Item 2.03 Creation of a Direct Financial Obligation
or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.
On
November 22, 2022, Midwest Holding Inc. (“Midwest” or the “Borrower”) entered into a three-year
senior secured revolving credit agreement and related documents (“Credit Agreement”) with the lenders party thereto
(each, a “Lender”) and Royal Bank of Canada (“RBC”), as Administrative Agent (the “Administrative
Agent”) and Collateral Agent, and as a Lender with a size of $30 million (the “Revolving Credit Facility”).
The maturity date of the Credit Agreement is November 22, 2025. The obligations under the Credit Agreement are secured by a first
priority lien on a variety of our assets, including our accounts, goods, certain documents, instruments, investment property (other than
any insurance subsidiary, any other subsidiary that is a parent of an insurance subsidiary or any other subsidiary upon which the Borrower
and the Administrative Agent reasonably agree), intellectual property, equipment, fee-owned real estate and contracts.
Use
of Proceeds. The Revolving Credit Facility will be available on a revolving basis from time to time, including on the closing
date, (a) for working capital and other general corporate purposes, including acquisitions and (b) to pay fees and expenses
in connection with the Credit Agreement.
Interest
and Fees. Under the terms of the Credit Agreement, we have the option of selecting an applicable variable interest rate
of (a) Adjusted Term SOFR, plus the Applicable Margin (as defined below) or (b) the Base Rate, plus the Applicable Margin. “Adjusted
Term SOFR” means the forward-looking, anticipated standard overnight financing rate plus 0.10%. “Base Rate”
means, for any day, a fluctuating rate per annum equal to the greatest of (i) the Prime Rate in effect on such day, (ii) the
Federal Funds Rate in effect on such day plus 1/2 of 1.00% and (iii) Adjusted Term SOFR for a one-month tenor in effect for such
day plus 1.00%; provided that to the extent such highest rate as calculated above shall, at any time, be less than the Floor, such
rate shall be deemed to be the Floor. “Floor” means the benchmark rate floor with respect to Adjusted Term SOFR or
the Adjusted Daily Simple SOFR, as applicable. “Adjusted Daily Simple SOFR” means the financing rate for the day plus
0.10%. Depending on our debt to capitalization ratio, the “Applicable Margin” can be 2.50% to 3.25% for Base Rate loans
and 3.50% to 4.25% for Adjusted Term SOFR loans. In addition, we are required to pay a quarterly commitment fee on the daily average unused
amount of the commitment while the Credit Agreement is in effect at an annual rate equal to 0.5% to 0.6% of the unused commitment amount
depending on our debt to capitalization ratio.
Representations,
Warranties and Covenants. The Credit Agreement contains customary representations and warranties. In addition, while there
are no borrowing base limitations, the Credit Agreement includes a variety of affirmative, negative and financial covenants that must
be observed and maintained which, among other things, condition or limit our ability to incur additional indebtedness and liens; enter
into transactions with affiliates; prohibitions on amendments to organizational documents that would have a material adverse effect, and
limitations on (i) disposition of assets (excluding any ordinary course portfolio investment dispositions), (ii) mergers and
other fundamental changes and (iii) restrictive agreements. In addition, we also have certain financial covenants that must be met
on a quarterly basis, including (i) debt to capitalization ratio not to exceed 35%, (ii) a minimum consolidated net worth, (iii) minimum
risk-based capital ratio of not less than 300% with respect to our primary insurance subsidiary, American Life & Security Corp.
(“American Life”), (iv) minimum unrestricted cash liquidity with respect to Midwest, together with its subsidiaries,
of at least $3.0 million and (v) a minimum A.M. Best rating of “B++” with respect to American Life.
Events
of Default and Acceleration. The Credit Agreement contains customary events of default for credit facilities of this size
and type and includes, without limitation, payment defaults; defaults in performance of covenants or other agreements contained in the
Credit Agreement; inaccuracies in representations and warranties; certain defaults, termination events or similar events; certain defaults
with respect to any other indebtedness on the part of Midwest in excess of $5.0 million; certain bankruptcy or insolvency events; the
rendering of certain judgments in excess of $5.0 million; certain ERISA events; certain change in control events and the defectiveness
of any liens under the Credit Agreement. Obligations outstanding under the Credit Agreement may be accelerated upon the occurrence of
an event of default.
Capitalized
Terms. Capitalized terms used herein but not defined shall, unless otherwise indicated, have the meanings ascribed to them
in the Credit Agreement.
The foregoing is a summary
of the material features of the Credit Agreement and is qualified in its entirety by reference to the full text of those documents that
will be filed with the Securities and Exchange Commission as exhibits to Midwest’s Annual Report on Form 10-K for the year
ended December 31, 2022.