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.
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.
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.