STANDARD MANAGEMENT CORPORATION
NOTE AGREEMENT
Dated as of October 31, 2000
Re: $11,000,000 Senior Subordinated
Note Due October 31, 2007
TABLE OF CONTENTS Page
SECTION 1. DESCRIPTION OF NOTE AND COMMITMENTS 5-6
1.1 Description of Note 5-6
1.2 Commitments, Closing Date 6
SECTION 2. PREPAYMENT OF NOTE 6-10
2.1 Restriction on Prepayment 6
2.2 Prepayments at Option of Holder in Certain Events 6-7
2.2a Early Termination of Investment Advisory
Agreement Without Prepayment Penalty 7-8
2.3 Prepayments at Option of the Company 8-9
2.4 Direct Payment 10
SECTION 3. REPRESENTATIONS 11
3.1 Representations of the Company 11
3.2 Representations of the Purchaser 11
SECTION 4. CLOSING CONDITIONS 12-14
4.1 Closing Certificate 12
4.2 Legal Opinion 12
4.3 Company's Existence and Authority 12
4.4 Additional Conditions Precedent to Closing 13
4.5 Consent and Approvals 13
4.6 Legality of Investment 14
4.7 Satisfactory Proceedings 14
4.8 Waiver of Conditions 14
SECTION 5. COMPANY COVENANTS 15-23
5.1 Corporate Existence, Etc. 15
5.2 Insurance 15
5.3 Taxes, Claims for Labor and Materials,
Compliance with Laws 16
5.4 Maintenance of Material Properties, Etc. 17
5.5 Nature of Business 17
5.6 Limitations on Liens 17-18
5.7 Financial Covenants 18
5.8 Loans and Investments . . . . . . . . . . . . 18-19
5.9 Guaranties, Etc . . . . . . . . . . . . . . . 19
5.10 Mergers 19
5.11 Transactions with Affiliates 20
5.12 Limitation on Sale and Lease-Backs 20
5.13 Dividends 20
5.14 Termination of Pension Plans 20
5.15 Reports and Rights of Inspection 21-22
5.16 Leases 23
5.17 Incurrence of Indebtedness 23
SECTION 6. EVENTS OF DEFAULT AND REMEDIES THEREFOR 24-27
6.1 Events of Default 24-26
6.2 Notice to Holders 26
6.3 Acceleration of Maturity; Enforcement of Rights by
Holder 26-27
SECTION 7. AMENDMENTS, WAIVERS AND CONSENTS 27
7.1 Consent Required 27
7.2 Effect of Amendment or Waiver 27
SECTION 8. WARRANTS GRANTED TO PURCHASER 28
8.1 Warrants 28
8.2 Rights of Payment and Registration 28
SECTION 9. INTERPRETATION OF AGREEMENT; DEFINITIONS 28-36
9.1 Definitions 28-36
9.2 Accounting Principles 36
SECTION 10. MISCELLANEOUS 36-40
10.1 Note Register 36-37
10.2 Loss, Theft, Etc. of Note 37
10.3 Expenses; Stamp Tax Indemnity 37-38
10.4 Indemnities 38
10.5 Powers and Rights Not Waived; Remedies Cumulative 38
10.6 Notices 39
10.7 Reproduction of Documents 39
10.8 Counterparts 39
10.9 Successors and Assigns 39
10.10 Survival of Covenants and Representations 39
10.11 Severability 40
10.12 Governing Law 40
10.13 Captions 40
10.14 Waiver of Jury Trial 40
ATTACHMENTS TO NOTE AGREEMENT:
EXHIBIT A Form of Senior Subordinated Note Due October 31,2007
EXHIBIT B Form of Investment Advisory Agreement with Purchaser
EXHIBIT C Representations and Warranties of Company
EXHIBIT D Financial Covenants
EXHIBIT E Reporting Requirements
EXHIBIT F Form of Warrant
EXHIBIT G Key Personnel of Scudder Kemper Investments, Inc.
EXHIBIT H Performance-Related Investment Benchmarks
SCHEDULE 5.6 Existing Liens of Company
SCHEDULE 5.9 Existing Guaranties of Company
SCHEDULE 5.11 Transactions With Affiliates
SCHEDULE 5.13 Surplus Debentures
NOTE AGREEMENT
THIS NOTE AGREEMENT (this "Agreement") is made and entered
into as of October 31, 2000, by and between Standard Management
Corporation, an Indiana corporation (the "Company") and Zurich
Capital Markets Inc., a Delaware corporation (the "Purchaser").
WHEREAS, the Company wishes to borrow, and the Purchaser
wishes to lend, funds subject to a Senior Subordinated Note executed
concurrently herewith, and the parties wish to set forth the terms
and conditions upon which such transaction shall be accomplished;
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 Senior Subordinated Note Due October
31, 2007 in the principal amount of Eleven Million Dollars
($11,000,000) to the Purchaser (the "Note") in the form of Exhibit A,
which shall bear interest for each interest period at a rate equal to
(a) a fixed rate of 10.0% per annum; or (b) Six Month LIBOR plus 150
basis points; whichever is higher. The Note will be dated the date
of issue, and will bear interest from such date as set forth therein,
payable semi-annually in arrears, in cash, on the last day of each
April and October in each year (commencing April 30, 2001) and at
maturity. The interest rate for the initial interest period (which
commences the date hereof and runs through April 30, 2001) shall be
10.0% per annum. For the second and all succeeding interest periods,
the applicable interest rate for such period shall be determined by
the Purchaser two Business Days prior to the commencement of such
interest period (April 30 or October 31, as the case may be) using
the formula set forth in the first sentence of this paragraph, and
shall be promptly communicated to the Company in writing. The Note
will bear interest payable on demand 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 mature on October 31, 2007 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 2.3 of this Agreement. The terms which are
capitalized herein shall have the meanings set forth in Section 9.1
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 the original Senior Subordinated Note Due October 31, 2007
in the principal amount of Eleven Million Dollars ($11,000,000) on
the Closing Date. Delivery of the Note on the Closing Date will be
made at such place as the parties hereto mutually agree.
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;
Early Termination Penalty. In the event that the Company elects to
terminate its Investment Advisory Agreement with Scudder Kemper
Investments, Inc. ("Scudder") (which Investment Advisory Agreement
shall be executed between the parties concurrently herewith, and a
copy of which is hereto attached as Exhibit B) for any reason other
than those set forth in Section 2.2a below, the Company shall
immediately so notify the Purchaser and the Purchaser shall have the
right, at its option, to require the Company to prepay all, or any
part, of the Note (including any accrued but unpaid interest due
thereon to the prepayment date) on the date that such termination
shall become effective, if prepaid during the 12 month period ending
October 31, at a cash price equal to the following, expressed as
percentages of the principal amount:
Year of Termination Percentage
2001 105%
2002 104%
2003 103%
2004 102%
2005 101%
2006 and thereafter 100%
2.2a. Early Termination of Investment Advisory Agreement
Without Prepayment Penalty. In the event that any of the following
events occur during the term of this Agreement, and the Company is so
notified in writing by Scudder, the Company may elect to terminate
its Investment Advisory Agreement with Scudder as provided for in
Section 6 of that Agreement. In the event the Company elects to
terminate, the Company shall immediately so notify the Purchaser and
the Purchaser shall have the right, at its option, to require the
Company to prepay all, or any part, of the Note (including any
accrued but unpaid interest due thereon to the prepayment date) on
the date that such termination shall become effective, at a cash
price equal to 100% of the principal amount. The events giving rise
to a right of early termination of the Investment Advisory Agreement
without prepayment penalty by the Company are:
(a) The credit quality of Zurich Insurance Company, as
measured by Standard & Poor's, a division of The McGraw-Hill
Companies, or Moody's Investor Services, Inc., drops below and
remains below a rating of BBB- or Baa3, respectively, for more than
a six-month period.
(b) Scudder experiences a replacement or loss of 20% or more
of certain key personnel within an 18-month time period. For purposes
of this Paragraph, "key personnel" are listed in Exhibit G to this
Agreement.
(c) On an annualized cumulative basis, commencing on January
1, 2001, Scudder underperforms, by 75 basis points or more, the
required percentage of the Investment-Related Benchmark set forth in
Exhibit H to this Agreement.
(d) Scudder reassigns, terminates, accepts the voluntary
resignation of, or otherwise changes the portfolio manager with
primary responsibility for the Company's Account without providing
written notice of such change to Standard. If Scudder reassigns,
terminates or otherwise changes such portfolio manager more than once
in any twelve-month calendar year period, then Scudder shall promptly
inform Standard and shall request a written waiver of this provision
or it shall be considered an early termination event.
By its signature at the end of this Agreement, as well as
by its acceptance of the terms and conditions of the Investment
Advisory Agreement, Scudder acknowledges and accepts its
responsibility to provide written notice to the Company within 15
business days after the occurrence of any of the events listed in
subparagraphs (b) through (d) above. If Scudder fails to timely
provide such written notice to the Company within fifteen (15)
business days of the occurrence of such an event, and the Company
later learns of such occurrence and elects to terminate the
Investment Advisory Agreement, it shall be deemed to have terminated
effective upon the expiration of such fifteen (15) business day
period.
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
November 1 of the years indicated below, in each case together with
any accrued but unpaid interest thereon to the prepayment date:
Year Percentage
2002 103%
2003 102%
2004 101%
2005 and thereafter 100%
The Note may be prepaid in whole or in part at the option of the
Company at any time after November 1, 2001 at a redemption price of
100% of the principal amount plus accrued but unpaid interest thereon
to the prepayment date, only if the Purchaser's Total Return equals
or exceeds 15% for any 30 consecutive calendar days after October 1,
2001. For purposes of this paragraph, Purchaser's Total Return on
any given calendar day shall be equal to the ratio of: (i) the sum
of: (a) all interest, as calculated on the Note in accordance with
the provisions of Paragraph 1.1, as previously paid and as accrued to
such calendar day, plus (b) either: (x) if the Warrant has not yet
been exercised, the cash value of the shares that would be receivable
by Purchaser on such day (assuming a cashless exercise of the Warrant
were effective on such day) at a closing price of the Common Shares
on NASDAQ as reported in the Wall Street Journal for such day, or,
(y) if the Warrant has already been exercised, the actual cash value
of the shares received by Purchaser as of the date of exercise,
calculated based upon the closing price of the Common Shares on
NASDAQ as reported in the Wall Street Journal on the exercise day,
less all amounts paid by Purchaser in payment of the warrant exercise
price; over (ii) (a) 11,000,000, multiplied by (b) the number of
years (or fraction thereof) since the Note was issued (calculated
upon a 360 day year of twelve 30-day months). The Company shall mail
by first class mail (with a copy sent by facsimile on the same day)
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, Section 2.2a
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. 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 held by
the Purchaser or its nominee (or held 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 and in
U.S. Dollars 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 makes the
representations and warranties set forth in Exhibit C attached hereto
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 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 Company 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. Additional Conditions Precedent to Closing. On or
prior to the Closing Date, the following statements shall be true
(and the acceptance by the Company of the proceeds of the loan shall
constitute a representation and warranty by the Borrower to the
effect that):
(1) The representations and warranties contained in
Section 3 of this Agreement are true and correct on and as of the
date of such loan as though made on and as of such date; and
(2) No Default or Event of Default has occurred and is
continuing, or would result from such loan; and
(3) The Company shall have complied and shall then be
in compliance with all the terms, covenants and conditions of the
Agreement; and
(4) No material adverse change shall have occurred in
the financial condition or business operations of the Company or any
of its Subsidiaries as determined by the Purchaser and the Purchaser
shall have not determined that an event has occurred which materially
adversely affects, or may materially adversely effect, the ability of
the Company to perform its obligations under this Agreement or the
Note; and
(5) The Purchaser shall have received such other
approvals, opinions, or documents as the Purchaser may reasonably
request.
4.5. Consent and Approvals. Any consents or approvals
required to be obtained from any holder or holders of any 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.
4.6. 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 shall 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 (or other
organizational form) 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.
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 entities of established reputation
engaged in the same or similar businesses and owning and operating
similar properties. 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 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.
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 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 (as in effect on the date
hereof);
(b) 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;
(c) 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;
(d) Liens under workmen's compensation, unemployment
insurance, social security, or similar legislation;
(e) Liens incurred in the ordinary course of
business relating to deposits or pledges to secure the
performance of bids, tenders, contracts (other than contracts
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;
(f) 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;
(g) 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 business
or materially impair the value of the property subject
thereto; and
(h) Existing Liens specified in Schedule 5.6 hereto.
5.7. Financial Covenants. The Company will comply with
all of the financial covenants set forth in Exhibit D attached
hereto, and the same is hereby incorporated by reference with the
same force and effect as though herein set forth in full.
5.8. 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 and no Default or Event of Default has
occurred and is continuing, (i) the Company and its Subsidiaries may
make investments in fixed maturity securities rated less than "BBB"
by Moody's Investor Services or "Baa" by Standard & Poor's, a
division of The McGraw Hill Companies, 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 15% 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 maturity securities rated
at least "BBB" by Moody's Investor Service, Inc. or "Baa" by Standard
& Poor's, a division of The McGraw Hill Companies, other investment
grade bonds, or securities guaranteed by the United States
Government, subject in any such case to the applicable concentration
limits established by the National Association of Insurance
Commissioners.
5.9. 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 5.9 with
respect to the amount guaranteed as of the date hereof.
5.10. 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 without the
prior written consent of Purchaser, 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, so
long as no Default or Event of Default shall have occurred and
be continuing at the time of such merger or shall have
occurred as a result thereof.
5.11. 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 $2,000,000 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 5.11.
5.12. Limitation on Sale and Lease-Backs. Except for
existing Liens specified in Schedule 5.6, and except as specifically
noted in Section 5.16(e) hereunder, the Company will not enter into,
or permit any Subsidiary to enter into, any arrangement with any
bank, insurance company or other lender, financial institution or
investor, or to which any such lender, financial institution 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,
financial institution 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.
5.13. 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 5.13 (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.
5.14. 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.
5.15. 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 E attached hereto and any 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
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
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; 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;
(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.
5.16. 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;
(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
Two Million Dollars ($2,000,000);
(d) Leases between the Company and any of its
Subsidiaries; and
(e) That certain Sale-Leaseback arrangement
entered into for the commercial office building and associated
property located at 10689 Pennsylvania St., Carmel, IN 46032.
5.17 Incurrence of Indebtedness. The Company shall not
incur additional Indebtedness for borrowed money except to the extent
incurred and outstanding as of the date hereof, or except to the
extent subordinated to the Note. The Company shall not increase any
existing line of credit. However, the Company, to the extent it
makes or has made any prepayments of principal under the existing
Fleet Credit Agreement, shall be entitled to draw down additional
Indebtedness under such Fleet Credit Agreement, as long as such
Indebtedness does not have the effect of increasing the line of
credit provided.
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 tender payment or
prepayment, as and when due and payable, for any principal
under the Note;
(b) The Company should fail to tender payment or
prepayment, as and when due and payable, for any interest due
on the Note;
(c) Any representation or warranty made or deemed
made by the Company in this Agreement or in the Note or any
other Loan Document 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) A Default or an Event of Default shall occur
pursuant to the Fleet Credit Agreement or any other material
agreement, instrument or contract to which the Company or any
Subsidiary is a party or by which its or their Property or
assets are bound;
(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
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 becomes
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 thirty (30)
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 thirty (30) days or
more; or (vii) shall have a final judgment entered against it
or any of its Subsidiaries by a court or other adjudicative
body of competent jurisdiction for an amount of $250,000 or
more, which final judgment is not, within thirty (30) days
after entry thereof, discharged or stayed pending appeal;
(i) 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
combination thereof) which in the aggregate exceed or may
exceed $250,000; or
(j) 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 10.6 hereof.
6.3. Acceleration of Maturity; Enforcement of Rights by
Holder. 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. In addition, the Note
shall become immediately due and payable without any notice or other
action required to be taken by the holder, in the event a final
judgment of bankruptcy is entered the Company pursuant to any
proceeding earlier instituted by or against the Company.
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
pay to the holder of the Note all costs and expenses incurred by it
in the collection of the Note upon any Event of Default hereunder or
thereon, and enforcement of rights pursuant hereto (whether through
negotiation, legal proceedings or otherwise), including without
limitation such holder's or holders' reasonable attorneys' fees and
expenses for all services rendered in connection therewith.
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), but
only if the Company shall have obtained the consent in writing of the
Purchaser.
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.
SECTION 8. WARRANTS GRANTED TO PURCHASER.
8.1. Warrants. In order to induce the Purchaser to make
the Loan to the Company, the Company shall deliver to the Purchaser,
on the Closing Date, a warrant (in the form set forth in Exhibit F)
entitling the Purchaser to subscribe for and purchase 220,000 shares
of common stock of the Company, at a strike price of $4.00 per share,
on the date of this Agreement (the "Warrant"). The Warrant is
exercisable by the Purchaser immediately or at any time prior to
October 31, 2007, and is not callable at any time by the Company.
8.2. Rights of Registration. All rights of the Purchaser
with respect to registration of the shares subscribed for and
purchased under the Warrant are more particularly described in the
Registration Rights Agreement.
SECTION 9. INTERPRETATION OF AGREEMENT; DEFINITIONS.
9.1. 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:
"Accounts" means the general investment accounts of Standard
Life Insurance Company of Indiana and Dixie National Life Insurance
Company, as maintained by those Custodians listed in Schedule A to
the Investment Advisory Agreement.
"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.
"Capitalized 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 October 31, 2000.
"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.
"Custodian" is defined in the Investment Advisory Agreement.
"Debt" means, with respect to the Company: (i) all
indebtedness or liability for borrowed money or with respect to
deposits or advances of any kind 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 sixty
days from the date of invoice thereof); (ii) all obligations as
lessee under Capitalized 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 Guarantees, 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 indebtedness or
liability associated with the 65,300 shares of Class A preferred
stock, (ii) any intercompany debt existing on the date hereof between
the Company and Standard Management International, S.A., (iii) any
indebtedness existing on the date hereof between Standard Life and
Standard Development, L.L.C., or (iv) any intercompany obligation
arising out of the issuance of surplus debenture instruments from
Standard Life to the Company.
"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 period net income before Interest
Expense, taxes and extraordinary items for such Person determined in
accordance with GAAP.
"EBITDA" shall mean the sum of EBIT plus depreciation and
amortization expense.
"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 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 or Section 414(b) or
(c) of the Code.
"Fixed Charge Coverage Ratio" means, as at any date, the ratio
of (a) allowable dividends of the Company's insurance Subsidiaries
plus (b) EBITDA of non-insurance Subsidiaries (excluding Standard
Management International, S.A.) plus (c) management fees, interest on
surplus debentures, rents, and other cash payments paid to Company in
the normal course of its business by its Subsidiaries, provided that
such payments shall not require any special, unusual or pre-approval
by the appropriate regulatory authorities or other similar bodies
charged with overseeing the affairs of the insurance Subsidiaries,
over (d) 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 amended.
"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 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, explosive or radioactive substances or wastes,
hazardous constituents, hazardous or toxic substances, petroleum
products (including crude oil or any fraction thereof), and all other
substances or wastes of any nature which are defined or regulated as
hazardous in or under any Environmental Legal Requirement.
"Indebtedness" means, with respect to any Person: 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.
"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
expense during such period in respect of interest rate protection
agreements, and (c) amortization of Debt discounts.
"Investment" of any Person means any investment so classified
under GAAP, whether by stock purchase, capital contribution, loan,
advance, purchase of Property or otherwise.
"Investment Advisory Agreement" means that certain Investment
Advisory Agreement entered into between the Company and Scudder
Kemper Investments, Inc. on October 31, 2000, the form of which is
attached to this Agreement as Exhibit B.
"Liens" are defined in Section 5.6.
"Loan Documents" means this Agreement (including all schedules
attached hereto), the Note 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, either
3% per annum over the interest rate otherwise borne by such Note, or
Six Month LIBOR plus 450 basis points; whichever is higher.
"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 or
subject to Title IV of ERISA or Section 307 of ERISA.
"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.
"Pro-rata" means pro-rata based on the aggregate outstanding
principal on all the Notes from time to time.
"Purchaser's Total Return" is defined in Section 2.3.
"Reference Banks" mean the principal London offices of
Citibank, N.A. and The Chase Manhattan Bank.
"Reportable Event" means (i) any of the events set forth in
Sections 4043, 4068 or 4063 of ERISA, or (ii) any event requiring the
Company 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.
"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.
"Security" has the same meaning as in Section 2(1) of the Act.
"Six Month LIBOR" means: (a) the offered rate for deposits in
U.S. dollars with a maturity of six months appearing on the display
designated on page "LIBO" on the Reuter Monitor Money Rates Service
(or on any successor or substitute page of such Service, or any
successor to such Service, providing rate quotations comparable to
those currently provided on such page of such Service, as determined
by the Purchaser (or its designee) from time to time, for purposes of
providing quotations of interest rates applicable to U.S. dollar
deposits in the London interbank market) as of approximately 11:00
a.m. (London time) on the date two Business Days prior to the
commencement of the applicable six-month period; (b) if such rate
does not appear on said "LIBO" page (or such successor or
substitute), the offered rate for deposits in U.S. dollars with a
maturity comparable to a six-month period appearing on Page 3750 of
the Telerate Service of Bridge Information Services (or any successor
or substitute page of such Service, or any successor to such Service,
providing rate quotations comparable to those currently provided on
such page of such Service, as determined by the Purchaser (or its
designee) from time to time, for purposes of providing quotations of
interest rates applicable to U.S dollar deposits in the London
interbank market) as of approximately 11:00 a.m. (London time), on
the date two Business Days prior to the commencement of such six-
month period; and (c) in the event that neither rate referred to in
clauses (a) or (b) is available at such time for any reason, an
interest rate per annum equal to the arithmetic average (rounded
upward, if necessary, to the nearest 1/16 of 1%) of the rates per
annum notified to the Purchaser (or its designee) by each Reference
Bank as the rate at which deposits in U.S. dollars are offered by the
principal office of such Reference Bank in London, England to prime
banks in the London interbank market at approximately 11:00 a.m.
(London time) on the date two business days before the first day of
such six-month period.
"Subsidiary" means, as to any particular parent entity, any
corporation or other entity of which more than 50% (by number of
votes) of the Voting Stock shall be owned or controlled by such
parent entity and/or one or more entities which are themselves
subsidiaries of such parent entity. 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.
"Warrant" is defined in Section 8.1.
"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.
9.2. 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 10. MISCELLANEOUS.
10.1. 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
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.
At any time, and from time to time, the holder of such Note
that has been duly registered as hereinabove provided may surrender
such Note at the principal office of the Company for the purpose of
exchanging such Note with one or more notes of lesser denomination
which evidence the same aggregate value and rate as set forth in the
current Note. Any expenses incurred in the preparation and/or
issuance of any new notes under this paragraph shall be the
responsibility of the Company.
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.
10.2. 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.
10.3. 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, negotiation, execution
and delivery of this Agreement and the transactions contemplated
hereby and all similar expenses of any holder of Notes relating to
any 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.
10.4. 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 or any other Loan Document,
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.
10.5. 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 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.
10.6. 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 One
Chase Manhattan Plaza, New York, New York, 10005; Attention: Counsel,
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 9100 Keystone Crossing, Suite
600, Indianapolis, Indiana 46240, Attention: Ronald D. Hunter, with
a copy to Stephen M. Coons, Esq. at the same address, 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.
10.7. 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.
10.8. Counterparts. This Agreement may be executed in any
number of counterparts, each counterpart constituting an original but
all together only one Agreement.
10.9. 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.
10.10. 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, the purchase or transfer of
the Note (or portion thereof or interest thereon) and the payment of
any note, and may be relied upon by any subsequent holder.
10.11. Severability. Should any part of this Agreement for
any reason be declared invalid, such decision shall not affect the
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.
10.12. 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 NEW YORK (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 THE CITY AND
STATE OF NEW YORK. FOR THIS PURPOSE, THE COMPANY HEREBY SUBMITS TO
THE JURISDICTION AND VENUE OF THE STATE AND FEDERAL COURTS IN NEW
YORK. 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.
10.13. 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.
10.14. 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.
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:___________________________
ZURICH CAPITAL MARKETS INC.
By: ___________________________
Name:__________________________
Its:___________________________
As to Paragraph 2.2a only:
SCUDDER KEMPER INVESTMENTS, INC.
By:____________________________
Name:__________________________
Its:___________________________
EXHIBIT A
Form of Senior Subordinated Note
Due October 31, 2007
PROMISSORY NOTE
$11,000,000 October 31, 2000
STANDARD MANAGEMENT CORPORATION, a corporation organized under
the laws of Indiana (the "Company"), for value received, hereby
promises to pay to the order of ZURICH CAPITAL MARKETS, INC.,
a Delaware corporation having a principal office at One Chase
Manhattan Plaza, New York, NY 10005 (the "Purchaser"), the
principal sum of ELEVEN MILLION AND 00/100 DOLLARS
($11,000,000.00), pursuant to the Note Agreement referred to
below, in lawful money of the United States of America and in
immediately available funds, on the date(s) and in the manner
provided in said Agreement. The Company also promises to pay
interest on the unpaid principal balance hereof, for the period
such balance is outstanding, at said principal office, in like
money, at the rates of interest as provided in the Agreement
described below, on the date(s) and in the manner provided in
said Agreement.
This is the Note referred to in that certain Note Agreement
dated as of October 31, 2000 by and between the Company and the
Purchaser (as amended from time to time the "Agreement") and
evidences the Loans issued by the Purchaser thereunder. All
terms not defined herein shall have the meanings given to them
in the Agreement.
The Agreement provides for the acceleration of the maturity of
principal upon the occurrence of certain Events of Default and
for prepayments on the terms and conditions specified therein.
The indebtedness evidenced by this Note is subordinated to the
prior payment when due of the principal of, premium, if any, and
interest on all "Senior Indebtedness" (as defined below) of
Company. Therefore, upon any distribution of its assets in a
liquidation or dissolution of Company, or in bankruptcy,
reorganization, insolvency, receivership or similar proceedings
relating to Company, Purchaser will not be entitled to receive
payment of the indebtedness evidenced by this Note until the
holders of Senior Indebtedness are paid in full. Upon the
occurrence of an "Event of Default" with respect to any Senior
Indebtedness, as such Event of Default may be defined in such
instrument evidencing the Senior Indebtedness, to the extent such
Event of Default permits the holders of such Senior Indebtedness
to accelerate the maturity thereof, then upon written notice
thereof given to Company by any holder of such Senior
Indebtedness or their representative, no payment shall be made by
Company in respect to this Note until Company has cured such
Event of Default to the satisfaction of the holders of such
Senior Indebtedness. "Senior Indebtedness" means the
indebtedness outstanding on the date hereof under the Amended and
Restated Revolving Line of Credit between the Company and Fleet
National Bank dated as of November 8, 1996, as amended.
The Company waives presentment, notice of dishonor, protest and
any other notice or formality with respect to this Note.
This Note shall be governed by, and interpreted and construed
in accordance with, the laws of the State of New York, without
regard to its conflicts of laws principles.
STANDARD MANAGEMENT CORPORATION
By
Name: Ronald D. Hunter
Title: Chairman, President
and Chief Executive Officer
ATTEST:
_________________________________
Name:
Title:
EXHIBIT B
Form of Investment Advisory Agreement with Purchaser
INVESTMENT ADVISORY AGREEMENT
This Investment Advisory Agreement (this "Agreement") is made
this 1st day of December, 2000, by and between STANDARD LIFE
INSURANCE COMPANY OF INDIANA ("Standard"), an Indiana stock insurance
company, and SCUDDER KEMPER INVESTMENTS, INC. ("Scudder"), a Delaware
corporation.
WHEREAS, Standard is a life insurance company validly organized
and operating under the laws of the State of Indiana and subject to
regulation under Indiana Insurance Code sections 27-1-5 through 27-1-
14 and the Regulations promulgated pursuant thereto ("Code"); and
WHEREAS, Standard desires to retain Scudder to render
investment advisory services for Standard for its General Account
(the "Account"), and Scudder is willing to render such services;
NOW, THEREFORE, in consideration of the premises and of the
mutual promises exchanged herein, the parties agree as follows:
1. Appointment of Adviser. Standard hereby appoints Scudder
to act as its investment adviser for the term set forth in Paragraph
6 below, and on the terms and conditions set forth in this Agreement.
Scudder accepts such appointment and agrees to render the services
set forth in Paragraph 3, below, for the term of the Agreement or
until valid termination of the Agreement by one of the parties in
accordance with Paragraph 6 below. Standard hereby acknowledges that
the services provided to it by Scudder pursuant to this Agreement are
non-exclusive, and that Scudder is free to provide similar services
to other clients.
2. No Custody of Assets. All assets in the Account are held
by the individuals or entities set forth in Schedule A hereto as
custodians, or their successors or assigns (the "Custodians"), and
nothing in this Agreement is intended or shall be construed as
creating a custodial relationship between Scudder and Standard with
respect to such assets. Each of the Custodians named in Schedule A
hereto is a validly licensed bank, trust company or broker. Standard
shall issue directions to each Custodian as necessary to send Scudder
periodic copies of such Custodian's Account so that Scudder may
reconcile its records with those of the Custodian. Standard shall
also issue directions to each Custodian to provide Scudder with daily
updates of such information in the Account as reasonably deemed
necessary by Scudder for its internal investment tracking and
reconciliation purposes. Scudder hereby warrants that it shall use
such statements for its own internal reconciliation purposes only and
shall not disclose such statements to any third party without the
prior written permission of Standard, unless such disclosure is
specifically required by an appropriate regulatory authority or is
requested through appropriate process in connection with a pending
legal, regulatory or administrative proceeding.
3. Adviser's Duties. Subject to any written limitation
imposed on it by the authorized officers and Board of Directors of
Standard, Scudder shall supervise and direct the investable assets of
the Account, including the purchase, retention and disposition
thereof, in accordance with Standard's investment objectives and
policies as provided to Scudder by Standard in writing from time to
time (which Standard warrants are and at all times shall be in
compliance with the applicable laws regarding such investments, and
with the Articles of Incorporation and By-Laws of Standard) (the
"Investment Guidelines") and in accordance with the provisions of
Paragraph 5 below. Scudder shall not be responsible for the
investment, supervision, or disposition of any uninvested assets of
the Account (including but not limited to any cash assets intended to
be held by the Custodian in money-market or other short-term
instruments) unless specifically directed to do so in writing by
Standard.
Scudder shall provide supervision of all fixed-income
investments by Standard, shall furnish a continuous investment
program for Standard's portfolio in its General Account, and shall
determine from time to time what investments or securities will be
purchased, retained or sold by Standard. Scudder and Standard will
mutually agree as to the portion of assets in the Account which will
be invested or held uninvested from time to time.
4. Standard of Care. Scudder shall use the same level of
skill and care in the management of Standard's investments as it uses
in the administration of any other fiduciary accounts for which it
has investment responsibility, under investment advisory contracts
with unrelated third parties. Scudder shall, in the performance of
its duties under this Agreement, act in conformity with all
applicable requirements of applicable Federal or state laws and/or
regulations, as well as with the Investment Guidelines and any
written instructions received by it from authorized officers or
directors of Standard with respect to the maintenance and disposition
of any assets held in the Account.
5. Management of Assets of Company:
(a) Scudder shall determine, in its discretion and
subject to the requirements of Paragraph 4, above, those
securities which shall be purchased and sold by Standard.
Scudder is authorized to place orders, either directly with the
issuer of a particular security, or with any broker/dealers
with which Scudder may have a business relationship. Scudder
is directed to use its best efforts to obtain the best
available price and most favorable execution for any purchase
or sale transaction, consistent with the restrictions set forth
in Paragraph 4.
(b) In selecting brokers and/or dealers to execute
portfolio transactions, Scudder shall give consideration to the
following factors, among others: price of the security, rate of
commission, size and difficulty of execution of the order, as
well as the general reliability, integrity, financial
condition, and general execution, operation and research
capabilities of the selected broker/dealer and competing
brokers/dealers. Standard understands that, when several
brokers appear to offer comparable results, Scudder may select
brokers that provide research to it. Standard also understands
that Scudder may authorize the payment of brokerage commissions
that are higher than commissions another broker might charge,
if it determines in good faith that the commission paid was
reasonable in relation to the brokerage and research services
provided. Notwithstanding any of the above, Standard retains
the right to direct Scudder through written notice that
specific transactions shall be executed by specific brokers
and/or dealers. Standard understands and has been provided with
a copy of Scudder's policies concerning directed brokerage
arrangements as set forth in its Statement of Directed
Brokerage Policies, and it acknowledges that they apply to this
arrangement. In any case where Standard directs brokerage as
provided above, it will have determined that the broker in
question is capable of providing best execution for security
transactions of the type contemplated by this Agreement, after
taking into consideration not only the net price for the
transaction, but the quality and reliability of execution and
the value of any other services Standard may receive from that
broker. It will be Standard's ongoing responsibility to
monitor the services provided by such broker to assure that
they provide best execution.
(c) On occasions when Scudder deems the purchase or
sale of a security to be advisable for Standard as well as
other customers, Scudder may, to the extent permitted by
applicable laws and regulations, aggregate the securities to be
sold or purchased provided that allocation of any securities so
purchased or sold, as well as allocation of any expenses
incurred therewith, shall be made by Scudder consistent with
Scudder's fiduciary obligations to Standard and such other
customers.
(d) Scudder shall provide Standard with a list of all
securities transactions executed or initiated by Scudder, at
the close of each business day, or with a facsimile of each
trade ticket for such executed transaction by noon of the
following business day. Scudder shall also maintain
appropriate books and records of all of Standard's securities
transactions and shall make such records available to
Standard's authorized officers and directors for review upon
reasonable request.
(e) Standard shall be solely liable for any and all
Federal, state, and local taxes or other governmental charges
on any income or gain of the assets in the Account, and Scudder
shall have no liability in this regard.
(f) Scudder shall not be required to monitor corporate
actions or to take any action or render any advice with respect
to the voting of proxies solicited by or with respect to the
issuers of securities in which the assets of the Account may be
invested.
(g) Scudder shall provide Standard with a preliminary
monthly listing, within 2 business days of the end of each
month during the term of this Agreement, of purchases and sales
executed by it or under its authority or direction, as well as
a listing of all securities owned in the Account (which list
shall show the market value of each such security), subject to
final verification by Scudder, which shall be made available
within 5 business days after the end of each month during the
term of this Agreement. This list shall separately specify
which of those securities held in the Account have been rated
as "below-investment grade" securities.
(h) Scudder shall provide Standard with a watch list no
less frequently than monthly, including a detailed credit
update for each below-investment grade security on a quarterly
basis.
(i) Scudder shall provide Standard with a preliminary
standard monthly report, within 2 business days of the end of
each month during the term of this Agreement, with a full,
final standard monthly report to be provided no later than five
(5) business days following the end of the month during which
such preliminary report has been provided. Scudder shall
provide other reports as reasonably requested by Standard from
time to time, for financial and management reporting purposes.
(j) For any security purchased for the Account, Scudder
shall, as a precondition to purchase, ensure that the issuer of
such security has registered the security with the Security
Valuation Office (SVO) for the purpose of determining an
investment rating on such security; or, in the event the issuer
has not so registered, Scudder shall complete the registration
process after such purchase of a non-registered security on
behalf of Standard and any other of its clients that shall seek
such registration, and shall periodically charge all filing
fees and other costs associated with such registration process
to Standard and to such other clients on a lump sum basis per
registration, with a good faith attempt to divide such fees as
equitably as possible among all clients participating in such
registrations.
(k) Standard is requesting, and Scudder agrees to
provide, certain trade execution services in connection with an
equity indexed annuity (EIA) program operated by Standard. It
is expressly agreed that Scudder's services in connection with
this program shall be as set forth in this Section 5(k). At
Standard's instruction from time to time, Scudder will execute
trades in options and other derivative instruments for the EIA
program. In connection with these trades, Standard may direct
Scudder to execute a trade through a specific broker as
provided in Section 5(b) above. The parties hereto expressly
agree that the identification of specific trades for the EIA
program is the sole responsibility of Standard, and that
Scudder shall have no liability whatsoever for any advice
provided to Standard by Scudder in connection with the EIA
program. Furthermore, the parties agree that Scudder shall
have no liability for any losses incurred by Standard or any of
Standard's affiliates or clients in connection with the EIA
program, whether resulting from any trades executed by Scudder
at Standard's direction or otherwise, including among other
things losses resulting from the failure to perform by a
counterparty, the failure of an option or other derivative
instrument to perform as expected, or unforseen changes in
market conditions. Furthermore, Standard agrees to hold
Scudder harmless and indemnify Scudder for any claims, damages,
liabilities or other losses incurred by Scudder in connection
with any trades executed by Scudder at the direction of
Standard as provided in this Section 5(k).
6. Term and Termination of Agreement. This Agreement shall
continue indefinitely, until either of the parties provides the other
with sixty (60) days' written notice of their intent to terminate the
Agreement. In the event Standard elects to terminate this Agreement
for any of the reasons set forth in Section 2.2a of the Note
Agreement dated October 31, 2000, by and between Standard and Zurich
Capital Markets Inc., then it shall send Scudder a letter setting
forth the applicable subsection of such Agreement justifying such
early termination.
7. Compensation. For the services to be rendered by Scudder
as provided in this Agreement, Standard agrees to pay to Scudder a
quarterly fee computed with relation to the total market value of the
invested assets in the Account at the end of the most recent fiscal
quarter (except as adjusted by Standard at the beginning of such
fiscal quarter), as follows:
Amount of Assets Amount of Fee
First $700,000,000 2.625 b.p. per quarter/10.5 basis points
per year
Next $300,000,000 2.375 b.p. per quarter/9.5 basis points
per year
Next $1 billion 2.250 b.p. per quarter/9.0 basis points
per year
Next $1 billion 2.000 b.p. per quarter/8.0 basis points
per year
All amounts over $3 billion 1.750 b.p. per quarter/7.0 basis points
per year
Such quarterly fee shall be payable in advance within thirty
(30) days after the last day of each quarter ended during the Term
hereof. Scudder shall provide Standard with an invoice detailing
such fees within 15 days after the last day of each quarter. In the
event that this Agreement becomes effective any day other than the
first day of a quarter, the fee payable for such quarter shall be pro
rated based upon the number of days remaining in the then-current
quarter expressed as a percentage of the total number of days in such
quarter.
8. Registration under Advisers Act; Necessary Disclosures.
Scudder represents and warrants that it is, and shall remain during
the term of this Agreement, a validly registered investment adviser
(as such term is defined in the federal Investment Advisers Act of
1940, 15 USC 80b-1 et seq.) (the "Act"). Scudder acknowledges
that, in compliance with its responsibilities under such Act, it has
furnished Standard not less than 48 hours prior to entering into this
Agreement with a copy of Part II of its Form ADV or a written
Disclosure Statement containing at least the information required in
Part II of Form ADV, as required by Rule 204.3 (17 CFR 275.204-3) of
the Act. Scudder will provide Standard with an updated copy of such
Part II of Form ADV or Disclosure Statement on an annual basis.
9. Limitation of Liability and Indemnification:
(a) Neither Scudder, nor any shareholder, officer,
director, employee, agent or affiliate thereof, shall be liable
to Standard, its employees, directors, or shareholders, for any
act or omission arising out of or related to the management or
maintenance of the Account or any assets therein, provided that
such act or omission was undertaken by Scudder in good faith
and in accordance with applicable law, the Investment
Guidelines, and any instructions given to Scudder pursuant to
Paragraph 3 above. Nothing in this Paragraph is intended or
shall be construed to limit Scudder's actual or potential
liability to Standard for damages or losses resulting from the
willful malfeasance, bad faith, or gross negligence of Scudder,
its employees, directors or shareholders, or any reckless
disregard by Scudder of its duties and obligations under this
Agreement.
(b) Scudder shall not be liable to Standard for damages
relating to any act or omission which involves the Account or
assets therein if such act or omission is directly and solely
traceable to the Custodians of the Account.
(c) Scudder shall not be liable for damages relating to
the acts or omissions of any broker or dealer which it has
retained in good faith to perform transactions with respect to
the Account, unless such acts or omissions are a direct result
of investment instructions given to the broker or dealer by
Scudder and not otherwise within its authority.
(d) The Federal and state securities laws impose
liabilities under certain circumstances on persons who act in
good faith. Nothing herein shall in any way constitute a
waiver or limitation of any rights which may exist under any
Federal or state securities laws.
(e) The provisions of this Paragraph 9 shall survive
indefinitely any termination of this Agreement.
10. Independent Contractor. Scudder shall for all purposes
herein be deemed to be an independent contractor. Nothing in this
Agreement shall be deemed to create any relationship between the
parties other than as independent contractors, including that of
partners, co-venturers, employer/employee, or any other relationship,
whether for purposes of taxation, principal/agent liability, or
otherwise.
11. Mutual Representations and Warranties. Each party hereto
hereby represents and warrants to the other party hereto that the
execution, delivery, and performance of this Agreement has been duly
authorized by all necessary corporate action on such warranting
party's behalf, and that such execution, delivery and performance
does not and will not: (i) require any consent or approval of its
stockholders which has not been obtained, (ii) contravene its charter
or by-laws, (iii) violate any provision of any law, rule, regulation,
order, writ, judgment, injunction, decree, determination, or award
presently in effect having applicability to such party, or (iv)
require the prior consent or approval of any governmental entity.
12. Amendment. This Agreement may only be amended by mutual
consent of the parties, which consent shall be contained in a written
amendment signed by both parties and affixed hereto.
13. Merger. This Agreement supersedes any and all written or
oral agreements or understandings between the parties with respect to
the subject matter hereof, whenever made, and contains the entire
agreement of the parties hereto.
14. Assignment. Scudder may not assign this Agreement to any
party without the prior written consent of Standard. Standard may
not assign this Agreement without the prior written consent of
Scudder, unless such assignment is made to a wholly-owned subsidiary
of Standard or to its parent organization, Standard Management
Corporation.
15. Notices. All notices, requests, demands and instructions
hereunder shall be in writing and shall be delivered by hand or
mailed by registered or certified U.S. Mail, postage prepaid, to the
following addresses, or to such other addresses as the parties may
designate from time to time in writing:
Standard Life Insurance Company of Indiana
9100 Keystone Crossing, Suite 600
Indianapolis, IN 46240
ATTN: Gerald R. Hochgesang, Senior Vice President and Treasurer
with a copy to:
Stephen M. Coons, Esq.
9100 Keystone Crossing, Suite 600
Indianapolis, IN 46240
and
Scudder Kemper Investments, Inc.
Two International Place
Boston, MA 02110
ATTN:_____________________________
with a copy to:
David Hartman, Esq.
Scudder Kemper Investments, Inc.
345 Park Ave.
New York, NY 10154
Whenever any notice is required to be given by the terms of
this Agreement, such notice will be deemed given when such notice is
actually delivered, if delivery is accomplished by hand, or when such
notice is actually received, if delivery is effected by U.S. Mail.
16. Choice of Law/Venue. Except for any references to
Federal laws contained herein, this Agreement and all rights granted
hereunder and by virtue of common or statutory law shall be construed
in accordance with the laws of the State of New York (without regard
to conflict of laws rules). The parties hereto agree that
jurisdiction and venue for any claim or cause of action arising
hereunder are appropriate in the Federal and/or state courts located
in New York, NY, depending on the nature of the claim made.
17. Severability. Any provision of this Agreement which
shall be deemed to be prohibited or unenforceable in any jurisdiction
shall, as to such jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining
provisions hereof, and shall be severable from the rest of this
Agreement to the extent necessary to interpret the remaining
provisions of this Agreement in accordance with the laws of such
jurisdiction.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective duly authorized
officers, effective this 31st day of October, 2000.
STANDARD LIFE INSURANCE SCUDDER KEMPER
COMPANY OF INDIANA INVESTMENTS, INC.
By:_____________________________ By:__________________________
Its:_____________________________ Its:___________________________
Date Signed:_____________________ Date Signed:___________________
SCHEDULE A
LIST OF APPROVED CUSTODIANS FOR STANDARD ACCOUNT
Union Federal Savings Bank
P.O. Box 44170
Indianapolis, IN 46244-0170
ATTN: Justin A. Hawkins, Trust Administrator
Various State Insurance Department required deposits ("Special
Deposits") f/b/o Standard Life Insurance Company of Indiana and
Dixie National Life Insurance Company, as detailed in attached
listing
EXHIBIT C
Representations and Warranties of Company
REPRESENTATIONS AND WARRANTIES
In order to induce the Purchaser to enter into this Agreement
and to purchase the Note, the Company makes the following
representations and warranties to the Purchaser:
(1) Incorporation, Good Standing and Due Qualification. The
Company and each of its Subsidiaries are corporations duly
incorporated, validly existing, and in good standing under the laws
of the jurisdiction of their respective incorporation; have the
corporate power and authority to own their respective assets and to
transact the business in which they are now engaged; and are duly
qualified as a foreign corporation and in good standing under the
laws of each other jurisdiction in which such qualification is
required.
(2) Power and Authority. The execution, delivery, and
performance by the Company of the Loan Documents has been duly
authorized by all necessary corporate action and do not and will not
(i) require any consent or approval of its stockholders which has not
been obtained, (ii) contravene its charter or by-laws, (iii) violate
any provision of any law, rule, regulation, order, writ, judgment,
injunction, decree, determination, or award presently in effect
having applicability to the Company, (iv) result in a breach of or
constitute a default under any indenture or loan or credit agreement
or any other agreement, lease, or instrument to which the Company is
a party or by which it or its Properties may be bound or affected;
(v) result in, or require, the creation or imposition of any Lien,
upon or with respect to any of the Properties now owned or hereafter
acquired by the Company, except for Liens in favor of the Purchaser;
or (vi) cause the Company to be in default under any such law, rule,
regulation, order, writ, judgment, injunction, decree, determination,
or award or any such indenture, agreement, lease, or instrument.
(3) Legally Enforceable Agreement. This Agreement is, and
the Note when delivered under this Agreement will be, the legal,
valid, and binding obligations of the Company, enforceable against
the Company in accordance with their respective terms, except to the
extent that such enforcement may be limited by applicable bankruptcy,
insolvency, and other similar laws affecting creditors' rights
generally.
(4) Financial Statements.
a) The consolidated balance sheet of the Company and its
Subsidiaries as at December 31, 1999, and the related consolidated
statements of income, stockholders' equity, and cash flows of the
Company and its Subsidiaries for the fiscal year ended on December
31, 1999, and the accompanying footnotes, together with the opinion
thereon dated February 28, 2000 of Ernst & Young, independent
certified public accountants, fairly present in all material respects
the consolidated financial condition of the Company and its
Subsidiaries as at such dates, and the consolidated results of their
operations for the periods covered by such statements, all in
accordance with GAAP applied on a consistent basis. Neither the
Company nor any Subsidiary has any material fixed or contingent
liabilities, liabilities for taxes, unusual forward or long-term
commitments or unrealized or anticipated losses from any unfavorable
commitments which are not reflected in such financial statements or
in the notes thereto, other than liabilities arising in the ordinary
course of business since December 31, 1999. Since December 31, 1999,
there has been no material adverse change in the consolidated
financial condition or operations, or the prospects or business taken
as a whole, of the Company and its Subsidiaries from that set forth
in said financial statements as at said date, other than as
previously disclosed by the Company to the Purchaser in Form 10-Q
filings for the periods ended June 30, 2000.
b) The individual balance sheet of the Company and each of
its Subsidiaries as at December 31, 1999, and the related individual
statements of income and stockholders' equity of the Company and each
of its Subsidiaries for the fiscal year ended on said date, copies of
which have been furnished to the Purchaser, fairly present in all
material respects the individual financial condition of the Company
and each of its Subsidiaries as at such date, and the individual
results of their respective operations for the period covered by such
statements, all in accordance with GAAP applied on a consistent
basis. Since December 31, 1999, there has been no material adverse
change in the individual financial condition or operations, or the
prospects or business, of the Company or any Subsidiary from that set
forth in said financial statements as at said date, other than as
previously disclosed by the Company to the Purchaser in Form 10-Q
filings for the periods ended June 30, 2000.
c) The Annual Statement of Standard Life as filed with the
Insurance Department of the State of Indiana for the fiscal year
ended December 31, 1999, a copy of which has been furnished to the
Purchaser, is complete and fairly presents the financial condition of
Standard Life as at such date and the results of operations of
Standard Life for such period, all in accordance with SAP.
(5) No Material Misrepresentation. No information, exhibit,
or report furnished by the Company to the Purchaser in connection
with the negotiation, execution and delivery of this Agreement or the
Note or any other Loan Document contained any untrue statement of
fact or omitted to state a material fact or any fact necessary to
make the statement contained therein not misleading.
(6) Labor Disputes and Acts of God. Neither the business
(other than in the ordinary course of its insurance operations) nor
the Properties of the Company or any Subsidiary of the Company is
affected by any fire, explosion, accident, strike, lockout or other
labor dispute, drought, storm, hail, earthquake, embargo, act of God
or of the public enemy, requisition or taking of property, or other
casualty (whether or not covered by insurance), which materially and
adversely affects such business or Properties or the operations of
the Company or any such Subsidiary.
(7) Other Agreements. Neither the Company, nor any
Subsidiary of the Company, is a party to any indenture, loan, or
credit agreement, or to any lease or other agreement or instrument,
or subject to any charter or corporate restriction, which could have
a material adverse effect on its business, Properties, operations, or
condition (financial or otherwise), or the ability of the Company to
carry out its obligations under the Loan Documents. Neither the
Company, nor any Subsidiary of the Company, is in default in any
respect in the performance, observance, or fulfillment of any of the
obligations, covenants, or conditions contained in any agreement or
instrument material to its Properties or business to which it is a
party.
(8) Litigation. Except as disclosed in its most recent Form
10-K filing, there is no pending, or, to the knowledge of the
Company, threatened action, suit, investigation, or proceeding
against or affecting the Company, or any Subsidiary of the Company,
before any court, governmental agency, or arbitrator, which may, in
any one case or in the aggregate, materially adversely affect the
financial condition, operations, Properties, or business of the
Company or any Subsidiary of the Company or the ability of the
Company to perform its obligations under the Loan Documents.
(9) Governmental Approvals. Except as has already been
obtained or completed, no order, consent, approval, license,
authorization, or validation of, or filing, recording or registration
with, notice to, or exemption by, any governmental or public body or
authority, or any subdivision thereof, is required to authorize, or
is required in connection with (i) the execution, delivery and
performance by the Company of the Loan Documents, or (ii) the
legality, validity, binding effect or enforceability of the Loan
Documents.
(10) No Defaults on Outstanding Judgments or Orders. The
Company and each of its Subsidiaries have satisfied all judgments,
and neither the Company nor any such Subsidiary is in default with
respect to any judgment, writ, injunction, decree, rule, or
regulation of any court, arbitrator, or federal, state, municipal, or
other governmental authority, commission, board, bureau, agency, or
instrumentality, domestic or foreign.
(11) Ownership and Liens. The Company and each of its
Subsidiaries have good, valid and defensible title to all respective
material Properties, subject to no material Liens, except (i) for
covenants, restrictions, rights, easements, Liens, encumbrances and
minor irregularities in title which do not materially interfere with
the occupation, use and enjoyment of such Properties in the normal
course of business as presently conducted or materially impair the
value thereof for such business, and (ii) Liens otherwise permitted
or contemplated by the Agreement. In all material respects, the
Company and each of its Subsidiaries enjoy peaceful and undistributed
possession under all leases under which they respectively operate,
and all such leases are valid and subsisting in all material respects
with no default existing thereunder.
(12) Subsidiary. The Company owns, directly or indirectly,
100% of the issued and outstanding capital stock of each of Standard
Life, Standard Marketing Corporation, Savers Marketing Corporation,
Standard Management International, S.A., and Standard Development,
L.L.C. Standard Management International, S.A., owns 100% of the
issued and outstanding common stock of Premier Life (Bermuda), Ltd.
and Premier Life (Luxembourg), S.A. (with the exception of one issued
and outstanding share of common stock in each such company that is
held by Patrick M. Whicher as a director's share). Standard Life
owns 99.4% of the issued and outstanding stock of Dixie National Life
Insurance Company; and Premier Marketing, Ltd. is a Subsidiary of
Standard Marketing Corporation. Neither the Company, Standard Life
nor Standard Marketing have any other material Subsidiaries. All
such stock has been validly issued, is fully paid and non-assessable,
and is owned by the Company and/or its Subsidiaries free and clear of
all Liens, except for liens created pursuant to the Fleet Credit
Agreement.
(13) ERISA. The Company and each of its Subsidiaries are in
compliance in all material respects with all applicable provisions of
ERISA. Neither a Reportable Event nor a Prohibited Transaction has
occurred and is continuing with respect to any Plan; no notice of
intent to terminate a Plan has been filed nor has any Plan been
terminated; no circumstances exist which constitute grounds under
Section 4042 of ERISA entitling the PBGC to institute proceedings to
terminate, or appoint a trustee to administrate, a Plan, nor has the
PBCG instituted any such proceedings; neither the Company nor any
ERISA Affiliate has completely or partially withdrawn under Sections
4201 or 4204 of ERISA from a Multiemployer Plan; the Company and each
ERISA Affiliate has met its minimum funding requirements under ERISA
with respect to all of its Plans and the present fair market value of
all Plan assets exceeds the present value of all vested benefits
under each Plan, as determined on the most recent valuation date of
the Plan and in accordance with the provisions of ERISA and the
regulations thereunder for calculating the potential liability of the
Company or any ERISA Affiliate to the PBGC or the Plan under Title IV
of ERISA; and neither the Company nor any ERISA Affiliate has
incurred any liability to the PBGC under ERISA.
(14) Environmental Matters. Each of the representations and
warranties set forth in paragraphs (a) through (e) of this Section is
true and correct with respect to each parcel of real property owned
or operated by the Company or any Subsidiary (the "Real Properties").
a) The Real Properties do not contain, and have not
previously contained, in, on, or under, including, without
limitation, the soil and groundwater thereunder, any Hazardous
Materials.
b) The Real Properties and all operations and facilities at
the Real Properties are in compliance with all Legal Requirements and
there is no Hazardous Materials contamination or violation of any
Environmental Legal Requirements which would interfere with the
continued operation of any of the Real Properties or impair the fair
saleable value thereof. For purposes of this clause (b), "fair
saleable value" of any Real Properties means the gross amount
(without deductions for costs of sale, taxes, or other payments) of
money that might be expected to be realized, as of the evaluation
date, from an interested purchaser aware of all relevant information
and a seller, equally informed, who is interested in disposing of any
such Real Properties.
c) Neither the Company nor any of its Subsidiaries has
received any complaint, notice of violation, alleged violation,
investigation or advisory action or of potential liability or of
potential responsibility regarding environmental protection matters
or permit compliance with regard to the Real Properties, nor is the
Borrower aware than any Governmental Authority is contemplating
delivering to the Company or any of its Subsidiaries any such notice.
d) Hazardous Materials have not been generated, treated,
stored, disposed of, at on or under any of the Real Properties, nor
have any Hazardous Materials been transferred from the Real
Properties to any other location.
e) There are no governmental, administrative or judicial
proceedings pending or contemplated under any Environmental Laws to
which the Company or any of its Subsidiaries is or will be named as
a party with respect to the Real Properties, nor are there any
consent decrees or other decrees, consent orders, administrative
orders or other orders, or other administrative or judicial
requirements outstanding under any Environmental Law with respect to
any of the Real Properties.
(15) Operation of Business. The Company and each of its
Subsidiaries possess all licenses, permits, franchises, patents,
copyrights, trademarks, and trade names, or rights thereto, to
conduct its business substantially as now conducted and as presently
proposed to be conducted, and neither the Company nor any of its
Subsidiaries knows of any conflict with or violation of any valid
rights of others with respect to any of the foregoing.
(16) Taxes. The Company and each of its Subsidiaries have
filed all tax returns (foreign, federal, state and local) required to
be filed and have paid all taxes, assessments, and governmental
charges and levies thereon to be due, including interest and
penalties.
(17) Investment Company Act. Neither the Company nor any
Subsidiary of the Company is an "investment company" or a company
"controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
(18) Lines of Credit. Except for the $26 million Amended and
Restated Revolving Line Of Credit Agreement with Fleet National Bank
and a certain line of credit in the amount of up to $1.6 million
issued to Premier Life (Bermuda), Ltd., all other lines of credit
previously issued by creditors in favor of the Company have been
canceled on or prior to the date hereof, and the Company has no other
lines of credit available for the Company's use.
(19) Use of Proceeds. Neither the Company nor any of its
Subsidiaries is engaged principally, or as one of its important
activities, in the business of extending credit for the purpose,
whether immediate, incidental or ultimate, of buying or carrying
margin stock (as defined in Regulation U promulgated by the Board of
Governors of the Federal Reserve System (or any successor), as the
same may be amended), and no part of the proceeds from the issuance
of the Note will be used to buy or carry any margin stock.
EXHIBIT D
Financial Covenants
So long as the Note shall remain unpaid, the Company will:
(1) Minimum Equity. Maintain at the end of each fiscal year
equity of the Company (computed in accordance with GAAP) of not less
than $61,000,000 plus an amount equal to fifty percent (50%) of
consolidated net income (computed in accordance with GAAP) commencing
with the quarter ended September 30, 1998 to the extent such
consolidated net income is greater than or equal to zero. Said
calculation of equity of the Borrower shall exclude the effects of
Financial Accounting Standard Board Pronouncement No. 115 (a/k/a FASB
No. 115).
(2) Positive Net Income. Maintain at the end of each fiscal
quarter (for the immediately preceding four fiscal quarters) positive
net income before extraordinary items (excluding also the effect of
one-time nonrecurring items) (computed in accordance with GAAP) for
any rolling four-quarter period.
(3) Minimum Consolidated Statutory Surplus. Cause the
Company's U.S. insurance Subsidiaries to maintain at all times a
consolidated surplus (computed in accordance with SAP) of not less
than $35,000,000.
(4) Minimum Fixed Charge Coverage Ratio. Cause the Company
and its Subsidiaries to maintain at the end of each fiscal quarter at
all times a Fixed Charge Coverage Ratio of not less than 1.33:1.0.
(5) Maximum Percentage of Bond Portfolio. Cause the
percentage of the Company's bond portfolio in the NAIC risk category
of 3 or worse not to exceed at any time ten percent (10%).
(6) Interest Coverage. Cause the Company to maintain at the
end of each fiscal quarter the ratio of (a) allowable dividends of
the Company's insurance Subsidiaris plus (b) EBITDA of non-insurance
Subsidiaries (excluding Standard Management International, S.A.) plus
(c) management fees, interest on surplus debentures, rents, and other
cash payments paid to Company in the normal course of its business by
its Subsidiaries, provided that such payments shall not require any
special, unusual or pre-approval by the appropriate regulatory
authorities or other similar bodies charged with overseeing the
affairs of the insurance Subsidiaries, to (d) the Company's and its
Subsidiaries' Interest Expense for all outstanding Debt of not less
than 2.0:1.0, measured for the twelve-month period then ended (a
rolling twelve-month calculation to be measured as of the end of each
successive quarter).
(7) Best Rating for Standard Life. Cause Standard Life (and
any of the Company's other affiliated insurance companies which
individually constitute in excess of 25% of the Company's
consolidated statutory capital and surplus) at all times to maintain
a rating by A.M. Best & Company of "B" or better.
The Purchaser acknowledges that several of the covenants
contained herein duplicate similar covenants contained in the Fleet
Credit Agreement, and, to the extent those covenants are changed by
agreement of Fleet National Bank and the Company during the term of
the Fleet Credit Agreement, then the covenants contained herein shall
also be modified accordingly to reflect such change.
EXHIBIT E
Reporting Requirements
The Company shall furnish to the Purchaser:
(1) Financial Statements. The following financial
statements:
(i) As soon as available, but in any event within 60
days after the end of each quarterly period of each fiscal year
of the Company, a copy of (A) the unaudited consolidated
balance sheet of the Company and its Subsidiaries as at the end
of each such quarter, the unaudited consolidated statements of
income and stockholders' equity of the Company and its
Subsidiaries for the period commencing at the end of the
previous fiscal year and ending with the end of such quarter,
and the unaudited consolidated statements of cash flows of the
Company and its Subsidiaries for the portion of the fiscal year
ended with the last day of such quarter; and (b) the unaudited
consolidating balance sheet of the Company and its Subsidiaries
as at the end of each such quarter, the unaudited consolidating
statements of income and stockholders' equity of the Company
and its Subsidiaries for the period commencing at the end of
the previous fiscal year and ending with the end of such
quarter; in each case, certified by the chief financial officer
or chief accounting officer of the Company;
(ii) As soon as available, but in any event within 120
days after the end of each fiscal year of the Company, a copy
of (A) the consolidated balance sheet of the Company and its
Subsidiaries as at the end of such year, the consolidated
statements of income and stockholders' equity of the Company
and its Subsidiaries for such fiscal year, and the consolidated
statements of cash flows of the Company and its Subsidiaries
for such fiscal year, certified by Ernst & Young or other
independent certified public accountants of nationally
recognized standing acceptable to the Purchaser in all
respects, and, with respect to the reserves for future policy
benefits, by an officer of the Company (each such certification
shall be without qualification or exception, except that such
certification may contain qualifications resulting from
required (by statute, FASB or NAIC) changes in accounting or
actuarial principles and methods as agreed to by such certified
public accountants and/or officer, provided that nothing in
this clause (A) shall be deemed to permit a "going concern,"
"going business" or like qualification or exception or a
qualification or exception arising out of the scope of the
audit); and (B) the consolidating balance sheet of the Company
and its Subsidiaries as at the end of such fiscal year, showing
intercompany eliminations and the consolidating statements of
income and stockholders' equity of the Company and its
Subsidiaries for such fiscal year, showing intercompany
eliminations, certified by the chief financial officer or the
chief accounting officer of the Company as being fairly
presented in all material respects when considered in relation
to the consolidated financial statements of the Company and its
Subsidiaries;
(iii) As soon as available, but in any event within 60
days after the end of each quarterly period of each fiscal year
of the Company and each of its Subsidiaries, a copy of the
unaudited individual balance sheet of the Company and each of
its Subsidiaries as at the end of each such quarter and the
unaudited individual statements of income and stockholders'
equity of the Company and each of its Subsidiaries for the
period commencing at the end of the previous fiscal year and
ending with the end of such quarter, and the unaudited
statement of cash flow of the Company only for the portion of
the fiscal year ended with the last day of such quarter,
certified by the chief financial officer or chief accounting
officer of the Company;
(iv) As soon as available, but in any event within 120
days after the end of each fiscal year of the Company and each
of its Subsidiaries, a copy of the individual balance sheet of
the Company and each of its Subsidiaries as at the end of such
year, the individual statements of income and stockholders'
equity of the Company and each of its Subsidiaries for such
fiscal year, and the individual statement of cash flows of the
company only for such fiscal year, certified by the chief
financial officer or chief accounting officer of the company;
(v) As soon as available, but in any event within 60
days after the end of the first three quarterly periods of each
fiscal year of the Company and each of its Subsidiaries, and
within 120 days after the end of each fiscal year of the
Company and each of its Subsidiaries, a copy of all financial
statements filed or otherwise furnished by the Company or any
of its Subsidiaries to any governmental authority or insurance
regulatory authority including, without limitation, any Annual
Statement or quarterly statement, certified by the chief
financial officer or chief accounting officer of the Company or
any such Subsidiaries, as applicable, that all such financial
statements are complete and correct and present fairly in
accordance with SAP the financial position of the Company or
any such Subsidiaries, as applicable, for the periods then
ended;
(vi) As soon as available, a copy of the results of each
financial solvency examination by the applicable insurance
regulatory authority (to the extent that it is lawful at the
time to so provide); and
(vii) Any other financial information pertaining to the
Company, Standard Life and Standard Marketing Corporation
reasonably requested by the Purchaser.
All such financial statements shall be fairly presented in all
material respects, shall be in reasonable detail, shall be prepared
in accordance with GAAP (or in accordance with SAP if required by,
and filed with, any applicable regulatory authority), in each case
applied on a consistent basis throughout the periods reflected
therein or as otherwise permitted herein, and, with respect to
clauses (i), (ii), (iii), (iv) and (v) above, shall state in
comparative form the respective consolidated/consolidating/
individual figures for the corresponding date and period in the
previous fiscal year;
(2) Actuarial Opinion. Within 120 days after the close of
each fiscal year of each of the Company and any of its Subsidiaries,
as applicable, a copy of the "Statement of Actuarial Opinion" for
each of the Company and any such Subsidiaries which is provided to
the applicable state or local insurance department or regulatory
authority as to the adequacy of loss reserves of the Company and any
such Subsidiaries. Such opinion shall be in the format prescribed by
the Insurance Code or other applicable laws;
(3) Certificate of No Default. Simultaneously with the
delivery of the quarterly and annual financial statements referred to
in (1)(i) and (ii) hereof, a certificate of the chief financial
officer or chief accounting officer of the Company certifying (i)
that no Default or Event of Default has occurred and is continuing
or, if a Default or Event of Default has occurred and is continuing,
a statement as to the nature thereof and the action which is proposed
to be taken with respect thereto, and (ii) computations demonstrating
compliance with the covenants contained in Exhibit D.
(4) Notice of Litigation. Promptly after the Company
receives written notice of the commencement thereof, notice of all
actions, suits, and proceedings before any arbitrator, court, or
governmental or nongovernmental department, commission, board,
bureau, agency, or instrumentality, domestic or foreign, affecting
the Company or any of its Subsidiaries which, if determined adversely
to the Company or any such Subsidiary, could have a material adverse
effect on the financial condition, properties, operations or
prospects of the Company or such Subsidiary or on its ability to
perform its obligations under the Loan Documents;
(5) Notice of Certain Events. As soon as possible and in any
event within ten (10) Business Days after the occurrence thereof,
notice of any default or event of default under any material
contract, instrument or agreement and of any event or condition
having, or which may have, a material adverse effect on the financial
condition, properties, operations or prospects of the Company or any
of its Subsidiaries, including, without limitation, any catastrophic
event, any notice of suspension, termination or revocation of any
material License of the Company or any Subsidiary by any Governmental
Authority or any notice relating to a proposed suspension or action
which would materially affect the authority or ability of the Company
or any Subsidiary to conduct its business;
(6) ERISA Reports. As soon as possible (whether or not
requested by the Purchaser) and in any event within ten (10) Business
Days after the Company or any such Subsidiary knows or has reason to
know that any Reportable Event or Prohibited Transaction has occurred
with respect to any Plan or that the PBGC or the Company or any such
Subsidiary has instituted or will institute proceedings under Title
IV or ERISA, the Company will deliver to the Purchaser a certificate
of the chief financial officer or chief accounting officer of the
Company setting forth details as to such Reportable Event or
Prohibited Transaction or Plan termination or Plan amendment and the
action the Company proposes to take with respect thereto;
(7) Proxy Statements, etc. Promptly after the sending or
filing thereof, copies of all proxy statements, financial statements
and reports which the Company or any of its Subsidiaries sends to its
stockholders, copies of all press releases and other statements made
available by the Company or any Subsidiary concerning developments
that are or may be material, and copies of all regular, periodic and
special reports, and all registration statements which the Company or
any of its Subsidiaries files with the Securities and Exchange
Commission or any governmental authority which may be substituted
therefor, or with any national securities exchange; and
(8) General Information. Such other information respecting
the condition or operations, financial or otherwise, of the Company
or any of its Subsidiaries, as the Company may from time to time
reasonably request.
EXHIBIT F
Form of Warrant
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON THE
EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") AND MAY
NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR
AN EXEMPTION THEREFROM UNDER THE SECURITIES ACT.
No. of Shares of Common Stock: 220,000 Warrant No. ZCM-01
WARRANT
To Purchase Common Stock of
STANDARD MANAGEMENT CORPORATION
THIS IS TO CERTIFY THAT ZURICH CAPITAL MARKETS INC., or
its registered assigns, is entitled, at any time or from time to time
prior to the Expiration Date (as hereinafter defined), to purchase
from Standard Management Corporation, an Indiana corporation (the
"Company"), 220,000 shares of fully paid and non-assessable Common
Stock, no par value (as hereinafter defined and subject to adjustment
as provided herein), in whole or in part, at a purchase price of
$4.00 per share, all on the terms and conditions and pursuant to the
provisions hereinafter set forth.
1. DEFINITIONS. As used in this Warrant, the following terms have
the respective meanings set forth below:
"Additional Shares of Common Stock" shall mean all shares of
Common Stock issued or issuable by the Company after the
Closing Date, other than the Warrant Stock.
"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 Securities of the Company or
(ii) 10% or more of the Voting Securities (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 Securities, by contract or
otherwise.
"Assigned Value" shall mean, in respect of any share of Common
Stock on any date herein specified (i) if there is a public
market for Common Stock, the average closing price of the
Common Stock on the largest exchange on which such shares are
traded (or if not traded on an exchange, then the average of
the closing bid and ask prices quoted over-the-counter) over
the 10 trading days prior to the date of the determination (as
such prices are reported in The Wall Street Journal or if not
so reported, in any nationally recognized financial journal or
newspaper), (ii) if there is no public market for Common Stock,
the highest price at which shares of Common Stock are offered
for sale in a public offering registered pursuant to the
Securities Act or in an arms-length private offering, if any
such offering is pending (unless such offer is revoked prior to
such sale) on the date of determination of the Assigned Value,
or (iii) if there is no public market for Common Stock and no
such offering is pending, the fair market value per share of
Common Stock as determined in good faith by the Company's board
of directors.
"Business Day" shall mean any day that is not a Saturday or
Sunday or a day on which banks are required or permitted to be
closed in the State of New York.
"Capital Stock" means, with respect to any Person, any and all
shares, interests, participations or other equivalents (however
designated) of capital stock, including each class of common
stock and preferred stock of such Person.
"Closing Date" shall mean October 31, 2000.
"Commission" shall mean the Securities and Exchange Commission
or any other federal agency then administering the Securities
Act and other federal securities laws.
"Common Stock" shall mean (except where the context otherwise
indicates) the Common Stock, no par value, of the Company as
constituted on the Closing Date, and any Capital Stock into
which such Common Stock may thereafter be changed, and shall
also include (i) Capital Stock of the Company of any other
class (regardless of how denominated) issued to the holders of
shares of Common Stock upon any reclassification thereof which
is also not preferred as to dividends or assets over any other
class of stock of the Company and which is not subject to
redemption and (ii) shares of common stock of any successor or
acquiring corporation (as defined in Section 4.7) received by
or distributed to the holders of Common Stock of the Company in
the circumstances contemplated by Section 4.7.
"Common Stock Outstanding" shall mean, at any date as of which
the number of shares thereof is to be determined, all issued
and outstanding shares of Common Stock and shall include all
shares issuable in respect of outstanding scrip or any
certificates representing fractional interests in shares of
Common Stock.
"Convertible Securities" shall mean evidences of indebtedness,
shares of stock or other securities which are convertible into
or exchangeable, with or without payment of additional
consideration in cash or property, for Additional Shares of
Common Stock, either immediately or upon the occurrence of a
specified date or a specified event.
"Current Market Price" shall mean, in respect of any share of
Common Stock on any date herein specified, the Assigned Value
per share of Common Stock as at such date.
"Current Warrant Price" shall mean, in respect of a share of
Common Stock at any date herein specified, the price at which
a share of Common Stock may be purchased pursuant to exercise
of this Warrant on such date.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, or any similar federal statute, and the rules and
regulations of the Commission thereunder, all as the same shall
be in effect at the time.
"Expiration Date" shall mean October 31, 2007.
"Fully-Diluted Outstanding" shall mean, (i) when used with
reference to Common Stock, at any date as of which the number
of shares thereof is to be determined, the number of shares of
Common Stock Outstanding at such date and the number of shares
of Common Stock which would be outstanding if the Warrants, the
Company's convertible preferred stock, if any, and all other
outstanding rights, options or warrants to purchase, or
securities convertible into, shares of Common Stock and all
security convertible or exchangeable into any of the foregoing,
that are "in-the-money" were converted into or exercised or
exchanged for shares of Common Stock on such date, and (ii)
when used with reference to Voting Securities, at any date as
of which the number of shares thereof is to be determined, the
number of shares of Voting Securities Outstanding at such date
and the number of shares of Voting Securities which would be
outstanding if any outstanding rights, warrants or options to
purchase, or securities convertible into, shares of Voting
Securities and all securities convertible or exchangeable into
any of the foregoing, that are "in-the-money" were converted
into or exercised or exchanged for shares of Voting Securities
on such date.
"GAAP" shall mean generally accepted accounting principles in
the United States of America as from time to time in effect.
"Holder" shall mean the Person or Persons in whose name this
Warrant or, as applicable, the Warrant Stock, is registered on
the books of the Company maintained for such purpose.
"Initial Public Offering" shall mean the first time a
registration statement filed by the Company under the
Securities Act with respect to its securities, whether on
behalf of itself or otherwise, is declared effective, other
than a registration statement filed on Form S-8 or any
successor forms thereto.
"Lien" means any mortgage, pledge, lien, encumbrance, charge or
adverse claim affecting title or resulting in an encumbrance
against real or personal property, or a security interest of
any kind (including, without limitation, any conditional sale
or other title retention agreement or any lease in the nature
thereof, and any filing of or agreement to give any financing
statement under the Uniform Commercial Code (or equivalent
statutes) of any jurisdiction).
"Majority Holders" shall mean Holders of more than 50% of (i)
Warrants exercisable for the aggregate number of shares of
Common Stock then purchasable upon exercise of all Warrants,
whether or not then exercisable, plus (ii) where a provision
affects Holders of the Warrant Stock, the Warrant Stock.
"Other Property" is defined in Section 4.7.
"Person" shall mean an individual, partnership, corporation,
trust, joint stock company or unincorporated organization or
joint venture, and a government or agency or political
subdivision thereof.
"Registration Rights Agreement" shall mean that certain
Registration Rights Agreement dated as of October 31, 2000 by
and between the Company and Holder, the form of which is
attached hereto as Schedule C.
"Restricted Common Stock" shall mean shares of Common Stock
which are, or which upon their issuance on the exercise of this
Warrant would be, evidenced by a certificate bearing the
restrictive legend set forth in Section 9 herein.
"Note Agreement" shall mean that certain Note Agreement dated
as of October 31, 2000, by and between the Company and Holder.
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute, and the rules and
regulations of the Commission thereunder, all as the same shall
be in effect at the time.
"Subsidiary" shall have the meaning set forth in the Note
Agreement.
"Voting Securities" means any class of Capital Stock of a
corporation or other equity shares, interests, participations,
rights in or other equivalents (however designated) of a Person
other than a corporation, and any rights (including without
limitation debt securities convertible into Capital Stock),
warrants or options exercisable or exchangeable for or
convertible into such Capital Stock or other equity securities,
pursuant to which the holders thereof have (or would have upon
exercise, conversion or exchange) the general voting power
under ordinary circumstances to vote for the election of
directors, managers, trustees or general partners of any Person
(irrespective of whether or not at the time any other class or
classes will have or might have voting power by reason of the
happening of any contingency).
"Warrants" shall mean all of the Warrants of the Company issued
prior to or on the date hereof or to be issued subsequent to
the date hereof pursuant to the Note Agreement, including this
Warrant, and all warrants issued upon transfer, division or
combination of, or in substitution for, any thereof. All
Warrants shall at all times be identical as to terms and
conditions, except as to date of issuance, the purchase price,
the number of shares of Common Stock for which they may be
exercised and the date by which such Warrants must be
exercised.
"Warrant Price" shall mean an amount equal to (i) the number of
shares of Common Stock being purchased upon exercise of this
Warrant pursuant to Section 2.1 multiplied by (ii) the Current
Warrant Price as of the date of such exercise.
"Warrant Stock" shall mean the shares of Common Stock issuable
to the Holders upon the exercise of this Warrant.
2. EXERCISE OF WARRANT: OTHER AGREEMENTS
2.1. Manner of Exercise.
(i) From and after the date hereof until 5:00
P.M., New York time, on the Expiration Date, Holder may exercise this
Warrant, on any Business Day, for all or any part of the number of
shares of Common Stock purchasable hereunder. In order to exercise
this Warrant, in whole or in part, Holder shall deliver to the
Company at its principal office at 9100 Keystone Crossing, Suite 600,
Indianapolis, Indiana 46240, or at the office or agency designated by
the Company pursuant to Section 11, (a) a written notice of Holder's
election to exercise this Warrant, which notice shall specify the
number of shares of Common Stock to be purchased, (b) this Warrant,
(c) payment of the Warrant Price by certified or official bank check
from Holder, unless the Holder is making a cashless exercise pursuant
to Section 2.1(iv) herein, and (d) if the Holder is making a cashless
exercise pursuant to Section 2.1(iv) herein, a statement indicating
its intent to make such exercise. Such notice shall be substantially
in the form of Schedule A hereto, duly executed by Holder or its
agent or attorney.
(ii) Upon receipt thereof, the Company shall, as
promptly as practicable, and in any event within five (5) Business
Days thereafter, execute or cause to be executed and deliver or cause
to be delivered to Holder a certificate or certificates representing
the aggregate number of shares of Common Stock issuable upon such
exercise as hereinafter provided. The stock certificate or
certificates so delivered shall be, to the extent possible, in such
denomination or denominations as such Holder shall request in the
notice and shall be registered in the name of Holder or such other
name as shall be designated in the notice. This Warrant shall be
deemed to have been exercised and such certificate or certificates
shall be deemed to have been issued, and Holder or any other Person
so designated to be named therein shall be deemed to have become a
holder of record of such shares for all purposes, as of the date the
notice, together with the check or checks and this Warrant, is
received by the Company as described above and all taxes required to
be paid by Holder, if any, pursuant to Section 2.2 prior to the
issuance of such shares have been paid. If this Warrant shall have
been exercised in part, the Company shall, at the time of delivery of
the certificate or certificates representing the Warrant Stock,
deliver to Holder a new Warrant evidencing the rights of Holder to
purchase the unpurchased shares of Common Stock called for by this
Warrant, which new Warrant shall in all other respects be identical
with this Warrant, or, at the request of Holder, appropriate notation
may be made on this Warrant and the same returned to Holder.
(iii) Fractional shares of Common Stock will not be
issued upon the exercise of this Warrant. In lieu of fractional
shares that would have been issued but for the immediately preceding
sentence, the Holder, at its option, will be entitled to receive cash
equal to the Current Market Price of such fraction of a share of
Common Stock on the trading day immediately preceding the Exercise
Date, or may purchase a whole share of Common Stock at the Current
Market Price less the price of such fractional share.
(iv) In lieu of paying the Warrant Price in cash,
Holder may elect to receive shares of the Company's Common Stock
equal to the value of this Warrant (or the portion thereof being
exercised), in which event the Company shall issue to Holder the
number of shares of the Company's Common Stock computed using the
following formula:
X = Y (A-B)
A
Where:
X = the number of shares of Warrant Stock
to be issued to the Holder;
Y = the number of shares of Warrant Stock
otherwise purchasable (or the portion
thereof being exercised) under this
Warrant (at the date of exercise);
A = the Current Market Price of one share
of the Company's Common Stock (at the
date of such exercise); and
B = the Current Warrant Price (as adjusted
to the date of such exercise).
2.2. Payment of Taxes. All shares of Common Stock
issuable upon the exercise of this Warrant pursuant to the terms
hereof shall be validly issued, fully paid and nonassessable and, to
the extent permitted by law, free of liens or preemptive rights. The
Company shall pay all expenses in connection with, and all taxes and
other governmental charges that may be imposed with respect to, the
issue or delivery thereof unless such tax is imposed by law on
Holder, in which case such tax or charge shall be paid by Holder.
2.3. Other Agreements. This Warrant and the Warrant
Stock shall be governed by the terms of this Warrant, the
Registration Rights Agreement and, to the extent applicable, the Note
Agreement (the terms of which are hereby incorporated herein by this
reference). Each Holder agrees to be bound by, and shall enjoy the
benefits of, this Warrant, the Registration Rights Agreement and the
Note Agreement. The registered holder of the Warrant Stock issued
upon exercise of this Warrant (in whole or in part) shall be entitled
to all rights granted pursuant to the Registration Rights Agreement
and agrees to be bound by all of the obligations and limitations
thereof, including the ability of the Company to elect to make a cash
payment to the Holder as more particularly described in Section
1.1(ii) of the Registration Rights Agreement in lieu of proceeding
with a Demand Registration (as such term is defined in the
Registration Rights Agreement).
3. TRANSFER. DIVISION AND COMBINATION.
3.1. Transfer. Subject to compliance with Section 9
herein, Holder shall have the right to transfer of this Warrant and
all rights hereunder and the Warrant Stock, in each case, in whole or
in part. Such transfer shall be registered on the books of the
Company to be maintained for such purpose, upon surrender of this
Warrant or the Warrant Stock at the principal office of the Company
referred to in Section 2.1 or the office or agency designated by the
Company pursuant to Section 11, together with, in the case of this
Warrant, a written assignment of this Warrant substantially in the
form of Schedule B hereto duly executed by Holder or its agent or
attorney and, in the case of Warrant Stock, stock powers or other
instrument of assignment duly executed.
3.2. Division and Combination. This Warrant may be
divided or combined with other Warrants upon presentation hereof at
the aforesaid office or agency of the Company, together with a
written notice specifying the names and denominations in which new
Warrants are to be issued, signed by Holder or its agent or attorney.
Subject to compliance with this Section 3, as to any transfer which
may be involved in such division or combination, the Company shall
execute and deliver a new Warrant or Warrants in exchange for the
Warrant or Warrants to be divided or combined in accordance with such
notice.
3.3. Expenses. The Company shall prepare, issue and
deliver at its own expense the new Warrant or Warrants under this
Section 3.
3.4. Maintenance of Books. The Company agrees to
maintain, at its aforesaid office or agency, books for the
registration and the registration of transfer of the Warrants.
4. ADJUSTMENTS.
The number of shares of Common Stock for which this Warrant is
exercisable shall be subject to adjustment from time to time as
set forth in this Section 4. The Company shall give each
Holder notice of any event described below which requires an
adjustment pursuant to this Section 4 at the time of such
event.
4.1. Stock Dividends. Subdivisions and Combinations.
If, at any time, the Company shall:
(i) pay holders of its Common Stock a dividend
in, or otherwise make a distribution of, Additional Shares of Common
Stock or other securities,
(ii) subdivide its outstanding shares of Common
Stock into a larger number of shares of Common Stock,
(iii) combine its outstanding shares of Common
Stock into a smaller number of shares of Common Stock, or
(iv) issue any securities pursuant to a
reclassification of shares of Common Stock,
then the number of shares of Common Stock for which this Warrant is
exercisable immediately after the occurrence of any such event shall
be adjusted to equal the number and kind of shares of Common Stock
(or such other securities other than Common Stock) which a record
holder of the same number of shares of Common Stock for which this
Warrant is exercisable immediately prior to the occurrence of such
event would own or be entitled to receive after the happening of such
event.
The Current Warrant Price shall be adjusted to equal the
Current Warrant Price immediately prior to any such adjustment
multiplied by a fraction, the numerator of which shall be the number
of shares of Common Stock for which this Warrant is exercisable
immediately prior to such adjustment and the denominator of which
shall be the number of shares for which this Warrant is exercisable
immediately after such adjustment.
4.2. Certain Other Distributions. If, at any time, the
Company shall pay holders of its Common Stock a dividend in, or
otherwise distribute:
(i) cash,
(ii) any evidences of its indebtedness, any shares
of its stock or any other securities or property of any nature
whatsoever (including Additional Shares of Common Stock but excluding
Convertible Securities), or
(iii) any warrants or other rights to subscribe for
or purchase any evidences of its indebtedness, any shares of its
stock or any other securities or property of any nature whatsoever
(including Additional Shares of Common Stock but excluding
Convertible Securities),
then the number of shares of Common Stock for which this Warrant is
exercisable after any such event shall be adjusted to equal the
number of shares of Common Stock which a record holder of the same
number of shares of Common Stock for which this Warrant is
exercisable immediately prior to the occurrence of such event would
own or be entitled to receive after the happening of such event, and
the Current Warrant Price shall be adjusted to equal (A) the Current
Warrant Price multiplied by the number of shares of Common Stock for
which this Warrant is exercisable immediately prior to the
adjustment; divided by (B) the number of shares for this Warrant is
exercisable immediately after such adjustment. A reclassification of
the Common Stock (other than a change in par value, or from par value
to no par value or from no par value to par value) into shares of
Common Stock and shares of any other class of stock shall be deemed
a distribution by the Company to the holders of its Common Stock of
such shares of such other class of stock within the meaning of this
Section 4.2 and, if the outstanding shares of Common Stock shall be
changed into a larger or smaller number of shares of Common Stock as
a part of such reclassification, such change shall be deemed a
subdivision or combination, as the case may be, of the outstanding
shares of Common Stock within the meaning of Section 4.1.
The Current Warrant Price shall be adjusted to equal the
Current Warrant Price hereunder immediately prior to any such
adjustment multiplied by a fraction, the numerator of which shall be
the number of shares for which this Warrant is exercisable
immediately prior to such adjustment and the denominator of which
shall be the number of shares for which this Warrant is exercisable
immediately after such adjustment, as calculated above.
4.3. Issuance of Additional Shares of Common Stock.
(i) If at any time the Company shall (except as
hereinafter provided) issue or sell any Additional Shares of Common
Stock for consideration in an amount per Additional Share of Common
Stock less than the Current Market Price, then the number of shares
of Common Stock for which this Warrant is exercisable shall be
adjusted to equal the product obtained by multiplying the number of
shares of Common Stock for which this Warrant is exercisable
immediately prior to such issue or sale by a fraction (I) the
numerator of which shall be the number of Fully Diluted Outstanding
shares of Common Stock immediately after such issue or sale, and (II)
the denominator of which shall be the number of Fully Diluted
Outstanding shares of Common Stock immediately prior to such issue or
sale plus the number of shares which the aggregate offering price of
the total number of such Additional Shares of Common Stock would
purchase at the then Current Market Price. Current Warrant Price
shall be adjusted to equal the Current Warrant Price hereunder
immediately prior to any such adjustment multiplied by a fraction,
the numerator of which shall be the number of shares for which this
Warrant is exercisable immediately prior to such adjustment, and the
denominator is the number of shares for which this Warrant is
exercisable immediately after such adjustment, as calculated above.
(ii) The provisions of Section 4.3(i) shall not
apply to any issuance of Additional Shares of Common Stock for which
an adjustment is provided under Section 4.1 or 4.2. No adjustment of
the number of shares of Common Stock for which this Warrant shall be
exercisable shall be made under Section 4.3(i) upon the issuance of
any Additional Shares of Common Stock which are issued pursuant to
the exercise of any warrants, options or other subscription or
purchase rights or pursuant to the exercise of any conversion or
exchange rights in any Convertible Securities, if any such adjustment
shall previously have been made upon the issuance of such warrants or
other rights or upon the issuance of such Convertible Securities (or
upon the issuance of any warrant or other rights therefor) pursuant
to Section 4.4.
4.4. Issuance of Warrants, Convertible Securities or
Other Rights. If, at any time, the Company shall take a record of the
holders of its Common Stock for the purpose of entitling them to
receive a distribution of, or shall in any manner (whether directly
or by assumption in a merger in which the Company is the surviving
corporation or otherwise) issue or sell, any warrants, options or
other rights to subscribe for or purchase any Additional Shares of
Common Stock or any Convertible Securities, whether or not the rights
to exercise, purchase, exchange or convert thereunder are immediately
exercisable, and the price per share for which Common Stock is
issuable upon the exercise of such warrants, options or other rights
or upon conversion or exchange of such Convertible Securities shall
be less than the Current Market Price in effect immediately prior to
the time of such issue or sale, then the number of shares for which
this Warrant is exercisable and the Current Warrant Price shall each
be adjusted as provided in Section 4.3 on the basis that the maximum
number of Additional Shares of Common Stock issuable (assuming
immediate exercisability for all shares covered) pursuant to all such warrants,
options or other rights or necessary to effect the conversion or exchange of
all such Convertible Securities shall be deemed to have been issued as of
the date of the exercise of this Warrant. No further adjustments of the
number of shares for which this Warrant is exercisable or the Current
Warrant Price shall be made upon the actual issue of such Common Stock
or of such Convertible Securities upon exercise of such warrants or other
rights or upon the actual issue of such Common Stock upon such conversion or
exchange of such Convertible Securities.
4.5. Other Action Affecting Warrant. If at any time or
from time to time the Company shall take any action in respect of or
affecting the Common Stock other than an action described in any of
the foregoing Sections 4.1 to 4.4, inclusive or in Section 4.7, then,
unless in the reasonable judgment of the Board of Directors of the
Company such action will not have a materially adverse effect upon
the rights of any Holder, the number of shares of Common Stock for
which this Warrant is exercisable shall be adjusted in such manner
and at such time as the Board of Directors of the Company may in good
faith determine to be equitable under the circumstances.
4.6. Other Provisions Applicable to Adjustments under
Section 4. The following provisions shall be applicable to the making
of adjustments of the number of shares of Common Stock for which this
Warrant is exercisable provided for in this Section 4:
(i) Computation of Consideration. To the extent
that any Additional Shares of Common Stock or any Convertible
Securities or any warrants, options or other rights to subscribe for
or purchase any Additional Shares of Common Stock or any Convertible
Securities shall be issued for cash consideration, the consideration
received by the Company therefor shall be the amount of the cash
received by the Company therefor, or, if such Additional Shares of
Common Stock or Convertible Securities are offered by the Company for
subscription, the subscription price, or, if such Additional Shares
of Common Stock or Convertible Securities are sold to underwriters or
dealers for public offering without a subscription offering, the
initial public offering price (in any such case subtracting any
amounts paid or receivable for accrued interest or accrued dividends
and without taking into account any compensation, discounts or
expenses paid or incurred by the Company for and in the underwriting
of, or otherwise in connection with, the issuance thereof). To the
extent that such issuance shall be for a consideration other than
cash, then, except as herein otherwise expressly provided, the amount
of such consideration shall be deemed to be the fair value of such
consideration at the time of such issuance as determined in good
faith by the Board of Directors of the Company (excluding therefrom
any director designated by the transferor thereof). In case any
Additional Shares of Common Stock or any Convertible Securities or
any warrants, options or other rights to subscribe for or purchase
such Additional Shares of Common Stock or Convertible Securities
shall be issued in connection with any merger in which the Company
issues any securities, the amount of consideration therefor shall be
deemed to be the fair value, as determined in good faith by the Board
of Directors of the Company (excluding therefrom any director
designated by the transferor thereof), of such portion of the assets
and business of the nonsurviving corporation as such Board in good
faith shall determine to be attributable to such Additional Shares of
Common Stock, Convertible Securities, warrants, options or other
rights, as the case may be. The consideration for any Additional
Shares of Common Stock issuable pursuant to any warrants, options or
other rights to subscribe for or purchase the same shall be the
consideration received by the Company for issuing such warrants,
options or other rights plus the additional consideration payable to
the Company upon exercise of such warrants or other rights. The
consideration for any Additional Shares of Common Stock issuable
pursuant to the terms of any Convertible Securities shall be the
consideration received by the Company for issuing warrants, options
or other rights to subscribe for or purchase such Convertible
Securities, plus the consideration paid or payable to the Company in
respect of the subscription for or purchase of such Convertible
Securities, plus the additional consideration, if any, payable to the
Company upon the exercise of the right of conversion or exchange in
such Convertible Securities. In case of the issuance at any time of
any Additional Shares of Common Stock or Convertible Securities in
payment or satisfaction of any dividends upon any class of stock
other than Common Stock, the Company shall be deemed to have received
for such Additional Shares of Common Stock or Convertible Securities
a consideration equal to the amount of such dividend so paid or
satisfied.
(ii) When Adjustments to be Made. The adjustments
required by this Section 4 shall be made whenever and as often as any
specified event requiring an adjustment shall occur, except that any
adjustment of the number of shares of Common Stock for which this
Warrant is exercisable that would otherwise be required may be
postponed (except in the case of a subdivision or combination of
shares of the Common Stock, as provided for in Section 4.1) up to,
but not beyond the date of exercise if such adjustment either by
itself or with other adjustments not previously made adds or
subtracts less than 1% of the shares of Common Stock for which this
Warrant is exercisable immediately prior to the making of such
adjustment. Any adjustment representing a change of less than such
minimum amount (except as aforesaid) which is postponed shall be
carried forward and made as soon as such adjustment, together with
other adjustments required by this Section 4 and not previously made,
would result in a minimum adjustment or on the date of exercise. For
the purpose of any adjustment, any specified event shall be deemed to
have occurred at the close of business on the date of its occurrence.
(iii) Fractional Interests. In computing
adjustments under this Section 4, fractional interests in Common
Stock shall be taken into account to the nearest one-tenth of a
share.
(iv) When Adjustment Not Required. If the
Company shall take a record of the holders of its Common Stock for
the purpose of entitling them to receive a dividend or distribution
or subscription or purchase rights and shall, thereafter and before
the distribution to stockholders thereof, legally abandon its plan
to pay or deliver such dividend, distribution, subscription or
purchase rights, then thereafter no adjustment shall be required by
reason of the taking of such record and any such adjustment
previously made in respect thereof shall be rescinded and annulled.
4.7. Reorganization, Reclassification, Merger,
Consolidation or Disposition of Assets.
(i) In case the Company shall reorganize its
capital, reclassify its Capital Stock, consolidate or merge with or
into another corporation, or sell, transfer or otherwise dispose of
all or substantially all its property, assets or business to another
corporation and, pursuant to the terms of such reorganization,
reclassification, merger, consolidation or disposition of assets,
shares of common stock of the successor or acquiring corporation, or
any cash, shares of stock or other securities or property of any
nature whatsoever (including warrants or other subscription or
purchase rights) in addition to or in lieu of common stock of the
successor or acquiring corporation ("Other Property"), are to be
received by or distributed to the holders of Common Stock of the
Company, then each Holder shall have the right thereafter to receive,
upon exercise of such Warrant, the number of shares of common stock
of the successor or acquiring corporation or of the Company, if it is
the surviving corporation, and Other Property receivable upon or as
a result of such reorganization, reclassification, merger,
consolidation or disposition of assets by a holder of the number of
shares of Common Stock for which this Warrant is exercisable
immediately prior to such event.
(ii) In case of any such reorganization,
reclassification, merger, consolidation or disposition of assets, (a)
Holder shall continue to enjoy, with respect to any shares of common
stock of the successor or acquiring corporation or the Company or any
Other Property consisting of Capital Stock or warrants acquired by
Holder, all the rights and benefits available to Holder pursuant to
this Warrant and all other agreements executed in connection with
this Warrant and/or the Warrant Stock, and (b) the successor or
acquiring corporation (if other than the Company) shall expressly
assume the due and punctual observance and performance of each and
every covenant and condition of this Warrant to be performed and
observed by the Company and all the obligations and liabilities
hereunder, subject to such modifications as may be deemed appropriate
(as determined by resolution of the Board of Directors of the
Company) in order to provide for adjustments of shares of the Common
Stock for which this Warrant is exercisable which shall be as nearly
equivalent as practicable to the adjustments provided for in this
Section 3.
(iii) For purposes of this Section 4.7, "common
stock of the successor or acquiring corporation" shall include stock
of such corporation of any class which is not preferred as to
dividends or assets over any other class of stock of such corporation
and which is not subject to redemption and shall also include any
evidences of indebtedness, shares of stock or other securities which
are convertible into or exchangeable for any such stock, either
immediately or upon the arrival of a specified date or the happening
of a specified event and any warrants or other rights to subscribe
for or purchase any such stock. The foregoing provisions of this
Section 4.7 shall similarly apply to successive reorganizations,
reclassifications, mergers, consolidations or disposition of assets.
(iv) The Company shall not consolidate or merge
with or into an Affiliate of the Company, nor sell, transfer or
otherwise dispose of all or substantially all its property, assets or
business to such an Affiliate unless and until (a) such
consolidation, merger, sale, transfer or disposition is fair and
equitable to the Company, each Holder and all holders of Warrant
Stock and is on terms which are at least as favorable as those that
would be obtainable in a similar transaction with an unrelated third
party, and (b) each Holder shall have received, at the Company's sole
cost and expense, the opinion of a financial advisor satisfactory to
such Holder in such Holder's reasonable discretion to the effect that
the proposed consolidation, merger, sale, transfer or disposition
satisfies the conditions set forth in the immediately preceding
clause (a).
4.8. Certain Limitations. Notwithstanding anything to
the contrary contained in the Company's Articles of Incorporation,
Bylaws or other documents governing the terms of the Company's
Capital Stock, the Company agrees not to amend its Articles of
Incorporation or Bylaws, enter into any other transaction or execute
any other document that would cause a reduction in the par value per
share of Common Stock below the Current Warrant Price. The Company
also agrees and covenants that it will comply with any reporting
requirements it might be responsible for under Sections 13 and 15(a)
of the Exchange Act (or any act with similar purpose or effect) for
as long as the Company is legally obligated to comply with such
requirements.
5. NOTICES TO WARRANT HOLDERS.
5.1. Notice of Adjustments. Whenever the number of
shares of Common Stock for which this Warrant is exercisable is
subject to adjustment pursuant to Section 4, the Company shall
forthwith prepare a certificate to be executed by the chief financial
officer of the Company setting forth, in reasonable detail, the event
requiring the adjustment and the method by which such adjustment was
calculated (including a description of the basis on which the Board
of Directors of the Company determined the fair value of any
evidences of indebtedness shares of stock, other securities or
property or warrants or other subscription or purchase rights
referred to in Section 4.6(i)), specifying the number of shares of
Common Stock for which this Warrant is exercisable and (if such
adjustment was made pursuant to Section 4.7) describing the number
and kind of any other shares of stock or Other Property for which
this Warrant is exercisable, and any change in the purchase price or
prices thereof, after giving effect to such adjustment or change. The
Company shall promptly cause a signed copy of such certificate to be
delivered to each Holder in accordance with Section 16.1. The Company
shall keep at its office or agency designated pursuant to Section 11
copies of all such certificates and cause the same to be available
for inspection at said office during normal business hours by any
Holder or any prospective purchaser of a Warrant designated by a
Holder thereof.
5.2. Notice of Corporate Action. If at any time:
(i) the Company shall take a record of the
holders of its Common Stock for the purpose of entitling them to
receive a dividend or other distribution, or any right to subscribe
for or purchase any evidences of its indebtedness, any shares of
stock of any class or any other securities or property, or to receive
any other right, or
(ii) there shall be any capital reorganization of
the Company, any reclassification or recapitalization of the Capital
Stock of the Company or any consolidation or merger of the Company
with, or any sale, transfer or other disposition of all or
substantially all the property, assets or business of the Company to,
another corporation, or
(iii) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Company;
then, in any one or more of such cases, the Company shall give to
Holder (a) at least 20 days' prior written notice of the date on
which a record date shall be selected for such dividend, distribution
or right or for determining rights to vote in respect of any such
reorganization, reclassification, merger, consolidation, sale,
transfer, disposition, dissolution, liquidation or winding up, and
(b) in the case of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation
or winding up, at least 20 days' prior written notice of the date
when the same shall take place. Such notice in accordance with the
foregoing clauses also shall specify (I) with respect to clause (a),
the date on which any
such record is to be taken for the purpose of such dividend,
distribution or right, the date on which the holders of Common Stock
shall be entitled to any such dividend, distribution or right, and
the amount and character thereof, and (II) with respect to clauses
(a) and (b), the date on which any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up is to take place and the time,
if any such time is to be fixed, as of which the holders of Common
Stock shall be entitled to exchange their shares of Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up. Each such written notice
shall be sufficiently given if addressed to Holder at the last
address of Holder appearing on the books of the Company and delivered
in accordance with Section 16.1.
6. NO IMPAIRMENT. The Company shall not by any action, including,
without limitation, amending its articles of incorporation or through
any reorganization, reclassification, merger, consolidation, sale,
transfer, disposition, dissolution, winding up, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but
will at all times in good faith assist in the carrying out of all
such terms and in the taking of all such actions as may be necessary
or appropriate to protect the rights of Holder against impairment.
Without limiting the generality of the foregoing, the Company will
(i) not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the amount payable
therefor upon such exercise immediately prior to such increase in par
value, (ii) take all such action as may be necessary or appropriate
in order that the Company may validly and legally issue fully paid
and nonassessable shares of Common Stock upon the exercise of this
Warrant, including reducing the par value of its Common Stock, and
(iii) use its best efforts to obtain all such authorizations,
exemptions or consents from any public regulatory body having
jurisdiction thereof as may be necessary to enable the Company to
perform its obligations under this Warrant.
7. RESERVATION AND AUTHORIZATION OF COMMON STOCK: REGISTRATION
WITH OR APPROVAL OF ANY GOVERNMENTAL AUTHORITY.
From and after the date hereof, the Company shall at all times
reserve and keep available for issue upon the exercise of Warrants
such number of its authorized but unissued shares of Common Stock as
will be sufficient to permit the exercise in full of all outstanding
Warrants. All shares of Common Stock which shall be so issuable, when
issued upon exercise of any Warrant and payment therefor in
accordance with the terms of such Warrant, shall be duly and validly
issued and fully paid and nonassessable, and, to the extent permitted
by law, free of liens or preemptive rights.
Before taking any action which would result in an adjustment in
the number of shares of Common Stock for which this Warrant is
exercisable, the Company shall obtain all such authorizations
or exemptions thereof, or consents thereto, as may be necessary
from any public regulatory body or bodies having jurisdiction
thereof.
8. TAKING OF RECORD: STOCK AND WARRANT TRANSFER BOOKS. In the
case of all dividends or other distributions by the Company to the
holders of its Common Stock with respect to which any provision of
Section 4 refers to the taking of a record of such holders, the
Company will in each such case take such a record as of the close of
business on a Business Day. The Company will not, at any time, except
upon dissolution, liquidation or winding up of the Company, close its
stock transfer books or Warrant transfer books so as to result in
preventing or delaying the exercise or transfer of any Warrant.
9. RESTRICTIONS OF TRANSFERABILITY. Each Warrant shall be stamped
or otherwise imprinted with a legend in substantially the following
form:
"THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON THE
EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT") AND MAY NOT BE
SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN
EXEMPTION THEREFROM UNDER THE SECURITIES ACT."
10. LOSS OR MUTILATION. Upon receipt by the Company from any
Holder of evidence reasonably satisfactory to it of the ownership of
and the loss, theft, destruction or mutilation of this Warrant and
indemnity reasonably satisfactory to it, and in case of mutilation
upon surrender and cancellation hereof, the Company will execute and
deliver in lieu hereof a new Warrant of like tenor to such Holder;
provided, in the case of mutilation, no indemnity shall be required
if this Warrant in identifiable form is surrendered to the Company
for cancellation.
11. OFFICE OF THE COMPANY. As long as any of the Warrants remain
outstanding, the Company shall maintain an office or agency (which
may be the principal executive offices of the Company) where the
Warrants may be presented for exercise, registration of transfer,
division or combination as provided in this Warrant. The Company
shall notify each Holder in writing prior to any change of address of
the office at which the Warrants may be presented. The current
address of such office is 9100 Keystone Crossing, Indianapolis, IN
46240.
12. LIMITATION OF LIABILITY. No provision hereof, in the absence
of affirmative action by Holder to purchase shares of Common Stock,
and no enumeration herein of the rights or privileges of Holder
hereof, shall give rise to any liability of such Holder for the
purchase price of any Common Stock or as a stockholder of the
Company, whether such liability is asserted by the Company or by
creditors of the Company.
13. CAPITALIZATION. As of September 30, 2000, there are
outstanding 7,660,156 shares of Common Stock; 1,377,978 shares of
treasury stock of the Company (which have not been included in the
outstanding shares of Common Stock); and 65,300 shares of Series A
preferred stock, which are convertible into a maximum number of
768,235 shares of Common Stock.
14. REGISTERED HOLDER. Notwithstanding any other provision of this
Warrant, Holder and/or its affiliates may exercise this Warrant
solely to the extent such exercise would not result in Holder and/or
its affiliates holding, directly or indirectly, in excess of 4.99% of
the outstanding Common Stock of the Company (such determination to be
made by Holder), except for an exercise in connection with (i) a
widely dispersed public offering of the Warrant Stock, (ii) a sale of
the Warrant Stock in the secondary market pursuant to the transaction
and volume limitations of Rule 144 under the Securities Act
(irrespective of holding periods), or (iii) a private placement or
sale, including those made pursuant to Rule 144A under the Securities
Act, so long as Holder and/or its affiliates do not collectively
acquire more than 2% of the Common Stock of the Company pursuant to
any such transfer.
15. SHAREHOLDER COMMUNICATIONS. The Company will provide the
Registered Holder with copies of all written communications
distributed to shareholders generally.
16. MISCELLANEOUS.
16.1. Notice Generally. Any notice, demand, request,
consent, approval, declaration, delivery or other communication
hereunder to be made pursuant to the provisions of this Warrant shall
be sufficiently given or made if in writing and either delivered in
person with receipt acknowledged or sent by courier, registered or
certified mail, return receipt requested, postage prepaid, or by
telecopy and confirmed by telecopy answerback, addressed as follows:
(i) If to any Holder or holder of the Warrant
Stock, at its last known address appearing on the books of the
Company maintained for such purpose.
(ii) If to the Company at:
9100 Keystone Crossing
Suite 600
Indianapolis, Indiana 46240
Attention: Stephen M. Coons, Esq.
Telecopy: (317) 574-6227
or at such other address as may be substituted by notice given as
herein provided. The giving of any notice required hereunder may be
waived in writing by the party entitled to receive such notice. Every
notice demand, request, consent, approval, declaration, delivery or
other communication hereunder shall be deemed to have been duly given
or served on the date on which personally delivered, with receipt
acknowledged, telecopied and confirmed by telecopy answerback, sent
by telefacsimile with a confirmation of transmission, or three (3)
Business Days after the same shall have been deposited in the United States
mail, return receipt requested. Failure or delay in delivering copies
of any notice, demand, request, approval, declaration, delivery or
other communication to the person designated above to receive a copy
shall in no way adversely affect the effectiveness of such notice,
demand, request, approval, declaration, delivery or other
communication.
16.2 Successors and Assigns. This Warrant and the
rights evidenced hereby (including, without limitation, those
relating to the Warrant Stock) shall inure to the benefit of and be
binding upon the successors of the Company and the successors and
assigns of Holder. The provisions of this Warrant are intended to be
for the benefit of all Holders from time to time of this Warrant and
all Holders from time to time of the Warrant Stock, and shall be
enforceable by any such Holder(s). Any provisions of this Warrant
may be enforced by any such Holder through a judicial decree of
specific performance, in additional to any other legal rights such
holder may have under this Warrant or under operation of law. In the
event such enforcement is or becomes necessary, the Company further
agrees to pay to the Holder all costs and expenses incurred by it in
its enforcement of rights pursuant hereto (whether through
negotiation, legal proceedings or otherwise), including without
limitation such holder's or holders' reasonable attorneys' fees and
expenses for all services rendered in connection therewith.
16.3 Amendment.
(i) This Warrant and all other Warrants may be
modified or amended or the provisions hereof waived with the written
consent of the Company and the Majority Holders, provided that no
such Warrant may be modified or amended to reduce the number of
shares of Common Stock for which such Warrant is exercisable or to
increase the Warrant Price without the prior written consent of
Holder thereof.
(ii) No waivers of, or exceptions to, any term,
condition or provision of this Warrant, in any one or more instances,
shall be deemed to be, or construed as, a further or continuing
waiver of any such term, condition or provision.
16.4 Severability. Wherever possible, each provision of
this Warrant shall be interpreted in such manner as to be effective
and valid under applicable law, but if any provision of this Warrant
shall be prohibited by or invalid under applicable law, such
provision shall be ineffective to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or
the remaining provisions of this Warrant.
16.5 Headings. The headings used in this Warrant are for
the convenience of reference only and shall not, for any purpose, be
deemed a part of this Warrant.
16.6 Governing Law. THIS WARRANT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK
(WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS PRINCIPLES THEREOF),
CANNOT BE CHANGED ORALLY AND SHALL BIND AND INURE TO THE BENEFIT OF
THE PARTIES HERETO AND THEIR RESPECTIVE HEIRS, SUCCESSORS AND
ASSIGNS. THE COMPANY AGREES THAT ANY DISPUTE ARISING OUT OF THIS
WARRANT SHALL BE SUBJECT TO THE JURISDICTION OF BOTH THE STATE AND
FEDERAL COURTS IN THE CITY AND STATE OF NEW YORK. FOR THIS PURPOSE,
THE COMPANY HEREBY SUBMITS TO THE JURISDICTION AND VENUE OF THE STATE
AND FEDERAL COURTS IN NEW YORK. 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.
IN WITNESS WHEREOF, the Company has caused this Warrant to be
duly executed.
Dated: October 31, 2000
STANDARD MANAGEMENT CORPORATION
By:____________________________
Name: Ronald D. Hunter
Its: Chairman, President and Chief Executive Officer
SCHEDULE A
SUBSCRIPTION FORM
[To be executed only upon exercise of Warrant]
The undersigned registered owner of this Warrant irrevocably
exercises this Warrant for the purchase of _______ shares of
Common Stock of the Company, and herewith makes payment in the
amount of $________ therefor, and requests that certificates
for the shares of Common Stock hereby purchased (and any
securities or other property issuable upon such exercise) be
issued in the name of and delivered to ___________, whose
address is ____________ and, if such shares of Common Stock
shall not include all of the shares of Common Stock issuable as
provided in this Warrant, that a new Warrant of like tenor and
date for the balance of the shares of Common Stock issuable
hereunder be delivered to the undersigned. In lieu of paying
the purchase price, I hereby make a cashless exercise of this
Warrant for the purchase of _______ shares of Common Stock of
the Company pursuant to Section 2.1(iii) of this Warrant and
request that [$______] [certificates representing _____ shares]
be [paid][issued] and delivered to _______, whose address is
____________.
(Name of Registered Owner)
(Signature of Registered Owner)
(Street Address)
(City) (State) (Zip Code)
SCHEDULE B
ASSIGNMENT FORM
FOR VALUE RECEIVED the undersigned registered owner of
this Warrant hereby sells, assigns and transfers unto the Assignee
named below all of the rights of the undersigned under this Warrant,
with respect to the number of shares of Common Stock set forth below:
Name and Address of Assignee
No. of Shares of Common Stock
and does hereby irrevocably constitute and appoint __________________
attorney-in-fact to register such transfer on the books of
______________________ maintained for the purpose, with full power of
substitution in the premises.
Dated:
Print Name:
Signature:
Witness:
NOTICE: The signature on this assignment must correspond with the
name as written upon the face of the within Warrant in
every particular, without alteration or enlargement or any
change whatsoever.
SCHEDULE C
FORM OF REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT
BETWEEN
STANDARD MANAGEMENT CORPORATION
AND
ZURICH CAPITAL MARKETS INC.
Registration Rights Agreement
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made
as of October, 31, 2000 by and between STANDARD MANAGEMENT CORPORATION, an
Indiana corporation (the "Company"), and ZURICH CAPITAL MARKETS INC., a
Delaware corporation (the "Stockholder").
In consideration of the mutual covenants herein contained, and intending
to be legally bound hereby, the parties hereto agree as follows:
1. Demand Registration
1.1. Requests for Registration. (i) At any time, a holder of
Warrants or Warrant Stock may demand registration under the Securities Act
of all or any portion of the Registrable Securities owned by such holder.
In order to accomplish such demand, a holder shall send written notice of
the demand to the Company via facsimile, with a copy sent via U.S. Mail,
no later than 10:00 a.m. New York time on the day it elects to make such
demand, and such notice shall specify the number of Registrable Securities
sought to be registered. Unless the Company elects, at its sole option,
to make a cash payment to the holder of the Warrants or Warrant Stock as
more particularly described in Section 1.1(ii) below in lieu of proceeding
with a Demand Registration, the Company shall proceed with any Demand
Registration requested by a holder of Warrants or Warrant Stock if the
number of Registrable Securities which the Stockholders (including the
holder requesting the Demand Registration) shall have elected to include
in such Demand Registration pursuant to this Section 1.1 shall be at least
51% of the Warrant Stock issued or issuable upon exercise of the Warrants
(excluding Warrant Stock already the subject of a Demand Registration).
If the Company so elects to make a cash payment in lieu of registration
as specified in the preceding sentence, the Company shall provide the
holder with written notice of its election, sent via facsimile with a copy
sent via U.S. Mail, no later than 2:00 p.m., New York time, on the
afternoon of the same business day on which holder has made a demand for
registration. The minimum share amounts specified in this Section 1.1
shall be appropriately adjusted to account for any stock dividend, stock
split, recapitalization, merger, consolidation, reorganization or other
action as a result of which additional shares of Common Stock are issued
on account of, in conversion of or in exchange for shares of outstanding
Common Stock.
(ii) If the holder of the Warrants or Warrant Stock makes a demand
for a Demand Registration of all or a portion of the Registrable
Securities owned by such holder, the Company may, instead, at its sole
option, elect to make a cash payment to such holder equal to the value of
the Warrants or Warrant Stock (or the portion thereof being exercised) in
an amount computed using the following formula:
X = Y (A-B)
Where:
X = the amount of cash to be paid to Holder;
Y = the number of shares of Warrant Stock
otherwise purchasable (or the portion thereof
being exercised) under this Warrant (at the
date of exercise), or otherwise received
under this Warrant prior to demand by holder
of Demand Registration;
A = the closing price of one share of the
Company's Common Stock on the NASDAQ exchange
at the end of the trading day on such date of
exercise; and
B = the Current Warrant Price (as adjusted to
the date of such exercise), which shall be
equal to zero if the Warrant has already been
exercised.
1.2. Maximum Number of Demand Registrations. In no event shall the
total number of Demand Registrations exceed two.
1.3. Procedure. Within 10 days after receipt of a demand pursuant
to Section 1.1 hereof, the Company shall give written notice of such
requested registration to all other Stockholders and will include in such
registration, subject to the allocation provisions below, all other
Registrable Securities with respect to which the Company has received
written requests for inclusion within 20 days after the Company's mailing
of such notice, plus any securities of the Company that the Company
chooses to include on its own behalf.
1.4. Expenses. The Company will pay the Registration Expenses of
any Demand Registration, but the Underwriting Commissions, if such Demand
Registration is underwritten, will be paid by the Selling Stockholders in
proportion to any Registrable Securities to be included on their behalf.
1.5. Priority on Demand Registrations. If a Demand Registration is
underwritten and the managing underwriters advise the Company in writing
that in their opinion the number of Registrable Securities requested to be
included exceeds the number that can be sold in such offering, at a price
reasonably related to the fair value, the Company will allocate the
Registrable Securities to be included in such Demand Registration, first,
to the holders of Warrants and Warrant Stock pro rata on the basis of the
number of shares of Warrant Stock for which the Company has received
written requests for inclusion, and, second, to the Company, and, third,
pro rata on the basis of the number of Registrable Securities owned by the
Selling Stockholders.
1.6. Selection of Underwriters. Any Demand Registration may be
underwritten, at the election of the Selling Stockholders, and the
selection of investment banker(s) and manager(s) and the other decisions
regarding the underwriting arrangements for any such offering will be made
by the Selling Stockholders; provided, however, that the selection of
investment banker(s) and manager(s) shall be subject to the consent of the
Company, such consent not to be unreasonably withheld.
2. Piggyback Registrations
2.1. Right to Piggyback. Whenever the Company proposes to register
the offer, sale or offer and sale of any of its securities for its own
behalf under the Securities Act (other than a Demand Registration), and
the registration form to be used may be used for the registrations of
Registrable Securities to be sold in the manner proposed by the Selling
Stockholders (a "Piggyback Registration"), the Company will give prompt
written notice to all Stockholders and will include in such Piggyback
Registration, subject to the allocation provisions below, all Registrable
Securities with respect to which the Company has received written requests
for inclusion within 20 days after the Company's mailing of such notice.
The Company shall not select a Restricted Form that would preclude
registration of the Registrable Securities that the Company has been
requested to include in such registration if the Company could use another
available form of registration statement which is not a Restricted form
and the use of which would not give rise to added Registration Expenses in
a material amount.
2.2. Piggyback Expenses. In all Piggyback Registrations, the
Company will pay the Registration Expenses related to the Registrable
Securities of the Selling Stockholders, but the Underwriting Commissions
will be paid by the Selling Stockholders in proportion to any Registrable
Securities included on their behalf.
2.3. Priority on Primary Registrations. If a Piggyback
Registration is an underwritten registration on behalf of the Company, and
the managing underwriters advise the Company in writing that in their
opinion the number of securities requested to be included in such
registration exceeds the number that can be sold in such offering, at a
price reasonable related to fair value, the Company will allocate the
securities to be included as follows: first, the securities the Company
proposes to sell on its own behalf; second, Registrable Securities
requested to be included in such registration, pro rata on the basis of
the number of Registrable Securities owned, among the Selling
Stockholders, provided that the Stockholder will be allocated no less than
30% of the Securities to be registered; and third, securities requested to
be included in such registration by any stockholders of the Company other
than the Selling Stockholders.
2.4. Withdrawal or Abandonment. Nothing contained in this Section
2 shall be construed as limiting or otherwise interfering with the right
of the Company to withdraw or abandon in its sole discretion any
registration statement filed by it in connection with a Piggyback
Registration notwithstanding the inclusion therein of Registrable
Securities.
3. Holdback Agreements
Each of the Stockholder and the Company agree not to effect any
public sale or public distribution of equity securities of the Company of
any securities convertible into or exchangeable or exercisable for such
securities during the 7 days prior to and the 180 days after any
underwritten registration of equity securities of the Company becomes
effective (except as part of such underwritten registration or except in
connection with obligations of the Company existing on the effective date
of the registration statement relating to such underwritten offering).
4. Registration Procedures
Whenever the Stockholders have requested that any Registrable
Securities be registered pursuant to Section 1 of this Agreement, unless
the Company elects, at its sole option, to make a cash payment to the
holder of the Warrants or Warrant Stock as more particularly described in
Section 1.1(ii) above in lieu of proceeding with a Demand Registration,
the Company will, as expeditiously as possible, or whenever the
Stockholders have requested that any Registrable Securities be registered
pursuant to Section 2 of this Agreement, the Company will, to the extent
applicable:
(a) Preparation and Filing of Registration Statement.
Prepare and file with the Securities and Exchange Commission a
registration statement with respect to such Registrable Securities and use
its best efforts to cause such registration statement to become effective
(provided that before filing a registration statement or prospectus or any
amendments or supplements thereto, the Company will furnish each Selling
Stockholder with copies of all such documents proposed to be filed).
(b) Preparation and Filing of Amendments and Supplements.
Prepare and file with the Securities and Exchange Commission such
amendments and supplements to such registration statement and the
prospectus used in connection therewith as may be necessary to keep such
registration statement effective for the greater of (x) a period of not
less than 120 days or (y) until the Registrable Securities included
therein have been sold.
(c) Copies of Documents. Furnish to each Selling
Stockholder such number of copies of such registration statement, each
amendment and supplement thereto and the prospectus included in such
registration statement (including each preliminary prospectus), and such
other documents as such Selling Stockholder may reasonably request in
order to facilitate the disposition of the Registrable Securities included
therein owned by such Selling Stockholder.
(d) Blue Sky Qualifications. Use its best efforts to
register or quality such Registrable Securities under such other
securities or blue sky laws of such jurisdictions as the Selling
Stockholders or managing underwriters may reasonably request; provided,
however, that in connection with any such registration or qualification
the Company shall not be obligated to file a general consent to service of
process, or to qualify to do business as a foreign corporation, or
otherwise subject itself to taxation in connection with such qualification
or compliance.
(e) Notification of Effectiveness; Amendments. Notify each
Selling Stockholder at any time when a prospectus relating to the
Registrable Securities included therein is required to be delivered under
the Securities Act, within the period that the Company is required to keep
the registration statement effective, of any stop order (with respect to
which the Company will use its best efforts to have lifted), of any notice
with respect to suspension of effectiveness, of any SEC request for
additional information, of the effective date of any registration
statement, of all SEC and blue sky filings, and of the happening of any
event as a result of which the prospectus included in such registration
statement as theretofore amended or supplemented contains an untrue
statement of a material fact or omits any material fact necessary to make
the statements therein not misleading, and, at the Company's expense, the
Company will prepare a supplement or amendment to such prospectus so that,
as thereafter delivered to the purchasers of such Registrable Securities,
such prospectus will not contain an untrue statement of a material fact or
omit to state any material fact necessary to make the statements therein
not misleading.
(f) Listing. Cause all such Registrable Securities to be
listed or included on securities exchanges on which similar securities
issued by the Company are then listed or included.
(g) Transfer Agent and Registrar. Provide a transfer agent
and registrar for all such Registrable Securities not later than the
effective date of such registration statement.
(h) Other Agreements. Enter into such customary agreement
(including an underwriting agreement containing customary terms and
conditions, including usual and customary indemnification provisions, in
form reasonably acceptable to the Company) and take such other customary
actions as may be reasonable necessary to expedite or facilitate the
disposition of such Registrable Securities.
(i) Letters from Independent Accountants. Obtain a "cold
comfort" letter addressed to the Company from its independent accountants
in such form and covering such matters of the type customarily covered by
"cold comfort" letters delivered by such public accountants.
(j) Inspection of Records. Make available for inspection by
any Selling Stockholder, and, upon execution of a confidentiality
agreement mutually acceptable to all parties, by any underwriter
participating in any disposition pursuant to such registration statement
and any attorney, accountant or other agent retained by any such seller or
underwriter, all financial and other records, pertinent corporate
documents and properties of the Company, and cause the Company's officers,
directors and employees to supply all information reasonably requested by
any such seller, underwriter, attorney, accountant or agent in connection
with such registration statement.
5. Representations and Warranties of the Company
The Company hereby represents and warrants to the Stockholders:
5.1. Due Organization and Good Standing. The Company is a
corporation duly organized and validly existing under the laws of its
jurisdiction of incorporation and is duly qualified as a foreign
corporation in each jurisdiction in which the failure to be so qualified
could reasonably be expected to have a material adverse effect on the
Company.
5.2. Due Authorization; Binding Effect. The execution and delivery
of this Agreement by the Company has been duly authorized by all necessary
corporate action and this Agreement constitutes the legal, valid and
binding obligation of the Company, enforceable against the Company in
accordance with its terms.
5.3. No Violation or Default. The execution and delivery by the
Company of this Agreement does not, and the performance by the Company of
its obligations hereunder will not, violate any provisions of its charter
or by-laws or constitute a default under any other agreement to which the
Company is a party or by which it or its assets may be bound.
6. Representations and Warranties of the Stockholder
The Stockholder represents and warrants to the Company:
6.1. Due Organization and Good Standing. The Stockholder is a
corporation duly organized and validly existing under the laws of the
State of Delaware and is duly qualified as a foreign corporation in each
jurisdiction in which the failure to be so qualified could reasonably be
expected to have a material adverse effect on such Stockholder.
6.2. Due Authorization; Binding Effect. The execution and delivery
of this Agreement by the Stockholder has been duly authorized by all
necessary action and this Agreement constitutes the legal, valid and
binding obligation of such Stockholder enforceable against such
Stockholder in accordance with its terms.
6.3. No Violation. The execution and delivery of this Agreement by
the Stockholder does not, and the performance by such Stockholder of its
obligations hereunder will not, violate any provision of the
organizational documents of such Stockholder.
6.4. No Default. The execution and delivery of this Agreement by
the Stockholder does not, and the performance by such Stockholder of its
obligations hereunder will not, violate any other agreement to which such
Stockholder is a party or by which any of its assets may be bound.
7. Information Regarding Selling Stockholders
Each Selling Stockholder shall provide to the Company such
information as may be reasonably requested by the Company for use in the
preparation and filing of any registration statement covering Registrable
Securities owned by such Selling Stockholder, and the obligation of the
Company to include Registrable Securities in any registration statement on
behalf of any Selling Stockholder shall be subject to such Selling
Stockholder's providing such information as promptly as practicable.
8. Indemnification
8.1. Indemnification by the Company. The Company hereby
indemnifies, to the extent permitted by law, each Selling Stockholder, its
officers, directors, employees, representatives and agents, and each
person who controls such holder (within the meaning of the Securities
Act), against all losses, claims, damages, liabilities and expenses
arising out of or resulting from any untrue or alleged untrue statement of
material fact contained in any registration statement, prospectus or
preliminary prospectus or any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, except insofar as the same occurs
in reliance upon and in conformity with any information furnished in
writing to the Company by any Selling Stockholder expressly for use
therein or made in a preliminary prospectus, and the final prospectus
contained in the registration statement as declared effective or in the
form filed by the Company with the SEC pursuant to Rule 424 (or any rule
with similar effect) under the Securities Act shall have corrected such
statement or omission, and the copy of such prospectus shall not have been
delivered by the Selling Stockholder in a timely manner to an aggrieved
purchaser after the Company has furnished such Selling Stockholder with
copies of the same.
8.2. Indemnification by the Selling Stockholders. In connection
with any registration statement in which a Selling Stockholder is
participating, each such Selling Stockholder will furnish to the Company
in writing such information as is reasonably requested by the Company for
use in such registration statement or prospectus and will indemnify, to
the extent permitted by law, the Company, its directors and officers and
each person who controls the Company (within the meaning of the Securities
Act) against any losses, claims, damages, liabilities and expenses arising
out of or resulting from any untrue or alleged untrue statement of
material fact or any omission or alleged omission of a material fact
required to be stated in the registration statement or prospectus or any
amendment thereof or supplement thereto or necessary to make the
statements therein not misleading, but only to the extent that such untrue
statement or omission or such alleged untrue statement or alleged omission
occurs in reliance upon and in conformity with information so furnished in
writing by such Selling Stockholder specifically for use in the
registration statement.
8.3. Procedures as to Indemnification. Any person entitled to
indemnification hereunder shall (i) give prompt notice to the indemnifying
party of any claim with respect to which it may seek indemnification and
(ii) unless in such indemnified party's reasonable judgment a conflict of
interest between such indemnified and indemnifying parties may exist with
respect to such claim, permit such indemnifying party to assume the
defense of such claim with counsel reasonable satisfactory to the
indemnified party. If such defense is assumed, the indemnifying party
will not be subject to any liability for any settlement made without its
consent (but such consent will not be unreasonably withheld). An
indemnifying party who is not entitled to, or elects not to, assume the
defense of a claim will not be obligated to pay the fees and expenses of
more than one counsel for all parties indemnified by such indemnifying
party with respect to such claim, unless in the reasonable judgment of any
indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect
to such claim.
8.4. Contribution. If the indemnification provided for in
this Section 8 is held by a court of competent jurisdiction to be
unavailable to an indemnified party with respect to any loss, liability,
claim, damage, or expense referred to therein, then the indemnifying
party, in lieu of indemnifying such indemnified party hereunder, shall
contribute to the amount paid or payable by such indemnified party as a
result of such loss, liability, claim, damage, or expense in such
proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the
other in connection with the statements or omissions that resulted in such
loss, liability, claim, damage, or expense (including legal fees or
expenses) as well as any other relevant equitable considerations. The
relative fault of the indemnifying party and of the indemnified party
shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission to
state a material fact relates to information supplied by the indemnifying
party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent
such statement or omission. The Company and each holder of Registrable
Securities agree that it would not be just and equitable if contribution
pursuant to this Section 8.4 were determined by pro rata allocation or by
any other method of allocation which does not take into account the
equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 8, an indemnified Holder
shall not be required to contribute any amount by which
the net profit received by the indemnified Holder from the sale of the
Registrable Securities pursuant to this Agreement exceeds the amount of
damages which it has otherwise been required to pay by reason of such
untrue or allegedly untrue statement or omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
1933 Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
9. Condition to the Company's Obligations
In connection with an underwritten offering, it shall be a condition
to the Company's obligations to include Registrable Securities on behalf
of any Selling Stockholder that the underwriters agree to indemnify the
Company, its directors and officers and each person who controls the
Company (within the meaning of the Securities Act) against any losses,
claims, damages, liabilities and expenses arising out of or resulting from
any untrue or alleged untrue statement of material fact or any omission or
alleged omission of a material fact required to be stated in the
registration statement or prospectus or any amendment thereof or
supplement thereto or necessary to make the statements therein not
misleading, but only to the extent that such untrue statement or omission
or such alleged untrue statement or alleged omission is contained in
information furnished in writing by such underwriters on their own behalf
specifically for use in preparing the registration statement.
10. Rule 144
Conditions of Rule 144. The Company represents and warrants that it
satisfies and will use its best efforts to continue to satisfy the
conditions set forth in Rule 144 under the Securities Act which must be
satisfied by an issuer in order for a holder of restricted securities to
sell such securities under the provisions of such rule, including the
timely filing of all reports required to be filed under the Securities
Exchange Act of 1934, as amended.
11. Definitions
11.1. Agreement. The term "Agreement" shall mean this Registration
Rights Agreement, as the same may be amended from time to time.
11.2. Common Stock. The term "Common Stock" shall mean the Common
Stock, no par value, of the Company.
11.3. Company. The term "Company" shall have the meaning set forth
in the first paragraph of this Agreement.
11.4. Demand Registration. The term "Demand Registration" shall
have the meaning set forth in Section 1.1 hereof.
11.6. Piggyback Registration. The term "Piggyback Registration"
shall have the meaning set forth in Section 2.1 hereof.
11.7. Registrable Securities. The term "Registrable Securities"
means any Common Stock registered in the names of the Stockholders from
time to time, any Warrant Stock issued or issuable upon exercise of
Warrant, and any securities issued or to be issued with respect to such
securities by way of a stock dividend or stock split or in connection with
a combination of shares, recapitalization, merger, consolidation or other
reorganization. As to any particular Registrable Securities, such
securities will cease to be Registrable Securities when they have been (i)
effectively registered under the Securities Act or disposed of in
accordance with the registration statement covering them or (ii)
transferred pursuant to Rule 144 under the Securities Act (or any similar
rule then in force).
11.8. Registration Expenses. The term "Registration Expenses" means
all expenses incident to the Company's performance of or compliance with
this Agreement, including without limitation all registration and filing
fees, fees and expenses of compliance with securities or blue sky laws,
printing expenses, accountant's fees, messenger and delivery expenses,
expenses and fees for listing the securities to be registered on exchanges
or trading system on which similar securities issued by the Company are
then listed or included, and fees and disbursements of counsel for the
Company.
11.9. Restricted Form. The term "Restricted Form" shall mean a form
of registration statement under the Securities Act which imposes for its
use a limitation on the maximum value or number of securities to be
included therein.
11.10. Securities Act. The term "Securities Act" shall mean
the Securities Act of 1933, as amended.
11.11. Selling Stockholder. The term "Selling Stockholder"
means any Stockholder who requests inclusion of all or a portion of its
shares of Registrable Securities in a Demand Registration pursuant to
Sections 1 herein or a Piggyback Registration pursuant to Section 2.
11.12. Stockholders. The term "Stockholder" shall have the
meaning set forth in the first paragraph hereof, and the term
"Stockholders" shall mean, collectively, the Stockholder and any other
holder(s) of Warrants issued by the Company.
11.13. Underwriting Commissions. The term "Underwriting
Commissions" means all underwriting discounts or commissions relating to
the sale of securities of the Company, but excludes any expenses
reimbursed to underwriters.
12. Miscellaneous
12.1. Notices. Any notices required hereunder shall be sent by
certified or registered mail, and shall be addressed to the address of the
Company's corporate headquartered in the case of any notice to the
Company, and until changed by notice to the Company, to the Stockholders
at their address set forth opposite their signatures hereto.
12.2. Amendments and Waivers. The provisions of this Agreement may
be amended and the Company may take any action herein prohibited, or omit
to perform any act herein required to be performed by it, if the Company
has obtained the written consent of the Stockholders which own 51% of the
Registrable Securities.
12.3. Successors and Assigns. All covenants and agreements in this
Agreement by or on behalf of any of the parties hereto will bind and inure
to the benefit of the respective transferees, successors and personal
representatives of the Stockholders. The rights to cause the Company to
register Registrable Securities pursuant to this Agreement shall follow
the Warrants, and the Warrant Stock and shall be exercisable by the
holders of any Warrants or Warrant Stock, including any transferees of
Warrants or Warrant Stock.
12.4. Governing Law. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS
OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO
THE CONFLICT OF LAWS PRINCIPLES THEREOF), CANNOT BE CHANGED ORALLY AND
SHALL BIND AND INURE TO THE BENEFIT OF THE PARTIES HERETO 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 THE CITY AND STATE OF NEW YORK.
FOR THIS PURPOSE, THE COMPANY HEREBY SUBMITS TO THE JURISDICTION AND VENUE
OF THE STATE AND FEDERAL COURTS IN NEW YORK. 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.
12.5. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be considered to be an original
instrument and to be effective as of the date first written above and all
of which, taken together, shall constitute one and the same agreement.
12.6 Enforcement of Rights. Any provisions of this Agreement may
be enforced by the Stockholder through a judicial decree of specific
performance, in additional to any other legal rights such holder may have
under this Agreement or under operation of law. In the event such
enforcement is or becomes necessary, the Company further agrees to pay to
the Stockholder all reasonable costs and expenses incurred by it in its
enforcement of rights pursuant hereto (whether through negotiation, legal
proceedings or otherwise), including without limitation such Stockholder's
reasonable attorneys' fees and expenses for all services rendered in
connection therewith.
IN WITNESS WHEREOF, the parties have executed this Agreement by
their duly authorized officers as of the date first written above.
STANDARD MANAGEMENT CORPORATION
By:
____________________________________
Name: Ronald D. Hunter
Title: Chairman, President and Chief Executive Officer
ZURICH CAPITAL MARKETS INC.
By _____________________
Name:
Title:
EXHIBIT G
Key Personnel of Scudder Kemper Investments, Inc.
Scudder Insurance Asset Management
(SIAM)
Ray Helfer - Director of SIAM
Senior Investment Consultants
- Mark Jackson
- Rick Jackson
- Steve Meltzer
- Kathy Parker
- Wendy Procops
- Bob Salzman
Investment Consultants
- Karen Boyne
- John Cassedy
- Kellie Fisher
- Bob King
- Sharon Mahoney
- Mary Shanks
Insurance Strategists
- Steve Doire
- John Iten
EXHIBIT H
PERFORMANCE-RELATED INVESTMENT BENCHMARKS
The performance benchmark shall be composed of the following percentages
of the Lehman public indices:
60% Lehman Credit
25% Lehman MBS
5% Lehman ABS
5% Lehman Agency
5% Lehman BB Credit
SCHEDULE 5.6 EXISTING LIENS
Standard Management Corporation (the "Company")
"Debt" Schedule (including guarantees)
at September 30, 2000
Amount
The Conseco Companies Senior Subordinated Debt $ 10,000,000
Fleet Bank Note (1) 21,667,000
31,667,000
Fleet Bank note guarantees (2) 2,600,000
Total $ 34,267,000
(1) At September 30, 2000, the Company had prepaid $867,000 under the
Fleet Bank Note Agreement for an outstanding balance of $20,800,000.
(2) Relates to debt extended from Fleet Bank to certain officers and
directors of the Company to purchase the Company's Series A Preferred
Stock. This debt is guaranteed by the Company.
SCHEDULE 5.9 EXISTING GUARANTIES
Loan guarantee of $2,600,000 to Fleet National Bank for Officers' and
Directors' purchase of Preferred Stock.
SCHEDULE 5.11 EXISTING TRANSACTIONS WITH AFFILIATES
TRANSACTION
Standard Development, L.L.C.:
(1) Borrowings under line of credit with Standard Life as of September 30, 2000
of $3,750,000
The Borrower pays:
(1) Principal and interest payments on intercompany debt of
$2,858,000 to Standard Management International, S.A.
Standard Life pays:
(1) A management fee to the Borrower
(2) Lease payments to the Borrower
(3) Surplus debenture interest payments to the Borrower
Dixie National Life Insurance Company pays:
(1) A management fee to Standard Life
Standard Management International, S.A. and its Subsidiaries pay:
(1) A management fee to the Borrower
(2) Principal and interest payments on intercompany debt of
$2,858,000 to the Borrower
Other Transactions:
An Interest Free Loan exists to an Officer of Standard Management
Corporation in the amount of $778,000.
SCHEDULE 5.13 DIVIDENDS
Standard Life Surplus Debenture in the amount of $13,000,000 dated as of
November 8, 1996.
Standard Life Surplus Debenture in the amount of $8,000,000 dated as of
December 31, 1998.
Standard Life Surplus Debenture in the amount of $6,000,000 dated as of
December 31, 1998.
