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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
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 15-24
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 19
5.9 Guaranties, Etc 19
5.10 Mergers 20
5.11 Transactions with Affiliates 20
5.12 Limitation on Sale and Lease-Backs 20
5.13 Dividends 21
5.14 Termination of Pension Plans 21
5.15 Reports and Rights of Inspection 21-23
5.16 Leases 24
5.17 Incurrence of Indebtedness 24
SECTION 6. EVENTS OF DEFAULT AND REMEDIES THEREFOR 25-28
6.1 Events of Default 25-27
6.2 Notice to Holders 27
6.3 Acceleration of Maturity; Enforcement of
Rights by Holder 28
SECTION 7. AMENDMENTS, WAIVERS AND CONSENTS 29
7.1 Consent Required 29
7.2 Effect of Amendment or Waiver 29
SECTION 8. WARRANTS GRANTED TO PURCHASER 29
8.1 Warrants 29
8.2 Rights of Payment and Registration 29
SECTION 9. INTERPRETATION OF AGREEMENT; DEFINITIONS 30-39
9.1 Definitions 30-39
9.2 Accounting Principles 39
SECTION 10. MISCELLANEOUS 39-44
10.1 Note Register 39-40
10.2 Loss, Theft, Etc. of Note 40
10.3 Expenses; Stamp Tax Indemnity 40-41
10.4 Indemnities 41
10.5 Powers and Rights Not Waived; Remedies
Cumulative 42
10.6 Notices 42
10.7 Reproduction of Documents 42-43
10.8 Counterparts 43
10.9 Successors and Assigns 43
10.10 Survival of Covenants and Representations 43
10.11 Severability 43
10.12 Governing Law 43-44
10.13 Captions 44
10.14 Waiver of Jury Trial 44
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 Company, an Ireland 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 ___% 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 COMPANY
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
COMPANY, an Ireland 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 _____________ 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 Company, 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 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, 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 COMPANY,
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 there
from 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 COMPANY
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 COMPANY, 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 COMPANY
By: ____________________________
Name:
Title:
EXHIBIT G
Key Personnel of Scudder Kemper Investments, Inc.
--NAFIG Organization Chart--
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.