Exhibit 10.5

 

FIFTH AMENDMENT TO SECOND LIEN CREDIT AGREEMENT

This FIFTH AMENDMENT TO SECOND LIEN CREDIT AGREEMENT (this “Amendment”) is dated
and effective as of April 10, 2015, and entered into by and among AFFIRMATIVE
INSURANCE HOLDINGS, INC., a Delaware corporation (the “Borrower”), the lenders
listed on the signature pages hereto, JCF AFFM DEBT HOLDINGS L.P., as
Administrative Agent (in such capacity, the “Administrative Agent”) and as
Collateral Agent (in such capacity, the “Collateral Agent”), and for purposes of
Section 6 hereof, the other Loan Parties listed on the signature pages
hereto.  Capitalized terms used but not defined herein having the meaning given
them in the Credit Agreement (as hereinafter defined).

Recitals

Whereas, the Borrower, the Lenders from time to time party thereto, the Agents
and the other parties thereto have entered into that certain Second Lien Credit
Agreement dated as of September 30, 2013, as amended by that certain First
Amendment to Second Lien Credit Agreement dated as of December 31, 2013, as
amended by that certain Second Amendment to Second Lien Credit Agreement dated
as of May 14, 2014, as amended by that certain Third Amendment and Waiver to
Second Lien Credit Agreement dated as of November 14, 2014, and as amended by
that certain Fourth Amendment and Waiver to Second Lien Credit Agreement dated
as of March 31, 2015 (as amended, amended and restated, extended, supplemented
or otherwise modified prior to the date hereof, the “Credit Agreement”);

Whereas, the Borrower has requested an amendment to and consent under the Credit
Agreement, pursuant to and in accordance with Section 9.08(a) of the Credit
Agreement; and

Whereas, the Lenders and the Agents are willing to agree to the amendment and
consent requested by the Borrower, on the terms and conditions set forth in this
Amendment;

Now Therefore, in consideration of the premises and the mutual agreements set
forth herein, the Borrower, Lenders and Agents agree as follows:

1.AMENDMENTS TO CREDIT AGREEMENT.  Subject to the conditions and upon the terms
set forth in this Amendment and in reliance on the representations and
warranties of the Borrower set forth in this Amendment, the Credit Agreement is
hereby amended as follows:

1.1.Amendment to Section 1.01.

(a)Section 1.01 of the Credit Agreement shall be amended to add the following
definitions in the appropriate alphabetical order:

“Fifth Amendment” shall mean that certain Fifth Amendment to Second Lien Credit
Agreement, dated and effective as of April 10, 2015, by and among the Borrower,
the Loan Parties, the Lenders party thereto, and JCF AFFM Debt Holdings L.P., as
administrative agent and collateral agent.

“Fifth Amendment Effective Date” shall have the meaning set forth in Section 5
of the Fifth Amendment.

 

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1.2.Amendments to Section 2.20.  

(a)Section 2.20 of the Credit Agreement shall be amended by adding the following
new clause (j) immediately after clause (i):

“(j)For purposes of determining withholding Taxes imposed under FATCA, from and
after each of the Third Amendment Effective Date, the Fourth Amendment Effective
Date and the Fifth Amendment Effective Date, the Borrower and the Administrative
Agent shall treat (and the Lenders hereby authorize the Administrative Agent to
treat) the Loans as not qualifying as a “grandfathered obligation” within the
meaning of Treasury Regulation Section 1.1471-2(b)(2)(i).”

(b)Each reference in Section 2.20 of the Credit Agreement to “IRS Form W-8BEN”
is hereby deleted in its entirety and replaced with the following:   “IRS Form
W-8BEN (or W-8BEN-E, as applicable)”.

2.CONSENT.  

2.1.Consent.  Notwithstanding anything in the Credit Agreement to the contrary,
the Lenders hereby consent to the Borrower entering into that certain amendment
to capital contribution agreement in the form provided to the Lenders at 4:28 PM
(New York time) on April 9, 2015.

3.REPRESENTATIONS AND WARRANTIES OF THE BORROWER.  In order to induce the
Lenders and the Agents to enter into this Amendment, the Borrower represents and
warrants to each Lender and the Agents that the following statements are true,
correct and complete:

3.1.Power and Authority.  Each of the Loan Parties has all requisite corporate
or limited liability company power and authority to enter into this Amendment
and to carry out the transactions contemplated by, and to perform its
obligations under or in respect of, the Credit Agreement as amended hereby.

3.2.Corporate Action.  The execution and delivery of this Amendment and the
performance of the obligations of each of the Loan Parties under or in respect
of the Credit Agreement as amended hereby have been duly authorized by all
necessary corporate or limited liability company action on the part of each of
the Loan Parties.

3.3.No Conflict or Violation or Required Consent or Approval.  The execution and
delivery of this Amendment and the performance of the obligations of each of the
Loan Parties under or in respect of the Credit Agreement as amended hereby do
not and will not conflict with or violate (a) any provision of the certificate
or articles of incorporation or other constitutive documents or by-laws of any
Loan Party or any of its Subsidiaries, (b) any provision of any law or any
governmental rule or regulation applicable to any Loan Party or any of its
Subsidiaries, (c) any order of any Governmental Authority or arbitrator binding
on any Loan Party or any of its Subsidiaries, or (d) any indenture, agreement or
instrument to which any Loan Party or any of its Subsidiaries is a party or by
which any Loan Party or any of its Subsidiaries, or any property of any of them,
is bound (except where such violation could not reasonably be expected to have a
Material Adverse Effect), and do not and will not require any consent or
approval of any Person (other than any approval or consent obtained and is in
full force and effect or approvals or consents the failure to obtain could not
reasonably be expected to have a Material Adverse Effect or which are not
material to the consummation of the transaction contemplated hereby).

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3.4.Execution, Delivery and Enforceability.  This Amendment has been duly
executed and delivered by each Loan Party which is a party hereto and is the
legal, valid and binding obligation of such Loan Party, enforceable in
accordance with its terms, except as enforceability may be affected by
applicable bankruptcy, insolvency, and similar proceedings affecting the rights
of creditors generally, and general principles of equity.  The Agents’ Liens in
all Collateral continue to be valid, binding and enforceable Liens which secure
the Obligations to the extent valid, binding and enforceable on the Closing
Date, except as enforceability may be affected by applicable bankruptcy,
insolvency and similar proceedings affecting the rights of creditors generally,
and general principles of equity.

3.5.No Default or Event of Default.  After giving effect to this Amendment, no
event has occurred and is continuing or will result from the execution and
delivery of this Amendment that would constitute a Default or an Event of
Default.

3.6.No Material Adverse Effect.  No event, change or condition has occurred
since the Closing Date that has caused, or could reasonably be expected to
cause, a Material Adverse Effect.

3.7.Representations and Warranties.  Each of the representations and warranties
contained herein and in the Loan Documents is and will be true and correct in
all material respects (except that any representation and warranty that is
qualified by “materiality” or “Material Adverse Effect” shall be true and
correct in all respects) on and as of the date hereof and as of the effective
date of this Amendment, except to the extent that such representations and
warranties specifically relate to an earlier date, in which case they were true,
correct and complete in all material respects as of such earlier date (except
that any representation and warranty that is qualified by “materiality” or
“Material Adverse Effect” shall be true and correct in all respects as of such
earlier date).

4.CONDITIONS TO EFFECTIVENESS OF THIS AMENDMENT.  This Amendment, and the
consents and approvals contained herein, shall be effective only if and when
signed by, and when counterparts hereof shall have been delivered to the Agents
(by hand delivery, mail, telecopy or other electronic transmission) by each Loan
Party and each Lender, and only if and when each of the following conditions is
satisfied or waived:

4.1.No Default or Event of Default; Accuracy of Representations and Warranties.
At the time of and immediately after giving effect to this Amendment, no Default
or Event of Default shall exist and each of the representations and warranties
made by the Loan Parties herein and in or pursuant to the Loan Documents shall
be true and correct in all material respects (except that any representation and
warranty that is qualified by “materiality” or “Material Adverse Effect” shall
be true and correct in all respects) as if made on and as of the date on which
this Amendment becomes effective (except that any such representation or
warranty that is expressly stated as being made only as of a specified earlier
date shall be true and correct in all material respects as of such earlier date
(except that any representation and warranty that is qualified by “materiality”
or “Material Adverse Effect” shall be true and correct in all respects as of
such earlier date)).

4.2.Amendment to First Lien Credit Agreement.  The Administrative Agent shall
have received a duly executed copy of an amendment to the First Lien Credit
Agreement substantially in the form attached as Exhibit A hereto, making
amendments thereto that correspond to those made herein and otherwise in form
and substance reasonably satisfactory to the Administrative Agent.

4.3.Fees and Expenses.  The Administrative Agent shall have received on the
Fifth Amendment Effective Date all reasonable and documented out-of-pocket costs
and expenses of the Administrative Agent incurred in connection with this
Amendment, any other documents prepared in connection herewith and the
transactions contemplated hereby (in the case of legal fees and expenses,

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limited to the reasonable fees, charges and disbursements of Debevoise &
Plimpton LLP, counsel for the Administrative Agent); provided that, the
Administrative Agent and/or Debevoise & Plimpton LLP shall have provided to the
Borrower reasonably detailed supporting backup documentation.

5.EFFECTIVE DATE.  This Amendment shall become effective (the “Fifth Amendment
Effective Date”) as of April 10, 2015 once the conditions set forth in Section 4
of this Amendment are satisfied or waived.

6.EFFECT OF AMENDMENT; RATIFICATION.  This Amendment is a Loan Document.  From
and after the date on which this Amendment becomes effective, all references in
the Loan Documents to the Credit Agreement and other Loan Documents shall mean
the Credit Agreement as amended hereby.  Except as expressly amended or waived
hereby, the Credit Agreement and the other Loan Documents, including the Liens
granted thereunder, shall remain in full force and effect, and all terms and
provisions thereof are hereby ratified and confirmed. Except as expressly set
forth herein, this Amendment shall not by implication or otherwise limit,
impair, constitute a waiver of or otherwise affect the rights and remedies of
the Lenders or the Administrative Agent under the Credit Agreement or any other
Loan Document, and shall not alter, modify, amend or in any way affect any of
the terms, conditions, obligations, covenants or agreements contained in the
Credit Agreement or any other provision of the Credit Agreement or of any other
Loan Document, all of which are ratified and affirmed in all respects and shall
continue in full force and effect. Except as expressly set forth herein, nothing
herein shall be deemed to be a waiver, amendment, modification or other change
of, any of the terms, conditions, obligations, covenants or agreements contained
in the Credit Agreement or any other Loan Document in similar or different
circumstances.

7.MISCELLANEOUS.  Each of the Loan Parties confirms that as amended hereby, each
of the Loan Documents to which it is a party is in full force and effect, and
that as of the date hereof, none of the Loan Parties has any defenses, setoffs
or counterclaims to its Obligations.

8.APPLICABLE LAW.  THIS AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAW OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAW
PRINCIPLES THAT WOULD REQUIRE THE APPLICATION OF THE LAWS OF ANOTHER
JURISDICTION.

9.NO WAIVER.  The execution, delivery and effectiveness of this Amendment does
not constitute a waiver of any Default or Event of Default, amend or modify any
provision of any Loan Document except as expressly set forth herein or
constitute a course of dealing or any other basis for altering the Obligations
of any Loan Party.

10.COMPLETE AGREEMENT.  This Amendment sets forth the complete agreement of the
parties in respect of any amendment to any of the provisions of any Loan
Document.  

11.CAPTIONS; COUNTERPARTS.  The catchlines and captions herein are intended
solely for convenience of reference and shall not be used to interpret or
construe the provisions hereof.  This Amendment may be executed by one or more
of the parties to this Amendment on any number of separate counterparts
(including by telecopy or other electronic transmission), all of which taken
together shall constitute but one and the same instrument.  Delivery of an
executed counterpart of a signature page of this Amendment by facsimile
transmission or pdf electronic delivery shall be effective as delivery of a
manually executed counterpart hereof.

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12.RELEASE.  

12.1.In consideration of the Administrative Agent’s and the Lenders’ execution
and delivery of this Amendment, each of Borrower and the other Loan Parties, on
behalf of itself and its agents, representatives, officers, directors, advisors,
employees, subsidiaries, affiliates, successors and assigns (collectively,
“Releasors”), hereby forever agrees and covenants not to sue or prosecute
against any Releasee (as hereinafter defined) and hereby forever waives,
releases and discharges, to the fullest extent permitted by law, each Releasee
from any and all claims (including, without limitation, crossclaims,
counterclaims, rights of set-off and recoupment), actions, causes of action,
suits, debts, accounts, interests, liens, promises, warranties, damages and
consequential damages, demands, agreements, bonds, bills, specialties,
covenants, controversies, variances, trespasses, judgments, executions, costs,
expenses or claims whatsoever, that such Releasor now has or hereafter may have,
of whatsoever nature and kind, whether known or unknown, whether now existing or
hereafter arising, whether arising at law or in equity (collectively, the
“Claims”), against any or all of the Secured Parties in any capacity and their
respective affiliates, subsidiaries, shareholders and “controlling persons”
(within the meaning of the federal securities laws), and their respective
successors and assigns and each and all of the officers, directors, employees,
agents, attorneys, advisors and other representatives of each of the foregoing
(collectively, the “Releasees”), based in whole or in part on facts, whether or
not now known, existing on or before the Fifth Amendment Effective Date, that
relate to, arise out of or otherwise are in connection with: (i) any or all of
the Loan Documents (including this Amendment) or transactions contemplated
thereby or hereby or any actions or omissions in connection therewith or
herewith, or (ii) any aspect of the dealings between or among any state
insurance department or other regulatory body with authority over the Borrower,
the Loan Parties or any of their respective Regulated Insurance Subsidiaries, on
the one hand, and any one or more of the Releasees, on the other hand, but only
to the extent such dealings relate to any or all of the documents, transactions,
actions or omissions referenced in clause (i) hereof.  In entering into this
Amendment, Borrower and each other Loan Party consulted with, and has been
represented by, legal counsel and expressly disclaims any reliance on any
representations, acts or omissions by any of the Releasees and hereby agrees and
acknowledges that the validity and effectiveness of the releases set forth above
do not depend in any way on any such representations, acts and/or omissions or
the accuracy, completeness or validity thereof.  The provisions of this Section
shall survive the termination of this Amendment, the Credit Agreement, the other
Loan Documents and payment in full of the Obligations.

12.2.Each of Borrower and other Loan Parties, on behalf of itself and its
successors, assigns, and other legal representatives, hereby absolutely,
unconditionally and irrevocably, covenants and agrees with and in favor of each
Releasee that it will not sue (at law, in equity, in any regulatory proceeding
or otherwise) any Releasee on the basis of any Claim released, remissed and
discharged by Borrower or any other Loan Party pursuant to Section 12.1 hereof.

[signatures follow; remainder of page intentionally left blank]

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IN WITNESS WHEREOF, each of the undersigned has duly executed this Fifth
Amendment to Credit Agreement as of the date set forth above.

 

AFFIRMATIVE INSURANCE HOLDINGS, INC.,

 

as Borrower

 

By:

/s/ Michael J. McClure

 

 

Name:  Michael J. McClure

 

 

Title:  CEO

 

LOAN PARTIES:

 

AFFIRMATIVE INSURANCE HOLDINGS, INC.

 

AFFIRMATIVE MANAGEMENT SERVICES, INC.

 

AFFIRMATIVE SERVICES, INC.

 

AFFIRMATIVE INSURANCE GROUP, INC.

 

AFFIRMATIVE UNDERWRITING SERVICES, INC.

 

AFFIRMATIVE INSURANCE SERVICES, INC.

 

AFFIRMATIVE, L.L.C., (f/k/a USAgencies, L.L.C.)

 

AFFIRMATIVE GENERAL AGENCY, INC., (f/k/a USagencies Management Services, Inc.)

 

 

 

 

 

 

 

By:

/s/ Michael J. McClure

 

 

Name:  Michael J. McClure

 

 

Title:  CEO

 

 

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JCF AFFM DEBT HOLDINGS L.P.,

 

as Administrative Agent, and as Collateral Agent and Lender

 

 

 

 

 

By: JCF AFFM DEBT HOLDING GP LTD., its General Partner

 

 

 

By:

/s/ J. Christopher Flowers

 

 

 

Name: J. Christopher Flowers

 

 

 

Title: Director