UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or Section 15(d) of
The Securities Exchange Act of 1934
Date of Report: November 25, 1996
WASHINGTON NATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 1-7369 36-2663225
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
300 Tower Parkway, Lincolnshire, Illinois 60069
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (847) 793-3000
<PAGE>
Item 5. OTHER EVENTS
Washington National Corporation and PennCorp Financial Group, Inc.
entered into an Amended and Restated Agreement and Plan of Merger
dated as of November 25, 1996, a copy of which is attached as
Exhibit 99.
Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION
AND EXHIBITS
Exhibits.
99. Amended and Restated Agreement and Plan of Merger
Dated as of November 25, 1996 by and between
PennCorp Financial Group, Inc. and Washington
National Corporation.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned hereunto duly authorized.
WASHINGTON NATIONAL CORPORATION
(Registrant)
Date: December 4, 1996 By: /c/ CRAIG R. EDWARDS
Craig R. Edwards, Vice President,
General Counsel and Corporate
Secretary
<PAGE>
INDEX TO EXHIBITS
Exhibit Number
99 Amended and Restated Agreement and Plan of
Merger Dated as of November 25, 1996 by and
between PennCorp Financial Group, Inc. and
Washington National Corporation
WASHINGTON NATIONAL CORPORATION
EXHIBIT 99
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
DATED AS OF NOVEMBER 25, 1996
By and Between
PENNCORP FINANCIAL GROUP, INC.
and
WASHINGTON NATIONAL CORPORATION
<PAGE>
TABLE OF CONTENTS
ARTICLE 1
THE MERGER See below
Section 1.1 The Merger See below
Section 1.2 Closing See below
Section 1.3 Effective Time See below
Section 1.4 Certificate of Incorporation See below
Section 1.5 By-Laws See below
Section 1.6 Directors See below
Section 1.7 Officers See below
Section 1.8 This Section intentionally omitted. See below
Section 1.9 Conversion of Common Shares See below
Section 1.9.1 Outstanding Common Shares See below
Section 1.9.2 Cash Price Adjustment See below
Section 1.9.3 Cash Election See below
Section 1.9.4 Cash Election Shares See below
Section 1.9.5 Form of Election See below
Section 1.9.6 Deemed Non-Election See below
Section 1.9.7 Election Deadline See below
Section 1.9.8 Treasury Shares See below
Section 1.9.9 Adjustment Per Tax Opinion See below
Section 1.9.10 Impact of Stock Splits, etc. See below
Section 1.10 Preferred Stock See below
Section 1.11 Exchange of Certificates and Related Matters See below
Section 1.11.1 Paying Agent See below
Section 1.11.2 Exchange Procedures See below
Section 1.11.3 Letter of Transmittal See below
Section 1.11.4 Distributions with Respect to Unexchanged
Shares See below
Section 1.11.5 No Further Ownership Rights in Shares See below
Section 1.11.6 No Fractional Shares See below
Section 1.11.7 Termination of Payment Fund See below
Section 1.11.8 No Liability See below
Section 1.12 Stock Options and Restricted Stock See below
Section 1.13 Dissenting Shares See below
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY See below
Section 2.1 Organization, Standing and Corporate Power See below
Section 2.2 Capital Structure See below
Section 2.3 Significant Subsidiaries See below
Section 2.4 Authority; Noncontravention See below
Section 2.5 SEC Documents See below
Section 2.6 Absence of Certain Changes or Events See below
Section 2.7 Absence of Undisclosed Liabilities See below
Section 2.8 Benefit Plans See below
Section 2.9 Taxes See below
Section 2.10 Compliance with Applicable Laws See below
Section 2.11 Insurance Issued See below
Section 2.12 Rating Agencies See below
Section 2.13 Opinion of Financial Advisor See below
Section 2.14 Brokers See below
Section 2.15 Environmental See below
Section 2.16 Litigation See below
Section 2.17 Labor Relations See below
Section 2.18 Health Insurance Transactions See below
Section 2.19 Voting Requirements See below
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF PENNCORP
Section 3.1 Organization, Standing and Corporate Power See below
Section 3.2 PennCorp Capital Structure See below
Section 3.3 Authority; Noncontravention See below
Section 3.4 SEC Documents See below
Section 3.5 Absence of Certain Changes or Events See below
Section 3.6 Absence of Undisclosed Liabilities See below
Section 3.7 Compliance with Applicable Laws See below
Section 3.8 Rating Agencies See below
Section 3.9 Litigation See below
Section 3.10 This Section intentionally omitted. See below
Section 3.11 Financing See below
Section 3.12 Brokers See below
Section 3.13 Voting Requirements See below
ARTICLE 4
ADDITIONAL AGREEMENTS See below
Section 4.1 Preparation of Form S-4 and the Joint Proxy
Statement; Information Supplied See below
Section 4.1.1 Form S-4; Joint Proxy Statement See below
Section 4.1.2 Company Information See below
Section 4.1.3 PennCorp Information See below
Section 4.2 Meetings of Stockholders See below
Section 4.3 Letter of the Company's Accountants See below
Section 4.4 Letter of PennCorp's Accountants See below
Section 4.5 Access to Information; Confidentiality See below
Section 4.6 Best Efforts See below
Section 4.7 Public Announcements See below
Section 4.8 Acquisition Proposals See below
Section 4.9 Fiduciary Duties See below
Section 4.10 Filings; Other Action See below
Section 4.11 NYSE Listing See below
Section 4.12 Affiliates and Certain Stockholders See below
Section 4.13 Indemnification See below
Section 4.14 Stock Purchase Rights See below
Section 4.15 Employee Benefits See below
Section 4.15.1 Severance See below
Section 4.15.2 Retiree Life and Health Plan See below
Section 4.15.3 Directors' Retirement Income Plan See below
Section 4.15.4 Transition Plan See below
Section 4.16 Representation on PennCorp Board See below
Section 4.17 Registration Covenant See below
Section 4.18 Loan Purchase Agreement See below
ARTICLE 5
COVENANTS RELATING TO CONDUCT OF BUSINESS PRIOR TO MERGER See below
Section 5.1 Conduct of Business by the Company See below
Section 5.2 Management of the Company and Significant
Subsidiaries See below
Section 5.3 Conduct of Business by PennCorp See below
Section 5.4 Other Actions See below
Section 5.5 This Section intentionally omitted. See below
Section 5.6 Employee Benefit Payments See below
Section 5.7 United Way Contribution See below
ARTICLE 6
CONDITIONS PRECEDENT See below
Section 6.1 Conditions to Each Party's Obligation To
Effect the Merger See below
Section 6.1.1 Stockholder Approval See below
Section 6.1.2 Governmental and Regulatory Consents See below
Section 6.1.3 HSR Act See below
Section 6.1.4 No Injunctions or Restraints See below
Section 6.1.5 NYSE Listing See below
Section 6.1.6 Form S-4 See below
Section 6.2 Conditions to Obligations of PennCorp See below
Section 6.2.1 Representations and Warranties See below
Section 6.2.2 Performance of Obligations of the Company See below
Section 6.2.3 Opinion of Counsel See below
Section 6.2.4 Sale of the Loan Portfolio See below
Section 6.2.5 Trading Average See below
Section 6.2.6 Dissenting Shares See below
Section 6.3 Conditions to Obligation of the Company See below
Section 6.3.1 Representations and Warranties See below
Section 6.3.2 Performance of Obligations of PennCorp See below
Section 6.3.3 Opinion of Counsel See below
Section 6.3.4 Trading Average See below
ARTICLE 7
TERMINATION, AMENDMENT AND WAIVER See below
Section 7.1 Termination See below
Section 7.2 Effect of Termination See below
Section 7.3 Amendment See below
Section 7.4 Extension; Waiver See below
Section 7.5 Procedure for Termination, Amendment,
Extension or Waiver See below
ARTICLE 8
SURVIVAL OF PROVISIONS See below
Section 8.1 Survival See below
ARTICLE 9
NOTICES See below
Section 9.1 Notices See below
ARTICLE 10
MISCELLANEOUS See below
Section 10.1 Entire Agreement See below
Section 10.2 Expenses See below
Section 10.3 Counterparts See below
Section 10.4 No Third Party Beneficiary See below
Section 10.5 Governing Law See below
Section 10.6 Assignment; Binding Effect See below
Section 10.7 Headings, Gender, etc. See below
Section 10.8 Invalid Provisions See below
EXHIBIT A - Morgan Stanley Mortgage Capital Inc. Letter of Intent (Not filed)
EXHIBIT B - Form of Affiliate Letter (Not filed)
EXHIBIT C - Term Sheet for Registration Rights (Not filed)
EXHIBIT D - Form of Opinion of Weil, Gotshal & Manges LLP (Not filed)
EXHIBIT E - Form of Opinion of Schiff Hardin & Waite (Not filed)
<PAGE>
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
(the "Agreement") is made and entered into as of November 25,
1996 by and between PennCorp Financial Group, Inc., a Delaware
corporation ("PennCorp"), and Washington National Corporation, a
Delaware corporation (the "Company").
PREAMBLE
WHEREAS, the respective Boards of Directors of PennCorp
and the Company have determined that the Merger (as defined in
Section 1.1) is in the best interests of their respective
stockholders and have approved the Merger, upon the terms and
subject to the conditions set forth herein;
WHEREAS, PennCorp and the Company desire to make
certain representations, warranties, covenants and agreements in
connection with such Merger; and
WHEREAS, PennCorp and the Company entered into the
Agreement and Plan of Merger dated as of November 14, 1996 and
now desire to amend and restate the Agreement in its entirety as
of the date hereof;
NOW, THEREFORE, in consideration of the mutual
covenants and agreements set forth in this Agreement, and for
other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE 1
THE MERGER
Section 1.1 THE MERGER. Subject to the terms and
conditions of this Agreement, at the Effective Time (as is
defined in Section 1.3 hereof), the Company shall be merged with
and into PennCorp (the "Merger"), in accordance with the Delaware
General Corporation Law (the "Delaware Code") and the separate
corporate existence of the Company shall cease and PennCorp shall
continue as the surviving corporation under the laws of the State
of Delaware (the "Surviving Corporation") with all the rights,
privileges, immunities and powers, and subject to all the duties
and liabilities, of a corporation organized under the Delaware
Code. The Merger shall have the effects set forth in the
Delaware Code.
Section 1.2 CLOSING. Unless this Agreement shall
have been terminated and the transactions herein contemplated
shall have been abandoned pursuant to Section 7.1, and subject to
the satisfaction or waiver of the conditions set forth in
Article 6, the closing of the Merger (the "Closing") will take
place at 9:00 a.m. on the first business day following the date
on which the last of the conditions set forth in Article 6 shall
be fulfilled or waived in accordance with this Agreement (the
"Closing Date"), at the offices of Schiff Hardin & Waite,
7200 Sears Tower, 233 Wacker Drive, Chicago, Illinois 60606,
unless another date, time or place is agreed to in writing by the
parties hereto.
Section 1.3 EFFECTIVE TIME. The parties hereto will
file with the Secretary of State of the State of Delaware (the
"Delaware Secretary of State") on the date of the Closing (or on
such other date as PennCorp and the Company may agree) a
certificate of merger or other appropriate documents, mutually
satisfactory in form and substance to PennCorp and the Company
and executed in accordance with the relevant provisions of the
Delaware Code, and make all other filings or recordings required
under the Delaware Code in connection with the Merger. The Merger
shall become effective upon the filing of the certificate of
merger with the Delaware Secretary of State, or at such later
time as is specified in the certificate of merger (the "Effective
Time").
Section 1.4 CERTIFICATE OF INCORPORATION. The
Certificate of Incorporation of PennCorp, as in effect
immediately prior to the Effective Time, shall be the Certificate
of Incorporation of the Surviving Corporation until thereafter
amended in accordance with its terms and as provided by
applicable law.
Section 1.5 BY-LAWS. The By-Laws of PennCorp, as in
effect immediately prior to the Effective Time, shall be the
By-Laws of the Surviving Corporation until thereafter amended as
provided by law, the By-Laws or the Certificate of Incorporation
of the Surviving Corporation.
Section 1.6 DIRECTORS. Subject to Section 4.16, the
directors of PennCorp at the Effective Time shall be the
directors of the Surviving Corporation and will hold office from
the Effective Time until their respective successors are duly
elected or appointed and qualify in the manner provided in the
Certificate of Incorporation or By-Laws of the Surviving
Corporation, or as otherwise provided by law.
Section 1.7 OFFICERS. The officers of PennCorp at
the Effective Time shall be the officers of the Surviving
Corporation and will hold office from the Effective Time until
their respective successors are duly elected or appointed and
qualify in the manner provided in the Certificate of
Incorporation or By-Laws of the Surviving Corporation, or as
otherwise provided by law.
Section 1.8 THIS SECTION INTENTIONALLY OMITTED.
Section 1.9 CONVERSION OF COMMON SHARES.
Section 1.9.1 OUTSTANDING COMMON SHARES. Subject to
the other provisions of this Section 1.9, each share of common
stock, $5.00 par value, of the Company (the "Common Shares")
issued and outstanding immediately prior to the Effective Time
(other than shares held as treasury shares by the Company and
Dissenting Shares (as defined in Section 1.13 below)) shall, by
virtue of the Merger and without any action on the part of the
holder thereof, be converted into (i) the right to receive $29.50
in cash, without interest (subject to adjustment as provided in
Section 1.9.2 below, the "Cash Price"), or (ii) the right to
receive the fraction (rounded to the nearest ten-thousandth of a
share) of a validly issued, fully paid and non-assessable share
of common stock, par value $0.01 per share, of PennCorp
("PennCorp Common Stock") determined by dividing the Cash Price
by the PennCorp Share Price (as defined below) (the "Exchange
Ratio") or (iii) the right to receive a combination of cash and
shares of PennCorp Common Stock determined in accordance with
Section 1.9.3 or Section 1.9.4 below. The "PennCorp Share
Price" shall be equal to the Trading Average (as defined below);
provided, however, that (x) if the Trading Average is less than
$31.658 then the PennCorp Share Price shall be $31.658, and if
the Trading Average is greater than $38.693, then the PennCorp
Share Price shall be $38.693, (y) under certain circumstances set
forth in Section 6.3.4, it shall be a condition to the Company's
obligation to effect the Merger that the Trading Average shall
not be less than $28.140, and (z) under certain circumstances set
forth in Section 6.2.5, it shall be a condition to PennCorp's
obligation to effect the Merger that the Trading Average shall
not be greater than $42.210. The "Trading Average" shall be
equal to the average of the closing prices of the PennCorp Common
Stock on the New York Stock Exchange ("NYSE") Composite
Transactions Reporting System, as reported in the Wall Street
Journal, for the 20 trading days immediately preceding the second
trading day prior to the Effective Time.
Section 1.9.2 CASH PRICE ADJUSTMENT. The Cash Price shall
be adjusted by subtracting from $29.50 per Common Share a per
share amount determined by dividing (i) one-half (1/2) of the Due
Diligence Purchase Price Adjustment (as defined below) by (ii)
the sum of (x) the number of Common Shares outstanding as of the
fifth business day immediately prior to the Effective Time plus
(y) the number of Common Shares subject to Employee Options (as
defined in Section 1.12) outstanding as of the fifth business day
immediately prior to the Effective Time. The Due Diligence
Purchase Price Adjustment shall have the meaning set forth in the
letter of intent dated November 12, 1996 between the Company and
Morgan Stanley Mortgage Capital Inc., a copy of which is attached
as Exhibit A to this Agreement, pursuant to which Morgan Stanley
Mortgage Capital Inc. has agreed to purchase the commercial
mortgage loans (the "Loan Portfolio") of the Company's
subsidiaries immediately prior to the Effective Time (the
"Mortgage Loan Letter of Intent").
Section 1.9.3 CASH ELECTION. Subject to the immediately
following sentence, each record holder of Common Shares
immediately prior to the Effective Time will be entitled to elect
to receive solely cash for all or any part of such holder's
Common Shares (a "Cash Election"). Notwithstanding the foregoing
and subject to Section 1.9.9, the number of Common Shares that
may be converted into the right to receive cash in the Merger
(the "Cash Election Number") shall not exceed the number of
Common Shares determined by dividing (i) $100,000,000 less the
sum of (x) the dollar amount required to redeem the Preferred
Stock (as defined in Section 1.10), (y) the dollar amount
required to cancel and cash out the Employee Options and the
Restricted Stock (as those terms are defined in Section 1.12) in
accordance with Section 1.12 of this Agreement and (z) the dollar
amount required to purchase the Common Shares and the Preferred
Stock held by the Company's retirement plans, as contemplated by
Section 5.1(ii)(z), by (ii) the Cash Price. Cash Elections shall
be made on a form designed for that purpose (a "Form of
Election"). Holders of record of Common Shares who hold such
Common Shares as nominees, trustees or in other representative
capacities (a "Representative") may submit multiple Forms of
Election, provided that such Representative certifies that each
such Form of Election covers all the Common Shares held by such
Representative for a particular beneficial owner. To the extent
not covered by a properly given Cash Election, all Common Shares
issued and outstanding immediately prior to the Effective Time
shall, except as provided in Section 1.9.1, be converted into the
right to receive solely PennCorp Common Stock for such Common
Shares.
Section 1.9.4 CASH ELECTION SHARES. If the aggregate number
of Common Shares covered by Cash Elections (the "Cash Election
Shares") exceeds the Cash Election Number, all Cash Election
Shares shall be converted into the right to receive cash and
PennCorp Common Stock in the following manner:
each Cash Election Share shall be converted into the right
to receive (i) an amount in cash, without interest, equal to
the product of (x) the Cash Price and (y) a fraction (the
"Cash Fraction"), the numerator of which shall be the Cash
Election Number and the denominator of which shall be the
total number of Cash Election Shares, and (ii) a number of
shares of PennCorp Common Stock equal to the product of (x)
the Exchange Ratio (as adjusted pursuant to Section 6.2.5 or
Section 6.3.5, if applicable) and (y) a fraction equal to
one minus the Cash Fraction.
Section 1.9.5 FORM OF ELECTION. Cash Elections shall be
made by record holders of Common Shares by mailing to the Paying
Agent a Form of Election. To be effective, a Form of Election
must be properly completed, signed and submitted to the Paying
Agent and accompanied by the certificates representing the Common
Shares as to which the election is being made (or by an
appropriate guarantee of delivery of such certificate signed by a
trust company in the United States or a member of a registered
national securities exchange or the National Association of
Securities Dealers, Inc. (the "NASD")). PennCorp will have the
discretion, which it may delegate in whole or in part to the
Paying Agent, to determine whether Forms of Election have been
properly completed, signed and submitted or revoked and to
disregard immaterial defects in Forms of Election. The decision
of PennCorp (or the Paying Agent) in such matters shall be
conclusive and binding. Neither PennCorp nor the Paying Agent
will be under any obligation to notify any person of any defect
in a Form of Election submitted to the Paying Agent. The Paying
Agent shall also make all computations contemplated by this
Section 1.9 and all such computations shall be conclusive and
binding on the holders of Common Shares.
Section 1.9.6 DEEMED NON-ELECTION. For the purposes hereof,
a holder of Common Shares who does not submit a Form of Election
that is received by the Paying Agent prior to the Election
Deadline (as defined in Section 1.9.9) shall be deemed not to
have properly made a Cash Election. If PennCorp or the Paying
Agent shall determine that any purported Cash Election was not
properly made, such purported Cash Election shall be deemed to be
of no force and effect.
Section 1.9.7 ELECTION DEADLINE. PennCorp and the Company
shall each use its best efforts to mail the Form of Election,
with a Joint Proxy Statement (as defined in Section 2.4), to the
record holders of the Common Shares for the Stockholders Meeting
(as defined in Section 4.2), and to all persons who become record
holders of Common Shares during the period between the record
date for the Stockholders Meeting and 10:00 a.m. New York time,
on the date seven calendar days prior to the anticipated
Effective Time and to make the Form of Election available to all
persons who become record holders of Common Shares subsequent to
such day and no later than the close of business on the business
day prior to the Effective Time. A Form of Election must be
received by the Paying Agent by 5:00 p.m., New York City time, on
the last business day prior to the Effective Time (the "Election
Deadline") in order to be effective. All elections may be
revoked in writing by the record holders submitting Forms of
Election until the Election Deadline.
Section 1.9.8 TREASURY SHARES. Each Common Share issued and
outstanding immediately prior to the Effective Time which is then
held as a treasury share by the Company immediately prior to the
Effective Time shall, by virtue of the Merger and without any
action on the part of the Company, be cancelled and retired and
cease to exist, without any conversion thereof.
Section 1.9.9 ADJUSTMENT PER TAX OPINION. If, after having
made the calculation under Section 1.9.4 hereof and taking into
account Dissenting Shares, the Tax Opinions referred to in
Sections 6.2.3 and 6.3.3 cannot be rendered (as reasonably
determined by Weil, Gotshal & Manges LLP, counsel to PennCorp,
and Schiff Hardin & Waite, counsel to the Company), as a result
of the Merger possibly failing to satisfy continuity of interest
requirements under applicable federal income tax principles
relating to reorganizations under section 368(a) of the Code,
then PennCorp shall, on a pro rata basis, reduce to the minimum
extent necessary to enable the Tax Opinions to be rendered, the
amount of cash to be delivered with respect to the Cash Election
Shares and in lieu thereof shall deliver such number of shares of
PennCorp Common Stock that equal (a) the amount of cash that has
been reduced in order to render the Tax Opinions divided by (b)
the PennCorp Share Price, and the Cash Election Number shall be
appropriately adjusted to effect such reduction.
Section 1.9.10 IMPACT OF STOCK SPLITS, ETC. In the event of
any change in PennCorp Common Stock between the date of this
Agreement and the Effective Time by reason of any stock split,
stock dividend, subdivision, reclassification, recapitalization,
combination, exchange of Common Stock or the like, the Exchange
Ratio, the Cash Price and the calculation of all share prices
provided for in this Agreement shall be proportionately adjusted.
Section 1.10 PREFERRED STOCK. On or prior to
the Closing Date, the Company shall take all necessary action
under its Certificate of Incorporation, as amended, to redeem and
retire any and all $2.50 Convertible Preferred Stock, $5.00 par
value (the "Preferred Stock") outstanding at a redemption price
of $55.00 per share plus accrued and unpaid dividends to the
redemption date so that as of the Closing Date the only issued
and outstanding capital stock of the Company are Common Shares.
Section 1.11 EXCHANGE OF CERTIFICATES AND RELATED
MATTERS.
Section 1.11.1 PAYING AGENT. Promptly after completion of
the allocation and election procedures in Section 1.9 and subject
to adjustment as provided therein, PennCorp shall deposit with
its transfer agent and registrar (the "Paying Agent"), for the
benefit of the holders of Common Shares, (i) certificates
representing the shares of PennCorp Common Stock equal to (x) the
Exchange Ratio (as adjusted pursuant to Section 6.2.5 or Section
6.3.5, if applicable) multiplied by (y) the number of Common
Shares to be converted into the right to receive PennCorp Common
Stock in the Merger and (ii) cash in an amount equal to (x) the
Cash Price multiplied by (y) the Cash Election Number (or such
lesser number of shares subject to properly made Cash Elections).
The certificates for shares of PennCorp Common Stock, together
with any dividends or distributions with respect to such
certificates, and the cash for the Common Shares are hereinafter
referred to as the "Payment Fund".
Section 1.11.2 EXCHANGE PROCEDURES. Upon surrender to the
Paying Agent of a certificate representing Common Shares for
cancellation, together with a letter of transmittal and such
other customary documents as may be required by the instruction
to the letter of transmittal (collectively, the "Certificate")
and acceptance thereof by the Paying Agent, the holder of such
Certificate shall be entitled to receive in exchange therefor (i)
certificates evidencing that number of whole shares of PennCorp
Common Stock which such holder has the right to receive in
respect of Common Shares previously represented by such
Certificate in accordance with Section 1.9.1, (ii) cash to which
such holder is entitled to receive in accordance with Section
1.9.1, (iii) cash in lieu of fractional shares of PennCorp Common
Stock to which such holder is entitled pursuant to Section
1.11.6, and (iv) any dividends or other distributions to which
such holder is entitled pursuant to Section 1.11.4 (the shares of
PennCorp Common Stock, dividends, distributions and cash
described in clauses (i), (ii), (iii) and (iv) are referred to
collectively as the "Merger Consideration"). The Paying Agent
shall accept such Certificate upon compliance with such
reasonable terms and conditions as the Paying Agent may impose to
effect an orderly exchange thereof in accordance with normal
exchange practices. If the Merger Consideration (or any portion
thereof) is to be delivered to any person other than the person
in whose name the Certificate representing Common Shares
surrendered in exchange therefor is registered on the record
books of the Company, it shall be a condition to such exchange
that the Certificate so surrendered shall be properly endorsed or
otherwise be in proper form for transfer and that the person
requesting such exchange shall pay to the Paying Agent any
transfer or other taxes required by reason of the payment of such
consideration to a person other than the registered holder of the
Certificate surrendered, or shall establish to the satisfaction
of the Paying Agent that such tax has been paid or is not
applicable. After the Effective Time, there shall be no further
transfer on the records of the Company or its transfer agent of
any Certificate representing Common Shares and if any such
Certificate is presented to the Company for transfer, it shall be
cancelled against delivery of the Merger Consideration as
hereinabove provided. Until surrendered as contemplated by this
Section 1.11.2, each Certificate representing Common Shares
(other than a Certificate representing Common Shares to be
cancelled in accordance with Section 1.9.8), shall be deemed at
any time after the Effective Time to represent only the right to
receive upon such surrender the Merger Consideration, without any
interest thereon.
Section 1.11.3 LETTER OF TRANSMITTAL. Promptly after the
Effective Time (but in no event more than five business days
thereafter), PennCorp shall require the Paying Agent to mail to
each record holder of Certificates that immediately prior to the
Effective Time represented Common Shares which have been
converted pursuant to Section 1.9, a letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss
and title shall pass, only upon proper delivery of Certificates
representing Common Shares to the Paying Agent and shall be in
such form and have such provisions as PennCorp reasonably may
specify) and instructions for use in surrendering such
Certificates and receiving the Merger Consideration to which such
holder shall be entitled therefor pursuant to Section 1.9.
Section 1.11.4 DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED
SHARES. No dividends or other distributions with respect to
PennCorp Common Stock with a record date after the Effective Time
shall be paid to the holder of any Certificate that immediately
prior to the Effective Time represented Common Shares which have
been converted pursuant to Section 1.9, and no other part of the
Merger Consideration shall be paid to any such holder, until the
surrender for exchange of such Certificate in accordance with
this Article I. Following surrender for exchange of any such
Certificate, there shall be paid to the holder of Certificates
evidencing whole shares of PennCorp Common Stock issued in
exchange therefor, without interest, (i) at the time of such
surrender, the amount of dividends or other distributions with a
record date after the Effective Time theretofore paid with
respect to the number of whole shares of PennCorp Common Stock
into which the Common Shares represented by such Certificate
immediately prior to the Effective Time were converted pursuant
to Section 1.9, and (ii) at the appropriate payment date, the
amount of dividends or other distributions with a record date
after the Effective Time, but prior to such surrender, and with a
payment date subsequent to such surrender, payable with respect
to such whole shares of PennCorp Common Stock.
Section 1.11.5 NO FURTHER OWNERSHIP RIGHTS IN SHARES. The
Merger Consideration paid upon the surrender for exchange of
Certificates representing Common Shares in accordance with the
terms of this Article I shall be deemed to have been issued and
paid in full satisfaction of all rights pertaining to the Common
Shares theretofore represented by such certificates, subject,
however, to the Surviving Corporation's obligation (if any) to
pay any dividends or make any other distributions with a record
date prior to the Effective Time which may have been declared by
the Company on such Common Shares in accordance with the terms of
this Agreement or prior to the date of this Agreement and which
remain unpaid at the Effective Time.
Section 1.11.6 NO FRACTIONAL SHARES. No certificates or
scrip representing fractional shares of PennCorp Common Stock
shall be issued upon the surrender for exchange of Certificates
that immediately prior to the Effective Time represented Common
Shares which have been converted pursuant to Section 1.9, and
such fractional share interests will not entitle the owner
thereof to vote or to any rights of a stockholder of PennCorp.
Notwithstanding any other provisions of this Agreement, each
holder of Common Shares who would otherwise have been entitled to
receive a fraction of a share of PennCorp Common Stock (after
taking into account all certificates delivered by such holder)
shall receive, in lieu thereof, cash (without interest) in an
amount equal to such fractional part of a share of PennCorp
Common Stock multiplied by the PennCorp Share Price.
Section 1.11.7 TERMINATION OF PAYMENT FUND. Any portion of
the Payment Fund which remains undistributed to the holders of
the Certificates representing Common Shares for 120 days after
the Effective Time shall be delivered to PennCorp, upon demand,
and any holders of Common Shares who have not theretofore
complied with this Article I shall thereafter look only to
PennCorp and only as general creditors thereof for payment,
without interest, of their claim for any Merger Consideration and
any dividends or distributions with respect to PennCorp Common
Stock.
Section 1.11.8 NO LIABILITY. Neither PennCorp nor the
Paying Agent shall be liable to any person in respect of any
cash, Common Shares or dividends or distributions payable from
the Payment Fund delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law. If any
Certificates representing Common Shares shall not have been
surrendered prior to seven years after the Effective Time (or
immediately prior to such earlier date on which any Merger
Consideration in respect of such Certificate would otherwise
escheat to or become the property of any Governmental Entity (as
defined in Section 2.4)), any such cash, Common Shares, dividends
or distributions payable in respect of such Certificate shall, to
the extent permitted by applicable law, become the property of
PennCorp free and clear of all claims or interest of any person
previously entitled thereto.
Section 1.12 STOCK OPTIONS AND RESTRICTED STOCK.
The Company has advised PennCorp and hereby confirms that the
Compensation Committee of the Company's Board of Directors (the
"Compensation Committee"), in administering the "Washington
National Corporation Stock Benefit Plan, as Amended" (the
"Plan"), shall, in accordance with the terms of the Plan and the
agreements entered into thereunder with respect to employee stock
options to purchase Common Shares ("Employee Options"), and
Common Shares of restricted stock ("Restricted Stock"), provide
for (i) the acceleration of the exercisability of Employee
Options, (ii) the ability of certain retirees who have Employee
Options to exercise those Employee Options up to the Effective
Time, (iii) the ability of certain individuals whose employment
with the Company was terminated prior to the date of this
Agreement or whose employment is terminated between the date of
this Agreement and the Effective Time to exercise Employee
Options for a period ending on the earlier of the Effective Time
and one year from the date of termination of employment with the
Company, and (iv) the acceleration of the date on which
restrictions applicable to Restricted Stock shall lapse.
Notwithstanding anything in this Agreement to the contrary, the
Company shall take all actions necessary to cause each Employee
Option outstanding immediately prior to the Effective Time be
cancelled by the Company, and each holder of a cancelled Employee
Option shall receive from the Company in consideration for the
cancellation of such Employee Option an amount in cash (less
applicable withholding taxes) equal to the product of (i) the
number of Common Shares previously subject to such Employee
Option and (ii) the excess, if any, of the Cash Price over the
exercise price per Common Share previously subject to such
Employee Option. The Company shall take all actions necessary to
cause each share of Restricted Stock outstanding immediately
prior to the Effective Time to be cancelled by the Company, and
each holder of a cancelled share of Restricted Stock shall
receive from the Company in consideration for the cancellation of
such Restricted Stock an amount in cash equal to 125% of the Cash
Price, less applicable withholding taxes.
Section 1.13 DISSENTING SHARES. Notwithstanding
anything in this Agreement to the contrary, the Common Shares
outstanding immediately prior to the Effective Time and held by a
holder who has not voted in favor of the Merger or consented
thereto in writing and who has demanded properly in writing
appraisal for such Common Shares in accordance with Section 262
of the Delaware Code and who shall not have withdrawn such demand
or otherwise have forfeited appraisal rights shall not be
converted into or represent the right to receive the Merger
Consideration ("Dissenting Shares"). Such stockholders shall be
entitled to receive payment of the appraised value of such Common
Shares held by them in accordance with the provisions of such
Section 262, except that all Dissenting Shares held by
stockholders who shall have failed to perfect or who effectively
shall have withdrawn or lost their rights to appraisal of such
Common Shares held by them under such Section 262 shall thereupon
be deemed to have been converted into and to have become
exchangeable, as of the Effective Time, for the right to receive,
without any interest thereon, the Merger Consideration, upon
surrender, in the manner provided in Section 1.11.2, of the
Certificate or Certificates that formerly evidenced such Common
Shares. The Company shall give PennCorp prompt notice of any
demands for appraisal received by the Company, withdrawals of
such demands, and any other instruments served pursuant to
Delaware law and received by the Company, and PennCorp shall have
the right to participate in all negotiations and proceedings with
respect to such demands. Prior to the Effective Time, the
Company shall not, except with the prior written consent of
PennCorp, make any payment with respect to any demands for
appraisal, or settle or offer to settle, any such demands.
<PAGE>
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to PennCorp
as follows:
Section 2.1 ORGANIZATION, STANDING AND CORPORATE
POWER. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of
Delaware and has the requisite corporate power and authority to
carry on its business as now being conducted. The Company is duly
qualified to do business and is in good standing as a foreign
corporation in the states of Illinois and Indiana, which are the
only jurisdictions in which the nature of its business or the
ownership or leasing of its properties makes such qualification
necessary, except where the failure to be so qualified would not
individually or in the aggregate have a Material Adverse Effect.
As used in this Agreement, the term "Material Adverse Effect"
means with respect to the Company a material adverse effect on
the business, assets, liabilities, results of operations or
financial condition of the Company and its subsidiaries taken as
a whole. The Company has delivered to PennCorp complete and
correct copies of its Certificate of Incorporation and By-Laws,
as amended to the date of this Agreement.
Section 2.2 CAPITAL STRUCTURE. The authorized
capital stock of the Company consists of 60,000,000 Common Shares
and 10,000,000 shares of preferred stock, $5.00 par value. At
the close of business on November 6, 1996, (i) 12,337,699 Common
Shares were issued and outstanding; (ii) 3,383,473 Common Shares
were held as treasury stock; (iii) 0 Common Shares were held by
subsidiaries of the Company; (iv) 267,859 Common Shares were
reserved for issuance upon the conversion of outstanding shares
of Preferred Stock; (v) 1,051,553 Common Shares were reserved for
issuance upon the exercise of issued and issuable options to
purchase Common Shares and for use in connection with Restricted
Stock grants; (vi) 34,343 Common Shares were reserved for
issuance in connection with the Company's dividend reinvestment
plan; and (vii) 142,858 shares of preferred stock were issued and
outstanding, all of which have been designated as $2.50
Convertible Preferred Stock. All outstanding shares of capital
stock of the Company are duly authorized, validly issued, fully
paid and nonassessable and not subject to preemptive rights. No
bonds, debentures, notes or other indebtedness of the Company
having the right to vote (or convertible into, or exchangeable
for, securities having the right to vote) on any matters on which
the stockholders of the Company may vote are issued or
outstanding. Section 2.2 of the Disclosure Schedule sets forth
the following information with respect to each Employee Option
and Restricted Stock award outstanding on the date hereof, and
each Restricted Stock award which has been forfeited by an
Eligible Employee (as defined in Section 5.6): (x) the name of
the recipient, (y) the number of Common Shares subject to such
Employee Option and Restricted Stock award, and (z) the
applicable exercise price for each Employee Option. Except as
set forth above or in Section 2.2 of the Disclosure Schedule, the
Company does not have any outstanding option, warrant,
subscription or other right, agreement or commitment which either
obligates the Company to issue, sell or transfer, repurchase,
redeem or otherwise acquire or vote any shares of capital stock
of the Company, or which restricts the transfer of Common Shares
or preferred stock.
Section 2.3 SIGNIFICANT SUBSIDIARIES.
(i) Section 2.3(i) of the Disclosure Schedule sets
forth the name of each Significant Subsidiary of the Company (the
"Significant Subsidiaries") and the state or jurisdiction of its
incorporation. Each Significant Subsidiary is a corporation duly
organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation and has the corporate
power and authority and all necessary government approvals to
own, lease and operate its properties and to carry on its
business as now being conducted, except where the failure to be
so organized, existing and in good standing or to have such power
and authority or necessary governmental approvals would not
individually or in the aggregate have a Material Adverse Effect.
Each Significant Subsidiary is duly qualified or licensed and in
good standing to do business in each jurisdiction in which the
property owned, leased or operated by it or the nature of the
business conducted by it makes such qualification or licensing
necessary, except in such jurisdictions where the failure to be
so duly qualified or licensed and in good standing would not
individually or in the aggregate have a Material Adverse Effect.
For purposes of this Agreement, a "Significant Subsidiary" of the
Company means each of Washington National Insurance Company,
United Presidential Corporation and United Presidential Life
Insurance Company, which are the only subsidiaries of the Company
that would constitute "significant subsidiaries" within the
meaning of Rule 1-02 of Regulation S-X of the Securities and
Exchange Commission (the "SEC"). Except as disclosed in Section
2.3(i) of the Disclosure Schedule, each of the Significant
Subsidiaries that is an insurance company is (a) duly licensed or
authorized as an insurance company in its jurisdiction of
incorporation and (b) duly licensed or authorized as an insurance
company in each other jurisdiction where it is required to be so
licensed or authorized. The subsidiaries of the Company (other
than the Significant Subsidiaries), if considered as a whole,
would not constitute a "significant subsidiary" within the
meaning of Rule 1-02 of Regulation S-X.
(ii) Section 2.3(ii) of the Disclosure Schedule sets
forth, as to each Significant Subsidiary, its authorized capital
stock and the number of its issued and outstanding shares of
capital stock. The Company is, directly or indirectly, the
record and beneficial owner of all of the outstanding shares of
capital stock of each of the Significant Subsidiaries, and no
capital stock of any Significant Subsidiary is or may become
required to be issued by reason of any options, warrants, rights
to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into or
exchangeable or exercisable for, shares of any capital stock of
any Significant Subsidiary, and there are no contracts,
commitments, understandings or arrangements by which the Company
or any Significant Subsidiary is or may be bound to issue,
redeem, purchase or sell additional shares of capital stock of
any Significant Subsidiary or securities convertible into or
exchangeable or exercisable for any such shares. All of such
shares so owned by the Company are validly issued, fully paid and
nonassessable and are owned by it or by another wholly-owned
subsidiary thereof free and clear of all liens, claims,
encumbrances, restraints on alienation, or any other restrictions
with respect to the transferability or assignability thereof
(other than restrictions on transfer imposed by federal or state
securities laws).
Section 2.4 AUTHORITY; NONCONTRAVENTION.
The Company has the requisite corporate power and
authority to enter into this Agreement and to carry out its
obligations hereunder. The execution and delivery of this
Agreement by the Company and the consummation by the Company of
the transactions contemplated hereby have been duly authorized by
all necessary corporate action on the part of the Company,
subject, in the case of the Merger, to the approval of its
stockholders as set forth in Section 4.2. This Agreement has
been duly executed and delivered by the Company and, assuming
this Agreement has been duly executed and delivered by PennCorp,
constitutes a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms
except that the enforcement thereof may be limited by (a)
bankruptcy, insolvency, reorganization, moratorium or similar
laws now or hereafter in effect relating to creditor's rights
generally and (b) general principles of equity (regardless of
whether enforceability is considered in a proceeding at law or in
equity). Except as disclosed in Section 2.4 of the Disclosure
Schedule, the execution and delivery of this Agreement do not,
and the consummation of the transactions contemplated by this
Agreement and compliance with the provisions hereof will not, (i)
conflict with any of the provisions of the Certificate of
Incorporation or By-Laws of the Company or the comparable
documents of any of the Significant Subsidiaries, (ii) subject to
the governmental filings and other matters referred to in the
following sentence, conflict with, result in a breach of or
default (with or without notice or lapse of time, or both) under,
or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of a material benefit
under, or require the consent of any person under, any indenture
or other agreement, permit, concession, franchise, license or
similar instrument or undertaking to which the Company or any of
its subsidiaries is a party or by which the Company or any of its
subsidiaries or any of their assets is bound or affected, or
(iii) subject to the governmental filings and other matters
referred to in the following sentence, contravene any law, rule
or regulation of any state or of the United States or any
political subdivision thereof or therein, or any order, writ,
judgment, injunction, decree, determination or award currently in
effect, subject, in the case of clauses (ii) and (iii), to those
conflicts, breaches, defaults and similar matters, which,
individually or in the aggregate, would not have a Material
Adverse Effect nor materially and adversely affect the Company's
ability to consummate the transactions contemplated hereby. No
consent, approval or authorization of, or declaration or filing
with, or notice to, any governmental agency or regulatory body,
court, agency, commission, division, department, public body or
other authority (a "Governmental Entity") which has not been
received or made, is required by or with respect to the Company
or any Significant Subsidiary in connection with the execution
and delivery of this Agreement by the Company or the consummation
by the Company of the transactions contemplated hereby, except
for (i) the filing of premerger notification and report forms
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended (the "HSR Act") with respect to the Merger, (ii) the
filings and/or notices required under the insurance laws of the
jurisdictions set forth in Section 2.3(i) of the Disclosure
Schedule, (iii) the filing with the SEC of (x) a proxy statement
relating to the approval by the stockholders of the Company of
the Merger (such proxy statement, together with the proxy
statement relating to the PennCorp Stockholder Approval (as
defined in Section 3.13), in each case as amended or supplemented
from time to time, is referred to herein as the "Joint Proxy
Statement"), and (y) such reports under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), as may be required
in connection with this Agreement and the transactions
contemplated by this Agreement, (iv) the filing of the
certificate of merger with the Delaware Secretary of State and
appropriate documents with the relevant authorities of other
states in which the Company is qualified to do business, and (v)
such other consents, approvals, authorizations, filings or
notices as are set forth in Section 2.4 of the Disclosure
Schedule.
Section 2.5 SEC DOCUMENTS. The Company has timely
filed all required reports, schedules, forms, statements and
other documents with the SEC since January 1, 1994 (such reports,
schedules, forms, statements and other documents are hereinafter
referred to as the "SEC Documents"). As of their respective
dates, the SEC Documents complied with the requirements of the
Securities Act of 1933, as amended (the "Securities Act"), or the
Exchange Act, as the case may be, and the rules and regulations
of the SEC promulgated thereunder applicable to such SEC
Documents, and none of the SEC Documents as of such dates
contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The
consolidated financial statements of the Company included in the
SEC Documents comply as to form in all material respects with
applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto, have been prepared
in accordance with generally accepted accounting principles
applied on a consistent basis during the periods involved
("GAAP") (except as may be indicated in the notes thereto or, in
the case of unaudited interim financial statements, as permitted
by Rule 10-01 of Regulation S-X) and fairly present, in all
material respects, the consolidated financial position of the
Company and its consolidated subsidiaries as of the dates thereof
and the consolidated results of their operations and cash flows
for the periods then ended (subject, in the case of unaudited
interim financial statements, to normal recurring adjustments).
Section 2.6 ABSENCE OF CERTAIN CHANGES OR EVENTS.
Except as disclosed in the SEC Documents filed and publicly
available prior to November 11, 1996 (the "Filed SEC Documents")
or in Section 2.6 of the Disclosure Schedule, since the date of
the most recent audited financial statements included in the
Filed SEC Documents, the Company and its subsidiaries have
conducted their business only in the ordinary course, and except
as otherwise expressly permitted by this Agreement, there has not
been (i) any change which has had or which would have a Material
Adverse Effect, (ii) any declaration, setting aside or payment of
any dividend or other distribution (whether in cash, stock or
property) with respect to any of the Company's outstanding
capital stock (other than regular quarterly cash dividends of
$.27 per Common Share and $.62 1/2 per share of Preferred Stock,
in accordance with usual record and payment dates and in
accordance with the Company's present dividend policy), (iii) any
split, combination or reclassification of any of its outstanding
capital stock or any issuance or the authorization of any
issuance of any other securities in respect of, in lieu of or in
substitution for shares of its outstanding capital stock, (iv)
(x) any granting by the Company or any of its subsidiaries to any
director, officer or other employee of the Company or any of its
subsidiaries of any increase in compensation, except in the case
of employees in the ordinary course of business consistent with
prior practice, or as was required under employment agreements
in effect as of the date of the most recent audited financial
statements included in the Filed SEC Documents, (y) any granting
by the Company or any of its subsidiaries to any such director,
officer or other employee of any increase in severance or
termination pay, except as was required under any employment,
severance or termination agreements in effect as of the date of
the most recent audited financial statements included in the
Filed SEC Documents, (z) any entry by the Company or any of
its subsidiaries into any employment, severance, change of
control, termination or similar agreement with any officer,
director or other employee, (v) any change in the method of
accounting or policy used by the Company or any of its
subsidiaries and disclosed in the financial statements included
in the Filed SEC Documents or in the Annual Statement
or the Quarterly Statement (as those terms are defined in
Section 2.10(iii)) most recently filed and publicly available
prior to the date hereof, other than changes which were required
by GAAP or SAP (as defined in Section 2.10(iii)) or Guideline 22
of the National Association of Insurance Commissioners, (vi) made
any material amendment to the insurance policies or annuity
contracts in force of any Significant Subsidiary or made any
material change in the methodology used in the determination of
the Reserve Liabilities (as defined in Section 2.10(iv)) of the
Significant Subsidiaries or any reserves contained in the
financial statements included in the Filed SEC Documents or in
the Annual Statement or the Quarterly Statement most recently
filed and publicly available prior to the date hereof with
respect to insurance policies and annuity contracts, (vii)
terminated, amended, or entered into as ceding or assuming
insurer any reinsurance, coinsurance or other similar agreement
or any trust agreement or security agreement relating thereto,
other than renewals on substantially the same terms, in the
ordinary course of business, (viii) introduced any insurance
policy or annuity contract, or (x) made any material changes in
its customary marketing, pricing, underwriting, investing or
actuarial practices and policies.
Section 2.7 ABSENCE OF UNDISCLOSED LIABILITIES.
Except as disclosed in the Filed SEC Documents or in Section 2.7
of the Disclosure Schedule or which were incurred after June 30,
1996 in the ordinary course of business (and which, other than
liabilities for policy benefits, individually or in the
aggregate, are immaterial in amount) or in connection with the
transactions contemplated by this Agreement, the Company and its
subsidiaries do not have any material liabilities or obligations
of a nature required by GAAP to be reflected in a consolidated
balance sheet (or reflected in the notes thereto) of the Company
and its subsidiaries.
Section 2.8 BENEFIT PLANS. Schedule 2.8 sets forth
a complete and correct list of all Benefit Plans (as defined
below). Except as disclosed in Section 2.8 of the Disclosure
Schedule:
(i) Each "employee pension benefit plan" (as
defined in Section 3(2) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")) (hereinafter a
"Pension Plan"), "employee welfare benefit plan" (as defined in
Section 3(1) of ERISA) (hereinafter a "Welfare Plan"), and each
other plan, arrangement or policy (written or oral) relating to
stock options, stock purchases, compensation, deferred
compensation, severance, fringe benefits or other employee
benefits, in each case maintained or contributed to, or required
to be maintained or contributed to, by the Company and its
subsidiaries for the benefit of any present or former officers,
employees, agents, directors or independent contractors of the
Company or its subsidiaries (all the foregoing being herein
called "Benefit Plans") has been administered in accordance with
its terms. The Company, its subsidiaries and all the Benefit
Plans are in compliance with the applicable provisions of ERISA,
the Internal Revenue Code of 1986, as amended (the "Code"), all
other applicable laws and all applicable collective bargaining
agreements. Complete and correct copies of all current and prior
documents, including all amendments thereto, with respect to each
Benefit Plan have been delivered to PennCorp.
(ii) None of the Company or any other person or entity
that together with the Company is treated as a single employer
under Section 414(b), (c), (m) or (o) of the Code (each a
"Commonly Controlled Entity") has incurred any liability to a
Pension Plan covered by Title IV of ERISA (other than for
contributions not yet due) or to the Pension Benefit Guaranty
Corporation (other than for the payment of premiums not yet due)
which liability has not been fully paid as of the date hereof.
(iii) No Commonly Controlled Entity is required to
contribute to any "multiemployer plan" (as defined in Section
4001(a)(3) of ERISA) or has withdrawn from any multiemployer plan
where such withdrawal has resulted or would result in any
"withdrawal liability" (within the meaning of Section 4201 of
ERISA) that has not been fully paid.
(iv) No matter is pending relating to any Benefit Plan
before any court or governmental agency.
(v) Neither the Company nor a Commonly Controlled
Entity, nor any of their respective employees or directors, nor
any fiduciary, has engaged in any transaction, including the
execution and delivery of this Agreement and other agreements,
instruments and documents for which execution and delivery by the
Company is contemplated herein, in violation of Section 406(a) or
(b) of ERISA or which is a "prohibited transaction" (as defined
in Section 4975(c)(i) of the Code) for which no exemption exists
under Section 408(b) of ERISA or Section 4975(d) of the Code or
for which no administrative exemption has been granted under
Section 408(a) of ERISA.
(vi) The Benefit Plans and their related trusts
intended to qualify under Sections 401 and 501(a) of the Code,
respectively, received favorable determination letters from the
Internal Revenue Service and the Company believes such Plans and
their related trusts continue to qualify and operate as designed.
Any voluntary employee benefit association which provides
benefits to current or former employees of the Company and its
subsidiaries, or their beneficiaries received a favorable
determination letter from the Internal Revenue Service and the
Company believes such associations continue to qualify and
operate as designed.
(vii) The Company and its subsidiaries have no
liability (contingent or otherwise) under Section 4069 of ERISA
by reason of a transfer of any underfunded pension plan.
(viii) Nothing has occurred or is reasonably
expected to occur in connection with the transactions
contemplated by the Reinsurance Agreement dated as of October 1,
1996, as amended, between Washington National Insurance Company
and Trustmark Insurance Company and the Reinsurance Agreement
Dated as of July 31, 1996, as amended, between Washington
National Insurance Company and Pioneer Financial Services, Inc.
which would result in material liabilities (contingent or
otherwise) of the Company and its subsidiaries with respect to
employees of such discontinued operations. The amounts of
severance pay, pay in lieu of notice under the Workers Adjustment
and Retraining Notification Act, and other severance benefits
incurred or reasonably expected to be incurred in connection with
such employees is set forth on Section 2.8(viii) of the
Disclosure Schedule.
(ix) Complete and correct copies of the most recent
actuarial reports (including for purposes of Financial Accounting
Standards Board report no. 87, 106 and 112) with respect to each
Benefit Plan providing retiree medical or life insurance coverage
for employees of the Company and its subsidiaries have been
provided to PennCorp. Except as disclosed in Section 2.8(ix) of
the Disclosure Schedule, no current employee of the Company or
its subsidiaries would be entitled if his or her employment with
the Company and its subsidiaries is terminated to any retiree
medical or insurance coverage.
(x) Except as disclosed in Section 2.8(x) of the
Disclosure Schedule any amount that could be received as a result
of any of the transactions contemplated by this Agreement by any
employee, officer or director of the Company or any of its
subsidiaries under any employment, severance or termination
agreement, other compensation arrangement or Benefit Plan
currently in effect would not be characterized as an "excess
parachute payment" (as such term is defined in Section 280G of
the Code).
(xi) Except as disclosed in Section 2.8(xi) of the
Disclosure Schedule, neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated
hereby will, as a result of such transactions or any event
occurring thereafter (i) result in any payment becoming due to
any employee (current, former or retired) of the Company and its
subsidiaries, (ii) increase any benefits under any Benefit Plan
or (iii) result in the acceleration of the time of payment of,
vesting of or other rights with respect to any such benefits.
Section 2.9 TAXES. Except as disclosed in Section
2.9 of the Disclosure Schedule:
(i) Each of the Company and its subsidiaries has duly
filed all tax returns and reports required to be filed by it or
requests for extensions to file such returns or reports have been
timely filed, granted and have not expired, except to the extent
that such failures to file or to have extensions granted that
remain in effect would not individually or in the aggregate have
a Material Adverse Effect. All tax returns filed by the Company
and each of its subsidiaries are complete and accurate except to
the extent that such failure to be complete and accurate would
not have a Material Adverse Effect. The Company and each of its
subsidiaries has paid (or the Company has paid on the
Subsidiaries' behalf) all taxes shown as due on such returns, and
the most recent financial statements contained in the Filed SEC
Documents and all SEC Documents filed prior to the Closing Date
reflect an adequate reserve for all taxes payable by the Company
and the Significant Subsidiaries for all taxable periods and
portions thereof accrued through the date of such financial
statements.
(ii) No deficiencies for any taxes have been proposed,
asserted or assessed against the Company or any of its
subsidiaries that are not adequately reserved for, except for
deficiencies that would not individually or in the aggregate have
a Material Adverse Effect, and, except as set forth on Section
2.9 of the Disclosure Schedule, no requests for waivers of the
time to assess any such taxes have been granted or are pending.
The Federal income tax returns of the Company and each of its
subsidiaries consolidated in such returns have been examined by
and settled with the United States Internal Revenue Service, or
the statute of limitations on assessment or collection of any
Federal income taxes due from the Company or the any of its
subsidiaries has expired, through such taxable years as are set
forth in Section 2.9 of the Disclosure Schedule.
(iii) As used in this Agreement, "taxes" shall
include all Federal, state, local and foreign income, property,
premium, franchise, sales, excise, employment, payroll,
withholding and other taxes, tariffs or governmental charges of
any nature whatsoever and any interest, penalties and additions
to taxes relating thereto.
(iv) Neither the Company nor any of its subsidiaries
has made, nor is obligated to make, in connection with the
transactions contemplated by this Agreement or otherwise, any
payments that will not be deductible because of the application
of Section 280G or Section 162(m) of the Code.
(v) Neither the Company nor any of its subsidiaries
has made any election, filed any consent or entered into any
agreement with respect to taxes that is not reflected on the
federal income tax returns of the Company and its subsidiaries
for the three years ended December 31, 1995 (copies of which
returns have been made available to PennCorp for review prior to
the date of this Agreement) and that would reasonably be expected
to be material to the Company and the subsidiaries taken as a
whole.
(vi) There will be no subtraction from the policyholder
surplus account of the Significant Subsidiaries under Section 815
of the Code from December 31, 1995 up to and including the
Effective Time.
(vii) Washington National Insurance Company and
United Presidential Life Insurance Company qualify and will
qualify until the Effective Time as "life insurance companies"
within the meaning of Section 816(a) of the Code and the treasury
regulations thereunder.
Section 2.10 COMPLIANCE WITH APPLICABLE LAWS. Except
as disclosed in Section 2.10 of the Disclosure Schedule:
(i) The business of the Company and each of the
Significant Subsidiaries is being conducted in compliance in all
material respects with all applicable laws, including, without
limitation, all insurance laws, ordinances, rules and
regulations, decrees and orders of any Governmental Entity, and
all material notices, reports, documents and other information
required to be filed thereunder within the last three years were
properly filed and were in compliance in all material respects
with such laws.
(ii) The Company, and each of the Significant
Subsidiaries, has all licenses (including, without limitation,
insurance licenses), permits, authorizations, franchises, and
rights ("Licenses") which are necessary for it to own, lease or
operate its properties and assets and to conduct its business as
now conducted. The business of the Company and each of the
Significant Subsidiaries has been and is being conducted in
compliance in all material respects with all such Licenses. All
restrictions and limitations on those Licenses requested or
required by any insurance regulator are disclosed in the Filed
SEC Documents or in Section 2.10(ii) of the Disclosure Schedule.
All such Licenses are in full force and effect, and there is no
proceeding or investigation pending or, to the knowledge of the
Company, threatened which would reasonably be expected to lead to
the revocation, amendment, failure to renew, limitation,
suspension or restriction of any such License.
(iii) Each Annual Statement filed by any
Significant Subsidiary of the Company that is an insurance
company with the insurance regulator in its state of domicile
(each, an "Annual Statement") (including without limitation the
Annual Statements of any separate accounts) for the year ended
December 31, 1995, together with all exhibits and schedules
thereto, and financial statements relating thereto, and any
actuarial opinion, affirmation or certification filed in
connection therewith, and each Quarterly Statement so filed
(each, a "Quarterly Statement") for the quarterly periods ended
after January 1, 1996, together with all exhibits and schedules
thereto, with respect to each Significant Subsidiary that is an
insurance company (including any separate accounts thereof) were
prepared in conformity with the statutory accounting practices
prescribed or permitted by the insurance regulatory authorities
of the applicable state of domicile applied on a consistent basis
("SAP"), present fairly, in all material respects, to the extent
required by and in conformity with SAP, the statutory financial
condition of such Significant Subsidiary (including any separate
accounts thereof) at their respective dates and the results of
operations, changes in capital and surplus and cash flow of such
Significant Subsidiary (including any separate accounts thereof)
for each of the periods then ended, and were correct in all
material respects when filed and there were no material omissions
therefrom when filed. No deficiencies or violations material to
the financial condition or operations of any such Significant
Subsidiary (including any separate accounts thereof) have been
asserted in writing by any insurance regulator with respect to
the foregoing financial statements which have not been cured or
otherwise resolved to the satisfaction of such insurance
regulator and which have not been disclosed in writing to
PennCorp prior to the date of this Agreement. No Significant
Subsidiary that is an insurance company is required to file
different or supplemental Annual Statements or Quarterly
Statements with the insurance regulators of any other
jurisdiction.
(iv) All reserves and other liabilities reflected in
lines 1, 2, 3 and 4 of page 3 of the 1995 Annual Statement of
each Significant Subsidiary that is an insurance company
("Reserve Liabilities") and all Reserve Liabilities reflected in
the Quarterly Statement or Annual Statement, as the case may be,
filed most recently prior to the Closing Date (i) were determined
in accordance with commonly accepted actuarial standards
consistently applied except as noted therein, (ii) were fairly
stated in accordance with sound actuarial principles, (iii) were
based on actuarial assumptions which were in accordance with or
more conservative than those appropriate for such insurance
policies and annuity contracts, (iv) met the requirements of the
insurance laws (including laws with respect to cash flow testing)
of the state of domicile and met, in all material respects, the
requirements of the insurance laws (including laws with respect
to cash flow testing) of all other jurisdictions in which such
Significant Subsidiary is licensed to write insurance or issue
annuities and (v) reflected the related reinsurance, coinsurance
and other similar agreements of such Significant Subsidiary.
Adequate provision for all such Reserve Liabilities has been made
(under commonly accepted actuarial principles consistently
applied) to cover the total amount of all reasonably anticipated
matured and unmatured benefits (including guaranteed and non-
guaranteed benefits), claims and other liabilities of each
Significant Subsidiary under all insurance policies and annuity
contracts under which any Significant Subsidiary has any
liability (including without limitation, any liability arising
under or as a result of any reinsurance, coinsurance or other
similar agreement).
(v) Each Significant Subsidiary that has been or is
required to do so has filed all forms, reports, statements and
other documents required by law to be filed by it with the SEC,
including, without limitation, all reports required under the
Exchange Act and all other reports and registration statements,
including, without limitation, in connection with sales of
variable products, and all amendments and supplements to all such
reports and registration statements, and such forms, reports,
statements and other documents including without limitation those
filed after the date hereof, did not at the time they were filed
(at the time they became effective and remained effective in the
case of registration statements and amendments thereto) contain
any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances
under which they were made, not misleading. Each of the separate
accounts of the Significant Subsidiaries that is required to be
registered as an investment company under the Investment Company
Act of 1940, as amended, is so registered (each of which is
listed in Section 2.10(v) of the Disclosure Schedule). All
forms, reports, statements and other documents required by law to
be filed by on behalf of such separate accounts with the SEC,
including, without limitation, all registration statements and
all amendments or supplements to all such registration statements
in connection with sales of variable products, including without
limitation those filed after the date hereof, have been so filed
and did not at the time they were filed (at the time they became
effective and remained effective in the case of registration
statements and amendments thereto) contain any untrue statement
of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were
made, not misleading.
Section 2.11 INSURANCE ISSUED. Except as set forth in
Section 2.11 of the Disclosure Schedule, with respect to all
insurance issued:
(i) All insurance policies, annuity contracts and
assumption certificates issued by the Significant Subsidiaries
have been issued, to the extent required by applicable law, on
forms approved by the insurance regulatory authority of the
jurisdiction where issued or have been filed with and not
objected to by such authority within the period prescribed for
such objection, and utilize premium rates which if required to be
filed with or approved by insurance regulatory authorities have
been so filed or approved and the premiums charged conform
thereto.
(ii) All insurance policy and annuity contract benefits
payable by any Significant Subsidiary and, to the knowledge of
the Company, by any another Person that is a party to or bound by
any reinsurance, coinsurance or other similar agreement with any
Significant Subsidiary, have in all material respects been paid
in accordance with the terms of the insurance policies, annuity
contracts and other contracts under which they arose, except for
such benefits for which there is a reasonable basis to contest
payment.
(iii) The Company has not received any information
which would reasonably cause it to believe that the financial
condition of any other party to any reinsurance, coinsurance or
other similar agreement with any Significant Subsidiary is so
impaired as to result in a default thereunder.
(iv) To the knowledge of the Company, all advertising,
promotional, sales and solicitation materials and product
illustrations used by the Significant Subsidiaries or any agent
of the Significant Subsidiaries have complied and are in
compliance, in all material respects, with all applicable laws.
(v) To the knowledge of the Company, each insurance
agent, at the time such agent wrote, sold or produced business
for any Significant Subsidiary since January 1, 1993 was duly
licensed as an insurance agent (for the type of business written,
sold or produced by such insurance agent) in the particular
jurisdiction in which such agent wrote, sold or produced such
business.
Section 2.12 RATING AGENCIES. Except as disclosed in
Section 2.12 of the Disclosure Schedule, since June 30, 1995, no
rating agency has, other than as a result of the announcement of
the Merger or the transactions contemplated hereby (a) imposed
conditions (financial or otherwise) on retaining any currently
held rating assigned to any of the Significant Subsidiaries that
are insurance companies or (b) indicated to the Company that it
is considering the downgrade of any rating assigned to any of the
Significant Subsidiaries that are insurance companies.
Section 2.13 OPINION OF FINANCIAL ADVISOR. The
Company has received the written opinion of Morgan Stanley and
Co. Incorporated, dated the date hereof, to the effect that, as
of such date, the Merger Consideration to be received in the
Merger by the Company's stockholders is fair to the Company's
stockholders from a financial point of view.
Section 2.14 BROKERS. Except for Morgan Stanley and
Co. Incorporated, all negotiations relative to this Agreement and
the transactions contemplated hereby have been carried out by the
Company directly with PennCorp, without the intervention of any
person on behalf of the Company in such manner as to give rise to
any valid claim by any person against PennCorp, the Company or
any Significant Subsidiary for a finder's fee, brokerage
commission, or similar payment. The Company has provided
PennCorp with true and complete copies of the agreement between
the Company and Morgan Stanley and Co. Incorporated, and the
Company has no other agreements or understandings (written or
oral) with respect to such services.
Section 2.15 ENVIRONMENTAL. Except as set forth in
Section 2.15 of the Disclosure Schedule:
(i) The operations of the Company and the Significant
Subsidiaries are in compliance in all material respects with all
applicable Environmental Laws (as defined).
(ii) There are no actions, investigations or
proceedings pending or, to the knowledge of the Company,
threatened against the Company or the Significant Subsidiaries
alleging the violation of or seeking to impose liability pursuant
to any Environmental Law or Environmental Permit (as defined);
(iii) The Company has provided PennCorp with copies
of all environmental audits, assessments, studies, reports,
analyses, investigation results or similar environmentally-
related documents of any real property currently or formerly
owned, operated or leased by the Company or any of its
subsidiaries that are in the possession, custody or control of
the Company or its subsidiaries.
(iv) As used in this Section 2.15, each of the
following terms shall have the following meanings: (A)
"Environmental Law" means any federal, state, local, or foreign
law, statute, code, ordinance, rule, regulation or other
requirement relating to the environment, natural resources, or
public or employee health and safety; and (B) "Environmental
Permit" means any permit, approval, authorization, license,
variance, registration, or permission required under any
applicable Environmental Law or order, writ, injunction or
decree.
Section 2.16 LITIGATION. Except as set forth in the
Filed SEC Documents or Section 2.16 of the Disclosure Schedule,
there is no suit, claim, action, proceeding or investigation
pending or, to the knowledge of the Company, threatened against
the Company or any of its subsidiaries which, individually or in
the aggregate, could reasonably be expected to have a Material
Adverse Effect. Neither the Company nor any its subsidiaries is
subject to any outstanding order, writ, injunction or decree
which, individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect.
Section 2.17 LABOR RELATIONS. Except as set forth in
Section 2.17 of the Disclosure Schedule:
(i) Neither the Company nor any Significant Subsidiary
is a party to any collective bargaining agreement or other labor
union contract applicable to persons employed by the Company or
Significant Subsidiaries and there are no known organizational
campaigns, petitions or other unionization activities seeking
recognition of a collective bargaining unit.
(ii) There are no strikes, slowdowns, work stoppages or
material labor relations controversies pending or, to the
knowledge of the Company, threatened between the Company or any
Significant Subsidiary and any of their respective employees, and
neither the Company nor any Significant Subsidiary has
experienced any such strike, slowdown, work stoppage or material
controversy within the past three years.
Section 2.18 HEALTH INSURANCE TRANSACTIONS. The
Company's wholly-owned subsidiary, Washington National Insurance
Company ("WNIC") has entered into a Reinsurance Agreement dated
July 31, 1996, as amended, with Pioneer Life Insurance Company
("Pioneer") and a Reinsurance Agreement dated October 1, 1996, as
amended, with Trustmark Insurance Company ("Trustmark") and has
complied in all material respects with its obligations
thereunder, except for any breach or noncompliance that would not
cause, or give Pioneer or Trustmark the right to cause, WNIC to
recapture the reinsured policies under the respective Reinsurance
Agreements.
Section 2.19 VOTING REQUIREMENTS. The affirmative
vote of the holders of a majority of the outstanding Common
Shares and Preferred Stock entitled to vote at the Stockholders
Meeting with respect to the approval of the Merger, voting
together as a single class, is the only vote of the holders of
any class or series of the Company's capital stock necessary to
approve this Agreement and the transactions contemplated by this
Agreement.
<PAGE>
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF PENNCORP
PennCorp hereby represents and warrants to the Company
as follows:
Section 3.1 ORGANIZATION, STANDING AND CORPORATE
POWER. PennCorp is a corporation duly organized, validly
existing and in good standing under the laws of the State of
Delaware and has the requisite corporate power and authority to
carry on its business as now being conducted. PennCorp is duly
qualified or licensed to do business and is in good standing in
each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification
or licensing necessary except where the failure to be so
qualified would not individually or in the aggregate have a
material adverse effect on the ability of PennCorp to consummate
the transactions contemplated hereby. PennCorp has delivered to
the Company complete and correct copies of its Certificate of
Incorporation and By-Laws, as amended to the date of this
Agreement.
Section 3.2 PENNCORP CAPITAL STRUCTURE. As of the
date hereof, the authorized capital stock of PennCorp consists of
50,000,000 shares of PennCorp Common Stock and 10,000,000 shares
of preferred stock, $0.01 par value. At the close of business on
October 31, 1996 there were (i) 28,438,063 shares of Common Stock
issued and outstanding, (ii) 190,000 shares of Common Stock held
as treasury shares, (iii) 14,515,585 shares of Common Stock
reserved for issuance upon the exercise of issued and issuable
options, warrants and convertible securities, (iv) 2,300,000
shares of preferred stock designated as "$3.375 Convertible
Preferred Stock", (v) 2,875,000 shares of preferred stock
designated as "$3.50 Series II Convertible Preferred Stock", (vi)
127,500 shares of preferred stock designated as "Series B
Preferred Stock" and (vii) 178,500 shares of preferred stock
designated as "Series C Preferred Stock". Except as set forth
above, at the close of business on October 31, 1996, no other
shares of capital stock or other voting securities of PennCorp
were issued, reserved for issuance or outstanding. All such
outstanding shares of capital stock of PennCorp are, and all
shares of PennCorp Common Stock which may be issued in connection
with the Merger will be, subject to approval by PennCorp's
holders of Common Stock of an appropriate amendment to PennCorp's
Certificate of Incorporation, when issued, duly authorized,
validly issued, fully paid and nonassessable and not subject to
preemptive rights. No bonds, debentures, notes or other
indebtedness of PennCorp having the right to vote (or convertible
into, or exchangeable for, securities having the right to vote)
on any matter on which the stockholders of PennCorp may vote are
issued or outstanding. All the outstanding shares of capital
stock of each "significant subsidiary" (within the meaning of
Rule 1-02 of Regulation S-X) of PennCorp have been validly issued
and are fully paid and nonassessable and, other than directors'
qualifying shares and the shares of Professional Insurance
Corporation owned by third parties (representing less than 1/10
of 1% of the outstanding voting power of such corporation) are
owned by PennCorp or another subsidiary thereof, free and clear
of all liens, claims, encumbrances, restraints on alienation, or
any other restrictions with respect to the transferability or
assignability thereof (other than restrictions imposed by federal
or state securities laws). Except as set forth above or in
Section 3.2 of the PennCorp Disclosure Schedule, as of the date
hereof, neither PennCorp nor any "significant subsidiary" of
PennCorp has any outstanding option, warrant, subscription or
other right, agreement or commitment which either obligates
PennCorp or any subsidiary of PennCorp to issue, sell or
transfer, repurchase, redeem or otherwise acquire or vote any
shares of the capital stock of PennCorp or any subsidiary of
PennCorp, or which restricts the transfer of PennCorp Common
Stock.
Section 3.3 AUTHORITY; NONCONTRAVENTION.
PennCorp has all requisite corporate power and
and authority to enter into this Agreement and to carry out its
obligations hereunder. The execution and delivery of this
Agreement by PennCorp and the consummation by PennCorp of the
transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of PennCorp, subject to
the PennCorp Stockholder Approval at the PennCorp Stockholders
Meeting. This Agreement has been duly executed and delivered by
and, assuming this Agreement has been duly executed and delivered
by the Company and subject to the PennCorp Stockholder Approval,
constitutes a valid and binding obligation of PennCorp,
enforceable against it in accordance with its terms except that
the enforcement thereof may be limited by (a) bankruptcy,
insolvency, reorganization, moratorium or similar laws now or
hereafter in effect relating to creditor's rights generally and
(b) general principles of equity (regardless of whether
enforceability is considered in a proceeding at law or in
equity). Except as set forth in Section 3.3 of the PennCorp
Disclosure Schedule, and subject to the PennCorp Stockholder
Approval, the execution and delivery of this Agreement do not,
and the consummation of the transactions contemplated by this
Agreement and compliance with the provisions of this Agreement
will not (i) conflict with any of the provisions of the
Certificate of Incorporation or By-Laws of PennCorp, (ii) subject
to the governmental filings and other matters referred to in the
following sentence, conflict with, result in a breach of or
default (with or without notice or lapse of time, or both) under,
or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of a material benefit
under, or require the consent of any person under, any indenture,
or other agreement, permit, concession, franchise, license or
similar instrument or undertaking to which PennCorp or any of its
subsidiaries is a party or by which PennCorp or any of its
subsidiaries or any of their assets is bound or affected, or
(iii) subject to the governmental filings and other matters
referred to in the following sentence, contravene any law, rule
or regulation of any state or of the United States or any
political subdivision thereof or therein, or any order, writ,
judgment, injunction, decree, determination or award currently in
effect, subject, in the case of clauses (ii) and (iii), to those
conflicts, breaches, defaults and similar matters, which,
individually or in the aggregate, would not materially and
adversely affect PennCorp's ability to consummate the
transactions contemplated hereby. No consent, approval or
authorization of, or declaration or filing with, or notice to,
any Governmental Entity which has not been received or made is
required by or with respect to PennCorp in connection with the
execution and delivery of this Agreement by PennCorp or the
consummation by PennCorp of any of the transactions contemplated
hereby, except for (i) the filing of premerger notification and
report forms under the HSR Act with respect to the Merger, (ii)
the filings and/or notices required under the insurance laws of
the jurisdictions set forth in Section 2.3 (i) of the Disclosure
Schedule, (iii) the filing with the SEC of (x) a registration
statement on Form S-4 by PennCorp in connection with the issuance
of PennCorp Common Stock in the Merger (the "Form S-4"), and the
Joint Proxy Statement relating to the PennCorp Stockholder
Approval, and (y) such reports under the Exchange Act as may be
required in connection with this Agreement and the transactions
contemplated by this Agreement, (iv) the filing of the
certificate of merger with the Delaware Secretary of State, and
appropriate documents with the relevant authorities of the other
states in which the Company is qualified to do business, and (v)
such other consents, approvals, authorizations, filings or
notices as are set forth in Section 2.4 of the Disclosure
Schedule.
Section 3.4 SEC DOCUMENTS. PennCorp has timely
filed all required reports, schedules, forms, statements and
other documents with the SEC since January 1, 1994 (the "PennCorp
SEC Documents"). As of their respective dates (or, with respect
to any amendment to such PennCorp SEC Documents, as of the date
of the filing of such amendment), the PennCorp SEC Documents
complied with the requirements of the Securities Act or the
Exchange Act, as the case may be, and the rules and regulations
of the SEC promulgated thereunder applicable to such PennCorp SEC
Documents, and none of the PennCorp SEC Documents as of such
dates contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
The consolidated financial statements of PennCorp included in the
PennCorp SEC Documents comply as to form in all material respects
with applicable accounting requirements and the published rules
and regulations of the SEC with respect thereto, have been
prepared in accordance with GAAP (except as may be indicated in
the notes thereto or, in the case of unaudited interim financial
statements, as permitted by Rule 10-01 of Regulation S-X) and
fairly present, in all material respects, the consolidated
financial position of PennCorp and its consolidated subsidiaries
as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (subject, in
the case of unaudited financial statements, to normal recurring
adjustments).
Section 3.5 ABSENCE OF CERTAIN CHANGES OR EVENTS.
Except as disclosed in the PennCorp SEC Documents filed and
publicly available prior to November 11, 1996 (the "Filed
PennCorp SEC Documents") or as disclosed in Section 3.5 of the
PennCorp Disclosure Schedule, since the date of the most recent
audited financial statements included in the Filed PennCorp SEC
Documents, PennCorp and its subsidiaries have conducted their
business only in the ordinary course, and there has not been (i)
any change which has had or which would have a PennCorp Material
Adverse Effect, (ii) any declaration, setting aside or payment of
any dividend or other distribution (whether in cash, stock or
property) with respect to any of PennCorp's outstanding capital
stock (other than regular quarterly cash dividends of $0.05 per
share of PennCorp Common Stock, $0.84375 per share of $3.375
Convertible Preferred Stock and $0.875 per share of $3.50 Series
II Convertible Preferred Stock in accordance with PennCorp's
present dividend policy and other than the accretion of
liquidation preference in respect of Series B Preferred Stock and
Series C Preferred Stock in accordance with their terms), or
(iii) any split, combination or reclassification of any of its
outstanding capital stock or any issuance of the authorization of
any issuance of any other securities in respect of, in lieu of or
in substitution for shares of, its outstanding capital stock. As
used in this Agreement, the term "PennCorp Material Adverse
Effect" means with respect to PennCorp a material adverse effect
on the business, assets, liabilities, results of operations or
financial condition of PennCorp and its subsidiaries taken as a
whole.
Section 3.6 ABSENCE OF UNDISCLOSED LIABILITIES.
Except as disclosed in the Filed PennCorp SEC Documents or in
Section 3.6 of the Disclosure Schedule or which were incurred
after June 30, 1996 in the ordinary course of business (and
which, other than liabilities for policy benefits, individually
or in the aggregate, are immaterial in amount) or in connection
with the transactions contemplated by this Agreement, PennCorp
and its subsidiaries do not have any material liabilities or
obligations of a nature required by GAAP to be reflected in a
consolidated balance sheet (or reflected in the notes thereto) of
PennCorp and its subsidiaries.
Section 3.7 COMPLIANCE WITH APPLICABLE LAWS.
(i) The business of PennCorp and each of its
"significant subsidiaries" (within the meaning of Rule 1-02 of
Regulation S-X) is being conducted in compliance, in all material
respects, with all applicable laws, including, without
limitation, all insurance laws, ordinances, rules, regulations,
decrees and orders of any Governmental Entity, and all material
notices, reports, documents and other information required to be
filed thereunder within the last three years were properly filed
and were in compliance in all material respects with such laws.
(ii) PennCorp and each of its significant subsidiaries
has all Licenses which are necessary for it to own, lease or
operate its properties and assets and to conduct its business as
now conducted. The business of PennCorp and each of its
significant subsidiaries has been and is being conducted in
compliance in all material respects with all such Licenses. All
restrictions and limitations on those Licenses requested or
required by any insurance regulator are disclosed in the Filed
PennCorp SEC Documents or in Section 3.7(ii) of the PennCorp
Disclosure Schedule. All such Licenses are in full force and
effect, and there is no proceeding or investigation pending or,
to the knowledge of PennCorp, threatened which would reasonably
be expected to lead to the revocation, amendment, failure to
renew, limitation, suspension or restriction of any such License.
(iii) Each Annual Statement filed by any
significant subsidiary (or separate account thereof) of PennCorp
that is an insurance company with the insurance regulator in its
state of domicile (including without limitation the Annual
Statements of any separate accounts) for the year ended December
31, 1995, together with all exhibits and schedules thereto, and
financial statements relating thereto, and any actuarial opinion,
affirmation or certification filed in connection therewith, and
each Quarterly Statement so filed for the quarterly periods ended
after January 1, 1996, together with all exhibits and schedules
thereto, with respect to each significant subsidiary that is an
insurance company (including any separate account thereof) were
prepared in conformity with SAP, present fairly, in all material
respects, to the extent required by and in conformity with SAP,
the statutory financial condition of such significant subsidiary
(including any separate account thereof) at their respective
dates and the results of operations, changes in capital and
surplus and cash flow of such subsidiary (including any separate
account thereof) for each of the periods then ended, and were
correct in all material respects when filed. No deficiencies or
violations material to the financial condition or operations of
any such significant subsidiary (including any separate accounts
thereof) have been asserted in writing by any insurance regulator
with respect to the foregoing financial statements which have not
been cured or otherwise resolved to the satisfaction of such
insurance regulator and which have not been disclosed in writing
to the Company prior to the date of this Agreement.
Section 3.8 RATING AGENCIES. Except as disclosed in
Section 3.8 of the Disclosure Schedule, since June 30, 1995, no
rating agency has, other than as a result of the announcement of
the Merger or the transactions contemplated hereby (a) imposed
conditions (financial or otherwise) on retaining any currently
held rating assigned to any of the significant subsidiaries of
PennCorp that are insurance companies or (b) indicated to
PennCorp that it is considering the downgrade of any rating
assigned to any of the significant subsidiaries of PennCorp that
are insurance companies.
Section 3.9 LITIGATION. Except as set forth in the
Filed PennCorp SEC Documents or Section 3.9 of the Disclosure
Schedule, there is no suit, claim, action, proceeding or
investigation pending or, to the knowledge of PennCorp,
threatened against PennCorp or any of its subsidiaries which,
individually or in the aggregate, could reasonably be expected to
have a PennCorp Material Adverse Effect. Neither PennCorp nor
any its subsidiaries is subject to any outstanding order, writ,
injunction or decree which, individually or in the aggregate,
could reasonably be expected to have a PennCorp Material Adverse
Effect.
Section 3.10 THIS SECTION INTENTIONALLY OMITTED.
Section 3.11 FINANCING. PennCorp will have available
at the Closing all funds necessary to pay the Cash Price.
Section 3.12 BROKERS. Except for Smith Barney Inc.,
all negotiations relative to this Agreement and the transactions
contemplated hereby have been carried out by PennCorp directly
with the Company, without the intervention of any person on
behalf of PennCorp in such manner as to give rise to any valid
claim by any person against the Company or any Significant
Subsidiary for a finder's fee, brokerage commission, or similar
payment.
Section 3.13 VOTING REQUIREMENTS. The affirmative
votes of the holders of (i) two-thirds of the issued and
outstanding shares of PennCorp Common Stock of an amendment to
PennCorp's Certificate of Incorporation to authorize sufficient
additional shares of PennCorp Common Stock to permit PennCorp to
consummate the Merger, (ii) the requisite number of shares of
PennCorp Common Stock under the applicable rules of the New York
Stock Exchange in respect of the issuance of the shares of
PennCorp Common Stock constituting a portion of the Merger
Consideration and (iii) at least a majority of the issued and
outstanding shares of PennCorp Common Stock entitled to vote at
the PennCorp Stockholders Meeting with respect to approval of the
Merger are the only votes of the holders of any class or series
of PennCorp capital stock (collectively, the "PennCorp
Stockholder Approval") necessary to approve this Agreement and to
consummate the transactions contemplated by this Agreement.
<PAGE>
ARTICLE 4
ADDITIONAL AGREEMENTS
Section 4.1 PREPARATION OF FORM S-4 AND THE JOINT
PROXY STATEMENT; INFORMATION SUPPLIED.
Section 4.1.1 FORM S-4; JOINT PROXY STATEMENT. As soon as
practicable following the date of this Agreement, the
Company and PennCorp shall prepare and file with the
SEC the Joint Proxy Statement and PennCorp shall prepare and
file with the SEC the Form S-4, in which the Joint Proxy
Statement will be included as a prospectus. Each of the Company
and PennCorp shall use its best efforts to have the Form S-4
declared effective under the Securities Act as promptly as
practicable after such filing. The Company will use its best
efforts to cause the Joint Proxy Statement to be mailed to the
Company's stockholders, and PennCorp will use its best effort to
cause the Joint Proxy Statement to be mailed to PennCorp's
stockholders, in each case as promptly as practicable after the
Form S-4 is declared effective under the Securities Act;
provided, however, that the Company and PennCorp shall not mail
or otherwise furnish the Joint Proxy Statement to their
respective stockholders unless and until Morgan Stanley & Co.
Incorporated shall have delivered to the Company a letter, dated
as of a date not more than two days before the date of the Joint
Proxy Statement, stating that, as of the date of such letter, the
Merger Consideration to be received in the Merger by the
Company's stockholders is fair to the Company's stockholders
from a financial point of view. PennCorp shall also take any
action (other than qualifying to do business in any jurisdiction
in which it is not now so qualified) required to be taken under
any applicable state securities laws in connection with the
issuance of PennCorp Common Stock in the Merger and the Company
shall furnish all information concerning the Company and the
holders of the Common Shares as may be reasonably requested in
connection with any such action.
Section 4.1.2 COMPANY INFORMATION. The Company agrees that
none of the information supplied or to be supplied by the Company
specifically for inclusion or incorporation by reference in (i)
the Form S-4 will, at the time the Form S-4 is filed with the
SEC, at any time it is amended or supplemented or at the time it
becomes effective under the Securities Act, contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statement
therein not misleading and (ii) the Joint Proxy Statement will,
at the date it is first mailed to the Company's stockholders or
at the time of the Stockholders Meeting, contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which
they are made, not misleading. The Joint Proxy Statement will
comply as to form in all material respect with the requirements
of the Exchange Act and the rules and regulations thereunder,
except with respect to statements made or incorporated by
reference therein based on information supplied by PennCorp
specifically for inclusion or incorporation by reference in the
Joint Proxy Statement.
Section 4.1.3 PENNCORP INFORMATION. PennCorp agrees that
none of the information supplied or to be supplied by PennCorp
specifically for inclusion or incorporation by reference in (i)
the Form S-4 will, at the time the Form S-4 is filed with the
SEC, at any time it is amended or supplemented or at the time it
becomes effective under the Securities Act, contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading, and (ii) the Joint Proxy Statement will,
at the date the Joint Proxy Statement is first mailed to
PennCorp's stockholders or at the time of the PennCorp
Stockholders Meeting, contain any untrue statement of a material
fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not
misleading. The Form S-4 will comply as to form in all material
respects with the requirements of the Securities Act and the
rules and regulations promulgated thereunder and the Joint Proxy
Statement will comply as to form in all material respects with
the requirements of the Exchange Act and the rules and
regulations promulgated thereunder, except with respect to
statements made or incorporated by reference in either the Form
S-4 or the Joint Proxy Statement based on information supplied by
the Company specifically for inclusion or incorporation by
reference therein.
Section 4.2 MEETINGS OF STOCKHOLDERS. The Company
will take all action necessary in accordance with applicable law
and its Certificate of Incorporation and By-laws to convene a
meeting of its stockholders (the "Stockholders Meeting") to
consider and vote upon the approval of the Merger. PennCorp will
take all action necessary in accordance with applicable law and
its Articles of Incorporation and By-laws to convene a meeting of
its stockholders (the "PennCorp Stockholders Meeting") to
consider and vote upon the approval of the Merger, the
authorization of additional shares of PennCorp Common Stock and
the issuance of PennCorp Common Stock in the Merger. Subject to
Section 4.9 hereof in the case of the Company, the Company and
PennCorp will, through their respective Boards of Directors,
recommend to their respective stockholders approval of the
foregoing matters. Without limiting the generality of the
foregoing, the Company agrees that, subject to its right to
terminate this Agreement pursuant to Section 4.9, its obligations
pursuant to the first sentence of Section 4.2 shall not be
affected by (i) the commencement, public proposal, public
disclosure or communication to the Company of any Acquisition
Proposal (as defined in Section 4.8) or (ii) the withdrawal or
modification by the Board of Directors of the Company of its
approval or recommendation of this Agreement or the Merger.
PennCorp and the Company will use their best efforts to hold the
Stockholders Meeting and the PennCorp Stockholders Meeting on the
same day and (except in the case of the Company, subject to
Section 4.9 hereof) to obtain the favorable votes of their
respective stockholders as soon as practicable after the date
hereof.
Section 4.3 LETTER OF THE COMPANY'S ACCOUNTANTS.
The Company shall use its best efforts to cause to be delivered
to PennCorp a letter of Ernst & Young LLP, the Company's
independent public accountants, dated a date within two business
days before the date on which the Form S-4 shall become effective
and a letter of Ernst & Young LLP dated a date within two
business days before the date of the Stockholders Meeting,
addressed to PennCorp, in form and substance reasonably
satisfactory to PennCorp and customary in scope and substance for
letters delivered by independent public accountants in connection
with registration statements similar to the Form S-4.
Section 4.4 LETTER OF PENNCORP'S ACCOUNTANTS.
PennCorp shall use its best efforts to cause to be delivered to
the Company a letter of (i) KPMG Peat Marwick LLP, PennCorp's
independent public accountants,(ii) Deloitte & Touche L.L.P.,
formerly the accountants for Integon Life Corporation and
subsidiaries and United Companies Life Insurance Company and
subsidiary, and (iii) Coopers & Lybrand L.L.P., formerly the
accountants for the Insurance Operations of I.C.H. Corporation
Acquired by Southwestern Financial Corporation (in the case of
clauses (ii) and (iii) if the referenced financial statements
audited by such firms are required to be incorporated by
reference or included in the Form S-4) dated a date within two
business days before the date on which the Form S-4 shall become
effective and a letter of KPMG Peat Marwick LLP, dated a date
within two business days before the PennCorp Stockholders
Meeting, each addressed to the Company, in form and substance
reasonably satisfactory to the Company and customary in scope and
substance for letters delivered by independent public accountants
in connection with registration statements similar to the Form
S-4.
Section 4.5 ACCESS TO INFORMATION; CONFIDENTIALITY.
Upon reasonable notice, the Company shall, and shall
cause its Significant Subsidiaries to, afford to PennCorp
and to the officers, employees, accountants, counsel, financial
advisors and other representatives of PennCorp, reasonable access
during normal business hours during the period prior to the
Effective Time to all its properties, books, contracts,
commitments, personnel and records. During such period, the
Company will, and will cause its Significant Subsidiaries to,
make a reasonable amount of office space (including standard
office equipment) at its offices in Lincolnshire, Illinois and
Kokomo, Indiana, available to such agents, employees, advisers
and other representatives of PennCorp as PennCorp shall
designate. Upon reasonable notice, PennCorp shall make its
executive officers available to the Company and its
representatives during the period prior to the Effective Time for
the purpose of permitting the Company to continue its review of
PennCorp. During such period, each of the Company and PennCorp
shall furnish promptly to the other party a copy of (i) each SAP
Annual Statement and SAP Quarterly Statement filed by its
subsidiaries (including any separate account) during such period
pursuant to the requirements of any applicable law, (ii) each SEC
Document or PennCorp SEC Document, as the case may be filed by it
(including any separate account) during such period, and (iii)
all correspondence or written communication with A.M. Best and
Company, Standard & Poor's Corporation, Moody's Investor
Services, Inc., and with any Governmental Entity or insurance
regulatory authorities which relates to the transactions
contemplated hereby or which is otherwise material to the
financial condition or operations of the Company and its
subsidiaries taken as a whole, or to PennCorp and its
subsidiaries taken as a whole, as the case may be. During such
period, each of the Company and PennCorp shall furnish to the
other party such other financial, operating and other data as may
be reasonably required by the other party in order to perform its
investigation regarding the representations and warranties made
by the other party pursuant to this Agreement. Without limiting
the foregoing, the Company shall furnish to PennCorp (i) after
the end of each month, any management financial reports (together
with all accompanying documents) prepared with respect to such
month, (ii) all notices with respect to any alleged deficiency or
violation material to the financial condition or operations of
any subsidiary from any Governmental Entity, (iii) each written
report on examination of financial condition or market conduct
(whether in draft or final form) of any subsidiary issued by any
applicable Governmental Entity, (iv) all material filings with
insurance regulators made by any subsidiaries under the insurance
holding company statutes of their domiciliary jurisdictions, (v)
all material correspondence with, and any prepared summaries of
meetings with, representatives of the IRS or other taxing
authorities, (vi) all material correspondence or communications
with state insurance regulatory authorities concerning any
subsidiaries, including, without limitation, any such items
relating to rehabilitation, insolvency, liquidation, supervision,
or other comparable state proceeding, and (vii) all
correspondence or communication with any rating agency. Except
as required by law, each of the Company and PennCorp will hold,
and will cause its respective directors, officers, partners,
employees, accountants, counsel, financial advisors and other
representatives and affiliates to hold, any nonpublic information
obtained from the other party in confidence to the extent
required by, and in accordance with, the provisions of the letter
dated July 10, 1996, between PennCorp and the Company (the
"Confidentiality Agreement") (in the case of the Company as
though it were the party receiving information thereunder).
Section 4.6 BEST EFFORTS. Upon the terms and
subject to the conditions and other agreements set forth in this
Agreement, each of the parties agrees to use its best efforts to
take, or cause to be taken, all actions, and to do, or cause to
be done, and to assist and cooperate with the other parties in
doing, all things necessary, proper or advisable to consummate
and make effective, in the most expeditious manner practicable,
the Merger and the other transactions contemplated by this
Agreement.
Section 4.7 PUBLIC ANNOUNCEMENTS. PennCorp and the
Company will consult with each other before issuing, and shall
provide each other a reasonable opportunity to review and comment
upon, any press release or public statement with respect to this
Agreement or the transactions contemplated hereby, except to the
extent disclosure prior to such consultation, review and comment
may be required by applicable law, court process or obligations
pursuant to any listing agreement with any national securities
exchange. The parties shall also consult with each other before
engaging in any communications with A.M. Best and Company with
respect to this Agreement or the transactions contemplated
hereby.
Section 4.8 ACQUISITION PROPOSALS. The Company
shall not, nor shall it authorize or permit any officer, director
or employee of, or any investment banker, attorney or other
advisor or representative of, the Company or any of its
subsidiaries to, directly or indirectly, (i) solicit, initiate or
encourage the submission of any Acquisition Proposal (as
defined) or (ii) participate in any discussions or negotiations
regarding, or furnish to any person any information with respect
to, or take any other action to facilitate any inquiries or the
making of any proposal that constitutes, or may reasonably be
expected to lead to, any Acquisition Proposal; provided, however,
that nothing contained in this Section 4.8 shall prohibit the
Board of Directors of the Company from furnishing information to,
or entering into discussions or negotiations with, any person or
entity that makes an unsolicited Acquisition Proposal after the
date hereof if, and only to the extent that, (A) the Board of
Directors of the Company, after consultation with and based upon
the advice of outside counsel, concludes in good faith that such
action is necessary for the Board of Directors of the Company to
comply with its fiduciary duties to stockholders under applicable
law and (B) the Company (x) provides reasonable notice to
PennCorp to the effect that it is taking such action and (y)
receives from such person or entity an executed confidentiality
agreement substantially similar to the Confidentiality Agreement,
except that such confidentiality agreement shall not prohibit
such person or entity from making an unsolicited Acquisition
Proposal to the Board of Directors of the Company.
Notwithstanding anything in this Agreement to the contrary, the
Company shall promptly advise PennCorp orally and in writing of
the receipt by it (or by any of the other entities or persons
referred to above) after the date hereof of any Acquisition
Proposal, or any inquiry which could lead to any Acquisition
Proposal, the material terms and conditions of such Acquisition
Proposal or inquiry, and the identity of the person or entity
making any such Acquisition Proposal or inquiry, provided that
the Company shall have no obligation to disclose the identity of
such person or entity if such disclosure would violate the terms
of any agreement outstanding on the date hereof with such person
or entity, or the Board of Directors, after consultation with and
based upon the advice of outside counsel, concludes in good faith
that such disclosure would violate its fiduciary duties or would
be otherwise inconsistent with applicable law. For purposes of
this Agreement, "Acquisition Proposal" means any bona fide
proposal with respect to a merger, consolidation, share exchange
or similar transaction involving the Company or any Significant
Subsidiary, or any purchase (including without limitation by way
of any reinsurance transaction) of all or any significant portion
of the assets of the Company or any Significant Subsidiary, or
any other business combination (including without limitation the
acquisition of an equity interest therein) involving the Company
or any Significant Subsidiary, other than the transactions
contemplated hereby.
Section 4.9 FIDUCIARY DUTIES. The Board of
Directors of the Company shall not (i) withdraw or modify the
approval or recommendation by such Board of Directors of this
Agreement or the Merger, (ii) approve or recommend an Acquisition
Proposal or (iii) enter into any agreement with respect to any
Acquisition Proposal, unless the Company receives an Acquisition
Proposal and the Board of Directors of the Company concludes in
good faith, after consultation with and based upon the advice of
outside counsel, that in order to comply with its fiduciary
duties to stockholders under applicable law it is necessary for
the Board of Directors to withdraw or modify its approval or
recommendation of this Agreement or the Merger, approve or
recommend such Acquisition Proposal or enter into an agreement
with respect to such Acquisition Proposal. Nothing contained in
this Section 4.9 shall prohibit the Company from taking and
disclosing to its stockholders a position contemplated by Rule
14e-2(a) promulgated under the Exchange Act or from making any
disclosure to the Company's stockholders which, in the good faith
judgment of the Board of Directors of the Company based on advice
of outside counsel, is required under applicable law; provided
that the Company does not withdraw or modify its position with
respect to the Merger or approve or recommend an Acquisition
Proposal, except under the circumstances described in the
immediately preceding sentence. Notwithstanding anything
contained in this Agreement to the contrary, any action by the
Board of Directors permitted by this Section 4.9 shall not
constitute a breach of this Agreement by the Company.
Section 4.10 FILINGS; OTHER ACTION. As promptly
as practicable, (i) the Company and PennCorp shall make
all filings and submissions under the HSR Act, (ii) PennCorp
shall make all filings required by the insurance regulatory
authorities in Illinois and in Indiana and deliver notices and
consents to jurisdiction to such state insurance departments,
each as reasonably may be required to be made in connection with
this Agreement and the transactions contemplated hereby, and
(iii) the Company and PennCorp shall cooperate in all reasonable
respects with each other in (A) determining if other filings are
required to be made prior to the Effective Time with, or if other
material consents, approvals, permits, notices or authorizations
are required to be obtained prior to the Effective Time from any
Governmental Entity in connection with the execution and delivery
of this Agreement and the consummation of the transactions
contemplated hereby and (B) timely making all such filings and
timely seeking all such consents, approvals, permits, notices or
authorizations. In connection with the foregoing, the Company
will provide PennCorp, and PennCorp will provide the Company,
with copies of correspondence, filings or communications (or
memoranda setting forth the substance thereof) between such party
or any of its representatives, on the one hand, and any
Governmental Entity or members of their respective staffs, on the
other hand, with respect to this Agreement and the transactions
contemplated hereby. Each of PennCorp and the Company
acknowledge that certain actions may be necessary with respect to
the foregoing in making notifications and obtaining clearances,
consents, approvals, waivers or similar third party actions which
are material to the consummation of the transactions contemplated
hereby, and each of PennCorp and the Company agree to take such
action as is reasonably necessary to complete such notifications
and obtain such clearances, approvals, waivers or third party
actions.
Section 4.11 NYSE LISTING. PennCorp shall use its
best efforts to cause the shares of PennCorp Common Stock to be
issued in the Merger to be approved for listing on the NYSE,
subject to official notice of issuance, prior to the Closing
Date.
Section 4.12 AFFILIATES AND CERTAIN STOCKHOLDERS.
Prior to the Closing Date, the Company shall deliver to PennCorp
a letter identifying all persons who it believes to be, at the
time the Merger is submitted for approval to the stockholders of
the Company, "affiliates" of the Company for purposes of Rule 145
under the Securities Act. The Company shall use its best efforts
to cause each such person to deliver to PennCorp on or prior to
the Closing Date a written agreement in connection with
restrictions on affiliates under Rule 145, in substantially the
form attached hereto as Exhibit B to this Agreement. PennCorp
shall not be required to maintain the effectiveness of the Form
S-4 or, except as provided in Section 4.17, any other
registration statement under the Securities Act for the purposes
of resale of PennCorp Common Stock by such affiliates and the
certificates representing PennCorp Common Stock received by such
affiliates in the Merger shall bear a customary legend regarding
applicable Securities Act restrictions and the provisions of this
Section 4.12. The Company shall use its best efforts to obtain
from each of the beneficial owners (within the meaning of Rule
13d-3 and Rule 13d-5 of the Exchange Act) of 5% or more of the
Common Shares and the Entitled Holders (as defined in Section
4.17) such representation letters addressed to PennCorp, Weil,
Gotshal & Manges LLP and Schiff Hardin & Waite as such law firms
shall require in connection with the delivery of their opinions
pursuant to Sections 6.2.3 and 6.3.3, respectively.
Section 4.13 INDEMNIFICATION. (i) From and after the
Effective Time, PennCorp and the Company agree that the Surviving
Corporation will indemnify and hold harmless each present and
former director and officer of the Company and its subsidiaries,
determined as of the Effective Time (the "Indemnified Parties"),
against any costs or expenses (including reasonable attorneys'
fees), judgments, fines, losses, claims, damages or liabilities
(collectively, "Costs") incurred in connection with any claim,
action, suit, proceeding or investigation, whether civil,
criminal, administrative or investigative, arising out of or
pertaining to matters existing or occurring at or prior to the
Effective Time, whether asserted or claimed prior to, at or after
the Effective Time, to the fullest extent that the Company or
such subsidiary would have been permitted under applicable law
and the Certificate of Incorporation or By-Laws of the Company or
such subsidiary in effect on the date hereof to indemnify such
person (and the Surviving Corporation shall also advance expenses
as incurred to the fullest extent permitted under applicable law
provided the person to whom expenses are advanced provides an
undertaking to repay such advances if it is ultimately determined
that such person is not entitled to indemnification). PennCorp
agrees that all rights to indemnification and exculpation
existing in favor of the Indemnified Parties under the
indemnification agreements currently in place between the Company
and any such Indemnified Party and identified in Section 4.13 of
the Disclosure Schedule shall survive and continue in full force
and effect after the Effective Time.
(ii) Any Indemnified Party wishing to claim
indemnification under Section 4.13(i) or (ii), upon learning of
such claim, action, suit, proceeding or investigation, shall
promptly notify the Surviving Corporation thereof, but the
failure to so notify shall not relieve the Surviving Corporation
of any liability it may have to such Indemnified Party if such
failure does not materially prejudice the Surviving Corporation.
In the event of any such claim, action, suit, proceeding or
investigation (whether arising before or after the Effective
Time), the Surviving Corporation shall have the right to assume
the defense thereof and the Surviving Corporation shall not be
liable to such Indemnified Parties for any legal expenses of
other counsel or any other expenses subsequently incurred by such
Indemnified Parties in connection with the defense thereof,
except that if the Surviving Corporation elects not to assume
such defense or counsel for the Indemnified Parties or advises
that there are issues which raise conflicts of interest under
applicable legal codes of ethics between the Surviving
Corporation and the Indemnified Parties, the Indemnified Parties
may retain one firm of counsel reasonably satisfactory to the
Surviving Corporation, and the Surviving Corporation shall pay
all reasonable fees and expenses of such counsel for the
Indemnified Parties promptly as statements therefor are received.
The Surviving Corporation shall not be liable for any settlement
of such action effected without its prior written consent, which
shall not be unreasonably withheld.
(iii) For a period of three years after the
Effective Time, the Surviving Corporation shall cause to be
maintained in effect the current policies of directors' and
officers' liability insurance maintained by the Company (provided
that the Surviving Corporation may substitute therefor policies
of at least the same coverage and amounts containing terms and
conditions which are no less advantageous in all material
respects to the Indemnified Parties) with respect to claims
arising from facts or events which occurred before the Effective
Time; provided, however, that the Surviving Corporation shall not
be obligated to make annual premium payments for such insurance
to the extent such premiums exceed 250% of the premiums paid as
of the date hereof by the Company for such insurance.
(iv) The provisions of this Section 4.13 are intended
to be for the benefit of, and shall be enforceable by, each
Indemnified Party, his heirs and his personal representatives and
shall be binding on all successors and assigns of the Surviving
Corporation.
Section 4.14 STOCK PURCHASE RIGHTS. The Company
shall take all action necessary to ensure that, so long as this
Agreement shall not have been terminated pursuant to Article VII
hereof, (i) no Rights Certificates under the Rights Agreement
dated as of December 11, 1986, as amended, between the Company
and Bank of America (the "Rights Agreement") are issued or
required to be issued to the stockholders of the Company prior
to, or as of, the Effective Time and (ii) the Rights Agreement
and the Rights shall expire immediately prior to the Effective
Time.
Section 4.15 EMPLOYEE BENEFITS.
Section 4.15.1 SEVERANCE. During the 12-month period
commencing on the Effective Time, the Surviving Corporation shall
provide coverage to individuals employed by the Company or a
Significant Subsidiary on the Effective Time in accordance with
the terms of the Company's Severance Pay Policy disclosed in
Section 4.15.1 of the Disclosure Schedule as in effect on the
date hereof.
Section 4.15.2 RETIREE LIFE AND HEATLH PLAN. The Surviving
Corporation shall provide retiree life and health benefits to
those employees (and to their eligible dependents) of the Company
or a Significant Subsidiary named in Section 4.15.2 of the
Disclosure Schedule who, upon their retirement before, at or
after the Effective Time are or would be entitled to benefits in
accordance with the terms of the Company's retiree life and
health benefits program included in the Washington National Group
Insurance Plan as in effect on the date hereof, subject to the
right of the Surviving Corporation to make reasonable and
customary adjustments to the retiree health benefits, including,
but not limited to, amounts of deductible, extent of retirees'
obligations to pay premiums, introduction of managed care
options or other adjustments permitted by law or regulation.
Section 4.15.3 DIRECTORS' RETIREMENT INCOME PLAN. The
Company intends to terminate the Directors' Retirement Income
Plan prior to the Effective Time. If, however, prior to the
Effective Time, the Company has not terminated and provided for
the funding of benefits under the Directors' Retirement Income
Plan, from and after the Effective Time, the Surviving
Corporation will honor, in accordance with its terms, the
Company's Directors' Retirement Income Plan, as in effect on the
date hereof, and shall pay all benefits that become due under
such Plan to any participant therein or to the beneficiary of a
deceased participant, provided nothing herein shall limit the
Surviving Corporation's right after the Effective Time to
terminate such plan and provide for the funding of benefits
thereunder.
Section 4.15.4 TRANSITION PLAN. The parties agree with
respect to employee and employee benefit matters that, between
the date of this Agreement and the Effective Time, (i) the
Company shall not, and shall not permit its subsidiaries to,
enter into, or modify the terms of any employment agreement,
severance agreement or similar agreement or any employee benefit
plan, or make any bonus payment (in each case except as otherwise
expressly permitted under this Agreement), without the prior
written consent of PennCorp (which approval shall be deemed given
if the Company gives 10 days prior written notice to PennCorp and
PennCorp fails to object during such 10-day period) and (ii) the
Company shall in its reasonable judgment and after consulting
with PennCorp continue to make all decisions with respect to
employees, including hiring and firing decisions, in the ordinary
course of business.
Section 4.16 REPRESENTATION ON PENNCORP BOARD. At
the Effective Time, PennCorp shall take all action necessary to
appoint two (2) directors of the Company to be mutually
determined by PennCorp and the Company to serve, commencing as of
the Effective Time, as Class III directors of PennCorp's Board of
Directors until PennCorp's 1998 annual meeting of stockholders or
until their earlier death, resignation or removal in accordance
with PennCorp's Certificate of Incorporation.
Section 4.17 REGISTRATION COVENANT. PennCorp agrees
that, subject to the consummation of the Merger and the other
transactions contemplated hereby, immediately following the
Effective Time, the holders of the Company's Common Shares
identified as "Entitled Holders" in Exhibit C hereto shall be
entitled to the registration rights set forth in such Exhibit C
to this Agreement.
Section 4.18 LOAN PURCHASE AGREEMENT. The Company
shall not enter into the Loan Purchase Agreement contemplated by
the Mortgage Loan Letter of Intent (the "Loan Purchase
Agreement") without the prior written consent of PennCorp, which
shall not be unreasonably withheld. The Company shall not agree
to a new Purchase Price Percentage (as defined in the Mortgage
Loan Letter of Intent) under the circumstances contemplated by
the Mortgage Loan Letter of Intent without the prior written
consent of PennCorp, which shall not be unreasonably withheld.
The Company shall not agree to any Due Diligence Purchase Price
Adjustment (as defined in the Mortgage Loan Letter of Intent)
without the prior written consent of PennCorp, which shall
not beunreasonably withheld. The Company shall not consent to
any modification, amendment or waiver under the Loan Purchase
Agreement without the prior written consent of PennCorp. The
Company shall perform in all material respects its covenants and
agreements under the Loan Purchase Agreement including, without
limitation, its agreement to provide Morgan Stanley with such
information relating to the Loan Portfolio as Morgan Stanley
reasonably shall require.
<PAGE>
ARTICLE 5
COVENANTS RELATING TO CONDUCT OF BUSINESS PRIOR TO MERGER
Section 5.1 CONDUCT OF BUSINESS BY THE COMPANY.
Except as contemplated by this Agreement or as set forth in
Section 5.1 of the Disclosure Schedule, during the period from
the date of this Agreement to the Effective Time, the Company
shall, and shall cause its Significant Subsidiaries to, act and
carry on their respective businesses in the ordinary course of
business and, to the extent consistent therewith, use best
efforts to preserve intact their current business organizations,
keep in full force and effect their insurance licenses, permits
and franchises, keep available the services of their current key
officers, employees, agents, and field representatives, and
preserve the goodwill of regulators, policyholders or those
engaged in material business relationships with them. Without
limiting the generality of the foregoing, during the period from
the date of this Agreement to the Effective Time, the Company
shall not, and shall not permit any of the Significant
Subsidiaries to, without the prior consent of PennCorp:
(i) adopt or propose any change to its Certificate of
Incorporation or By-Laws;
(ii) (x) declare, set aside or pay any dividends on, or
make any other distributions with respect to, any of the
Company's outstanding capital stock (other than the regular
quarterly cash dividends for the first two quarters of 1997 not
in excess of $.27 per Common Share and $.62 1/2 per share of
Preferred Stock, with usual record and payment dates and in
accordance with the Company's present dividend policy), (y)
split, combine or reclassify any of its outstanding capital stock
or issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its
outstanding capital stock or (z) purchase, redeem or otherwise
acquire any shares of capital stock or other securities of, or
other ownership interests of the Company other than (i) the
415,564 Common Shares and 17,108 shares of Preferred Stock to be
purchased from the Company's retirement plans, (ii) the Preferred
Stock to be redeemed as contemplated by Section 1.10 above, and
(iii) the Employee Options and Restricted Stock to be purchased
as contemplated by Section 1.12 above;
(iii) issue, sell, grant, pledge or
otherwise encumber any shares of its capital stock, any other
voting securities or any securities convertible into, or any
rights, warrants or options to acquire, any such shares, voting
securities or convertible securities other than upon the exercise
of Employee Options, the conversion of the Preferred Stock
outstanding on the date of this Agreement or the issuance of
shares under the Company's dividend reinvestment plan;
(iv) acquire any business or any corporation,
partnership, joint venture, association or other business
organization or division or block of in-force business thereof;
(v) take any action that, if taken prior to the date
of this Agreement, would have been required to be disclosed in
Section 2.6 of the Disclosure Schedule or that would otherwise
cause any of the representations and warranties contained in
Article 2 not to be true and correct in all material respects;
(vi) sell, mortgage or otherwise encumber or subject to
any lien or otherwise dispose of any of its properties or assets
that are material to the Company and the Significant Subsidiaries
taken as a whole, except in the ordinary course of business;
(vii) (x) except for (i) the dollar amounts
required to redeem the Preferred Stock as contemplated by Section
1.10 above, (ii) the dollar amount required to cancel and cash
out the Employee Options and the Restricted Stock as contemplated
by Section 1.12 above and (iii) the dollar amount required to
purchase the Common Shares and the Preferred Stock held by the
Company's retirement plans as contemplated by Section 5.1(ii)(z)
above, incur any indebtedness for borrowed money (other than
short-term indebtedness for general corporate purposes not to
exceed $5,000,000 at any time) or guarantee any such indebtedness
of another person, other than indebtedness owing to or guarantees
of indebtedness owing to the Company or any direct or indirect
wholly-owned subsidiary of the Company or (y) make any loans or
advances to any other person, other than to the Company, or to
any direct or indirect wholly-owned subsidiary of the Company and
other than routine advances in the ordinary course of business to
employees or agents, or policyholder loans;
(viii) make any tax election or settle or compromise
any income tax liability that would reasonably be expected to be
material to the Company and the Significant Subsidiaries taken
as a whole;
(ix) pay, discharge, settle or satisfy any claims,
liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than the payment,
discharge or satisfaction, in the ordinary course of business
consistent with past practice or in accordance with their terms
of liabilities reflected or reserved against in, or contemplated
by, the most recent consolidated financial statements (or the
notes thereto) of the Company included in the Filed SEC Documents
or incurred since the date of such financial statements in the
ordinary course of business consistent with past practice;
(x) except in the ordinary course of business, modify,
amend or terminate, or waive, release or assign any material
rights or claims under any material agreement, permit,
concession, franchise, license or similar instrument to which the
Company or any Significant Subsidiary is a party, other than
those contracts, agreements or licenses modified, amended or
terminated in accordance with the terms of the Reinsurance
Agreements between the Company and Pioneer and Trustmark,
respectively; or
(xi) authorize any of, or commit or agree to take any
of the foregoing actions.
Section 5.2 MANAGEMENT OF THE COMPANY AND
SIGNIFICANT SUBSIDIARIES. The Company shall, from the date of
this Agreement through the Effective Time, cause its management
and that of the Significant Subsidiaries to consult on a regular
basis and in good faith with the employees and representatives of
PennCorp concerning the management of the Company and its
Significant Subsidiaries' businesses, including without
limitation the policies and practices of the Company and its
Significant Subsidiaries with respect to (i) the ceding or
assumption of reinsurance or coinsurance or the termination or
modification of existing reinsurance or coinsurance agreements,
(ii) significant underwriting, actuarial, tax, accounting, legal
and investment issues (including matters related to tax audits or
the establishment, review and modification of insurance and other
reserves), (iii) significant matters relating to the conditions,
forms and pricing of new kinds of insurance policies and annuity
contracts and (iv) significant matters relating to the agency
force, product distribution, commissions and similar matters.
Section 5.3 CONDUCT OF BUSINESS BY PENNCORP. Except
as contemplated by this Agreement or as set forth in Section 5.3
of the PennCorp Disclosure Schedule, during the period from the
date of this Agreement to the Effective Time, PennCorp shall, and
shall cause its subsidiaries to, act and carry on their
respective businesses in the ordinary course of business and, to
the extent consistent therewith, use best efforts to preserve
intact their current business organizations, keep available the
services of their current key officers and employees and preserve
the goodwill of those engaged in material business relationships
with them. Without limiting the generality of the foregoing,
during the period from the date of this Agreement to the
Effective Time, PennCorp shall not and shall not permit any of
its significant subsidiaries to, without the prior consent of the
Company:
(i) adopt or propose any change to its Certificate of
Incorporation or By-Laws, except as otherwise contemplated by
this Agreement;
(ii) (x) declare, set aside or pay any dividends on, or
make any other distributions with respect to, any of PennCorp's
outstanding capital stock (other than regular quarterly cash
dividends not in excess of $.05 per share of PennCorp Common
Stock, $.84375 per share of $3.75 Convertible Preferred Stock and
$.875 per share of $3.50 Series II Convertible Preferred Stock
with usual record and payment dates and in accordance with
PennCorp's present dividend policy and other than the accretion
of liquidation preference in respect of Series B Preferred Stock
and Series C Preferred Stock in accordance with their terms), (y)
split, combine or reclassify any of its outstanding capital stock
or issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its
outstanding capital stock;
(iii) issue, sell, grant, pledge or otherwise
encumber any shares of its capital stock, any other voting
securities or any securities convertible into, or any rights,
warrants or options to acquire, any such shares, voting
securities or convertible securities, in each case if any such
action could reasonably be expected to (x) delay materially the
date of mailing of the Joint Proxy Statement or, (y) if it were
to occur after such date of mailing, require an amendment of the
Joint Proxy Statement;
(iv) acquire any business or any corporation,
partnership, joint venture, association or other business
organization or division thereof, in each case if any such action
could reasonably be expected to (x) delay materially the date of
mailing of the Joint Proxy Statement or, (y) if it were to occur
after such date of mailing, require an amendment of the Joint
Proxy Statement; or
(v) authorize any of, or commit or agree to take any
of, the foregoing actions.
Section 5.4 OTHER ACTIONS. The Company and PennCorp
shall not, and shall not permit any of their respective
subsidiaries to, take any action that would, or that could
reasonably be expected to, result in (i) any of the
representations and warranties of such party set forth in this
Agreement becoming untrue in any material respect or (ii) any of
the conditions of the Merger set forth in Article VI not being
satisfied.
Section 5.5 THIS SECTION INTENTIONALLY OMITTED.
Section 5.6 EMPLOYEE BENEFIT PAYMENTS. During the
period from the date of this Agreement to the Closing Date, the
Company, by action and at the discretion of its Compensation
Committee, shall have the right but not the obligation to make
the following payments and allocations with respect to all
individuals employed by the Company or any of its subsidiaries on
July 1, 1996, including the employees identified on Section 5.6
of the Disclosure Schedule whose employment with the Company or
any of its subsidiaries terminated with the Company's approval
prior to the date of this Agreement and any employee whose
employment may be terminated with the Company's approval prior to
the Closing Date (collectively, the "Eligible Employees"):
(i) The Company's profit sharing contribution to the
Washington National Corporation Profit Sharing Plan for calendar
year 1996, in the amount of 3% of compensation as defined in the
Plan (which Plan shall be amended prior to the Closing Date to
permit contributions to be made on behalf of any Eligible
Employee who is not a current employee of the Company or any of
its subsidiaries), may, in the discretion of the Compensation
Committee and to the extent permitted by such Plan, be allocated
to the accounts maintained under such Plan for the Eligible
Employees on the earlier of the Closing Date and March 15, 1997.
(ii) Each Eligible Employee may be paid a lump sum
payment under the Washington National Corporation Annual Pay At
Risk Plan for the period that such Eligible Employee was employed
by the Company or any of its subsidiaries in calendar year 1996,
with such payments to be made on or prior to the Closing Date,
provided that such payments shall not in the aggregate exceed
$5,003,610.
(iii) Each Eligible Employee may be paid a lump sum
payment under the Washington National Corporation Annual Pay At
Risk Plan for the period that such Eligible Employee was employed
by the Company or any of its subsidiaries in calendar year 1997,
with such payments to be made on the Closing Date, provided that
such payments shall not in the aggregate exceed $238,455 per
month, including a prorated amount for the month in which the
Closing Date occurs.
(iv) Each Eligible Employee may be paid a lump sum
payment under the Washington National Corporation Long Term Pay
At Risk Plan for the 1994-1996 performance period for the period
that such Eligible Employee was employed by the Company or any of
its subsidiaries during the 1994-1996 performance period, with
such payments to be made on or prior to the Closing Date,
provided that such payments shall not in the aggregate exceed
$448,790.
(v) Each Eligible Employee may be paid a lump sum
payment under the Washington National Corporation Long Term Pay
At Risk Plan for the 1995-1997 and 1996-1998 performance periods,
for the period that such Eligible Employee was employed by the
Company or any of its subsidiaries during the 1995-1997
performance period and/or the 1996-1998 performance period, as
applicable, with such payments to be made on the Closing Date,
provided that (i) such payments for the 1995-1997 performance
period shall not in the aggregate exceed $587,260 for the period
through December 31, 1996 and $19,560 per month for each month in
1997, including a prorated amount for the month in which the
Closing Date occurs, and (ii) such payments for the 1996-1998
performance period shall not in the aggregate exceed $297,205 for
the period through December 31, 1996 and $20,505 per month for
each month in 1997, including a prorated amount for the month in
which the Closing Date occurs.
(vi) The Company shall make all required contributions
under the terms of the Washington National Employee Savings Plan
and the Washington National Pension Plan Plus (which Plans shall
be amended prior to the Closing Date to permit contributions to
be made on behalf of any Eligible Employee who is not a current
employee of the Company or any of its subsidiaries and to permit
contributions to be made on a date other than the end of the
calendar quarter in the event the Closing Date falls on such
date) for the period commencing on the date hereof and ending on
the Closing Date, with contributions to be made on the Closing
Date.
(vii) The Company shall continue to credit
participants under the terms of the Washington National
Corporation Supplemental Executive Retirement Plan ("SERP")
(which shall be amended prior to the Closing Date to permit
credits to be determined on the earlier to occur of the Closing
Date and the participant's date of termination of employment)
with respect to all compensation (excluding severance, change of
control or similar benefits) earned by such participants through
the Closing Date or their earlier date of termination of
employment. The Company shall terminate the SERP immediately
prior to the Effective Time.
(viii) Each Eligible Employee who held any shares of
Restricted Stock as of July 1, 1996 and whose Restricted Stock
has been forfeited as of the date of this Agreement, may be paid
a lump sum payment in consideration for such forfeited Restricted
Stock in an amount in cash equal to 125% of the Cash Price, less
applicable withholding taxes, with such payments to be made on
the earlier of the Closing Date and March 15, 1997, provided that
such payments shall not in the aggregate exceed $289,500.
Section 5.6 of the Disclosure Schedule sets forth the
amounts accrued in the financial statements of the Company for
the amounts payable by the Company to all the Eligible Employees
or to the foregoing Benefit Plans pursuant to all the foregoing
Benefit Plans as of June 30, 1996 and September 30, 1996 and good
faith estimates of the amounts that will be expensed in the
fourth quarter of 1996 and the first quarter of 1997 with respect
to such Benefit Plans. The financial statements of the Company
include or will include proper accruals for all applicable
benefits and taxes with respect to the foregoing amounts.
Section 5.7 UNITED WAY CONTRIBUTION. Prior to the
Effective Time, the Company shall make a corporate contribution
to the United Way in an amount not greater than $50,000. In
addition, the Company shall, in connection with the its employee
matching contribution program, make a corporate matching
contribution in the same manner and in accordance with the same
procedures followed during the 1995 United Way campaign to United
Way in an amount not to exceed $150,000.
<PAGE>
ARTICLE 6
CONDITIONS PRECEDENT
Section 6.1 CONDITIONS TO EACH PARTY'S OBILIGATION TO
EFFECT THE MERGER. The respective obligation of each party to
effect the Merger is subject to the satisfaction or waiver on or
prior to the Closing Date of the following conditions:
Section 6.1.1 STOCKHOLDER APPROVAL. This Agreement and the
Merger shall have been approved and adopted by an affirmative
vote of the holders of the requisite number of shares present, in
person or by proxy and entitled to vote on the Merger at the
Stockholders Meeting and the PennCorp Stockholder Approval shall
have been obtained.
Section 6.1.2 GOVERNMENTAL AND REGULATORY CONSENTS. The
Company and PennCorp shall have made all such filings, and
obtained such permits, authorizations, consents, or approvals
required by any Governmental Entity to consummate the
transactions contemplated hereby; provided, however, that such
consents or approvals shall impose no conditions (other than
conditions customarily imposed by insurance regulatory
authorities) that, in the reasonable opinion of the Company and
PennCorp, would be expected to have a PennCorp Material Adverse
Effect after giving effect to the consummation of the Merger.
The parties agree that no consent or approval of any proposed
dividend payable by the Company or any of its subsidiaries shall
be required as a condition to PennCorp's obligation to effect the
Merger and that the proviso in the immediately preceding sentence
shall not apply to any condition relating to any such dividend.
Section 6.1.3 HSR ACT. The waiting period (and any
extension thereof) applicable to the Merger under the HSR Act
shall have been terminated or shall have otherwise expired.
Section 6.1.4 NO INJUNCTIONS OR RESTRAINTS. No temporary
restraining order, preliminary or permanent injunction or other
order issued by any court of competent jurisdiction or other
legal restraint or prohibition preventing the consummation of the
Merger shall be in effect; provided, however, that the party
invoking this condition shall use its best efforts to have any
such order or injunction vacated.
Section 6.1.5 NYSE LISTING. The shares of PennCorp Common
Stock issuable to the Company's stockholders pursuant to this
Agreement shall have been approved for listing on the NYSE,
subject to official notice of issuance.
Section 6.1.6 FORM S-4. The Form S-4 shall have become
effective under the Securities Act and shall not be the subject
of any stop order or proceedings seeking a stop order.
Section 6.2 CONDITIONS TO OBLIGATIONS OF PENNCORP.
The obligations of PennCorp to effect the Merger are further
subject to the following conditions:
Section 6.2.1 REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the Company contained in this
Agreement shall be true and correct in all material respects on
the date hereof and (except to the extent specifically given as
of an earlier date) on and as of the Closing Date as though made
on the Closing Date, and the Company shall have delivered to
PennCorp a certificate dated as of the Closing Date signed by an
executive officer to the effect set forth in this Section 6.2.1.
Section 6.2.2 PERFORMANCE OF OBLIGATIONS OF THE COMPANY.
The Company shall have performed in all material respects all
obligations required to be performed by it under this Agreement
at or prior to the Closing Date, and the Company shall have
delivered to PennCorp a certificate dated as of the Closing Date
signed by an executive officer to the effect set forth in this
Section 6.2.2.
Section 6.2.3 OPINION OF COUNSEL. PennCorp shall have
received the opinion dated the Closing Date of Weil, Gotshal &
Manges LLP, counsel to PennCorp, in substantially the form
attached as Exhibit D to this Agreement to the effect that for
federal income tax purposes the Merger will constitute a
reorganization within the meaning of Section 368(a)(1) of the
Code and no gain or loss will be recognized by PennCorp or the
Company as a consequence of the Merger. In rendering such
opinion, Weil, Gotshal & Manges LLP shall be entitled to receive
and may rely on representations contained in certificates of
PennCorp and the Company and representation letters of certain
stockholders of the Company.
Section 6.2.4 SALE OF THE LOAN PORTFOLIO. The Company shall
have effected the sale of the Loan Portfolio to Morgan Stanley
Mortgage Capital Inc. in accordance with the Loan Purchase
Agreement.
Section 6.2.5 TRADING AVERAGE. The Trading Average shall
not be greater than $42.210 unless the Company shall have agreed
to decrease the Exchange Ratio to such ratio, as shall when
multiplied by the Trading Average result in a price per Common
Share equal to the product of (i) the Cash Price divided by
$38.693 and (ii) $42.210.
Section 6.2.6 DISSENTING SHARES. PennCorp shall have
determined to its reasonable satisfaction that the holders of
more than 7.5% of the Common Shares outstanding immediately prior
to the Stockholders Meeting shall not have demanded appraisal of
their Common Shares in the manner required by Section 262 of the
Delaware Code.
Section 6.3 CONDITIONS TO OBLIGATIONS OF THE COMPANY.
The obligation of the Company to effect the Merger is further
subject to the following conditions:
Section 6.3.1 REPRESENTATIONS AND WARRANTIES. The
representations and warranties of PennCorp contained in this
Agreement shall be true and correct in all material respects on
the date hereof and (except to the extent specifically given as
of an earlier date) on and as of the Closing Date as though made
on the Closing Date, and PennCorp shall have delivered to the
Company a certificate dated as of the Closing Date, signed by an
executive officer and to the effect set forth in this
Section 6.3.1.
Section 6.3.2 PERFORMANCE OF OBLIGATIONS OF PENNCORP.
PennCorp shall have performed in all material respects all
obligations required to be performed by it under this Agreement
at or prior to the Closing Date, and PennCorp shall have
delivered to the Company a certificate dated as of the Closing
Date, signed by an executive officer and to the effect set forth
in this Section 6.3.2.
Section 6.3.3 OPINION OF COUNSEL. The Company shall have
received the opinion dated the Closing Date of Schiff Hardin &
Waite, counsel to the Company, in substantially the form attached
as Exhibit E to the Agreement to the effect that for federal
income tax purposes the Merger will constitute a reorganization
within the meaning of Section 368 (a) (1) of the Code and that
stockholders of the Company will not be subject to federal income
tax on the receipt of shares of PennCorp Common Stock in exchange
for Common Shares pursuant to the Merger. In rendering such
opinion, Schiff Hardin & Waite shall be entitled to receive and
may rely on representations in certificates of PennCorp and the
Company and representation letters of certain stockholders of the
Company.
Section 6.3.4 TRADING AVERAGE. The Trading Average shall
not be less than $28.140, unless PennCorp shall have agreed to
increase the Exchange Ratio to such ratio, as shall when
multiplied by the Trading Average result in a price per Common
Share equal to the product of (i) the Cash Price divided by
$31.658 and (ii) $28.140.
<PAGE>
ARTICLE 7
TERMINATION, AMENDMENT AND WAIVER
Section 7.1 TERMINATION. This Agreement may be
terminated and abandoned at any time prior to the Effective Time,
whether before or after approval of matters presented in
connection with the Merger by the stockholders of the Company:
(a) by mutual written consent of PennCorp and the
Company;
(b) by either PennCorp or the Company:
(i) if, upon a vote at a duly held Stockholders
Meeting or PennCorp Stockholders Meeting,
(x) this Agreement and the Merger shall
fail to receive the requisite vote for
approval and adoption by the stockholders
of the Company at the Stockholders Meeting
or (y) the PennCorp Stockholder Approval
is not obtained;
(ii) if the Merger shall not have been
consummated on or before March 31, 1997
(subject to the right of PennCorp or the
Company to extend such date by not more
than 60 days in its sole discretion)
unless the failure to consummate the
Merger is the result of a willful and
material breach of this Agreement by the
party seeking to terminate this Agreement;
(iii) if any Governmental Entity shall have
issued an order, decree or ruling or taken
any other action permanently enjoining,
restraining or otherwise prohibiting the
Merger and such order, decree, ruling or
other action shall have become final and
nonappealable;
(iv) if the Board of Directors of the Company
shall have exercised its rights set forth
in Section 4.9 of this Agreement; or
(c) by the Company, upon a material breach
of any representation or warranty of PennCorp or
PennCorp fails to comply in any material respect
with any of its covenants or agreements, or if
any representation or warranty of PennCorp shall
be or become untrue in any material respect, in
either case such that the conditions set forth
in Sections 6.2.1 and 6.2.2 would be incapable
of being satisfied by March 31, 1997 (or as
otherwise extended pursuant to Section 7.1(b)
(ii)), provided that a wilful breach shall be
deemed to cause such conditions to be incapable
of being satisfied by such date;
(d) by PennCorp, upon a material breach of any
representation, or warranty of the Company or
the Company fails to comply in any material
respect with any of its covenants or agreements,
or if any representation or warranty of the
Company shall be or become untrue in any
material respect, in either case such that the
conditions set forth in Sections 6.3.1 and
6.3.2 would be incapable of being satisfied by
March 31, 1997 (or as otherwise extended
pursuant to Section 7.1(b)(ii)), provided that
a wilful breach shall be deemed to cause such
conditions to be incapable of being satisfied by
such date; or
(e) by the Company, if Morgan Stanley and Co.
Incorporated shall fail to deliver the letter
contemplated by Section 4.1.1 hereof; provided,
however, that the Company shall have requested
Morgan Stanley and Co. Incorporated to deliver
such letter promptly after the filing of the
preliminary Joint Proxy Statement and shall have
used all reasonable efforts to obtain such
letter from Morgan Stanley and Co. Incorporated.
Section 7.2 EFFECT OF TERMINATION.
(a) In the event of termination of this Agreement
by either the Company or PennCorp as provided
in Section 7.1, except as provided below in
Section 7.2(b), this Agreement shall forthwith
become void and have no effect, without any
liability or obligation on the part of PennCorp
or the Company, other than the last sentence of
Section 4.5 and Sections 7.2 and 10.2. Nothing
contained in this Section shall relieve any
party from any liability resulting from
any material breach of the representations,
warranties, covenants or agreements set forth
in this Agreement.
(b) In the event of termination of this Agreement
by either the Company or PennCorp pursuant
to Section 7.1(b)(iv), the Company shall pay
PennCorp $10,000,000 in cash, as liquidated
damages and not as a penalty, within sixty (60)
days of such termination, provided that PennCorp
shall not be in material breach of its
obligations under this Agreement (the
"Termination Payment"). Moreover, the Company
shall pay the Termination Payment if all of
the following shall occur: (i) this Agreement
is terminated pursuant to Section 7.1(b)(i)(x),
and (ii) the Company, within one (1) year
from the date of the Stockholders Meeting,
enters into a bona fide written agreement to
effect an Acquisition Proposal with a party
other than PennCorp or any of its subsidiaries,
which Acquisition Proposal provides
consideration with an economic value equal
to or greater than the consideration that would
have been received in the Merger had it
been consummated on the date on which the
Agreement was terminated, as determined in
good faith by the Company's Board of Directors
based upon the written advice of the Company's
investment banking firm, and (iii) the
stockholders of the Company approve such
Acquisition Proposal. The Termination Payment
contemplated by the prior sentence shall be paid
on the earlier of (x) the consummation of such
Acquisition Proposal or (y) within sixty (60)
days after the meeting at which the stockholders
of the Company approve such Acquisition
Proposal. Notwithstanding anything in this
Agreement to the contrary, the Termination
Payment, if payable, shall be paid only once
and shall be PennCorp's sole and exclusive
remedy hereunder for the termination of the
Agreement under the circumstances in which
the Termination Payment is paid (regardless of
any breach of this Agreement), and upon such
delivery of the Termination Payment to
PennCorp, no person shall have any further
claim or rights against the Company under this
Agreement.
Section 7.3 AMENDMENT. Subject to the applicable
provisions of the Delaware Code, at any time prior to the
Effective Time, the parties hereto may modify or amend this
Agreement, by written agreement executed and delivered by duly
authorized officers of the respective parties; provided, however,
that after approval of the Merger by the stockholders of the
Company, no amendment shall be made which reduces the Merger
Consideration payable in the Merger or adversely affects the
rights of the Company's stockholders hereunder without the
approval of such stockholders. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of
the parties.
Section 7.4 EXTENSION; WAIVER. At any time prior
to the Effective Time, the parties may (a) extend the time
for the performance of any of the obligations or other acts of
the other parties, (b) waive any inaccuracies in the
representations and warranties of the other parties contained in
this Agreement or in any document delivered pursuant to this
Agreement or (c) subject to Section 7.3, waive compliance with
any of the agreements or conditions of the other parties
contained in this Agreement. Any agreement on the part of a
party to any such extension or waiver shall be valid only if set
forth in an instrument in writing signed on behalf of such party.
The failure of any party to this Agreement to assert any of its
rights under this Agreement or otherwise shall not constitute a
waiver of such rights.
Section 7.5 PROCEDURE FOR TERMINATION, AMENDMENT,
EXTENSION OR WAIVER. A termination of this Agreement pursuant to
Section 7.1, an amendment of this Agreement pursuant to Section
7.3 or an extension or waiver pursuant to Section 7.4 shall, in
order to be effective, require in the case of PennCorp or the
Company, action by its Board of Directors or the duly authorized
designee of its Board of Directors.
<PAGE>
ARTICLE 8
SURVIVAL OF PROVISIONS
Section 8.1 SURVIVAL. The representations and
warranties respectively required to be made by the Company and
PennCorp in this Agreement, or in any certificate, respectively,
delivered by the Company or PennCorp pursuant to Section 6.2 or
Section 6.3 hereof will terminate upon the Closing and be of no
further force or effect.
<PAGE>
ARTICLE 9
NOTICES
Section 9.1 NOTICES. Any notice or communication
given pursuant to this Agreement must be in writing and will be
deemed to have been duly given if mailed (by registered or
certified mail, postage prepaid, return receipt requested), or,
if transmitted by facsimile, or if delivered by courier, as
follows:
If to the Company, to:
Washington National Corporation
300 Tower Parkway
Lincolnshire, Illinois 60069-3665
Attention: Craig Edwards, Esq.
Telephone: (847) 793-3273
Telecopy: (847) 793-3511
with a copy to:
Schiff Hardin & Waite
7200 Sears Tower
Chicago, Illinois 60606
Attention: Stuart L. Goodman, Esq.
Telephone: (312) 258-5711
Telecopy: (312) 258-5600
If to PennCorp, to:
PennCorp Financial Group, Inc.
745 Fifth Avenue, Fifth Floor
New York, New York 10151
Attention: Scott D. Silverman, Esq.
Telephone: (212) 832-0700
Telecopy: (212) 758-5442
with copies to:
Weil, Gotshal & Manges LLP
100 Crescent Court, Suite 1300
Dallas, Texas 75201
Attention: Jeremy W. Dickens, Esq.
Telephone: (214) 746-7720
Telecopy: (214) 746-7777
All notices and other communications required or permitted under
this agreement that are addressed as provided in this Section 9.1
will, whether sent by mail, facsimile, or courier, be deemed
given upon the first Business Day after actual delivery to the
party to whom such notice or other communication is sent (as
evidenced by the return receipt or shipping invoice signed by a
representative of such party or by facsimile confirmation). Any
party from time to time may change its address for the purpose of
notices to that party by giving a similar notice specifying a new
address, but no such notice will be deemed to have been given
until it is actually received by the party sought to be charged
with the contents thereof. For purposes of this Section 9.1,
"Business Day" shall mean a day other than Saturday, Sunday or
any day on which the principal commercial banks located in
Chicago, Illinois are authorized or obligated to close under the
laws of Illinois.
<PAGE>
ARTICLE 10
MISCELLANEOUS
Section 10.1 ENTIRE AGREEMENT. This Agreement
constitutes the entire agreement between the parties hereto with
respect to the subject matter hereof and supersedes, except as
set forth in Section 4.5 with respect to the Confidentiality
Agreement, all prior communications, agreements, understandings,
representations, and warranties whether oral or written between
the parties hereto. There are no oral or written agreements,
understandings, representations, or warranties between the
parties hereto with respect to the subject hereof other than
those set forth in this Agreement.
Section 10.2 EXPENSES. The Company and PennCorp each
will pay its own costs and expenses incident to preparing for,
entering into and carrying out this Agreement and the
consummation of the transactions contemplated hereby except that
(i) the filing fee in respect of the notification and report
under the HSR Act, (ii) the expenses incurred in connection with
the printing, mailing and distribution of the Joint Proxy
Statement and the preparation and filing of the Form S-4 shall be
borne equally by the Company and PennCorp, and (iii) any fees and
expenses owing to Morgan Stanley Mortgage Capital Inc., as a
result of a failure to close the sale of the Loan Portfolio shall
be borne as follows: (x) the Company shall pay any such fees and
expenses if this Agreement is terminated pursuant to Sections
7.1(b)(i)(x), 7.1(b)(iv), 7.1(d), 7.1(e) or if the condition set
forth in Section 6.2.5 has not been satisfied as of the Closing
Date and PennCorp elects not to effect the Merger; (y) PennCorp
shall pay any such fees and expenses if this Agreement is
terminated pursuant to Section 7.1(b)(i)(y), 7.1(c), or if the
condition set forth in Section 6.3.5 has not been satisfied as of
the Closing Date and the Company elects not to effect the Merger;
and (z) any such fees and expenses shall be borne equally by the
Company and PennCorp if this Agreement is terminated pursuant to
Sections 7.1(a), 7.1(b)(i)(x) and (y), 7.1(b)(ii), or if the
condition set forth in Section 6.1.2 has not been satisfied as of
the Closing Date and either party elects not to effect the
Merger, or if the condition set forth in Section 6.2.6 has not
been satisfied as of the Closing Date and PennCorp elects not to
effect the Merger. Notwithstanding anything in this Agreement to
the contrary, the Company covenants and agrees that, assuming the
transactions contemplated by this Agreement occur in a manner
reasonably consistent with the expectation of the parties and the
Closing Date occurs on or before March 31, 1997, the fees and
expenses of the Company's legal and financial advisors (including
Morgan Stanley and Co. Incorporated), incurred in connection with
this Agreement and the Merger shall not exceed $5,000,000 in the
aggregate; provided, however, that the foregoing limitation shall
not apply to amounts payable to Morgan Stanley Mortgage Capital
Inc. under the Mortgage Loan Letter of Intent.
Section 10.3 COUNTERPARTS. This Agreement may be
executed in one or more counterparts, each of which will be
deemed an original, but all of which will constitute one and the
same instrument and shall become effective when one or more
counterparts have been signed by each of the parties and
delivered to the other parties.
Section 10.4 NO THIRD PARTY BENEFICIARY. Except as
otherwise specifically provided in Section 4.13, this Agreement
is not intended and may not be construed to create any rights in
any parties other than the Company and PennCorp and their
respective successors or assigns, and it is not the intention of
the parties to confer third-party beneficiary rights upon any
other person.
Section 10.5 GOVERNING LAW. This Agreement shall be
governed by and construed in accordance with the laws of the
State of Delaware (without regard to the principles of conflicts
of law) applicable to a contract executed and to be performed in
such State.
Section 10.6 ASSIGNMENT; BINDING EFFECT.
Neither this Agreement nor any of the rights, interests
or obligations under this Agreement shall be assigned, in whole
or in part, by operation of law or otherwise by any of the
parties without the prior written consent of the other parties,
such consent not to be unreasonably withheld and any such
assignment that is not consented to shall be null and void.
Subject to the preceding sentence, this Agreement will be binding
upon, inure to the benefit of and be enforceable by, the parties
and their respective successors and assigns.
Section 10.7 HEADINGS, GENDER, ETC. The headings
used in this Agreement have been inserted for convenience and do
not constitute matter to be construed or interpreted in
connection with this Agreement. Unless the context of this
Agreement otherwise requires, (a) words of any gender are deemed
to include each other gender; (b) words using the singular or
plural number also include the plural or singular number,
respectively; (c) the terms "hereof," "herein," "hereby,"
"hereto," and derivative or similar words refer to this entire
Agreement; (d) the terms "Article" or "Section" refer to the
specified Article or Section of this Agreement; (e) all
references to "dollars" or "$" refer to currency of the United
States of America; (f) the term "person" shall include any
natural person, corporation, limited liability company, general
partnership, limited partnership, or other entity, enterprise,
authority or business organization; and (g) the term or is
disjunctive but not necessarily exclusive.
Section 10.8 INVALID PROVISIONS. If any provision of
this Agreement is held to be illegal, invalid, or unenforceable
under any present or future law, and if the rights or obligations
of the Company or PennCorp under this Agreement will not be
materially and adversely affected thereby, (a) such provision
will be fully severable; (b) this Agreement will be construed and
enforced as if such illegal, invalid, or unenforceable provision
had never comprised a part hereof; and (c) the remaining
provisions of this Agreement will remain in full force and effect
and will not be affected by the illegal, invalid, or
unenforceable provision or by its severance herefrom.
IN WITNESS WHEREOF, this Agreement has been duly
executed and delivered by the duly authorized officers of the
Company and PennCorp effective as of the date first written
above.
PENNCORP FINANCIAL GROUP, INC.
By: /c/ SCOTT D. SILVERMAN
Name: Scott D. Silverman
Its: Senior Vice President, General
Counsel and Secretary
WASHINGTON NATIONAL CORPORATION
By: /c/ ROBERT W. PATIN
Name: Robert W. Patin
Its: Chairman of the Board,
President and Chief Executive
Officer
