Document:

Exhibit 10.4

 

 

FIRST
AMENDMENT TO LOAN AGREEMENT

THIS
FIRST AMENDMENT TO LOAN AGREEMENT (this “Amendment”)
is executed the 25th day of April, 2003, 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), 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”);

WHEREAS, the Borrower
has requested an increase in the amount of the Term Loan, an extension of the
Maturity Date and certain other 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 Loan Agreement is hereby
amended to include and govern in all respects, in addition to the Original
Loan, the outstanding balance of which is $6,968,750 as of the date hereof, the
additional funds loaned the date hereof by the Bank to the Borrower in the
principal amount of $5,531,250.  All
references in the Loan Agreement to $11,250,000 are deleted and the amount of
$12,500,000 is substituted in lieu thereof.

2.             The Loan Agreement is hereby
amended further by deleting Section 2.01(b) and substituting in lieu thereof
the following:

(b)           Borrowing
Procedure.  The amount of $5,531,250 shall
be made available to the Borrower upon the execution and delivery of this
Amendment, that certain Amended and Restated Promissory note of even date
herewith, and all other documents reasonably required by Bank.

3.             The Loan Agreement is hereby
amended further by deleting the date provided in the definition of “Maturity
Date” in Section 1.01 and substituting in lieu thereof “April 10, 2010.”

4.             The Loan Agreement is hereby
amended further by adding the definition of “Additive Basis” in section 1.01 as
follows:

 

“Additive Basis” means the
financial information from each of the relevant companies is added together
when determining the amount(s) to be used in the calculations required in this
agreement.

5.             The Loan Agreement is hereby
amended further by deleting in the entirety Sections 2.03(a) and 2.03(b) and
substituting in lieu thereof the following:

(a)           Principal.  The principal amount of the Term Loan shall
be repaid in twenty-eight (28) equal and consecutive quarterly installments of
$446,430 each due and payable on the tenth (10th) day of each
January, April, July and October of each calendar year, commencing July 10,
2003 and continuing thereafter through and including April 10, 2010.

 

(b)           Interest.  Accrued interest on the Term Loan shall be
payable in arrears on each Interest Payment Date (or at such other times as may
be specified herein) commencing May 10, 2003 and continuing thereafter through
and including April 10, 2010.

6.             The Loan Agreement is hereby
amended further by deleting the definition of “Debt Service Coverage Ratio” in
section 1.01 and substituting in lieu thereof the following:

“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 to (b)(i) scheduled interest payments for such fiscal year, plus (ii) scheduled principal payments for such fiscal year.

7.             The Loan Agreement is hereby amended further by
deleting the definition of “Net Written Premiums” in section 1.01 and
substituting in lieu thereof the following:

“Net Written Premiums” means,
as of the last day of any fiscal year, with respect to any Insurance
Subsidiary, the sum of the total amount of premiums written after deducting or
adding premiums on business ceded to or assumed from others (as shown on line
34, column 6, Part 2B, page 8 of the Annual Statement for such date) by each
Insurance Subsidiary in accordance with SAP.

2

8.             The Loan Agreement is hereby
amended further by deleting the definition of “Net Losses” in section 1.01 and
substituting in lieu thereof the following:

“Net Losses” means, as of the
last day of any fiscal year, with respect to any Insurance Subsidiary, loss and
loss adjustment expense net of any salvage, subrogation, or deductibles after
deducting reinsured losses (as shown as the total of lines 2 & 3, column 1,
page 4 of the Annual Statement for such date) by each Insurance Subsidiary in
accordance with SAP.

9.             The Loan Agreement is hereby amended further by
deleting all references therein to the acronym “FDOI” and substituting in lieu
thereof the acronym “FOIR” which shall mean the Florida Office of Insurance
Regulation.

10.           The Loan Agreement is hereby
amended further by deleting Section 6.11(a) and substituting in lieu thereof
the following:

(a)  Debt Service Coverage
Ratio.  The Debt Service Coverage Ratio
shall not be less than 1.5 to 1.

11.           The Loan Agreement is hereby amended
further by deleting Section 6.11(b) and substituting in lieu thereof the
following:

(b)  Net Written Premiums to
Statutory Surplus Ratio.  The ratio of Net Written Premiums
to policyholder’s surplus for all Insurance Subsidiaries, on an Additive Basis,
shall not exceed 3.2 to 1.0 as of December 31, 2002 and 2.5 to 1 as of the last
day of all subsequent fiscal years.

12.           The Loan Agreement is hereby amended
further by deleting Section 6.11(c) and substituting in lieu thereof the
following:

(c)  Loss Ratio.  The ratio of Net
Losses to Net Premiums Written for all Insurance Subsidiaries, as of the last
day of each fiscal year, on an Additive Basis, shall not exceed 70% for any one
year or 65% for two consecutive years based on the Annual Statements filed with
the FOIR.

13.           The Loan Agreement is hereby amended
further by deleting Section 6.11(d) and substituting in lieu thereof the
following:

(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 104% for any one year or 99% for any two consecutive years
based on the Annual Statements filed with the FOIR.

3

                14.           The Loan Agreement is hereby amended
further by deleting Section 6.15 in its entirety and substituting in lieu
thereof the following:

SECTION
6.15.  Banking Accounts.  The Borrower
shall at all times maintain its primary depository, investment and other
accounts with the Bank.  In addition, the
Borrower shall establish and maintain an interest bearing depository account of
the Borrower opened with the Bank in the minimum amount of $1,000,000 as a
reserve for future debt service payments on the Term Loan until the Debt
Service Coverage Ratio exceeds 2.0 to 1.0 for two consecutive fiscal years (the
“Payment Reserve Account”).

 

15.           The
Loan Agreement is hereby amended further by deleting Section 5.14 in its
entirety and substituting in lieu thereof the following:

 

SECTION
5.14  Purpose of Term Loan. 
The proceeds of the Term Loan shall be used by the Borrower exclusively
to make a Surplus Note available to the Insurance Subsidiaries and, to the extent
regulatory approval is not obtained to make available such Surplus Note, for
general corporate purposes.

 

16.           As
a condition precedent to the amendments effected hereby, the Chief Financial
Officer of the Borrower shall execute a Compliance Certificate required by the
Bank, in form and substance satisfactory to the Bank in its sole discretion, in
which such Chief Financial Officer shall (1) provide the calculation of all
financial covenants in the Loan Agreement, as amended hereby, (2) attest to the
accuracy of such financial calculations, and (3) certify as to the Borrower’s
compliance with all such covenants.  Such
Compliance Certificate shall be the certificate required by Section 6.01(d) of
the Loan Agreement for all subsequent reporting by the Borrower.

 

                17.           In consideration for the amendments
made hereby, the Borrower shall pay to the Lender simultaneously with the
execution hereof the fee of $25,000.00. 
The Borrower shall also be responsible for, and shall pay simultaneously
with the execution hereof, all legal fees of the Bank incurred in connection
with the amendments discussed herein.

 

18.           Except as expressly set forth herein,
all terms of the Loan Agreement 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.

19.           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, except for such representations that relate to a specific date
or dates and except with respect to the one-time Loss Ratio 

4

waiver
set forth in that certain Letter dated December 18, 2001 by and between the
Bank and Borrower.

20.           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.

21.           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.

22.           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/
Michael R. Del Rocco

Michael
R. Del Rocco

Vice
President — Commercial Banking

 

 

5Exhibit
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

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