EXHIBIT 10.4
AMENDMENT NO. 5
TO
LOAN AGREEMENT
THIS AMENDMENT, is made and entered into as of February ___, 1999, but
effective as of April 30, 1998, among LIFE USA HOLDING, INC., as Borrower,
EMPLOYERS REASSURANCE CORPORATION, as Agent and one of the Lenders, and
REPUBLIC-VANGUARD LIFE INSURANCE COMPANY and WINTERTHUR LIFE RE INSURANCE
COMPANY, as the other Lenders.
W I T N E S S E T H:
WHEREAS, the parties hereto have entered into the Loan Agreement dated
as of May 17, 1996, as amended by Amendment No. 1 dated as of December 30, 1996,
Amendment No. 2 dated as of May 30, 1997, Amendment No. 3 dated as of January
30, 1998 and Amendment No. 4 dated September, 1998 (the "Agreement"), pursuant
to which the Lenders have agreed to make advances to Borrower on the terms and
conditions set forth therein; and
WHEREAS, Borrower has advised the Agent and the Lenders that it has
acquired 40% of the equity of Windsor Financial Group, L.L.C., a Minnesota
limited liability company and a registered investment advisor (the "Windsor
Investment"); and
WHEREAS, Borrower has advised the Agent and the Lenders that it has
formed a subsidiary, LTCAmerica Holding, Inc., a Minnesota corporation ("LTCA"),
for the purpose of acquiring a shell insurance company through which life
insurance, annuities and health insurance offering long-term care benefits will
be made available to consumers, that it subsequently transferred all of the
capital stock of LTCA to LifeUSA Insurance Company ("LifeUSA"); that LTCA
acquired all of the capital stock of Capitol Bankers Life Insurance Company
("Capitol Bankers"); that LTCA pledged the capital stock of Capitol Bankers to
Allianz Life Insurance Company of North America ("Allianz") to secure LTCA's
guaranty to Allianz to support the guaranty by Allianz of payment of a $15
million line of credit facility to LTCA by Norwest Bank Minnesota, National
Association (the "LTCA Line of Credit"); that the Borrower granted a security
interest in certain future payments to be made to the Borrower by Allianz to
secure payment of the Borrower's guaranty to Allianz to support the Allianz
guaranty of the LTCA Line of Credit; that Capitol Bankers, Allianz and LifeUSA
have entered into reinsurance contracts, retrocession agreements and excess loss
agreements with respect to the long term care business to be produced for each
of them on Capitol Bankers' policy forms; and that LTCA has entered into a
service agreement and employee leasing agreement with the Borrower, and LTCA and
Capitol Bankers have entered into a management agreement (the "Affiliate
Agreements;" all of the arrangements herein described being referred to as the
"LTCA Transactions"); and
WHEREAS, Borrower, the Agent and the Lenders wish to amend the
Agreement as provided in this Amendment in connection with the Windsor
Investment and the LTCA Transactions,
NOW, THEREFORE, in consideration of these premises and of the
covenants, conditions and promises hereinafter set forth and for One Dollar
($1.00) and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
1. Intention of Amendment. The purpose of this Amendment is to permit
the use of the proceeds of any Term Loan Advance to make the Windsor Investment
and to make such other modifications to the Agreement as are necessary or
appropriate to permit the LTCA Transactions. All terms defined in the Agreement
are used herein as defined in the Agreement.
2. Amendment of Section 1 of the Agreement. Section 1 of the Agreement
is hereby amended by adding the following sentence to the definition of
"Affiliate":
"It is understood that Capitol Bankers (to be known as
LTCAmerica Insurance Company) is an affiliate of the Borrower.
Section 1 of the Agreement is further amended by adding a definition for
"Windsor Investment" as follows:
"Windsor Investment" shall mean the acquisition of an equity
interest in Windsor Financial Group, L.L.C., a Minnesota
limited liability company and a registered investment advisor,
on the terms described in Schedule 2 hereto."
3. Amendment of Section 2.4 of the Agreement. Subsection 2.4 of the
Agreement is hereby amended in its entirety to read as follows:
"2.4. Use of Proceeds. Borrower shall apply the proceeds of
each Term Loan Advance (i) to fund, or reimburse Borrower for
payments made after April 1, 1996 for, the cash portion of any
FMO Investment or the Windsor Investment, (ii) to fund, or
reimburse Borrower for payments made after April 1, 1996 for,
the Capital and Surplus of LifeUSA, (iii) to make, or
reimburse Borrower for payments made after April 1, 1996 for,
any Capital Expenditures permitted pursuant to Section 7.10
hereof or investment permitted pursuant to Section 7.2 hereof
or (iv) to fund, or reimburse Borrower for payments made for,
purchases of Borrower's Common Stock pursuant to the Stock
Repurchase Plan."
4. Amendment of Section 6.3(b) of the Agreement. Clauses (ii) and (iii)
of Section 6.3(b) of the Agreement are hereby amended in their entirety to read
as follows:
2
"(ii) The Capital and Surplus plus AVR of LifeUSA as set forth in its
respective Annual Statements shall be equal to or greater than
$95,000,000, without regard to the Capital and Surplus plus AVR
attributable to LTCA and its Subsidiaries.
(iii) Borrower shall cause LifeUSA to maintain at all times, such
maintenance to be evidenced as at the end of each fiscal quarter of
LifeUSA, a Risk-Based Capital Ratio of at least 3.50 to 1.0, exclusive
of capital attributable to LTCA and its Subsidiaries. Borrower shall
cause Capitol Bankers to maintain at all times, such maintenance to be
evidenced as at the end of each fiscal quarter of Capitol Bankers, a
Risk-Based Capitol Ratio of least 3.50 to 1.0."
5. Amendment to Section 6.16 of the Agreement. Section 6.16 of the
Agreement is hereby amended in its entirety to read as follows:
"6.16 Pledge of FMO Investments and Windsor Investment. If
requested by Agent at any time after the date hereof, the
Borrower shall pledge to Agent for the ratable benefit of the
Lenders any or all of the FMO Investments and the Windsor
Investment pursuant to an amendment to the Pledge Agreement in
form and substance satisfactory to Agent and its counsel."
6. Amendment to Section 7.1 of the Agreement. Section 7.1 of the
Agreement is hereby amended in its entirety to read as follows:
"7.1 Mergers, Etc. Neither Borrower nor any Subsidiary of
Borrower shall directly or indirectly, by operation of law or
otherwise, merge with, consolidate with, acquire all or
substantially all of the assets or capital stock of, or
otherwise combine with, any Person or a division of any Person
nor form a subsidiary, except for the formation of LTCA and
permitted FMO Investments and the Windsor Investment pursuant
to Section 7.2 hereof."
7. Amendment of Subsection (b) of Section 7.2 of the Agreement.
Subsection (b) of Section 7.2 of the Agreement is hereby amended in its entirety
to read as follows:
"(b) Borrower shall not, and shall not permit any Subsidiary
to make or commit to make, any advance, loan, extension of
credit or capital contribution to, or purchase of any stock,
bonds, notes, debentures or other securities of any Person
(including, without limitation, any such Person which would
constitute a Subsidiary), or make any other investment in any
Person or otherwise engage in any investment activities,
except for (i) FMO Investments and the Windsor Investment by
Borrower or any Subsidiary, provided that the aggregate amount
of cash used by Borrower and its Subsidiaries to make such
investments shall not exceed $25,000,000 outstanding at any
one time, (ii) with respect to LifeUSA Insurance Company,
those investments and investment activities set forth
3
on Schedule 7.2 hereto (the "LifeUSA Investment Guidelines"),
as such LifeUSA Investment Guidelines are modified from time
to time by the Board of Directors of LifeUSA Insurance
Company, which Investment Guidelines will be modified to
specifically permit the investment in LTCA, with respect to
Capitol Bankers, those investments and investment activities
set forth on Schedule 7.2A hereto (the "CB Investment
Guidelines"), as such CB Investment Guidelines are modified
from time to time by the Board of Directors of Capitol
Bankers, (iii) as permitted by subsection (a) hereof and (iv)
purchases of Borrower's Common Stock pursuant to the Stock
Repurchase Plan, but subject to compliance with Section 7.14
hereof."
8. Amendment to Subsection (a) of Section 7.3 of the Agreement.
Subsection (a) of Section 7.3 of the Agreement is hereby amended in its entirety
to read as follows:
"7.3. Indebtedness. (a) Except as otherwise expressly
permitted by this Section 7.3 or by any other section of this
Agreement, Borrower shall not, nor shall it permit any of its
Subsidiaries to, create, incur, assume or permit to exist any
Indebtedness, except (i) Indebtedness secured by Liens
permitted under Section 7.9 hereof, (ii) the Term Loan, (iii)
the Allianz Subordinated Debentures in an original principal
amount not to exceed $30,000,000, (iv) the Convertible
Subordinated Debentures in an original principal amount not to
exceed $15,000,000, (v) indebtedness incurred by LTCA pursuant
to a Credit Agreement dated as of December 22, 1998 between
LTCA and Norwest Bank Minnesota, National Association, (vi)
all deferred taxes, (vii) all unfunded pension fund and other
employee benefit plan obligations and liabilities but only to
the extent they are permitted to remain unfunded under
applicable law and (viii) any other Indebtedness incurred by
Borrower at any time after Fiscal Year 1996 in an outstanding
principal amount at the time of each such incurrence not in
excess of the lesser of (x) 2% of the Consolidated Net Worth
of Borrower at such time and (y) $5,000,000."
9. Amendment to Subsection (a) of Section 7.5 of the Agreement.
Subsection (a) of Section 7.5 of the Agreement is hereby amended in its entirety
to read as follows:
"7.5 Capital Structure. (a) Borrower shall not permit any
Subsidiary of Borrower to issue or agree to issue any of their
respective authorized but not outstanding shares of Stock
(including treasury shares) to any Person other than Borrower
or LifeUSA, except that LTCA is permitted to issue its shares
for not less than fair value and in accordance with the
provisions of applicable securities laws."
10. Amendment to Section 7.6 of the Agreement. The following sentence
is hereby added to Section 7.6 of the Agreement:
4
"The life insurance, annuities and health insurance proposed
to be produced by Capitol Bankers and by LifeUSA on Capitol
Bankers policy forms are acceptable to the Lenders."
11. Amendment of Section 7.7 of the Agreement. Section 7.7 of the
Agreement is hereby amended by adding thereto a new clause (d) reading as
follows:
"(d) The Affiliate Agreements between LTCA and the Borrower,
LifeUSA or Capitol Bankers are acceptable to the Lenders."
12. Amendment of Section 7.9 of the Agreement. Section 7.9 of the
Agreement is hereby amended to add the following clause (d):
"(d) the security interest given to Allianz by the Borrower
and the pledge given to Allianz by Capitol Bankers in
connection with the LTCA Line of Credit."
13. Amendment of Section 7.10 of the Agreement. Section 7.10 of the
Agreement is hereby amended in its entirety to read as follows:
"Borrower shall not and shall not permit any of its
Subsidiaries to make Capital Expenditures that, in the
aggregate, exceed (i) for the Fiscal Year 1996, $3,000,000
plus the cost of remodeling the leasehold improvements
incurred in such Fiscal Year, and (ii) for each Fiscal Year
thereafter, $3,000,000, excluding the effect of SOP 98-1,
"Accounting for Cost of Computer Software Developed or
Obtained for Internal Use" for purposes of such calculation."
14. Representations and Warranties. Borrower represents and warrants to
Agent and Lenders as follows:
(a) All of the representations and warranties of Borrower
contained in the Agreement or any of the Loan
Documents are true and correct in all material
respects on the date hereof as though made on such
date, except to the extent that any such
representation or warranty expressly relates to an
earlier date and for changes permitted or
contemplated by the Agreement, except as such
representations and warranties were modified or
supplemented since the date of the original
Agreement. As of the date hereof, no Default or Event
of Default under the Agreement as amended by this
Amendment has occurred which is continuing.
(b) The execution, delivery and performance by Borrower
of this Amendment have been duly authorized by all
necessary or proper corporate action and do not
require the consent or approval of any Person which
has not been obtained.
5
(c) This Amendment has been duly executed and delivered
by Borrower and constitutes a legal, valid and
binding obligation of Borrower, enforceable against
Borrower in accordance with its terms.
15. Fees and Expenses. Pursuant to Section 10.2 of the Agreement,
Borrower shall pay all reasonable out-of-pocket costs and expenses of Agent in
connection with the preparation of this Amendment, including the reasonable fees
and expenses of its counsel.
16. Full Force and Effect. Except as expressly set forth herein, the
Agreement, as amended hereby, shall continue in full force and effect in
accordance with its terms.
17. Counterparts. This Amendment may be executed in any number of
counterparts, and by different parties hereto in separate counterparts, each of
which, when so executed and delivered, shall be deemed to be an original and all
of which taken together shall constitute but one and the same instrument.
18. Governing Law. This Amendment shall be governed by and construed in
accordance with the laws of the State of New York, without regard to the
principles thereof regarding conflicts of laws.
[The balance of this page is intentionally blank.]
6
IN WITNESS WHEREOF, the parties have executed this Agreement, each as
of the date first above written.
LIFE USA HOLDING, INC., as Borrower
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
--------------------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Executive Vice President and
Chief Financial Officer
EMPLOYERS REASSURANCE CORPORATION,
as Agent and Lender
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
--------------------------------------------
Its: Executive Vice President & Actuary
REPUBLIC-VANGUARD LIFE INSURANCE
COMPANY, as Lender
By: /s/ ▇▇▇▇ ▇▇▇▇▇
--------------------------------------------
Its: Senior Vice President & Treasurer
WINTERTHUR LIFE RE INSURANCE COMPANY,
as Lender
By: /s/ ▇▇▇▇ ▇▇▇▇▇
--------------------------------------------
Its: Senior Vice President & Treasurer