THIS LOAN
AGREEMENT (this “Agreement”) is entered into as of
July 17, 2009, by and between ASSURANCEAMERICA
CORPORATION, a Nevada corporation (the “Borrower”),
and WACHOVIA BANK, NATIONAL ASSOCIATION
(“Lender”).
Borrower has
requested that Lender extend a $1,500,000.00 revolving line of
credit to Borrower and Lender has agreed to provide such Loan
Facility to Borrower on the terms and conditions contained
herein.
NOW, THEREFORE,
for valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Lender and Borrower hereby agree as
follows:
SECTION 1.1. THE
LOAN FACILITY.
(i) Subject
to the terms and conditions of this Agreement, including, without
limitation, the Post-Closing Funding Conditions (defined in
Section 2.1(e) below), Lender hereby agrees to make advances
to Borrower under a revolving loan facility from time to time from
the date of this Agreement (the “Closing Date”) through
July 16, 2010, (the “Maturity Date”), in the
aggregate principal amount not exceeding ONE MILLION FIVE HUNDRED
THOUSAND AND NO/100 U.S. DOLLARS ($1,500,000.00) (the
“Revolving Loan Facility”; the Revolving Loan Facility,
along with all other financial accommodations provided by the
Lender to the Borrower under the terms of this Agreement from time
to time, the “Loan Facility”). The proceeds of the Loan
Facility shall be used as follows: (i) advances to fund
Permitted Acquisitions (defined on Schedule 1.1 attached
hereto) and (ii) otherwise solely for Borrower’s working
capital needs in the ordinary course of business and general
corporate needs in the ordinary course of business from time to
time. The principal amount of the Loan Facility outstanding at any
time shall be evidenced by a revolving loan note issued by Borrower
payable to the order of Lender dated as of even date herewith (as
amended or otherwise modified from time to time,
“Note”). Borrower may borrow, prepay and reborrow
advances under the Loan Facility at any time through but not
including the Maturity Date.
(ii) Interest
shall accrue on the unpaid principal balance of each advance under
the Loan Facility from the date of such advance at the Interest
Rate (defined below).
“Interest
Rate” means LIBOR (defined below) plus the Margin (defined
below).
“LIBOR”
means for any day of determination, the rate for 90 day U.S.
dollar deposits as reported on Reuters Screen LIBOR01 Page (or any
successor page) as of 11:00 a.m., London time, on such day, or
if such day is not a London business day, then the immediately
preceding London business day (or if not so reported, then as
determined by Lender from another recognized source or interbank
quotation). LIBOR will be adjusted by Lender on the first (1st) day
of every month (the “Adjustment Date”) and remain fixed
until the next Adjustment Date. If the Adjustment Date in any
particular month would otherwise fall on a day that is not a
business day on which Lender is open for business (a
“Business Day”), then, the Adjustment Date for that
particular month will be the first Business Day immediately
following thereafter.
“Margin”
means 3.00% per annum.
(iii) Interest
shall be due and payable monthly, in arrears, commencing on
September 1, 2009, and continuing on the same day of each and
every month thereafter until the Loan Facility is paid in
full.
(iv) Unless
sooner paid, the entire outstanding principal balance of the Loan
Facility, all accrued but unpaid interest thereon and all accrued
but unpaid fees payable under Section 1.5 hereof, shall be due
and payable in full on the Maturity Date.
(v) Borrower
may terminate the Loan Facility in its entirety effective
30 days after giving Lender written notice as required by this
Agreement, which notice shall be irrevocable when sent. On the
effective date of such notice to Lender, Borrower shall pay the
entire outstanding principal balance thereof, all accrued but
unpaid interest of the Loan Facility and all accrued but unpaid
fees payable under Section 1.5 hereof.
SECTION 1.2.
ADVANCES AND PAYMENT MECHANICS.
(a) Advances
under the Loan Facility to Borrower will be evidenced by the Note.
Advances made on the Closing Date shall be advanced in accordance
with the terms of a pay proceeds letter satisfactory to Lender in
form and substance in all respects (the “Pay Proceeds
Letter”). Advances under the Loan Facility made after the
Closing Date shall be made by Borrower’s written request
therefore, provided, however, Lender, in its sole discretion, is
hereby authorized to make advances under the Loan Facility upon
telephonic communication of the borrowing request from any person
representing himself or herself to be a duly authorized officer or
a representative of Borrower or any other method approved by Lender
in addition to a written request. If requested by Lender, each such
telephonic request for borrowing shall be confirmed by Borrower in
a writing delivered to Lender no later than five (5) days
thereafter; provided, however, that the absence of such written
confirmation shall in no way diminish Borrower’s liability to
repay each such advance. Unless otherwise provided in the Pay
Proceeds Letter or any borrowing request hereunder, Borrower
authorizes and directs Lender that any advance hereunder may be
made by means of a credit to account no. WBCS 2000032589966 with
Lender.
(b) All
payments due under this Agreement, the Note and the other Loan
Documents (defined below) shall be payable at the office of the
Lender located under its signature to this Agreement, or such other
place as Lender may direct in writing in accordance with the notice
procedure set forth in Section 7.2 hereof. Whenever any
payment to be made hereunder or under any other Loan Document shall
be stated to be due and payable on a day which is not a Business
Day, such payment shall be made on the next succeeding Business
Day.
(c) Interest
hereunder shall be computed on the basis of a 360-day year for the
actual number of days in the applicable period (“Actual/360
Computation”). The Actual/360 Computation determines the
annual effective yield by taking the stated (nominal) rate for
a year’s period and then dividing said rate by 360 to
determine the daily periodic rate to be applied for each day in the
applicable period. Application of the Actual/360 Computation
produces an annualized effective interest rate exceeding the
nominal rate. If at any time the effective interest rate of the
Loan Facility would, but for this paragraph, exceed the maximum
lawful rate, the effective interest rate under the Loan Facility
shall be the maximum lawful rate, and any amount received by Lender
in excess of such rate shall be applied to principal and then to
fees and expenses, or, if no such amounts are owing, returned to
Borrower.
(d) If an
Event of Default (defined in Section 6.1 below) occurs and as
long as such Event of Default continues, all outstanding principal,
interest and all other amounts and obligations owed under the Loan
Facility shall bear interest at a rate per annum which is 3.00%
higher than the then current Interest
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Rate
(“Default Rate”). The Default Rate shall also apply
from acceleration until the all such amounts and obligations or any
judgment thereon is paid in full.
SECTION 1.3.
COLLATERAL; OBLIGATIONS. The following constitutes collateral
security for all Obligations (defined below) owed by Borrower to
Lender (collectively, the “Collateral”): a first
priority security interest in, and lien against, all stock or other
equity interests Borrower and Trustway Insurance Agencies, LLC
(“Trustway”) holds or may obtain in and to its existing
and future subsidiaries (other than (i) the Immaterial
Subsidiaries, (ii) AssuranceAmerica Insurance Company
(“AAIC”) and (iii) AssuranceAmerica Capital Trust
I (“AACT”)) as set forth in the Pledge Agreement
(defined below), and all other collateral security granted in favor
of Lender under the terms of the Pledge Agreement or other security
instruments from time to time, subject solely to liens expressly
permitted by the terms of the Loan Documents (including
Section 5.3 hereof). Borrower shall reimburse Lender
immediately upon demand for all reasonable and actual costs and
expenses incurred by Lender in connection with the maintenance of
any of the Collateral, including without limitation, incurred by
Lender in connection with the filing and recording fees,
recordation and intangibles taxes, costs of appraisals, title
insurance and field exams relating to the Collateral or, during the
occurrence and continuance of an Event of Default, the maintenance
of the Collateral. The security interest in and liens against the
Collateral created by the Loan Documents shall terminate when all
of the Obligations have been paid in full (other than Cash
Management Obligations that continue after the termination of the
Loan Facility) and all of Lender’s commitments to make
advances under the Loan Facility are terminated.
“Obligations”
means all of the following owed by Borrower to Lender and its
affiliates from time to time: (i) all principal owed by
Borrower with respect to the Loan Facility from time to time,
(ii) all accrued and unpaid interest on such principal owed by
Borrower with respect to the Loan Facility from time to time,
(iii) all fees and other obligations owed by Borrower under
this Agreement, the Note and the other Loan Documents from time to
time, (iv) all obligations of Borrower to Lender or any of its
affiliates from time to time under any swap agreements (as defined
in 11 U.S.C. § 101, as in effect from time to time) relating
to the Loan Facility and (v) all Cash Management Obligations.
“Cash Management Obligations” means all ACH
obligations, cash management and other treasury obligations and
credit card obligations owed by Borrower to Lender from time to
time.
SECTION 1.4.
PATRIOT ACT NOTICE. To help fight the funding of terrorism and
money laundering activities, applicable Federal law requires all
financial institutions to obtain, verify, and record information
that identifies each person or entity who opens an account. For
purposes of this section, account shall be understood to include
loan accounts.
(a) All fees
payable to the Lender under this Agreement shall be (i) unless
earned sooner in accordance with the terms of this Agreement, fully
earned upon payment thereof and (ii) non-refundable upon payment
thereof.
(b) Borrower
shall pay to Lender a non-refundable, fully earned origination fee
in the amount of $5,625.00 payable on the Closing Date.
(c) Borrower
shall pay to Lender an unused line fee with respect to the
Revolving Loan Facility for each day equal to the product of
(i) 25 basis points per annum multiplied by (ii) the
difference between (A) the amount of the Revolving Loan
Facility then effect and (B) the aggregate outstanding amount
of the advances outstanding under the Revolving Loan Facility on
such day, payable quarterly in arrears on the first day of each
fiscal quarter with respect to the immediately preceding fiscal
quarter.
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SECTION 1.7.
MANDATORY PREPAYMENTS.
(a) Prepayments
from Issuance of Debt and Equity. Without limiting Lender’s
rights under any other provision of this Agreement that may
prohibit such actions or provide for an Event of Default as a
result thereof, immediately upon the receipt by Borrower of the
proceeds of the issuance of any equity interests (whether public or
private) (other than the proceeds of any issuance of equity
interest to an employee, director or insurance agent employed by or
contracting with the Borrower) or Debt (other than Debt expressly
permitted under the terms of Section 5.1 of this Agreement),
Borrower shall prepay the Loan Facility in the amount of the net
proceeds thereof, net of the amount of any transaction costs
incurred with the issuance of such Debt or equity with, in the case
of the issuance of Debt, a permanent reduction in the amount
available under the Loan Facility.
(c) Prepayments
Upon Permitted Dispositions. Upon a disposition of any equipment
which is permitted under Section 5.6(iii), then, if such
equipment is not replaced with similar equipment or if the proceeds
of such disposition are not reinvested in the business of the
Borrower within 90 days of the sale thereof, Borrower shall prepay
the Loan Facility in the amount of the net proceeds thereof against
the Loan Facility.
(d) Prepayments
Upon Casualty and Condemnations. Upon a destruction or governmental
condemnation of Borrower’s assets which are necessary to the
business of the Borrower arising from a casualty event or
governmental condemnation and (i) the insurance proceeds or
condemnation award exceeds $50,000 or (ii) Borrower is unable
to repair or replace such assets within 90 days, then Borrower
shall prepay the Loans in the amount of the net proceeds thereof
against the Loan Facility.
SECTION 2.1.
CONDITIONS OF INITIAL EXTENSION OF CREDIT. The obligation of Lender
to make an initial extension of credit hereunder is subject to the
fulfillment to Lender’s reasonable satisfaction of all of the
following conditions:
(a) Approval
of Lender Counsel. All legal matters incidental to the extension of
credit by Lender shall be satisfactory to Lender’s
counsel.
(b) General
Loan Documentation. Lender shall have received, in form and
substance satisfactory to Lender, each item listed on a closing
checklist delivered by Lender’s counsel to Borrower in
connection with the Loan Facility, in form and substance
satisfactory to Lender and its counsel, and, if appropriate, duly
executed and delivered, including, without limitation:
(i) this Agreement, (ii) the Note, (iii) a closing
certificate of Borrower and each Entity Guarantor as to its
formation and governance documents, authorizing resolutions or
consent and confirming that all representations and warranties in
this Agreement are true in all material respects and that no
Default or Event of Default is in existence on the Closing Date
(each, an “Officer’s Certificate”) and an opinion
of in-house counsel to the Borrower and each Guarantor satisfactory
to the Lender in all respects, (iv) a Guaranty Agreement dated
as of even date herewith executed by each of the following parties
(each, along with any other party who guarantees the Obligations
from time to time, a “Guarantor”; each Guarantor who is
an individual is an “Individual Guarantor” and each
Guarantor that is a corporation, limited liability company,
partnership or other entity is an “Entity Guarantor”):
Trustway Insurance Agencies, LLC, Trustway T.E.A.M.,
Inc.,
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AssuranceAmerica Managing General Agency LLC,
and, with the exclusion of AAIC, AACT and each Immaterial
Subsidiary (as defined below), every other Subsidiary (as
hereinafter defined) of Borrower existing as of the Closing Date
(as amended or otherwise modified from time to time, each a
“Guaranty”), (v) a subordination agreement (or
subordination provisions in favor of Lender) acceptable to Lender
in its reasonable discretion in all respects (as amended from time
to time, each, a “Subordination Agreement”, a form of
Subordination Agreement acceptable to Lender is attached hereto as
Exhibit 2.1(b)) with respect to Debt issued by Borrower or any
Entity Guarantor the holder of which is an owner of equity issued
by, or an affiliate, director, manager or officer of, Borrower or
any Entity Guarantor, (vi) the Pay Proceeds Letter and
(vii) payoff letters from each lender to be refinanced by the
Loan proceeds which also must provide for the termination and
release of any security interests securing such debt being
refinanced. As used herein, “Subsidiary” shall mean a
corporation, partnership, joint venture, limited liability company
or other business entity of which a majority of the shares of
securities or other interests having ordinary voting power for the
election of directors or other governing body (other than
securities or interests having such power only by reason of the
happening of a contingency) are at the time beneficially owned, or
the management of which is otherwise controlled, directly, or
indirectly through one or more intermediaries, or both, by
Borrower.
(c) Security
Instrument. Lender shall have received, in form and substance
satisfactory to Lender, a Pledge Agreement executed by Borrower and
Trustway in favor of Lender granting Lender a first priority
security interest in all of Borrower’s and Trustway’s
equity interests, other than the equity interests of the Immaterial
Subsidiaries, AAIC and AACT, that it holds in its Subsidiaries,
subject only to any liens expressly permitted herein and therein,
to secure the Obligations (as amended or otherwise modified from
time to time, the “Pledge Agreement”).
This Agreement,
the Note, the Officer’s Certificate, each Guaranty, the
Pledge Agreement, the Pay Proceeds Letter, and all other promissory
notes, guaranties, security agreements, agreements, instruments,
certificates and other documents required hereby or at any time
hereafter delivered to Lender in connection with the Loan Facility
as amended or otherwise modified from time to time, are herein
collectively referred to as the “Loan Documents,”
provided, however, that the term “Loan Documents” shall
not include any swap agreements as defined in the 11 U.S.C. §
101.
(d) Financial
Condition. Lender shall have received all financial statements and
tax returns of Borrower and each Guarantor as requested in writing
by Lender. There shall have been no material adverse change, as
determined by Lender, in the financial condition or business of
Borrower and its Subsidiaries, taken as a whole, nor any material
decline, as determined by Lender, in the market value of the
Collateral required hereunder, since December 31,
2008.
(e) Post-Closing
Funding Conditions. Lender has agreed to execute and deliver this
Agreement without having obtained the following items required by
Lender as conditions to make Lender’s first advance under the
Revolving Loan Facility (collectively, the “Post-Closing
Funding Conditions”): (i) UCC and other customary lien
searches against the Borrower, as a Nevada corporation, and
Trustway showing no security interests or other liens against the
Borrower, Trustway or the Collateral except for security interests
and liens permitted under Section 5.3 hereof and (ii) receipt
of good standing certificates for the Borrower and the Entity
Guarantors in existence on the date hereof. The Borrower hereby
acknowledges and agrees that the Lender has no obligation to make
any advances under the Revolving Loan Facility unless and until the
Post-Closing Funding Conditions are satisfied.
SECTION 2.2.
CONDITIONS OF EACH EXTENSION OF CREDIT. The obligation of Lender to
make each extension of credit requested by Borrower hereunder shall
be subject to the fulfillment to Lender’s satisfaction of
each of the following conditions:
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(a) Compliance.
The representations and warranties of the Borrower contained herein
and in each of the other Loan Documents shall be true in all
material respects on and as of the date of such extension of credit
by Lender pursuant hereto, with the same effect as though such
representations and warranties had been made on and as of each such
date, except to the extent that such representations and warranties
specifically refer to an earlier date, in which case they shall be
true in all material respects as of such earlier date.
(b) No
Default or Event of Default. On the date of such extension of
credit by Lender pursuant hereto, no Default or Event of Default as
defined herein shall have occurred and be continuing or shall
exist. “Default” means any condition, event or act
which, with the giving of notice or the passage of time or both,
would constitute an Event of Default.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Borrower makes the
following representations and warranties to Lender, which
representations and warranties shall survive the execution of this
Agreement and shall continue in full force and effect until the
full and final payment, and satisfaction and discharge, of all
Obligations (other than Cash Management Obligations that continue
after the termination of the Loan Facility) and the termination of
any commitment of Lender to make any extension of credit
hereunder.
SECTION 3.1. LEGAL
STATUS. Borrower is a corporation, duly organized and existing and
in good standing under the laws of the State of its organization
set forth in the preamble to this Agreement, and is qualified or
licensed to do business (and is in good standing as a foreign
corporation, if applicable) in all jurisdictions in which such
qualification or licensing is required or in which the failure to
so qualify or to be so licensed could have a material adverse
effect on the Borrower.
SECTION 3.2.
AUTHORIZATION AND VALIDITY. This Agreement, the Note and each other
Loan Document to which Borrower is a party have been duly
authorized by all necessary corporate action, and upon their
execution and delivery by Borrower in accordance with the
provisions hereof, will constitute legal, valid and binding
agreements and obligations of Borrower, enforceable against
Borrower in accordance with their respective terms, except as such
enforceability may be limited by (a) bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or similar laws
of general applicability affecting the enforcement of
creditors’ rights and (b) the application of general
principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
SECTION 3.3. NO
VIOLATION. The execution, delivery and performance by Borrower and
each Entity Guarantor of each of the Loan Documents to which they
are a party do not (a) contravene any provision of the
Organizational Documents, (b) violate in any material respect
any provision of any law or regulation, or (c) result in any
material breach of or default under any Material Contract (defined
below). “Organizational Document” means each of the
following organizational documents relating to Borrower and each
Entity Guarantor, as amended or otherwise modified from time to
time: the articles of incorporation or formation, certificate of
partnership, partnership agreement, by-laws and operating
agreement.
SECTION 3.4.
LITIGATION. There are no pending, or to Borrower’s knowledge,
threatened in writing, actions, claims, investigations, suits or
proceedings by or before any governmental authority, arbitrator,
court or administrative agency against Borrower as to which there
is a reasonable possibility of an adverse determination and that,
if adversely determined, could reasonably be expected to have
a
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material
adverse effect on the financial condition or operations of
Borrower, other than those disclosed by Borrower to Lender in
writing prior to the Closing Date.
SECTION 3.5.
CORRECTNESS OF FINANCIAL STATEMENTS. The most recent annual and
quarterly consolidated financial statements of Borrower delivered
to Lender as a condition or pursuant to a covenant under the terms
of this Agreement, true copies of which have been delivered by
Borrower to Lender, (a) present fairly in all material
respects the financial condition of Borrower and its subsidiaries
as of the respective dates thereof and for the respective periods
covered thereby (subject to year-end audit adjustments and the
absence of footnotes in the case of the quarterly and monthly
financial statements), (b) were prepared in accordance with
GAAP and (c) disclose all material liabilities of Borrower and
its subsidiaries, whether liquidated or unliquidated, fixed or
contingent, as of the date of such financial statements. Since
December 31, 2008, there has been no material adverse change
in the financial condition of Borrower and its Subsidiaries, taken
as a whole, nor has Borrower mortgaged, pledged, granted a security
interest in or otherwise encumbered any of its assets or properties
except in favor of Lender or as otherwise permitted under the Loan
Documents.
SECTION 3.6.
INCOME TAX RETURNS. Borrower has no knowledge of any pending
material assessments or adjustments of its income tax payable with
respect to any year.
SECTION 3.7. NO
SUBORDINATION. There is no agreement, indenture, contract or
instrument to which Borrower is a party or by which Borrower may be
bound that requires the subordination in right of payment of
Borrower’s obligations subject to this Agreement to any other
obligation of Borrower.
SECTION 3.8.
PERMITS, FRANCHISES. Except as set forth in Schedule 3.8,
Borrower possesses, and will hereafter possess, all permits,
consents, approvals, franchises and licenses required and rights to
all material trademarks, trade names, patents, and fictitious
names, if any, necessary to enable it to conduct the business in
which it is now engaged in compliance with all applicable material
laws.
SECTION 3.9.
ERISA. (i) Borrower is in compliance with all applicable
provisions of the Employee Retirement Income Security Act of 1974,
as amended or recodified from time to time (“ERISA”);
(ii) Borrower has not violated any provision of any
“defined benefit plan” (as defined in ERISA) maintained
or contributed to by Borrower (each, a “Plan”);
(iii) no Reportable Event as defined in ERISA has occurred and
is continuing with respect to any Plan initiated by Borrower;
(iv) Borrower has met its minimum funding requirements under
ERISA with respect to each Plan; and (v) each Plan will be
able to fulfill its benefit obligations as they come due in
accordance with the Plan documents and under GAAP; other than with
respect to clauses (i) through (v), such compliance,
violations, failures or other events that, either individually or
in the aggregate could not reasonably be expected to have a
material adverse effect
SECTION 3.10.
OTHER OBLIGATIONS. Borrower is not in default on any material
obligation for borrowed money, any purchase money obligation or any
other material lease, commitment, contract or instrument which
default could reasonably be expected to have a material adverse
effect on the financial condition or operations of the
Borrower.
SECTION 3.11.
ENVIRONMENTAL MATTERS. Borrower is in compliance in all material
respects with all applicable federal or state environmental,
hazardous waste, health and safety statutes, and any rules or
regulations adopted pursuant thereto, which govern or affect
Borrower’s operations and/or properties, including without
limitation, the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, the Superfund Amendments and
Reauthorization Act of 1986,
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the Federal
Resource Conservation and Recovery Act of 1976, and the Federal
Toxic Substances Control Act, as any of the same may be amended,
modified or supplemented from time to time. None of the operations
of Borrower is the subject of any federal or state investigation
evaluating whether any remedial action involving a material
expenditure is needed to respond to a release of any toxic or
hazardous waste or substance into the environment. Borrower has no
material contingent liability in connection with any release of any
toxic or hazardous waste or substance into the
environment.
SECTION 3.12.
GAAP. Except as otherwise stated in this Agreement, all financial
information provided to the Lender (other than information provided
in connection with a Permitted Acquisition) and all calculations of
financial covenants have been and will be made under generally
accepted accounting principles, consistently applied, as in effect
on the date hereof (“GAAP”); provided that, if at any
time any change in GAAP would affect the computation of any
financial covenant or other requirement set forth in any Loan
Document, the Borrower and the Lender shall negotiate in good faith
to amend such covenant or other requirement to preserve the
original intent thereof in light of such change in GAAP.
SECTION 3.13
INVESTMENT COMPANY ACT. Neither Borrower nor any of its
subsidiaries is or is required to be registered as an
“investment company” as defined in the Investment
Company Act of 1940, as amended from time to time.
SECTION 3.14
REGULATION U. The making of the Loan Facility available to the
Borrower and the making of any advance under any of the Loan
Facility and the use of the proceeds of any advance under the Loan
Facility does not result in the Borrower purchasing or carrying any
margin stock (within the meaning of Regulation U of the Board
of Governors of Federal Reserve System) or extending any credit to
others for the purpose of purchasing or carrying any margin
stock.
SECTION 3.15
BORROWER AND SUBSIDIARIES ARE SOLVENT. Borrower and its
Subsidiaries, taken as a whole, are solvent, and after consummation
of the transactions set forth in this Agreement will be
solvent.
SECTION 3.16 THE
LOAN FACILITY CONSTITUTES SENIOR INDEBTEDNESS. The Loan Facility
constitutes “Senior Indebtedness” as that term is
defined in each of (i) that certain Junior Subordinated
Indenture dated December 22, 2005, as amended, between
Borrower and Wilmington Trust Company (the “Trustee”;
the “Indenture”) and (ii) that certain Guarantee
Agreement between Borrower and the Trustee dated December 22,
2005, as amended (the “Trust Guarantee”).
ARTICLE IV
AFFIRMATIVE COVENANTS
Borrower covenants
that so long as Lender remains committed to extend credit to
Borrower pursuant hereto and until payment in full of all
Obligations (other than Cash Management Obligations that continue
after the termination of the Loan Facility), Borrower shall, unless
Lender otherwise consents in writing:
SECTION 4.1.
PUNCTUAL PAYMENTS. Punctually pay all principal, interest, fees or
other liabilities due under any of the Loan Documents at the times
and place and in the manner specified therein.
SECTION 4.2.
ACCOUNTING RECORDS. Maintain adequate books and records in
accordance with GAAP consistently applied, and permit any
representative of Lender, at any reasonable time and upon
reasonable notice to Borrower, to inspect, audit and examine such
books and records, to make copies of the same, and to inspect the
properties of Borrower; provided, however, that unless
an
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Event of
Default then exists, the Lender shall not initiate more than one
such inspection, audit or examination in any calendar
year.
SECTION 4.3.
FINANCIAL STATEMENTS. Provide to Lender all of the following, in
form and detail satisfactory to Lender; provided that if such
financial statements are prepared in accordance with GAAP and any
applicable SEC requirements, such financial statements shall be
deemed to be satisfactory to Lender:
(a) not later
than 120 days after and as of the end of each fiscal year of
Borrower, annual audited consolidated financial statements of
Borrower;
(b) not later
than 45 days after and as of the end of the first three
(3) fiscal quarters of each fiscal year, quarterly
consolidated financial statements of Borrower, certified by the
chief financial officer or treasurer of Borrower to
Lender;
(c) not later
than 120 days after and as of the end of each fiscal year of
Borrower, annual IRIS financial ratio reports and statutory
financial statements of AAIC;
(d) contemporaneously
with each financial statement of Borrower required by clauses
(a) and (b) above, a compliance certificate of the chief
financial officer or treasurer of Borrower in form and substance
satisfactory to Lender in all respects (which may be in the form
attached hereto as Exhibit 4.3, if any) certifying that said
financial statements are prepared in accordance with GAAP and
present fairly in all material respects the financial condition of
the Borrower, that Borrower is in compliance with Section 4.10
(and includes the calculations thereof) and that there exists no
Event of Default nor any condition, act or event which with the
giving of notice or the passage of time or both would constitute an
Event of Default; and
(e) from time
to time such other information as Lender may reasonably
request.
SECTION 4.4.
COMPLIANCE. Preserve and maintain all material licenses, permits,
governmental approvals, rights, privileges and franchises necessary
for the conduct of its business; and comply with all material
provisions of all documents pursuant to which Borrower is organized
and/or which govern Borrower’s continued existence and with
the requirements of all laws, rules, regulations and orders of any
governmental authority applicable to Borrower and/or its business
(including, without limitation, the statutory capital, surplus and
net premium-to-surplus ratio requirements under
Sections 38-9-10 et. seq. of the South Carolina Code of
Laws, as the same are applicable and only to the extent required
from time to time), other that such failures to comply which could
not reasonably be expected to have a material adverse effect on the
financial condition or operations of the Borrower.
SECTION 4.5.
INSURANCE. Maintain and keep in force the insurance required by
Section 2.1(e) above and other insurance from time to time of
the types and in amounts customarily carried in lines of business
similar to that of Borrower, including but not limited to fire,
extended coverage, public liability, flood, property damage and
workers’ compensation, with all such insurance carried with
companies and in amounts reasonably satisfactory to Lender, and
deliver to Lender from time to time at Lender’s request
schedules setting forth all insurance then in effect.
SECTION 4.6.
FACILITIES. Keep all properties necessary to Borrower’s
business in good repair and condition, and from time to time make
necessary repairs, renewals and replacements thereto so that such
properties shall be fully and efficiently preserved and
maintained.
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SECTION 4.7. TAXES
AND OTHER LIABILITIES. Pay and discharge when due any and all
indebtedness, obligations, assessments and taxes, both real or
personal, including without limitation federal and state income
taxes and state and local property taxes and assessments, except
(i) such (a) as Borrower may in good faith contest or as
to which a bona fide dispute may arise, and (b) for which
Borrower has set aside on its books adequate reserves with respect
thereto in accordance with GAAP or (ii) the failure to pay
which could not reasonably be expected to have a material adverse
effect on the financial condition or operations of
Borrower.
SECTION 4.8.
LITIGATION. Promptly give notice in writing to Lender of any
litigation pending or threatened in writing against Borrower with a
claim in excess of $50,000.
SECTION 4.9.
NOTICE TO LENDER. Promptly (but in no event more than five
(5) days after the occurrence of each such event or matter)
give written notice to Lender in reasonable detail of: (a) an
officer of the Borrower obtains knowledge of the occurrence of any
Event of Default or any Default; (b) any change in the name or
the organizational structure of Borrower; (c) the occurrence
and nature of any Reportable Event or Prohibited Transaction, or
any “accumulated funding deficiency,” each as defined
in ERISA, with respect to any Plan which could reasonably be
expected to have a material adverse effect on the financial
condition or operations of Borrower; or (d) any termination or
cancellation of any insurance policy which Borrower is required to
maintain, which policy is not replaced with a similar insurance
policy, or any uninsured or partially uninsured loss through
liability or property damage, or through fire, theft or any other
cause affecting Borrower’s property in excess of $50,000 in
excess of any such insurance coverage.
SECTION 4.10.
FINANCIAL CONDITION. Maintain Borrower’s financial condition
as follows, calculated in accordance with GAAP consistently applied
and used consistently with prior practices (except to the extent
modified by the definitions below):
(a) Minimum
Fixed Charge Coverage Ratio. A minimum Fixed Charge Coverage Ratio
of not less than 1.35 to 1.0, tested quarterly, commencing with the
fiscal quarter ending September 30, 2009, and for each quarter
thereafter. “Fixed Charge Coverage Ratio” means,
(I) for the Borrower and its Subsidiaries for the fiscal
quarter ending September 30, 2009, the quotient of
(x) net income for such period plus, to the extent
deducted from net income for such period, the sum of
(i) interest expense, (ii) income tax expense and
(iii) depreciation, depletion, and amortization and
(iv) the following non-cash items; (A) non-recurring
charges for such period, (B) any extraordinary gains and
losses for such period and (C) other non-cash expenses for
such period minus unfinanced capital expenditures for such
period; divided by (y) the sum of (i) interest expense
for such period, (ii) tax expense for such period,
(iii) dividends and distributions paid in such period (other
than dividends and distributions paid to the Borrower or a
Subsidiary), and (iv) scheduled principal payments on
long-term debt and payments made with respect to the Debt of AAIC
or AATC under the Indenture paid in such period and (II) for
the Borrower and its Subsidiaries for the fiscal quarter ending
December 31, 2009 and thereafter, the quotient of (x) net
income for the trailing 12 month period plus, to the
extent deducted from net income for the trailing 12 month
period, the sum of (i) interest expense, (ii) income tax
expense and (iii) depreciation, depletion, and amortization
minus unfinanced capital expenditures for such period;
divided by (y) the sum of (i) interest expense for the
trailing 12 month period, (ii) tax expense for the
trailing 12 month period, (iii) dividends and distributions
(defined below) paid in the trailing 12 month period (other
than dividends and distributions paid to the Borrower or a
Subsidiary), and (iv) scheduled principal payments on
long-term debt and payments made with respect to the Debt of AAIC
or AATC under the Indenture paid in the trailing 12 month
period.
(b) Minimum
Net Worth. A Net Worth as of the last day of any fiscal quarter of
at least (i) $12,000,000.00 for the fiscal quarter ending on
September 30, 2009, and (ii) the Minimum Amount
for
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each fiscal
quarter thereafter. “Minimum Amount” means, for any
fiscal quarter, beginning with the fiscal quarter ending on
December 31, 2009, the Net Worth required under this
Section 4.10(b) for the prior fiscal quarter plus 50% of
Borrower’s and its Subsidiaries’ positive net income
for such fiscal quarter. “Net Worth” means, determined
in accordance with GAAP, Borrower’s total assets minus
Borrower’s total liabilities, each on a consolidated basis;
provided, however, the calculation of Net Worth shall exclude the
following items (if resulting in a reduction of Net Worth) not
exceeding $5,000,000 in an aggregate, cumulative amount that are
incurred after the Closing Date: asset write-downs pertaining to
acquisitions, non-cash write-downs and non-cash charges related in
changes in GAAP accounting principles.
SECTION 4.11
PERMITTED ACQUISITION REQUIREMENTS. In addition to the conditions
and terms required in the definition of Permitted Acquisitions on
Schedule 1.1 and in the other applicable terms and conditions
of this Agreement, the Borrower shall, with respect to any
Permitted Acquisition, comply with, and cause each Entity Guarantor
to comply with, the following:
(a) Not less
than ten Business Days prior to the consummation of any Permitted
Acquisition, the Borrower shall have delivered to the Lender the
following (but with respect to any Permitted Acquisition having an
Acquisition Amount (defined below) of less than $300,000, only the
certificate and supporting calculations described in clause
(iv) below):
(i) a reasonably
detailed description of the material terms of such Permitted
Acquisition (including without limitation, the purchase price and
method and structure of payment) and of the Target
Company;
(ii) historical
financial statements of the Target Company (or, if there are two or
more Target Companies that are the subject of such Permitted
Acquisitions and that are part of the same consolidated group,
consolidated historical financial statements for all such Target
Companies) for the two (2) most recent fiscal years available,
and (if available) unaudited financials statements for any interim
periods since the most recent fiscal year-end;
(iii) consolidated
projected financial statements of the Borrower and its subsidiaries
(giving effect to such Permitted Acquisition) for the one-year
period (or, if available, such longer period up to three years)
following the consummation of such Permitted Acquisition, in
reasonable detail, together with any appropriate statement of
assumptions and pro forma adjustments; and
(iv) a
certificate, in form and substance reasonably satisfactory to the
Lender, executed by a financial officer of the Borrower setting
forth the Acquisition Amount and further to the effect that the
consummation of such Permitted Acquisition will not result in a
violation of any provision of this Agreement and the requirements
set forth in the definition of “Permitted Acquisition”
will be satisfied (with such covenant calculations to be attached
to the certificate using the Covenant Compliance
worksheet).
(b) Within
10 days after the consummation of any Permitted Acquisition
consisting of the purchase of equity of a Target Company, or any
direct or indirect Subsidiary of the Borrower formed to acquire,
the assets of such Target Company (i) cause such Target
Company, or such Subsidiary, to become an Entity Guarantor and
execute and deliver to Lender a guaranty of all of the Obligations
substantially in the form executed and delivered by the Entity
Guarantors existing on the Closing Date, (ii) if such Target
Company, or such Subsidiary, is to be owned by the Borrower, the
Borrower shall execute and deliver a supplement to the Pledge
Agreement of the Borrower in form attached hereto as
Exhibit 4.11(b) whereby all of the equity of the Target
Company, or such Subsidiary (other than Permitted Seller Shares (as
defined below)), is pledged under such Pledge Agreement and
(iii) if such
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Target Company,
or such Subsidiary, is to be owned by a direct or indirect
Subsidiary of the Borrower, such Target Company, or such
Subsidiary, shall execute and deliver a Pledge Agreement
substantially in the form executed and delivered by the Borrower
whereby all of the equity of the Target Company, or such Subsidiary
(other than Permitted Seller Shares), is pledged under such Pledge
Agreement. “Permitted Seller Shares” means shares paid
to a seller as part of the consideration paid for a Permitted
Acquisition in an amount not exceeding 20% of the voting equity of
a direct or indirect Subsidiary of the Borrower formed to acquire,
the assets of such Target Company.
(c) As soon
as reasonably practicable after the consummation of any Permitted
Acquisition, the Borrower will deliver to the Lender true and
correct copies of the fully executed acquisition agreement
(including schedules and exhibits thereto) and other material
documents and closing papers delivered in connection therewith,
together with (in the case of any Permitted Acquisitions having an
Acquisition Amount of less than $300,000) the items described in
(i) and (ii) above.
(d) The
consummation of each Permitted Acquisition shall be deemed to be a
representation and warranty by the Borrower that (except as shall
have been approved in writing by the Lender) all conditions thereto
set forth in this Agreement to Permitted Acquisitions have been
satisfied, that the same is permitted in accordance with the terms
of this Agreement, and that the matters certified by the financial
officer of Borrower are true and correct in all material respects
as of the date such certificate is given, which representation and
warranty shall be deemed to be a representation and warranty as of
the date thereof for all purposes hereunder.
ARTICLE V
NEGATIVE COVENANTS
Borrower further
covenants that so long as Lender remains committed to extend credit
to Borrower pursuant hereto and until payment in full of all
Obligations (other than Cash Management Obligations that continue
after the termination of the Loan Facility), Borrower will not, and
will not permit any Entity Guarantor, Immaterial Subsidiary or AAIC
to (unless (i) the same is expressly required by applicable
law, by regulation or in writing by the South Carolina State
Department of Insurance or any other insurance regulators with
authority or jurisdiction over AAIC or (ii) a restriction on
AAIC’s ability to do the same is prohibited by applicable
law, by regulation or in writing by the South Carolina State
Department of Insurance or any other insurance regulators with
authority or jurisdiction over AAIC), without Lender’s prior
written consent:
SECTION 5.1. OTHER
INDEBTEDNESS. Create, incur, assume or permit to exist any Debt
(defined below) except the following: (a) the Obligations;
(b) any other liabilities existing as of the Closing Date and
listed on Schedule 5.1 attached hereto, and extensions,
renewals and replacements of such liabilities that do not increase
the outstanding principal amount thereof; (c) Subordinated Debt
(defined below) consisting of (i) seller notes issued by
Borrower after the Closing Date constituting part of the purchase
price in connection with a Permitted Acquisition (each, a
“Seller Note”) and earn-out obligations incurred in
connection with a Permitted Acquisition and (ii) all other
Subordinated Debt permitted by the Lender from time to time under
the relevant Subordination Agreement; (d) Debt of Borrower
owed to any Entity Guarantor or of any Entity Guarantor owed to
Borrower or any Entity Guarantor owed to another Entity Guarantor;
(e) Debt owed (i) by Borrower or any Entity Guarantor to AAIC
or AATC in an amount not exceeding $3,000,000 in the aggregate and
(ii) by AAIC to Borrower or any Entity Guarantor in an amount
not exceeding $3,000,000, in each case, arising with respect to
fees, commissions and other amounts owed in the ordinary course of
business; (f) unsecured Debt to trade creditors incurred in
the ordinary course of business; (g) any Debt consisting of
purchase money debt or capital leases for equipment which does not
exceed $200,000 in the aggregate outstanding at any one time;
(h) Debt of the Borrower arising under the Indenture and the
Trust Guarantee; (i) obligations under
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swap agreements
entered into with the Lender or its affiliates and (j) Debt of
any and all Immaterial Subsidiaries owed to the Borrower or any
Entity Guarantor in an aggregate amount not to exceed $100,000.
“Debt” means, at any time, all of the following:
(i) indebtedness for borrowed money or for the deferred
purchase price of property or services, (ii) indebtedness
evidenced by notes, bonds or other instruments,
(iii) capitalized lease obligations and (iv) undrawn and
unreimbursed amounts owed with respect to letters of credit;
provided that, for
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