Exhibit 10.7
THIS EIGHTH AMENDMENT TO CREDIT AGREEMENT, dated as of March 28, 2003, is
among:
KINGSWAY FINANCIAL SERVICES INC.
AND KINGSWAY U.S. FINANCE PARTNERSHIP
As Borrowers
AND
The Lenders named herein as Lenders
AND
LASALLE BANK NATIONAL ASSOCIATION,
As Administrative Agent and Co-Syndications Agent
AND
CANADIAN IMPERIAL BANK OF COMMERCE,
As Co-Syndications Agent and Documentation Agent
WHEREAS:
1. Pursuant to a Credit Agreement made as of the 23rd day of February,
1999 among the parties hereto, as subsequently amended (the "Credit Agreement"),
the Lenders and the Agents established certain credit facilities in favour of
the Borrowers;
2. The Agents, the Lenders and the Borrowers have agreed to amend
certain terms and conditions of the Credit Agreement, in the manner hereinafter
set forth;
FOR VALUABLE CONSIDERATION, the parties agree as follows:
ARTICLE I
AMENDMENT TO INTERPRETATION
1.01 Additional Permitted Indebtedness. Section 1.01(84) of the Credit
Agreement is hereby amended by deleting the period found at the end of
sub-section 1.01(84)(xv) and replacing such period with a semi-colon, by adding
the word "and" immediately following the semi-colon and by adding the following
as sub-section 1.01(84)(xvi):
"(xvi) Indebtedness in connection with the issuance of preferred securities
by a Kingsway statutory trust to a pooling vehicle in a pooled trust
preferred transaction as described in the February 7, 2003 letter from
Kingsway to the Administrative Agent and the Documentation Agent
requesting, among other things, this Eighth Amendment to Credit Agreement
(such Indebtedness herein referred to as the "Third Round Trust Pool
Securities") provided that (i) there shall be no redemption of the Third
Round Trust Pool Securities into cash without the prior written consent of
the Majority of the Lenders; (ii) a Default under the Credit Agreement is
not a default or event of default in respect of such Indebtedness and
acceleration of the Outstanding Obligations does not result in an
acceleration of the obligations under the debentures issued in connection
with the Third Round Trust Pool Securities (the "Third Round Trust Pool
Debentures"); (iii) no cash dividends may be paid on the Third Round Trust
Pool Securities or preference shares redeemed so long as a Default or Event
of Default under the Credit Agreement has occurred and is continuing; and
(iv) the terms and conditions of the Third Round Trust Pool Securities are
otherwise satisfactory to the Majority of the Lenders, provided that the
aggregate Indebtedness pursuant to the Third Round Trust Pool Debentures
does not exceed US $20,000,000."
1.02 Amendment to the Definition of Funded Debt. Sub-section 1.01(41) of the
Credit Agreement is hereby amended by deleting it in its entirety and replacing
it with the following:
""Funded Debt" means the aggregate Indebtedness of the Borrowers on a
Consolidated basis including, without limitation: (i) Capitalized Lease
Obligations, (ii) Purchase Money Obligations, (iii) contingent liabilities
under outstanding letters of credit (excluding undrawn letters of credit
the beneficiary of which is a Borrower, Guarantor, any Subsidiary of a
Borrower, State National Specialty Insurance Company Inc., State and County
Mutual Insurance Company or General Reinsurance Corporation), and (iv) all
principal and interest and all fees incurred in respect of such
Indebtedness; and, for greater certainty, for the purposes of calculating
the ratio of Total Funded Debt to Total Capitalization pursuant to
sub-section 8.02(1), "Funded Debt" shall exclude the gross proceeds of the
offerings of the Trust I Debentures, the Trust II Debentures, the Second
Round Trust Pool Debentures and Third Round Trust Pool Debentures."
1.03 Amendment to the Definition of Total Capitalization. Sub-section 1.01(103)
of the Credit Agreement is hereby amended by deleting it in its entirety and
replacing it with the following:
""Total Capitalization" means without duplication the aggregate of (i)
Funded Debt, (ii) the proceeds of the offering of the Trust I Preferred
Securities, the Trust II Preferred Securities, the Second Round Trust Pool
Securities and the Third Round Trust Pool Securities, plus (iii)
shareholders equity, all of which shall be calculated on a Consolidated
basis in accordance with GAAP."
-2-
ARTICLE II
AMENDMENT TO COVENANTS
1.04 Amendment to Capital Surplus Ratio Covenant. Sub-section 8.02(2) of the
Credit Agreement is hereby deleted in its entirety and replaced with the
following:
"Capital Surplus Ratio. Kingsway shall maintain at all times a Capital
Surplus Ratio on a Consolidated basis calculated quarterly on the last day
of each fiscal quarter of Kingsway on a rolling four-quarter basis as
follows:
(i) of not greater than 2.75:1.00, from the Closing Date to and including
June 30, 2002;
(ii) of not greater than 3.50:1.00, from July 1, 2002 to and including the
earlier of: (A) May 27, 2003 or (B) 10 (ten) Business Days day following
the closing date (the "Closing Date") of the public offering of trust
preferred securities of Kingsway Financial Capital Trust I, a Delaware
statutory trust;
(iv) of not greater than 3.25:1.00, from the earlier of: May 27, 2003 or
the Closing Date to and including June 30, 2003; and
(iv) not greater than 3.00:1.00, thereafter."
2.01 Amendment to Funded Debt to Total Capitalization Ratio Covenant.
Sub-section 8.02(1) of the Credit Agreement is hereby amended by deleting it in
its entirety and replacing it with the following:
"Kingsway shall maintain at all times a ratio of Funded Debt to Total
Capitalization on a Consolidated basis of not greater than 0.30:1.00
calculated quarterly on the last day of each fiscal quarter of Kingsway;
provided that, for the purposes of this covenant only, neither the Trust I
Debentures nor the Trust II Debentures nor the Second Round Trust Pool
Debentures nor the Third Round Trust Pool Debentures shall be included in
the calculation of Funded Debt but the Trust I Debentures, Trust II
Debentures, the Second Round Trust Pool Debentures and Third Round Trust
Pool Debentures shall be included in the calculation of Total
Capitalization."
2.02 Amendment to Minimum Tangible Net Worth Covenant. Sub-section 8.02(3) of
the Credit Agreement is hereby amended by deleting the sentence at the end of
such sub-section and adding the following sentence at the end of such
sub-section:
"For greater certainty, the proceeds of the Trust I Preferred Securities,
the Trust II Preferred Securities, the Second Round Trust Pool Securities
issuances and the Third Round Trust Pool Securities issuance shall not be
included in the calculation of Minimum Tangible Net Worth."
-3-
2.03 Amendment to No Guarantees Covenant. Sub-section 8.03(5) of the Credit
Agreement is hereby amended by: (A) deleting the word "and" at the end of
sub-section 8.03(5)(vii), and all of sub-section (viii); and (B) inserting the
following immediately after sub-section 8.03(5)(vii):
"(viii) the Guarantees issued by Kingsway and the Guarantor in connection
with the Third Round Trust Pool Securities issuance; and
(ix) as otherwise permitted hereunder."
2.04 Amendment to Material Contracts Covenant. Sub-section 8.03(7) is hereby
amended by deleting it in its entirety and replacing it with the following:
"(7) Material Contracts. Neither Borrower, nor the Guarantor nor any of the
Subsidiaries shall cancel or terminate any material contract or amend or
otherwise modify any material contract, or waive any default or breach
under any material contract, or take any other action in connection with
any material contract that could reasonably be expected to have a Material
Adverse Effect. By way of example and not in limitation of the foregoing,
the Borrowers will not consent to, enter into or permit the entering into
of any amendment, supplement or other modification of any of the terms or
provisions contained in, or applicable to: (a) any documents relating to
preferred stock issued by any Borrower, the Guarantor or any of their
Subsidiaries, (b) documents relating to any warrant or option granted by
either Borrower, the Guarantor or any of their Subsidiaries, if the effect
of such amendment, supplement or other modification is to impose or
increase any monetary obligation on any Borrower, the Guarantor or any of
their Subsidiaries, (c) any constating documents of either Borrower, the
Guarantor or any of their Subsidiaries, other than any such amendment,
supplement or other modification which is immaterial or which could not
reasonably be expected to result in a Material Adverse Effect, or (d) any
material documents relating to the Trust I Preferred Securities issuance,
the Trust II Preferred Securities issuance, the Second Round Trust Pool
Securities issuances and the Third Round Trust Pool Securities issuance."
2.05 Amendment to Restricted Payments Covenant. Sub-section 8.03(14) of the
Credit Agreement is hereby amended by deleting subclause (b) in its entirety and
replacing it with the following:
"(b) The Borrowers will not, and will not permit or cause the Guarantor or
any of the Subsidiaries to:
(i) make (or give any notice in respect of) any voluntary or optional
payment or prepayment of principal on any Subordinated Debt, or
directly or indirectly make any redemption (including pursuant to any
change of control provision), retirement,
-4-
defeasance or other acquisition for value of any Subordinated Debt, or
make any deposit or otherwise set aside funds for any of the foregoing
purposes; or
(ii) make any payment of principal or interest in respect of the Trust
I Debentures, the Trust II Debentures, the Second Round Trust Pool
Debentures or the Third Round Trust Pool Debentures following the
occurrence of an Event of Default which is continuing or make any such
payment if the making of such payment would result in the occurrence
of a Default or Event of Default."
ARTICLE III
CONDITIONS PRECEDENT TO THIS AGREEMENT
3.01 Conditions Precedent. The amendment set forth in Section 1.04 of this
Eighth Amendment to Credit Agreement shall become effective as of December 31,
2002 upon the execution and delivery of this Eighth Amendment to Credit
Agreement by the Borrowers and the Majority of the Lenders and the receipt by
each Lender executing this Eighth Amendment to Credit Agreement of a US $10,000
amendment fee. The amendments set forth in this Eighth Amendment to Credit
Agreement, other than the amendment set forth in Section 1.04 shall not become
effective until (a) the execution and delivery of this Eighth Amendment to
Credit Agreement by the Borrowers and the Majority of the Lenders and (b) the
receipt by the Agent of (i) all material documentation as determined by the
Agent in its sole discretion relating to the Third Round Trust Pool Securities
issuance, including, without limitation, all materials filed with any securities
commission, containing terms and conditions satisfactory to the Agent and the
Majority of the Lenders; and (ii) an intercreditor agreement with the holders of
the Third Round Trust Pool Debentures or such other evidence of subordination as
may be satisfactory to the Agent and the Majority of the Lenders in respect of
the obligations of the Borrowers, the Guarantor or their Subsidiaries to the
holders of the Third Round Trust Pool Debentures, to acknowledge, among other
things, for subordination of the obligations of the Borrowers, the Guarantor and
the Subsidiaries in connection with the Third Round Trust Pool Debentures to the
payment in full of the Outstanding Obligations.
ARTICLE IV
MISCELLANEOUS
4.01 Nature of Amendments and Defined Terms. It is acknowledged and agreed that
the terms of this Eighth Amendment to Credit Agreement are in addition to and,
unless specifically provided for, shall not limit, restrict, modify, amend or
release any of the understandings, agreements or covenants as set out in the
Credit Agreement. The Credit Agreement shall henceforth be read and construed in
conjunction with this Eighth Amendment to Credit Agreement and the Credit
Agreement together with all of the powers, provisions, conditions, covenants and
agreements contained or implied in the Credit
-5-
Agreement shall be and shall continue to be in full force and effect. References
to the "Credit Agreement" or the "Agreement" in the Credit Agreement or in any
other document delivered in connection with, or pursuant to, the Credit
Agreement, shall mean the Credit Agreement, as amended hereby. Capitalized terms
utilized in this agreement but not defined in this Agreement shall have the
meanings ascribed to such terms in the Credit Agreement.
4.02 Assignment. This Eighth Amendment to Credit Agreement shall enure to the
benefit of and be binding upon the parties hereto and their respective
successors and assigns but shall not be assignable by the Borrowers or either of
them without the prior written consent of the Agents and Lenders.
4.03 Severability. Any provision of this Eighth Amendment to Credit Agreement
which is prohibited or unenforceable in any jurisdiction shall not invalidate
the remaining provisions hereof and any such prohibition or unenforceability in
any jurisdiction shall not invalidate or render unenforceable such provision in
any other jurisdiction.
4.04 Governing Law. This Eighth Amendment to Credit Agreement shall be governed
by and construed in accordance with the laws of the Province of Ontario and the
laws of Canada applicable therein and shall be treated in all respects as an
Ontario contract and the parties hereby submit and attorn to the non-exclusive
jurisdiction of the courts of the Province of Ontario.
4.05 Further Assurances. The Borrowers shall from time to time and at all times
hereafter, upon every reasonable request from the Agents or the Lenders, make,
do, execute and deliver or cause to be made, done, executed and delivered, all
such further acts, deeds and assurances and things as may be necessary in the
opinion of the Agents for more effectually implementing and carrying out the
true intent and meaning of this Sixth Credit Amending Agreement.
4.06 Counterparts. This Eighth Amendment to Credit Agreement may be executed in
any number of counterparts, each of which shall constitute an original and all
of which, taken together, shall constitute one and the same agreement.
-6-
IN WITNESS WHEREOF the parties hereto have executed this Eighth Amendment
to Credit Agreement.
KINGSWAY FINANCIAL SERVICES INC.
By: /s/ William G. Star
-------------------------------------
William G. Star
President & Chief Executive Officer
By: /s/ W. Shaun Jackson
-------------------------------------
W. Shaun Jackson
Executive Vice President &
Chief Financial Officer
KINGSWAY U.S. FINANCE PARTNERSHIP
by its Partners
KINGSWAY FINANCIAL SERVICES INC.
By: /s/ W. Shaun Jackson
-------------------------------------
W. Shaun Jackson
Executive Vice President &
Chief Financial Officer
METRO CLAIM SERVICES INC.
By: /s/ W. Shaun Jackson
-------------------------------------
W. Shaun Jackson
Secretary
-7-
CANADIAN IMPERIAL BANK OF COMMERCE
By: /s/ Patti Perras Shugart
-------------------------------------
Patti Perras Shugart
Managing Director
By: /s/ Ralph Sehgal
-------------------------------------
Ralph Sehgal
Executive Director
LASALLE BANK NATIONAL ASSOCIATION
By: /s/ Brad Kronland
-------------------------------------
Brad Kronland
Assistant Vice President
LASALLE BANK NATIONAL ASSOCIATION,
AS ADMINISTRATIVE AGENT
By: /s/ Brad Kronland
-------------------------------------
Brad Kronland
Assistant Vice President
CANADIAN IMPERIAL BANK OF COMMERCE,
AS DOCUMENTATION AGENT
By: /s/ Warren Lobo
-------------------------------------
Warren Lobo
Director
By: /s/ Ralph Sehgal
-------------------------------------
Ralph Sehgal
Executive Director
CANADIAN IMPERIAL BANK OF COMMERCE
NEW YORK AGENCY
By: /s/ Geraldine Kerr
-------------------------------------
Geraldine Kerr
Executive Director, CIBC World Markets
Corp. As Agent
-8-
THE BANK OF NOVA SCOTIA
By: /s/ William E. Zarrett
-------------------------------------
William E. Zarrett
Managing Director
WACHOVIA BANK, NATIONAL ASSOCIATION
By: /s/ Kimberly Shaffer
--------------------------------------
Kimberly Shaffer
Director
-9-