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STANDARD MANAGEMENT CORPORATION
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AMENDED AND RESTATED
NOTE AGREEMENT
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Dated as of November 8, 1996,
as amended and restated on
June 30, 1997
Re:
$4,371,573 Amended and Restated Senior Subordinated
Convertible Notes Due December 31, 2003
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TABLE OF CONTENTS
Page
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SECTION 1. DESCRIPTION OF NOTE AND COMMITMENTS . . . . . . . . . . . 1
1.1 Description of Note . . . . . . . . . . . . . . . . . . . 1
1.2 Commitments, Closing Date . . . . . . . . . . . . . . . . 1
1.3 Conversion. . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 2. PREPAYMENT OF NOTE . . . . . . . . . . . . . . . . . . . 3
2.1 Restriction on Prepayment . . . . . . . . . . . . . . . . 3
2.2 Prepayments at Option of Holder in
Certain Events . . . . . . . . . . . . . . . . . . . . . 3
2.3 Prepayments at Option of the Company . . . . . . . . . . 3
2.4 Direct Payment . . . . . . . . . . . . . . . . . . . . . 4
SECTION 3. REPRESENTATIONS . . . . . . . . . . . . . . . . . . . . . 4
3.1 Representations of the Company . . . . . . . . . . . . . 4
3.2 Representations of the Purchaser . . . . . . . . . . . . 4
SECTION 4. CLOSING CONDITIONS . . . . . . . . . . . . . . . . . . . 5
4.1 Closing Certificate . . . . . . . . . . . . . . . . . . . 5
4.2 Legal Opinion . . . . . . . . . . . . . . . . . . . . . . 5
4.3 Company's Existence and Authority . . . . . . . . . . . . 5
4.4 Consent and Approvals . . . . . . . . . . . . . . . . . . 6
4.5 Registration Rights Agreement . . . . . . . . . . . . . . 6
4.6 Legality of Investment . . . . . . . . . . . . . . . . . 6
4.7 Satisfactory Proceedings . . . . . . . . . . . . . . . . 6
4.8 Waiver of Conditions . . . . . . . . . . . . . . . . . . 6
SECTION 5. COMPANY COVENANTS . . . . . . . . . . . . . . . . . . . . 6
5.1 Corporate Existence, Etc. . . . . . . . . . . . . . . . . 6
5.2 Insurance . . . . . . . . . . . . . . . . . . . . . . . . 7
5.3 Taxes, Claims for Labor and Materials,
Compliance with Laws . . . . . . . . . . . . . . . . . 7
5.4 Maintenance of Material Properties, Etc. . . . . . . . . 8
5.5 Nature of Business . . . . . . . . . . . . . . . . . . . 8
5.6 Limitations on Indebtedness . . . . . . . . . . . . . . . 8
5.7 Limitations on Liens . . . . . . . . . . . . . . . . . . 9
5.8 Reinsurance . . . . . . . . . . . . . . . . . . . . . . . 10
5.9 Financial Covenants . . . . . . . . . . . . . . . . . . . 10
5.10 Sales of Assets . . . . . . . . . . . . . . . . . . . . . 10
5.11 Loans and Investments . . . . . . . . . . . . . . . . . . 10
5.12 Guaranties, Etc . . . . . . . . . . . . . . . . . . . . . 11
5.13 Mergers . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.14 Transactions with Affiliates . . . . . . . . . . . . . . 11
5.15 Limitation on Sale and Lease-Backs . . . . . . . . . . . 12
5.16 Repurchases of Note . . . . . . . . . . . . . . . . . . . 12
5.17 Dividends . . . . . . . . . . . . . . . . . . . . . . . . 12
5.18 Termination of Pension Plans . . . . . . . . . . . . . . 12
5.19 Reports and Rights of Inspection . . . . . . . . . . . . 12
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5.20 Leases . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.21 Investment Advisory Agreement . . . . . . . . . . . . . . 15
SECTION 6. EVENTS OF DEFAULT AND REMEDIES THEREFOR . . . . . . . . . 15
6.1 Events of Default . . . . . . . . . . . . . . . . . . . . 15
6.2 Notice to Holders . . . . . . . . . . . . . . . . . . . . 17
6.3 Acceleration of Maturity . . . . . . . . . . . . . . . . 17
6.4 Rescission of Acceleration . . . . . . . . . . . . . . . 18
SECTION 7. AMENDMENTS, WAIVERS AND CONSENTS . . . . . . . . . . . . 18
7.1 Consent Required . . . . . . . . . . . . . . . . . . . . 18
7.2 Effect of Amendment or Waiver . . . . . . . . . . . . . . 19
SECTION 8. INTERPRETATION OF AGREEMENT; DEFINITIONS . . . . . . . . 19
8.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . 19
8.2 Accounting Principles . . . . . . . . . . . . . . . . . . 26
SECTION 9. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . 26
9.1 Note Register . . . . . . . . . . . . . . . . . . . . . . 26
9.2 Exchange of Note . . . . . . . . . . . . . . . . . . . . 26
9.3 Loss, Theft, Etc. of Note . . . . . . . . . . . . . . . . 26
9.4 Expenses; Stamp Tax Indemnity . . . . . . . . . . . . . . 27
9.5 Indemnities . . . . . . . . . . . . . . . . . . . . . . . 27
9.6 Powers and Rights Not Waived; Remedies
Cumulative . . . . . . . . . . . . . . . . . . . . . . 28
9.7 Notices . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.8 Reproduction of Documents . . . . . . . . . . . . . . . . 28
9.9 Counterparts . . . . . . . . . . . . . . . . . . . . . . 28
9.10 Successors and Assigns . . . . . . . . . . . . . . . . . 29
9.11 Survival of Covenants and Representations . . . . . . . . 29
9.12 Severability . . . . . . . . . . . . . . . . . . . . . . 29
9.13 Governing Law . . . . . . . . . . . . . . . . . . . . . . 29
9.14 Captions . . . . . . . . . . . . . . . . . . . . . . . . 29
9.15 Waiver of Jury Trial . . . . . . . . . . . . . . . . . . 29
ATTACHMENTS TO NOTE AGREEMENT:
EXHIBIT A Form of Amended and Restated Senior Subordinated
Convertible Note Due December 31, 2003
EXHIBIT B Voting Trust Agreement
EXHIBIT C Representations and Warranties
EXHIBIT D Registration Rights Agreement
EXHIBIT E Financial Covenants
EXHIBIT F Reporting Requirements
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NOTE AGREEMENT
THIS AMENDED AND RESTATED NOTE AGREEMENT (this "Agreement") is made and
entered into as of November 8, 1996, as amended and restated on June 30, 1997
by and between Standard Management Corporation, an Indiana corporation (the
"Company") and Great American Reserve Insurance Company, a Texas corporation
(the "Purchaser").
WHEREAS, the parties hereto entered into the Note Agreement on November 8,
1996 and both desire to amend and restate such document.
NOW THEREFORE, in consideration of the premises and for other good and
valuable consideration the receipt and adequacy of which is hereby
acknowledged, the parties hereto hereby agree as follows:
SECTION 1. DESCRIPTION OF NOTE AND COMMITMENT.
1.1. Description of Note. The Company has duly authorized the
issuance of its Amended and Restated Senior Subordinated Convertible Note Due
December 31, 2003 in the principal amount of Four Million Three Hundred
Seventy-One Thousand Five Hundred Seventy-Three Dollars ($4,371,573) to the
Purchaser (the "Note") in the form of Exhibit A, and shall bear interest at a
rate of 10% per annum. The Note will be dated the date of issue, will bear
interest from such date as respectively set forth therein, payable
semi-annually in cash on the first day of each January and July in each year
(commencing january 1, 1997) and at maturity. The note will bear interest on
overdue principal (including any overdue prepayment of principal) and on any
overdue installment of interest at the overdue rate after the due date thereof,
whether by prepayment, by acceleration or otherwise, until paid. The note will
be expressed to mature on december 31, 2003 and will be subject to prepayments
at the option of the holder in certain events prior to such date. Interest on
the note shall be computed on the basis of a 360-day year of twelve 30-day
months. The note is not subject to prepayment or redemption at the option of
the company prior to its expressed maturity date except on the terms and
subject to the conditions referred to in Section 2 of this Agreement. The
terms which are capitalized herein shall have the meanings set forth in Section
8.1 hereof unless the context shall otherwise require.
1.2. Commitments, Closing Date. Subject to the terms and conditions
hereof and on the basis of the representations and warranties hereinafter set
forth, the Company agrees to issue to the Purchaser, and the Purchaser agrees
to replace the original Senior Subordinated Convertible Note Due December 31,
2003 in the principal amount of Four Million Dollars ($4,000,000) (the
"Original Note") plus Three Hundred Seventy-One Thousand Five Hundred
Seventy-Three Dollars ($371,573) of accrued interest thereon with the Note on
the Closing Date.
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Delivery of the Note on the Closing Date will be made at such place as the
parties hereto mutually agree against cancellation of the Original Note and
interest thereon. On the Closing Date, the Company will deliver to the
Purchaser the Note in the principal amount of Four Million Three Hundred
Seventy-One Thousand Five Hundred Seventy-Three Dollars ($4,371,573).
1.3. Conversion. (a) The Purchaser may, at the Purchaser's option, at
any time, and from time to time, prior to payment in full of the Note, convert
the outstanding principal amount of the Note and any accrued and unpaid
interest due pursuant to Section 1.1 in whole or in part (the "Conversion
Amount") into fully paid and non-assessable shares (but only into full shares)
of the common stock, without par value of the Company (the "Common Shares"), at
a price equal to the amount of $5.747 per Common Share (the "Conversion Rate").
In order to exercise this conversion right, the Purchaser must send written
notice of the conversion to the Company at least 10 days prior to the specified
conversion date. On the conversion date (or as soon thereafter as is
reasonably practicable), the Company shall issue to the Purchaser a share
certificate for the Common Shares acquired upon conversion. The Purchaser's
right to elect to convert the Conversion Amount of the Note into Common Shares
shall not be affected by any prepayment notice given by the Company, so long as
the Company receives the Purchaser's written notice of the conversion at least
five Business Days before the date upon which Company specified in its notice
that it would prepay the Note;
(b) The Conversion Rate shall be adjusted as provided in the Note;
(c) Notwithstanding any other provisions of this Section 1.3 to the
contrary, the conversion rights of the Purchaser shall be exercisable only if
simultaneous with the conversion the Purchaser enters into a Voting Trust
Agreement substantially in the form attached hereto as Exhibit B with respect
to the Common Shares to be issued upon conversion;
(d) Notwithstanding any other provisions of this Section 1.3 to the
contrary, the conversion rights of the Purchaser shall be subject to compliance
with all applicable federal and state laws, (including but not limited to
securities laws and state insurance laws) and the Company agrees to execute all
required agreements and documents required by the Company to establish
compliance with such laws and to cooperate with the Purchaser to obtain any and
all approvals that may be required to be obtained by Purchaser in order to
exercise the conversion rights; and
(e) The Company shall at all times reserve and keep available and free of
preemptive rights out of its authorized but unissued Common Shares, solely for
the purpose of issuance upon conversion of the Note, that number of Common
Shares as shall from time to time be sufficient to effect the conversion of the
Note,
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and if at any time the number of authorized but unissued Common Shares
shall not be sufficient to effect the exercise of the Note, the Company shall
take the corporate action necessary to increase the number of its authorized
Common Shares to a number sufficient for this purpose.
SECTION 2. PREPAYMENT OF NOTE.
2.1 Restriction on Prepayment. No prepayment of the Note may be made
except to the extent and in the manner expressly provided in this Agreement.
2.2. Prepayments at Option of Holder in Certain Events. In the event
that a Repurchase Event occurs, the holder of the Note shall have the right, at
such holder's option, pursuant to an irrevocable and unconditional offer by the
Company, to require the Company to prepay all, or any part, of the Note on the
date that is no later than forty-five days after the occurrence of such
Repurchase Event, at a cash price equal to 101% of the principal amount thereof
to be prepaid plus accrued and unpaid interest thereon to the date fixed for
prepayment.
2.3. Prepayments at Option of the Company. The Note may be prepaid in
whole or in part at the option of the Company at the following redemption
prices (expressed as percentages of the principal amount) if prepaid during the
12-month period commencing July 1 of the years indicated below, in each case
together with any accrued but unpaid interest thereon to the prepayment date:
Year Percentage
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2000 105%
2001 104%
2002 103%
2003 102%
The Note may be prepaid in whole or in part at the option of the Company prior
to July 1, 2000 at a redemption price of 101% of the principal amount plus
accrued but unpaid interest thereon to the prepayment date only if (i) a Sale
Event occurs or (ii) the average of the closing prices of the Common Shares on
NASDAQ as reported in the Wall Street Journal, for any twenty trading days
within the thirty consecutive trading day period immediately prior to the date
of notice of prepayment equals or exceeds $8.00 per share. The Company shall
mail by first class mail to the holder of the Note a notice of prepayment at
least fifteen Business Days and not more than forty-five Business Days prior to
the prepayment date.
Any notice of prepayment pursuant to Section 2.2 or this Section 2.3 shall
(i) make reference to the applicable Section(s) of this Agreement, (ii) state
whether the Note is to be prepaid in whole or in part, and (iii) state the
prepayment date and price.
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The Company shall, on such prepayment date, make the required prepayment.
2.4. Direct Payment. Notwithstanding anything to the contrary in this
Agreement or the Note, in case the Note is owned by the Purchaser or its
nominee (or owned by any other institutional holder who has given written
notice to the Company requesting that the provision of this Section 2.4 shall
apply), the Company will promptly and punctually pay when due the principal
thereof and interest thereon, without any presentment thereof directly to such
Purchaser or such subsequent holder at the address of such Purchaser or at such
other address as such Purchaser or such subsequent holder may from time to time
designate in writing to the Company or, if a bank account is designated for the
Purchaser or in any written notice to the Company from such Purchaser or any
such subsequent holder, the Company will make such payments in immediately
available funds to such bank account, marked for attention as indicated, or in
such other manner or to such other account of such Purchaser or such holder in
any bank in the United States as such Purchaser or any such subsequent holder
may from time to time direct in writing. The holder of any Note to which this
Section 2.4 applies agrees that in the event it shall sell or transfer any such
Note it will (A) prior to the delivery of such Note make a notation thereon of
all principal, if any, prepaid thereon and of the date to which interest has
been paid thereon, and (B) promptly notify the Company in writing of the name
and address of the transferee of the Note so transferred. To the extent this
Section 2.4 applies, the Company shall be entitled to presume conclusively that
the original or such subsequent institutional holder as shall have requested
the provisions hereof to apply to its Note remains the holder of such Note
until (1) the Company shall have received from the transferor thereof written
notice of the transfer of such Note and of the name and address of the
transferee, or (2) such Note shall have been presented to the Company as
evidence of the transfer. The Purchaser agrees, and any subsequent holder
requesting direct payment pursuant to this Section 2.4 shall by requesting
direct payment be deemed to have agreed, to return the Note to the Company
promptly following the final payment thereof.
SECTION 3. REPRESENTATIONS.
3.1. Representations of the Company. The Company represents and warrants
that all representations set forth in Exhibit C attached hereto are true and
correct as of the date hereof and are incorporated herein by reference with the
same force and effect as though herein set forth in full.
3.2. Representations of the Purchaser. The Purchaser represents, and in
entering into this Agreement the Company understands, that (1) the Purchaser is
acquiring the Note for the purpose of investment and not with a view to the
resale or distribution thereof, and that the Purchaser has no present
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intention of selling, negotiating, transferring or otherwise disposing of the
Note, but without prejudice, however, to the Purchaser's right at all times to
sell or otherwise dispose of all or any part of the Note pursuant to a
registration statement which has become effective under the Securities Act of
1933, as amended (the "Act"), or in a transaction exempt from the registration
requirements of such Act, and (2) the Purchaser is an "accredited investor" as
defined in Rule 501(a) of Regulation D under the Act. The Purchaser
acknowledges that the Note it is purchasing on the Closing Date will not, as of
said Closing Date, be registered under the Act, and except as provided in the
Registration Rights Agreement, that the Company assumes no obligation to
register the Note under the Act and that the Note may only be offered or sold
in compliance with the Act and applicable state securities laws.
SECTION 4. CLOSING CONDITIONS.
The Purchaser's obligations to acquire the Note on the Closing Date shall
be subject to the performance by the Company of its agreements hereunder which
by the terms hereof are to be performed at or prior to the time of delivery of
the Note and to the following further conditions precedent:
4.1. Closing Certificate. Concurrently with the delivery of the Note to
the Purchaser on the Closing Date, the Purchaser shall have received a
certificate dated the Closing Date, signed by the Secretary of the Company,
certifying, among other things, (a) a true and correct copy of the Certificate
of Incorporation of the Company, and all amendments, if any, thereto, (b) a
true and correct copy of the By-Laws of the Company as then in effect, (c)
copies of all corporate action taken by the Company, including resolutions of
its Board of Directors authorizing the execution, delivery and performance of
this Agreement, the Note and each other document to be delivered by the Company
pursuant to this Agreement, and (d) the names and true signatures of the
officers of the Company authorized to sign this Agreement, the Note and each
other document to be delivered by the Borrower under this Agreement.
4.2. Legal Opinion. Concurrently with the delivery of the Note to the
Purchaser on the Closing Date, the Purchaser shall have received a favorable
opinion of counsel for the Company in form and substance satisfactory to the
Purchaser in all respects, dated the Closing Date.
4.3. Company's Existence and Authority. On or prior to the Closing Date,
the Purchaser shall have received, in form and substance reasonably
satisfactory to it and its special counsel, such documents and evidence with
respect to the Company establishing the existence and good standing of the
Company and its Subsidiaries and the Company's authorization of the
transactions contemplated by this Agreement.
4.4. Consent and Approvals. Any consents or approvals required to be
obtained from any holder or holders of any
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outstanding Security of the Company or any other Person (including any state
insurance regulators) and any amendments of agreements pursuant to which any
Securities may have been issued which shall be necessary to permit the
consummation of the transactions contemplated hereby on the Closing Date shall
have been obtained and all such consents or amendments shall be satisfactory in
form and substance to the Purchaser and its special counsel.
4.5 Registration Rights Agreement. The parties shall have entered into a
Registration Rights Agreement substantially in the form attached hereto as
Exhibit D.
4.6. Legality of Investment. The Note to be acquired by the Purchaser
shall be a legal investment for the Purchaser under the laws of each
jurisdiction to which it may be subject (including legality by virtue of resort
to any so-called basket provisions of such laws).
4.7. Satisfactory Proceedings. All proceedings taken in connection with
the transactions contemplated by this Agreement, and all documents necessary to
the consummation thereof, shall be reasonably satisfactory in form and
substance to the Purchaser and its special counsel, and the Purchaser shall
have received a copy (executed or certified as may be appropriate) of all legal
documents or proceedings taken in connection with the consummation of said
transactions.
4.8. Waiver of Conditions. If on the Closing Date the Company fails to
tender to the Purchaser the Note to be issued to the Purchaser on such date or
if the conditions specified in this Section 4 have not been fulfilled, the
Purchaser may thereupon elect to be relieved of all further obligations under
this Agreement. Without limiting the foregoing, if the conditions specified in
this Section 4 have not been fulfilled, the Purchaser may waive in writing the
compliance by the Company with any such condition to such extent as the
Purchaser may in its sole discretion determine. Nothing in this Section 4.8
shall operate to relieve the Company of any of its obligations hereunder or to
waive any of the Purchaser's rights against the Company.
SECTION 5. COMPANY COVENANTS.
From and after the Closing Date and continuing so long as any amount
remains unpaid under the Note:
5.1. Corporate Existence, Etc. The Company will preserve and keep in
force and effect, and will cause each Subsidiary to preserve and keep in force
and effect, its respective corporate existence and all material licenses and
permits necessary to the proper conduct of its business, provided that the
foregoing shall not prevent (x) the liquidation of or the transfer, sale or
other disposition of any asset in accordance with Section 5.10 or (y) any other
transaction otherwise permitted or consented to under this Agreement.
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5.2. Insurance. (a) The Company will maintain, and will cause each
Subsidiary to maintain, insurance coverage by financially sound and reputable
insurers in such forms and amounts and against such risks as are customary for
corporations of established reputation engaged in the same or similar
businesses and owning and operating similar properties. The Company will
maintain in force life insurance coverage by a financially sound and reputable
insurer (other than an Affiliate of the Company) on ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ in form
and substance satisfactory to the purchasers naming the Company as loss payee
in an amount not less than Four Million Dollars ($4,000,000). The Company
shall furnish to the Purchaser on or prior to the Closing Date a summary of
insurance in force as of such date. The Company shall give notice to the
Purchaser of any reduction in coverage or other material changes to the
insurance maintained by the Company and its Subsidiaries.
(b) At any time that the Company shall own any physical assets, it shall
maintain physical damage insurance coverage at least equal to the fair market
value of such assets and reasonable liability insurance thereon, and with
respect to each liability or physical damage insurance policy covering any of
the property of the Company, the Company will cause such policy to provide,
pursuant to endorsements in form and substance satisfactory to the Purchaser,
that the insurer will give the Purchaser 30 days prior written notice of the
termination of such policy.
5.3. Taxes, Claims for Labor and Materials, Compliance with Laws. (a)
The Company will promptly pay and discharge, and will cause each Subsidiary
promptly to pay and discharge, all lawful taxes, assessments and governmental
charges or levies imposed upon the Company or such Subsidiary, respectively, or
upon or in respect of all or any part of the Property or business of the
Company or such Subsidiary, and all claims for work, labor or materials, which
if unpaid could become a Lien or charge upon any Property of the Company or
such Subsidiary, which Lien or charge could materially and adversely affect the
Properties, business or financial condition of the Company and its Subsidiaries
considered as one enterprise; provided that the Company or such Subsidiary
shall not be required to pay any such tax, assessment, charge, levy, or claim
if (1) the validity, applicability or amount thereof is being contested in good
faith by appropriate actions or proceedings which will prevent the forfeiture
or sale of any material Property of the Company or such Subsidiary or any
material interference with the use thereof by the Company or such Subsidiary,
and (2) the Company or such Subsidiary shall set aside on its books reserves
reasonably deemed by it to be adequate with respect thereto.
(b) The Company will promptly comply, and will cause each Subsidiary to
promptly comply, with all laws, ordinances or governmental rules and
regulations to which it is subject, including without limitation ERISA and all
Environmental Legal Requirements, the violation of which could materially and
adversely affect the Properties, business or financial condition of the
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Company and its Subsidiaries considered as one enterprise or could result in
any Lien or charge upon any Property of the Company or any Subsidiary, which
Lien or charge could materially and adversely affect the properties, business
or financial condition of the Company and its Subsidiaries considered as one
enterprise.
5.4. Maintenance of Material Properties, Etc. The Company will maintain,
preserve and keep, and will cause each Subsidiary to maintain, preserve and
keep, its Properties which are used in the conduct of its business (whether
owned in fee or a leasehold interest), excluding any Properties that the
Company or any Subsidiary reasonably determines to be surplus, obsolete or
otherwise not useful in the conduct of its respective business and excluding
any Properties the failure to maintain, preserve and keep which would not have
a material and adverse effect on the Properties, business or financial
condition of the Company and its Subsidiaries considered as one enterprise, in
good repair and working order, normal wear and tear excepted, and from time to
time will make all necessary repairs, replacements, renewals and additions
which in the opinion of the Company will maintain the efficiency thereof.
5.5. Nature of Business. The Company and its Subsidiaries will continue
to engage in substantially the same types of businesses in which they are
engaged as of the date hereof.
5.6. Limitations on Indebtedness. The Company will not, and will not
permit any Subsidiary to, create, assume, issue, guarantee, suffer to exist or
otherwise incur any Indebtedness, except:
(a) Indebtedness of the Company under this Agreement and the Note;
(b) Indebtedness existing as of the date hereof and set forth on
Schedule 5.6;
(c) Indebtedness of the Company under the Fleet Credit Agreement;
(d) Accounts payable to trade creditors for goods or services
which are not aged more than sixty days from billing date, and current
operating liabilities (other than for borrowed money) which are not more
than sixty days past due, in each case incurred in the ordinary course of
business and paid within the specified time, unless contested in good
faith and by appropriate proceedings and for which appropriate reserves
are maintained;
(e) Indebtedness between Subsidiaries of the Company or between a
Subsidiary of the Company and the Company; and
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(f) Indebtedness of the Company or any of its Subsidiaries, if
any, secured by purchase-money Liens permitted by Section 5.7 hereof.
5.7. Limitations on Liens. The Company will not, and will not permit any
Subsidiary to, create, assume or incur, or suffer to exist, any mortgage,
pledge, security interest, encumbrance, lien or charge of any kind on its or
their property, whether now owned or hereafter acquired, or upon any income or
profits therefrom (collectively, "Liens"), except:
(a) Liens in favor of Fleet National Bank arising under the Fleet
Credit Agreement;
(b) Liens in favor of the Purchaser arising under this Agreement;
(c) Liens for taxes or assessments or other governmental charges
or levies not yet due and payable or, if due and payable, Liens which are
being contested in good faith by appropriate proceedings and for which
appropriate reserves are maintained;
(d) Liens imposed by law, such as mechanics', materialmen's,
landlords', warehousemen's, and carriers' Liens, and other similar Liens,
securing obligations incurred in the ordinary course of business which are
not past due for more than sixty days or which are being contested in good
faith by appropriate proceedings and for which appropriate reserves have been
established;
(e) Liens under workmen's compensation, unemployment insurance,
social security, or similar legislation;
(f) Liens incurred in the ordinary course of business relating to
deposits or pledges to secure the performance of bids, tenders, contracts
(other than contract for the payment of money), leases (permitted under
the terms of this Agreement), or public or statutory obligations, surety,
stay, appeal, indemnity, performance, or other similar bonds, or other
similar obligations;
(g) Judgment and other similar Liens arising in connection with
court proceedings, provided the execution or other enforcement of such
Liens is effectively stayed and claims secured thereby are being actively
contested in good faith and by appropriate proceedings;
(h) Easements, rights-of-way, restrictions, and other similar
encumbrances which, in the aggregate, do not materially interfere with
the occupation, use, and enjoyment by the Company or any of its
Subsidiaries of the property or assets encumbered thereby in the normal
course of its
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business or materially impair the value of the property subject thereto;
and
(i) Existing Liens specified in Schedule 5.7 hereto.
5.8. Reinsurance. Except for reinsurance on annuity products sold after
the date hereof in the ordinary course of business consistent with past
practice, the Company will not permit any insurance company Subsidiary to enter
into any reinsurance or other similar agreement with respect to 10% or more of
its respective assets or liabilities in any fiscal year. Any reinsurance or
other similar agreement will be entered into only with a company that is rated
A or better by A.M. Best Company, Inc.
5.9. Financial Covenants. The Company will comply with all of the
financial covenants set forth in Exhibit E attached hereto, and the same is
hereby incorporated by reference with the same force and effect as though
herein set forth in full.
5.10. Sales of Assets. The Company will not, and will not permit any
Subsidiary to, sell, lease, assign, transfer or otherwise dispose of any of its
now owned or hereafter acquired assets (including, without limitation, shares
of stock and indebtedness of any Subsidiary of the Company, receivables and
leasehold interests), except:
(a) the sale or other disposition of assets no longer used or
useful in the conduct of its business; or
(b) investment securities disposed of in the ordinary course of
business.
5.11. Loans and Investments. Subject to the limitations set forth below,
the Company shall not make, or permit any of its Subsidiaries to make, any loan
or advance to any Person, or purchase or otherwise acquire, or permit any of
its Subsidiaries to purchase or otherwise acquire, any capital stock, assets,
obligations, or other securities of, make any capital contribution to, or
otherwise invest in or acquire any interest in any Person except that, so long
as the Company complies at all times with the financial covenants set forth in
Section 5.9 herein, (i) the Company and its Subsidiaries may make investments
in fixed maturities securities rated less than "BBB" by ▇▇▇▇▇'▇ Investor
Services or Standard & Poor's Corporation and in mortgage loans, real estate,
collateral loans, common and nonredeemable preferred stocks and other invested
assets as long as the total of such investments does not exceed 10% of the
total consolidated investments of the Company and its Subsidiaries and (ii)
nothing herein shall limit the ability of the Company and its Subsidiaries to
invest all or any portion of their respective assets in fixed maturities
securities rated at least "BBB" by ▇▇▇▇▇'▇ Investor Service or Standard &
Poor's corporation, other investment grade bonds or securities guaranteed by
the United States Government.
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5.12. Guaranties, Etc. The Company shall not assume, guarantee, endorse,
or otherwise be or become directly or contingently responsible or liable, or
permit any of its Subsidiaries to assume, guarantee, endorse, or otherwise be
or become directly or contingently responsible or liable (including, but not
limited to, an agreement to purchase any obligation, stock, assets, goods, or
services, or to supply or advance any funds, assets, goods, or services, or to
maintain or cause such Person to maintain a minimum working capital or net
worth or otherwise to assure the creditors of any Person against loss) for
obligations of any Person, except (1) guarantee by endorsement of negotiable
instruments for deposit or collection or similar transactions in the ordinary
course of business; and (2) existing guaranties specified in Schedule 5.12.
5.13. Mergers, Etc. The Company will not, and will not permit any
Subsidiary to, merge with or into any Person or consolidate with, or sell,
assign, lease or otherwise dispose of (whether in one transaction or in a
series of transactions), all or substantially all of the assets or business of
any Person, except:
(a) any Subsidiary may merge with or into any Wholly-owned
Subsidiary so long as the Wholly-owned Subsidiary is the surviving
entity; and
(b) any Subsidiary may merge into the Company.
5.14. Transactions with Affiliates.
The Company will not enter into, or permit any of its Subsidiaries to
enter into, any transaction, including, without limitation, the purchase, sale,
or exchange of property or the rendering of any service with any Affiliate,
which individually or in the aggregate for the Company and its Subsidiaries
aggregate more than $250,000 per fiscal year, except in the ordinary course of
and pursuant to the reasonable requirements of the Company or such Subsidiary's
business and upon fair and reasonable terms no less favorable to the Company or
such Subsidiary than would be obtained in a comparable arm's-length transaction
with a Person not an Affiliate and except for the transactions listed on
Schedule 5.14 and Schedule 5.17.
5.15. Limitation on Sale and Lease-Backs. Except for existing Liens
specified in Schedule 5.6, the Company will not enter into, or permit any
Subsidiary to enter into, any arrangement with any bank, insurance company or
other lender or investor, or to which any such lender or investor is a party,
providing for the leasing to the Company or any Subsidiary of any Property or
Properties which has been or is to be sold or transferred by the Company or any
Subsidiary to such lender or investor or to any Person to which funds have been
or are to be advanced by such lender or investor, in whole or in part, on the
security of the leased Property.
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5.16. Repurchases of Note. Neither the Company nor any Subsidiary nor
any Affiliate, directly or indirectly, may repurchase or make any offer to
repurchase the Note unless the offer has been made to repurchase, pro-rata,
from all holders of the Note at the same time and upon equivalent terms. In
case the Company repurchases any Note, such Note shall thereafter be canceled
and no note shall be issued in substitution thereof.
5.17. Dividends. The Company shall cause its Subsidiaries to pay to the
Company such amounts as will be sufficient for the Company to perform its
obligations under the Fleet Credit Agreement, this Agreement and the Note and
the surplus debentures listed on Schedule 5.17 (with respect to interest
payments only) so long as such amounts may be legally paid under applicable
insurance laws or are otherwise approved by insurance regulators; provided that
the inability of any Subsidiary to pay dividends shall not affect the Company's
payment and other obligations under this Agreement and the Note.
5.18. Termination of Pension Plans. The Company will not, and will not
permit any Subsidiary to, terminate any Plan maintained by it in a manner which
would result in the imposition of a Lien on any Property of the Company or any
Subsidiary pursuant to ERISA.
5.19. Reports and Rights of Inspection.
(a) The Company will keep, and will cause each Subsidiary to keep,
proper books of record and account in which full and accurate entries
will be made of all dealings or transactions of or in relation to the
business and affairs of the Company or such Subsidiary, in accordance
with GAAP and SAP, and will furnish to the Purchaser so long as the
Purchaser is the holder of any Note and to each other institutional
holder of the then outstanding Note the reports set forth on Exhibit F
attached hereto and any special reports or information requested by
and/or furnished to Fleet National Bank and the same is hereby
incorporated by reference with the same force and effect as though herein
set forth in full.
(b) The Company will permit the Purchaser, so long as the Purchaser
is the holder of any Note, (or such Persons as either the Purchaser or
such holder may designate) to visit and inspect any of the properties of
the Company or any Subsidiary, to examine all their books of account and
financial records of operations, and at the expense of such holder to
make copies and extracts therefrom, and to discuss their respective
affairs, finances and accounts with their respective officers, other
executives and independent public accountants (and by this provision the
Company authorizes said accountants to discuss with the Purchaser the
finances and affairs of the Company and its Subsidiaries), all at such
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reasonable times and as often as may be reasonably requested. The Company
shall not be required to pay or reimburse the Purchaser or any such holder
for expenses which the Purchaser or any such holder may incur in connection
with any such visitation or inspection unless a Default or an Event of
Default shall have occurred and be continuing hereunder.
(c) Any information regarding the Company or any Subsidiary which
is, pursuant to this Agreement, provided to, or obtained or examined by,
(1) the Purchaser, or any of the its representatives, while the Purchaser
or its nominee holds the Note, or (2) any other holder of the Note, or any
of its representatives, while such holder holds such Note, shall be
considered and treated by the Purchaser and its representatives and each
other holder of the Note and its representatives as confidential. The
Purchaser agrees that it will not disclose any such information without
the prior written consent of the Company (which consent shall not be
unreasonably withheld) other than on a confidential basis to (1) any one
or more of the Purchaser's respective directors, employees, agents,
attorneys and accountants who would have access to such information in the
normal course of the performance of such Person's duties and (2) the other
holders of the Note who first agree to be bound by the confidentiality
provisions hereof, or any one or more of the directors, employees, agents,
attorneys and accountants of such other holders of the Note who would have
access to such information in the normal course of the performance of such
Person's duties; provided that the Purchaser may disclose or disseminate
any such information:
(i) as has become generally available to the public (other than in
violation of this Agreement);
(ii) to such third parties as the Purchaser may, in its discretion,
deem reasonably necessary or desirable in connection with or in response
to (1) compliance with any law (including without limitation any
applicable Freedom of Information Act), ordinance or governmental order,
regulation, rule, policy, subpoena, investigation, regulatory authority
request or requests, or (2) any order, decree, judgment, subpoena, notice
of discovery or similar ruling or pleading issued, filed served or
purported on its face to be issued, filed or served (x) by or under
authority of any court, tribunal, arbitration board of any governmental or
industry agency, commission, authority, board or similar entity or (y) in
connection with any proceeding, case or matter pending (or on its face
purported to be pending) before any court, tribunal, arbitrator or board
of any governmental agency, commission, authority, similar entity, it
being understood that the Purchaser will use its best efforts to give
prior notice to the Company thereof;
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(iii) to any prospective purchaser, securities broker or dealer or
investment banker in connection with the resale or proposed resale of any
portion of the Note after such party shall have agreed to maintain the
confidentiality of any information furnished by the Company to the extent
required hereunder;
(iv) to the NAIC;
(v) to any entity utilizing such information to rate or classify
debt or equity securities or to report to the public concerning the
industry of which it is a part; and
(vi) to enforce or protect its rights under this Agreement or the
Note.
(d) Neither the Purchaser nor any other holder or holders of the
Note will be liable for the breach of this provision by any other holder
of the Note.
5.20. Leases. The Company shall not create, incur, assume, or suffer to
exist, or permit any of its Subsidiaries to create, incur, assume, or suffer to
exist, any obligation as lessee for the rental or hire of any real or personal
Property, except:
(a) Capitalized Leases, if any, permitted under Section 5.7 hereof;
(b) Leases existing on the date of this Agreement and any
extensions or renewals thereof;
(c) Leases (other than Capitalized Leases) which do not in the
aggregate require the Company and its Subsidiaries on a consolidated
basis to make payments (including taxes, insurance, maintenance and
similar expenses which the Company or any of its Subsidiaries is required
to pay under the terms of any lease) in any fiscal year of the Company in
excess of One Million Four Hundred Thirty Thousand Dollars ($1,430,000);
and
(d) Leases between the Company and any of its Subsidiaries.
5.21. Investment Advisory Agreement. Pursuant to that certain Investment
Advisory Agreement between Standard Life and Conseco Capital Management Inc.
("Conseco Capital") dated as of August 1, 1991, (the "Investment Advisory
Agreement"), Conseco Capital provides investment advice, among other services,
to the Company. Neither the Company nor Standard Life shall replace Conseco
Capital with any other party or allow any party other than Conseco Capital to
provide the services currently covered under the Investment Advisory Agreement
with respect to the Company, any of the Company's assets or any assets of any
of the Company's
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Subsidiaries domiciled in the United States without the prior written consent
of the holder of the Note.
SECTION 6. EVENTS OF DEFAULT AND REMEDIES THEREFOR.
6.1. Events of Default. If any of the following events ("Events of
Default") shall occur and be continuing:
(a) The Company should fail to pay or prepay, as and when due and
payable, any principal under the Note;
(b) The Company should fail to pay or prepay, as and when due and
payable, any interest due on the Note and such failure to pay or prepay
shall continue for more than three (3) Business Days;
(c) Any representation or warranty made or deemed made by the
Company in this Agreement or in the Note or which is contained in any
certificate, document, opinion, financial or other statement furnished at
any time or in connection with this Agreement, shall prove to have been
incorrect in any material respect on or as of the date made or deemed
made;
(d) The Company shall fail to perform or observe any term,
covenant, or agreement contained in any Loan Document (other than the
provisions of Section 5 of this Agreement) to which it is a party on its
part to be performed or observed;
(e) The Company shall fail or perform or observe any term,
covenant, or agreement contained in Section 5 of this Agreement and such
failure shall remain unremedied until the earlier of ten (10) Business
Days after (i) written notice thereof shall be given to the Company by
the Purchaser, or (ii) the Company is notified of such failure or should
have been notified of such failure pursuant to Section 6.2 hereof;
(f) An event of default shall occur pursuant to the Fleet Credit
Agreement;
(g) The Company or any of its Subsidiaries shall (i) fail to pay
any of its Debt (after giving effect to any applicable grace period), or
any interest or premium thereon, when due (whether by scheduled maturity,
required prepayment, acceleration, demand, or otherwise), or (ii) fail to
perform or observe any term, covenant, or condition on its part to be
performed or observed under any agreement or instrument relating to any
such Debt, when required to be performed or observed, if the effect of
such failure to perform or observe is to accelerate, or to permit the
acceleration after the giving of notice or passage of time, or both, of
the maturity of such Debt, whether or not such failure to perform or
observe shall be waived by the holder of such Debt; or any
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such Debt shall be declared to be due and payable, or required to be
prepaid (other than by a regularly scheduled required prepayment), prior
to the stated maturity thereof;
(h) The Company or any of its Subsidiaries (i) shall generally not,
or shall be unable to, or shall admit in writing its inability to pay its
Debt as such Debt become due; or (ii) shall make an assignment for the
benefit of creditors, petition or apply to any tribunal for the
appointment of a custodian, receiver, or trustee for it or a substantial
part of its assets; or (iii) shall commence any proceeding under any
bankruptcy, reorganization, arrangements, readjustment of debt,
dissolution, or liquidation law or statute of any jurisdiction, whether
now or hereafter in effect; or (iv) shall have any such petition or
application filed or any such proceeding commenced against it in which an
order for relief is entered or adjudication or appointment is made and
which remains undismissed for a period of sixty (60) days or more; or (v)
by any act or omission shall indicate its consent to, approval of, or
acquiescence in any such petition, application, or proceeding or order
for relief or the appointment of a custodian, receiver, or trustee for
all or any substantial part of its properties; or (vi) shall suffer any
such custodianship, receivership, or trusteeship to continue undischarged
for a period of sixty (60) days or more;
(i) One or more judgments, decrees, or orders for the payment of
money in excess of $250,000 in the aggregate shall be rendered against
the Company or any of its Subsidiaries, and such judgments, decrees, or
orders shall continue unsatisfied and in effect for a period of thirty
(30) consecutive days without being vacated, discharged, satisfied, or
stayed or bonded pending appeal;
(j) Any of the following events occur or exist with respect to the
Company, any of its Subsidiaries, or any ERISA Affiliate: (a) any
Prohibited Transaction involving any Plan; (b) any Reportable Event with
respect to any Plan; (c) the filing under Section 4041 of ERISA of a
notice of intent to terminate any Plan or the termination of any Plan;
(d) any event or circumstance that might constitute grounds entitling the
PBGC to institute proceedings under Section 4042 of ERISA for the
termination of, or for the appointment of a trustee to administer, any
Plan, or the institution by the PBGC of any such proceedings; (e)
complete or partial withdrawal under Section 4201 or 4204 of ERISA from a
Multiemployer Plan or the reorganization, insolvency, or termination of
any Multiemployer Plan; and in each case above, such event or condition,
together with all other events or conditions, if any, could in the
reasonable opinion of the Purchaser subject the Company, or any of its
Subsidiaries, or any ERISA Affiliate to any tax, penalty, or other
liability to a Plan, a Multiemployer Plan, the PBGC, or otherwise (or any
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combination thereof) which in the aggregate exceed or may exceed
$250,000; or
(k) Any change in the current ownership or management of the
Company or Standard Life that would effect a change in "control" (as such
term is defined under the applicable definitional section of the Indiana
Insurance Law) of the Company and Standard Life.
6.2. Notice to Holders. When any Event of Default described in the
foregoing Section 6.1 has occurred, or if the holder of the Note or of any
other evidence of Indebtedness of the Company gives any notice or takes any
other action with respect to a claimed default, the Company agrees to give
notice within ten (10) days of such event and the action which is proposed to
be taken by the Company with respect thereto to the holder of the Note then
outstanding, such notice to be in writing and sent in the manner provided in
Section 9.7 hereof.
6.3. Acceleration of Maturity. During the existence of an Event of
Default the holder of the Note who or which has not consented to any waiver
with respect to such Event of Default may, at its option, by notice in writing
to the Company, declare the Note then held by such holder to be, and such Note
shall thereupon become, forthwith due and payable, together with all interest
accrued thereon, and to the extent not prohibited by applicable law, interest
on such principal and accrued interest at the Overdue Rate for the period from
and after the date of acceleration to and including the date of payment
thereof, without any presentment, demand, protest or other notice of any kind,
all of which are hereby expressly waived, and the Company shall forthwith pay
to such holder the entire such amount. The holder of the Note may proceed to
protect and enforce its rights either by suit in equity and/or by action at
law, whether for specific performance of any covenant or agreement contained in
this Agreement or in the Note, or in aid of the exercise of any power granted
herein or therein or proceed to obtain judgment or any other relief whatsoever
appropriate to the action or proceeding, or proceed to enforce any other legal
or equitable right of any such holder of the Note. Upon the Note becoming due
and payable as a result of any Event of Default as aforesaid, the Company will
forthwith pay in cash to the holder of the Note the entire principal, and
interest accrued on the Note and interest on such principal, and accrued
interest at the Overdue Rate for the period from and after the date of
acceleration to and including the date of payment thereof. No course of
dealing on the part of any holder of the Note nor any delay or failure on the
part of any holder of the Note to exercise any right shall operate as a waiver
of such right or otherwise prejudice such holder's rights, powers and remedies.
The Company further agrees, to the extent not prohibited by applicable law, to
pay to the holder of the Note all costs and expenses reasonably incurred by it
in the collection of the Note upon any Event of Default hereunder or thereon,
including without limitation
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reasonable compensation to such holder's or holders' attorneys for all services
rendered in connection therewith.
6.4. Rescission of Acceleration. The provisions of Section 6.3 are
subject to the condition that if the principal of and accrued interest on the
outstanding Note has been declared immediately due and payable by reason of the
occurrence of any Event of Default, the holder may, by written notice to the
Company, rescind and annul such declaration and the consequences thereof,
provided that at the time such declaration is annulled and rescinded:
(a) no judgment or decree shall have been entered for the payment
of any monies due pursuant to the Note or this Agreement;
(b) all arrears of interest upon the Note and all other sums
payable under the Note and under this Agreement (except any principal or
interest on the Note which has become due and payable solely by reason of
such declaration under Section 6.3) shall have been duly paid; and
(c) each and every other Event of Default shall have been made
good, cured or waived pursuant to Section 7.1;
and provided further, that no such rescission and annulment shall extend to or
affect any subsequent Event of Default or impair any right consequent thereto.
SECTION 7. AMENDMENTS, WAIVERS AND CONSENTS.
7.1. Consent Required. Any term, covenant, agreement or condition of
this Agreement may, with the consent of the Company, be amended or compliance
therewith may be waived (either generally or in a particular instance and either
retroactively or prospectively), if the Company shall have obtained the consent
in writing of the holder; provided that without the written consent of the
holder of the Note outstanding, no such waiver, modification, alteration or
amendment shall be effective (a) which will change the time of payment of the
principal of or the interest on the Note or change the principal amount thereof
or change the rate of interest thereon, or (b) which will change any of the
provisions with respect to prepayments.
7.2. Effect of Amendment or Waiver. Any amendment or waiver under this
Agreement shall apply equally to all of the holders of the Note and shall be
binding upon them, upon each future holder of the Note and upon the Company,
whether or not such Note shall have been marked to indicate such amendment or
waiver. No such amendment or waiver shall extend to or affect any obligation
not expressly amended or waived or impair any right consequent thereon.
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SECTION 8. INTERPRETATION OF AGREEMENT; DEFINITIONS.
8.1. Definitions. Unless the context otherwise requires, the terms
hereinafter set forth when used herein shall have the following meanings, and
the following definitions shall be equally applicable to both the singular and
plural forms of any of the terms herein defined:
"Act" is defined in Section 3.2.
"Affiliate" means any Person (other than a Subsidiary) (a) which directly
or indirectly through one or more intermediaries controls, or is controlled by,
or is under common control with, the Company, or (b) which beneficially owns or
holds (i) 10% or more of any class of the Voting Stock of the Company or (ii)
10% or more of the Voting Stock (or in the case of a Person which is not a
corporation, 10% or more of the equity interest) of which is beneficially owned
or held by the Company or a Subsidiary. The term "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of Voting Stock, by contract or otherwise.
"Annual Statement" shall mean the annual financial statement of the
Company or any Subsidiary as required to be filed with Indiana State Insurance
Department or other applicable authority, together with all exhibits or
schedules filed therewith, prepared in conformity with SAP.
"Business Day" means any day other than a Saturday, Sunday or other day on
which The Federal Reserve Bank of Chicago is required by law to close.
"Capital Lease" means any lease, the obligation for rentals with respect
to which is required to be capitalized on a balance sheet of the lessee in
accordance with GAAP, or for which the amount of the asset and liability
thereunder as if so capitalized is required to be disclosed in a note to such
balance sheet in accordance with GAAP, together with any other lease which is
in substance a financing lease.
"Closing Date" means June 30, 1997.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, or any successor or superseding tax laws of the United States of America
together with all regulations promulgated thereunder.
"Common Shares" is defined in Section 1.3.
"Conversion Amount" is defined in Section 1.3.
"Conversion Rate" is defined in Section 1.3.
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"Debt" means (i) all indebtedness or liability for borrowed money or for
the deferred purchase price of property or services (excluding trade
obligations incurred in the ordinary course of business which are not
outstanding more than ninety days from the date of invoice thereof); (ii) all
obligations as lessee under Capital Leases; (iii) all current liabilities in
respect of unfunded vested benefits under any Plans; (iv) all obligations under
letters of credit issued for the account of any Person; (v) all obligations
arising under acceptance facilities; (vi) all guaranties, endorsements (other
than for collection or deposit in the ordinary course of business), and other
contingent obligations to purchase, to provide funds for payment, to supply
funds to invest in any Person, or otherwise to assure a creditor against loss;
(vii) all obligations secured by any lien on Property, whether or not the
obligations have been assumed by the owner thereof; (viii) all other items of
indebtedness which in accordance with GAAP would be included in determining
total indebtedness as shown on the liability side of a balance sheet at the
date as of which indebtedness is to be determined; and (ix) all indebtedness or
liability of the Company to the Purchaser with respect to the Note.
Notwithstanding the foregoing, the term "Debt" shall not include (i) any
intercompany debt existing on the date hereof between the Company and Standard
Management International, S.A., or (ii) any indebtedness existing on the date
hereof between Standard Life and Standard Development, L.L.C.
"Default" means any event or condition, the occurrence of which would,
with the lapse of time or the giving of notice, or both, constitute an Event of
Default as defined in Section 6.1.
"EBIT" means, for any Person, for any period earnings before Interest
Expense, taxes and extraordinary items for such Person determined in accordance
with GAAP.
"Environmental Legal Requirement" means any applicable law, statute or
ordinance relating to public health, safety or the environment, including
without limitation any such applicable law, statute or ordinance relating to
releases, discharges or emissions to air, water, land or groundwater, to the
withdrawal or use of groundwater, to the use and handling of polychlorinated
biphenyl or asbestos, to the disposal, transportation, treatment, storage or
management of solid or hazardous wastes or to exposure to toxic or hazardous
materials, to the handling, transportation, discharge or release of gaseous or
liquid substances and any regulation, order, notice or demand issued pursuant
to any such law, statute or ordinance, in each case applicable to the property
of the Company and its Subsidiaries or the operation, construction or
modification of any thereof, including without limitation the following: the
Clean Air Act, the Federal Water Pollution Control Act, the Safe Drinking Water
Act, the Toxic Substances Control Act, the Comprehensive Environmental Response
Compensation and Liability Act as amended by the Superfund Amendments and
Reauthorization Act of 1986, the Resource Conservation and Recovery Act as
amended by the Solid and Hazardous Waste Amendments of 1984, the Occupational
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Safety and Health Act, the Emergency Planning and Community Right-to-Know Act
of 1986, the Solid Waste Disposal Act, and any state statutes addressing
similar matters or providing for financial responsibility for cleanup or other
actions with respect to the release or threatened release of hazardous
substances and any state nuisance statute.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended or supplemented from time to time, and the rules, regulations and
published interpretations issued in connection therewith.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) which, together with the Company, would be treated as a single
employer under Section 4001 of ERISA.
"Fixed Charge Coverage Ratio" means, as at any date and calculated on a
consolidated basis, the ratio of (a) the sum of allowable dividends of the
Company's insurance Subsidiaries and the Company's and its Subsidiaries EBIT
(calculated for immediately preceding four fiscal quarters) to (b) the
Company's and its Subsidiaries' Interest Expense plus the amount of principal
installments and other principal maturities of Debt of the Company and its
Subsidiaries (calculated for the four fiscal quarters immediately following
such date).
"Fleet Credit Agreement" means the Amended and Restated Revolving Line of
Credit Agreement between the Company and Fleet National Bank dated as of
November 8, 1996, as to be amended in connection with the closing of the
acquisition of Savers Life.
"GAAP" means United States generally accepted accounting principles from
time to time in effect and applicable to the consolidated financial statements
of the Company. Whenever any accounting term is used herein which is not
otherwise defined, it shall be interpreted in accordance with GAAP, except
where statutory accounting principles are stated to be applicable.
"Governmental Authority" means any nation or government, any state or
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Guarantees" by any Person means all obligations (other than endorsements
in the ordinary course of business of negotiable instruments for deposit or
collection) of such Person guaranteeing or in effect guaranteeing any
obligations of any other Person (the "primary obligor") in any manner, whether
directly or indirectly, including without limitation all such obligations
incurred through an agreement, contingent or otherwise, by such Person (a) to
purchase such obligations or any property or assets constituting security
therefor, (b) to advance or supply funds (1) for the purchase or payment of
such obligations, or (2) to maintain working capital or other balance sheet
condition or (3) otherwise to
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advance or make available funds for the purchase or payment of such
obligations, (c) to lease property or to purchase Securities or other property
or services primarily for the purpose of assuring the owner of such obligations
of the ability of the primary obligor to make payment of the obligations, or
(d) otherwise to assure the owner of the obligations of the primary obligor
against loss in respect thereof; provided, however, that any obligation which
is set forth in clause (a), (b), (c) or (d) above shall not be included in the
definition of Guarantees if such obligation is otherwise included in clause
(a), (b), (c) or (d) of the definition of Indebtedness; provided, further, that
obligations under life insurance or annuity policies issued by the Company or
its insurance company Subsidiaries and obligations of the Company or its
insurance company Subsidiaries in respect of reinsurance transactions shall not
be included in the definition of Guarantees. For the purposes of all
computations made under this Agreement, a Guarantee in respect of any
Indebtedness for borrowed money shall be deemed to be Indebtedness equal to the
maximum principal amount of such Indebtedness for borrowed money which has been
guaranteed, and a Guarantee in respect of any other obligation shall be deemed
to be Indebtedness equal to the maximum aggregate amount of the obligation so
guaranteed.
"Hazardous Materials" means, any hazardous materials, hazardous wastes,
hazardous constituents, hazardous or toxic substances, petroleum products
(including crude oil or any fraction thereof), defined or regulated as such in
or under any Environmental Legal Requirement.
"Indebtedness" of any Person means and includes all (a) obligations of
such Person for borrowed money or to pay the deferred purchase price of
property, (b) obligations secured by any lien or other charge upon property or
assets owned by such Person to the extent of the value of such property or
assets, regardless of whether or not such Person has assumed or become liable
for the payment of such obligations, (c) obligations created or arising under
any conditional sale or other title retention agreement with respect to
property acquired by such Person, notwithstanding the fact that the rights and
remedies of the seller, lender or lessor under such agreement upon the
occurrence of an event of default thereunder are limited to repossession or
sale of property, (d) capitalized rentals under any Capitalized Lease, and (e)
Guarantees; provided that obligations under life insurance or annuity polices
issued by the Company or its insurance company Subsidiaries and obligations of
the Company or its insurance company Subsidiaries in respect of reinsurance
transactions shall not be included in the definition of Indebtedness.
"Insurance Code" shall mean the Insurance Code of the State of Indiana and
any other applicable jurisdictions and any successor statute(s) of similar
import, together with the regulations thereunder, as amended or otherwise
modified and in effect from time to time. References to sections of the
Insurance Code shall be construed to also refer to successor sections.
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"Interest Expense" shall mean, with respect to any Person, for any period,
the sum, for such Person in accordance with GAAP of (a) all interest on Debt
that is accrued as an expense during such period (including, without
limitation, imputed interest on Capital Lease obligations), plus (b) all
amounts paid, accrued or amortized as an expenses during such period in respect
of interest rate protection agreements, minus (c) all amounts received or
accrued as income during such period in respect of interest rate protection
agreements.
"Investment" of any Person means any investment so classified under GAAP,
whether by stock purchase, capital contribution, loan, advance, purchase of
property or otherwise.
"Liens" are defined in Section 5.7.
"Loan Documents" means this Agreement, the Note, Registration Rights
Agreement and all other agreements, instruments and documents related to or
delivered by the Company or any Subsidiary in connection with any of the
foregoing.
"Multiemployer Plan" means a Plan described in Section 4001(a)(3) of ERISA
which covers employees of the Company or any ERISA Affiliate.
"NAIC" means the National Association of Insurance Commissioners and any
entity succeeding to any or all of its functions.
"Note" is defined in Section 1.1.
"Overdue Rate" means with respect to any Note 3% per annum over the
interest rate otherwise borne by such Note.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Person" means an individual, partnership, corporation, trust, joint stock
company or unincorporated organization or joint venture, and a government or
agency or political subdivision thereof.
"Plans" means any employee benefit pension plan which is maintained by the
Company or any Subsidiary and is covered by Title IV of ERISA or subject to the
funding standards of Section 412 of the Internal Revenue Code of 1986, as
amended.
"Prohibited Transaction" means any transaction set forth in Section 406 of
ERISA or Section 4975 of the Code.
"Property" means any interest in any kind of property or asset, whether
real, personal or mixed, or tangible or intangible.
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"Pro-rata" means pro-rata based on the aggregate outstanding principal on
all the Notes from time to time.
"Real Properties" shall have the meaning assigned to such term in Schedule
3.1 of this Agreement.
"Reportable Event" means (i) any of the events set forth in Sections 4043,
4068 or 4063 of ERISA (ii) any event requiring the Borrower or any ERISA
Affiliate to provide security to a Plan under Section 401(a)(20) of the Code or
(iii) any failure to make payments required by Section 412(m) of the Code.
"Repurchase Event" means the occurrence of any of the following events:
(i) any Person is or becomes the beneficial owner, directly or indirectly, of
50% or more of the Company's Voting Stock (other than a Person who beneficially
owns at the Closing Date 5% or more of the Company's Common Shares); (ii)
individuals who at the Closing Date constituted the Board of Directors of the
Company (together with any new directors whose election by such Board or whose
nomination for election by the shareholders of the Company was approved by a
vote of a majority of the directors then still in office who were either
directors at the Closing date or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
Board of Directors of the Company then in office; (iii) any consolidation or
merger of the Company in which the Company is not the continuing or surviving
corporation (other than a consolidation or merger with a Wholly-owned
Subsidiary; (iv) the Company conveys, transfers, sells or assigns all or
substantially all of its assets to any Person (other thana Wholly-owned
Subsidiary); or (v) the Company distributes individually or in the aggregate
over a twelve-month period in respect of its Common Shares an amount in excess
of 30% of the fair market value of such Common Shares (the fair market value
shall be determined by the closing price of such Common Shares on NASDAQ as of
the date of such distribution.
"Sale Event" means the occurrence of any of the following events: (i) any
Person is or becomes the beneficial owner, directly or indirectly, of 50% or
more of the Company's Voting Stock (other than a Person who beneficially owns
at the Closing Date 5% or more of the Company's Common Shares); (ii) any
consolidation or merger of the Company in which the Company is not the
continuing or surviving corporation (other than a consolidation or merger with
a Wholly-Owned Subsidiary); or (iii) the Company conveys, transfers, sells or
assigns all or substantially all of its assets to any Person (other than a
Wholly-Owned Subsidiary).
"SAP" shall mean, as to any insurance company Subsidiary, the statutory
accounting practices prescribed or permitted by the insurance regulatory
authority of such insurance company Subsidiary's state of domicile with whom
such Subsidiary is required to file its financial statements.
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"Security" has the same meaning as in Section 2(1) of the Act.
"Savers Life" means Savers Life Insurance Company, a North Carolina
insurance company.
The term "subsidiary" means, as to any particular parent corporation, any
corporation or other entity of which more than 50% (by number of votes) of the
Voting Stock shall be owned by such parent corporation and/or one or more
corporations which are themselves subsidiaries of such parent corporation. The
term "Subsidiary" shall mean a direct or indirect subsidiary of the Company.
"Standard Life" means Standard Life Insurance Company of Indiana, an
Indiana corporation.
"Voting Stock" means Securities of any class or classes, the holders of
which are ordinarily, in the absence of contingencies, entitled to elect the
corporate directors (or Persons performing similar functions), irrespective of
whether or not at the time Securities of any class or classes shall have or
might have special voting powers or rights by reason of the occurrence of any
contingency.
"Wholly-owned" when used in connection with any Subsidiary means a
Subsidiary of which all of the issued and outstanding shares of stock (except
shares required by applicable law as directors' qualifying shares) shall be
owned by the Company and/or one or more of its Wholly-owned Subsidiaries.
8.2. Accounting Principles. Where the character or amount of any asset or
liability or item of income or expense is required to be determined or any
consolidation or other accounting computation is required to be made for the
purposes of this Agreement, the same shall be done in accordance with GAAP, to
the extent applicable, except where statutory accounting principles are
applicable or where GAAP is inconsistent with the requirements of this
Agreement, in which event the latter shall be controlling.
SECTION 9. MISCELLANEOUS.
9.1. Note Register. The Company shall cause to be kept at its principal
office a register for the registration and transfer of the Note (hereinafter
called the "Note Register"), and the Company will register or transfer or cause
to be registered or transferred, as hereinafter provided and under such
reasonable regulations as it may reasonably prescribe, the Note issued pursuant
to this Agreement.
At any time, and from time to time, the holder of such Note that has been
duly registered as hereinabove provided may transfer such Note upon surrender
thereof at the principal office of the
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Company duly endorsed or accompanied by a written instrument of transfer duly
executed by the holder of such Note or its attorney duly authorized in writing.
The Person in whose name the Note shall be registered shall be deemed and
treated as the owner and holder thereof for all purposes of this Agreement.
Payment of or on account of the principal, and interest on the Note shall be
made to or upon the written order of such holder.
9.2. Exchange of Note. At any time, and from time to time, upon surrender
of such Note at its office, the Company will deliver in exchange therefor,
without expense to the holder, except as set forth below a Note for the same
aggregate principal amount as the then unpaid principal amount of the Note so
surrendered, in the denomination of $1,000,000 or integral multiples thereof
(except as may be necessary to reflect any principal amount not evenly
divisible by $1,000,000) as such holder shall specify, dated as of the date to
which interest has been paid on the Note so surrendered or, if such surrender
is prior to the payment of any interest thereon, then dated as of the date of
issue, payable to such Person or Persons as may be designated by such holder,
and otherwise of the same form and tenor as the Note so surrendered for
exchange. The Company may require the payment of a sum sufficient to cover any
stamp tax or governmental charge imposed upon such exchange or transfer.
9.3. Loss, Theft, Etc. of Note. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, mutilation or destruction of
the Note, and in the case of any such loss, theft or destruction upon delivery
of a bond of indemnity in such form and amount as shall be reasonably
satisfactory to the Company, or in the event of such mutilation upon surrender
and cancellation of the Note, the Company will make and deliver without expense
to the holder thereof, a new Note, of the same tenor and form, in lieu of such
lost, stolen, destroyed or mutilated Note. If any Purchaser or any subsequent
institutional holder is the owner of any such lost, stolen or destroyed Note,
then the affidavit of any authorized officer of such owner, setting forth the
fact of loss, theft or destruction and of its ownership of the Note at the time
of such loss, theft or destruction, shall be accepted as satisfactory evidence
thereof and no further indemnity shall be required as a condition to the
execution and delivery of a new Note other than the written agreement of such
owner to indemnify the Company.
9.4. Expenses; Stamp Tax Indemnity. Whether or not the transactions
herein contemplated shall be consummated, the Company agrees to pay directly
all of the reasonable out-of-pocket expenses incurred by the Purchaser and each
other holder of the Note (including reasonable fees and disbursements of the
Purchaser and its counsel) in connection with the preparation, execution and
delivery of this Agreement and the transactions contemplated hereby and all
similar expenses of any holder of Notes relating to any
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amendment, waivers or consents requested or entered into pursuant to the
provisions hereof or relating to any work-out or restructuring relating to the
Company (including, without limitation, the reasonable fees and expenses of any
financial consultant engaged by such holders in connection therewith). The
Company also agrees that it will pay and save the Purchaser harmless against
any and all liability with respect to stamp and other taxes, if any, which may
be payable or which may be determined to be payable in connection with the
execution and delivery of this Agreement or the Note, whether or not the Note
is then outstanding. The Company agrees to protect and indemnify the Purchaser
against any liability for any and all brokerage fees and commissions payable or
claimed to be payable to any Person in connection with the transactions
contemplated by this Agreement as a result of any action by the Company.
Without limiting the foregoing, the Company agrees to obtain and pay for a
private placement number for the Note and authorizes the submission of such
information as may be required by Standard & Poor's for the purpose of
obtaining such number.
9.5. Indemnities. (a) The Company agrees to indemnify the Purchaser and
all subsequent holders of the Note against any and all losses, claims, damages,
liabilities and expenses (including, without limitation, attorneys' fees and
expenses) incurred by the Purchaser or such holders arising out of, in any way
connected with, or as a result of (i) the falsity or incorrectness as of the
Closing Date of any representation or warranty of the Company contained in or
made pursuant to this Agreement or the Note, (ii) the existence of any
condition, event or fact constituting, or which with notice or passage of time,
or both, would constitute a default in the observance of any of the Company's
undertakings or covenants under or pursuant to this Agreement or the Note, and
(iii) any claim, litigation, investigation or proceedings related to any of the
foregoing, whether or not any Purchaser or any such holder is a party thereto.
(b) The foregoing agreements and indemnities shall remain operative and
in full force and effect regardless of termination of this Agreement, the
consummation of or failure to consummate the transactions contemplated by this
Agreement or any amendment, supplement, modification or waiver thereunder, the
payment in full of the Note, the invalidity or unenforceability of any term or
provision of this Agreement or the Note or any other document required
hereunder, any investigation made by or on behalf of the Purchaser, the Company
or any Subsidiary, or the content or accuracy of any representation or warranty
made under this Agreement or any other document required hereunder.
9.6. Powers and Rights Not Waived; Remedies Cumulative. No delay or
failure on the part of the holder of the Note in the exercise of any power or
right shall operate as a waiver thereof; nor shall any single or partial
exercise of the same preclude any other or further exercise thereof, or the
exercise of any other power or right and the rights and remedies of the holder
of the
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Note are cumulative to and are not exclusive of any rights or remedies any such
holder would otherwise have, and no waiver or consent, given or extended
pursuant to Section 7 hereof, shall extend to or affect any obligation or right
not expressly waived or consented to.
9.7. Notices. All communications provided for hereunder shall be in
writing and, if to the Purchaser, delivered or sent by prepaid overnight air
courier, addressed to the Purchaser at ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇, Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇ or such other address as the
Purchaser or the subsequent holder of any Note initially issued hereunder may
designate to the Company in writing, and if to the Company, delivered or sent
by prepaid overnight air courier to the Company at ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇, Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, or to such
other address as the Company may in writing designate to each of the Purchaser
or to a subsequent holder of any Note initially issued hereunder.
9.8. Reproduction of Documents. This Agreement and all documents relating
thereto, including without limitation (a) consents, waivers and modifications
which may hereafter be executed, (b) documents received by the Purchaser at the
closing of its purchase of the Note (except the Note itself), and (c) financial
statements, certificates and other information previously or hereafter
furnished to the Purchaser, may be reproduced by the Purchaser by any
photographic, photostatic, microfilm, micro-card, miniature photographic or
other similar process and the Purchaser may destroy any original document so
reproduced. The Company agrees and stipulates that any such reproduction shall
be admissible in evidence as the original itself in any judicial or
administrative proceeding (whether or not the original is in existence and
whether or not such reproduction was made by the Purchaser in the regular
course of business) and that any enlargement, facsimile or further reproduction
of such reproduction shall likewise be admissible in evidence.
9.9. Counterparts. This Agreement may be executed in any number of
counterparts, each counterpart constituting an original but all together only
one Agreement.
9.10. Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective permitted
successors and assigns, including each successive holder or holders of the
Note.
9.11. Survival of Covenants and Representations. All covenants,
representations and warranties made by the Company herein and in any
certificates delivered pursuant hereto, whether or not in connection with the
Closing Date, shall survive the closing and the delivery of this Agreement and
the Note.
9.12. Severability. Should any part of this Agreement for any reason be
declared invalid, such decision shall not affect the
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validity of any remaining portion, which remaining portion shall remain in
force and effect as if this Agreement had been executed with the invalid
portion thereof eliminated and it is hereby declared the intention of the
parties hereto that they would have executed the remaining portion of this
Agreement without including therein any such part, parts, or portion which may,
for any reason, be hereafter declared invalid.
9.13. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE
HOLDERS OF THE NOTE AND THE COMPANY HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE
WITH AND GOVERNED BY THE LAWS OF THE STATE OF INDIANA (WITHOUT GIVING EFFECT TO
THE CONFLICT OF LAWS PRINCIPLES THEREOF), CANNOT BE CHANGED ORALLY AND SHALL
BIND AND INURE TO THE BENEFIT OF THE COMPANY, SUCH HOLDERS AND THEIR RESPECTIVE
HEIRS, SUCCESSORS AND ASSIGNS. THE COMPANY AGREES THAT ANY DISPUTE ARISING OUT
OF THIS AGREEMENT SHALL BE SUBJECT TO THE JURISDICTION OF BOTH THE STATE AND
FEDERAL COURTS IN INDIANA. FOR THE PURPOSE, THE COMPANY HEREBY SUBMITS TO THE
JURISDICTION AND VENUE OF THE STATE AND FEDERAL COURTS IN INDIANA. THE COMPANY
FURTHER AGREES TO ACCEPT SERVICE OF PROCESS OUT OF ANY OF THE BEFORE MENTIONED
COURTS IN ANY SUCH DISPUTE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO THE
COMPANY AT THE ADDRESS SET FORTH IN THIS AGREEMENT.
9.14. Captions. The descriptive headings of the various Sections or parts
of this Agreement are for convenience only and shall not affect the meaning or
construction of any of the provisions hereof.
9.15. Waiver of Jury Trial. The Purchaser or the other holders of the
Note and the Company hereby waive trial by jury in any litigation in any courts
with respect to, in connection with, or arising out of this Agreement or any
instrument or document delivered pursuant to this Agreement or the validity,
protection, interpretation, collection or enforcement thereof, or any other
claim or dispute howsoever arising, between the Company and the Purchaser or
the other holders of the Note.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
STANDARD MANAGEMENT CORPORATION
By: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
----------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
--------------------------
Its: Executive Vice President and Chief Financial Officer
--------------------------
GREAT AMERICAN RESERVE INSURANCE COMPANY
By: ▇▇▇▇▇▇ ▇. ▇▇▇▇
---------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇
---------------------------
Its: Executive Vice President and Chief Financial Officer
---------------------------
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