f73847_x101.htm


  

    AMENDMENT TO CREDIT
AGREEMENT

    


    THIS AMENDMENT TO CREDIT AGREEMENT,
dated as of April 30, 2010 (this "Amendment"), is by and between FIRST MERCURY
FINANCIAL CORPORATION, a Delaware corporation (the “Company”) and JPMORGAN CHASE
BANK, N.A., a national banking association (the "Lender").

    


    RECITALS

    


    A.           The
Company, CoverX Corporation, a Michigan corporation (the “Guarantor”) and the
Lender are parties to a Credit Agreement dated as of October 18, 2006, as
amended by a letter agreement dated as of February 22, 2010 and as amended by a
letter agreement dated as of March 31, 2010 (as now and hereafter amended or
modified, the "Credit Agreement").  In addition, ARPCO Holdings, Inc.
and American Risk Pooling Consultants, Inc. were each released as Guarantors
under the Credit Agreement pursuant to a letter agreement dated as of June 25,
2008.

    


    B.           The
Company desires to amend the Credit Agreement and the Lender is willing to do so
strictly in accordance with the terms hereof.

    


    TERMS

    


    In consideration of the premises and of
the mutual agreements herein contained, the parties agree as
follows:

    


    ARTICLE
1.  AMENDMENTS

    


    Upon fulfillment of the conditions set
forth in Article 3 hereof, the Credit Agreement shall be amended as
follows:

    


    1.1   The
definition of “Alternate Base Rate”
in Section 1.1 shall be amended and restated in its entirety to read as
follows:

     

    “Alternate Base Rate”
means the Prime Rate; provided
that the Alternate Base Rate shall, on any day, not be less than the
Adjusted One Month LIBOR Rate.  The Alternate Base Rate is a variable
rate and any change in the Alternate Base Rate due to any change in the Prime
Rate or the Adjusted One Month LIBOR Rate is effective from and including the
effective date of such change in the Prime Rate or the Adjusted One Month LIBOR
Rate, respectively. 

    


    1.2   The definition of “Applicable Margin” in
Section 1.1 shall be amended and restated in its entirety to read as
follows:

     


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    


    "Applicable Margin"
shall mean, the applicable percentage per annum, based on the Leverage Ratio, as
determined by reference to the following table:

    


    
      	 
      	
              I

            	
              II

            	
              III

            
	
              Leverage
      Ratio

            	
              <20%

            	
              ≥20% but
      <30%

            	
              ≥30%

            
	
              Applicable
      Margin for Eurodollar Rate Loans/Letter of Credit Fees under
      §2.7(b)

            	
              1.75%

            	
              2.00%

            	
              2.25%

            
	
              Commitment
      Fees under §2.7(a)

            	
              0.25%

            	
              0.25%

            	
              0.25%

            


    

    


    For
purposes of determining the Applicable Margin, the Applicable Margin will be
adjusted, if necessary, quarterly as of the 1st day
of month following the month in which the Lender receives  the
financial statements required under Section 5.4(b) for each of the first three
fiscal quarters of each fiscal year and under Section 5.4(d) for the last fiscal
quarter of each fiscal year, based on the Leverage Ratio as of the most recently
ended fiscal quarter of the Company, provided that upon the occurrence and
during the continuance of any Event of Default or Default the Applicable Margin
shall be as set forth in column III above.  As of the Amendment
Effective Date, the Applicable Margin shall be as set forth in column II
above.

    


    1.3   The
definition of “Fixed
Charge Coverage Ratio” in Section 1.1 shall be amended and restated in
its entirety to read as follows:

     

        “Fixed Charge Coverage
Ratio” shall mean, as of the end of any fiscal quarter of the Company,
(a) the sum, without duplication among any of the following categories, of: (i)
the amount that may be paid by the Company's Insurance Subsidiaries in
accordance with applicable regulations (i.e., based on the net income and
surplus of the Company’s Insurance Subsidiaries for the year ended at the end of
the immediately preceding calendar year) as a dividend at any time during the
calendar year in which such fiscal quarter ends, plus (ii) the aggregate amount
of the EBITDA of the Company's non Insurance Subsidiaries during the four
consecutive fiscal quarters then ending, to (b) the sum of (i) Total Interest
Expense for the four consecutive fiscal quarters then ending, plus (ii) all
dividends, redemptions, distributions and other obligations paid or payable with
respect to the Company’s Capital Stock for the four consecutive fiscal quarters
then ending (excluding the one-time special dividend in the amount of $2.00 per
share paid March 31, 2010), and (iii) twenty percent (20%) of the aggregate
amount of the Advances outstanding as of the end of such fiscal
quarter.

    


    1.4   The
definition of “Termination Date” in
Section 1.1 shall be amended and restated in its entirety to read as
follows:

     

    "Termination Date"
shall mean the earlier to occur of: (a) September 30, 2013, or (b) the date on
which the Commitment shall be terminated pursuant to Sections 2.2, 6.1 or
6.2.


    
      
         


      

      
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    1.5   The
following definitions will be added to Section 1.1 in appropriate alphabetical
order:

     

    “Adjusted One Month LIBOR
Rate” means, for any date, an interest rate per annum equal to the sum of
(i) 2.50% per annum plus (ii) the quotient of (a) the interest rate determined
by the Bank by reference to the Reuters Screen LIBOR01 Page (or on any successor
or substitute page determined by the Lender) to be the rate at approximately
11:00 a.m. London time, on such date or, if such date is not a Business Day, on
the immediately preceding Business Day, for dollar deposits with a maturity
equal to one (1) month divided by (b) one minus the Reserve Requirement
(expressed as a decimal) applicable to dollar deposits in the London interbank
market with a maturity equal to one (1) month.

    


    “Amendment Effective
Date” means April 30, 2010.

    


    "EBITDA" means for any
period, net income plus to the extent deducted in determining net income,
interest expense (including but not limited to imputed interest on capital
leases), tax expense, depreciation, and amortization.

    


    "Regulation D" means
Regulation D of the Board of Governors of the Federal Reserve System as from
time to time in effect and any successor thereto or other regulation or official
interpretation of said Board of Governors relating to reserve requirements
applicable to member banks of the Federal Reserve System.

    


    "Reserve Requirement"
means the maximum aggregate reserve requirement (including all basic,
supplemental, marginal and other reserves) which is imposed under Regulation
D.

    


    1.6   Sections
5.5 shall be amended and restated in its entirety to read as
follows:

     

    5.5           Shareholder's
Equity.  It will not permit or suffer the consolidated
shareholders' equity of the Company and its Subsidiaries, determined on a
consolidated basis in accordance with Generally Accepted Accounting Principles,
but excluding the effects of FASB Codification Section 320-10, measured as of
the end of each fiscal quarter of the Company to be less than 85% of the
consolidated shareholders' equity of the Company and its Subsidiaries as of
March 31, 2010, which amount shall further increase by amounts equal to (i) 50%
of the Company's Net Income for each fiscal year of the Company ended on or
after December 31, 2010, provided, if Net
Income is negative, such number will be zero; provided, further, that for the
fiscal year ending December 31, 2010, the increase under this clause (i) shall
be calculated for the last three quarters of the fiscal year, and (ii) 50% of
the net proceeds to the Company from the issuance of any Capital Stock after the
Amendment Effective Date.

    


    1.7   Section
5.6 shall be amended and restated in its entirety to read as
follows:

     

    5.6           Leverage
Ratio.  It will not permit or suffer the Leverage Ratio to be
greater than: (i) 0.325 to 1.0 at any time from and including the Amendment
Effective Date to and including December 31, 2010; and (ii) 0.300 to 1.0 at any
time from and including January 1, 2011 and thereafter, measured as of the last
day of each fiscal quarter of the Company, commencing with the fiscal quarter
ending March 31, 2010.


    
      
         


      

      
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    1.8   Section 5.7 shall be amended and restated in its
entirety to read as follows:

     

        5.7           Fixed Charge Coverage
Ratio.  It will not permit or suffer the Fixed Charge Coverage
Ratio to be less than 1.50 to 1.0 as determined as of the end of each fiscal
quarter of the Company commencing with the fiscal quarter ending June 30,
2010.

    


    1.9   Section 5.10 shall be amended and
restated in its entirety to read as follows:

     

       5.10           Surplus.  It
will not permit or suffer the “surplus as regards policyholders” (calculated in
accordance with SAP), as determined as of the end of any fiscal quarter of FMIC,
ANIC or of any of its existing or future material Insurance Subsidiaries (on a
combined basis) at any time to be less than an amount equal to 85% of such
“surplus as regards policyholders” as of March 31, 2010, which amount shall
further increase by amounts equal to (i) 50% of the Company’s Net Income for
each succeeding fiscal year of the Company ended on or after December 31, 2010,
provided, if
Net Income is negative, such number will be zero, and provided, further, that for the
fiscal year ending December 31, 2010, the increase under this clause (i) shall
be calculated for the last three quarters of the fiscal year, and (ii) 50% of
the net proceeds to the Company from the issuance of any Capital Stock after the
Amendment Effective Date that would be considered as such “surplus as regards
policyholders”.

    


    ARTICLE
2.  REPRESENTATIONS

    


    The Company represents and warrants to
the Lender that:

    


    2.1           The
execution, delivery and performance of this Amendment are within its powers, has
been duly authorized and is not in contravention with any law, of the terms of
its Articles or Certificate of Incorporation or By-laws, or any undertaking to
which it is a party or by which it is bound.

    


    2.2           This
Amendment is the legal, valid and binding obligation of it, enforceable against
it in accordance with the terms hereof.

    


    2.3           After
giving effect to the amendments herein contained, the representations and
warranties contained in the Credit Agreement and in the Loan Documents are true
on and as of the date hereof with the same force and effect as if made on and as
of the date hereof.

    


    2.4           After
giving effect to the waiver herein contained, no Event of Default or Default
exists or has occurred and is continuing on the date hereof.

    


    ARTICLE
3.  CONDITIONS OF
EFFECTIVENESS

    


    This Amendment shall not become
effective until each of the following has been satisfied:

    


    3.1           This
Amendment shall be signed by the Company and the Lender.

    


    3.2           The
Guarantor shall have signed the consent and agreement hereto.

    


    3.3           The
Company and the Guarantor shall have executed and delivered such other
agreements and instruments, and satisfied such other conditions in connection
with this Amendment as reasonably requested by the Bank.


    
      
         


      

      
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    ARTICLE
4.  MISCELLANEOUS

    


    4.1           References
in the Credit Agreement or in any other Loan Document to the Credit Agreement
shall be references to the Credit Agreement as amended hereby and as further
amended from time to time.

    


    4.2           Except
as expressly amended hereby, the Company agrees that the Credit Agreement and
all other Loan Documents are ratified and confirmed and shall remain in full
force and effect and that the Company has no set off, counterclaim, defense or
other claim or dispute with respect to any of the foregoing.  Terms
used but not defined herein shall have the respective meanings ascribed thereto
in the Credit Agreement.

    


    4.3           This
Amendment may be signed upon any number of counterparts with the same effect as
if the signatures thereto and hereto were upon the same instrument and
signatures sent by facsimile or electronic mail message shall be enforceable as
originals.

    


    4.4           Other
than disputes, claims and causes of action that are the subject of, or related
to, Supreme Court of the State of New York, County of Nassau case, New York
Community Bank v. First Mercury Emerald Insurance Services, Inc., et al., Index
No. 24055/2009 (“Existing Dispute”) (in which the Lender is a named defendant),
the Company represents and warrants that it is not aware of any claims or causes
of action against the Lender or any of its affiliates, successors or assigns,
and that it has no defenses, offsets or counterclaims with respect to the
obligations outstanding under the Loan Documents.  Notwithstanding
this representation and as further consideration for the agreements and
understandings herein, except as may relate to the Existing Dispute, the
Company, on behalf of itself and its Subsidiaries, employees, agents, executors,
heirs, successors and assigns (the "Releasing Parties"), hereby releases the
Lender and its predecessors, officers, directors, employees, agents, attorneys,
affiliates, subsidiaries, successors and assigns (the "Released Parties"), from
any liability, claim, right or cause of action which now exists or hereafter
arises as a result of acts, omissions or events occurring on or prior to the
date hereof, whether known or unknown, including but not limited to claims
arising from or in any way related to this Agreement, the other Loan Documents,
all transactions relating to this Agreement or any of the other Loan Documents
or the business relationship among, or any other transactions or dealings among
the Releasing Parties or any of them and the Released Parties or any of
them.

    


    4.5           The
Company acknowledges and agrees that the Lender has fully performed all of its
obligations under all Loan Documents, and that all actions taken by the Lender
are reasonable and appropriate under the circumstances and within their rights
under the Loan Documents.  Nothing contained in this Agreement shall
be deemed to create a partnership, joint venture or agency relationship of any
nature between the Company, its Subsidiaries and the Lender.

    



    
      
         


      

      
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    IN WITNESS WHEREOF, the parties signing
this Amendment have caused this Amendment to be executed and delivered as of the
day and year first above written.

    


    FIRST
MERCURY FINANCIAL CORPORATION

    


    


    By: /s/
Richard H. Smith

    Title:  President
and Chief Executive Officer

    


    JPMORGAN
CHASE BANK, N.A.

    


    


    By: /s/
Richard C.  Ellis

    Title:  Senior
Vice President

    


    


    



    
      
         


      

      
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    CONSENT AND
AGREEMENT

    


    


    As of the date and year first above
written, each of the undersigned hereby:

    


    (a)           fully
consents to the terms and provisions of the above Amendment and the consummation
of the transactions contemplated hereby and agrees to all terms and provisions
of the above Amendment applicable to it;

    


    (b)           agrees
that all Loan Documents to which it is a party are hereby ratified and confirmed
and shall remain in full force and effect, and each of the undersigned
acknowledges that it has no setoff, counterclaim, defense or other claim or
dispute with respect thereto; and

    


    (c)           acknowledges
that its consent and agreement hereto is a condition to the Bank's obligation
under this Amendment and it is in its interest and to its financial benefit to
execute this consent and agreement.

     

                          COVERX
CORPORATION

     
 

                          By:  /s/ Richard H.
Smith

    


                          Title:
President and Chief Executive Officer

    


    



    
      
         


      

      
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