EXHIBIT 10.4
EXHIBIT D
PROMISSORY NOTE
PRINCIPAL AMOUNT: $80,000,000
ISSUE DATE: [_________], 2004
MATURITY DATE (SUBJECT TO EXTENSION): [_________], 2014
FOR VALUE RECEIVED, FFS HOLDINGS, INC., a Delaware corporation (the
"Company") with its principal executive office at [ ], promises to pay
HILLENBRAND INDUSTRIES, INC. (the "Holder"), an Indiana corporation having its
principal executive office at 700 State Route 46 East, Batesville, IN
47006-8835, the principal amount of EIGHTY MILLION DOLLARS ($80,000,000.00),
together with interest on the unpaid balance of principal and interest accrued
thereon from time to time outstanding, determined and paid in the manner
hereinafter set forth in this Promissory Note (the "Note").
ARTICLE I
DEFINITIONS
For purposes of this Note, the following terms shall have the respective
meanings set forth below (such definitions to be equally applicable to both
singular and plural forms of the terms herein defined):
"Adjusted Equity" means, at any date, the amount determined in accordance
with the procedures set forth in Exhibit A attached hereto.
"Adjusted Total Debt" means, at any date, without duplication, the
aggregate principal amount of all Indebtedness of the Company and its
Subsidiaries at such date, excluding Indebtedness of the Company to any
Subsidiary of the Company or Indebtedness of any Subsidiary of the Company to
the Company or to any other Subsidiary, provided, however, that any principal
amount of this Note in excess of $80,000,000, and any interest accrued on such
excess, due to an increase in the principal amount of the Note pursuant to
Section 2.2(e) of the Stock Purchase Agreement, shall not be considered
Indebtedness for the sole purpose of determining the Adjusted Total Debt.
"Affiliate" has the meaning ascribed to such term in Rule 12b-2 under the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder.
"Bankruptcy Event" means, with respect to a specified Person:
1. the entry of a decree or order by a court or governmental authority
having jurisdiction in the premises judging such Person bankrupt or
insolvent or ordering the winding up, liquidation, rehabilitation or
conservation of such Person and the
continuance of any such decree or order unstayed and in effect for a
period of 30 consecutive days; or
2. the institution by such Person or by a Governmental Entity on behalf
of such Person of proceedings to be adjudicated a bankrupt or
insolvent, or the consent by it to the institution of bankruptcy or
insolvency proceedings against it, or the filing by it of a petition
or consent seeking reorganization or relief under any applicable
bankruptcy, insolvency, reorganization, liquidation, rehabilitation,
conservation or other similar law, or the consent by it to the
filing of any such petition or to the appointment of a receiver,
liquidator, rehabilitator, conservator, assignee, trustee,
sequestrator (or other similar official) of such Person or of any
substantial part of its property, or the making by it of an
assignment for the benefit of creditors, or the admission by it in
writing of its inability to pay its debts generally as they become
due, or the taking of corporate action by such Person in furtherance
of any such action.
"Business Day" means any day other than a Saturday, a Sunday or a day on
which commercial banks in New York City are required or authorized to be closed.
"Capital Stock" means, as to any corporation, limited liability company,
partnership, association or other business entity, any and all shares,
partnership interests, limited liability company interests, participations or
other equity interests (however designated and whether or not voting or
non-voting), including without limitation common and preferred equity interests,
of such business entity.
"Change of Control" means the first to occur of any of the following: (i)
the Company beneficially owns less than a majority of the outstanding common
stock of any of the Primary Subsidiaries; (ii) the Company (a) has sold or
otherwise transferred all or substantially all of its assets or (b) permits any
of the Primary Subsidiaries to transfer all or substantially all of its assets,
in either case to any Person (other than the Company or a Subsidiary of the
Company) as an entirety or substantially as an entirety in one transaction or
series of related transactions; (iii) the Initial Holders cease to be the direct
or indirect beneficial owners, collectively, of at least a majority of the total
outstanding Common Stock of the Company beneficially owned (directly or
indirectly) by such Initial Holders on the Issue Date; (iv) the Initial Holders,
collectively, are not legally entitled or empowered (by contract or otherwise)
to elect a majority of the Board of Directors of the Company; or (v) the Company
is not legally entitled or empowered (by contract or otherwise), directly or
indirectly, to elect, or cause to be elected, a majority of the board of
directors of each Primary Subsidiary.
"Common Stock" means the Class A common stock, par value $0.01, of the
Company and the Class B common stock, par value $0.01 of the Company.
"Company" has the meaning set forth in the introductory paragraph of this
Note.
"Debt-Equity Ratio" means, at any date, the ratio of Adjusted Total Debt
to Adjusted Equity.
"Deferred Amount" has the meaning set forth in Section 3.1(a).
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"Deferred DSCA Funds" has the meaning assigned to such term in the Stock
Purchase Agreement.
"Excess Refinancing Proceeds" means an amount equal to the excess, if any,
of (x) the net proceeds (i.e., gross proceeds reduced by transaction fees and
expenses) of any Refinancing Transaction over (y) the aggregate principal amount
of any FLAC Holdings Notes repaid or retired in such Refinancing Transaction
plus any fees and expenses owing to XLCA in connection with such FLAC Holdings
Notes.
"Extended Maturity Date" means the twelfth anniversary of the Issue Date.
"Event of Default" has the meaning set forth in Section 6.1.
"Fair Market Value" has the meaning set forth in Section 4.2(b)(i).
"FFSB" means Forethought Federal Savings Bank.
"FLAC Holdings Notes" means collectively, the Series A FLAC Holdings Notes
and the Series B FLAC Holdings Notes.
"FLIC" means Forethought Life Insurance Company and its successors.
"GAAP" means generally accepted accounting principles consistently
applied.
"Governmental Entity" means each foreign, federal, state, local,
municipal, county or other governmental, administrative or regulatory authority,
body, agency, court, tribunal, commission or other similar entity (including any
branch, or department thereof).
"Holder" has the meaning set forth in the introductory paragraph of this
Note.
"Indebtedness" of any Person means any of the following without
duplication: (a) obligations created, issued or incurred by such Person for
borrowed money including without limitation, loans, notes, debentures, surplus
notes and capital notes; (b) obligations of such Person to pay the deferred
purchase or acquisition price of property or services determined in accordance
with GAAP or SAP, as applicable, other than (i) trade accounts payable arising,
and accrued expenses incurred, in the ordinary course of business and (ii)
compensation, pension obligations and other obligations arising from employee
benefit and other similar employee-related arrangements; (c) Indebtedness of
others secured by a lien on the property of such Person, whether or not the
respective Indebtedness so secured has been assumed by such Person; (d)
obligations (including fees and charges) of such Person in respect of letters of
credit or similar instruments or facilities issued or accepted by banks and
other financial institutions for account of such Person except to the extent
collateralized by cash or cash equivalents; (e) obligations of such Person to
pay rent or other amounts under a lease of (or other agreement conveying the
right to use) property to the extent such obligations are required to be
classified and accounted for as a capital lease on the balance sheet of such
Person under GAAP or SAP, as applicable, and, for purposes of this Agreement,
the amount of such obligations shall be the capitalized amount thereof,
determined in accordance with GAAP or SAP, as applicable; (f) Indebtedness of
others guaranteed by such Person; (g) obligations under Interest Swap and
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Hedging Obligations to the extent that such obligations are treated as
Indebtedness under GAAP or SAP, as applicable; and (h) the liquidation value of
any outstanding shares of Capital Stock that has a payment or liquidation
preference ranking senior to the common equity interests of such Person, other
than Capital Stock that may only be redeemed, repurchased or otherwise acquired
by such Person after the Extended Maturity Date; provided, however, that such
Capital Stock shall not be treated as Indebtedness if, prior to the issuance
thereof, the Holder consents in writing to such treatment, such consent not to
be unreasonably withheld or delayed. Notwithstanding the foregoing, the
following shall not be treated as Indebtedness for purposes of this definition:
(i) any Indebtedness of Forethought Financial Services, Inc. and its
Subsidiaries (excluding FFSB) existing immediately prior to the First Closing,
or with respect to FFSB, immediately prior to the FFSB Closing (including any
refinancing of any such Indebtedness up to the principal amount thereof) and
(ii) the Deferred DSCA Funds.
"Insurance Subsidiary" means any Subsidiary of the Company that is engaged
in the business of life insurance (including "pre-need" business).
"Initial Holders" means the initial holders of Common Stock as of the
Issue Date and their Permitted Transferees. In the case of the initial
shareholder of the Class B Common Stock, the first transferee of such stock and
its Permitted Transferees will be deemed an Initial Holder.
"Initial Public Offering" means the consummation of a public offering of
Capital Stock of the Company pursuant to a registration statement filed under
the Securities Act of 1933, as amended, in which the net offering proceeds of
such public offering exceed $75,000,000.
"Interest Swap and Hedging Obligations" means any obligation of any Person
pursuant to any interest rate swap agreement, interest rate cap agreement,
interest rate collar agreement, interest rate exchange agreement, currency
exchange agreement or any other agreement or arrangement designed to protect
against changes in interest rates or currency values, including, without
limitation, any arrangement whereby, directly or indirectly, such Person is
entitled to receive from time to time periodic payments calculated by applying
either a fixed or floating rate of interest on a stated notional amount in
exchange for periodic payments made by such Person calculated by applying a
fixed or floating rate of interest on the same notional amount.
"Lien" has the meaning set forth in Section 4.2(c).
"LifeCo" means a life insurance company domiciled in Texas and a wholly
owned Subsidiary of the Company.
"Material Adverse Effect" means, with respect to any Person, a material
adverse effect on the business, assets, properties, financial condition or
results of operations of such Person and its Subsidiaries, taken as a whole.
"Material Holders" means (a) each of the following Persons for so long as
he or she continues to beneficially own, directly or indirectly, any Common
Stock of the Company: Mr. Robert Devlin, Mr. Rodney A. Hawes, Jr., Mr. Douglas
Schair and Mr. Michael Poulos, and (b) any Person (other than Holder or any of
its Affiliates) that beneficially owns, directly or indirectly, more than 15% of
the total number of issued and outstanding shares of Common Stock of the Company
(other than Mr. William R. Berkley or W.R. Berkley Corporation);
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provided, however, that any Person identified in clause (b) may, with the
consent of Holder (which consent shall not be unreasonably withheld or delayed),
make or continue to hold any Pre-Need Investment.
"Material Subsidiaries" means FLAC Holdings, LLC, Forethought Life
Assurance Company, LifeCo, Forethought Life Insurance Company, Arkansas National
Life Insurance Company, Forethought Federal Savings Bank (from and after the
date acquired) and any successors thereto and, as of any date, any Subsidiary of
the Company whose total assets, as such total assets would appear on a balance
sheet of such Subsidiary prepared as of any such date in accordance with GAAP,
is at least $50,000,000.
"Maturity Date" means the tenth anniversary of the Issue Date, subject to
extension as provided herein.
"Note" has the meaning set forth in the introductory paragraph of this
Note.
"notice" has the meaning set forth in Section 8.6.
"Payment Restrictions" has the meaning set forth in Section 3.1(a).
"Permitted Transferees" means (A) with respect to any Person who is an
individual (x) such Person's estate and any ancestor, descendant or spouse of
such Person, or trust, family limited partnership or family limited liability
company for the benefit of such Person or such Person's spouse, ancestors or
descendants, or (y) any entity in which such Person, or Persons which have a
relationship to such Person set forth in (x) above, directly or indirectly,
collectively controls and owns a majority of the voting Capital Stock of such
entity, (B) with respect to any Person that is a trust, any Person who has, or
any group of Persons who collectively have, a substantial beneficial interest in
such trust, and (C) with respect to any Person that is not an individual or a
trust, such Person's Affiliate.
"Person" means any individual, corporation, limited liability company,
voluntary association, partnership, joint venture, trust, unincorporated
organization or governmental entity (or any agency, instrumentality or political
subdivision thereof).
"Pre-Need Entity" has the meaning set forth in Section 6.1(k).
"Pre-Need Investment" has the meaning set forth in Section 6.1(k).
"Prepayment Date" has the meaning set forth in Section 2.3(d).
"Primary Subsidiaries" means FLAC Holdings, LLC, Forethought Life
Assurance Company, LifeCo, Forethought Life Insurance Company, and their
successors.
"Pro Forma Debt-Equity Ratio" means as of any date, the Debt Equity Ratio
at such date adjusted to reflect the proposed transaction required to give pro
forma effect hereunder determined by reference to the most recent month-end for
which a balance sheet of the Company is available, adjusted pro forma to give
effect to such transaction.
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"RBC Ratio" means the risk based capital ratio specified as the Company
Action Level Risk Based Capital Ratio by the applicable Governmental Entities
charged with the supervision of the Insurance Subsidiaries.
"Refinancing Prepayment" has the meaning set forth in Section 2.3(c).
"Refinancing Transaction" means (i) any issuance or incurrence by the
Company or any its Subsidiaries of Indebtedness or (ii) any issuance or sale of
Capital Stock by the Company or any of its Subsidiaries, in each of clauses (i)
or (ii) above, the net proceeds (i.e., gross proceeds reduced by transaction
fees and expenses) of which are used to repay or retire in whole or in part the
Series A FLAC Holdings Notes (to the extent outstanding) or Series B FLAC
Holdings Notes, in each case prior to the scheduled maturity date applicable
thereto.
"Restricted Payment" means with respect to any Person (A) any dividend or
other distribution on or in respect of any shares of such Person's Capital Stock
(other than Seller Preferred Stock), excluding a distribution of such Person's
Capital Stock or rights to acquire such Person's Capital Stock to the holders of
such Person's Capital Stock, (B) any payment on account of the purchase,
redemption, retirement or other acquisition of (x) any shares of such Person's
Capital Stock (other than Seller Preferred Stock) or (y) any option, warrant or
other right to acquire shares of such Person's Capital Stock (other than Seller
Preferred Stock), (C) any payments to any holder of Capital Stock of such Person
or to any Affiliate of such holder in respect of management or consulting fees
or similar arrangements or investment banking advisory fees or similar
arrangements, except that any payment enumerated in Sections 4.2(e)(i),
4.2(e)(ii) and 4.2(e)(iii) shall not constitute a Restricted Payment or (D) any
payments to any Material Holder or his Permitted Transferees in respect of the
purchase or sale of property in excess of $10,000 in one transaction or series
of related transactions. Notwithstanding the foregoing, the declaration,
distribution or payment of a dividend by any Subsidiary of such Person that
provides for any payment of the Unpaid Amount, Deferred DSCA Funds or Seller
Preferred Stock shall not constitute a Restricted Payment.
"SAP" means the applicable accounting practices prescribed or permitted by
the applicable insurance regulator for purposes of financial reporting
consistently applied.
"Securitization Documents" means the agreements and documents under which
XLCA has any rights or interests in connection with the Securitization Financing
including, without limitation, the indenture related to the FLAC Holdings Notes,
the XLCA Policies, collateral agreements and swap agreements relating to
interest rate hedges.
"Securitization Financing" means the transaction in which the Company has
issued the FLAC Holdings Notes.
"Series A FLAC Holdings Notes" means the $[__________] principal amount of
secured notes due [____] of FLAC Holdings, LLC issued on [______], 2004.
"Series B FLAC Holdings Notes" means the $[__________] principal amount of
secured notes due [____] of FLAC Holdings, LLC issued on [______], 2004.
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"Stock Pledge Agreement" means the Stock Pledge Agreement between the
Company and the Holder, dated [_____], 2004.
"Seller Preferred Stock" means the Series A Cumulative Redeemable
Preferred Stock of the Company initially issued to the Holder.
"Stock Purchase Agreement" means the Stock Purchase Agreement between FFS
Holdings, Inc. and Hillenbrand Industries, Inc., dated February 12, 2004.
"Subsidiary" has the meaning ascribed to the term "Subsidiary" under Rule
12b-2 under the Securities Exchange Act of 1934, as amended, and the rules and
regulations thereunder.
"Transaction Value" means the total proceeds and other consideration paid
or received or to be paid or received in connection with a merger, acquisition,
divestiture or similar transaction (including by means of a reinsurance
transaction) (which consideration shall be deemed to include amounts in escrow),
including, without limitation: (i) cash, (ii) notes, securities and other
property, (iii) indebtedness assumed, (iv) payments made in installments, (v)
contingent payments relating to future earnings or operations and (vi) if the
transaction involves the disposition of assets, the net value of current assets
sold. For the purpose of this definition, non-cash consideration shall be valued
as follows: (x) publicly traded securities shall be valued at the average of
their closing prices for the five trading days prior to the closing of the
transaction and (ii) any other non-cash consideration shall be valued at the
fair market thereof as determined in good faith by the Company's Board of
Directors.
"Unpaid Amount" means, on any date, the unpaid principal amount of this
Note, together with any interest accrued hereon compounded as provided herein
(which for the avoidance of doubt includes interest on accrued interest).
"Warrant" means the warrant, initially issued to the Holder, to purchase
the Common Stock.
"XLCA" means XL Capital Assurance Inc.
"XLCA Policies" mean the insurance policies issued by XLCA insuring (i)
the payment obligations of FLAC Holdings, LLC under the FLAC Holdings Notes and
the indenture governing the FLAC Holdings Notes and (ii) certain payments owing
by FLAC Holdings with respect to interest rate swaps or hedges.
ARTICLE II
PAYMENTS
SECTION 2.1. Interest Payments. Interest on this Note shall accrue on the
Unpaid Amount from the date hereof at a rate per annum computed in accordance
with Section 2.2.
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SECTION 2.2. Computation of Interest.
(a) Base Interest Rate. Interest on this Note shall accrue on the Unpaid
Amount at the following rates for the periods indicated:
(i) 6% per annum from the Issue Date to but not including the fifth
anniversary of the Issue Date;
(ii) 8% per annum from the fifth anniversary of the Issue Date to
but not including the seventh anniversary of the Issue Date;
(iii) 10% per annum from the seventh anniversary of the Issue Date
to but not including the Maturity Date; and
(iv) 12% per annum from the Maturity Date to the date the Note is
paid in full.
(b) Notwithstanding the provisions of (a) above, the rate of interest for
the periods indicated in subsection (a) above is subject to increase in
accordance with Section 6.1.
(c) Interest shall be calculated on the basis of a year consisting of 365
days, and shall be compounded semiannually.
SECTION 2.3. Repayments.
(a) The Unpaid Amount may be prepaid, in whole or in part, without
penalty, at the option of the Company, at any time upon five days' prior written
notice to the Holder.
(b) Subject to Article III, the entire Unpaid Amount and all other
obligations under this Note shall become and be immediately due and payable on
the earliest to occur of the following: (i) the closing date of the Initial
Public Offering; (ii) the effective date of a Change of Control; (iii) the
Maturity Date; or (iv) the date on which the Holder declares the Unpaid Amount
due and payable or the Unpaid Amount becomes due and payable as provided in
Section 6.2 or Section 6.3.
(c) In the event that a Refinancing Transaction shall be consummated that
results in Excess Refinancing Proceeds equal to or greater than $20,000,000
then, subject to Article III, the Company shall make a prepayment in an amount
equal to 50% of such Excess Refinancing Proceeds (the "Refinancing Prepayment"),
which amount shall forthwith be due and payable to Holder. The Company shall
deliver to the Holder a certificate of its Chief Financial Officer within ten
days after a Refinancing Transaction and which certificate shall set forth the
amount, if any, of the Refinancing Prepayment.
(d) Subject to Article III, there shall be due and payable the sum of
$10,000,000 per year commencing on the sixth anniversary of the Issue Date and
continuing on each anniversary of the Issue Date thereafter until the Maturity
Date (each such date, a "Prepayment Date").
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(e) Any payment hereunder shall be applied first, to accrued interest on
the Note and second, to the reduction of unpaid principal; provided, however,
that if there is any Deferred Amount outstanding, any payment hereunder shall be
applied first to such Deferred Amount.
SECTION 2.4. Payment Procedure. All payments hereunder are to be made in
lawful money of the United States of America by wire transfer of immediately
available funds for credit (not later than 12:00 noon, New York City time, on
the date due) to the Holder's account or other account or accounts in the United
States as the Holder may designate in writing.
SECTION 2.5. Payments Due on Non-Business Days. Anything in this Note to
the contrary notwithstanding, any payment of principal or interest on this Note
that is due on a date other than a Business Day shall be made on the next
succeeding Business Day. If the date for any payment is extended to the next
succeeding Business Day by reason of the preceding sentence, the period of such
extension shall not be included in the computation of the interest payable on
such Business Day.
SECTION 2.6. Set-Off. (a) The Company shall have no right to set off or
recoupment or apply any amounts due to the Holder or its Affiliates under this
Note against any payment obligation of the Holder or its Affiliates to the
Company or its Affiliates arising under or based upon the Stock Purchase
Agreement or the transaction documents contemplated thereby.
(b) With respect to any indemnification payment that the Holder is
entitled to elect to offset pursuant to Section 9.5 of the Stock Purchase
Agreement, the Holder may by notice to the Company, make such indemnification
payment to the Company or its Affiliates under Articles IX or X of the Stock
Purchase Agreement, by applying it on a dollar for dollar basis, first, against
any then-outstanding Deferred Amount and, next, against the next succeeding
payment to become due under this Note (including any prepayment).
ARTICLE III
PAYMENT RESTRICTIONS AND DEFERRED AMOUNT
SECTION 3.1. Payment Restrictions.
(a) The Holder acknowledges and agrees that any payment due under Article
II (other than under Section 2.3(b)(i) and Section 2.3(b)(ii)) (except as
provided below)) may be deferred to a later date (but in no event beyond the
Extended Maturity Date) to the extent that, and only to the extent that, (i) the
Company does not have sufficient funds on hand (after payment of, or reasonable
provision for, the Company's liabilities (other than liabilities incurred in
violation of any provision in this Note or coming due after more than one year)
and ordinary course obligations (including ordinary course administrative,
management and similar expenses)) to provide for such payments (in whole or in
part) and (ii) the Company's Subsidiaries cannot declare or pay dividends or
distributions to the Company in an amount sufficient to provide for such payment
(or portion thereof) solely by reason of (w) restrictions imposed by applicable
laws (x) restrictive covenants or similar limitations or restrictions governing
the FLAC Holdings Notes on the date of the issuance thereof, (y) restrictive
covenants or similar limitations or restrictions applicable to assets acquired
after the Issue Date, the stock of entities acquired,
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formed or organized after the Issue Date or organized to hold assets acquired
after the Issue Date (other than restrictive covenants or similar limitations or
restrictions applicable to the assets, revenues or other property directly held
by FLIC) or (z) in the case of an Insurance Subsidiary, payments due hereunder
would result in an RBC Ratio of less than 2.0 to 1.0 (clauses (i) and (ii) above
collectively referred to as the "Payment Restrictions"). Any Unpaid Amount, the
payment of which is deferred to a later date under this Section 3.1 (including,
for the avoidance of doubt, any previously deferred Unpaid Amount) is
collectively referred to herein as a "Deferred Amount." The foregoing
notwithstanding, any payment due under Article II hereof by reason of a Change
of Control caused by an event described in clause (ii)(b) of the definition of
Change of Control is subject to extension under this Article III.
(b) The Company agrees that on or prior to the Maturity Date or any
Prepayment Date in which any payments or portions of payments due hereunder are
anticipated to be deferred in accordance with Section 3.1(a) above, the Company
will provide to the Holder (i) reasonably detailed financial information
evidencing the insufficiency of funds on hand to provide for such payments,
which calculations shall be reasonably satisfactory to the Holder and (ii) an
officer's certificate, duly executed by the Chief Financial Officer of the
Company, certifying that the Company has met the requirements to defer such
payments in accordance with this Section 3.1.
(c) Subject to Section 3.1(a) hereof, the Company agrees that it will
cause its Subsidiaries to (i) declare and pay the maximum lawful ordinary
dividends and distributions (including causing such Subsidiaries to make timely
application to the proper state insurance departments) and (ii) repay all
intercompany accounts due and owing to the Company in accordance with their
terms, in each case as necessary to provide for the payment of the Unpaid Amount
when due or as deferred, subject only to Payment Restrictions. The Company
further acknowledges and agrees that in the event that a Payment Restriction
results in a Deferred Amount, the Company is not relieved from its obligations
to pay all sums due hereunder in full.
SECTION 3.2. Payment of Deferred Amount. Not later than 10 days after the
last day of each quarter, the Company shall pay any portion of the Deferred
Amount outstanding as of the end of such quarter to the extent that Section
3.1(a) does not permit any such portion to continue to be deferred. The Company
shall also deliver on each such date an officer's certificate, executed by the
Chief Financial Officer of the Company, certifying that such payment constitutes
the maximum amount that is available for payment of the Deferred Amount on such
date in accordance with the terms of this Note. Notwithstanding the foregoing,
any unpaid Deferred Amount shall be paid in full not later than the Extended
Maturity Date.
ARTICLE IV
COVENANTS OF THE COMPANY
SECTION 4.1. Affirmative Covenants. In addition to the covenants and
agreements of the Company set forth in Article II and Article III hereof, the
Company covenants and agrees that, so long as this Note is outstanding, it will
perform and will cause each of its Subsidiaries to perform the obligations set
forth in this Section 4.1.
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(a) Taxes, Levies and Other Charges. The Company will, and will cause each
of its Subsidiaries to, promptly pay and discharge in the manner prescribed by
law all taxes, assessments, and governmental charges or levies (including
without limitation any such amounts that the Company or any such Subsidiary is
required to pay under contract) that may be assessed or levied against the
Company or any such Subsidiary or upon the Company's or such Subsidiary's income
and profits, or upon any of the Company's or such Subsidiary's property, before
the same shall become delinquent, as well as all claims for labor, materials and
supplies which, if unpaid, might become a lien or charge upon such properties or
any part thereof, except for such tax, assessment, charge, levy or claim that
would not result in a Material Adverse Effect on the Company and its
Subsidiaries, taken as a whole. Notwithstanding the foregoing, the Company or
such Subsidiary will not be required to pay and discharge any such tax,
assessment, charge, levy or claim so long as (i) the validity thereof shall be
contested in good faith by appropriate proceedings, (ii) the Company or such
Subsidiary, as the case may be, shall set aside on its books adequate reserves
in accordance with GAAP with respect to any such tax, assessment, charge, levy
or claim so contested and (iii) the Company or such Subsidiary, as the case may
be, promptly pays all amounts due, if any, in the manner prescribed by law with
respect to such contested items.
(b) Maintenance of Existence; Compliance with Law. The Company will, and
will cause each of its Subsidiaries to, do or cause to be done all things
reasonably necessary to preserve and keep in full force and effect the Company's
and each of its Subsidiaries' corporate existence, rights, licenses and
franchises and comply with all laws applicable to the Company or such
Subsidiary, except where the failure to preserve and keep in full force and
effect such corporate existence, rights, licenses and franchises would not
result in a Material Adverse Effect on the Company and its Subsidiaries, taken
as a whole.
(c) Books and Records. The Company will at all times keep books, records
and accounts (which shall be true and correct in all material respects)
reflecting the Company's business affairs and transactions in accordance with
GAAP, (or in any other manner as reasonably determined by the Company). The
Company will cause each of its Subsidiaries to at all times keep books, records
and accounts (which shall be true and correct in all material respects)
reflecting such Subsidiary's business affairs and transactions in accordance
with GAAP (or in any other manner reasonably determined by the Company or such
Subsidiary), except if such Subsidiary is an insurance company, the books,
records and accounts shall be reflected in accordance with SAP. Such books and
records shall be open at reasonable times and upon reasonable notice to the
inspection of the Holder or its agents at Holder's expense.
(d) Treatment of Note as Debt. The Company shall treat the Note as
indebtedness of the Company for all purposes including, without limitation,
federal, state, local or foreign tax purposes, all regulatory purposes and all
financial and statutory accounting purposes.
(e) Certain Deliveries.
(i) Following the Issue Date, the Company will deliver to the
Holder, each year, on or prior to the date on which annual statutory
financial statements are required to be submitted to applicable insurance
regulatory authorities, a copy of such statements.
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(ii) Following the Issue Date, the Company will deliver to the
Holder, each quarter, on or prior to the date on which quarterly statutory
financial statements are required to be submitted to applicable insurance
regulatory authorities, a copy of such statements.
(iii) Prior to the Company or any Subsidiary of the Company, as
applicable, making any Restricted Payment or incurring any Indebtedness,
the Company will deliver to the Holder an officer's certificate, duly
executed by the Chief Financial Officer of the Company, certifying that
the payment of such Restricted Payment will not result in a breach of
Section 4.2(b) and Section 4.2(h), as the case may be. Such certification
shall set forth the computation in reasonable detail of the Pro Forma
Debt-Equity Ratio.
(iv) The Company will deliver to the Holder any and all other
material financial information (including without limitation internal
financial statements, net income and cash flow analysis and other
financial reports) that is provided to the Company's board of directors in
its capacity as such or that is required to be delivered to XLCA under the
Securitization Documents. The Company shall also notify Holder immediately
of the occurrence of any "Trigger Event" or "Event of Default" under the
Securitization Documents.
(v) The Company will give prompt written notice (with a description
in reasonable detail) to the Holder of the occurrence of any Event of
Default or any event which, with the giving of notice or the lapse of
time, would constitute an Event of Default.
SECTION 4.2. Negative Covenants. The Company covenants and agrees that, so
long as this Note shall be outstanding, it will perform, and will cause each of
its Subsidiaries to perform, the obligations set forth in this Section 4.2.
(a) Merger, etc. The Company may not consolidate with, or merge with or
into any other Person or sell, assign, convey, transfer, lease or otherwise
dispose of all or substantially all of its properties and assets (as an entirety
or substantially as an entirety in one transaction or series of related
transactions) to any Person or group of affiliated Persons or permit any
Material Subsidiary of the Company to enter into any such transaction or
transactions if such transaction or transactions, in the aggregate, would result
in a transfer of all or substantially all of the assets of the Company on a
consolidated basis, to any other Person, except that:
(i) any Material Subsidiary of the Company may merge with the
Company (so long as the Company is the surviving entity in such merger) or
with any other Material Subsidiary of the Company, provided that, in each
case, no Event of Default exists hereunder or shall occur as a result of
such merger;
(ii) the Company may merge or consolidate with or into another
Person (which Person shall become liable for this Note upon the
consummation of such transaction) if (A) no Change of Control has occurred
as a result of such transaction, (B) after giving pro forma effect to such
merger, the Debt-Equity Ratio is less than 4.0 to 1.0
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as of the date that such transaction is consummated and (C) no Event of
Default exists hereunder or would result from such transaction; and
(iii) any Material Subsidiary of the Company may merge or
consolidate with or into another Person if (A) no Change of Control has
occurred as a result of such transaction, (B) after giving pro forma
effect to such merger, the Debt-Equity Ratio is less than 4.0 to 1.0 as of
the date that such transaction is consummated and (C) no Event of Default
exists hereunder or would result from such transaction.
(b) Limitation on Restricted Payments. (i) The Company will not, directly
or indirectly, (x) make any Restricted Payment or (y) permit any Subsidiary of
the Company, directly or indirectly, to make any Restricted Payment of the type
described in clause (C) or (D) of the definition of Restricted Payment, if: (A)
at the time of such Restricted Payment, there is any Deferred Amount
outstanding, (B) at the time of such Restricted Payment or after giving effect
thereto, an Event of Default, or an event that through the passage of time or
the giving of notice, or both, would become an Event of Default, shall have
occurred or be continuing or (C) if after giving effect to such Restricted
Payment, the Pro Forma Debt-Equity Ratio would be greater than 4.0 to 1.0. Where
a Restricted Payment is made in a form other than cash, the amount of such
Restricted Payment shall be the Fair Market Value thereof. For purposes of this
Note, "Fair Market Value" means the value of assets (other than cash) determined
by the majority of the Board of Directors of the Company that reflects a value
that would be obtained in a transaction made on an arm's length basis with
Persons who are not an Affiliate of the Company; provided, however, the Company
agrees that it will provide the Holder (x) reasonably detailed financial
information and calculations to enable the Holder to verify the determination of
the Fair Market Value of such asset or assets and (y) an officer's certificate,
duly executed by the Chief Financial Officer of the Company, certifying, to the
best of such officer's knowledge, that the Fair Market Value reflects a value
that would be obtained in a transaction made on an arm's length basis with
Persons who are not an Affiliate of the Company. In the event that the Holder
disagrees with the determination of the Fair Market Value of an asset or assets,
the parties shall refer such determination to an independent third party
appraiser with nationally recognized expertise in the valuation of such assets,
mutually agreeable to the Company and the Holder, whose determination shall be
final and binding.
(ii) In connection with any Restricted Payment by the Company other than a
Restricted Payment of the type referred in clause (C) or (D) in the definition
of "Restricted Payment," the Company shall either (x) pay to Holder an amount
equal to 50% of the amount of such Restricted Payment (the "Holder RP Payment"),
to be paid on the date on which such Restricted Payment is made and which shall
be applied to the Unpaid Amount or (y) designate a Person that shall purchase
and acquire from Holder a participation in the Note in an amount equal to the
Holder RP Payment (the "Note Participation"). The Note Participation shall
represent the percentage of economic entitlement to amounts payable under the
Note determined by dividing the Holder RP Payment by the aggregate Unpaid Amount
outstanding under the Note on the date that the Restricted Payment is made. In
the event that the Company designates a Person pursuant to clause (y) to acquire
the Note Participation, it shall notify Holder in writing five business days in
advance of the date and time that the proposed Restricted Payment is to be made
and the identity of the proposed purchaser of the Note Participation (the
"Participant"), who shall be reasonably satisfactory to Holder. Holder agrees to
sell the Note Participation to
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the Participant for an amount in cash equal to the Holder RP Payment in
accordance with the form of participation agreement attached hereto as Exhibit
B. The purchase and sale of the Note Participation shall take place
simultaneously with the Restricted Payment. In the event that the Participant
fails to consummate the purchase of the Note Participation for any reason, the
Company shall remain liable to Holder for the Holder RP Payment, which shall
thereupon be paid forthwith.
(c) Limitation on Liens. The Company will not, and will not permit FLIC
to, create, incur, assume or suffer to exist any mortgage, pledge,
hypothecation, assignment of security, security interest, encumbrance, lien
(statutory or other), preference, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever (each, a "Lien") upon
the assets, revenues or other property directly held by FLIC, whether now owned
or hereafter acquired, without the prior written consent of Holder (such consent
not to be unreasonably withheld or delayed) except for:
(i) Liens arising pursuant to purchase money obligations securing
Indebtedness of FLIC to any seller or any other person incurred or assumed
to finance all or a portion of the purchase of real or personal property
to be used in the business of such person that is recourse only to such
real or personal property;
(ii) Liens for taxes, assessments or other governmental charges or
levies not at the time delinquent or thereafter payable without penalty or
being contested in good faith by appropriate proceedings and for which
adequate reserves in accordance with SAP shall have been set aside on
FLIC's books;
(iii) Liens of carriers, warehousemen, mechanics, materialmen and
landlords incurred in the ordinary course of business for sums not overdue
or being contested in good faith by appropriate proceedings and for which
adequate reserves in accordance with SAP shall have been set aside on
FLIC's books;
(iv) Liens securing judgments which in the aggregate do not exceed
$2,000,000 or which are discharged, bonded, or stayed pending appeal
within 60 days of entry;
(v) Liens arising from deposits made in connection with obtaining
worker's compensation or other unemployment insurance;
(vi) Easements, rights of way and zoning restrictions with respect
to real property that do not materially interfere with the use or
operation thereof; or
(vii) Banker's liens and right of set off arising with respect to
deposits made in the ordinary course of business.
(d) Negative Pledge of Capital Stock. The Company will not, and will not
permit Lifeco or any subsidiary of Lifeco to which the Capital Stock of FLIC is
transferred, to create, incur, assume or suffer to exist any Lien upon the
Capital Stock of FLIC or the Capital Stock of any subsidiary of Lifeco to which
the Capital Stock of FLIC is transferred, whensoever issued, except for Liens
for taxes, assessments or other governmental charges or levies not at the time
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delinquent or thereafter payable without penalty or being contested in good
faith by appropriate proceedings and for which adequate reserves in accordance
with GAAP shall have been set aside on the Company's or such Subsidiary's books
and the pledge of the outstanding Capital Stock of Lifeco referred to in Section
8.8.
(e) Limitation on Transactions with Affiliates. Neither the Company nor
any of its Subsidiaries will directly or indirectly enter into any transaction,
including, without limitation, the purchase, sale, lease or exchange of
property, real or personal, the purchase or sale of any security, the borrowing
or lending of any money, or the rendering of any service, with any Affiliate of
the Company or holder of any class of Capital Stock of the Company or any such
Affiliate (in any such cases, other than a wholly-owned Subsidiary of the
Company), except for transactions made in good faith, the terms of which are
fair and reasonable to the Company or such Subsidiary, as the case may be, and
are at least as favorable as the terms which could be obtained by the Company or
such Subsidiary, as the case may be, in a comparable transaction made on an
arm's length basis with Persons who are not such a holder or Affiliate as
determined in good faith by the board of directors of the Company or such
Subsidiary; provided, however, that if such transaction or series of related
transactions involves aggregate payments by the Company or such Subsidiary in
excess of $5,000,000, then the Company or such Subsidiary shall, prior to
entering into such transaction or transactions, obtain the opinion of a
nationally recognized independent valuation firm or investment bank to the
effect that the transaction or series of related transactions is fair to the
Company or such Subsidiary from a financial point of view; and provided,
further, that this Section 4.2(e) does not apply to the following payments by
the Company or a Subsidiary of the Company:
(i) a transaction fee payable to one or more Affiliates of the
Company or holders of any class of Capital Stock of the Company in an
amount not to exceed $4,500,000 for financial advisory services rendered
to the Company or one or more Affiliates of the Company in connection with
the consummation of the transactions contemplated in the Stock Purchase
Agreement (it being understood that the maximum amount of fees payable to
one or more Affiliates of the Company for all services rendered in
connection with the consummation of such transactions contemplated in the
Stock Purchase Agreement is $4,500,000 in the aggregate).
(ii) management fees payable to one or more Affiliates of the
Company or holders of any class of Capital Stock of the Company in an
amount initially not to exceed $3,000,000 in the aggregate during any one
12-month period commencing on the Issue Date, which amount shall be
subject to reasonable increase to reflect the growth and size of the
Company's business; provided, however, that any increase greater than 25%
over the previous twelve month period's management fee shall require prior
written consent of Holder (such consent not to be unreasonably withheld).
(iii) transaction advisory fees payable (A) in connection with the
consummation of mergers, acquisitions, divestures or similar transactions
including by means of reinsurance, or (B) in connection with the
consummation of financing or refinancing transactions by the Company or
its Subsidiaries with one or more Affiliates of the Company or holders of
any class of Capital Stock of the Company, in an amount with respect to
each such transaction not to exceed in the aggregate 1.5% of the total
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Transaction Value; provided, that, if such Affiliates of the Company or
holders of any class of Capital Stock of the Company provide investment
banking services in connection with any such transaction then upon the
consummation of such transactions such Affiliates shall be entitled to
receive additional fees, which, together with the 1.5% transaction
advisory fee, are no greater than fees customarily received by investment
banking firms for the same or similar services but only to the extent the
investment banking services so performed are not duplicative with other
investment banking services rendered to the Company or its Subsidiaries in
connection with such transaction.
provided, however, that until the expiration of the second year after the
Issue Date, the payments described in (i), (ii), and (iii) above shall not
be made, if after giving effect thereto, such payment would cause the
Debt-Equity Ratio to be greater than 4.0 to 1.0, unless, in the case of
payments described in (iii) above, such payment is made in connection with
a transaction that decreases the Debt-Equity Ratio; provided, further, if
and to the extent that the maximum amount of payments otherwise
permissible are not made within such two year period, such shortfall may
be paid subsequent to such two year period and shall not be taken into
account in determining (nor shall they be subject to) any limitation
hereunder.
(f) Limitation on Capital Stock of the Company. The Company will not
redeem, repurchase or otherwise acquire any preferred stock of the Company at
any time on or before the date that the Note is repaid in full. The Company will
not redeem, repurchase or otherwise acquire any Series A Common Stock of the
Company until five years after the Issue Date and Series B Common Stock of the
Company until three years after the Issue Date.
(g) Notice in the Event of any Modifications to the FLAC Holdings Notes.
The Company will provide written notice to the Holder of any modification of any
material terms or conditions under the FLAC Holdings Notes on or prior to the
date that such modification becomes effective.
(h) Limitation on Indebtedness. The Company will not, and will not permit
any of its Subsidiaries to, create, issue, assume, guarantee, incur, or become
liable with respect to, or otherwise become responsible for, contingently or
otherwise, any Indebtedness, unless at the time of such proposed action, giving
effect to such incurrence of Indebtedness, the Pro Forma Debt-Equity Ratio is
less than 4.0 to 1.0.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Holder as of the Issue Date as
follows:
SECTION 5.1. Organization.
(a) Exhibit C sets forth a true, complete and correct list of all
Subsidiaries of the Company.
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(b) Each of the Company and LifeCo is a corporation duly incorporated,
validly existing and in good standing under the laws of the jurisdiction in
which it is incorporated and has the requisite corporate power and authority to
carry on its business as now being conducted. Each of the Company and LifeCo is
duly qualified to do business and is in good standing in each jurisdiction in
which the nature of its business or the ownership or leasing of its properties
makes such qualification necessary (other than in such jurisdictions where the
failure to be so qualified would not have a material adverse effect).
(c) FLAC Holdings, LLC is a limited liability company duly organized,
validly existing and in good standing under the laws of the jurisdiction in
which it is organized and has the requisite power and authority to carry on its
business as now being conducted. FLAC Holdings, LLC is duly qualified to do
business and is in good standing in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such qualification
necessary (other than in such jurisdictions where the failure to be so qualified
would not have a material adverse effect).
SECTION 5.2. Subsidiaries. All of the outstanding shares of capital stock
of each Subsidiary of the Company were duly authorized and validly issued and
are fully paid and nonassessable, and are owned of record and beneficially by
the Company, by one or more of the Subsidiaries of the Company or by the Company
and one or more of the Company's Subsidiaries, free and clear of all Liens other
than those granted in connection with the issuance of the FLAC Holdings Notes.
SECTION 5.3. Authorization. The Company has taken all necessary corporate
action to authorize it to execute, deliver and perform this Note and to
consummate the transactions contemplated hereby. This Note has been duly
executed and delivered by the Company, and is a valid and binding obligation of
the Company enforceable against the Company in accordance with its terms.
SECTION 5.4. Capitalization; Corporate Structure. The total consolidated
capitalization of the Company and its Subsidiaries (both debt and equity), after
giving effect to the transactions contemplated to be performed on and prior to
such date in the Stock Purchase Agreement or the transaction documents
contemplated thereby, is attached hereto as Exhibit D. Exhibit D also sets forth
the corporate structure of the Company and its Subsidiaries, identifies the
ownership interest of each Subsidiary of the Company and sets forth the
authorized capital stock and shares issued and outstanding of the Company and
the Material Subsidiaries.
SECTION 5.5. Consents, etc. The execution, delivery or performance in
accordance with its terms of this Note by the Company does not (i) conflict with
any of the provisions of the Articles of Incorporation or By-laws of the
Company, (ii) conflict with, result in any violation of or default (with or
without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation or to loss of any
benefit under, or give rise to any obligation of the Company or any of its
Subsidiaries to make any payment under, or to the increased, additional,
accelerated or guaranteed rights or entitlements of any Person under, or result
in the creation of any Liens (other than as contemplated hereunder) upon any of
the properties or assets of the Company or any Subsidiary of the Company under
any agreement, arrangement, lease, understanding, contract, instrument, loan,
note, bond, mortgage, indenture,
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promise, undertaking or other commitment or obligation or Permit under which the
Company or any Subsidiary of the Company is a party or by which any of their
respective assets or properties owned and used are bound, that would,
individually or in the aggregate, have a Material Adverse Effect on the Company
or its Subsidiaries, taken as a whole or (iii) subject to the matters referred
to in the next sentence, violate or give rise to the loss of a right or benefit,
or create any obligation or liability under any statute, law, rule, regulation,
order, judgment, injunction or award applicable to the Company or any Subsidiary
of the Company, that would, individually or in the aggregate, have a Material
Adverse Effect on the Company and its Subsidiaries, taken as a whole. No
consent, approval or authorization of, or declaration or filing with, or notice
to, any Governmental Entity which has not been obtained or made is required by
or with respect to the Company or any of its Subsidiaries in connection with the
execution and delivery by the Company of this Note.
SECTION 5.6. Investment Company Act. Neither the Company nor any of its
Subsidiaries is an "investment company" or a company "controlled" by an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.
SECTION 5.7. Survival. All representations and warranties made in this
Note shall survive the execution and delivery of this Note.
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.1. Event of Default. The term "Event of Default" shall mean any
of the events set forth below:
(a) Non-Payment of Obligations. The Company shall fail to make any payment
of all or any portion of the Unpaid Amount as and when the same shall become due
and payable, whether by acceleration or otherwise, which default shall continue
uncured for 20 days.
(b) Non-Performance of Certain Affirmative Covenants. The Company shall
default in the due observance or performance of any covenant set forth in
Section 4.1, which default shall continue uncured for (x) 60 days with respect
to a default under Sections 4.1(a), (b), (c) and (d) and (y) 10 days with
respect to a default under Section 4.1(e).
(c) Failure to Comply with Section 3.1(c). The Company shall fail to
comply with the provisions of Section 3.1(c), which default shall continue
uncured for 60 days.
(d) Non-Performance of Section 4.2(d) and Section 4.2(h). The Company
shall default in the due observance or performance of (i) the covenants set
forth in Section 4.2(d) or (ii) the covenants set forth in Section 4.2(h).
(e) Non-Performance of Certain Other Negative Covenants. The Company shall
default in the due observance or performance of the covenants set forth in
Section 4.2 (other than Section 4.2(d) and Section 4.2(h)), which default shall
continue uncured for 60 days.
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(f) Warranties and Representations. Any warranty and representation of the
Company contained herein, when made, shall have been false or misleading in any
material respect.
(g) Reports and Information. Any report or information required to be
delivered to the Holder under Article III or Article IV, when delivered, shall
contain any material misstatement of fact or omit to state any material fact
necessary, in light of the circumstances under which it is made, in order to
make the statements therein not misleading in any material respect.
(h) Cross-acceleration of the FLAC Holdings Notes. There is a default or
event of default under the FLAC Holdings Notes which results in the acceleration
of such Indebtedness prior to its maturity.
(i) Cross-default There is a default or event of default under any other
Indebtedness of the Company or any of its Subsidiaries in excess of $5,000,000,
(x) which default is caused by a failure to pay principal or interest thereon
when due, after the expiration of any grace period provided for in the
instrument evidencing such Indebtedness on the date of such default or (y) which
results in the acceleration of such Indebtedness prior to its maturity, which
default is not waived or shall continue uncured for 60 days.
(j) Bankruptcy, Insolvency, etc. The occurrence of a Bankruptcy Event with
respect to the Company or any Material Subsidiary.
(k) Pre-Need Investments of Material Holders. Except as provided below,
any of the Material Holders or their Affiliates (other than the Company or its
Subsidiaries) shall make or hold any investment (other than through the Company
or its Subsidiaries) (a "Pre-Need Investment") in another Person (a "Pre-Need
Entity") that shall have in force pre-need insurance with an aggregate "funeral
value" in excess of $20,000,000, except (and the term "Pre-Need Investment"
shall not include) (x) investments in publicly traded entities in which such
Material Holder or Affiliate thereof owns less than 5% of the outstanding common
stock and (y) the investments currently owned by the Material Holders and their
respective Affiliates as set forth on Exhibit E; provided, however, that the
occurrence of the foregoing shall not constitute an Event of Default under this
Section 6.1(k) unless and until: (A) during the period of one year following the
making or acquiring of such Pre-Need Investment, the pre-need life insurance
business conducted by the relevant Pre-Need Entity has not been (a) disposed of,
(b) discontinued or (c) reinsured in its entirety (except as set forth in the
proviso below) with the Company or one or more of the Company's Subsidiaries on
terms that are no less favorable to the Company or such Subsidiary of the
Company than would be available on an arms-length basis, provided, however, that
the Pre-Need Entity may retain any portion of such pre-need business which is
commercially impracticable to reinsure and still satisfy the exception set forth
in this clause (c), and (B) within 90 days following the expiration of any such
one-year period, the applicable Material Holder has failed either to divest
herself or himself of such Pre-Need Investment or cease to be a Material Holder.
Immediately upon the occurrence of any Event of Default, in addition to
the remedies set forth in Section 6.2 and Section 6.3, the applicable rate of
interest on the Unpaid Amount for the periods indicated in Section 2.2 will be
increased by an additional 2% per annum, provided, however, that the maximum
rate of interest payable on this Note shall not exceed the lesser of
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12% per annum or the maximum rate allowed by applicable law and; provided,
further, that from and after such date and time an Event of Default is no longer
continuing, the rate of interest hereon shall thereupon revert for subsequent
periods (until the occurrence of any subsequent Event of Default described in
this paragraph upon which the interest rate shall again increase in accordance
with this paragraph) to the rate of interest otherwise then applicable under
Section 2.2.
SECTION 6.2. Action if Certain Event of Default. If any Event of Default
described in Section 6.1, other than an Event of Default described in Section
6.1(h) or Section 6.1(j), shall occur at any time for any reason, whether
voluntary or involuntary, then only after the FLAC Holding Notes have been
repaid or retired, all obligations owing to XLCA have been satisfied in full in
connection with the Securitization Financing and the XLCA Policies shall have
terminated in accordance with their terms in connection with the Securitization
Financing, the Holder may, upon notice to the Company, declare all or any
portion of the Unpaid Amount to be due and payable and any or all other
obligations hereunder to be due and payable, whereupon the full Unpaid Amount
and all other such obligations which shall be so declared due and payable shall
be and become immediately due and payable, without further notice, demand,
presentment or any other act on the part of the Holder.
SECTION 6.3. Action if Other Event of Default. (a) If any Event of Default
under Section 6.1(h) shall occur at any time, whether voluntary or involuntary,
the Holder may, upon notice to the Company, declare all or any portion of the
Unpaid Amount to be due and payable and any or all other obligations hereunder
to be due and payable, whereupon the full Unpaid Amount and all other such
obligations which shall be so declared due and payable shall be and become
immediately due and payable, without further notice, demand, presentment or any
other act on the part of the Holder.
(b) If any Event of Default under Section 6.1(j) shall occur at any time,
whether voluntary or involuntary, the full Unpaid Amount and all other such
obligations under this Note shall be and become immediately due and payable,
without further notice, demand, presentment or any other act on the part of the
Holder.
SECTION 6.4. Issuance of Common Stock to Holder. If an Event of Default
shall occur under (x) Section 6.1(a), (y) Section 6.1(e) (solely by reason of a
default in the observance of Section 4.2(b)), or (z) under Section 6.1(d)(ii),
then, in each such case, the Company shall forthwith issue to the Holder the
number shares of Common Stock equal to the number of shares that would be
issuable under the Warrant on such date (assuming, for purposes of this
calculation only, that the Warrant is outstanding and has not been exercised in
whole or in part on such date).
ARTICLE VII
AMENDMENTS AND WAIVERS
SECTION 7.1. Amendments. The provisions of this Note may from time to time
be amended, modified or waived, if such amendment, modification or waiver is in
writing and consented to in writing by the Company and the Holder.
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SECTION 7.2. Waiver. No failure or delay on the part of the Holder in
exercising any power or right under this Note shall operate as a waiver thereof,
nor shall any single or partial exercise of any such power or right preclude any
other or further exercise thereof or the exercise of any other power or right.
No notice to or demand on the Company in any case shall entitle it to any notice
or demand in similar or other circumstances. No waiver or approval by the Holder
shall, except as may be otherwise stated in such waiver or approval, be
applicable to subsequent transactions. No waiver or approval hereunder shall
require any similar or dissimilar waiver or approval thereafter to be granted
hereunder.
SECTION 7.3. Payments. To the extent that the Company makes a payment or
payments to the Holder, and such payment or payments or any part thereof are
subsequently for any reason invalidated, set aside and/or required to be repaid
to a trustee, receiver or any other party under any bankruptcy law, state or
federal law, common law or equitable cause, then to the extent of such recovery,
the obligation or part thereof originally intended to be satisfied, and all
rights and remedies therefor, shall be revived and continued in full force and
effect as if such payment had not been made or such enforcement or setoff had
not occurred.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1. Parties in Interest. All covenants, agreements and
undertakings in this Note binding upon the Company or the Holder shall bind and
inure to the benefit of the successors and permitted assigns of the Company and
the Holder, respectively, whether so expressed or not.
SECTION 8.2. Governing Law. This Note shall be governed by and construed
in accordance with the laws of the State of New York. Sections 5-1401 and 5-1402
of the General Obligations Law of the State of New York shall apply to this Note
and the Company hereby waives any right to stay or dismiss on the basis of forum
non conveniens any action or proceeding brought before the courts of the State
of New York sitting in New York County or of the United States of America for
the Southern District of New York and hereby submits to the jurisdiction of such
courts. Each party (and each permitted assignee of any party) irrevocably
submits to the jurisdiction of the courts of (and service of process in) the
State of New York and agrees that any action or proceeding arising out of or
relating to this Note may be brought and/or defended in such courts. In
connection with any legal proceeding initiated by a party hereto against any
other party hereto and arising out of this Note, the prevailing party shall be
entitled to recover the reasonable attorney's fees and charges and other
expenses of litigation incurred in connection with such legal proceeding from
the other party. The provisions of this section shall survive the termination of
this Note.
SECTION 8.3. Specific Performance. The Company acknowledges and agrees
that the remedy available at law for any breach of any covenant or obligation
contained in this Note will or may be inadequate to compensate Holder for its
damages and consequently, that Holder, in addition to any other relief available
to it, shall be entitled to specific performance and other equitable relief
against the Company without the necessity of proving actual damage or posting
any bond whatsoever.
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SECTION 8.4. Entire Agreement. This Note, and any other documents,
agreements or instruments which are specifically stated to form a part of this
Note or to relate thereto, constitute the entire agreement between the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings of the parties relating thereto. Except as otherwise provided in
this Note, the rights and remedies of each party under this Note are cumulative
and are not exclusive of any rights or remedies which the party may otherwise
have at law or in equity.
SECTION 8.5. Severability. If any term, covenant, condition or provision
of this Note is determined by a final judgment to be invalid or unenforceable,
the remaining terms, covenants, conditions and provisions of this Note shall not
be affected thereby; and each other term, covenant, condition and provision of
this Note shall be valid and enforceable to the fullest extent permitted by law.
This Note shall be construed without regard to any presumption requiring
construction against the party drafting this Note. The captions of this
instrument are for convenience and do not define or limit the provisions of this
Note.
SECTION 8.6. Notices. Any and all notices, demands or other communications
(any such communication, a "notice") given or to be given under this Note shall
be in writing and may be sent by registered or certified mail, return receipt
requested, postage prepaid; by express mail; by hand delivery; or by national
overnight courier service. All notices shall be addressed to the Holder at the
below address or at such other address as the Holder may designate. Notices will
be deemed given within 5 days after mailing, or upon receipt, whichever is
earlier. Notwithstanding the forgoing, the Company (1) waives presentment,
demand, protest or notice of any kind in connection with this Note and (2)
agrees, in the event of an Event of Default (as defined above), to pay to the
Holder, on demand, all reasonable costs and expenses (including reasonable legal
fees) incurred in connection with the enforcement and collection of this Note.
If to the Company, to:
FFS Holdings, Inc.
c/o The Devlin Group
Falmouth, ME 04105
Fax: (201) 781-7709
Attention: Douglas Schair
with a copy to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, NY 10153
Fax: (212) 310-8007
Attention: Thomas A. Roberts and Michael Nissan
-22-
If to the Holder, to:
Hillenbrand Industries, Inc.
700 State Route 46 East
Batesville, IN 47006-8835
Fax: (812) 934-8258
Attention: Patrick DeMaynadier
with a copy to:
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street
New York, NY 10019
Fax: (212) 424-8500
Attention: Alexander M. Dye and Theodore LaPier
SECTION 8.7. Waiver of Jury Trial. THE HOLDER AND THE COMPANY HEREBY
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF,
UNDER, OR IN CONNECTION WITH, THIS NOTE OR ANY OTHER DOCUMENT OR INSTRUMENT
EXECUTED AND DELIVERED IN CONNECTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE
OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN), OR ACTIONS OF THE HOLDER OR
THE COMPANY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE HOLDER'S PURCHASING
THIS NOTE.
SECTION 8.8. Pledge. This Note has the benefit of and is secured by a
pledge of all of the outstanding Capital Stock of LifeCo pursuant to a Stock
Pledge Agreement.
SECTION 8.9. Transfer Restrictions. Subject to Section 4.2(b)(ii), this
Note is non-transferable, other than to wholly-owned subsidiaries of Holder.
SECTION 8.10. Interpretation. When a reference is made in this Note to an
Article, a Section or Exhibit, such reference shall be to an Article of, Section
of, or an Exhibit to, this Note unless otherwise indicated.
IN WITNESS WHEREOF, this Note has been executed and delivered as of the
date specified above by the duly authorized representative of the Company.
FFS HOLDINGS, INC.
By:
Name:
Title:
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EXHIBIT A
PROCEDURES FOR CALCULATING ADJUSTED EQUITY
As of the Issue Date, the Adjusted Equity shall be $70,000,000 (the
"Initial Equity").
On any date occurring after the Issue Date (the "Computation Date"), the
Adjusted Equity shall equal:
i. the Initial Equity;
ii. plus or minus the difference between:
1. the sum of the Statutory Surplus of the Insurance Subsidiaries
in accordance with SAP ("Aggregate Statutory Surplus") as of
the Issue Date; and
2. the Aggregate Statutory Surplus as of any Computation Date;
iii. plus (or minus) the cumulative GAAP net income (loss) of the Company
on an unconsolidated basis for the period from the Issue Date to the
Computation Date, but only to the extent that such net income or
loss is not already included in ii. or iv.;
iv. plus (or minus) the cumulative GAAP net income (loss) of the
Subsidiaries of the Company that are not Insurance Subsidiaries for
the period from the Issue Date to the Computation Date;
v. plus the total value of consideration received by the Company from
the issuance of shares of its Capital Stock for the period from the
Issue Date to the Computation Date;
vi. plus the total value of consideration received by all Subsidiaries
of the Company that are not Insurance Subsidiaries from the issuance
of shares of Capital Stock or contributions to capital for the
period from the Issue Date to the Computation Date;
vii. minus the total value of consideration paid by the Company to
acquire or redeem shares of its Capital Stock for the period from
the Issue Date to the Computation Date;
viii. minus the total value of consideration paid by all Subsidiaries of
the Company that are not Insurance Subsidiaries to acquire or redeem
shares of Capital Stock (other than to the Company or another
Subsidiary) for the period from the Issue Date to the Computation
Date;
ix. plus the aggregate amount of dividends paid by an Insurance
Subsidiary to a Subsidiary of the Company that is not an Insurance
Subsidiary, but only to the extent that such dividends are not
included in Adjusted Equity by operation of i. through viii. above.
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EXHIBIT B
FORM OF PARTICIPATION AGREEMENT
-25-
EXHIBIT C
SUBSIDIARIES OF THE COMPANY
-26-
EXHIBIT D
CAPITALIZATION OF THE COMPANY AND ITS SUBSIDIARIES
CORPORATE STRUCTURE OF THE COMPANY AND ITS SUBSIDIARIES
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EXHIBIT E
INVESTMENTS OWNED BY MATERIAL HOLDERS AND THEIR RESPECTIVE AFFILIATES
-28-