Item 1.01 Entry into a Material Definitive Agreement.
Amendment No. 2 to Amended and Restated Indenture
On December 31, 2019, GWG Holdings, Inc. ("GWG" or the "Company"), GWG Life,
LLC, a wholly owned subsidiary of the Company ("GWG Life"), and Bank of Utah, as
trustee (the "Trustee"), entered into Amendment No. 2 (the "Amendment") to that
certain Amended and Restated Indenture, dated as of October 23, 2017, among the
Company, GWG Life and the Trustee (as amended, the "Indenture").
The Amendment amended the Debt Coverage Ratio in the Indenture (and added or
revised associated definitions) to provide the Company with the ability to incur
indebtedness (directly or through a subsidiary of the Company) that is payable
in capital stock of the Company or mandatorily convertible into or exchangeable
for capital stock of the Company that would be excluded from the calculation of
the Debt Coverage Ratio (which would constitute "Excluded Indebtedness" under
the Debt Coverage Ratio). Also included in the definition of Excluded
Indebtedness (and thus also excluded from the calculation of the Debt Coverage
Ratio) is indebtedness that is reasonably expected to be converted or exchanged,
directly or indirectly, into capital stock of the Company. This category of
Excluded Indebtedness only includes indebtedness where the transaction
agreements provide that in the event the indebtedness does not convert into, or
is exchanged for, capital stock of the Company as provided in the transaction
agreements, the indebtedness would be cancelled and any assets received in
exchange for the issuance of the indebtedness would be returned.
The Amendment excludes from the calculation of the Debt Coverage Ratio any
indebtedness of The Beneficient Company Group, L.P., a Delaware limited
partnership ("Beneficient LP"), and its direct and indirect subsidiaries, as
well as the value of the assets of Beneficient LP and its direct and indirect
subsidiaries. To avoid lengthy and costly quarterly valuation studies, the
Amendment provides that the Company's investment in Beneficient is valued at its
original cost basis and any commercial loans made by the Company to Beneficient
is included at their outstanding principal amount. The Amendment also provides
that the Debt Coverage Ratio is measured on a quarterly basis.
The Amendment is intended to provide the Company with greater flexibility to
finance and to anticipate the potential impacts of its expanding relationship
with Beneficient LP. Management expects that the Amendment will strengthen its
compliance with the Debt Coverage Ratio.
Finally, the Amendment amends the definition of "Pricing Model" to reflect the
fact that the Company now uses the life insurance pricing model owned by
ClariNet LS rather than the pricing model owned by Modeling Actuarial Pricing
Systems, Inc.
Preferred Series A Unit Account and Common Unit Investment Agreement; Exchange
Agreement
On December 31, 2019, the Company, Beneficient LP, Beneficient Company Holdings,
L.P., a Delaware limited partnership of which Beneficient LP owns all of the
outstanding common units and serves as its general partner ("BCH"), and
Beneficient Management, L.L.C., a Delaware limited liability company and the
general partner of Beneficient LP ("Beneficient Management"), entered into a
Preferred Series A Unit Account and Common Unit Investment Agreement (the
"Investment Agreement").
Pursuant to the Investment Agreement, the Company transferred $79 million to
Beneficient LP in return for 666,667 common units of Beneficient LP and a
Preferred Series A Subclass 1 Unit Account of BCH.
1
In connection with the Investment Agreement, the Company acquired the right to
appoint a majority of the board of directors of Beneficient Management, the
general partner of Beneficient LP. As a result, the Company expects to report
the results of Beneficient LP and its subsidiaries on a consolidated basis
beginning with the Company's audited consolidated financial statements for the
year ended December 31, 2019. The Company's right to appoint a majority of the
board of directors of Beneficient Management will terminate in the event (i) the
Company's ownership of the fully diluted equity of Beneficient LP (excluding
equity issued upon the conversion or exchange of Preferred Series A Unit
Accounts of BCH held as of December 31, 2019 by parties other than the Company)
is less than 25%, (ii) the Continuing Directors of the Company cease to
constitute a majority of the board of directors of the Company, or (iii) certain
bankruptcy events occur with respect to the Company. The term "Continuing
Directors" means, as of any date of determination, any member of the board of
directors of the Company who: (1) was a member of the board of directors on
December 31, 2019; or (2) was nominated for election or elected to the board of
directors with the approval of a majority of the Continuing Directors who were
members of the board of directors at the time of such nomination or election.
Beneficient Management has an executive committee, a nominating committee and a
community reinvestment committee. The board of directors of Beneficient
Management has the right to appoint two members of these committees, and an
entity affiliated with Brad K. Heppner, the Company's Chairman, has the right to
appoint the other two members of these committees. The entity affiliated with
Mr. Heppner also has the right to appoint the Chairman of the Board and of each
of the committees. The Beneficient Management executive committee has the right
to approve certain transactions on behalf of Beneficient Management and
Beneficient LP and its subsidiaries, including: (i) the incurrence of debt; (ii)
the issuance of equity interests of Beneficient LP or any subsidiary equal to 5%
or more of the fully diluted equity of such entity or that have preferred terms
to the common equity of Beneficient LP, except in connection with any trust
instrument or product offered by Beneficient LP or its affiliates; (iii) the
adoption of a shareholder or unitholder rights plan by Beneficient LP or any
subsidiary thereof; (iv) the amendment, supplement, waiver, or modification of
Beneficient LP's limited partnership agreement, the BCH limited partnership
agreement or the organizational documents of any subsidiary of the foregoing
other than any common law or statutory trusts created to facilitate the
financing, acquisition, contribution, assignment or holding of alternative
assets; (v) the exchange or disposition of a majority or more of the assets,
taken as a whole, of Beneficient LP or any subsidiary thereof in a single
transaction or a series of related transactions; (vi) the exchange or
disposition of a majority or more of the assets, taken as a whole, of
Beneficient Management or any subsidiary thereof in a single transaction or a
series of related transactions; (vii) the execution by Beneficient LP,
Beneficient Management or any subsidiary thereof of any contracts or of any
amendment, supplement, waiver or modification of any existing contract, which
would materially change the nature of the business of Beneficient Management and
its affiliates; (viii) materially or commercially substantive changes to or
creation of an employee incentive or benefit plan of Beneficient Management,
Beneficient LP or any subsidiary thereof; (ix) the merger, sale or other
combination of Beneficient LP, Beneficient Management or any subsidiary thereof
with or into any other person or entity; (x) the transfer, mortgage, pledge,
hypothecation or grant of a security interest in all or substantially all of the
assets of Beneficient LP or any subsidiary thereof; (xi) the transfer, mortgage,
pledge, hypothecation or grant of a security interest in all or substantially
all of the assets of Beneficient Management or any subsidiary thereof; (xii) the
removal without cause of a chief executive officer or any other executive
officer of Beneficient Management, Beneficient LP or any operating subsidiary
thereof; (xiii) the termination of employment of any other officer of
Beneficient Management, Beneficient LP or any operating subsidiary thereof or
the termination of the association of a partner, member, manager or director of
any subsidiary of Beneficient LP, in each case, without cause; (xiv) the
liquidation or dissolution of Beneficient Management, Beneficient LP or any
operating subsidiary thereof; (xv) the withdrawal or removal of Beneficient
Management as the general partner of Beneficient LP or the direct or indirect
transfer of beneficial ownership of all or any part of a general partner
interest in Beneficient LP; (xvi) any determination by Beneficient Management,
acting as general partner of Beneficient LP, related to the removal or
replacement of the general partner under Beneficient LP's limited partnership
agreement; (xvii) the entry into any material or commercially substantive
agreement with a related party; (xviii) the creation of any new and materially
or commercially substantively different trust instrument or product, or any
materially or commercially substantive change, amendment, supplement, waiver or
modification to the terms or provision of any existing trust product, offered by
Beneficient LP or any of its affiliates to the extent regulated by the Texas
Finance Commission or other state, federal or non-U.S. regulator with direct or
indirect jurisdiction over Beneficient LP or such affiliate or such product,
other than any change or modification to any exhibit or schedule to any trust
instrument or product; or (xix) the bankruptcy of Beneficient LP.
2
Following the transaction, and as agreed in the Investment Agreement, the
Company had an initial capital account balance for the Preferred Series A
Subclass 1 Unit Account of $319 million. The other holders of the Preferred
Series A Subclass 1 Unit Accounts are certain founders of Beneficient LP, and
the aggregate capital accounts of all holders of the Preferred Series A Subclass
1 Unit Accounts after giving effect to the investment by the Company is $1.569
billion. The Company's Preferred Series A Subclass 1 Unit Account is the same
class of preferred security as held by the founders. If the founders exchange
their Preferred Series A Subclass 1 Unit Accounts for securities of the Company,
the Company's Preferred Series A Subclass 1 Unit Account would be converted into
common units of Beneficient LP (so neither the Company nor the founders would
hold Preferred Series A Subclass 1 Unit Accounts).
In addition, on December 31, 2019, the Company, Beneficient LP and certain
holders of common units of Beneficient LP (the "Common Units") entered into an
Exchange Agreement (the "Exchange Agreement") pursuant to which certain holders
of Common Units from time to time have the right, on a quarterly basis, to
exchange their Common Units for common stock of the Company. The exchange ratio
in the Exchange Agreement is based on the ratio of the capital account
associated with the Common Units to be exchanged to the market price of the
Company's common stock based on the volume weighted average price of the
Company's common stock for the five consecutive trading days prior to the
quarterly exchange date. The Exchange Agreement is intended to facilitate the
marketing of Beneficient LP's products to holders of alternative assets.
The terms and conditions of the transactions described under this "Item 1.01
Entry into a Material Definitive Agreement -- Preferred Series A Unit Account
and Common Unit Investment Agreement; Exchange Agreement" were negotiated and
approved by the previously disclosed Special Committee of the Board of Directors
of the Company with the assistance of independent legal and financial advisors.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits.
Exhibit No. Description
4.1 Amendment No. 2 to the Indenture
3
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