SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant (X)
Filed by a Party other than
the Registrant ( )
Check the appropriate box:
(X) Preliminary Proxy Statement ( ) Confidential for Use
of the Commission Only
(as permitted by Rule
14a-6(e)(2)
( ) Definitive Proxy Statement
( ) Definitive Additional Materials
( ) Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
- ------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
Dixie National Corporation
- ------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
( ) $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
or Item 22 (a)(2) of Schedule 14A.
( ) $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
(X) Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
N/A
(2) Aggregate number of securities to which transaction applies:
N/A
(3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
Value is based on cash to be received and amount of debt to be canceled or
assumed.
(4) Proposed maximum aggregate value of transaction: $8,583,746
(5) Total fee paid: $1,717
( ) Fee paid previously with preliminary material
( ) Check box if any part of the fee is offset as provided by Exchange Rule 0-11
(a)(2) and identify the filing for which the offsetting fee was paid previously.
Identify the previous filing by registration statement number, or the Form or
Schedule and the date of its filing.
(1) Amount previously paid: N/A
(2) Form, Schedule, or Registration Statement No.: N/A
(3) Filing Party: N/A
(4) Date Filed: N/A
<PAGE>
DIXIE NATIONAL CORPORATION
NOTICE OF 1995 ANNUAL MEETING OF SHAREHOLDERS
JULY 18, 1995
To The Shareholders:
Notice is hereby given that the 1995 Annual Meeting of the Shareholders of
Dixie National Corporation will be held in the Board Room, Dixie National Life
Insurance Company Building, 3760 Interstate 55 North, Jackson, Mississippi on
July 18, 1995 at 1:00 o'clock P.M., Central Time, for the following purposes:
1. To consider and act upon the recommendation of the Board of
Directors that the shareholders approve the sale of the
Corporation's 99.3% owned subsidiary, Dixie National Life
Insurance Company, to Standard Life Insurance Company of Indiana.
Shareholders have the right to assert dissenters' rights relative
to such sale.
2. To consider and act upon the recommendation of the Board of
Directors that the shareholders approve a new stock option plan
for key employees and directors of the Corporation.
3. To fix the number of and to elect the Board of Directors for the
ensuing year or until their successors are duly elected.
4. To consider and vote upon the ratification of the selection of
Horne CPA Group as independent auditors of the Company for the
year ending December 31, 1995.
5. To transact such other business as may properly come before the
meeting or any adjournment thereof.
June 15, 1995 is the record date for the determination of shareholders
entitled to vote at the Annual Meeting and to receive notice thereof. The stock
transfer books of the Corporation will not be closed.
PLEASE DATE AND SIGN THE ENCLOSED PROXY
NO POSTAGE NEED BE AFFIXED IF MAILED IN THE UNITED STATES
BY ORDER OF THE BOARD OF DIRECTORS
June 26, 1995 /s/Jerry M. Greer
Jerry M. Greer
SENIOR VICE PRESIDENT AND SECRETARY
<PAGE>
DIXIE NATIONAL CORPORATION
1995 ANNUAL MEETING OF SHAREHOLDERS
PROXY STATEMENT
TABLE OF CONTENTS
SOLICITATION 5
VOTING SECURITIES 5
OWNERSHIP OF VOTING SECURITIES BY CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Certain Beneficial Owners 6
Security Ownership of Management 7
PROPOSAL NO. 1 - SALE OF DIXIE NATIONAL LIFE
INSURANCE COMPANY
General 8
Background of Proposed Sale 8
Recommendation of Board of Directors; Reasons for Sale 11
Opinion of Corporation's Financial Advisor 12
Federal Income Tax Consequences 13
The Stock Purchase Agreement 13
Terms of the Sale 13
Certain Representations and Warranties 14
Conduct of Business Pending the Sale 14
Conditions to Consummation of the Sale 15
Fees and Expenses 15
Termination; Amendment; Governing Law 15
DISSENTERS' RIGHTS OF SHAREHOLDERS 16
General 16
Procedure of Exercise of Dissenter's Rights 16
Procedure if the Dissenters Are Dissatisfied with the Payment Offered 17
CONSEQUENCES OF NOT CLOSING THE STANDARD TRANSACTION 18
FUTURE BUSINESS PLANS 20
BUSINESS OF THE COMPANY 21
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Description of Business 22
General 22
Statutory Surplus and Accounting 23
Capital Requirements of the Corporation 24
Products and Markets 24
Sales Force and Employees 25
Competition 25
Investments 25
Reinsurance 26
Regulatory Factors 27
SELECTED FINANCIAL DATA 29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 30
Liquidity and Capital Resources 30
General 30
Liquidity Requirements 30
Going Concern Considerations 31
Investment Portfolio Liquidity 31
Statutory Surplus 32
Results of Operations 32
MARKET PRICES AND DIVIDENDS 36
PROPOSAL N0. 2 - 1995 STOCK OPTION PLAN 37
Description of the Plan
Reason for the Plan
Recommendation of Board of Directors
PROPOSAL NO. 3 - ELECTION OF DIRECTORS 40
Nominees and Directors 40
Executive Officers 44
EXECUTIVE COMPENSATION AND OTHER INFORMATION 44
Compensation Committee Report on Executive Compensation 44
Summary Compensation Table 46
Fiscal Year End Options 47
DIRECTORS' COMPENSATION 47
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 47
PROPOSAL NO. 4 - RATIFICATION OF SELECTION OF
INDEPENDENT AUDITORS 48
SHAREHOLDER PROPOSALS 48
OTHER MATTERS 48
INDEX TO FINANCIAL STATEMENTS F-1
APPENDIX A STOCK PURCHASE AGREEMENT A-1
APPENDIX B ARTICLE 13 OF MISSISSIPPI
BUSINESS CORPORATION ACT B-1
APPENDIX C FAIRNESS OPINION OF MERCER CAPITAL C-1
APPENDIX D 1995 STOCK OPTION PLAN D-1
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PROXY STATEMENT
DIXIE NATIONAL CORPORATION
3760 Interstate 55 North
P.O. Box 22587
Jackson, Mississippi 39225-2587
SOLICITATION
Approximate Date of Mailing: June 26, 1995
The enclosed proxy is being solicited by the Board of Directors of Dixie
National Corporation ("Corporation") for use at the 1995 Annual Meeting of
Shareholders of the Corporation, to be held in the Board Room, Dixie National
Life Insurance Company Building, 3760 Interstate 55 North, Jackson, Mississippi,
at 1:00 o'clock P.M. on July 18, 1995, and any adjournment thereof. Shareholders
may revoke their proxy by written notice to the Corporation at any time prior to
the exercise thereof or by attending at the meeting and voting their shares in
person. The solicitation will be primarily by mail but may also be by telephone,
telegraph or oral communications by officers or regular employees. The cost of
soliciting proxies will be borne by the Corporation. The term "Company," as used
herein includes, collectively, the Corporation, its 99.3% subsidiary, Dixie
National Life Insurance Company ("Dixie Life"), and the Corporation's other
subsidiaries.
Shares represented by a properly executed and returned proxy card will be
voted at the 1995 Annual Meeting in accordance with the instructions indicated
thereon. If no instructions are indicated, the proxy will be voted FOR the sale
of Dixie Life, FOR approval of the new stock option plan, FOR the Board of
Directors to consist of nine members, FOR the election of the nine individuals
nominated by the Board of Directors to serve as directors of the Corporation
and FOR the ratification of the selection of Horne CPA Group as independent
auditors of the Company for the year ending December 31, 1995. See "Dissenters'
Rights of Shareholders."
VOTING SECURITIES
Shareholders of record at the close of business on June 15, 1995 will be
entitled to notice of and to vote at the annual meeting. On June 15, 1995, there
were ________ shares of common voting stock ("Common Stock") of the Corporation
outstanding and entitled to vote. Each outstanding share of Common Stock is
entitled to one vote per share on each matter submitted to a vote at the meeting
of shareholders except with respect to the election of directors. Shareholders
have cumulative voting rights in the election of directors. Cumulative voting
means that each shareholder will be entitled to as many votes as the number of
shares of Common Stock owned by such shareholder multiplied by the number of
directors to be elected and all such votes may be cast for a single director or
may be distributed among the director nominees as the shareholder sees fit. To
exercise cumulative voting rights by proxy, a shareholder must clearly designate
the number of votes the shareholder wishes to cast for any given nominee.
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OWNERSHIP OF VOTING SECURITIES BY CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Certain Beneficial Owners
The following table sets forth pertinent information as to the beneficial
ownership of the Corporation's Common Stock as of June 15, 1995, of persons
known by the Corporation to be holders of 5% or more of the outstanding Common
Stock. Information as to the number of shares beneficially owned has been
furnished by the persons named in the table.
Name and Address Shares
of Beneficial Beneficially Percent
Owner Owned of Class
- ----------------- ----------------- --------
American Capitol Insurance Company 1,000,144(1) 10.6%
10555 Richmond Avenue
Houston, Texas 77042
S. L. Reed, Jr. 590,942(2) 7.0%
107 Executive Center
Hilton Head Island, SC 29928
Robert B. Neal 533,768(3) 6.2%
c/o Dixie National Corporation
3760 Interstate 55 North
Jackson, Ms 39211
W.A. Taylor, Jr. 439,815(2)(3) 5.0%
939 West Main
Louisville, MS 39339
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(1) Includes 1,000,000 shares issuable upon conversion of the Corporation's 10%
Subordinated Convertible Callable Fixed Interest Rate Notes ("Convertible
Notes") due at the earliest of closing of the sale of Dixie Life, 90 days after
either party to the sale notifies the other that it cannot close the sale under
the terms of the Agreement governing the sale or December 27, 1995. The share
ownership of American Capitol Insurance Company is as shown in a Schedule 13D,
dated July 28, 1993, filed with the Securities and Exchange Commission under the
Securities Exchange Act of 1934. The Schedule 13D states that it is filed
jointly by American Capitol Insurance Company, Acap Corporation, Fortune
National Corporation, InsCap Corporation and William P. Guest, and that American
Capitol Insurance Company, is a wholly-owned subsidiary of Acap Corporation,
which is 63% owned by Fortune National Corporation, which is
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60% owned by InsCap Corporation, which, in turn, is 40% owned by William P.
Guest. According to the Schedule 13D these companies are organized in Texas,
Delaware, Pennsylvania and Delaware, respectively.
(2) Includes shares issuable upon exercise of stock options. See table
immediately below.
(3) Includes shares issuable upon exercise of stock options and conversion of
Convertible Notes. See table immediately below.
Security Ownership of Management
The following table sets information as to the beneficial ownership of the
Corporation's Common Stock as of June 15, 1995, by each director, nominee,
executive officer named in the Summary Compensation Table and by all directors
and executive officers as a group.
Name Shares
of Beneficial Beneficially Percent
Owner Owned of Class
- ----------------- ----------------- --------
T. H. Etheridge 216,827(1)(3) 2.5%
John E. Haggar 7,000(1) Less than 1%
Robert B. Neal 533,768(1)(2)(3) 6.2%
Dennis Nielsen 12,200(1) Less than 1%
Joe D. Pegram 28,043(1) Less than 1%
S. L. Reed, Jr. 590,942(3) 7.0%
James G. Ricketts 5,000(1) Less than 1%
Herbert G. Rogers, III 107,128(1)(3) 1.2%
W. A. Taylor, Jr. 439,815(1)(2)(3) 5.0%
[Ninth Nominee]
Monroe M. Wright 0 0.0%
Directors and
executive officers as
a group (13 persons) 2,533,856(4) 27.8%
- --------------------
(1) Includes shares issuable upon exercise of stock options as follows: T. H.
Etheridge - 5,000 shares; John E. Haggar - 5,000 shares; Robert B. Neal - 28,570
shares; Dennis Nielsen
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- - 5,000 shares; Joe D. Pegram - 5,000 shares; James G. Ricketts - 5,000 shares;
Herbert G. Rogers - 5,000 shares; W. A. Taylor, Jr. - 5,000 shares. The options
held by Messrs. Etheridge, Haggar, Nielsen, Pegram, Ricketts, Rogers and Taylor
have been granted under the stock option plan being voted upon by the
shareholders (Proposal No. 2) and are subject to approval of that plan by the
shareholders.
(2) Includes shares issuable upon conversion of Convertible Notes, as follows:
Robert B. Neal - 100,000 shares; W. A. Taylor, Jr. - 200,000 shares.
(3) Includes shares held in the name of spouse, minor child or other relatives
or persons, as to some of which shares the owner named has shared voting or
investment power, but as to which beneficial ownership is disclaimed, as
follows: T. H. Etheridge - 37,510 shares; Robert B. Neal - 1,368; S. L. Reed,
Jr. - 482,078 shares; Herbert G. Rogers, III - 27,479 shares; W. A Taylor, Jr. -
234,815 shares.
(4) Includes all shares issuable upon exercise of stock options and conversion
of Convertible Notes and shares held in the name of spouse, minor child or other
relatives or persons, as to which beneficial ownership is disclaimed.
PROPOSAL NO. 1 - SALE OF DIXIE NATIONAL LIFE INSURANCE COMPANY
General
On April 18, 1995, the Corporation and Dixie Life entered into an 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. Dixie Life is 99.3% owned by the Corporation and
represents virtually all of the Company's assets and operations. This
transaction ("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 will receive
up to $3,175,000 in cash. The final selling price is subject to adjustment based
on changes in Dixie Life's statutory capital and surplus between December 31,
1994 and closing of the Standard Transaction and the resolution of certain
litigation.
The Standard Transaction, if completed, will result in a loss to the
Corporation of $4,635,000. This loss has been recorded in the first quarter of
1995. Following the consummation of the Standard Transaction, the Corporation
will have no ongoing operations, but it is actively considering the possible
acquisition of Phoenix Medical Management, Inc. ("PMM"), a health care provider,
or the commencement of some other line of business. See "Future Business Plans."
Background Of Proposed Sale
Virtually all of the Corporation's unconsolidated revenues are represented
by its monthly management fee of $154,000 received from Dixie Life. This is
insufficient to cover the Corporation's operating expenses and service the
Corporation's total debt of $5,409,000 outstanding under the Term Loan and
Convertible Notes. The ability of the Corporation to transfer funds, including
its management fee, from Dixie Life, is controlled to a very significant degree
by statute. Under Mississippi insurance law, the Corporation and Dixie Life are
members of a "holding company system." Generally, all transactions between
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members of a holding company system must be "fair and reasonable." The
Mississippi Commissioner of Insurance ("Commissioner") has wide latitude in
evaluating the reasonableness of a transaction and its effect upon a Mississippi
insurer, such as Dixie Life. The Commissioner takes the position that a
Mississippi insurance company cannot make a loan to any of its shareholders,
officers or directors. Mississippi law limits the size of dividends or other
distributions that may be made by a Mississippi insurer to another member of its
holding company system without approval of the Commissioner. Among other things,
the Mississippi insurance laws and regulatory authority of the Commissioner are
designed to protect policyholders by assuring the financial solvency of
insurance companies. The interests of shareholders are secondary. Because of
these considerations, among other factors, the Corporation has been unable to
transfer adequate funds from Dixie Life in order to service the Corporation's
debts, or at least a portion thereof as part of an overall financing plan. See
"Business of the Corporation--Regulatory Factors."
In addition, the Company has experienced substantial operating losses since
December 31, 1992, aggregating $3,685,240 through March 31, 1995, before giving
effect to the recorded loss of $4,635,000 resulting from the Standard
Transaction.
The Company has found itself in the position of having to maintain the
statutory capital and surplus ("Statutory Surplus") of Dixie Life, while faced
with maturing debt that could not be satisfied from the Corporation's own funds
or from Dixie Life's resources. The Corporation has devoted significant effort
to strengthening the Statutory Surplus of Dixie Life and reducing the
Corporation's dependence upon the operations of Dixie Life and its ability to
transfer funds to the Corporation during this period. Management's effort
included the following:
(1) In July 1993, the Corporation and Medical Resource Companies of
America ("MRA") reached an agreement in principle for the acquisition
of the Company by MRA through an exchange of shares of MRA for shares
of the Corporation. An Agreement and Plan of Reorganization was
entered into by the Corporation and MRA in August 1993, but was
terminated by mutual agreement in October 1993 because of unresolved
issues that arose during the pendency of the transaction.
(2) In January 1994, the Corporation reached an agreement in principle
to merge with Standard's parent, Standard Management Corporation
("SMC"). In June 1994, the parties signed a Merger Agreement which
provided that the Corporation would be acquired by SMC through an
exchange of stock. In late July 1994, the Merger Agreement was
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terminated by the Corporation because of the SMC's failure to fulfill
a material condition of the Merger Agreement.
(3) During 1993 and 1994, the Corporation negotiated and completed the
sale of virtually all of Dixie Life's accident and health business ,
thereby increasing Dixie Life's Statutory Surplus to a level which
provided financial strength to Dixie Life and might have supported a
dividend to the Corporation. However the proceeds of any such a
dividend would not have been sufficient to satisfy the Corporation's
debt.
(4) The Corporation entered into an agreement with Universal
Management Services, a Nevada corporation ("UMS"), as of October 27,
1994 ("UMS Agreement"). The UMS Agreement provided that UMS would use
its best efforts to assist the Corporation in locating potential
investors for its Common Stock in non-U.S. markets pursuant to
Regulation S of the Securities Act of 1933. On November 29, 1994, with
such assistance, the Corporation sold 2,000,000 shares of its Common
Stock for which it received 1,230,770 shares of Alanco Environmental
Resources, Inc. ("Alanco") common stock ("November Transaction").
Alanco is principally engaged in the manufacture and marketing of a
pollution control device sold in domestic and foreign markets. The
Alanco shares had an aggregate market value of $2,000,000 on November
29, 1994. The sale of the Alanco shares, or other marketable equity
securities owned by the Corporation, could provide some funds for debt
service. See "Future Business Plan" and "Business of the Corporation -
Investment in Marketable Equity Securities."
The UMS Agreement provided UMS the option to use its best efforts to
assist the Corporation in placing additional equity securities for
cash. Such placements could have provided a source of funds to repay a
portion of the Corporation's debt, but no such placements occurred.
See "Future Business Plans" in this connection
(5) The Stock Purchase Agreement was entered into in April 1995.
Completion of the Standard Transaction would satisfy the Term Loan and
the Convertible Notes.
In November 1994, after the Corporation's July 1994 termination of the
Merger Agreement with SMC, Standard bought from Trustmark National Bank
("Trustmark"), the Corporation's $3,689,000 Term Loan owed to Trustmark. This
development eliminated the possibility of negotiating with Trustmark an
extension of the March 31, 1995 due date of the Term Loan. As a result, the
Corporation was faced with the prospect of the March 31, 1995 maturity of the
Term Loan with little apparent prospect for renegotiation of the terms with the
new holder of the underlying note.
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Recommendation Of Board Of Directors; Reasons For Sale
As discussed above, in seeking a solution to the serious liquidity problems
facing the Corporation, the Corporation's Board considered a wide range of
alternatives, including the sale of the Corporation or Dixie Life, the merger of
the Corporation with another company, the sale of certain blocks of business or
other assets of Dixie Life or the issuance of debt or equity securities by the
Corporation or its subsidiaries. In analyzing the proposed Standard Transaction,
the Corporation's Board considered a number of factors, including, principally,
the following:
(1) Standard's purchase of the Term Loan eliminated any ability the
Corporation might have had to renegotiate the Term Loan at its
maturity with Trustmark, with which the Corporation has had a banking
relationship.
(2) The Term Loan is secured by a pledge of all of the shares of Dixie
Life capital stock owned by the Corporation. Accordingly, a default in
payment of the Term Loan on its stated maturity date of March 31, 1995
would have had a very material adverse impact on the Corporation's
shareholders.
(3) Standard agreed to cancel the Term Loan and assume payment of the
Corporation's Convertible Notes as part of the consideration for the
sale of Dixie Life and to extend the Term Loan. These provisions are
included in the Stock Purchase Agreement.
(4) The difficulties experienced by the Board of the Corporation in
its prior efforts to merge with other companies or sell the
Corporation or Dixie Life left the Board with no realistic
alternatives. In all the circumstances, the Board viewed the terms of
the Standard Transaction as fair and reasonable and in the best
interests of the Corporation and its shareholders.
After considering all of the above factors, among others, as well as the
opinion, discussed below, of the Corporation's financial advisor, the
Corporation's Board of Directors unanimously approved the Stock Purchase
Agreement and recommends that the Corporation's shareholders vote FOR the
proposed Standard Transaction.
In deciding whether to vote for or against the Standard Transaction, the
Corporation's stockholders should consider, among other factors, the financial
condition and operating prospects of the Corporation and the restrictions
involved in continuing to operate as a regulated insurance holding company. In
this regard, Corporation shareholders should consider the information under
"Consequences of Not Closing the Standard Transaction" and
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"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
Opinion Of Corporation's Financial Advisor
Mercer Capital has rendered its opinion that the Standard Transaction is
fair to the shareholders of the Corporation from a financial point of view. The
opinion letter is attached hereto as Appendix C. Mercer Capital is a business
appraisal and financial advisory firm founded in 1982 and located in Memphis,
Tennessee. Mercer Capital has valued numerous companies engaged in financial
services including commercial banks, savings banks, insurance companies,
mortgage bankers, commercial finance companies and consumer finance companies.
Pursuant to the terms of an engagement letter dated March 13, 1995, the
Corporation has agreed to pay Mercer Capital, as financial advisor to the
Corporation, a fee estimated at $15,000 to $18,000. The Corporation has also
agreed to reimburse Mercer Capital for its reasonable out-of-pocket expenses,
including all reasonable fees and disbursements of counsel, and to indemnify
Mercer Capital and certain related persons against certain liabilities relating
to or arising out of its engagement.
As noted above under "Recommendation of the Board of Directors; Reasons for
Sale," the fairness opinion of Mercer Capital was one of the factors considered
by the Corporation's Board of Directors in determining to approve the Standard
Transaction.
Neither Mercer Capital, its shareholders, nor its employees had any
business relationship with the Corporation or any of its subsidiaries or
affiliates or with Standard or any of its subsidiaries or affiliates within the
past two years, except for this engagement and comparable previous engagements
to evaluate the previously proposed acquisitions of the Corporation discussed
above under "Background of Proposed Sale." No other business relationships are
contemplated at this time. No limitations were imposed by management or the
Board of Directors of the Corporation on the scope of the analysis or the
information to be reviewed.
With respect to the Corporation and Dixie Life, Mercer Capital considered
the financial position and historical performance of the Corporation and Dixie
Life; the growth potential in Dixie Life's markets; the historical dividend
performance of the Corporation; prior efforts to find a buyer for the
Corporation or Dixie Life, and other sources of financing; the statutory capital
requirements of Dixie Life, including the possible effect thereon of pending
litigation; the prospective financial performance and future cash flow needs of
the Corporation and trading in the Corporation's Common Stock, including price
and volume.
Regarding pricing and terms of the Standard Transaction, factors Mercer
Capital considered relevant included total consideration to be received by the
Corporation, and terms of the transaction; the potential financial impact to the
Corporation and its shareholders if no satisfactory resolution to the
Corporation's debt service needs can be obtained; the potential value which
might be received by a dissenting shareholder; a review of the pricing of other
publicly traded insurance
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companies with similar lines of insurance business; a review of other
transactions involving sale of controlling interests of small life issuance
companies and prior efforts by the Corporation to find a buyer of the
Corporation or Dixie Life or to obtain new capital.
Federal Income Tax Consequences
The Corporation does not expect any federal tax consequences from the
Standard Transaction.
Unless a shareholder perfects his dissenter's rights as discussed below,
there are no federal tax consequences to the shareholder arising from the
Standard Transaction. A shareholder who perfects his dissenter's rights will
recognize a capital gain or loss, if the Common Stock is a capital asset in the
hands of the dissenting shareholder, equal to the difference between his basis
in the Common Stock for which appraisal rights were sought and the amount of
cash received for such shares, exclusive of any interest. Such holders should
consult their own tax advisers.
Employment Contracts
Standard and Robert B. Neal, a director and President of the Corporation,
have agreed to enter into an employment agreement effective upon the closing of
the Standard Transaction. The terms, which have been agreed to in principle,
provide for Mr. Neal's employment as President of Dixie Life for a three year
period commencing with the closing of the transaction. Mr. Neal's compensation
will remain at the same level as his present annual salary of $125,269, and be
adjusted for cost of living increases. In addition, Mr. Neal will receive a $500
monthly automobile allowance, annual bonuses as determined by the Chairman of
the Board of Standard, and customary employee benefits.
It also is expected that Thomas F. Flowers, Jr., a Senior Vice President of
the Corporation, will enter into an employment agreement or other business
relationship with Standard related to marketing. However, the nature and terms
of Mr. Flower's arrangements are indefinite at this time.
The Stock Purchase Agreement
The following is a summary of the material provisions of the Stock Purchase
Agreement and does not purport to be complete. The Stock Purchase Agreement is
attached as Appendix A to this Proxy Statement and is incorporated herein by
reference. This summary is qualified in its entirety by reference to the Stock
Purchase Agreement. Shareholders of the Corporation are urged to read the Stock
Purchase Agreement.
Terms of the Sale. The Stock Purchase Agreement provides that the
Corporation will sell 100% of its holdings in the common capital stock of Dixie
Life to Standard at closing of the Standard Transaction. Dixie Life will no
longer be a subsidiary of the Corporation after closing and the Corporation will
no longer have any insurance operations.
As consideration for its holdings in Dixie Life, the Corporation's
$3,689,000 indebtedness to Standard under the Term Loan will be canceled and
Standard will assume the Corporation's obligation, aggregating $1,720,000, under
its Convertible Notes and will pay the Corporation $3,000,000. In addition, the
Corporation will receive the first $175,000 Dixie Life collects on agent
advances after closing. The purchase price will be reduced by the amount by
which Dixie Life's statutory capital and surplus, as defined, falls below
$6,410,000 at closing or increased by the amount by which capital and surplus,
as defined, exceeds $6,500,000 at closing. At March 31, 1995, statutory capital
and surplus and asset valuation reserve was $318,200 less than at December 31,
1994. It is expected that there will be little change from the March 31, 1995
level prior to closing. The purchase price may also be adjusted based on the
resolution of certain litigation involving life insurance policies previously
issued by Dixie Life. In addition, Dixie Life will continue to pay the
Corporation's wholly-owned subsidiary, Vanguard, Inc.
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("Vanguard"), $15,000 per month through the December 31, 1996 expiration of a
lease between Dixie Life and Vanguard. The lease covers the building occupied by
the Corporation and its subsidiaries, including Dixie Life. Certain investments
which have been made by Dixie Life since December 31, 1995 will be transferred
to the Corporation at closing in lieu of cash. At March 31, 1995, such
investments amounted to approximately $540,000.
Certain Representations And Warranties. The Stock Purchase Agreement
contains various representations and warranties of the Corporation and Standard
relating to, among other things, the following matters (which representations
and warranties are subject, in certain cases, to specified exceptions): (i) the
due organization, power and standing of, and similar corporate matters with
respect to each of the Corporation, Dixie Life and Standard; (ii) the
authorization, execution, delivery, performance and enforceability of the Stock
Purchase Agreement by the Corporation, Dixie Life and Standard and of the
transactions contemplated thereby; (iii) Dixie Life's capitalization; (iv) the
absence of any conflict with each of the Corporation's, Dixie Life's or
Standard's articles of incorporation, bylaws and agreements, and compliance with
applicable laws; (v) the receipt of any governmental or regulatory
authorizations, consents or approvals required to consummate the transaction;
(vi) the possession by Dixie Life of all valid licenses, franchises, permits,
registrations, approvals and authorizations relating to the conduct of its
businesses; (vii) the accuracy and completeness of Dixie Life's financial
statements, and its books and records; (viii) the determination and
qualification of Dixie Life's reserves; (ix) the absence of any litigation that
would have a material adverse effect on the business or condition of the
Corporation, Dixie Life or Standard, or their ability to perform their
respective obligations under the Stock Purchase Agreement; (x) the timely filing
of all regulatory reports and other documents required to be filed by Dixie Life
with regulatory authorities; (xi) the status of various Dixie Life employee
benefit plans and the absence of defaults thereunder; (xii) the absence of
certain changes or events relating to the financial condition, business or
results of operations of Dixie Life; (xiii) the status of various tax matters
relating to the Corporation or Dixie Life; (xiv) the status of certain assets of
Dixie Life; (xv) the absence of any brokerage, finder's or other fee due in
connection with the Stock Purchase Agreement; (xvi) the absence of any untrue
statements of material fact or omission to state a material fact in the Stock
Purchase Agreement or any certificate furnished in connection with the Stock
Purchase Agreement or transactions thereby contemplated; and (xvii) the
existence of material contracts and commitments of Dixie Life and the existence
of no breach or default under any such contracts.
Conduct of Business Pending Sale. Under the terms of the Stock Purchase
Agreement, between the date the Stock purchase Agreement was executed (April 18,
1995) and closing of the Standard Transaction, Dixie Life will conduct its
business only in the ordinary course and consistent with past practices. Dixie
Life may not introduce new products until closing without the permission of
Standard.
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<PAGE>
Conditions To Consummation Of The Sale. Standard and the Corporation are
not obligated to consummate the Standard Transaction under the Stock Purchase
Agreement if, among other conditions, there are pending or threatened actions
preventing or seeking to prevent such consummation or all required regulatory
approvals have not been obtained. Opinions of counsel requiring certain matters
are also required prior to closing.
Standard has filed an application with the Mississippi Insurance Department
to obtain approval of the change in control of Dixie Life that will result from
the Standard Transaction. The application is pending before the Commissioner and
it is anticipated that a hearing on the application will be held promptly after
the annual meeting, if the Standard Transaction is approved by the shareholders
of the Corporation.
Additionally, Standard is not obligated to close if, among other
conditions, there has been an adverse change in Dixie Life's business; its
officers and directors have not resigned or the Corporation's shareholders have
not approved the Standard Transaction. The termination, or assignment to
Standard, of the Corporation's current management agreement with Dixie Life also
is a condition to Standard's obligation to close the Standard Transaction.
Fees and Expenses. The Stock Purchase Agreement provides that the
Corporation and Standard shall each pay their own expenses in connection with
the Standard Transaction.
Termination; Amendment; Governing Law. The Stock Purchase Agreement may be
terminated prior to closing (a) by mutual consent of the Corporation and
Standard, (b) by either party if any of the covenants contained in the Stock
Purchase Agreement have not been satisfied, performed or complied with in any
material respect at or before closing and (c) at any time after August 1, 1995
by the Corporation or Standard if closing has not occurred, provided such
failure to close is not caused by a breach of the Stock Purchase Agreement by
the terminating party.
The Stock Purchase Agreement may be changed, waived, discharged or, except
as stated above, terminated only in writing signed by both the Corporation and
Standard and shall be construed in accordance with and governed by the laws of
the State of Indiana.
---------------
The members of the Corporation's and Dixie Life's Boards of Directors, in
the aggregate, directly own 1,712,388 shares, or 20.4% of the Common Stock
outstanding and intend to vote FOR the Standard Transaction. Family members of
15
<PAGE>
the directors of the Corporation and Dixie Life own, in the aggregate, 916,364
shares, or 10.9% of the Common Stock, as to which such directors disclaim
beneficial ownership. The Corporation has been informed that the purchasers of
the Common Stock in the November Transaction who, in the aggregate own 2,000,000
shares, or 23.8%, of the Common Stock outstanding intend to vote FOR the
Standard Transaction.
Approval of the Standard Transaction requires the favorable vote of the
holders of a majority of the outstanding shares of Common Stock of the
Corporation. Accordingly, if the purchasers in the November Transaction and the
family members of directors vote in favor of Proposal No. 1, that vote together
with the votes of the members of the Corporation and Dixie Life Boards will
constitute a 55.1% vote for Proposal No. 1, thereby assuring the approval of
the Standard Transaction.
DISSENTERS' RIGHTS OF SHAREHOLDERS
General
The following is a summary of Article 13 of the Mississippi Business
Corporation Act ("Article 13" and "Act" respectively) and the procedures for
shareholders dissenting from the sale by the Corporation of the capital stock of
Dixie Life which it owns and demanding dissenters' rights. This summary is
qualified in its entirety by reference to Article 13, which is reprinted in full
as Appendix B to this Proxy Statement. Appendix B should be reviewed carefully
by any shareholder who wishes to assert statutory dissenters' rights. FAILURE
STRICTLY TO COMPLY WITH THE PROCEDURES SET FORTH IN ARTICLE 13 WILL RESULT IN
THE LOSS OF DISSENTERS' RIGHTS.
Section 13.02 of Article 13 provides that a shareholder is entitled to
dissent from and obtain payment of the fair value of his shares of the
Corporation in the event of, among other things, the sale of substantially all
of the property of the Corporation other than in the ordinary course of business
when such sale requires shareholder's approval. The proposed sale by the
Corporation of all of the capital stock of Dixie Life which it owns constitutes
the sale of substantially all of the Corporation's assets and is not in the
Corporation's ordinary course of business. Section 12.02 of Article 12 of the
Act requires approval by the shareholders of the Corporation for the sale.
Accordingly, inasmuch as the conditions enumerated in Section 12.02 of
Article 12 and Section 13.02 of Article 13 of the Act are present, shareholders
of the Corporation have the statutory right to dissent under Article 13.
As used in Article 13, the term "shareholder" includes the record
shareholder or the beneficial shareholders.
Procedure for Exercise of Dissenter's Rights
Shareholders who wish to exercise dissenters' rights:
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<PAGE>
(i) must deliver to the Corporation, before the vote on the Proposal No. 1
is taken, written notice (the "Dissenter's Notice") of their intent to
demand payment for their shares if the Proposal No. 1 is approved; and
(ii) must NOT vote their shares in favor of Proposal No. 1.
SHAREHOLDERS WHO DO NOT SATISFY THESE REQUIREMENTS ARE NOT ENTITLED TO
PAYMENT FOR SHARES UNDER ARTICLE 13.
Shareholders electing to exercise dissenters' rights under Article 13 must
NOT VOTE FOR approval of Proposal No. 1. A vote against approval of Proposal No.
1 is not required in order for a shareholder to exercise dissenters' rights.
HOWEVER, IF A SHAREHOLDER RETURNS A SIGNED PROXY BUT DOES NOT SPECIFY A VOTE
AGAINST APPROVAL OF PROPOSAL NO. 1 OR AN ELECTION TO ABSTAIN, THE PROXY WILL BE
VOTED FOR THE WHICH WILL HAVE THE EFFECT OF WAIVING THAT SHAREHOLDER'S
DISSENTERS' RIGHTS.
If the Standard Transaction is consummated, the Corporation must send a
notice to that effect (the "Company Notice") no later than 10 days after the
closing date to all shareholders that have perfected their right to assert
dissenters' rights under Article 13.
Upon receipt of the Company Notice, dissenters must demand payment for
their shares by the date set forth in the Company Notice. A shareholder who
elects to exercise dissenters' rights must mail or deliver his or her written
demand to: Dixie National Corporation, 3760 I-55 North, Jackson, Mississippi
39211. The written demand for payment must comply with the provisions of Article
13 and must specify the shareholder's name and mailing address, the number of
shares of Corporation Common Stock owned, and state that the shareholder is
demanding payment of his or her shares. The shareholder must also certify that
the shareholder had beneficial ownership of the shares before the date set forth
in the Company Notice, which is April 10, 1995, the date of the first
announcement of the proposed sale to the news media. The shareholder must also
deposit his or her share certificates in accordance with the terms of the
Company Notice. Failure to make a payment demand or to deposit the share
certificates where required, each by the dates for such action set forth in the
Company Notice, shall forfeit the shareholder's right to receive payment for his
or her shares.
Upon receipt of a payment demand, the Corporation shall pay shareholders
who complied with Article 13 the amount the Corporation estimates to be fair
value of the shares submitted by such shareholder plus accrued interest. Certain
financial information concerning the Corporation, its estimate of the value of
the shares, an explanation of how interest was calculated, and a statement of
rights to demand payment along with a copy of Article 13, must accompany such
offer or payment.
PROCEDURE IF THE DISSENTERS ARE DISSATISFIED WITH THE PAYMENT
Dissenters may reject the Corporation's payment and demand in writing
payment of the fair value of their shares and interest due based on their own
estimate of the fair value of their
17
<PAGE>
shares and amount of interest due. To be entitled to such rights, the dissenters
must notify the Corporation of their demand in writing within 30 days after the
Corporation made payment for the shares.
If a dissenter has rejected the Corporation's payment and demanded payment
of the fair value of the shares and interest due and the demand for payment
remains unsettled, the Corporation shall commence a judicial proceeding within
60 days after receiving the payment demand and petition an appropriate court, as
described in Article 13, to determine the fair value of the shares and accrued
interest. If the Corporation does not commence such action within the required
sixty (60) day period, it shall pay each dissenter whose demand remains
unsettled the amount demanded.
The court in an appraisal proceeding shall determine all costs of the
proceeding, including the reasonable compensation and expenses of appraisers
appointed by the court. Additionally, the court may assess fees of legal counsel
and of experts for the respective parties. The court shall assess the costs
against the Corporation, except that the court may assess costs against all or
some of the dissenters to the extent the court finds the dissenters acted
arbitrarily, vexatiously or not in good faith in demanding payment under Article
13, or the court may assess counsel fees against the dissenters who were
benefited.
THE ABOVE IS MERELY A SUMMARY OF ARTICLE 13 OF THE MISSISSIPPI BUSINESS
CORPORATION ACT. THIS SUMMARY IS QUALIFIED BY REFERENCE TO ARTICLE 13, WHICH IS
SET FORTH IN ITS ENTIRETY AS APPENDIX B TO THIS PROXY STATEMENT. SHAREHOLDERS
DESIRING TO EXERCISE DISSENTERS' RIGHTS SHOULD REFER TO THE FULL TEXT OF ARTICLE
13 AND SHOULD CONSULT COUNSEL SINCE FAILURE TO COMPLY STRICTLY WITH THE
PROVISIONS OF ARTICLE 13 WILL DEFEAT THEIR DISSENTERS' RIGHTS.
CONSEQUENCES OF NOT CLOSING THE STANDARD TRANSACTION
The Standard Transaction provides an immediate and complete solution to the
severe liquidity problems facing the Corporation, including the obligation to
satisfy the $3,689,000 owed Standard under the Term Loan and $1,720,000 owed to
the holders of the Corporation's Convertible Notes. The Term Loan was extended
as part of the Stock Purchase Agreement and, due in part to the existence of the
Stock Purchase Agreement, the
18
<PAGE>
Convertible Notes have also been extended. The Term Loan will be canceled and
the Convertible Notes will be assumed by Standard at closing of the Standard
Transaction.
If the Standard Transaction is not consummated, either for lack of
shareholder or regulatory approval or some other reason, the Term Loan and
Convertible Notes will be due 90 days after the Stock Purchase Agreement is
terminated. In any event, the Convertible Notes will be due not later than
December 27, 1995. The Corporation has no present prospects for satisfying these
debts except through the Standard Transaction.
The capital stock of Dixie Life serves as collateral under the Term Loan
and the holders of the Convertible Notes have a second security interest in such
stock. The building, which houses the offices of the Corporation and is owned by
Vanguard, is subject to a first mortgage to Trustmark National Bank. Vanguard
has executed a borrowed money certificate pledging its building as additional
collateral to the Term Loan. Finally, a substantial portion of the Corporation's
holdings in Alanco common stock are pledged as collateral to the Convertible
Notes through the instrument which extended their due date.
If the Standard Transaction is not consummated, and either Standard or the
holder's of the Convertible Notes exercise their rights against the collateral
they hold, the Corporation's shareholders would hold shares of a company with
virtually no assets.
19
<PAGE>
FUTURE BUSINESS PLANS
General
Assuming that the Standard Transaction is consummated, the Corporation will
have no debt except a mortgage on its office building, current assets in excess
of $5,000,000 and no operations. In analyzing opportunities for a new direction
for the Corporation after the sale of Dixie Life, in consultation with UMS, the
Corporation considered taking part in the activities of PMM on a regional basis.
PMM has recently entered the health care industry, specializing in pain care, as
described under "Description of PMM," below.
After review of the prospects for PMM and the efforts of its management in
developing PMM to the stage of opening its first clinic, the Corporation
concluded its interests could best be served by acquiring a 16% interest in PMM
and considering the exercise of an option to acquire the remaining 84% interest.
This course would take advantage of the development efforts of PMM. The
Corporation believes the health care industry, in general, is an attractive
focus for the future of the Corporation and that the concept developed by PMM,
in particular, provides the potential for significant growth. However, PMM has
no operating history and is a highly speculative venture. No assurances can be
given, or representations made, as to the results of this venture if, in fact,
it proceeds, or whether it, or any diversification by the Corporation into the
health care field, will be financially successful.
The Corporation's Board of Directors has approved [and the Corporation has
completed] issuing 2,000,000 shares of the Corporation's Common Stock for a 16%
interest in PMM and 100,000 shares for an option to acquire the remaining 84%
interest in PMM. The Corporation is also exploring other business opportunities.
Description of PMM
PMM was formed in November 1993 to engage in the ownership and operation of
health care facilities specializing in pain care. Its primary business activity
is the development of a proprietary multi-state network of medical facilities
that specialize in the comprehensive treatment of patients seeking relief of
chronic pain and the management of other such facilities. Each facility is
designed and equipped to accommodate a multi-modality pain management,
psychological and physical rehabilitation program, as well as to accommodate
non-affiliated surgeons who perform their own non-pain related surgical
procedures at these facilities.
PMM currently has one medical facility open and operating in Phoenix,
Arizona, with one additional facility in Lafayette, Louisiana, scheduled to open
in the third quarter of 1995. The combination of all facets of pain management
was successfully test marketed by the founders of PMM in Phoenix, Arizona and
Lafayette, Louisiana over the course of the past two years. PMM was a
development stage company until January 1995 when it opened its Phoenix
facility. Accordingly, PMM does not yet have a meaningful history of operations.
The Corporation understands that (1) PMM is 60% owned by Amarante Financial
SA ("Amarante"), a British Virgin Islands corporation, which was one of the
investors in the November Transaction; (2) Amarante owns all of the outstanding
common stock of UMS; (3) Alanco and two unaffiliated individuals hold the
minority interest in PMM; and (4) Amarante has an option to purchase all of the
minority interest during June 1995.
John E. Haggar, who is a director of the Corporation, is Chief Financial
Officer and a director of UMS. James G. Ricketts, who also is a director of the
Corporation, is a director of Alanco.
20
<PAGE>
Basis for Consideration [Being] Paid For Investment in PMM
The amount of the consideration to be paid by the Corporation for the
acquisition of its interest in PMM, as described above, bears no relation to
PMM's current financial position or operations. In this connection, 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 that regard, the Corporation expects to (i)
issue 2,000,000 shares of its Common Stock in exchange for 16% of the
outstanding common stock of PMM it proposes to acquire, and (ii) if the
acquisition of the 16% interest is completed, issue 100,000 shares of its Common
Stock for an option to acquire the remaining 84% of the common stock of PMM for
10,400,000 shares of the Corporation's Common Stock. These terms, including the
number of shares of Common Stock to be issued by the Corporation for its
interest in PMM, were negotiated by the Corporation and PMM.
BUSINESS OF THE COMPANY
The Corporation was organized in 1966 as a Mississippi corporation and has
been primarily engaged in the life insurance business through its 99.3% owned
subsidiary, Dixie Life, a Mississippi corporation organized in 1965. Prior to
the sale, in two transactions completed in 1994, of all of its in force accident
and health business, most of Dixie Life's premium income was derived from
accident and health products.
Virtually all of the Company's consolidated revenues are represented by
premium income and net investment income generated in Dixie Life's insurance
operations. For the year ended December 31, 1994, the Company had total revenues
of $11,651,343 and a net loss of $2,554,729. The Corporation's financial
condition is dependent upon the operations of Dixie Life, as well as on Dixie
Life's ability to transfer funds to the Corporation to meet expenses, debt
service requirements and other financial needs of the Corporation. In that
regard, provisions of the Mississippi insurance law impose restrictions upon the
transfer of funds from an insurance company subsidiary, such as Dixie Life, to a
parent shareholder, such as the Corporation.
All of the shares of Dixie Life owned by the Corporation are pledged as
collateral under the Term Loan, and the holders of the Convertible Notes also
have a security interest in those shares. In addition, the home office building
of the Corporation and Dixie Life which is owned by Vanguard, is pledged as
additional collateral for the Term Loan, and a substantial portion of the Alanco
shares owned by the Corporation also secure the Convertible Notes.
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<PAGE>
Description of Business
General. Dixie Life has traditionally offered various forms of life, health
and annuity insurance products, primarily designed for specialized insurance
markets. However, as noted above, Dixie Life sold virtually all of its accident
and health business in late 1993 and mid 1994. Consequently, from July 1994,
Dixie Life has only been marketing life insurance products, primarily in the
burial or final expense market. Dixie Life will continue its present marketing
program pending consummation of the Standard Transaction.
The following table sets forth information as to life insurance in force
and premium income (after giving effect to amounts ceded and assumed) from all
business of Dixie Life for the last five years:
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Life Insurance
in force (at
December 31) $224,782,000 $188,337,000 $330,440,000 $540,989,000 $389,589,000
Premium income:
Life $ 3,878,000 $ 4,935,000 $ 4,455,000 $ 4,466,000 $ 3,803,000
Accident and
Health 5,302,000 14,185,000 12,287,000 10,054,000 8,032,000
Annuity 336,000 379,000 437,000 627,000 623,000
------------ ------------ ------------ ------------ ------------
TOTAL $ 9,516,000 $ 19,499,000 $ 17,179,000 $ 15,147,000 $ 12,458,000
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Premium income from new business only for the last five years is shown in the
following table:
1994 1993 1992 1991 1990
Life $ 301,000 $ 1,068,000 $ 837,000 $ 942,000 $ 1,293,000
Accident and Health 1,530,000 4,012,000 4,184,000 3,857,000 2,685,000
Annuity 9,000
------------ ------------ ------------ ------------ ------------
TOTAL $ 1,831,000 $ 5,080,000 $ 5,021,000 $ 4,808,000 $ 3,978,000
</TABLE>
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<PAGE>
In 1993, a marketing director new to Dixie Life produced a significant
amount of new life business. In early 1994, this marketing director ceased
producing business for Dixie Life, significantly contributing to the decrease in
first year life premiums in 1994. The 1994 decrease in first year accident and
health premiums was caused by the sale of Dixie Life's accident and health
business.
Statutory Surplus and Accounting. An insurance company such as Dixie Life
must maintain minimum levels of Statutory Surplus, as required by the insurance
laws and regulations of the insurance company's state of domicile and the
various other states in which it operates. See "Insurance Company Regulation,"
below. At December 31, 1994, Dixie Life's Statutory Surplus was approximately
$6,280,000. The highest level of Statutory Surplus required by the laws or
regulations of any state in which Dixie Life operates is $3,000,000.
Statutory accounting practices, as prescribed by the Mississippi Department
of Insurance, differ from generally accepted accounting principles in several
respects. The most significant of these differences is that statutory accounting
practices require that costs incurred in writing new insurance business be
expensed as paid, while generally accepted accounting principles require the
capitalization of such costs, which are then amortized over the expected life of
the insurance products sold. The principal such first year cost expensed in its
entirety is commissions, which are significantly greater in the first year
compared to renewal commissions. For example, on accident and health policies
the first year commission is typically 70% of premium while the renewal
commission is typically 20%. On life insurance policies the first year
commissions are as much as 105% of premiums while the renewal commission is
typically 10%. The excess of first year commissions over renewal commissions is
deferred under generally accepted accounting principles, as are other costs
associated with the issuance of a policy.
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<PAGE>
Because the high first year costs associated with issuance of a policy are
expensed under statutory accounting practices, high levels of new business
create drains on statutory net income and therefore Statutory Surplus. Dixie
Life experienced increased levels of new business for several years through
1992, creating a strain on Statutory Surplus. However, primarily as a result of
the sale of Dixie Life's accident and health business and a 1993 agreement by
Dixie Life to cease writing new business in a particular state, the trend did
not continue in 1994 and 1993. In order to write an increasing amount of new
business while continuing to meet the statutory requirements of the states in
which it conducted its insurance operations, it has been necessary for Dixie
Life to utilize various forms of surplus relief.
The principal source of surplus relief since 1989 has been financial
reinsurance agreements, which for GAAP purposes are treated as financing
arrangements, but for statutory accounting purposes provide reserve credits
that, in equal amount, increase Statutory Surplus. Since September 1992, Dixie
Life has had a financial reinsurance agreement with Crown Life Insurance
Company, a Canadian corporation (Crown Agreement). Under the Crown Agreement,
Dixie Life was entitled to a credit to its statutory reserves of $1,985,000 at
December 31, 1994. The amount of this credit will decrease in the amount of
$165,000 each calendar quarter beginning in 1995. See "Reinsurance", below.
The sales of Dixie Life's accident and health business discussed above
increased Statutory Surplus by $5,322,000 and $2,125,000 in 1994 and 1993,
respectively.
Capital Requirements of the Corporation. As previously discussed under
"Proposal No. 1 - Sale of Dixie National Life Insurance Company", the
Corporation has taken several steps to strengthen the Statutory Surplus of Dixie
Life and to find a solution to the significant liquidity needs of the
Corporation.
Products and Markets. Life insurance policies sold in the final expense, or
burial, market include fixed premium interest sensitive policies that provide
for increasing death benefits, as well as traditional whole life policies. These
policies are designed to cover expenses such as funeral, last illness, monument
and cemetery lot. The policies provide for a death benefit, generally not in
excess of $10,000, and a level premium payment. The products include a cash
value which may be borrowed by the policyholder.
Dixie Life's policies sold in other markets include interest sensitive and
traditional whole life policies and forms of term policies. The interest
sensitive and whole life policies include cash values which may be borrowed by
the policyholder. Dixie Life issues policies on both a participating and
non-participating basis. See Note 8 of Notes to Consolidated Financial
Statements.
Dixie Life conducts insurance operations in 21 states, primarily in the
southeastern and southwestern United States, and the District of Columbia.
24
<PAGE>
Sales Force and Employees. Dixie Life's insurance products are offered
through a sales force consisting, as of December 31, 1994, of approximately
1,760 agents, 375 general agents, and 50 marketing directors, with whom Dixie
Life has non-exclusive contracts. Sales personnel are compensated on a
commission basis and are provided incentives for increased production. A
relatively small number of Dixie Life's marketing directors generate a
significant amount of premium income and the loss of one or more marketing
directors could have an adverse economic effect on the Company. In that regard,
see "General," above, with respect to the impact of the loss of a marketing
director on 1994 new life insurance business.
At December 31, 1994, the Company had approximately 30 home office
employees, including officers. In connection with the sale of Dixie Life's
accident and health business, the home office staff was further reduced to 26 at
March 15, 1995. At December 31, 1993, such staff numbered approximately 50.
Competition. The life insurance industry is highly competitive. There are
over 2,000 life insurance companies nationwide. Dixie Life's competitors consist
of both stock and mutual companies. Because the profits, if any, of mutual
companies accrue to the benefit of policyholders, such companies may have
certain competitive advantages. Dixie Life is a relatively small, essentially
regional, insurance company that competes with life insurance companies that are
more widely known, have far greater resources and offer a broader range of
insurance products. Dixie Life also competes with other regional insurance
companies of a more comparable size. These factors contribute to the competition
encountered by the Company in attracting the services of qualified sales agents
and may result in higher agent costs. Based on industry data, major life
companies generally pay smaller commissions than Dixie Life. Compared to the
regional companies in the market area it services, Dixie Life believes it pays
similar commissions. The Company expects this pattern to continue in the
foreseeable future. Dixie Life believes that its policies and rates, the
services performed by its agents, and its claims administration are generally
competitive with those offered by both stock and mutual companies in the
jurisdictions in which it operates.
Investments. Dixie Life is required to invest its assets in accordance with
applicable provisions of the Mississippi insurance law. The following table
shows the composition of Dixie Life's invested assets at December 31, 1994 and
1993, valued on a GAAP basis:
1994 1993
Carrying Percent of Carrying Percent of
Value Total Value Total
----------- ------- ----------- -------
Fixed maturities $17,332,660 54.7% $13,489,902 43.0%
Policy loans 3,060,185 9.7 3,025,981 9.6
Government
guaranteed student loans, net 5,978,288 18.9 7,159,975 22.9
Short-term investments 4,860,347 15.3 3,040,448 9.7
Cash and cash equivalents 459,109 1.4 4,655,458 14.8
----------- ------- ----------- -------
TOTAL $31,690,589 100.0% $31,371,764 100.0%
----------- ------- ----------- -------
----------- ------- ----------- -------
25
<PAGE>
Dixie Life's fixed maturities consist of obligations issued by U.S.
Government agencies and authorities; states, municipalities and political
sub-divisions; public utilities; and other corporate issuers. As the table
shows, there was a substantial increase in fixed maturities and a substantial
decrease in cash and cash equivalents during 1994. In 1994, the Company
completed a plan begun in 1993 to realign the composition of its fixed
maturities and short-term investments to create a portfolio with an average life
of approximately 10 years. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Note 3 of Notes to
Consolidated Financial statements.
Reinsurance. Dixie Life reinsures substantial portions of its life
insurance risks with other carriers under its excess coverage reinsurance
arrangements. Generally, when the life coverage on any one individual exceeds
$55,000, Dixie Life's maximum retention on the insured is $50,000. The excess
coverage is reinsured under agreements Dixie Life has entered into with various
reinsurers, other than Crown.
In addition to its excess coverage reinsurance arrangements, Dixie Life,
pursuant to the Crown Agreement, has ceded to Crown 90% of the retained portion
of its traditional life and 90% of the retained part of its fixed premium excess
interest sensitive life policies in effect as of September 30, 1992. The face
amount of policies ceded as of the effective date was approximately
$255,455,000. The reinsurance effected under the Crown Agreement is on a
combination coinsurance and modified coinsurance basis. It is expected that the
coinsurance portion will decrease and the modified coinsurance portion will
increase over the term of the Crown Agreement.
As the amount of reinsurance on a coinsurance basis decreases under the
Crown Agreement the amount of the reserve credit available to Dixie Life is
reduced, with a corresponding reduction of Dixie Life Statutory Surplus. The
Crown Agreement provided Dixie Life with $4,500,000 of initial reserve credit.
At December 31, 1994, the reserve credit was $1,985,000 which will be reduced by
not more than $165,000 per quarter ($250,000 per quarter prior to an amendment
effective October 31, 1994). It is anticipated that the Crown Agreement will be
terminated in approximately three years from December 31, 1994, when all of the
coinsurance portion of the reinsurance is expected to be converted to modified
coinsurance, unless the agreement is further amended.
Dixie Life has placed assets in trust equal to 105% of the amount of the
reserves on the portion of the ceded block of business originally reinsured
under the Crown Agreement on a coinsurance basis. These assets, with a market
value of approximately $13,435,000 as of December 31, 1994, have been placed in
trust by Dixie Life with a bank.
Investment in Marketable Equity Securities. Pursuant to the UMS Agreement,
UMS assisted the Corporation in the November Transaction involving the sale of
2,000,000 shares of the Corporation's Common Stock for which the Corporation
received 1,230,770 shares of Alanco common stock. The purchasers in the November
Transaction, as required by the UMS Agreement, were required to maintain the
value of the Alanco stock conveyed to the Corporation at not less than
$2,000,000 market value for an agreed period by delivering, if required,
additional shares of Alanco common stock to the Corporation. In the event the
market value exceeded the required $2,000,000, the purchasers could purchase
all, but not less than all, of the Alanco common stock held by the Corporation
for a purchase price of $2,000,000.
The UMS Agreement was subsequently amended, effective March 24, 1995, to
provide, among other things, for the following:
(A) the extension of the period during which the purchasers of the
Corporation's Common Stock in the November Transaction are required to maintain
a minimum market value of $2,000,000 from March 31, 1995 to the later of the
closing date of the sale of Dixie Life to Standard, or ninety days from the date
of cancellation of the agreement related to such sale;
(B) the substitution of other common stock for Alanco common stock so
long as such substituted stock is currently traded on NASDAQ, the American Stock
Exchange or the New York Stock Exchange; and
(C) the granting of the Corporation to UMS of the option to assist the
Corporation in acquiring shares of Phoenix Medical Management, Inc. (PMM) by
exchanging 2,000,000 shares of the Common Stock of the Corporation for 16% of
the outstanding shares of PMM and the acquisition by the Corporation, in
consideration for 100,000 shares of its Common Stock, of an option to acquire
the remaining 84% of the shares of PMM in exchange for 10,400,000 shares of
Common Stock of the Corporation.
The Corporation has not yet consummated the acquisition of 16% of the
shares of PMM in exchange for 2,000,000 shares of its Common Stock.
As permitted by the UMS Agreement, as amended, the purchasers in the
November Transaction have substituted shares of common stock of Appletree
Companies, Inc. (Appletree) in place of shares of Alanco. At June 7, 1995, the
Corporation owned 874,770 shares of Alanco and 500,000 shares of Appletree. The
market value of such stock at June 7, 1995 exceeded the required $2,000,000.
26
<PAGE>
Under the terms of the Crown Agreement, Dixie Life makes quarterly payments
to Crown which are generally equal to 1% of the reserve credit being provided
under the agreement for the next quarter. The Crown Agreement provides for
various premium and other payments to be made between Dixie Life and Crown.
These payments may offset each other, resulting in a netting of amounts due. No
net quarterly payment to Crown during the remaining life of the Crown Agreement
will exceed the payment made in the next preceding quarter.
Under all of Dixie Life's reinsurance arrangements, Dixie Life remains
liable under its policies to its policyholders, regardless of the ability of the
reinsurer to meet its obligation to Dixie Life.
Dixie Life has assumed reinsurance on a block of life insurance business
under the Servicemen's Group Life Insurance Program. However, this assumption
has virtually no effect on Dixie's earnings from year to year. This assumption
increased Dixie Life's total in force life insurance by approximately
$141,936,000 at December 31, 1994. Dixie does not have any plans to enter into
other assumption reinsurance agreements.
Additional information regarding Dixie's reinsurance policies and
activities is included in Notes 2 and 13 of Notes to Consolidated Financial
Statements.
Regulatory Factors. Dixie Life is subject to regulation and supervision by
the insurance departments of the jurisdictions in which it is licensed. These
insurance departments are charged with the responsibility to assure that
insurance companies maintain adequate capital and surplus, manage investments
within prescribed character and exposure limitations and comply with a variety
of operational standards. They also make periodic examinations of individual
companies and review annual reports on the financial condition of all companies
operating within their respective jurisdictions. Regulations cover many aspects
of the life insurance business, including accounting and financial reporting
procedures.
As a Mississippi domiciled insurer, Dixie Life is primarily subject to
regulation by the Mississippi Insurance Department. An annual statement must be
filed with the Insurance Department in each state in which Dixie Life is
qualified on or before March 1 of each year covering operations and reporting on
the financial condition of Dixie Life as of December 31 of the preceding year.
Periodically, the Mississippi Insurance Department examines the assets,
liabilities and reserves of Dixie Life and performs a full examination of its
operations. The Mississippi Insurance Department's most recent complete
examination of Dixie Life was as of December 31, 1990.
In 1993, the Mississippi Insurance Department completed a targeted
examination as of September 30, 1993. In February 1995, the Department began a
complete examination as of December 31, 1994. The Department invites other
jurisdictions in which Dixie Life does business to participate in its
examinations, if they so desire. An examiner from Delaware, representing the
Eastern Region as set up by NAIC, is participating in the current examination.
27
<PAGE>
Under insurance guaranty fund laws in most states, insurers doing business
therein can be assessed up to prescribed limits for policyholder losses incurred
as a result of insolvent companies that were doing business in the assessing
state. The amount of future assessments, if any, of Dixie Life under these laws
cannot be estimated. Most of these laws do provide, however, that an assessment
may be excused or deferred if it would threaten an insurer's own financial
strength. In addition, insurers are generally allowed a 100% credit for guaranty
assessments paid against future premium tax expense.
Under Mississippi law, the Corporation and Dixie Life are members of an
insurance holding company system. As members of an insurance holding company
system, transactions between the Corporation and Dixie Life are subject to
various statutory controls and limitations and may require approval and trigger
certain reporting requirements. In addition, Mississippi law provides that
certain transactions involving a domestic insurer and any person in its holding
company system shall not be entered into unless the insurer has notified the
Commissioner in writing of the insurer's intention to enter into such
transaction at least 30 days prior thereto, or such shorter period as the
Commissioner may permit, and that the Commissioner has not disapproved such
transaction within such period.
Generally, transactions within a holding company system must be fair and
reasonable; charges or fees for services rendered must be reasonable; accounting
for expenses incurred and for payments received must be allocated to the insurer
in conformity with customary insurance accounting practices consistently
applied; the books and records of the parties to all such transactions must
clearly and accurately disclose the nature and details of the transactions,
including accounting information necessary to support the reasonableness of the
charges or fees to the parties; and the insurer's surplus as regards
policyholders following any dividend or distribution to a shareholder affiliate
must be reasonable in relation to the insurer's outstanding liabilities and
adequate to meet its financial needs. Certain transactions are required to be
reported to the Commissioner.
Mississippi law prohibits the payment of an extraordinary dividend or any
other extraordinary distribution by an insurer to a shareholder until 30 days
after the Commissioner has received notice of the declaration thereof and has
not, within such period, disapproved such payment or has approved such payment
within the permitted period.
An extraordinary dividend or distribution is one which, together with all
other distributions or dividends within the preceding 12 months, exceeds the
lesser of (i) 10% of such insurer's surplus as regards policyholders as of
December 31st next preceding, or (ii) net gains from operations of such insurer,
not including realized capital gains, for the twelve months ending December 31
next preceding. In such computations, the insurer may carry forward net gain
from operations from the previous two calendar years that have not already been
paid out as dividends. Based upon Dixie Life's net gain from operations in 1994,
Dixie Life may pay a dividend of approximately $200,000 without the approval of
the Commissioner.
Although the federal government generally does not directly regulate the
business of insurance, federal initiatives often have an impact on the business
in a variety of ways. Current and proposed federal measures which may
significantly affect the insurance business include employee benefit regulation,
tax law changes affecting the taxation of insurance companies, the tax treatment
of insurance products, and the relative desirability of various personal
investment vehicles.
28
<PAGE>
Legal Proceedings
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.
The suit alleges that Dixie Life has failed to properly pay dividends to
holders of its Charter Contract policies. As discussed in Note 13 of Notes to
Consolidated Financial Statements, these policies are participating policies
pursuant to which Dixie Life is obligated to apportion dividends to the holders
of such policies as a group and on a prorata basis, of not less than 35% of the
statutory net profits of Dixie Life, computed by a formula set forth in the
policy. The formula utilizes certain information contained in the annual
statement filed by Dixie Life with the Mississippi Department of Insurance, as
such report was constituted in 1966. The suit was filed as a class action on
behalf of the plaintiff and a class of persons allegedly similarly situated and
alleges the class consists of over 1,000 persons.
The suit seeks judgment in an undetermined amount for alleged underpayment
of dividends and an injunction requiring Dixie Life to pay appropriate dividends
in the future.
Dixie Life has paid a dividend to holders of the Charter Contract policies
in each year since the policies were issued. On a cumulative basis, the total
dividends paid to the holders of the Charter Contract policies since issuance
exceed 35% of the statutory net profits of Dixie Life for the same period as
defined by the policy.
Dixie Life filed an answer to the complaint on March 7, 1994 and intends to
vigorously defend the suit. Dixie Life believes serious questions exist as to
whether a class action is available relative to the plaintiff's claim, and the
identity of the class, if a class action is available. Dixie Life will oppose
the certification of any class and, alternatively, will seek to limit the class.
No class has yet been certified by the court. In the absence of a class, if
any, and its composition, if certified, Dixie Life has no reasonable basis upon
which to estimate its potential liability, if any.
There are no other pending legal proceedings, expect for routine litigation
incidental to the Company's business, to which the Company or any of its
subsidiaries are a part, or to which any of the Company's property is subject.
SELECTED FINANCIAL DATA
The selected financial data for the Company set forth below as of and for
the years ended December 31, 1994, 1993, 1992, 1991 and 1990 were derived from
the audited consolidated financial statements of the Company. The unaudited
financial information as of and for the three months ended March 31, 1995 and
1994 were derived from the accounting records of the Corporation and its
subsidiaries and reflect, in the opinion of the Company, all adjustments,
consisting only of normal recurring items, which are necessary for a fair
presentation of financial position and results of operations on a basis
consistent with that of the audited financial statements. The results for the
three months ended March 31, 1995 are not necessarily indicative of results
expected for the full year. The selected financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's consolidated financial statements
and notes thereto, each included elsewhere herein.
FOR THE PERIOD ENDED
MARCH 31:
REVENUES
Premiums $ 810,697 $ 4,083,248
Net Investment Income 617,412 537,085
Realized investment
gains (losses) 36,757 11,594
------------ ------------
Total 1,464,866 4,631,927
------------ ------------
------------ ------------
NET INCOME (LOSS) (4,808,323) (909,329)
------------ ------------
------------ ------------
PER COMMON SHARE AMOUNTS
Primary and fully diluted
Net income (loss) $ (0.57) (0.14)
------------ ------------
------------ ------------
AT MARCH 31:
TOTAL ASSETS 40,487,880 52,868,860
------------ ------------
------------ ------------
NOTES PAYABLE
AND OTHER DEBT $ 6,058,506 $ 6,217,981
------------ ------------
------------ ------------
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED
DECEMBER 31:
REVENUES
Premiums $ 9,516,157 $19,499,289 $17,178,510 $15,146,819 $12,457,781
Net Investment Income 2,133,635 2,005,075 2,157,848 2,410,940 2,545,802
Realized investment
gains (losses) 1,551 25,580 (24,494) 2,029 (29,818)
------------ ------------ ------------ ------------ ------------
Total $11,651,343 $21,529,944 $19,311,864 $17,559,788 $14,973,765
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
NET INCOME (LOSS) $(2,554,779) $ (957,138) $ 848,984 $ 1,566,934 $ 2,495,775
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
PER COMMON SHARE AMOUNTS
Primary and fully diluted
Net income (loss) $ (.39) $ (.15) $ .13 $ .24 $ .39
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
AT DECEMBER 31:
TOTAL ASSETS $44,577,452 $56,255,734 $55,540,644 $54,240,107 $49,191,859
------------ ------------ ------------ ------------ ------------
NOTES PAYABLE ------------ ------------ ------------ ------------ ------------
AND OTHER DEBT $ 6,103,839 $ 6,253,670 $ 7,003,517 $ 7,520,447 $ 6,110,609
</TABLE>
29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following should be read in conjunction with the Selected Financial
Data and the Consolidated Financial Statements and notes thereto appearing
elsewhere in this Proxy Statement.
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 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 cash flow of approximately $778,000, $98,000 and $1,074,000 in 1994,
1993 and 1992, 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.
30
<PAGE>
The Corporation's most important liquidity need at this time is for debt
service. At December 31, 1994, the Corporation owed Standard approximately
$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 90 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 new due date of the Term Loan but not later than 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.
At December 31, 1994, Vanguard owed a bank approximately $524,000 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 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 90
days available to Corporation beyond such cancellation before the
Term Loan and Convertible Notes are 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 December 31, 1994, Dixie Life's investment
in securities not of investment grade was less than 1% of total investments.
During 1994, the Dixie Life increased its investment in fixed maturities by
almost $5 million. The funding for this increase came from several sources,
including $778,000 from operations, $403,000 from net collections on agent
advances, $1,182,000 from net collections on student loans and $2,568,000 from a
reduction in cash and short term investments. Dixie Life has completed its
program, begun in 1993, to recast its investment portfolio into investments with
an average maturity of approximately 10 years. Management believes its
investment portfolio provides appropriate liquidity to meet the liabilities of
Dixie Life as such liabilities mature.
31
<PAGE>
At December 31, 1994, the Company's investments are reported in accordance
with the provisions of Statement of Financial Accounting Standards No. 115 (FAS
115) which was issued by the Financial Accounting Standards Board in 1993 and
effective for 1994 financial statements. As a result the carrying basis for
investments is different in 1994 than in 1993.
At December 31, 1994, fixed maturity investments are all classified as
available for sale and are carried at market value. Unrealized market gains and
losses are reported as a separate component of stockholders' equity. Application
of FAS 115 resulted in a reduction of the Corporation's stockholders' equity of
$925,000 at December 31, 1994.
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 has been approved. Approximately $540,000 has
been funded thus far in 1995. The Stock Purchase Agreement requires that any
investment under this program be transferred to the Corporation at book value at
closing. Such transfer would effectively reduce the cash portion of the selling
price to the Corporation.
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 December 31, 1994, Dixie Life's Statutory Surplus was $6,280,000, 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
$1,985,000 at December 31, 1994. The sales of its in force accident and health
insurance, generated significant statutory profits.
Results of Operations
First Three Months of 1995 Compared To First Three Months of 1994. In the
three month period ended March 31, 1995, the Company incurred a net loss of
$4,808,000 ($.57 per share) compared to a net loss of $909,000 ($.14 per share)
in the comparable period of 1994. The 1995 loss included an estimated loss of
$4,635,000 ($.55 per share) from the proposed sale of Dixie Life discussed in
Note 3 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 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 the health care 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.
32
<PAGE>
Total revenues decreased $3,167,000 in the three month period ended March
31, 1995 compared to the same period in 1994. Premiums for the period decreased
$3,273,000 in 1995, primarily as a result of the sale of Dixie Life's accident
and health business.
Benefits and expenses decreased $4,083,000 in the three month period ended
March 31, 1995 compared to the same period in 1994, primarily as a result of the
sales of Dixie Life's accident and health business.
Benefits and claims to policyholders decreased $2,248,000 in the three
month period ended March 31, 1995 compared to the same period in 1994.
Amortization of deferred policy acquisition costs decreased $1,115,000 in the
three month period ended March 31, 1995 compared to the same period in 1994.
Commissions decreased $605,000 in the three month period ended March 31 compared
to 1994. Each of these decreases was driven by the sales 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.
Comparison of Three Years Ended December 31, 1994. The Company incurred a
net loss of $2,554,779 in 1994 compared to a net loss of $957,138 in 1993
reflecting a negative change of 167% in 1994 compared to 1993. The net loss in
1993 reflected a negative change of 213% compared to 1992 net income of
$848,984. On a per share basis the net loss for 1994 was $.39 compared to a net
loss of $.15 in 1993 and net income of $.13 in 1992.
Total revenues for 1994 were $11,651,000 compared to $21,530,000 in 1993
and $19,312,000 in 1992, reflecting a 46% decrease in 1994 and an 11% increase
in 1993.
Premium income in 1994 was $9,516,000, a 51% decrease from 1993 premiums of
$19,499,000. The 1993 level of premiums was 14% greater than 1992 premium income
of $17,179,000. The decrease in premiums in 1994 was driven primarily by the
sale of Dixie Life's accident and health business, which resulted in Dixie Life
having no accident and health premiums in the last half of 1994. The composition
of premium income in each of the three years was as follows:
Life and Accident
Year Annuity and Health Total
---- ----------- ----------- ------------
1994 $ 4,214,000 $ 5,302,000 $ 9,516,000
1993 5,314,000 14,185,000 19,499,000
1992 4,892,000 12,287,000 17,179,000
Net investment income was $2,134,000 in 1994 compared to $2,005,000 in 1993
and $2,158,000 in 1992, reflecting an increase of 6% in 1994 and a decrease of
7% in 1993. In 1994 and 1993, net investment income was favorably influenced by
a planned program to reinvest significant short term holdings in a portfolio
with an average life of 10 years. There was also a positive impact in 1994 from
rising interest rates. Several factors counteracted these positive factors.
First, in 1991 Dixie Life began reinvesting the proceeds of all calls,
maturities and sales in short term investments. This program continued
throughout 1992 and into the first quarter of 1993. This resulted in a
significant decrease in the yield on Dixie Life's investment portfolio. Second,
income on student loans has steadily decreased in absolute dollars, driven
partly by a reduction in the amount of loans outstanding and the fact that a
significant portion of the outstanding loans provide for floating interest rates
which have fallen over the periods being compared.
33
<PAGE>
Total benefits and expenses were $14,236,000 in 1994, $22,700,000 in 1993
and $18,213,000 in 1992, reflecting a decrease of 37% in 1994 and an increase of
25% in 1993.
In 1994, every expense category experienced a significant decrease. The
decreases in benefits and claims to policyholders, amortization of deferred
policy acquisition costs and commissions largely resulted from the sale of Dixie
Life's accident and health business, The composition of these three categories
by segment were as follows:
Life and Accident
Year Annuity and Health Total
---- ----------- ----------- ------------
Benefits and Claims to Policyholders:
- -------------------------------------
1994 $ 3,512,000 $3,061,000 $ 6,573,000
1993 4,046,000 8,528,000 12,574,000
1992 3,321,000 6,771,000 10,092,000
Amortization of Deferred Policy Acquisition Costs:
- --------------------------------------------------
1994 968,000 453,000 1,421,000
1993 1,526,000 980,000 2,506,000
1992 1,337,000 720,000 2,057,000
Commissions:
- ------------
1994 882,000 1,012,000 1,894,000
1993 367,000 3,142,000 3,509,000
1992 452,000 2,270,000 2,722,000
General expenses declined $323,000 in 1994 compared to 1993. Under the
terms of the 1994 sale of Dixie Life's accident and health business, Dixie Life
continued to administer the business which was sold through December 16, 1994
and received compensation from the purchaser of $671,000 which was credited to
general expense. Actual costs of such administration exceeded the compensation
received, accounting for the difference in the decrease and the compensation
received. The decreases in all recurring categories were offset by the
difference in the loss incurred on the sale of Dixie Life's accident and health
business in 1994 compared to 1993.
34
<PAGE>
In 1993, total benefits and expenses increased $4,487,000 with an increase
in benefits and claims to policyholders comprising $2,481,000 of this increase,
or 55% of the total increase. This increase in benefits and claims to
policyholders was caused by an increase in claims paid of $1,895,117 and an
increase in accident and health reserves resulting from continued high levels of
claims. Dixie Life instituted rate increases on several of its accident and
health policies because of the higher levels of claims and it continually
monitored its claims experience and requested rate increases on its accident and
health products whenever claims experience warranted rate increases. The rate
increases which were approved generally were instituted in the latter part of
1993 or early 1994 and thus had little effect on operations for 1993.
Amortization of deferred policy acquisition costs and value of insurance
purchased increased $450,000 in 1993 as a result of a general increase in the
amount of insurance in force and a somewhat higher level of terminated policies
in 1993. Commission expenses increased $787,000 as a result of a relatively
higher renewal premium income on accident and health products which carry a
higher renewal commission structure. General expenses increased $437,000 in 1993
with $217,000 of this increase being caused by increased professional fees.
In 1994, a change in deferred taxes on policy liabilities, resulting from
an incorrect estimate of the tax basis policy benefits at December 31, 1993,
caused a $362,786 reduction of the 1994 tax benefit credited to operations.
Consequently the 1994 effective tax rate was less than 2%. Income tax benefit in
1993 was 18% of the loss before income taxes compared to income tax expense of
23% on income before income taxes in 1992 and 18% in 1991.
35
<PAGE>
MARKET PRICES AND DIVIDENDS
The Corporation's Common Stock is traded in the over-the-counter market and
is quoted on the NASDAQ Market System under the symbol DNLC. The tables below
set forth the reported high and low bid and asked prices as reported by the
National Quotation Bureau, Inc. for the quarters indicated. This information
does not include retail markups, markdowns, or commissions and may not represent
actual transactions.
1995
High Low
Quarter Bid Asked Bid Asked
First 1 1 1/32 13/16 15/16
Second (through
, 1995)
1994
First 1 1 1/4 1 1 3/16
Second 15/16 1 1/16 13/16 15/16
Third 9/16 3/4 1/2 11/16
Fourth 3/4 7/8 1/2 5/8
1993
First 7/8 1 1/8 7/8 1 1/8
Second 13/16 1 1/16 13/16 1 1/16
Third 1 1/16 1 1/4 15/16 1 1/8
Fourth 13/16 1 11/16 7/8
The closing bid price for the Corporation's Common Stock on April 7, 1995,
the business day immediately preceding the public announcement of the Standard
Transaction, was $ .84 3/8.
No cash dividends have been paid on the Corporation's Common Stock since
1983 and the Corporation does not anticipate the payment of any such dividends
for the foreseeable future. The provisions of the Term loan prohibit the payment
of dividends by the Corporation.
The number of holders of record of common stock of the Corporation on June
15, 1995 was _____.
36
<PAGE>
PROPOSAL NO. 2 - 1995 STOCK OPTION PLAN
The Board of Directors adopted the 1995 Stock Option Plan ("1995 Plan") on
May 26, 1995, subject to shareholder approval. The purpose of the 1995 Plan is
to advance the interests of the Corporation and its shareholders by affording
key employees and non-employee directors the opportunity to acquire a propriety
interest in the Corporation through the purchase of Common Stock under options.
By so doing, the Board seeks to motivate, retain and attract highly competent,
highly motivated individuals whose judgment, initiative, leadership and
continued efforts will contribute to the success of the Corporation.
The shareholders of the Corporation have previously approved similar stock
option plans, the 1982 Incentive Stock Option Plan and the 1988 Incentive Stock
Option Plan (together, "1982 and 1988 Plans"), both of which have expired so
that options thereunder may no longer be granted. Options granted under the 1982
and 1988 Plans with respect to an aggregate of 395,768 shares of Common Stock
currently are outstanding and held by three officers and directors of the
Corporations, and 192 sales agents of Dixie Life. These options are exercisable
for periods ending January 1999, at prices not less than the fair market value
of the Common Stock on the date of grant.
A copy of the 1995 Plan is attached as Appendix D to this Proxy Statement.
The principal features of the 1995 Plan are described below.
General
The 1995 Plan provides for the grant of options to acquire shares of Common
Stock to key employees and non-employee directors of the Corporation. A maximum
of 500,000 shares of Common Stock (subject to adjustments in the event of stock
splits, stock dividends and certain other events) may be issued under the 1995
Plan, of which 400,000 are reserved for key employees and 100,000 are reserved
for non-employee directors. Based on the closing bid price of the Common Stock
on NASDAQ on June 15, 1995, the aggregate market value of the 500,000 shares
subject to the 1995 Plan is $ _____. If any option terminates or expires without
having been exercised in full, the stock not purchased under such option shall
again be available for the purposes of the 1995 Plan. Each option must be
granted within five years from May 26, 1995, the date on which the 1995 Plan was
adopted by the Board of Directors. The 1995 Plan will terminate on May 25, 2005,
at which time any outstanding options shall be void and of no further effect.
Administration
The 1995 Plan is administered by an Administrative Committee of the Board
of Directors, which is comprised of the members of the Board's Personnel and
Compensation Committee. Subject to provisions of the 1995 Plan, the
Administrative Committee has the sole authority to determine those persons to
whom and the time or times at which options may be granted, and the number of
shares of Common Stock to be subject to each option. Also, the Administrative
Committee has complete authority to interpret the 1995 Plan, to prescribe, amend
and rescind rules and regulations related to it, and to determine the provisions
of each stock option agreement, consistent with the terms of the 1995 Plan, and
to make all other determinations necessary or advisable in the administration of
the 1995 Plan.
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<PAGE>
Options
The options may be granted under the 1995 Plan as either incentive stock
options within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended ("Code"), for key employees, or as non-statutory options to
non-employee directors. All options must be exercised within five years from the
date of grant; are to be exercised at the option price which may not be less
than the fair market value of the Common Stock at the time the option is
granted; are exercisable over such period and in such amounts as the
Administrative Committee may determine; and are non-transferable except on
death. The options terminate ten days following termination of employment, with
or without cause, or termination of a non-employee director's relationship with
the Corporation. However, in the event of retirement the options expire three
months from the date of retirement and, in the case of death or permanent and
total disability of an optionee, the deceased or disabled optionee's
representative or estate shall have the right to exercise the option at any time
within a period of one year following the optionee's death or disability.
The maximum number of shares subject to options granted under the 1995 Plan
to any one employee is 100,000 and to any one non-employee director is 10,000.
No person to whom options are granted may receive options, first exercisable
during any single calendar year, for Common Stock, the fair market value of
which (determined at the time of the grant of the options) exceeds $100,000.
Exercise of Options
The options granted under the 1995 Plan are exercisable by the optionee
over such period of time and in such amounts as the Administrative Committee may
determine, but in no instance will the exercise period exceed five years from
the date of grant of the option. Key employees may exercise 20% of their options
in each year on a cumulative basis; any portion not exercised will be carried
over for exercise in subsequent years. Non-employee directors may exercise their
options, in whole or in part, at any time. The exercise of any option must be
accompanied by the full purchase price in cash at the time of exercise. The
exercise price may not be changed except by adjustment pursuant to the
anti-dilution provisions of the 1995 Plan.
Transferability
Options are not assignable or transferable except for the right of exercise
which passes to the estate or legal representative of a deceased optionee for a
period of one year following the optionee's death.
Termination or Amendment
The Board of Directors of the Corporation may at any time, upon
recommendation of the Administrative Committee, terminate the 1995 Plan, and
may, at any time and from time to time, amend or modify the 1995 Plan. No action
may be taken by the Board, without approval of a majority of the shareholders of
the Corporation, to: (a) increase the total number of shares of Common Stock
subject to the 1995 Plan, (b) change the manner of determining the option price,
or (c) withdraw the administration of the 1995 Plan from the Administrative
Committee. The anti-dilution provisions of the 1995 Plan are exceptions to the
restrictions on amendment or change.
Federal Income Tax Consequences
The principal federal income tax rules as they apply to the 1995 Plan are
summarized below.
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<PAGE>
Incentive Stock Options. Options granted to key employees will be treated
as "incentive stock options," the tax treatment of which is governed by Section
422 of the Code. If the requirements of Section 422 and the Regulations the
thereunder are met, no regular income tax is imposed upon the employee when an
option is granted or exercised. The employee is not subject to regular income
tax until shares acquired by the exercise of the option are sold.
The first taxable event is the sale of shares acquired by exercise of the
option. At that time, if the employee meets the special holding period
requirements, the employee recognizes gain or loss equal to the difference
between the amount realized on the sale and the option exercise price. This gain
is treated as gain from the sale or exchange of a capital asset. However, if the
employee fails to satisfy the special holding period requirement, the employee
is treated as having compensation income when he or she disposes of the shares.
The amount of the compensation income is equal to the difference between the
fair market value of the stock at the time of exercise of the option and the
option exercise price. Any remaining gain is treated as gain from the sale or
exchange of a capital asset. If the stock acquired under an incentive stock
option declines in fair market value between exercise and sale, so that the
difference between the fair market value of the stock on exercise and the price
paid for the stock exceeds the gain recognized upon an early disposition of the
stock, the compensation income is limited to the amount of the gain on the
disposition.
To meet the holding period requirement, stock acquired under an incentive
stock option may not be disposed of before the later of (i) two years from the
date of the grant of the option, or (ii) one year from the date of the exercise
of the option. These periods are measured from the date on which all acts
necessary to grant or exercise the option, whichever is applicable, have been
completed. The date of grant is the date the Administrative Committee completes
action granting the option. The date of exercise is the date the Corporation
receives notice of exercise and payment for the shares.
The Corporation will be entitled to a deduction in an amount equal to any
ordinary income recognized by an optionee upon the grant or exercise of an
option.
Non-Statutory Stock Options. With respect to non-employee directors, the
options granted will be treated as "non-statutory" options governed by Section
83 of the Code and the Regulations thereunder.
Non-statutory options are subject to the provisions of Section 83 relating
to the transfer of property for services. If the option has a readily
ascertainable fair market value when it is granted, it is subject to tax under
Section 83 at the time of grant. If the option does not have a readily
ascertainable fair market value at the time of the grant, it will be subject to
tax under Section 83 when the shares of stock are transferred pursuant to the
exercise of the option.
Generally, the value of an option is not readily ascertainable unless the
option is actively traded on an established market. Since the options granted
under the 1995 Plan are not transferable, they will not have a readily
ascertainable fair market value and there should be no tax consequences to a
non-employee at the time the option is granted. Instead, the option will be
taxed when it is exercised. At that time, the fair market value of the shares
acquired, less any amount paid for the shares, will be included in the gross
income of the non-employee as compensation; and the Corporation will be entitled
to a deduction equal to the amount included in the non-employee's gross income.
39
<PAGE>
Once compensation income is recognized, the non-employee is entitled to
increase his or her basis by the amount of income recognized. Thereafter, tax
treatment on the sale of the shares will be subject to the usual rules
respecting sales or exchanges of property. If the shares quality as capital
assets in the hands of the non-employee, the subsequent sale will be treated as
a sale or exchange of property subject to a capital gain or capital loss
treatment.
Grants Under 1995 Plan
Options for the purchase of 5,000 shares of Common Stock were granted under
the 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.
A favorable vote of a majority of the shares voted in person or by proxy,
is required to approve the 1995 Plan. The Board of Directors recommends that the
shareholders vote FOR approval of the 1995 Plan.
PROPOSAL NO. 3 - ELECTION OF DIRECTORS
Nominees and Directors
Article III, Section 2 of the By-Laws of the Corporation provides that the
Board of Directors shall consist of not less than nine nor more than 25 members,
the number thereof to be determined at each annual meeting of shareholders. The
Board of Directors recommends that the Board of Directors of the Corporation for
the ensuing year consist of nine directors and further recommends the election
of the nominees listed below, each director to hold office until the next annual
meeting of the shareholders or until his successor shall be duly elected and
qualified. Shareholders may also nominate candidates for director at any meeting
of the shareholders at which directors are to be elected. A favorable vote of a
majority of those shares voting, in person or by proxy, is required to approve a
Board of Directors consisting of nine directors. The nominees receiving the
highest number of votes shall be elected.
Each nominee except Mr. _____ is a member of the present board and was
elected thereto by a vote of the shareholders at the 1994 annual meeting.
Management has no reason to believe that any substitute nominee or nominees will
be required.
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The following table indicates the age, year first elected a director and
principal occupation or employment for the past five years of each nominee. In
addition, the table also indicates any committee of the Board of Directors of
the Corporation on which the nominee serves.
T. H. ETHERIDGE Mr. Etheridge, 60, has been director since
1966. He is President and Chief Executive
Officer of Choctaw Maid Farms, Inc. (a food
processing and marketing company), of
Carthage, Mississippi. In addition, he is
Chairman of the Board of Central Industries
and a director of Southern Hens, Inc. He
serves as a member of the Executive
Committee.
JOHN E. HAGGAR Mr. Haggar, 52, has been a director since
January 1995. Since December 1, 1994, he has
been Chief Financial Officer of UMS (a
management company, providing accounting,
reporting and regulatory services to its
clients, and assistance in capital
formation). Previously, Mr. Haggar was a sole
practitioner engaged in providing accounting
services to the general public. He is a
member of the American Institute of Certified
Public Accountants and the Washington Society
of Certified Public Accountants. Mr. Haggar
serves as Chairman of the Audit and
Compliance Committee and a member of the
Finance and Business Strategy Committee and
the Nominating and Shareholder Relations
Committee. Mr. Haggar was originally
nominated and elected to the Board pursuant a
provision of the UMS Agreement.
ROBERT B. NEAL Mr. Neal, 57, has been a director since 1970
and was Chief Executive Officer from 1970
until February 1995. He is President of the
Corporation and also Chairman of the Board of
Directors, President and Chief Executive
Officer of Dixie Life. He serves as a member
of the Executive Committee.
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<PAGE>
DENNIS NIELSEN Mr. Nielsen, 54, has been a director since
January 1995. Since March 1993, he has been
self employed as a business consultant
offering assistance to businesses on
restructuring, financing or assisting with
possible mergers or acquisitions. Previously
he was owner of P&N, Inc. and Hufburn Sales,
Inc., both automobile dealerships. He serves
as a member of the Audit and Compliance
Committee and the Nominating and Shareholder
Relations Committee. Mr. Nielsen was
originally nominated and elected to the Board
pursuant a provision of the UMS Agreement.
JOE D. PEGRAM Mr. Pegram, 54, has served as a director
since 1991. He is an attorney in Oxford,
Mississippi. Mr. Pegram is a member of the
Audit and Compliance Committee.
S.L. REED, JR. Mr. Reed, 58, has been Chairman of the Board
since January 1995, Chief Executive Officer
of the Corporation since February 1995 and a
director since 1980. He is President of Reed
Enterprises, Inc., (an aquaculture and
investment company) of Belzoni, Mississippi.
He is a director of Delta Industries, Inc.,
Producers Feed Co. and Venture SystemSource,
Inc. Mr. Reed serves as a member of the
Executive Committee.
JAMES G. RICKETTS Dr. Ricketts, 56, has been a director since
January 1995. He is President and Chief
Executive Officer of International
Corrections Corporation of Scottsdale,
Arizona, a corporation which he founded in
1990 to develop and operate private prisons
and to act as an independent consultant to
corrections agencies throughout the United
States. Previously he served as Director of
the Arizona Department of Corrections,
Executive Director of the Colorado Department
of Corrections and Deputy Secretary to the
Florida Department of Corrections, as well as
numerous other positions in the corrections
field. In addition, he is a director of
Alanco. Dr. Ricketts serves as chairman of
the Personnel and Compensation Committee and
a member of Finance and Business Strategy
Committee. He was originally nominated and
elected to the Board pursuant a provision of
the UMS Agreement.
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<PAGE>
HERBERT G. ROGERS, III Mr. Rogers, 52 previously served as a
director from April 6, 1990 to April 5, 1991.
He has also served as a director from April
3, 1992 to the present. He is President of
Rogers Agency, Inc., Rogers LP-Gas Company,
Rogers Investments, Inc., Mississippi Realty,
Inc. and Roell Realty Corp. of New Albany,
Mississippi. In addition, he is a director of
the Nashoba Bank and Chairman of the Board of
the Gentry Furniture Corporation. He serves
as Chairman of the Finance and Business
Strategy Committee and a member of the
Personnel and Compensation Committee.
(NINTH NOMINEE)
- ---------------
All Committees are appointed by the Chairman of the Board and ratified by
the Board of Directors. The Corporation's 1994 annual shareholders' meeting was
not held until January 1995. Therefore, all committee assignments throughout
1994 were those made following the 1993 annual shareholders' meeting. The
committee assignments listed above are those made following the 1994 annual
shareholders' meeting. Committees of the Board of Directors throughout 1994
consisted of the following:
(1) Executive Committee - subject to statutory limitations, has concurrent
authority of the Board of Directors. During 1994, the Executive Committee of the
Corporation had eight meetings. All members who are nominees attended at least
75% of those meetings.
(2) Audit Committee - Reviews planning and results of the annual report of the
Corporation with independent auditors. During 1994, the Audit Committee had two
meetings. All members were present. This committee is now the Audit and
Compliance Committee.
(3) Compensation Committee - Reviews compensation for all Corporation officers.
During 1994, the Compensation Committee did not meet. This committee is now the
Personnel and Compensation Committee.
(4) Nominating Committee - Serves as nominating committee for Board of
Directors. The Nominating Committee will consider a nominee for the Board of
Directors recommended by a shareholder; however, the Corporation presently has
no established procedure for a recommendation process. During 1994, the
Nominating Committee did not meet. This committee is now the Nominating and
Shareholder Relations Committee.
(5) Planning and Oversight Committee - Charged with seeking an appropriate
solution to liquidity problems which the Corporation has faced since 1993.
During 1994, the Planning and Oversight Committee met 5 times and all members
were present at all meetings. This committee does not exist on the present Board
of Directors.
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<PAGE>
During the year 1994, the Board of Directors of the Corporation had eight
meetings. Each member of the Board who is a nominee to the Board of Directors
except Mr. Peagam attended at least 75% of the meetings.
An investigation of the Corporation by the Securities and Exchange
Commission ("SEC") was resolved by means of a settlement on March 9, 1994, when
the United States District Court for the District of Columbia entered final
judgments of permanent injunction against the Corporation, Robert B. Neal, a
director and President of the Corporation, and a former director and officer of
the Corporation, who were the defendants in a complaint filed by the SEC. Each
defendant consented to the entry of a final judgment of permanent injunction
without admitting or denying the allegations contained in the SEC's complaint.
The final judgments enjoin the defendants from violating or aiding or abetting
future violations of sections of the Securities Act of 1933 and the Securities
Exchange Act of 1934 ("Exchange Act") and certain rules under the Exchange Act.
The Second and Restated UMS Agreement provides that, at such time as the
Corporation has placed not less than 6,425,000 shares of Common Stock as a
direct result of the efforts of UMS thereunder, a sufficient number of the then
existing directors of the Corporation shall resign so that the investors
purchasing the aforesaid amount of Common Stock shall have the ability to elect
a majority of the Board of Directors of the Corporation. Under the insurance
laws of Mississippi, prior approval of a change of control of the Corporation
must be obtained from the Commissioner. This requirement results from the fact
that the Corporation and Dixie Life are members of an insurance "holding company
group" as that term is defined in the Mississippi insurance law. If the Standard
Transaction is consummated, approval by the Commissioner will not be required.
Executive Officers
The executive officers of the Corporation are: S. L. Reed, Jr., Chairman
and Chief Executive Officer; Robert B. Neal, President; T. F. Flowers, Jr.,
Senior Vice President; Jerry M. Greer, Senior Vice President and Secretary; G.
Thomas Reed, Senior Vice President and Monroe M. Wright, Senior Vice President,
Treasurer and Chief Financial Officer. Messrs. S. L. Reed, Jr., Neal, Flowers
and Greer have served continuously as executive officers with the Corporation
since February 1995, 1967, 1970 and 1970, respectively. Messrs. Flowers and
Greer, ages 57 and 52, respectively, also served as directors of the Corporation
until January 1995. The ages, positions with the Corporation and other
information concerning Messrs. S. L. Reed, Jr. and Neal are set forth under
"Nominees and Directors," above.
G. Thomas Reed, 45, joined the Corporation in April 1995 and was elected an
executive officer on May 26, 1995. Prior to joining the Corporation, G. Thomas
Reed had a management consultant practice in 1991 and 1992 and from November
1994 until joining the Corporation. In 1993 and 1994 he was a Private Banking
Manager for First Union National Bank, and from 1988 until 1991, was
Administrative Vice President and Chief Operating Officer of Compudata Services,
Inc., a software development and service company.. Messrs. Reed are not related.
Mr. Wright, 54, has served in his positions with the Company since February
1993. He was a practicing certified public accountant for 24 years prior to
joining the Corporation and a shareholder in Horne CPA Group, a professional
association, from 1990 until February 1993. From 1987 to 1990, Mr. Wright was a
sole practitioner.
The Corporation's officers serve at the pleasure of the Board of Directors.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
Compensation Committee Report on Executive Compensation
The Compensation Program. The Compensation Committee of the Board of
Directors is responsible for determining the compensation of the executive
officers of the Corporation. The committee endeavors to insure that the
compensation program for executive officers of the Corporation is effective in
obtaining and retaining key executives responsible for the success of the
Corporation. The compensation program has been designed to link a portion of the
executive's compensation directly to performance. The components of this program
such as stock options and bonuses may increase or decrease to reflect changes in
corporate or individual performance.
Base Salary. Base salaries for the executive officers are established at
levels considered appropriate in light of the duties and scope of
responsibilities of each officer's position. The committee reviews the base
salaries of the executive officers annually and adjusts them as warranted. The
base salary of the Chief Executive Officer (Robert B. Neal for all of 1994) is
set after consideration of operating performance of the Corporation and its
financial condition at the time of such consideration. There was no change in
the Chief Executive Officer's base salary for 1994.
44
<PAGE>
Bonus Plan. The Compensation Committee also has been responsible for
establishing and recommending to the Board of Directors a bonus formula which
relates compensation to profit goals. The formula used in prior years called for
a bonus pool to be established based upon pre-tax profit of the Company. The
Compensation Committee established a minimum acceptable return on stockholders'
equity, and the formula to establish the bonus pool required a minimum profit
before any bonus would be paid into the pool. The pool would increase as a
percent of profit with incremental increases in profits. Allocation of the bonus
pool, should one exist, would be made with respect to 80% of the pool on a
nondiscretionary basis and 20% of the pool on a discretionary basis by the
Compensation Committee. No formula was adopted and no bonuses were granted in
1994.
Stock Option Plan. The only long-term incentive compensation the executive
officers have received is stock options prior to 1994. Certain Executive
Officers of the Corporation have certain stock options as shown in the Security
Ownership of Management section of this statement. The plans under which these
options were granted expired prior to 1994. Thus in 1994, no executive officer
or employee received any stock options.
Profit Sharing 401(k) Plan. The Corporation maintains a qualified profit
sharing 401 (k) plan for employees, including officers. The Corporation matches
employee contributions to the extent provided in the plan. Contributions under
the profit sharing portion of the plan are made at the discretion of the Board
of Directors. Such contributions, if any, are allocated based upon a formula
which includes compensation and years of service. No discretionary contribution
was made to the plan in 1994. Under terms of the 401 (k) provision of the plan,
Messrs. Neal, Flowers, Greer and Wright received $2,505, $1,763, $1,574 and
$1,000, respectively, in matching contributions by the Corporation in 1994.
Compensation Committee Members. The Corporation's Compensation Committee
for 1994 was composed of the following individuals:
Rubel L. Phillips, Chairman
Edgar L. McKenzie
S. L. Reed, Jr.
William A. Taylor, Jr.
Zach Taylor, Jr.
Stock Price Performance Chart.
[To be provided in definitive proxy statement]
1989 1990 1991 1992 1993 1994
---- ---- ---- ---- ---- ----
Dixie National Corporation $100.00 125.00 137.50 87.50 68.75 62.50
S&P 500 Index 100.00 96.90 126.42 136.05 149.76 151.74
S&P Insurance Index 100.00 81.66 117.70 157.93 159.93 132.68
45
<PAGE>
Assumes $100 invested on December 31, 1989, in the Corporation's Common
Stock, the Standard and Poor's 500 Index, and the Standard and Poor's Life
Insurance Index. Total return assumes reinvestment of dividends.
Neither the foregoing Compensation Committee report or the material set
forth under the subcaption "Stock Price Performance Chart" shall be deemed to be
filed with the SEC for purposes of the Exchange Act, nor shall such report or
such material be deemed to be incorporated by reference in any past or
subsequent filing by the Corporation under the Exchange Act or the Securities
Act.
Summary Compensation Table
The following Summary Compensation Table sets forth, for each of the last
three years, information concerning the total compensation paid or awarded for
services rendered in all capacities to the Corporation and its subsidiaries to
the Corporation's Chief Executive Officer and the only other executive officer
whose total compensation exceeded $100,000 in 1994.
Name
and
Principal Annual Compensation All Other
Position Year Salary Bonus Compensation
- --------- ------ ---------- -------- ------------
Robert B. Neal 1994 $125,269 None $2,505(1)
President 1993 $125,269 None $2,575(1)
1992 $121,739 $3,477 $1,217(1)
Monroe M. Wright 1994 $100,000 None $1,000(1)
Senior Vice President 1993(2) 85,000 10,000 -0-
Treasurer and Chief
Financial Officer
- --------------------
(1) Includes the Corporation's contributions under its qualified profit sharing
plan for employees, including officers. Contributions to this plan are made
based upon (a) matching contributions under the Corporation's 401(k) plan and
(b) for discretionary contributions, a formula which includes compensation and
years of service. All contributions included above consisted of matching
contributions under the 401(k) plan.
(2) Commenced employment January 1993.
In 1994 no stock options were granted to or exercised by Robert B. Neal or
Monroe M. Wright and Mr. Wright holds no unexercised options as of December 31,
1994. The following table sets forth information as of December 31, 1994
concerning the unexercised options held by Mr. Neal. None of the options held by
Mr. Neal were in-the-money at December 31, 1994. Options are in-the-money when
the fair market value of the underlying common stock exceeds the exercise price
of the option. The closing prices of the Corporation's common stock on December
31, 1994 were $.50 bid and $.625 asked per share.
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<PAGE>
Fiscal Year End Options
Number of Unexercisable Options Value of Unexercised
at December 31, 1994 In-the-Money Options
------------------------------- --------------------
Name Exercisable Unexercisable at December 31, 1994
- ---- ----------- ------------- --------------------
Robert B. Neal 28,570 0 $0
DIRECTORS' COMPENSATION
Directors who are also officers of the Corporation receive no additional
compensation for serving on the Corporation's Board or committees thereof. All
other directors are paid $550 for each board or committee meeting they attend.
As Chairman of the Board of Directors, Rubel L. Phillips was paid $17,000 in
1994. S. L. Reed, Jr. was paid $9,800 as Vice Chairman of the Board of
Directors. As a group, directors who were not officers were paid $63,700 during
the year 1994.
As part of a compensation program for members of the Corporation's Board of
Directors, in March 1995 the Board approved granting options to purchase 5,000
shares of the Corporation's Common Stock to each of the Corporation's
non-employee directors at such time as a new stock option plan was formally
adopted. The 1995 Plan being voted upon, as Proposal No. 2, was adopted by the
Board on May 26, 1995 and options were granted to each of the Directors on that
date, subject to shareholder approval of the plan. The options may be
exercisable at any time prior to their expiration five years from the grant
date. The option price is the market price at the grant date. See "Proposal No.
2 - 1995 Stock Option Plan."
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain executive officers, directors and/or holders of record or
beneficially of more than 5% of the Corporation's Common Stock hold more than
$60,000 of the Corporation's Convertible Notes. The Corporation expects to
satisfy the Convertible Notes pursuant to the terms of the Stock Purchase
Agreement or otherwise. The following table summarizes such holdings:
Amount of
Holder Relationship Holdings
- ------ ------------ ----------
American Capitol Insurance Company 5% Owner $1,000,000
Robert B. Neal Director, Executive 100,000
Officer and 5% Owner
W.A. Taylor Director and 200,000(1)
5% Owner
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(1) Includes $100,000 held by Taylor Equipment & Machine Tool Corp., of which
Mr. Taylor is Chairman of the Board and a significant shareholder.
As discussed under "Future Business Plans," the Corporation has issued
shares of its Common Stock to Amarante as part of the acquisition of 16% of the
common stock of PMM. John E. Haggar, a director of the Corporation, is an
executive officer of UMS which is owned by Amarante.
As discussed under "Proposal No. 2 - 1995 Stock Option Plan," each of the
seven non-employee directors of the Corporation on May 26, 1995 has been granted
an option for 5,000 shares of the Corporation's Common Stock, subject to
shareholder approval of Proposal No. 2.
PROPOSAL NO. 4 - RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors recommends that the shareholders of the Corporation
ratify the appointment of Horne CPA Group as independent auditors to examine the
financial statements of the Corporation for the year ending December 31, 1995.
This firm has served as independent auditors of the Corporation since 1992. A
representative of Horne CPA Group will be at the annual meeting, will have the
opportunity to make a statement if he so desires and will be available to
respond to appropriate questions during the meeting. A favorable vote of a
majority of those shares voting, in person or by proxy, is required for
ratification of the selection of the independent auditors.
SHAREHOLDER PROPOSALS
Any shareholder desiring to have a proposal considered for inclusion in the
proxy statement to be distributed in connection with the Corporation's 1995
annual meeting to be held in 1996 is requested to submit such proposal in
writing to the Corporation, Attention Corporate Secretary, no later than March
8, 1996.
OTHER MATTERS
The Management of the Corporation knows of no other matters which may come
before the meeting except for the approval of the minutes of the last annual
meeting of the shareholders.
Copies of the Corporation's Annual Report to Shareholders, containing the
Corporation's Form 10-K Annual Report for the year ended December 31, 1994,
which contains audited consolidated financial statements, of the Corporation as
of December 31, 1994 and 1993 and for each of the three years in the period
ended December 31, 1994, were mailed on or about June 26, 1995 to shareholders
of record as of June 15, 1995.
Please date and sign the enclosed proxy and return it to the Company
promptly.
June 26, 1995 /s/Jerry M. Greer
JERRY M. GREER
SENIOR VICE PRESIDENT & SECRETARY
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INDEX TO FINANCIAL STATEMENTS
PAGE
Years 1994, 1993 and 1992
Report of Independent Certified Public Accountant F-2
Consolidated Balance Sheets as of December 31, 1994 and 1993 F-4
Consolidated Statements of Operations for the Three Years Ended
December 31, 1994 F-5
Consolidated statements of Stockholders' Equity for the Three
Years Ended December 31, 1994 F-6
Consolidated Statements of Cash Flows for the Three Years Ended
December 31, 1994 F-7
Notes to Consolidated Financial Statements F-8
First Quarter of 1995 and 1994
Unaudited Consolidated Balance Sheet as of March 31, 1995 F-24
Unaudited Consolidated Statements of Operations for the
Three Months Ended March 31, 1995 and 1994 F-25
Unaudited Consolidated Statements of Stockholders' Equity
for the Three Months Ended March 31, 1995 and 1994 F-26
Unaudited Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1995 and 1994 F-27
Unaudited Notes to Consolidated Financial Statements F-28
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To The Shareholders
Dixie National Corporation
Jackson, Mississippi
We have audited the accompanying consolidated balance sheets of Dixie National
Corporation and subsidiaries as of December 31, 1994 and 1993, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to report on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Dixie National
Corporation and subsidiaries as of December 31, 1994 and 1993 and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1994, in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements have been prepared assuming
the Corporation and subsidiaries will continue as a going concern. As discussed
in Note 9. to the consolidated financial statements, the Company does not have
available the resources to satisfy its short-term debt requirements.
This raises substantial doubt about the Company's ability to continue as a going
concern. Management's plans in regard to this matter are also described in Note
9. The consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
F-2
<PAGE>
HORNE CPA GROUP
Jackson, Mississippi
March 20, 1995, except for Note 1, as to which the date is April 12, 1995, and
Note 16, as to which the date is March 24, 1995.
F-3
<PAGE>
Consolidated Balance Sheets
Dixie National Corporation
December 31
-------------
1994 1993
------ ------
ASSETS
NON-LIFE
Investments
Common stock $ 2,000,000 $
Cash and cash equivalents 218,258 17,375
Other 26,200 26,200
-------------- ---------------
TOTAL NON-LIFE INVESTMENTS 2,244,458 43,575
Property and equipment 419,292 375,395
-------------- ---------------
TOTAL NON-LIFE ASSETS 2,663,750 418,970
LIFE
Investments
Fixed Maturities, at market 17,332,660 13,489,902
Policy loans 3,060,185 3,025,981
Government guaranteed student loans,
less allowance for uncollectible loans
of $464,603 at December 31, 1994 and
$504,981 at December 31, 1993 5,978,288 7,159,975
Short-term investments 4,860,347 3,014,248
Equipment leases
Cash and cash equivalents 240,851 4,638,083
-------------- ---------------
TOTAL LIFE INVESTMENTS 31,472,331 31,328,189
Accounts receivable, less allowance for
doubtful accounts of $195,885 at
December 31, 1994 and $480,000 at
December 31, 1993 761,219 1,534,392
Accrued investment income 412,705 380,411
Deferred policy acquisition costs, net 6,626,230 19,759,110
Value of life insurance purchased, net 1,589,356 1,749,356
Property and equipment, less accumulated
depreciation of $652,748 and $582,143 at
December 31, 1994 and 1993 165,402 232,817
Other assets 886,459 852,489
-------------- ---------------
TOTAL LIFE ASSETS 41,913,702 55,836,764
-------------- ---------------
TOTAL ASSETS $ 44,577,452 $ 56,255,734
-------------- ---------------
LIABILITIES AND STOCKHOLDERS' EQUITY
NON-LIFE LIABILITIES
Notes payable and other debt $ 524,304 $ 621,623
Accrued liabilities and expenses 3,475 3,012
-------------- ---------------
TOTAL NON-LIFE LIABILITIES 527,779 624,635
LIFE
Policy liabilities
Future policy benefits 27,538,803 34,904,591
Unearned premiums 746,720
Other policy claims and benefits payable 240,766 987,260
Other policyholders' funds 826,055 889,715
-------------- ---------------
TOTAL POLICY LIABILITIES 28,605,624 37,528,286
Notes payable and other debt 5,579,535 5,632,047
Income taxes 3,599 983,449
Accrued liabilities and expenses 679,460 826,072
-------------- ---------------
TOTAL LIFE LIABILITIES 34,868,218 44,969,854
STOCKHOLDERS' EQUITY
Common stock 8,394,973 6,394,973
Retained earnings 1,711,493 4,266,272
Unrealized holding losses on
investments available for sale (925,011)
-------------- ---------------
TOTAL STOCKHOLDERS' EQUITY 9,181,455 10,661,245
-------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 44,577,452 $ 56,255,734
-------------- ---------------
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
DIXIE NATIONAL CORPORATION
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
REVENUES
Premiums $ 9,516,157 $19,499,289 $17,178,510
Net investment income 2,133,635 2,005,075 2,157,848
Realized investment gains (losses) 1,551 25,580 (24,494)
----------- ------------ -----------
TOTAL REVENUES 11,651,343 21,529,944 19,311,864
BENEFITS AND EXPENSES
Benefits and claims to policyholders 6,573,216 12,573,809 10,092,459
Amortization of deferred policy acquisition costs and
value of insurance purchased 1,420,943 2,506,419 2,056,889
Commissions, net 1,893,838 3,509,301 2,722,167
General expenses, net 2,187,114 2,510,047 2,072,636
Interest expense 449,550 571,026 599,810
Insurance taxes, licenses and fees 514,579 705,170 669,113
Loss on sale of accident and health business 1,196,811 324,511
----------- ------------ -----------
TOTAL BENEFITS AND EXPENSES 14,236,051 22,700,283 18,213,074
----------- ------------ -----------
INCOME BEFORE INCOME TAXES (2,584,708) (1,170,339) 1,098,790
Income tax benefit (expense) 29,929 213,201 (249,806)
----------- ------------ -----------
NET INCOME (LOSS) $(2,554,779) $ (957,138) $ 848,984
=========== ============ ===========
Primary and fully diluted net income
(loss) per share $ (.39) $ (.15) $ .13
=========== ============ ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
DIXIE NATIONAL CORPORATION
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
Unrealized
Common Retained Holding
Stock Earnings Losses Total
------ -------- ---------- -----
<S> <C> <C> <C> <C>
Balance January 1, 1992 $6,424,973 $4,380,050 $ $10,805,023
Net income for 1992 848,984 848,984
Common Stock purchased by subsidiary (30,000) (5,624) (35,624)
---------- ---------- --------- -----------
BALANCE DECEMBER 31, 1992 6,394,973 5,223,410 $11,618,383
Net loss for 1993 (957,138) (957,138)
---------- ---------- --------- -----------
BALANCE DECEMBER 31, 1993 6,394,973 4,266,272 10,661,245
Net loss for 1994 (2,554,779) (2,554,779)
Unrealized holding losses on investments available for
sale $(925,011) (925,011)
Common Stock issued 2,000,000 2,000,000
---------- ---------- --------- -----------
BALANCE DECEMBER 31, 1994 $8,394,973 $1,711,493 $(925,011) $ 9,181,455
========== ========== ========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
DIXIE NATIONAL CORPORATION
<TABLE>
<CAPTION>
Year ended December 31,
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(2,554,779) $ (957,138) $ 848,984
Adjustments to reconcile net income to net cash
provided by operating activities:
Loss on sale of accident and health business 1,196,811 324,511
Increase in policy liabilities 2,155,070 2,952,775 1,682,675
Amortization 1,420,943 2,506,419 2,056,889
Increase (decrease) in deferred income taxes (748,597) (278,991) 117,552
Decrease in accrued liabilities (149,625) (251,709) (270,205)
Policy acquisition costs deferred (1,285,902) (3,642,818) (4,118,793)
Decrease in accounts receivable 1,623,993 163,070 310,800
Depreciation 119,564 117,910 160,272
Other, net (37,996) (199,712) 82,763
------------ ----------- -----------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 1,739,482 734,317 870,937
Cash flows from investing activities: Proceeds from investments sold or matured:
Fixed maturities:
Maturities 2,326,044 14,500 151,000
Calls 890,845 2,472,358 2,405,817
Sales 224,500 3,418,054
Repayment of policy and student mortgage loans 2,099,864 1,976,751 1,578,475
Cost of investments acquired;
Fixed maturities (8,458,904) (9,038,606) (678,633)
Policy and student loans (952,404) (1,099,649) (1,027,537)
Temporary investments, net (1,819,899) 8,472,377 (6,567,829)
Additions to property and equipment (96,046) (20,557) (12,452)
Proceeds from sale of property and equipment 3,538 109,381
------------ ----------- -----------
NET CASH PROVIDED (USED)
BY INVESTING ACTIVITIES (5,786,000) 2,780,712 (623,724)
Cash flows from financing activities:
Proceeds from borrowing 1,515,000
Payments on debt (149,831) (2,264,847) (832,217)
------------ ----------- -----------
NET CASH USED BY
BY FINANCING ACTIVITIES (149,831) (749,847) (832,217)
------------ ----------- -----------
NET (DECREASE) INCREASE IN
CASH AND CASH EQUIVALENTS (4,196,349) 2,765,182 (585,004)
Cash and cash equivalents at beginning of year 4,655,458 1,890,276 2,475,280
------------ ----------- -----------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 459,109 $ 4,655,458 $ 1,890,276
============ =========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash payments for income taxes $ 718,668 $ 5,824 $ 259,887
============ =========== ===========
Cash payments for interest $ 505,318 $ 552,459 $ 623,636
============ =========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Lease obligation incurred for new data processing equipment $ 8,061 $ 315,287
=========== ===========
Notes issued in exchange for debentures $ 485,000
===========
Common Stock issued for equity securities of
nonaffiliated company $ 2,000,000
===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DIXIE NATIONAL CORPORATION
DECEMBER 31, 1994
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation: The accompanying financial statements have been prepared
in conformity with generally accepted accounting principles ("GAAP").
Principles of Consolidation: The 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). The interests of
minority stockholders are not material. All significant intercompany accounts
and transactions have been eliminated in consolidation.
Discontinued Operations: As discussed in Note 17, the Corporation has agreed to
sell Dixie Life to Standard Life Insurance Company of Indiana. This sale
constitutes discontinuance of the Company's life insurance business. In the
accompanying balance sheets, the Company's assets and liabilities have been
classified as "life" and "non-life" based on whether such assets and liabilities
will survive the sale of Dixie Life. The presentation in the accompanying
statements of operations has not been changed since virtually all of the
Company's operation is its life insurance business. Condensing the discontinued
operations to a single line, as suggested by Accounting Principles Board Opinion
No. 30 (APB No. 30), would not, in management's opinion, be meaningful to the
users of the Company's financial statements. As soon as the Corporation has
established another line of business, but no later than 1996, the Corporation
will report its discontinued life insurance operations in accordance with APB
No. 30.
Investments: At December 31, 1994, the Company's investments are reported in
accordance with the provisions of Statement of Financial Accounting Standards
No. 115 (FAS 115) which was issued by the Financial Accounting Standards Board
in 1993 and effective for 1994 financial statements. As a result the carrying
basis for investments is different in 1994 than in 1993.
At December 31, 1994, fixed maturity investments are all classified as available
for sale and are carried at market value. Unrealized market gains and losses are
reported as a separate component of stockholders' equity. Equity securities are
classified as trading, which, under the provisions of FAS 115, are reported at
market with unrealized market gains or losses being reflected in operations.
Because of the provisions of an agreement with Universal Management Services
(UMS) discussed in Notes 3 and 16, equity securities are reported at cost at
December 31, 1994. At December 31, 1993 fixed maturity investments were carried
at amortized cost.
Realized gains and losses on the disposition of fixed maturity investments are
determined on the specific identification basis and are reported in operations
when realized.
Policy loans are stated at the amounts loaned to policyholders and are
collateralized by assignment of the cash value of underlying policies. Student
loans are carried at cost less an allowance for uncollectible amounts.
Short-term investments will be held to maturity and are due in one year or less
and are carried at cost which approximates market.
Cash and Cash Equivalents: Cash and cash equivalents include cash in banks and
money-market investments which carry no withdrawal restrictions.
Recognition of Premium Revenue and Related Expenses: Premiums for traditional
life insurance contracts are reported as revenue over the premium-paying period
of the policy. Premiums for fixed premium interest sensitive products are added
to the policy account value and revenues for such products are recognized as
charges to the account value for mortality, administration and surrenders
(retrospective deposit method). Profits are also earned to the extent that
investment income exceeds policy requirements. The related benefits and expenses
are matched with revenues through the provision for future policy benefits and
the amortization of deferred acquisition costs in a manner which recognizes
profits as they are earned.
Future Policy Benefits: The liability for future policy benefits interest
sensitive products is represented by the policy account value. The liability for
future policy benefits for all other life and health products is provided on the
net level premium method based on estimated investment yields, mortality,
morbidity, persistency and
F-8
<PAGE>
other assumptions. Assumptions are based upon Dixie Life's experience and
industry experience, where appropriate, with provision for possible adverse
deviation. These estimates are periodically reviewed and compared with actual
experience. If it is determined future experience will probably differ
significantly from that previously assumed, the estimates are revised.
Deferred Acquisition Costs: The costs of acquiring new insurance business are
deferred. Such deferred costs consist principally of excess first year sales
commissions, as well as underwriting expenses and certain other expenses.
Deferred acquisition costs for other than interest sensitive products are
amortized with interest over an estimate of the premium- paying period of the
policies in a manner which charges each year's operations in proportion to the
receipt of premium income. For interest sensitive products, acquisition costs
are amortized with interest in proportion to estimated gross profits. The
assumptions used as to interest, withdrawals and mortality are consistent with
those used in computing the liability for future policy benefits and expenses.
If it is determined future experience will probably differ significantly from
that previously assumed, the estimates are revised.
Value of Life Insurance Purchased: Value of life insurance purchased is being
amortized over 12 years, the expected life of the income stream.
Property and Equipment: Property and equipment are stated at cost less
accumulated depreciation. Depreciation is computed by the straight-line method
over the estimated useful lives of these assets.
Income Taxes: Deferred taxes are provided on a liability method whereby deferred
tax assets are recognized for deductible temporary differences and operating
loss and tax credit carryforwards and deferred tax liabilities are recognized
for taxable temporary differences. Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax bases.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of the deferred
tax assets will not be realized. Deferred tax assets and liabilities are
adjusted for changes in tax laws and rates on the date of enactment.
Earnings Per Share: Earnings per share are based on the weighted average
number of common stock and common stock equivalents outstanding during the
year.
Reinsurance: Dixie Life cedes and assumes insurance risks with other companies.
Liabilities for future policy benefits, premiums and expenses are reported after
deduction of amounts relating to policy specific reinsurance ceded and addition
of amounts relating to policy specific reinsurance assumed.
Reclassification: Certain amounts in the 1993 and 1992 financial statements have
been reclassified to conform to 1994 presentation. These reclassifications had
no effect on amounts previously reported as stockholders' equity or net income.
NOTE 2--STATUTORY ACCOUNTING
Dixie Life is required to file statutory financial statements with state
insurance regulatory authorities. Accounting principles used to prepare these
statutory financial statements differ from GAAP.
The excess, if any, of Dixie Life's stockholders' equity on a GAAP basis over
that determined on a statutory basis is not available for distribution to Dixie
Life's stockholders. Mississippi law governing insurance companies further
restricts payment of dividends to the lessor of (1) the prior year statutory net
income plus
F-9
<PAGE>
the excess of statutory net income for the second and third preceding years over
distributions in the first and second preceding years or (2) 10% of statutory
stockholders' equity. Dixie Life can distribute approximately $200,000 in 1995
without approval of the Mississippi Department of Insurance. The Department can
grant permission for extraordinary dividends in excess of the limitations
imposed by law.
A reconciliation of Dixie Life's statutory net income to the Company's
consolidated GAAP net income is as follows:
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Statutory net income $ 260,165 $ 3,348 $ 96,003
Deferral of acquisition costs 1,285,902 3,642,818 4,118,793
Amortization of acquisition costs (1,420,943) (2,506,419) (2,056,889)
Differences in insurance policy
liabilities, excluding effect of
sale of block of business 1,775,875 55,079 180,501
Deferred income taxes 404,929 369,025 (188,503)
Premium income (1,077,138) (615,131) (802,747)
Investment income 21,240 66,421 (120,301)
Commissions (246,584) (178,458)
Interest expense (449,550) (571,026) (599,810)
General insurance expenses 663,558 420,741 658,719
Write off of agent advances 366,661 766,584
Supplementary contracts (131,073) (83,079) (214,998)
Other 265,182 190,596 (43,326)
STAT Bond write off of Vanguard
Debenture 2,000,000
GAAP Loss on sale of accident and health business (1,196,811) (324,511)
STAT gain on sale of accident and health business (5,322,776) (2,125,000)
----------- ----------- -----------
GAAP Net Income (Loss) $(2,554,779) $ (957,138) $ 848,984
=========== =========== ===========
</TABLE>
A reconciliation of Dixie Life's statutory stockholders' equity to the Company's
consolidated GAAP stockholders' equity is as follows:
<TABLE>
<CAPTION>
December 31
-----------
1994 1993
---- ----
<S> <C> <C>
Statutory Stockholders' Equity $ 6,280,400 $ 3,130,064
Differences in insurance policy liabilities (984,870) (7,850,857)
Deferred acquisition costs 6,626,230 19,759,110
Deferred income taxes 61,459 (1,083,861)
Debt of parent company (5,933,050) (6,030,369)
Asset Valuation Reserve 129,809 115,726
Value of life insurance purchased 1,589,356 1,749,356
Non-admitted assets 252,049 652,593
Common stock issued 2,000,000
Other (869,857) 219,483
----------- -----------
GAAP Stockholders' Equity $ 9,151,526 $10,661,245
=========== ===========
</TABLE>
At December 31, 1994 Dixie Life is a party to an indemnification reinsurance
agreement under which 90% of its retained life insurance in force at September
30, 1992 is reinsured. This transaction is accounted for as a financing
transaction in the accompanying financial statements. Dixie Life's statutory
financial statements include a reserve credit at December 31, 1994 of $1,985,000
related to this agreement which has the effect of increasing statutory
stockholders' equity by that amount.
F-10
<PAGE>
NOTE 3--INVESTMENTS
The Company's investments in fixed maturity securities available for sale are
summarized as follows:
<TABLE>
<CAPTION>
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
December 31, 1994
U.S. Government agencies and authorities $ 8,966,030 $ $ 504,706 $ 8,461,324
States, municipalities and political subdivisions 511,461 6,115 505,346
Special revenue 10,278 878 9,400
Public utilities 2,041,142 23,637 121,159 1,943,620
All other corporate 6,960,013 33,432 580,475 6,412,970
----------- --------- ---------- -----------
$18,488,924 $ 57,069 $1,213,333 $17,332,660
=========== ========= ========== ===========
December 31, 1993
U.S. Government agencies and authorities $ 3,371,748 $ 24,245 $ 40,214 $ 3,355,779
States, municipalities and political subdivisions 537,695 4,877 498 542,074
Special revenue 56,719 3,592 60,311
Public utilities 1,936,724 83,405 17,649 2,002,480
All other corporate 7,587,016 112,698 29,554 7,670,160
----------- --------- ---------- -----------
$13,489,902 $ 228,817 $ 87,915 $13,630,804
=========== ========= ========== ===========
</TABLE>
Maturities of fixed maturity securities held for sale at December 31, 1994
follow:
F-11
<PAGE>
<TABLE>
<CAPTION>
Amortized Market
Cost Value
--------- ------
<S> <C> <C>
Due in one year or less $ 1,165,901 $ 1,173,628
Due after one year through five years 2,064,466 1,971,423
Due after five years through ten years 4,768,972 4,437,274
Due after ten years 10,489,585 9,750,335
----------- -----------
$18,488,924 $17,332,660
=========== ===========
</TABLE>
Fixed maturity and short-term investments with an approximate carrying amount of
$2,400,000 were pledged to various state insurance departments for policyowner
protection at December 31, 1994. At December 31, 1994, additional securities
with an approximate carrying amount of $13,435,000 were pledged under the
financing transaction reinsurance treaty (see Note 2).
Net investment income consists of the following:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Investment income
Fixed maturities $1,189,693 $ 745,534 $ 741,248
Policy loans 170,142 159,666 181,426
Student loans 398,719 538,027 659,379
Interest on Accounts Receivable 151,759 254,538 237,728
Short-term investment 145,919 260,591 311,059
Other 77,403 46,719 27,008
---------- ---------- ----------
Net investment income $2,133,635 $2,005,075 $2,157,848
========== ========== ==========
</TABLE>
Net realized investment gains (losses) for the year ended December 31 are
summarized as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Realized gains $12,002 $29,448 $39,947
Realized losses 10,451 3,868 64,441
------- ------- --------
Net realized gains (losses) $ 1,551 $25,580 $(24,494)
======= ======= ========
</TABLE>
F-12
<PAGE>
In November 1994, the Corporation issued 2,000,000 shares of its Common Stock
and received as consideration 1,230,770 shares of Alanco Environmental
Resources, Inc. (Alanco) common stock with a market value at the date of the
transaction of $2,000,000. Under the terms of the UMS agreement discussed in
Note 16, any market appreciation until June 30, 1995 may not be realized because
the purchasers of the Corporation's Common Stock have the right to buy the
Alanco shares for cash equal to the value on the day of the November
Transaction. The purchasers have the obligation to cover any market
depreciation, as defined, which might have occurred as of June 30, 1995.
Therefore, the Alanco shares will be carried at cost until June 30, 1995. At
December 31, 1994, market value of the Alanco shares based on the average of the
closing bid and asked price, was $2,153,000.
NOTE 4--DEFERRED POLICY ACQUISITION COSTS
An analysis of deferred policy acquisition costs for the years ended December 31
follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $ 19,759,110 $18,787,222 $16,429,318
Deferred during the year:
Commissions 975,002 2,818,953 3,256,739
Other Expenses 310,900 823,865 862,054
------------ ----------- -----------
Total Deferred 1,285,902 3,642,818 4,118,793
Deferred policy acquisition costs on
policies sold (13,157,839) (324,511)
Amortized during the year (1,260,943) (2,346,419) (1,760,889)
------------ ----------- -----------
Balance at end of year $ 6,626,230 $19,759,110 $18,787,222
============ =========== ===========
</TABLE>
F-13
<PAGE>
NOTE 5--VALUE OF LIFE INSURANCE PURCHASED
An analysis of the value of life insurance purchased for the years ended
December 31 follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year 1,749,356 $1,909,356 $2,205,356
Amortized during the year (160,000) (160,000) (96,000)
Adjustment to comply with
FASB EITF 92-9 (200,000)
---------- ---------- ----------
Balance at end of year $1,589,356 $1,749,356 $1,909,356
========== ========== ===========
</TABLE>
Estimated annual amortization of the value of life insurance purchased is
approximately $160,000 in each of the next five years.
NOTE 6--PROPERTY AND EQUIPMENT
A summary of property and equipment at December 31 follows:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Home office property $ 795,038 $ 702,181
Data Processing Equipment 818,149 814,960
Furniture, Equipment and Autos 454,007 454,007
------------- -----------
2,067,194 1,971,148
Less accumulated depreciation 1,482,500 1,362,936
------------- -----------
$ 584,694 $ 608,212
============= ===========
</TABLE>
F-14
<PAGE>
NOTE 7--FUTURE POLICY BENEFIT RESERVES
A summary of the assumptions used in determining the liability for future policy
benefits at December 31, 1994 is as follows:
Life Insurance
Interest assumptions:
<TABLE>
<CAPTION>
Years of Issue Interest Rates
-------------- --------------
<S> <C>
1965-1982 8.5% graded to 4.5%
1983-1984 12.5% graded to 8.0%
1985-1991 9.0% graded to 6.0%
1992-1994 6.0% graded to 5.0%
</TABLE>
Mortality assumptions:
<TABLE>
<CAPTION>
Years of Issue Mortality Table
-------------- ---------------
<S> <C>
1965-1983 1955-60 Select and Ultimate Table
1983-1994 1965-70 Select and Ultimate Table
</TABLE>
Withdrawal assumptions:
Linton B or Linton C Lapse Tables
Termination assumptions:
Termination assumptions are based on Dixie Life's experience.
F-15
<PAGE>
NOTE 8--PARTICIPATING BUSINESS
Life insurance policies are issued on both a participating and non-participating
basis. The following summary presents the approximate percentages of
participating life business to total life business for the years indicated:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Life insurance in force 5% 5% 3%
Life premium income 9% 5% 3%
Total number of life policies 12% 11% 7%
</TABLE>
The amount of dividends to be apportioned to participating policies is
determined annually by the Board of Directors of Dixie Life. In the past, Dixie
Life sold participating life insurance through a policy known as the Charter
Contract as well as other participating policies. The Charter Contract policies
contain a participation endorsement whereby Dixie Life agreed to apportion
dividends to Charter Contract holders, as a group and on a pro rata basis, in an
amount which equals at least 35% of Dixie Life's statutory net profits computed
by a formula set forth in the policy. As discussed in Note 13, Dixie Life is
defendant in litigation alleging that Dixie Life failed to properly pay
dividends on its Charter Contract policies. As of December 31, 1994, Dixie
F-16
<PAGE>
Life had participating policies in force with a total face amount of
approximately $20,486,000 of which approximately $11,721,000 were Charter
Contract policies.
NOTE 9--NOTES PAYABLE AND OTHER DEBT
The Company has the following notes payable at December 31:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Non-Life:
Note payable to a bank bearing interest at prime
plus 3/4% (at December 31, 1994 and 1993, the
rate was 9.25%), payable in monthly
installments of $11,846 through January 5, 2001;
secured by home office property 524,304 621,623
Life:
Note payable to an insurance company (bank at
December 31, 1993) bearing interest at
1% above prime (9.5% at December 31, 1994)
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 $3,688,746
Convertible 10% notes due May 1, 1995 (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 1,720,000
Obligation under capital lease 170,789 223,301
---------- ----------
5,579,535 5,632,047
---------- ----------
$6,103,839 $6,253,670
========== ==========
</TABLE>
In 1993, the Company replaced an existing note payable to a bank collateralized
by common stock of Dixie Life with the Term Loan. In November 1994, the bank
sold the Term Loan to Standard Life Insurance Company of Indiana. As discussed
in Note 17, the terms of the proposed sale of Dixie Life effectively extend the
due date of the Term Loan to closing of the sale or 90 days after any
cancellation thereof.
The Term Loan agreement contains three covenants as follows:
The Company must maintain consolidated tangible net worth, as defined,
of not less than $9,000,000. At December 31, 1994, consolidated
tangible net worth was $8,487,818.
The Company must maintain a ratio of total liabilities to consolidated
tangible net worth of not more than 4.5 to 1. At December 31, 1994,
this ratio was 4.17 to 1.
The Company must cause Dixie Life to maintain statutory capital and
surplus of not less than $3,500,000. At December 31, 1994, Dixie Life's
statutory capital and surplus was $6,280,400.
An unwaived or uncured event of default under the term loan is an event of
default under the Notes. Standard Life Insurance Company of Indiana has waived
all defaults pending completion of the sale of Dixie Life and for 90 days after
any cancellation thereof.
Notes in the aggregate amount of $550,000 are held or controlled by officers and
directors of the Company.
F-17
<PAGE>
As discussed above at December 31, 1994, the Corporation owed a subsidiary of
Standard Management Corporation approximately $3,689,000 under a Term Loan
originally due March 31, 1995. The Term Loan is now due at closing of the SMC
Transaction or 90 days after the SMC Transaction in the event it is canceled by
either party. Also, the Corporation's 10% Convertible Notes, in the amount of
$1,720,000, are due May 1, 1995. Although the SMC Transaction provides a means
to satisfy the Convertible Notes at closing, such notes are due before the
anticipated closing date and there are no assurances that the Corporation will
be able to extend such notes beyond their May 1, 1995 maturity, or effect any
alternative accommodations. However, management is exploring several options and
believes that the Convertible Notes will be satisfied or extended at their due
date. All of the shares of Dixie Life owned by the Corporation were pledged to
secure payment of the Term Loan and the Convertible Notes.
The lack of assurance that the SMC Transaction will be completed raises
significant doubt about the Company's ability to continue as a going concern.
Completion of the SMC 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 SMC Transaction, which contemplates
cancellation of the Term Loan. The SMC Transaction would also enable
the Corporation to satisfy the Convertible Notes, assuming their due
date is extended.
2. Seek to extend or secure an alternative means of paying the
Convertible Notes. Liquidation of a portion of the Alanco shares is a
possible source of repayment of at least a portion of the Convertible
Notes.
3. In the event the SMC Transaction is canceled by either party,
searching for another purchaser of Dixie Life in the 90 days available
to it beyond such cancellation before the Term Loan is due.
There are no assurances that any of these efforts will be successful.
Aggregate maturities of notes payable and the present value of net minimum lease
payments at December 31, 1994, are as follows:
<TABLE>
<S> <C>
1995 $5,572,519
1996 180,252
1997 142,110
1998 127,413
1999 81,545
----------
$6,103,839
==========
</TABLE>
NOTE 10--INCOME TAXES
The Company and its subsidiaries file a life-nonlife consolidated federal income
tax return. The Internal Revenue Code contains several provisions which affect
the consolidated tax provision, including a special deduction for small life
insurance companies amounting to 60% of taxable income and limitations on the
amount of nonlife taxable losses which can be used to reduce life insurance
taxable income.
The accompanying balance sheet includes a liability for income taxes payable
consisting of the following at December 31:
F-18
<PAGE>
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Income taxes payable:
Currently payable $ 32,000 $600,000
Net deferred (28,401) 383,449
---------- --------
$ 3,599 $983,449
========== ========
</TABLE>
Net deferred tax liabilities (assets) consists of the following components as of
December 31:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Deferred tax liabilities:
Deferred acquisition costs $597,100 $2,192,100
Other Items 69,500 127,061
-------- ----------
666,600 2,319,161
Deferred tax assets:
Policy liabilities 48,700 1,262,712
Financing reinsurance 337,500 540,000
FAS 115 adjustment 196,500
Provisions for uncollectible
receivables 112,301 133,000
-------- ----------
695,001 1,935,712
-------- ----------
NET LIABILITY (ASSET) $(28,401) $ 383,449
======== ==========
</TABLE>
Income tax (expense) benefit for the year ended December is summarized as
follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Current $(381,900) $(155,000) $ (73,390)
Deferred 411,849 368,201 (176,412)
--------- --------- ---------
$ 29,929 $ 213,201 $(249,806)
========= ========= =========
</TABLE>
The Company's effective income tax expense differs from the expense determined
by applying the 34% statutory federal income tax rate to income before income
taxes as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Expected tax benefit (expense)
at statutory federal income tax rate $ 878,800 $ 398,000 $(373,589)
Special deductions (583,085) (199,000) 197,838
Alternative Minimum Tax 97,000 47,000 (33,870)
Change in deferred taxes on policy liabilities (362,786)
Other (32,799) (40,185)
--------- --------- ---------
Total income tax benefit (expense) $ 29,929 $ 213,201 $(249,806)
========= ========= =========
</TABLE>
In 1994, a change in deferred taxes on policy liabilities, resulting from an
incorrect estimate of the tax basis policy benefits at December 31, 1993, caused
a $362,786 reduction of the 1994 tax benefit credited to operations.
Prior to 1984, a portion of taxable income was excluded from current taxation
and accumulated in a special tax return memorandum account. The December 31,
1983 balance of approximately $876,600 is frozen and will be taxed only if
distributed or if it exceeds certain prescribed limits. Deferred income taxes
have not been provided on this balance since the Company does not intend to take
action nor does it expect events to occur that would cause tax to be payable on
that amount.
NOTE 11-SALE OF BLOCK OF BUSINESS
Dixie Life has sold virtually all of its in force accident and health insurance
business to unaffiliated insurance companies in two transactions. Both
transactions were closed in 1994 although the first was effective December 31,
1993.
In the first transaction, Dixie Life sold all of its in force cancer insurance
in South Carolina for $2,125,000, resulting in a statutory gain equal to the
selling price in 1993. Under generally accepted accounting
F-19
<PAGE>
principles, the transaction was not recorded until closing in February 1994 but
the Company did record the loss incurred ($324,000) under GAAP in 1993.
In 1994, Dixie Life sold virtually all of its remaining accident and health for
$5,322,000 in a transaction effective July 1, 1994, again resulting in a
statutory gain equal to the selling price. The Company incurred a GAAP loss of
approximately $1,197,000 on this sale.
Together, these sales resulted in a reduction of deferred policy acquisition
costs and policy liabilities of $12,980,000 and $11,084,000, respectively, in
1994.
NOTE 12--INCENTIVE STOCK OPTION PLANS
Options to purchase common stock of the Company have been granted under two
incentive stock option plans. One of those plans expired in 1992 and the other
in 1993. At December 31, 1994, options to purchase 481,737 shares were
outstanding, including 23,179 at $1.16; 92,061 at $1.23; 87,816 at $1.69; 16,991
at $1.77; 34,496 at $1.41; 62,790 at $1.13; 45,161 at $1.38, 48,548 at $1.50 and
70,695 at $1.00.
NOTE 13--CONTINGENCIES
Reinsurance: Dixie Life reinsures a portion of its insurance risk which is in
excess of its retention limits on its life insurance policies. The retention
limit for life insurance policies is generally $50,000. Dixie Life would be
liable for the reinsured risks ceded to reinsuring other companies to the extent
such reinsuring companies are unable to meet their obligations. At December 31,
1994, Dixie Life's possible obligation under excess coverage life insurance
risks ceded to other companies was approximately $53,883,000.
Dixie Life also has assumed reinsurance under the Servicemen's Group Life
Insurance Program totaling approximately $141,936,000 at December 31, 1994.
Geographic Concentration of Business: Dixie Life is qualified to sell insurance
in 21 states and the District of Columbia. Most of its 1994 business is in Texas
(21%), Mississippi (18%), Georgia (12%), Louisiana (10%), and Kansas (8%). Loss
of the business in any of these states could have a material
adverse affect on the future operations of Dixie Life.
Litigation: Dixie Life is a Defendant in a suit filed in January, 1994 in the
Circuit Court of Montgomery County, Alabama.
The suit alleges that Dixie Life has failed to properly pay dividends to holders
of its Charter Contract policies. These policies are participating policies
pursuant to which Dixie Life is obligated to apportion dividends to the holders
of such policies, as a group and on a prorata basis, of not less than 35% of the
statutory net profits of Dixie Life computed by a formula set forth in the
policy. The formula utilizes certain information contained in the annual report
filed by Dixie Life with the Mississippi Department of Insurance, as such report
was constituted in 1966. The suit seeks to establish a class consisting of the
plaintiff and a group of persons allegedly similarly situated and alleges the
class consists of over 1,000 persons. No class has yet been certified.
The suit seeks judgment in an undetermined amount for alleged underpayment of
dividends and an injunction requiring Dixie Life to pay appropriate dividends in
the future.
F-20
<PAGE>
Dixie Life has paid a dividend to holders of the Charter Contract policies in
each year since the policies were issued. On a cumulative basis, the total
dividends paid to the holders of the Charter Contract policies since issuance
exceed 35% of the net profits of Dixie Life as defined by the policies for the
same period.
As of February 17, 1994, a total of 76 Charter Contract policies are held by
residents of the state of Alabama. In all states at December 31, 1993, a total
of 1,421 Charter Contract policies are currently outstanding, of which 324 are
in premium paying status.
Dixie Life intends to vigorously defend the suit.
No discovery has yet taken place and no class has yet been certified by the
court. In the absence of a class, if any, and its composition, if certified,
Dixie Life has no reasonable basis upon which to estimate its potential
liability, if any.
The Company also is involved in ordinary, routine litigation incidental to its
business. Management and counsel are of the opinion that the ultimate resolution
of these matters will not have a material adverse effect on the Company.
Concentration of Credit Risk: At December 31, 1994 and 1993, the Company had
funds on deposit with a federally insured bank in excess of $100,000 federal
deposit insurance coverage limits.
NOTE 14--PROFIT SHARING PLAN
The Company has a profit sharing plan which covers substantially all employees
who meet length of service provisions contained in the Plan. Prior to 1992, the
plan provided for Company defined contributions based on earnings before income
taxes and realized investment gains. In 1992, the Plan was amended to allow
employee contributions as provided under Section 401(k) of the Internal Revenue
Code. The Company matches 50% of employee contributions up to 4% of compensation
and, at the discretion of the Board of Directors, may make additional
contributions. Contributions to the Plan charged to expense were approximately
$13,000, $18,000 and $7,000 in 1994, 1993, and 1992, respectively.
NOTE 15--BUSINESS SEGMENT INFORMATION
The Company, through Dixie Life, has engaged in the following lines of insurance
business: life insurance, individual annuities, and accident and health
insurance (A&H). From July 1, 1994, as discussed in Note 11, the Company is no
longer engaged in the accident and health line of insurance business. Investment
income and certain general expenses have been allocated through the utilization
of assumptions, estimates and formulas. Such allocations have been made on a
basis considered reasonable under the circumstances; however, it should be
understood that other acceptable methods of allocation might produce different
results. Financial information by product grouping is as follows:
<TABLE>
<CAPTION>
Life Annuity A&H Total
---- ------- --- -----
<S> <C> <C> <C> <C>
1994
- ----
Revenues $5,360,344 $ 839,747 $ 5,451,252 $11,651,343
Benefits and expenses 5,719,795 487,326 6,779,282 12,986,403
---------- ----------- ----------- -----------
Operating profit $ (359,451) $ 352,421 $(1,328,030) $(1,335,060)
=========== =========== ===========
Unallocated general corporate expenses 1,249,648
-----------
Loss before income taxes $(2,584,708)
===========
</TABLE>
F-21
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
1993
- ----
Revenues $6,201,285 $ 861,206 $14,467,453 $21,529,944
Benefits and expenses 5,983,893 664,191 14,701,116 21,349,200
---------- ----------- ----------- -----------
Operating profit $ 217,392 $ 197,015 $ (233,663) $ 180,744
========== =========== ===========
Unallocated general corporate expenses 1,351,083
-----------
Income before income taxes $(1,170,339)
===========
1992
- ----
Revenues $5,817,395 $ 1,003,056 $12,491,413 $19,311,864
Benefits & expenses 4,330,999 2,094,313 10,454,699 16,880,011
---------- ----------- ----------- -----------
Operating profit $1,486,396 $(1,091,257) $ 2,036,714 $ 2,431,853
========== =========== ===========
Unallocated general corporate expenses 1,333,063
-----------
Income before income taxes $ 1,098,790
===========
</TABLE>
NOTE 16--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). The UMS
Agreement provides that UMS will use its best efforts to assist the Corporation
in locating potential investors for its Common Stock in non-U.S. markets
pursuant to Regulation S of the Securities Act of 1933.
Under the UMS Agreement, UMS has the right to assist the Corporation in placing
up to 6,425,000 shares, subject to completion of various steps set forth in the
Agreement. The first step was completed on November 29, 1994, with the
Corporation issuing 2,000,000 shares of its Common Stock for which it received
1,230,770 shares of Alanco Environmental Resources, Inc. (Alanco) common stock
(November Transaction). The Alanco shares had an aggregate market value of
$2,000,000 on November 29, 1994.
Under the UMS Agreement, UMS has the right to assist the Corporation in placing,
on a best efforts basis, by June 30, 1995, up to 12,500,000 additional shares of
the Corporation's Common Stock. Under the terms of the UMS Agreement, the
Corporation expects to:
1. Issue 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.
2. Issue, if the acquisition of the 16% interest is completed, 100,000
of its Common Stock for an option to acquire the remaining 84% of the
common shares of PMM for 10,400,000 shares of the Corporation's Common
Stock.
3. Purchase from PMM three specialized health care facilities for
approximately $700,000 in cash. The funds for this transaction are
expected to be obtained through the placement, with the assistance of
UMS, but outside the UMS Agreement, of approximately 700,000 shares of
the Corporation's Common Stock under Regulation S.
In view of covenants contained in the Term Loan Agreement, the aquisition of
shares of PMM by the Corporation will require certain waivers from SMC, which
the Corporation will seek to obtain. However, there is no assurance that such
waivers will be obtained, in which case the Corporation will be obliged to
reassess the proposed PMM transaction. There are no assurances that any further
transactions contemplated by the UMS Agreement will be completed. UMS's rights
under the UMS Agreement will expire June 30, 1995.
If at least 6,425,000 shares are placed with UMS's assistance, the UMS Agreement
provides that the purchasers will be entitled to designate a majority of the
Corporation's Board of Directors. This right would be facilitated by the
resignation of a sufficient number of directors whose tenure as director
predates the UMS Agreement so that designees of the new investors could be
appointed until the next annual meeting of
F-22
<PAGE>
the Corporation's stockholders. The UMS Agreement contained three other
undertakings of the Corporation which were accomplished at the 1994 annual
meeting of the Corporation's stockholders held January 24, 1995. These were (a)
reduction of the Corporation's Board of Directors from 15 members to 9 members;
(b) election to the Corporation's Board of Directors of three representatives of
the parties who purchased the Corporation's Common Stock in the November
Transaction; and (c) an increase in the number of authorized shares of the
Corporation's Common Stock from 10,000,000 to 50,000,000.
NOTE 17--PENDING SALE OF DIXIE LIFE
On March 6, 1995, the Corporation entered into a Letter of Intent with SMC to
sell to SMC all of the capital stock of Dixie Life which the Corporation owns.
Dixie Life represents 94% of the consolidated assets and substantially all of
the consolidated operations of the Corporation.
At closing SMC will cancel the Term Loan obligation, assume the Corporation's
indebtedness of $1,720,000 under the Convertible Notes due May 1, 1995, pay the
Corporation $2,500,000 in cash and issue to the Corporation SMC common shares
equal to $500,000 valued at the average trading price of SMC's shares for the
five days prior to closing. The Corporation will also receive the first $175,000
of agent advances that Dixie Life collects after closing. These payments
constitute a selling price of at least $8,408,746 and up to $8,583,746 if agent
advances equal at least $175,000 at closing and at least $175,000 is collected.
Agent advances, net of allowance for doubtful accounts at December 31, 1994,
were approximately $270,000. The selling price will be adjusted by the change in
Dixie Life's capital and surplus and asset valuation reserve between December
31, 1994 and closing. In addition, Dixie Life will continue to pay $15,000 per
month rent to Vanguard, Inc., a wholly-owned subsidiary of the Corporation,
through the December 31, 1996 expiration of an existing lease on the office
building occupied by the Corporation and Dixie Life.
Except as to the extension of the due date of the Term Loan, a prohibition
against the Corporation negotiating with other parties and certain other
customary provisions, the Letter of Intent is not binding and is subject to a
Definitive Purchase Agreement which the parties intend to sign before April 1,
1995. The Definitive Purchase Agreement will contain usual and customary
conditions, including, among others, the receipt of all required regulatory
approvals and approval of the transaction by the shareholders of the Corporation
at a meeting to be held on or before August 1, 1995. There is no assurance that
the SMC Transaction will be consummated.
In the first quarter of 1994, the Corporation reached an agreement in principle
for the acquisition of the Corporation by SMC in a tax-free merger. A definitive
Merger Agreement among the Corporation, SMC and an SMC affiliate was executed
June 8, 1994. On August 1, 1994, the Corporation terminated the Merger Agreement
as a result of SMC's failure to meet certain conditions of the Merger Agreement.
On November 7, 1994, Standard Life Insurance Company of Indiana, a subsidiary of
SMC, purchased the Term Loan from the bank which previously held the note.
F-23
<PAGE>
Unaudited Consolidated Balance Sheet
Dixie National Corporation
March 31, 1995
ASSETS
NON-LIFE
Investments
Common stock $ 2,000,000
Cash and cash equivalents 388,343
Other 26,200
------------
TOTAL NON-LIFE INVESTMENTS 2,414,543
Property and equipment 409,526
------------
TOTAL NON-LIFE ASSETS 2,824,069
LIFE
Investments
Fixed Maturities, at market 17,647,294
Policy loans 3,063,394
Government guaranteed student loans,
less allowance for uncollectible
loans of $464,603 at March 31, 1995 5,741,268
Short-term investments 563,057
Equipment leases 531,567
Cash and cash equivalents 3,877,773
------------
TOTAL LIFE INVESTMENTS 31,424,353
Accounts receivable, less allowance for
doubtful accounts of $195,885 at March 31, 1995 821,967
Accrued investment income 470,413
Deferred policy acquisition costs, net 6,573,528
Value of life insurance purchased, net 1,549,356
Property and equipment, less accumulated
depreciation of $670,326 at March 31, 1995 147,823
Other assets 837,684
Unallocated loss on sale of subsidiary (4,161,313)
------------
TOTAL LIFE ASSETS 37,663,811
------------
TOTAL ASSETS $40,487,880
------------
LIABILITIES AND STOCKHOLDERS' EQUITY
NON-LIFE LIABILITIES
Notes payable and other debt $ 500,940
Accrued liabilities and expenses 3,500
------------
TOTAL NON-LIFE LIABILITIES 504,440
LIFE
Policy liabilities
Future policy benefits 27,481,172
Other policy claims and benefits payable 311,519
Other policyholders' funds 827,955
------------
TOTAL POLICY LIABILITIES 28,620,646
Notes payable and other debt 5,557,566
Income taxes 21,443
Accrued liabilities and expenses 485,642
------------
TOTAL LIFE LIABILITIES 34,685,297
STOCKHOLDERS' EQUITY
Common stock 8,394,973
Retained-earnings deficit (3,096,830)
Unrealized holding losses on investments available for sale
------------
TOTAL STOCKHOLDERS' EQUITY 5,298,143
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $40,487,880
------------
See accompanying notes to consolidated financial statements.
F-24
<PAGE>
Unaudited Consolidated Statement of Operations
Dixie National Corporation
Three Months
Ended March 31
----------------
1995 1994
------ ------
REVENUES
Premiums $ 810,697 $ 4,083,248
Net investment income 617,412 537,085
Realized investment gains (losses) 36,757 11,594
-------------- ---------------
TOTAL REVENUES 1,464,866 4,631,927
BENEFITS AND EXPENSES
Benefits and claims to policyholders 392,703 2,640,373
Amortization of deferred policy acquisition
costs and value of insurance purchased 225,728 1,340,259
Commissions, net 132,014 736,646
General expenses, net 659,220 644,957
Interest expense 145,776 118,288
Insurance taxes, licenses and fees 82,748 240,733
Loss on sale of accident and health business
-------------- ---------------
TOTAL BENEFITS AND EXPENSES 1,638,189 5,721,256
-------------- ---------------
INCOME (LOSS) BEFORE INCOME TAXES AND
ESTIMATED LOSS ON SALE OF SUBSIDIARY (173,323) (1,089,329)
Income tax benefit (expense) 0 180,000
-------------- ---------------
LOSS BEFORE ESTIMATED
LOSS ON SALE OF SUBSIDIARY (173,323) (909,329)
Estimated loss on sale of subsidiary (4,635,000)
-------------- ---------------
NET INCOME (LOSS) $ (4,808,323) $ (909,329)
-------------- ---------------
Primary and fully diluted net income
(loss) per share $ (0.57) $ (0.14)
-------------- ---------------
See accompanying notes to consolidated financial statements.
F-25
<PAGE>
Unaudited Consolidated Statement of Stockholders' Equity
Dixie National Corporation
Three Months Ended March 31, 1995
<TABLE>
<CAPTION>
Unrealized
Common Retained Holding
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 three months ended March 31, 1995 (4,808,323) (4,808,323)
Recoginition of unrealized holding losses as
realized through estimated loss on sale of subsidiary 925,011 925,011
------------ ------------ ----------- ------------
BALANCE MARCH 31, 1995 (UNAUDITED) $ 8,394,973 $ (3,096,830) $ -0- $ 5,298,143
------------ ------------- ----------- ------------
See accompanying notes to consolidated financial statements
</TABLE>
F-26
<PAGE>
Unaudited Consolidated Statements of Cash Flows
Dixie National Corporation
Three Months
Ended March 31
----------------------
1995 1994
----------------------
Cash flows from operating activities:
Net income $ (4,808,323) $ (909,329)
Adjustments to reconcile net income to net
cash provided by operating activities:
Estimated loss on sale of subsidiary 4,635,000
Loss on sale of accident and health business
Increase in policy liabilities (57,631) 879,564
Amotization of deferred policy acquisition
costs and and value of life insurance
purchased 225,728 1,340,259
Increase (decrease) in deferred income taxes (94,987) (100,000)
Increase (decrease) in accrued liabilities (190,318) 16,165
Policy acquisition costs deferred (133,026) (597,316)
Decrease in accounts receivable (34,548) (426,102)
Decrease in policyowner funds on deposit (1,575) 55,641
Depreciation 27,345 29,081
Other, net 21,867 (48,179)
-------------- --------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES (410,468) 239,784
Cash flows from investing activities:
Proceeds from investments sold or matured:
Fixed maturities:
Maturities 523,163 346,708
Calls 33,000 18,301
Sales 242,000
Repayment of policy and student loans 402,801 489,214
Cost of investments acquired:
Fixed maturities (508,689) (2,235,087)
Equipment leases (531,567)
Policy and student loans (168,990) (253,673)
Temporary investments, net 4,271,090 (34,347)
Additions to property and equipment (19,693)
-------------- --------------
NET CASH PROVIDED (USED)
BY INVESTING ACTIVITIES 4,262,808 (1,688,577)
Cash flows from financing activities:
Proceeds from borrowing
Payments on debt (45,333) (35,689)
-------------- --------------
NET CASH USED BY
FINANCING ACTIVITIES (45,333) (35,689)
-------------- --------------
NET (DECREASE) INCREASE IN
CASH AND CASH EQUIVALENTS 3,807,007 (1,484,482)
Cash and cash equivalents - beginning of year 459,109 4,655,458
-------------- --------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 4,266,116 $ 3,170,976
-------------- --------------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash payments for income taxes $ 127,040 $ 600,000
------------- --------------
Cash payments for interest $ 39,356 $ 52,678
------------- --------------
See accompanying notes to consolidated financial statements.
F-27
<PAGE>
Notes To Unaudited Consolidated Financial Statements
Dixie National Corporation
March 31, 1995
Note 1--Basis of Presentation
The accompanying unaudited consolidated financial statements 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 three month period ended March
31, 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.
All adjustments which, in the opinion of management, are necessary for a
fair presentation of such financial statements are included.
Note 2--Statutory Accounting
A reconciliation of Dixie Life's statutory net income to the Company's
consolidated GAAP net income for the three months ended March 31, 1995 and 1994
is as follows:
Three Months Ended March 31
1995 1994
----------- -----------
Statutory net income $ (285,123) $ (353,487)
Estimated loss on sale of subsidiary (4,635,000)
Deferral of acquisition costs 133,026 597,316
Amortization of acquisition costs (225,728) (1,340,259)
Differences in insurance policy
liabilities, excluding effect of
sale of block of business 456,335 (81,614)
Deferred income taxes 0 100,000
Premium income (437,261) 250,196
Investment income 57,354 6,411
Commissions 0 (25,000)
Interest expense (145,776) (118,288)
General insurance expenses
Write off of agent advances 199,600 211,852
Supplementary contracts (57,027) (75,442)
Other 131,277 (81,014)
----------- -----------
GAAP Net (Loss) $(4,808,323) $ (909,329)
----------- -----------
----------- -----------
F-28
<PAGE>
A reconciliation of Dixie Life's statutory stockholders' equity to the
Company's Consolidated GAAP stockholders' equity at March 31, 1995 is as
follows:
March 31
1995
--------
Statutory Stockholders' Equity $ 5,962,197
Differences in insurance policy liabilities (733,358)
Deferred acquisition costs 6,573,528
Deferred income taxes (21,443)
Debt of parent company (5,909,686)
Asset Valuation Reserve 129,809
Value of life insurance purchased 1,549,256
Non-admitted assets 292,751
Common stock issued 1,979,720
Other (363,418)
Unallocated loss on sale of subsidiary (4,161,313)
------------
GAAP Stockholders' Equity $ 5,298,143
Note 3--Investments
The Company's investments in fixed maturity securities available for sale
at March 31, 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 $ 9,407,327 $ 54,289 $270,213 $ 9,191,403
States, municipalities and political subdivisions 50,000 0 1,500 48,500
Special revenue 10,278 0 378 9,900
Public utilities 2,044,337 8,897 50,634 2,002,600
All other corporate 6,727,461 56,838 389,408 6,394,891
------------ --------- -------- ------------
$18,239,403 $120,024 $712,133 $17,647,294
</TABLE>
Net investment income for the three months ended March 31, 1995 and 1994
consists of the following:
1995 1994
----------- -----------
Investment income
Fixed maturities $341,661 $262,324
Policy loans 46,002 45,736
Student loans 126,393 81,159
Interest on Accounts Receivable 15,056 65,914
Short-term investment 46,252 33,256
Other 65,385 66,921
----------- -----------
Net investment income $640,749 $555,310
F-29
<PAGE>
Net realized investment gains for the three months ended March 31, 1995 and
1994 are summarized as follows:
1995 1994
----------- ------------
Realized gains $36,757 $11,594
Realized losses 0 0
----------- ------------
Net realized gains (losses) $36,757 $11,594
Subsequent to March 31, 1995, as consideration for extention of the
Corporation's Convertible Notes (Note 7), the Corporation pledged 762,106 shares
of its Alanco stock with a carrying value of $1,238,000 as addtional collateral
to the Convertible Notes.
The obligation of the purchasers of the Corporation's Common Stock in the
November Transaction (Notes 3 and 16 of the Corporation's 1994 Consolidated
Financial Statements) to cover any market depreciation, as defined, has been
extended to the maturity of the Term Loan. At March 31, 1995, market value of
the Alanco shares, based on the average closing bid and asked price, was
$ 1.625.
Note 4--Deferred Policy Acquisition Costs
An analysis of deferred policy acquisition costs for the three months ended
March 31, 1995 and 1994 follows:
1995 1994
----------- ------------
Balance at beginning of period $6,626,230 $19,759,110
Deferred during the period:
Commissions 108,071 464,173
Other Expenses 24,955 133,143
Total Deferred 133,026 597,316
Deferred policy acquisition costs on
policies sold (3,035,144)
Amortized during the period (185,728) (1,300,259)
----------- ------------
Balance at end of period $6,573,528 $16,021,023
----------- ------------
----------- ------------
Note 5--Value of Life Insurance Purchased
An analysis of the market of life insurance purchased for the three months
ended March 31, 1995 and 1994 follows:
1995 1994
----------- ------------
Balance at beginning of period $1,589,356 $1,749,356
Amortized during the period (40,000) (40,000)
----------- ------------
Balance at end of the period $1,549,356 $1,709,356
----------- ------------
----------- ------------
Note 6--Property and Equipment
A summary of property and equpment at March 31, 1995 follows:
Home office property $ 795,038
Data Processing Equipment 818,149
Furniture, Equipment and Autos 454,007
-----------
$2,067,194
Less accumulated depreciation 1,509,845
-----------
$ 557,349
-----------
-----------
F-30
<PAGE>
Note 7--Notes Payable and Other Debt
The Company has the following notes payable at March 31, 1995:
NON-LIFE:
Note payable to a bank bearing interest at prime
plus 3/4% (at December 31, 1994 and 1993, the
rate was 9.25%), payable in monthly
installments of $11,846 through January 5,
2001; secured by home office property $ 500,940
LIFE:
Note payable to an insurance company (bank at
December 31, 1993) bearing interest at 1% above
prime (9.5% at December 31, 1994) 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
Convertible 10% notes due May 1, 1995 (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 148,820
-----------
Non-life 500,940
-----------
$6,058,506
The Stock Purchase Agreement with Standard Life Insurance Company (Note 9)
waives all financial covenants contained in the Term Loan agreement.
Subsequent to March 31, 1995, the Convertible Notes were extended to the
Term Loan maturity but no later than 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. Both of these plans have
expired. At March 31, 1995, options 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.
As part of a compensation program for members of the Corporation's Board of
Directors, the Board approved granting options to purchase 5,000 shares of the
Corporation's Common Stock to each of the Corporation's nine directors at such
time as a stock option plan has been formally adopted. It is expected that such
a plan will be adopted in May 1995. The options will be exercisable at any time
prior to their expiration five years from the grant date.
F-31
<PAGE>
Note 9--Proposed Sale of Dixie Life
On April 18, 1995, the Corporation entered into a Stock Purchase Agreement
with Standard Life Insurance Company of Indiana (Standard) to sell to Standard
all of the capital stock of Dixie Life which the Corporation owns (Standard
Transaction). The Stock Purchase Agreement implements a Letter of Intent between
Standard's parent, Standard Management Corporation, and the Corporation dated
March 6, 1995. Dixie Life represents 94% of the consolidated assets and
substantially all of the consolidated operations of the Corporation.
At closing Standard will cancel the Corporation's $3,689,000 Term Loan
obligation, assume indebtedness of $1,720,000 under Convertible Notes of the
Corporation and pay the Corporation $3,000,000 in cash. The Corporation will
also receive the first $175,000 of agent advances that Dixie Life collects after
closing. The selling price will be adjusted by the change in Dixie Life's
capital and surplus and asset valuation reserve between December 31, 1994 and
closing. At March 31, 1995, statutory capital and surplus and asset valuation
reserve was $318,200 less than at December 31, 1994. It is expected that there
will be little change from the March 31, 1995 level prior to closing. Certain
other adjustments may be made based on the resolution of pending litigation to
which Dixie Life is a party. In addition, Dixie Life will continue to pay
$15,000 per month rent to Vanguard, Inc. (Vanguard), a wholly-owned subsidiary
of the Corporation, through the December 31, 1996, expiration of an existing
lease on the office building occupied by the Corporation and Dixie Life.
The proposed sale, if completed, will result in a loss of $4,635,000 ($.55
per share) which has been recorded in the first quarter of 1995. 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.
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 the health care business or 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.
The Stock Purchase Agreement confirms an extension, included in the Letter
of Intent, of the due date of the Term Loan to the latter of closing or 90 days
after either party informs the other that the transaction cannot be closed under
its terms. Certain covenants contained in the Term Loan agreement are waived by
the Stock Purchase Agreement, including all financial covenants and certain
covenants restricting the Corporation from entering into certain transactions.
The Stock Purchase Agreement also contains usual and customary conditions,
including, among others, the receipt of all required regulatory approvals and
approval of the transaction by the shareholders of the Corporation at a meeting
to be held on or before August 1, 1995. The Stock Purchase Agreement may be
terminated by either party after August 1, 1995, provided the terminating party
has not breached the Stock Purchase Agreement.
F-32
<PAGE>
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).
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 UMS Agreement, the
Corporation expects to issue 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. If the acquisition of the 16% interest is
completed, the Corporation plans to issue 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.
F-33
<PAGE>
APPENDIX A
STOCK PURCHASE AGREEMENT
DATED 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 Closing . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER . . . . . 4
3.1 Organization. . . . . . . . . . . . . . . . . . . . 4
3.2 Authority.. . . . . . . . . . . . . . . . . . . . . 5
3.3 Capital Stock . . . . . . . . . . . . . . . . . . . 5
3.4 No Subsidiaries . . . . . . . . . . . . . . . . . . 5
3.5 No Conflicts or Violations. . . . . . . . . . . . . 5
3.6 Books and Records . . . . . . . . . . . . . . . . . 6
3.7 SAP Statements. . . . . . . . . . . . . . . . . . . 6
3.8 No Other Financial Statements . . . . . . . . . . . 7
3.9 Reserves. . . . . . . . . . . . . . . . . . . . . . 7
3.10 Absence of Changes. . . . . . . . . . . . . . . . . 7
3.11 No Undisclosed Liabilities. . . . . . . . . . . . . 11
3.12 Taxes . . . . . . . . . . . . . . . . . . . . . . . 11
3.13 Litigation. . . . . . . . . . . . . . . . . . . . . 14
3.14 Compliance With Laws. . . . . . . . . . . . . . . . 15
3.15 Benefit Plans, ERISA. . . . . . . . . . . . . . . . 16
3.16 Properties. . . . . . . . . . . . . . . . . . . . . 18
3.17 Contracts . . . . . . . . . . . . . . . . . . . . . 19
3.18 Insurance Issued by the Company . . . . . . . . . . 22
3.19 Threats of Cancellation . . . . . . . . . . . . . . 23
3.20 Licenses and Permits. . . . . . . . . . . . . . . . 23
3.21 Operations Insurance. . . . . . . . . . . . . . . . 23
3.22 Intercompany Accounts . . . . . . . . . . . . . . . 24
3.23 Bank Accounts . . . . . . . . . . . . . . . . . . . 24
3.24 Brokers . . . . . . . . . . . . . . . . . . . . . . 24
3.25 Disclosure. . . . . . . . . . . . . . . . . . . . . 24
i
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER . . . . 24
4.1 Organization. . . . . . . . . . . . . . . . . . . . 25
4.2 Authority . . . . . . . . . . . . . . . . . . . . . 25
4.3 No Conflicts or Violations. . . . . . . . . . . . . 25
4.4 Litigation. . . . . . . . . . . . . . . . . . . . . 26
4.5 Purchase for Investment . . . . . . . . . . . . . . 26
4.6 Brokers . . . . . . . . . . . . . . . . . . . . . . 26
4.7 Disclosure. . . . . . . . . . . . . . . . . . . . . 26
ARTICLE V
COVENANTS OF SELLER AND COMPANY . . . . . . . 27
5.1 Regulatory Approvals. . . . . . . . . . . . . . . . 27
5.2 Investigation by the Purchaser. . . . . . . . . . . 27
5.3 No Negotiations, etc. . . . . . . . . . . . . . . . 27
5.4 Conduct of Business . . . . . . . . . . . . . . . . 28
5.5 Financial Statements and Reports. . . . . . . . . . 30
5.6 Investments . . . . . . . . . . . . . . . . . . . . 30
5.7 Employee Matters. . . . . . . . . . . . . . . . . . 30
5.8 No Charter Amendments . . . . . . . . . . . . . . . 31
5.9 No Issuance of Securities . . . . . . . . . . . . . 31
5.10 No Dividends. . . . . . . . . . . . . . . . . . . . 32
5.11 No Disposal of Property . . . . . . . . . . . . . . 32
5.12 No Breach or Default. . . . . . . . . . . . . . . . 32
5.13 No Indebtedness . . . . . . . . . . . . . . . . . . 32
5.14 No Acquisitions . . . . . . . . . . . . . . . . . . 32
5.15 Intercompany Liabilities. . . . . . . . . . . . . . 32
5.16 Resignations of Officers and Directors. . . . . . . 33
5.17 Tax Matters . . . . . . . . . . . . . . . . . . . . 33
5.18 Dismissal of Pending Litigation . . . . . . . . . . 33
5.19 Disclosure Schedule . . . . . . . . . . . . . . . . 33
5.20 Shareholder Meeting . . . . . . . . . . . . . . . . 33
5.21 Notice and Cure . . . . . . . . . . . . . . . . . . 33
5.22 Triennial Report. . . . . . . . . . . . . . . . . . 33
ARTICLE VI
COVENANTS OF PURCHASER. . . . . . . . . . 34
6.1 Regulatory Approvals. . . . . . . . . . . . . . . . 34
6.2 Home Office Lease . . . . . . . . . . . . . . . . . 34
6.3 Assignment of Certain Agent Debit Balances. . . . . 34
6.4 Notice and Cure . . . . . . . . . . . . . . . . . . 35
ii
<PAGE>
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF PURCHASER. . . . . . 35
7.1 Representations and Warranties. . . . . . . . . . . 35
7.2 Performance . . . . . . . . . . . . . . . . . . . . 35
7.3 Certificates of Officer of Seller . . . . . . . . . 35
7.4 No Injunction . . . . . . . . . . . . . . . . . . . 36
7.5 No Proceeding or Litigation . . . . . . . . . . . . 36
7.6 Consents, Authorizations, etc.. . . . . . . . . . . 36
7.7 No Adverse Change . . . . . . . . . . . . . . . . . 36
7.8 Opinion of Counsel. . . . . . . . . . . . . . . . . 37
7.9 Resignation of Officers and Directors . . . . . . . 37
7.10 Shareholder Approval. . . . . . . . . . . . . . . . 37
7.11 Hart-Scott. . . . . . . . . . . . . . . . . . . . . 37
7.12 Management Agreement. . . . . . . . . . . . . . . . 37
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF SELLER . . . . . . 37
8.1 Representations and Warranties. . . . . . . . . . . 37
8.2 Performance . . . . . . . . . . . . . . . . . . . . 38
8.3 Officer's Certificates. . . . . . . . . . . . . . . 38
8.4 No Injunction . . . . . . . . . . . . . . . . . . . 38
8.5 No Proceeding or Litigation . . . . . . . . . . . . 38
8.6 Consents, Authorizations, etc.. . . . . . . . . . . 38
8.7 Opinion of Counsel. . . . . . . . . . . . . . . . . 39
ARTICLE IX
SURVIVAL OF PROVISIONS; REMEDIES . . . . . . . 39
9.1 Survival. . . . . . . . . . . . . . . . . . . . . . 39
9.2 Available Remedies. . . . . . . . . . . . . . . . . 39
ARTICLE X
INDEMNIFICATION . . . . . . . . . . . 40
10.1 Tax Indemnification . . . . . . . . . . . . . . . . 40
10.2 Other Indemnification . . . . . . . . . . . . . . . 41
10.3 Method of Asserting Claims. . . . . . . . . . . . . 42
10.4 After-Tax Damages . . . . . . . . . . . . . . . . . 44
10.5 Assignment of Indemnification . . . . . . . . . . . 44
ARTICLE XI
WAIVER. . . . . . . . . . . . . . 45
11.1 Senior Debt of Seller . . . . . . . . . . . . . . . 45
iii
<PAGE>
ARTICLE XII
TERMINATION . . . . . . . . . . . . 45
12.1 Termination . . . . . . . . . . . . . . . . . . . . 45
12.2 Effect of Termination . . . . . . . . . . . . . . . 46
ARTICLE XIII
MISCELLANEOUS. . . . . . . . . . . . 47
13.1 . . . . . . . . . . . . . . . . . . . . . . . . . . 47
13.2 Notices . . . . . . . . . . . . . . . . . . . . . . 47
13.3 Entire Agreement. . . . . . . . . . . . . . . . . . 48
13.4 Expenses. . . . . . . . . . . . . . . . . . . . . . 49
13.5 Public Announcements. . . . . . . . . . . . . . . . 49
13.6 Confidentiality . . . . . . . . . . . . . . . . . . 49
13.7 Further Assurances. . . . . . . . . . . . . . . . . 50
13.8 Waiver. . . . . . . . . . . . . . . . . . . . . . . 50
13.9 Amendment . . . . . . . . . . . . . . . . . . . . . 50
13.10 Counterparts. . . . . . . . . . . . . . . . . . . . 50
13.11 No Third Party Beneficiary. . . . . . . . . . . . . 50
13.12 Governing Law . . . . . . . . . . . . . . . . . . . 50
13.13 Binding Effect. . . . . . . . . . . . . . . . . . . 50
13.14 Assignment. . . . . . . . . . . . . . . . . . . . . 51
13.15 Headings, etc.. . . . . . . . . . . . . . . . . . . 51
13.16 Invalid Provisions. . . . . . . . . . . . . . . . . 51
iv
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT ("Agreement") is made and entered into 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 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 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 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 Agreement as
a whole and not to any particular provision of this Agreement, (d) unless
otherwise specified, all Article and Section references pertain to this
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 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 Eight Million Five Hundred Eighty-Three Thousand Seven Hundred
Forty-Six and no/100 Dollars ($8,583,746), of which Three Million and no/100
Dollars ($3,000,000.00) 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 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 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) On the day prior to Closing, the Seller will determine and will deliver
to the Purchaser a certificate of the chief financial officer or chief executive
officer of the Seller setting forth the Seller's determination of the Estimated
Adjusted Capital and Surplus of Company as of the Closing Date, together with
true and complete copies of all Work Papers related thereto (collectively, the
"Estimated Closing Adjusted Capital and Surplus"). The Closing will be based on
the amount of the Estimated Closing Adjusted Capital and Surplus as shown on the
certificate of the chief financial officer or chief executive officer of the
Seller. In the event the Dixie Convertible Subordinated Notes are paid by Seller
prior to Closing, the cash portion of the Purchase Price shall be adjusted
upward by the amount of such payment. If the Estimated Closing Adjusted Capital
and Surplus is greater than $6,500,000, the excess above $6,410,000 shall be
deposited into an escrow account agreeable to both Seller and Purchaser. Within
ninety (90) days after the Closing
2
<PAGE>
Date, 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 the Closing Date, based upon actual SAP
reserves and liabilities for insurance policies in force in the Company on the
Closing Date, together with true and complete copies of all Work Papers related
thereto (collectively, the "Proposed Final Closing Adjusted Capital and
Surplus"). If, within fifteen (15) Business Days after receipt by the Seller of
the certificate of the chief financial officer of the Purchaser of such
determination of the Proposed Final Closing Adjusted Capital and Surplus, the
Seller agrees with such determination and so notifies the Purchaser, or if the
Seller shall fail to notify the Purchaser that it disagrees with such
determination within such fifteen (15) Business Days, such determination shall
be the Closing Adjusted Capital and Surplus. If the Seller notifies the
Purchaser within such fifteen (15) Business Days 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 for a period of
fifteen (15) Business Days thereafter, 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 within such fifteen (15) Business Day period, 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 within thirty (30) days 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 shall be determined in
accordance with the Formula set forth on Exhibit B hereto.
(c) If the amount of the Final Closing Adjusted Capital and Surplus is
greater than $6,500.000.00, the Purchaser shall pay the difference, plus
interest at the Prime Rate from the Closing Date to the date of payment, to the
Seller within ten (10) Business Days after the determination of the Final
Closing Adjusted Capital and Surplus is made; if the amount of the Final Closing
Adjusted Capital and Surplus is less than $6,410.000.00, the Seller shall refund
the difference, plus interest at the Prime Rate from the Closing Date to the
date of payment, to the Purchaser within ten (10) Business Days after the
determination of the Final Closing Adjusted Capital and Surplus is made. Failure
by either party to pay an amount due hereunder within such ten (10) Business Day
period shall result in the imposition of an interest rate
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on the amount due equal to the Prime Rate plus four percent (4%) from the
Closing Date to the date of payment.
(d) The foregoing is subject to Section 3.13(d) hereof.
2.4 Closing. The Closing of the transactions contemplated by this 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 the
Closing Date. 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 Agreement and to perform its obligations under
this 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 Agreement, on the ability of the Company to perform
its obligations under this 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.
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3.2 Authority. The Boards of Directors of the Seller and the Company,
respectively, have duly and validly approved this 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 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 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.
3.5 No Conflicts or Violations. The execution and delivery of this Agreement
by the Seller and the Company does not, and the performance by the Seller and
the Company of their respective obligations under this 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,
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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 Agreement, on
the ability of the Seller or the Company to perform their respective obligations
under this 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 Agreement, on
the ability of the Seller or the Company to perform its respective obligations
under this 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 Agreement, on the ability of the Seller or Company to
perform its respective obligations under this 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 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:
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(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 December 31, 1994
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 December 31, 1994 (including, without limitation, the
reserves and amounts reflected respectively on lines 1 through 11.3 of page 3 of
the December 31, 1994 Annual Statement) 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
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 December 31, 1994 SAP
Statement, or except for
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changes or developments relating to the conduct of the business of the Company
after the date of this Agreement in conformity with this Agreement or the
requests of the Purchaser, since December 31, 1994, 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 December 31, 1994 SAP
Statement, or except for changes or developments relating to the conduct of the
business of the Company after the date of this Agreement in conformity with this
Agreement or the requests of the Purchaser, since December 31, 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;
(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;
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(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) 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 Agreement;
(l) any cancellation of any Liability owed to the Company by any other
Person;
(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
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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) 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;
(t) any termination, amendment, or execution by the Company of any
reinsurance, coinsurance, or other similar Contract, as ceding or assuming
insurer;
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(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 December 31, 1994 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 December 31,
1994 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
December 31, 1994 SAP Statement (or in the notes relating thereto), or except as
disclosed in Section 3.11 of the Disclosure Schedule, since December 31, 1994,
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.
(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
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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
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has been entered into by or with respect to the Seller or the Company or any of
their Assets and Properties.
(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
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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 Agreement, on the ability of the Seller or the Company to perform its
respective obligations under this 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) Following the execution of this Agreement, Seller and Purchaser shall
jointly pursue settlement of the Becker v. Dixie National Life Insurance Company
litigation on terms which are acceptable to Purchaser. In the event that a
settlement agreement is reached prior to the Closing, then, notwithstanding that
final settlement may be subject to court and/or policyholder approval, Seller
and Purchaser agree as follows:
The first $600,000.00 of Costs of Settlement shall be absorbed by
Purchaser, and, accordingly, the first $600,000.00 reduction in the Closing
Adjusted Capital and Surplus made to record the Costs of Settlement shall not
affect the Purchase Price. Any Costs of Settlement in excess of $600,000.00 but
less than $1,000,000.00 shall be borne equally by Seller and Purchaser and,
accordingly, one-half of such cost shall be deducted from the Purchase Price.
Any Costs of Settlement in excess of $1,000,000.00 shall be absorbed by
Purchaser. If the costs of settlement are less than $500,000, then the Purchase
Price shall be increased by fifty percent (50%) of the difference between the
costs of settlement and $500,000. Seller's obligation to bear a portion of the
Costs of Settlement shall terminate on the Closing Date.
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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.
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. Except as disclosed in Section 3.14(b) of
the Disclosure Schedule, all material deficiencies or violations in such report
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 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
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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,
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or any other Person dealing 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 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
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current accruals through the Closing will be duly and fully provided for in the
SAP Statement of the Company for the period then ended.
(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):
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(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 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:
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(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 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
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(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);
(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.
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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 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,
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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.
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.
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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 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 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 Agreement nor any certificate furnished by
the Seller or the Company to the Purchaser in connection with this 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:
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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 Agreement and to perform
its obligations under this 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 Agreement, on the ability of the Purchaser to perform its obligations
under this 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 Agreement and the transactions contemplated hereby. The execution
and delivery of this Agreement by the Purchaser and the performance by the
Purchaser of its obligations under this Agreement have been duly and validly
authorized by all necessary corporate action on the part of the Purchaser. This
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
Agreement by the Purchaser do not, and the performance by the Purchaser of its
obligations under this 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 Agreement or on the ability of the Purchaser to perform its obligations
under this 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)
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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 Agreement or
on the ability of the Purchaser to perform its obligations under this 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 Agreement or on the ability of the
Purchaser to perform its obligations under this Agreement.
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
Agreement, on the ability of the Purchaser to perform its obligations under this
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 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 Agreement nor any certificate furnished by the
Purchaser to the Seller in connection with this 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.
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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 Agreement.
5.1 Regulatory Approvals. The Seller and the Company will (a) 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 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
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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 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 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
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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.
(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 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.
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(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).
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.
(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:
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(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;
(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 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.
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5.10 No Dividends. Except for dividends and distributions declared after the
date of this Agreement in conformity with this 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 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 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
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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, effective at the
Closing, 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.
5.19 Disclosure Schedule. The Seller shall deliver the Disclosure Schedule
to the Purchaser no later than fifteen (15) days after the date hereof.
5.20 Shareholder Meeting. The Seller shall call a meeting of shareholders of
the Seller as promptly as possible after the date of this Agreement 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
Agreement that causes or will cause any covenant or agreement of the Seller
under this Agreement to be breached, or that renders or will render untrue any
representation or warranty of the Seller contained in this 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 Agreement, whether occurring or arising before or
after the effective date of this 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.
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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 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 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, Purchase 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
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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
Agreement that causes or will cause any covenant or agreement of the Purchaser
under this Agreement to be breached, or that renders or will render untrue any
representation or warranty of the Purchaser contained in this 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 Agreement, whether occurring
or arising before or after the effective date of this Agreement.
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 Agreement and the statements of the Seller contained in
the Disclosure Schedule shall be true as of the effective date of this
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 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
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to authorize its execution and delivery of this Agreement and its performance of
its obligations under this 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 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 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 restrain, enjoin, or
otherwise prevent consummation of any of the transactions contemplated by this
Agreement or to recover any Damages or obtain other relief as a result of this
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
Agreement, on the ability of the Seller, the Company or the Purchaser to perform
its respective obligations under this 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 Agreement and to consummate the transactions contemplated hereby and
to permit the Purchaser to acquire the Shares pursuant to this 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
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business after the effective date of this 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.
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 on or before August 1, 1995.
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 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 Agreement shall be true as of the effective date of
this 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.
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8.2 Performance. The Purchaser shall have performed and complied with all
agreements, covenants, obligations, and conditions required by this 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 Agreement and its performance of its
obligations under this 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
Agreement and the transactions contemplated hereby have been duly and validly
adopted and are in full force and effect.
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 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
Agreement or to recover any Damages or obtain other relief as a result of this
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
Agreement, on the ability of the Purchaser or the Seller to perform its
obligations under this 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 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.
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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 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, 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 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
Agreement by a breaching or defaulting party, including, without limitation, to
require the consummation of the Closing on the Closing Date.
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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").
(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
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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:
(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 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
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
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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
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 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 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
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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.
(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
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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 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
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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. 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).
ARTICLE XII
TERMINATION
12.1 Termination. This 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) by the Purchaser effective on the giving of written notice from the
Purchaser to the Seller stating the Purchaser's disapproval of any aspect of the
Business or Condition of the Company (including, without limitation, any aspect
disclosed pursuant to the information included in the Disclosure Schedule);
provided, that such written notice must be received by the Seller with fifteen
(15) days after delivery of the Disclosure Schedule pursuant to Section 5.19.
Delivery of the notice provided in this Section 11.1(b) shall not be deemed to
create any express or implied
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obligation on the part of the Purchaser to negotiate concerning or to justify
its termination pursuant to this Section, such termination being in the
Purchaser's sole and absolute discretion.
(c) 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
(d) 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 dis-closes 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
(e) at any time after August 1, 1995, by the Seller or the Purchaser, if
the transactions contemplated by this Agreement have not been consummated on or
before such date and such failure to consummate is not caused by a breach of
this Agreement (or any representation, warranty, covenant, or agreement included
herein) by the party electing to terminate pursuant to this clause (e).
12.2 Effect of Termination. If this Agreement is validly terminated
pursuant to Section 11.1, this Agreement will forth-with 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, employees, agents, consultants, or
other representatives), except that the provisions relating to confidentiality
in Section 12.4 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 Agreement pursuant to Section 11.1 will be
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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 Agreement (or any
representation, warranty, covenant, or agreement included herein).
ARTICLE XIII
MISCELLANEOUS
13.1 (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 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 Agreement must
be in writing and will be deemed to have been duly given if delivered,
telecopied or mailed, by certified mail, return receipt requested, first class
postage prepaid, to the parties at the following addresses:
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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 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 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 Agreement supersedes all prior discussions and
agreements
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between the parties with respect to the subject matter of this Agreement, and
this 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 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 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
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 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, and other consultants and
advisors who need such documents or information in connection with this
Agreement and except as required by the provisions of Sections 5.1 and 6.1.
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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 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 Agreement, or by Law or otherwise afforded, will be cumulative
and not alternative.
13.9 Amendment. This 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 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
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 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 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.
13.13 Binding Effect. This Agreement is binding upon and will inure to the
benefit of the parties and their respective successors and assigns.
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13.14 Assignment. Except as otherwise provided herein (including, without
limitation, as provided in Section 10.6), this 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 Agreement have been inserted
for convenience and do not constitute matter to be construed or interpreted in
connection with this Agreement.
13.16 Invalid Provisions. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable under any present or future Law, and if the
rights or obligations of the Seller or the Purchaser under this Agreement will
not be materially and adversely affected thereby; (a) such provision will be
fully severable; (b) this Agreement will be construed and enforced as if such
illegal, invalid, or unenforceable provision had never comprised a party hereof;
(c) the remaining provisions of this Agreement will remain in full force and
effect and will not be affected by the illegal, invalid, or unenforceable
provision or by its severance herefrom; and (d) in lieu of such illegal,
invalid, or unenforceable provision, there will be added automatically as a part
of this 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 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 Chief Executive Officer
DIXIE NATIONAL LIFE INSURANCE COMPANY
By: /s/Robert B. Neal
Name: Robert B. Neal
Title: Chairman and Chief Executive Officer
STANDARD LIFE INSURANCE COMPANY OF
INDIANA
By: /s/Ronald D. Hunter
Name: Ronald D. Hunter
Title: Chairman and Chief Executive Officer
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Exhibit A
DEFINITIONS 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 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 the month end prior to the Closing Date,
PLUS:
2. The present value of the IMR of the Company on the month end prior to
the Closing Date, discounted at the rate of 4.0% per annum; PLUS:
3. The AVR held by the Company as of the month end prior to Closing Date.
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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 Stock Purchase
Agreement dated 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 Stock Purchase
Agreement dated 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.
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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.
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APPENDIX B
ARTICLE 13 OF MISSISSIPPI
BUSINESS CORPORATION ACT
Section 79-4-13.01. Definitions
In this article:
(1) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action, or the surviving or acquiring corporation
by merger or share exchange of that issuer.
(2) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under Section 79-4-13.02 and who exercises that right
when and in the manner required by Sections 79-04-13.20 through
79-4-13.28.
(3) "Fair value," with respect to a dissenter's shares, means the
value of the shares immediately before the effectuation of the
corporate action to which the dissenter objects, excluding any
appreciation or depreciation in anticipation of the corporate action
unless exclusion would be inequitable.
(4) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid
by the corporation on its principal bank loans, or if none, at a rate
that is fair and equitable under all the circumstances.
(5) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of
shares to the extent of the rights granted by a nominee certificate on
file with a corporation.
(6) "Beneficial shareholder" means the person who is a beneficial
owner of shares held in a voting trust or by a nominee as the record
shareholder.
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
Section 79-4-13.02. Right to dissent.
(a) A shareholder is entitled to dissent from, and obtain payment of the fair
value of his shares in the event of, any of the following corporate actions:
(1) Consummation of a plan of merger to which the corporation is a
party (i) if shareholder approval is required for the merger by
Section 79-4-11.03 of the articles of incorporation and the
shareholder is entitled to vote on the merger, or
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(ii) if the corporation is a subsidiary that is merged with its parent
under Section 79-4-11.04;
(2) Consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired, if the
shareholder is entitled to vote on the plan;
(3) Consummation of a sale or exchange of all, or substantially all,
of the property of the corporation other than in the usual and regular
course of business, if the share holder is entitled to vote on the
sale or exchange, including a sale in dissolution, but not including a
sale pursuant to court order or a sale for cash pursuant to a plan by
which all or substantially all of the net proceeds of the sale will be
distributed to the shareholders within one (1) year after the date of
sale;
(4) An amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because
it:
(i) Alters or abolishes a preferential right of the shares;
(ii) Creates, alters or abolishes a right in respect of
redemption, including a provision respecting a sinking fund
for the redemption or repurchase, of the shares;
(iii) Alters or abolishes a preemptive right of the holder
of the shares to acquire shares or other securities;
(iv) Excludes or limits the rights of the shares to vote on
any matter, or to cumulate votes, other than a limitation by
dilution through issuance of shares or other securities with
similar voting rights; or
(v) Reduces the number of shares owned by the shareholder to
a fraction of a share if the fraction share so created is to
be acquired for cash under Section 79-4-6.04; or
(5) Any corporate action taken pursuant to s a shareholder vote to the
extent the articles of incorporation, by laws or a resolution of the
board of directors provides that voting or nonvoting shareholders are
entitled to dissent and obtain payment for their shares.
(b) Nothing in subsection (a)(4) shall entitle a shareholder of a corporation to
dissent and obtain payment of his shares as a result of an amendment of the
articles of incorporation exclusively for the purpose of either (i) making such
corporation subject to application of the Mississippi Control Share Act, or (ii)
making such act inapplicable to a control share acquisition of such corporation.
(c) A shareholder entitled to dissent and obtain payment for his shares under
this article may not challenge the corporate action creating his entitlement
unless the action is unlawful or fraudulent with respect to the shareholder of
the corporation.
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Section 79-4-13.03. Dissent by nominees and beneficial owners.
(a) A record shareholder may assert dissenters' rights as to fewer than all the
shares registered in his name only if he dissents with respect to all shares
beneficially owned by any one person and notifies the corporation in writing of
the name and address of each person on whose behalf he asserts dissenters'
rights. The rights of a partial dissenter under this subsection are determined
as if the shares as to which he dissents and his other shares were registered in
the names of different shareholders.
(b) A beneficial shareholder may assert dissenters' rights as to shares held on
his behalf only if:
(1) He submits to the corporation the record shareholder's written
consent to the dissent not later than the time the beneficial
shareholder asserts dissenters' rights; and
(2) He does so with respect to all shares of which he is the
beneficial shareholder or over which he has power to direct the vote.
Section 79-4-13.20. Notice of dissenters' rights.
(a) If proposed corporate action creating dissenters' rights under Section
79-4-13.02 is submitted to a vote at a shareholders' meeting, the meeting notice
must state that shareholders are or may be entitled to assert dissenters' rights
under this article and be accompanied by a copy of this article.
(b) If corporate action creating dissenters' rights under Section 79-4-13.02 is
taken without a vote or shareholders, the corporation shall notify in writing
all shareholders entitled to assert dissenters' rights that the action was taken
and send them the dissenters' notice described in Section 79-4-13.22.
Section 79-4-13.21. Notice of intent to demand payment.
(a) If proposed corporate action creating dissenters' rights under Section
79-4-13.02 is submitted to a vote at a shareholders' meeting, a shareholder who
wishes to assert dissenters' rights (1) must deliver to the corporation before
the vote is taken written notice of his intent to demand payment for his shares
if the proposed action is effectuated, and (2) must not vote his shares in favor
of the proposed action.
(b) A shareholder who does not satisfy the requirement of subsection (a) is not
entitled to payment for his shares under this article.
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Section 79-4-13.22 Dissenters' notice.
(a) If proposed corporate action creating dissenters' rights under Section
79-4-13.02 is authorized at a shareholders' meeting, the corporation shall
deliver a written dissenters' notice to all shareholders who satisfied the
requirements of Section 79-4-13.21.
(b) The dissenters' notice must be sent no later than ten (10) days after the
corporate action was taken, and must:
(1) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(2) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;
(3) Supply a form for demanding payment that includes the date of the
first announcement to news media or to shareholders of the terms of
the proposed corporate action and required that the person asserting
dissenters' rights certify whether or not he acquired beneficial
ownership of the shares before that date;
(4) Set a date by which the corporation must receive the payment
demand, which date may not be fewer than thirty (30) nor more than
sixty (60) days after the date the subsection (a) notice is delivered;
and
(5) Be accompanied by a copy of this article.
Section 79-4-13.23. Duty to demand payment.
(a) A shareholder sent a dissenters' notice described in Section 79-4-13.22 must
demand payment, certify whether he acquired beneficial ownership of the shares
before the date required to be set forth in the dissenter's notice pursuant to
Section 79-4-13.22(b)(3), and deposit his certificates in accordance with the
terms of the notice.
(b) The shareholder who demands payment and deposits his shares under subsection
(a) retains all other rights of a shareholder until these rights are canceled or
modified by the taking of the proposed corporate action.
(c) A shareholder who does not demand payment or deposit his share certificates
where required, each by the date set in the dissenters' notice, is not entitled
to payment of his shares under this article.
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Section 79-4-13.24. Share restrictions.
(a) The Corporation may restrict the transfer of uncertificated shares from the
date the demand for their payment is received until the proposed corporate
action is taken or the restrictions released under Section 79-4-13.26.
(b) The person for whom dissenters' rights are asserted as to uncertificated
shares retains all other rights of a share holder until these rights are
canceled or modified by the taking of the proposed corporate action.
Section 79-4-13.25. Payment.
(a) Except as provided in Section 79-4-13.27, as soon as the proposed corporate
action is taken, or upon receipt of a payment demand, the corporation shall pay
each dissenter who complied with Section 79-4-13.23 the amount the corporation
estimates to be the fair value of his shares, plus accrued interest.
(b) The payment must be accompanied by:
(1) The corporation's balance sheet as of the end of a fiscal year
ending not more than sixteen (16) months before the date of payment,
an income statement of r that year, a statement of changes in
shareholders' equity for that year, and the latest available interim
financial statements, if any;
(2) A statement of the corporation's estimates of the fair value of
the shares;
(3) An explanation of how the interest was calculated;
(4) A statement of the dissenters' right to demand payment under
Section 79-4-13.28; and
(5) A copy of this article.
Section 79-4-13.26. Failure to take action.
(a) If the corporation does not taken the proposed action within sixty (60) days
after the date set for demanding payment and depositing share certificates, the
corporation shall return the deposited certificates and release the transfer
restrictions imposed on uncertificated shares.
(b) If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under Section 79-4-13.22 and repeat the payment demand
procedure.
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Section 79-4-13.27. After-acquired shares.
(a) A corporation may elect to withhold payment required by Section 79-4-13.25
from a dissenter unless he was the beneficial owner of the shares before the
date set forth in the dissenters' notice as the date of the first announcement
to news media or to shareholders of the terms of the proposed corporate action.
(b) To the extent the corporation elects to withhold payment under subsection
(a), after taking the proposed corporate action, it shall estimate the faire
value of the shares, plus accrued interest and shall pay this amount to each
dissenter who agrees to accept it in full satisfaction of his demand. The
corporation shall send with its offer a statement of its estimate of the fair
value of the shares, an explanation of how the interest was calculated and a
statement of the dissenter's right to demand payment under Section 79-4-13.28.
Section 79-4-13.28. Procedure if a shareholder dissatisfied with payment or
offer.
(a) A dissenter may notify the corporation in writing of his own estimate of the
fair value of his shares and amount of interest due, and demand payment of his
estimate (less any payment under Section 79-4-13.25), or reject the
corporation's offer under Section 79-4-13.27 and demand payment of the fair
value of his shares and interest due, if:
(1) The dissenter believes that the amount paid under Section
79-4-13.25 or offered under Section 79-4-13.27 is less than the fair
value of his shares or that the interest due is incorrectly
calculated;
(2) The corporation fails to make payment under Section 79-4-13.25
within sixty (60) days after the date set for demanding payment; or
(3) The corporation, having failed to take the proposed action, does
not return the deposited certificates or release the transfer
restrictions imposed on uncertificated shares within sixty (60) days
after the date set for demanding payment.
(b) A dissenter waives his right to demand payment under this section unless he
notifies the corporation of his demand in writing under subsection (a) within
thirty (30) days after the corporation made or offered payment for his shares.
Section 79-4-13.30. Court action.
(a) If a demand for payment under Section 79-4-13.28 remains unsettled, the
corporation shall commence a proceeding within sixty (60) days after receiving
the payment demand and petition the court to determine the fair value of the
shares and accrued interest. If the corporation
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does not commence the proceeding within the 60-day period, it shall pay each
dissenter whose demand remains unsettled the amount demanded.
(b) The corporation shall commence the proceeding in the chancery court of the
county where a corporation's principal office (of, if none in this state, its
registered office) is located. If the corporation is a foreign corporation
without a registered office in this state, it shall commence the proceeding in
the county in this state where the registered office of the domestic corporation
merged with or whose shares were acquired by the foreign corporation was
located.
(c) The corporation shall make all dissenters (whether or not residents of this
state) whose demands remain unsettled parties to the proceeding as in an action
against their shares and all parties must be served with a copy of the petition.
Nonresidents may be served by registered or certified mail or by publication as
provided by law.
(d) The jurisdiction of the court in which the proceeding is commenced under
subsection (b) is plenary and exclusive. The court may appoint one or more
persons as appraisers to receive evidence and recommend decision on the question
of fair value. The appraisers have the powers described in the order appointing
them, or in any amendment to it. The dissenters are entitled to the same
discovery rights as parties in other civil proceedings.
(e) Each dissenter made a party to the proceeding is entitled to judgment (1)
for the amount, if any, by which the court finds the fair value of his shares,
plus interest, exceeds the amount paid by the corporation, or (2) for the fair
value, plus accrued interest, of his after-acquired shares for which the
corporation elected to withhold payment under Section 79-4-13.27.
Section 79-4-13.31. Court costs and counsel fees.
(a) The court in an appraisal proceeding commenced under Section 79-4-13.30
shall determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court. The court shall
assess the costs against the corporation, except that the court may assess costs
against all or some of the dissenters, in the amounts the court finds equitable,
to the extent the court finds the dissenters acted arbitrarily, vexatiously or
not in good faith in demanding payment under Section 79-4-13.28
(b) The court may also assess the fees and expenses of counsel and experts for
the respective parties, in amounts the courts finds equitable:
(1) Against the corporation and in favor of any or all dissenters if
the court finds the corporation did not substantially comply with the
requirements of Section 79-4-13.20 through 79-4-13.28; or
(2) Against either the corporation or a dissenter, in favor of any
other party, if the court finds that the party against whom the fees
and expenses are assessed acted
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arbitrarily, vexatiously or not in good faith with respect to the
rights provided by this article.
(c) If the court finds that the services of counsel for any dissenter were of
substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court may
award to these counsel reasonable fees to be paid out of the amounts awarded the
dissenters who were benefited.
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APPENDIX C
Mercer Capital
5860 Ridgeway Center Parkway
Suite 410
Memphis, Tennessee 38120-4048
Phone (901)685-2120
Telecopier (901)685-2199
June 5, 1995
Board of Directors
c/o Mr. Robert B. Neal
President and Chief Executive Officer
Dixie National Corporation
3760 I-55 North
Jackson, Mississippi 39211
RE: Fairness Opinion Related to the Acquisition of Dixie National
Life Insurance Company by Standard Life Insurance Company of
Indiana.
Dear Board Members:
Mercer Capital Management, Inc. ("Mercer Capital") was retained on March 13,
1995 by the Board of Directors of Dixie National Corporation ("Dixie", the
"Company", "the Seller" or "DNC"), Jackson, Mississippi, to provide its opinion
of the fairness from a financial point of view to Dixie's common shareholders of
the proposed acquisition of the Company's 1,489,904 shares of (99.33% of the
1,500,000 outstanding) Dixie National Life Insurance Company ("DNLIC") by
Standard Life Insurance Company of Indiana ("SLIC" or "the Purchaser"),
Indianapolis, Indiana, a subsidiary of Standard Management Company ("SMC").
Mercer Capital is routinely engaged in the valuation of businesses in connection
with mergers and acquisitions, estate and gift tax compliance, employee stock
ownership plans, and a variety of corporate planning and restructuring
activities.
THE TRANSACTION
The Stock Purchase Agreement ("the Agreement") dated April 18, 1995 among Dixie,
DNLIC, and SLIC includes, among other things, the following provisions:
* Dixie will receive an aggregate purchase price of $8,583,746 -
$3,000,000 of which will be paid in cash at closing; the Term
Loan of $3,688,746 owed by Dixie to SLIC will be canceled; and
Convertible Notes of $1,720,000 would be assumed by SLIC; and,
the first $175,000 recovered by DNLIC from agent debit balances
will be paid to DNC.
AMERICA'S BUSINESS VALUATION RESOURCE
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Board of Directors
June 5, 1995
Page 2
* DNLIC will also honor its lease with Vanguard, Inc. through
December 31, 1996 at the rate of $15,000 per month. For the first
six months after closing, SLIC (or its subsidiaries) will pay for
routine maintenance, casualty insurance, ad valorem taxes not to
exceed $5,000 per month. It is contemplated that SLIC will vacate
the building within six months of closing except for space for
two executives and one secretary.
* Among other things, the Agreement includes certain requirements
which are a condition to closing:
1. The purchase price will be decreased by the amount that
Adjusted Capital and Surplus is less than $6,410,000 or
increased by the amount that Adjusted Capital and
Surplus is greater than $6,500,000. Interest will be
paid by the party which owes an increment or decrement
in the purchase price.
2. Prior to closing, SLIC and DNC will jointly pursue
settlement of the litigation styled as Becker v. Dixie
National Life Insurance Company. The first $600,000 of
settlement costs shall be absorbed by the Purchaser.
Any costs of settlement greater than $600,000 but less
than $1,000,000 will be borne equally by the Purchaser
and Seller. Any costs of settlement greater than
$1,000,000 will be borne by the Purchaser. If the costs
of settlement are less than $500,000, then the purchase
price shall be increased by 50% of the difference
between the costs of settlement and $500,000. The
Seller will have no obligation for any settlement costs
after closing.
3. The Seller will purchase at book value at closing
DNLIC's entire investment in Fry-Guy, Inc. equipment
and leases and Cambria loans and release the Purchaser
from any obligation to make future loans or investments
related to these activities.
REVIEW PROCEDURES
We have reviewed the documents listed in Exhibit 1. In conjunction with previous
negotiations between DNC and SMC we have visited with management of Dixie in
Jackson, Mississippi and management of SMC in Indianapolis, Indiana. There have
been numerous subsequent meetings with management of Dixie in person and by
telephone. These visits provided an important perspective on the operations of
the Company and DNLIC in order to gain greater insight into each entity's
historical and prospective financial performance.
Mercer Capital did not compile or audit the financial statements of DNC or
DNLIC, nor have we independently verified the information reviewed. We have
relied upon such information as being complete and accurate in all material
respects. We have not made an appraisal of the Company's assets, nor have we
determined the liquidation value of the Company's assets.
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Board of Directors
June 5, 1995
Page 3
IMPORTANT CONSIDERATIONS OF THE TRANSACTION
The following factors were considered with respect to Dixie and Dixie National
Life Insurance Company:
* The historical financial condition and performance of the Company
as measured by Generally Accepted Accounting Principles ("GAAP")
and Dixie National Life Insurance Company as measured by
Statutory Accounting Principles ("SAP");
* Growth potential in the relevant markets;
* Historical dividend performance;
* Prior efforts to find a buyer for DNC or DNLIC or other sources
of financing;
* Statutory capital requirements;
* Potential effect on statutory capital of DNLIC of pending Charter
Contract litigation;
* Prospective financial performance and future cash flow needs of
the Company; and,
* Trading in the Company's stock including price and volume.
The following factors regarding pricing and terms are considered relevant to the
transaction:
* Total consideration and terms received by Dixie for the shares of
DNLIC including probable adjustments to the purchase price based
upon statutory financial results through closing;
* Potential financial impact on Dixie and its shareholders if no
satisfactory resolution to the Company's debt service
requirements can be obtained;
* Potential value to be received by a shareholder of Dixie who
dissents from the transaction and receives fair value under
Mississippi law;
* Review of the pricing of publicly traded insurance companies with
similar lines of business;
* Review of transactions involving the sale of controlling
interests of small insurance companies; and,
* Prior efforts by management to find a buyer of Dixie or to obtain
new capital.
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Board of Directors
June 5, 1995
Page 4
CONCLUSION
Based upon our analysis of Dixie National Corporation, Dixie National Life
Insurance Company, and the pricing and terms of the transaction, it is our
opinion that the transaction is fair to the shareholders of Dixie from a
financial point of view.
Sincerely yours,
MERCER CAPITAL MANAGEMENT, INC.
/s/Kenneth W. Patton
Kenneth W. Patton, ASA
Executive Vice President
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APPENDIX 1
The following documents were reviewed in the preparation of this opinion.
1. Stock Purchase Agreement dated April 18, 1995;
2. Draft Proxy Statement dated June 2, 1995 for annual meeting of
shareholders;
3. Audited financial statements for Dixie National Corporation for
the fiscal years ended December 31, 1990-94 as prepared by
DeMiller, Denny, Word & Co. (1990-91) and the Horne CPA Group
(1992-94)
4. Forms 10-K for Dixie National Corporation for the fiscal years
ended December 31, 1990-94
5. Forms 8-K for Dixie National Corporation dated March 6, 1995,
September 30, 1994, September 16, 1994, July 22, 1994, and June
7, 1994.
6. Forms 10-Q for Dixie National Corporation for the quarters ended
March 31, 1994, June 30, 1994, September 30, 1994, and March 31,
1995.
7. Annual Statement of Dixie National Life Insurance Company as
prepared for the Insurance Department of the State of Mississippi
for the fiscal years ended December 31, 1990-94 and the quarter
ended March 31, 1995.
8. Annual reports for Dixie National Corporation for the fiscal
years ended December 31, 1990-93: and,
9. Such other documents as were necessary to complete the opinion.
<PAGE>
APPENDIX D
DIXIE NATIONAL CORPORATION
1995 STOCK OPTION PLAN
ARTICLE I
DEFINITIONS
As used herein, terms have the meaning hereinafter set forth unless the
context should clearly indicate the contrary:
(a) "Board" shall mean the Board of Directors of the Company, or the
Executive Committee of such Board;
(b) "Business Days" shall mean for calculation purposes the days of the
week in which the New York Stock Exchange conducts and is open for regular
trading activity;
(c) "Committee" shall mean the Administrative Committee appointed by the
Board to oversee the administration of this Plan;
(d) "Company" shall mean Dixie National Corporation, a Mississippi
corporation;
(e) "Director" shall mean a member of the Board;
(f) "Fair market value" shall mean the average of the bid and asked price
at which the Stock is listed in the NASDAQ quotation system on the day an Option
is granted hereunder or, in the absence of any reported quote on such day, the
first preceding day on which there was such a quote available;
(g) "Grant" means the issuance of an Option hereunder to an Optionee
entitling such Optionee to acquire Stock on the terms and conditions set forth
in a Stock Option Agreement to be entered into with the Optionee;
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(h) "Incentive Stock Option" shall mean a compensatory Option provided to
an employee of the Company giving him or her the right to purchase Stock at a
predetermined price under a plan the meets certain Internal Revenue Code
requirements.
(i) "Key Employee" shall mean a Company employee who in the judgment of the
Committee has the ability to positively affect the profitability and economic
well-being of the Company.
(j) "Option" shall mean the right granted to an Optionee to acquire Stock
of the Company pursuant to the Plan;
(k) "Optionee" shall mean an employee of the Company or a non-employee
Director of the Company to whom a Grant hereunder has been made;
(l) "Plan" shall mean the Dixie National Corporation 1995 Stock Option
Plan, the terms of which are herein set forth;
(m) "Stock" shall mean the common stock of the Company or, in the event the
outstanding shares of stock are hereafter changed into or exchanged for shares
of a different stock or securities of the Company or some other corporation,
such other stock or securities;
(n) "Stock Option Agreement" shall mean the agreement between the Company
and an Optionee under which an Optionee may acquire Stock pursuant to the Plan.
ARTICLE II
THE PLAN
2.1. NAME.
The Plan shall be known as the "Dixie National Corporation 1995 Stock
Option Plan".
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2.2. PURPOSE.
The purpose of the Plan is to advance the business and development of the
Company and its shareholders by affording to the Key Employees of the Company
and non-employee Directors of the Company the opportunity to acquire a propriety
interest in the Company by the grant of Options to such persons under the terms
herein set forth. By so doing, the Company seeks to motivate, retain and attract
highly competent, highly motivated personnel whose judgment, initiative,
leadership and continued efforts will contribute to the success of the Company.
The Options to be granted hereunder are either "Incentive Stock Options" within
the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, for
certain Key Employees or non-statutory Options made available to non-employee
Directors. However, at no time will the Plan be considered or operate as a
"tandem" option plan or will any Key Employee or non-employee Director be
subjected to a tandem option provision.
2.3. EFFECTIVE DATE.
The Plan shall become effective upon its adoption by the Board of the
Company. Thereafter, the Plan shall be submitted to the shareholders of the
Company for approval within 12 months after the date said Plan is adopted by the
Board.
2.4 TERMINATION DATE.
The Plan shall terminate ten (10) years from the date the Plan is adopted
by the Board of the Company and at which such time any Options granted hereunder
shall be void and of no further force or effect.
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ARTICLE III
PARTICIPANTS
Any Key Employee or non-employee Director of the Company shall be eligible
to be granted an Option under the Plan. The Committee shall adopt criteria
pursuant to which Options shall be granted. The Committee may grant Options to
any eligible Key Employee or non-employee Director in accordance with such
determinations as the Committee may, from time to time, in its sole discretion
make. A Director of the Company or of a subsidiary who is not also an employee
of the Company will not be eligible to receive an "Incentive Stock Option"
pursuant to the Plan. Non-employee Directors are only eligible for non-statutory
Options which do not qualify under Section 422 of the Internal Revenue Code, as
amended.
ARTICLE IV
ADMINISTRATION
4.1. DUTIES AND POWERS OF THE COMMITTEE.
The Plan shall be administered by the Committee. Subject to the express
provisions of the Plan, the Committee shall have the sole discretion and
authority to determine from among eligible persons those to whom and the time or
times at which Options may be granted and the number of shares of Stock to be
subject to each Option. Subject to the express provisions of the Plan, the
Committee shall also have complete authority to interpret the Plan, to
prescribe, amend and rescind rules and regulations related to it and to
determine the details and provisions of each Stock Option Agreement and to make
all other determinations necessary or advisable in the administration of the
Plan.
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4.2. RECORDS OF PROCEEDINGS.
The Committee shall maintain written minutes of its actions which shall be
maintained among the records of the Company.
4.3. MAJORITY.
A majority of the members of the Committee shall constitute a quorum and
any action taken by a majority present at such meeting at which a quorum is
present or any action taken without a meeting evidenced by a writing executed by
all members of the Committee shall constitute the action of the Committee.
4.4. COMPANY ASSISTANCE.
The Company shall supply full and timely information to the Committee in
all matters relating to eligible Optionees, their status, death, retirement,
disability and such other pertinent facts as the Committee may require. The
Company shall furnish the Committee with such clerical and other assistance as
is necessary in the performance of its duties. All expenses of the Committee
shall be paid by the Company.
4.5. COMPOSITION OF THE COMMITTEE.
The Committee shall consist of three (3) individuals appointed by the Board
from among its members. Appointment to the Committee shall be for a term of one
(1) year. Any individual designated and serving as a member of the Committee
shall be entitled to indemnification in relation to such service by the Company
to the fullest extent called for or permitted by Article XI of the Bylaws of the
Company.
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4.6 COMMITTEE AUTHORITY.
If the Committee deems it necessary or in the best interest of the Company
or its shareholders, the Committee may impose restrictions on the subsequent
transferability of Stock issued pursuant to Options to be granted hereunder. In
the event of the imposition of any such conditions, the Stock of the Company to
be issued pursuant to the exercise of an Option shall have any such restrictions
prominently displayed as a legend on such certificate.
ARTICLE V
SHARES OF STOCK SUBJECT TO THE PLAN
5.1. LIMITATION.
Subject to adjustment pursuant to the provisions of Section 5.3 hereof, the
number of shares of Stock which may be issued and sold hereunder shall not
exceed 500,000 shares, with 400,000 shares reserved for issuance to Key
Employees pursuant to their Incentive Stock Options and 100,000 shares reserved
for issuance to non-employee Directors pursuant to their non-statutory Options.
The Company shall take such action as necessary to reserve the aforesaid number
of shares for issuance pursuant to the Plan.
5.2. OPTIONS GRANTED UNDER THE PLAN.
Shares of Stock with respect to which an Option is granted hereunder, but
which lapses prior to exercise, shall be considered available for grant
hereunder. Therefore, if Options granted hereunder shall terminate for any
reason without being wholly exercised, new Options may be granted hereunder
covering the number of shares to which such terminated Options related.
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5.3. ANTI-DILUTION.
In the event the Stock subject to Options hereunder is changed into or
exchanged for a different number or kind of stock or other securities of the
Company or of another organization by reason of merger, consolidation or
reorganization, recapitalization, reclassification, combination of shares, stock
split or stock dividend;
(a) The aggregate number and kind of shares of Stock subject to
Options which may be granted hereunder shall be adjusted appropriately;
(b) Rights under outstanding Options granted hereunder, both as to the
number of subject shares and the Option price, shall be adjusted appropriately;
(c) Where dissolution or liquidation of the Company or any merger of
consolidation in which the Company is not a surviving corporation is involved,
each outstanding Option shall terminate and the Optionee holding such Option
shall have the right immediately prior to such dissolution, liquidation, merger
or combination to exercise his Option, in whole or in part, to the extent that
it shall not have been exercised without regard to any installment exercise
provision.
The manner of application of the foregoing provision shall be determined
solely by the Committee and any such adjustment may provide for the elimination
of fractional share interests.
ARTICLE VI
6.1. OPTIONS.
Each Option granted hereunder shall be evidenced by minutes of a meeting of
or the written consent of the Committee and by a written Stock Option Agreement
dated as of the
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date of grant and executed by the Company and the Optionee, which agreement
shall set forth such terms and conditions as may be determined by the Committee
consistent with the Plan.
6.2. PARTICIPATION, LIMITATIONS.
(a) Options qualifying as "incentive stock options" under Section 422 of
the Internal Revenue Code, as amended, may be granted from time to time to Key
Employees of the Company to purchase shares of the Company's Stock.
(1) The maximum number of shares for which an Option or Options may be
granted under the Plan to any one Key Employee shall be 100,000.
(b) Options defined as non-statutory Options which do not satisfy the
requisites of Section 422 of the Internal Revenue Code, as amended, may be
granted from time to time only to non-employee Directors of the Company to
purchase shares of the Company's Stock.
(1) The maximum number of shares for which an Option or Options may be
granted under the Plan to any one participating non-employee Director shall be
10,000.
6.3. OPTION PRICE.
The per share Option price for the stock subject to each Option shall be
determined by the Committee, but the per share exercise price shall not be less
than the fair market value of the Stock on the date the Option is granted.
6.4. OPTION PERIOD.
Each Option granted hereunder must be granted within five (5) years from
the effective date of the Plan. The period for the exercise of each Option shall
be determined
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by the Committee, but in no instance shall such period exceed five (5) years
from the date of grant of the Option. The Committee may prescribe such period
after grant of an Option which must expire before such Option may be exercised
and the Committee deems appropriate.
6.5. OPTION EXERCISE.
(a) Options granted hereunder may not be exercised until and unless the
Optionee shall meet the conditions precedent established by the Committee for
the Key Employees and the non-employee Directors.
(b) Options may be exercised by Key Employees for whole shares only. Key
Employee Optionees may exercise 20% of their Options in each year on a
cumulative basis with any portion not exercised to be carried over for exercise
in subsequent years. Options shall be exercised by written notice of intent to
exercise the Option with respect to a specified number of shares delivered to
the Company at its principal office and payment in full to the Company at said
office of the amount of the Option price for the number of shares with respect
to which the Option(s) are then being exercised.
(c) Options may be exercised by participating non-employee Directors in
whole at any time, or in part from time to time with respect to whole shares,
and can be exercised to the full extent of his Option at any time after grant,
and shall be exercised by written notice of intent to exercise the Option with
respect to a specified number of shares delivered to its Company at its
principal office and payment in full to the Company at said office of the amount
of the Option price for the number of shares with respect to which the Option(s)
are then being exercised.
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(d) No person to whom Options are granted hereunder shall receive Options,
first exercisable during any single calendar year, for Stock, the fair market
value of which (determined at the time of the grant of the Options) exceeds
$100,000.00.
(e) No Option may be exercised by any Optionee unless a registration
statement covering the Stock subject thereto has been filed with and declared
effective by the Securities and Exchange Commission and an appropriate
registration or exemption therefrom, is in effect or available in the state of
residence of the exercising Optionee.
6.6. NON-TRANSFERABILITY OF OPTION.
No Option or any right relative thereto shall be transferred by an Optionee
otherwise than by will or by the laws of descent and distribution. During the
lifetime of an Optionee, the Option shall be exercisable only by him or her.
6.7. EFFECT OF DEATH OR OTHER TERMINATION OF EMPLOYMENT OR DIRECTORSHIP.
(a) If the Key Employee's or non-employee Director's relationship with the
Company shall be terminated, with or without cause, or by the act of the Key
Employee or non-employee Director, the Optionee's right to exercise such Options
shall terminate and all rights thereunder shall cease ten (10) Business Days
after the date on which such person's association is terminated. Provided
however, that if the Optionee shall die or become permanently and totally
disabled while employed by or serving as a non-employee Director of the Company,
as solely determined by the Committee in accordance with its policies, then
either his or her personal representatives or a transferee under the Optionee's
will or pursuant to the laws of descent and distribution, or the disabled
Optionee may exercise the Option in full one (1) year from the date of such
death or disability. In the
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case of an Optionee's retirement in accordance with the Company's established
retirement policy, such Option shall remain exercisable by the Optionee for
three (3) months from the date of such retirement.
(b) No transfer of an Option by the Optionee by will or the laws of descent
and distribution shall be effective to bind the Company unless the Company shall
have been furnished with a written notice thereof and an authenticated copy of
the will and/or such other evidence as the Committee may deem necessary to
establish the validity of the transfer and the acceptance by the transferee or
transferees of the terms and conditions of such Option.
6.8. RIGHTS AS A SHAREHOLDER.
An Optionee or a transferee of an Option shall have no rights as a
shareholder of the Company with respect to any shares subject to any unexercised
Options.
6.9. REQUIRED FILINGS.
A Optionee to whom an Option is granted under the terms of the Plan is
required to file appropriate reports with the Internal Revenue Service. As a
condition of the receipt of an Option hereunder, Optionees shall agree to make
necessary filings with the Internal Revenue Service. The Committee shall assist
and cooperate with Optionees by providing the necessary information required for
compliance of this condition.
ARTICLE VII
STOCK CERTIFICATES
The Company shall not be required to issue or deliver any certificate for
shares of Stock purchased upon the exercise of any Option granted hereunder, or
any portion thereof,
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prior to the obtaining of any approval or clearance from any federal or state
governmental agency which the Committee shall, in its sole discretion, determine
to be necessary or advisable.
ARTICLE VIII
TERMINATION, AMENDMENT, OR MODIFICATION OF THE PLAN
The Board may at any time, upon recommendation of the Committee, terminate,
and may at any time and from time to time and in any respect amend or modify the
Plan. Provided however, if the Plan has been submitted to and approved by the
shareholders of the Company no such action by the Board may be taken without
approval of the majority of the shareholders of the Company which: (a) increases
the total number of shares of Stock subject to the Plan, except as contemplated
in Section 5.3 hereof; (b) changes the manner of determining the Option price;
or (c) withdraws the administration of the Plan from the Committee.
ARTICLE IX
9.1. EMPLOYMENT.
Nothing in the Plan or any Option granted hereunder or in any Stock Option
Agreement shall confer a upon non-employee Director receiving such Option or
Stock Option Agreement the status as an employee of the Company. Further,
nothing in the Plan or any Option granted hereunder shall in any manner create
in any Optionee the right to continue their relationship with the Company or
create any vested interest in such relationship, including employment.
9.2. OTHER COMPENSATION PLANS.
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The adoption of the Plan shall not effect any other stock option,
incentive, or other compensation plan in effect for the Company or any of its
subsidiaries, nor shall the Plan preclude the Company or any subsidiary thereof
from establishing any other forms of incentive or other compensation for
employees or non-employee Directors of the Company, or any subsidiary thereof.
9.3. PLAN EFFECT.
The Plan shall be binding upon the successors and assigns of the Company.
9.4. TENSE.
When used herein nouns in the singular shall include the plural.
9.5. HEADINGS OF SECTIONS ARE NOT PART OF THE PLAN.
Headings of articles and sections hereof are inserted for convenience and
reference and constitute no part of the Plan.
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STOCK OPTION AGREEMENT
This Agreement is made this the ____ day of ________, 199___, between DIXIE
NATIONAL CORPORATION, a Mississippi corporation ("Dixie") and
______________________ ("Employee").
WHEREAS, Employee is employed by Dixie and is one of Dixie's Key Employees.
Dixie considers it desirable and in the best interest of Dixie and its
shareholders that Employee be given an inducement to acquire a proprietary
interest in Dixie and an added incentive to advance the interest of Dixie, such
inducement and incentive being in the form of an option (the "Option") to
purchase shares of the common stock of Dixie (the "Stock"), and
WHEREAS, the Option hereby granted is granted pursuant to the terms and
provisions of Dixie National Corporation 1995 Stock Option Plan adopted the
26th day of May, 1995, and
WHEREAS, any capitalized term not defined herein shall have the same
meaning as defined in the Dixie National Corporation 1995 Stock Option Plan, and
NOW, THEREFORE, in consideration of the premises it is agreed as follows:
1. GRANT OF OPTION. Dixie hereby grants to Employee the right and Option to
acquire _____ shares of the Stock at a purchase price of $_________ per share,
such price being not less than the fair market value of the Stock as of the date
hereof. The Option hereby granted is to be exercised in the manner and subject
to the conditions hereinafter provided.
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2. TIME OF EXERCISE OF OPTION. This Option may be exercised by Key
Employees for whole shares only. Key Employee Optionees may exercise 20% of
their Options in each year on a cumulative basis commencing on the ____ day of
_________, 199__, with any portion not exercised to be carried over for exercise
in subsequent years. The right of the Employee to exercise the Option hereby
granted is conditioned upon the fact that the Employee is an employee of Dixie
or a subsidiary of Dixie as of the time of the granting of this option and
through and including the date of exercise, except in the event of the death,
disability or retirement of the Employee as provided in Paragraph 4 hereof.
3. METHOD OF EXERCISE. This Option may be exercised by Employee giving
written notice to Dixie at its principal place of business accompanied by a
check in payment of the purchase price for the Stock as to which the Option is
being exercised. Dixie shall make prompt delivery of such Stock, provided that
if any law or regulation requires Dixie to take any action with respect to the
Stock as to which the Option is being exercised, the date of delivery of such
Stock shall be extended for the period necessary to take such action.
4. TERMINATION OF OPTION. Except as otherwise stated herein, the Option
hereby granted, to the extent not previously exercised, shall terminate ten (10)
business days after the date on which Employee's continuous employment by Dixie
is terminated, provided:
(a) That in the event of an Employee's death or permanent and total
disability while in the employ of Dixie, the disabled Employee or his or her
personal
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representatives may exercise this Option in full at any time within one (1) year
following the date of an Employee's disability or death; or
(b) Three (3) months after the date on which the Employee's continuous
employment with Dixie ceases due to the Employee's retirement from Dixie in
accordance with Dixie's established retirement policy.
The term "business days" shall mean for calculation purposes the days of
the week in which the New York Stock Exchange conducts and is open for regular
trading activity.
5. LIMITATIONS. In accordance with the terms of Section 422 of the Internal
Revenue Code of 1986, as amended, the Option granted un.der this agreement is
limited so that the aggregate fair market value of the stock which an Employee
may first purchase hereunder in any calendar year does not exceed $100,000.00
based on such fair market value as of the date of grant of the Option.
6. RECLASSIFICATION, CONSOLIDATION OR MERGER. If and to the extent that the
number of issued common shares of Dixie shall be increased or reduced by a
change in par value, split-up, reclassification, distribution of a dividend
payable in shares, or by any similar occurrence, the number of shares subject to
this Option and the purchase price to be paid for such shares shall be
proportionately adjusted as provided in the Plan.
7. RIGHTS PRIOR TO EXERCISE OF OPTION. The Option hereby granted is
non-transferrable by Employee except as otherwise provided in Paragraph 4
hereof. During the lifetime of Employee, the Options hereby granted shall be
exercisable only by the Employee. Employee shall have no rights as a shareholder
in the shares of Stock purchasable pursuant to Options hereunder until payment
of the purchase price and delivery
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to the Employee of such shares as herein provided.
8. APPROVAL BY SHAREHOLDERS. The granting of the Option as provided in this
Agreement is being made pursuant to a Stock Option Plan adopted by the Board of
Directors of Dixie on the 26th day of May, 1995. Such Plan was approved by a
majority the shareholders of Dixie on the ___ day of ____________, 1995. Such
Stock Option Plan includes an aggregate of 500,000 shares of the common stock of
Dixie which may be issued under options granted pursuant to the Plan. Employee
is a member of the class of employees eligible under the provisions of the Plan
to receive such options.
9. RESTRICTED TRANSFERABILITY OF STOCK. Any sale or transfer of Stock
purchased pursuant to this Option must be made in accordance with applicable
federal and state securities laws.
10. BINDING EFFECT. This Agreement shall be binding upon the heirs,
executors, administrators and successors of the parties hereto.
IN WITNESS WHEREOF, the parties have hereto caused this Agreement to be
executed as first hereinabove set forth.
DIXIE NATIONAL CORPORATION
By:______________________
_________________________
EMPLOYEE
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STOCK OPTION AGREEMENT
This Agreement is made this the ____ day of ________, 199___, between DIXIE
NATIONAL CORPORATION, a Mississippi corporation ("Dixie") and
______________________ ("Director").
WHEREAS, Director is not employed by Dixie but is one of Dixie's
non-employee Directors. Dixie considers it desirable and in the best interest of
Dixie and its shareholders that Director be given an inducement to acquire a
proprietary interest in Dixie and an added incentive to advance the interest of
Dixie, such inducement and incentive being in the form of an option (the
"Option") to purchase shares of the common stock of Dixie (the "Stock"), and
WHEREAS, the Option hereby granted is granted pursuant to the terms and
provisions of Dixie National Corporation 1995 Stock Option Plan adopted the
26th day of May, 1995, and
WHEREAS, any capitalized term not defined herein shall have the same
meaning as defined in the Dixie National Corporation 1995 Stock Option Plan, and
NOW, THEREFORE, in consideration of the premises it is agreed as follows:
1. GRANT OF OPTION. Dixie hereby grants to Director the right and Option to
acquire _____ shares of the Stock at a purchase price of $_________ per share,
such price being not less than the fair market value of the Stock as of the date
hereof. The Option hereby granted is to be exercised in the manner and subject
to the conditions hereinafter provided.
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2. TIME OF EXERCISE OF OPTION. This Option may be exercised by Director as
to 100% of the shares subject to the Option hereby granted commencing on the
____ day of _________, 199__. The right of the Director to exercise the Option
hereby granted is conditioned upon the fact that the Director is a non-employee
Director of Dixie or a subsidiary of Dixie as of the time of the granting of
this Option and through and including the date of exercise, except in the event
of the death, disability or retirement of the Director as provided in Paragraph
4 hereof.
3. METHOD OF EXERCISE. This Option may be exercised by Director giving
written notice to Dixie at its principal place of business accompanied by a
check in payment of the purchase price for the Stock as to which the Option is
being exercised. Dixie shall make prompt delivery of such Stock, provided that
if any law or regulation requires Dixie to take any action with respect to the
Stock as to which the Option is being exercised, the date of delivery of such
Stock shall be extended for the period necessary to take such action.
4. TERMINATION OF OPTION. Except as otherwise stated herein, the Option
hereby granted, to the extent not previously exercised, shall terminate upon ten
(10) business days after the date on which Director's continuous association
with Dixie is terminated, provided:
(a) That in the event of a Director's death or permanent and total
disability while associated with Dixie, the his or her personal representatives
or the disabled Director may exercise this Option in full as to any of the
shares subject hereto which Director could have exercised at the time of his or
her disability or death at any time within one (1) year following the date of a
Director's death or disability; or
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(b) Three (3) months after the date on which the Director's continuous
association with Dixie ceases due to the Director's retirement from the Dixie
Board of Directors in accordance with Dixie's established retirement policy.
The term "business days" shall mean for calculation purposes the days of
the week in which the New York Stock Exchange conducts and is open for regular
trading activity.
5. RECLASSIFICATION, CONSOLIDATION OR MERGER. If and to the extent that the
number of issued common shares of Dixie shall be increased or reduced by a
change in par value, split-up, reclassification, distribution of a dividend
payable in shares, or by any similar occurrence, the number of shares subject to
this Option and the purchase price to be paid for such shares shall be
proportionately adjusted.
6. RIGHTS PRIOR TO EXERCISE OF OPTION. The Option hereby granted is
non-transferrable by Director except as otherwise provided in Paragraph 4
hereof. During the lifetime of Director, the Options hereby granted shall be
exercisable only by the Director. Director shall have no rights as a shareholder
in the shares of Stock purchasable pursuant to Options hereunder until payment
of the purchase price and delivery to the Director of such shares as herein
provided.
7. APPROVAL BY SHAREHOLDERS. The granting of the Option as provided in this
Agreement is being made pursuant to a Stock Option Plan adopted by the Board of
Directors of Dixie on the 26th day of May, 1995. Such Plan was approved by a
majority the shareholders of Dixie on the ___ day of ____________, 1995. Such
Stock Option Plan includes an aggregate of 500,000 shares of the common stock of
Dixie which may be issued under options granted pursuant to the Plan. Director
is a member of the
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class of non-employees eligible under the provisions of the Plan to receive such
options.
8. RESTRICTED TRANSFERABILITY OF STOCK. Any sale or transfer of the Stock
purchased pursuant to this Option must be in accordance with applicable federal
and state securities laws.
9. BINDING EFFECT. This Agreement shall be binding upon the heirs,
executors, administrators and successors of the parties hereto.
IN WITNESS WHEREOF, the parties have hereto caused this Agreement to be
executed as first hereinabove set forth.
DIXIE NATIONAL CORPORATION
By:______________________
_________________________
DIRECTOR
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DIXIE NATIONAL CORPORATION
PROXY FOR 1995 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JULY 18, 1995
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes and
appoints: S. L. Reed, Jr., T. H. Etheridge, and Robert B. Neal, or any two of
them, with the power of substitution, as his/her proxy to appear and vote all of
the shares of Common Stock standing in the name of the undersigned, at the 1995
annual meeting of shareholders of Dixie National Corporation to be held in the
Board Room, Dixie National Life insurance Company Building, 3760 Interstate 55
North, Jackson, Mississippi, on the 18th day of July, 1995, at 1:00 o'clock
P.M.., (C.T.) and at any and all adjournments thereof; and the undersigned
hereby instructs said attorneys to vote:
1. For ( ), against ( ) or abstain ( ) Proposal No. 1 Sale of Dixie
National Life Insurance Company.
2. For ( ), against ( ) or abstain ( ) Proposal No. 2 1995 Stock Option
Plan.
3. For ( ), against ( ) or abstain ( ) the Board of Directors for the
forthcoming year to be composed of 9 members.
4. For ( ), or to withhold such vote ( ), the election of nine (9)
Directors as nominated by the Board of Directors and named in the proxy
statement. TO WITHHOLD AUTHORITY TO VOTE FOR A PARTICULAR NOMINEE,
STRIKE THE NAME OR NAMES OF THE PERSON(S) FOR WHOM YOU WISH AUTHORITY
TO BE WITHHELD: Etheridge, Haggar, Neal, Nielsen, Pegram, Reed, Jr.,
Ricketts, Rogers III, ___________.
5. For ( ), against ( ), or abstain ( ), ratification of the appointment
of Horne CPA Group as independent auditors for the year ending December
31, 1995.
THE SHARES REPRESENTED BY THE PROXY WILL BE VOTED AS SPECIFIED. IF NO CHOICE IS
SPECIFIED, THE PROXY WILL BE VOTED FOR PROPOSALS 1, 2, 3, 4 and 5.
The undersigned hereby acknowledges receipt of the PROXY STATEMENT dated June
26, 1994.
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Shareholder Date
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY.
