SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Six Months Ended June 30, 1995 Commission File Number 0-3296
DIXIE NATIONAL CORPORATION
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
MISSISSIPPI 64-0440887
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3760 I-55 North 39211-6323
P.O. Box 22587, Jackson, Mississippi 39225-2587
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (601)982-8210
NONE
Former name, former address and former fiscal year, if changed
since last report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS Outstanding at August 11, 1995
Common Stock, $1.00 par value 10,494,973
<PAGE>
DIXIE NATIONAL CORPORATION
INDEX
PART I: FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheets - June 30, 1995 and
December 31, 1994 4
Consolidated Statements of Operations for the Three
and Six Months ended June 30, 1995 and 1994 5
Consolidated Statements of Stockholders' Equity
for the Six Months ended June 30, 1995 6
Consolidated Statements of Cash Flows for the Six
Months ended June 30, 1995 and 1994 7
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 21
SIGNATURES 21
2
<PAGE>
PART 1: FINANCIAL INFORMATION
Item 1. Financial Statements
The consolidated financial statements of Dixie National Corporation follow.
3
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS
DIXIE NATIONAL CORPORATION
<CAPTION>
June 30 December 31
1995 1994
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
NON-LIFE
Marketable Investments
Marketable equity securities $ 2,000,000 $ 2,000,000
Cash and cash equivalents 280,222 218,258
Other 126,200 26,200
-------------- --------------
2,406,422 2,244,458
Investment in other equity securities 1,103,778
Property and equipment 434,039 419,292
-------------- --------------
TOTAL NON-LIFE ASSETS 3,944,239 2,663,750
LIFE
Investments
Fixed Maturities, at market 18,973,382 17,332,660
Policy loans 3,071,380 3,060,185
Government guaranteed student loans, less allowance for uncollectible
loans of $464,603 at June 30, 1995 and December 31, 1994 5,470,065 5,978,288
Short-term investments 664,515 4,860,347
Equipment leases 525,037
Cash and cash equivalents 3,222,919 240,851
-------------- --------------
TOTAL LIFE INVESTMENTS 31,927,298 31,472,331
Accounts receivable, less allowance for doubtful accounts
of $195,885 at June 30, 1995 and December 31, 1994 798,361 761,219
Accrued investment income 452,939 412,705
Deferred policy acquisition costs, net 6,464,089 6,626,230
Value of life insurance purchased, net 1,509,356 1,589,356
Property and equipment, less accumulated depreciation
of $687,905 at June 30, 1995 and $652,748 at December 31, 1994 130,245 165,402
Other assets 835,982 886,459
Unallocated loss on sale of subsidiary (3,823,476)
-------------- --------------
TOTAL LIFE ASSETS 38,294,794 41,913,702
-------------- --------------
TOTAL ASSETS $ 42,239,033 $ 44,577,452
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
NON-LIFE LIABILITIES
Notes payable and other debt 527,694 524,304
Accrued liabilities and expenses 3,236 3,475
-------------- --------------
TOTAL NON-LIFE LIABILITIES 530,930 527,779
LIFE LIABILITIES
Policy liabilities
Future policy benefits 27,405,316 27,538,803
Other policy claims and benefits payable 256,557 240,766
Other policyholders' funds 1,739,574 826,055
-------------- --------------
TOTAL POLICY LIABILITIES 29,401,447 28,605,624
Notes payable and other debt 5,540,671 5,579,535
Income taxes 139,865 3,599
Accrued liabilities and expenses 510,870 679,460
-------------- --------------
TOTAL LIFE LIABILITIES 35,592,853 34,868,218
STOCKHOLDERS' EQUITY
Common Stock 10,494,973 8,394,973
Discount on Common Stock (996,222)
Retained earnings (deficit) (3,383,501) 1,711,493
-------------- --------------
Unrealized holding losses on investments available for sale - (925,011)
-------------- --------------
TOTAL STOCKHOLDERS' EQUITY 6,115,250 9,181,455
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 42,239,033 $ 44,577,452
============== ==============
See accompanying notes to consolidated financial statements.
</TABLE>
4
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
DIXIE NATIONAL CORPORATION
<CAPTION>
Three Months Six Months
Ended June 30 Ended June 30
--------------------------- ---------------------------
1995 1994 1995 1994
--------------------------- ---------------------------
<S> <C> <C> <C> <C>
REVENUES
Premiums $ 786,567 $ 3,886,075 $ 1,597,264 $ 7,969,323
Net investment income 615,940 536,736 1,233,352 1,073,821
Realized investment gains (17,588) 36,757 (5,994
------------- ------------- ------------- -------------
TOTAL REVENUES 1,402,507 4,405,223 2,867,373 9,037,150
BENEFITS AND EXPENSES
Benefits and claims to policyholders 280,258 2,458,208 672,961 5,098,581
Amortization of deferred policy acquisition costs 242,585 499,436 468,313 1,150,641
Commissions, net 135,441 811,892 267,455 1,548,538
General expenses, net 693,880 757,660 1,353,100 1,507,214
Interest expense 147,684 54,464 293,460 172,752
Insurance taxes, licenses and fees 140,059 161,476 222,807 402,209
Provision for litigation settlement 1,007,271 1,007,271
Loss on sale of accident and health business 940,000 940,000
------------- ------------- ------------- -------------
TOTAL BENEFITS AND EXPENSES 2,647,178 5,683,136 4,285,367 10,819,935
------------- ------------- ------------- -------------
LOSS BEFORE INCOME TAXES AND
ESTIMATED LOSS ON SALE OF SUBSIDIARY (1,244,671) (1,277,913) (1,417,994) (1,782,785)
Income tax benefit
------------- ------------- ------------- -------------
LOSS BEFORE ESTIMATED
LOSS ON SALE OF SUBSIDIARY (1,244,671) (1,277,913) (1,417,994) (1,782,785)
Estimated loss on sale of subsidiary 958,000 (3,677,000)
------------- ------------- ------------- -------------
NET LOSS $ (286,671) $ (1,277,913) $ (5,094,994) $ (1,782,785)
============= ============= ============= =============
Primary and fully diluted
per share amounts:
Loss before estimated loss on sale of subsidiary (0.15) (0.20) (0.17) (0.28)
------------- ------------- ------------- -------------
Net loss $ (0.03) $ (0.20) $ (0.61) $ (0.28)
============= ============= ============= =============
See accompanying notes to consolidated financial statements.
</TABLE>
5
<PAGE>
<TABLE>
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (Unaudited)
DIXIE NATIONAL CORPORATION
Six Months Ended June 30, 1995 and 1994
<CAPTION>
Discount on Unrealized
Common Common Retained Holding
Stock Stock Earnings Losses Total
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance January 1, 1995 $ 8,394,973 $ 1,711,493 $ (925,011) $ 9,181,455
Net loss for six months ended June 30, 1995 (5,094,994) (5,094,994)
Shares issued for investment in other equity
securities 2,100,000 (996,222) 1,103,778
Recoginition of unrealized holding losses as
realized through estimated loss on sale of
subsidiary 925,011 925,011
------------- ------------- ------------- ------------- -------------
BALANCE JUNE 30, 1995 $ 10,494,973 $ (996,222) $ (3,383,501) $ -0- $ 6,115,250
============= ============= ============= ============= =============
See accompanying notes to consolidated financial statements.
</TABLE>
6
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
DIXIE NATIONAL CORPORATION
<CAPTION>
Six Months
Ended June 30
------------- -------------
1995 1994
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ (5,094,994) $ (1,782,785)
Adjustments to reconcile net income to net cash
provided by operating activities:
Estimated loss on sale of subsidiary 3,677,000
Loss on sale of accident and health business 940,000
Increase (decrease) in policy liabilities (133,487) 1,669,361
Amotization of deferred policy acquisition costs and
and value of life insurance purchased 468,313 1,150,641
Increase (decrease) in deferred income taxes (94,987) (598,176)
Increase (decrease) in accrued liabilities (165,355) (117,006)
Policy acquisition costs deferred (226,172) (1,139,473)
Decrease (increase) in accounts receivable (10,942) 490,938
Increase in policyowner funds on deposit 910,044 22,445
Depreciation 57,546 58,422
Other, net (16,193) (158,839)
------------- -------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES (629,227) 535,528
Cash flows from investing activities:
Proceeds from investments sold or matured:
Fixed maturities:
Maturities 1,044,469 725,000
Calls 4,000 558,858
Sales 242,000
Repayment of policy and student mortgage loans 871,057 868,831
Cost of investments acquired:
Fixed maturities (1,586,224) (5,566,898)
Equipment leases (525,037)
Policy and student loans (374,028) (326,971)
Temporary investments, net 4,069,632 2,620,423
Additions to property and equipment (37,136) (82,842)
Proceeds from sale of property and equipment
------------- -------------
NET CASH PROVIDED (USED)
BY INVESTING ACTIVITIES 3,708,733 (1,203,599)
Cash flows from financing activities:
Payments on debt (35,474) (70,522)
------------- -------------
NET CASH USED BY
FINANCING ACTIVITIES (35,474) (70,522)
------------- -------------
NET (DECREASE) INCREASE IN
CASH AND CASH EQUIVALANTS 3,044,032 (738,593)
Cash and cash equivalents - beginning of year 459,109 4,655,458
------------- -------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 3,503,141 $ 3,916,865
============= =============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash payments for income taxes $ 127,279 $ 598,175
============= =============
Cash payments for interest $ 231,210 $ 302,235
============= =============
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES
Common Stock issued for investment in other equity securities $ 1,103,778
=============
See accompanying notes to consolidated financial statements.
</TABLE>
7
<PAGE>
Notes To Consolidated Financial Statements (Unaudited)
Dixie National Corporation
June 30, 1995
Note 1--Basis of Presentation
The accompanying unaudited consolidated financial statements include the
financial statements of Dixie National Corporation ("Corporation"), its
wholly-owned subsidiaries and Dixie National Life Insurance Company ("Dixie
Life"), which is approximately 99% owned (collectively "Company") and have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the detail and
disclosures required by generally accepted accounting principles for complete
financial statements. Operating results for the six month period ended June
30, 1995 are not necessarily indicative of the results that may be expected
for the year ending December 31, 1995. More detailed information is contained
in the Notes to Consolidated Financial Statements included in the
Corporation's 1994 Form 10-K Annual Report.
All adjustments which, in the opinion of management, are necessary for a
fair presentation of such financial statements are included and consisted only
of normal recurring adjustments.
Note 2--Statutory Accounting
A reconciliation of Dixie Life's statutory net income to the Company's
consolidated GAAP net income for the six months ended June 30, 1995 and 1994
is as follows:
1995 1994
---- ----
Statutory net income $ (738,498) $ (636,127)
Estimated loss on sale of subsidiary (3,677,000)
Deferral of acquisition costs 226,172 1,139,473
Amortization of acquisition costs (468,313 (1,150,641)
Differences in insurance policy
liabilities, excluding effect of
sale of block of busine ss 1,054,700 161,245
Deferred income taxes (160,000)
Premium income (928,060) (32,554)
Investment income 68,017 11,693
Commissions (25,000)
Interest expense (293,460) (172,752)
General insurance expenses 351,368 238,033
Supplementary contracts (103,667) (76,735)
Other 421,018 (139,420)
Provision for litigation settlement (1,007,271)
GAAP Loss on sale of accident and health business (940,000)
GAAP Net Income (Loss) ------------ ------------
$(5,094,994 $(1,782,785)
=========== ============
8
<PAGE>
A reconciliation of Dixie Life's statutory stockholders' equity to the
Company's Consolidated GAAP stockholders' equity at June 30, 1995 is as
follows:
Statutory Stockholders' Equity $ 4,558,029
Differences in insurance policy liabilities (325,682)
Deferred acquisition costs 6,464,089
Deferred income taxes (139,865)
Debt of parent company (5,936,440)
Asset Valuation Reserve 129,809
Value of life insurance purchased 1,509,356
Non-admitted assets 206,430
Common stock issued 3,073,778
Other 399,222
Unallocated loss on sale of subsidiary (3,823,476)
GAAP Stockholders' Equity ------------
$ 6,115,250
============
Note 3--Investments
The Company's investments in fixed maturity securities available for sale
at June 30, 1995 are summarized as follows:
<TABLE>
<CAPTION>
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Government agencies and authorities $ 9,764,593 $ 208,896 $ 87,209 $ 9,886,280
States, municipalities and political subdivisions 50,000 500 49,500
Special revenue 10,278 378 9,900
Public utilities 2,366,735 28,828 28,683 2,366,880
All other corporate 6,635,300 134,865 109,343 6,660,822
------------ ---------- --------- ------------
$18,826,906 $ 372,589 $226,113 $18,973,382
============ ========== ========= ============
</TABLE>
Net investment income for the six months ended June 30, 1995 and 1994
consists of the following:
1995 1994
---- ----
Investment income
Fixed maturities $ 669,182 $ 571,145
Policy loans 97,864 92,568
Student loans 189,790 170,337
Interest on Accounts Receivable 29,857 107,169
Short-term investment 22,289 32,173
Other 224,370 100,429
----------- -----------
Net investment income $1,233,352 $1,073,821
=========== ===========
9
<PAGE>
Net realized investment gains for the six months ended June 30, 1995 and
1994 are summarized as follows:
1995 1994
---- ----
Realized gains $36,757 $ 1,422
Realized losses 7,416
-------- --------
Net realized gains (losses) $36,757 $(5,994)
======== ========
As consideration for extension of the Corporation's Convertible Notes
(Note 7), the Corporation pledged 804,445 shares of its Alanco stock with a
carrying value of $1,307,000 (market value $1,935,700 at June 30, 1995) as
additional collateral to the Convertible Notes.
The obligation of the purchasers of the Corporation's Common Stock in the
November Transaction (Notes 3 and 16 to the Corporation's Consolidated
Financial Statements contained in its 1994 Form 10-K Annual Report) to cover
any market depreciation, as defined, has been extended to the maturity of the
Term Loan. At June 30, 1995, market value of the Corporation's holdings in
equity securities subject to this obligation, based on the average closing bid
and asked price, was $2,331,000.
Note 4--Deferred Policy Acquisition Costs
An analysis of deferred policy acquisition costs for the six months ended
June 30, 1995 and 1994 follows:
1995 1994
---- ----
Balance at beginning of period $6,626,230 $19,759,110
Deferred during the period:
Commissions 180,034 882,255
Other Expenses 46,138 257,188
----------- ------------
Total Deferred 226,172 1,139,443
Deferred policy acquisition costs on
policies sold (3,724,168)
Estimated loss on A&H business sold (940,000)
Amortized during the period (388,313) (1,070,641)
----------- ------------
Balance at end of period $6,464,089 $15,163,744
=========== ============
Note 5--Value of Life Insurance Purchased
An analysis of the value of life insurance purchased for the six months
ended June 30, 1995 and 1994 follows:
1995 1994
---- ----
Balance at beginning of period $1,589,356 $1,749,356
Amortized during the period (80,000) (80,000)
----------- -----------
Balance at end of the period $1,509,356 $1,669,356
=========== ===========
10
<PAGE>
Note 6--Property and Equipment
A summary of property and equipment at June 30, 1995 follows:
Home office property $ 795,038
Data Processing Equipment 818,149
Furniture, Equipment and Autos 491,143
-----------
$2,104,330
Less accumulated depreciation 1,540,046
----------
$ 564,284
===========
Note 7--Notes Payable and Other Debt
The Company had the following notes payable at June 30, 1995:
NON-LIFE:
Note payable to a bank bearing interest at prime plus
1% (at June 30, 1995 the rate was 10%), payable in
monthly installments of $1,389 with the balance due
June 8, 1998 $ 50,000
Note payable to a bank bearing interest at prime
plus 3/4% (at June 30, 1995, the rate was 9.75%),
payable in monthly installments of $11,846 through
January 5, 2001; secured by home office property 477,694
----------
527,694
LIFE:
Note payable to an insurance company bearing interest
at 1% above prime (10% at June 30, 1995) payable
interest only monthly through February 1995, with
original maturity March 31, 1995, collateralized by
common stock of Dixie Life ("Term Loan") 3,688,746
10% Convertible Notes due May 1, 1995 ("Convertible
Notes") with interest payable semi-annually until
maturity, convertible to common stock on the basis of
one share for each $1 of Note principal, collateralized
by second security interest in common stock of Dixie Life 1,720,000
Obligation under capital lease 131,925
-----------
5,540,671
-----------
$6,068,365
===========
The Restated Stock Purchase Agreement with Standard Life Insurance
Company (Note 9) waives all financial covenants contained in the Term Loan
agreement.
The Term Loan is due at closing of the sale of Dixie Life or 180 days
following cancellation of the Restated Stock Purchase Agreement by either
party. The Convertible Notes
11
<PAGE>
are due at the earliest of closing of the sale of Dixie Life, 90 days
following cancellation of the Restated Stock Purchase Agreement or December
27, 1995.
Note 8--Incentive Stock Option Plans
Options to purchase common stock of the Corporation previously have been
granted under two incentive stock option plans, each of which has expired. At
June 30, 1995, options granted under such plans to purchase 395,768 shares
were outstanding, including (at per share exercise prices): 92,061 at $1.23;
87,816 at $1.69; 16,991 at $1.77; 34,496 at $1.41; 45,161 at $1.38; 48,548 at
$1.50 and 70,695 at $1.00.
Options for the purchase of 5,000 shares of Common Stock were granted
under the 1995 Stock Option Plan ("1995 Plan") upon its adoption on May 26,
1995 to each of the Corporation's seven non-employee directors, and an option
for 25,000 shares also was granted to G. Thomas Reed, Senior Vice President of
the Corporation. The options are subject to approval of the 1995 Plan by the
shareholders, and if approved, will be exercisable at $25/32, the closing bid
price on the last trade date (May 25, 1995), prior to the date of grant.
Note 9--Proposed Sale of Dixie Life
On April 18, 1995, the Corporation and Dixie Life entered into a Stock
Purchase Agreement ("Stock Purchase Agreement") with Standard Life Insurance
Company of Indiana ("Standard") to sell to Standard all of the common capital
stock of Dixie Life owned by the Corporation. That agreement was restated by a
Restated Stock Purchase Agreement entered into as of August 8, 1995, but
effective as of April 18, 1995, among the Corporation, Dixie Life and Standard
("Restated Stock Purchase Agreement").
Dixie Life is 99.3% owned by the Corporation and represents virtually all
of the Company's assets and operations. The sale of the Corporation's interest
in Dixie Life to Standard ("Standard Transaction"), if completed, provides for
the satisfaction of substantially all of the Corporation's debt, including a
$3,689,000 Term Loan, originally due March 31, 1995, held by Standard and
$1,720,000 of Convertible Notes originally due May 1, 1995. The due dates of
both of these obligations have been extended. The Corporation also would
receive $2,103,079 in cash at closing and the first $175,000 of agent advances
collected after closing. The amount of cash to be received by the Corporation
is subject to adjustment, but is to be fixed prior to the proxy solicitation
to be made in connection with the Annual Meeting of Shareholders of the
Corporation at which the Standard Transaction will be voted upon.
The proposed sale is scheduled to close in October 1995 and, if
completed, will result in a loss. An estimated loss of $4,635,000 ($.55 per
share) was recorded in the three months ended March 31, 1995. The estimated
loss was revised to $3,677,000 ($.44 per share) by a credit of $958,000 ($.12
per share) in the quarter ended June 30, 1995. The sale of Dixie Life
constitutes discontinuance of the life insurancebusiness by the Corporation.
The loss on the sale is reported in a manner substantially the same as
discontinued operations. The Corporation continues to report insurance
operations in the same manner as prior to the measurement date of March 6,
12
<PAGE>
1995. Accounting Principles Board Opinion No. 30 (APB 30) calls for reporting
the operations of discontinued operations as a single net amount in the
statement of operations but, in management's opinion, reducing virtually all
of the Corporation's operations to a single amount in the statement of
operations would not be meaningful to readers of the Corporation's financial
statements. The Corporation anticipates entry into some other line of business
in 1995. When the Corporation enters another line of business, but no later
than 1996, insurance operations will be reported as discontinued operations in
accordance with APB 30.
Note 10--Sale of Common Stock
The Corporation entered into an agreement with Universal Management
Services, a Nevada corporation (UMS), as of October 27, 1994 ("UMS
Agreement"). (See Note 16 to the Corporation's Consolidated Financial
Statements contained in its 1994 Form 10-K Annual Report.) The Corporation and
UMS, on April 20, 1995, entered into an amended and restated agreement
effective as of March 24, 1995 ("Second Amended and Restated UMS Agreement")
which provides that UMS has the right to use its best efforts to assist the
Corporation in placing up to 12,500,000 additional shares of the Corporation's
Common Stock in non-U.S. markets, pursuant to Regulation S, or otherwise in
private placements. In connection with the Second Amended and Restated UMS
Agreement, on June 29, 1995, the Corporation issued 2,000,000 shares of its
Common Stock in exchange for 16% of the outstanding common shares of Phoenix
Medical Management, Inc. ("PMM"), an Arizona corporation and 100,000 of its
Common Stock for an option to acquire the remaining 84% of the common shares
of PMM for 10,400,000 additional shares of the Corporation's Common Stock.
This option was relinquished by the Corporation in July 1995.
Note 11--Settlement of Litigation
Dixie Life is a defendant in a suit filed on January 7, 1994, by David
William Becker, plaintiff in the Circuit Court of Montgomery County, Alabama.
(See Note 13 to the Corporation's Consolidated Financial Statements contained
in its 1994 Form 10-K Annual Report.)
On July 20, 1995, Dixie Life reached a settlement with the plaintiff
which provides, among other things:
1. For the purposes of settlement only, Dixie Life will not
object to certification of a class consisting of all owners
of Charter Contracts as of January 7, 1994.
2. For payment to the class of $550,000.
3. For issuance to each class member of additional paid up
insurance in the amount of 15% of the face amount of each
Charter Contract presently in force.
13
<PAGE>
4. An agreed adjudication of the method of computing and
allocating dividends in the future on Charter Contracts.
5. That, in the event that more than 5% of the potential
class members elect not to participate in the litigation as
members of the class, the settlement agreement is null, void
and of no further effect.
The settlement is subject to approval by the Circuit Court of Montgomery
County, Alabama.
14
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
General. In 1994 and early 1995, the Corporation devoted significant
effort to strengthening the Statutory Surplus of Dixie Life and reducing the
Corporation's dependence upon the operations of Dixie Life and the ability of
Dixie Life to transfer funds to the Corporation. The following steps were
taken in 1994 and early 1995:
The sale of Dixie Life's accident and health business increased Dixie
Life's Statutory Surplus to a level so that Dixie Life is not dependent upon
the reserve credit provided by the Crown Agreement to meet minimum levels of
Statutory Surplus required by any state in which it operates. The sale of that
business also allowed Dixie Life to accelerate the recapture of the Crown
reserve credit in 1994, further reducing the dependence on the Crown
Agreement.
The UMS Agreement generally provided a possible source of funds to
satisfy the Term Loan and Convertible Notes. The Alanco shares acquired under
the UMS Agreement in the November Transaction provided a means of further
securing the Convertible Notes upon the extension of their original May 1,
1995 due date.
The Standard Transaction provides for the satisfaction of the Term Loan
and the Convertible Notes. There are no assurances the transaction
contemplated by the Restated Stock Purchase Agreement will be consummated.
Liquidity Requirements. Most of the operating liquidity requirements of
the Company arise from the insurance operations of Dixie Life and generally
are met through funds generated by Dixie Life's operations. Premium income and
net investment income provide funds that are used to pay claims to
policyholders; make policy loans; pay costs of obtaining new business,
principally first year commissions; and pay operating expenses. Dixie Life's
operations generated positive (negative) cash flow of ($856,000) and $778,000
in the six months ended June 30, 1995 and 1994, respectively.
Dixie Life pays a monthly management fee of $154,000 to the Corporation.
Funds provided by the management fee are sufficient to pay operating and
interest expenses of the Corporation. Assuming the Standard Transaction
closes, the Corporation will no longer have this source of revenue, although
it will have eliminated its interest expense and its operating expenses will
have been significantly reduced.
The Corporation's most important liquidity need at this time is for debt
service. The Corporation owes Standard $3,689,000 under a Term Loan. The Term
Loan (originally due March 31, 1995) is now due at closing of the Standard
Transaction or 180 days after the cancellation of the Standard Transaction by
either party. Also, the Corporation's Convertible Notes, in the amount of
$1,720,000, (originally due May 1, 1995) are now due on the earliest of
closing of the Standard Transaction, 90 days after the Restated Stock Purchase
Agreement is
15
<PAGE>
terminated or December 27, 1995. Although the Standard Transaction provides a
means to satisfy the Term Loan and Convertible Notes at closing, there are no
assurances that the Standard Transaction will be consummated. All of the
shares of Dixie Life owned by the Corporation are pledged to secure payment of
the Term Loan and the Convertible Notes.
In June 1995, the Corporation borrowed $50,000 from a bank. The funds
have or will be used to acquire furniture and equipment for the Corporation's
executive offices in Hilton Head Island, South Carolina. This note is due in
monthly installments of $1,389 with the balance due June 8, 1998.
At June 30, 1995, Vanguard owed a bank $478,000 under a mortgage loan
secured by the home office building of Dixie Life which also secures the Term
Loan. Under a lease agreement, Dixie Life pays Vanguard rent sufficient to
cover the debt service under the mortgage.
The loan agreement covering the Term Loan contains three financial
covenants. A provision of the Restated Stock Purchase Agreement waives each of
those covenants until the due date of the Term Loan. The terms of the
Convertible Notes provide that an event of default under the Term Loan, if not
cured or waived, is an event of default under the Convertible Notes.
Going Concern Considerations. The lack of assurance that the Standard
Transaction will be completed raises significant doubt about the Company's
ability to continue as a going concern. Completion of the Standard Transaction
together with an extension or timely repayment of the Convertible Notes would
remove such uncertainties.
Management's plans in this regard include the following:
1. Endeavor to complete the Standard Transaction, thereby
satisfying the Term Loan and the Convertible Notes.
2. In the event the Standard Transaction is canceled by
either party, searching for another purchaser of Dixie Life
in the 180 days available to Corporation beyond such
cancellation before the Term Loan is due.
3. The sale of a portion of the marketable equity securities
owned by the Corporation is a possible source of repayment
of at least a portion of the Convertible Notes.
There are no assurances that any of these efforts will be
successful.
Investment Portfolio Liquidity. Dixie Life's investment strategy
emphasizes investments of the highest quality. Accordingly, Dixie Life's
policy has been to invest in securities which are considered investment grade
by various investor services and the NAIC. Occasionally, securities will fall
below investment grade over the life of the securities. At June 30, 1995,
Dixie Life's investment in securities not of investment grade was less than 1%
of total investments.
16
<PAGE>
In 1995, Dixie Life's Board of Directors approved an investment of up to
$1,200,000 in five year equipment leases on food preparation equipment at a
rate of prime plus 4% fixed at closing. Approximately $540,000 was funded in
the quarter ended March 31, 1995. No further leases will be funded. The
Restated Stock Purchase Agreement requires that any investment under this
program be transferred to the Corporation at book value at closing.
Statutory Surplus. Minimum required levels of Statutory Surplus vary by
state and range from $600,000 to $3,000,000 in states where Dixie Life is
licensed. If an insurance company's Statutory Surplus falls below the
statutory minimum, that company could be subjected to severe restrictions in
the states where such minimum levels are not maintained. Thus any insurance
company has a continuing need to maintain required minimum Statutory Surplus
levels.
The insurance departments of most of the states in which Dixie Life
operates, including its domicile state of Mississippi, have broad
discretionary powers to require higher levels of Statutory Surplus, or to
impose restrictions on operations, including fund transfers and new business
sales, when such restrictions are perceived by the departments as necessary or
desirable to maintain adequate amounts of Statutory Surplus.
At June 30, 1995, Dixie Life's Statutory Surplus was $4,558,000, well in
excess of the minimum requirement of any state. Prior to the 1994 sale of its
accident and health business, Dixie Life's Statutory Surplus was less than
$3,000,000. Further, in order to meet its Statutory Surplus requirements,
Dixie Life has, from time to time, depended upon forms of reinsurance
agreements that provide surplus relief through reserve credits that, for
statutory accounting purposes, increase Statutory Surplus in an amount equal
to the reserve credit taken. Dixie Life's principal reinsurance agreement
provided a reserve credit of $1,655,000 at June 30, 1995. The sales of its in
force accident and health insurance, generated significant statutory profits.
Results of Operations
Six Months Ended June 30, 1995 Compared To Six Months Ended June 30,
1995. In the six month period ended June 30, 1995, the Company incurred a net
loss of $5,095,000 ($.61 per share) compared to a net loss of $1,783,000 ($.28
per share) in the comparable period of 1994. The 1995 loss included an
estimated loss of $3,677,000 ($.44 per share) from the proposed sale of Dixie
Life discussed in Note 9 to the consolidated financial statements. The sale of
Dixie Life constitutes discontinuance of the life insurance business by the
Corporation. The loss on the sale is reported in a manner substantially the
same as discontinued operations. The Corporation continues to report insurance
operations in the same manner as prior to the measurement date of March 6,
1995, the date of a letter of intent preceding the Restated Stock Purchase
Agreement. Accounting Principles Board Opinion No. 30 (APB 30) calls for
reporting the operations of discontinued operations as a single net amount in
the statement of operations but, in management's opinion, reducing virtually
all of the Company's operations to a single amount in the statement of
operations would not be meaningful to readers of the Corporation's financial
statements. As discussed above, the Corporation anticipates entry into another
line of
17
<PAGE>
business. When the Corporation enters some other line of business, but no
later than 1996, insurance operations will be reported as discontinued
operations in accordance with APB 30.
Total revenues decreased $6,170,000 in the six month period ended June
30, 1995 compared to the same period in 1994. Premiums for the period
decreased $6,372,000 in 1995, primarily as a result of the sale of Dixie
Life's accident and health business.
Benefits and expenses decreased $6,534,000 in the six month period ended
June 30, 1995 compared to the same period in 1994, primarily as a result of
the sales of Dixie Life's accident and health business.
In the six months ended June 30, 1995, benefits and claims to
policyholders decreased amortization of deferred policy acquisition costs
decreased $682,000 and commissions decreased $1,281,000 compared to the same
period in 1994. Each of these decreases was driven by the sales of Dixie
Life's accident and health business.
In June 1995, Dixie Life settled pending litigation regarding certain
policies previously issued and recorded charge of $1,007,000 related to this
statement.
In 1994, the Corporation recognized a loss of $940,000 on the sale of
Dixie Life's accident and health business.
The Corporation recognized no income tax benefit on the loss before
income taxes and estimated loss on sale of subsidiary because it is more
likely than not that the resultant deferred tax assets would not be realized.
Three Months Ended June 30, 1995 Compared to Three Months Ended June 30,
1994. In the three month period ended June 30, 1995, the Company incurred a
net loss of $287,000 ($.03 per share) compared to a net loss of $1,278,000
($.20 per share) in the comparable period of 1994. The 1995 loss included a
credit of $958,000 ($.12 per share to reduce the estimated loss from the
proposed sale of Dixie Life discussed in Note 9 to the consolidated financial
statements. The sale of Dixie Life constitutes discontinuance of the life
insurance business by the Corporation. The loss on the sale is reported in a
manner substantially the same as discontinued operations. The Corporation
continues to report insurance operations in the same manner as prior to the
measurement date of March 6, 1995, the date of a letter of intent preceding
the Restated Stock Purchase Agreement. Accounting Principles Board Opinion No.
30 (APB 30) calls for reporting the operations of discontinued operations as a
single net amount in the statement of operations but, in management's opinion,
reducing virtually all of the Company's operations to a single amount in the
statement of operations would not be meaningful to readers of the
Corporation's financial statements. As discussed above, the Corporation
anticipates entry into another line of business. When the Corporation enters
some other line of business, but no later than 1996, insurance operations will
be reported as discontinued operations in accordance with APB 30.
18
<PAGE>
Total revenues decreased $3,003,000 in the three month period ended June
30, 1995 compared to the same period in 1994. Premiums for the period
decreased $3,100,000 in 1995, primarily as a result of the sale of Dixie
Life's accident and health business.
Benefits and expenses decreased $3,036,000 in the three month period
ended June 30, 1995 compared to the same period in 1994, primarily as a result
of the sales of Dixie Life's accident and health business.
In the three months ended June 30, 1995, benefits and claims to
policyholders decreased $2,178,000, amortization of deferred policy
acquisition costs decreased $257,000 and commissions decreased $676,000
compared to the same period in 1994. Each of these decreases was driven by the
sales of Dixie Life's accident and health business.
In June 1995, Dixie Life, subject to court approval, settled pending
litigation regarding certain policies previously issued and recorded a charge
of $1,007,000 related to this settlement.
In 1994, the Corporation recognized a loss of $940,000 on the sale of
Dixie Life's accident and health business.
The Corporation recognized no income tax benefit on the loss before
income taxes and estimated loss on sale of subsidiary because it is more
likely than not that the resultant deferred tax assets would not be realized.
19
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
As previously reported in its 1994 Form 10-K Annual Report, Dixie Life is
a defendant in a suit filed on January 7, 1994, by David William Becker,
plaintiff in the Circuit Court of Montgomery County, Alabama.
On July 20, 1995, Dixie Life reached a settlement with the plaintiff
which provides, among other things:
1. For the purposes of settlement only, Dixie Life will not
object to certification of a class consisting of all owners
of Charter Contracts as of January 7, 1994.
2. For payment to the class of $550,000.
3. For issuance to each class member of additional paid up
insurance in the amount of 15% of the face amount of each
Charter Contract presently in force.
4. An agreed adjudication of the method of computing and
allocating dividends in the future on Charter Contracts.
5. That, in the event that more than 5% of the potential
class members elect not to participate in the litigation as
members of the class, the settlement agreement is null, void
and of no further effect.
The settlement is subject to approval by the Circuit Court of Montgomery
County, Alabama.
Item 5. Other Information
Proposed Sale of Dixie National Life Insurance Company and Satisfaction
of Indebtedness
As more fully discussed in Note 9 to the consolidated financial
statements on August 8, 1995, the Corporation entered into the Restated Stock
Purchase Agreement with Standard to sell to Standard all of the capital stock
of Dixie Life which the Corporation owns. A copy of the Restated Stock
Purchase Agreement is filed as Exhibit 2(e) hereto.
20
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
2(e) Restated Stock Purchase Agreement Among Standard Life Insurance
Company of Indiana, Dixie National Life Insurance Company and Dixie
National Corporation dated August 8, 1995 effective as of April 18,
1995.
(b) Reports on Form 8-K
The Corporation filed the following Form 8-K Current Reports during the
second quarter of 1995:
Date of Item
Report Reported Subject
June 29, 1995 5. Other Second Amended and Restated
UMS Agreement amending and
restating an earlier agreement with
Universal Management Services, a
Nevada Corporation, ("UMS).
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 thereunto duly authorized.
Dixie National Corporation
--------------------------
(Registrant)
Date: August 14, 1995 /s/Robert B. Neal
-----------------
Robert B. Neal
President
Date: August 14, 1995 /s/Monroe M. Wright
-------------------
Monroe M. Wright
Senior Vice President & Treasurer
21
<PAGE>
RESTATED
STOCK PURCHASE AGREEMENT
RESTATED AS OF AUGUST 8, 1995
EFFECTIVE AS OF APRIL 18, 1995
Among
STANDARD LIFE INSURANCE COMPANY OF INDIANA,
DIXIE NATIONAL LIFE INSURANCE COMPANY
and
DIXIE NATIONAL CORPORATION
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.1 Terms Defined . . . . . . . . . . . . . . . . . . . . .1
1.2 Other Definitional Provisions . . . . . . . . . . . . .1
ARTICLE II
SALE OF SHARES AND CLOSING . . . . . . . . . . . . . . . . . . . . . . . .2
2.1 Purchase and Sale . . . . . . . . . . . . . . . . . . .2
2.2 Purchase Price. . . . . . . . . . . . . . . . . . . . .2
2.3 Adjustment. . . . . . . . . . . . . . . . . . . . . . .2
2.4 Actuary Report. . . . . . . . . . . . . . . . . . . . .3
2.5 Closing . . . . . . . . . . . . . . . . . . . . . . . .3
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER . . . . . . . . . . . . . . . . .3
3.1 Organization. . . . . . . . . . . . . . . . . . . . . .3
3.2 Authority.. . . . . . . . . . . . . . . . . . . . . . .4
3.3 Capital Stock . . . . . . . . . . . . . . . . . . . . .4
3.4 No Subsidiaries . . . . . . . . . . . . . . . . . . . .4
3.5 No Conflicts or Violations. . . . . . . . . . . . . . .5
3.6 Books and Records . . . . . . . . . . . . . . . . . . .5
3.7 SAP Statements. . . . . . . . . . . . . . . . . . . . .6
3.8 No Other Financial Statements . . . . . . . . . . . . .6
3.9 Reserves. . . . . . . . . . . . . . . . . . . . . . . .6
3.10 Absence of Changes. . . . . . . . . . . . . . . . . . .7
3.11 No Undisclosed Liabilities. . . . . . . . . . . . . . 10
3.12 Taxes . . . . . . . . . . . . . . . . . . . . . . . . 10
3.13 Litigation. . . . . . . . . . . . . . . . . . . . . . 13
3.14 Compliance With Laws. . . . . . . . . . . . . . . . . 14
3.15 Benefit Plans, ERISA. . . . . . . . . . . . . . . . . 15
3.16 Properties. . . . . . . . . . . . . . . . . . . . . . 17
3.17 Contracts . . . . . . . . . . . . . . . . . . . . . . 18
3.18 Insurance Issued by the Company . . . . . . . . . . . 20
3.19 Threats of Cancellation . . . . . . . . . . . . . . . 22
3.20 Licenses and Permits. . . . . . . . . . . . . . . . . 22
3.21 Operations Insurance. . . . . . . . . . . . . . . . . 22
3.22 Intercompany Accounts . . . . . . . . . . . . . . . . 22
3.23 Bank Accounts . . . . . . . . . . . . . . . . . . . . 23
i
<PAGE>
3.24 Brokers . . . . . . . . . . . . . . . . . . . . . . . 23
3.25 Disclosure. . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER. . . . . . . . . . . . . . . 23
4.1 Organization. . . . . . . . . . . . . . . . . . . . . 23
4.2 Authority . . . . . . . . . . . . . . . . . . . . . . 23
4.3 No Conflicts or Violations. . . . . . . . . . . . . . 24
4.4 Litigation. . . . . . . . . . . . . . . . . . . . . . 25
4.5 Purchase for Investment . . . . . . . . . . . . . . . 25
4.6 Brokers . . . . . . . . . . . . . . . . . . . . . . . 25
4.7 Disclosure. . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE V
COVENANTS OF SELLER AND COMPANY. . . . . . . . . . . . . . . . . . . . . 25
5.1 Regulatory Approvals. . . . . . . . . . . . . . . . . 25
5.2 Investigation by the Purchaser. . . . . . . . . . . . 26
5.3 No Negotiations, etc. . . . . . . . . . . . . . . . . 26
5.4 Conduct of Business . . . . . . . . . . . . . . . . . 27
5.5 Financial Statements and Reports. . . . . . . . . . . 28
5.6 Investments . . . . . . . . . . . . . . . . . . . . . 29
5.7 Employee Matters. . . . . . . . . . . . . . . . . . . 29
5.8 No Charter Amendments . . . . . . . . . . . . . . . . 30
5.9 No Issuance of Securities . . . . . . . . . . . . . . 30
5.10 No Dividends. . . . . . . . . . . . . . . . . . . . . 30
5.11 No Disposal of Property . . . . . . . . . . . . . . . 30
5.12 No Breach or Default. . . . . . . . . . . . . . . . . 31
5.13 No Indebtedness . . . . . . . . . . . . . . . . . . . 31
5.14 No Acquisitions . . . . . . . . . . . . . . . . . . . 31
5.15 Intercompany Liabilities. . . . . . . . . . . . . . . 31
5.16 Resignations of Officers and Directors. . . . . . . . 31
5.17 Tax Matters . . . . . . . . . . . . . . . . . . . . . 31
5.18 Dismissal of Pending Litigation . . . . . . . . . . . 31
5.19 Disclosure Schedule . . . . . . . . . . . . . . . . . 32
5.20 Shareholder Meeting . . . . . . . . . . . . . . . . . 32
5.21 Notice and Cure . . . . . . . . . . . . . . . . . . . 32
5.22 Triennial Report. . . . . . . . . . . . . . . . . . . 32
ARTICLE VI
COVENANTS OF PURCHASER . . . . . . . . . . . . . . . . . . . . . . . . . 32
6.1 Regulatory Approvals. . . . . . . . . . . . . . . . . 32
6.2 Home Office Lease . . . . . . . . . . . . . . . . . . 33
6.3 Assignment of Certain Agent Debit Balances. . . . . . 33
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6.4 Notice and Cure . . . . . . . . . . . . . . . . . . . 33
6.5 Hart-Scott Filing . . . . . . . . . . . . . . . . . . 33
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF PURCHASER . . . . . . . . . . . . . . . . . 34
7.1 Representations and Warranties. . . . . . . . . . . . 34
7.2 Performance . . . . . . . . . . . . . . . . . . . . . 34
7.3 Certificates of Officer of Seller . . . . . . . . . . 34
7.4 No Injunction . . . . . . . . . . . . . . . . . . . . 34
7.5 No Proceeding or Litigation . . . . . . . . . . . . . 34
7.6 Consents, Authorizations, etc.. . . . . . . . . . . . 35
7.7 No Adverse Change . . . . . . . . . . . . . . . . . . 35
7.8 Opinion of Counsel. . . . . . . . . . . . . . . . . . 35
7.9 Resignation of Officers and Directors . . . . . . . . 35
7.10 Shareholder Approval. . . . . . . . . . . . . . . . . 36
7.11 Hart-Scott. . . . . . . . . . . . . . . . . . . . . . 36
7.12 Management Agreement. . . . . . . . . . . . . . . . . 36
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF SELLER. . . . . . . . . . . . . . . . . . . 36
8.1 Representations and Warranties. . . . . . . . . . . . 36
8.2 Performance . . . . . . . . . . . . . . . . . . . . . 36
8.3 Officer's Certificates. . . . . . . . . . . . . . . . 36
8.4 No Injunction . . . . . . . . . . . . . . . . . . . . 37
8.5 No Proceeding or Litigation . . . . . . . . . . . . . 37
8.6 Consents, Authorizations, etc.. . . . . . . . . . . . 37
8.7 Opinion of Counsel. . . . . . . . . . . . . . . . . . 37
ARTICLE IX
SURVIVAL OF PROVISIONS; REMEDIES . . . . . . . . . . . . . . . . . . . . 37
9.1 Survival. . . . . . . . . . . . . . . . . . . . . . . 37
9.2 Available Remedies. . . . . . . . . . . . . . . . . . 38
ARTICLE X
INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.1 Tax Indemnification . . . . . . . . . . . . . . . . . 38
10.2 Other Indemnification . . . . . . . . . . . . . . . . 39
10.3 Method of Asserting Claims. . . . . . . . . . . . . . 40
10.4 After-Tax Damages . . . . . . . . . . . . . . . . . . 42
10.5 Assignment of Indemnification . . . . . . . . . . . . 43
iii
<PAGE>
ARTICLE XI
WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
11.1 Senior Debt of Seller . . . . . . . . . . . . . . . . 43
ARTICLE XII
TERMINATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
12.1 Termination . . . . . . . . . . . . . . . . . . . . . 44
12.2 Effect of Termination . . . . . . . . . . . . . . . . 44
ARTICLE XIII
MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
13.1 Default and Arbitration . . . . . . . . . . . . . . . 45
13.2 Notices . . . . . . . . . . . . . . . . . . . . . . . 45
13.3 Entire Agreement. . . . . . . . . . . . . . . . . . . 47
13.4 Expenses. . . . . . . . . . . . . . . . . . . . . . . 47
13.5 Public Announcements. . . . . . . . . . . . . . . . . 47
13.6 Confidentiality . . . . . . . . . . . . . . . . . . . 47
13.7 Further Assurances. . . . . . . . . . . . . . . . . . 48
13.8 Waiver. . . . . . . . . . . . . . . . . . . . . . . . 48
13.9 Amendment . . . . . . . . . . . . . . . . . . . . . . 48
13.10 Counterparts. . . . . . . . . . . . . . . . . . . . . 48
13.11 No Third Party Beneficiary. . . . . . . . . . . . . . 48
13.12 Governing Law . . . . . . . . . . . . . . . . . . . . 48
13.13 Binding Effect. . . . . . . . . . . . . . . . . . . . 49
13.14 Assignment. . . . . . . . . . . . . . . . . . . . . . 49
13.15 Headings, etc.. . . . . . . . . . . . . . . . . . . . 49
13.16 Invalid Provisions. . . . . . . . . . . . . . . . . . 49
iv
<PAGE>
RESTATED
STOCK PURCHASE AGREEMENT
THIS RESTATED STOCK PURCHASE AGREEMENT (" Restated Agreement") is made
and entered into as of August 8, 1995, but effective as of April 18, 1995, by
and among Dixie National Corporation, a Mississippi corporation (the
"Seller"); Dixie National Life Insurance Company, a Mississippi corporation
(the "Company"); and Standard Life Insurance Company of Indiana, an Indiana
corporation (the "Purchaser").
W I T N E S S E T H:
WHEREAS, Seller is the beneficial owner of 1,489,904 shares of the
1,500,000 shares of authorized, issued and outstanding capital common stock
("Common Stock"), $1.00 par value per share ("the Shares") of the Company; and
WHEREAS, Seller desires to sell, and Purchaser desires to purchase from
Seller, all of the Shares of the Company owned by Seller;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth in this Restated Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1 Terms Defined. The capitalized terms used in this Restated Agreement
and not defined herein shall have the meanings specified in Exhibit A.
1.2 Other Definitional Provisions. Unless the context otherwise requires,
(a) references in this Restated Agreement to the singular number shall include
the plural, and the plural number shall include the singular; (b) words
denoting gender shall include the masculine, feminine and neuter; (c) the
words "hereof," "herein" and "hereunder" and words of similar import refer to
this Restated Agreement as a whole and not to any particular provision of this
Restated Agreement, (d) unless otherwise specified, all Article and Section
references pertain to this Restated Agreement; (e) the term "or" means
"and/or"; and (f) the phrase "ordinary course of business and consistent with
past practice" refers to the business and practice of the Seller or the
Company, as the case may be.
<PAGE>
ARTICLE II
SALE OF SHARES AND CLOSING
2.1 Purchase and Sale. The Seller agrees to sell to the Purchaser and the
Purchaser agrees to purchase from the Seller the Shares at the Closing upon
the terms and subject to the conditions set forth in this Restated Agreement.
2.2 Purchase Price. Subject to adjustment pursuant to Section 2.3 hereof,
the purchase price (the "Purchase Price") for the Shares payable at the
Closing shall be equal to Seven Million Six Hundred Eighty-Six Thousand Eight
Hundred Twenty-Five Dollars ($7,686,825), of which Two Million One Hundred
Three Thousand Seventy-Nine Dollars ($2,103,079) is payable by wire transfer
in immediately available funds to such bank and account as the Seller may
specify by written notice received by the Purchaser at least three (3)
Business Days prior to the Closing Date.
The balance of the Purchase Price is payable at Closing as follows:
(a) Forgiveness and cancellation of Senior Debt of the Seller due
Buyer in the sum of Three Million Six Hundred Eighty-Eight Thousand Seven
Hundred Forty-Six and no/100 Dollars ($3,688,746);
(b) Payment of Dixie Convertible Subordinated Notes (the "Notes") in
the sum of One Million Seven Hundred Twenty Thousand and no/100 Dollars
($1,720,000); and
(c) After Closing, the first One Hundred Seventy Five Thousand and
no/100 Dollars ($175,000) recovered by the Company in respect to agent
debit balances.
2.3 Adjustment. (a) By 9:00 a.m. Central Daylight Time on August 21,
1995, the chief financial officer of the Purchaser shall deliver to the Seller
a certificate setting forth the Purchaser's determination of the Adjusted
Capital and Surplus of the Company as of June 30, 1995, based upon actual SAP
reserves and liabilities for insurance policies in force in the Company on the
June 30, 1995, together with true and complete copies of all Work Papers
related thereto (collectively, the "Proposed Final Closing Adjusted Capital
and Surplus"). Seller shall notify Purchaser on or before 5:00 p.m. Central
Daylight Time on August 21, 1995 if it agrees or disagrees with Purchaser's
determination of the Proposed Final Closing Adjusted Capital and Surplus. If
the Seller notifies the Purchaser on or before 5:00 p.m. Central Daylight Time
on August 21, 1995 that the Seller does not agree with such determination of
the Proposed Final Closing Adjusted Capital and Surplus, the Purchaser and the
Seller shall in good faith until 3:00 p.m. Central Daylight Time on August 23,
1995, attempt to negotiate a determination of the Closing Adjusted Capital and
Surplus. If the Seller and the Purchaser fail to reach agreement on a
determination of the Closing Adjusted Capital and Surplus by 3:00 p.m. Central
Daylight Time on August 23, 1995, the Closing Adjusted Capital and Surplus
shall be determined by KPMG Peat Marwick (the "Accounting Firm"). The
Accounting Firm shall arrive at its determination of the Closing Adjusted
Capital and Surplus by
2
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September 13, 1995 after its notification by the Seller. If the Accounting
Firm's determination of the Closing Adjusted Capital and Surplus is greater
than the amount of the Proposed Final Closing Adjusted Capital and Surplus
determined by the chief financial officer of the Purchaser, the fees and
expenses of the Accounting Firm shall be paid by the Purchaser; if the
Accounting Firm's determination of the Closing Adjusted Capital and Surplus is
equal to or less than the amount of the Final Closing Adjusted Capital and
Surplus determined by the chief financial officer of the Purchaser, the fees
and expenses of the Accounting Firm shall be paid by the Seller.
(b) The Adjusted Capital and Surplus of the Company at June 30, 1995
shall be determined in accordance with the Formula set forth on Exhibit B
hereto.
(c) The amount of the Final Closing Adjusted Capital and Surplus as
determined shall be reflected in the final Purchase Price.
2.4 Actuary Report. Company shall, contemporaneously with the execution
of this Restated Agreement, furnish to Purchaser an opinion of its consulting
actuary, MacKeen & Hull, as to the SAP reserves and liabilities for insurance
policies in force in the Company on June 30, 1995.
2.5 Closing. The Closing of the transactions contemplated by this
Restated Agreement will take place at the offices of Brunini, Grantham, Grower
& Hewes, P.L.L.C., 248 East Capital Street, Suite 1400, Jackson, Mississippi,
39201, or at such other place as the Purchaser shall specify, at 10:00 a.m.,
local time, on October 2, 1995, if no Purchase Price determination is made by
KPMG Peat Marwick or, on October 16, 1995 if such Purchase Price determination
is to be made by KPMG Peat Marwick. At the Closing, the Seller will deliver to
the Purchaser such documents and instruments as the Purchaser may reasonably
request for the purpose of effectuating the purchase and sale of the Shares
and the transactions contemplated hereby, including, without limitation, a
certificate or certificates representing the Shares issued in the name of the
Purchaser, or accompanied by executed stock powers transferring the Shares to
the Purchaser. In addition, at closing, Seller will purchase from the Company
at book value the Company's entire investment in Fry-Guy, Inc. equipment and
leases and Cambria loans, and Seller will deliver to Purchaser releases,
waivers, terminations and similar documents reasonably requested by Purchaser
to release the Company from any liability or obligation with respect to
existing Fry-Guy, Inc. equipment and leases and from any obligation to
undertake future Fry-Guy, Inc. and Cambria Financings.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
The Seller hereby represents and warrants to the Purchaser as follows:
3.1 Organization. Except as disclosed in Section 3.1 of the Disclosure
Schedule, Seller is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Mississippi and has full
corporate power and authority to enter into this Restated Agreement
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and to perform its obligations under this Restated Agreement. Except as
disclosed in Section 3.1 of the Disclosure Schedule, the Company is an
insurance company duly organized, validly existing, and in good standing under
the Laws of the State of Mississippi and is duly licensed, qualified, or
admitted to do business and is in good standing in all jurisdictions in which
the failure to be so licensed, qualified, or admitted and in good standing,
individually or in the aggregate with other such failures, has or may
reasonably be expected to have a material adverse effect on the validity or
enforceability of this Restated Agreement, on the ability of the Company to
perform its obligations under this Restated Agreement, or on the Business or
Condition of the Company. Section 3.1 of the Disclosure Schedule contains a
true and complete list of the states in which the Company is licensed to write
life and health insurance. The Seller has furnished to the Purchaser true and
complete copies of the articles of incorporation (as certified by the
appropriate governmental or regulatory authorities) and the Bylaws of the
Company, including all amendments thereto.
3.2 Authority. The Boards of Directors of the Seller and the Company,
respectively, have duly and validly approved this Restated Agreement and the
transactions contemplated hereby. The shareholders of the Seller must approve
the sale by Seller of the shares of the Company. Subject to and upon the prior
approval by the shareholders of the Seller, this Restated Agreement
constitutes a legal, valid, and binding obligation of the Seller and the
Company and is enforceable against the Seller and the Company in accordance
with its terms, except to the extent that (a) enforcement may be limited by or
subject to any bankruptcy, insolvency, reorganization, moratorium, or similar
Laws now or hereafter in effect relating to or limiting creditors' rights
generally and (b) the remedy of specific performance and injunctive and other
forms of equitable relief are subject to certain equitable defenses and to the
discretion of the court or other similar Person before which any proceeding
therefor may be brought.
3.3 Capital Stock. The authorized common capital stock of the Company
consists of 5,000,000 shares of common stock, $1.00 par value per share, of
which 1,500,000 shares are validly issued and outstanding, fully paid and
nonassessable, and 1,489,904 of which are owned beneficially and of record by
the Seller, free and clear of all Liens, except for Liens disclosed in Section
3.3 of the Disclosure Schedule. Except as disclosed in Section 3.3 of the
Disclosure Schedule, there are no outstanding securities, obligations, rights,
subscriptions, warrants, options, charter or founders insurance policies,
phantom stock rights, or (except for this Restated Agreement) other Contracts
of any kind that give any Person the right to (a) purchase or otherwise
receive or be issued any shares of capital stock of the Company (or any
interest therein) or any security or Liability of any kind convertible into or
exchangeable for any shares of capital stock of the Company (or any interest
therein) or (b) receive any benefits or rights similar to any rights enjoyed
by or accruing to a holder of the Common Stock, or any rights to participate
in the equity, income, or election of directors or officers of the Company.
3.4 No Subsidiaries. The Company does not control (whether directly or
indirectly, whether through the ownership of securities or by Contract or
proxy, and whether alone or in combination with others) any corporation,
partnership, business organization, or other similar Person.
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3.5 No Conflicts or Violations. The execution and delivery of this
Restated Agreement by the Seller and the Company does not, and the performance
by the Seller and the Company of their respective obligations under this
Restated Agreement will not:
(a) subject to obtaining the approvals contemplated by Sections 5.1
and 6.1 hereof, violate any term or provisions of any Law or any writ,
judgment, decree, injunction, or similar order applicable to the Seller
or the Company;
(b) conflict with or result in a violation or breach of, or
constitute (with or without notice or lapse of time or both) a default
under, any of the terms, conditions, or provisions of the articles or
certificate of incorporation or Bylaws of the Seller or the Company;
(c) result in the creation or imposition of any Lien upon the
Seller, the Company or any of their respective Assets and Properties that
individually or in the aggregate with any other Liens has or may
reasonably be expected to have a material adverse effect on the validity
or enforceability of this Restated Agreement, on the ability of the
Seller or the Company to perform their respective obligations under this
Restated Agreement, or on the Business or Condition of the Seller or the
Company;
(d) conflict with or result in a violation or breach of, or
constitute (with or without notice or lapse of time or both) a default
under, or give to any Person any right of termination, cancellation,
acceleration, or modification in or with respect to, any Contract to
which the Seller or the Company is a party or by which any of their
respective Assets or Properties may be bound and as to which any such
conflicts, violations, breaches, defaults, or rights individually or in
the aggregate have or may reasonably be expected to have a material
adverse effect on the validity or enforceability of this Restated
Agreement, on the ability of the Seller or the Company to perform its
respective obligations under this Restated Agreement, or on the Business
or Condition of the Seller or the Company; or
(e) require the Seller or the Company to obtain any consent,
approval, or action of, or make any filing with or give any notice to,
any Person except: (i) as contemplated in Section 5.1 hereof; (ii) as
disclosed in Section 3.5(e) of the Disclosure Schedule; or (iii) those
which the failure to obtain, make, or give individually or in the
aggregate with any other such failures has or may reasonably be expected
to have no material adverse effect on the validity or enforceability of
this Restated Agreement, on the ability of the Seller or Company to
perform its respective obligations under this Restated Agreement, or on
the Business or Condition of the Seller or the Company.
3.6 Books and Records. Except as disclosed in Section 3.6 of the
Disclosure Schedule, the minute books and other similar records of the Company
contain a true and complete record, in all material respects, of all actions
taken at all meetings and by all written consents in lieu of meetings of the
stockholders, Board of Directors, and each committee thereof of the Company.
The Books and Records of the Company accurately reflect in all material
respects the Business or
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Condition of the Company, and have been maintained in all material respects in
accordance with good business and bookkeeping practices.
3.7 SAP Statements. The Seller has previously delivered to the Purchaser
true and complete copies of the following SAP Statements:
(a) Annual Statements and audited SAP basis financial statements of
the Company for each of the years ended December 31, 1992, 1993, and 1994
(and the notes relating thereto, whether or not included therein).
Except as disclosed in Section 3.7 of the Disclosure Schedule, each
such SAP Statement complied in all material respects with all applicable
Laws when so filed, and all material deficiencies known to Seller or
Company with respect to any such SAP Statement have been cured or
corrected. Except for the year 1992, which has subsequently been
corrected, each such SAP Statement (and the notes relating thereto,
whether or not included therein), including, without limitation, each
balance sheet and each of the statements of operations, capital and
surplus account, and cash flow contained in the respective SAP Statement,
was prepared in accordance with SAP, is true and complete in all material
respects, and fairly presents the financial condition, the Assets and
Properties, and the Liabilities of the Company as of the respective dates
thereof and the results of operations and changes in capital and surplus
and in cash flow of the Company for and during the respective periods
covered thereby.
3.8 No Other Financial Statements. Except as disclosed in Section 3.8 of
the Disclosure Schedule and except for the financial statements described in
Section 3.7 (collectively, the "Financial Statements"), since June 30, 1995 no
other financial statements have been prepared by or with respect to the
Company (whether on a GAAP, SAP, or other basis).
3.9 Reserves. All reserves and other similar amounts with respect to
insurance and annuities as established or reflected in the SAP Statements of
the Company dated as of June 30, 1995 (including, without limitation, the
reserves and amounts reflected respectively on lines 1 through 11.3 of page 3
of the June 30, 1995 Quarterly Statement), subject to adjustments contained in
the draft of the Report of Triennial Examination as of December 31, 1994
promulgated by the Mississippi Department of Insurance, were determined in
accordance with generally accepted actuarial principles that are in accordance
with those called for by the provisions of the related insurance and annuity
Contracts and in the related reinsurance, coinsurance, and other similar
Contracts of Company, and meet the requirements of the insurance Laws of the
State of Mississippi and states in which such insurance and annuity Contracts
were issued or delivered. All such reserves and other similar amounts will be
adequate (under generally accepted actuarial principles consistently applied)
to cover the total amount of all reasonably anticipated matured and unmatured
benefits, dividends, claims, and other Liabilities of the Company under all
insurance and annuity Contracts under which the Company has or will have any
Liability (including, without limitation, any Liability arising under or as a
result of any reinsurance, coinsurance, or other similar Contract) on the
respective dates of such SAP
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Statements. The Company owns assets that qualify as legal reserve assets under
applicable insurance Laws in an amount at least equal to all such required
reserves and other similar amounts.
3.10 Absence of Changes. Except as disclosed in Section 3.10 of the
Disclosure Schedule or as specifically reflected in the June 30, 1995 SAP
Statement, or except for changes or developments relating to the conduct of
the business of the Company after the date of this Restated Agreement in
conformity with this Restated Agreement or the requests of the Purchaser,
since June 30, 1995, and except as reflected in the draft of the Report of
Triennial Examination as of December 31, 1994 promulgated by the Mississippi
Department of Insurance there has not been, occurred, or arisen any change in,
or any event (including without limitation any damage, destruction, or loss
whether or not covered by insurance), condition, or state of facts of any
character that individually or in the aggregate has or may reasonably be
expected to have a material adverse effect on the Business or Condition of the
Company. Except as disclosed in Section 3.10 of the Disclosure Schedule (with
paragraph references corresponding to those set forth below), or except as
specifically reflected in the June 30, 1995 SAP Statement, or except for
changes or developments relating to the conduct of the business of the Company
after the date of this Restated Agreement in conformity with this Restated
Agreement or the requests of the Purchaser, since December 1, 1994, the
Company has operated only in the ordinary course of business and consistent
with past practice, and (without limiting the generality of the foregoing)
there has not been, occurred, or arisen:
(a) any declaration, setting aside, or payment of any dividend or
other distribution in respect of the capital stock of the Company or any
direct or indirect redemption, purchase, or other acquisition by the
Company of any such stock or of any interest in or right to acquire any
such stock;
(b) any employment, deferred compensation, or other salary, wage, or
compensation Contract entered into between the Company and any of its
officers, directors, employees, agents, consultants, or similar
representatives, except for normal and customary Contracts with agents
and consultants in the ordinary course of business and consistent with
past practices; or any increase in the salary, wages, or other
compensation of any kind, whether current or deferred, of any officer,
director, employee, agent, consultant, or other similar representative of
the Company other than routine increases that were made in the ordinary
course of business and consistent with past practices and that did not
result in an increase of more than five percent (5%) of the respective
salary, wages, or compensation of any such Person; or any creation of any
Benefit Plan or any contribution to or amendment or modification of any
Benefit Plan;
(c) any issuance, sale, or disposition by the Company of any
debenture, note, stock, or other security issued by the Company, or any
modification or amendment of any right of the holder of any outstanding
debenture, note, stock, or other security issued by the Company;
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(d) any Lien created on or in any of the Assets and Properties of
the Company, or assumed by the Company with respect to any of such Assets
and Properties, which Lien relates to Liabilities individually or in the
aggregate exceeding $25,000 for the Company or which Lien individually or
in the aggregate with any other Liens has or may reasonably be expected
to have a material adverse effect on the Business or Condition of the
Company;
(e) any prepayment of any Liabilities individually or in the
aggregate exceeding $10,000;
(f) any Liability involving the borrowing of money by the Company;
(g) Except for entering into the Settlement Agreement described in
Section 3.13, hereof any Liability incurred by the Company in any
transaction (other than pursuant to any insurance or annuity Contract
entered into in the ordinary course of business and consistent with past
practice) not involving the borrowing of money, except such Liabilities
incurred by the Company, the result of which individually or in the
aggregate cannot reasonably be expected to have a material adverse effect
on the Business or Condition of the Company;
(h) any damage, destruction, or loss (whether or not covered by
insurance) affecting any of the Assets and Properties of the Company,
which damage, destruction, or loss individually exceeds $25,000 or the
result of which individually or in the aggregate has or may reasonably be
expected to have a material adverse effect on the Business or Condition
of the Company;
(i) any work stoppage, strike, slowdown, other labor difficulty, or
(to the best knowledge of the Seller or the Company) union organizational
campaign (in process or threatened) at or affecting the Company;
(j) any material change in any underwriting, actuarial, investment,
financial reporting, or accounting practices or policies followed by the
Company, or in any assumption underlying such a practices or policies, or
in any method of calculating any bad debt, contingency, or other reserve
for financial reporting purposes or for any other accounting purposes;
(k) any payment, discharge, or satisfaction by the Company of any
Lien or Liability other than Liens or Liabilities that were paid,
discharged, or satisfied since December 31, 1994 in the ordinary course
of business and consistent with past practice, or were paid, discharged,
or satisfied as required under this Restated Agreement;
(l) any cancellation of any Liability owed to the Company by any
other Person;
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(m) any write-off or write-down of, or any determination to write
off or down any of, the Assets and Properties of the Company or any
portion thereof, except for write-offs or write-downs that do not exceed
$10,000 individually or in the aggregate for the Company;
(n) any sale, transfer, or conveyance of any investments, or any
other Assets and Properties, of the Company with an individual book value
or with an aggregate book value in excess of $10,000, except as
contemplated in Section 5.6, and except in the ordinary course of
business and consistent with past practices;
(o) any amendment, termination, waiver, disposal, or lapse of, or
other failure to preserve, any license, permit, or other form of
authorization of the Company, the result of which individually or in the
aggregate has or may reasonably be expected to have a material adverse
effect on the Business or Condition of the Company;
(p) any transaction or arrangement under which the Company paid,
lent, or advanced any amount to or in respect of, or sold, transferred,
or leased any of its Assets and Properties or any service to, any officer
or director of the Seller or the Company (except for payments of salaries
and wages in the ordinary course of business and consistent with past
practice, and except for payments made pursuant to any Contract disclosed
in Section 3.10(b) or Section 3.17(a) of the Disclosure Schedule), or of
any Affiliate of the Seller, the Company, or of any such officer of
director; (ii) any business or other Person in which the Seller or the
Company, any such officer or director, or any such Affiliate has any
material interest, except for advances made to, or reimbursements of,
officers or directors of the Seller or the Company for travel and other
business expenses in reasonable amounts in the ordinary course of
business and consistent with past practice; or any Affiliate of the
Company pursuant to any Contract of the type described in Section
3.17(g);
(q) any material amendment of, or any failure to perform all of its
obligations under, or any default under, or any waiver of any right
under, or any termination (other than on the stated expiration date) of,
any Contract that involves or reasonably would involve the annual
expenditure or receipt by the Company of more than $25,000 or that
individually or in the aggregate is material to the Business or Condition
of the Company;
(r) Except as reflected in the draft of the Triennial Report as of
December 31, 1994 promulgated by the Mississippi Department of Insurance,
any decrease in the amount of, or any material change in the nature of,
the insurance or annuities in force of the Company or any material change
in the amount or nature of the reserves, liabilities or other similar
amounts of the Company with respect to insurance and annuity Contracts
(including, without limitation, reserves and other similar amounts of a
type required to be reflected respectively on lines 1 through 11.3 on
page 3 of an Annual Statement of the Company);
(s) any amendment to the articles or certificate of incorporation or
Bylaws of the Company;
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(t) any termination, amendment, or execution by the Company of any
reinsurance, coinsurance, or other similar Contract, as ceding or
assuming insurer;
(u) any expenditure or commitment for additions to property, plant,
equipment or other tangible or intangible capital assets of the Company,
except for any expenditure or commitment that does not exceed $10,000
individually or the result of which individually or in the aggregate does
not have and may not reasonably be expected to have a material adverse
effect on the Business or Condition of the Company;
(v) any amendment or introduction by the Company of any insurance or
annuity Contract other than in the ordinary course of business and
consistent with past practice; or
(w) any Contract to take any of the actions described in this
Section other than actions expressly permitted under this Section.
3.11 No Undisclosed Liabilities. Except to the extent specifically
reflected in the balance sheet included in the June 30, 1995 SAP Statement (or
in the notes relating thereto), or except as disclosed in Section 3.11 of the
Disclosure Schedule, there were no Liabilities (other than policyholder
benefits payable in the ordinary course of business and consistent with past
practices) against, relating to, or affecting the Company as of June 30, 1995
that individually or in the aggregate have or may reasonably be expected to
have a material adverse effect on the Business or Condition of the Company.
Except to the extent specifically reflected in the balance sheet included in
the June 30, 1995 SAP Statement (or in the notes relating thereto), or except
as disclosed in Section 3.11 of the Disclosure Schedule, since June 30, 1995,
and except for obligations recited in the Settlement Agreement described in
paragraph 3.13, the Company has not incurred any Liabilities (other than
policyholder benefits payable in the ordinary course of business and
consistent with past practice) that individually or in the aggregate have or
may reasonably be expected to have a material adverse effect on the Business
or Condition of the Company.
3.12 Taxes. Except as disclosed in Section 3.12 of the Disclosure
Schedule (with paragraph references corresponding to those set forth below):
(a) All Tax Returns required to be filed with respect to the Company
have been duly and timely filed, and all such Tax Returns are true and
complete in all material respects. The Company has duly and timely paid
all Taxes that are due, or claimed or asserted by any taxing authority to
be due, from the Company for the periods covered by such Tax Returns or
has duly provided for all such Taxes in the Books and Records of the
Company and in accordance with GAAP and SAP, including, without
limitation, in the Financial Statements. There are no Liens with respect
to Taxes (except for Liens with respect to real and personal property
Taxes not yet due) upon any of the Assets and Properties of the Company.
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(b) With respect to any period for which Tax Returns have not yet
been filed, or for which Taxes are not yet due or owing, the Seller and
the Company have made due and sufficient current accruals for such Taxes
in their respective Books and Records and in accordance with SAP and
GAAP, and such current accruals through the Closing Date are duly and
fully provided for in the SAP and GAAP Financial Statements of the Seller
and the Company for the period then ended.
(c) The United States federal income Tax Returns of the Seller and
the Company and of each affiliated group (within the meaning of the Code)
of which the Seller and the Company are or have been members have not
been audited or examined by the IRS, and the statute of limitations for
all periods through the year 1988 has expired. The state, local, and
foreign income Tax Returns of the Seller and the Company and of each
affiliated or consolidated group of which the Seller and the Company are
or have been members have not been audited or examined, and all statutes
of limitation for all applicable state, local, and foreign taxable
periods through the respective years specified in Section 3.12(c) of the
Disclosure Statement have expired. There are no outstanding agreements,
waivers, or arrangements extending the statutory period of limitation
applicable to any claim for, or the period for the collection or
assessment of, Taxes due from the Seller or the Company for any taxable
period. The Seller has previously delivered to the Purchaser true and
complete copies of each of the United States federal, state, local, and
foreign income Tax Returns, for each of the last three taxable years,
filed by the Seller and the Company (insofar as such returns relate to
either the Seller or the Company) filed by any affiliated or consolidated
group of which the Seller or the Company was then a member.
(d) No audit or other proceeding by any court, governmental or
regulatory authority, or similar Person is pending or (to the knowledge
of the Seller) threatened with respect to any Taxes due from the Seller
or the Company or any Tax Return filed by or relating to the Seller or
the Company. To the best knowledge of the Seller, no assessment of Tax is
proposed against the Seller or the Company or any of their Assets and
Properties.
(e) No election under any of Sections 108, 168, 338, 441, 463, 472,
1017, 1033, or 4977 of the Code (or any predecessor provisions) has been
made or filed by or with respect to the Seller or the Company or any of
their Assets and Properties. No consent to the application of Section
341(f)(2) of the Code (or any predecessor provision) has been made or
filed by or with respect to the Seller or the Company or any of their
Assets and Properties. None of the Assets and Properties of the Seller or
the Company is an asset or property that the Purchaser or any of its
Affiliates is or will be required to treat as being owned by any other
Person pursuant to the provisions of Section 168(f)(8) of the Internal
Revenue Code of 1954, as amended and in effect immediately before the
enactment of the Tax Reform Act of 1986, or tax-exempt use property
within the meaning of Section 168(h)(1) of the Code. No closing agreement
pursuant to Section 7121 of the Code (or any predecessor provision) or
any similar provision of any state, local, or foreign Law has been
entered into by or with respect to the Seller or the Company or any of
their Assets and Properties.
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(f) Neither the Seller nor the Company has agreed to or is required
to make any adjustment pursuant to Section 481(a) of the Code (or any
predecessor provision) by reason of any change in any accounting method
of the Seller or the Company, and neither the Seller nor the Company has
any application pending with any taxing authority requesting permission
for any changes in any accounting method of the Seller or the Company. To
the best knowledge of the Seller the IRS has not proposed any such
adjustment or change in accounting method.
(g) Neither the Seller nor the Company has been or is in violation
(or with notice or lapse of time or both, would be in violation) of any
applicable Law relating to the payment or withholding of Taxes. The
Seller and the Company have duly and timely withheld from employee
salaries, wages, and other compensation and paid over to the appropriate
taxing authorities all amounts required to be so withheld and paid over
for all periods under all applicable Laws.
(h) Neither the Seller nor the Company is a party to, is bound by,
or has any obligation under, any Tax sharing Contract or similar
Contract; notwithstanding any disclosure contained in the Disclosure
Schedule, the Seller represents and warrants that, at the Closing,
neither the Seller nor the Company shall be a party to, be bound by or
have any obligation under, any Tax sharing Contract or similar Contract
or arrangement. The Company is not a foreign person within the meaning of
Section 1445(f)(3) of the Code.
(i) Neither the Seller nor the Company has made any direct,
indirect, or deemed distributions that have been or could be taxed under
Section 815 of the Code.
(j) All ceding commission expenses paid or accrued by the Company in
connection with any reinsurance arrangement or Contract or transaction
have been capitalized and amortized over the life or lives of such
reinsurance arrangement or Contract in accordance with the decision of
the United States Supreme Court in Colonial American Life Insurance
Company v. Commissioner of Internal Revenue, 109 S.Ct. 240 (1980).
(k) No material Liabilities have been proposed in connection with
any audit or other proceeding by any court, governmental or regulatory
authority, or similar Person with respect to any Taxes due from the
Seller or the Company or any Tax Return filed by or relating to the
Seller or the Company.
(l) Neither the Seller nor the Company is a party to any agreement,
contract, plan or arrangement that has resulted, or would result,
separately or in the aggregate, in the payment of any "excess parachute
payments" within the meaning of Section 280G of the Code.
3.13 Litigation. Except as disclosed in Section 3.13 of the Disclosure
Schedule (with paragraph references corresponding to those set forth below):
(a) There are no actions, suits, investigations, or proceedings
pending, or (to the best knowledge of the Seller) threatened, against the
Seller or the Company or any of their Assets and Properties, at law or in
equity, in, before, or by any Person that individually or in the
aggregate have or may reasonably be expected to have a material adverse
effect on the validity or enforceability of this Restated Agreement, on
the ability of the Seller or the Company to perform its respective
obligations under this Restated Agreement, or on the Business or
Condition of the Seller or the Company.
(b) There are no actions, suits, investigations, or proceedings
pending, or (to the best knowledge of the Seller) threatened, against the
Seller or the Company or any of their respective Assets and Properties,
at law or in equity, in, before, or by any Person that individually
involve a claim or claims for any injunction or similar relief or for
Damages exceeding $25,000 or an unspecified amount of Damages.
(c) There are no writs, judgments, decrees, or similar orders of any
Person outstanding against the Seller or the Company that individually
exceed $10,000 or that individually or in the aggregate have or may
reasonably be expected to have a material adverse effect on the Business
or Condition of the Seller or the Company, and there are no injunctions
or similar orders of any Person outstanding against the Seller or the
Company.
(d) With the knowledge and concurrence of Purchaser, Seller has
settled subject only to approval of such settlement by the Circuit Court
of Montgomery County, Alabama and to no more than the permitted number of
the involved policyholders electing to "opt out", the case styled Becker
v. Dixie National Life Insurance Company . The terms of such settlement
are acceptable to Purchaser and are set forth in Restated Section 3.13 of
the Disclosure Schedule.
The terms of the settlement call for the payment by the Company of the
sum of $550,000 in cash to Plaintiffs and the issuance of additional
coverage to the affected policyholders equal to 15% of their present
Charter Contracts and the payment of certain costs by the Company which
are not now determinable. Except as hereafter stated, the Purchase Price
set forth in Section 2.2 hereof, gives effect to the adjustments
resulting from the settlement of Becker v. Dixie National Life Insurance
Company as provided in original Stock Purchase Agreement among the
parties hereto executed on April 18, 1995.
For purposes of this Section 3.13(d), Costs of Settlement shall include
all fees and expenses and all costs incurred to effect the negotiation
and settlement of this litigation, including, but not limited to,
attorneys fees and expenses and the statutory liabilities required at the
time of any replacement or additional policies are issued to
policyholders as part of the settlement.
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The Purchase Price set forth in Section 2.2 hereof reflects the cash
payment to be made by the Company in the Settlement in the amount of
$550,000 and the reserves required to be established in relation to the
agreed increased coverage in the amount of $391,800, plus $59,200
estimated Costs of Settlement, for a total of $1,000,000. Any Costs of
Settlement over $1,000,000 shall be absorbed by Purchaser. Should the
estimated additional Costs of Settlement be less than $59,200, Purchaser
shall pay to Seller at or after Closing 50% of such adjusted Costs of
Settlement.
3.14 Compliance With Laws. To the best knowledge of the Seller and
Company and except as disclosed in Section 3.14 of the Disclosure Schedule,
the Company has not been or is not in violation (or with or without notice or
lapse of time or both, would be in violation) of any term or provision of any
Law or any writ, judgment, decree, injunction, or similar order applicable to
the Company or any of its Assets and Properties, the result of which violation
individually or violations in the aggregate has or may reasonably be expected
to have a material adverse effect on the Business or Condition of the Company.
Without limiting the generality of the foregoing:
(a) Since January 1, 1995, the Company has duly and validly filed or
caused to be so filed all reports, statements, documents, registrations,
filings, or submissions that were required by Law to be filed with any
Person and as to which the failure to so file, individually in the
aggregate with other such failures, has or may reasonably be expected to
have a material adverse effect on the Business or Condition of the
Company; all such filings complied with applicable Laws in all material
respects when filed and, no material deficiencies have been asserted by
any Person with respect to any such filings.
(b) The Seller has previously delivered to the Purchaser the reports
reflecting the results of the most recent financial examination of the
Company issued by the State of Mississippi and Seller has been generally
advised by the Mississippi Department of Insurance of the material
elements of the draft report of the Triennial Examination as of December
31, 1994. Except as disclosed in Section 3.14(b) of the Disclosure
Schedule, all material deficiencies or violations in such previously
issued reports have been resolved to the satisfaction of the State of
Mississippi.
(c) Except as disclosed in Section 3.14(c) of the Disclosure
Schedule, all outstanding insurance and annuity Contracts issued,
reinsured, or underwritten by the Company are, to the extent required
under applicable Laws, 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 provided for
objection.
(d) (1) Section 3.14(d) of the Disclosure Schedule contains a true
and complete list of each master or prototype (as well as any
individually designed) pension, profit sharing, defined benefit, Code
Section 401(k), and other retirement or employee benefit plan or Contract
(including, but not limited to, simplified employee pension plans, Code
Section 403(a), (b) and (c) annuities, Keogh plans, and individual
retirement accounts and
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annuities) offered or sold by the Company to, or maintained or sponsored
for the benefit of any employees of, any other Person, and each
determination letter relating to the creation or amendment of any such
plan or Contract. Except as disclosed in Section 3.14(d) of the
Disclosure Schedule, each such plan or Contract in all material respects
conforms with, and has been offered, sold, maintained, and sponsored in
accordance with, all applicable Laws. Except as disclosed in Section
3.14(d) of the Disclosure Schedule, the Company is not a fiduciary with
respect to any plan or Contract referenced in this Section 3.14(d).
(2) The Company does not provide administrative or other
contractual services for any plan or Contract referenced in this
Section 3.14(d), including, but not limited to, any third party
administrative services for an Employee Welfare Benefit Plan.
(3) To the extent that the Company maintains any collective or
commingled funds or accounts which restrict the Persons who may
invest therein to tax-exempt entities or qualified plans, each such
fund or account (of which a true and complete list and description
is disclosed in Section 3.14(d)(3) of the Disclosure Schedule) has
been established, maintained and operated in accordance with all
applicable Laws, has maintained its tax-exempt status and has no
nonqualified plans or trusts or other taxable entities investing in
it.
(4) In addition to the representations and warranties contained
in Section 3.12, there are no claims pending, or (to the best
knowledge of the Seller or Company) threatened, against the Company
or any of its Assets and Properties, under any fiduciary liability
insurance policy issued by or to the Company that individually or in
the aggregate has or may reasonably be expected to have a material
adverse effect on the Business or Condition of the Company.
3.15 Benefit Plans, ERISA.
Except as disclosed in Section 3.15 of the Disclosure Schedule, the
Company has not had within the past six (6) years and does not currently
have any Benefit Plan or any commitment or obligation to create any
Benefit Plan.
(a) Neither the Seller, the Company, nor any of their respective
Affiliates has any Contract, plan, or commitment, whether legally binding
or not, to create any additional Benefit Plan or to modify or change any
existing Benefit Plan. Each contribution or other payment required to be
made or to be voluntarily made by each of the Seller and the Company on
or before December 31, 1994 with respect to any of the Benefit Plans has
been made.
(b) None of the Benefit Plans is or has been a multi-employer plan,
as that term is defined in Section 3(37) of ERISA. There has been no
transaction, action, or omission involving the Seller, the Company, any
ERISA Affiliate, or (to the best knowledge of the Seller) any fiduciary,
trustee, or administrator of any Benefit Plan, or any other Person
dealing
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with any such Benefit Plan or the related trust or funding vehicle, that
in any manner violates or will result in a violation (with or without
notice or lapse of time or both) of Sections 404 or 406 of ERISA or
constitutes or will constitute (with or without notice or lapse of time
or both) a prohibited transaction (as defined in Section 4975(c)(I) of
the Code or Section 406 of ERISA) for which there exists neither a
statutory nor a regulatory exemption and which could subject the Seller
or the Company or any party in interest (as defined in Section 3(14) of
ERISA) to criminal or civil sanctions under Section 501 or 502 of ERISA,
or to Taxes under Code Section 4975, or to any other Liability.
(c) There has been no reportable event (as defined in Section
4043(b) of ERISA) with respect to any Employee Pension Benefit Plan or
any Employee Welfare Benefit Plan for which notice to the PBGC has not
been waived by rule or regulation. Neither the Seller nor the Company,
nor any ERISA Affiliate has any Liability to the PBGC (other than any
Liability for insurance premiums not yet due to the PBGC), to any present
or former participant in or beneficiary of any Benefit Plan (or any
beneficiary of any such participant or beneficiary), or to any Employee
Pension Benefit Plan or any Employee Welfare Benefit Plan. No event,
fact, or circumstance has arisen or occurred that has resulted or may
reasonably be expected to result in any such Liability or a claim against
the Seller or the Company by the PBGC, by any present or former
participant in or any beneficiary of any Employee Pension Benefit Plan or
any Employee Welfare Benefit Plan (or any beneficiary of any such
participant or beneficiary), or by any such Benefit Plan. No filing has
been or will be made by the Seller, the Company, or any ERISA Affiliate,
and no proceeding has been commenced, for the complete or partial
termination of any Employee Pension Benefit Plan or any Employee Welfare
Benefit Plan, and no complete or partial termination of any such Benefit
Plan has occurred or, as a result of the execution or delivery of this
Restated Agreement or the consummation of the transactions contemplated
hereby, will occur.
(d) All amounts that each of the Seller and the Company is required
to pay by Law or under the terms of the Benefit Plans as a contribution
or other payment to or in respect of such Benefit Plans as of December
31, 1994 have been paid. The funding method used in connection with each
Benefit Plan that is or at any time has been subject to the funding
requirements of Title I, Subtitle B, Part 3 of ERISA, meets the
requirements of ERISA and the Code. No Benefit Plan subject to Title IV
of ERISA (or any trust established thereunder) has ever incurred any
accumulated funding deficiency (as defined in Section 302 of ERISA and
Section 412 of the Code), whether or not waived, as of the last day of
the most recent fiscal year of such Benefit Plan. With respect to any
period for which any contribution or other payment to or in respect of
any Benefit Plan is not yet due or owing, each of the Seller and the
Company has made due and sufficient current accruals for such
contributions and other payments in accordance with GAAP and SAP, and
such current accruals through the Closing will be duly and fully provided
for in the SAP Statement of the Company for the period then ended.
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(e) Each Benefit Plan is and has been operated and administered in
all material respects in accordance with all applicable Laws, including,
without limitation, ERISA and the Code. Each of the Employee Pension
Benefit Plans and Employee Welfare Benefit Plans that is intended to be
qualified within the meaning of Section 401(a) of the Code is so
qualified and satisfies the requirements of Sections 401(a) and 501(a) of
the Code. There exists no fact, condition, or set of circumstances that
has or may reasonably be expected to have a material adverse effect on
the qualified status of any Employee Pension Benefit Plan or any Employee
Welfare Benefit Plan intended to be so qualified or the intended United
States federal income Tax treatment or consequences of any Employee
Pension Benefit Plan or any Employee Welfare Benefit Plan. None of the
Benefit Plans, or any related trust or funding vehicle, conducts or has
conducted any unrelated trade or business as that term is defined in
Section 513 of the Code. All necessary governmental approvals,
determinations, and notifications for all Employee Pension Benefit Plans
and all Employee Welfare Benefit Plans have been obtained.
(f) Any actuarial assumptions utilized by Seller or the Company in
connection with determining the funding of each Employee Pension Benefit
Plan (as set forth in the actuarial report for such Benefit Plan) are
reasonable in all material respects. The fair market value of the Assets
or Properties held under each Employee Pension Benefit Plan exceeds the
actuarially determined present value of all accrued benefits of such
Benefit Plan (whether or not vested) determined on an ongoing-Benefit
Plan basis.
(g) Except as disclosed in Section 3.15(g) of the Disclosure
Schedule, and except for claims by third parties for benefits owed to
participants or beneficiaries under the Benefit Plans, and except for
divorce proceedings, there are no pending or (to the best knowledge of
the Seller) threatened actions, suits, investigations, or other
proceedings by any present or former participant or beneficiary under any
Benefit Plan (or any beneficiary of any such participant or beneficiary)
involving any Benefit Plan or any rights or benefits under any Benefit
Plan or any rights or benefits under any Benefit Plan other than ordinary
and usual claims for benefits by participants or beneficiaries
thereunder. There is no writ, judgment, decree, injunction, or similar
order of any court, governmental or regulatory authority, or other
similar Person outstanding against or in favor of any Benefit Plan or any
fiduciary thereof.
3.16 Properties. Except as disclosed in Section 3.16 of the Disclosure
Schedule (with paragraph references corresponding to those set forth below):
(a) The Company has good and valid title to all debentures, notes,
stocks, securities, and other assets that are of a type required to be
disclosed in Schedules B through DB of its Annual Statement and that are
owned by it, free and clear of all Liens.
(b) The Company owns good and indefeasible title to, or has a valid
leasehold interest in, all real property used in the conduct of its
business, operations, or affairs or of a
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type required to be disclosed in Schedule A of the Company's Annual
Statement, free and clear of all Liens. All such real property, other
than raw land, is in good operating condition and repair and is suitable
for its current uses. No improvement on any such real property owned,
leased, or held by the Company encroaches upon any real property of any
other Person. The Company owns, leases, or has a valid right under
Contract to use adequate means of ingress and egress to, from, and over
all such real property.
(c) The Company owns good and indefeasible title to, or has a valid
leasehold interest in or has a valid right under Contract to use, all
tangible personal property that is used in the conduct of its business,
operations, or affairs, free and clear of all Liens. All such tangible
personal property is in good operating condition and repair and is
suitable for its current uses.
(d) The Company has, and at all times after the Closing will have,
the right to use, free and clear of any royalty or other payment
obligations, claims of infringement or alleged infringement, or other
Liens, all marks, names, trademarks, service marks, patents, patent
rights, assumed names, logos, trade secrets, copyrights, trade names, and
service marks that are used in the conduct of its business, operations,
or affairs (of which a true and complete list and description is
disclosed in Section 3.16(e) of the Disclosure Schedule), and all
computer software, programs, and similar systems owned by or licensed to
the Seller, the Company or any Affiliate of the Company or used in the
conduct of their business, operations, or affairs (of which a true and
complete list and description is disclosed in Section 3.16(e) of the
Disclosure Schedule). Neither the Seller nor the Company is in conflict
with or in violation or infringement of, nor has the Seller or the
Company received any notice of any conflict with or violation or
infringement of or any claimed conflict with, any asserted rights of any
other Person with respect to any intellectual property or any computer
software, programs, or similar systems, including, without limitation,
any of such items disclosed in Section 3.16(e) of the Disclosure
Schedule.
3.17 Contracts. Section 3.17 of the Disclosure Schedule (with paragraph
references corresponding to those set forth below) contains a true and
complete list of each of the following Contracts or other documents or
arrangements (true and complete copies, or, if none, written descriptions, of
which have been made available to the Purchaser, together with all amendments
thereto), to which the Company is a party or by which any of its Assets and
Properties is or may be bound:
(a) all employment, agency, consultation, or representation
Contracts or other Contracts of any type (including, without limitation,
loans or advances) with any present officer, director, employee, agent,
consultant, or other similar representative of the Company (or former
officer, director, employee, agent, consultant or similar representative
of the Company, if there exists any present or future liability with
respect to such Contract, whether now existing or contingent) (other than
Contracts with consultants and similar representatives who do not receive
compensation of $25,000 or more per year and other than employment
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or agency Contracts, not containing terms which are unduly burdensome to
the Company, with agents who do not receive compensation of $25,000 or
more per year), and the name, position, and rate of compensation of each
such Person and the expiration date of each such Contract, as well as all
sick leave, vacation, holiday, and other similar practices, procedures,
and policies of each of the Seller or the Company established or
administered other than as Benefit Plans;
(b) all Contracts with any Person containing any provision or
covenant limiting the ability of the Company to engage in any line of
business or to compete with or to obtain products of services from any
Person or limiting the ability of any Person to compete with or to
provide products or services to the Company;
(c) all partnership, joint venture, profit-sharing, or similar
Contracts with any Person (other than Benefit Plans);
(d) all Contracts relating to the borrowing of money by the Company
or to the direct or indirect guarantee by the Company of any obligation
for borrowed money in excess of $25,000 in the aggregate for the Company
or any of its Affiliates, or any other Liability in respect of
indebtedness of any other Person, including without limitation any
Contract relating to the maintenance of compensating balances that are
not terminable by the Company without penalty upon not more than sixty
(60) calendar days' notice, any line of credit or similar facility, the
payment for property, products, or services of any other Person even if
such property, products, or services are not conveyed, delivered, or
rendered, or the obligation to take-or-pay, keep-well, make-whole, or
maintain surplus or earnings levels or perform other financial ratios or
requirements; Section 3.17(d) of the Disclosure Schedule contains a true
and complete list of any requirements for consents or approvals of
creditors needed to consummate the transactions contemplated hereby;
(e) all leases or subleases of real property used in the Company's
business, operations, or affairs, and all other leases, subleases, or
rental or use Contracts for which the Company is liable;
(f) all Contracts relating to the future disposition or acquisition
of any investment in or security of any Person or of any interest in any
business enterprise (other than the disposition or acquisition of
investments in the ordinary course of business and consistent with past
practice);
(g) all Contracts or arrangements (including, without limitation,
those relating to the sharing or allocation of expenses, personnel,
services, or facilities) between or among the Seller or the Company and
any of their Affiliates or any other Person who is described in Section
3.10(p);
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(h) all reinsurance, coinsurance, or other similar Contracts
indicating, with respect to each such Contract, the information required
to be disclosed in Schedule S of the Company's Annual Statement;
(i) all outstanding proxies, powers of attorney, or similar
delegations of authority of the Company, except for powers of attorney
for the service of process pursuant to applicable insurance Laws, except
as incident to participation by the Company in the Insurance Guaranty
Fund of any State wherein the Company is required or elects to
participate in such fund.
(j) all Contracts for any product, service, equipment, facility, or
similar item (other than insurance and annuity Contracts issued,
reinsured, or underwritten by the Company and other than reinsurance,
coinsurance, and other similar Contracts) that by their respective terms
do not expire or terminate or are not terminable by the Company, without
penalty or other Liability, within six (6) months after December 31,
1994; and
(k) all other Contracts (other than insurance and annuity Contracts
issued, reinsured, or underwritten by the Company) that involve the
payment or potential payment pursuant to the terms of such Contracts, by
or to the Company of more than $10,000 individually or in the aggregate
or that are otherwise material to the Business or Condition of the
Company.
Each Contract disclosed or required to be disclosed in the Disclosure Schedule
pursuant to this Section is in full force and effect and constitutes a legal,
valid, and binding obligation of the Company and of each other Person that is
a party thereto in accordance with its terms; and neither the Company nor (to
the best knowledge of the Seller and the Company) any other party to such
Contract is in violation or breach of or default under any such Contract (or
with or without notice or lapse of time or both, would be in violation or
breach of or default under any such Contract). Except as disclosed in Section
3.17 of the Disclosure Schedule (with a specific reference to this sentence),
the Company is not a party to or bound by any Contract that was not entered
into in the ordinary course of business and consistent with past practice or
that has or may reasonably be expected to have, individually or in the
aggregate with any other Contracts, a material adverse effect on the Business
or Condition of the Company. The Company is not a party to or bound by any
collective bargaining or similar labor Contract.
3.18 Insurance Issued by the Company. Except as required by Law or except
as disclosed in Section 3.18 of the Disclosure Schedule (with paragraph
references corresponding to those set forth below):
(a) All insurance or annuity Contract benefits payable to the
Company by any other Person that is a party to or bound by any
reinsurance, coinsurance, or other similar Contract with the Company have
in all material respects been paid in accordance with the terms of the
insurance, annuity, and other Contracts under which they arose, except
for such
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benefits for which the Company reasonably believes there is a reasonable
basis to contest payment.
(b) No outstanding insurance or annuity Contract issued, reinsured,
or underwritten by the Company entitles the holder thereof or any other
Person to receive dividends, distributions, or to share in the income of
the Company or receive any other benefits based on the revenues or
earnings of the Company or any other Person.
(c) The underwriting standards utilized and ratings applied by the
Company and (to the best knowledge of the Seller and the Company) by any
other Person that is a party to or bound by any reinsurance, coinsurance,
or other similar Contract with the Company conform in all material
respects to industry accepted practices and to the standards and ratings
required pursuant to the terms of the respective reinsurance,
coinsurance, or other similar Contracts.
(d) To the best knowledge of the Seller and the Company, all amounts
to which the Company is entitled under reinsurance, coinsurance, or other
similar Contracts (including without limitation amounts based on paid and
unpaid losses) are fully collectible.
(e) To the best knowledge of the Seller and the Company, each
insurance agent, at the time such agent wrote, sold, or produced business
for the Company, 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 for the Company.
(f) To the best knowledge of the Seller and the Company, no such
insurance agent violated (or with or without notice or lapse of time or
both, would have violated) any term or provision of any Law or any writ,
judgment, decree, injunction, or similar order applicable to the writing,
sale, or production of business for the Company.
(g) The tax treatment under the Code of all insurance, annuity or
investment policies, plans, or contracts; all financial products,
employee benefit plans, individual retirement accounts or annuities; or
any similar or related policy, contract, plan, or product, whether
individual, group, or otherwise, issued or sold by the Company is and at
all times has been the same or more favorable to the purchaser,
policyholder or intended beneficiaries thereof as the tax treatment under
the Code for which such contracts qualified or purported to qualify at
the time of its issuance or purchase. For purposes of this Section
3.18(g), the provisions of the Code relating to the tax treatment of such
contracts shall include, but not be limited to, Sections 72, 79, 89, 101,
104, 105, 106, 125, 130, 401, 402, 403, 404, 408, 412, 415, 419, 419A,
501, 505, 817, 818, 7702, and 7702A of the Code.
(h) There are no reinsurance, coinsurance, or other similar
Contracts under which the Company receives or has received surplus
relief.
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3.19 Threats of Cancellation. Except as disclosed in Section 3.19 of the
Disclosure Schedule, since December 31, 1994 no policyholder, group of
policyholder Affiliates, or Persons writing, selling, or producing insurance
business that individually or in the aggregate accounted for five percent 5%
or more of the premium or annuity income of the Company for the year ended
December 31, 1994, has terminated or (to the best knowledge of the Seller or
the Company) threatened to terminate its relationship with the Company.
3.20 Licenses and Permits. Except as disclosed in Section 3.20 of the
Disclosure Schedule (with paragraph references corresponding to those set
forth below):
(a) The Company owns or validly holds, all licenses, franchises,
permits, approvals, authorizations, exemptions, classifications,
certificates, registrations, and similar documents or instruments that
are required for its business, operations, and affairs and that the
failure to so own or hold has or may reasonably be expected to have a
material adverse effect on its Business or Condition.
(b) All such licenses, franchises, permits, approvals,
authorizations, exemptions, classifications, certificates, registrations,
and similar documents or instruments are valid and in full force and
effect, and free of any restrictions imposed by any Person.
3.21 Operations Insurance. Section 3.21 of the Disclosure Schedule
contains a true and complete list and description of all liability, property,
workers compensation, directors and officers liability, and other similar
insurance Contracts that insure the business, operations, or affairs of the
Company or affect or relate to the ownership, use, or operations of any of the
Assets and Properties of the Company and that have been issued to the Company
or any of its Affiliates (including, without limitation, the names and
addresses of the insurers, the expiration dates thereof, and the annual
premiums and payment terms thereof) or that are held by the Company or by any
Affiliate of the Seller for the benefit of the Company following the Closing.
All such insurance is in full force and effect and (to the best knowledge of
the Seller and the Company) is with financially sound and reputable insurers
and, in light of the business, operations, and affairs of the Company, is in
amounts and provides coverage that are reasonable and customary for Persons in
similar businesses.
3.22 Intercompany Accounts. Except as reflected in the December 31, 1994
SAP Statement, or except as disclosed in Section 3.22 of the Disclosure
Schedule, there are no accounts between the Company and any of its Affiliates,
and neither the Seller nor any of its Affiliates provides or causes to be
provided to the Company any products, services, equipment, facilities, or
similar items that, individually or in the aggregate are or may reasonably be
expected to be material to the Business or Condition of the Company. Except as
disclosed in Section 3.22 of the Disclosure Schedule, since December 31, 1994
no such intercompany accounts in excess of $10,000 have been paid or received,
and all settlements of such intercompany accounts have been made, and all
allocations of such intercompany expenses have been applied, in the ordinary
course of business and consistent with past
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practice. All intercompany accounts shall be written off prior to the Closing
and, if constituting an admitted asset, taken into account in calculating the
Adjusted Capital and Surplus of the Company.
3.23 Bank Accounts. Section 3.23 of the Disclosure Schedule contains a
true and complete list of the names and locations of all banks, trust
companies, securities brokers, and other financial institutions at which the
Company has an account or safe deposit box or maintains a banking, custodial,
trading, or other similar relationship and a true and complete list and
description of each such account, box, and relationship, indicating in each
case the account number and the names of the officers, employees, agents, or
other similar representatives of the Company transacting business with respect
thereto.
3.24 Brokers. All negotiations relative to this Restated Agreement and
the transactions contemplated hereby have been carried out by the Seller
directly with the Purchaser, without the intervention of any Person on behalf
of the Seller in such manner as to give rise to any valid claim by any Person
against the Purchaser or the Seller for a finder's fee, brokerage commission,
or similar payment.
3.25 Disclosure. Neither this Restated Agreement nor any certificate
furnished by the Seller or the Company to the Purchaser in connection with
this Restated Agreement or the transactions contemplated hereby contains any
untrue statement of a material fact by the Seller or the Company or omits to
state a material fact by the Seller or the Company necessary to make the
statements herein or therein not misleading in light of the circumstances in
which they were made.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
The Purchaser hereby represents and warrants to the Seller as follows:
4.1 Organization. The Purchaser is a corporation duly organized, validly
existing, and in good standing under the Laws of the State of Indiana and has
full corporate power and authority to enter into this Restated Agreement and
to perform its obligations under this Restated Agreement. The Purchaser is
duly licensed, qualified, or admitted to do business and is in good standing
in all jurisdictions in which the failure to be so licensed, qualified, or
admitted and in good standing, individually or in the aggregate with other
such failure, has or may reasonably be expected to have a material adverse
effect on the validity or enforceability of this Restated Agreement, on the
ability of the Purchaser to perform its obligations under this Restated
Agreement or on the Business or Condition of the Purchaser.
4.2 Authority. The Board of Directors of the Purchaser has duly and
validly approved this Restated Agreement and the transactions contemplated
hereby. The execution and delivery of this Restated Agreement by the Purchaser
and the performance by the Purchaser of its obligations under this Restated
Agreement have been duly and validly authorized by all necessary corporate
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action on the part of the Purchaser. This Restated Agreement constitutes a
legal, valid, and binding obligation of the Purchaser and is enforceable
against the Purchaser in accordance with its terms, except to the extent that
enforcement may be limited by or subject to any bankruptcy, insolvency,
reorganization, moratorium, or similar Laws now or hereafter in effect
relating to or limiting creditors' rights generally and the remedy of specific
performance and injunctive and other forms of equitable relief are subject to
certain equitable defenses and to the discretion of the court or other similar
Person before which any proceeding therefor may be brought.
4.3 No Conflicts or Violations. The execution and delivery of this
Restated Agreement by the Purchaser do not, and the performance by the
Purchaser of its obligations under this Restated Agreement will not:
(a) subject to obtaining the approvals contemplated by Section 6.1
hereof, violate any term or provision of any Law or any writ, judgment,
decree, injunction, or similar order applicable to the Purchaser;
(b) conflict with or result in a violation or breach of, or
constitute (with or without notice or lapse of time or both) a default
under, any of the terms, conditions, or provisions of the articles of
incorporation or bylaws of the Purchaser;
(c) except as disclosed in writing to the Seller, result in the
creation or imposition of any Lien upon the Purchaser or any of its
Assets and Properties that individually or in the aggregate with any
other Liens has or may reasonably be expected to have a material adverse
effect on the validity or enforceability of this Restated Agreement or on
the ability of the Purchaser to perform its obligations under this
Restated Agreement;
(d) except as disclosed in writing to the Seller, conflict with or
result in a violation or breach of, or constitute (with or without notice
or lapse of time or both) a default under, or give to any person any
right of termination, cancellation, acceleration, or modification in or
with respect to, any Contract to which the Purchaser is a party or by
which any of its Assets and Properties may be bound and as to which any
such conflicts, violations, breaches, defaults, or rights individually or
in the aggregate have or may reasonably be expected to have a material
adverse effect on the validity or enforceability of this Restated
Agreement or on the ability of the Purchaser to perform its obligations
under this Restated Agreement; or
(e) require the Purchaser to obtain any consent, approval, or action
of, or make any filing with or give any notice to, any Person except as
contemplated in Section 6.1, as disclosed in writing to the Seller, or
those which the failure to obtain, make, or give individually or in the
aggregate with other such failures has or may reasonably be expected to
have no material adverse effect on the validity or enforceability of this
Restated Agreement or on the ability of the Purchaser to perform its
obligations under this Restated Agreement.
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4.4 Litigation. There are no actions, suits, investigations, or
proceedings pending against the Purchaser, or (to the best knowledge of the
Purchaser) threatened against the Purchaser, at law or in equity, in, before,
or by any Person, that individually or in the aggregate have or may reasonably
be expected to have a material adverse effect on the validity or
enforceability of this Restated Agreement, on the ability of the Purchaser to
perform its obligations under this Restated Agreement or on the Business and
Condition of the Purchaser.
4.5 Purchase for Investment. The Shares will be acquired by the Purchaser
for its own account for the purpose of investment. The Purchaser agrees that:
it will not offer, sell, pledge, hypothecate, or otherwise dispose of the
shares unless such offer, sale, pledge, hypothecation or other disposition is
(i) registered under the Securities Act of 1933 and any other applicable
securities laws, or (ii) in compliance with an opinion of counsel to the
Purchaser, delivered to the Seller and reasonably acceptable to it, to the
effect that such offer, sale, pledge, hypothecation or other disposition does
not violate the Securities Act of 1933 or such other securities laws; and the
certificate(s) representing the Shares shall bear a legend evidencing the
restrictions or transfer set forth in the foregoing clause (a).
4.6 Brokers. All negotiations relative to this Restated Agreement and the
transactions contemplated hereby have been carried out by the Purchaser
directly with the Seller, without the intervention of any Person on behalf of
the Purchaser in such manner as to give rise to any valid claim by any Person
against the Seller or the Purchaser for a finder's fee, brokerage commission,
or similar payment.
4.7 Disclosure. Neither this Restated Agreement nor any certificate
furnished by the Purchaser to the Seller in connection with this Restated
Agreement or the transactions contemplated hereby contains any untrue
statement by the Purchaser of material fact or omits to state a material fact
by the Purchaser necessary to make the statements herein or therein not
misleading in light of the circumstances in which they were made.
ARTICLE V
COVENANTS OF SELLER AND COMPANY
The Seller and the Company covenant and agree with the Purchaser that, at
all times before the Closing, the Seller and the Company will comply with all
of the covenants and provisions of this Article V, except to the extent the
Purchaser may otherwise consent in writing or to the extent otherwise required
or permitted by this Restated Agreement.
5.1 Regulatory Approvals. The Seller and the Company will (a) take all
commercially reasonable steps necessary or desirable, and proceed diligently
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and in good faith and use all commercially reasonable efforts to obtain, as
promptly as practicable, all approvals and consents required by the applicable
Contract of any holder of indebtedness of the Seller or the Company; (b) take
all commercially reasonable steps necessary or desirable, and proceed
diligently and in good faith and use all commercially reasonable efforts to
obtain, as promptly as practicable, all approvals, authorizations, and
clearances of governmental and regulatory authorities required of the Seller
or the Company to consummate the transactions contemplated hereby; (c) provide
such other information and communications to such governmental and regulatory
authorities as the Purchaser or such authorities may reasonably request; and
(d) cooperate with the Purchaser in obtaining, as promptly as practicable, all
approvals, authorizations, and clearances of governmental or regulatory
authorities and others required of the Purchaser to consummate the
transactions contemplated hereby, including, without limitation, any required
approvals of the insurance regulatory authorities in the State of Mississippi
and the State of Indiana.
5.2 Investigation by the Purchaser. The Seller and the Company will
provide (a) the Purchaser, its lenders, and their respective counsel,
accountants, actuaries, and other representatives with full access, upon prior
notice and during normal business hours, to all facilities, officers,
employees, agents, accountants, actuaries, Assets and Properties, and Books
and Records of the Seller and the Company and will furnish the Purchaser and
such other Persons during such period with all such information and data
(including, without limitation, copies of Contracts, Benefit Plans, and other
Books and Records) concerning the business, operations, and affairs of the
Company as the Purchaser or any of such other Persons reasonably may request
and (b) the Purchaser with timely notice of and full access to the minutes of
all meetings (and all actions by written consent in lieu thereof) of the board
of directors and stockholders of the Company involving matters which are not
in the ordinary course of business and consistent with past practice, except
such minutes of meetings as involve only matters related to the consummation
of the transactions contemplated herein.
5.3 No Negotiations, etc. The Seller and the Company will not take, and
will not permit any Affiliate of the Seller or the Company (or permit any
other Person acting for or on behalf of the Seller or the Company or any
Affiliate of the Seller or the Company) to take, directly or indirectly, any
action (a) to seek or encourage any offer or proposal from any Person to
acquire any shares of capital stock or any other securities of the Company or
any interest therein or Assets and Properties thereof or any interest therein;
(b) to merge, consolidate, or combine, or to permit any other Person to merge,
consolidate or combine, with the Company; (c) to liquidate, dissolve, or
reorganize the Company in any manner; (d) to acquire or transfer any Assets
and Properties of the Company or any interests therein, except as contemplated
by the terms of this Restated Agreement; (e) to reach any agreement or
understanding (whether or not such agreement or understanding is absolute,
revocable, contingent, or conditional) for, or otherwise to attempt to
consummate, any such acquisition, transfer, merger, consolidation,
combination, or reorganization; or (f) to furnish or cause to be furnished any
information with respect to the Company to any Person (other than the
Purchaser or the Mississippi Department of Insurance) that the Seller or the
Company or any Affiliate of the Seller or the Company (or any Person acting
for or on behalf of the Seller, the Company or any other Affiliate of the
Seller or the Company) knows or has reason to believe is in the process of
attempting or considering any such acquisition, transfer, merger,
consolidation, combination, liquidation, dissolution, or reorganization. If
the Seller, the Company or any other Affiliate of the Seller or the Company
receives from any Person (other than the Purchaser) any offer, proposal,
informational
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request, inquiry or contact that is subject to this Section, the Seller will
promptly advise such Person, by written notice, of the terms of this Section
and will promptly deliver a copy of such notice to the Purchaser and advise
the Purchaser fully concerning the identity of such Person, the terms of any
proposal or offer, or the nature of any informational request, inquiry or
contact which is made.
5.4 Conduct of Business. The Company will conduct its business only in
the ordinary course and consistent with past practices. Without limiting the
generality of the foregoing:
(a) The Seller and the Company will use all commercially reasonable
efforts to (i) preserve intact the Company's present business
organization, reputation, and policyholder relations; (ii) keep available
the services of the Company's present officers, directors, employees,
agents, consultants, and other similar representatives; (iii) maintain
all licenses, qualifications, and authorizations of the Company to do
business in each jurisdiction in which it is so licensed, qualified, or
authorized; (iv) maintain in full force and effect all Contracts,
documents, and arrangements referred to in Section 3.17 hereof, (v)
maintain all Assets and Properties of the Company in good working order
and condition, ordinary wear and tear excepted and (vi) continue all
current marketing and selling activities relating to the business,
operations, or affairs of the Company, except the Company shall not issue
or commit to issue any insurance or annuity Contracts except (A) pursuant
to existing insurance or annuity Contract provisions or (B) insurance or
annuity contracts which have no impact on Adjusted Capital and Surplus.
(b) The Seller and the Company will cause the Books and Records of
the Company to be maintained in the usual manner and consistent with past
practices and will not permit a material change in any underwriting,
investment, actuarial, financial reporting, or accounting practices or
policies of the Company or in any assumption underlying such practices or
policies, or in any method of calculating any bad debt, contingency, or
other reserve for financial reporting purposes or for other accounting
purposes (including, without limitation, any practice, policy,
assumption, or method relating to or affecting the determination of the
Company's investment income, reserves or other similar amounts, or
operating ratios with respect to expenses, losses, or lapses).
(c) The Seller and the Company will: (i) properly prepare and duly
and timely file all reports and all Tax Returns required to be filed with
any governmental or regulatory authorities with respect to the business,
operations, or affairs of the Company; and (ii) duly and fully pay all
Taxes indicated by such Tax Returns or otherwise levied or assessed upon
the Company or any of its Assets and Properties, and withhold or collect
and pay to the proper taxing authorities or hold in separate bank
accounts for such payment all Taxes that the Company is required to so
withhold or collect and pay, unless such Taxes are being contested in
good faith and, if appropriate, reasonable reserves therefor have been
established and reflected in the Books and Records of the Company in
accordance with GAAP and SAP.
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(d) The Company will: (i) cause all reserves and other similar
amounts with respect to insurance and annuity Contracts established or
reflected in the Company's Books and Records to be (A) established and
reflected on a basis consistent with those reserves and other similar
amounts and reserving methods followed by the Company at December 31,
1994 and (B) good, sufficient and adequate (under generally accepted
actuarial principles consistently applied) to cover the total amount of
all reasonably anticipated matured and unmatured benefits, dividends,
losses, claims, expenses, and other Liabilities of the Company under all
insurance and annuity Contracts pursuant to which the Company has or will
have any Liability (including, without limitation, any Liability arising
under or as a result of any reinsurance, coinsurance, or other similar
Contract); and (ii) continue to own assets that qualify as legal reserve
assets under all applicable insurance Laws in an amount at least equal to
the required reserves of the Company and other similar amounts.
(e) The Company will use all commercially reasonable efforts to
maintain in full force and effect until the Closing substantially the
same levels of coverage as the insurance afforded under the Contracts
listed in Section 3.21 of the Disclosure Schedule. Any and all benefits
under such Contracts paid or payable (whether before or after the
effective date of this Restated Agreement) with respect to the business,
operations, affairs, or Assets and Properties of the Company will be paid
to the Company.
(f) The Company will continue to comply, in all material respects,
with all Laws applicable to its business, operations, or affairs.
(g) The Company will determine its Adjusted Capital and Surplus
consistent with past practices for determining capital and surplus on its
Financial Statements for any interim period.
(h) The Company will not enter into any reinsurance Contracts
(whether as the ceding company or the assuming company).
(i) Purchaser shall be entitled to have a representative present at
the offices of Company from the date of execution of this Restated Stock
Purchase Agreement until Closing to monitor the business and financial
affairs of Company.
5.5 Financial Statements and Reports. (a) As promptly as practicable
after March 31, 1995, the Seller will deliver to the Purchaser a true and
complete copy of the SAP Statement filed by the Company for the quarter ended
March 31, 1995, and for each quarter thereafter until Closing, prepared in
accordance with SAP and which shall present fairly the financial condition,
the Assets and Properties, and the Liabilities of the Company as of the date
thereof and the results of operations, capital and surplus account, and cash
flow of the Company for and during each of the periods covered thereby.
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(b) The Seller will deliver to Purchaser audited GAAP Financial
Statements for the Company for each of the years ended December 31, 1992,
1993 and 1994 (and the notes relating thereto), and unaudited financial
statements for the quarter ended March 31, 1995, and for each quarter
thereafter until Closing, prepared in accordance with GAAP which shall
present fairly the financial condition, the Assets and Properties, and
the Liabilities of the Company as of the date thereof and the results of
operations, capital and surplus account, and cash flow of the Company for
and during each of the periods covered thereby, within thirty (30) days
after Closing.
5.6 Investments. The Company will invest its future cash flow, any cash
from matured and maturing investments, any cash proceeds from the sale of its
Assets and Properties, and any cash funds currently held by the Company, in
the ordinary course of its business and consistent with past practices to meet
the Company's reasonably anticipated current obligations. The Company will
take no actions unless approved in writing by the Purchaser to sell or
transfer any Assets and Properties other than in the ordinary course of
business.
5.7 Employee Matters.
(a) Except as may be required by Law or as disclosed in Section 5.7
of the Disclosure Schedule, or except for such representations, promises,
changes, alterations, or amendments that do not and will not result in
any Liability to the Company or the Purchaser, the Seller and the Company
will refrain from directly or indirectly:
(i) making any representation or promise, oral or written, to
any officer, director, employee, agent, consultant, or other similar
representative of the Company concerning any Benefit Plan;
(ii) making any change to, or amending in any way, the
Contracts, salaries, wages, or other compensation of any officer,
director, employee, agent, consultant, or other similar
representative of the Company whose annual compensation exceeds
$25,000, other than routine changes or amendments that (a) are made
in the ordinary course of business and consistent with past
practices, (b) do not and will not result in increases of more than
five percent (5%) in the salary, wages, or other compensation of any
such Person, and (c) do not and will not exceed, in the aggregate,
five percent (5%) of the total salaries, wages, and other
compensation of all employees of the Company;
(iii) adopting, entering into, amending, altering, or
terminating, partially or completely, any Benefit Plan;
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(iv) adopting, entering into, amending, altering, or
terminating, partially or completely, any employment, agency,
consultation, or representation Contract that is, or had it been in
existence on the effective date of this Restated Agreement would
have been, required to be disclosed in Section 3.17(a) of the
Disclosure Schedule;
(v) approving any general or company-wide pay increases for
officers, directors, employees, agents, consultants, or other
similar representatives of the Company; or
(vi) entering into any Contract with any officer, director,
employee, agent, consultant, or other similar representative of the
Company that is not terminable by the Company, without penalty or
other Liability, upon not more than sixty (60) calendar days'
notice.
5.8 No Charter Amendments. The Seller and the Company will not amend the
articles or certificate of incorporation or Bylaws of the Company and will
refrain from taking any action with respect to any such amendment.
5.9 No Issuance of Securities. The Seller and the Company will refrain
from authorizing or issuing, any shares of capital stock or other equity
securities of the Company, or from entering into any Contract or granting any
option, warrant, or right calling for the authorization or issuance of any
such shares or other equity securities, or creating or issuing any securities
directly or indirectly convertible into or exchangeable for any such shares or
other equity securities, or issuing any options, warrants, or rights to
purchase any such convertible securities.
5.10 No Dividends. Except for dividends and distributions declared after
the date of this Restated Agreement in conformity with this Restated Agreement
or which have been approved in writing by the Purchaser and for which any
required regulatory approvals have been received, the Company will refrain
from declaring, setting aside, or paying any dividend or other distribution in
respect of its capital stock and from directly or indirectly redeeming,
purchasing, or otherwise acquiring any of its capital stock or any interest in
or right to acquire any such stock.
5.11 No Disposal of Property. Except as set forth in Section 5.11 of the
Disclosure Schedule or as expressly provided in this Restated Agreement, the
Company will not (a) dispose of any of its Assets and Properties or permit any
of its Assets and Properties to be subjected to any Liens, except to the
extent any such disposition or any such Lien is made or incurred in the
ordinary course of the business and consistent with past practices, (b) sell
any material part of its insurance products, operations, or business to any
third party (other than sales of insurance products in the ordinary course of
business consistent with past practices pursuant to Section 5.4(a)), (c) enter
into any contracts obligating the Company to administer the insurance
operations of any Person other than any Affiliate, (d) enter into any
Contracts permitting any Person other than any Affiliate of the
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Company to administer the Company's insurance operations, or (e) enter into or
assume any Contract, if doing so could involve a loss, cost, expense or
commitment in excess of $10,000.
5.12 No Breach or Default. The Company will not violate or breach, and
will not take or fail to take any action that (with or without notice or lapse
of time or both) would constitute a violation, breach, or default in any way
under any term or provision of any Contract to which it is a party or by which
any of its Assets and Properties is or may be bound.
5.13 No Indebtedness. The Company will not create, incur, assume,
guarantee, or otherwise become liable for, and will not cancel, pay, agree to
cancel or pay, or otherwise provide for a complete or partial discharge in
advance of a scheduled payment date with respect to, any Liability, and will
not waive any right to receive any direct or indirect payment or other benefit
under any Liability owing to it.
5.14 No Acquisitions. The Company will not (a) merge, consolidate, or
otherwise combine or agree to merge, consolidate, or otherwise combine with
any other Person, (b) acquire or agree to acquire blocks of business of, or
all or substantially all the Assets and Properties or capital stock or other
equity securities of any other Person, or (c) otherwise acquire or agree to
acquire control or ownership of any other Person.
5.15 Intercompany Liabilities. At least five Business Days before the
Closing, the Seller will deliver to the Purchaser a true and complete list and
description of all Liabilities between the Company and any Affiliate of the
Company to be outstanding on the Closing Date. The Company will not enter into
any Contract or, except as required by any Contract disclosed in Section
3.17(g) of the Disclosure Schedule, engage in any transaction with any of its
Affiliates.
5.16 Resignations of Officers and Directors. Seller and the Company will
cause the members of the Board of Directors and officers of the Company to
tender, effective at the Closing, their resignations from the Board of
Directors and offices then held by such officers in the Company.
5.17 Tax Matters. The Seller will refrain and will cause the Company to
refrain (a) from making, filing, or entering into (whether before or after the
Closing) any election, consent, or agreement described in Section 3.12(e) or
Section 3.12(f) with respect to the Company or any of its Assets and
Properties and (b) from amending or cancelling any reinsurance or coinsurance
Contract.
5.18 Dismissal of Pending Litigation. Seller will cause the counterclaim
filed in the action entitled "Standard Management Corporation v. Dixie
National Corporation", currently pending in the Marion County, Indiana
Superior Court as Cause No. 49D129410-CP-0107, to be dismissed with prejudice,
as soon as practical following the execution of this Restated Agreement, and
to release any claim to the principal sum of Two Hundred Fifty Thousand
Dollars ($250,000) plus accrued interest thereon. Seller shall pay all
attorneys fees incurred by Seller or Company in said litigation. Purchaser
will simultaneously dismiss the referenced action, with prejudice.
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5.19 Disclosure Schedule. The Seller shall deliver any restated Sections
of the Disclosure Schedule to the Purchaser at the time of execution of this
Restated Agreement..
5.20 Shareholder Meeting. The Seller shall call a meeting of shareholders
of the Seller to be held on September 19, 1995 if no Purchase Price
determination is to be made by KPMG Peat Marwick, or on October 9, 1995 if
such Purchase Price determination is to be made by KPMG Peat Marwick, to
secure shareholder approval to the transactions described herein.
5.21 Notice and Cure. The Seller will notify the Purchaser promptly in
writing of, and contemporaneously will provide the Purchaser with true and
complete copies of any and all information or documents relating to, and will
use all commercially reasonable efforts to cure before the Closing, any event,
transaction, or circumstance occurring after the effective date of this
Restated Agreement that causes or will cause any covenant or agreement of the
Seller under this Restated Agreement to be breached, or that renders or will
render untrue any representation or warranty of the Seller contained in this
Restated Agreement as if the same were made on or as of the date of such
event, transaction, or circumstance. The Seller also will use all commercially
reasonable efforts to cure, before the Closing, any violation or breach of any
representation, warranty, covenant, or agreement made by it in this Restated
Agreement, whether occurring or arising before or after the effective date of
this Restated Agreement.
5.22 Triennial Report. The Seller shall promptly deliver all preliminary
and final reports of the financial examination of the Company issued by the
State of Mississippi for the three (3) year period ending December 31, 1994,
which report shall not require the Company to post a reserve in excess of
$1,010,000 relating to the settlement of Becker v. Dixie National Life
Insurance Company, nor shall the Mississippi Department of Insurance require
an additional deposit of assets by the Company in excess of $2,000,000 pending
final conclusion and dismissal of such suit, at which time such deposit shall
be released.
ARTICLE VI
COVENANTS OF PURCHASER
The Purchaser covenants and agrees with the Seller that, at all times
before the Closing and with respect to Sections 6.2 and 6.3, after Closing,
the Purchaser will comply with all covenants and provisions of this Article
VI, except to the extent the Seller may otherwise consent in writing or to the
extent otherwise required or permitted by this Restated Agreement.
6.1 Regulatory Approvals. The Purchaser will (a) take all commercially
reasonable steps necessary or desirable, including the filings required to be
made with the Departments of Insurance of the States of Mississippi and
Indiana which shall be made within thirty (30) days of the date hereof, and
proceed diligently and in good faith and use all commercially reasonable
efforts
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to obtain, as promptly as practicable, all approvals, authorizations, and
clearances of governmental and regulatory authorities required of the
Purchaser to consummate the transactions contemplated hereby; (b) provide such
other information and communications to such governmental and regulatory
authorities as the Seller or such authorities may reasonably request; and (c)
cooperate with the Seller in obtaining, as promptly as practicable, all
approvals, authorizations, and clearances of governmental or regulatory
authorities required of the Seller to consummate the transactions contemplated
hereby.
6.2 Home Office Lease. The Purchaser will cause the Company to comply
with the monthly payment obligations of that certain home office lease on
premises located at 3760 I-55 North, Jackson, Mississippi 39211 (the
"Premises"), through December 31, 1996, with the lessor, Vanguard, Inc., a
wholly-owned subsidiary of the Seller, at the rental rate of Fifteen Thousand
Dollars ($15,000) per month. For the first six months after Closing, Purchaser
shall pay for routine maintenance, casualty insurance and ad valorem taxes not
to exceed $5,000.00 per month. The Purchaser will vacate the Premises within
six (6) months after Closing except for reasonable office facilities,
furniture and equipment suitable for two (2) executives and one (1) secretary
of the Company to be occupied through December 31, 1996. During the remainder
of the lease following Closing, Seller may use and occupy all portions of the
Premises not reserved for use of the Company hereunder. During the six (6)
month transitional period, the Purchaser shall be entitled to use such
furniture and equipment currently located on the Premises for employees of the
Company.
6.3 Assignment of Certain Agent Debit Balances. After Closing, the
Purchaser will cause the Company to pay to Seller the first One Hundred
Seventy Five Thousand Dollars ($175,000) recovered by the Company with respect
to agent debit balances. The Purchaser will cause the Company to take
commercially reasonable efforts to recover such agent debit balances; however,
the decision to institute litigation shall be at the sole discretion of the
Purchaser. The Seller agrees to reasonably cooperate with the Purchaser in its
efforts to recover said agent debit balances.
6.4 Notice and Cure. The Purchaser will notify the Seller promptly in
writing of, and contemporaneously will provide the Seller with true and
complete copies of any and all information or documents relating to, and will
use all commercially reasonable efforts to cure before the Closing, any event,
transaction, or circumstance occurring after the effective date of this
Restated Agreement that causes or will cause any covenant or agreement of the
Purchaser under this Restated Agreement to be breached, or that renders or
will render untrue any representation or warranty of the Purchaser contained
in this Restated Agreement as if the same were made on or as of the date of
such event, transaction, or circumstance. The Purchaser also will use all
commercially reasonable efforts to cure, before the Closing, any violation or
breach of any representation, warranty, covenant, or agreement made by it in
this Restated Agreement, whether occurring or arising before or after the
effective date of this Restated Agreement.
6.5 Hart-Scott Filing. As soon as reasonably possible after the execution
of this Restated Agreement, but in any event not later than August 31, 1995,
if no Purchase Price determination is to be made by KPMG Peat Marwick, or on
September 15, 1995 if such Purchase Price determination is to be made by KPMG
Peat Marwick, Purchaser will file in the form and manner
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required, all filings required under the Hart-Scott-Rodino Antitrust
Improvement Act of 1976 (15 USC Section 18a) with the U.S. Department of
Justice.
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF PURCHASER
The obligations of the Purchaser hereunder are subject to the
fulfillment, at or before the Closing, of each of the following conditions
(all or any of which may be waived in whole or in part by the Purchaser).
7.1 Representations and Warranties. The representations and warranties
made by the Seller in this Restated Agreement and the statements of the Seller
contained in the Disclosure Schedule shall be true as of the effective date of
this Restated Agreement, the certifications given pursuant to Section 5.5(c)
shall be true as of the date given, and all of such representations,
warranties, certifications and statements shall be true on and as of the
Closing Date as though such representations, warranties, certifications and
statements were made on and as of the Closing Date.
7.2 Performance. The Seller and the Company shall have performed and
complied with all agreements, covenants, obligations, and conditions required
by this Restated Agreement to be so performed or complied with by the Seller
and/or the Company at or before the Closing, including those specifically
referred to elsewhere in this Article VII.
7.3 Certificates of Officer of Seller. The Seller shall have delivered to
the Purchaser a certificate, dated the Closing Date in the form of Exhibit C
hereto and executed by the chief executive officer or chief financial officer
of the Seller, certifying (with respect to the Seller and, as appropriate, the
Company) as to the fulfillment of the conditions set forth in this Article
VII. In addition, the Seller shall have delivered to the Purchaser a
certificate, dated the Closing Date and executed by the secretary or any
assistant secretary of the Seller, certifying that the Seller has duly and
validly taken all corporate action necessary to authorize its execution and
delivery of this Restated Agreement and its performance of its obligations
under this Restated Agreement, and that the resolutions (true and complete
copies of which shall be attached to the certificate) of the Board of
Directors with respect to this Restated Agreement and the transactions
contemplated hereby have been duly and validly adopted and are in full force
and effect.
7.4 No Injunction. There shall not be in effect on the Closing Date any
writ, judgment, injunction, decree, or similar order of any court or similar
Person restraining, enjoining, or otherwise preventing consummation of any of
the transactions contemplated by this Restated Agreement.
7.5 No Proceeding or Litigation. There shall not be instituted, pending,
or (to the best knowledge of the Purchaser or the Seller) threatened any
action, suit, investigation, or other proceeding in, before, or by any court,
governmental or regulatory authority, or other Person to
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restrain, enjoin, or otherwise prevent consummation of any of the transactions
contemplated by this Restated Agreement or to recover any Damages or obtain
other relief as a result of this Restated Agreement or any of the transactions
contemplated hereby or as a result of any Contract entered into in connection
with or as a condition precedent to the consummation hereof, which action,
suit, investigation, or other proceeding may, in the reasonable opinion of the
Purchaser, result in a decision, ruling, or finding that individually or in
the aggregate has or may reasonably be expected to have a material adverse
effect on the validity or enforceability of this Restated Agreement, on the
ability of the Seller, the Company or the Purchaser to perform its respective
obligations under this Restated Agreement, or on the Business or Condition of
the Purchaser or the Company. There shall not be in effect on the Closing Date
any voluntary or involuntary bankruptcy, receivership, conservatorship, or
similar proceeding with respect to the Company or the Seller.
7.6 Consents, Authorizations, etc. All orders, consents, permits,
authorizations, approvals, and waivers of every Person disclosed pursuant to
Section 4.3 and necessary to permit the Purchaser to perform its obligations
under this Restated Agreement and to consummate the transactions contemplated
hereby and to permit the Purchaser to acquire the Shares pursuant to this
Restated Agreement (including, without limitation, any requisite action of the
insurance regulatory authorities in the State of Mississippi and the State of
Indiana, in each case without the abrogation or diminishment of the Company's
authority or license or the imposition of significant restrictions upon the
transactions contemplated hereby) shall have been obtained and shall be in
full force and effect, and the Seller and the Company shall have obtained all
consents, approvals, authorizations and clearances referred to in Section 5.1
and the Purchaser shall have received evidence satisfactory to it of the
receipt of such consents, approvals, authorizations and clearances.
7.7 No Adverse Change. Except as disclosed in Section 3.10 of the
Disclosure Schedule or as specifically reflected in the December 31, 1994
Annual Statement of the Company (it being understood that no material adverse
trend has been so disclosed or reflected), or except for changes or
developments relating to the conduct of the Company's business after the
effective date of this Restated Agreement in conformity with the requests of
the Purchaser, since December 31, 1994 there shall not have been, occurred, or
arisen any change in, or any event (including, without limitation, any damage,
destruction, or loss whether or not covered by insurance), condition, or state
of facts of any character that individually or in the aggregate has or may
reasonably be expected to have a material adverse effect on the Business or
Condition of the Company.
7.8 Opinion of Counsel. The Seller shall have delivered to the Purchaser
the opinion, dated the Closing Date, of Wells, Moore, Simmons & Neeld, counsel
to the Seller, to the effect set forth in Exhibit E hereto.
7.9 Resignation of Officers and Directors. The resignations of the
members of the Board of Directors and officers of the Company pursuant to
Section 5.16, effective as of the Closing Date, shall have been delivered to
the Purchaser on or before the Closing Date.
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7.10 Shareholder Approval. The shareholders of the Seller shall have
approved the sale of the Shares of the Company in accordance with applicable
Laws and Seller's articles of incorporation and bylaws at a meeting to be held
on the date specified in Section 5.20 hereof.
7.11 Hart-Scott. Purchaser and Seller shall have made all filings
required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (15
USC ss.18a), and all waiting periods shall have passed without any action
having been taken by the Department of Justice or any other governmental
department.
7.12 Management Agreement. The current management agreement between the
Seller and the Company shall have been terminated and or, at Purchaser's
option, assigned from Seller to Purchaser.
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF SELLER
The obligations of the Seller hereunder are subject to the fulfillment,
at or before the Closing, of each of the following conditions (all or any of
which may be waived in whole or in part by the Seller).
8.1 Representations and Warranties. The representations and warranties
made by the Purchaser in this Restated Agreement shall be true as of the
effective date of this Restated Agreement and shall be true on and as of the
Closing Date as though such representations and warranties were made on and as
of the Closing Date.
8.2 Performance. The Purchaser shall have performed and complied with all
agreements, covenants, obligations, and conditions required by this Restated
Agreement to be so performed or complied with by the Purchaser at or before
the Closing.
8.3 Officer's Certificates. The Purchaser shall have delivered to the
Seller a certificate, dated the Closing Date in the form of Exhibit E hereto
and executed by the chief executive officer or the chief financial officer of
the Purchaser, certifying with respect to the Purchaser as to the fulfillment
of the conditions set forth in this Article VIII. In addition, the Purchaser
shall have delivered to the Seller a certificate, dated the Closing Date and
executed by the secretary or any assistant secretary of the Purchaser
certifying that the Purchaser has duly and validly taken all corporate action
necessary to authorize its execution and delivery of this Restated Agreement
and its performance of its obligations under this Restated Agreement,
including, without limitation, that Purchaser has taken all action necessary
to authorize the acquisition of the Shares, and that the resolutions (true and
complete copies of which shall be attached to the certificate) of the Board of
Directors of the Purchaser with respect to this Restated Agreement and the
transactions contemplated hereby have been duly and validly adopted and are in
full force and effect.
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8.4 No Injunction. There shall not be in effect on the Closing Date any
writ, judgment, injunction, decree, or similar order of any court or similar
Person restraining, enjoining, or otherwise preventing consummation of any of
the transactions contemplated by this Restated Agreement.
8.5 No Proceeding or Litigation. There shall not be instituted, pending,
or (to the best knowledge of the Purchaser or of the Seller) threatened any
action, suit, investigation, or other proceeding in, before, or by any court,
governmental or regulatory authority, or other Person to restrain, enjoin, or
otherwise prevent consummation of any of the transactions contemplated by this
Restated Agreement or to recover any Damages or obtain other relief as a
result of this Restated Agreement or any of the transactions contemplated
hereby or as a result of any Contract entered into in connection with or as a
condition precedent to the consummation hereof, which action, suit
investigation, or other proceeding may, in the reasonable opinion of the
Seller, result in a decision, ruling, or finding that individually or in the
aggregate has or may reasonably be expected to have a material adverse effect
on the validity or enforceability of this Restated Agreement, on the ability
of the Purchaser or the Seller to perform its obligations under this Restated
Agreement or on the Business or Condition of the Seller.
8.6 Consents, Authorizations, etc. All orders, consents, permits,
authorizations, approvals, and waivers of every Person disclosed pursuant to
Section 3.5 and necessary to permit the Seller to perform its obligations
under this Restated Agreement and to consummate the transactions contemplated
hereby shall have been obtained and shall be in full force and effect, and the
Purchaser shall have obtained all consents, approvals, authorizations and
clearances referred to in Section 6.1 and the Seller shall have received
evidence satisfactory to it of the receipt of such consents, approvals,
authorizations and clearances.
8.7 Opinion of Counsel. The Purchaser shall have delivered to the Seller
the opinion, dated the Closing Date, of Brunini, Grantham, Grower & Hewes,
P.L.L.C., counsel to the Purchaser, to the effect set forth in Exhibit F
hereto.
ARTICLE IX
SURVIVAL OF PROVISIONS; REMEDIES
9.1 Survival. The representations, warranties, covenants, and agreements
respectively made by the Seller and the Purchaser in this Restated Agreement,
in the Disclosure Schedule, or in any certificate respectively delivered by
the Seller or the Purchaser pursuant to Section 7.3 or Section 8.3 will
survive the Closing:
(a) until the expiration of all applicable statutes of limitations
(including all periods of extension, whether automatic or permissive) in
the case of the representations and warranties of the Seller respectively
set forth in Sections 3.1, 3.2, 3.3, 3.12, and 3.14 hereof,
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and in the case of the indemnification agreements respectively set forth
in Sections 10.1 and 10.2 hereof; and
(b) until the thirty-sixth (36th) month anniversary of the Closing
in the case of all other representations, warranties, covenants, and
agreements, except that covenants and agreements to be performed after
the Closing in accordance with their terms will survive until the last
period to which any such Tax benefit could be carried pursuant to the
Code, and each indemnification agreement as to litigation set forth in
clause (ii) or (iii) of Section 10.3(a) will survive until a final,
nonappealable judgment has been entered with respect to the last of such
litigation.
If a Claim Notice or an Indemnity Notice is given in accordance with Section
10.5 before expiration of the applicable time period referenced above, then
(notwithstanding such time period) the representation, warranty, covenant, or
agreement applicable to such claim shall survive until, but only for purposes
of, resolution of such claim.
9.2 Available Remedies. Each party expressly agrees that, consistent with
its intention and agreement to be bound by the terms of this Restated
Agreement and to consummate the transactions contemplated hereby, subject only
to the performance or satisfaction of precedent conditions or of precedent
requirements imposed upon another party hereto, the remedy of specific
performance shall be available to a non-breaching and non-defaulting party to
enforce performance of this Restated Agreement by a breaching or defaulting
party, including, without limitation, to require the consummation of the
Closing on the Closing Date.
ARTICLE X
INDEMNIFICATION
10.1 Tax Indemnification.
(a) Subject to the provisions of Article IX hereof and this Section,
the Seller agrees to pay, and to indemnify the Purchaser and the Company
in respect of, and hold each of them harmless against, any and all
Damages for or in respect of Taxes actually incurred by, imposed upon, or
assessed against the Purchaser, the Seller, or the Company as a result of
or relating to any period ending on or before the Closing Date, save and
except for any increased tax liability for any period, or portion of a
period, prior to Closing that results from or is contributed to any
election (by action or inaction) of Purchaser.
(b) The Seller will notify the Purchaser, or (if applicable) the
Company will notify the Seller and the Purchaser, promptly of the
commencement of any claim, audit, examination, or other proposed change
or adjustment by any taxing authority concerning any Tax or other Damages
covered by Section 10.1(a) ("Tax Claim").
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(c) The Seller will furnish the Purchaser, or (if applicable) the
Company will furnish the Seller and the Purchaser, promptly with copies
of all correspondence (including, without limitation, notices, requests,
explanations, determinations, schedules, charts, and lists) received from
any taxing authority in connection with any Tax Claim. The Seller will
have the right to approve in advance any correspondence sent to any
taxing authority by or on behalf of the Company with respect to any Tax
Claim to the extent such correspondence would adversely affect the
Seller's obligations under Section 10.1(a); provided, however, that the
Seller will be deemed to have approved any such correspondence to the
extent notice of its disapproval thereof is not delivered or mailed to
the Purchaser in accordance with Article XII hereof with reasonable
promptness, but in all events at least fourteen (14) calendar days before
the date on which payment of the Tax is due or, if earlier, at least
fourteen (14) calendar days before the date on which the ability of the
Company to defend against the Tax Claim is irrevocably prejudiced.
(d) At its option (following reasonable notice to and consultation
with the Purchaser), the Seller may contest any Tax Claim in any legally
permissible manner until such time as any payment for Taxes or other
Damages with respect to such Tax Claim is due or, upon the Seller's
payment of such Taxes and other Damages, may sue for a refund thereof
where permitted by applicable Law. Except as provided in the last
sentence of this subsection, the Seller will control all proceedings
taken in connection with any such contest or refund suit, and may pursue
or forego any and all administrative appeals, proceedings, hearings, and
conferences with the taxing authority in respect of such Tax Claim. The
Company will take such lawful action in connection with the contest or
refund suit as the Seller may reasonably request in writing from time to
time, including, without limitation, the prosecution of the contest or
refund suit to a final determination, provided that (i) the Seller
requests such action with reasonable promptness, but in all events at
least fourteen (14) calendar days before the date on which payment of the
Taxes or other Damages are due or become final, or if earlier, at least
fourteen (14) calendar days before the date on which the Company's
ability to defend against the Tax Claim is irrevocably prejudiced, (ii) a
reasonable basis exists for such contest or refund suit, and (iii) the
Seller acknowledges (without any equivocation) its obligations under this
Section. Notwithstanding the foregoing provisions of this Section
10.1(e), if such contest or refund suit has or may reasonably be expected
to have a material effect on the Liability of the Company or the
Purchaser for Taxes with respect to any period ending after the Closing
Date, then the Seller and the Purchaser will jointly control any such
contest or refund suit.
10.2 Other Indemnification.
(a) Subject to the provisions of Article IX and Section 10.4, the
Seller agrees to indemnify the Purchaser and the Company in respect of,
and hold each of them harmless against:
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(i) any and all Damages (other than Damages that the Seller has
paid or is unequivocally liable to pay to the Purchaser or the
Company pursuant to Section 10.1) resulting from or relating to any
misrepresentation, breach of warranty, or nonfulfillment of or
failure to perform any covenant or agreement on the part of the
Seller made as a part of or contained in this Restated Agreement,
the Disclosure Schedule, or any certificate delivered by or for the
Seller pursuant to Section 7.3;
(ii) except as disclosed in Section 3.13 of the Disclosure
Schedule, any and all Damages resulting from or relating to any
action, suit, investigation, or proceeding pending against the
Company (whether as a defendant, counterclaim or third party
defendant, intervenor, or otherwise) on the Closing Date of this
Restated Agreement or arising at any time with respect to matters
occurring before the Closing, including, without limitation, any
action, suit, investigation or proceeding relating to any claims
arising under any insurance policies or Contracts assumed by Seller
from Company at any time on or prior to the Closing Date; and
(iii) except as disclosed in Section 3.13 of the Disclosure
Schedule, any and all punitive, treble or other exemplary Damages
resulting from or relating to any claim (other than claims for such
actual policy benefits as are specified under insurance or annuity
Contracts issued, reinsured, or underwritten by the Company)
asserted in any action, suit, investigation, or proceeding against
the Company (whether as a defendant, counterclaim or third party
defendant, intervenor, or otherwise) pending on the Closing Date of
this Restated Agreement or arising at any time with respect to
matters occurring before the Closing.
(b) Subject to the provisions of Article IX and Section 10.4, the
Purchaser agrees to indemnify the Seller in respect of, and hold the
Seller harmless against, any and all Damages resulting from or relating
to any misrepresentation, breach of warranty, or nonfulfillment of or
failure to perform any covenant or agreement on the part of the Purchaser
made as a part of or contained in this Restated Agreement or any
certificate delivered by or for the Purchaser pursuant to Section 8.3.
10.3 Method of Asserting Claims. All claims for indemnification by any
Indemnified Party under Section 10.2 will be asserted and resolved as follows:
(a) In the event any claim or demand for which an Indemnifying Party
would be liable for Damages to an Indemnified Party under Section 10.2 or
10.3 is asserted against or sought to be collected from such Indemnified
Party by a Person other than the Seller, the Purchaser, the Company, or
any Affiliate of the Seller or the Purchaser ("Third Party Claim"), the
Indemnified Party will deliver a Claim Notice with reasonable promptness
to the Indemnifying Party; provided, however, that except as set forth in
Section 10.4(d), no Claim Notice will be required with respect to any
action, suit, investigation, or proceeding that is
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in existence on the Closing Date to which indemnification applies. If the
Indemnified Party fails to provide the Indemnifying Party with the Claim
Notice required by the preceding sentence at least 14 calendar days
before the date on which the Indemnifying Party's ability to defend
against the Third Party Claim is irrevocably prejudiced by the
Indemnified Party's failure to provide such Claim Notice, the
Indemnifying Party will not be obligated to indemnify the Indemnified
Party with respect to such portion of the Third Party Claim as to which
the Indemnifying Party's ability to defend has been prejudiced by such
failure of the Indemnified Party. The Indemnifying Party will notify the
Indemnified Party with reasonable promptness, but in all events at least
14 calendar days before the date on which the Indemnified Party's ability
to defend against the Third Party Claim is irrevocably prejudiced
("Notice Period"), whether the Indemnifying Party disputes the Liability
of the Indemnifying Party to the Indemnified Party hereunder with respect
to such Third Party Claim and whether the Indemnifying Party desires, at
the sole cost and expense of the Indemnifying Party, to defend the
Indemnified Party against such Third Party Claim.
(b) If the Indemnifying Party notifies the Indemnified Party within
the Notice Period that the Indemnifying Party (without any equivocation)
does not dispute its Liability to the Indemnified Party and that the
Indemnifying Party desires to defend the Indemnified Party with respect
to the Third Party Claim pursuant to this Article X, then the
Indemnifying Party will have the right to defend, at its sole cost and
expense, such Third Party Claim by all appropriate proceedings, which
proceedings will be diligently prosecuted by the Indemnifying Party to a
final conclusion or will be settled at the discretion of the Indemnifying
Party (with the consent of the Indemnified Party, which consent will not
be withheld unreasonably). The Indemnifying party will have full control
of such defense and proceedings, including any compromise or settlement
thereof; provided, however, that the Indemnified Party may, at the sole
cost and expense of the Indemnifying Party, file during the Notice Period
any motion, answer, or other pleadings that the Indemnified Party may
deem necessary or appropriate to protect its interests or those of the
Indemnifying Party and not irrevocably prejudicial to the Indemnifying
Party (it being understood and agreed that, except as provided in Section
10.3(c), if an Indemnified Party takes any such action that is
irrevocably prejudicial and conclusively causes a final adjudication that
is materially adverse to the Indemnifying Party, the Indemnifying Party
will be relieved of its obligations hereunder with respect to the portion
of such Third Party Claim prejudiced by the Indemnified Party's action);
and provided further, that if requested by the Indemnifying Party, the
Indemnified Party agrees, at the sole cost and expense of the
Indemnifying Party, to cooperate with the Indemnifying Party and its
counsel in contesting any Third Party Claim that the Indemnifying Party
elects to contest, or, if appropriate and related to the Third Party
Claim in question, in making any counterclaim against the Person
asserting the Third Party Claim, or any cross-complaint against any
Person (other than the Indemnified Party or any of its Affiliates). The
Indemnified Party may participate in, but not control, any defense or
settlement of any Third Party Claim controlled by the Indemnifying Party
pursuant to this Section 10.3(b), and except as provided in the preceding
sentence, the Indemnified Party will bear its own costs and expenses with
respect to such participation.
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(c) If the Indemnifying Party fails to notify the Indemnified Party
within the Notice Period that the Indemnifying Party (without any
equivocation) does not dispute its Liability to the Indemnified Party and
that the Indemnifying Party desires to defend the Indemnified Party with
respect to the Third Party Claim pursuant to this Article X, or if the
Indemnifying Party gives such notice but fails diligently and promptly to
prosecute or settle the Third Party Claim, or if the Indemnifying Party
fails to give any notice whatsoever within the Notice Period, then the
Indemnified Party will have the right to defend, at the sole cost and
expense of the Indemnifying Party, the Third Party Claim by all
appropriate proceedings, which proceedings will be promptly and
vigorously prosecuted by the Indemnified Party to a final conclusion or
will be settled at the discretion of the Indemnified Party (with the
consent of the Indemnifying Party, which consent will not be withheld
unreasonably). The Indemnified Party will have full control of such
defense and proceedings, including any compromise or settlement thereof;
provided, however, that if requested by the Indemnified Party, the
Indemnifying Party agrees, at the sole cost and expense of the
Indemnifying Party, to cooperate with the Indemnified Party and its
counsel in contesting any Third Party Claim which the Indemnified Party
is contesting, or, if appropriate and related to the Third Party Claim in
question, in making any counterclaim against the Person asserting the
Third Party Claim, or any cross-complaint against any Person (other than
the Indemnifying Party or any of its Affiliates). Notwithstanding the
foregoing provisions of this Section 10.3(c), if the Indemnifying Party
has timely notified the Indemnified Party that the Indemnifying Party
disputes its Liability to the Indemnified Party and if such dispute is
resolved in favor of the Indemnifying Party by final, nonappealable order
of a court of competent jurisdiction, the Indemnifying Party will not be
required to bear the costs and expenses of the Indemnified Party's
defense pursuant to this Section 10.3(c) or of the Indemnifying Party's
participation therein at the Indemnified Party's request, and the
Indemnified Party will reimburse the Indemnifying Party in full for all
costs and expenses incurred by the Indemnifying Party in connection with
such litigation. The Indemnifying Party may participate in, but not
control, any defense or settlement controlled by the Indemnified Party
pursuant to this Section 10.3(c), and the Indemnifying Party will bear
its own costs and expenses with respect to such participation.
(d) At the Closing, the Seller will provide the Purchaser with the
notice required by Section 10.3(b) or 10.3(c) hereof with respect to each
action, suit, investigation, or proceeding that is described in clause
(ii) or (iii) of Section 10.2(a) hereof and is in existence on the
Closing Date to which indemnification applies.
10.4 After-Tax Damages. With respect to the indemnification agreements
set forth in this Article X, the Seller and the Purchaser agree that:
(a) the amount of any Tax refund actually received, and the amount
of any Tax reduction actually realized by any of the Seller, the
Purchaser, or the Company after the
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Closing as a result of Damages (including without limitation Taxes) for
which any indemnification payment has been made or is then due by the
Seller pursuant to Section 10.1, 10.2(a) hereof will be promptly paid to
the Seller or offset against Damages then owed by the Seller hereunder;
and
(b) the amount of any Tax refund actually received, and the amount
of any Tax reduction actually realized, by the Seller after the Closing
as a result of Damages for which any indemnification payment has been
made or is then due by the Purchaser pursuant to Section 10.2(b) hereof
will be promptly paid to the Purchaser or offset against Damages then
owed by the Purchaser hereunder.
10.5 Assignment of Indemnification. Each of the Purchaser and the Company
may assign its rights to indemnification under this Article X to any direct or
indirect transferee or transferees of all the Shares, and each such transferee
shall have the same rights to indemnification under this Article X as the
Purchaser and the Company.
ARTICLE XI
WAIVER
11.1 Senior Debt of Seller. Heretofore, Purchaser acquired from Trustmark
National Bank of Jackson, Mississippi, the Senior Debt of Seller. Such Senior
Debt is governed by the provisions of a certain loan agreement (the "Loan
Agreement") dated the 3rd day of May, 1993, between Trustmark National Bank
and Seller.
(a) In a Letter of Intent between the Purchaser and Seller executed
on or about March 6, 1995, Purchaser extended the maturity of the
aforesaid Senior Debt until the Closing or ninety (90) days following the
notification by either party hereto to the other of the impossibility of
Closing according to the terms hereof. Subsequently, Purchaser waived
until the maturity of the Senior Debt the provisions of Section
4.01(v)(a) of the Loan Agreement.
(b) Purchaser, for the consideration herein stated, herein confirms
the extension of the maturity of the aforesaid Senior Debt as set forth
in the Letter of Intent and further agrees, for such consideration, that
the 90 day period in the Letter of Intent and as set forth in paragraph
11.1(a) above is amended to be 180 days. Further, Purchaser confirms the
waiver of Section 4.01(v)(a) of the Loan Agreement and agrees to waive,
until the maturity of the Senior Debt, Sections 4.01(b), (c),
4.02(a)(solely as related to Seller), (d)(solely as related to Seller),
and (f)(solely as related to Seller).
(c) At Closing, Purchaser agrees that Seller shall be excused and
relieved of its obligation to pay interest on the Senior Debt for a
period of one half month.
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ARTICLE XII
TERMINATION
12.1 Termination. This Restated Agreement may be terminated, and the
transactions contemplated hereby may be abandoned, upon notice by the
terminating party to the other party:
(a) at any time before the Closing, by mutual written agreement of
the Seller and the Purchaser; or
(b) at any time by the Seller if any of the covenants set forth in
Article VI shall have been breached or any of the conditions set forth in
Article VIII hereof shall not have been satisfied, performed, or complied
with, in any material respect, at or before the Closing Date and such
breach, non-satisfaction, non-performance, or non-compliance has not been
cured or eliminated within thirty (30) calendar days after notice thereof
has been given to the Purchaser, provided that at the time of such
termination the Seller has neither breached any of the covenants set
forth in Article V nor failed to satisfy, perform, or comply with any of
the conditions set forth in Article VII hereof, in any material respect;
or
(c) at any time by the Purchaser if any of the covenants set forth
in Article V shall have been breached or any of the conditions set forth
in Article VII hereof shall not have been satisfied, performed, or
complied with, in any material respect, before the Closing Date and such
breach, non-satisfaction, non-performance or non-compliance has not been
cured or eliminated within thirty (30) days after notice thereof has been
given to the Seller, or if the Disclosure Schedule is not delivered to
the Purchaser within five (5) days after the date hereof, or if the
Disclosure Schedule or other information provided to the Purchaser
discloses any change in, or event, trend, condition or state of facts of
any character that individually or in the aggregate has or may reasonably
be expected to have a material adverse effect on the Business or
Condition of the Company and such change, event, trend, condition or
state of facts has not been cured or eliminated within ten (10) days
after notice thereof has been given to the Seller, provided that at the
time of such termination the Purchaser has neither breached any of the
covenants set forth in Article VI nor failed to satisfy, perform, or
comply with any of the conditions set forth in Article VIII hereof, in
any material respect; or
(d) at any time after October 16, 1995, by the Seller or the
Purchaser, if the transactions contemplated by this Restated Agreement
have not been consummated on or before such date and such failure to
consummate is not caused by a breach of this Restated Agreement (or any
representation, warranty, covenant, or agreement included herein) by the
party electing to terminate pursuant to this clause (d).
12.2 Effect of Termination. If this Restated Agreement is validly
terminated pursuant to Section 12.1, this Restated Agreement will forthwith
become null and void, and there will be no Liability on the part of the Seller
or the Purchaser (or any of their respective officers, directors,
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employees, agents, consultants, or other representatives), except that the
provisions relating to confidentiality in Section 13.6 will continue to apply
following any such termination; provided, however, that, notwithstanding
anything in this Section to the contrary, no party electing to terminate this
Restated Agreement pursuant to Section 12.1 will be relieved of any Liability
for Damages that the electing party may have to the other party by reason of
the electing party's breach of this Restated Agreement (or any representation,
warranty, covenant, or agreement included herein).
ARTICLE XIII
MISCELLANEOUS
13.1 Default and Arbitration. (a) Default. If Purchaser believes there
has been a default with respect to one or more of the representations,
warranties, covenants or agreements of Seller or the Company in this Restated
Agreement, Purchaser shall send notice to Seller of such alleged default
(which notice shall describe the nature of such default, provide appropriate
documentation (where available), and, where clearly determinable from the
nature of the default, the amount of the related claim (including any
consequential or incidental damages) (a "Default Notice"). Thereupon, the
parties shall in good faith attempt to informally resolve such default and
agree upon the amount of such claim.
(b) Arbitration. In the event that the parties are unable to
informally resolve a matter which is the subject of a Default Notice
under this Section 13.1 within 45 days after receipt of the notice,
either party, upon written notice to the other, may elect to submit the
matter to arbitration in accordance with the Commercial Arbitration Rules
of the American Arbitration Association then in effect, except as
otherwise provided herein.
Arbitration shall be before a panel of three (3) neutral
arbitrators expert in the life insurance business. Within ten (10) days
of receipt of notice of an election of arbitration, each party shall
select an arbitrator and notify the other of such party's selection.
Within ten (10) days thereafter, the two arbitrators shall select a third
arbitrator. If they fail to select a third arbitrator, then the third
arbitrator shall be designated by the American Arbitration Association.
All Default Notice matters subject to arbitration under this
Section 13.1 shall take place in Indianapolis, Indiana. All awards shall
be made on the majority vote of the arbitrators. The non-prevailing party
shall pay all fees and expenses of such arbitration, as well as the
reasonably and actually incurred attorneys' fees of the prevailing party.
If there is no clear prevailing party, the arbitrators may award fees and
expenses as they deem just.
The award in the arbitration shall be final and binding on the
parties, and judgment may be entered in any court having competent
jurisdiction.
13.2 Notices. All notices and other communications under this Restated
Agreement must be in writing and will be deemed to have been duly given if
delivered, telecopied or mailed, by
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certified mail, return receipt requested, first class postage prepaid, to the
parties at the following addresses:
If to the Seller, to:
Dixie National Corporation
3760 I-55 North
Jackson, Mississippi 39211
Attention: Robert B. Neal
Telecopy: (601)981-8076
With a copy to:
Wells, Moore Simmons & Neeld
1300 Deposit Guaranty Plaza
Jackson, Mississippi 39215-1970
Attention: James H. Neeld, III, Esq.
Telecopy: (601)355-5850
If to the Purchaser, to:
Standard Life Insurance Company of Indiana
9100 Keystone Crossing, #600
Indianapolis, Indiana 46240
Attention: Edward T. Stahl, Executive Vice President
Telecopy: (317)574-6227
With a copy to:
Brunini, Grantham, Grower & Hewes, P.L.L.C.
1400 Trustmark Building
248 E. Capitol Street
Jackson, Mississippi 39201
Attention: Robert D. Drinkwater, Esq.
Telecopy: (601)960-6902
All notices and other communications required or permitted under this Restated
Agreement that are addressed as provided in this Article XII will, if
delivered personally, be deemed given upon delivery, will, if delivered by
telecopy, be deemed delivered when confirmed and will, if delivered by mail in
the manner described above, be deemed given on the third Business Day after
the day it is deposited in a regular depository of the United States mail. 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
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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.
13.3 Entire Agreement. Except for documents executed by the Seller and
the Purchaser pursuant hereto, this Restated Agreement supersedes all prior
discussions and agreements between the parties with respect to the subject
matter of this Restated Agreement, and this Restated Agreement (including the
exhibits thereto, the Disclosure Schedule, and other Contracts and documents
delivered in connection herewith) contains the sole and entire agreement
between the parties hereto with respect to the subject matter hereof.
13.4 Expenses. Except as otherwise expressly provided in this Restated
Agreement (including, without limitation, as provided in Article X and Section
12.2), each of the Seller and the Purchaser will pay its own costs and
expenses in connection with this Restated Agreement and the transactions
contemplated hereby.
13.5 Public Announcements. At all times at or before the Closing, the
Seller and the Purchaser will each consult with the other before issuing or
making any reports, statements, or releases to the public with respect to this
Restated Agreement or the transactions contemplated hereby and will use good
faith efforts to agree on the text of a joint public report, statement, or
release or will use good faith efforts to obtain the other party's approval of
the text of any public report, statement, or release to be made solely on
behalf of a party. If the Seller and the Purchaser are unable to agree on or
approve any such public report, statement, or release and such report,
statement, or release is, in the opinion of legal counsel to a party, required
by Law or may be appropriate in order to discharge such party's disclosure
obligations, then such party may make or issue the legally required report,
statement, or release. Any such report, statement, or release approved or
permitted to be made pursuant to this Section may be disclosed or otherwise
provided by the Seller or the Purchaser to any Person, including without
limitation to any employee or customer of either party hereto and to any
governmental or regulatory authority.
13.6 Confidentiality. Each of the Seller and the Purchaser will hold, and
will cause its respective officers, directors, employees, agents, consultants,
and other representatives to hold, in strict confidence, unless compelled to
disclose by judicial or administrative process (including, without limitation,
in connection with obtaining the necessary approval of insurance regulatory
authorities) or by other requirements of Law, all confidential documents and
confidential information concerning the other party furnished to it by the
other party or such other party's officers, directors, employees, agents,
consultants, or representatives in connection with this Restated Agreement or
the transactions contemplated hereby, except to the extent that such documents
or information can be shown to have been (a) previously lawfully known by the
party receiving such documents or information, (b) in the public domain
through no fault of such receiving party, or (c) later acquired by the
receiving party from other sources not themselves bound by, and in breach of,
a confidentiality agreement. Neither the Seller nor the Purchaser will
disclose or otherwise provide any such confidential documents or confidential
information to any other Person, except to the Purchaser's lenders and
investors and to either party's respective auditors, actuaries, attorneys,
financial advisors,
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and other consultants and advisors who need such documents or information in
connection with this Restated Agreement and except as required by the
provisions of Sections 5.1 and 6.1.
13.7 Further Assurances. The Seller and the Purchaser agree that, from
time to time after the Closing, upon the reasonable request of the other, they
will cooperate and will cause their respective Affiliates to cooperate with
each other to effect the orderly transition of the business, operations, and
affairs of the Company. Without limiting the generality of the foregoing, the
Seller will give and will cause its Affiliates to give representatives of the
Purchaser reasonable access to all Books and Records of the Seller and its
Affiliates reasonably requested by the Purchaser in the preparation of any
post-Closing financial statements, reports, or Tax Returns.
13.8 Waiver. Any term or condition of this Restated Agreement may be
waived at any time by the party that is entitled to the benefit thereof. Such
waiver must be in writing and must be executed by the chief executive officer
or the chief operating officer of such party. A waiver on one occasion will
not be deemed to be a waiver of the same or any other breach on a future
occasion. All remedies, either under this Restated Agreement, or by Law or
otherwise afforded, will be cumulative and not alternative.
13.9 Amendment. This Restated Agreement may be modified or amended only
by a writing duly executed by or on behalf of the Seller and the Purchaser.
13.10 Counterparts. This Restated Agreement may be executed
simultaneously in any number of counterparts, each of which will be deemed an
original, but all of which will constitute one and the same instrument.
13.11 No Third Party Beneficiary. The terms and provisions of this
Restated Agreement are intended solely for the benefit of the Seller and the
Purchaser, 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.
13.12 Governing Law. THIS RESTATED AGREEMENT WILL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF INDIANA (EXCLUSIVE OF
CONFLICTS OF LAW PRINCIPLES) AND WILL, TO THE MAXIMUM EXTENT PRACTICABLE, BE
DEEMED TO CALL FOR PERFORMANCE IN MARION COUNTY, INDIANA. COURTS WITHIN THE
STATE OF INDIANA SHALL HAVE JURISDICTION OVER ANY AND ALL DISPUTES BETWEEN THE
PARTIES HERETO, WHETHER IN LAW OR EQUITY, INCLUDING, WITHOUT LIMITATION, ANY
AND ALL DISPUTES ARISING OUT OF OR RELATING TO THIS RESTATED AGREEMENT. THE
PARTIES HEREBY CONSENT TO AND AGREE TO SUBMIT TO THE JURISDICTION OF SUCH
COURTS. VENUE IN ANY SUCH DISPUTE WHETHER IN FEDERAL OR STATE COURT SHALL BE
LAID IN MARION COUNTY, INDIANA.
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13.13 Binding Effect. This Restated Agreement is binding upon and will
inure to the benefit of the parties and their respective successors and
assigns.
13.14 Assignment. Except as otherwise provided herein (including, without
limitation, as provided in Section 10.6), this Restated Agreement or any right
hereunder or part hereof may not be assigned by any party hereto without the
prior written consent of the other party hereto.
13.15 Headings, etc. The headings used in this Restated Agreement have
been inserted for convenience and do not constitute matter to be construed or
interpreted in connection with this Restated Agreement.
13.16 Invalid Provisions. If any provision of this Restated Agreement is
held to be illegal, invalid, or unenforceable under any present or future Law,
and if the rights or obligations of the Seller or the Purchaser under this
Restated Agreement will not be materially and adversely affected thereby; (a)
such provision will be fully severable; (b) this Restated Agreement will be
construed and enforced as if such illegal, invalid, or unenforceable provision
had never comprised a party hereof; (c) the remaining provisions of this
Restated 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; and (d) in lieu of such illegal, invalid, or unenforceable
provision, there will be added automatically as a part of this Restated
Agreement a legal, valid, and enforceable provision as similar in terms to
such illegal, invalid, or unenforceable provision as may be possible.
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IN WITNESS WHEREOF, this Restated Agreement has been duly executed
and delivered by the parties hereto, effective as of the date first written
above.
DIXIE NATIONAL CORPORATION
By:/s/S. L. Reed, Jr.
-------------------
Name: S. L. Reed, Jr.
Title: Chairman and CEO
DIXIE NATIONAL LIFE INSURANCE COMPANY
By:/s/ Robert B. Neal
------------------
Name: Robert B. Neal
Title: Chairman and CEO
STANDARD LIFE INSURANCE COMPANY OF
INDIANA
By:/s/ Ronald D. Hunter
--------------------
Name: Ronald D. Hunter
Title: Chairman and CEO
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EXHIBIT A
DEFINITION OF TERMS
"Adjusted Capital and Surplus" as of any date shall mean the Company's
statutory capital and surplus as of such date, adjusted pursuant to the
Formula set forth on Exhibit B hereto and determined based on SAP consistently
applied throughout the specified period and in the immediately prior
comparable period.
"Affiliate" shall mean any Person that directly, or indirectly through
one or more intermediaries, controls, is controlled by, or is under common
control with the Person specified.
"Agreement" shall mean this Restated Stock Purchase Agreement, together
with the exhibits and the Disclosure Schedule attached hereto, and the
Contracts and other documents to be executed and delivered respectively by
Seller and Company pursuant hereto.
"Annual Statement" shall mean any annual statement of the Company filed
with or submitted to the insurance regulatory authority in the State of
Mississippi on forms prescribed or permitted by such authority.
"Assets and Properties" shall mean all assets or properties of every
kind, nature, character, and description (whether real, personal, or mixed
whether tangible or intangible, whether absolute, accrued, contingent, fixed,
or otherwise, and wherever situated) as now operated, owned, or leased by a
specified Person, including without limitation cash, cash equivalents,
securities, accounts and notes receivable, real estate, equipment, furniture,
fixtures, insurance or annuities in force, goodwill, and going-concern value.
"AVR" shall mean the asset valuation reserve required to be established
and maintained by the Company at any particular date, calculated in accordance
with SAP.
"Benefit Plans" shall mean all Employee Pension Benefit Plans, all
Employee Welfare Benefit Plans, all stock bonus, stock ownership, stock
option, stock purchase, stock appreciation rights, phantom stock, and other
stock plans (whether qualified or nonqualified), and all other pension,
welfare, severance, retirement, bonus, deferred compensation, incentive
compensation, insurance (whether life, accident and health, or other and
whether key man, group, workers compensation, or other), profit sharing,
disability, thrift, day care, legal services, leave of absence, layoff, and
supplemental or excess benefit plans, and all other benefit Contracts,
arrangements, or procedures having the effect of a plan, in each case existing
on or before the Closing Date under which the Company is or may hereafter
become obligated in any manner (including without limitation obligations to
make contributions or other payments) and which cover some or all of the
present or former
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officers, directors, employees, agents, consultants, or other similar
representatives providing services to or for the Company; provided, however,
that such term shall not include (a) routine employment policies and
procedures developed and applied in the ordinary course of business and
consistent with past practice, including without limitation sick leave,
vacation, and holiday policies, and (b) directors and officers liability
insurance.
"Books and Records" shall mean all accounting, financial reporting, Tax,
business, marketing, corporate, and other files, documents, instruments,
papers, books, and records of a specified Person, including without limitation
financial statements, budgets, projections, ledgers, journals, deeds, titles,
policies, manuals, minute books, stock certificates and books, stock transfer
ledgers, Contracts, franchises, permits, agency lists, policyholder lists,
supplier lists, reports, computer files, retrieval programs, operating data or
plans, and environmental studies or plans.
"Business Day" shall mean a day other than Saturday, Sunday, or any day
on which the principal commercial banks located in the City of Indianapolis
are authorized or obligated to close under the Laws of the State of Indiana.
"Business or Condition" shall mean the organization, existence,
authority, capitalization, business, licenses, condition (financial or
otherwise), cash flow, management, sales force, solvency, prospects, SAP
results of operations, insurance or annuities in force, SAP capital and
surplus, MSVR, Liabilities, or Assets and Properties of a specified Person.
"Claim Notice" shall mean written notification of a Third Party Claim by
and Indemnified Party to an Indemnifying Party pursuant to Section 10.3(a),
enclosing a copy of all papers served, if any.
"Closing" shall mean the closing of the transactions contemplated by this
Agreement as provided in Section 2.4.
"Closing Adjusted Capital and Surplus" shall have the meaning ascribed to
in Section 2.3 hereof.
"Closing Date" shall mean the earlier of (a) the fifth Business Day next
following the satisfaction to all conditions to Seller's and Purchaser's
obligations, or (b) such other date as the Purchaser and Seller may mutually
agree upon in writing.
"Code" shall mean the Internal Revenue Code of 1986, as amended
(including without limitation any successor code), and the rules and
regulations promulgated thereunder.
"Common Stock" shall have the meaning ascribed to it in the preamble of
this Agreement.
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"Damages" shall mean any and all monetary damages, Liabilities, fines,
fees, penalties, interest obligations, deficiencies, losses, and expenses
(including without limitation punitive, treble, or other exemplary or extra
contractual damages, amounts paid in settlement, interest, court costs, costs
of investigation, fees and expenses of attorneys, accountants, actuaries, and
other experts, and other expenses of litigation or of any claim, default, or
assessment).
"Dixie Convertible Subordinated Notes" shall mean the outstanding
subordinated convertible notes dated May 1, 1993, issued by Seller.
"Disclosure Schedule" shall mean the bound record dated the effective
date of this Agreement, furnished by Seller to the Purchaser, and containing
all lists, descriptions, exceptions, and other information and materials as
are required to be included therein pursuant to this Agreement.
"Employee Pension Benefit Plan" shall mean each employee pension benefit
plan (whether or not insured), as defined in Section 3(2) of ERISA, which is
or was in existence on or before the Closing Date and to which the Company is
or may hereafter become obligated in any manner as an employer.
"Employee Welfare Benefit Plan" shall mean each employee welfare benefit
plan (whether or not insured), as defined in Section 3(1) of ERISA, which is
or was in existence on or before the Closing Date and to which the Company is
or may hereafter become obligated in any manner as an employer.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended (including without limitation any successor act), and the rules and
regulations promulgated thereunder.
"ERISA Affiliate" shall mean any Person under common control (as defined
in Section 414 of the Code) with the Company.
"GAAP" shall mean generally accepted accounting principles, consistently
applied throughout the specified period and in the immediately prior
comparable period.
"IMR" shall mean the interest maintenance reserve required to be
established and maintained by the Company at any particular date, calculated
in accordance with SAP.
"Indemnified Party" shall mean a Person claiming indemnification under
this Agreement.
"Indemnifying Party" shall mean a Person against whom claims of
indemnification are being asserted under this Agreement.
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"IRS" shall mean the United States Internal Revenue Service or any
successor agency.
"Laws" shall mean all laws, statutes, ordinances, regulations, and other
pronouncements having the effect of law in the United States of America, any
foreign country, or any domestic or foreign state, province, commonwealth,
city, country, municipality, territory, protectorate, possession, court,
tribunal, agency, government, department, commission, arbitrator, board,
bureau, or instrumentality thereof.
"Liabilities" shall mean all debts, obligations, and other liabilities of
a Person (whether absolute, accrued, contingent, fixed, or otherwise, or
whether due or to become due).
"Lien" shall mean any mortgage, pledge, assessment, security interest,
lease, sublease, lien, adverse claim, levy, charge, or other encumbrance of
any kind, or any conditional sale Contract, title retention Contract, or other
Contract to give or to refrain from giving any of the foregoing.
"Market Value" shall mean the value at which any Assets or Properties of
the Company would be sold in an arm's length transaction between a willing
seller and a willing purchaser, neither of whom was under any obligation to
sell or purchase such Assets or Properties. The Market Value of securities for
which quotes are available in The Wall Street Journal shall be determined by
reference to the Closing Bid price for such Assets and Properties as quoted in
the final edition of the Wall Street Journal on the Closing Date; and for
securities for which a quoted price is not available, by a securities firm of
recognized national standing mutually acceptable to the parties. In the event
the parties cannot agree upon the Market Value of any specific Assets or
Properties of the Company, such Assets and Properties shall be sold within
five (5) Business Days after the Closing Date, and the Market Value shall be
the amount realized upon the sale of such Assets and Properties.
"Non-Admitted Assets" shall mean any assets of the Company required to be
reported as "assets not admitted" on Exhibit 13 of any Annual Statement or
Quarterly Statement filed by the Company.
"Notice Period" shall have the meaning ascribed to it in Section 10.3(a).
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
under ERISA.
"Prime Rate" shall mean the prime commercial interest rate as quoted by
Trustmark National Bank at its main offices as its prime rate as of the date
the principal liability accrued.
"Purchaser" shall have the meaning ascribed to it in the preamble of this
Agreement.
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"Quarterly Statement" shall mean any quarterly statement of the Company
filed with or submitted to the insurance regulatory authority in the State of
Mississippi on forms prescribed or permitted by such authority.
"SAP" shall mean the accounting practices required or permitted by the
National Association of Insurance Commissioners and the insurance regulatory
authority in the State of Mississippi, consistently applied throughout the
specified period and in the immediately prior comparable period.
"SAP Statements" shall mean the Annual Statements, Quarterly Statements,
and other financial statements and presentations of the Company prepared in
accordance with SAP and delivered to the Purchaser pursuant to this Agreement.
"Seller" shall have the meaning ascribed to it in the preamble of this
Agreement and shall include the Company, unless the context otherwise
requires.
"Senior Debt" shall mean that certain promissory note of Seller in favor
of Trustmark National Bank dated May 3, 1993 in the principal amount of Three
Million Six Hundred Eighty-Eight Thousand Seven Hundred Forty-Six Dollars and
34/100 ($3,688,746.34), which was sold to Purchaser on November 7, 1994.
"Shares" shall have the meaning ascribed to it in the preamble of this
Agreement.
"SMC" shall mean Standard Management Corporation.
"Taxes" shall mean all taxes, charges, fees, levies, or other similar
assessments or Liabilities, including without limitation income, gross
receipts, ad valorem, premium, excise, real property, personal property,
windfall profit, sales, use, transfer, licensing, withholding, employment,
payroll, Phase III, and franchise taxes imposed by the United States of
America or any state, local, or foreign government, or any subdivision agency,
or other similar Person of the United States or any such government; and such
term shall include any interest, fines, penalties, assessments, or additions
to tax resulting from, attributable to, or incurred in connection with any
such tax or any contest or dispute thereof.
"Tax Claim" shall have the meaning ascribed to it in Section 10.1(b).
"Tax Returns" shall mean any report, return, or other information
required to be supplied to a taxing authority in connection with Taxes.
"Third Party Claim" shall have the meaning ascribed to it in Section
10.3(a).
"Work Papers" shall mean all summaries, calculations, compilations and
similar written documentation derived from the accounts of the Company and
used or prepared by accountants in the process of computing Adjusted Capital
and Surplus.
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EXHIBIT B
FORMULA FOR DETERMINING
ADJUSTED CAPITAL AND SURPLUS OF COMPANY
AS OF THE CLOSING DATE
PURSUANT TO SECTION 2.3(b)
The Adjusted Capital and Surplus of the Company on the Closing Date shall
be determined as follows (the "Formula"):
1. SAP Capital and Surplus as of June 30, 1995, PLUS:
2. The present value of the IMR of the Company on June 30, 1995,
discounted at the rate of 4.0% per annum; PLUS:
3. The AVR held by the Company as of June 30, 1995.
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EXHIBIT C
FORM OF CERTIFICATE OF OFFICER OF SELLER
At the Closing, the Seller shall deliver to the Purchaser a certificate,
dated the Closing Date, executed by the Chief Executive Officer or Chief
Financial Officer of the Seller, to the following effect:
Pursuant to the provisions of Section 7.3 of that certain Restated Stock
Purchase Agreement dated August 8, 1995, but effective as of April 18, 1995
(the "Agreement") by and among Dixie National Corporation (the "Seller"),
Dixie National Life Insurance Company (the "Company") and Standard Life
Insurance Company of Indiana (the "Purchaser"), and relating to the purchase
and sale of 1,489,904 shares of the common capital stock of the Company (the
"Stock") by the Seller to the Purchaser, I, the undersigned [Chief Executive
Officer/Chief Financial Officer] of the Seller do hereby certify to the
Purchaser as follows:
1. That I am the duly elected [Chief Executive Officer/Chief Financial
Officer] of the Seller, and in that capacity have the requisite power and
authority to execute and deliver this certificate on behalf of the Seller and,
as appropriate, the Company;
2. That the representations and warranties of the Seller and the Company
made in connection with the Agreement and contained in Article III thereof and
in the Disclosure Schedule attached to the Agreement and the certifications
given pursuant to Section 5.5(c) of the Agreement are true and correct as of
the date of this certificate as though made by the Seller and the Company on
and as of the date, whether or not they were untrue or incorrect prior to such
date;
3. That the Seller and the Company have each performed and complied with
all agreements, covenants, obligations and conditions required by the
Agreement to be so performed or complied with by the Seller and/or the Company
at or before the Closing, including those specifically referred to in Articles
V and VII of the Agreement; and
4. That all of the conditions to the obligations of the Purchaser to
purchase the Stock from the Seller set forth in Article VII of the Agreement
have fulfilled.
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EXHIBIT D
FORM OF SELLER'S COUNSEL'S OPINION
At the Closing, Seller shall deliver to Purchaser the opinion of its
counsel, Wells, Moore Simmons & Neeld, to the following effect:
1. The Seller is a corporation duly organized, validly existing and in
good standing under the laws of the State of Mississippi and has full
corporate power and authority to enter into the Agreement and perform its
obligations thereunder.
2. The Company is an insurance company duly organized, validly existing
and in good standing under the laws of the State of Mississippi, and is duly
licensed, qualified or admitted to do business and is in good standing in all
jurisdictions listed on Section 3.1 of the Disclosure Schedule, and has full
corporate power and authority to enter into the Agreement and perform its
obligations thereunder.
3. The execution and delivery of the Agreement by the Seller and the
Company and the performance of their respective obligations thereunder have
been duly and validly authorized by all necessary corporate action on the part
of the Seller and the Company, and the Agreement constitutes the legal, valid
and binding obligation of the Seller and the Company and is enforceable
against each of them in accordance with its terms, except to the extent that
(a) enforcement may be limited by or subject to any bankruptcy, insolvency,
reorganization, moratorium or other similar Laws now or hereafter in effect
relating to or limiting creditors' rights generally and (b) the remedy of
specific performance and injunctive and other forms of equitable relief are
subject to certain equitable defenses and to the discretion of the court or
other Person before which any such proceeding therefor may be brought.
4. The authorized capital stock of the Company is as set forth in Section
3.3 of the Agreement; all of such shares are validly issued and outstanding,
fully paid and nonassessable, and 1,489,904 of such shares are owned
beneficially and of record by the Seller, free and clear of all Liens, except
as may be disclosed in Section 3.3 of the Disclosure Schedule; and there are
no securities, obligations, rights, subscriptions, warrants, options, charter
or founders insurance policies, phantom stock rights, or Contracts of any kind
of the Company which are subject of any rights or options of the nature
described in Section 3.3 of the Agreement.
5. The execution and delivery of the Agreement by the Seller and the
Company does not, and the performance by the Seller and the Company of their
respective obligations under the agreement will not, subject to obtaining the
approvals contemplated by Sections 5.1 and 6.1 of the Agreement, (a) violate
any term or provisions of any Law or any writ, judgment, decree, injunction or
similar order applicable to the Seller or the Company; (b)
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conflict with or result in a violation or breach of, or constitute (with or
without notice or lapse of time or both) a default under, any of the terms,
conditions, or provisions of the articles or certificate of incorporation or
Bylaws of the Seller or the Company; (c) result in the creation or imposition
of any Lien upon the Seller, the Company, or any of their respective Assets
and Properties that individually or in the aggregate with any other Liens has
or may reasonably be expected to have a material adverse effect on the
validity or enforceability of the Agreement, on the ability of the Seller or
the Company to perform their respective obligations under the Agreement, or on
the Business or Condition of the Seller or the Company; of (d) conflict with
or result in a violation or breach of, or constitute (with or without notice
or lapse of time or both) a default under, or give to any Person any right of
termination, cancellation, acceleration, or modification in or with respect
to, any Contract to which the Seller or the Company is a party or by which any
of their respective Assets or Properties may be bound and as to which any such
conflicts, violations, breaches, defaults or rights individually or in the
aggregate have or may reasonably be expected to have a material adverse effect
on the validity or enforceability of the Agreement, on the ability of the
Seller or the Company to perform its respective obligations under the
Agreement, or on the Business or Condition of the Seller or the Company.
6. Any consent, approval, order or authorization of, or any waiting
period imposed by any regulatory authority under federal or state law,
including the laws of the State of Mississippi and the State of Indiana, which
require the Seller or the Company to obtain any consent, approval, or action
of, or make any filing with or give any notice to, any person except those
which the failure to obtain, make, or give individually or in the aggregate
with any other such failures has or may reasonably be expected to have no
material adverse effect on the validity or enforceability of the Agreement, or
in the Business or Condition of the Seller or the Company, in connection with
the execution and delivery of the Agreement and the performance by the Seller
and the Company of their respective obligations under the Agreement has been
obtained or, in the case of any such waiting period, has expired.
7. To such counsel's actual knowledge, except as disclosed in Section
3.13 of the Disclosure Schedule: (a) there are no actions, suits
investigations or proceedings pending or threatened against the Seller or the
Company or any of their respective Assets and properties, at law or in equity,
in, before, or by any Person that individually or in the aggregate have or may
reasonably be expected to have a material adverse effect on the validity or
enforceability of the Agreement, on the ability of the Seller or the Company
to perform their respective obligations under the Agreement, or on the
Business or Condition of the Seller or the Company; and (b) there are no
writs, judgments, decrees or similar orders of any Person restraining,
enjoining or otherwise preventing consummation of the transactions
contemplated by the Agreement.
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EXHIBIT E
FORM OF CERTIFICATE OF OFFICER OF PURCHASER
At the Closing, the Purchaser shall deliver to the Seller a certificate,
dated the Closing Date, executed by the Chief Executive Officer or Chief
Financial Officer of the Purchaser, to the following effect:
Pursuant to the provisions of Section 8.3 of that certain Restated Stock
Purchase Agreement dated August 8, 1995, but effective as of April 18, 1995
(the "Agreement") by and among Dixie National Corporation (the "Seller"),
Dixie National Life Insurance Company (the "Company") and Standard Life
Insurance Company of Indiana (the "Purchaser"), and relating to the purchase
and sale of 1,489,904 shares of the common capital stock of the Company (the
"Stock") by the Seller to the Purchaser, I, the undersigned [Chief Executive
Officer/Chief Financial Officer] of the Purchaser do hereby certify to the
Seller as follows:
1. That I am the duly elected [Chief Executive Officer/Chief Financial
Officer] of the Purchaser, and in that capacity have the requisite power and
authority to execute and deliver this certificate on behalf of the Purchaser;
2. That the representations and warranties of the Purchaser in connection
with the Agreement and contained in Article IV thereof are true and correct as
of the date of this certificate as though made by the Purchaser on and as of
the date, whether or not they were untrue or incorrect prior to such date;
3. That the Purchaser has performed and complied with all agreements,
covenants, obligations and conditions required by the Agreement to be so
performed or complied with by the Purchaser at or before the Closing,
including those specifically referred to in Articles VI and VIII of the
Agreement; and
4. That all of the conditions to the obligations of Seller to sell the
Stock to the Purchaser set forth in Article VIII of the Agreement have been
fulfilled.
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EXHIBIT F
FORM OF PURCHASER'S COUNSEL'S OPINION
At the Closing, Purchaser shall deliver to Seller the opinion of its
counsel, Brunini, Grantham, Grower and Hewes, P.L.L.C., to the following
effect:
1. The Purchaser is a life insurance company duly organized, validly
existing and in good standing under the laws of the State of Indiana and has
full corporate power and authority to enter into the Agreement and perform its
obligations thereunder.
2. The execution and delivery of the Agreement by the Purchaser and the
performance of its obligations thereunder have been duly and validly
authorized by all necessary corporate action on the part of the Purchaser, and
the Agreement constitutes the legal, valid, and binding obligation of the
Purchaser and is enforceable against the Purchaser in accordance with the
terms, except to the extent that (a) enforcement may be limited by or subject
to any bankruptcy, insolvency, reorganization, moratorium, or similar Laws now
or hereafter in effect relating to or limiting creditors' rights generally and
(b) the remedy of specific performance and injunctive and other forms of
equitable relief are subject to certain equitable defenses and to the
discretion of the court or other similar Person before which any such
proceeding therefor may be brought.
3. The execution and delivery of the Agreement by the Purchaser does not,
and the performance by the Purchaser of its obligations under the Agreement
will not, subject to obtaining the approvals contemplated by Sections 5.1 and
6.1 of the Agreement, (a) violate any term or provisions of any Law or any
writ, judgment, decree, injunction or similar order applicable to the
Purchaser; (b) conflict with or result in a violation or breach of, or
constitute (with or without notice or lapse of time or both) a default under,
any of the terms, conditions, or provisions of the articles or certificate of
incorporation or Bylaws of the Purchaser; (c) result in the creation or
imposition of any Lien upon the Purchaser or any of its Assets and Properties
that individually or in the aggregate with any other Liens has or may
reasonably be expected to have a material adverse effect on the validity or
enforceability of the Agreement or on the ability of the Purchaser to perform
its obligations thereunder; or (d) conflict with or result in a violation or
breach of, or constitute (with or without notice or lapse of time or both) a
default under, or give any Person any right of termination, cancellation,
acceleration, or modification in or with respect to, any Contract to which the
purchaser is a party or by which any of its Assets or Properties may be bound
and as to which any such conflicts, violations, breaches, defaults or rights
individually or in the aggregate have or may reasonably be expected to have a
material adverse effect on the validity or enforceability of the Agreement or
on the ability of the Purchaser to perform its obligations under the
Agreement.
F-1
<PAGE>
4. Any consent, approval, order or authorization of, or any waiting
period imposed by any regulatory authority under federal or state law,
including the laws of the State of Mississippi and the State of Indiana, which
require the Purchaser to obtain any consent, approval or action of, or make
any filing with or give any notice to, any Person except those which the
failure to obtain, make, or give individually or in the aggregate with any
other such failures has or may be expected to have no material adverse effect
on the validity or enforceability of the Agreement or on the ability of the
Purchaser to perform its obligations thereunder in connection with the
execution and delivery of the Agreement and the performance by the Purchaser
of its obligations thereunder has been obtained or, in the case of any such
waiting period, has expired.
F-2
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<DEBT-HELD-FOR-SALE> 18,826,906
<DEBT-CARRYING-VALUE> 18,973,382
<DEBT-MARKET-VALUE> 18,973,382
<EQUITIES> 2,000,000
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 30,830,579
<CASH> 3,503,141
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 6,464,089
<TOTAL-ASSETS> 42,239,033
<POLICY-LOSSES> 27,405,316
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 256,557
<POLICY-HOLDER-FUNDS> 1,739,574
<NOTES-PAYABLE> 6,071,601
<COMMON> 10,494,973
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 42,239,033
1,597,264
<INVESTMENT-INCOME> 1,233,352
<INVESTMENT-GAINS> 36,757
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<BENEFITS> 672,961
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> (1,417,994)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,417,994)
<DISCONTINUED> (3,677,000)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,094,994)
<EPS-PRIMARY> (.61)
<EPS-DILUTED> (.61)
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
