Exhibit
10.5


 


SECOND AMENDMENT TO LOAN AGREEMENT


 


THIS
SECOND AMENDMENT TO LOAN AGREEMENT (the “Amendment”) is executed the 23rd
day of April, 2004, by and between AMCOMP INCORPORATED, a Delaware corporation
(the “Borrower”), and AMSOUTH BANK (the “Bank”).


 


W I T N E S S E T H:


 


WHEREAS,
the Borrower and the Bank entered into that certain Loan Agreement dated as of October 12,
2000 (the “Loan Agreement”) (all capitalized terms used herein but not defined
shall have the meanings given such terms in the Loan Agreement as amended),
pursuant to which the Bank agreed to make the Term Loan to the Borrower in the
original principal amount of $11,250,000 (the “Original Loan”) and subsequently
the Borrower and Bank entered into that certain First Amendment to Loan Agreement
dated as of April 25, 2003;


 


WHEREAS,
the Borrower has requested certain additional amendments to the Loan Agreement;


 


NOW,
THEREFORE, in consideration of the premises and the mutual covenants herein
contained, the Borrower and the Bank hereby agree as follows:


 


1.  The following sentence is added to the
definition of “Change of Control” contained in Section 1.01:


 


Provided
however the events described in subparagraph (i) and (iii) will not
be considered a Change of Control subsequent to Borrower completing a public
offering raising not less than twenty five million dollars ($25,000,000.00).


 


2.  The definition of Debt Service Coverage Ratio
contained in Section 1.01 is hereby deleted and is replaced with the
following in its entirety:


 


“Debt
Service Coverage Ratio” means, as of the last day of any fiscal year of the
Borrower, the ratio of (a) (i) Service Fees from Operating
Subsidiaries for such fiscal year, plus (ii) interest received by the
Borrower on the Surplus Notes, plus (iii) Dividends Available Without
Regulatory Approval during such fiscal year, plus (iv) Dividends Available
With Regulatory Approval during such fiscal year, plus (v) amounts in the
Payment Reserve Account, plus (vi) depreciation expense, plus (vii) Tax
Sharing Revenue, minus (viii) Expenses of the Borrower and the
Non-Insurance Subsidiaries for such fiscal year, minus (ix) dividends
paid, to (b) (i) scheduled interest payments for such


 





















 


fiscal
year, plus (ii) scheduled principal payments for such fiscal year.


 


3.  Section 6.01 (a) (iii) is
deleted and the following substituted in its place as Section 6.01 (a) (iii):


 


(iii)          As soon as available, and in any event
within 90 days of the close of each fiscal year end of the Borrower and its
Subsidiaries, copies of annual budgets and projections for the following fiscal
period.


 


4.  Section 6.06 is deleted and the
following substituted in its place as Section 6.06:


 


Section 6.06.  Insurance/Reinsurance.  Should the Borrower elect to enter into
Reinsurance Agreements and unless otherwise agreed to in writing by the Bank,
the Borrower will cause each of its Insurance Subsidiaries to enter into
Reinsurance Agreements, in accordance with normal industry practice, that are
with reinsurers rated “A-” or better by A.M. Best & Company, Inc.
at the time of entering into such Reinsurance Agreements.  In addition, unless otherwise agreed to in
writing by the Bank, the Borrower shall not allow its Insurance Subsidiaries to
renew or extend Reinsurance Agreements with any reinsurer whose rating has been
down-graded below “A-” by A.M. Best & Company, Inc.


 


5.  Section 6.11(b) is hereby deleted
and the following substituted in its place as Section 6.11(b):


 


(b) 
Net Written Premiums to
Statutory Surplus Ratio. 
The Borrower shall cause the ratio of Net Written Premiums to
policyholder’s surplus for all Insurance Subsidiaries, on an Additive Basis, as
of the last day of each fiscal year of its Insurance Subsidiaries, to be no
greater than 3.0:1.0.


 


6.  Section 6.11(c) titled Loss Ratio
is hereby deleted in its entirety and is intentionally left blank.


 


7.  Section 6.11(d) is hereby deleted
and the following substituted in its place as Section 6.11(d):


 


(d) 
Combined Ratio.  The ratio of Net Losses plus Insurance
Operating Expenses to Net Premiums Written for all Insurance Subsidiaries, as
of the last day of each fiscal year, on an Additive Basis, shall not exceed
106% for any one year or 100% for any two consecutive years based on the Annual
Statements filed with the FOIR.


 





















 


8.  The last sentence of Section 6.15
requiring the Payment Reserve Account is deleted.


 


9.  Section 7.01 is hereby modified by
adding the following subsection as follows:


 


(h)                                 and
that certain debt on the balance sheet of AmComp Preferred Insurance Company in
the aggregate principal amount of up to $20,000,000 pertaining to the sale of
Notes to Dekania CDO II, L.P.


 


10.  Sections 7.04(d) and 7.05 are hereby
modified by adding the following sentence as follows:


 


Provided,
however, the Bank will allow the Borrower to substitute certain Investments in
an amount of up to $5,000,000 that are currently not Permitted Investments so
long as such substituted Investments are industry related and so long as
investing in such substituted Investments will not cause an Event of Default
under any of the financial covenants contained in the Agreement.


 


11.  Section 7.06 is hereby deleted and the
following substituted in its place as Section 7.06:


 


Section 7.06. 
Restricted Payments.  Borrower
will not nor will it permit any of its Subsidiaries to directly or indirectly
make any Restricted Payments which would cause Borrower to be in default of the
Financial Covenants and with the Debt Service Coverage Ratio contained in Section 6.11
(a) measured as of the last day of the month preceding the month in which
the Restricted Payments were made and with the amount of the proposed
Restricted Payments being subtracted from the numerator in calculating such
Debt Service Coverage Ratio.


 


12.  Section 8.01 is amended to increase the
amounts set forth in subsection (h) and (i) from $500,000.00 to
$1,500,000.00.


 


13.  Except as expressly set forth herein, all
terms of the Loan Agreement as amended shall be and remain in full force and
effect and shall constitute the legal, valid, binding and enforceable
obligations of the Borrower to the Bank.


 


14.  The Borrower hereby restates, ratifies and
reaffirms each and every term, representation, covenant, and condition set
forth in the Loan Agreement, as amended hereby, effective as of the date
hereof.


 


15.  The Borrower agrees to take such further
actions as the Bank reasonably may request


 





















 


in
connection herewith to evidence the amendments to the Loan Agreement herein
contained.


 


16.  This Amendment may be executed by one or more
of the parties to this Agreement on any number of separate counterparts
(including by telecopy), and all of said counterparts taken together shall be
deemed to constitute one and the same instrument.


 


17.  This Amendment shall be construed in
accordance with and be governed by the law (without giving effect to the
conflict of law principles thereof) of the State of Florida.


 


IN
WITNESS WHEREOF, the Borrower and the Bank have caused this Amendment to be
duly executed and delivered by their respective authorized officers as of the
day and year first above written.


 


	
   

  	
  AMCOMP
  INCORPORATED,

  
	
   

  	
  as
  Borrower

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Frederick R. Lowe

  	
   

  
	
   

  	
   

  	
  Frederick
  R. Lowe,

  
	
   

  	
   

  	
  Chief
  Executive Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  AMSOUTH
  BANK, as Bank

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Anthony Stiffler

  	
   

  
	
   

  	
   

  	
  Anthony
  Stiffler,

  
	
   

  	
   

  	
  Senior
  Vice President