued by
any United States commercial bank having capital and surplus
of not less than $100,000,000 which have a maturity of one
year or less;
(d) investments in money market funds that invest
solely, and which are restricted by their respective charters
to invest solely, in investments of the type described in the
immediately preceding subsections (a), (b) and (c) above;
(e) endorsement of items for deposit or collection of
commercial paper received in the ordinary course of business;
(f) investments for which the projected tax credits
exceed the cost of such investments;
(g) investments in hedge funds;
(h) loans to employees not exceeding $15,000,000 at
any one time outstanding for the Borrowers and their
Subsidiaries in the aggregate;
(i) intercompany loans and advances between the
Borrowers and guaranties by either Borrower of the obligations
of the other provided that such underlying obligations are not
prohibited under the terms of this Agreement;
(j) (i) investments in real estate limited
partnerships not included in subsection (f) above, (ii) equity
investments (including investments in preferred and common
stock) and (iii) investments, guarantees and contingent
obligations which are not specifically permitted by
subsections (a) through (i) above or by the foregoing clauses
(i) or (ii) of this subsection (j), provided that, (x) the
aggregate amount of all such investments under this subsection
(j) does not at any time exceed 90% of Net Worth as then
determined and computed, (y) the aggregate amount of the
relevant Borrower's or Subsidiary's initial investment in any
single asset does not exceed $25,000,000 and (z) the
investment in any such asset (computed as of any time
subsequent to the one year anniversary date of the initial
investment in such asset) does not exceed $50,000,000 unless
the Required Banks have consented in writing; and
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(k) acquisitions of all or substantially all of the
assets or business of any other Person or division thereof, or
all or any part of the Voting Stock of or other equity
interest in any Person (including as such an acquisition, any
action to participate as a joint venturer in any joint venture
or as a partner in any partnership), in each case if and so
long as (i) no Default or Event of Default exists or would
exist after giving effect to such acquisition, (ii) the Board
of Directors or other governing body of such Person whose
Property or Voting Stock or other equity interest is being so
acquired has approved the terms of such acquisition and (iii)
such acquisition involves a line of business which is
complementary to the lines of business in which the Borrower
or the Subsidiary, as the case may be, making such acquisition
is engaged on the Effective Date.
In determining the amount of investments, acquisitions, loans,
advances and guarantees permitted under this Section,
investments and acquisitions shall always be taken at the
original cost thereof (regardless of any subsequent
appreciation or depreciation therein), loans and advances
shall be taken at the principal amount thereof then remaining
unpaid, and guarantees shall be taken at the amount of
obligations guaranteed thereby."
1.8. The Attachment to the form of Compliance Certificate
appearing on Exhibit J to the Credit Agreement shall be amended and
restated in its entirety to read as set forth on Annex I attached
hereto.
Section 2. Conditions Precedent.
The effectiveness of this Amendment is subject to the satisfaction of
all of the following conditions precedent:
2.1. The Borrowers and the Required Banks shall have executed
and delivered this Amendment.
2.2. The Borrowers shall have paid to the Agent, for the
ratable benefit of those Banks which have executed this Amendment as of
the date hereof, an amendment fee in an amount agreed to between the
Agent and the Borrowers.
2.3. Legal matters incident to the execution and delivery of
this Amendment shall be satisfactory to the Agent and its counsel.
Section 3. Representations.
In order to induce the Agent and the Banks to execute and deliver this
Amendment, the Borrowers hereby represent to the Agent and the Banks that as of
the date hereof the
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representations and warranties set forth in Section 7 of the Credit Agreement
are and shall be and remain true and correct (except that the representations
contained in Section 7.5 shall be deemed to refer to the most recent financial
statements of the Borrowers delivered to the Agent and the Banks) and the
Borrowers are in compliance with the terms and conditions of the Credit
Agreement and no Default or Event of Default has occurred and is continuing
under the Credit Agreement or shall result after giving effect to this
Amendment.
Section 4. Miscellaneous.
4.1. Except as specifically amended herein, the Credit Agreement shall
continue in full force and effect in accordance with its original terms.
Reference to this specific Amendment need not be made in the Credit Agreement,
the Notes, or any other instrument or document executed in connection therewith,
or in any certificate, letter or communication issued or made pursuant to or
with respect to the Credit Agreement, any reference in any of such items to the
Credit Agreement being sufficient to refer to the Credit Agreement as amended
hereby.
4.2. The Borrowers agree to pay on demand all costs and expenses of or
incurred by the Agent in connection with the negotiation, preparation, execution
and delivery of this Amendment, including the fees and expenses of counsel for
the Agent.
4.3. This Amendment may be executed in any number of counterparts, and
by the different parties on different counterpart signature pages, all of which
taken together shall constitute one and the same agreement. Any of the parties
hereto may execute this Amendment by signing any such counterpart and each of
such counterparts shall for all purposes be deemed to be an original. This
Amendment shall be governed by the internal laws of the State of Illinois.
[Remainder of Page Intentionally Left Blank]
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This Sixth Amendment to Credit Agreement is entered into as of the date
and year first above written.
Arthur J. Gallagher & Co.
By /s/ Jack H. Lazzaro
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Name: Jack H. Lazzaro
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Title: Vice President & Treasurer
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AJG Financial Services, Inc.
By /s/ Jack H. Lazzaro
-----------------------------------
Name: Jack H. Lazzaro
----------------------------
Title: Vice President and CFO
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Accepted and agreed to.
Harris Trust and Savings Bank,
individually and as Agent
By /s/ Len E. Meyer
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Name Len E. Meyer
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Title Vice President
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Citibank, N.A.
By /s/ Peter C. Bickford
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Name Peter C. Bickford
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Title Vice President
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Bank of America, N.A.
By /s/ Mehul Mehta
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Name Mehul Mehta
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Title Vice President
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LaSalle Bank National Association
By /s/ Kyle Freimuth
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Name Kyle Freimuth
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Title Vice President
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The Northern Trust Company
By /s/ Eric Dybing
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Name Eric Dybing
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Title Second Vice President
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