Exhibit 10.12
THIS SECOND AMENDMENT TO THE AMENDED CREDIT AGREEMENT made as of the 31st
day of August, 2003.
A M O N G:
KINGSWAY FINANCIAL SERVICES INC.
AND KINGSWAY U.S. FINANCE PARTNERSHIP
As Borrowers
AND
The Lenders named herein as Lenders
AND
CANADIAN IMPERIAL BANK OF COMMERCE,
As Administrative Agent
AND
LASALLE BANK NATIONAL ASSOCIATION,
As Syndication Agent
WHEREAS:
1. Pursuant to an Amended Credit Agreement made as of the 27th day
of May, 2003 among the parties hereto as amended by a First Amendment to the
Amended Credit Agreement dated as of the 26th day of June, 2003 (collectively,
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 Amendment to the Definition of Funded Debt. Section 1.01(55) of the
Credit Agreement is hereby deleted in its entirety and replaced with the
following:
"(55) "Funded Debt" means the aggregate Indebtedness for borrowed
money of the Canadian Borrower on a Consolidated basis
including, without limitation: (i) Capitalized
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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, Kingsway America, any Subsidiary of a Borrower, State
National Specialty Insurance Company Inc., State and County Mutual
Insurance Company, General Reinsurance Corporation, Mutual Service
Insurance or Fairfield Insurance Company), and (iv) all principal,
interest and 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 Debentures, Trust Pool
Debentures, Second Round Trust Pool Debentures, Third Round Trust
Pool Debentures and Fourth Round Trust Pool Debentures (each as
defined in Section 1.01(93) below."
1.02 Additional Permitted Indebtedness. Section 1.01(93) of the Credit
Agreement is hereby amended by deleting the word "and" at the end of sub-section
1.01(93)(s), by deleting the period found at the end of sub-section 1.01(93)(t)
and replacing such period with a semi-colon, by adding the word "and"
immediately following such semi-colon and by adding the following sub-section
1.01(93)(u):
"(u) Indebtedness of the Canadian Borrower, Kingsway America and
certain of their Subsidiaries in connection with the issuance,
pursuant to one or more transactions, of preferred securities to
one or more pooling vehicles by any one of up to four statutory
trusts (collectively, the "Fourth Round Statutory Trusts") each of
which are directly or indirectly owned by the Canadian Borrower
(such Indebtedness herein collectively referred to as the "Fourth
Round Trust Pool Securities"), provided that:
(i) there shall be no cash redemption of any of the Fourth
Round Trust Pool Securities without the prior written
consent of the Majority of the Lenders;
(ii) a Default or Event of 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 any of the debentures issued in
connection with any of the Fourth Round Trust Pool
Securities (collectively, the "Fourth Round Trust Pool
Debentures") or any Guarantees issued in connection with
any of the Fourth Round Trust Pool Debentures;
(iii) no cash dividends or other cash payments may be paid on or
in respect of any of the Fourth Round Trust Pool Securities
so long as a Default or Event of Default under the Credit
Agreement has occurred and is continuing;
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(iv) the terms and conditions pertaining to each of the Fourth
Round Trust Pool Securities are otherwise satisfactory to
the Majority of the Lenders;
(v) the Administrative Agent shall have received: (A) all
material documentation as determined by the Administrative
Agent in its sole discretion relating to all of the Fourth
Round Trust Pool Securities and the Fourth Round Trust Pool
Debentures, including, without limitation, all materials
filed with any securities commission, and the
Administrative Agent and the Lenders shall be satisfied
with the terms and conditions thereof, and (B) executed
intercreditor agreements with the holders of the Fourth
Round Trust Pool Securities and the Fourth Round Trust Pool
Debentures satisfactory to the Administrative Agent or such
other evidence of subordination as may be satisfactory to
the Administrative Agent and the Lenders in respect of the
obligations of the Borrowers, Kingsway America and their
Subsidiaries to the holders of the Fourth Round Trust Pool
Securities and the Fourth Round Trust Pool Debentures, to
provide, among other things, for subordination of all of
the Fourth Round Trust Pool Securities and the Fourth Round
Trust Pool Debentures to the payment in full of the
Outstanding Obligations;
(vi) None of the Fourth Round Statutory Trusts shall incur any
debts, liabilities or obligations other than the reasonable
fees and expenses of the trustees under the Fourth Round
Trust Pool Debentures (acting solely in their capacity as
trustee and not in their individual capacity) and the
principal, premium (if any) and interest in respect of the
Fourth Round Trust Pool Securities; and
(vii) the aggregate Indebtedness in respect of all of the Fourth
Round Trust Pool Securities does not exceed U.S.
$65,000,000 in aggregate, without the prior written consent
of the Majority of the Lenders."
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1.03 Amendment to the Definition of Total Capitalization. Section 1.01(117) of
the Credit Agreement is hereby deleted in its entirety and replaced with the
following:
"(117) "Total Capitalization" means, without duplication, the sum of:
(i) Funded Debt; plus (ii) shareholders equity including, for
greater certainty, the gross proceeds of the offerings of the
Trust Preferred Securities, Trust Pool Securities, Second Round
Trust Pool Securities, Third Round Trust Pool Securities and
Fourth Round Trust Pool Securities (each as defined in Section
1.01(93)); all of which shall be calculated in respect of the
Canadian Borrower on a Consolidated basis in accordance with
GAAP."
1.04 Amendment to the Definition of Trusts. Section 1.01(120) of the Credit
Agreement is hereby deleted in its entirety and replaced with the following:
"(120) "Trusts" means, collectively, Kingsway Financial Capital Trust I,
Kingsway Connecticut Statutory Trust I, Kingsway Connecticut
Statutory Trust II, Kingsway Delaware Statutory Trust III, each
of the Fourth Round Statutory Trusts, and any successors
thereof."
ARTICLE II
AMENDMENT TO COVENANTS AND OTHER PROVISIONS AND SCHEDULES
2.01 Amendment to the Business of Subsidiaries Covenant. Section 8.01(27) of
the Credit Agreement is hereby amended by deleting the word "and" at the end of
sub-section 8.01(27)(iv), by deleting the period found at the end of sub-section
8.01(27)(v) and replacing such period with a comma, by adding the word "and"
immediately following such comma and by adding the following sub-section
8.01(27)(vi):
"(vi) None of the Fourth Round Statutory Trusts have any assets or
liabilities (other than ownership of the Fourth Round Trust Pool
Debentures and liabilities pursuant to the Fourth Round Trust
Pool Securities) and none of the Fourth Round Statutory Trusts
have performed any business other than preparing for and
administering the transactions in relation to the Fourth Round
Trust Pool Securities issued by it."
2.02 Amendment to Funded Debt to Total Capitalization Ratio. Section 8.02(1)
of the Credit Agreement is hereby deleted in its entirety and replaced with the
following:
"Funded Debt to Total Capitalization Ratio. The Canadian Borrower 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 the Canadian Borrower; provided
that, for the purposes of this covenant only, neither the Debentures nor
the Trust Pool
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Debentures nor the Second Round Trust Pool Debentures nor the Third Round
Trust Pool Debentures nor the Fourth Round Trust Pool Debentures shall be
included in the calculation of Funded Debt but the Debentures, Trust Pool
Debentures, Second Round Trust Pool Debentures, Third Round Trust Pool
Debentures and Fourth Round Trust Pool Debentures shall be included in
the calculation of Total Capitalization."
2.03 Amendment to Minimum Tangible Net Worth Covenant. Section 8.02(2) of the
Credit Agreement is hereby amended by deleting reference therein to
"$300,000,000" and replacing such reference with "$337,000,000" and by deleting
the last sentence of Section 8.02(2) of the Credit Agreement in its entirety and
replacing such sentence with the following:
"For the purposes of this Section 8.02(2), the calculation of Tangible
Net Worth shall exclude the gross proceeds of the offerings of the Trust
Preferred Securities, Trust Pool Securities, Second Round Trust Pool
Securities, Third Round Trust Pool Securities, Fourth Round Trust Pool
Securities and any other preferred securities issued by the Canadian
Borrower or any of its Subsidiaries (including, without limitation, any
of the Trusts)."
2.04 Amendments to No Guarantees Covenant. Section 8.03(5) of the Credit
Agreement is hereby amended by:
(a) deleting sub-section 8.03(5)(j) of the Credit Agreement in its
entirety and replacing such sub-section with the following:
"(j) the Guarantees issued by the Canadian Borrower and Kingsway
America (in form and substance satisfactory to the Lenders) in
connection with the Trust Preferred Securities, Debentures,
Trust Pool Securities, Trust Pool Debentures, Second Round
Trust Pool Securities, Second Round Trust Pool Debentures,
Third Round Trust Pool Securities, Third Round Trust Pool
Debentures, Fourth Round Trust Pool Securities and Fourth
Round Trust Pool Debentures;"; and
(b) deleting the period found at the end of sub-section 8.03(5)(k) and
replacing such period with a semi-colon, by adding the word "and"
immediately following such semi-colon and by adding the following
sub-section 8.03(5)(l):
"(l) the Guarantee issued by the Canadian Borrower (in form and
substance satisfactory to the Lenders) in support of a
reinsurance agreement between Lincoln General Insurance
Company and Clarendon Insurance Company."
2.05 Amendment to Material Contracts Covenant. Sub-section 8.03(7)(d) of the
Credit Agreement is hereby deleted in its entirety and replaced with the
following:
"(d) any documents relating to the Trusts including, without limitation,
the Debenture Indebtedness, the Debenture Offering, the Trust
Preferred Securities, the Debentures,
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the Trust Pool Securities, the Trust Pool Debentures, the Second
Round Trust Pool Securities, the Second Round Trust Pool
Debentures, the Third Round Trust Pool Securities, the Third Round
Trust Pool Debentures, the Fourth Round Trust Pool Securities, the
Fourth Round Trust Pool Debentures and any declarations of trust,
indemnities, indentures, guarantees and other documents, agreements
and instruments in connection therewith."
2.06 Amendment to Restricted Payments Covenant. Sub-section 8.03(14)(b)(ii) of
the Credit Agreement is hereby deleted in its entirety and replaced with the
following:
"(ii) make any payment (including, without limitation, any payment of
principal, premium (if any) or interest) in respect of the
Debentures, the Trust Preferred Securities, the Trust Pool
Debentures, the Trust Pool Securities, the Second Round Trust Pool
Debentures, the Second Round Trust Pool Securities, the Third Round
Trust Pool Debentures, the Third Round Trust Pool Securities, the
Fourth Round Trust Pool Debentures, the Fourth Round Trust Pool
Securities or any other securities issued by any Borrower, Kingsway
America or any of their Subsidiaries or any guarantees or
indemnities in respect thereof following the occurrence of a
Default or an Event of Default or make any such payment if the
making of such payment would result in the occurrence of a Default
or Event of Default."
2.07 Amendment to Redemption of Preferred Securities Covenant. Section
8.03(18) of the Credit Agreement is hereby deleted in its entirety and replaced
with the following:
"(18) Redemption of Preferred Securities. Without the prior written
consent of the Majority of the Lenders, neither Borrower, nor
Kingsway America nor any of their Subsidiaries shall redeem any of
the Trust Preferred Securities, Trust Pool Securities, Second Round
Trust Pool Securities, Third Round Trust Pool Securities, Fourth
Round Trust Pool Securities or any other securities issued by any
Borrower, Kingsway America or any of their Subsidiaries."
2.08 Amendment to Section 9.01(9). Section 9.01(9) of the Credit Agreement is
hereby amended by deleting reference therein to "0 through (f)" and replacing
such reference with "(a) through (f)".
2.09 Amendment to Sections 10.18 and 10.19. Section 10.18 of the Credit
Agreement is hereby amended by deleting reference therein to "notice of
participation and undertaking described in" and replacing such reference with
"assignment and acceptance agreement pursuant to" and Section 10.19 of the
Credit Agreement is hereby amended by deleting reference therein to "assignment
and acceptance" and replacing such reference with "executed assignment and
acceptance agreement".
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2.10 Amendment to Survival Section. Section 10.22 of the Credit Agreement is
hereby amended by deleting reference therein to "Section 5.05" and replacing
such reference with "Section 5.07".
2.11 Amendment to Schedule "D". Paragraph 2(x)(ii) contained in Schedule "D"
of the Credit Agreement is hereby amended by adding the words "and Fourth Round
Trust Pool Debentures" immediately following the words "Third Round Trust Pool
Debentures" therein.
2.12 Amendment to Schedule "L". Schedule "L" of the Credit Agreement (and
Schedule I thereto) is hereby amended by deleting all references therein to
"Transfer Closing Date" and replacing all such references with "Transfer
Effective Date" and by deleting reference to "Section 9.04" in Schedule I
thereto and replacing such reference with "Section 10.18".
ARTICLE III
CONDITIONS PRECEDENT TO THIS AGREEMENT
3.01 Conditions Precedent.
This Second Amendment to the Amended Credit Agreement shall not come into effect
and the Credit Agreement shall not be amended to reflect the amendments
contemplated herein until the Administrative Agent shall have received to its
satisfaction:
(i) this Agreement executed by all of the parties hereto;
(ii) only with respect to the effectiveness of Section 2.04(b) above
and the amendment contemplated therein, copies, certified by the
Chief Financial Officer of the Canadian Borrower, of the executed
guarantee agreement between Lincoln General Insurance Company and
the Canadian Borrower together with the executed applicable
reinsurance agreement between Lincoln General Insurance Company
and Clarendon Insurance Company; and
(iii) such other documentation as the Administrative Agent and the
Lenders shall reasonably require to effect the amendments
contemplated in this Second Amendment to the Amended Credit
Agreement.
ARTICLE IV
MISCELLANEOUS
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4.01 Nature of Amendments and Defined Terms. It is acknowledged and agreed that
the terms of this Second Amendment to the Amended 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 Second Amendment to the Amended Credit
Agreement and the Credit Agreement together with all of the powers, provisions,
conditions, covenants and agreements contained or implied in the Credit
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 Second Amendment to the Amended 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 Second Amendment to the Amended 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 Second Amendment to the Amended 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 Second Amendment to the Amended Credit
Agreement.
4.06 Counterparts. This Second Amendment to the Amended 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.
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IN WITNESS WHEREOF the parties hereto have executed this Second
Amendment to the Amended Credit Agreement.
KINGSWAY FINANCIAL SERVICES INC.
By: /s/ William G. Star
---------------------------------
William G. Star
President and Chief Financial 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/ William G. Star
---------------------------------
William G. Star
President and Chief Financial Officer
By: /s/ W. Shaun Jackson
---------------------------------
W. Shaun Jackson
Executive Vice President & Chief
Financial Officer
METRO CLAIM SERVICES INC.
By: /s/ William G. Star
---------------------------------
William G. Star
President
By: /s/ W. Shaun Jackson
---------------------------------
W. Shaun Jackson
Secretary
CANADIAN IMPERIAL BANK OF COMMERCE,
AS CANADIAN LENDER
By: /s/ Ralph Sehgal
---------------------------------
Ralph Sehgal
Executive Director
By: /s/ Patti Perras Shugart
---------------------------------
Patti Perras Shugart
Executive Director
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HSBC BANK CANADA,
AS CANADIAN LENDER
By: /s/ Martin J. Haythorne
--------------------------------
Martin J. Haythorne
Assistant Vice President
Corporate, Investment Banking & Markets
By: ________________________________
Name:
Title:
LASALLE BANK NATIONAL ASSOCIATION,
AS U.S. LENDER
By: /s/ Bradley J. Kronland
--------------------------------
Bradley J. Kronland
Assistant Vice President
By: /s/ Robert Frentzel
--------------------------------
Robert Frentzel
Senior Vice President
CANADIAN IMPERIAL BANK OF COMMERCE,
NEW YORK AGENCY, AS U.S. LENDER
By: /s/ Geraldine Kerr
--------------------------------
Geraldine Kerr
Executive Director
By: ________________________________
Name:
Title:
CANADIAN IMPERIAL BANK OF COMMERCE,
AS ADMINISTRATIVE AGENT
By: /s/ Ralph Sehgal
--------------------------------
Ralph Sehgal
Executive Director
By: /s/ Warren Lobo
--------------------------------
Warren Lobo
Director
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LASALLE BANK NATIONAL ASSOCIATION,
AS SYNDICATION AGENT
By: /s/ Bradley J. Kronland
------------------------------
Bradley J. Kronland
Assistant Vice President
By: /s/ Robert Frentzel
------------------------------
Robert Frentzel
Senior Vice President