As filed with the Securities and Exchange Commission on September 3, 2020

Registration No. 333-239690

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

________________

AMENDMENT NO. 2
TO
FORM S
-4
REGISTRATION STATEMENT

Under the Securities Act of 1933

________________

GWG HOLDINGS, INC.
(Exact name of Registrant as specified in its charter)

________________

Delaware

 

6282

 

26-2222607

(State or other jurisdiction of
incorporation or organization)

 

(Primary Standard Industrial
Classification Code Number)

 

(I.R.S. Employer
Identification Number)

________________________

325 North St. Paul Street, Suite 2650
Dallas, Texas 75201
Tel: (612) 746
-1944
Fax: (612) 746
-0445

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

GWG Holdings, Inc.
Murray T. Holland
President and Chief Executive Officer
325 North St. Paul Street, Suite 2650
Dallas, Texas 75201
Tel: (612) 746
-1944

(Name, address, including zip code, and telephone number, including area code, of agent for service)

________________________

Copies to:

Edward S. Best, Esq.
Bruce F. Perce, Esq.
Mayer Brown LLP
71 S. Wacker Drive
Chicago, IL 60606
Tel: (312) 782
-0600

________________________

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.

If the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. £

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. £

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. £

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

£

 

Accelerated filer

 

£

   

Non-accelerated filer

 

£

 

Smaller reporting company

 

S

           

Emerging growth company

 

£

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. £

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer) £

Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer) £

 

CALCULATION OF REGISTRATION FEE

Title of Each Class of Securities to Be Registered

 

Amount to be
Registered

 

Proposed
Maximum
Offering Price
Per Unit
(1)

 

Proposed
Maximum
Aggregate
Offering Price

 

Amount of
Registration
Fee
(2)

Redeemable Preferred Stock

 

69,756

 

$

1,000

 

$

69,756,000

 

$

9,054

 

Series 2 Redeemable Preferred Stock

 

146,812

 

$

1,000

 

$

146,812,000

 

$

19,056

 

Total

 

216,568

 

$

1,000

 

$

216,568,000

 

$

28,111

(3)

____________

(1)      The Redeemable Preferred Stock and the Series 2 Redeemable Preferred Stock were issued with a Stated Value per share of $1,000.

(2)      The amount of the registration fee paid herewith was calculated pursuant to Rule 457(f) under the Securities Act of 1933, as amended.

(3)      The registration fee of $28,111 was previously paid.

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission acting pursuant to said Section 8(a) may determine.

 

EXPLANATORY NOTE

GWG Holdings, Inc. (the “Registrant”) is filing this Registration Statement on Form S-4 in connection with the solicitation of consents by the Registrant from the holders of its Redeemable Preferred Stock and Series 2 Redeemable Preferred Stock (collectively, the “Preferred Stock”) to a proposed Amended and Restated Certificate of Incorporation of the Registrant that will amend certain terms of the Preferred Stock, as described in the joint consent solicitation statement and prospectus that is a part of this Registration Statement. The Registrant is not issuing any additional shares of Preferred Stock pursuant to this Registration Statement. However, as the Preferred Stock as amended by the proposed amendments to the terms of the Preferred Stock included in the proposed Amended and Restated Certificate of Incorporation will constitute a new security for purposes of the federal securities laws, the Registrant is registering the offer and sale of such new security on this Registration Statement.

 

The information in this joint consent solicitation statement and prospectus is not complete and may be changed. We may not issue these securities until the registration statement filed with the Securities and Exchange Commission, of which this joint consent solicitation statement and prospectus is a part, shall have been declared effective. This joint consent solicitation statement and prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED SEPTEMBER 3, 2020

JOINT CONSENT SOLICITATION STATEMENT AND PROSPECTUS

GWG HOLDINGS, INC.

Solicitation of Consents with respect to the shares of
Redeemable Preferred Stock and
Series 2 Redeemable Preferred Stock
issued by GWG Holdings, Inc.

to be exchanged for [•] shares of
Exchangeable Redeemable Preferred Stock

THIS JOINT CONSENT SOLICITATION STATEMENT AND PROSPECTUS IS BEING FURNISHED ON OR ABOUT [•], 2020, TO THE HOLDERS (AS DEFINED BELOW) OF OUR PREFERRED STOCK (AS DEFINED BELOW) AS OF THE CLOSE OF BUSINESS ON [•], 2020. THIS CONSENT SOLICITATION (AS DEFINED BELOW) WILL EXPIRE AT 5:00 P.M., DALLAS TIME, ON [•], 2020, UNLESS EXTENDED BY US IN OUR SOLE DISCRETION; PROVIDED, THAT THE CONSENT SOLICITATION SHALL NOT EXTEND BEYOND 90 DAYS OF THE DATE OF THIS JOINT CONSENT SOLICITATION STATEMENT AND PROSPECTUS (SUCH TIME AND DATE AS IT MAY BE EXTENDED, THE “EXPIRATION TIME”).

GWG Holdings, Inc., a Delaware corporation (“we,” “us,” “our,” or the “Company”), is soliciting the consents (the “Consents”) of the holders of record (the “Holders”) as of the close of business on [], 2020 (the “Record Date”), of its Redeemable Preferred Stock, par value $.001 per share (the “Redeemable Preferred Stock”), and Series 2 Redeemable Preferred Stock, par value $.001 per share (the “Series 2 Redeemable Preferred Stock” and, together with the Redeemable Preferred Stock, the “Preferred Stock,” and each a “class” of Preferred Stock) to the exchange of the Preferred Stock for preferred stock as it is proposed to be amended by an amended and restated certificate of incorporation of the Company (the “Amended and Restated Certificate of Incorporation”) that would, among other things, amend and restate the existing certificates of designations for each class of Preferred Stock (including the related Certificates of Correction, the “Certificates of Designations”) (the “Proposed Amendments,” and the Preferred Stock amended by the Proposed Amendments, the “Exchangeable Redeemable Preferred Stock”). If the Amended and Restated Certificate of Incorporation becomes effective, the Exchangeable Redeemable Preferred Stock could be exchanged at the option of the Company at any time into preferred equity securities of the Company or one or more subsidiaries of the Company. The Company has not determined if or when any such exchange would occur or the issuer of the preferred equity securities. However, any such preferred equity securities would be required to have rights, powers and preferences substantially similar to the rights, powers and preferences of the existing Preferred Stock, including (1) the same liquidation preference as the stated value the existing Preferred Stock, (2) rank at the time of any such exchange pari passu to the other preferred equity securities, and senior to the common equity securities, of the issuer, (3) accrue monthly cumulative dividends of not less than 7.5% per annum, (4) have no voting powers except for those substantially similar to the voting powers of the existing Preferred Stock, (5) have no protective provisions beyond protective provisions substantially similar to those provided with respect to the existing Preferred Stock, (6) be subject to redemption on terms substantially similar to those provided with respect to the existing Preferred Stock, and (7) be subject to conversion into common equity securities of the issuer or a subsidiary of the issuer on terms substantially similar to those governing the conversion of the existing Preferred Stock; provided, that the minimum conversion price shall be equal to, or less than, $12.00 per common equity security, as the same may be equitably adjusted upon stock dividends, subdivisions or combinations, by reclassification or otherwise after the issuance of such common equity securities.

Approval of the Proposed Amendments with respect to each class of Preferred Stock requires the affirmative vote or written consent of the Holders of a majority of the outstanding shares of such class of Preferred Stock as of the Record Date, in each case voting separately as a class (for each class of Preferred Stock, the “Requisite Consents”). The acceptance of delivered Consents with respect to each class of Preferred Stock is conditioned upon, among other things, the receipt of the Requisite Consents from the other class of Preferred Stock. If the Amended and Restated Certificate of Incorporation becomes effective, all holders of Preferred Stock would be bound by the terms of the Exchangeable Redeemable Preferred Stock, whether or not they provided their consent.

The solicitation of Consents pursuant to this joint consent solicitation statement and prospectus and the accompanying Consent Letter is referred to as the “Consent Solicitation.” As of the date of this joint consent solicitation statement and prospectus, there were [•] shares of Redeemable Preferred Stock and [•] shares of Series 2 Redeemable Preferred Stock outstanding. This joint consent solicitation statement and prospectus is first being sent to Holders on [], 2020.

Holder Consent Fee.    After the satisfaction or waiver of the Consent Conditions (as defined below), each Holder of Preferred Stock (a “Consenting Holder”) that provides a valid Consent on or prior to the Expiration Time shall be entitled to a cash payment (the “Holder Consent Fee”) of 2.0% of the aggregate stated value (the “Aggregate Principal Balance”) of the shares of Preferred Stock (the “Consent Fee Qualifying Shares”) for which a Consent to the Proposed Amendments is validly delivered on or prior to the Expiation Time, which we expect to pay, or cause to be paid, to the Consenting Holders promptly after the Expiration Time and the satisfaction or waiver of all Consent Conditions (such date, the “Settlement Date”).

Broker Consent Fee.    In addition, after the Settlement Date, we will pay, or cause to be paid, a cash payment (the “Broker Consent Fee”) of up to 6.375% of the Aggregate Principal Balance of the Consent Fee Qualifying Shares to our dealer manager, Emerson Equity LLC, a registered broker-dealer and member of the Financial Industry Regulatory Authority (“FINRA”), which it will pay to the broker-dealer for which the Consenting Holder of the Consent Fee Qualifying Shares is a current client, so long as (i) the dealer manager has an agreement in place with such broker-dealer to permit payment of the Broker Consent Fee, which is inclusive of the suggested commission to the registered representative and a broker-dealer reallowance, and (ii) we receive a duly completed and executed Participating Broker Certification from such broker-dealer (the “Participating Brokers”). We expect to pay, or cause to be paid, 3.0% of the Aggregate Principal Balance of the Consent Fee Qualifying Shares to the Participating Brokers as registered representative commissions and an additional broker-dealer reallowance of 0.375% of the Aggregate Principal Balance of the Consent Fee Qualifying Shares promptly after the Settlement Date. We expect to pay (i) an additional 1.5% of the Aggregate Principal Balance of the Consent Fee Qualifying Shares to Participating Brokers as registered representative commissions promptly after the first anniversary of the Settlement Date, if the Consenting Holder continues to hold the Consent Fee Qualifying Shares on the first anniversary of the Settlement Date, and (ii) an additional 1.5% of the Aggregate Principal Balance of the Consent Fee Qualifying Shares to Participating Brokers as registered representative commissions promptly after the second anniversary of the Settlement Date if the Consenting Holder continues to hold the Consent Fee Qualifying Shares on the second anniversary of the Settlement Date. In addition, we will pay to our dealer manager a dealer manager fee of 0.40625% of the Aggregate Principal Balance of the Consent Fee Qualifying Shares.

The Holder Consent Fees and Broker Consent Fees are payable regardless of whether there is any subsequent exchange of the Exchangeable Redeemable Preferred Stock for preferred equity securities pursuant to the Amended and Restated Certificate of Incorporation.

The dealer manager of this Consent Solicitation is Emerson Equity LLC which will use its “reasonable best efforts” to solicit the Consents.

In reviewing this joint consent solicitation statement and prospectus, you should carefully consider the risk factors beginning on page 9 of this joint consent solicitation statement and prospectus.

Neither the SEC nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The date of this joint consent solicitation statement and prospectus is            , 2020

 

TABLE OF CONTENTS

 

Page

JOINT CONSENT SOLICITATION STATEMENT AND PROSPECTUS SUMMARY

 

1

RISK RELATING TO FORWARD-LOOKING STATEMENTS

 

7

RISK FACTORS

 

9

THE CONSENT SOLICITATION

 

12

DESCRIPTION OF THE EXISTING PREFERRED STOCK

 

18

SUMMARY OF THE PROPOSED AMENDMENTS

 

28

DIRECTORS AND EXECUTIVE OFFICERS

 

30

SHARE OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, MANAGEMENT AND DIRECTORS

 

34

PLAN OF DISTRIBUTION

 

36

LEGAL MATTERS

 

38

EXPERTS

 

38

WHERE YOU CAN FIND MORE INFORMATION

 

38

PROPOSALS OF STOCKHOLDERS

 

39

Exhibit A — Form of Amended and Restated Certificate of Incorporation

Annex A — Item 1 (Business), Item 2 (Properties), Item 3 (Legal Proceedings), Item 7 (Management’s Discussion and Analysis of Financial Condition and Results of Operations), Item 8 (Consolidated Financial Statements and Supplementary Data), Item 11 (Executive Compensation), Item 13 (Certain relationships and Related Transactions, and Director Independence), and Exhibit 99.4 (The Beneficient Company Group, L.P. and Subsidiaries Consolidated Financial Statements and Independent Auditor’s Report) from the Company’s Annual Report on Form 10-K for the Year Ended December 31, 2019

Annex B — Item 1 (Consolidated Financial Statements and Supplementary Data) and Item 2 (Management’s Discussion and Analysis of Financial Condition and Results of Operations) from the Company’s Quarterly Report on Form 10-Q for the Quarter Ended June 30, 2020

No person has been authorized to give any information or make any representations other than those contained in this joint consent solicitation statement and prospectus and the Consent Letter and Participating Broker Certification and, if given or made, such information or representations must not be relied upon as having been authorized by the Company. The delivery of this joint consent solicitation statement and prospectus and the Consent Letter and Participating Broker Certification at any time does not imply that the information herein or therein is correct as of any time subsequent to its date.

i

JOINT CONSENT SOLICITATION STATEMENT AND PROSPECTUS SUMMARY

This summary highlights some of the information in this joint consent solicitation statement and prospectus. It is not complete and may not contain all of the information that you may want to consider. To understand this offering fully, you should carefully read the entire joint consent solicitation statement and prospectus, including the section entitled “Risk Factors,” before making a decision to provide a Consent. Unless otherwise noted or unless the context otherwise requires, the terms “we,” “us,” “our,” the “Company” and “GWG” refer to GWG Holdings, Inc. together with its direct or indirect subsidiaries. In instances where we refer specifically to “GWG Holdings” or “GWG Holdings, Inc.,” or where we refer to a specific subsidiary of ours by name, we are referring only to that specific legal entity.

Our Company

We are an innovative financial services firm based in Dallas, Texas that is a leader in providing investments that are non-correlated to the traded markets, and unique liquidity solutions and services for the owners of illiquid investments. Through its subsidiaries, The Beneficient Company Group, L.P. (“Ben LP,” and, including all of the subsidiaries it may have from time to time, “Beneficient”) and GWG Life, LLC, GWG owns and manages a diverse portfolio of alternative assets that as of June 30, 2020, included $2 billion in life insurance policy benefits, and exposure to a diversified and growing loan portfolio secured by 120 professionally managed alternative investment funds.

The following diagram illustrates our current organizational structure including GWG Holdings and its significant subsidiaries. The jurisdiction of organization or incorporation of each entity is Delaware other than GWG Life Trust, which is organized under the laws of Utah. Certain immaterial subsidiaries and intermediate holding companies have been omitted. None of the omitted subsidiaries, including certain intermediate holding companies, considered either alone or in the aggregate, constitutes a significant subsidiary.

1

Charter Amendment

As part of the combination between GWG and Beneficient, we continue to assess alternatives to create and expand on the synergies between the two companies, diversify and strengthen our consolidated balance sheet, and maximize value for our investors. We believe that having the authority to exchange all of the Company’s equity securities for equity securities of the Company or one or more subsidiaries of the Company is a potential avenue to create additional organizational efficiencies for the Company while at the same time enabling us to grow our consolidated balance sheet in a prudent and sustainable manner, and in turn create additional potential value for our shareholders. To provide that flexibility to the Company, we are seeking the authority for the Company to effect an exchange of its equity securities for securities issued by the Company or one or more subsidiaries of the Company by adopting an Amended and Restated Certificate of Incorporation of the Company (the “Amended and Restated Certificate of Incorporation”). The Amended and Restated Certificate of Incorporation also provides for an exclusive forum in the State of Delaware for certain potential claims by stockholders.

The proposed Amended and Restated Certificate of Incorporation, a copy of which is set forth as Exhibit A to this joint consent solicitation statement and prospectus, has been approved, adopted and declared advisable by the Board of Directors of the Company, which declared its advisability, based upon a recommendation of its Special Committee of independent and disinterested directors. It has also been approved by the written consent from the holders of a majority of the outstanding shares of the Company’s common stock (the “Common Stock”). To become effective, the Amended and Restated Certificate of Incorporation must also be approved by the holders of a majority of the outstanding shares of our Redeemable Preferred Stock, par value $.001 per share (the “Redeemable Preferred Stock”) and Series 2 Redeemable Preferred Stock, par value $.001 per share (the “Series 2 Redeemable Preferred Stock” and, together with the Redeemable Preferred Stock, the “Preferred Stock,” and each a “class” of Preferred Stock), each series voting separately as a class. While the Company believes such an exchange of equity securities may be a potential avenue to achieve the goals of the Company, the Company has not approved any plans to exchange either the Company’s Common Stock or Preferred Stock or the specific terms or issuer of any such securities that may be issued in connection therewith.

The Amended and Restated Certificate of Incorporation would permit the Company to exchange all of the Preferred Stock for preferred equity securities of the Company or one or more subsidiaries of the Company (the “subsidiary preferred interest”) with substantially similar terms to that of the Preferred Stock; provided that, the Amended and Restated Certificate of Incorporation requires the subsidiary preferred interest to have the following preferential terms:

•        accrue monthly cumulative dividends of not less than 7.5% per annum, subject to increase in the Board’s discretion, on the stated value of such subsidiary preferred interest; and

•        be subject to conversion into common equity securities of the issuer of the subsidiary preferred interest or a subsidiary thereof on terms substantially similar to those governing the conversion of the current Preferred Stock; provided, that the minimum conversion price shall be equal to, or less than, $12.00 per common equity security.

Consent Solicitation

General

We are soliciting the consents (the “Consents”) of the holders of record (the “Holders”) as of the close of business on [•], 2020 (the “Record Date”), of our Redeemable Preferred Stock and Series 2 Redeemable Preferred Stock to the exchange of the Preferred Stock for preferred stock as it is proposed to be amended by the Amended and Restated Certificate of Incorporation that would, among other things, amend and restate the existing certificates of designations for each class of Preferred Stock (including the related Certificates of Correction, the “Certificates of Designations”) (the “Proposed Amendments,” and the Preferred Stock as amended by the Proposed Amendments, the “Exchangeable Redeemable Preferred Stock”). The solicitation of Consents pursuant to this joint consent solicitation statement and prospectus and the accompanying Consent Letter is referred to as the “Consent Solicitation.”

As of [•], 2020 (the latest practicable date prior to the date of this joint consent solicitation statement and prospectus), our directors and their officers and their respective affiliates do not own any shares of Redeemable Preferred Stock or Series 2 Redeemable Preferred Stock.

2

Purpose of the Consent Solicitation

The purpose of the Consent Solicitation is to seek the consent of the Holders to the exchange of the Preferred Stock for Exchangeable Redeemable Preferred Stock which would have the same rights, powers and preferences as the Preferred Stock, except that the terms of the Exchangeable Redeemable Preferred Stock would permit the Company to exchange all of the outstanding shares of each class of Exchangeable Redeemable Preferred Stock for preferred equity securities of the Company or one or more subsidiaries of the Company that are registered with the Securities and Exchange Commission (“SEC”) and that have rights, powers and preferences substantially similar to the rights, powers and preferences of the Exchangeable Redeemable Preferred Stock set forth in the Certificates of Designation, but with an increased dividend rate of not less than 7.5% per annum (compared to the existing dividend rate of 7.0% per annum), plus a cash payment equal to all accrued and unpaid dividends on the Exchangeable Redeemable Preferred Stock.

The Amended and Restated Certificate of Incorporation would also permit the Company to exchange all of the outstanding Common Stock for securities of the Company or one or more subsidiaries of the Company that are registered with the SEC, at least one class or series of which would be listed on a national securities exchange.

There can be no assurance that the Company will receive the required consents of the holders of the Preferred Stock, and the Company has not approved any plans to exchange either the Common Stock or the Preferred Stock or the terms or issuer or issuers of any securities issued in connection therewith, and there can be no assurance that any such exchange will occur or what the terms of the securities to be issued in connection with such exchange will be, other than as provided for in the Amended and Restated Certificate of Incorporation. Any such exchange would be subject to approval of the terms of any such exchange by the Company’s Board of Directors and conditions precedent, some of which are outside of the Company’s control, including the grant of trust charters from the State of Texas.

Holder Consent Fee

After the satisfaction or waiver of the Consent Conditions (as defined below), each Holder of Preferred Stock (a “Consenting Holder”) that provides a valid Consent on or prior to the Expiration Time shall be entitled to a cash payment (the “Holder Consent Fee”) of 2.0% of the aggregate stated value (the “Aggregate Principal Balance”) of the shares of Preferred Stock (the “Consent Fee Qualifying Shares”) for which a Consent to the Proposed Amendments is validly delivered on or prior to the Expiation Time, which we expect to pay, or cause to be paid, to the Consenting Holders promptly after the Expiration Time and the satisfaction or waiver of all Consent Conditions (such date, the “Settlement Date”).

Broker Consent Fee

In addition, after the Settlement Date, we will pay, or cause to be paid, a cash payment (the “Broker Consent Fee”) of up to 6.375% of the Aggregate Principal Balance of the Consent Fee Qualifying Shares to our dealer manager, which it will then pay to the broker-dealer for which the Consenting Holder of the Consent Fee Qualifying Shares is a current client, so long as (i) the dealer manager has an agreement in place with such broker-dealer to permit payment of the Broker Consent Fee, which is inclusive of the suggested commission to the registered representative and a broker-dealer reallowance, and (ii) we receive a duly completed and executed Participating Broker Certification from such broker-dealer (the “Participating Brokers”). A copy of the form of Participating Broker Certification is filed as an exhibit to the registration statement of which this joint consent solicitation statement and prospectus forms a part. We expect to pay, or cause to be paid, 3.0% of the Aggregate Principal Balance of the Consent Fee Qualifying Shares to the Participating Brokers as registered representative commissions and an additional broker-dealer reallowance of 0.375% of the Aggregate Principal Balance of the Consent Fee Qualifying Shares promptly after the Settlement Date. We expect to pay (i) an additional 1.5% of the Aggregate Principal Balance of the Consent Fee Qualifying Shares to Participating Brokers as registered representative commissions promptly after the first anniversary of the Settlement Date, if the Consenting Holder continues to hold the Consent Fee Qualifying Shares (or shares issued in exchange for such shares) on the first anniversary of the Settlement Date, and (ii) an additional 1.5% of the Aggregate Principal Balance of the Consent Fee Qualifying Shares to Participating Brokers as registered representative commissions promptly after the second anniversary of the Settlement Date if the Consenting Holder continues to hold the Consent Fee Qualifying Shares (or shares issued in exchange for such shares) on the second anniversary of the Settlement Date.

The Holder Consent Fees and Broker Consent Fees are payable regardless of whether there is any subsequent exchange of the Exchangeable Redeemable Preferred Stock for preferred equity securities pursuant to the Amended and Restated Certificate of Incorporation.

3

We refer to the Holder Consent Fee and the Broker Consent Fee in this joint consent solicitation statement and prospectus collectively as the “Consent Fees.”

Dealer Manager

Our dealer manager for the Consent Solicitation, Emerson Equity LLC (“Emerson”), will enter into participating dealer agreements with Participating Brokers to authorize those Participating Brokers to solicit the Consents. The Consent Solicitation will be conducted on the terms set forth in this joint consent solicitation statement and prospectus and any joint consent solicitation statement and prospectus supplements we may file from time to time. Neither our dealer manager nor any Participating Brokers will have any obligation to solicit Consents. Our dealer manager may provide additional services to us, which may include telephonic and internet-based Participating Broker seminars and informational meetings, and providing information to and answering questions from investors or Participating Brokers concerning this Consent Solicitation.

We will pay our dealer manager a dealer manager fee of 0.40625% of the Aggregate Principal Balance of the Consent Fee Qualifying Shares.

Information Agent

The information agent for the transactions described in this joint consent solicitation statement and prospectus is Georgeson LLC.

Requisite Consents

Approval of the Proposed Amendments with respect to each class of Preferred Stock requires the affirmative vote or written consent of the Holders of a majority of the outstanding shares of such class of Preferred Stock as of the Record Date, in each case voting separately as a class (for each class of Preferred Stock, the “Requisite Consents”). The acceptance of delivered Consents with respect to each class of Preferred Stock is conditioned upon, among other things, the receipt of the Requisite Consents from the other class of Preferred Stock. If we don’t receive the Requisite Consents from each class of Preferred Stock, no Consent Fee shall be due and payable.

Conditions of the Consent Solicitation

The Company’s obligation to pay (or cause to be paid) the Consent Fee is subject to and conditioned upon the satisfaction or, to the extent permitted by applicable law, waiver of each of the following conditions (collectively, the “Consent Conditions”):

•        the receipt of the Requisite Consents on or prior to the Expiration Time from each class of Preferred Stock;

•        the absence of any law or regulation, and the absence of any injunction or action or other proceeding (pending or threatened), that (in the case of any action or proceeding if adversely determined) would make unlawful or invalid or enjoin or delay the implementation of the Proposed Amendments or the payment of the Consent Fee to any Holder or that would question the legality or validity thereof; and

•        effectiveness of the proposed Amended and Restated Certificate of Incorporation.

The foregoing conditions are for the sole benefit of the Company and may be asserted by the Company regardless of the circumstances giving rise to any such condition (including any action or inaction by the Company). The foregoing rights will not be deemed a waiver of any other right and each right will be deemed an ongoing right which may be asserted at any time and from time to time.

Expiration Time; Extensions; Termination

The Company expressly reserves the right, in its sole discretion, for any reason to abandon, terminate, amend or extend, or not to extend, the Consent Solicitation at any time and from time to time prior to effectiveness of the Proposed Amendments, whether or not the Requisite Consents have been received.

4

The Consent Solicitation expires at 5:00 p.m., Dallas time, on [•], 2020, unless the Company, in its sole discretion, extends the period during which the Consent Solicitation is open, in which case the term “Expiration Time” shall mean the latest date and time as so extended; provided, that the Consent Solicitation shall not extend beyond 90 days of the date of this joint consent solicitation statement and prospectus. The termination or extension of the Consent Solicitation will be made by issuance of a press release no later than 9:00 a.m., Eastern time, on the next business day after the previously announced Expiration Time. The Company may extend the Consent Solicitation on a daily basis or for such specified period of time as it determines in its sole discretion. The failure of any Holder or beneficial owner to receive such press release will not affect the termination or extension of the Consent Solicitation.

Consent Procedures

If you are the record holder of Preferred Stock as of the Record Date, then you may sign and submit a Consent Letter with respect to the Preferred Stock you own or you may submit your consent online at www.[•].com. In order to submit your Consent online, you will need your Account Code and Control Code which are located on your Consent Letter.

As of the date hereof, some, but not all, of the Preferred Stock is held through The Depository Trust Company (“DTC”) by participants in DTC (“DTC Participants”). If you are the beneficial owner of Preferred Stock held though DTC, then you may direct the DTC Participant through which your Preferred Stock is held through DTC to execute and submit, on your behalf, a Consent instruction with respect to the Preferred Stock beneficially owned by you.

If you are submitting a Consent Letter, properly executed Consent Letters must be provided to our Consent Agent, Computershare, at the address set forth below in accordance with the instructions set forth in this joint consent solicitation statement and prospectus and the Consent Letter:

Computershare
150 Royall Street, Suite V
Canton, MA 02021

The transfer of Preferred Stock after the Record Date will not have the effect of revoking any Consent validly delivered to the Consent Agent.

If you wish to revoke any previously submitted Consent prior to the Expiration Time, (i) if you are the beneficial owner of Preferred Stock held though DTC, then you may direct the DTC Participant through which your Preferred Stock is held through DTC to withdraw your Consent, and (ii) if you submitted a Consent Letter to the Consent Agent, then you may withdraw your Consent by submitting an updated Consent Letter indicating that you withdraw your previously submitted Consent.

Upon receipt of the Requisite Consents from each class of Preferred Stock and the effectiveness of the Proposed Amendments, all Holders of Preferred Stock and all transferees of Preferred Stock will be bound by the Proposed Amendments.

Additional Information

If you have questions about the Consent Solicitation, you should contact a registered representative of your broker-dealer (i.e., your Participating Broker) or other investment professional, or else contact:

GWG Holdings, Inc.
325 North St. Paul Street, Suite 2650
Dallas, TX 75201
Phone: [•]
Attention: [•]

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If you have questions about the procedure for providing Consents, or you need additional copies of the joint consent solicitation statement and prospectus or the Consent Letter, you should contact the information agent at:

Georgeson LLC
Phone: (866) 391-7007

The valid completion, execution and delivery of the Consent Letter by a Holder prior to the Expiration Time will constitute that Holder’s affirmative written consent to the Proposed Amendments.

Holders will not be entitled to dissenters’ rights in connection with the Consent Solicitation.

We have filed a Registration Statement on Form S-4 in connection with the Consent Solicitation of which this joint consent solicitation statement and prospectus forms a part. We are not issuing any additional shares of Preferred Stock pursuant to the Registration Statement. However, as the Proposed Amendments to the terms of the Preferred Stock included in the Amended and Restated Certificate of Incorporation will result in the Exchangeable Redeemable Preferred Stock constituting a new security for federal securities law purposes, we are registering the offer and sale of such Exchangeable Redeemable Preferred Stock on such Registration Statement.

Risk Factors

In reviewing this joint consent solicitation statement and prospectus, you should carefully consider the risk factors beginning on page 9 of this joint consent solicitation statement and prospectus.

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RISK RELATING TO FORWARD-LOOKING STATEMENTS

Certain matters discussed in this joint consent solicitation statement and prospectus contain forward-looking statements. These forward-looking statements reflect our current expectations and projections about future events and are subject to risks, uncertainties and assumptions about our operations and the investments we make, including, among other things, factors discussed under the heading “Risk Factors” below.

The words “believe,” “could,” “possibly,” “probably,” “anticipate,” “estimate,” “project,” “expect,” “may,” “will,” “should,” “seek,” “intend,” “plan,” “expect,” or “consider” and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. Forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ materially from such statements. Such risks and uncertainties include, but are not limited to:

•        the valuation of assets reflected on our financial statements, including the fair value of Beneficient’s assets and liabilities, including noncontrolling interests, which were consolidated as a result of the transactions with Beneficient on December 31, 2019;

•        the illiquidity of our life insurance and Beneficient-related investments and receivables from affiliates;

•        our ability to realize the anticipated benefits from our consolidation of Beneficient;

•        Beneficient’s financial performance and ability to execute on its business plan;

•        Beneficient’s ability to obtain the trust charters from the Texas Department of Banking necessary to implement its business plan;

•        our ability to obtain accurate and timely financial information from Beneficient;

•        our ability to effectively transition the management and oversight roles served by our former executives and members of our Board of Directors;

•        changes resulting from the evolution of our business model and strategy with respect to Beneficient and the life insurance secondary market;

•        our reliance on debt financing and continued access to the capital markets;

•        our significant and ongoing financing requirements;

•        our predominant use of short term debt to fund a portfolio of long term assets could result in a liquidity shortage;

•        our ability to make cash distributions in satisfaction of dividend obligations and redemption requests;

•        our ability to satisfy our debt obligations if we were to sell our assets;

•        our history of operating losses;

•        general economic outlook, including prevailing interest rates and credit market conditions;

•        federal, state and FINRA regulatory matters;

•        litigation risks;

•        our ability to comply with financial and non-financial covenants contained in borrowing agreements;

•        the reliability of assumptions underlying our actuarial models, including life expectancy estimates and our projections of mortality events and the realization of policy benefits;

•        risks relating to the validity and enforceability of the life insurance policies we have purchased;

•        our reliance on information provided and obtained by third parties, including changes in underwriting tables and underwriting methodology;

•        life insurance company credit exposure;

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•        cost-of-insurance (premiums) increases on our life insurance policies;

•        performance of our investments in life insurance policies; and

•        risks associated with causing Life Epigenetics and youSurance to become independent of GWG.

We caution you that the foregoing list of factors is not exhaustive. Forward-looking statements are only estimates and predictions, or statements of current intent. Actual results, outcomes or actions that we ultimately undertake could differ materially from those anticipated in the forward-looking statements due to risks, uncertainties or actual events differing from the assumptions underlying these statements.

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RISK FACTORS

Before delivering a Consent to the Company, you should carefully consider the risks, uncertainties and additional information contained herein or in any applicable joint consent solicitation statement and prospectus supplement, as well as the documents and reports we file with the Securities and Exchange Commission. For a description of these reports and documents, and information about where you can find them, see “Where You Can Find More Information.”

If the Requisite Consents are received on or prior to the Expiration Time and the Proposed Amendments become effective, all holders of shares of Preferred Stock will be bound by the Proposed Amendments even if they did not provide their Consent.

The Proposed Amendments are set forth in the Amended and Restated Certificate of Incorporation, the form of which is attached as Exhibit A to this joint consent solicitation statement and prospectus. The Amended and Restated Certificate of Incorporation has been approved, adopted and declared advisable by the Board of Directors of the Company, which declared its advisability, based upon a recommendation of its Special Committee of independent and disinterested directors. It has also been approved by the written consent from the holders of a majority of the outstanding shares of the Common Stock. If the Requisite Consents are received on or prior to the Expiration Time and the Proposed Amendments become effective by filing of the Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware, all holders of shares of Preferred Stock will be bound by the Proposed Amendments even if they did not provide their Consent.

If the Requisite Consents are received on or prior to the Expiration Time and the Proposed Amendments become effective, the Company would have the right to exchange all of your shares of Exchangeable Redeemable Preferred Stock for preferred equity securities of the Company or one or more subsidiaries of the Company.

The Proposed Amendments require that any preferred equity securities that are issued in exchange for the Exchangeable Redeemable Preferred Stock shall have rights, powers and preferences substantially similar to the rights, powers and preferences of the Exchangeable Redeemable Preferred Stock (but with a higher dividend rate and lower conversion price). However, the Board of Directors of the Company shall have the power and authority to make all determinations regarding whether or not a characteristic of a security is “substantially similar” to that of another security and all such determinations made by the Board shall be final, conclusive and binding. There can be no assurance that holders of Exchangeable Redeemable Preferred Stock will agree with the Board’s determination of what is substantially similar, or view any preferred interest that are issued in exchange for the Exchangeable Redeemable Preferred Stock to be substantially similar to, or superior, to the Exchangeable Redeemable Preferred Stock. In addition, the Exchangeable Redeemable Preferred Stock may be exchanged for preferred equity securities of an entity that is not organized as a corporation under Delaware law, and the directors or managers of such entity may have fiduciary duties that are different and less broad than those of the Company’s directors or managers under the Delaware General Corporation Law or no fiduciary duties and instead be subject only to such contractual duties as are specified in the relevant entity agreement.

Even if the Proposed Amendments become effective, the Company may never effect an exchange of Exchangeable Redeemable Preferred Stock for preferred equity securities of the Company or one or more subsidiaries of the Company.

The Company has not approved any plan for the exchange of Exchangeable Redeemable Preferred Stock for preferred equity securities of the Company or one or more subsidiaries of the Company or the specific terms or issuer of any such securities that may be issued in connection therewith. The ability to effect any such exchange is subject to approval of any such plan by the Board of Directors of the Company and other conditions, some of which are outside the Company’s control, including the grant of trust charters from the State of Texas. As a result, there is no assurance holders of Exchangeable Redeemable Preferred Stock will receive preferred equity securities of the Company or one or more subsidiaries of the Company with the enhanced terms set forth in the Proposed Amendments.

The Consent Fees would be payable only if the Proposed Amendments become effective.

The Company will not pay any Consent Fees unless the Proposed Amendments become effective by filing the Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware. As a result, even if a

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holder provides its Consent on or prior to the Expiration Time and the Company receives the Requisite Consents, if the Company does not file the Amended and Restated Certificate of Incorporation no Consent Fees will be paid.

The full amount of the Broker Consent Fees would be payable only if the Consenting Holder continues to own its shares of Preferred Stock for up to two years from the Settlement Date.

If the Proposed Amendments become effective, the Company would pay 2.0% of the Aggregate Principal Balance of the Consent Fee Qualifying Shares promptly after the Settlement Date.

In addition, if the Proposed Amendments become effective, the Company would pay up to 6.375% of the Aggregate Principal Balance of the Consent Fee Qualifying Shares to Participating Brokers. We expect to pay, or cause to be paid, 3.0% of the Aggregate Principal Balance of the Consent Fee Qualifying Shares to the Participating Brokers as registered representative commissions and an additional broker-dealer reallowance of 0.375% of the Aggregate Principal Balance of the Consent Fee Qualifying Shares promptly after the Settlement Date. We expect to pay (i) an additional 1.5% of the Aggregate Principal Balance of the Consent Fee Qualifying Shares to Participating Brokers promptly after the first anniversary of the Settlement Date, if the Consenting Holder continues to hold the Consent Fee Qualifying Shares (or shares issued in exchange for such shares) on the first anniversary of the Settlement Date, and (ii) an additional 1.5% of the Aggregate Principal Balance of the Consent Fee Qualifying Shares to Participating Brokers promptly after the second anniversary of the Settlement Date if the Consenting Holder continues to hold the Consent Fee Qualifying Shares (or shares issued in exchange for such shares) on the second anniversary of the Settlement Date.

As a result, if a Holder sells or redeems its Consent Fee Qualifying Shares prior to the second anniversary of the Settlement Date, the full amount of the Broker Consent Fee will not be earned.

Certain of our employees are registered as registered representatives with, and are dully employed as wholesalers by, the dealer manager. This could cause a conflict of interest and may hinder the dealer manager’s performance of its due diligence obligations.

In connection with the Consent Solicitation, our dealer manager will receive selling commissions and a dealer manager fee. The selling commissions will be re-allowed to Participating Brokers, in connection with this Consent Solicitation. Certain of our employees are registered as registered representatives with the dealer manager As dealer manager, Emerson has certain obligations under the federal securities laws to undertake a due diligence investigation with respect to the parties involved in this Consent Solicitation. Our employees that are dually employed as wholesalers with Emerson could cause a conflict of interest for Emerson in carrying out its due diligence obligations.

The Amended and Restated Certificate of Incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for certain litigation that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees or stockholders.

The Amended and Restated Certificate of Incorporation provides that, unless the Company consents in writing to the selection of an alternative forum, (A) (i) any derivative action or proceeding brought on behalf of the Company, (ii) any action asserting a claim of breach of a fiduciary duty owed by any current or former director, officer, other employee or stockholder of the Company to the Company or the Company’s stockholders, (iii) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law (the “DGCL”), the Amended and Restated Certificate of Incorporation or the bylaws of the Company (as either may be amended or restated) or as to which the DGCL confers jurisdiction on the Court of Chancery of the State of Delaware or (iv) any action asserting a claim governed by the internal affairs doctrine of the law of the State of Delaware shall, to the fullest extent permitted by law, be exclusively brought in the Court of Chancery of the State of Delaware or, if such court does not have subject matter jurisdiction thereof, the federal district court of the State of Delaware; and (B) the federal district courts of the United States shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act of 1933, as amended. Notwithstanding the foregoing, the exclusive forum provision does not apply to claims seeking to enforce any liability or duty created by the Securities Exchange Act of 1934, as amended. The Amended and Restated Certificate of Incorporation also provides that any person or entity purchasing or otherwise acquiring or holding any interest in shares of our capital stock will be deemed to have notice of and consented to this exclusive forum provision. However, the Amended and Restated Certificate of Incorporation does not relieve us of our

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duties to comply with federal securities laws and the rules and regulations thereunder, and our stockholders will not be deemed to have waived our compliance with these laws, rules and regulations.

The exclusive forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our current or former directors, officers, employees or stockholders, which may discourage such lawsuits against us and such directors, officers, employees and stockholders. Stockholders who do bring a claim in the Court of Chancery could face additional litigation costs in pursuing any such claim, particularly if they do not reside in or near the State of Delaware. The Court of Chancery may also reach different judgments or results than would other courts, including courts where a stockholder considering an action may be located or would otherwise choose to bring the action, and such judgments or results may be more favorable to us than to our stockholders. Alternatively, if a court were to find the exclusive forum provision contained in the Amended and Restated Certificate of Incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business and financial condition.

The tax consequences of any exchange of Exchangeable Redeemable Preferred Stock for preferred equity securities of the Company or one or more subsidiaries of the Company are uncertain.

Because the Company has not approved any plan for the exchange of Exchangeable Redeemable Preferred Stock for preferred equity securities of the Company or one or more subsidiaries of the Company or the specific terms or issuer of any such securities that may be issued in connection therewith, the tax consequences of any such exchange are uncertain.

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THE CONSENT SOLICITATION

General

We are soliciting the consents (the “Consents”) of the holders of record (the “Holders”) as of the close of business on [•], 2020 (the “Record Date”), of our Redeemable Preferred Stock, par value $.001 per share (the “Redeemable Preferred Stock”) and Series 2 Redeemable Preferred Stock, par value $.001 per share (the “Series 2 Redeemable Preferred Stock” and, together with the Redeemable Preferred Stock, the “Preferred Stock,” and each a “class” of Preferred Stock) to the exchange of the Preferred Stock for preferred stock as it is proposed to be amended by an amended and restated certificate of incorporation of the Company (the “Amended and Restated Certificate of Incorporation”) that would, among other things, amend and restate the existing certificates of designations for each class of Preferred Stock (including the related Certificates of Correction, the “Certificates of Designations”) (the “Proposed Amendments,” and the Preferred Stock amended by the Proposed Amendments, the “Exchangeable Redeemable Preferred Stock”). The solicitation of Consents pursuant to this joint consent solicitation statement and prospectus and the accompanying Consent Letter is referred to as the “Consent Solicitation.”

The Amended and Restated Certificate of Incorporation has been approved by our Board of Directors based on the recommendation of the Special Committee of the Board of Directors.

The Consent Solicitation is being made to all Holders in whose name a share of Preferred Stock was registered at the Record Date and their duly designated proxies. Holders may only consent to the Proposed Amendments in their entirety.

Purpose of the Consent Solicitation

The purpose of the Consent Solicitation is to seek the consent of the Holders to the exchange of the Preferred Stock for Exchangeable Redeemable Preferred Stock which would have the same rights, powers and preferences as the Preferred Stock, except that the terms of the Exchangeable Redeemable Preferred Stock would permit the Company to exchange all of the outstanding shares of each class of Exchangeable Redeemable Preferred Stock for preferred equity securities of the Company or one or more subsidiaries of the Company that are registered with the Securities and Exchange Commission (“SEC”) and that have rights, powers and preferences substantially similar to the rights, powers and preferences of the Exchangeable Redeemable Preferred Stock set forth in the Certificates of Designation, but with an increased dividend rate of not less than 7.5% per annum (compared to the existing dividend rate of 7.0% per annum), plus a cash payment equal to all accrued and unpaid dividends on the Exchangeable Redeemable Preferred Stock. See “Summary of the Proposed Amendments.”

The Amended and Restated Certificate of Incorporation would also permit the Company to exchange all of the outstanding common stock of the Company (the “Common Stock”) for securities of the Company or one or more subsidiaries of the Company that are registered with the SEC, at least one class or series of which would be listed on a national securities exchange. The holders of a majority of the outstanding Common Stock have consented to the Amended and Restated Certificate of Incorporation, but the Amended and Restated Certificate of Incorporation may not become effective unless consented to by the holders of a majority of each class of Preferred Stock voting separately as a class.

We believe having the authority to exchange all of the Company’s equity securities for equity securities of an issuer (or issuers) of one or more subsidiaries of the Company is a potential avenue to create additional organizational efficiencies for the Company while at the same time enabling us to grow our consolidated balance sheet in a prudent and sustainable manner, and in turn create additional potential value for our stockholders. While the Company believes such an exchange of equity securities may be a potential avenue to achieve the goals of the Company, the Company has not approved any plans to exchange either the Common Stock or Exchangeable Redeemable Preferred Stock or the specific terms or issuer of any such securities that may be issued in connection therewith.

Dealer Manager

Our dealer manager will enter into participating dealer agreements with Participating Brokers to authorize those Participating Brokers to solicit the Consents. The Consent Solicitation will be conducted on the terms set forth in this joint consent solicitation statement and prospectus and any joint consent solicitation statement prospectus supplements we may file from time to time. Neither our dealer manager nor any Participating Brokers will have any obligation to solicit Consents. Our dealer manager may provide additional services to us, which may include telephonic and

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internet-based Participating Broker seminars and informational meetings, and providing information to and answering questions from investors or Participating Brokers concerning this Consent Solicitation.

We will pay to our dealer manager a dealer manager fee of 0.40625% of the Aggregate Principal Balance of the Consent Fee Qualifying Shares (as defined below).

Information Agent

The information agent for the transactions described in this joint consent solicitation statement and prospectus is Georgeson LLC.

Consent Fees

Holder Consent Fee

After the satisfaction or waiver of the Consent Conditions (as defined below), each Holder of Preferred Stock (a “Consenting Holder”) that provides a valid Consent on or prior to the Expiration Time shall be entitled to a cash payment (the “Holder Consent Fee”) of 2.0% of the aggregate stated value (the “Aggregate Principal Balance”) of the shares of Preferred Stock (the “Consent Fee Qualifying Shares”) for which a Consent to the Proposed Amendments is validly delivered on or prior to the Expiation Time, which we expect to pay, or cause to be paid, to the Consenting Holders promptly after the Expiration Time and the satisfaction or waiver of all Consent Conditions (such date, the “Settlement Date”).

Broker Consent Fee

In addition, after the Settlement Date, we will pay, or cause to be paid, a cash payment (the “Broker Consent Fee”) of up to 6.375% of the Aggregate Principal Balance of the Consent Fee Qualifying Shares to our dealer manager, which it will then pay to the broker-dealer for which the Consenting Holder of the Consent Fee Qualifying Shares is a current client, so long as (i) the dealer manager has an agreement in place with such broker-dealer to permit payment of the Broker Consent Fee, which is inclusive of the suggested commission to the registered representative and a broker-dealer reallowance, and (ii) we receive a duly completed and executed Participating Broker Certification from such broker-dealer (the “Participating Brokers”). We expect to pay, or cause to be paid, 3.0% of the Aggregate Principal Balance of the Consent Fee Qualifying Shares to the Participating Brokers as registered representative commissions and an additional broker-dealer reallowance of 0.375% of the Aggregate Principal Balance of the Consent Fee Qualifying Shares promptly after the Settlement Date. We expect to pay (i) an additional 1.5% of the Aggregate Principal Balance of the Consent Fee Qualifying Shares to Participating Brokers as registered representative commissions promptly after the first anniversary of the Settlement Date, if the Consenting Holder continues to hold the Consent Fee Qualifying Shares (or shares issued in exchange for such shares) on the first anniversary of the Settlement Date, and (ii) an additional an additional 1.5% of the Aggregate Principal Balance of the Consent Fee Qualifying Shares to Participating Brokers as registered representative commissions promptly after the second anniversary of the Settlement Date if the Consenting Holder continues to hold the Consent Fee Qualifying Shares (or shares issued in exchange for such shares) on the second anniversary of the Settlement Date.

The Holder Consent Fees and Broker Consent Fees are payable regardless of whether there is any subsequent exchange of the Exchangeable Redeemable Preferred Stock for preferred equity securities pursuant to the Amended and Restated Certificate of Incorporation.

We refer to the Holder Consent Fee and the Broker Consent Fee in this joint consent solicitation statement and prospectus collectively as the “Consent Fees.”

Consent Fees Generally

If (a) the Consent Conditions are satisfied or waived, (b) the Consent Solicitation is not abandoned or terminated for any reason on or before the Expiration Time and (c) all other terms of the Consent Solicitation set forth herein are satisfied, then:

•        Consenting Holders will receive the Holder Consent Fee in accordance with the terms provided in this joint consent solicitation statement and prospectus;

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•        Participating Brokers through which a Consenting Holder directly holds its shares of Preferred Stock will receive the Broker Consent Fee in accordance with the terms provided in this joint consent solicitation statement and prospectus; and

•        Holders who do not validly deliver Consents to the Proposed Amendments on or prior to the Expiration Time will not be eligible to, and will not, receive the Holder Consent Fee, and their brokers will not be eligible to, and will not, receive the Broker Consent Fee.

No Consent Fees will be paid with respect to any shares of Preferred Stock for which no Consent is delivered on or prior to the Expiration Time, even though the Proposed Amendments, if approved, will bind all Holders of such Preferred Stock and their transferees upon the effectiveness of the Proposed Amendments.

The Company will be deemed to have accepted valid Consents for the Preferred Stock if and when the Company makes a public disclosure of the effectiveness of the Amended and Restated Certificate of Incorporation. Upon the terms and subject to the conditions of the Consent Solicitation (including the Consent Conditions), payment of the Holder Consent Fee and the Broker Consent Fee will be made in accordance with the terms set forth in this joint consent solicitation statement and prospectus.

If the Consent Conditions are not satisfied or waived or the Consent Solicitation is abandoned or terminated for any reason on or before the Expiration Time, the Consents will be voided and no Consent Fees will be paid.

Requisite Consents

Approval of the Proposed Amendments with respect to each class of Preferred Stock requires the affirmative vote or written consent of the Holders of a majority of the outstanding shares of such class of Preferred Stock as of the Record Date, in each case voting separately as a class (for each class of Preferred Stock, the “Requisite Consents”). Each share of Preferred Stock is entitled to one vote in the Consent Solicitation. The acceptance of delivered Consents with respect to each class of Preferred Stock is conditioned upon, among other things, the receipt of the Requisite Consents from the other class of Preferred Stock. If we don’t receive the Requisite Consents from each class of Preferred Stock, no Consent Fee shall be due and payable.

Following the receipt of the Requisite Consents for each class of Preferred Stock on or prior to the Expiration Time, the Company will, subject to the satisfaction or waiver of the Consent Conditions, effectuate the Proposed Amendments by filing the Amended and Restated Certificate of Incorporation with the Delaware Secretary of State.

Conditions of the Consent Solicitation

The Company’s obligation to pay (or cause to be paid) the Consent Fee is subject to and conditioned upon the satisfaction or, to the extent permitted by applicable law, waiver of each of the following conditions (collectively, the “Consent Conditions”):

•        the receipt of the Requisite Consents on or prior to the Expiration Time from each class of Preferred Stock;

•        the absence of any law or regulation, and the absence of any injunction or action or other proceeding (pending or threatened), that (in the case of any action or proceeding if adversely determined) would make unlawful or invalid or enjoin or delay the implementation of the Proposed Amendments or the payment of the Consent Fee to any Holder or that would question the legality or validity thereof; and

•        effectiveness of the proposed Amended and Restated Certificate of Incorporation.

The foregoing conditions are for the sole benefit of the Company and may be asserted by the Company regardless of the circumstances giving rise to any such condition (including any action or inaction by the Company). The foregoing rights will not be deemed a waiver of any other right and each right will be deemed an ongoing right which may be asserted at any time and from time to time.

Expiration Time; Extensions; Termination

The Company expressly reserves the right, in its sole discretion, for any reason to abandon, terminate, amend or extend, or not to extend, the Consent Solicitation at any time and from time to time prior to effectiveness of the Proposed Amendments, whether or not the Requisite Consents have been received.

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The Consent Solicitation expires at 5:00 p.m., Dallas time, on [•], 2020, unless the Company, in its sole discretion, extends the period during which the Consent Solicitation is open, in which case the term “Expiration Time” shall mean the latest date and time as so extended; provided, that the Consent Solicitation shall not extend beyond 90 days of the date of this joint consent solicitation statement and prospectus. The termination or extension of the Consent Solicitation will be made by issuance of a press release no later than 9:00 a.m., Eastern time, on the next business day after the previously announced Expiration Time. The Company may extend the Consent Solicitation on a daily basis or for such specified period of time as it determines in its sole discretion. The failure of any Holder or beneficial owner to receive such press release will not affect the termination or extension of the Consent Solicitation.

Waiver of Conditions; Termination

The Company, subject to applicable law, expressly reserves the absolute right, in its sole discretion, to amend or waive any of the terms or conditions to the Consent Solicitation, in whole or in part, at any time and from time to time, or to abandon or terminate the Consent Solicitation, prior to effectiveness of the Proposed Amendments.

Failure to Obtain the Requisite Consents

In the event that the Requisite Consents are not obtained and the Consent Solicitation expires or is terminated, the Proposed Amendments will not become effective.

Revocation of Consents

Each Holder who delivers a Consent pursuant to the Consent Solicitation may revoke its Consent at any time prior to the Expiration Time pursuant to the procedures described below under “— Consent Procedures.” Each properly delivered Consent will be counted, notwithstanding any subsequent transfer of the Preferred Stock to which such Consent relates.

Consent Procedures

If you are the record holder of Preferred Stock as of the Record Date, then you may sign and submit a Consent Letter with respect to the Preferred Stock you own or you may submit your consent online at www.[•].com. In order to submit your Consent online, you will need your Account Code and Control Code which are located on your Consent Letter.

As of the date hereof, some, but not all, of the Preferred Stock is held through The Depository Trust Company (“DTC”) by participants in DTC (“DTC Participants”). If you are the beneficial owner of Preferred Stock held though DTC, then you may direct the DTC Participant through which your Preferred Stock is held through DTC to execute and submit, on your behalf, a Consent instruction with respect to the Preferred Stock beneficially owned by you.

If you are submitting a Consent Letter, properly completed and executed Consent Letters must be provided to our Consent Agent, Computershare, at the address set forth below in accordance with the instructions set forth in this joint consent solicitation statement and prospectus and the Consent Letter:

Computershare
150 Royall Street, Suite V
Canton, MA 02021

Any Consent Letters delivered by a Holder that is a DTC Participant must be executed in exactly the same manner as such Holder’s name is registered with DTC. If a Consent Letter is signed by a trustee, partner, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, then such person must so indicate when signing and must submit with the Consent Letter form appropriate evidence of authority to execute the Consent Letter. DTC’s records indicate the number of shares of Preferred Stock held by each DTC Participant. In addition, if a Consent Letter relates to less than the total number of shares of Preferred Stock that such Holder or beneficial owner holds directly or through DTC, then the Consent Letter must list the number of shares of Preferred Stock to which the Holder’s or beneficial owner’s Consent relates. If no amount of shares of Preferred Stock as to which a Consent is delivered is specified in the Consent Letter, then such Holder will be deemed to have provided its Consent with respect to the total number of shares of Preferred Stock that such Holder or beneficial owner holds directly or through DTC.

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The ownership of Preferred Stock held through DTC by DTC Participants shall be established by a DTC security position listing provided by DTC as of the Record Date. All questions as to the validity, form and eligibility (including time of receipt) of the consent procedures will be determined by the Company in its sole discretion, which determination will be final and binding. The Company reserves the right to reject any or all Consent Letters that are not in proper form or the acceptance of which could, in the opinion of the Company or its counsel, be unlawful. Any interpretation of the terms and conditions of the Consent Solicitation (including the instructions in this joint consent solicitation statement and proxy statement and in the Consent Letter) by the Company shall be final and binding. The Company also reserves the right to waive any defects or irregularities in connection with deliveries of any particular Consent Letters. Any waiver by the Company of a defect shall not obligate the Company to waive the same or any other defect with respect to the Consent in respect of any other Preferred Stock except to the extent the Company may otherwise so provide. Unless waived by the Company, in its sole discretion, any defects or irregularities in connection with Consent Letters must be cured within such time as the Company determines. None of the Company, its affiliates, the Transfer Agent or any other person shall be under any duty to give any notification of any defects, irregularities or waivers, nor shall any of them incur any liability for failure to give any such notification. Consent Letters will not be deemed to have been delivered until any irregularities or defects therein have been cured or waived. The Company’s interpretations of the terms and conditions of the Consent Solicitation shall be conclusive and binding.

Delivering a Consent will not affect a Holder’s right to sell or transfer Preferred Stock. All validly delivered Consents received on or before the Expiration Time will be effective notwithstanding a record transfer of any Preferred Stock after the Record Date. The transfer of Preferred Stock after the Record Date will not have the effect of revoking any Consent validly delivered to the Company.

If you wish to revoke any previously submitted Consent prior to the Expiration Time, (i) if you are the beneficial owner of Preferred Stock held though DTC, then you may direct the DTC Participant through which your Preferred Stock is held through DTC to withdraw your Consent, and (ii) if you submitted a Consent Letter to the Consent Agent, then you may withdraw your Consent by submitting an updated Consent Letter indicating that you withdraw your previously submitted Consent.

Upon receipt of the Requisite Consents from each class of Preferred Stock and the effectiveness of the Proposed Amendments, all Holders of Preferred Stock and all transferees of Preferred Stock will be bound by the Proposed Amendments.

Participating Broker Certifications

Properly completed and executed Participating Broker Certifications must be provided to the address set forth below in accordance with the instructions set forth in this joint consent solicitation statement and prospectus and the Consent Letter:

GWG Holdings Inc.
325 North St. Paul Street, Suite 2650
Dallas, TX 75201
Phone: [•]
Attention: [•]

 

By Overnight Delivery, Mail, Email or Hand:

 

By Facsimile Transmission:

   
   

325 North St. Paul Street, Suite 2650
Dallas, TX 75201
Email: [•]

 

[•]
Attention: [•]

   

Transfer Agent

The Transfer Agent for each class of Preferred Stock is Computershare Investor Services for shares held through DTC and Securities Transfer Corp. for shares held directly (each a “Transfer Agent”). The Transfer Agent assumes no liability or responsibility for any action or inaction of the Company. The Transfer Agent also assumes no responsibility for the accuracy or completeness of the information contained in this joint consent solicitation statement and prospectus or the Consent Letter, no responsibility for any failure by the Company to disclose events that may affect the significance or accuracy of that information, and no duty to verify any information contained herein or therein.

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The Transfer Agent makes no recommendation as to whether or not the Holders should give their consent to approve the Proposed Amendments.

Additional Information

If you have questions about the Consent Solicitation, you should contact a registered representative of your broker-dealer (i.e., your Participating Broker) or other investment professional, or else contact:

GWG Holdings Inc.
325 North St. Paul Street, Suite 2650
Dallas, TX 75201
Phone: [•]
Attention: [•]

If you have questions about the procedure for providing Consents, or you need additional copies of the joint consent solicitation statement and prospectus or the Consent Letter, you should contact the information agent at:

Georgeson LLC
Phone: (866) 391-7007

The valid completion, execution and delivery of the Consent Letter by a Holder prior to the Expiration Time will constitute that Holder’s affirmative written consent to the Proposed Amendments.

Consents may be solicited by directors, officers and employees of the Company through the mail, in person, or by telephone, email, facsimile or similar transmission. No director has informed the Company that he intends to oppose any action intended to be taken by the Company in connection with the Consent Solicitation. No director or executive officer has a substantial interest, direct or indirect, in the Consent Solicitation. In addition to paying Consent Fees, as part of the dealer manager fee we will pay compensation for soliciting the Consents to certain employees who are registered representatives, and dually employed as wholesalers, with Emerson. We will bear the costs of the Consent Solicitation and we expect that the aggregate costs of soliciting Consents, in addition to Consent Fees, will not exceed $[•].

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DESCRIPTION OF THE EXISTING PREFERRED STOCK

This summary is intended as an overview only and is qualified in its entirety by reference to the Certificates of Designation for the Preferred Stock which have been filed as Exhibits to the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

Redeemable Preferred Stock

Designation and Amount.    The number of authorized shares constituting the Redeemable Preferred Stock is 5,000,000. Such number of shares may be increased or decreased by resolution of the Board adopted and filed pursuant to the DGCL, Section 151(g), or any successor provision; provided, however, that no decrease shall reduce the number of authorized shares of Redeemable Preferred Stock to a number less than the number of such shares then outstanding plus the number of shares reserved for issuance upon the exercise of then-outstanding options, warrants, convertible or exchangeable securities or other rights for the purchase of shares of Redeemable Preferred Stock, if any. As of the date of this joint consent solicitation statement and prospectus, there were [•] shares of Redeemable Preferred Stock issued and outstanding.

Stated Value.    Each share of Redeemable Preferred Stock has a stated value equal to $1,000 (the “RPS Stated Value”). If the Company effects a stock dividend payable in shares of Redeemable Preferred Stock, a subdivision of the outstanding Redeemable Preferred Stock into a greater number of shares of Redeemable Preferred Stock, or a combination of the outstanding shares of Redeemable Preferred Stock, by reclassification or otherwise, into a lesser number of shares of Redeemable Preferred Stock, then, in any such case, the RPS Stated Value in effect immediately prior to such event shall, concurrently with the effectiveness of such event, be proportionately decreased or increased, as appropriate.

Ranking.    The Redeemable Preferred Stock ranks as to the payment of dividends and the distribution of assets of the Company upon its liquidation, dissolution or winding up: (a) senior to the Common Stock; (b) pari passu with the Series 2 Redeemable Preferred Stock; and (c) senior to or pari passu with all other classes and series of the Company’s preferred stock.

Dividends in Cash or in Kind.    Holders of Redeemable Preferred Stock are entitled to receive for each share of Redeemable Preferred Stock, and the Company shall pay, subject to the provisions of the DGCL and legally available funds therefor, preferential cumulative dividends at the per annum rate of 7.0% on the RPS Stated Value, payable in arrears in monthly installments on the 15th day of the next following month (or the next following business day thereafter in the event such date is not a business day), when and as declared by the Board of Directors (the “RPS Preferred Dividends”), (i) in cash out of legally available funds, or (ii) at the Company’s option, in duly authorized, validly issued, fully paid and non-assessable shares of Redeemable Preferred Stock. RPS Preferred Dividends are also be payable upon any RPS Redemption Date, as defined below, and upon the final distribution date relating to a Liquidation Event, as defined below. Regular dividends shall be payable to the holders of record of the Redeemable Preferred Stock as of a regular record date that shall be the final business day of each calendar month, which business day is a day on which the Common Stock trades or is eligible for trading on the primary market for such stock, in accordance with the DGCL. Notwithstanding the foregoing, holders of Redeemable Preferred Stock as of a regular record date must have held their Redeemable Preferred Stock for more than two business days (which business days must be a trading day on which the Common Stock trades or is eligible for trading on the primary market for such stock) in order to be eligible to receive a dividend payment on such shares of Redeemable Preferred Stock on the next payment date. In the event that the Common Stock no longer trades or is eligible for trading on a trading market, the requirement in the prior two sentences that a business day shall be a “trading day” shall not apply. In the case of payment by the Company of dividends in the form of shares of Redeemable Preferred Stock, such stock shall be valued at the RPS Stated Value.

RPS Preferred Dividends are calculated on the basis of a calendar year consisting of twelve 30-day months (or 360 days), and shall begin to accrue on outstanding shares of Redeemable Preferred Stock from the date of each share’s original issuance until paid, whether or not declared. RPS Preferred Dividends will accrue whether or not there are (at the time such RPS Preferred Dividend becomes payable or at any other time) profits, surplus or other funds of the Company legally available for the payment of dividends. Dividends on the Redeemable Preferred Stock shall be cumulative from the date of issue, whether or not declared for any reason, including if such declaration is prohibited under applicable law or any outstanding indebtedness or borrowings of the Company or any of its subsidiaries, or any other contractual provision binding on the Company or any of its subsidiaries.

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No dividend shall be declared on any other series or class or classes of capital stock as to which the Redeemable Preferred Stock ranks senior or pari passu as to dividends or liquidation, including without limitation shares of Common Stock, in respect of any period, nor shall any series or class of capital stock that ranks junior or pari passu to the Redeemable Preferred Stock be redeemed, purchased or otherwise acquired for any consideration (or any money to be paid into any sinking fund or otherwise set apart for the purchase of any such junior stock), unless there shall have been or contemporaneously are declared and paid on all shares of the Redeemable Preferred Stock at the time outstanding all (whether or not earned or declared) accrued and unpaid RPS Preferred Dividends through the most recent payment date; provided, however, that this restriction does not apply to the repurchase by the Company of (i) shares of Common Stock from employees, officers, directors, consultants or other persons performing services for the Company or any of its subsidiaries pursuant to agreements under which the Company has the right or option to repurchase such shares upon the occurrence of certain events or otherwise, or (ii) shares of Series A Convertible Preferred Stock pursuant to the terms of the Certificate of Designation of Series A Convertible Preferred Stock, or terms superior to those contained within such Certificate of Designation of Series A Convertible Preferred Stock.

At or prior to such time as RPS Preferred Dividends are due and payable, a holder of Redeemable Preferred Stock may elect to convert all or any portion of such holder’s accrued but unpaid RPS Preferred Dividends into Redeemable Preferred Stock, with each share having a value equal to the RPS Stated Value, subject to the adjustments as described above. In order to exercise such option, a holder of Redeemable Preferred Stock must deliver written notice to the Company before such RPS Preferred Dividends are paid; provided, however, that once a written notice has been so delivered by a holder, such holder may not change such election during the remainder of the calendar year in which such election shall have been made.

Liquidation Preference.    Upon any voluntary or involuntary liquidation, dissolution or winding-up of the Company’s affairs (a “Liquidation Event”), before any distribution or payment shall be made to holders of the Company’s common stock or any other class or series of capital stock ranking junior to the Redeemable Preferred Stock, the holders of shares of Redeemable Preferred Stock shall be entitled to be paid out of the Company’s assets legally available for distribution to the Company’s stockholders, after payment or provision for the Company’s debts and other liabilities, a liquidation preference equal to the RPS Stated Value per share, plus an amount equal to any accrued and unpaid dividends (whether or not declared) to and including the date of payment.

After payment of the full amount of the liquidating distributions to which they are entitled, the holders of the shares of Redeemable Preferred Stock have no right or claim to any of the Company’s remaining assets. The Company’s consolidation or merger with or into any other corporation, trust or other entity, the consolidation or merger of any other corporation, trust or entity with or into the Company, the sale or transfer of any or all of the Company’s assets or business, or a statutory share exchange shall not be deemed to constitute a liquidation, dissolution or winding-up of the Company’s affairs.

Voting.    Except as otherwise set forth in the Certificate of Designation for the Redeemable Preferred Stock or as required by law, holders of the Redeemable Preferred Stock shall not be entitled to vote on any matter on account of their Redeemable Preferred Stock. Unless the DGCL requires otherwise, in the event the DGCL requires the vote of the holders of Redeemable Preferred Stock, voting as a separate class, to authorize an action of the Company, the affirmative vote of holders of a majority of the shares of Redeemable Preferred Stock then outstanding shall constitute the approval of such action by the class.

Protective Provisions.    In addition to any other vote or consent required in the Certificate of Designation for the Redeemable Preferred Stock or by law, the affirmative vote or written consent of holders of at least a majority of the then-outstanding shares of Redeemable Preferred Stock, voting together as a single class, given in writing or by vote at a meeting, shall be required for the Company to:

•        amend, modify, add, repeal or waive any provision of the Certificate of Designation or otherwise take any action that modifies any powers, rights, preferences, privileges or restrictions of the Redeemable Preferred Stock (other than an amendment solely for the purpose of increasing the number of shares of Redeemable Preferred Stock designated for issuance);

•        authorize, create or issue shares of any class of stock having rights, preferences or privileges upon a liquidation of the Company that are superior to the Redeemable Preferred Stock; or

•        amend the certificate of incorporation of the Company in a manner that adversely and materially affects the rights of the Redeemable Preferred Stock.

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Redemption and Repurchase.

Redemption at the Option of a Holder.

Upon receipt of a written notice from a Holder requesting that the Company redeem all or any portion of such Holder’s share(s) (the “RPS Holder Redemption Notice”), the Company may redeem the applicable Redeemable Preferred Stock for the RPS Redemption Price, as defined below, subject, however, to the applicable redemption fee specified below:

•        if the RPS Holder Redemption Notice is given prior to the first anniversary of the issuance of such Redeemable Preferred Stock, then a 12% redemption fee shall apply;

•        if the RPS Holder Redemption Notice is given on or after the first anniversary of the issuance of such Redeemable Preferred Stock, but prior to the second anniversary of the issuance of such Redeemable Preferred Stock, then a 10% redemption fee shall apply;

•        if the RPS Holder Redemption Notice is given on or after the second anniversary of the issuance of such Redeemable Preferred Stock, but prior to the third anniversary of the issuance of such Redeemable Preferred Stock, then an 8% redemption fee shall apply; and

•        if the RPS Holder Redemption Notice is given on or after the third anniversary of the issuance of such Redeemable Preferred Stock, then no redemption fee shall apply.

After the Company’s receipt of the RPS Holder Redemption Notice, the Company shall provide written notice to such requesting holder specifying whether all or a portion of the Redeemable Preferred Stock sought to be redeemed pursuant to the RPS Holder Redemption Notice will be repurchased by the Company (the “RPS Company Redemption Response”). If all or any portion of such Redeemable Preferred Stock is to be repurchased by the Company, the Company’s written notice shall specify the date on which such repurchase and redemption shall occur, which date shall be no more than 60 days after the giving of the Holder Redemption Notice (such date, the “RPS Redemption Date”). On the RPS Redemption Date, the Company will, to the extent that it has sufficient funds to consummate a redemption, as determined by the Company in its discretion, and to the extent that it may then lawfully do so under the DGCL on the RPS Redemption Date and such payment is further permitted under its certificate of incorporation, Certificate of Designation of Series A Convertible Preferred Stock and any then-existing borrowing agreements to which it or its subsidiaries are bound, in connection with the delivery by such holder of the items required for redemption, redeem the shares specified in the RPS Company Redemption Response by paying in cash, via wire transfer of immediately available funds to an account designated in writing by the holder of such shares, an amount per share equal to the applicable RPS Redemption Price.

If the Company (A) is unable by virtue of applicable law or provisions in its certificate of incorporation or Certificate of Designation of Series A Convertible Preferred Stock, to redeem shares of Redeemable Preferred Stock in connection with an RPS Holder Redemption Notice, or (B) cannot redeem shares of Redeemable Preferred Stock in connection with an RPS Holder Redemption Notice without constituting a default under any of the borrowing agreements to which the Company or any of its subsidiaries are a party or otherwise bound, then such redemption obligation shall be discharged promptly after the Company shall have become able to discharge such redemption obligation under applicable law and without causing or constituting a default under any of such borrowing agreements, with all such deferred redemption obligations being satisfied on a prorated basis and regardless of the order in which RPS Holder Redemption Notices shall have been received by the Company. If and so long as the redemption obligation with respect to shares of Redeemable Preferred Stock shall not be fully discharged, the Company shall not declare or make any dividend or other distribution on any junior class or series of capital stock or, directly or indirectly, redeem, purchase or otherwise acquire for any consideration any shares of a junior class or series of capital stock or discharge any optional redemption, sinking-fund or other similar obligation in respect of any such junior class or series of capital stock; provided, however, that this restriction shall not apply to the repurchase by the Company of (i) shares of Common Stock from employees, officers, directors, consultants or other persons performing services for the Company or any of its subsidiaries pursuant to agreements under which the Company has the right or option to repurchase such shares upon the occurrence of certain events or otherwise, or (ii) shares of Series A Convertible Preferred Stock pursuant to the terms of the Certificate of Designation of Series A Convertible Preferred Stock, or terms superior to those contained within such Certificate of Designation of Series A Convertible Preferred Stock.

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Redemption at the Option of Company.

After the first anniversary of the date of original issuance of any shares of Redeemable Preferred Stock, the Company shall have the right (but not the obligation) to redeem such shares at a price per share equal to 100% of the RPS Stated Value, plus an amount equal to all RPS Preferred Dividends (whether or not declared) accrued and unpaid thereon up to but not including the redemption date (the “RPS Redemption Price”). In the event the Company exercises this redemption right, the Company shall deliver written notice to each holder of Redeemable Preferred Stock that all or part of the Redeemable Preferred Stock will be redeemed (the “RPS Company Redemption Notice”) on a date that is no earlier than 20 and no later than 60 days after the date of the RPS Company Redemption Notice (such date, the “Company Redemption Date”).

On the RPS Company Redemption Date and in accordance with the Certificate of Designation for the Redeemable Preferred Stock, the Company will, at its option, to the extent it may then lawfully do so under the DGCL (and for so long as (i) a redemption is permitted under the Company’s certificate of incorporation and Certificate of Designation of Series A Convertible Preferred Stock, and (ii) such redemption does not constitute a default under any of the borrowing agreements to which the Company or any of its subsidiaries are a party or otherwise bound), redeem the shares specified in the RPS Company Redemption Notice by paying in cash, via wire transfer of immediately available funds to an account designated in writing by the holder, an amount per share equal to the RPS Redemption Price. If the Company elects to redeem less than all of the Redeemable Preferred Stock, it shall do so ratably among all holders of Redeemable Preferred Stock to the extent their shares shall have been issued and outstanding for at least one year as of the date of the RPS Company Redemption Notice.

Repurchase in the Event of Death, Disability or Bankruptcy.

Within 45 days of the death, Total Permanent Disability or Bankruptcy, as each such term is defined below, of a holder or Beneficial Holder, as defined below, of Redeemable Preferred Stock (a “RPS Holder Repurchase Event”), the estate of such holder or Beneficial Holder (in the event of death) or such holder or Beneficial Holder or his or her legal representative (in the event of Total Permanent Disability or Bankruptcy) may request the Company to repurchase, in whole but not in part, without penalty, the Redeemable Preferred Stock held by such holder (including Redeemable Preferred Stock of the holder held in his or her individual retirement accounts) or Beneficial Holder by delivering to the Company a written request for repurchase (the “RPS Repurchase Request”). Any such RPS Repurchase Request shall set forth the particular RPS Holder Repurchase Event giving rise to the right of the holder or Beneficial Holder to have his or her Redeemable Preferred Stock repurchased by the Company. If Redeemable Preferred Stock is held jointly by natural persons who are legally married, then a Repurchase Request may be made by the surviving holder (or Beneficial Holder) upon the occurrence of an RPS Holder Repurchase Event arising by virtue of a death, or may be made by the disabled or bankrupt holder or Beneficial Holder (or his or her legal representative) upon the occurrence of an RPS Holder Repurchase Event arising by virtue of a Total Permanent Disability or Bankruptcy. In the event Redeemable Preferred Stock is held together by two or more natural persons that are not legally married (regardless of whether held as joint tenants, co-tenants or otherwise), neither of these persons shall have the right to request that the Company repurchase such Redeemable Preferred Stock unless an RPS Holder Repurchase Event shall have occurred for all such co-holders. Other than a Beneficial Holder, a holder that is not an individual natural person does not have the right to request repurchase under this provision.

Upon receipt of an RPS Repurchase Request, the Company shall designate a date for the repurchase of Redeemable Preferred Stock (the “RPS Repurchase Date”), which date shall not be later than the 60th day after the Company shall have received facts or certifications establishing, to the reasonable satisfaction of the Company, the occurrence of the RPS Holder Repurchase Event. On the RPS Repurchase Date, the Company shall, to the extent that it may then lawfully do so under the DGCL on the RPS Repurchase Date and such payment is further permitted under its certificate of incorporation, Certificate of Designation of Series A Convertible Preferred Stock and any then-existing borrowing agreements to which it or its subsidiaries are bound, pay the holder or Beneficial Holder, or the estate of the holder or Beneficial Holder, a redemption price equal to the aggregate RPS Stated Value of such Redeemable Preferred Stock to be repurchased, plus accrued but unpaid RPS Preferred Dividends thereon through but not including the RPS Repurchase Date.

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For purposes of the Redeemable Preferred Stock and the Series 2 Redeemable Preferred Stock, the terms Bankruptcy, Beneficial Holder, and Total Permanent Disability shall have the meanings set forth below:

•        “Bankruptcy” means, with respect to a holder of Preferred Stock who is a natural person, the (1) commencement of a voluntary bankruptcy case by that holder; (2) consent to the entry of an order for relief against such holder in an involuntary bankruptcy case; or (3) consent to the appointment of a custodian of it or for all or substantially all of its property.

•        “Beneficial Holder” means an individual natural person that holds a beneficial interest in Preferred Stock through a custodian or nominee, including a broker-dealer.

•        “Total Permanent Disability” means, with respect to a holder of Preferred Stock who is a natural person, a determination by a physician approved by the Company that such holder, who was gainfully employed and working on a full-time basis as of the date on which such Preferred Stock was purchased, has been unable to work on a full-time basis for at least 24 consecutive months. In this regard, working “on a full-time basis” shall mean working at least 40 hours per week.

Conversion.

Holders of Redeemable Preferred Stock have the option to convert their Redeemable Preferred Stock, plus accrued but unpaid RPS Preferred Dividends thereon, at any time and from time to time, into that number of shares of Common Stock determined by dividing the RPS Stated Value of such shares of Redeemable Preferred Stock (plus accrued but unpaid RPS Preferred Dividends thereon, if being converted) by the RPS Conversion Price, as defined below; provided, however, that the maximum amount of Redeemable Preferred Stock, together with accrued but unpaid RPS Preferred Dividends thereon, that any holder may convert shall not exceed 15% of the RPS Stated Value of Redeemable Preferred Stock originally purchased by such holder from the Company and still held by such holder (excluding, for this purpose, shares of Redeemable Preferred Stock issued to the holder in satisfaction of RPS Preferred Dividends); and provided, further, that upon the giving of a RPS Company Redemption Notice, the right to convert shares of Redeemable Preferred Stock subject to redemption shall be suspended through the RPS Company Redemption Date.

The conversion price for the Redeemable Preferred Stock shall be the volume-weighted average price of the Company’s Common Stock for the 20 trading days immediately prior to the date of conversion of such Redeemable Preferred Stock (the “RPS Conversion Price”), subject, however, to a minimum RPS Conversion Price of $15, as the same may be equitably adjusted upon stock dividends, subdivisions or combinations, by reclassification or otherwise.

No fractional shares or scrip representing fractional shares shall be issued upon the conversion of the Redeemable Preferred Stock. As to any fraction of a share which the holder of Redeemable Preferred Stock would otherwise be entitled to purchase upon such conversion, the Company shall at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the RPS Conversion Price or round up to the next whole share.

The issuance of certificates for shares of Common Stock on conversion of the Redeemable Preferred Stock shall be made without charge to any holder of Redeemable Preferred Stock for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such certificates, provided that the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such certificate upon conversion in a name other than that of the holders of such shares of Redeemable Preferred Stock and the Company shall not be required to issue or deliver such certificates unless or until the holder requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. The Company shall pay all transfer agent fees required for processing of any Notice of Conversion.

No Sinking Fund.    The Company shall not be required to establish any sinking or retirement fund with respect to the shares of Redeemable Preferred Stock.

Fractional Shares.    Redeemable Preferred Stock may be issued in fractional shares.

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Series 2 Redeemable Preferred Stock

Designation and Amount.    The number of authorized shares constituting the Series 2 Redeemable Preferred Stock is 1,000,000. Such number of shares may be increased or decreased by resolution of the Board adopted and filed pursuant to the DGCL, Section 151(g), or any successor provision; provided, however, that no decrease shall reduce the number of authorized shares of Series 2 Redeemable Preferred Stock to a number less than the number of such shares then outstanding plus the number of shares reserved for issuance upon the exercise of any then-outstanding options, warrants, convertible or exchangeable securities or other rights for the purchase of shares of Series 2 Redeemable Preferred Stock, if any. As of the date of this joint consent solicitation statement and prospectus, there were [•] shares of Series 2 Redeemable Preferred Stock issued and outstanding.

Stated Value.    Each share of Series 2 Redeemable Preferred Stock has a stated value equal to $1,000 (the “RPS2 Stated Value”). If the Company effects a stock dividend payable in shares of Series 2 Redeemable Preferred Stock, a subdivision of the outstanding Series 2 Redeemable Preferred Stock into a greater number of shares of Series 2 Redeemable Preferred Stock, or a combination of the outstanding shares of Series 2 Redeemable Preferred Stock, by reclassification or otherwise, into a lesser number of shares of Series 2 Redeemable Preferred Stock, then, in any such case, the RPS2 Stated Value in effect immediately prior to such event shall, concurrently with the effectiveness of such event, be proportionately decreased or increased, as appropriate.

Ranking.    As to the payment of dividends and the distribution of assets of the Company upon its liquidation, dissolution or winding up, the Series 2 Redeemable Preferred Stock ranks as follows: (a) senior to the Company’s Common Stock; (b) pari passu with the Company’s Series A Convertible Preferred Stock and the Company’s Redeemable Preferred Stock; and (c) senior to or pari passu with all other classes and series of the Company’s preferred stock.

Dividends in Cash or in Kind.

Holders of Series 2 Redeemable Preferred Stock are entitled to receive for each share of Series 2 Redeemable Preferred Stock, and the Company shall pay, subject to the provisions of the DGCL and legally available funds therefor, preferential cumulative dividends at the per annum rate of 7.0% on the RPS Stated Value, payable in arrears in monthly installments on the 15th day of the next following month (or if such date is not a business day, then the next following business day), when and as declared by the Board (the “RPS2 Preferred Dividends”), (i) in cash out of legally available funds, or (ii) at the Company’s option, in duly authorized, validly issued, fully paid and non-assessable shares of Series 2 Redeemable Preferred Stock. RPS2 Preferred Dividends are also be payable upon any RPS2 Redemption Date, as defined below, and upon the final distribution date relating to a Liquidation Event. Regular dividends shall be payable to the Holders, in accordance with the DGCL, as of each regular record date that is the final business day of a calendar month that is also a day on which the Company’s Common Stock trades or is eligible for trading on the primary market for such stock. Notwithstanding the foregoing, Holders as of a regular record date must have held their Series 2 Redeemable Preferred Stock for more than two business days (each of which must also have been a trading day on which the Company’s Common Stock traded or was eligible for trading on the primary market for such stock) in order to be eligible to receive a dividend payment on the next payment date. If the Company’s Common Stock no longer trades or is eligible for trading on a trading market, then the requirement in the prior two sentences that a business day shall be a “trading day” shall not apply. In the case of payment by the Company of dividends in the form of shares of Series 2 Redeemable Preferred Stock, such stock shall be valued at the RPS2 Stated Value.

RPS2 Preferred Dividends are calculated on the basis of a calendar year consisting of twelve 30-day months (or 360 days), and shall begin to accrue on outstanding shares of Series 2 Redeemable Preferred Stock from the date of each share’s original issuance until paid, whether or not declared. RPS2 Preferred Dividends shall accrue whether or not there are profits, surplus or other funds of the Company legally available for the payment of dividends at the time such RPS2 Preferred Dividends become payable or at any other time. RPS2 Preferred Dividends shall be cumulative from the date of issue, whether or not declared for any reason, including if such declaration is prohibited under applicable law or any outstanding indebtedness or borrowings of the Company or any of its subsidiaries, or any other contractual provision binding on the Company or any of its subsidiaries.

No dividend shall be declared on any other series or class or classes of capital stock to which the Series 2 Redeemable Preferred Stock ranks senior or pari passu as to dividends or liquidation, including without limitation shares of Common Stock, in respect of any period, nor shall any series or class of capital stock that ranks junior or pari passu to the Series 2 Redeemable Preferred Stock be redeemed, purchased or otherwise acquired for any consideration (or any money to be paid into any sinking fund or otherwise set apart for the purchase of any such junior stock), unless all

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accrued and unpaid RPS2 Preferred Dividends through the most recent payment date have been or contemporaneously are declared and paid on all then-outstanding shares of the Series 2 Redeemable Preferred Stock; provided, however, that this restriction shall not apply to the repurchase by the Company of (i) shares of Common Stock from employees, officers, directors, consultants or other persons performing services for the Company or any of its subsidiaries pursuant to agreements under which the Company has the right or option to repurchase such shares upon the occurrence of certain events or otherwise, (ii) shares of Series A Convertible Preferred Stock pursuant to the terms of the Certificate of Designation for such preferred stock, or terms superior to those contained within such Certificate of Designation, or (iii) shares of Redeemable Preferred Stock pursuant to the terms of the Certificate of Designation for such preferred stock, or terms superior to those contained within such Certificate of Designation.

Liquidation Preference.    Upon any Liquidation Event, before any distribution or payment shall be made to holders of the Company’s Common Stock or any other class or series of capital stock ranking junior to the Series 2 Redeemable Preferred Stock, the holders of shares of Series 2 Redeemable Preferred Stock shall be entitled to be paid out of the Company’s assets legally available for distribution to the Company’s stockholders, after payment or provision for the Company’s debts and other liabilities, a liquidation preference equal to the RPS2 Stated Value per share, plus an amount equal to any accrued and unpaid dividends (whether or not declared) to and including the date of payment.

After payment of the full amount of the liquidating distributions to which they are entitled, the holders of the shares of Series 2 Redeemable Preferred Stock will have no right or claim to any of the Company’s remaining assets. The Company’s consolidation or merger with or into any other corporation, trust or other entity, the consolidation or merger of any other corporation, trust or entity with or into the Company, the sale or transfer of any or all of the Company’s assets or business, or a statutory share exchange shall not be deemed to constitute a liquidation, dissolution or winding-up of the Company’s affairs.

Voting.    Except as otherwise set forth in the Certificate of Designation for the Series 2 Redeemable Preferred Stock or as required by law, holders of the Series 2 Redeemable Preferred Stock shall not be entitled to vote on any matter on account of their Series 2 Redeemable Preferred Stock. If the DGCL requires the vote of the holders of the Series 2 Redeemable Preferred Stock, voting as a separate class, to authorize an action of the Company, then the affirmative vote of the holders of a majority of then-outstanding shares of Series 2 Redeemable Preferred Stock shall constitute the approval of such action by the class, unless the DGCL requires a different threshold, in which case such different threshold shall apply.

Protective Provisions.    In addition to any other vote or consent required in the Certificate of Designation for the Series 2 Redeemable Preferred Stock or by law, the affirmative vote or written consent of holders of a majority of then-outstanding shares of Series 2 Redeemable Preferred Stock, voting together as a single class, given in writing or by a vote at a meeting, shall be required for the Company to:

•        amend or waive any provision of the Certificate of Designation or otherwise take any action that modifies any powers, rights, preferences, privileges or restrictions of the Series 2 Redeemable Preferred Stock (other than an amendment solely for the purpose of changing the number of shares of Series 2 Redeemable Preferred Stock designated for issuance);

•        authorize, create or issue shares of any class of stock having rights, preferences or privileges upon a liquidation of the Company that are superior to the Series 2 Redeemable Preferred Stock; or

•        amend the certificate of incorporation of the Company in a manner that adversely and materially affects the rights of the Series 2 Redeemable Preferred Stock.

Redemption and Repurchase.

Redemption Request by a Holder.

Upon receipt of a written notice from a Holder requesting that the Company redeem all or any portion of such Holder’s share(s) (the “RPS2 Holder Redemption Notice”), the Company may choose to (but shall not be obligated to) redeem the applicable Series 2 Redeemable Preferred Stock for the RPS2 Redemption Price, as defined below, subject, however, to the applicable redemption fee specified below:

•        if the RPS2 Holder Redemption Notice is given prior to or on the first anniversary of the issuance of such Series 2 Redeemable Preferred Stock, then a 12% redemption fee shall apply;

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•        if the RPS2 Holder Redemption Notice is given after the first anniversary of the issuance of such Series 2 Redeemable Preferred Stock and prior to or on the second anniversary of the issuance of such Series 2 Redeemable Preferred Stock, then a 10% redemption fee shall apply;

•        if the RPS2 Holder Redemption Notice is given after the second anniversary of the issuance of such Series 2 Redeemable Preferred Stock and prior to or on the third anniversary of the issuance of such Series 2 Redeemable Preferred Stock, then a 8% redemption fee shall apply; and

•        if the RPS2 Holder Redemption Notice is given after the third anniversary of the issuance of such Series 2 Redeemable Preferred Stock, then no redemption fee shall apply.

Within 30 days after the Company’s receipt of the RPS2 Holder Redemption Notice, the Company shall provide written notice to such requesting Holder specifying whether all or a portion of the Series 2 Redeemable Preferred Stock sought to be redeemed pursuant to the Holder Redemption Notice will be repurchased by the Company (which the Company shall determine in its discretion) (the “RPS2 Company Redemption Response”). If all or any portion of such Series 2 Redeemable Preferred Stock is to be repurchased by the Company, then the RPS2 Company Redemption Response shall specify the date on which such repurchase and redemption shall occur (the “RPS2 Redemption Date”), which date shall be no more than 60 days after the giving of the RPS2 Holder Redemption Notice. On any RPS2 Redemption Date, the Company will, to the extent that it has sufficient funds to consummate a redemption, as determined by the Company in its discretion, and to the extent that it may then lawfully do so under the DGCL and such payment is further permitted under the Company’s certificate of incorporation (including all related certificates of designation), and any borrowing agreements to which it or its subsidiaries are bound (the “Borrowing Agreements”), in connection with the delivery by such holder of the items required for redemption, redeem the shares specified in the RPS2 Company Redemption Response by paying in cash, via wire transfer of immediately available funds to an account designated in writing by the Holder, an amount per share equal to the applicable RPS2 Redemption Price.

If, on any RPS2 Redemption Date, the Company (A) is unable, by virtue of applicable law or provisions in its certificate of incorporation (including all related certificates of designation), to redeem shares of Series 2 Redeemable Preferred Stock, or (B) cannot redeem shares of Series 2 Redeemable Preferred Stock without constituting a default under any Borrowing Agreements, then such redemption obligation shall be discharged promptly after the Company becomes able to discharge such redemption obligation under applicable law and without causing or constituting a default under Borrowing Agreements, with all such deferred redemption obligations being satisfied on a prorated basis and regardless of the order in which any RPS2 Holder Redemption Notices shall have been received by the Company. If and so long as the redemption obligation with respect to shares of Series 2 Redeemable Preferred Stock has not been fully discharged, the Company shall not declare or make any dividend or other distribution on any junior class or series of capital stock or directly or indirectly redeem, purchase or otherwise acquire for any consideration any shares of a junior class or series of capital stock or discharge any optional redemption, sinking fund or other similar obligation in respect of any such junior class or series of capital stock; provided, however, that this restriction shall not apply to the repurchase by the Company of shares of (x) Common Stock from employees, officers, directors, consultants or other persons performing services for the Company or any of its subsidiaries pursuant to agreements under which the Company has the right or option to repurchase such shares upon the occurrence of certain events or otherwise, or (y) Series A Convertible Preferred Stock pursuant to the terms of the Certificate of Designation of Series A Convertible Preferred Stock or terms superior to those contained within such Certificate of Designation of Series A Convertible Preferred Stock.

Redemption at the Option of the Company.

The Company shall have the right (but not the obligation) to redeem shares of Series 2 Redeemable Preferred Stock at a price per share equal to the RPS2 Stated Value plus an amount equal to all accrued and unpaid RPS2 Preferred Dividends thereon (whether or not declared), up to but not including the RPS2 Company Redemption Date, as defined below (such amount, the “RPS2 Redemption Price”); provided, however, that if the Company redeems any shares of Series 2 Redeemable Preferred Stock prior to the one-year anniversary of their issuance, then the RPS2 Redemption Price shall include a premium equal to the amount by which the RPS2 Redemption Price (calculated as above) is less than 107% of the RPS2 Stated Value of those shares. To exercise this redemption right, the Company shall deliver written notice to each Holder that all or part of the Series 2 Redeemable Preferred Stock will be redeemed (the “RPS2 Company Redemption Notice”) on a date that is no earlier than 20 and no later than 60 days after the date of the RPS2 Company Redemption Notice (such date, the “RPS2 Company Redemption Date”); provided, however, that if the Company elects to redeem less than all of the Series 2 Redeemable Preferred Stock, it shall do so ratably among all Holders.

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On the RPS2 Company Redemption Date and in accordance with the Certificate of Designation for the Series 2 Redeemable Preferred Stock, the Company will, at its option (to the extent it may then lawfully do so under the DGCL, and for so long as (A) a redemption is permitted under the Company’s certificate of incorporation (including all related certificates of designation), and (B) such redemption does not constitute a default under any Borrowing Agreements), redeem the shares specified in the RPS2 Company Redemption Notice by paying in cash, via wire transfer of immediately available funds to the respective accounts designated in writing by the applicable Holders, an amount per share equal to the RPS2 Redemption Price.

Repurchase in the Event of Death, Disability or Bankruptcy.

Within 45 days of the death, Total Permanent Disability or Bankruptcy of a Holder or Beneficial Holder (an “RPS2 Holder Repurchase Event”), the estate of such Holder or Beneficial Holder (in the event of death) or such Holder or Beneficial Holder or his or her legal representative (in the event of Total Permanent Disability or Bankruptcy) may request that the Company repurchase, in whole but not in part, without penalty, the Series 2 Redeemable Preferred Stock held by such Holder (including Series 2 Redeemable Preferred Stock of the Holder held in his or her individual retirement accounts) or Beneficial Holder by delivering to the Company a written request for repurchase (an “RPS2 Repurchase Request”). Any such RPS2 Repurchase Request shall identify the applicable RPS2 Holder Repurchase Event. If Series 2 Redeemable Preferred Stock is held jointly by natural persons who are legally married, then an RPS2 Repurchase Request may be made by (A) the surviving Holder (or Beneficial Holder) upon the occurrence of a Holder Repurchase Event arising by virtue of a death, or (B) the disabled or bankrupt Holder or Beneficial Holder (or his or her legal representative) upon the occurrence of an RPS2 Holder Repurchase Event arising by virtue of a Total Permanent Disability or Bankruptcy. If Series 2 Redeemable Preferred Stock is held together by two or more natural persons that are not legally married (regardless of whether held as joint tenants, co-tenants or otherwise), then none of such co-Holders shall have the right to make an RPS2 Repurchase Request unless a Holder Repurchase Event has occurred for each such co-Holder. A Holder that is not an individual natural person does not have the right to make a Repurchase Request.

Upon receipt of a Repurchase Request, the Company shall designate a date for the repurchase of Series 2 Redeemable Preferred Stock (the “RPS2 Repurchase Date”), which date shall not be later than the 60th day after the Company is provided with facts or certifications establishing, to the reasonable satisfaction of the Company, the occurrence of the RPS2 Holder Repurchase Event. On the RPS2 Repurchase Date, the Company shall, to the extent that it may then lawfully do so under the DGCL and such payment is further permitted under its certificate of incorporation (including related certificates of designation) and any Borrowing Agreements, pay the Holder or Beneficial Holder, or the estate of the Holder or Beneficial Holder, an amount per share equal to the RPS2 Stated Value plus all accrued and unpaid RPS2 Preferred Dividends thereon (whether or not declared), up to but not including the RPS2 Repurchase Date (the “RPS2 Repurchase Price”).

Conversion.

Holders of Series 2 Redeemable Preferred Stock have the right and option to partially convert their Series 2 Redeemable Preferred Stock, at any time and from time to time, into that number of shares of Common Stock determined by dividing the RPS2 Stated Value of such shares of Series 2 Redeemable Preferred Stock by the RPS2 Conversion Price, as defined below; provided, however, that:

•        no more than 10% of the RPS2 Stated Value of Series 2 Redeemable Preferred Stock originally purchased from the Company may be converted into Common Stock;

•        no shares of Series 2 Redeemable Preferred Stock issued by the Company as RPS2 Preferred Dividends, and no accrued but unpaid RPS2 Preferred Dividends, may be converted into common stock; and

•        upon the giving of an RPS2 Company Redemption Notice, the right to convert shares of Series 2 Redeemable Preferred Stock that are subject to redemption shall be suspended through the RPS2 Company Redemption Date.

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The conversion price for the Series 2 Redeemable Preferred Stock shall be the volume-weighted average price of the Company’s Common Stock for the 20 trading days immediately prior to the date of conversion of such Series 2 Redeemable Preferred Stock (the “RPS2 Conversion Price”), subject, however, to the applicable RPS2 Conversion Price discount specified below:

•        if the RPS2 Notice of Conversion is given prior to or on the third anniversary of the issuance of such Series 2 Redeemable Preferred Stock, then no discount on the RPS2 Conversion Price shall apply;

•        if the RPS2 Notice of Conversion is given after the third anniversary of the issuance of such Series 2 Redeemable Preferred Stock and prior to or on the fourth anniversary of the issuance of such Series 2 Redeemable Preferred Stock, then a 6% discount on the RPS2 Conversion Price shall apply;

•        if the RPS2 Notice of Conversion is given after the fourth anniversary of the issuance of such Series 2 Redeemable Preferred Stock and prior to or on the fifth anniversary of the issuance of such Series 2 Redeemable Preferred Stock, then an 8% discount on the Conversion Price shall apply; and

•        if the RPS2 Notice of Conversion is given after the fifth anniversary of the issuance of such Series 2 Redeemable Preferred Stock, then a 10% discount on the RPS2 Conversion Price shall apply.

Notwithstanding the foregoing, the RPS2 Conversion Price shall in no event (including after the application of discount as specified above) be less than $12.75 per share, subject, however, to equitable adjustment upon stock dividends, subdivisions or combinations, by reclassification or otherwise.

No fractional common shares or scrip representing fractional common shares shall be issued upon the conversion of the Series 2 Redeemable Preferred Stock. As to any fraction of a common share which the Holder would otherwise be entitled to receive upon a conversion, the Company shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the RPS2 Conversion Price, or round up or down to the nearest whole share (with even halves rounded up).

The issuance of certificates representing shares of the Common Stock issued upon conversion of the Series 2 Redeemable Preferred Stock shall be made without charge to any Holder for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such certificates; provided, however, that the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such certificate upon conversion in a name other than that of the Holders; and provided, further, that the Company shall not be required to issue or deliver such certificates unless or until the Holder requesting the issuance thereof has paid to the Company the amount of such tax or has established to the satisfaction of the Company that such tax has been paid. The Company shall pay all transfer agent fees required for the processing of any Notice of Conversion.

No Sinking Fund.    The Company shall not be required to establish any sinking or retirement fund with respect to the shares of Series 2 Redeemable Preferred Stock.

Fractional Shares.    Series 2 Redeemable Preferred Stock may be issued in fractional shares.

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SUMMARY OF THE PROPOSED AMENDMENTS

This summary sets for the material terms of the Proposed Amendments and is qualified in its entirety by reference to the Amended and Restated Certificate of Incorporation, a copy of which is attached as Exhibit A to this joint consent solicitation statement and prospectus.

The Proposed Amendments would amend and restate the Certificates of Designation for each class of Preferred Stock (such Preferred Stock as amended by the Proposed Amendments, the “Exchangeable Redeemable Preferred Stock”) to permit the Company to exchange all of the outstanding shares of each class of Exchangeable Redeemable Preferred Stock for preferred equity securities of the Company or one or more subsidiaries of the Company that are registered with the Securities and Exchange Commission (“SEC”) and that have rights, powers and preferences substantially similar to the rights, powers and preferences of the Preferred Stock set forth in the Certificates of Designation, but with an increased dividend rate of not less than 7.5% per annum (compared to the existing dividend rate of 7.0% per annum) and a minimum conversion price of equal to, or less than, $12.00 per common equity security (compared to the existing conversion price of $15.00 per share for the Redeemable Preferred Stock and $12.75 per share for the Series 2 Redeemable Preferred Stock), plus a cash payment equal to all accrued and unpaid dividends on the Preferred Stock.

The Amended and Restated Certificate of Incorporation would also permit the Company to exchange all of the outstanding common stock of the Company (the “Common Stock”) for securities of the Company or one or more subsidiaries of the Company that are registered with the SEC, at least one class or series of which would be listed on a national securities exchange. The holders of a majority of the outstanding Common Stock have consented to the Amended and Restated Certificate of Incorporation, but the Amended and Restated Certificate of Incorporation may not become effective unless consented to by the holders of a majority of each series of Preferred Stock voting separately as a class.

The Proposed Amendments provide the Company the right (but not the obligation), at any time, to exchange all of the then outstanding shares of Exchangeable Redeemable Preferred Stock for (i) a number of preferred equity securities of the Company or one or more subsidiaries of the Company that are or will be as of the applicable exchange time registered with the SEC (the “exchanged preferred interests” and any such issuer of such exchanged interests, as applicable, the “RPS Issuer”) equal to the Exchange Amount (as defined below) and (ii) a cash payment equal to all dividends (whether or not declared) accrued and unpaid on such share of Exchangeable Redeemable Preferred Stock up to but not including the exchange date (the “Exchange Unpaid Dividend Amount” and, together with the applicable exchanged preferred interests, the “Exchange Consideration”).

The “Exchange Amount” shall mean exchanged preferred interests with an aggregate liquidation preference equal to the stated value of the Exchangeable Redeemable Preferred Stock. Each exchanged preferred interest shall have rights, powers and preferences substantially similar to the rights, powers and preferences of the Exchangeable Redeemable Preferred Stock; provided, that, notwithstanding anything herein to the contrary, each exchanged preferred interest:

•        need not (1) have any rights, powers or preferences of the Exchangeable Redeemable Preferred Stock provided under the Delaware General Corporation Law and not set forth in the Certificates of Designation or (2) be listed on any national securities exchange, and

•        shall:

•        have the same liquidation preference as the stated value of a share of the Exchangeable Redeemable Preferred Stock; provided, that if the Exchange Consideration includes more than one exchanged preferred interest, then the aggregate liquidation preference of all of such exchanged preferred interests shall be the same as the stated value of a share of Exchangeable Redeemable Preferred Stock,

•        rank at the time of such exchange pari passu to the other preferred equity securities, and senior to the common equity securities, of the Issuer,

•        accrue monthly cumulative dividends of not less than 7.5% per annum, subject to increase in the Board’s discretion, on the stated value of such exchanged preferred interest payable when, as and if declared by the board of directors, manager, general partner or other governing body or person of the Issuer in cash or in kind at the election of the Issuer,

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•        have no voting powers except for those substantially similar to the voting powers of the Exchangeable Redeemable Preferred Stock,

•        have no protective provisions beyond protective provisions substantially similar to those provided with respect to the Exchangeable Redeemable Preferred Stock,

•        be subject to redemption on terms substantially similar to those provided with respect to the Exchangeable Redeemable Preferred Stock, and

•        be subject to conversion into common equity securities of the Issuer or a subsidiary of the Issuer on terms substantially similar to those governing the conversion of the Preferred Stock; provided, that the minimum conversion price shall be equal to, or less than, $12.00 per common equity security, as the same may be equitably adjusted upon stock dividends, subdivisions or combinations, by reclassification or otherwise after the issuance of such common equity securities.

The Amended and Restated Certificate of Incorporation also would also provide that, unless the Company consents in writing to the selection of an alternative forum, (A) (i) any derivative action or proceeding brought on behalf of the Company, (ii) any action asserting a claim of breach of a fiduciary duty owed by any current or former director, officer, other employee or stockholder of the Company to the Company or the Company’s stockholders, (iii) any action asserting a claim arising pursuant to any provision of the DGCL, the Amended and Restated Certificate of Incorporation or the bylaws of the Company (as either may be amended or restated) or as to which the DGCL confers jurisdiction on the Court of Chancery of the State of Delaware or (iv) any action asserting a claim governed by the internal affairs doctrine of the law of the State of Delaware shall, to the fullest extent permitted by law, be exclusively brought in the Court of Chancery of the State of Delaware or, if such court does not have subject matter jurisdiction thereof, the federal district court of the State of Delaware; and (B) the federal district courts of the United States shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act of 1933, as amended. Notwithstanding the foregoing, the exclusive forum provision shall not apply to claims seeking to enforce any liability or duty created by the Securities Exchange Act of 1934, as amended.

If the Company exercises this exchange right, the Company will provide at least 20 days’ notice to each holder of Exchangeable Redeemable Preferred Stock that the Exchangeable Redeemable Preferred Stock will be exchanged; provided, that the Company may delay the exchange date to a later date by publicly filing a document with the SEC that discloses such delay and identifies the delayed exchange date.

The Board will have the power and authority to make all determinations regarding whether or not a characteristic of a security is “substantially similar” to that of another security and all such determinations made by the Board will be final, conclusive and binding.

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DIRECTORS AND EXECUTIVE OFFICERS

The following paragraphs provide information as of the date of this joint consent solicitation statement and prospectus about each of our current directors and executive officers.

We currently have two “executive officers” as defined by the SEC. Our bylaws permit a maximum of fifteen directors, and our board of directors currently consists of eight members. The table below presents our executive officers and directors:

Name

 

Age

 

Positions

Murray T. Holland

 

66

 

President and Chief Executive Officer

Timothy L. Evans

 

41

 

Chief Financial Officer

Brad K. Heppner(1)

 

54

 

Director, Chairman of the Board

Roy W. Bailey(2)

 

66

 

Director

Peter T. Cangany, Jr.(1)

 

63

 

Director

David F. Chavenson(3)

 

68

 

Director

Thomas O. Hicks(1)

 

74

 

Director

Dennis P. Lockhart(3)

 

73

 

Director

Bruce W. Schnitzer(1)

 

76

 

Director

David H. de Weese(1)

 

78

 

Director

____________

(1)      Appointed to our Board of Directors upon the closing of the Purchase and Contribution Transaction, which occurred on April 26, 2019.

(2)      Appointed to our Board of Directors on March 16, 2020

(3)      Appointed to our Board of Directors on May 13, 2019.

The biographies of the above-identified individuals are set forth below:

Murray T. Holland has served as our President and Chief Executive Officer since April 26, 2019. In 2001, Mr. Holland became an original investor and consultant for MHT Partners, a boutique investment banking firm based in Dallas, Texas with a number of offices in the United States. From 2013 until recently, he was Managing Director of MHT Partners. Mr. Holland resigned from this position in connection with the Transaction. Prior to MHT, he was CEO and principal shareholder of Convergent Media Systems (Atlanta), a $100 million custom network outsourcing firm with approximately 300 employees, CEO and principal shareholder of Convergent Group Corporation (Denver), a $200 million geographic information systems software and integration firm with approximately 450 employees, and CEO and principal shareholder of BTI Americas (Chicago), a $2.7 billion business travel agency with approximately 4,400 employees. EDS was his principal business partner in these ventures. Prior to that, Mr. Holland was a partner at the law firm of Akin, Gump, Strauss, Hauer & Feld (Dallas) in corporate finance and securities, a Senior Vice President of Credit Suisse First Boston (New York and Dallas) in Mergers and Acquisitions and a Managing Director of Kidder, Peabody & Co. (New York) in Mergers and Acquisitions. He graduated from Washington and Lee University with a B.S. in 1975, University of Virginia Graduate School of Business Administration with an M.B.A. in 1978, and Washington and Lee University School of Law with a J.D. in 1980. Mr. Holland is the author of “A Nation in the Red” (McGraw Hill- 2014), a book about the U.S. national debt and its implications.

Brad K. Heppner is the Chief Executive Officer and Chairman of the Board of Directors of Beneficient. Mr. Heppner has acquired or founded ten operating companies principally in the financial services, investment and insurance sectors, each with a common business purpose of providing highly specialized solutions for alternative asset owners. Mr. Heppner founded Heritage Highland in 1996 as a family office to organize, acquire and own as controlling or sole shareholder these operating companies. In 2003, Mr. Heppner organized Highland Consolidated Business Holdings, L.P. which is the predecessor-in-interest to Beneficient and reorganized into Beneficient in September 2017. He has successfully completed realizations from seven of the ten Heritage Highland companies through mergers and transactions with Fortune 50 companies or institutionally backed management teams. In 2003, Mr. Heppner merged The Crossroads Group, a multi-billion dollar alternative asset manager, with Lehman Brothers, now Neuberger Berman. Among the companies Mr. Heppner founded and sold is Capital Analytics, the third oldest alternative asset administration company in the United States, which is now owned by Mitsubishi Union Financial Group. Currently, Mr. Heppner serves as chief executive officer and chairman for all Heritage Highland companies, positions he has held since its organization in 1996. Previously, he was a senior consultant at Bain & Company where he focused on

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private equity financed companies between 1994 and 1996. Mr. Heppner served as director of investments for John D. and Catherine T. MacArthur Foundation in Chicago from 1989 to 1993 after beginning his career in New York City at Goldman, Sachs & Co. as an analyst. Through companies held by Heritage Highland, Mr. Heppner has been a fiduciary for over 250 institutions and served on numerous corporate boards and advisory committees. Mr. Heppner earned his M.B.A. from the J.L. Kellogg Graduate School of Management at Northwestern University. He is a magna cum laude graduate and Most Distinguished Alumnus of Southern Methodist University, where he received a B.S., a B.B.A. and a B.A.

Timothy L. Evans joined the Company as Chief Integration Officer on May 6, 2019, and was appointed Chief Financial Officer on August 15, 2019. Prior to joining GWG Holdings, Inc., Mr. Evans was Chief of Staff for Ben LP, where he had also served as Vice President and Deputy General Counsel since February 2018. Prior to joining Ben LP, Mr. Evans was an attorney for the United States Securities and Exchange Commission for six years, where he served as a trial attorney and a counsel to the Director of Enforcement. Mr. Evans was an associate in the Dallas office of Thompson & Knight LLP for four years before joining the Securities and Exchange Commission. He received his Juris Doctorate, summa cum laude, from the University of Arkansas School of Law in 2008. Prior to practicing as an attorney, Mr. Evans was an accountant for three years with SMG, a public facility management company. He previously held an Arkansas CPA license but is not currently licensed by the Arkansas State Board of Public Accountancy. He graduated from the University of Illinois at Urbana-Champaign with a Bachelor of Arts — Economics in 2001.

Roy W. Bailey has served as the CEO of Bailey Deason Capital Interests, LLC since 2012. Prior to serving as CEO of Bailey Deason Capital Interests, LLC, Mr. Bailey served in similar management roles with Giuliani Partners LLC and Hicks Holdings, LLC. He began his career in the insurance and the insurance finance industry. In addition to founding and owning Bailey Insurance Associates from 1983 – 1996, one of the largest single principal-owned agencies in Dallas at the time, he was also the co-founder and CEO of Premium Finance Holdings (PFH) from 1997 – 2001, which was later sold to Texas Capital Bank. Mr. Bailey received his BBA from Southern Methodist University in Dallas, Texas in 1976.

Peter T. Cangany, Jr. joined Ernst & Young, LLP (“EY”) in 1980 upon graduating college and retired from the firm in 2017. Mr. Cangany became an EY partner in 1993 and, during his tenure, worked in EY’s Indianapolis office 1980 – 1987, Seattle office 1987 – 2004, San Antonio office 2004 – 2011, and New York and Bermuda offices 2011 – 2017. At EY, Mr. Cangany specialized in working with insurance entities, primarily property, casualty and reinsurance, and has as a strong working knowledge of the life settlement industry. He also worked closely with Beneficient during its early formation on various accounting and consolidation matters. During his 37 years with EY, Mr. Cangany served as the engagement partner on several large public and non-public nationally recognized companies. He held numerous leadership positions at EY, including area insurance practice leader for the Pacific Northwest, Southwest, and BBC (Bermuda, Bahamas, Caymans) and Office Managing Partner for EY’s Seattle and Bermuda offices. Mr. Cangany serves on the Board of Trustees — Franklin College of Indiana (2009 – present) and is the Finance Committee Chair (and previously Audit Committee Chair). Mr. Cangany earned a B.A. in Accounting from Franklin College and an M.B.A. from Texas A&M University.

David F. Chavenson served as Treasurer of Alon USA Energy Company from 2007 until 2018. He served as Vice President and Treasurer of Flowserve Corp. from 2001 until 2005; Senior Vice President and Chief Financial Officer at Worldwide Flight Services, Inc. from 2000 to 2001; and Vice President of Finance, Chief Financial Officer and Corporate Secretary of Rutherford-Moran Oil Corporation since April 1996 to 1999. Previous to 1996, Mr. Chavenson spent 18 years at Oryx Energy Company, an oil and gas exploration and production company (previously Sun Exploration and Production Co.) (“Oryx”), and served as Treasurer there from 1993 to 1996. Prior to that, he served as Assistant Treasurer and Manager of Corporate Finance, Manager of Financial Analysis and Senior Financial Specialist at Oryx.

Mr. Chavenson has a B.A., magna cum laude, Phi Beta Kappa from Dickinson College and holds an M.B.A. in finance with honors from the Harvard Business School. He is also a Certified Public Accountant.

Thomas O. Hicks is a pioneer in the private equity industry in the United States. From 1984 to 1988 he was Co-Founder and Co-Chairman of Hicks & Haas which compiled a highly successful track record of acquisitions, including Dr Pepper, Seven Up, A&W Root Beer, Sybron, and Thermadyne. He later founded numerous private equity funds for his firm, Hicks, Muse, Tate and Furst, which raised over $12 billion in funds. His funds have invested billions of dollars of equity in businesses in the United States, Europe, and Latin America. Mr. Hicks retired from Hicks Muse in 2004, and now manages his own family office private equity firm, Hicks Holdings, LLC. Mr. Hicks was a

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Director of Carpenter Technology Corporation until September 2014. Mr. Hicks has a B.B.A. from the University of Texas — Austin and an MBA from the University of Southern California. Mr. Hicks is also the manager and indirect, majority owner of HSG Sports Group Holdings LLC, which, through subsidiaries, including HSG Sports Group LLC and others, formerly owned interests in professional sports franchises, including the Texas Rangers major league professional baseball club and Dallas Stars professional ice hockey team. On May 24, 2010, the Texas Rangers filed a voluntary petition for Chapter 11 bankruptcy protection. On September 15, 2011, the Dallas Stars filed a voluntary petition for Chapter 11 bankruptcy protection. Additional proceedings were filed by or against other entities related to the Texas Rangers and the Dallas Stars, and Mr. Hicks in his individual capacity, in connection with the foregoing. Both the Texas Rangers and the Dallas Stars were sold to new owners in connection with their respective Chapter 11 bankruptcy cases.

Dennis P. Lockhart is currently a distinguished professor-of-the-practice in the Nunn School of International Affairs at Georgia Tech. Early in 2017, Mr. Lockhart retired from his position as president and Chief Executive Officer of the Federal Reserve Bank of Atlanta, a position he held since 2007. Earlier, he was a professor at Georgetown University, School of Foreign Service, from 2003 to 2007. Prior to this, he held senior positions at Heller Financial Inc. and Citicorp (now Citigroup), and served as an officer in the U.S. Marine Corps Reserve. Mr. Lockhart holds a Master of Arts from Johns Hopkins University, Bachelor of Arts from Stanford University, and an honorary doctorate from Georgia State University. Mr. Lockhart currently serves on the Board of Directors of Pensare Acquisition Corp. (WRLS) and Invesco Mortgage Capital.

Bruce W. Schnitzer has been a successful private equity investor since 1985 and Chairman of Wand Partners, a private equity firm specialized in insurance and other specialty financial services, since 1987. Wand has sponsored and invested in eighteen platform businesses, thirteen of which span the insurance industry and fifteen of which are now fully realized. From 1977 to 1985, Mr. Schnitzer was a senior executive with Marsh & McLennan, where he served as President and CEO of Marsh, Inc. (the world-wide insurance broker) and as Chief Financial Officer of Marsh & McLennan Companies, Inc. (NYSE-MMC). Prior to joining Marsh & McLennan, Mr. Schnitzer was a Vice President and head of Mergers & Acquisitions at Morgan Guaranty Trust Company (J.P. Morgan) — 1967 – 76. Mr. Schnitzer has served in numerous non-profit roles, including Chairman of The Institute of Human Origins, Director of The Litchfield Land Trust, and Director & Treasurer of Scherr-Thoss Foundation. Mr. Schnitzer graduated from the University of Texas, Austin in 1966 (B.B.A.) and received an M.B.A. from the University of Texas, Austin in 1967.

David H. de Weese is a Partner of Paul Capital Advisors, a private equity firm. He was instrumental in developing Paul Capital’s deal origination strategy and transaction sourcing network. He joined Paul Capital in 1995 and led global secondary transaction sourcing activities and the due diligence of life science and health care investments. Mr. de Weese has 14 years of management experience in Europe. He has an extensive entrepreneurial experience and in-depth scientific and business knowledge. He also founded Medical Innovations. In 1993, he co-founded and served as the President and Chief Executive Officer of M6 Pharmaceuticals. Mr. de Weese served as the President and Chief Executive Officer of Cygnus Therapeutic Systems, SigA Pharmaceuticals and a Silicon Valley software company. Prior to Cygnus, he served as the President and Chief Executive Officer of Machine Intelligence Corporation. Mr. de Weese served as Director of OSE Immunotherapeutics SA (also known as OSE Pharma SA) from June 2014 to June 2017. Mr. de Weese holds an M.B.A. from the Harvard Business School, a B.A. from Stanford University and attended law school at Stanford University.

Classification of Directors

In early 2019, our Board of Directors and stockholders approved an amendment to our bylaws that established a classified Board of Directors in which directors are divided into three classes, to be designated as Class I, Class II and Class III. Each class will serve staggered, three year terms. The terms of office of Class II directors will expire at the annual meeting of stockholders to be held in 2020. The terms of office of the Class III directors will expire at the annual meeting of stockholders to be held in 2021. The terms of office of the Class I directors will expire at the annual meeting of stockholders to be held in 2022.

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The following chart sets forth the three classes of directors.

Director

 

Class

 

Expiration
of Initial
Term of
Director

Brad K. Heppner

 

Class I

 

2022

Thomas O. Hicks

 

Class I

 

2022

Roy W. Bailey

 

Class I

 

2022

Bruce W. Schnitzer

 

Class II

 

2020

Dennis P. Lockhart

 

Class II

 

2020

Peter T. Cangany, Jr.

 

Class III

 

2021

David H. de Weese

 

Class III

 

2021

David F. Chavenson

 

Class III

 

2021

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SHARE OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, MANAGEMENT AND DIRECTORS

In General

The tables below sets forth information known to us regarding the beneficial ownership of our Common Stock as of June 30, 2020, for:

•        each person we believe beneficially holds more than 5% of our outstanding common shares (based solely on our review of SEC filings), other than subsidiaries of the Company;

•        each of our “named executive officers” as identified in the summary compensation table contained in our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on March 27, 2020 and included in Annex A to this joint consent solicitation statement and prospectus;

•        each of our directors; and

•        all of our directors and executive officers as a group.

The number of shares beneficially owned by a person includes shares issuable under options held by that person and that are currently exercisable or that become exercisable within 60 days of June 30, 2020. Percentage calculations assume, for each person and group, that all shares that may be acquired by such person or group pursuant to options currently exercisable or that become exercisable within 60 days of June 30, 2020 are outstanding for the purpose of computing the “Percentage of Common Stock Owned” by such person or group. Nevertheless, shares of Common Stock that are issuable upon exercise of presently unexercised options are not deemed to be outstanding for purposes of calculating the “Percentage of Common Stock Owned” by any other person or any other group.

Except as otherwise indicated in the table or its footnotes, the persons in the table below have sole voting and investment power with respect to all shares of Common Stock shown as beneficially owned by them, subject to community property laws where applicable.

As of June 30, 2020, we had 33,037,481 shares of Common Stock issued and outstanding.

Beneficial Ownership

Name

 

Shares
Beneficially
Owned

 

Percentage
of Share
Beneficially
Owned

5% Beneficial Owners:

       

 

Seller Trusts(1)

 

25,913,516

 

78.4

%

Executive Officers:

       

 

Murray T. Holland (solely in his capacity as Trust Advisor to the Seller Trusts)(2)

 

25,913,516

 

78.4

%

Timothy L. Evans

 

 

 

Non-Employee Directors:

       

 

Brad K. Heppner(3)

 

2,500,000

 

7.6

%

Roy W. Bailey

 

 

 

Peter T. Cangany, Jr.

 

 

 

David F. Chavenson

 

 

 

Thomas O. Hicks(4)

 

1,452,155

 

4.4

%

Dennis P. Lockhart

 

 

 

Bruce W. Schnitzer

 

 

 

David H. de Weese

 

 

 

All current directors and officers as a group

 

29,865,671

 

90.4

%

Other Named Executive Officers:

       

 

William B. Acheson(5)

 

156,251

 

*

 

Jon R. Sabes(6)

 

 

 

Steven F. Sabes(7)

 

 

 

____________

*        less than one percent.

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(1)      The business address of the Seller Trusts is 325 North St. Paul Street, Suite 4850, Dallas, Texas 75201. On January 12, 2018, we entered into a Master Exchange Agreement (the “Master Exchange Agreement”) pursuant to which we agreed to engage in a strategic transaction (the “Exchange Transaction”) with Beneficient and the Seller Trusts, in which the parties agreed to an exchange of certain assets. The Seller Trusts are a group of individual common law trusts that received shares of Common Stock in the Exchange Transaction. The trustee of each of the Seller Trusts is Delaware Trust Company. The trust advisors of each trust are two individuals unrelated to each other, James E. Turvey and Murray T. Holland, who have sole decision-making authority with respect to each trust. The beneficiary of each of the Seller Trusts is MHT. The current members of MHT are Shawn T. Terry and Mike McGill. The names of the various trusts comprising the Seller Trusts are as follows: The LT-1 Exchange Trust, The LT-2 Exchange Trust, The LT-3 Exchange Trust, The LT-4 Exchange Trust, The LT-5 Exchange Trust, The LT-6 Exchange Trust, The LT-7 Exchange Trust, The LT-8 Exchange Trust, The LT-9 Exchange Trust, The LT-12 Exchange Trust, The LT-14 Exchange Trust, The LT-15 Exchange Trust, The LT-16 Exchange Trust, The LT-17 Exchange Trust, The LT-18 Exchange Trust, The LT-19 Exchange Trust, The LT-20 Exchange Trust, The LT-21 Exchange Trust, The LT-22 Exchange Trust, The LT-23 Exchange Trust, The LT-24 Exchange Trust, The LT-25 Exchange Trust and The LT-26 Exchange Trust.

In connection with the Exchange Transaction, the Company and the Seller Trusts entered into a Stockholders Agreement, which provides (among other standstill provisions) that until the Seller Trusts own, in the aggregate, voting securities representing less than 10% of the total voting power of all voting securities of the Company, all voting securities of the Company voted by the Seller Trusts will be voted solely in proportion with the votes cast by all other holders of voting securities of the Company on the matter. In connection with the Purchase and Contribution Transaction, the Stockholders Agreement was terminated and the Seller Trusts are now entitled to full voting rights with respect to the shares of Common Stock they own and are entitled to cast a majority of the votes on all matters requiring stockholder votes.

(2)      Consists solely of 25,913,516 shares of Common Stock held by the Seller Trusts. Murray T. Holland is one of the trust advisors to the Seller Trusts; the other trust advisor, James E Turvey, is an individual unrelated to Mr. Holland. Mr. Holland and Mr. Turvey have shared decision-making authority with respect to each of the Seller Trusts, including shared voting power and shared dispositive power over the shares of Common Stock held by each of the Seller Trusts. Mr. Holland has an indirect pecuniary interest in the shares of Common Stock held by the Seller Trusts resulting from his ownership interest in 30% of the outstanding membership interests of MHT Financial, LLC (“MHT”), the sole beneficiary of each of the Seller Trusts. Consequently, to the extent that MHT, as beneficiary, receives proceeds from the sale of Common Stock and the Company’s Seller Trust L Bonds due 2023 (the “Seller Trust L Bonds”), as contemplated by the Master Exchange Agreement, in excess of MHT’s contractual obligations, Mr. Holland would have a right to his pro rata share of any distribution of such proceeds if and when made by MHT to its members. There can be no assurance (i) that MHT will receive any proceeds in excess of its contractual obligations, (ii) as to the amount of any such excess, or (iii) that any distribution of such excess will be distributed to members of MHT, including Mr. Holland. Mr. Holland disclaims beneficial ownership of the shares of Common Stock held by the Seller Trusts except to the extent of the pecuniary interest therein described above

(3)      Consists solely of 2,500,000 shares of Common Stock held by Beneficient Capital Company, L.L.C., a Delaware limited liability company (“BCC”). BCC is a wholly-owned subsidiary of Beneficient Company Holdings, L.P., a Delaware limited partnership (“BEN Holdings”). BEN Holdings is also the managing member of BCC. BEN Holdings is controlled by its general partner, The Beneficient Company Group, L.P, a Delaware limited partnership (“BEN LP”). BEN LP is controlled by its general partner, Beneficient Management, L.L.C., a Delaware limited liability company (“BEN Management”). Brad K. Heppner serves as Director, Chairman and Chief Executive Officer of BEN Management. As a result, Mr. Heppner may be deemed to beneficially the shares of Common Stock owned by BCC. Mr. Heppner disclaims beneficial ownership of such shares except to the extent of his pecuniary interest therein. All 2,500,000 shares held by BCC have been pledged as collateral to secure our obligations under our L Bonds pursuant to the Amended and Restated Pledge and Security Agreement dated October 23, 2017.

(4)      Consists solely of 1,452,155 shares of Common Stock held by AltiVerse Capital Markets, L.L.C. (“AltiVerse”). AltiVerse is a Delaware limited liability company for which Hicks Holdings Operating LLC, a Delaware limited liability company (“Hicks Holding”), serves as Manager. Thomas O. Hicks serves as sole manager of Hicks Holdings. As a result, Mr. Hicks may be deemed to beneficially own the shares of Common Stock owned by AltiVerse. Mr. Hicks disclaims beneficial ownership of such shares except to the extent of his pecuniary interest therein. All 1,452,155 shares held by AltiVerse have been pledged as collateral to secure our obligations under our L Bonds pursuant to the Amended and Restated Pledge and Security Agreement dated October 23, 2017.

(5)      Shares reflected in the table include 156,251 of vested stock options currently exercisable or vesting within 60 days granted pursuant to our 2013 Stock Incentive Plan.

(6)      On April 26, 2019, Jon R. Sabes resigned as the Company’s Chief Executive Officer and from all officer positions he held with the Company or any of its subsidiaries prior to such date, other than his position as Chief Executive Officer of the Company’s technology focused wholly owned subsidiaries, Life Epigenetics and youSource.

(7)      On April 26, 2019, Steven F. Sabes resigned from all officer positions he held with the Company or any of its subsidiaries prior to such date, except as Chief Operating Officer of Life Epigenetics.

35

PLAN OF DISTRIBUTION

General

We have registered the offer and sale of 69,756 shares of Redeemable Preferred Stock and 146,812 shares of Series 2 Redeemable Preferred Stock in connection with the solicitation of consents (the “Consents”) to the exchange of such Preferred Stock for preferred stock as it is proposed to be amended pursuant to the proposed Amended and Restated Certificate of Incorporation (the “Exchangeable Redeemable Preferred Stock”). We are not issuing any additional shares of Preferred Stock pursuant to this Registration Statement. However, as the Exchangeable Redeemable Preferred Stock will be deemed to constitute a new security, we are registering the offer and sale of such new securities on this Registration Statement. We will receive no proceeds in exchange for the solicitation of Consents.

Consents will be solicited on a best efforts basis by Emerson Equity LLC (our “dealer manager”). Our dealer manager will enter into participating broker agreements with certain other broker-dealers that are FINRA members, referred to as “Participating Brokers,” to authorize those broker-dealers to solicit consents for the Proposed Amendments. Consents will be solicited on the terms set forth in this joint consent solicitation statement and prospectus and any joint consent solicitation statement and prospectus supplements we may file from time to time. In addition to forming the group of Participating Brokers, our dealer manager provides services to us, which may include telephonic and internet-based seminars for Participating Brokers and informational meetings, and providing information and answering any questions investors or Participating Brokers may have concerning this Consent Solicitation.

We will pay to the dealer manager, which will then pay to the Participating Brokers, commissions of up to 6.375% of the Aggregate Principal Balance of the Consent Fee Qualifying Shares, which the dealer manager will pay to the Participating Brokers for which the Consenting Holder of the Consent Fee Qualifying Shares is a current client, so long as (i) the dealer manager has an agreement in place with such Participating Broker to permit payment of the Broker Consent Fee, and (ii) we receive a duly completed and executed Participating Broker Certification from such Participating Broker. We expect to pay, or cause to be paid, 3.0% of the Aggregate Principal Balance of the Consent Fee Qualifying Shares to the Participating Brokers as registered representative commissions and an additional broker-dealer reallowance of 0.375% of the Aggregate Principal Balance of the Consent Fee Qualifying Shares promptly after the Settlement Date. We expect to pay (i) an additional 1.5% of the Aggregate Principal Balance of the Consent Fee Qualifying Shares to Participating Brokers as registered representative commissions promptly after the first anniversary of the Settlement Date, if the Consenting Holder continues to hold the Consent Fee Qualifying Shares on the first anniversary of the Settlement Date, and (ii) an additional 1.5% of the Aggregate Principal Balance of the Consent Fee Qualifying Shares to Participating Brokers as registered representative commissions promptly after the second anniversary of the Settlement Date if the Consenting Holder continues to hold the Consent Fee Qualifying Shares on the second anniversary of the Settlement Date.

We will pay our dealer manager a dealer manager fee of 0.40625% of the Aggregate Principal Balance of the Consent Fee Qualifying Shares.

In no event will the total commissions and additional compensation exceed 8.00% of the Aggregate Principal Balance of the Consent Fee Qualifying Shares.

The table below sets forth the maximum amount of commissions and additional compensation, as described in footnote (1) to the table below, we may pay in connection with this offering.

Proposed Maximum Aggregate Offering Price(1)

 

Sales
Commission

 

Total(2)

$216,568,000

 

6.78125

%

 

$

14,686,018

____________

(1)      As described above, additional compensation includes a dealer manager fee payable to the dealer manager in an amount equal to 0.40625% of the Aggregate Principal Balance of the Consent Fee Qualifying Shares.

(2)      This total assumes the Proposed Maximum Aggregate Offering Price will equal the Aggregate Principal Balance of the Consent Fee Qualifying Shares, which is unlikely to be the case. Notwithstanding, the combined commissions and additional compensation for this offering will not exceed 8.00% of the Aggregate Principal Balance of the Consent Fee Qualifying Shares.

36

The wholesalers employed by us are registered with and associated persons of our dealer manager. The wholesalers may contact Participating Brokers and their registered representatives to make telephonic and internet-based presentations concerning us and this Consent Solicitation.

The wholesalers will receive a portion of their non-transaction based compensation as compensation for their efforts in soliciting Consents. There are not expected to be any expenses associated with the of the training and education meetings because they will be conducted electronically and/or be internet-based. However, any training and education expenses would be borne by us, but counted toward the 8.00% underwriting compensation limit.

Certain of our employees who are also registered representatives and supervisory principals of the dealer manager have been granted certain share appreciation rights (“SARs”) as part of their compensation. The SARs give such individual the contractual right to receive from us additional cash compensation at any point before the SAR’s expiration, but only if the price of our Common Stock has increased between the grant date and the date when we receive notice of such individual’s intention to exercise the SAR. At the termination of this offering, the aggregate of the appreciation amount, as defined in the SAR agreement, will be calculated and added to the other items of value (e.g., selling commissions and additional forms of compensation) to ensure that aggregate compensation paid in connection with this offering does not exceed 8.00% of the gross offering proceeds.

We will indemnify the selling group members and our dealer manager against some civil liabilities, including certain liabilities under the Securities Act of 1933, as amended, and liabilities arising from breaches of our representations and warranties contained in the dealer manager agreement with the dealer manager.

37

LEGAL MATTERS

Certain legal matters in connection with the Exchangeable Redeemable Preferred Stock will be passed upon for us by Mayer Brown LLP, Chicago, Illinois.

EXPERTS

The consolidated financial statements of GWG Holdings, Inc. and its subsidiaries for the year ended December 31, 2019 included in this joint consent solicitation statement and prospectus and the effectiveness of GWG Holdings, Inc.’s internal control over financial reporting as of December 31, 2019, have been audited by Whitley Penn LLP, independent registered public accounting firm, as set forth in their reports thereon, which are included herein. Such financial statements have been so included in reliance upon the report of Whitley Penn LLP pertaining to such financial statements and the effectiveness of our internal control over financial reporting on the authority of such firm as experts in accounting and auditing.

The consolidated financial statements of GWG Holdings, Inc. and its subsidiaries for the year ended December 31, 2018 included in this joint consent solicitation statement and prospectus have been audited by Baker Tilly US, LLP (formerly known as Baker Tilly Virchow Krause, LLP), independent registered public accounting firm, as set forth in their report thereon. Such financial statements have been so included in reliance upon the report of Baker Tilly US, LLP (formerly known as Baker Tilly Virchow Krause, LLP) on the authority of such firm as experts in accounting and auditing.

The consolidated financial statements of The Beneficient Company Group, L.P. and its subsidiaries for the year ended December 31, 2019 included in this joint consent solicitation statement and prospectus have been audited by Whitley Penn LLP, independent registered public accounting firm, as set forth in their report thereon, which is included herein. Such financial statements have been so included in reliance upon the report of Whitley Penn LLP pertaining to such financial statements on the authority of such firm as experts in accounting and auditing.

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the SEC a Registration Statement on Form S-4 under the Securities Act with respect to the Consent Solicitation pursuant to this joint consent solicitation statement and prospectus which is a part of that registration statement. This joint consent solicitation statement and prospectus does not contain all the information contained in the registration statement. For further information with respect to us and the Consent Solicitation, we refer you to the registration statement, including the agreements, other documents and schedules filed as exhibits to the registration statement.

We file annual, quarterly and current reports, and other information with the SEC. We intend to make these filings available on our website at www.gwgh.com. Information on our website is not incorporated by reference in this joint consent solicitation statement and prospectus. We maintain an office at 325 North St. Paul Street, Suite 2650, Dallas, TX 75201 where all records concerning the Consent Solicitation are to be retained. Holders and their representatives can request information regarding the Consent Solicitation by contacting our office by mail at our address or by telephone at [•] or by fax at [•]. Upon request, we will provide copies of our filings with the SEC free of charge to our investors. Our SEC filings, including the registration statement of which this joint consent solicitation statement and prospectus is a part, will also be available on the SEC’s Internet site at http://www.sec.gov.

38

PROPOSALS OF STOCKHOLDERS

Proposals by stockholders (other than director nominations) that are submitted for inclusion in our proxy statement for our 2020 annual stockholders’ meeting must follow the procedures set forth in Rule 14a-8 under the Securities Exchange Act of 1934, as amended, and our Bylaws. The deadline under Rule 14a-8 for a stockholder proposal to be timely received has passed. However, if the date of our 2020 annual stockholders’ meeting is changed by more than 30 days from the date of the 2019 annual meeting), then the deadline for submitting a stockholder proposal will be a reasonable time before we begin to print and send our proxy materials for our 2020 annual stockholders’ meeting, which deadline will be disclosed prior to such time in one of our SEC filings.

Under our Bylaws, if a stockholder does not submit a proposal for inclusion in our proxy statement but does wish to propose an item of business to be considered at our annual stockholders’ meeting (including director nominations), that stockholder must deliver notice of the proposal or proposed director’s name at our principal executive offices not less than 90 nor more than 120 calendar days prior to the first anniversary of the date on which we first mailed proxy materials for the preceding year’s annual meeting. For our 2020 annual stockholders’ meeting, notices must be received not prior to July 25, 2020 and not later than August 24, 2020.

If the date of our 2020 annual stockholders’ meeting is advanced more than 30 calendar days prior to or delayed by more than 60 calendar days after the anniversary of the 2019 annual meeting, timely notice of stockholder proposals and stockholder nominations for directors may be delivered to or mailed and received at our principal executive offices not less than 90 nor more than 120 calendar days prior to the date of such annual meeting, or if the first public announcement of the date of such annual meeting is less than 100 days prior to the date of such annual meeting, not later than the close of business on the 10th calendar day following the day on which we first make a public announcement of the date of such meeting.

Notices of stockholder proposals and stockholder nominations for directors must comply with the informational and other requirements set forth in our Bylaws as well as applicable statutes and regulations. Due to the complexity of the respective rights of the stockholders and our Company in this area, any stockholder desiring to propose actions or nominate directors is advised to consult with his or her legal counsel with respect to such rights. We suggest that any such proposal be submitted by certified mail return receipt requested.

39

Exhibit A

FORM OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
GWG HOLDINGS, INC.

GWG Holdings, Inc. (the “Corporation” or the “Company”), a corporation organized and existing under the General Corporation Law of the State of Delaware (the “DGCL”), does hereby certify as follows:

1.      The name of the Corporation is GWG Holdings, Inc. The original certificate of incorporation of the Corporation was filed with the Secretary of State of the State of Delaware on June 10, 2011.

2.      This Amended and Restated Certificate of Incorporation, having been duly adopted in accordance with Sections 228, 242 and 245 of the DGCL, further amends and restates the certificate of incorporation of the Corporation.

3.      The certificate of incorporation of the Corporation is hereby amended and restated to read in its entirety as follows:

1.      Name. The name of the corporation (the “Corporation”) is: GWG Holdings, Inc.

2.      Address; Registered Office and Agent. The address of the Corporation’s registered office in the State of Delaware is 1679 S. DuPont Hwy. Suite 100, in the City of Dover, County of Kent Zip Code 19901. The name of its registered agent at such address is Registered Agent Solutions, Inc. The Corporation may from time to time, in the manner provided by law, change the registered agent and the registered office within the State of Delaware. The Corporation may also maintain one or more offices for the conduct of its business either within or without the State of Delaware.

3.      Purposes. The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law.

4.      Number of Shares. The total number of shares of all classes of capital stock that the Corporation shall have authority to issue is Two Hundred Fifty Million One Hundred (250,000,100) shares consisting of: Two Hundred Ten Million (210,000,000) shares of common stock, $.001 par value per share (“Common Stock”); One Hundred (100) shares of Class A Common Stock, $.001 par value per share (the “Class A Common Stock”); and Forty Million (40,000,000) shares of preferred stock, $.001 par value per share (“Preferred Stock”).

Preferred Stock

The Preferred Stock may be divided into and issued from time to time in one or more series. The Board of Directors of the Corporation (“Board”) is authorized from time to time to establish and designate any such series of Preferred Stock, to fix and determine the variations in the relative rights, preferences, privileges and restrictions as between and among such series and any other class of capital stock of the Corporation and any series thereof, and to fix or alter the number of shares comprising any such series and the designation thereof. The authority of the Board with respect to each such series shall include, but not be limited to, determination of the following:

(a)     The designation of the series;

(b)    The number of shares of the series and (except where otherwise provided in the creation of the series) any subsequent increase or decrease therein;

(c)     The dividends, if any, for shares of the series and the rates, conditions, times and relative preferences thereof;

(d)    The redemption rights, if any, and price or prices for shares of the series;

(e)     The terms and amounts of any sinking fund provided for the purchase or redemption of the series;

(f)     The relative rights of shares of the series in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation;

A-1

(g)    Whether the shares of the series shall be convertible into shares of any other class or series of shares of the Corporation, and, if so, the specification of such other class or series, the conversion price(s) or rate(s), any adjustments thereof, the date(s) as of which such shares shall be convertible and all other terms and conditions upon which such conversion may be made;

(h)    The voting rights, if any, of the holders of such series; and

(i)     Such other designations, powers, preference and relative, participating, optional or other special rights and qualifications, limitations or restrictions thereof.

Pursuant to the authority conferred upon the Board by this Article 4, the Board created: (1) a series of Five Million (5,000,000) shares of Preferred Stock designated as the Redeemable Preferred Stock (the “Redeemable Preferred Stock”) by filing the Certificate of Designation of Redeemable Preferred Stock of the Corporation with the Secretary of State of the State of Delaware (the “Secretary of State”) on October 30, 2015, as amended by the Articles of Amendment of Certificate of Designation of Redeemable Preferred Stock of the Corporation, as filed with the Secretary of State on December 30, 2015 and the Articles of Amendment of Certificate of Designation of Redeemable Preferred Stock of the Corporation, as filed with the Secretary of State on April 26, 2016, and as corrected by the Certificate of Correction of the Corporation with respect thereto, as filed with the Secretary of State on November 13, 2019; and (2) a series of One Million (1,000,000) shares of Preferred Stock designated as the Series 2 Redeemable Preferred Stock (the “Series 2 Redeemable Preferred Stock”) by filing the Certificate of Designation of Series 2 Redeemable Preferred Stock of the Corporation with the Secretary of State on February 16, 2017, as corrected by the Certificate of Correction with respect thereto, as filed with the Secretary of State on November 13, 2019. The voting powers, designations, preferences and relative, participating, optional or other special rights of the shares of the Redeemable Preferred Stock and the Series 2 Redeemable Preferred Stock, respectively, and the qualifications, limitations and restrictions thereof, are as set forth on Annex I and Annex II, respectively, and are incorporated herein by reference.

Common Stock and Class A Common Stock

Except as otherwise provided in this Amended and Restated Certificate of Incorporation (as amended from time to time, this “Certificate of Incorporation”) or required by applicable law, shares of Common Stock and Class A Common Stock shall have the same rights and powers, rank equally (including as to dividends and distributions, and upon any liquidation, dissolution or winding up of the Corporation), share ratably and be identical in all respects and as to all matters. The voting, dividend, liquidation and other rights, powers and preferences of the holders of Common Stock and Class A Common Stock are subject to and qualified by the rights, powers and preferences of the holders of the Preferred Stock of any series as have been or may be designated by the Board.

5.      Common Stock Exchange.

(a)     General; Exchange Notice. To the fullest extent permitted by law, the Corporation shall have the right (but not the obligation), at any time, to exchange each share of the then outstanding shares of Common Stock for, with respect to all, but not less than all, of the shares of Common Stock, a number of securities of one or more classes or series of the Corporation or one or more subsidiaries of the Corporation that are registered with the United States Securities and Exchange Commission (the “SEC”), at least one class or series of which is or will be as of the applicable exchange time listed on a national securities exchange (the “exchanged interests” and any such issuer of such exchanged interests, as applicable, the “Issuer”) with an aggregate value not less than the greater of (i) $10.00 (subject to adjustment to reflect any stock split, reverse stock split, stock dividend, reclassification, subdivision, combination, exchange or similar transaction in respect of the Common Stock occurring after the date of the Amended and Restated Certificate of Incorporation containing this sentence becomes effective), and (ii) the volume weighted average price (VWAP) of a share of Common Stock on the principal national securities exchange on which such shares are listed for the twenty (20) trading days immediately prior to the date of the Exchange Notice (as defined below), with the actual amount and type of exchanged interests exchanged for each share of Common Stock, and the value thereof, determined by the Board (which determination shall be final, conclusive and binding) (the exchanged interests exchanged for each share of Common Stock collectively, the “Exchange Consideration”) (subject to the treatment of fractional interests pursuant to Section 5(d)). In the event the Corporation exercises this exchange right, the Corporation shall provide notice to each holder of Common Stock that all of the Common Stock will be exchanged (the “Exchange Notice”) on a date that is no earlier than twenty (20) days after the date of the Exchange Notice (such date, the “Exchange Date”); provided, that in order to ensure that the exchanged interests are registered with the

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SEC and at least one class or series thereof is listed on a national securities exchange, the Corporation may delay the Exchange Date to a later date by publicly filing a document with the SEC that discloses such delay and identifies the delayed Exchange Date. The Exchange Notice, if sent by first-class mail, postage prepaid, to a stockholder’s address as it appears on the records of the Corporation, shall be conclusively presumed to have been duly given, whether or not the holder receives such Exchange Notice. In any case, failure to give such notice or any defect in the notice to the holder of any share of Common Stock shall not affect the validity of the proceedings for the exchange of any share of Common Stock. On the Exchange Date and in accordance with this Article 5, the Corporation will, at its option, to the extent it may then lawfully do so under Delaware law (and for so long as such exchange does not constitute a default under any of the borrowing agreements to which the Corporation or any of its subsidiaries are a party or otherwise bound), exchange each share of Common Stock for the Exchange Consideration (subject to the treatment of fractional interests pursuant to Section 5(d)).

(b)    Stock Certificates; Stock Powers. On or before the Exchange Date, each holder of shares of Common Stock whose shares are being exchanged under this Article 5 shall surrender the certificate(s) representing such shares to the Corporation, if any, duly endorsed, in the manner and at the place designated in the Exchange Notice (or, in the event such shares of Common Stock are uncertificated, such holder shall deliver to the Corporation a stock power, duly executed and in the form to be provided by the Corporation together with the Exchange Notice).

(c)     Effect of Exchange. From and after the Exchange Date, and irrespective of whether any holder of shares of Common Stock has complied with the requirements of paragraph (b) of this Article 5: (i) all shares of Common Stock shall be cancelled on the books and records of the Corporation and shall cease to be outstanding, (ii) the right to receive any dividends on such shares, if any, shall cease to accrue as of the Exchange Date and (iii) all rights of a holder of shares of Common Stock to be exchanged shall cease and terminate other than the right to receive the Exchange Consideration therefor; provided, however, that the shares to be exchanged shall remain issued and outstanding, and all rights of a holder of shares of Common Stock to be exchanged shall continue, solely in the event that a holder shall have delivered the required items under paragraph (b) above as of the Exchange Date but the Corporation shall not have discharged its obligation to provide the Exchange Consideration in exchange therefor.

(d)    Fractional Interests. Notwithstanding anything herein to the contrary, neither the Corporation nor any Issuer shall be obligated to issue fractional exchanged interests in respect of any shares of Common Stock so exchanged and, in lieu of any fractional exchanged interests not so issued, the Corporation shall pay to the holder thereof on the Exchange Date an amount in cash equal to the product of such fraction and the fair value of a share or other unit of such exchanged interest as of the Exchange Date as determined by the Board, which cash payment in respect of any exchanged shares of Common Stock shall be deemed part of the “Exchange Consideration” for all purposes hereunder. For purposes of this Article 5, the Corporation shall be deemed to have discharged its obligation to pay the Exchange Consideration in respect of any such shares of Common Stock if payment is directed to the holder thereof at such holder’s address at it appears on the books and records of the Corporation.

6.      Election of Directors. Unless and except to the extent that the bylaws of the Corporation shall so require, the election of directors of the Corporation need not be by written ballot.

7.      Limitation of Liability. To the fullest extent permitted under the General Corporation Law, as amended from time to time, no director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. Any amendment, repeal or modification of the foregoing provision shall not adversely affect any right or protection of a director of the Corporation hereunder in respect of any act or omission occurring prior to the time of such amendment, repeal or modification.

8.      Indemnification.

(a)     Right to Indemnification. The Corporation shall indemnify and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended, any person (a “Covered Person”) who was or is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a “Proceeding”), by reason of the fact that he or she, or a person for whom he or she is the legal representative, is or was a director or officer of the Corporation or, while a director or officer of the Corporation, is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust, enterprise or nonprofit entity (an “Other Entity”), including service with respect to employee-benefit plans, against all liability and loss suffered and expenses (including attorneys’ fees) reasonably incurred by such Covered Person. Notwithstanding the preceding sentence,

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except as otherwise provided in Section 8(c) below, the Corporation shall be required to indemnify a Covered Person in connection with a Proceeding (or part thereof) commenced by such Covered Person only if the commencement of such Proceeding (or part thereof) by the Covered Person was authorized by the Board.

(b)    Prepayment of Expenses. The Corporation shall pay the expenses (including attorneys’ fees) reasonably incurred by a Covered Person in defending any Proceeding in advance of its final disposition, provided, however, that, to the extent required by applicable law, such payment of expenses in advance of the final disposition of the Proceeding shall be made only upon receipt of an undertaking by the Covered Person to repay all amounts advanced if it should be ultimately determined that the Covered Person is not entitled to be indemnified under this Article 8 or otherwise.

(c)     Claims. If a claim for indemnification or advancement of expenses under this Article 8 is not paid in full within 30 days after a written claim therefor by the Covered Person has been received by the Corporation, then the Covered Person may file suit to recover the unpaid amount of such claim, and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim. In any such action, the Corporation shall have the burden of proving that the Covered Person is not entitled to the requested indemnification or advancement of expenses under applicable law.

(d)    Nonexclusivity of Rights. The rights conferred on any Covered Person by this Article 8 shall not be exclusive of any other rights that such Covered Person may have or hereafter acquire under any statute, provision of this Certificate of Incorporation, the bylaws of the Corporation, agreement, vote of stockholders or disinterested directors, or otherwise.

(e)     Other Sources. The Corporation’s obligation, if any, to indemnify or to advance expenses to any Covered Person who was or is serving at its request as a director, officer, employee or agent of an Other Entity shall be reduced by any amount such Covered Person may collect as indemnification or advancement of expenses from such Other Entity.

(f)     Amendment or Repeal. Any repeal or modification of the foregoing provisions of this Article 8 shall not adversely affect any right or protection hereunder of any Covered Person in respect of any act or omission occurring prior to the time of such repeal or modification.

(g)    Other Indemnification and Prepayment of Expenses. This Article 8 shall not limit the right of the Corporation, to the extent and in the manner permitted by applicable law, to indemnify and to advance expenses to persons other than Covered Persons when and as authorized by appropriate corporate action.

9.      Adoption, Amendment and/or Repeal of Bylaws. In furtherance and not in limitation of the powers conferred by the General Corporation Law, the Board is expressly authorized to make, alter and repeal the bylaws of the Corporation.

10.    Powers of Incorporator. The powers of the incorporator will terminate, without any further action required on the part of such incorporator or the Corporation, immediately upon the election of initial directors of the Corporation by such incorporator.

11.    Certificate Amendments. The Corporation reserves the right at any time, and from time to time, to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, and other provisions authorized by the laws of the State of Delaware may be added or inserted into this Certificate of Incorporation, in the manner now or hereafter prescribed by applicable law; and whatsoever rights, preferences and privileges of any nature conferred upon stockholders, directors or any other persons whomsoever by and pursuant to this Certificate of Incorporation, either in its present form or as hereafter amended, are granted subject to the rights reserved in this Section.

12.    Forum Selection. Unless the Corporation consents in writing to the selection of an alternative forum, (A) (i) any derivative action or proceeding brought on behalf of the Corporation, (ii) any action asserting a claim of breach of a fiduciary duty owed by any current or former director, officer, other employee or stockholder of the Corporation to the Corporation or the Corporation’s stockholders, (iii) any action asserting a claim arising pursuant to any provision of the DGCL, this Certificate of Incorporation or the bylaws of the Corporation (as either may be amended or restated) or as to which the DGCL confers jurisdiction on the Court of Chancery of the State of Delaware or (iv) any action asserting a claim governed by the internal affairs doctrine of the law of the State of Delaware shall, to the fullest extent permitted by law, be exclusively brought in the Court of Chancery of the State of Delaware or, if

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such court does not have subject matter jurisdiction thereof, the federal district court of the State of Delaware; and (B) the federal district courts of the United States shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act of 1933, as amended. Notwithstanding the foregoing, this Section 12 shall not apply to claims seeking to enforce any liability or duty created by the Securities Exchange Act of 1934, as amended. To the fullest extent permitted by law, any person or entity purchasing or otherwise acquiring or holding any interest in shares of capital stock of the Corporation shall be deemed to have notice of and consented to the provisions of this Section 12.

13.    Maintenance of Certain Records. When the terms of this Certificate of Incorporation refer to a decision by any body, person or entity to determine the meaning or operation of a provision hereof, the secretary of the Corporation shall maintain a record of such decision at the principal executive offices of the Corporation and a copy thereof shall be provided free of charge to any stockholder who makes a request therefor.

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IN WITNESS WHEREOF, GWG Holdings, Inc. has caused this Amended and Restated Certificate of Incorporation to be executed by its duly authorized officer on this ____ day of _________________, 2020.

 

GWG HOLDINGS, INC.

   

By:

 

 

       

Name:

       

Title:

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Annex I

REDEEMABLE PREFERRED STOCK

1.      Designation and Amount. The shares of such series shall be designated as “Redeemable Preferred Stock,” and the number of shares constituting the Redeemable Preferred Stock shall be 5,000,000. Such number of shares may be increased or decreased by resolution of the Board adopted and filed pursuant to the DGCL, Section 151(g), or any successor provision; provided, however, that no decrease shall reduce the number of authorized shares of Redeemable Preferred Stock to a number less than the number of such shares then outstanding plus the number of shares reserved for issuance upon the exercise of then-outstanding options, warrants, convertible or exchangeable securities or other rights for the purchase of shares of Redeemable Preferred Stock, if any.

2.      Stated Value.

(a)     Each share of Redeemable Preferred Stock shall have a stated value equal to $1,000 (the “Stated Value”). If at any time after the initial issuance of any shares of Redeemable Preferred Stock, the Company shall effect a stock dividend payable in shares of Redeemable Preferred Stock, a subdivision of the outstanding Redeemable Preferred Stock into a greater number of shares of Redeemable Preferred Stock, or a combination of the outstanding shares of Redeemable Preferred Stock, by reclassification or otherwise, into a lesser number of shares of Redeemable Preferred Stock, then, in any such case, the Stated Value in effect immediately prior to such event shall, concurrently with the effectiveness of such event, be proportionately decreased or increased, as appropriate.

(b)    Upon any adjustment of the Stated Value of the Redeemable Preferred Stock, then and in each such case the Company shall give written notice thereof to the registered holders of the Redeemable Preferred Stock, which notice shall state the Stated Value resulting from such adjustment, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based.

3.      Ranking. The Redeemable Preferred Stock shall rank, as to the payment of dividends and the distribution of assets of the Company upon its liquidation, dissolution or winding up: (a) senior to the Common Stock and Class A Common Stock; (b) pari passu with the Company’s Series 2 Redeemable Preferred Stock; and (c) senior to or pari passu with all other classes and series of the Company’s preferred stock.

4.      Dividends in Cash or in Kind.

(a)     Holders of Redeemable Preferred Stock shall be entitled to receive for each share of Redeemable Preferred Stock, and the Company shall pay, subject to the provisions of the DGCL and legally available funds therefor, preferential cumulative dividends at the per annum rate of 7.0% on the Stated Value, payable in arrears in monthly installments on the 15th day of the next following month (or the next following business day thereafter in the event such date is not a business day), when and as declared by the Board of Directors (the “Preferred Dividends”), (i) in cash out of legally available funds, or (ii) at the Company’s option, in duly authorized, validly issued, fully paid and non-assessable shares of Redeemable Preferred Stock. Preferred Dividends on shares of Redeemable Preferred Stock shall also be payable upon any Redemption Date, as defined below, on the RPS Exchange Date, as defined below, and upon the final distribution date relating to a Liquidation Event, as defined below. Preferred Dividends shall cease to accrue on shares of Redeemable Preferred Stock on the day immediately prior to any Redemption Date, as defined in Section 9(a) below, and on the final distribution date relating to a Liquidation Event. Regular dividends shall be payable to the holders of record of the Redeemable Preferred Stock as of a regular record date that shall be the final business day of each calendar month, which business day is a day on which the Common Stock trades or is eligible for trading on the primary market for such stock, in accordance with the DGCL. Notwithstanding the foregoing, holders of Redeemable Preferred Stock as of a regular record date must have held their Redeemable Preferred Stock for more than two business days (which business days must be a trading day on which the Common Stock trades or is eligible for trading on the primary market for such stock) in order to be eligible to receive a dividend payment on such shares of Redeemable Preferred Stock on the next payment date. In the event that the Common Stock no longer trades or is eligible for trading on a trading market, the requirement in the prior two sentences that a business day shall be a “trading day” shall not apply. In the case of payment by the Company of dividends in the form of shares of Redeemable Preferred Stock, such stock shall be valued at the Stated Value.

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(b)    Preferred Dividends shall be calculated on the basis of a calendar year consisting of twelve 30-day months (or 360 days), and shall begin to accrue on outstanding shares of Redeemable Preferred Stock from the date of each share’s original issuance until paid, whether or not declared. Preferred Dividends shall accrue whether or not there shall be (at the time such Preferred Dividend becomes payable or at any other time) profits, surplus or other funds of the Company legally available for the payment of dividends. Dividends on the Redeemable Preferred Stock shall be cumulative from the date of issue, whether or not declared for any reason, including if such declaration is prohibited under applicable law or any outstanding indebtedness or borrowings of the Company or any of its subsidiaries, or any other contractual provision binding on the Company or any of its subsidiaries.

(c)     No dividend shall be declared on any other series or class or classes of capital stock as to which the Redeemable Preferred Stock ranks senior or pari passu as to dividends or liquidation, including without limitation shares of Common Stock, in respect of any period, nor shall any series or class of capital stock that ranks junior or pari passu to the Redeemable Preferred Stock be redeemed, purchased or otherwise acquired for any consideration (or any money to be paid into any sinking fund or otherwise set apart for the purchase of any such junior stock), unless there shall have been or contemporaneously are declared and paid on all shares of the Redeemable Preferred Stock at the time outstanding all (whether or not earned or declared) accrued and unpaid Preferred Dividends through the most recent payment date; provided, however, that this restriction shall not apply to the repurchase, redemption or exchange by the Company of (i) shares of Common Stock from employees, officers, directors, consultants or other persons performing services for the Company or any of its subsidiaries pursuant to agreements under which the Company has the right or option to repurchase such shares upon the occurrence of certain events or otherwise, (ii) shares of Series 2 Redeemable Preferred Stock pursuant to the terms of this Certificate of Incorporation, or terms superior to those contained within this Certificate of Incorporation for the Series 2 Redeemable Preferred Stock, or (iii) shares of Common Stock for exchanged interests pursuant to this Certificate of Incorporation.

(d)     At or prior to such time as Preferred Dividends are due and payable and prior to the issuance of any RPS Exchange Notice, as defined below, a holder of Redeemable Preferred Stock may elect to convert all or any portion of such holder’s accrued but unpaid Preferred Dividends into Redeemable Preferred Stock, with each share having a value equal to the Stated Value, subject to the adjustments contemplated in Section 2 above. In order to exercise such option, a holder of Redeemable Preferred Stock must deliver written notice to the Company before such Preferred Dividends are paid; provided, however, that once a written notice has been so delivered by a holder, such holder may not change such election during the remainder of the calendar year in which such election shall have been made.

5.      Liquidation Preference. Upon any voluntary or involuntary liquidation, dissolution or winding-up of the Company’s affairs (a “Liquidation Event”), before any distribution or payment shall be made to holders of the Common Stock or any other class or series of capital stock ranking junior to the Redeemable Preferred Stock, the holders of shares of Redeemable Preferred Stock shall be entitled to be paid out of the Company’s assets legally available for distribution to the Company’s stockholders, after payment or provision for the Company’s debts and other liabilities, a liquidation preference equal to the Stated Value per share, plus an amount equal to any accrued and unpaid dividends (whether or not declared) to and including the date of payment.

After payment of the full amount of the liquidating distributions to which they are entitled, the holders of the shares of Redeemable Preferred Stock will have no right or claim to any of the Company’s remaining assets. The Company’s consolidation or merger with or into any other corporation, trust or other entity, the consolidation or merger of any other corporation, trust or entity with or into the Company, the sale or transfer of any or all of the Company’s assets or business, or a statutory share exchange shall not be deemed to constitute a liquidation, dissolution or winding-up of the Company’s affairs.

In determining whether a distribution (other than upon voluntary or involuntary liquidation) by dividend, redemption or other acquisition of shares of the Company’s capital stock, or otherwise, is permitted under Delaware law, amounts that would be needed, if the Company were to be dissolved at the time of any such distribution, to satisfy the preferential rights of the holders of Redeemable Preferred Stock shall not be added to the Company’s total liabilities.

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6.      Voting. Except as otherwise set forth herein or as required by law, holders of the Redeemable Preferred Stock shall not be entitled to vote on any matter on account of their Redeemable Preferred Stock. Unless the DGCL requires otherwise, in the event the DGCL requires the vote of the holders of Redeemable Preferred Stock, voting as a separate class, to authorize an action of the Company, the affirmative vote of holders of a majority of the shares of Redeemable Preferred Stock then outstanding shall constitute the approval of such action by the class.

7.      Certain Notices. The Company will provide the holders of Redeemable Preferred Stock with prior written notice of any meeting of the stockholders of the Company, and written notice of any action taken by the stockholders of the Company without a meeting. The Company will also provide the holders of Redeemable Preferred Stock with at least 20 days’ written notice prior to the consummation of a Liquidation Event.

8.      Protective Provisions. In addition to any other vote or consent required herein or by law, the affirmative vote or written consent of holders of at least a majority of the then-outstanding shares of Redeemable Preferred Stock, voting together as a single class, given in writing or by vote at a meeting, shall be required for the Company to:

(a)     amend, modify, add, repeal or waive any provision of this Annex I or otherwise take any action that modifies any powers, rights, preferences, privileges or restrictions of the Redeemable Preferred Stock (other than an amendment solely for the purpose of increasing the number of shares of Redeemable Preferred Stock designated for issuance hereunder); provided, that the foregoing shall not require any vote of or consent from the holders of the Redeemable Preferred Stock for any exchange transaction effected in accordance with the terms of this Certificate of Incorporation;

(b)    authorize, create or issue shares of any class of stock having rights, preferences or privileges upon a liquidation of the Company that are superior to the Redeemable Preferred Stock; or

(c)     amend the Certificate of Incorporation of the Company in a manner that adversely and materially affects the rights of the Redeemable Preferred Stock.

9.      Redemption and Repurchase; Exchange.

(a)     Redemption at the Option of a Holder.

(i)     Upon receipt of a written notice from a Holder requesting that the Company redeem all or any portion of such Holder’s share(s) (the “Holder Redemption Notice”), the Company may redeem the applicable Redeemable Preferred Stock for the Redemption Price, as defined in Section 9(b)(i), subject, however, to the applicable redemption fee specified below:

(A)    if the Holder Redemption Notice is given prior to the first anniversary of the issuance of such Redeemable Preferred Stock, then a 12% redemption fee shall apply;

(B)    if the Holder Redemption Notice is given on or after the first anniversary of the issuance of such Redeemable Preferred Stock, but prior to the second anniversary of the issuance of such Redeemable Preferred Stock, then a 10% redemption fee shall apply;

(C)    if the Holder Redemption Notice is given on or after the second anniversary of the issuance of such Redeemable Preferred Stock, but prior to the third anniversary of the issuance of such Redeemable Preferred Stock, then an 8% redemption fee shall apply; and

(D)    if the Holder Redemption Notice is given on or after the third anniversary of the issuance of such Redeemable Preferred Stock, then no redemption fee shall apply.

(ii)    After the Company’s receipt of the Holder Redemption Notice, the Company shall provide written notice to such requesting holder specifying whether all or a portion of the Redeemable Preferred Stock sought to be redeemed pursuant to the Holder Redemption Notice will be repurchased by the Company (the “Company Redemption Response”). If all or any portion of such Redeemable Preferred Stock is to be repurchased by the Company, the Company’s written notice shall specify the date on which such repurchase and redemption shall occur, which date shall be no more than 60 days after the giving of the Holder Redemption Notice (such date, the “Redemption Date”), and shall include the stock power, if required, described in paragraph (iv) below. On the Redemption Date and in accordance with this Section 9(a), the Company will, to the extent that it has sufficient funds to consummate a redemption, as determined

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by the Company in its discretion, and to the extent that it may then lawfully do so under the DGCL on the Redemption Date and such payment is further permitted under this Certificate of Incorporation and any then-existing borrowing agreements to which it or its subsidiaries are bound, in connection with the delivery by such holder of the applicable items described in paragraph (iv) below, redeem the shares specified in the Company Redemption Response by paying in cash, via wire transfer of immediately available funds to an account designated in writing by the holder of such shares, an amount per share equal to the applicable Redemption Price.

(iii)   On or before a Redemption Date, a holder of shares of Redeemable Preferred Stock to be redeemed shall surrender to the Company the certificate(s), if any, representing the shares, duly endorsed, in the manner and at the place designated in the Company Redemption Response. In the event such shares are uncertificated, such holder shall deliver to the Company a stock power, duly executed and in the form provided by the Company together with the Company Redemption Response. In the event that less than all of the shares of Redeemable Preferred Stock represented by a certificate are redeemed, the Company shall cause to be issued and delivered to the holder a new certificate representing the unredeemed shares of Redeemable Preferred Stock.

(iv)   From and after the Redemption Date designated in the Company Redemption Response, (A) the shares identified in the Company Redemption Response shall be cancelled on the books and records of the Company, (B) the right to receive Preferred Dividends thereon shall cease to accrue as of the Redemption Date, and (C) all rights of a holder of shares of Redeemable Preferred Stock to be redeemed shall cease and terminate, excepting only the right to receive the Redemption Price therefor; provided, however, that the shares to be redeemed shall remain issued and outstanding, and all rights of a holder of shares of Redeemable Preferred Stock to be redeemed shall continue, in the event that a holder shall have delivered the required items under paragraph (iv) above as of the Redemption Date but the Company shall not have discharged its obligation to pay the Redemption Price.

(v)    If the Company (A) is unable by virtue of applicable law or provisions in this Certificate of Incorporation to redeem shares of Redeemable Preferred Stock in connection with a Holder Redemption Notice, or (B) cannot redeem shares of Redeemable Preferred Stock in connection with a Holder Redemption Notice without constituting a default under any of the borrowing agreements to which the Company or any of its subsidiaries are a party or otherwise bound, then such redemption obligation shall be discharged promptly after the Company shall have become able to discharge such redemption obligation under applicable law and without causing or constituting a default under any of such borrowing agreements, with all such deferred redemption obligations being satisfied on a prorated basis and regardless of the order in which Holder Redemption Notices shall have been received by the Company. If and so long as the redemption obligation with respect to shares of Redeemable Preferred Stock shall not be fully discharged, the Company shall not declare or make any dividend or other distribution on any junior class or series of capital stock or, directly or indirectly, redeem, purchase or otherwise acquire for any consideration any shares of a junior class or series of capital stock or discharge any optional redemption, sinking-fund or other similar obligation in respect of any such junior class or series of capital stock; provided, however, that this restriction shall not apply to the repurchase by the Company of (i) shares of Common Stock from employees, officers, directors, consultants or other persons performing services for the Company or any of its subsidiaries pursuant to agreements under which the Company has the right or option to repurchase such shares upon the occurrence of certain events or otherwise, (ii) shares of Series 2 Redeemable Preferred Stock pursuant to the terms of this Certificate of Incorporation, or terms superior to those contained within this Certificate of Incorporation for Series 2 Redeemable Preferred Stock, or (iii) shares of Common Stock for exchanged interests pursuant to this Certificate of Incorporation.

(b)    Redemption at the Option of Company.

(i)     After the first anniversary of the date of original issuance of any shares of Redeemable Preferred Stock, the Company shall have the right (but not the obligation) to redeem such shares at a price per share equal to 100% of the Stated Value, plus an amount equal to all Preferred Dividends (whether or not declared) accrued and unpaid thereon up to but not including the redemption date (the “Redemption Price”). In the event the Company exercises this redemption right, the Company shall deliver written notice to each holder of Redeemable Preferred Stock that all or part of the Redeemable Preferred Stock

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will be redeemed (the “Company Redemption Notice”) on a date that is no earlier than 20 and no later than 60 days after the date of the Company Redemption Notice (such date, the “Company Redemption Date”). On the Company Redemption Date and in accordance with this Section 9(b), the Company will, at its option, to the extent it may then lawfully do so under the DGCL (and for so long as (i) a redemption is permitted under the Certificate of Incorporation, and (ii) such redemption does not constitute a default under any of the borrowing agreements to which the Company or any of its subsidiaries are a party or otherwise bound), redeem the shares specified in the Company Redemption Notice by paying in cash, via wire transfer of immediately available funds to an account designated in writing by the holder, an amount per share equal to the Redemption Price. If the Company elects to redeem less than all of the Redeemable Preferred Stock, it shall do so ratably among all holders of Redeemable Preferred Stock to the extent their shares shall have been issued and outstanding for at least one year as of the date of the Company Redemption Notice.

(ii)    On or before the Company Redemption Date, each holder of shares of Redeemable Preferred Stock whose shares are being redeemed under this Section 9(b) shall surrender the certificate(s) representing such shares to the Company, if any, duly endorsed, in the manner and at the place designated in the Company Redemption Notice. In the event such shares of Redeemable Preferred Stock are uncertificated, such holder shall deliver to the Company a stock power, duly executed and in the form to be provided by the Company together with the Company Redemption Notice.

(iii)   From and after the Company Redemption Date, (A) the shares identified in the Company Redemption Notice shall be cancelled on the books and records of the Company, (B) the right to receive Preferred Dividends thereon shall cease to accrue as of the Company Redemption Date, and (C) all rights of a holder of shares of Redeemable Preferred Stock to be redeemed shall cease and terminate, excepting only the right to receive the Redemption Price therefor; provided, however, that the shares to be redeemed shall remain issued and outstanding, and all rights of a holder of shares of Redeemable Preferred Stock to be redeemed shall continue, in the event that a holder shall have delivered the required items under paragraph (ii) above as of the Company Redemption Date but the Company shall not have discharged its obligation to pay the Redemption Price.

(c)     Repurchase in the Event of Death, Disability or Bankruptcy.

(i)     Subject to the terms of this Section 9(c), within 45 days of the death, Total Permanent Disability or Bankruptcy, as each such term is defined below, of a holder or Beneficial Holder, as defined below, of Redeemable Preferred Stock (a “Holder Repurchase Event”), the estate of such holder or Beneficial Holder (in the event of death) or such holder or Beneficial Holder or his or her legal representative (in the event of Total Permanent Disability or Bankruptcy) may request the Company to repurchase, in whole but not in part, without penalty, the Redeemable Preferred Stock held by such holder (including Redeemable Preferred Stock of the holder held in his or her individual retirement accounts) or Beneficial Holder by delivering to the Company a written request for repurchase (the “Repurchase Request”). Any such Repurchase Request shall set forth the particular Holder Repurchase Event giving rise to the right of the holder or Beneficial Holder to have his or her Redeemable Preferred Stock repurchased by the Company. If Redeemable Preferred Stock is held jointly by natural persons who are legally married, then a Repurchase Request may be made by the surviving holder (or Beneficial Holder) upon the occurrence of a Holder Repurchase Event arising by virtue of a death, or may be made by the disabled or bankrupt holder or Beneficial Holder (or his or her legal representative) upon the occurrence of a Holder Repurchase Event arising by virtue of a Total Permanent Disability or Bankruptcy. In the event Redeemable Preferred Stock is held together by two or more natural persons that are not legally married (regardless of whether held as joint tenants, co-tenants or otherwise), neither of these persons shall have the right to request that the Company repurchase such Redeemable Preferred Stock unless a Holder Repurchase Event shall have occurred for all such co-holders. Other than a Beneficial Holder, a holder that is not an individual natural person does not have the right to request repurchase under this Section 9(c).

(ii)    Upon receipt of a Repurchase Request, the Company shall designate a date for the repurchase of Redeemable Preferred Stock (the “Repurchase Date”), which date shall not be later than the 60th day after the Company shall have received facts or certifications establishing, to the reasonable satisfaction of the Company, the occurrence of the Holder Repurchase Event. On the Repurchase Date, the Company shall,

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to the extent that it may then lawfully do so under the DGCL on the Repurchase Date and such payment is further permitted under this Certificate of Incorporation and any then-existing borrowing agreements to which it or its subsidiaries are bound, pay the holder or Beneficial Holder, or the estate of the holder or Beneficial Holder, a redemption price equal to the aggregate Stated Value of such Redeemable Preferred Stock to be repurchased, plus accrued but unpaid Preferred Dividends thereon through but not including the Repurchase Date.

(iii)   For purposes of this Section 9(c), the capitalized terms Bankruptcy, Beneficial Holder, and Total Permanent Disability shall have the meanings set forth below:

(A)    “Bankruptcy” means, with respect to a holder of Redeemable Preferred Stock who is a natural person, the (1) commencement of a voluntary bankruptcy case by that holder; (2) consent to the entry of an order for relief against such holder in an involuntary bankruptcy case; or (3) consent to the appointment of a custodian of it or for all or substantially all of its property.

(B)    “Beneficial Holder” means an individual natural person that holds a beneficial interest in Redeemable Preferred Stock through a custodian or nominee, including a broker-dealer.

(C)    “Total Permanent Disability” means, with respect to a holder of Redeemable Preferred Stock who is a natural person, a determination by a physician approved by the Company that such holder, who was gainfully employed and working on a full-time basis as of the date on which such Redeemable Preferred Stock was purchased, has been unable to work on a full-time basis for at least 24 consecutive months. In this regard, working “on a full-time basis” shall mean working at least 40 hours per week.

(d)    Exchange.

(i)     To the fullest extent permitted by law, the Company shall have the right (but not the obligation), at any time, to exchange all of the then outstanding shares of Redeemable Preferred Stock for the following consideration in respect of each such share so exchanged: (x) a number of preferred equity securities of the Company or one or more subsidiaries of the Company that are or will be as of the applicable exchange time registered with the SEC (the “RPS exchanged preferred interests” and any such issuer of such RPS exchanged interests, as applicable, the “RPS Issuer”) equal to the RPS Exchange Amount (as defined below) and (y) a cash payment equal to all Preferred Dividends (whether or not declared) accrued and unpaid on such share of Redeemable Preferred Stock up to but not including the RPS Exchange Date (the “RPS Exchange Unpaid Dividend Amount” and, together with the applicable RPS exchanged preferred interests, the “RPS Exchange Consideration”). For purposes of this Section 9(d), the “RPS Exchange Amount” shall mean RPS exchanged preferred interests with an aggregate liquidation preference equal to the Stated Value of the Redeemable Preferred Stock. Each RPS exchanged preferred interest shall have rights, powers and preferences substantially similar to the rights, powers and preferences of the Redeemable Preferred Stock set forth herein; provided, that, notwithstanding anything herein to the contrary, each RPS exchanged preferred interest: (A) need not (1) have any rights, powers or preferences of the Redeemable Preferred Stock provided under the DGCL and not set forth herein or (2) be listed on any national securities exchange and (B) shall (1) have the same liquidation preference as the Stated Value of a share of Redeemable Preferred Stock; provided, that if the RPS Exchange Consideration includes more than one RPS exchanged preferred interest, then the aggregate liquidation preference of all of such RPS exchanged preferred interests shall be the same as the Stated Value of a share of Redeemable Preferred Stock, (2) rank at the time of such exchange pari passu to the other preferred equity securities, and senior to the common equity securities, of the RPS Issuer, (3) accrue monthly cumulative dividends of not less than 7.5% per annum, subject to increase in the Board’s discretion, on the stated value of such RPS exchanged preferred interest payable when, as and if declared by the board of directors, manager, general partner or other governing body or person of the RPS Issuer in cash or in kind at the election of the RPS Issuer, (4) have no voting powers except for those substantially similar to the voting powers of the Redeemable Preferred Stock expressly set forth herein, (5) have no protective provisions beyond protective provisions substantially similar to those provided in Section 8 with respect to the Redeemable Preferred

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Stock, (6) be subject to redemption on terms substantially similar to those provided under subsections (a), (b) and (c) of this Section 9, and (7) be subject to conversion into common equity securities of the RPS Issuer or a subsidiary of the RPS Issuer on terms substantially similar to those governing the conversion of the Redeemable Preferred Stock under Section 10; provided, that the conversion price shall be equal to, or less than, $12.00 per common equity security, as the same may be equitably adjusted upon stock dividends, subdivisions or combinations, by reclassification or otherwise after the issuance of such common equity securities. In the event the Company exercises this exchange right, the Company shall provide notice to each holder of Redeemable Preferred Stock that the Redeemable Preferred Stock will be exchanged (the “RPS Exchange Notice”) on a date that is no earlier than twenty (20) days after the date of the RPS Exchange Notice (such date, the “RPS Exchange Date”); provided, that in order to ensure that the RPS exchanged preferred interests are registered with the SEC or the securities issued in connection with any exchange of the Common Stock of the Company are registered with the SEC or listed on a national securities exchange, the Company may delay the RPS Exchange Date to a later date by publicly filing a document with the SEC that discloses such delay and identifies the delayed RPS Exchange Date. The RPS Exchange Notice, if sent by first-class mail, postage prepaid, to a stockholder’s address as it appears on the records of the Company, shall be conclusively presumed to have been duly given, whether or not the holder receives such RPS Exchange Notice. In any case, failure to give such notice or any defect in the notice to the holder of any share of Redeemable Preferred Stock shall not affect the validity of the proceedings for the exchange of any share of Redeemable Preferred Stock. On the RPS Exchange Date and in accordance with this Section 9(d), the Company will, at its option, to the extent it may then lawfully do so under Delaware law (and for so long as such exchange does not constitute a default under any of the borrowing agreements to which the Company or any of its subsidiaries are a party or otherwise bound), exchange the shares specified in the RPS Exchange Notice by: (x) paying in cash, via wire transfer of immediately available funds to an account designated in writing by the holder, an amount per share equal to the RPS Exchange Unpaid Dividend Amount with respect to such shares; and (y) causing the applicable RPS exchanged preferred interests in respect of each share of Redeemable Preferred Stock so exchanged to be distributed to the holder thereof (subject to the treatment of fractional interests pursuant to Section 9(d)(iv)). The Board shall have the power and authority to make all determinations regarding whether or not a characteristic of a security is “substantially similar” to that of another security and all such determinations made by the Board shall be final, conclusive and binding.

(ii)    On or before the RPS Exchange Date, each holder of shares of Redeemable Preferred Stock whose shares are being exchanged under this Section 9(d) shall (i) surrender the certificate(s) representing such shares to the Company, if any, duly endorsed, in the manner and at the place designated in the RPS Exchange Notice (or, in the event such shares of Redeemable Preferred Stock are uncertificated, such holder shall deliver to the Company a stock power, duly executed and in the form to be provided by the Company together with the RPS Exchange Notice) and (ii) designate in writing to the Company an account for payment of the RPS Exchange Unpaid Dividend Amount and any amounts to be paid pursuant to paragraph (iv) below.

(iii)   From and after the RPS Exchange Date, and irrespective of whether any holder of shares of Redeemable Preferred Stock has complied with the requirements of Section 9(d)(ii) hereof: (A) all shares of Redeemable Preferred Stock shall be cancelled on the books and records of the Company and shall cease to be outstanding, (B) the right to receive Preferred Dividends thereon shall cease to accrue as of the RPS Exchange Date, and (C) all rights of a holder of shares of Redeemable Preferred Stock to be exchanged shall cease and terminate other than the right to receive the RPS Exchange Consideration therefor; provided, however, that the shares to be exchanged shall remain issued and outstanding, and all rights of a holder of shares of Redeemable Preferred Stock to be exchanged shall continue, solely in the event that a holder shall have delivered the required items under paragraph (ii) above as of the RPS Exchange Date but the Company shall not have discharged its obligation to pay the RPS Exchange Consideration in exchange therefor.

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(iv)   Notwithstanding anything herein to the contrary, neither the Company nor the RPS Issuer shall be obligated to issue fractional units or shares of RPS exchanged preferred interests in respect of any shares of Redeemable Preferred Stock so exchanged and, in lieu of any fractional units or shares of the RPS exchanged preferred interests not so issued, the Company shall pay to the holder thereof on the RPS Exchange Date, an amount in cash equal to the product of such fraction and the fair value of a share or unit of such RPS exchanged preferred interest as of the RPS Exchange Date as determined by the Board, which cash payment in respect of any exchanged shares of Redeemable Preferred Stock shall be deemed part of the “RPS Exchange Consideration” for all purposes hereunder.

10.    Conversion.

(a)     Conversions at Option of Holder. Holders of Redeemable Preferred Stock have the option to convert their Redeemable Preferred Stock, plus accrued but unpaid Preferred Dividends thereon, at any time and from time to time and prior to the issuance of any RPS Exchange Notice, into that number of shares of Common Stock determined by dividing the Stated Value of such shares of Redeemable Preferred Stock (plus accrued but unpaid Preferred Dividends thereon, if being converted) by the Conversion Price, as defined below; provided, however, that the maximum amount of Redeemable Preferred Stock, together with accrued but unpaid Preferred Dividends thereon, that any holder may convert shall not exceed 15% of the Stated Value of Redeemable Preferred Stock originally purchased by such holder from the Company and still held by such holder (excluding, for this purpose, shares of Redeemable Preferred Stock issued to the holder in satisfaction of Preferred Dividends); and provided, further, that upon the giving of a Company Redemption Notice, the right to convert shares of Redeemable Preferred Stock subject to redemption shall be suspended through the Company Redemption Date. Holders of Redeemable Preferred Stock shall effect conversions by delivering to the Company a conversion notice in the form provided by the Company (a “Notice of Conversion”). Each Notice of Conversion shall specify the number of shares of Redeemable Preferred Stock to be converted (and whether any accrued but unpaid dividends thereon are being converted), and the date on which such conversion is to be effected, which date may not be prior to the date the applicable Notice of Conversion is delivered to the Company (such date, the “Conversion Date”). If no Conversion Date is specified in a Notice of Conversion, then the Conversion Date shall be the date that such Notice of Conversion is deemed given hereunder.

(b)    Conversion Price. The conversion price for the Redeemable Preferred Stock shall be the volume-weighted average price of the Company’s Common Stock for the 20 trading days immediately prior to the date of conversion of such Redeemable Preferred Stock (the “Conversion Price”), subject, however, to a minimum Conversion Price of $15, as the same may be equitably adjusted upon stock dividends, subdivisions or combinations, by reclassification or otherwise.

(c)     Mechanics of Conversion.

(i)     Not later than five business days after each Conversion Date (the “Share Delivery Date”), the Company shall deliver, or cause to be delivered, to the converting holder of Redeemable Preferred Stock a certificate representing the Conversion Shares or shall deliver any Conversion Shares electronically through the Depository Trust Company or another established clearing corporation performing similar functions. “Conversion Shares” means, collectively, the shares of Common Stock issued and issuable upon conversion of the shares of Redeemable Preferred Stock in accordance with the terms hereof.

(ii)    Failure to Deliver Certificates. If, in the case of any Notice of Conversion, such certificate or certificates are not delivered to or as directed by the applicable holder of Redeemable Preferred Stock by the Share Delivery Date, such holder shall be entitled to elect by written notice to the Company at any time on or before its receipt of such certificate or certificates, to rescind such Conversion Notice, in which event such holder shall promptly return to the Company the Common Stock certificates, if any, issued to such holder pursuant to the rescinded Conversion Notice.

(iii)   Reservation of Shares Issuable Upon Conversion. The Company covenants that it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock for the sole purpose of issuance upon conversion of the Redeemable Preferred Stock, as herein provided, free from preemptive rights or any other actual contingent purchase rights, that number of shares of the Common

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Stock as shall be issuable upon the conversion of all then-outstanding shares of Redeemable Preferred Stock eligible for conversion hereunder. The Company covenants that all shares of Common Stock that shall be so issuable shall, upon issuance, be duly authorized, validly issued, fully paid and non-assessable.

(iv)   Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of the Redeemable Preferred Stock. As to any fraction of a share which the holder of Redeemable Preferred Stock would otherwise be entitled to purchase upon such conversion, the Company shall at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Conversion Price or round up to the next whole share.

(v)    Transfer Taxes and Expenses. The issuance of certificates for shares of the Common Stock on conversion of the Redeemable Preferred Stock shall be made without charge to any holder of Redeemable Preferred Stock for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such certificates, provided that the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such certificate upon conversion in a name other than that of the holders of such shares of Redeemable Preferred Stock and the Company shall not be required to issue or deliver such certificates unless or until the holder requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. The Company shall pay all transfer agent fees required for processing of any Notice of Conversion.

11.    No Sinking Fund. The Company shall not be required to establish any sinking or retirement fund with respect to the shares of Redeemable Preferred Stock.

12.    Fractional Shares. Redeemable Preferred Stock may be issued in fractional shares.

13.    Loss, Theft or Destruction. Upon receipt of evidence satisfactory to the Company of the loss, theft, destruction, or mutilation of shares of Redeemable Preferred Stock and, in the case of any such loss, theft or destruction, upon receipt of indemnity or security reasonably satisfactory to the Company, or, in the case of any such mutilation, upon surrender and cancellation of any certificate representing such Redeemable Preferred Stock, the Company cause to be made, issued and delivered, in lieu of such lost, stolen, destroyed or mutilated shares of Redeemable Preferred Stock, new shares of Redeemable Preferred Stock of like tenor.

14.    Who Deemed Absolute Owner. The Company may deem the holder in whose name the Redeemable Preferred Stock shall be registered upon the books and records of the Company to be, and may treat it as, the absolute owner of the Redeemable Preferred Stock for the purpose of making payment of Preferred Dividends, for the payment or issuance of the Redemption Price or the RPS Exchange Consideration, and for all other purposes, and the Company shall not be affected by any notice to the contrary. All such payments shall be valid and effectual to satisfy and discharge the liability of the Company in respect of the Redeemable Preferred Stock to the extent of the sum or sums so paid.

15.    Notices. Unless otherwise provided herein, all notices or other communications or deliveries to be provided shall be given in writing and delivered (a) in person (b) by overnight courier, or (c) mailed by first-class mail (registered or certified, return-receipt requested), facsimile or email, to the other’s address:

If to the Company:

 

GWG Holdings, Inc.
325 North St. Paul Street, Suite 2650
Dallas, TX 75201Attention: General Counsel
Facsimile:(651) 925-0555

If to a holder of Redeemable Preferred Stock:

 

such address as is shown on the books and records of the Company or such other more recent address as a holder of Redeemable Preferred Stock shall have provided in writing to the Company.

Notice shall be treated as given when personally received or, if sent as provided above, the effective date of the notice shall, as applicable, be the date of delivery if delivered in person, the date of the written receipt received upon delivery if delivered via overnight courier, three days after date the notice is sent if mailed by first-class mail (registered or return-receipt requested), the date on which transmitted by confirmed facsimile, or the day after the date on which transmitted via an email address of record (without receipt of any failure notice).

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15.    Reacquired Shares. If any Redeemable Preferred Stock is exchanged, redeemed, purchased or otherwise acquired by the Company in any manner, such shares shall be returned to the number of authorized but unissued shares of Redeemable Preferred Stock.

16.    Severability. If any provision of this Annex I, or the application thereof to any person or entity or any circumstance, is invalid or unenforceable, then (i) a suitable and equitable provision shall be substituted therefor in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid or unenforceable provision, and (ii) the remainder of this Annex I and the application of such provision to other persons, entities or circumstances shall not be affected by such invalidity or unenforceability, nor shall such invalidity or unenforceability affect the validity or enforceability of such provision, or the application thereof, in any other jurisdiction.

* * * * * * *

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Annex II

SERIES 2 REDEEMABLE PREFERRED STOCK

1.      Designation and Amount. The shares of such series shall be designated as “Series 2 Redeemable Preferred Stock,” and the number of shares constituting the Series 2 Redeemable Preferred Stock shall be 1,000,000. Such number of shares may be increased or decreased by resolution of the Board adopted and filed pursuant to the DGCL, Section 151(g), or any successor provision; provided, however, that no decrease shall reduce the number of authorized shares of Series 2 Redeemable Preferred Stock to a number less than the number of such shares then outstanding plus the number of shares reserved for issuance upon the exercise of any then-outstanding options, warrants, convertible or exchangeable securities or other rights for the purchase of shares of Series 2 Redeemable Preferred Stock, if any.

2.      Stated Value.

(a)     Each share of Series 2 Redeemable Preferred Stock shall have a stated value equal to $1,000 (the “Stated Value”). If at any time after the initial issuance of any shares of Series 2 Redeemable Preferred Stock, the Company effects (i) a stock dividend payable in shares of Series 2 Redeemable Preferred Stock, (ii) a subdivision of the outstanding Series 2 Redeemable Preferred Stock into a greater number of shares of Series 2 Redeemable Preferred Stock, or (iii) a combination of the outstanding shares of Series 2 Redeemable Preferred Stock, by reclassification or otherwise, into a lesser number of shares of Series 2 Redeemable Preferred Stock, then, in any such case, the Stated Value in effect immediately prior to such event shall, concurrently with the effectiveness of such event, be proportionately decreased or increased, as appropriate.

(b)    Upon any adjustment of the Stated Value of the Series 2 Redeemable Preferred Stock, then and in each such case the Company shall give written notice thereof to the registered holders of the Series 2 Redeemable Preferred Stock (“Holders”), which notice shall state the new stated value resulting from such adjustment and set forth in reasonable detail the method of calculation and the facts upon which such calculation is based.

3.      Ranking. As to the payment of dividends and the distribution of assets of the Company upon its liquidation, dissolution or winding up, the Series 2 Redeemable Preferred Stock shall rank as follows: (a) senior to the Common Stock and Class A Common Stock; (b) pari passu with the Company’s Redeemable Preferred Stock; and (c) senior to or pari passu with all other classes and series of the Company’s preferred stock.

4.      Dividends in Cash or in Kind.

(a)     Holders shall be entitled to receive for each share of Series 2 Redeemable Preferred Stock, and the Company shall pay, subject to the provisions of the DGCL and legally available funds therefor, preferential cumulative dividends at the per annum rate of 7.0% on the Stated Value, payable in arrears in monthly installments on the 15th day of the next following month (or if such date is not a business day, then the next following business day), when and as declared by the Board (the “Preferred Dividends”), (i) in cash out of legally available funds, or (ii) at the Company’s option, in duly authorized, validly issued, fully paid and non-assessable shares of Series 2 Redeemable Preferred Stock. Preferred Dividends on shares of Series 2 Redeemable Preferred Stock shall also be payable upon any Redemption Date, as defined below, on the RPS2 Exchange Date, as defined below, and upon the final distribution date relating to a Liquidation Event, as defined below.

(b)    Preferred Dividends shall cease to accrue on shares of Series 2 Redeemable Preferred Stock on the day immediately prior to any Redemption Date, as defined in Section 9(a) below, and on the final distribution date relating to a Liquidation Event.

(c)     Regular dividends shall be payable to the Holders, in accordance with the DGCL, as of each regular record date that is the final business day of a calendar month that is also a day on which the Company’s common stock trades or is eligible for trading on the primary market for such stock. Notwithstanding the foregoing, Holders as of a regular record date must have held their Series 2 Redeemable Preferred Stock for more than two business days (each of which must also have been a trading day on which the Company’s common stock traded or was eligible for trading on the primary market for such stock) in order to be eligible to receive a dividend payment on the next payment date. If the Company’s common stock no longer trades or is eligible for trading on a trading market, then the requirement in the prior two sentences that a business day shall be a “trading day” shall not apply. In the case of payment by the Company of dividends in the form of shares of Series 2 Redeemable Preferred Stock, such stock shall be valued at the Stated Value.

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(d)    Preferred Dividends shall be calculated on the basis of a calendar year consisting of twelve 30-day months (or 360 days), and shall begin to accrue on outstanding shares of Series 2 Redeemable Preferred Stock from the date of each share’s original issuance until paid, whether or not declared. Preferred Dividends shall accrue whether or not there are profits, surplus or other funds of the Company legally available for the payment of dividends at the time such Preferred Dividends become payable or at any other time. Preferred Dividends shall be cumulative from the date of issue, whether or not declared for any reason, including if such declaration is prohibited under applicable law or any outstanding indebtedness or borrowings of the Company or any of its subsidiaries, or any other contractual provision binding on the Company or any of its subsidiaries.

(e)     No dividend shall be declared on any other series or class or classes of capital stock to which the Series 2 Redeemable Preferred Stock ranks senior or pari passu as to dividends or liquidation, including without limitation shares of Common Stock, in respect of any period, nor shall any series or class of capital stock that ranks junior or pari passu to the Series 2 Redeemable Preferred Stock be redeemed, purchased or otherwise acquired for any consideration (or any money to be paid into any sinking fund or otherwise set apart for the purchase of any such junior stock), unless all accrued and unpaid Preferred Dividends through the most recent payment date have been or contemporaneously are declared and paid on all then-outstanding shares of the Series 2 Redeemable Preferred Stock; provided, however, that this restriction shall not apply to the repurchase, redemption or exchange by the Company of (i) shares of Common Stock from employees, officers, directors, consultants or other persons performing services for the Company or any of its subsidiaries pursuant to agreements under which the Company has the right or option to repurchase such shares upon the occurrence of certain events or otherwise, (ii) shares of Redeemable Preferred Stock pursuant to the terms of this Certificate of Incorporation, or terms superior to those contained within this Certificate of Incorporation for the Redeemable Preferred Stock, or (iii) shares of Common Stock for exchanged interests pursuant to this Certificate of Incorporation.

5.      Liquidation Preference.

Upon any voluntary or involuntary liquidation, dissolution or winding-up of the Company’s affairs (a “Liquidation Event”), before any distribution or payment shall be made to holders of the Common Stock or any other class or series of capital stock ranking junior to the Series 2 Redeemable Preferred Stock, the holders of shares of Series 2 Redeemable Preferred Stock shall be entitled to be paid out of the Company’s assets legally available for distribution to the Company’s stockholders, after payment or provision for the Company’s debts and other liabilities, a liquidation preference equal to the Stated Value per share, plus an amount equal to any accrued and unpaid dividends (whether or not declared) to and including the date of payment.

After payment of the full amount of the liquidating distributions to which they are entitled, the holders of the shares of Series 2 Redeemable Preferred Stock will have no right or claim to any of the Company’s remaining assets. The Company’s consolidation or merger with or into any other corporation, trust or other entity, the consolidation or merger of any other corporation, trust or entity with or into the Company, the sale or transfer of any or all of the Company’s assets or business, or a statutory share exchange shall not be deemed to constitute a liquidation, dissolution or winding-up of the Company’s affairs.

In determining whether a distribution (other than upon voluntary or involuntary liquidation) by dividend, redemption or other acquisition of shares of the Company’s capital stock, or otherwise, is permitted under Delaware law, amounts that would be needed, if the Company were to be dissolved at the time of any such distribution, to satisfy the preferential rights of the holders of Series 2 Redeemable Preferred Stock shall not be added to the Company’s total liabilities.

6.      Voting. Except as otherwise set forth herein or as required by law, Holders shall not be entitled to vote on any matter on account of their Series 2 Redeemable Preferred Stock. If the DGCL requires the vote of the Holders, voting as a separate class, to authorize an action of the Company, then the affirmative vote of the Holders of a majority of then-outstanding shares of Series 2 Redeemable Preferred Stock shall constitute the approval of such action by the class, unless the DGCL requires a different threshold, in which case such different threshold shall apply.

7.      Certain Notices. The Company will provide the Holders with prior written notice of any meeting of the stockholders of the Company, and written notice of any action taken by the stockholders of the Company without a meeting. The Company will also provide the Holders with at least 20 days’ written notice prior to the consummation of a Liquidation Event.

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8.      Protective Provisions. In addition to any other vote or consent required herein or by law, the affirmative vote or written consent of Holders of a majority of then-outstanding shares of Series 2 Redeemable Preferred Stock, voting together as a single class, given in writing or by a vote at a meeting, shall be required for the Company to:

(a)     amend or waive any provision of this Annex II or otherwise take any action that modifies any powers, rights, preferences, privileges or restrictions of the Series 2 Redeemable Preferred Stock (other than an amendment solely for the purpose of changing the number of shares of Series 2 Redeemable Preferred Stock designated for issuance hereunder, as contemplated in Section 1 above); provided, that the foregoing shall not require any vote of or consent from the holders of the Series 2 Redeemable Preferred Stock for any exchange transaction effected in accordance with the terms of this Certificate of Incorporation;

(b)    authorize, create or issue shares of any class of stock having rights, preferences or privileges upon a liquidation of the Company that are superior to the Series 2 Redeemable Preferred Stock; or

(c)     amend the Certificate of Incorporation of the Company in a manner that adversely and materially affects the rights of the Series 2 Redeemable Preferred Stock.

9.      Redemption and Repurchase; Exchange.

(a)     Redemption Request by a Holder.

(i)     Upon receipt of a written notice from a Holder requesting that the Company redeem all or any portion of such Holder’s share(s) (the “Holder Redemption Notice”), the Company may choose to (but shall not be obligated to) redeem the applicable Series 2 Redeemable Preferred Stock for the Redemption Price, as defined in Section 9(b)(i), subject, however, to the applicable redemption fee specified below:

(A)    if the Holder Redemption Notice is given prior to or on the first anniversary of the issuance of such Series 2 Redeemable Preferred Stock, then a 12% redemption fee shall apply;

(B)    if the Holder Redemption Notice is given after the first anniversary of the issuance of such Series 2 Redeemable Preferred Stock and prior to or on the second anniversary of the issuance of such Series 2 Redeemable Preferred Stock, then a 10% redemption fee shall apply;

(C)    if the Holder Redemption Notice is given after the second anniversary of the issuance of such Series 2 Redeemable Preferred Stock and prior to or on the third anniversary of the issuance of such Series 2 Redeemable Preferred Stock, then a 8% redemption fee shall apply; and

(D)    if the Holder Redemption Notice is given after the third anniversary of the issuance of such Series 2 Redeemable Preferred Stock, then no redemption fee shall apply.

(ii)    Within 30 days after the Company’s receipt of the Holder Redemption Notice, the Company shall provide written notice to such requesting Holder specifying whether all or a portion of the Series 2 Redeemable Preferred Stock sought to be redeemed pursuant to the Holder Redemption Notice will be repurchased by the Company (which the Company shall determine in its discretion) (the “Company Redemption Response”). If all or any portion of such Series 2 Redeemable Preferred Stock is to be repurchased by the Company, then the Company Redemption Response shall specify the date on which such repurchase and redemption shall occur (the “Redemption Date”), which date shall be no more than 60 days after the giving of the Holder Redemption Notice, and the Company Redemption Response shall include the stock power, if required, described in paragraph (iv) below.

(iii)   On any Redemption Date and in accordance with this Section 9(a), the Company will, to the extent that it has sufficient funds to consummate a redemption, as determined by the Company in its discretion, and to the extent that it may then lawfully do so under the DGCL and such payment is further permitted under the Company’s Certificate of Incorporation (including all related certificates of designation), and any borrowing agreements to which it or its subsidiaries are bound (the “Borrowing Agreements”), in connection with the delivery by such Holder of the applicable items described in paragraph (iv) below, redeem the shares specified in the Company Redemption Response by paying in cash, via wire transfer of immediately available funds to an account designated in writing by the Holder, an amount per share equal to the applicable Redemption Price.

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(iv)   On or before a Redemption Date, the applicable Holder shall deliver to the Company a stock power duly executed (in the form provided by the Company together with the Company Redemption Response).

(v)    From and after the Redemption Date, (A) the shares identified in the Company Redemption Response shall be cancelled on the books and records of the Company, (B) the right to receive Preferred Dividends thereon shall cease to accrue, and (C) all rights of the Holder of the shares to be redeemed shall cease and terminate, excepting only the right to receive the Redemption Price therefor (which right shall be contingent upon the Holder delivering the stock power required under paragraph (iv) above); provided, however, that if as of the close of business on the Redemption Date the Company has not paid the Redemption Price with respect to such Holder (other than any case in which the Redemption Price has not been paid due to a failure by the Holder to deliver the stock power required under paragraph (iv) above), then the shares to be redeemed shall remain issued and outstanding, and all rights of such Holder with respect to such shares shall continue.

(vi)   If, on any Redemption Date, the Company (A) is unable, by virtue of applicable law or provisions in this Certificate of Incorporation (including all related certificates of designation), to redeem shares of Series 2 Redeemable Preferred Stock, or (B) cannot redeem shares of Series 2 Redeemable Preferred Stock without constituting a default under any Borrowing Agreements, then such redemption obligation shall be discharged promptly after the Company becomes able to discharge such redemption obligation under applicable law and without causing or constituting a default under Borrowing Agreements, with all such deferred redemption obligations being satisfied on a prorated basis and regardless of the order in which any Holder Redemption Notices shall have been received by the Company. If and so long as the redemption obligation with respect to shares of Series 2 Redeemable Preferred Stock has not been fully discharged, the Company shall not declare or make any dividend or other distribution on any junior class or series of capital stock or directly or indirectly redeem, purchase or otherwise acquire for any consideration any shares of a junior class or series of capital stock or discharge any optional redemption, sinking fund or other similar obligation in respect of any such junior class or series of capital stock; provided, however, that this restriction shall not apply to the repurchase by the Company of shares of (x) Common Stock from employees, officers, directors, consultants or other persons performing services for the Company or any of its subsidiaries pursuant to agreements under which the Company has the right or option to repurchase such shares upon the occurrence of certain events or otherwise, (y) Redeemable Preferred Stock pursuant to the terms of this Certificate of Incorporation, or terms superior to those contained within this Certificate of Incorporation for Redeemable Preferred Stock, or (z) Common Stock for exchanged interests pursuant to this Certificate of Incorporation.

(b)    Redemption at the Option of the Company.

(i)     The Company shall have the right (but not the obligation) to redeem shares of Series 2 Redeemable Preferred Stock at a price per share equal to the Stated Value plus an amount equal to all accrued and unpaid Preferred Dividends thereon (whether or not declared), up to but not including the Company Redemption Date, as defined below (such amount, the “Redemption Price”); provided, however, that if the Company redeems any shares of Series 2 Redeemable Preferred Stock prior to the one-year anniversary of their issuance, then the Redemption Price shall include a premium equal to the amount by which the Redemption Price (calculated as above) is less than 107% of the Stated Value of those shares. To exercise this redemption right, the Company shall deliver written notice to each Holder that all or part of the Series 2 Redeemable Preferred Stock will be redeemed (the “Company Redemption Notice”) on a date that is no earlier than 20 and no later than 60 days after the date of the Company Redemption Notice (such date, the “Company Redemption Date”); provided, however, that if the Company elects to redeem less than all of the Series 2 Redeemable Preferred Stock, it shall do so ratably among all Holders.

(ii)    On the Company Redemption Date and in accordance with this Section 9(b), the Company will, at its option (to the extent it may then lawfully do so under the DGCL, and for so long as (A) a redemption is permitted under this Certificate of Incorporation, and (B) such redemption does not constitute a default under any Borrowing Agreements), redeem the shares specified in the Company Redemption Notice by paying in cash, via wire transfer of immediately available funds to the respective accounts designated in writing by the applicable Holders, an amount per share equal to the Redemption Price.

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(iii)   On or before the Company Redemption Date, each Holder whose shares are being redeemed under this Section 9(b) shall deliver to the Company a stock power, duly executed (in the form provided by the Company together with the Company Redemption Notice).

(iv)   From and after the Company Redemption Date, (A) the shares identified in the Company Redemption Notice shall be cancelled on the books and records of the Company, (B) the right to receive Preferred Dividends thereon shall cease to accrue, and (C) all rights of Holders with respect to the shares to be redeemed shall cease and terminate, excepting only the right to receive the Redemption Price with respect to such shares (which right shall be contingent upon the Holder delivering the stock power required under paragraph (iii) above); provided, however, that if as of the close of business on the Redemption Date the Company has not paid the Redemption Price with respect to such Holder (other than any case in which the Redemption Price has not been paid due to a failure by the Holder to deliver the stock power required under paragraph (iii) above), then the shares to be redeemed shall remain issued and outstanding, and all rights of such Holder with respect to such shares shall continue.

(c)     Repurchase in the Event of Death, Disability or Bankruptcy.

(i)     Subject to the terms of this Section 9(c), within 45 days of the death, Total Permanent Disability or Bankruptcy, as each such term is defined in paragraph (iv) below, of a Holder or Beneficial Holder, as defined below (a “Holder Repurchase Event”), the estate of such Holder or Beneficial Holder (in the event of death) or such Holder or Beneficial Holder or his or her legal representative (in the event of Total Permanent Disability or Bankruptcy) may request that the Company repurchase, in whole but not in part, without penalty, the Series 2 Redeemable Preferred Stock held by such Holder (including Series 2 Redeemable Preferred Stock of the Holder held in his or her individual retirement accounts) or Beneficial Holder by delivering to the Company a written request for repurchase (a “Repurchase Request”). Any such Repurchase Request shall identify the applicable Holder Repurchase Event. If Series 2 Redeemable Preferred Stock is held jointly by natural persons who are legally married, then a Repurchase Request may be made by (A) the surviving Holder (or Beneficial Holder) upon the occurrence of a Holder Repurchase Event arising by virtue of a death, or (B) the disabled or bankrupt Holder or Beneficial Holder (or his or her legal representative) upon the occurrence of a Holder Repurchase Event arising by virtue of a Total Permanent Disability or Bankruptcy. If Series 2 Redeemable Preferred Stock is held together by two or more natural persons that are not legally married (regardless of whether held as joint tenants, co-tenants or otherwise), then none of such co-Holders shall have the right to make a Repurchase Request unless a Holder Repurchase Event has occurred for each such co-Holder. A Holder that is not an individual natural person does not have the right to make a Repurchase Request.

(ii)    Upon receipt of a Repurchase Request, the Company shall designate a date for the repurchase of Series 2 Redeemable Preferred Stock (the “Repurchase Date”), which date shall not be later than the 60th day after the Company is provided with facts or certifications establishing, to the reasonable satisfaction of the Company, the occurrence of the Holder Repurchase Event. On the Repurchase Date, the Company shall, to the extent that it may then lawfully do so under the DGCL and such payment is further permitted under this Certificate of Incorporation and any Borrowing Agreements, pay the Holder or Beneficial Holder, or the estate of the Holder or Beneficial Holder, an amount per share equal to the Stated Value plus all accrued and unpaid Preferred Dividends thereon (whether or not declared), up to but not including the Repurchase Date (the “Repurchase Price”).

(iii)   From and after the Repurchase Date, (A) the shares being repurchased pursuant to the Repurchase Request shall be cancelled on the books and records of the Company, (B) the right to receive Preferred Dividends thereon shall cease to accrue, and (C) all rights of the Holder with respect to the shares being repurchased shall cease and terminate, excepting only the right to receive the Repurchase Price with respect to such shares (which right shall be contingent upon the Holder delivering a stock power relating to the shares to be repurchased); provided, however, that if as of the close of business on the Repurchase Date the Company has not paid the Repurchase Price (other than any case in which the Repurchase Price has not been paid due to a failure by the Holder to deliver a required stock power), then the shares to be repurchased shall remain issued and outstanding, and all rights of such Holder with respect to such shares shall continue.

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(iv)   For purposes of this Section 9(c):

(A)    “Bankruptcy” means, with respect to a Beneficial Holder or Holder who is an individual natural person, the (1) commencement of a voluntary bankruptcy case by that Beneficial Holder or Holder; (2) consent to the entry of an order for relief against such Beneficial Holder or Holder in an involuntary bankruptcy case; or (3) consent to the appointment of a custodian of such Beneficial Holder or Holder or for all or substantially all of such person’s property;

(B)    “Beneficial Holder” means an individual natural person that holds a beneficial interest in Series 2 Redeemable Preferred Stock through a custodian or nominee, including a broker-dealer; and

(C)    “Total Permanent Disability” means, with respect to a Beneficial Holder or Holder who is an individual natural person, a determination by a physician approved by the Company that such person, who was gainfully employed and working at least 40 hours per week as of the date on which Series 2 Redeemable Preferred Stock was purchased, has been unable to work 40 or more hours per week for at least 24 consecutive months.

(d)    Exchange.

(i)     To the fullest extent permitted by law, the Company shall have the right (but not the obligation), at any time, to exchange all of the then outstanding shares of Series 2 Redeemable Preferred Stock for the following consideration in respect of each such share so exchanged: (x) a number of preferred equity securities of the Company or one or more subsidiaries of the Company that are or will be as of the applicable exchange time registered with the SEC (the “RPS2 exchanged preferred interests” and any such issuer of such RPS2 exchanged interests, as applicable, the “RPS2 Issuer”) equal to the RPS2 Exchange Amount (as defined below) and (y) a cash payment equal to all Preferred Dividends (whether or not declared) accrued and unpaid on such share of Series 2 Redeemable Preferred Stock up to but not including the RPS2 Exchange Date (the “RPS2 Exchange Unpaid Dividend Amount” and, together with the applicable RPS2 exchanged preferred interests, the “RPS2 Exchange Consideration”). For purposes of this Section 9(d), the “RPS2 Exchange Amount” shall mean RPS2 exchanged preferred interests with an aggregate liquidation preference equal to the Stated Value of the Series 2 Redeemable Preferred Stock. Each RPS2 exchanged preferred interest shall have rights, powers and preferences substantially similar to the rights, powers and preferences of the Series 2 Redeemable Preferred Stock set forth herein; provided, that, notwithstanding anything herein to the contrary, each RPS2 exchanged preferred interest: (A) need not (1) have any rights, powers or preferences of the Series 2 Redeemable Preferred Stock provided under the DGCL and not set forth herein or (2) be listed on any national securities exchange and (B) shall (1) have the same liquidation preference as the Stated Value of a share of Series 2 Redeemable Preferred Stock; provided, that if the RPS2 Exchange Consideration includes more than one RPS2 exchanged preferred interest, then the aggregate liquidation preference of all of such RPS2 exchanged preferred interests shall be the same as the Stated Value of a share of Series 2 Redeemable Preferred Stock, (2) rank at the time of such exchange pari passu to the other preferred equity securities, and senior to the common equity securities, of the RPS2 Issuer, (3) accrue monthly cumulative dividends of not less than 7.5% per annum, subject to increase in the Board’s discretion, on the stated value of such RPS2 exchanged preferred interests payable when, as and if declared by the board of directors, manager, general partner or other governing body or person of the RPS2 Issuer in cash or in kind at the election of the RPS2 Issuer, (4) have no voting powers except for those substantially similar to the voting powers of the Series 2 Redeemable Preferred Stock expressly set forth herein, (5) have no protective provisions beyond protective provisions substantially similar to those provided in Section 8 with respect to the Series 2 Redeemable Preferred Stock, (6) be subject to redemption on terms substantially similar to those provided under subsections (a), (b) and (c) of this Section 9, and (7) be subject to conversion into common equity securities of the RPS2 Issuer or a subsidiary of the RPS2 Issuer on terms substantially similar to those governing the conversion of the Series 2 Redeemable Preferred Stock under Section 10; provided, that the conversion price shall be equal to, or less than, $12.00 per common equity security, as the same may be equitably adjusted upon stock dividends, subdivisions or combinations, by reclassification or otherwise after the issuance of such common equity securities. In the event the Company exercises this exchange right, the Company

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shall provide notice to each holder of Series 2 Redeemable Preferred Stock that the Series 2 Redeemable Preferred Stock will be exchanged (the “RPS2 Exchange Notice”) on a date that is no earlier than twenty (20) days after the date of the RPS2 Exchange Notice (such date, the “RPS2 Exchange Date”); provided, that in order to ensure that the RPS2 exchanged preferred interests are registered with the SEC or the securities issued in connection with any exchange of the Common Stock of the Company are registered with the SEC or listed on a national securities exchange, the Company may delay the RPS2 Exchange Date to a later date by publicly filing a document with the SEC that discloses such delay and identifies the delayed RPS2 Exchange Date. The RPS2 Exchange Notice, if sent by first-class mail, postage prepaid, to a stockholder’s address as it appears on the records of the Company, shall be conclusively presumed to have been duly given, whether or not the holder receives such RPS2 Exchange Notice. In any case, failure to give such notice or any defect in the notice to the holder of any share of Series 2 Redeemable Preferred Stock shall not affect the validity of the proceedings for the exchange of any share of Series 2 Redeemable Preferred Stock. On the RPS2 Exchange Date and in accordance with this Section 9(d), the Company will, at its option, to the extent it may then lawfully do so under Delaware law (and for so long as such exchange does not constitute a default under any of the borrowing agreements to which the Company or any of its subsidiaries are a party or otherwise bound), exchange the shares specified in the RPS2 Exchange Notice by: (x) paying in cash, via wire transfer of immediately available funds to an account designated in writing by the holder, an amount per share equal to the RPS2 Exchange Unpaid Dividend Amount with respect to such shares; and (y) causing the applicable RPS2 exchanged preferred interests in respect of each share of Series 2 Redeemable Preferred Stock so exchanged to be distributed to the holder thereof (subject to the treatment of fractional interests pursuant to Section 9(d)(iv)). The Board shall have the power and authority to make all determinations regarding whether or not a characteristic of a security is “substantially similar” to that of another security and all such determinations made by the Board shall be final, conclusive and binding.

(ii)    On or before the RPS2 Exchange Date, each holder of shares of Series 2 Redeemable Preferred Stock whose shares are being exchanged under this Section 9(d) shall (i) surrender the certificate(s) representing such shares to the Company, if any, duly endorsed, in the manner and at the place designated in the RPS2 Exchange Notice (or, in the event such shares of Series 2 Redeemable Preferred Stock are uncertificated, such holder shall deliver to the Company a stock power, duly executed and in the form to be provided by the Company together with the RPS2 Exchange Notice) and (ii) designate in writing to the Company an account for payment of the RPS2 Exchange Unpaid Dividend Amount and any amounts to be paid pursuant to paragraph (iv) below.

(iii)   From and after the RPS2 Exchange Date, and irrespective of whether any holder of shares of Series 2 Redeemable Preferred Stock has complied with the requirements of Section 9(d)(ii) hereof: (A) all shares of Series 2 Redeemable Preferred Stock shall be cancelled on the books and records of the Company and shall cease to be outstanding, (B) the right to receive Preferred Dividends thereon shall cease to accrue as of the RPS2 Exchange Date, and (C) all rights of a holder of shares of Series 2 Redeemable Preferred Stock to be exchanged shall cease and terminate other than the right to receive the RPS2 Exchange Consideration therefor; provided, however, that the shares to be exchanged shall remain issued and outstanding, and all rights of a holder of shares of Series 2 Redeemable Preferred Stock to be exchanged shall continue, solely in the event that a holder shall have delivered the required items under paragraph (ii) above as of the RPS2 Exchange Date but the Company shall not have discharged its obligation to pay the RPS2 Exchange Consideration in exchange therefor.

(iv)   Notwithstanding anything herein to the contrary, neither the Company nor the RPS2 Issuer shall be obligated to issue fractional units or shares of RPS2 exchanged preferred interests in respect of any shares of Series 2 Redeemable Preferred Stock so exchanged and, in lieu of any fractional units or shares of RPS2 exchanged preferred interests not so issued, the Company shall pay to the holder thereof on the RPS2 Exchange Date, an amount in cash equal to the product of such fraction and the fair value of a share or unit of such RPS2 exchanged preferred interest as of the RPS2 Exchange Date as determined by the Board, which cash payment in respect of any exchanged shares of Series 2 Redeemable Preferred Stock shall be deemed part of the “RPS2 Exchange Consideration” for all purposes hereunder.

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10.    Conversion.

(a)     Conversions at Option of Holder. Holders have the right and option to partially convert their Series 2 Redeemable Preferred Stock, at any time and from time to time and prior to the issuance of any RPS2 Exchange Notice, into that number of shares of Common Stock determined by dividing the Stated Value of such shares of Series 2 Redeemable Preferred Stock by the Conversion Price, as defined below; provided, however, that:

(i)     no more than 10% of the Stated Value of Series 2 Redeemable Preferred Stock originally purchased from the Company may be converted into Common Stock;

(ii)    no shares of Series 2 Redeemable Preferred Stock issued by the Company as Preferred Dividends, and no accrued but unpaid Preferred Dividends, may be converted into Common Stock; and

(iii)   upon the giving of a Company Redemption Notice, the right to convert shares of Series 2 Redeemable Preferred Stock that are subject to redemption shall be suspended through the Company Redemption Date.

Holders shall effect conversions by delivering to the Company a conversion notice in the form provided by the Company (a “Notice of Conversion”). Each Notice of Conversion shall specify the number of shares of Series 2 Redeemable Preferred Stock to be converted, and the date on which such conversion is to be effected (the “Conversion Date”), which date may not be prior to the date the applicable Notice of Conversion is delivered to the Company. If no Conversion Date is specified in a Notice of Conversion, then the Conversion Date shall be the date that such Notice of Conversion is deemed given under Section 15 below.

(b)    Conversion Price. The conversion price for the Series 2 Redeemable Preferred Stock shall be the volume-weighted average price of the Company’s Common Stock for the 20 trading days immediately prior to the date of conversion of such Series 2 Redeemable Preferred Stock (the “Conversion Price”), subject, however, to the applicable Conversion Price discount specified below:

(i)     if the Notice of Conversion is given prior to or on the third anniversary of the issuance of such Series 2 Redeemable Preferred Stock, then no discount on the Conversion Price shall apply;

(ii)    if the Notice of Conversion is given after the third anniversary of the issuance of such Series 2 Redeemable Preferred Stock and prior to or on the fourth anniversary of the issuance of such Series 2 Redeemable Preferred Stock, then a 6% discount on the Conversion Price shall apply;

(iii)   if the Notice of Conversion is given after the fourth anniversary of the issuance of such Series 2 Redeemable Preferred Stock and prior to or on the fifth anniversary of the issuance of such Series 2 Redeemable Preferred Stock, then an 8% discount on the Conversion Price shall apply; and

(iv)   if the Notice of Conversion is given after the fifth anniversary of the issuance of such Series 2 Redeemable Preferred Stock, then a 10% discount on the Conversion Price shall apply.

Notwithstanding the foregoing, the Conversion Price shall in no event (including after the application of discount as specified above) be less than $12.75 per share, subject, however, to equitable adjustment upon stock dividends, subdivisions or combinations, by reclassification or otherwise.

(c)     Mechanics of Conversion.

(i)     Not later than five business days after each Conversion Date (the “Share Delivery Date”), the Company shall deliver, or cause to be delivered, to the converting Holder a certificate representing the Conversion Shares or shall deliver Conversion Shares electronically through the Depository Trust Company or another established clearing corporation performing similar functions. “Conversion Shares” means, collectively, the shares of Common Stock issued and issuable upon conversion of the shares of Series 2 Redeemable Preferred Stock in accordance with the terms hereof.

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(ii)    Failure to Deliver Certificates. If, in the case of any Notice of Conversion, such certificate(s) are not delivered to or as directed by the applicable Holder by the Share Delivery Date, then such Holder shall be entitled to elect, by written notice to the Company at any time on or before such Holder’s receipt of such certificate(s), to rescind such Conversion Notice, in which event such Holder shall promptly return to the Company any Common Stock certificates issued to such Holder pursuant to the rescinded Conversion Notice.

(iii)   Reservation of Shares Issuable Upon Conversion. The Company covenants that it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock, for the sole purpose of issuance upon conversion of the Series 2 Redeemable Preferred Stock as herein provided, free from preemptive rights or any other actual contingent-purchase rights, that number of shares of Common Stock that would be issuable upon the conversion of all then-outstanding shares of Series 2 Redeemable Preferred Stock eligible for conversion hereunder. The Company covenants that all shares of Common Stock so issuable shall, upon issuance, be duly authorized, validly issued, fully paid and non-assessable.

(iv)   No Fractional Common Shares. No fractional common shares or scrip representing fractional common shares shall be issued upon the conversion of the Series 2 Redeemable Preferred Stock. As to any fraction of a common share which the Holder would otherwise be entitled to receive upon a conversion, the Company shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Conversion Price, or round up or down to the nearest whole share (with even halves rounded up).

(v)    Transfer Taxes and Expenses. The issuance of certificates representing shares of the Common Stock issued upon conversion of the Series 2 Redeemable Preferred Stock shall be made without charge to any Holder for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such certificates; provided, however, that the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such certificate upon conversion in a name other than that of the Holders; and provided, further, that the Company shall not be required to issue or deliver such certificates unless or until the Holder requesting the issuance thereof has paid to the Company the amount of such tax or has established to the satisfaction of the Company that such tax has been paid. The Company shall pay all transfer agent fees required for the processing of any Notice of Conversion.

11.    No Sinking Fund. The Company shall not be required to establish any sinking or retirement fund with respect to the shares of Series 2 Redeemable Preferred Stock.

12.    Fractional Shares. Series 2 Redeemable Preferred Stock may be issued in fractional shares.

13.    Loss, Theft or Destruction. Upon receipt of evidence satisfactory to the Company of the loss, theft, destruction, or mutilation of certificates, if any, representing shares of Series 2 Redeemable Preferred Stock, and receipt of indemnity or security reasonably satisfactory to the Company (or in the case of mutilation, upon surrender and cancellation of the mutilated certificate), the Company shall cause to be made, issued and delivered, in lieu of such lost, stolen, destroyed or mutilated certificate, a new certificate of like tenor.

14.    Holder of Record Deemed Absolute Owner. The Company may deem the Holder in whose name shares of Series 2 Redeemable Preferred Stock is registered upon the books and records of the Company to be, and may treat such Holder as, the absolute owner of the Series 2 Redeemable Preferred Stock for the purpose of paying Preferred Dividends, paying or issuing the Redemption Price or the RPS2 Exchange Consideration, and for all other purposes, and the Company shall not be affected by any notice to the contrary. All such payments shall be valid and effectual to satisfy and discharge the liability of the Company in respect of the Series 2 Redeemable Preferred Stock to the extent of the sum or sums so paid.

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15.    Notices. Unless otherwise provided herein, all notices or other communications or deliveries to be provided shall be given in writing and delivered in person, by overnight courier, by first-class mail (registered or certified, return-receipt requested), by facsimile or by email, in each case to the other’s address as provided below:

If to the Company:

 

GWG Holdings, Inc.
325 North St. Paul Street, Suite 2650Dallas, TX 75201
Attention: General Counsel Facsimile: (651) 925-0555

If to a Holder:

 

such Holder’s address as shown on the books and records of the Company or a more recent address that such Holder may have provided in writing to the Company.

If given in person, notice shall be treated as given when personally received or, if sent as provided above, the effective date of the notice shall, as applicable, be (a) the date of the written receipt if delivered via overnight courier, (b) three days after the date on which the notice is mailed by first-class mail (registered or return-receipt requested), (c) the date on which the notice is transmitted by confirmed facsimile, or (d) the day after the notice is sent electronically to the email address on record (without receipt of any failure notice).

16.    Reacquired Shares. If any Series 2 Redeemable Preferred Stock is exchanged, redeemed, purchased or otherwise acquired by the Company in any manner, then those shares shall be cancelled, and upon such cancellation shall be returned to the pool of authorized but undesignated and unissued shares of preferred stock of the Company, and thereafter may be reissued as part of a new series of preferred stock of the Company to be created by resolution of the Board as permitted by the DGCL and the Company’s Certificate of Incorporation.

17.    Severability. If any provision of this Annex II, or the application thereof to any person or entity or any circumstance, is invalid or unenforceable, then (i) a suitable and equitable provision shall be substituted therefor in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid or unenforceable provision, and (ii) the remainder of this Annex II and the application of such provision to other persons, entities or circumstances shall not be affected by such invalidity or unenforceability, nor shall such invalidity or unenforceability affect the validity or enforceability of such provision, or the application thereof, in any other jurisdiction.

* * * * * * *

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ANNEX A

PORTIONS OF GWG HOLDINGS, INC.

ANNUAL REPORT OF FORM 10-K FOR YEAR ENDED DECEMBER 31, 2019

 

ITEM 1.     BUSINESS.

Organizational Structure

Our business was originally organized in February 2006. We added our current parent holding company, GWG Holdings, Inc. (“GWG Holdings”), in March 2008, and in September 2014 we consummated an initial public offering of our common stock on The Nasdaq Capital Market where our stock trades under the ticker symbol “GWGH.”

GWG Holdings conducts its life insurance secondary market business through a wholly owned subsidiary, GWG Life, LLC (“GWG Life”), and GWG Life’s wholly owned subsidiaries, GWG Life Trust and GWG DLP Funding IV, LLC. GWG Holdings’ indirect interests in loans collateralized by cash flows from alternative assets are held by The Beneficient Company Group, L.P. (“Ben LP,” including all of the subsidiaries it may have from time to time — “Beneficient”) and its general partner, Beneficient Management, L.L.C. (“Beneficient Management”). As a result of the Investment and Exchange Agreements described in the section below entitled “The Beneficient Transaction”, GWG Holdings reported the results of Ben LP and its subsidiaries on a consolidated basis beginning on the transaction date of December 31, 2019. All of these entities are legally organized in the state of Delaware, other than GWG Life Trust, which is governed by the laws of the state of Utah. Unless the context otherwise requires or we specifically so indicate, all references in this report to “we,” “us,” “our,” “our Company,” “GWG,” or the “Company” refer to these entities collectively. Our headquarters are located in Dallas, Texas.

On November 11, 2019, GWG Holdings contributed the common stock and membership interests of its previously-wholly owned subsidiaries Life Epigenetics Inc. (“Life Epigenetics”) and youSurance General Agency, LLC (“youSurance”) to a legal entity, InsurTech Holdings, LLC (“InsurTech Holdings”) in exchange for a membership interest in InsurTech Holdings. On March 2, 2020, InsurTech Holdings changed its name to FOXO BioScience LLC. Although we currently own 100% of the equity of InsurTech Holdings, we do not have a controlling financial interest in InsurTech Holdings because the managing member has substantive participating rights. Therefore, we account for our ownership interest in InsurTech Holdings as an equity method investment. Life Epigenetics was formed to commercialize epigenetic technology for the longevity industry. youSurance seeks to offer life insurance directly to customers utilizing epigenetic technology.

Beneficient was formed in 2003 but began its alternative asset business in September 2017. Beneficient operates primarily through its subsidiaries, which provide Beneficient’s products and services. These subsidiaries include: (i) Beneficient Capital Company, L.L.C. (“BCC”), through which Beneficient offers loans and liquidity products; (ii) Beneficient Administrative and Clearing Company, L.L.C. (“BACC”), through which Beneficient provides services for fund and trust administration and plans to provide custody services; (iii) Pen Indemnity Insurance Company, LTD (“Pen”), through which Beneficient plans to offer insurance services; and (iv) Ben Markets Management Holdings, L.P., formerly called ACE Portal, L.L.C. (“ACE”), through which Beneficient plans to provide an online portal for direct access to Beneficient’s financial services and products.

Our Company

We are a financial services company committed to transforming the alternative asset industry with disruptive and innovative products and services. In 2018 and 2019 GWG consummated a series of transactions (as more fully described below) with Beneficient that has resulted in a significant reorientation of our business and capital allocation strategy towards an expansive and diverse exposure to alternative assets. As part of this reorientation, we also changed our Board of Directors and executive management team.

While we are continuing our work to maximize the value of our secondary life insurance business, we do not anticipate purchasing additional life insurance policies in the secondary market and have increased capital allocated toward providing liquidity to a broader range of alternative assets, primarily through investments in Beneficient. We believe Beneficient’s operations will generally produce higher risk-adjusted returns than those we can achieve from life insurance policies acquired in the secondary market. Furthermore, although we believe that our portfolio of life insurance policies is a meaningful component of a growing diversified alternative asset portfolio, we continue to explore strategic alternatives for our life insurance portfolio aimed at maximizing its value, including a possible sale, refinancing or recapitalization of our life insurance portfolio.

Annex A-1

We completed our transactions with Beneficient to provide us with a significant increase in assets and common shareholder equity. In addition, our transactions with Beneficient provide us with the opportunity for a diversified source of future earnings within the alternative asset industry. As GWG and Beneficient expand their strategic relationship, we believe the Beneficient transactions will transform GWG from a niche provider of liquidity to owners of life insurance to, as GWG and Beneficient expand their strategic relationship, a full-scale provider of trust and liquidity products and services to owners of a broad range of alternative assets.

Beneficient, through its subsidiaries, plans to operate three potentially high value, high margin lines of business:

•        Private Trust Lending & Liquidity Products. Through BCC, Beneficient provides a unique suite of private trust, lending and liquidity products focused on bringing liquidity to owners of professionally managed alternative assets. Beneficient’s innovative liquidity solutions are designed to serve mid-to-high net worth (“MHNW”) individuals, small-to-mid sized (“STM”) institutions, and asset managers who have historically possessed few attractive options to access early liquidity from their alternative assets. Beneficient targets MHNW clients with $5 million to $30 million in net worth and STM institutional clients typically holding less than $1 billion in assets.

•        Trust and Custody Services. Through BACC and (subject to capitalization) through Pen, Beneficient plans, in the future, to market retirement funds, custody and clearing of alternative assets, and trustee and insurance services for covering risks attendant to owning or managing alternative assets.

•        Financial Technology. Through ACE, Beneficient plans to provide online portals and financial technologies for the trading and financing of alternative assets.

Beneficient’s existing and planned products and services are designed to support the tax and estate planning objectives of its MHNW clients, facilitate a diversification of assets or simply provide administrative management and reporting solutions tailored to the goals of the investor who owns alternative investments.

The Beneficient Transactions

The Exchange Transaction

On January 12, 2018, GWG Holdings and GWG Life entered into a Master Exchange Agreement (as amended, the “Master Exchange Agreement”) with Beneficient, MHT Financial SPV, LLC, a Delaware limited liability company (“MHT SPV”), and various related trusts (the “Seller Trusts”). The material terms and conditions of the initial Master Exchange Agreement were described in GWG Holdings’ Current Report on Form 8-K (the “January 2018 Form 8-K”) filed with the Securities and Exchange Commission (“SEC”) on January 18, 2018.

On August 10, 2018, GWG Holdings, GWG Life, Beneficient, MHT SPV, and the Seller Trusts entered into a Third Amendment to Master Exchange Agreement (the “Third Amendment”). Pursuant to the Third Amendment, the parties agreed to consummate the transactions contemplated by the Master Exchange Agreement in two closings. The Third Amendment also generally deleted MHT SPV as a party to the Master Exchange Agreement. The material terms and conditions of the Third Amendment to Master Exchange Agreement were described in GWG Holdings’ Current Report on Form 8-K (the “August 2018 Form 8-K”) filed with the SEC on August 14, 2018. The transactions contemplated by the Master Exchange Agreement, as amended, are referred to throughout this Report as the “Exchange Transaction.”

On the first closing date, which took place on August 10, 2018 (the “Initial Transfer Date”):

•        in consideration for GWG Holdings and GWG Life entering into the Master Exchange Agreement and consummating the transactions contemplated thereby, Ben LP, as borrower, entered into a commercial loan agreement (the “Commercial Loan Agreement”) with GWG Life, as lender, providing for a loan in a principal amount of $200.0 million (the “Commercial Loan”);

•        Ben LP delivered to GWG a promissory note (the “Exchangeable Note”) in the principal amount of $162.9 million;

•        Ben LP purchased 5,000,000 shares of GWG’s Series B Convertible Preferred Stock, par value $0.001 per share and having a stated value of $10 per share (the “Series B”), for cash consideration of $50.0 million, which shares were subsequently transferred to the Seller Trusts;

Annex A-2

•        the Seller Trusts delivered to GWG 4,032,349 common units of Ben LP at an assumed value of $10 per common unit;

•        GWG issued to the Seller Trusts Seller Trust L Bonds due 2023 (the “Seller Trust L Bonds”) in an aggregate principal amount of $403.2 million, as more fully described below;

•        GWG and the Seller Trusts entered into a registration rights agreement with respect to the Seller Trust L Bonds received by the Seller Trusts; and

•        GWG and Beneficient entered into a registration rights agreement with respect to the Ben LP common units received and to be received by GWG.

Under the Master Exchange Agreement, at the final closing (the “Final Closing” and the date on which the final closing occurred, the “Final Closing Date”), which occurred on December 28, 2018:

•        in accordance with the Master Exchange Agreement, and based on the net asset value of alternative asset financings as of the Final Closing Date, effective as of the Initial Transfer Date, (i) the principal amount of the Commercial Loan was reduced to $182.0 million, (ii) the principal amount of the Exchangeable Note was reduced to $148.2 million, and (iii) the principal amount of the Seller Trust L Bonds was reduced to $366.9 million;

•        the Seller Trusts refunded to GWG $0.8 million in interest paid on the Seller Trust L Bonds related to the Seller Trust L Bonds that were issued as of the Initial Transfer Date but cancelled, effective as of the Initial Transfer Date, on the Final Closing Date;

•        the accrued interest on the Commercial Loan and the Exchangeable Note was added to the principal amount of the Commercial Loan, as a result of which the principal amount of the Commercial Loan as of the Final Closing Date was $192.5 million;

•        the Seller Trusts transferred to GWG an aggregate of 21,650,087 common units of Ben LP and GWG received 14,822,843 common units of Ben LP in exchange for the Exchangeable Note, upon completion of which GWG owned (including the 4,032,349 common units received by GWG on the Initial Transfer Date) 40,505,279 common units of Ben LP;

•        Ben LP issued to GWG an option (the “Option Agreement”) to acquire the number of common units of Ben LP, interests or other property that would be received by a holder of Preferred Series A Subclass 1 Unit Accounts of Beneficient Company Holdings, L.P. (“BCH”), an affiliate of Ben LP; and

•        GWG issued to the Seller Trusts 27,013,516 shares of GWG common stock (including shares issued upon conversion of the Convertible Preferred Stock).

On the Final Closing Date, GWG and the Seller Trusts also entered into a registration rights agreement with respect to the shares of GWG common stock owned by the Seller Trusts, an orderly marketing agreement and a stockholders’ agreement. The material terms of these agreements were described in our Information Statement on Schedule 14C filed with the SEC on December 6, 2018, and in our Current Report on Form 8-K filed with the SEC on January 4, 2019.

The Expanded Strategic Relationship

In the second quarter of 2019, we completed an expansion of the strategic relationship with Beneficient, which was a transformational event for both organizations that is expected to create a unified platform uniquely positioned to provide an expanded suite of products, services and resources for investors and the financial professionals who assist them. GWG and Beneficient intend to collaborate extensively and capitalize on one another’s capabilities, relationships and services.

On April 15, 2019, Jon R. Sabes, the Company’s former Chief Executive Officer and a former director, and Steven F. Sabes, the Company’s former Executive Vice President and a former director, entered into a Purchase and Contribution Agreement (the “Purchase and Contribution Agreement”) with, among others, Ben LP. The Purchase and Contribution Agreement was summarized in our Current Report on Form 8-K filed with the SEC on April 16, 2019.

Annex A-3

The closing of the transactions contemplated by the Purchase and Contribution Agreement (the “Purchase and Contribution Transaction”) occurred on April 26, 2019. Prior to or in connection with such closing:

•        Messrs. Jon and Steven Sabes sold and transferred all of the shares of the Company’s common stock held directly and indirectly by them and their immediate family members (approximately 12% of the Company’s outstanding common stock in the aggregate); specifically, Messrs. Jon and Steven Sabes (i) sold an aggregate 2,500,000 shares of Company common stock to BCC for $25.0 million in cash and (ii) contributed the remaining 1,452,155 shares of Company common stock to AltiVerse Capital Markets, L.L.C., a Delaware limited liability company (“AltiVerse”) (which is a limited liability company owned by an entity related to Beneficient’s founders, including Brad K. Heppner (GWG’s Chairman and Beneficient’s Chief Executive Officer and Chairman) and an entity related to Thomas O. Hicks (one of Beneficient’s current directors and a director of GWG)), in exchange for certain equity interests in AltiVerse.

•        Our bylaws were amended to increase the maximum number of directors of the Company from nine to 13, and the actual number of directors comprising the Board was increased from seven to 11. The size of the Board has since been reduced and currently consists of nine directors.

•        All seven members of the Company’s Board of Directors prior to the closing resigned as directors of the Company, and 11 individuals designated by Beneficient were appointed as directors of the Company, leaving two board seats vacant after the closing.

•        Jon R. Sabes resigned from all officer positions he held with the Company and all of its subsidiaries prior to the closing, other than his position as Chief Executive Officer of the Company’s technology focused wholly owned subsidiaries, Life Epigenetics and youSurance.

•        Steven F. Sabes resigned from all officer positions he held with the Company and all of its subsidiaries prior to the closing, except as Chief Operating Officer of Life Epigenetics.

•        The resignations of Messrs. Jon and Steven Sabes included a full waiver and forfeit of (i) any severance that may be payable by the Company or any of its subsidiaries in connection with such resignations or the Purchase and Contribution Transaction and (ii) all equity awards of the Company currently held by either of them.

•        Murray T. Holland, a trust advisor of the Seller Trusts, was appointed as Chief Executive Officer of the Company.

•        The Company entered into performance share unit agreements with certain employees of the Company pursuant to which such employees would receive a bonus under certain terms and conditions, including, among others, that such employees remain employed by the Company or one of its subsidiaries (or, if no longer employed, such employment was terminated by the Company other than for cause, as such term is defined in the performance share unit agreement) for a period of 120 days following the closing.

•        The stockholders’ agreement that was entered into on the Final Closing Date was terminated by mutual consent of the parties thereto.

•        BCC and AltiVerse executed and delivered a Consent and Joinder to the Amended and Restated Pledge and Security Agreement dated October 23, 2017 by and among the Company, GWG Life, LLC, Messrs. Jon and Steven Sabes and the Bank of Utah, which provides that the shares of the Company’s common stock acquired by BCC and AltiVerse pursuant to the Purchase and Contribution Agreement will continue to be pledged as collateral security for the Company’s obligations owing in respect of the L Bonds issued under our Amended and Restated Indenture, dated as of October 23, 2017, as amended and supplemented.

Among other things, the Purchase and Contribution Agreement contemplated that after the closing, the parties will seek to enter into an agreement pursuant to which the Company will, in certain circumstances, have the right to appoint a majority of the board of directors of the general partner of Beneficient, resulting in the Company and Beneficient being consolidated from a financial reporting perspective. The Company and Beneficient will also seek to enter into an agreement pursuant to which the Company will offer and distribute (through a FINRA registered managing broker-dealer) Beneficient’s liquidity products and services. The Company intends to reduce capital allocated to life insurance assets while it works with Beneficient to build a larger diversified portfolio of alternative asset investment products.

Annex A-4

A copy of the Purchase and Contribution Agreement is included in our Annual Report on Form 10-K filed with the SEC on July 9, 2019 as Exhibit 99.3.

The Investment and Exchange Agreements

On December 31, 2019, the Company, Ben LP, BCH, and 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 $79.0 million to Ben LP in return for 666,667 common units of Ben LP and a Preferred Series A Subclass 1 Unit Account of BCH.

In connection with the Investment Agreement, the Company obtained the right to appoint a majority of the board of directors of Beneficient Management, the general partner of Ben LP. As a result, the Company obtained control of Ben LP and began reporting the results of Ben LP and its subsidiaries on a consolidated basis beginning on the transaction date of 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 Ben 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.

Following the transaction, and as agreed upon in the Investment Agreement, the Company was issued an initial capital account balance for the Preferred Series A Subclass 1 Unit Account of $319.0 million. The other holders of the Preferred Series A Subclass 1 Unit Accounts are an entity related to the founders of Ben LP and an entity related to one of GWG’s and Beneficient’s directors (the “Related Entities”), 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 $1.6 billion. The Company’s Preferred Series A Subclass 1 Unit Account is the same class of preferred security as held by the Related Entities. In the event the Related Entities exchange their Preferred Series A Subclass 1 Unit Account for securities of the Company, the Company’s Preferred Series A Subclass 1 Unit Account would be converted into common units of Ben LP (so neither the Company nor the founders would hold Preferred Series A Subclass 1 Unit Accounts).

Also, on December 31, 2019, in a transaction related to the Investment Agreement, GWG Holdings transferred its interest in the Preferred Series A Subclass 1 Unit Account to its wholly owned subsidiary, GWG Life.

In addition, on December 31, 2019, the Company, Ben LP and the holders of common units of Ben LP (the “Common Units”) entered into an Exchange Agreement (the “Exchange Agreement”) pursuant to which the 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 Ben LP’s products to holders of alternative assets.

The Exchange Transaction, the Purchase and Contribution Transaction, and the Investment and Exchange Agreements are referred to collectively as the “Beneficient Transactions.”

Segment Financial Information

We have two reportable segments: 1) Investment in Beneficient and 2) Secondary Life Insurance.

GWG segment information is included in Note 20, Segment Reporting, to the consolidated financial statements included in Item 8 of Part II of this Form 10-K.

Annex A-5

Market Opportunity

Alternative Asset Liquidity Products and Services

The market demand for liquidity from owners of alternative assets is attributable to the outstanding net asset value of illiquid alternative assets (“NAV”) held by U.S. investors. Using data from various published industry reports from 2017 to 2019, certain widely accepted commercial private-equity databases, and applying its own proprietary assumptions and calculations (“Ben Estimates”), Beneficient estimates that total outstanding NAV held by U.S. investors exceeded $4.0 trillion in 2019 (up from an estimated $3.0 trillion in 2018).

According to at least one industry report from Preqin from 2018, total outstanding NAV in the hands of U.S. investors grew at a 12.1% compound annual growth rate (CAGR) for the ten years ended 2018 and was forecasted to grow at an 8% CAGR through 2023 as a result of continued increases in capital committed to the alternative asset class.

According to Ben Estimates, the large U.S. institutions representing approximately 54% of the NAV have consistently sought liquidity on approximately 1.85% to 2.25% of their outstanding NAV. Based on Ben Estimates, this has led to an annual demand for liquidity of nearly $50 billion in recent years.

A primary group not included in this demand is the MHNW investor who holds investments of $5 million to $30 million compared to a large institution’s holdings in the hundreds of millions or billions of dollars. Intermediary brokers will often not represent the MHNW individuals (or STM institutional investors). According to Ben Estimates, MHNW investors hold over $700.0 billion in NAV, yet MHNW investors have only been able to access liquidity representing less than 0.5% of the NAV held by them each year, compared to the average 2% achieved by the large institutional owners, representing 54% of the market.

Based on these amounts, Beneficient estimates that MHNW investors would seek liquidity of 3% of their outstanding NAV each year if liquidity was made available to them, or a slightly greater percentage than that of large U.S. institutions. As a result, and according to Ben Estimates, the estimated market demand for liquidity by MHNW individuals would have exceeded $20.0 billion in 2019.

Secondary Life Insurance Market

The market for life insurance is large. According to the American Council of Life Insurers Fact Book 2018 (ACLI), consumers owned approximately $12.0 trillion in face value of individual life insurance policy benefits in the United States in 2017. In that same year, the ACLI reports that individual consumers purchased an aggregate of $3.1 trillion of new individual life insurance policy benefits. This figure includes all types of individual life policies, including term insurance and permanent insurance known as whole life and universal life.

The life insurance secondary market primarily serves consumers, 65 years and older, and their families who own life insurance.

The secondary market for life insurance exists as a result of consumer lapse behaviors and surrender values far below economic value offered to consumers for their life insurance by the issuing insurance carriers. The ACLI reports that the annual lapse and surrender rate for individual life insurance policies is 5.7% of the in-force face value of benefits, amounting to over $680 billion in face value of policy benefits lapsed and surrendered in 2017 alone.

In 2017, the National Association of Insurance Commissioners (“NAIC”) issued a policy bulletin in support of products we provide. The bulletin described these products as “innovative private market solutions for financing Americans’ long-term care needs.” The NAIC, citing the Company’s August 25, 2016 presentation, discussed how consumers could exchange the market value of their life insurance policies for products designed to fund long-term care expenses.

Primary Life Insurance Market and Technology (“Insurtech”)

The opportunity to apply technology to transform the insurance industry is significant. The application of technology to the insurance industry, commonly referred to as “insurtech”, provides opportunities for new entrants into the traditional insurance marketplace that have the potential to significantly disrupt the insurance industry’s historical approach to assessing and selecting acceptable underwriting risks.

Annex A-6

As discussed in the Organizational Structure section above, on November 11, 2019, GWG contributed the common stock and membership interests of its previously wholly-owned subsidiaries, Life Epigenetics and youSurance, to InsurTech Holdings. This transaction affected a reorganization such that InsurTech owns only two direct subsidiaries, Life Epigenetics and youSurance, which hold all insurtech assets, and one indirect subsidiary, Scientific Testing Partners, LLC, a wholly owned subsidiary of Life Epigenetics. In connection with the transaction, GWG Holdings contributed $2.1 million in cash to InsurTech Holdings during the fourth quarter of 2019 and is committed to contribute an additional $17.9 million to the entity over the next two years.

Business Strategies

1. Liquidity for Alternative Assets

As a result of the Beneficient Transactions, we are now uniquely positioned to provide liquidity and related services to investors holding a full range of illiquid alternative assets. We will continue to work to create the most value for holders of alternative assets, the financial professionals who advise them and for our shareholders.

Beneficient provides private trust solutions, including a unique suite of lending and liquidity products focused on bringing liquidity to owners of alternative assets. Beneficient’s innovative liquidity solutions are designed to serve MHNW individuals, STM institutions, and asset managers who have historically possessed few attractive options to access early liquidity from their alternative assets. Beneficient targets MHNW individual clients with $5 million to $30 million in investments and institutional clients typically holding less than $1 billion in assets.

Beneficient’s products can also support tax and estate planning objectives, facilitate a diversification of assets or provide administrative management and reporting solutions tailored to the goals of the investor. In the future, Beneficient plans to offer insurance services covering risks associated with owning or managing alternative assets.

Our life insurance secondary market business is designed to serve consumers 65 years or older owning life insurance. We seek to earn non-correlated yield from life insurance policies that we purchased in the secondary market. Since inception, we have purchased over $3.2 billion in face value of policy benefits from consumers for over $620 million, as compared to the $52 million in surrender value offered by insurance carriers on those same policies. Our products provide unique and valuable services to the senior consumers that we serve.

The goal of our secondary life insurance business has been to build a profitable, large and well-diversified portfolio of life insurance assets. We believe that scale and diversification are key factors and risk mitigation strategies to provide consistent cash flows and reliable investment returns. We believe that we have reached the goal in terms of portfolio size and diversification. As described elsewhere, we do not anticipate making additional investments in the life settlements portfolio as we believe Beneficient’s operations will generally produce higher risk-adjusted returns than those we can achieve from life insurance policies acquired in the secondary market.

2. Developing a World Class Financial Services Distribution Platform

GWG has developed a large and sophisticated financial services product distribution platform. Today, this platform consists of over one hundred independent broker-dealers and several thousand “independent” financial advisors (“Retail Distribution”) who sell the Company’s investment products. “Independent” in this context refers to broker-dealers that accommodate financial advisors who carry securities licenses and need back-office support for services, such as compliance and trade execution, but allow their advisors wide latitude in how they conduct business. Since inception, GWG has raised over $1.52 billion of debt and equity capital to support our secondary market of life insurance business and related expenditures.

We believe that we are well positioned to continue to grow our Retail Distribution for several reasons:

•        There is a trend of financial professionals leaving large full-service broker-dealers to become “independent”;

•        Newly independent financial professionals and their clients demand a high level of customer service and access to innovative and value added products;

•        The significant demand for liquidity from owners of alternative assets by US investors;

Annex A-7

•        Our expanded relationship with Beneficient will attract more and larger broker dealers to our platform due to our increased size and market capitalization as well as the increase in products offered; and

•        By using capital to provide liquidity products to our current customers, and as they begin to realize the benefit of these products, we will able to raise more capital and attract additional broker dealers into our selling group.

3. Commercializing Advanced Epigenetic Technology for Primary Life Insurance Markets

We believe life insurance underwriting will be transformed due to advancements in science and technology. As part of that transformational change, we believe the science of epigenetics will serve as a foundational science to this advancement for the life insurance industry by achieving more accurate and automated underwriting.

As discussed in the Organizational Structure section above, on November 11, 2019, GWG contributed the common stock and membership interests of its previously wholly-owned subsidiaries, Life Epigenetics and youSurance, to InsurTech Holdings. We believe that as a separate entity (rather than as a small subsidiary of a large financial services holding company), the InsurTech Holdings businesses can reach their maximum potential in terms of marketing and branding, attraction of talent, appropriate peer group comparisons and, ultimately, return to its owners. The Company will retain substantially all of the economics of InsurTech Holdings.

Secondary Life Insurance Assets

Our portfolio of life insurance policies, owned by our subsidiaries as of December 31, 2019, is summarized below:

Life Insurance Portfolio Summary

Total life insurance portfolio face value of policy benefits (in thousands)

 

$

2,020,973

 

Average face value per policy (in thousands)

 

$

1,756

 

Average face value per insured life (in thousands)

 

$

1,883

 

Weighted average age of insured (years)

 

 

82.4

 

Weighted average life expectancy (LE) estimate (years)

 

 

7.2

 

Total number of policies

 

 

1,151

 

Number of unique lives

 

 

1,073

 

Demographics

 

 

74% Male; 26% Female

 

Number of smokers

 

 

48

 

Largest policy as % of total portfolio face value

 

 

0.7

%

Average policy as % of total portfolio

 

 

0.1

%

Average annual premium as % of face value

 

 

3.3

%

Our portfolio of life insurance policies, owned by our subsidiaries as of December 31, 2019, organized by the insured’s current age and the associated number of policies and policy benefits, is summarized below:

Distribution of Policies and Policy Benefits by Current Age of Insured

Min Age

 

Max Age

 

Number of
Policies

 

Policy
Benefits
(in thousands)

 

Percentage of Total

   

Number of
Policies

 

Policy
Benefits

 

Wtd. Avg.
LE (years)

95

 

101

 

17

 

$

34,402

 

1.5

%

 

1.7

%

 

2.2

90

 

94

 

145

 

 

283,442

 

12.6

%

 

14.0

%

 

3.3

85

 

89

 

238

 

 

556,090

 

20.7

%

 

27.5

%

 

5.0

80

 

84

 

251

 

 

463,047

 

21.8

%

 

22.9

%

 

7.7

75

 

79

 

224

 

 

347,952

 

19.4

%

 

17.2

%

 

9.8

70

 

74

 

205

 

 

264,496

 

17.8

%

 

13.1

%

 

11.0

60

 

69

 

71

 

 

71,544

 

6.2

%

 

3.6

%

 

11.4

Total

     

1,151

 

$

2,020,973

 

100.0

%

 

100.0

%

 

7.2

Annex A-8

Our portfolio of life insurance policies, owned by our subsidiaries as of December 31, 2019, organized by the insured’s estimated life expectancy estimates and associated policy benefits, is summarized below:

Distribution of Policies by Current Life Expectancies of Insured

LE
(Months)

 

Max LE
(Months)

 

Number of
Policies

 

Policy
Benefits

(in thousands)

 

Percentage of Total

Number of
Policies

 

Policy
Benefits

0

 

47

 

281

 

$

447,313

 

24.4

%

 

22.1

%

48

 

71

 

223

 

 

389,264

 

19.4

%

 

19.3

%

72

 

95

 

214

 

 

408,932

 

18.6

%

 

20.2

%

96

 

119

 

191

 

 

334,356

 

16.6

%

 

16.6

%

120

 

143

 

121

 

 

187,760

 

10.5

%

 

9.3

%

144

 

179

 

97

 

 

180,742

 

8.4

%

 

8.9

%

180

 

240

 

24

 

 

72,606

 

2.1

%

 

3.6

%

Total

     

1,151

 

$

2,020,973

 

100.0

%

 

100.0

%

We rely on the payment of policy benefit claims by life insurance companies as a significant source of cash inflow. The life insurance assets we own represent obligations of third-party life insurance companies to pay the benefit amount under the policy upon the mortality of the insured. As a result, we manage this credit risk exposure by generally purchasing policies issued by insurance companies with investment-grade ratings from Standard & Poor’s, and diversifying our life insurance portfolio among a number of insurance companies.

The yield to maturity on bonds issued by life insurance carriers reflects, among other things, the credit risk (risk of default) of such insurance carrier. We follow the yields on certain publicly traded life insurance company bonds because this information is part of the data we consider when valuing our portfolio of life insurance policies for our financial statements.

The average yield to maturity of publicly traded life insurance company bonds data we consider as inputs to our life insurance portfolio valuation process was 2.67% as of December 31, 2019. We believe that this average yield to maturity reflects, in part, the financial market’s judgment that credit risk is low with regard to these carriers’ financial obligations. The obligations of life insurance carriers to pay life insurance policy benefits ranks senior to all of their other financial obligations, including the senior bonds they issue. The portfolio is backed by over 80 high quality insurance carriers. As of December 31, 2019, 95.7% of the face value benefits of our life insurance policies were issued by insurers having an investment-grade rating (BBB or better) by Standard & Poor’s.

As of December 31, 2019, our ten largest life insurance company credit exposures and the Standard & Poor’s credit rating of their respective financial strength and claims-paying ability is set forth below:

Distribution of Policy Benefits by Top 10 Insurance Companies

Rank

 

Policy
Benefits

(in thousands)

 

Percentage of
Policy
Benefit
Amount

 

Insurance Company

 

Ins. Co.
S&P
Rating

1

 

$

287,492

 

14.2