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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended March 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________ to _______________________
Commission File Number 1-7697
Southwestern Life Corporation
(Exact name of registrant as specified in its charter)
Delaware 43-6069928
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
500 North Akard Street
Dallas, Texas 75201
(Address of principal executive (Zip code)
offices)
(214) 954-7111
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class and Title of Shares Outstanding
Capital Stock as of May 12, 1995
Common Stock, $1.00 Par Value 47,205,200
Index to Exhibits appears on page 23.
This filing contains 87 pages.
==============================================================================<PAGE>
<PAGE>
SOUTHWESTERN LIFE CORPORATION
FORM 10-Q
INDEX
Page(s)
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at March 31, 1995 and
December 31, 1994 . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Earnings (Loss) for the
Three Months Ended March 31, 1995 and 1994 . . . . . . 4
Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 1995 and 1994 . . . . . . . . . 5
Notes to Consolidated Financial Statements. . . . . . . . 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . 20
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . 21
Index to Exhibits . . . . . . . . . . . . . . . . . . . . . . . 23
2<PAGE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SOUTHWESTERN LIFE CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
ASSETS March 31, December 31,
Investments: 1995 1994
Fixed maturities: ------------- -------------
<S> <C> <C>
Available for sale at fair value . . . . . . . . . . . . . . . . . . . . $ 1,579,244 $ 1,638,867
Held to maturity at amortized cost . . . . . . . . . . . . . . . . . . . 15,555 15,915
Equity securities, at fair value . . . . . . . . . . . . . . . . . . . . . 10,737 10,812
Mortgage loans on real estate, at amortized cost . . . . . . . . . . . . . 122,941 127,047
Real estate, at lower of cost or fair value . . . . . . . . . . . . . . . 56,690 57,068
Policy loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174,275 172,108
Collateral loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52,870 55,466
Investments in limited partnerships . . . . . . . . . . . . . . . . . . . 33,717 42,027
Cash and short-term investments . . . . . . . . . . . . . . . . . . . . . 350,905 229,522
Other invested assets . . . . . . . . . . . . . . . . . . . . . . . . . . 29,297 9,666
------------- -------------
Total investments . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,426,231 2,358,498
Due from reinsurers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 230,947 236,272
Notes and accounts receivable and uncollected premiums . . . . . . . . . . . 7,984 6,978
Accrued investment income . . . . . . . . . . . . . . . . . . . . . . . . . . 30,443 31,825
Deferred policy acquisition costs . . . . . . . . . . . . . . . . . . . . . . 199,843 208,952
Present value of future profits of acquired business . . . . . . . . . . . . 67,189 68,805
Deferred income tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . 69,294 84,862
Excess cost of investments in subsidiaries over net assets acquired,
net of accumulated amortization . . . . . . . . . . . . . . . . . . . . . 79,868 80,500
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62,795 70,032
------------- -------------
$ 3,174,594 $ 3,146,724
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Insurance liabilities:
Future policy benefits and other policy liabilities . . . . . . . . . . . $ 888,923 $ 894,100
Universal life and investment contract liabilities . . . . . . . . . . . . 1,690,685 1,692,013
Notes payable:
Due within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . 59,802 59,802
Due after one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . 309,592 309,592
Federal income taxes currently payable . . . . . . . . . . . . . . . . . . . 42,609 39,628
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121,153 116,251
------------ -------------
3,112,764 3,111,386
Commitments and contingencies ------------ -------------
Stockholders' equity:
Preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 199,997 199,997
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,983 48,983
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . 126,583 126,583
Net unrealized investment losses, net of deferred income taxes . . . . . . (26,751) (55,359)
Deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (281,580) (279,265)
------------- -------------
67,232 40,939
Notes receivable collateralized by common stock . . . . . . . . . . . . . (1,353) (1,795)
Treasury stock, at cost . . . . . . . . . . . . . . . . . . . . . . . . . (4,049) (3,806)
------------- -------------
61,830 35,338
------------- -------------
$ 3,174,594 $ 3,146,724
============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
3<PAGE>
<PAGE>
SOUTHWESTERN LIFE CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
(In Thousands, Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------
1995 1994
------------- -------------
<S> <C> <C>
Income:
Premium income and other considerations . . . . . . . . . . . . . . . . . $ 94,121 $ 116,574
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . 72,424 30,007
Realized investment gains (losses) . . . . . . . . . . . . . . . . . . . . 2,007 (45,774)
Equity in earnings of limited partnerships . . . . . . . . . . . . . . . . 594 412
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,378 2,499
------------- -------------
171,524 103,718
------------- -------------
Benefits, expenses and costs:
Policyholder benefits . . . . . . . . . . . . . . . . . . . . . . . . . . 118,097 90,685
Amortization of deferred policy acquisition costs and present value
of future profits . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,978 12,293
Other operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . 27,657 37,480
Amortization of excess cost . . . . . . . . . . . . . . . . . . . . . . . 632 2,398
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,375 12,445
------------- -------------
172,739 155,301
------------- -------------
Operating loss before income taxes . . . . . . . . . . . . . . . . . . . . . (1,215) (51,583)
Income tax expense (credit) . . . . . . . . . . . . . . . . . . . . . . . . . 1,100 (12,214)
------------- -------------
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,315) (39,369)
Less dividends on preferred stock . . . . . . . . . . . . . . . . . . . . . . (4,325)
------------- -------------
Net loss applicable to common stock . . . . . . . . . . . . . . . . . . . . . $ (2,315) $ (43,694)
============= =============
Weighted average shares outstanding . . . . . . . . . . . . . . . . . . . . . $ 47,212,511 $ 47,878,690
============= =============
Net loss per common share . . . . . . . . . . . . . . . . . . . . . . . . . . $ (.12) $ (.91)
============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
4<PAGE>
<PAGE>
SOUTHWESTERN LIFE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 1995 and 1994
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (2,315) $ (39,369)
Items not requiring (providing) cash:
Adjustments related to universal life and investment products:
Interest credited to account balances . . . . . . . . . . . . . . . . 45,333 4,502
Charges for mortality and administration . . . . . . . . . . . . . . . (17,067) (17,587)
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . 1,597 4,056
Increase (decrease) in future policy benefits . . . . . . . . . . . . . (3,966) 483
Decrease (increase) in deferred policy acquisition costs . . . . . . . . . 1,290 (30)
Increase (decrease) in currently payable income taxes . . . . . . . . . . 2,981 (2,013)
Deferred income tax expense (benefit) . . . . . . . . . . . . . . . . . . 163 (12,536)
Increase in policy liabilities, other policyholder funds, accounts
payable and accrued expenses . . . . . . . . . . . . . . . . . . . . . . 11,222 10,012
Decrease (increase) in notes and accounts receivable and accrued
investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . 818 (920)
Realized investment (gains) losses . . . . . . . . . . . . . . . . . . . . (2,007) 45,774
Equity in earnings of limited partnerships . . . . . . . . . . . . . . . . (594) (412)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 6,509
------------- -------------
Net cash provided (used) by operating activities . . . . . . . . . . . 37,494 (1,531)
------------- -------------
Cash flows from investing activities:
Sales and maturities of long-term invested assets . . . . . . . . . . . . 236,335 283,667
Purchases of fixed maturities . . . . . . . . . . . . . . . . . . . . . . (107,900) (284,376)
Purchases of other long-term invested assets . . . . . . . . . . . . . . . (22,147) (47,519)
------------- -------------
Net cash provided (used) by investing activities . . . . . . . . . . . 106,288 (48,228)
------------- -------------
Cash flows from financing activities:
Policyholder contract deposits . . . . . . . . . . . . . . . . . . . . . . 43,524 42,374
Policyholder contract withdrawals . . . . . . . . . . . . . . . . . . . . (65,680) (48,851)
Principal payment on notes payable . . . . . . . . . . . . . . . . . . . . (204)
Purchase of common stock for treasury . . . . . . . . . . . . . . . . . . (243) (500)
Dividends on preferred shares . . . . . . . . . . . . . . . . . . . . . . (4,325)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,275)
------------- -------------
Net cash used by financing activities . . . . . . . . . . . . . . . . . . (22,399) (15,781)
------------- -------------
Net increase (decrease) in cash and short-term investments . . . . . . . . . 121,383 (65,540)
Cash and short-term investments at beginning of period . . . . . . . . . . . 229,522 366,922
------------- -------------
Cash and short-term investments at end of period . . . . . . . . . . . . . . $ 350,905 $ 301,382
============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
5<PAGE>
<PAGE>
SOUTHWESTERN LIFE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Significant Accounting Policies:
The financial information included herein was prepared in conformity
with generally accepted accounting principles, and such principles were
applied on a basis consistent with those reflected in the 1994 Annual Report
to Stockholders of Southwestern Life Corporation (the Company or SLC).
The information furnished includes all adjustments and accruals which
are, in the opinion of management, necessary for a fair statement of results
for the interim periods.
The disclosures in the notes presume that the users of the interim
financial information have read or have access to the audited financial
statements included in the 1994 Annual Report to Stockholders.
Earnings per share are computed by dividing earnings, less preferred
dividend requirements, by the weighted average number of common shares
outstanding. On January 27, 1995, the Company's Board of Directors authorized
the suspension of the payment of dividends on the Company's Series 1986-A
Preferred Stock until reinstated by action of the Board. The dividends on such
preferred stock are cumulative and at March 31, 1995, preferred dividends in
arrears aggregated $3.5 million, or $0.4375 per share of preferred stock
outstanding. Although neither declared nor paid during the three months ended
March 31, 1995, such preferred dividends have been taken into consideration in
the calculation of earnings (loss) per common share.
Previously reported amounts for 1994 have, in some instances, been
reclassified to conform to the 1995 presentation.
2. Acquisitions and Dispositions:
On March 24, 1995, the Company entered into a definitive agreement to
sell to an unaffiliated party its ownership interest in its 98.8% owned
subsidiary, Integrity National Life Insurance Company (Integrity National),
for $9,578,000 cash, subject to closing adjustments. The transaction is
subject to, among other conditions, receipt of required regulatory approvals
and reinsurance of certain of Integrity National's business.
On March 24, 1995, the Company entered into a letter of intent to sell
to an unaffiliated third party its indirect wholly-owned subsidiary,
Constitution Life Insurance Company (Constitution), for $1.86 million cash
plus Constitution's adjusted capital and surplus. The transaction is subject
to, among other conditions, completion of a definitive agreement and receipt of
regulatory approvals. Also as a condition to consummation of the transaction,
Constitution will be required to reinsure 100% of its insurance contracts to
another insurer.
On March 29, 1995, the Company entered into a letter of intent to sell
its wholly-owned subsidiary, Philadelphia American Life Insurance Company
(PALICO) to an unaffiliated third party, in which certain of the current
executive officers of PALICO are expected to hold a minority interest, for
$21.0 million plus interest on such amount accruing at the rate of 7% per
annum from December 31, 1994 to and including the date of closing. The
consideration will consist of cash and the distribution of certain assets from
PALICO prior to closing. The transaction is subject to, among other
conditions, completion of a definitive agreement and receipt of regulatory
approvals.
On April 19, 1995, the Company entered into a definitive agreement to
sell to an unaffiliated third party its indirect wholly-owned subsidiary,
Bankers Life Insurance Company of New York (Bankers New York), for $35.0
million cash plus interest on such amount accruing at the rate of 5% per annum
from December 31, 1994 to and including the date of closing. The transaction is
subject to, among other things, receipt of required regulatory approvals.
6<PAGE>
<PAGE>
SOUTHWESTERN LIFE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
3. Notes Payable:
At March 31, 1995, the Company had notes payable due within one year of
$59,802,000. Notes payable at March 31, 1995 and December 31, 1994, are
summarized as follows:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
(In Thousands)
<S> <C> <C>
11 1/4% Senior Subordinated Notes due 1996 $ 256,101 $ 256,101
11 1/4% Senior Subordinated Notes due 2003 91,161 91,161
9 1/2% unsecured note payable due 1996 . . 21,900 21,900
Other . . . . . . . . . . . . . . . . . . . 232 232
--------- ---------
$ 369,394 $ 369,394
========= =========
</TABLE>
At March 31, 1995, the Company held $22,399,000 principal amount of
the 11 1/4% Senior Subordinated Notes due 1996 (Old Notes) which, at the
Company's option, can be used to partially satisfy its $100,000,000 sinking
fund obligation relative to such notes due December 1, 1995. In addition, an
SLC subsidiary holds an additional $21,500,000 principal amount of Old Notes.
Regulatory approval will be required to transfer these Old Notes to SLC in the
form of a dividend. In determining the amount of notes payable due within one
year as reflected in the consolidated balance sheet at March 31, 1995, it has
been assumed that the aggregate $43,899,000 principal amount of the Old Notes
held by SLC and its subsidiary will be available for sinking fund purposes and
that the sinking fund requirement in 1995 after application of such Old Notes
by the Company will total $56,101,000. At its option, the Company may
alternatively determine to use sinking fund provisions in 1995 to retire up to
$100,000,000 principal amount of the Old Notes at their par value.
Due to the dividend restrictions imposed by state insurance regulatory
authorities at the subsidiary level, the Company's ability to meet its debt
obligations of $59,802,000 in 1995 and $218,306,000 in 1996 is dependent on
being able (i) to effect a restructuring or refinancing of certain significant
debt obligations or (ii) to sell certain assets to generate cash proceeds
sufficient to meet such debt obligations or (iii) to obtain sufficient cash
from another source, such as an equity investor or an institutional lender.
Such restructuring or recapitalization may require regulatory, creditor or
stockholder approvals and would likely result in a substantial dilution of
existing stockholders, especially common stockholders, and could possibly
result in a change in control of the Company. Based on current conditions and
circumstances, management intends and believes the Company has the ability to
effect the actions necessary to generate sufficient cash proceeds to meet its
debt obligations through December 1995.
At March 31, 1995, the Company had notes receivable totaling $27,000,000
from an unaffiliated third party, which is secured by the Company's note
payable with a carrying value of $21,195,000. The Company has the right to set
off its obligation against the notes receivable. In the accompanying balance
sheets, the Company's notes receivable have been reflected net of amounts due
under the note payable.
7<PAGE>
<PAGE>
SOUTHWESTERN LIFE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
4. Federal Income Taxes:
The provision (credit) for income taxes on operating earnings (loss)
consists of the following components:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1995 1994
-------- --------
(In Thousands)
<S> <C> <C>
Current tax expense . . . . . . . . . . . . . . $ 937 $ 322
Deferred tax expense (credit) . . . . . . . . . 163 (12,536)
-------- --------
$ 1,100 $(12,214)
======== ========
</TABLE>
A reconciliation of the income tax provisions based on the prevailing
corporate income tax rate of 35% to the provisions reflected in the
consolidated financial statements is as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------
1995 1994
---------- ----------
(In Thousands)
<S> <C> <C>
Computed expected income tax expense (credit) at statutory
regular tax rate . . . . . . . . . . . . . . . . . . . . . . . . $ (425) $ (18,054)
Amortization of excess cost . . . . . . . . . . . . . . . . . . . 221 839
Increase in deferred income tax asset valuation allowance . . . . 1,351 1,750
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (47) 3,251
---------- ----------
Income tax expense (credit) . . . . . . . . . . . . . . . . . $ 1,100 $ (12,214)
========== ==========
</TABLE>
Management has periodically assessed the ability of the Company's
insurance subsidiaries to produce taxable income in future periods sufficient
to fully utilize their operating book/tax temporary differences and tax loss
carryforwards. These assessments have included actuarial projections under
alternative scenarios of future profits on the existing insurance in force of
the Company's insurance subsidiaries, including provisions for adverse
deviation and assumptions regarding new business, adjusted to reflect the
Company's anticipated debt service costs. Valuation allowances totaling
$42,816,000 and $41,465,000 were provided against the Company's deferred tax
assets at March 31, 1995 and December 31, 1994, respectively, to reflect the
uncertainties of realizing all of the benefits of temporary differences and
available tax loss carryforwards.
Included in the deferred income tax asset at March 31, 1995 and December
31, 1994 are tax effects totaling $14,404,000 and $29,809,000, respectively,
associated with unrealized investment losses included in stockholders' equity.
Substantially all of such unrealized investment losses are attributable to the
Company's insurance subsidiaries' available for sale fixed maturity
securities.
5. Commitments, Litigation and Contingent Liabilities:
The Company and its subsidiaries have been under examination by the
Internal Revenue Service (IRS) for the tax years 1986 through 1992. In 1994,
the IRS issued Notices of Proposed Deficiencies in the amount of $127.7
million to the Company's insurance subsidiaries for the tax years 1986 through
1989, which included the disallowance of interest expense on the surplus
debentures issued by the Company's insurance subsidiaries. The issue involved
approximately $444 million of interest deductions claimed by certain of the
Company's subsidiaries during the periods under examination and, if disallowed
as deductions, would have resulted in substantial additional tax and interest.
8<PAGE>
<PAGE>
SOUTHWESTERN LIFE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
5. Commitments, Litigation and Contingent Liabilities (continued):
However, the Company protested this issue and, in 1995, reached a tentative
settlement for the tax years 1986 through 1989 which will allow a full
deduction for interest expense on surplus debentures. The tentative settlement
is subject to final approval by the congressional Joint Committee on Taxation.
Management believes that, based upon the tentative settlement and the
indemnification received from the seller relative to certain former and
presently owned subsidiaries, the ultimate liability for taxes and interest
for these years will not exceed amounts recorded in the Company's financial
statements.
The IRS has not completed its examination for the years 1990 through
1992 and therefore has not issued Notices of Proposed Deficiencies for those
years. Further, based on the current status of the examination of 1990 through
1992, no issues have been brought to the attention of management that would
result in a substantial liability for taxes and interest.
Reference is hereby made to Item 1, "Legal Proceedings," of Part II of
this Form 10-Q with respect to a discussion of certain outstanding litigation
involving the Company and its subsidiaries.
Various other lawsuits and claims are pending against the Company and
its subsidiaries. Based in part upon the opinion of counsel as to the ultimate
disposition of the above discussed and other matters, management believes that
the liability, if any, will not be material.
6. Realized Investment Gains (Losses):
Following is an analysis of the major components of gains (losses) on
investments:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------
1995 1994
---------- ----------
(In Thousands)
<S> <C> <C>
Fixed maturity securities . . . . . . . . . . . $ 58 $ 2,020
Limited partnerships . . . . . . . . . . . . . 1,806
Collateralized mortgage obligations . . . . . . (46,448)
Equity securities . . . . . . . . . . . . . . . 16 (1,224)
Other . . . . . . . . . . . . . . . . . . . . . 127 (122)
---------- ----------
$ 2,007 $ (45,774)
========== ==========
</TABLE>
Collateralized mortgage obligation (CMO) writedowns in 1994 included
$46,448,000 of other than temporary writedowns of derivative CMO investments
in Fund America Investors Corporation II and the Secured Investors Secured
Trust 1993-1. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" in this Report on Form 10-Q.
9<PAGE>
<PAGE>
SOUTHWESTERN LIFE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
7. Other Operating Expenses:
Following is a summary of the major items included in other operating
expenses:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------
1995 1994
-------- --------
(In Thousands)
<S> <C> <C>
Nondeferrable commissions . . . . . . . . . . . $ 6,056 $ 10,070
General and administrative expenses . . . . . . 17,687 23,709
Taxes, licenses and fees . . . . . . . . . . . 3,914 3,701
-------- --------
$ 27,657 $ 37,480
======== ========
</TABLE>
10<PAGE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The following is an analysis of the financial condition of SLC and its
consolidated subsidiaries and their results of operations. The consolidated
financial statements and related notes and schedules included elsewhere in
this Form 10-Q should be read in conjunction with this analysis.
Liquidity and Capital Resources of Operating Companies
The primary sources of liquidity for SLC's insurance subsidiaries
include operating cash flows and short-term investments. Exclusive of
withdrawals by holders of guaranteed investment contracts ("GICs") as
discussed below, the net cash provided by operating activities and by
policyholder contract deposits, after the payment of policyholder contract
withdrawals, benefits, and operating expenses, for the quarters ended
March 31, 1995 and 1994 totaled approximately $33.4 million and $19.9 million,
respectively. SLC believes that its short-term investments are readily
marketable and can be sold quickly for cash. Cash and short-term investments
of SLC's subsidiaries totaled $289.8 million or 12% at March 31, 1995 and
$212.8 million, or 9% of consolidated investments, at year-end 1994.
The principal requirement for liquidity of SLC's insurance subsidiaries
is their contractual obligations to policyholders, including policy loans,
payments of benefits and claims, and general operating expenses.
In each of 1992, 1993 and 1994 and in January 1995, the claims paying
ratings assigned to certain of SLC's subsidiaries by various nationally
recognized statistical ratings organizations were lowered. Prior to 1995 and
except for withdrawals made by certain GIC holders, management believes SLC's
subsidiaries had not experienced more than normal policy surrenders and
withdrawals as a result of these ratings downgrades. In January 1995, SLC
announced the indefinite suspension of dividends on its $1.75 Convertible
Exchangeable Preferred Stock, Series 1986-A ("1986-A Preferred Stock"), and
steps being contemplated by SLC's Board of Directors to strengthen the holding
company's capital structure and reduce outstanding debt and fixed charges.
Management believes that primarily as a result of these announcements,
subsequent downgrades in credit and claim paying ratings, and the similarity
between the holding company's name and that of its largest insurance
subsidiary, Southwestern Life Insurance Company ("Southwestern Life"),
surrender activity relative to the life insurance and annuity businesses of
Southwestern Life and, to a lesser extent, the Company's other insurance
subsidiaries has increased above comparable periods in 1994.
The following table sets forth cash withdrawals of policyholder account
balances and surrenders of traditional life insurance policies, including
partial surrenders, net of applicable surrender charges and penalties, for the
periods indicated:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------
1995 1994
-------- --------
(In Thousands)
<S> <C> <C>
Individual life insurance:
Retained business . . . . . . . . . . . . . . $ 22,025 $ 18,176
Business to be divested (1) . . . . . . . . . 3,840 3,712
-------- --------
Total . . . . . . . . . . . . . . . . . . . $ 25,865 $ 21,888
======== ========
Accumulation products:
Guaranteed investment contracts . . . . . . . $ 16,923 $ 28,086
Annuities . . . . . . . . . . . . . . . . . . 28,915 13,981
-------- --------
Total . . . . . . . . . . . . . . . . . . . $ 45,838 $ 42,067
======== ========
</TABLE>
____________________
(1) Represents business expected to be divested in connection with the
proposed sales of Bankers New York, Integrity National and PALICO.
In 1993, an SLC subsidiary specializing in the writing and issuance of
GICs withdrew from the GIC marketplace. Subsequent to that time, the
subsidiary offered to voluntarily terminate substantially all of its
existing GIC business. Withdrawals in 1995 include $7.4 million in voluntary
GIC terminations and $9.5 million in scheduled
11<PAGE>
<PAGE>
maturities which were not reinvested with the subsidiary. Withdrawals in 1994
represent scheduled maturities of GICs which were not reinvested with the
subsidiary.
Because of their available liquidity, SLC's insurance subsidiaries have
not encountered any difficulty in meeting their obligations relative to these
withdrawals and surrenders. SLC's subsidiaries maintain significant levels of
cash and short-term investments and approximately two-thirds of their
investment portfolios are comprised of readily marketable, investment-grade
fixed maturity investments. In management's estimate, substantially all of the
net surrender values of the Company's insurance policies in force at March 31,
1995, could be met through the liquidation of such investments, if required.
Accordingly, management is confident that SLC's insurance subsidiaries have
the capacity to meet all of their policyholder obligations as they become due.
Certain of SLC's insurance subsidiaries have ceded blocks of insurance
to unaffiliated reinsurers for enhancing their levels of surplus and other
purposes. Statutory surplus provided by such treaties before tax effects
totaled $53.1 million at March 31, 1995, compared with $57.8 million at
December 31, 1994.
Liquidity and Capital Resources of Parent Company
The primary sources of liquidity for SLC include dividends from both its
insurance and non-insurance subsidiaries, and earnings on invested assets.
SLC's principal needs for liquidity are debt service and, to a lesser
extent, preferred dividend requirements. SLC's consolidated indebtedness
totaled $369.4 million at March 31, 1995 and December 31, 1994. Substantially
all indebtedness of SLC was incurred in connection with acquisitions of
subsidiaries in periods prior to 1987, including collateralized senior debt
and unsecured subordinated debt, a portion of which was exchanged for new debt
in 1993.
For the three months ended March 31, 1995, the pretax operating earnings
of SLC and its subsidiaries were insufficient to cover SLC's debt service by
approximately $1.7 million, and would have been insufficient to cover both
SLC's debt service and preferred dividend requirements by approximately $7.1
million. As previously reported, on January 27, 1995, SLC's Board of Directors
authorized the suspension of the payment of dividends on the Company's 1986-A
Preferred Stock until reinstated by action of the Board. However, the 1986-A
Preferred Stock has cumulative dividend rights. At March 31, 1995 such
dividends were $3.5 million in arrears. See Note 1 of Notes to Consolidated
Financial Statements.
12<PAGE>
<PAGE>
The following table reflects SLC's cash sources and requirements on a
projected basis for 1995.
<TABLE>
<CAPTION>
Projected
(Dollars In Millions) 1995
<S> <C>
Cash sources:
Sale of Integrity National . . . . . . . . . . . $ 9.6
Dividends from non-insurance subsidiaries . . . 5.2
Investment income . . . . . . . . . . . . . . . 4.2
Other . . . . . . . . . . . . . . . . . . . . . 7.0
------
Total sources . . . . . . . . . . . . . . . . 26.0
------
Cash requirements/uses:
Subordinated debt sinking fund and unaffiliated
principal payments(1) . . . . . . . . . . . . . 59.8
Operating expenses . . . . . . . . . . . . . . . 3.6
Interest . . . . . . . . . . . . . . . . . . . . 46.6
Other . . . . . . . . . . . . . . . . . . . . . 1.8
------
Total requirements/uses. . . . . . . . . . . . 111.8
------
Net cash required during year . . . . . . . . . . . (85.8)
Cash and marketable securities available, beginning
of year . . . . . . . . . . . . . . . . . . . . . 60.8
------
Cash and marketable securities available
(deficiency), end of year . . . . . . . . . . . . $(25.0)
======
</TABLE>
____________________
(1) Based on the expectation that the $21.5 million of SLC subordinated debt
held by Constitution Life Insurance Company will be available to SLC for
meeting the sinking fund requirement. The transfer of these securities to
SLC will require regulatory approval.
As indicated in the preceding table, SLC does not currently have
sufficient specifically projected cash sources to meet all of its 1995 cash
requirements (which requirements do not include preferred dividend
requirements on its 1986-A Preferred Stock since such dividends have been
suspended), and SLC is severely limited regarding the amount of dividends that
could be paid in 1995 by its insurance subsidiaries in the absence of
regulatory approval. Accordingly, SLC is in various stages of negotiating the
sale of several of its non-strategic subsidiaries that, at the prices under
consideration, could provide in excess of $50 million of capital resources to
the holding company. As of May 15, 1995, only two of such sales, that of
Integrity National for $9.6 million and of Bankers New York for $35.0 million,
were evidenced by definitive agreements. The proceeds from the sale of
Integrity National are included as a source of cash in the preceding
projection since such subsidiary is directly owned by SLC. However, the
proceeds from the sale of Bankers New York have not been included since such
subsidiary is directly owned by Southwestern Life and the distribution of any
portion of such proceeds would require regulatory approval. No assurances can
be given that the sale of any subsidiary, including Integrity National or
Bankers New York, will be consummated. Additionally, in early 1995, management
initiated a process of contacting various financially capable parties who may
be interested in considering the investment of new capital into SLC. No
assurances can be given that any investment will be made or, if made, have a
beneficial effect on current stockholders of the Company. Lastly, while not
currently being pursued, the Company has the additional options of seeking to
borrow on a secured basis or to obtain regulatory approval for cash dividends
from its insurance subsidiaries. Based on its evaluation of these various
options, management believes that the Company has sufficient financial
flexibility to make it likely that the Company can meet its debt service
requirements through the end of 1995. However, there are no assurances that
the Company will be successful in its attempts to obtain sufficient cash to
fulfill its 1995 cash requirements, including its debt service requirements.
If the Company is unable to obtain sufficient resources to meet its 1995 debt
obligations, such failure could result in a default on one or more of such
obligations and the holders thereof would be entitled to exercise certain
remedies, including accelerating the maturity of the entire indebtedness and
commencing legal proceedings to collect the indebtedness. In such event, the
Company will examine and consider the range of available alternatives to
default and the exercise of creditors' remedies.
13<PAGE>
<PAGE>
Investments
At March 31, 1995 and December 31, 1994, SLC reflected unrealized
investment losses of $26,751,000 and $55,358,000, respectively. Following is
an analysis of the major components of such unrealized gains (losses):
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
------------- -------------
(In Thousands)
<S> <C> <C>
Available for sale fixed maturity securities . . . . . . . . . $ (50,228) $ (101,029)
Equity securities . . . . . . . . . . . . . . . . . . . . . . 1,929 1,023
Equity in unrealized gains of limited partnerships . . . . . . 1,900 5,424
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 745 329
------------- -------------
(45,654) (94,253)
Less effect on other balance sheet accounts:
Deferred policy acquisition costs. . . . . . . . . . . . . . 8,396 17,831
Unearned revenue reserves . . . . . . . . . . . . . . . . . (3,897) (8,745)
------------- -------------
Gross unrealized investment gains (losses) . . . . . . . . . . (41,155) (85,167)
Deferred income taxes . . . . . . . . . . . . . . . . . . . . 14,404 29,808
------------- -------------
Net unrealized investment losses . . . . . . . . . . . . . $ (26,751) $ (55,359)
============= =============
</TABLE>
The difference between amortized cost and fair value of SLC's available
for sale fixed maturity securities decreased from an approximate $101.0
million unrealized loss at year-end 1994 to an approximate $50.2 million
unrealized loss at March 31, 1995, or a net change of $50.8 million. The
decline in unrealized losses was primarily attributable to declining long-term
interest rates experienced during the period.
Unless determined to be other than temporary, changes in the fair values
of available for sale fixed maturity securities have no effect on SLC's
reported results of operations, but can have a volatile effect on stockholders'
equity and book value per common share, as the carrying values of available for
sale fixed maturity securities are adjusted in SLC's balance sheet to their
fair values at each reporting date through a charge or credit to stockholders'
equity. Following is an analysis of gross unrealized investment gains and
losses on available for sale fixed maturity securities as of March 31, 1995 and
December 31, 1994:
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
------------- -------------
(In Thousands)
<S> <C> <C>
Gross unrealized gains . . . . . . . . . . . . . . . . . . . . $ 12,430 $ 3,222
Gross unrealized losses . . . . . . . . . . . . . . . . . . . (62,658) (104,251)
------------- -------------
Net unrealized losses . . . . . . . . . . . . . . . . . . . $ (50,228) $ (101,029)
============= =============
</TABLE>
14<PAGE>
<PAGE>
The following table sets forth the carrying value and quality for each
of the two categories of fixed maturity securities as of March 31, 1995,
classified in accordance with the rating assigned by Standard & Poor's
Corporation ("S&P") or, if not rated by S&P, based on ratings assigned by the
National Association of Insurance Commissioners ("NAIC"), with Class 1 treated
as A, Class 2 treated as BBB-, Class 3 treated as BB- and Classes 4, 5 and 6
treated as B and below (in millions):
<TABLE>
<CAPTION>
Percent
Held to Total Total Percent
Available Maturity at Fixed Fixed of Total
for Sale at Amortized Maturity Maturity Invested
Investment Quality Fair Value Cost Securities Securities Assets
_____________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
AAA . . . . . . . . . . . . . . . . . . . . $ 630.6 $ 1.5 $ 632.1 39.6% 26.1%
AA . . . . . . . . . . . . . . . . . . . . 177.0 177.0 11.1 7.3
A . . . . . . . . . . . . . . . . . . . . 406.6 406.6 25.5 16.7
BBB+ . . . . . . . . . . . . . . . . . . . . 85.6 85.6 5.4 3.5
BBB . . . . . . . . . . . . . . . . . . . . 101.0 7.7 108.7 6.8 4.5
BBB- . . . . . . . . . . . . . . . . . . . . 88.3 88.3 5.6 3.6
--------- ----- --------- ----- ----
Total investment-grade . . . . . . . . . . 1,489.1 9.2 1,498.3 94.0 61.7
--------- ----- --------- ----- ----
BB+ . . . . . . . . . . . . . . . . . . . . 26.1 26.1 1.6 1.1
BB and BB- . . . . . . . . . . . . . . . . . 41.7 41.7 2.6 1.7
B and below . . . . . . . . . . . . . . . . . 22.3 6.4 28.7 1.8 1.2
--------- ----- --------- ----- ----
Total noninvestment-grade . . . . . . . . 90.1 6.4 96.5 6.0 4.0
--------- ----- --------- ----- ----
Total fixed maturities . . . . . . . . . $ 1,579.2 $15.6 $ 1,594.8 100.0% 65.7%
========= ===== ========= ===== ====
______________________________________________________________________________________________________________
</TABLE>
Fixed maturity securities classified as held to maturity are principally
private placement corporate securities and gross unrealized losses on such
investments totaled $2.5 million as of March 31, 1995.
The amortized cost and fair value of noninvestment-grade fixed maturity
securities totaled $107.5 million and $96.5 million, respectively, at
March 31, 1995.
During the first quarter of 1995, net investment income increased $42.4
million, or 141%, as compared to the corresponding period in 1994. Net
investment income includes 1) earnings on surplus investments and assets
invested to support the reserve liabilities of the Company's traditional and
interest-sensitive life and health insurance products (general investment
portfolio) and 2) investment activity related to separately held assets
supporting a GIC product, the credited rate on which is indexed to the
Standard & Poor's 500 Stocks Composite Average ("S&P 500"). Assets supporting
the S&P 500 GIC product include, among other investments, put and call options
on various equity based index futures, including the S&P 500. The return on
such investments is highly volatile and, under certain market conditions, such
as the overall decline in equity markets experienced in the first quarter of
1994, can result in investment losses, or negative investment yields. The
negative investment yield experienced in the 1994 first quarter on the assets
supporting the indexed GIC product was more than offset by a reduction in GIC
benefits as discussed below under Results of Operations. Following is a
summary of investment income (loss) for the two categories of investments as
described above for the three months ended March 31, 1995 and 1994:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
1995 1994
----------- -----------
(In Thousands)
<S> <C> <C>
General investment portfolio . . . . . . . . . . . . . . . . . . . $ 45,546 $ 40,533
Investments supporting indexed GIC product . . . . . . . . . . . . 29,753 (8,045)
----------- -----------
Gross investment income . . . . . . . . . . . . . . . . . . . . . 75,299 32,488
Less investment expenses . . . . . . . . . . . . . . . . . . . . . (2,875) (2,481)
----------- -----------
Net investment income . . . . . . . . . . . . . . . . . . . . . $ 72,424 $ 30,007
=========== ===========
</TABLE>
15<PAGE>
<PAGE>
Yields on the general investment portfolio averaged 7.57% for the three
months ended March 31, 1995, as compared to 6.68% for the comparable period in
1994.
Results of Operations
Following is a condensed summary of results for the three months ended
March 31, 1995 and 1994, by major sources of income and expense:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------
1995 1994
----------- -----------
(In Thousands)
<S> <C> <C>
Operating earnings before realized investment gains (losses),
amortization of excess cost, corporate interest expense and
provision for income taxes. . . . . . . . . . . . . . . . . . . . . . $ 8,785 $ 9,034
Realized investment gains (losses) . . . . . . . . . . . . . . . . . . 2,007 (45,774)
Amortization of excess cost . . . . . . . . . . . . . . . . . . . . . (632) (2,398)
Corporate interest expense . . . . . . . . . . . . . . . . . . . . . . (11,375) (12,445)
Income tax (expense) benefit . . . . . . . . . . . . . . . . . . . . . (1,100) 12,214
----------- -----------
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (2,315) $ (39,369)
=========== ===========
</TABLE>
For the three months ended March 31, 1995, premium income and other
considerations decreased $22.5 million, or 19%, as compared to the
corresponding period in 1994. Following is a summary of premiums by major line
of business for each of the respective periods:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------
1995 1994
-------- --------
(In Thousands)
<S> <C> <C>
Individual life and annuity . . . . . . . . . . $ 28,833 $ 29,971
Individual health . . . . . . . . . . . . . . . 52,792 54,294
Group . . . . . . . . . . . . . . . . . . . . . 12,496 32,309
-------- --------
$ 94,121 $116,574
======== ========
</TABLE>
Following is a summary of policyholder benefits by major business
segment:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------
1995 1994
-------- --------
(In Thousands)
<S> <C> <C>
Individual life and annuity . . . . . . . . . . $ 33,866 $ 36,754
Individual health . . . . . . . . . . . . . . . 42,917 39,670
Accumulation products . . . . . . . . . . . . . 34,074 (6,456)
Group . . . . . . . . . . . . . . . . . . . . . 7,240 20,717
-------- --------
$118,097 $ 90,685
======== ========
</TABLE>
Group premium income and related group benefits declined signficantly
between the two periods primarily as a result of management's decision made in
late 1993 to de-emphasize sales of new group business. As previously discussed
under "--Investments," the assets supporting a GIC product indexed to the S&P
500 produced negative investment yields, i.e., investment losses, in the first
quarter of 1994. As reflected in the preceding table, benefits attributed to
the accumulation products segment were correspondingly reduced and resulted in
negative benefit expense.
16<PAGE>
<PAGE>
Analysis of Operating Results by Industry Segment
The following table sets forth revenues and pretax operating earnings
attributed or allocated to each industry segment. "Pretax operating earnings
(loss)" reflected in the table represents SLC's consolidated operating
earnings or loss before realized investment gains or losses, interest expense,
amortization of excess cost, and provision for income taxes.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
1995 1994
----------- -----------
(In Thousands)
<S> <C> <C>
Revenues:
Individual life insurance:
Retained . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 46,384 $ 40,991
Business to be divested (1) . . . . . . . . . . . . . . . . . 10,432 11,330
----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . 56,816 52,321
Individual health insurance . . . . . . . . . . . . . . . . . . 55,353 56,753
Accumulation products . . . . . . . . . . . . . . . . . . . . . 37,452 (491)
Group life and health (1) . . . . . . . . . . . . . . . . . . . 14,945 35,577
Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,951 5,332
Realized investment gains (losses) . . . . . . . . . . . . . . . 2,007 (45,774)
----------- -----------
$ 171,524 $ 103,718
Operating earnings (loss): =========== ===========
Individual life insurance:
Retained . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,130 $ (946)
Business to be divested (1) . . . . . . . . . . . . . . . . . 353 771
----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,483 (175)
Individual health insurance . . . . . . . . . . . . . . . . . . (3,299) 1,726
Accumulation products . . . . . . . . . . . . . . . . . . . . . 676 3,855
Group life and health (1) . . . . . . . . . . . . . . . . . . . (1,539) 557
Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,464 3,071
----------- -----------
Total pretax earnings before realized investment gains
(losses), amortization of excess cost and interest expense $ 8,785 $ 9,034
=========== ===========
</TABLE>
____________________
(1) Represents business to be divested in connection with the proposed
sales of Bankers New York, Integrity National and PALICO.
The following table sets forth new business sales (annualized first year
premiums) attributed or allocated to each industry segment:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
1995 1994
----------- -----------
(In Thousands)
<S> <C> <C>
Individual life insurance:
Retained business . . . . . . . . . . . . . . . . . . . . . . . $ 2,866 $ 2,333
Business to be divested (1) . . . . . . . . . . . . . . . . . . 4,029 3,866
----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,895 6,199
Individual health insurance . . . . . . . . . . . . . . . . . . . 10,866 15,071
Accumulation products . . . . . . . . . . . . . . . . . . . . . . 14,398 15,834
Group life and health (1) . . . . . . . . . . . . . . . . . . . . 296 4,103
----------- -----------
$ 32,455 $ 41,207
=========== ===========
</TABLE>
____________________
(1) Represents business expected to be divested in connection with the
proposed sales of Bankers New York, Integrity National and PALICO.
Individual Life Insurance. Revenues of the individual life insurance
segment increased from $52.3 million for the three months ended March 31,
1994, to $56.8 million for the same period in 1995, primarily as a result of a
17<PAGE>
<PAGE>
$4.4 million increase in investment income. Sales of new life insurance
products totaled $6.9 million in the 1995 first quarter, an 11% improvement
over the corresponding period in 1994. Notwithstanding the improvement in
sales, premium income for the individual life insurance segment declined from
$30.0 million in the 1994 first quarter to $28.8 million in the 1995 first
quarter, primarily reflecting the effects of an increase in lapses and
surrenders of traditional life insurance policies. SLC's subsidiaries derive
substantial revenues from their interest-sensitive and universal life products;
however, for financial reporting purposes, these types of products are treated
as deposit products and, therefore, premiums received are not reflected as a
component of premium income.
Pretax operating results of the individual life insurance segment
improved from a loss of $0.2 million in the 1994 first quarter to a gain of
$8.5 million in the 1995 first quarter, primarily as a result of the increase
in investment income discussed above and an improvement in mortality
experience. Individual life insurance death benefits, which can vary
significantly from quarter to quarter, totaled $18.0 million in the 1994 first
quarter, as compared to $13.1 million in the 1995 first quarter.
Individual Health Insurance. Revenues of the individual health insurance
segment totaled $55.4 million in the 1995 first quarter, as compared to $56.8
in the corresponding 1994 period, primarily reflecting a decline in individual
health premium income totaling $1.5 million, or 2.8%. Sales of new health
insurance products totaled $10.9 million in the 1995 first quarter, as
compared to $15.1 million in the same 1994 period, or a 28% decline in new
sales. Substantially all of the decline was attributable to sales of
comprehensive health products.
The individual health insurance segment incurred a $3.3 million pretax
operating loss in the 1995 first quarter, as compared to pretax operating
earnings of $1.7 million in the same 1994 period. Substantially all of the
decline in pretax operating earnings was attributable to an increase in
benefits incurred. Individual health benefits totaled $42.9 million in the
1995 first quarter, as compared to $39.7 million in the corresponding 1994
period. The ratio of policy benefits to premiums earned increased from 73.1%
in the 1994 first quarter to 81.3% in the 1995 first quarter, primarily
reflecting a deficiency in the premiums charged for the Company's Medicare
supplement line of business and increased claims on a closed block of
comprehensive health business. The Company has sought approval for substantial
rate increases relative to its Medicare supplement business and has begun
implementing such increases in the states in which it has obtained approvals.
Due to delays in receiving approvals and the subsequent implementation of such
rate increases, there was no significant effect realized in the 1995 first
quarter; however, the effects of such rate increases are expected to be
realized beginning in subsequent quarters.
Accumulation Products. Revenues of the accumulation products segment
increased significantly, from a negative $0.5 million in the 1994 first
quarter to $35.6 million in the 1995 period. Substantially all of the
improvement in this segment's revenues were attributable to the $37.8 million
increase in earnings between the two periods on the investments supporting an
indexed GIC product, as previously discussed under "--Investments." Sales of
annuities in the first quarter of 1995 totaled $14.4 million, as compared to
$15.8 million in the first three months of 1994.
Pretax operating earnings of the accumulation products segment declined
from $3.9 million in the 1994 first quarter to $0.7 million in the same 1995
period. The decline in such operating earnings was primarily attributable to a
decline in the profitability of the previously discussed indexed GIC product.
All of the indexed GICs, with approximately $312.7 million in reserve
liabilities at March 31, 1995, are scheduled to mature in the 1995 third
quarter and management does not anticipate that such GICs will be renewed.
Accordingly, the process of liquidating the long-term assets supporting the
indexed GIC product began during the 1995 first quarter. Proceeds from such
liquidations will be held in lower-yielding short-term investments during the
intervening period.
Group Insurance. Sales of new group insurance products declined
significantly during 1994 and has continued into 1995. In the 1995 first
quarter, sales totaled $0.3 million, as compared to $4.1 million in the
corresponding 1994 quarter. The decline in sales was based on management's
decision to de-emphasize growth in the group insurance segment due to losses
incurred in 1993 and 1994 by the Company's primary group insurance company,
PALICO. Revenues of the group segment have correspondingly declined from $35.6
million in the 1994 first quarter to $14.9 million in the 1995 first quarter.
Pretax operating results of the group segment declined from earnings of
$0.6 million in the first three months of 1994 to a loss of $1.5 million in
the first three months of 1995. The ratio of group benefits incurred to
premiums earned declined from 64.1% in the 1994 first quarter to 57.9% in the
1995 first quarter. However, expenses of the group segment, including operating
expenses, loss adjustment expenses, commissions and premium taxes, as a
percentage of earned premiums has increased from approximately 47% in the 1994
first quarter
18<PAGE>
<PAGE>
to 74% in the 1995 first quarter. The higher expense ratio reflects, in part,
costs associated with closing down and consolidating certain of PALICO's
claims paying offices and administrative services only operations. The Company
has entered into a letter of intent to sell PALICO (see Note 2 of Notes to
Consolidated Financial Statements).
Corporate. Corporate revenues, primarily investment income of the parent
company and earnings on surplus investments, improved from $3.1 million in the
1994 first quarter to $4.5 million in the 1995 first quarter.
Realized Investment Gains (Losses). Realized investment gains totaled
$2.0 million in the first quarter of 1995, as compared to realized investment
losses totaling $45.8 million in the same period of 1994. Of the 1995 gains,
$1.8 million represented a gain on the liquidation of a limited partnership
interest. The realized losses in 1994 were substantially all attributable to
$46.4 million of other than temporary writedowns of the Company's investments
in two derivative CMOs, which were discussed in detail in SLC's 1994 Annual
Report to Stockholders. See Note 6 of Notes to Consolidated Financial
Statements for a comparative analysis of realized investment gains (losses).
Amortization of Excess Cost (Goodwill). As reported at year-end 1994,
the Company adopted an accounting change relative to its methodology for
assessing the recoverability of goodwill. As a result of such accounting
change, the Company reflected a charge to earnings totaling $210.7 million and
reduced the balance of remaining goodwill by a corresponding amount. In
addition, the Company reflected a writedown of other goodwill totaling $6.8
million. Accordingly, the charge to earnings for the amortization of excess
cost was reduced approximately $1.8 million beginning in the first quarter of
1995.
Interest Expense and Preferred Dividend Requirements. Interest expense
in the 1995 first quarter totaled $11.4 million, as compared to $12.4 million
in the 1994 first quarter. The decline was primarily attributable to the $48.4
million reduction in long-term notes payable between the periods. Preferred
dividends totaled $4.3 million in the first quarter of 1994. As previously
discussed under "--Liquidity and Capital Resources of the Parent Company,"
SLC's Board of Directors has authorized the suspension of dividends on the
Company's outstanding preferred stock. Accordingly, there are no preferred
dividends reflected in the Company's Consolidated Statement of Earnings (Loss)
for the three months ended March 31, 1995. However, because such preferred
dividends are cumulative, the suspended dividends have been taken into
consideration in the calculation of net loss per common share. See Note 1 of
Notes to Consolidated Financial Statements.
Income Tax Provisions and Deferred Income Tax Asset. The income tax
provision for the three months ended March 31, 1995, totaled $1.1 million on
a reported pretax loss of $1.2 million. This unusual relationship resulted
from a $1.4 million increase in the deferred income tax asset valuation
allowance based on management's assessment of SLC's ability to utilize its
available tax loss carryforwards. For the comparable period in 1994, the
Company reflected an income tax benefit totaling $12.2 million on a pretax loss
of $51.6 million, or an effective income tax rate of 23.7%. The effective rate
was lower than the expected rate due to the amortization of excess cost for
which there are no income tax consequences and a $1.8 million increase in the
deferred income tax asset valuation allowance. See Note 4 of Notes to
Consolidated Financial Statements for an analysis of the various factors
affecting the Company's income tax provisions.
The Company's deferred income tax asset was reduced from $84.9 million
at year-end 1994 to $69.3 million at March 31, 1995, primarily as a result of
a $15.4 million reduction in deferred tax effects related to the change in
pretax unrealized investment gains (losses), as previously discussed under
"--Investments."
Reporting results of insurance operations on a quarterly basis
necessitates numerous estimates throughout the year, principally in the
calculation of reserves and in the determination of the effective rate for
federal income taxes. It is the Company's practice to review its estimates at
the end of each quarter and, if necessary, make appropriate refinements, with
the resulting effect being reported in current operations. Only at year-end is
the Company able to assess retrospectively the precision of its previous
quarter estimates. The Company's fourth quarter results contain the effect of
the difference between previous estimates and final year-end results, and
therefore, the results for an interim period may not be indicative of the
results for the entire year.
19<PAGE>
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Reference is made to Item 3 of Part I of the Annual Report on Form 10-K
of the Registrant for the year ended December 31, 1994, in which the material
legal proceedings affecting the Registrant were reported. The following is a
description of recent developments in such reported proceedings:
1. Robert J. Meyer, et al, v. Jay Angoff, Director of the Missouri
Department of Insurance and Modern American Life Insurance Company, CV-
193-1331-CC (the "Meyer" case): On March 14, 1995, the Missouri Court of
Appeals reversed the judgment of the Cole County Circuit Court and
remanded the case for further proceedings. Specifically, the Missouri
Court of Appeals remanded the case to the Cole County Circuit Court for
a trial de novo of those transactions approved by the Director of the
Missouri Department of Insurance pursuant to Ch. 382 of the Missouri
Revised Statutes. Defendant's petition to the Court of Appeals for a
rehearing was denied on May 2, 1995.
Management believes they have meritorious defenses to both the
Meyer case and the related case filed by the plaintiffs in the Meyer
case, styled William D. Castle, et al v. Modern American Life Insurance
Company, et al (CV-93-10275) (the "Castle" case), and intends to defend
both cases vigorously.
2. Mutual Security Life Insurance Company, by Its Liquidator, John
F. Mortell v. James M. Fail, Emily S. Fail, Jack A. Gochenaur, Alvin R.
Townsend, Sr., Janice T. Townsend, Charles D. Casper, Harry T. Carneal,
Clifford G. Smith, Katheryn F. Smith, Thomas K. Pennington, Michael
Boedeker, Melvin R. Schock, Lifeshares Group, Inc., LSC-Marketing, Inc.,
Lifeshares Services Company, Michael S. Lang, Lang Associates, Inc.,
Beta Financial Corporation, The Oklahoma Bank, Robert T. Shaw,
Consolidated National Corporation, I.C.H. Corporation, Bankers Life and
Casualty Company, Marquette National Life Insurance Company, Robert L.
Beisenherz, Marilyn Beisenherz, Theodore L. Kessner, and Crosby,
Guenzel, Davis, Kessner & Kuester, Case No. IP94-0001 C (the "Mutual
Security" case). On April 20, 1995, the United States District Court for
the Southern District of Indiana granted defendants' Motion for Summary
Judgment regarding plaintiff's allegations in its Second Amended
Complaint of violations of the Racketeer Influenced & Corrupt
Organization Act ("RICO"), 18 U.S.C. Section 1961 et seq.
The Company believes it has meritorious defenses to the Mutual
Security case and the related second suit currently pending in the
United States District Court in the Southern District of Indiana, Case
No. IP94-1934-C-M/S, and intends to defend each suit vigorously.
3. IRS Proceeding. By letter dated April 26, 1995, the Appeals
Team Chief of the IRS Southwest Region conceded that the surplus
debentures at issue were valid debt instruments; hence no portion of the
previously deducted interest expense on certain surplus debentures would
be disallowed. The Appeals Officer's decision is subject to approval by
the Congressional Joint Committee on Taxation. For additional information
relating to the Notices of Proposed Deficiencies issued by the IRS for
the tax years 1986 through 1989, see Note 5 of Notes to Consolidated
Financial Statements included elsewhere in this Report on Form 10-Q.
The Company has no developments to report for the quarter ended March
31, 1995 in any other previously reported legal proceeding.
In addition, the Company has the following additional legal proceedings
to report:
The Company, James R. Kerber, Vice Chairman, President and Chief
Operating Officer of the Company, John T. Hull, Executive Vice President
and Chief Financial Officer of the Company, and Robert L. Beisenherz, a
former Chairman and Chief Executive Officer of the Company, are
defendants in a class action lawsuit styled, Marion Antonicello v.
Robert L. Beisenherz, James R. Kerber, John T. Hull and Southwestern
Life Corporation, filed in U.S. District Court, Northern District of
Texas, on April 12, 1995, Case No. 3-95CV0696-R. The plaintiff seeks
relief on behalf of herself and all other persons who purchased
20<PAGE>
<PAGE>
the Company's preferred stock during the period April 10, 1994 through
January 27, 1995, due to alleged violations of the federal securities
laws, specifically Sections 10(b) and 20(a) of the Securities Exchange
Act of 1934 and Rule 10b-5 promulgated thereunder. The suit seeks
certification as a class action, unspecified monetary damages, legal
fees and costs and other appropriate relief.
The Company, James R. Kerber, Vice Chairman, President and Chief
Operating Officer of the Company, Glenn H. Gettier, Jr., Chairman and
Chief Executive Officer of the Company, and John T. Hull, Executive Vice
President and Chief Financial Officer of the Company, are defendants in
a class action lawsuit styled, Michael and Marilyn Sheniak, P/F Sheniak
Pension Plan, v. Southwestern Life Corporation, James R. Kerber, Glenn
H. Gettier, Jr. and John T. Hull, filed in U.S. District Court, Northern
District of Texas, on March 31, 1995, Case No. 3-95CV-0627H. The
plaintiffs seek relief on behalf of themselves and all other persons who
purchased the Company's preferred stock during the period November 8,
1994 through January 27, 1995, due to alleged violations of the federal
securities laws, specifically Sections 10(b) and 20(a) of the Securities
Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The suit
seeks certification as a class action, unspecified monetary damages,
legal fees and costs and other appropriate relief.
The Company (as a nominal defendant) and Charles L. Duncan, Jon E.
M. Jacoby, C. Fred Rice, Keith A. Tucker, Stanley L. Stegner and Vernon
A. Zimmerman, all directors of the Company, James R. Kerber, Vice
Chairman, President and Chief Operating Officer of the Company, John T.
Hull, Executive Vice President and Chief Financial Officer of the
Company, Daniel B. Gail, Executive Vice President and General Counsel of
the Company, H. Don Rutherford, Executive Vice President - Marketing of
the Company, Robert P. Ewing, a former director of the Company, Robert
L. Beisenherz, a former Chairman and Chief Executive Officer of the
Company, Sheryl G. Snyder, a former Executive Vice President and General
Counsel of the Company, and Edward R. Mekeel, a former Executive Vice
President and Chief Financial Officer of the Company, are defendants in
a derivative and class action lawsuit styled, David Golde and Bruce
Kaczander v. Daniel B. Gail, Sheryl G. Snyder, Robert L. Beisenherz,
James R. Kerber, Charles L. Duncan, Robert P. Ewing, John T. Hull, John
E. M. Jacoby, Edward R. Mekeel, C. Fred Rice. H. Dan Rutherford, Keith
A. Tucker, Stanley L. Stegner and Vernon A. Zimmerman, filed in U.S.
District Court, Northern District of Texas, on March 31, 1995, Case No.
3-95CV-0626J. The plaintiffs seek relief on behalf of themselves and all
other persons who purchased the Company's common stock during the period
April 25, 1994 through January 27, 1995, due to alleged violations of
the federal securities laws, specifically Sections 10(b) and 20(a) of
the Securities Exchange Act of 1934 and Rule 10b-5 promulgated
thereunder. The suit seeks certification as a class action, unspecified
monetary damages, legal fees and costs and other appropriate relief.
All of the defendants deny all of the allegations, believe they
have meritorious defenses to all of the claims and intend to defend each
of the foregoing cases vigorously.
Item 6. Exhibits and Reports on Form 8-K.
(a) The exhibits listed on the Index to Exhibits appearing on page 23
are filed herewith.
(b) During the quarter ended March 31, 1995, on January 27, 1995, SLC
filed one Report on Form 8-K, dated January 18, 1995, to report, under Item 5
of that form, (1) the appointment of Glenn H. Gettier, Jr. as the Chairman of
the Board and Chief Executive Officer of the Registrant and the appointment of
James R. Kerber to the additional offices of Chief Operating Officer and the
Vice Chairman of the Board of Directors of the Registrant and (2) the
authorization by the Registrant's Board of a series of initial actions to be
undertaken by the Registrant's senior management affecting the Registrant.
21<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SOUTHWESTERN LIFE CORPORATION
By:/s/Glenn H. Gettier, Jr.
-------------------------
Glenn H. Gettier, Jr.
Chairman of the Board and
Chief Executive Officer
By:/s/John T. Hull
-------------------------
John T. Hull
Executive Vice President, Chief
Financial Officer and Treasurer
Date: May 15, 1995
22<PAGE>
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Sequential
No. Description Page No.
<C> <S> <C>
10.1 Stock Purchase Agreement by and between Indianapolis
Life Insurance Company and Southwestern Life
Insurance Company dated April 19, 1995 relating to
the sale of all the stock of Bankers Life Insurance
Company of New York . . . . . . . . . . . . . . . . . 24
11.1 Computation of Earnings (Loss) Per Share of Common
Stock on Average Shares Outstanding and Fully Diluted
Bases for the Three Months Ended March 31, 1995 and
1994 . . . . . . . . . . . . . . . . . . . . . . . . 86
27.1 Financial Data Schedule . . . . . . . . . . . . . . . 87
</TABLE>
23<PAGE>
<PAGE>
EXHIBIT 11.1
SOUTHWESTERN LIFE CORPORATION
COMPUTATION OF EARNINGS (LOSS) PER SHARE OF COMMON STOCK
ON AVERAGE SHARES OUTSTANDING AND FULLY DILUTED BASES
(Unaudited)
(Dollars in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------
1995 1994
------------ ------------
<S> <C> <C>
Computation for statements of earnings (loss):
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (2,315) $ (39,369)
Less dividends on preferred stock (A) . . . . . . . . . . . . . . . . . (3,500) (4,325)
------------ ------------
Net loss applicable to common stock . . . . . . . . . . . . . . . . . . $ (5,815) $ (43,694)
============ ============
Weighted average common shares outstanding . . . . . . . . . . . . . . . 47,212,511 47,878,690
============ ============
Net loss per common share . . . . . . . . . . . . . . . . . . . . . . . $ (.12) $ (.91)
============ ============
Additional computations (B):
Weighted average common shares outstanding . . . . . . . . . . . . . . . 47,212,511 47,878,690
Incremental common shares applicable to common stock options based
on the common stock daily average market price during the period . . . -- 825,657
------------ ------------
Weighted average common shares, as adjusted . . . . . . . . . . . . . . 47,212,511 48,704,347
============ ============
Weighted average common shares outstanding . . . . . . . . . . . . . . . 47,212,511 47,878,690
Incremental common shares applicable to common stock options based
on the more dilutive of the common stock ending or daily average
market price during the period . . . . . . . . . . . . . . . . . . . . -- 826,028
Assumed conversion of convertible preferred shares . . . . . . . . . . . 6,153,755 7,867,451
------------ ------------
Weighted average common shares, assuming full dilution . . . . . . . . . 53,366,266 56,572,169
Net earnings (loss) applicable to common stock assuming conversion of ============ ============
convertible preferred stock . . . . . . . . . . . . . . . . . . . . . $ (2,315) $ (39,526)
============ ============
Earnings (loss) per common share:
Average shares outstanding . . . . . . . . . . . . . . . . . . . . . . $ (.12) $ (.90)
============ ============
Fully diluted assuming conversion of all applicable securities (C) . . $ (.04) $ (.70)
============ ============
</TABLE>
____________________
(A) For the three months ended March 31, 1994, represents preferred dividends
actually paid. For the three months ended, March 31, 1995, represents
aggregate undeclared and unpaid cumulative preferred dividends applicable
to such period.
(B) These calculations are submitted in accordance with Securities Exchange
Act of 1934 Release No. 9083, although not required by footnote 2 to
paragraph 14 of Accounting Principles Board Opinion No. 15 because they
result in dilution of less than 3% or antidilution.
(C) Fully diluted earnings in 1994 as reflected in this exhibit are considered
"antidilutive" because they result in per share earnings that exceed per
share earnings as determined on the primary basis or per share losses that
are less than per share losses as determined on the primary basis.<PAGE>
<PAGE>
STOCK PURCHASE AGREEMENT
by and between
INDIANAPOLIS LIFE INSURANCE COMPANY
and
SOUTHWESTERN LIFE INSURANCE COMPANY
Dated as of April 19, 1995<PAGE>
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I. Certain Definitions. . . . . . . . . . . . . . . . . . . 1
Section 1.1. "Affiliate" . . . . . . . . . . . . . . . . . . . 1
Section 1.2. "Basis . . . . . . . . . . . . . . . . . . . . . 1
Section 1.3. "Closing" . . . . . . . . . . . . . . . . . . . . 1
Section 1.4. "Closing Date" . . . . . . . . . . . . . . . . . 1
Section 1.5. "Code" . . . . . . . . . . . . . . . . . . . . . 2
Section 1.6. "Damages" . . . . . . . . . . . . . . . . . . . . 2
Section 1.7. "Encumbrances" . . . . . . . . . . . . . . . . . 2
Section 1.8. "Financial Statements" . . . . . . . . . . . . . 2
Section 1.9. "Governmental Agency" . . . . . . . . . . . . . . 2
Section 1.10. "Indemnified Party" . . . . . . . . . . . . . . . 2
Section 1.11. "Indemnifying Party" . . . . . . . . . . . . . . 2
Section 1.12. "Liability" or "Liabilities" . . . . . . . . . . 2
Section 1.13. "Lien" or "Liens" . . . . . . . . . . . . . . . . 2
Section 1.14. "Material Adverse Effect" . . . . . . . . . . . . 3
Section 1.15. "Person" . . . . . . . . . . . . . . . . . . . . 3
Section 1.16. "Purchase Price" . . . . . . . . . . . . . . . . 3
Section 1.17. "Regulatory Authority" . . . . . . . . . . . . . 3
Section 1.18. "Share" . . . . . . . . . . . . . . . . . . . . . 3
Section 1.19. "Shares" . . . . . . . . . . . . . . . . . . . . 3
Section 1.20. "Taxes" or "Tax" . . . . . . . . . . . . . . . . 3
Section 1.21. "Tax Benefit" . . . . . . . . . . . . . . . . . . 3
ARTICLE II. Sale of Stock; Closing . . . . . . . . . . . . . . . . . . 3
Section 2.1. Purchase and Sale . . . . . . . . . . . . . . . . 3
Section 2.2. Time and Place of Closing . . . . . . . . . . . . 4
ARTICLE III. Representations and Warranties of Seller . . . . . . . . . 4
Section 3.1. Incorporation; Authorization; etc. . . . . . . . 4
Section 3.2. Capitalization . . . . . . . . . . . . . . . . . 5
Section 3.3. Financial Statements . . . . . . . . . . . . . . 6
Section 3.4. Absence of Undisclosed Liabilities . . . . . . . 6
Section 3.5. Investments . . . . . . . . . . . . . . . . . . . 7
Section 3.6. Tax Matters . . . . . . . . . . . . . . . . . . . 7
Section 3.7. Litigation; Judgments . . . . . . . . . . . . . . 9
Section 3.8. No Violation . . . . . . . . . . . . . . . . . . 9
Section 3.9. Licenses and Other Authorizations . . . . . . . . 9
-i-<PAGE>
<PAGE>
Section 3.10. Certain Transactions. . . . . . . . . . . . . . .10
Section 3.11. Brokers, Finders, etc. . . . . . . . . . . . . .10
Section 3.12. Powers of Attorney and Suretyships . . . . . . .10
Section 3.13. No Defaults . . . . . . . . . . . . . . . . . . .10
Section 3.14. Regulatory Authorities . . . . . . . . . . . . .10
Section 3.15. Reserves . . . . . . . . . . . . . . . . . . . .11
Section 3.16. Threats of Cancellation . . . . . . . . . . . . .11
Section 3.17. Claims . . . . . . . . . . . . . . . . . . . . .11
Section 3.18. Tangible Personal Property . . . . . . . . . . .11
Section 3.19. Real Property . . . . . . . . . . . . . . . . . .12
Section 3.20. Intellectual Property Rights . . . . . . . . . .13
Section 3.21. Labor Matters . . . . . . . . . . . . . . . . . .14
Section 3.22. Employee Benefit Plans . . . . . . . . . . . . .16
Section 3.23. Environmental Matters . . . . . . . . . . . . . .19
Section 3.24. Insurance . . . . . . . . . . . . . . . . . . . .20
Section 3.25. Business Conducted . . . . . . . . . . . . . . .21
Section 3.26. Location of Books and Records; Exclusive Control 21
Section 3.27. Bank Accounts and Powers of Attorney . . . . . .21
Section 3.28. Relationships With Affiliates . . . . . . . . . .21
Section 3.29. Ownership of Assets . . . . . . . . . . . . . . .21
Section 3.30. Completeness of Disclosures . . . . . . . . . . .21
ARTICLE IV. Representations and Warranties of Buyer . . . . . . . . . .22
Section 4.1. Incorporation; Authorization, etc. . . . . . . .22
Section 4.2. No Violation . . . . . . . . . . . . . . . . . .22
Section 4.3. Litigation . . . . . . . . . . . . . . . . . . .23
Section 4.4. Brokers, Finders, etc. . . . . . . . . . . . . .23
Section 4.5. Investment Purpose . . . . . . . . . . . . . . .23
ARTICLE V. Survival of Representations and Warranties; Indemnity . . .23
Section 5.1. Survival . . . . . . . . . . . . . . . . . . . .23
Section 5.2. Indemnity . . . . . . . . . . . . . . . . . . . .24
Section 5.3. Method of Asserting Claims. . . . . . . . . . . .25
Section 5.4. Tax Matters . . . . . . . . . . . . . . . . . . .27
ARTICLE VI. Covenants of Seller and Buyer . . . . . . . . . . . . . . .30
Section 6.1. Investigation of Business . . . . . . . . . . . .30
Section 6.2. HSR Filings . . . . . . . . . . . . . . . . . . .31
Section 6.3. Regulatory Approvals . . . . . . . . . . . . . .31
Section 6.4. Financial Statements and Reports . . . . . . . .31
Section 6.5. 401k Plan. . . . . . . . . . . . . . . . . . . .32
-ii-<PAGE>
<PAGE>
Section 6.6. Employee Welfare Benefit Plans . . . . . . . . .32
Section 6.7. Retiree Benefits . . . . . . . . . . . . . . . .33
Section 6.8. Payment of Taxes . . . . . . . . . . . . . . . .33
Section 6.9. Further Assurances . . . . . . . . . . . . . . .33
Section 6.10. Conduct of Business . . . . . . . . . . . . . . .34
Section 6.11. Negotiations with Third Parties . . . . . . . . .37
Section 6.12. Notification of Developments . . . . . . . . . .37
Section 6.13. Public Announcements . . . . . . . . . . . . . .37
Section 6.14. Company Employees . . . . . . . . . . . . . . . .37
Section 6.15. No Additional Liabilities . . . . . . . . . . . .38
ARTICLE VII. Conditions of Buyer's Obligation to Close . . . . . . . .38
Section 7.1. Representations, Warranties and Covenants of
Seller. . . . . . . . . . . . . . . . . . . . .38
Section 7.2. Filings; Consents; Waiting Periods . . . . . . .39
Section 7.3. No Litigation . . . . . . . . . . . . . . . . . .39
Section 7.4. Financial Statements . . . . . . . . . . . . . .39
Section 7.5. Officers and Directors . . . . . . . . . . . . .39
Section 7.6. Tax Payments . . . . . . . . . . . . . . . . . .39
Section 7.7. Constitution Life Management and Service
Agreement . . . . . . . . . . . . . . . . . . .39
Section 7.8. Closing Documents . . . . . . . . . . . . . . . .40
ARTICLE VIII. Conditions to Seller's Obligation to Close . . . . . . .41
Section 8.1. Representations, Warranties and Covenants of
Buyer . . . . . . . . . . . . . . . . . . . . .41
Section 8.2. Filings; Consents; Waiting Periods . . . . . . .41
Section 8.3. Opinion of Counsel to Buyer . . . . . . . . . . .41
Section 8.4. No Litigation . . . . . . . . . . . . . . . . . .41
Section 8.5. Tax Payments . . . . . . . . . . . . . . . . . .42
ARTICLE IX. Termination, Amendment and Extension . . . . . . . . . . .42
Section 9.1. Termination . . . . . . . . . . . . . . . . . . .42
Section 9.2. Obligations Upon Termination . . . . . . . . . .42
Section 9.3. Rights Upon Termination . . . . . . . . . . . . .43
Section 9.4. Amendment and Modification . . . . . . . . . . .43
ARTICLE X. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . .43
Section 10.1. Counterparts . . . . . . . . . . . . . . . . . .43
Section 10.2. Governing Law . . . . . . . . . . . . . . . . . .43
Section 10.3. Entire Agreement . . . . . . . . . . . . . . . .43
Section 10.4. Expenses . . . . . . . . . . . . . . . . . . . .43
Section 10.5. Notices . . . . . . . . . . . . . . . . . . . . .44
-iii-<PAGE>
<PAGE>
Section 10.6. Name . . . . . . . . . . . . . . . . . . . . . .44
Section 10.7. Successors and Assigns . . . . . . . . . . . . .45
Section 10.8. Headings . . . . . . . . . . . . . . . . . . . .45
Section 10.9. Severability . . . . . . . . . . . . . . . . . .45
Section 10.10. Gender . . . . . . . . . . . . . . . . . . . . .45
-iv-<PAGE>
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement"), dated as of April 19,
1995, is by and between Indianapolis Life Insurance Company, an Indiana mutual
life insurance company ("Buyer"), and Southwestern Life Insurance Company, a
Texas stock life insurance company ("Seller").
WHEREAS, Seller owns beneficially and of record all of the issued and
outstanding shares of Bankers Life Insurance Company of New York, a New York
stock life insurance company (the "Company"); and
WHEREAS, Buyer desires to purchase from Seller, and Seller desires to sell
to Buyer, all of the issued and outstanding shares of the Company upon the
terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, and other good and valuable consideration, the parties
hereto hereby agree as follows:
ARTICLE I.
Certain Definitions
As used in this Agreement the following terms shall have the following
respective meanings:
Section 1.1. "Affiliate" means with respect to any entity any individual
or other entity which directly or indirectly controls, is controlled by or is
under common control with such entity.
Section 1.2. "Basis" means any past or present fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act, or transaction that forms or would
reasonably be expected to form the basis for an event.
Section 1.3. "Closing" means the consummation of the transactions
contemplated by Article II of this Agreement in accordance with the terms and
upon the conditions set forth herein.
Section 1.4. "Closing Date" means the date of the Closing which shall
occur within five (5) business days after the satisfaction of the conditions
precedent set forth in Article VII and VIII hereof, provided that all other
conditions precedent set forth herein have been performed or waived, or such
other date as the parties hereto may agree to in writing.<PAGE>
<PAGE>
Section 1.5. "Code" means the Internal Revenue Code of 1986, as amended.
Section 1.6. "Damages" means any and all damages, liabilities, fines,
fees, penalties, interest obligations, deficiencies, Tax assessments, losses,
and expenses (including, without limitation, reasonable attorneys' fees and
expenses).
Section 1.7. "Encumbrances" means any mortgage, deed of trust, pledge,
hypothecation, security interest, encumbrance, claim, lien, lease or charge of
any kind, whether voluntarily incurred or arising by operation of law or
otherwise, affecting any assets or property, including any written or oral
agreement to give or grant any of the foregoing, any conditional sale or other
title retention agreement, the filing of or agreement to give any financing
statement with respect to any assets or property under the Uniform Commercial
Code or comparable law of any jurisdiction, and any proxy, voting trust or
voting agreement.
Section 1.8. "Financial Statements" means: (a) the statutory audited
financial statements including the notes, exhibits and schedules thereto of
the Company for the year ended December 31, 1993; and (b) the statutory
unaudited financial statements including the notes, exhibits and schedules
thereto of the Company for the year ended December 31, 1994.
Section 1.9. "Governmental Agency" means any federal, state, municipal or
other governmental department, commission, court, board, bureau, arbitration
tribunal, agency or other instrumentality.
Section 1.10. "Indemnified Party" has the meaning set forth in Section 5.3
hereof.
Section 1.11. "Indemnifying Party" has the meaning set forth in
Section 5.3 hereof.
Section 1.12. "Liability" or "Liabilities" means any indebtedness, loss,
liability or obligation of any kind (whether known or unknown, asserted or
unasserted, absolute or contingent, accrued or unaccrued, liquidated or
unliquidated, or due or to become due), including liability for Taxes.
Section 1.13. "Lien" or "Liens" means any mortgage, deed of trust, pledge,
hypothecation, security interest, encumbrance, claim, lien, lease or charge of
any kind, whether voluntarily incurred or arising by operation of law or
otherwise, affecting any assets or property, including any written or oral
agreement to give or grant any of the foregoing, any conditional sale or other
title retention agreement, and the filing of or agreement to give any
financing statement with respect to any assets or property under the Uniform
Commercial Code or comparable law of any jurisdiction, except for liens,
deposits or other encumbrances securing Taxes, assessments, governmental
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charges or levies, or the claims of policyholders, materialmen, carriers,
landlords and like persons, all of which are not yet due and payable or which
are being contested in good faith.
Section 1.14. "Material Adverse Effect" means any effect which is
materially adverse to the condition, business, properties, assets,
liabilities, business prospects, or results of operations of the Company, the
validity or enforceability of this Agreement, or the ability of Buyer or
Seller to perform their respective obligations under this Agreement.
Section 1.15. "Person" means any corporation, partnership, trust,
organization, association, Governmental Agency, other entity or individual.
Section 1.16. "Purchase Price" has the meaning set forth in Section 2.1
hereof.
Section 1.17. "Regulatory Authority" has the meaning set forth in Section
3.7 hereof.
Section 1.18. "Share" means any issued and outstanding share of any class
of the Company.
Section 1.19. "Shares" means all issued and outstanding shares of all
classes of the Company.
Section 1.20. "Taxes" or "Tax" means all federal, state, local and
foreign, income, estimated income, premium, excise, withholding or payroll,
property, business, occupation, franchise, sales and other taxes, assessments,
deficiencies and governmental charges and all interest, additions and
penalties in connection therewith and licenses and registration fees and any
payments required under any tax sharing agreement.
Section 1.21. "Tax Benefit" means any benefit which Buyer or Seller,
respectively, or any member of their respective consolidated federal income
tax return groups, may receive as a result of an item requiring or causing
indemnification under Section 5.2 hereof (whether by way of deduction, credit
or otherwise) which reduces its Tax Liability or increases a Tax refund and is
not subsequently disallowed by a final adjudication.
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<PAGE>
ARTICLE II.
Sale of Stock; Closing
Section 2.1. Purchase and Sale.
(a) On the basis of the representations, warranties, covenants and
agreements and subject to the satisfaction or waiver of the conditions set
forth herein, on the Closing Date, Seller shall sell to Buyer, and Buyer shall
purchase from Seller, all, and not less than all, of the Shares. In full
payment for the Shares, Buyer shall transfer at the Closing thirty-five
million and no/100 Dollars ($35,000,000.00) (the "Purchase Price"), plus
simple interest at the rate of five percent (5%) per annum from January 1,
1995, until the Closing Date in immediately available funds to such account as
Seller shall designate in writing on or before the Closing Date.
Section 2.2. Time and Place of Closing. The Closing shall take place on
the Closing Date at 10:00 A.M., Indianapolis time, at the offices of Buyer,
2960 North Meridian Street, Indianapolis, Indiana, or at such other place or
time as the parties may agree upon in writing.
ARTICLE III.
Representations and Warranties of Seller
Seller hereby represents and warrants to Buyer as follows:
Section 3.1. Incorporation; Authorization; etc.
(a) The Company is a stock life insurance company duly incorporated,
validly existing and in good standing under the laws of the State of New York.
The Company is duly licensed, authorized and qualified to issue or write in
each state or other jurisdiction listed on Schedule 3.1 the classes or kinds
of insurance listed therein opposite each such state. The Company has all
requisite power and authority to own, operate and lease its properties and
carry on its business as it is now being conducted and as the same will be
conducted up to and at the Closing. Accurate and complete copies of the
charter, including all amendments thereto and restatements thereof, current
bylaws, corporate minutes and the stock record book of the Company have been
delivered to Buyer. All formal corporate action previously taken by
shareholders of the Company, by the Board of Directors of the Company or by
any committee of such Board is in all material respects properly and
accurately recorded in the corporate minutes of the Company. Complete and
accurate records with respect to the issuance, transfer, redemption and
cancellation of shares of capital stock of the Company are contained in the
stock record book of the Company.
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<PAGE>
(b) Seller is a stock life insurance company duly incorporated, validly
existing and in good standing under the laws of the State of Texas.
(c) The execution, delivery and performance of this Agreement by Seller
were duly authorized by all necessary corporate action, including, without
limitation, any necessary director or shareholder approval. Seller has full
corporate power and authority to execute and deliver this Agreement, and to
perform its obligations hereunder. This Agreement is a legal, valid and
binding obligation of Seller, enforceable against Seller in accordance with
its terms, except to the extent that (i) 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 creditor's rights
generally or (ii) 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 similar authority before which any proceeding
therefor may be brought.
(d) The execution, delivery and performance of this Agreement do not, and
the consummation of the transactions contemplated hereby will not: (i)
violate any provision of the Company's or Seller's charter, bylaws or other
organization documents; (ii) require 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 as contemplated in Sections 6.2 and 6.3 hereof;
(iii) violate any provision of, or be an event that is, or with the passage of
time will result in, a violation of, or result in the acceleration of or
entitle any party to accelerate (whether after the giving of notice or lapse
of time or both) any obligation under, or result in the imposition of any Lien
upon any Share or any of the Company's assets or properties pursuant to, any
note, bond, mortgage, indenture, lien, license, lease, contract, agreement,
plan or other instrument to which Seller or the Company is a party or by which
either is bound; or (iv) subject to obtaining the approvals contemplated by
Sections 6.2 and 6.3 hereof, violate or conflict with any law statute,
ordinance, rule, regulation, order, writ, injunction, decree, judgment or
arbitration award to which Seller or the Company is subject, except for any
occurrence described in clauses (ii) and (iii) which individually or in the
aggregate would not have or reasonably be expected to have a Material Adverse
Effect.
(e) Upon consummation of the transaction described in Article II hereof,
Buyer will acquire title to all of the Shares free and clear of any
Encumbrances, other than Encumbrances created by Buyer.
(f) There are no actions, suits, investigations, or proceedings pending
or to the knowledge of Seller and the Company threatened against Seller, and
no event, fact or circumstance has arisen or occurred that may reasonably be
expected to result in any action, suit, investigation or proceeding, against
Seller at law or in equity, in, before, or by any Person, that individually or
in the aggregate have or would reasonably be expected to have a Material
Adverse Effect.
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<PAGE>
Section 3.2. Capitalization. The authorized shares of all classes of the
Company consist solely of four thousand six hundred-three (4,603) shares, par
value Four Hundred Thirty-five Dollars ($435.00) per share, of which four
thousand six hundred-three (4,603) are issued and outstanding. All of the
Shares are duly authorized, validly issued, fully paid and nonassessable. All
of the Shares are owned beneficially and of record by Seller free and clear of
any Encumbrances. At the Closing, Seller shall have the right to, and upon
Closing Seller shall, sell and transfer title to the Shares to Buyer free of
any Encumbrances other than Encumbrances created by Buyer. There are no
outstanding subscriptions, options, warrants, calls, convertible or
exchangeable securities, or other rights of any kind to acquire any Shares of
any class of the Company. The Company does not own, directly or indirectly,
beneficially or of record, any equity interest in any corporation,
association, partnership, joint venture or other entity (other than securities
acquired in the ordinary course of business for the Company's investment
portfolio).
Section 3.3. Financial Statements.
(a) There have been previously delivered to Buyer true and complete
copies of the Financial Statements.
(b) The Financial Statements: (i) were prepared in accordance with
statutory accounting practices required or permitted by the New York
Department of Insurance ("SAP") consistently applied in accordance with past
practice, are true, accurate and complete in all material respects, and
present fairly the statutory financial condition of the Company, the statutory
results of the Company's operations, the statutory changes in the Company's
financial condition and the other information included therein for the periods
or as of the dates therein set forth; (ii) contain and reflect adequate
provisions for all material liabilities for all Taxes with respect to the
periods then ended and all prior periods; and (iii) with respect to contracts
and commitments for the sale of property or the provision of services by the
Company, contain and reflect all reserves required by SAP. Except as
specifically described therein, the Financial Statements reflect no material
items of non-recurring income, and all material transactions with any related
or affiliated party for the periods covered by the Financial Statements are
clearly revealed therein.
(c) The exhibits and schedules included with the Financial Statements are
all of the schedules and exhibits required by SAP, are accurate and complete
in all material respects, and fairly present, in accordance with SAP, the data
shown by such schedules and exhibits.
(d) Except as described in Schedule 3.3 hereto, there has not been any
Material Adverse Effect on the Company or Seller since December 31, 1994.
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<PAGE>
Section 3.4. Absence of Undisclosed Liabilities. The Company does not
have outstanding on the date hereof any Liability, and to the knowledge of
Seller and the Company there is no Basis for any present or future action,
suit, proceeding, hearing, investigation, charge, complaint, claim or demand
against the Company giving rise to any Liability, except (i) Liabilities set
forth on the Company's statutory unaudited balance sheet as of December 31,
1994 (included as part of the Financial Statements delivered to Buyer) and the
notes thereto or in Schedule 3.4; and (ii) Liabilities incurred since
December 31, 1994 in the ordinary course of business that reasonably would not
be expected, individually or in the aggregate, to have a Material Adverse
Effect.
Section 3.5. Investments. On December 31, 1994, the Company had good and
marketable title to all bonds, stocks and other securities carried in its
investment portfolio (such portfolio as it exists from time to time is
referred to as the "Investments") referenced in its Financial Statements, free
and clear of all title defects and Liens. The Investments comply in all
material respects with all applicable laws and regulations of any Regulatory
Authority having jurisdiction with respect to the Company's Investments, and
the Investments are properly valued on the Financial Statements and are
eligible investments, duly admitted under applicable law. Since December 31,
1994, no Investments have been acquired or disposed of except in the ordinary
course of business. Except as disclosed on Schedule 3.5, to the knowledge of
Seller and the Company no default has occurred with respect to any Investment
of the Company, and there is no Basis for any such default. As of the Closing
Date, the Company will have good and marketable title to and own all such
Investments free and clear of any Liens, except for Investments disposed of in
the ordinary course of business since December 31, 1994.
Section 3.6. Tax Matters.
(a) All federal Tax returns, consolidated or otherwise, required to be
filed by the Company or any other member of Seller's and Company's
consolidated return group for federal tax purposes, and all state, and to the
knowledge of Seller and Company, all local and foreign (i.e., non-domestic)Tax
returns, consolidated or otherwise, required to be filed by the Company have
been duly filed and to the knowledge of Seller and the Company, all such
returns have been prepared and filed on an accurate basis. All Taxes shown on
such returns have been timely paid to the extent such Taxes have become due.
(b) Except as set forth in Schedule 3.6 or the Financial Statements no
deficiencies for Taxes have been claimed, or to the knowledge of Seller and
the Company proposed by any taxing or other governmental authority. Except as
set forth in Schedule 3.6, to the knowledge of Seller and the Company there
are no pending or threatened audits, investigations or claims for or relating
to any Liability in respect of Taxes, and there are no matters under
discussion with any governmental authorities
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<PAGE>
with respect to Taxes that could result in an additional amount of Taxes.
Audits of federal returns for Taxes by the relevant taxing authorities have
been completed for each period set forth in Schedule 3.6, and, except as set
forth in Schedule 3.6 neither the Seller nor the Company has been notified
that any taxing authority intends to audit a return for any other period.
Furthermore, to the knowledge of Seller and the Company, there is no Basis,
other than specifically set forth herein, for assessment of Tax Liability with
respect to unaudited periods which are still open under the statute of
limitations. Except as set forth in Schedule 3.6, no extension of a statute
of limitations relating to Taxes is in effect with respect to Seller or the
Company. Complete copies of all federal income tax schedules and reports
relating to the operation of the Company, all reports received by Seller or
the Company from the Internal Revenue Service relating to examinations
thereof, and all other reports, schedules and information requested by Buyer
have or will be delivered to Buyer prior to the Closing Date.
(c) All elections with respect to Taxes affecting Seller and the Company
as of the date hereof are set forth in Schedule 3.6.
(d) Neither Seller nor the Company:
(i) has consented at any time under Section 341(f)(1) of the
Code, to have the provisions of Section 341(f)(2) of the Code apply to
any disposition of Seller's and the Company's assets;
(ii) has agreed, or is required, to make any adjustment under
Section 481(a) of the Code by reason of a change in accounting method or
otherwise;
(iii) has made an election, or is required, to treat any asset
of Seller or the Company as owned by another person pursuant to the
anti-churning provisions of Section 168(f) of the Code or as tax-exempt
bond financed property or tax-exempt use property within the meaning of
Section 168 of the Code; or
(iv) has made any of the foregoing elections or is required to
apply any of the foregoing rules under any comparable state or local
income tax provision.
(e) All tax-sharing agreements or similar arrangements with respect to or
involving the Company are set forth in Schedule 3.6.
(f) Except as set forth in Schedule 3.6 there are no outstanding balances
of deferred gain or loss accounts related to deferred intercompany
transactions between the Company and Seller or any other Affiliate of the
Company.
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<PAGE>
(g) The amount of consolidated net operating losses, net capital losses,
foreign tax credits, minimum tax credits, research and development credits,
investment and other tax credits, if any, of the consolidated group allocable
to the Company under Treas. Reg. Section 1.1502-79 is set forth in Schedule
3.6.
Section 3.7. Litigation; Judgments. Except as disclosed in Schedule 3.7
hereto, (a) to the knowledge of Seller and the Company there are no lawsuits,
actions, claims, proceedings, investigations or examinations of any nature
pending or threatened against the Company or any of its properties or assets
before or by any Governmental Agency, (b) there are no material judgments,
fines, penalties, civil forfeitures, orders, injunctions, decrees, consent
decrees, stipulations, rulings or awards of any nature rendered by any
Governmental Agency against the Company or any properties or assets of the
Company; and (c) there have been no lawsuits, actions, claims, proceedings,
investigations or examinations of any nature before or by any Governmental
Agency, including without limitation, the New York Insurance Department or the
insurance authority of any state or other jurisdiction in which the Company is
engaged or is licensed to engage in the insurance business (a "Regulatory
Authority") of, against or with respect to the Company since January 1, 1990,
and to the knowledge of Seller and the Company no such lawsuits, actions,
claims, proceedings, investigations or examinations are pending or threatened.
Section 3.8. No Violation. The Company is not: (a) in violation of any
provision of its charter or bylaws or other organizational documents; (b) in
violation of or default under any note, bond, mortgage, indenture, lien,
license, lease, contract, agreement, plan or other instrument to which it is a
party or by which it is bound; or (c) in violation of any law, statute,
ordinance, rule, regulation, order, writ, injunction, decree, judgment,
arbitration award or other restriction of any kind or character to which it is
subject, except for any occurrence described in clauses (b) and (c) which
individually or in the aggregate would not have or reasonably be expected to
have a Material Adverse Effect.
Section 3.9. Licenses and Other Authorizations. Schedule 3.9 hereto
contains a complete and accurate list and description of all material
licenses, permits, consents, orders, approvals, certificates of authority,
registrations, qualifications and other authorizations issued by any
Regulatory Authority, which are held by the Company. All such licenses,
permits, consents, orders, approvals, certificates of authority,
registrations, qualifications and other authorizations have been lawfully
obtained and are in full force and effect, and will not cease to remain in
full force and effect in accordance with their terms by reason of consummation
of the transaction described in Article II hereof. The Company is, in all
material respects, in compliance with the terms and conditions of all such
licenses, permits, consents, orders, approvals, certificates of authority,
registrations, qualifications and other authorizations. To the knowledge of
Seller and the Company there are no disputes or proceedings pending or
threatened with respect to the suspension, revocation, nonrenewal or
limitation of any such license, permit, consent, order, approval, certificate
of authority, registration, qualification or other authorization. To the
knowledge of Seller and the Company, there is no Basis for the suspension,
revocation, nonrenewal or limitation of
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<PAGE>
any such license, permit, consent, order, approval, certificate of authority,
registration, qualification or other authorization. All material filings,
submissions and other actions required to have been made or taken in order to
renew any such license, permit, consent, order, approval, certificate of
authority, registration, qualification or other authorization have been duly
made or taken.
Section 3.10. Certain Transactions. Except as set forth in Schedule 3.10,
none of the officers or directors of the Company or any Affiliate of the
Company is a party to any transaction with the Company (other than for
services as employees, officers and directors), including without limitation
any contract, agreement or other arrangement (a) providing for the furnishing
of services to or by, (b) providing for rental of real or personal property to
or from, (c) otherwise requiring payments to or from, any such officer or
director, any member of the family (which shall be deemed to mean, for
purposes of this Section 3.10, parents, spouses, children, brothers and
sisters) of any such officer or director or any corporation, partnership,
trust or other entity in which any such officer or director has a material
interest or is an officer, trustee or partner.
Section 3.11. Brokers, Finders, etc.. Neither Seller nor the Company or
any Affiliate of the Seller or Company has employed, and none is subject to
any claim of, any broker, finder, consultant or other intermediary in
connection with the transactions contemplated by this Agreement who might be
entitled to a fee or commission from Buyer or the Company upon the
consummation of the transactions contemplated hereby.
Section 3.12. Powers of Attorney and Suretyships. The Company has no
general or special powers of attorney outstanding (whether as grantor or
grantee thereof) or any obligation or liability (whether actual, accrued,
accruing, contingent or otherwise) as guarantor, surety, co-signor, endorser,
co-maker, indemnitor or otherwise in respect of the obligation of any other
Person, except as endorser or maker of checks, respectively, endorsed or made
in the ordinary course of business.
Section 3.13. No Defaults. Neither the Company nor, to the knowledge of
the Seller and the Company, any other party to any agreement, commitment,
purchase order, contract or reinsurance treaty to which the Company is a party
is in default in respect of any such agreement, commitment, purchase order or
contract, which default or defaults, individually or in the aggregate, have or
could reasonably be expected to have a Material Adverse Effect on the Company.
Section 3.14. Regulatory Authorities. Seller has delivered to Buyer true
and complete copies of all material filings and submissions of the Company
with or to any Regulatory Authority since January 1, 1993. The Company has
made with each
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Regulatory Authority all material filings and submissions that are required by
applicable law and is in good standing with such Regulatory Authority. Such
filings or submissions were in compliance with applicable law in all material
respects when filed and no deficiencies have been asserted by any such
Regulatory Authority with respect to such filings or submissions. The
foregoing filings and submissions did not at the time they were filed or when
supplemented or amended contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading. The Company has not entered into any
material agreements or written understandings with any Regulatory Authority
and there is no such proposed agreement or understanding pending with any
Regulatory Authority. There are no uncured violations with respect to which
any refunds, restitutions, penalties or any other action of any nature
whatsoever may be required, cited in any compliance report applicable to the
Company or in any oral report made to the Company by representatives of any
Regulatory Authority. All outstanding insurance policies issued by the
Company are consistent in all material respects with all applicable rate and
form filings with respect thereto with all Regulatory Authorities.
Section 3.15. Reserves. The reserves carried on the books of the Company
to cover the total amount of all matured and reasonably anticipated unmatured
insurance and annuity liabilities of the Company have been determined in
accordance with generally accepted actuarial standards applied on a consistent
basis, are in accordance with actuarial principles, are based on actuarial
assumptions which are in accordance with those called for in the provisions of
the related insurance policies and annuity contracts and meet the requirements
of all applicable insurance laws and regulations. Since December 31, 1994, no
event has occurred that, in accordance with generally accepted actuarial
standards applied on a consistent basis, requires the addition to, or the
establishment of, a reserve that could be expected to result in a Material
Adverse Effect. No warranty is made as to the ultimate adequacy of the
reserves to satisfy the liabilities and obligations reserved against.
Section 3.16. Threats of Cancellation. No policyholder, or related group
of policyholders, or persons producing insurance business, which policy or
policies or persons, singly or in the aggregate, accounted for 5% or more of
the gross premiums received by the Company for the year ended December 31,
1994, have, or have been, terminated or threatened with termination of its or
their relationship with the Company, either as a result of the transactions
contemplated by this Agreement or otherwise.
Section 3.17. Claims. There are no reported death claims of policyholders
of the Company pending as of December 31, 1994, or since December 31, 1994, in
which the amount claimed exceeds the reinsurance payable thereon by more than
$100,000.
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Section 3.18. Tangible Personal Property. Except as set forth on Schedule
3.18:
(a) The Company has good and marketable title to all of the items of its
tangible personal property (except for the items leased or licensed by the
Company) free and clear of all Liens.
(b) The equipment constituting a part of the tangible personal property
of the Company has been properly maintained in accordance with the customary
industry practices, except for reasonable wear and tear, is in a good state of
repair and operating condition, is insured to the extent deemed desirable by
Seller, and is adequate and suitable in accordance with general industry
practice for its current use.
Section 3.19. Real Property.
(a) The list of real property set forth on Schedule 3.19 is a true and
correct list of all of the interests in real estate which the Company holds or
which are used in the operation of the Company in the manner in which it is
now operated, and all such property is leased by the Company. To the
knowledge of Seller and the Company, (i) the Company's improvements upon and
the use of the real property conform in all material respects to all lease
restrictions, restrictive covenants, building codes and federal, state and
local laws, regulations and ordinances, (ii) the real property is zoned for
the various purposes for which it is currently being used by the Company,
(iii) Company's improvements on the real property are except for reasonable
wear and tear in good working condition and repair, and (iv) there is no
pending, threatened or contemplated action to take by eminent domain or
otherwise to condemn any of the real property.
(b) All amendments, modifications and supplements to each lease under
which the Company leases the real property described on Schedule 3.19 is
listed therein, and except as set forth on Schedule 3.19, the Company holds
good and marketable title to the lessee's interest under each such lease free
and clear of all Liens but subject to the terms and provisions of each such
lease and Liens on the interest of the owner or other party through which the
Company directly or indirectly derives its interest as lessee. True and
complete copies of all such leases, including all amendments, modifications
and supplements thereto, have been delivered to Buyer.
(c) Except as set forth on Schedule 3.19 hereto, (i) each lease described
therein is legal, valid, binding and enforceable in accordance with its terms,
except to the extent that (1) 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 (2)
the remedy of specific performance and injunctive and other forms of equitable
relief are subject to certain equitable
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defenses and to the discretion of the court or similar authority before which
any proceeding therefor may be brought; (ii) neither the Company nor, to the
knowledge of Seller or the Company, any other party thereto, is in material
breach of or in material default under any such lease; (iii) to the knowledge
of Seller or the Company, there has not occurred any event which, after the
giving of notice or the lapse of time or both, would constitute a material
default under, or result in the material breach of, any such lease, nor has
Seller or the Company received written notice alleging or stating that any
such event has occurred unless such event has been cured; (iv) none of the
rights of the Company under any such lease is subject to termination or
modification as a result of the consummation of the transactions contemplated
by this Agreement; (v) no consent or approval by any party to any such lease
is required thereunder for the consummation of the transactions contemplated
hereby; and (vi) neither Seller nor Company has granted or has been granted
any material waiver or forbearance with respect to any such lease.
Section 3.20. Intellectual Property Rights.
(a) The Company owns or possesses, is licensed under, or otherwise has
lawful access to, all patents, trade secrets, know-how, other confidential
information, trademarks, service marks, copyrights, mask works, trade names,
logos and other intellectual property, whether registered or unregistered,
necessary for the lawful conduct of its business as it is now being conducted,
without any infringement of or conflict with the intellectual property rights
of any third party.
(b) Schedule 3.20 lists and describes correctly the following:
(i) All material applications for and registrations of the
Company's intellectual properties, all of which, except as set forth on
Schedule 3.20, (1) are owned of record solely in the name of the
Company, (2) have not been licensed or otherwise been made available by
the Company for use by others, and (3) are in full force and effect and
will not expire or require renewal until the respective dates (if any)
set forth in Schedule 3.20.
(ii) All of the Company's unregistered service marks,
trademarks, and copyrights which are material to the conduct of the
business of the Company, all of which, except as set forth in Schedule
3.20, are owned solely by the Company, and have not been licensed or
otherwise been made available by the Company for use by others.
(iii) All ownership interests, possessory interests, licenses,
rights, and permissions that the Company holds or possesses under any of
the intellectual property rights of third parties, that are reasonably
necessary for the Company to continue the use of the intellectual
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property rights in the conduct of the business of the Company, all of
which, except as set forth in Schedule 3.20, (1) are currently in full
force and effect, and will remain so after the Closing, without additional
charge to the Company or the Buyer because of any transaction contemplated
by this Agreement, and (2) will not expire, require renewal, or require the
further payment of fees, monies or royalties until the respective dates set
forth in Schedule 3.20.
(iv) Any material ownership interest, possessory interest,
license, right, or permission that the Company has conveyed or granted
to any Affiliate of the Company or to any other third party, with
respect to the Company's intellectual property rights, none of which
will prevent the Buyer from conducting the business in the manner in
which it is now being conducted.
(c) Except as set forth in Schedule 3.20, neither the Seller nor the
Company:
(i) has any reason to believe that any of the Company's
material intellectual properties is invalid or unenforceable or has
become terminated or cancelled;
(ii) has received any communications from any third party
containing any express or implied allegation that the Company is or may
be infringing any third party's intellectual property rights; or
(iii) is currently evaluating any intellectual property rights
of any third party to determine whether a license thereof is necessary
or desirable or whether such intellectual property may otherwise have a
material effect on any Company's existing or planned business, products
or services.
Section 3.21. Labor Matters.
(a) Except as listed on Schedule 3.21:
(i) To the knowledge of Seller and the Company, no present or
former employee (or agent or independent contractor) of the Company has
a pending claim or charge which has been asserted or threatened against
the Company (whether under any foreign, federal, state or common law,
through a Governmental Agency, private arbitral body, or otherwise) for
(A) overtime pay, other than overtime pay for the current period; (B)
wages, salaries, commissions, bonuses or profit sharing (excluding
wages, salaries, commissions, bonuses or profit sharing for the current
payroll period); (C) vacations, time off or pay in lieu of
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vacation or time off, other than vacation or time off (or pay in lieu
thereof) earned in respect of the employee's current vacation year; (D) any
violation of any statute, ordinance, contract or regulation relating to
minimum wages, maximum hours of work or the terms or conditions of
employment; (E) discrimination against or failure to provide required
reasonable accommodations for any employees on any basis; (F) unlawful or
wrongful employment or termination practices; (G) unlawful retirement,
termination or labor relations practices or breach of contract; (H)
unlawful harassment of any employee; or (I) any violation of occupational
safety or health standards or any other federal, state, local or foreign
law or regulation applicable to or with respect to labor or employment
matters except for claims and charges which individually or in the
aggregate do not exceed $15,000.
(ii) There is no pending or, to the knowledge of Seller and
the Company, threatened against the Company labor dispute, strike or
work stoppage that affects or interferes with, or is likely to affect or
interfere with the operation of the Company. Neither Seller nor the
Company has knowledge of any organizational effort currently being made
or threatened by or on behalf of any labor union with respect to
employees of the Company. To the knowledge of the Seller and the
Company there are no unfair labor charges pending or threatened against
the Company. The Company has not experienced any strike, work stoppage
or other similar significant labor difficulties within the past twelve
(12) months.
(b) Except for and as disclosed in Schedule 3.21, (i) the Company is not
a signatory or a party to, or otherwise bound by, a collective bargaining
agreement which covers employees or former employees of the Company, (ii) the
Company has not agreed to recognize any union or other collective bargaining
unit with respect to employees of the Company, and (iii) no union or other
collective bargaining unit has been certified as representing any employees of
the Company.
(c) Seller and the Company have furnished to Buyer a true and complete
list of all persons employed by the Company, which states for each such
employee the following: (i) the material compensation paid to such employee;
(ii) the termination pay, if any, that may be payable to such employee upon
termination of employment; and (iii) the employment status of such employee,
including without limitation whether the employee is actively at work, is
unable to perform one or more material duties of his or her job due to
sickness or injury, is on short or long term disability leave, is on any other
authorized leave in excess of two weeks or has been absent without leave in
excess of two weeks, and showing, in the case of any employee not actively at
work, the last day worked and the expected return date. No person is employed
by the Company under a written contract. A true and complete copy of any
employee
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handbook, personnel policy or similar document furnished or available to
employees of the Company has been delivered to Buyer.
(d) Except as disclosed to Buyer in writing, neither Seller nor the
Company has any knowledge that any employees of the Company currently plan to
terminate employment whether by reason of the transactions contemplated by
this Agreement or otherwise.
Section 3.22. Employee Benefit Plans.
(a) For purposes of this Section 3.22 and Sections 6.5 and 6.6 hereof:
(i) "Arrangement" means any plan, practice, policy, program,
contract or other arrangement of the Company, whether or not written,
relating to the compensation or terms or conditions of employment or
service of any Employee of the Company (including, without limitation,
policies relating to vacation time, sick pay, holiday pay, moving
expense reimbursements, fringe benefits and bonuses, salary reduction
agreements, change-in-control agreements, employment, consulting or
agency agreements, stock option or other equity based compensation plans
and grants under such plans, stock purchase plans, incentive
compensation plans, sales commission schedules or programs, employment
guarantees or limitations on the right of discharge) which is or at any
time since 1992 has been in effect.
(ii) "Control Group" means a controlled group of corporations
of which the Company is a member within the meaning of Section 414(b) of
the Code, any group of corporations or entities under common control
with the Company within the meaning of Section 414(c) of the Code or any
affiliated service group of which the Company is a member within the
meaning of Section 414(m) of the Code.
(iii) "Employee" means, with respect to an entity, any common
law employee of such entity, any director of such entity, or any agent,
sales representative or other independent contractor who performs
personal services for such entity on a regular basis. References to
Employees include former Employees, except where the context requires
otherwise.
(iv) "Multiemployer Plan" means any employee benefit plan
described in Section 3(37) of the Employee Retirement Income Security
Act of 1974 ("ERISA") to which the Company or any Control Group member
has or ever has had any obligation to contribute.
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(v) "Plan" means, with respect to an entity, any employee
benefit plan, as defined in Section 3(3) of ERISA (including, without
limitation, any severance plan, health care plan, cafeteria plan,
accidental death plan, short or long term disability plan or group life
insurance plan) (excluding any Multiemployer Plan), which now or at any
time since 1989 has been maintained for one or more Employees of such
entity, or to which such entity now makes or is required to make, or at
any time since 1989 made or was required to make, payments or
contributions.
(vi) "Qualified Plan" means any Plan which is an employee
pension benefit plan within the meaning of Section 3(2) of ERISA and
which is intended to meet the qualification requirements of the Code.
(vii) "Title IV Plan" means a Qualified Plan that is a defined
benefit plan as defined in Section 3(35) of ERISA and is subject to
Title IV of ERISA.
(b) All Plans and Arrangements of the Company (or in which the Company
participates with the Seller) are disclosed in Schedule 3.22 or (if disclosed
in the other Schedules) are cross-referenced in Schedule 3.22. The Company
has no material Liability to any Employee (or to any beneficiary, spouse or
dependent of an Employee) except pursuant to the Plans and Arrangements
disclosed or cross-referenced in Schedule 3.22. True and complete copies of
all significant documents with respect to such Plans and Arrangements have
been provided to Buyer. These documents include, without limitation, plans,
trust agreements, insurance contracts, annuity contracts, filings with
governmental agencies, Internal Revenue Service determination letters,
investment manager and investment advisor contracts, actuarial reports, audit
reports and financial statements. True and complete copies of all significant
descriptive material furnished to Company Employees regarding such Plans and
Arrangements (including, without limitation, all summary plan descriptions and
summaries of material modifications furnished to Company Employees regarding
such Plans) have been provided to Buyer.
(c) There has been no amendment to, written interpretation or
announcement (whether or not written) by the Seller or the Company relating
to, or change in Employee participation under, any Plan or Arrangement that
would increase materially the expense of maintaining such Plan or Arrangement
above the level of expense incurred in respect of such Plan or Arrangement for
the most recent plan year thereof (or the most recent fiscal year of the
Company in the case of a Plan or Arrangement that does not have a plan year).
(d) The Company is not party to any Plan or Arrangement that has resulted
or will result, separately or in the aggregate, in the payment by the Company
of any "excess parachute payment" within the meaning of Section 280G of the
Code with
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respect to the change in ownership or control that will occur by reason of the
sale hereunder.
(e) Each individual who is paid for services in any form by the Company
as an independent contractor for federal income tax purposes (including,
without limitation, Code provisions applicable or relating to employee benefit
plans), state unemployment tax purposes, or any other purpose is an
independent contractor for such purpose.
(f) Each Plan and each Arrangement of the Company has been administered
in material compliance with its terms and with all filing, reporting,
disclosure and other requirements of all applicable statutes (including but
not limited to ERISA, the Code and the Consolidated Omnibus Budget
Reconciliation Act) and regulations and interpretations thereunder, except
where the failure to comply does not have a Material Adverse Effect on the
Company.
(g) Each Qualified Plan of the Company (or in which the Company
participates with the Seller), together with its related funding instrument,
is intended to be qualified and tax exempt under Sections 401 and 501 of the
Code and a favorable Internal Revenue Service determination with respect to
such qualification and exemption has been requested. Nothing has occurred
since the date of such submission that would reasonably be expected to impair
such qualification and exemption.
(h) To the knowledge of Seller, no matter is pending relating to any Plan
or Arrangement of the Company (or in which the Company participates with the
Seller) before any Governmental Agency.
(i) Neither the Company, Seller nor any other Control Group member has
engaged in a transaction with respect to any Plan that, assuming the taxable
period of such transaction expired as of the date hereof, could subject the
Company to a tax or penalty imposed by either Section 4975 of the Code or
Section 502(i) of ERISA in an amount which would be material.
(j) Except as set forth in Schedule 3.22, and except as otherwise
provided by law, all Plans and Arrangements of the Company (or in which the
Company participates with the Seller) may be modified or terminated
prospectively, or the Company may withdraw prospectively, without material
Liability to the Company. With particular reference to any such Plan or
Arrangement providing health care benefits, the Company is not contractually
obligated to any Employee of the Company (or to any beneficiary or dependent
of any such Employee) to continue such Plan or Arrangement or to provide
benefits with respect to any medical expense incurred by such Employee (or
such beneficiary or dependent) after such Plan or Arrangement is terminated as
to the Company, except as otherwise provided by law. No such Plan or
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Arrangement promises or provides health care, dental or vision benefits to any
Company Employee (or to any beneficiary or dependent of a Company Employee)
after termination of such Employee's employment with the Company, except as
otherwise provided by law.
(k) Neither the Company, Seller nor any Control Group member has incurred
any material Liability under or pursuant to Title I or IV of ERISA, or
pursuant to the penalty, excise tax or joint and several liability provisions
of the Code, with respect to the Plans, and no event or condition has occurred
or exists which could result in any such material Liability to the Company,
Seller or any Control Group member.
(l) All payments and contributions required to have been made by the
Company under the terms of any Plan or Arrangement have been timely made.
(m) No reportable event (as defined in Section 4043 of ERISA and
regulations issued thereunder) has occurred with respect to any Title IV Plan
of the Company, Seller or any Control Group member. No such Title IV Plan has
an accumulated funding deficiency (as defined in Section 302 of ERISA) as of
the last day of the most recent plan year of such Plan ended prior to the date
hereof. As to any such Title IV Plan, the value of the assets thereof exceeds
the present value of all benefits accrued thereunder, both as determined by
such Plan's independent actuaries as of the most recent plan year of such Plan
ended more than seven months prior to the date hereof. No events have
occurred or, to the knowledge of Seller, are expected to occur with respect to
any such Title IV Plan that would cause a material change in the value of the
assets or benefits of such Plan for purposes of the preceding sentence. There
have been no material changes in the actuarial methods or assumptions used
with respect to any such Title IV Plan since 1992. No waiver from the minimum
funding standard requirements of Section 302 of ERISA and Section 412 of the
Code has been obtained or applied for with respect to any Title IV Plan.
(n) Neither the Company, Seller nor any Control Group member is
currently, or has been since 1989, obligated to contribute to any
Multiemployer Plan. Neither the Company, Seller nor any Control Group member
has any withdrawal Liability under Section 4201 of ERISA by reason of its
withdrawal from a Multiemployer Plan in which it participated prior to 1990.
Section 3.23. Environmental Matters.
(a) For purposes of this Section 3.23, the following definitions shall
apply: "property" shall mean any property, either real or personal;
"ownership or security interest" shall mean any interest in property, choate
or inchoate, including without limitation, in fee simple, pursuant to any
lease, easement or other agreement, or pursuant to any mortgage, deed of
trust, or other security instrument; "contaminant"
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shall mean any solid, semisolid, liquid, or gaseous matter, or any odor,
radioactive material, pollutant (as defined in the federal Water Pollution
Control Act, 33 U.S.C. Section 1251 et seq.), hazardous waste (as defined by
the federal Solid Waste Disposal Act, 42 U.S.C. Section 6901 et seq.), any
constituent of a hazardous waste, or any combination thereof, from whatever
source, that: is injurious to human health, plant or animal life, or property;
interferes unreasonably with the enjoyment of life or property; or is otherwise
violative of any environmental, health or safety law; "environmental, health or
safety law" shall mean any federal, state, local or other laws, statutes,
ordinances, regulations, rules, licenses, permits or any order, writ, injunction
or decree of any Governmental Agency relating to the regulation of contaminants
or the protection of the environment, health or safety.
(b) The Company has obtained all environmental, health or safety permits
necessary for the operation of the Company's business, and all such permits
are in full force and effect and the Company is in compliance with all terms
and conditions of such permits in all material respects.
(c) To the knowledge of Seller and the Company, all operations of the
Company, and all present or past properties in which the Company holds or held
an ownership or security interest, are in compliance with the applicable
provisions of all applicable environmental, health and safety laws in all
material respects.
(d) To the knowledge of Seller and the Company, there is no proceeding
pending or threatened which may result in the reversal, rescission,
termination, modification or suspension of any environmental, health or safety
permits necessary for the operation of the Company's business.
(e) To the knowledge of Seller and the Company, there are no conditions
or circumstances associated with any present or past properties in which the
Company holds or held an ownership or security interest, which may give rise
to material environmental, health or safety liabilities or costs.
(f) With respect to the operations of the Company, or any present or past
properties in which the Company holds or held an ownership or security
interest, the Company has not filed, or to the knowledge of Seller and the
Company been required to file, any notice under any applicable environmental,
health or safety law reporting a release of contaminants into the environment
that has or reasonably can be expected to have an adverse effect on the
Company and no notice pursuant to Section 103(a) or (c) of the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C.A. Section
9601, et seq. ("CERCLA") or any comparable state law or regulation has been
or to the knowledge of Seller and the Company was required to be filed.
(g) The Company has not received any notice letter under CERCLA or any
environmental, health or safety law, or any notice or claim to the effect that
the
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Company is or may be liable for or as a result of the release or threatened
release of contaminants into the environment.
Section 3.24. Insurance. The Company is covered by liability and casualty
insurance in amount and coverage for its assets and operations to the extent
deemed desirable by Seller. Schedule 3.24 lists all insurance policies
covering the Company and states the insurance company, the policy limit and
type of coverage provided. All such insurance policies are in full force and
effect and free from any right of termination on the part of the insurance
carrier except as provided therein. Such insurance coverage of or for the
benefit of the Company will cease immediately upon the Closing.
Section 3.25. Business Conducted. The business of the Company has been
since January 1, 1985 limited to the operation of insurance business and
business activities directly related thereto.
Section 3.26. Location of Books and Records; Exclusive Control. Except as
set forth in Schedule 3.26, the Company does not have any of its material
records, systems, controls, data or information recorded, stored, maintained,
operated or otherwise wholly or partly dependent upon or held by any means
(including any electronic, mechanical or photographic process, whether or not
computerized) which (including all means of access thereto and therefrom) are
not under the exclusive ownership and direct control of the Company.
Section 3.27. Bank Accounts and Powers of Attorney. Schedule 3.27 sets
forth an accurate and complete list showing (i) the name and address of each
bank in which the Company has an account or safe deposit box, the number of
such account or any such box and the names of all persons authorized to draw
thereon or to have access thereto and (ii) the names of all persons, if any,
holding powers of attorney with respect thereto from the Company and a summary
statement of the material terms thereof.
Section 3.28. Relationships With Affiliates. Except as disclosed in
Schedule 3.22, Schedule 3.28 or otherwise in this Agreement, there are no
significant arrangements between the Company and any Affiliate pursuant to
which goods or services are provided by an Affiliate to the Company or by the
Company to an Affiliate, other than customary management oversight and
centralized administrative functions furnished by Seller's Parent, and all
such arrangements, whether significant or not, shall, at Buyer's option,
terminate upon the Closing. Except as disclosed in Schedule 3.28, no property
material to the conduct of the Company's business and operations is held in
the name of or jointly with an Affiliate other than insurance policies
covering the Company or properties of the Company.
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Section 3.29. Ownership of Assets. Except as disclosed in Schedule 3.29,
the Company owns, leases or holds all property, including real property,
tangible personal property, investments, reserves and intellectual property
used or material to the operation of the business of the Company solely in its
own name.
Section 3.30. Completeness of Disclosures. No representation, warranty or
statement made by Seller in this Agreement or in the Schedules or Exhibits
attached hereto or in the certificates or other written materials furnished to
Buyer or its representatives, attorneys and accountants in connection with
this Agreement and the transactions contemplated hereby contains or will
contain any untrue statement of a material fact or omits or will omit to state
a material fact required to be stated herein or therein or necessary to make
the statements contained herein or therein, in the light of the circumstance
in which they were made, not misleading.
ARTICLE IV.
Representations and Warranties of Buyer
Buyer represents and warrants to Seller as follows:
Section 4.1. Incorporation; Authorization, etc. Buyer is a mutual life
insurance company duly organized and validly existing under the laws of the
State of Indiana. The execution, delivery and performance of this Agreement
by Buyer was duly authorized by all necessary corporate action, including,
without limitation, any necessary director or policyholder approval. Buyer
has full corporate power and authority to execute and deliver this Agreement
and to perform its obligations hereunder. This Agreement is a legal, valid
and binding obligation of Buyer, enforceable against Buyer in accordance with
its terms, except to the extent that (i) 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 creditor's rights
generally or (ii) 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 similar authority before which any proceeding
therefor may be brought.
Section 4.2. No Violation. The execution, delivery and performance of
this Agreement does not, and the execution and the consummation of the
transactions contemplated hereby will not: (a) violate any provision of
Buyer's charter, bylaws or other organizational document; (b) require Buyer to
obtain any consent, approval or action of, or make any filing with or give any
notice to, any Person except as contemplated in Sections 6.2 and 6.3 hereof;
(c) violate any provision of, or be an event that is, or with the passage of
time will result in, a violation of, or result in acceleration of or entitle
any party to accelerate (whether after the giving of notice or lapse of time
or both) any obligation under, or result in the imposition of any Lien upon
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or the creation of a security interest in any of Buyer's assets or properties
pursuant to, any note, bond, mortgage, indenture, lien, license, lease,
contract, agreement, plan or other instrument to which Buyer is a party or by
which it is bound; or (d) subject to obtaining the approvals contemplated by
Sections 6.2 and 6.3 hereof, violate or conflict with any law statute,
ordinance, rule, regulation, order, writ, injunction, decree, judgment or
arbitration award to which Buyer is subject, except for any occurrence
described in clauses (b) and (c) which individually or in the aggregate would
not have or reasonably be expected to have a Material Adverse Effect.
Section 4.3. Litigation. To the knowledge of Buyer there are no actions,
suits, investigations, or proceedings pending or threatened against Buyer, and
no event, fact or circumstance has arisen or occurred that may reasonably be
expected to result in any action, suit, investigation or proceeding, against
Buyer at law or in equity, in, before, or by any Person, that individually or
in the aggregate have or would reasonably be expected to have a Material
Adverse Effect.
Section 4.4. Brokers, Finders, etc. Buyer has not employed, and is not
subject to any claim of, any broker, finder, consultant or other intermediary
in connection with the transactions contemplated by this Agreement who might
be entitled to a fee or commission from Seller upon the consummation of the
transactions contemplated hereby.
Section 4.5. Investment Purpose. Buyer is purchasing the Shares for
investment purposes only, for its own account or the account of any permitted
assignee, and not with a view toward further distribution thereof. Buyer
will, and will cause any permitted assignee to, refrain from transferring or
otherwise disposing of any of the Shares acquired by it, or any interest
therein, in such manner as to violate any registration provision of the
Securities Act of 1933, as amended, or of any applicable state securities law
regulating the disposition thereof. Buyer agrees that the certificates
representing the Shares may bear legends to the effect that the Shares have
not been registered under the Securities Act of 1933, as amended, or such
other state securities laws and that no interest therein may be transferred or
otherwise disposed of in violation of the provisions thereof.
ARTICLE V.
Survival of Representations
and Warranties; Indemnity
Section 5.1. Survival. The representations, warranties, covenants and
agreements respectively made by Seller and Buyer in this Agreement, or in any
certificate, respectively, delivered by Seller or Buyer pursuant to this
Agreement, will survive the Closing and will terminate and expire:
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(a) Upon the expiration of all applicable statutes of limitations
(including all periods of extension, whether automatic or permissive) in the
case of (i) the representations and warranties of the Seller respectively set
forth in Sections 3.1(a), 3.1(b), 3.1(c), 3.1(d)(i), 3.1(e), 3.2, 3.6, 3.7,
3.21, 3.22, and 3.23 hereof, (ii) the representations and warranties of Buyer
set forth in Sections 4.1, 4.2(a), and 4.5 hereof, (iii) the covenants of
Seller and Buyer set forth in Sections 6.6, 6.8, and 6.9, hereof, and (iv)
Article V hereof; and
(b) On December 31, 1996 in the case of all other representations,
warranties, covenants and agreements, except that covenants and agreements to
be performed after Closing shall survive the Closing in accordance with their
terms.
Upon the termination and expiration of any representation, warranty,
covenant or agreement hereunder, no claim, right or remedy shall be asserted
at law or in equity based thereon.
Section 5.2. Indemnity. Subject to the other provisions of this Article
V, after the Closing Date, Seller shall indemnify and hold harmless Buyer and
its successors and permitted assignee, and Buyer shall indemnify and hold
harmless Seller and its successors and assigns (the party or parties being
indemnified and held harmless, "Indemnified Party," and the other party, the
"Indemnifying Party") as follows:
(a) Seller shall defend, indemnify and hold harmless Buyer from and
against any and all Damages, net of any Tax Benefits and insurance
recoverable, incurred or suffered by Buyer and arising out of or connected
with:
(i) any Taxes, including without limitation Taxes relating to
the Phase III Policyholders' Tax, which are not fully provided for in
the current SAP Tax accruals made on or before December 31, 1994, and
which are actually incurred by, imposed upon, or assessed against the
Company as a result of or relating to any period ending on or before
December 31, 1994, and, to the extent the Company receives refunds of
any Taxes relating to any period ending on or before December 31, 1994,
Seller shall be entitled to such refunds;
(ii) any noncompliance by the Company with environmental,
health or safety laws prior to the Closing Date;
(iii) any act or omission of Seller or the Company or any
fiduciary under the Plans referred to in Section 3.22, prior to the
Closing Date; and
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(iv) any breach by Seller of any of the covenants, agreements,
representations or warranties of Seller under this Agreement.
(b) Buyer shall defend, indemnify and hold harmless Seller from and
against any and all Damages, net of related Tax Benefits and insurance
recoverable, incurred or suffered by Seller and arising out of or connected
with:
(i) any breach by Buyer of any of the covenants, agreements,
representations or warranties of Buyer under this Agreement and not
waived by Seller in writing; or
(ii) any Taxes actually incurred by, imposed upon, or assessed
against the Company for any event, operation or transaction occurring or
arising in a taxable year or period beginning after December 31, 1994,
and related to actual income or deductions of the Company, and, to the
extent the Seller receives refunds of any Taxes relating to any period
beginning after December 31, 1994, Buyer shall be entitled to such
refunds. In no event shall this provision be interpreted as an
indemnification by Buyer of Seller for a Tax Liability of Company
arising from or related to any member of Seller's consolidated tax group
other than the Company.
(c) The parties agree that after Closing the sole and exclusive remedy of
any party hereto with respect to any claim for Damages arising out of any
asserted breach of this Agreement shall be as provided in this Article V.
(d) Notwithstanding any other provisions of this Article V, Seller shall
not have any Liability for any Damages to the Buyer under Section 5.2 hereof
unless and until the cumulative total of such Damages exceeds in the aggregate
$50,000, it being understood that after such Damages exceed in the aggregate
$50,000, Seller shall be liable to the Buyer for any and all Damages in excess
of $1.00.
(e) No indemnification shall be available under Section 5.2(a)(iv) above
with respect to any breach of any representations or warranties of Seller, if
such breach and the materiality thereof were within the knowledge of the Buyer
prior to the Closing Date, as a result of information provided to Buyer
pursuant to Section 6.13 hereof, and Buyer nonetheless proceeded with the
Closing.
Section 5.3. Method of Asserting Claims. All claims for indemnification
by any Indemnified Party under Section 5.2 hereof will be asserted and
resolved as follows:
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(a) Notice of Claim and Response.
(i) In the event any claim or demand for which an
Indemnifying Party would be liable for Damages to an Indemnified Party
under Section 5.2 hereof is asserted against or sought to be collected
from such Indemnified Party by a Person other than Seller or Buyer
("Third Party Claim"), the Indemnified Party will deliver with
reasonable promptness to the Indemnifying Party a notice setting forth
the general nature of, basis for and estimated amount of the Third Party
Claim (a "Claim Notice"); provided, however, that except as set forth in
Section 5.3(d) hereof, no Claim Notice will be required with respect to
any action, suit, investigation, or proceeding that is in existence on
the Closing Date. If the Indemnified Party fails to provide the
Indemnifying Party with the Claim Notice 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.
(ii) Upon receipt of the Claim Notice, the Indemnifying Party
will notify the Indemnified Party with reasonable promptness, 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) Assumption of Liability by Indemnifying Party. From and after the
time that the Indemnifying Party expressly assumes in writing the absolute and
unconditional obligation to indemnify the Indemnified Party from and against
all Damages incurred or suffered by the Indemnified Party arising out of or
connected with the Third Party Claim (such notice is hereinafter referred to
as the "Assumption"), the Indemnifying Party shall 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 or delayed unreasonably). From the date of the
Assumption, the Indemnifying Party will have full control of such defense and
proceedings, including any compromise or settlement thereof; provided,
however, 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
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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 5.3(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) Conduct Prior to the Assumption of Liability by the Indemnifying
Party. Until the Assumption, the Indemnified Party shall 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
diligently 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 or delayed
unreasonably). The Indemnified Party will have full control of such defense
and proceedings, including any compromise or settlement thereof; provided,
however, that if requested by the Indemnified Party, the Indemnifying Party
agrees, at the sole cost and expense of the Indemnifying Party, to cooperate
with the Indemnified Party and its counsel in contesting any Third Party Claim
which the Indemnified Party 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 Indemnifying Party or any of its Affiliates). The
Indemnifying Party may participate in, but not control, any defense or
settlement controlled by the Indemnified Party pursuant to this Section
5.3(c), and the Indemnifying Party will bear its own costs and expenses with
respect to such participation.
(d) Dispute of Liability. Notwithstanding the foregoing provisions of
Section 5.3(c), if the Indemnifying Party has notified the Indemnified Party
during the Notice Period 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 Section 5.3(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.
(e) Non-Third Party Claims. In the event any Indemnified Party should
have a claim against any Indemnifying Party hereunder that does not involve a
Third Party Claim being asserted against or sought to be collected from the
Indemnified Party, the Indemnified Party will notify the Indemnifying Party
with reasonable promptness of such claim by the Indemnified Party, specifying
the general nature of and basis for such claim and the estimated amount of
such claim (the "Indemnity Notice"). If the
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Indemnifying Party does not notify the Indemnified Party that the Indemnifying
Party disputes such claim within 60 days of the date of the Indemnity Notice,
the amount or estimated amount of such claim specified by the Indemnified
Party will be conclusively deemed a liability of the Indemnifying Party
hereunder.
Section 5.4. Tax Matters.
(a) Tax Returns. As to any Tax or estimated Tax return to be paid or
filed by or on behalf of Company on or prior to the Closing Date, Seller shall
ensure that each such return is filed and the applicable Tax payment,
including any estimated Tax payment, is made by or on behalf of the Company,
and shall provide Buyer with a copy of each such return as soon as practicable
after the preparation thereof.
(b) Buyer's Returns. Buyer shall file or cause to be filed when due all
returns in respect of Taxes of the Company for taxable years or periods
beginning after the Closing Date, and shall pay or cause to be paid the Taxes
shown to be due on any such return.
(c) Refunds. At Buyer's expense, Seller shall cooperate in the filing of
any claim for refund necessitated by Buyer's determination that Company has
overpaid its Taxes for the period January 1, 1995 through the Closing Date.
At Seller's expense, Buyer shall cooperate in the filing of any claim for
refund necessitated by Seller's determination that Company has overpaid its
Taxes for any period ending on or before December 31, 1994.
(d) Tax Payments.
(i) Taking into consideration all Tax payments made by or on
behalf of the Company for the period of January 1, 1995 through the
Closing Date, including estimated Tax payments, Buyer and Seller shall
before the Closing Date jointly agree in writing on whether such Tax
payments accurately reflect the Company's estimated Tax Liability for
such period.
(ii) Within sixty (60) days after the Closing Date, Buyer and
Seller in consultation with their respective accounting firms shall
jointly make a final written determination of the Company's federal Tax
Liability for the period January 1, 1995 through the Closing Date, which
will be included by Seller in its consolidated federal income tax return
for 1995. If Buyer and Seller cannot agree, the correct amount of such
Tax Liability shall be determined by an independent accounting firm
agreed to by the respective accounting firms of Buyer and Seller. If
the amount actually paid by the Company is less than the final amount of
Taxes, Buyer shall cause the Company to pay to Seller the amount of such
difference as
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soon as practicable after the determination of such amount is made. If the
amount actually paid by Company is in excess of the final amount of Taxes,
Seller shall refund such excess to Company as soon as practicable after the
determination of such amount is made. Except for its consolidated federal
income tax return for 1995, Seller shall not file any Tax return after the
Closing Date which includes the Company for the period January 1, 1995
through the Closing Date.
(e) Proceedings. Buyer and Seller agree to furnish or cause to be
furnished to each other, upon request, as promptly as practicable, such
information (including, without limitation, access to books and records) and
reasonable assistance relating to the Company as is reasonably necessary for
the filing of any return, for the preparation for any audit, and for the
prosecution of any proceeding in respect of any proposed adjustment. Buyer
and Seller shall cooperate with each other in the conduct of any audit or
other proceedings involving the Company or any entity with which it is
consolidated or combined for any Tax purposes and each shall execute and
deliver such documents as are necessary to carry out the intent of this
Section 5.4.
(f) Buyer will notify Seller promptly of the commencement of any claim,
audit, examination, or other proposed change or adjustment by any taxing
authority concerning the Tax or other Damages covered by Section 5.2(a) hereof
("Tax Claim").
(g) Buyer will furnish Seller 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. Seller will have the right to approve in advance (which
approval shall not be unreasonably withheld) 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 5.2(a) hereof; 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 Buyer with
reasonable promptness, but in all events at least 14 calendar days before the
date on which payment of the Tax is due or, if earlier, at least 14 calendar
days before the date on which the ability of the Company or Buyer to defend
against the Tax Claim is irrevocably prejudiced.
(h) At its option (following reasonable notice to and consultation with
Buyer), Seller may, at its expense, 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 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, 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
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such Tax Claim. The Company and Buyer, as appropriate, will take such lawful
action in connection with the contest or refund suit as 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) Seller requests such action with reasonable promptness, but in all
events at least 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 14 calendar
days before the date on which the Seller's ability to defend against the Tax
Claim is irrevocably prejudiced, (ii) a reasonable basis exists for such
contest or refund suit, and (iii) Seller acknowledges (without reservation of
rights) its obligations under this Article, including its obligation to
reimburse Buyer in full for all costs and expenses incurred by Buyer in
connection with such request. Notwithstanding the foregoing provisions of
this Section 5.4(h), if any audit, contest or refund suit arising from or in
connection with any Tax Claim has or would reasonably be expected to have a
material effect on the Liability of the Company or Buyer for Taxes with
respect to any period ending after December, 31, 1994, then Buyer may, at its
expense, participate in any such audit, contest or refund suit and neither
party shall compromise or settle such contest or refund suit without the
consent of the other.
(i) Each indemnification payment arising under Section 5.2(a)(i) shall be
made only at such time as there is a final resolution or adjudication with the
taxing authority from which no appeal is taken with respect to the change in
basis giving rise to the indemnity payment.
(j) Tax Sharing Agreement. The Seller shall cause any Tax Sharing
Agreement in effect between the Company and the Seller or any Affiliate of the
Seller to terminate as to the Company as of the Closing Date, and the Company
shall have no liability thereunder.
(k) Consolidated Group Liability. Notwithstanding anything contained in
this Agreement, this Agreement does not create any responsibility nor
liability of Company for any Taxes attributable to the operations or
activities of any other member of Seller's consolidated tax group.
(l) Tax Claims Procedures. In the event of any conflict or difference
between any of the provisions set forth in this Section 5.4 and those set
forth in Section 5.3, the provisions set forth in this Section 5.4 shall
govern and control with respect to any Tax Claim.
ARTICLE VI.
Covenants of Seller and Buyer
Section 6.1. Investigation of Business. Buyer may, prior to the Closing
Date and through its own personnel, independent accountants, consultants, and
attorneys,
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make, upon reasonable notice and during normal business hours, such
investigation of the Company as it deems necessary or advisable; provided,
however, that such investigation shall not in any way release or otherwise
affect Seller's representations and warranties hereunder. Seller agrees, upon
reasonable notice and during normal business hours, to permit Buyer and its
representatives to have, after the date of execution hereof, full access to
all the books, records, properties, contracts, and offices of the Company and
will furnish the Buyer all financial, operating and other data and information
as they reasonably request. All information acquired by Buyer or its agents
concerning the Company, Seller or any Affiliate thereof, and all information
acquired by Seller or any Affiliate thereof or their agents concerning Buyer
or any Affiliate thereof, shall be held in confidence and shall not be used or
communicated to any third party (other than its independent accountants,
consultants, or attorneys), except such items which are matters of public
record or as may be required by law. In the event of the termination of this
Agreement, Buyer shall deliver to Seller all documents, work papers and other
material obtained by Buyer or on behalf of Buyer from Seller or the Company as
a result of this Agreement or in connection herewith, whether so obtained
before or after the execution hereof.
Section 6.2. HSR Filings. Each of Buyer and Seller shall (a) take
promptly all actions necessary to make the filings required by each or their
respective Affiliates under the Hart-Scott-Rodino Anti-Trust Improvements Act
of 1976 (the "HSR Act"), (b) comply at the earliest practicable date with any
request for additional information received by it or its Affiliates from the
Federal Trade Commission or Antitrust Division of the Department of Justice
pursuant to the HSR Act, (c) cooperate with the other party hereto in
connection with such filings, and (d) request early termination of the
applicable waiting period.
Section 6.3. Regulatory Approvals. Each of Buyer and Seller shall take
all reasonable steps and shall use all commercially reasonable efforts to
obtain as promptly as practicable all necessary approvals, authorizations and
consents of any Regulatory Authority required to be obtained to consummate the
transactions contemplated hereby and shall cooperate with the other party
hereto in seeking to obtain all such approvals, authorizations and consents.
Each of Buyer and Seller shall use all commercially reasonable efforts to
provide such information to governmental and regulatory bodies (including,
without limitation, applicable insurance regulators) as such bodies or the
other party thereto may reasonably request.
Section 6.4. Financial Statements and Reports. As promptly as practicable
upon completion of the statutory audited financial statements of the Company
for the year ending December 31, 1994, Seller shall deliver such financial
statements to Buyer, which (i) will be prepared in accordance with SAP
consistently applied in accordance with past practice, shall be true, accurate
and complete in all material respects, and shall present fairly the statutory
financial condition of the Company, the statutory results of the Company's
operations, the statutory changes in the Company's
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financial condition and the other information included therein for the periods
or as of the dates therein set forth; (ii) shall contain and reflect adequate
provisions for all material Liabilities for all Taxes with respect to the
periods then ended and all prior periods; (iii) with respect to contracts and
commitments for the sale of property or the provision of services by the
Company, shall contain and reflect all reserves required by SAP; (iv) except
as specifically described therein, shall reflect no material items of non-
recurring income, and all material transactions with any related or affiliated
party for the periods covered thereby shall be clearly revealed therein; and
(v) shall include therein all of the schedules and exhibits required by SAP,
which schedules and exhibits shall be accurate and complete in all material
respects, and shall fairly present, in accordance with SAP, the data shown by
such schedules and exhibits. As promptly as practicable after each calendar
quarter ending between the date hereof and through the Closing Date, Seller
shall deliver to Buyer true and complete copies of the quarterly Financial
Statement prepared by the Company for each quarter then ended and each such
quarterly Financial Statement shall be prepared in accordance with statutory
accounting practices required or permitted by the New York Insurance
Department and shall present fairly, in all material respects, the statutory
admitted assets, liabilities, and statutory capital and surplus of the Company
as of the date thereof and the Company's results of operation and cash flow
for and during the respective periods covered thereby.
Section 6.5. 401k Plan. On the Closing Date, pursuant to specific
authority granted in the applicable Plan documents, the Seller will cause the
Company to withdraw from participation in the Southwestern Life Corporation
Savings Investment Plan (the "401k Plan"). On the Closing Date, or as soon
thereafter as reasonably possible, but in no event later than December 31,
1995, Seller shall cause such 401k Plan to make full distribution to the
Company's employees of their accrued benefits thereunder. In connection with
such distribution, Seller shall cause such plan to offer such employees an
election, among other things, either (i) to receive their benefits in the form
of a lump sum (or in any other form of distribution available under such 401k
Plan that is a protected form of distribution under Section 411(d)(6) of the
Code or the regulations thereunder) or (ii) to have their benefits (except for
the dollar amount of any after-tax employee contributions included therein)
transferred to the Buyer's qualified 401k plan [or, at the Buyer's option, to
a new defined contribution plan that is established by the Company on or after
the Closing Date and that is considered an eligible retirement plan within the
meaning of Code Section 401(a)(31)(D)] by means of a direct rollover under
Code Section 401(a)(31) that is not subject to Code Section 414(l)(1). The
Seller shall continue to maintain its 401k Plan until sometime after such
distribution is made.
Section 6.6. Employee Welfare Benefit Plans. In the case of any employee
welfare benefit Plan in which the Company participates with the Seller,
benefits attributable to premiums paid or accrued or contributions made or
accrued by the Company prior to the termination of its participation in such
Plan will be paid under
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such Plan to employees and former employees of the Company (and their
beneficiaries, spouses and dependents) in accordance with the terms of such
Plan. The Company shall be permitted (but not required) to continue its
participation in all or any of such Plans providing medical expense benefits
until the earliest of (i) December 31, 1995 and (ii) the date the Company, by
appropriate action of its Board of Directors, terminates such participation.
The Company shall pay the entire cost of such continued participation (as well
as the cost of its participation prior to the Closing Date) through payment of
insurance premiums or actuarially-determined Plan contributions, as it has in
the past. In the case of any employee welfare benefit Plan under which the
Company pays a rate to the Seller or the Plan that is reconciled annually
against claims activity, the Company shall pay the rate set for the current
Plan year, but there shall be no retroactive adjustment with regard to post-
1994 claims activity. In the case of any Plan in which the Company's
participation is terminated and which provides health care, dental or vision
benefits, the following amounts shall be paid under the Plan, in accordance
with the terms of such Plan as in effect at the time of such termination: (a)
amounts payable to or for any covered person with respect to covered expenses
incurred prior to such termination; (b) with respect to any employee of the
Company who at the time of such termination is not actively at work due to
illness or disability, amounts payable to or for such employee (or the spouse
or any dependent of such employee) with respect to covered expenses incurred
during the continuation of such illness or disability and prior to return to
work; (c) in the case of any beneficiary, spouse or dependent who at the time
of such termination is disabled due to illness or disability, amounts payable
to or for such beneficiary, spouse or dependent with respect to covered
expenses incurred during the continuation of such illness or disability;
provided the Company continues to make payment of any premiums or other
fundings required to be made under the terms of the Plan as in effect on the
date hereof. To the extent the provision of continuation coverage is required
by the Consolidated Budget Reconciliation Act of 1985 ("COBRA"), as amended,
it shall be provided under such Plans where the qualifying event occurs prior
to such termination and by the Buyer or the Company where the qualifying event
occurs at or after termination. Prior to the termination of the Company's
participation in any such Plan, the Seller or a Control Group member other
than the Company shall remain responsible for administering such Plans and
making all benefit determinations thereunder. This section shall not be
deemed (a) to create or increase any benefit that would not have been
available had such termination and the sale hereunder not occurred or (b) to
eliminate or reduce any benefit.
Section 6.7. Retiree Benefits. Except as otherwise provided in Section
6.6 above, the Buyer agrees that after the Closing the Company shall bear the
costs of providing (a) each Company employee who retired or whose service to
the Company was otherwise terminated on or before the Closing, with the
medical, life and other insurance benefits, if any, to which he or she is
entitled by law or contract; and (b) each Company employee who was disabled on
the Closing Date (or who becomes disabled after the Closing Date due to an
injury or illness incurred on or before the
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Closing Date), with the disability benefits, if any, to which he or she is
entitled by law or contract; provided, however, nothing in this Section 6.7
shall be deemed to affect the Buyer's or the Company's exclusive right to
terminate any or all of such medical, life and other insurance benefits, and
any or all of such disability benefits, as to any or all such retired or
terminated Company employees.
Section 6.8. Payment of Taxes. Seller shall pay all sales taxes, other
property transfer taxes, all documentary or other stamp taxes and all other
taxes, including but not limited to corporate income and franchise taxes, if
any, arising out of or related to the sale by Seller of the Shares.
Section 6.9. Further Assurances. Subject to the terms and conditions of
this Agreement and applicable law, each of the parties agrees to use all
commercially reasonable efforts to take, or cause to be taken, all actions to
do, or cause to be done, all things necessary, proper, or advisable to
consummate and make effective as promptly as practicable the transactions
contemplated by this Agreement and to cooperate with each other in connection
with the foregoing, including, without limitation, using all commercially
reasonable efforts (a) to obtain all necessary waivers, consents, and
approvals from other parties to loan agreements, leases, and other contracts,
(b) to lift or rescind any injunction or restraining order or other order
adversely affecting the ability of the parties to consummate the transactions
contemplated by this Agreement, and (c) to fulfill all conditions to and
covenants contained in this Agreement. If, after the Closing Date, any action
is necessary to effect the purposes of this Agreement, the proper officers and
directors of Buyer, Seller and the Company will use all commercially
reasonable efforts to take all such necessary action.
Section 6.10. Conduct of Business.
(a) Prior to the Closing, except as otherwise consented to or approved by
Buyer in writing or as otherwise expressly provided in this Agreement, Seller
covenants and agrees that:
(i) The Company will conduct its business solely in the
ordinary course consistent with past practices.
(ii) The Company will not intentionally take or willfully omit
to take any actions that results in or could reasonably be expected to
result in, a Material Adverse Effect.
(iii) Each of the Company, Seller and each Affiliate of Seller
will use its commercially reasonable efforts to preserve intact the
business organization of the Company, to keep available the services of
the Company's present officers and key employees and consultants, and
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to maintain satisfactory relationships with customers, agents, reinsurers,
suppliers, and other persons having business relationships with the
Company.
(b) Without limiting the provisions of Section 6.10 or as otherwise
expressly provided in this Agreement, prior to the Closing the Company will
not, and Seller will cause the Company to not, except as otherwise consented
to or approved by Buyer in writing:
(i) Issue, sell, or dispose of additional shares of capital
stock of any class (including the Shares) of the Company, or securities
convertible into or exchangeable for any such shares or securities, or
any rights, warrants, or options to acquire any such shares or
securities;
(ii) Redeem, purchase, or otherwise acquire, or propose to
redeem, purchase, or otherwise acquire, any of its outstanding capital
stock, or other securities of the Company;
(iii) Split, combine, subdivide, or reclassify any of its
capital stock or declare, set aside, make, or pay any dividend or
distribution on any shares of its capital stock;
(iv) Sell, pledge, dispose of, or encumber any of its assets,
except for sales, pledges, dispositions, or encumbrances other than with
respect to Seller or Affiliates of Seller in the ordinary course of
business consistent with past practices;
(v) Incur or modify any indebtedness or issue or sell any
debt securities, or assume, guarantee, endorse, or otherwise as an
accommodation become absolutely or contingently responsible for
obligations of any other person, or make any loans or advances, other
than with respect to Seller or Affiliates of Seller in the ordinary
course of business consistent with past practices;
(vi) Adopt or amend any bonus, profit sharing, compensation,
severance, termination, stock option, pension, retirement, deferred
compensation, employment or other employee benefit agreements, trusts,
plans, funds, or other arrangements for the benefit or welfare of any
director, officer, or employee, or (except for normal increases in the
ordinary course of business that are consistent with past practices and
that, in the aggregate, do not result in a material increase in benefits
or compensation expense to the Company) increase in any manner the
compensation or fringe benefits of any director, officer, or employee or
pay any benefit not required by any existing plan or arrangement
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(including, without limitation, the granting or vesting of stock options or
stock appreciation rights) or take any action or grant any benefit not
expressly required under the terms of any existing agreements, trusts,
plans, funds, or other such arrangements or enter into any contract,
agreement, commitment, or arrangement to do any of the foregoing; or make
or agree to make any payments to any directors, officers, agents,
contractors, or employees relating to a change or potential change in
control of the Company;
(vii) Acquire by merger, consolidation, or acquisition of stock
or assets of any corporation, partnership, or other business
organization or division or make any investment either by purchase of
stock or securities (other than portfolio investments), contributions to
capital, property transfer, or purchase of any material amount of
property or assets, in any other person;
(viii) Adopt any amendments to the Company's charter or bylaws
or equivalent organizational documents;
(ix) Take any action other than in the ordinary course of
business and consistent with past practices, to pay, discharge, settle,
or satisfy any claim, liability, or obligation (absolute or contingent,
accrued or unaccrued, asserted or unasserted, or otherwise);
(x) Change any method of accounting or accounting practice
used by the Company or any of its subsidiaries, except for any change
required by reason of a concurrent change in accounting principles;
(xi) Revalue in any respect any of its assets, including,
without limitation, writing down the value of its portfolio or writing
off notes or accounts receivable other than in the ordinary course of
business consistent with past practices;
(xii) Authorize any new capital expenditure that, individually,
is in excess of $50,000 or, in the aggregate, are in excess of $500,000;
(xiii) Make any tax election, settle or compromise any Tax
liability or consent to the extension of time for the assessment or
collection of any Tax;
(xiv) Make any accrual of Taxes in excess of the accrual of
Taxes contained in the unaudited Financial Statements for the period
ending December 31, 1994;
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(xv) Settle or compromise any pending or threatened suit,
action, or claim material to the Company or to the transactions
contemplated by this Agreement;
(xvi) Enter into any agreement, arrangement, or understanding
to do any of the foregoing actions in this Section 6.10, including any
agreement, arrangement, or understanding resulting in or providing for a
sale of any assets of the Company (other than a sale of assets in the
ordinary course of business and consistent with past practices) or a
merger or other liquidation, sale, or disposition of the Company; or
(xvii) Intentionally or wilfully take any action or omit to take
any reasonable action that would make any representation or warranty in
Article III untrue or incorrect in any material respect at any time,
including as of the date of this Agreement and as of the Closing Date.
(xviii) Make any payment to or incur any Liability with respect
to Seller or any Affiliate of Seller.
Section 6.11. Negotiations with Third Parties. Seller agrees that, from
the date of this Agreement to the earlier of Closing Date or the date of
termination of this Agreement: (a) it shall not solicit, encourage, negotiate
or enter into an agreement with any person with respect to any offer to
acquire any Share; and (b) it shall cause the Company to not discuss, solicit,
encourage, negotiate or enter into an agreement with any person with respect
to any offer to acquire all or any significant portion of its properties or
assets.
Section 6.12. Notification of Developments. Each of Seller and Buyer will
give prompt notice to the other party, of, and contemporaneously will provide
such other party 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 (a) the occurrence, or failure to occur, of any event,
which occurrence or failure could cause any representation or warranty
contained in this Agreement to be untrue or inaccurate in any material respect
at any time, (b) any material failure of Seller, Buyer or the Company, as the
case may be, or any officer, director, employee, or agent of Seller, Buyer or
the Company to comply with or satisfy any covenant, condition, or agreement to
be complied with or satisfied by it under this Agreement, (c) any act,
omission to act, event, or occurrence that, with notice, the passage of time,
or otherwise, could result in a Material Adverse Effect on the Company or
Seller, as the case may be, and (d) any contingent material Liability of the
Company for which it or Seller reasonably believes the Company will, with the
passage of time or otherwise, become liable. No such notification will affect
the representations or warranties of the parties or the conditions to the
obligations of the parties under this Agreement.
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<PAGE>
Section 6.13. Public Announcements. The Seller and the Company on the one
hand and the Buyer on the other hand will consult with each other before
issuing any press release or otherwise making any public statements with
respect to this Agreement, or the other transactions contemplated by this
Agreement, and will not issue any such press release or make any such public
statement prior to such consultation, except as may be required by law.
Section 6.14. Company Employees. Seller acknowledges and agrees that the
employees of the Company are a valuable proprietary asset of the Company.
Seller covenants and agrees that for a period commencing on the date hereof
and ending twelve (12) months after the Closing Date, neither Seller nor any
of its Affiliates will, without the express written consent of Buyer, directly
or indirectly hire or offer to hire any Company employee (including any
employee who is also an officer of the Company) or directly or indirectly
induce or attempt to induce any such employee of the Company to leave their
employment with the Company. Seller further agrees that Buyer may negotiate
or otherwise discuss employment matters with such employees; provided,
however, that no employment relationship or contractual arrangement shall
become effective prior to the Closing.
Seller specifically agrees and consents to the reasonableness of the above
- - detailed restrictions in each and every respect. Seller acknowledges and
agrees that any violation of any provision of this Section 6.14 will cause
irreparable harm to Buyer, that damages for such harm will be incapable of
precise measurement, and that as a result, Buyer's remedy at law for actual or
threatened violations of the provisions of this Section 6.14 will be
inadequate to redress the harm caused by such violation. Therefore, in the
event of any such violation, Seller agrees that Buyer shall be entitled to
temporary and permanent injunctive relief against such violations, including
the cost of reasonable attorneys' fees and charges incurred by Buyer in the
enforcement of these covenants. However, nothing herein stated shall be
construed as prohibiting Buyer from pursuing any other remedies available for
such breach or threatened breach, including the recovery of damages from
Seller.
Section 6.15. No Additional Liabilities. Between the date hereof and the
Closing Date, the Company will not, without the prior written consent of
Buyer, voluntarily incur or become subject to any material Liability of any
kind, except deferred Taxes, current liabilities incurred in the ordinary
course of business or in connection with the transactions contemplated by this
Agreement, and obligations under contracts entered into in the ordinary course
of business or as otherwise contemplated by this Agreement.
-38-<PAGE>
<PAGE>
ARTICLE VII.
Conditions of Buyer's Obligation to Close
The obligation of Buyer to consummate the transaction described in Article
II hereof is subject to the satisfaction on or before the Closing Date of all
of the following conditions precedent (any of which may be waived in writing
by Buyer):
Section 7.1. Representations, Warranties and Covenants of Seller. Each of
the representations and warranties of Seller contained in this Agreement shall
be true and correct on and as of the Closing Date with the same effect as
though such representations and warranties had been made on and as of such
date, except that any such representations and warranties that are made or
given as of a particular date and relate solely to a particular date or period
shall be true as of such date or period; each of the covenants and agreements
of Seller to be performed on or before the Closing Date shall have been duly
performed, and Buyer shall have received at the Closing a certificate to the
foregoing effects dated the Closing Date and executed by a duly authorized
officer of Seller.
Section 7.2. Filings; Consents; Waiting Periods. All registrations,
filings, applications, notices, transfers, consents, regulatory approvals,
orders, qualifications, waivers and other actions of any kind required of any
Persons, in connection with the consummation of the transaction described in
Article II hereof and all applicable waiting periods shall have expired or
been terminated.
Section 7.3. No Litigation. No action, suit or proceeding shall have been
instituted by any Person, or threatened by or before any Governmental Agency
to restrain or prevent the carrying out of the transactions contemplated by
this Agreement, that seeks other material relief with respect to any of such
transactions, or that is of such character as might have a Material Adverse
Effect on the Company, and no investigation by any Governmental Agency shall
have commenced or be threatened that might result in any such action or
proceeding. At the Closing Date, no injunction, restraining order or decree
of any nature of any Governmental Agency shall be in effect that restrains or
prohibits the consummation of the transactions contemplated by this Agreement.
Section 7.4. Financial Statements. The audited Financial Statements as of
and for the year ending December 31, 1994 shall not vary materially from the
unaudited Financial Statements as of and for the year ended December 31, 1994
provided to the Buyer, except for any differences which individually or in the
aggregate do not have a Material Adverse Effect on the Company.
Section 7.5. Officers and Directors. Except as waived in writing by
Buyer, each person who is an officer or director of the Company shall have
executed and
-39-<PAGE>
<PAGE>
delivered his resignation from such office or directorship, effective on the
Closing Date, in form satisfactory to Buyer.
Section 7.6. Tax Payments. Seller and Buyer shall have agreed in writing
to the amount of the Tax payments as provided in Section 5.4(d)(i).
Section 7.7. Constitution Life Management and Service Agreement. The
Management and Service Agreement by and between the Company and Constitution
Life Insurance Company, a Kentucky insurance corporation, dated as of October
1, 1992, shall have been amended in the manner provided by Exhibit A (the
"Amendment to the Management and Service Agreement").
Section 7.8. Closing Documents.
(a) Buyer shall have received:
(i) true, accurate and complete copies of the charter of the
Company, as amended to the Closing Date, certified as of a recent date
by the New York Secretary of State;
(ii) a certificate issued as of a recent date by the New York
Secretary of State evidencing the valid existence and good standing of
the Company in the State of New York;
(iii) a certified copy of the certificate of authority or other
comparable certificate, which is currently in full force and effect,
issued by the insurance authority of each state or other jurisdiction in
which the Company is purportedly licensed to engage in any insurance
business evidencing that the Company is authorized to engage in
insurance business in such state or other jurisdiction;
(iv) a certificate of compliance or other comparable
certificate issued as of a recent date by the insurance authority of
each state or other jurisdiction in which the Company is licensed to
engage in any insurance business evidencing that the Company is in
compliance with the insurance laws and regulations of such state or
other jurisdiction applicable to the Company and listing the lines of
business in which the Company is authorized to engage;
(v) certificates for all of the Shares, with appropriate
stock powers attached, properly signed, with the signature or signatures
thereon guaranteed, together with evidence of payment of any applicable
stock transfer taxes, and the stock books and stock transfer records of
the Company delivered to the Company;
-40-<PAGE>
<PAGE>
(vi) certificates dated the Closing Date and executed by a
duly authorized officer of Seller attesting to the incumbency of the
officers and directors of the Company and the authenticity of the
Company's charter, bylaws and corporate minutes, and certifying that no
actions have been taken by the shareholders or directors of the Company
since the date of the last minutes contained in the minute book thereof;
(vii) resolutions of the Board of Directors of the Seller
approving this Agreement and the Amendment to the Management and Service
Agreement certified by the Secretary of the Seller and resolutions of
the Company approving the Amendment to the Management and Service
Agreement, certified by the Secretary of the Company; and
(b) Buyer shall have received a written opinion, dated the Closing Date,
of Winstead, Sechrest & Minick, counsel for Seller, substantially in the form
of Exhibit B hereto.
ARTICLE VIII.
Conditions to Seller's Obligation to Close
The obligation of Seller to consummate the transaction described in Article
II hereof is subject to the satisfaction on or prior to the Closing Date of
all of the following conditions precedent (any of which may be waived in
writing by Seller);
Section 8.1. Representations, Warranties and Covenants of Buyer. Each of
the representations and warranties of Buyer contained in this Agreement shall
be true and correct on and as of the Closing Date with the same effect as
though such representations and warranties had been made on and as of such
date, except that any such representations and warranties that are made or
given as of a particular date and relate solely to a particular date or period
shall be true as of such date or period; each of the covenants and agreements
of Buyer to be performed on or before the Closing Date shall have been duly
performed, and Seller shall have received at the Closing Date a certificate to
the foregoing effects dated the Closing Date and executed by a duly authorized
officer of Buyer.
Section 8.2. Filings; Consents; Waiting Periods. All registrations,
filings, applications, notices, transfers, consents, regulatory approvals,
orders, qualifications, waivers and other actions of any kind required of any
Persons in connection with the consummation of the transaction described in
Article II hereof and all applicable waiting periods shall have expired or
been terminated.
-41-<PAGE>
<PAGE>
Section 8.3. Opinion of Counsel to Buyer. Seller shall have received a
written opinion, dated the Closing Date, of Bose McKinney & Evans, counsel for
Buyer, substantially in the form of Exhibit C hereto.
Section 8.4. No Litigation. No action, suit or proceeding shall have been
instituted by any Person, or threatened by or before any Governmental Agency
to restrain or prevent the carrying out of the transactions contemplated by
this Agreement or that seeks other material relief with respect to any of such
transactions, and no investigation by any Governmental Agency shall have
commenced or be threatened that might result in any such action or proceeding.
At the Closing Date, no injunction, restraining order or decree of any nature
of any Governmental Agency shall be in effect that restrains or prohibits the
consummation of the transactions contemplated by this Agreement.
Section 8.5. Tax Payments. Seller and Buyer shall have agreed in writing
to the amount of Tax payments as provided in Section 5.4(d)(i).
ARTICLE IX.
Termination, Amendment and Extension
Section 9.1. Termination. This Agreement may be terminated at any time
prior to the Closing:
(a) By mutual consent of Seller and Buyer.
(b) By Seller or Buyer if:
(i) the Closing shall not have occurred on or before
September 30, 1995 or such later date as Buyer and Seller may agree in
writing;
(ii) any Governmental Agency has issued a final order, decree,
or ruling or taken any other final action restraining, enjoining, or
otherwise prohibiting the sale of the Shares by Seller or the purchase
of the Shares by Buyer as contemplated by Article II of this Agreement,
and such order, decree, ruling, or other action is or has become
nonappealable; or
(iii) the New York Insurance Department shall disapprove the
Buyer's purchase of Shares as contemplated by this Agreement.
-42-<PAGE>
<PAGE>
(c) By Buyer on notice to Seller if any condition to Buyer's obligations
pursuant to Article VII has not been satisfied or, if waivable, waived by it
on or before the Closing Date or cannot be satisfied prior to September 30,
1995.
(d) By Seller on notice to Buyer if any condition to Seller's obligations
pursuant to Article VIII has not been satisfied or, if waivable, waived by it
on or before the Closing Date or cannot be satisfied prior to September 30,
1995.
Section 9.2. Obligations Upon Termination. No party electing to terminate
under Section 9.1 of this Agreement shall be considered to be in default of
its obligations under this Agreement by reason of such election. In the event
that this Agreement shall be terminated pursuant to Section 9.1, all further
obligations of the parties under this Agreement (except the obligation of
Buyer and Seller under Section 6.1 hereof) shall terminate. Nothing in this
Section 9.2 shall impair any rights or remedies of a party for breach of any
covenant or agreement on the part of any other party.
Section 9.3. Rights Upon Termination. If there is no Closing on or before
December 31, 1995, and if an election to terminate is made under Section
9.1(b)(i), both electing and nonelecting parties will continue to have all
rights and remedies for breach of any obligation or agreement on the part of
any other party.
Section 9.4. Amendment and Modification. Subject to applicable law, this
Agreement may be amended, modified or supplemented only by written agreement
of the parties hereto at any time prior to the Closing with respect to any of
the terms contained herein.
ARTICLE X.
Miscellaneous
Section 10.1. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more counterparts have been signed by each
of the parties hereto.
Section 10.2. Governing Law. The validity, interpretation, enforcement
and effect of this Agreement shall be construed in accordance with the laws of
the State of Delaware (without giving effect to the principles governing
conflicts of law).
Section 10.3. Entire Agreement. This Agreement and the Schedules and
Exhibits hereto, which are incorporated herein by reference, contain the
entire agreement between the parties hereto with respect to the subject matter
hereof, and there are no agreements, understandings, representations or
warranties between the
-43-<PAGE>
<PAGE>
parties hereto with respect to the subject matter hereof other than those set
forth or referred to herein.
Section 10.4. Expenses. Except as set forth in this Agreement, all legal
and other costs and expenses incurred in connection with this Agreement and
the transactions contemplated hereby shall be paid by the party incurring such
costs and expenses. The Company shall not be charged with or pay any legal
fees or other expenses incurred by Seller in connection with this Agreement or
the transactions contemplated hereby.
Section 10.5. Notices. All notices hereunder shall be sufficiently given
for all purposes hereunder if in writing and delivered personally or sent by
registered mail or certified mail, postage prepaid, to the appropriate address
as set forth below. Notice to Seller shall be addressed to:
Southwestern Life Insurance Company
500 North Akard, 12th Floor
Dallas, Texas 75201
Attention: Daniel Gail, Esquire
Executive Vice President and General Counsel
with a copy to: Rodney D. Moore
Winstead, Sechrest & Minick, P.C.
334 Padre Boulevard
South Padre Island, TX 78597
or at such other address and to the attention of such other person as Seller
may designate by notice to the other parties hereto. Notices to Buyer shall
be addressed to:
Indianapolis Life Insurance Company
2960 North Meridian Street
Indianapolis, Indiana 46208
Attn: Andrew C. Emerson, Esquire
Vice President and General Counsel
with a copy to: David A. Butcher
Bose McKinney & Evans
2700 First Indiana Plaza
135 North Pennsylvania Street
Indianapolis, IN 46204
or at such other address and to the attention of such other person as Buyer
may designate by notice to the other parties hereto. Any notice hereunder
shall be
-44-<PAGE>
<PAGE>
deemed to have been served or given as of the date such notice is personally
delivered or three (3) business days after it is mailed.
Section 10.6. Name. Seller acknowledges and agrees that neither Buyer nor
the Company has any obligation to change the name of the Company after the
Closing.
Section 10.7. Successors and Assigns. The rights and obligations of any
party to this Agreement shall not be assignable by such party without the
prior written consent of all other parties to this Agreement, except that
Buyer may assign any of its rights under this Agreement, without the consent
of Seller, to any Affiliate of Buyer, provided, however, no such assignment
shall release Buyer from any of its obligations hereunder. This Agreement
shall inure to the benefit and shall be binding upon the respective successors
and permitted assigns of the parties hereto. Nothing herein expressed or
implied is intended to confer upon any person, other than the parties hereto
or their respective successors or permitted assigns, any rights, remedies,
obligations or liabilities under or by reason of this Agreement.
Section 10.8. Headings. The headings in this Agreement are solely for
convenience of reference and shall not affect its interpretation.
Section 10.9. Severability. The provisions of this Agreement are
severable and the invalidity of any one or more provisions, including, but not
limited to, any one of the various restrictions contained in Section 6.11,
does not affect or limit the enforceability of the remaining provisions.
Section 10.10. Gender. Whenever in this Agreement any masculine, feminine
or neuter pronoun is used, such pronouns shall also include the other genders
whenever required by the context.
-45-<PAGE>
<PAGE>
IN WITNESS WHEREOF, this Agreement has been signed by or on behalf of each
of the parties hereto as of the day and year first above written.
SOUTHWESTERN LIFE INSURANCE
COMPANY
By:/s/Robert C. Greving
------------------------------
Robert C. Greving
Executive Vice President
ATTEST:
/s/Daniel B. Gail
- ----------------------------
Secretary
INDIANAPOLIS LIFE INSURANCE COMPANY
By:/s/Larry R. Prible
------------------------------
Larry R. Prible, President and
Chief Executive Officer
ATTEST:
/s/Margaret M. McKinney
- ----------------------------
Secretary
-46-<PAGE>
<PAGE>
EXHIBIT A
AMENDMENT TO MANAGEMENT AND SERVICE AGREEMENT
This Amendment to Management and Service Agreement (the "Amendment"), dated as
of ____________, 1995, is entered into between BANKERS LIFE INSURANCE COMPANY
OF NEW YORK, a New York insurance company ("Bankers") and CONSTITUTION LIFE
INSURANCE COMPANY, a Kentucky insurance company ("Constitution").
INTRODUCTORY PROVISIONS
The following statements are true and correct and form the basis for this
Agreement:
A. Bankers and Constitution are parties to that certain Management
and Service Agreement dated as of October 1, 1992, (the
"Agreement"), a true and complete copy of which Agreement is
attached hereto as Exhibit A.
B. Bankers and Constitution desire to modify the Agreement as
provided for below in this amendment.
Now, therefore, in consideration of the premises and other good and valuable
consideration the receipt and sufficiency of which are hereby acknowledged,
the parties hereto agree as follows:
1. Section 2.1 of the Agreement is hereby amended by striking the
last sentence thereof in its entirety.
2. The first and second paragraphs of Section 5.1 of the Agreement
are hereby amended to read in their entirety as follows:
This Agreement shall be effective as of October 1, 1992, and
shall terminate on June 30, 1997, unless extended by written
agreement signed by both Bankers and Constitution. Upon the
breach of this Agreement by either party, the non-breaching
party shall have all rights and remedies available to it in
law and equity.
3. Except as expressly provided for in this Amendment, the terms and
provisions of the Agreement remain in full force and effect
without amendment or modification.
Executed to be effective as of __________, 1995.
BANKERS LIFE INSURANCE COMPANY OF
NEW YORK
By: _____________________________
CONSTITUTION LIFE INSURANCE COMPANY
By: _____________________________
-47-<PAGE>
<PAGE>
EXHIBIT B
[WINSTEAD, SECHREST & MINICK STATIONERY]
____________, 1995
Indianapolis Life Insurance Company
2960 N. Meridian Street
Indianapolis, Indiana 46208
Attn: Andrew C. Emerson, Esquire
Vice President and General Counsel
Ladies and Gentlemen:
We have acted as special counsel to Southwestern Life Insurance Company, a
Texas stock life insurance company (the "Seller") and are rendering this
opinion to you pursuant to Section 7.8 of the Stock Purchase Agreement (the
"Agreement"), dated April ___, 1995, between the Seller and Indianapolis Life
Insurance Company, an Indiana mutual life insurance company (the "Buyer"),
pursuant to which the Buyer will acquire from Seller all of the outstanding
capital stock of Bankers Life Insurance Company of New York, a New York stock
life insurance company (the "Company"). Capitalized terms used herein and not
otherwise defined herein have the respective meanings assigned to such terms
in the Agreement.
In connection with our representation of Seller, we have examined the
Agreement and such other records, certificates and other documents and such
matters of law as we have considered necessary and appropriate for the purpose
of rendering the opinion set forth below.
For purposes of rendering this opinion, we have, with your consent and without
investigation, assumed:
(a) the genuineness of the signature of all persons signing the
Agreement and all instruments, documents, certificates,
applications, consents, filings and/or agreements related to the
transactions contemplated thereby or included in the schedules or
exhibits thereto (collectively, the "Pertinent Documents");
(b) the authority of each person executing the Pertinent Documents on
behalf of the parties thereto (other than the Seller and the
Company);
(c) the authenticity of all documents submitted to us as originals;
(d) the accuracy and completeness of all corporate public documents
and records made available to us;
-48-<PAGE>
<PAGE>
Indianapolis Life Insurance Company
____________, 1995
Page 2
(e) the conformity to authentic original documents of all documents
submitted to us as certified, conformed or photostatic copies;
(f) the due authorization, execution and delivery of the Pertinent
Documents by the parties thereto (other than the Seller and the
Company);
(g) the legal existence of Buyer;
(h) the legal competency of all natural persons who are parties to the
Pertinent Documents;
(i) the compliance by Buyer with all laws applicable to it that affect
the transactions contemplated by the Pertinent Documents; and
(j) that the Pertinent Documents are binding upon all the parties
thereto (other than the Seller and the Company), and that all the
parties thereto (other than the Seller and the Company) will act
in accordance with the terms and provisions thereof.
In addition, we have assumed that:
(a) all decisional authorities, statutes, rules and regulations
comprising the applicable law for which we are assuming
responsibility are published or otherwise generally accessible in
each case in a manner generally available to lawyers practicing in
the State of Texas; and
(b) routine procedural matters, such as service of process or
qualification to do business in the jurisdiction, will be
satisfied by the party seeking to enforce any of the Pertinent
Documents.
Based on the foregoing and subject to the exceptions hereinafter set forth, we
are of the opinion that:
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<PAGE>
Indianapolis Life Insurance Company
____________, 1995
Page 3
1. The Seller is a stock life insurance company duly incorporated,
validly existing and in good standing under the laws of the State
of Texas.
2. The Company is a stock life insurance company duly incorporated
and validly existing and in good standing under the laws of the
State of New York. The Company is (i) duly licensed, authorized
and qualified to issue or write, in each state or other
jurisdiction listed on Schedule 3.1 to the Agreement, the classes
or kinds of insurance listed therein opposite each such state or
jurisdiction and (ii) has all requisite corporate power and
authority to own, operate or lease its assets and properties and
otherwise to carry on and engage in the insurance business as
presently conducted.
3. The execution and delivery of, and the performance of its
obligations under, the Agreement and the other Pertinent Documents
by the Seller were duly authorized by all requisite corporate
action, including without limitation any necessary director or
shareholder approval on the part of Seller. The Seller has the
requisite corporate power and authority to execute and deliver the
Agreement and to perform its obligations thereunder. The Agreement
is a legal, valid and binding obligation of the Seller,
enforceable against the Seller in accordance with its terms,
except to the extent that (i) 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
creditor's rights generally or (ii) 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 similar authority before which any proceeding therefor
may be brought.
4. The execution and delivery of, and the performance of its
respective obligations under, the Agreement by Seller and the
Company do not and the consummation of the transactions
contemplated thereby will not: (i) violate any provision of the
Seller's or Company's charter, bylaws or other organizational
documents; (ii) violate or conflict with any law, statute, rule or
-50-<PAGE>
<PAGE>
Indianapolis Life Insurance Company
____________, 1995
Page 4
regulation, or to our knowledge any ordinance, order, writ,
injunction, decree, judgment or arbitration award binding on or
applicable to the Seller or the Company except as may result from
the failure to obtain the consents and approvals specifically
contemplated in the Agreement, which consents and approvals have
been received on or before the date hereof; or (iii) to our
knowledge require any action by or in respect of, or filing with,
or consent of, any governmental body, agency or official or any
other person or entity, other than such consents specifically
contemplated in the Agreement which have been received on or
before the date hereof.
5. The authorized shares of all classes of the Company consist solely
of 4,603 shares of common stock, $435.00 par value per share (the
"Shares"), all of which are issued and outstanding. To our
knowledge, upon consummation of the transaction, the Buyer will
acquire good and valid title to all of the Shares free and clear
of any Encumbrances. All of the Shares are duly authorized,
validly issued, fully paid and nonassessable and are evidenced by
certificate No. ____. All of the Shares are owned of record and,
to our knowledge, beneficially by the Seller free and clear of any
Encumbrances. To the best of our knowledge, there are no
outstanding subscriptions, options, warrants, calls, convertible
or exchangeable securities, or other rights of any kind to acquire
any interest in any shares of any class of stock of the Company,
and there are no voting trusts or other agreements, understandings
or restrictions of any kind with respect to the voting of the
shares of any class of stock of the Company or the sale,
redemption or other disposition thereof.
In rendering the opinion expressed in paragraph 1 above with respect to
existence and good standing, we have relied exclusively upon certificates
issued by the Secretary of State of the State of Texas; in rendering the
opinion expressed in paragraph 2 above with respect to existence and good
standing of the Company, we have relied exclusively upon certificates issued
by the Secretary of State of New York; in rendering the opinion expressed in
paragraph 2 above with respect to licensing and qualification of the Company,
we have relied exclusively upon
-51-<PAGE>
<PAGE>
Indianapolis Life Insurance Company
____________, 1995
Page 5
certificates issued by the department of the Insurance Commissioner (or
similar state authority) of the jurisdictions listed on Exhibit 3.1 to the
Agreement.
The terms "to our knowledge" and "known to us" and other terms of
similar import used in this opinion shall mean a verification only to the
extent of the existing actual knowledge of lawyers in this firm that have
participated in the representation of Seller and the Company and are not
intended to imply that we in fact have actual knowledge of the subject matter
to which such terms apply. However, in the course of rendering the legal
services described in this opinion letter, no facts or circumstances have come
to the attention of the lawyers in this firm that have participated in the
representation of Seller and the Company that any such information [or that
any of the representations and warranties of the Seller contained in Article
III of the Agreement] are incorrect in any material respect. You are advised
that our engagement by Seller and the Company has been limited to specific
matters about which we have been consulted; consequently, there are matters of
a legal nature involving Seller and the Company about which we have not
advised or represented them.
This opinion letter is limited to the current Federal laws of the United
States and current internal laws of the State of Texas and the State of
Delaware (without giving effect to any conflict of law principles thereof),
and we have not considered, and express no opinion on, the laws of any other
jurisdiction. This opinion letter is dated and speaks as of the date of
delivery and is based on facts and conditions presently known to us and the
laws and regulations currently in effect. We have no obligation to advise you
or any third parties of changes in law or fact that may hereafter occur or
come to any attention, even though the legal analysis or legal conclusions
contained in this opinion letter may be affected by such changes.
This opinion is furnished to you pursuant to the Agreement, is solely
for your benefit in connection with the transactions contemplated thereby and
may not be used or relied upon by, nor published or communicated to, any other
person for any purpose whatsoever without in each instance our prior and
express written consent.
Very truly yours,
WINSTEAD, SECHREST & MINICK, P.C.
-52-<PAGE>
<PAGE>
EXHIBIT C
[BOSE McKINNEY & EVANS STATIONERY]
____________, 1995
Southwestern Life Insurance Company
500 N. Akard, 12th Floor
Dallas, Texas 75201
Attn: Daniel Gail, Esquire
Executive Vice President and General Counsel
Ladies and Gentlemen:
We are counsel to Indianapolis Life Insurance Company, an Indiana mutual life
insurance company (the "Buyer"), and we are rendering this opinion to you
pursuant to Section 8.3 of the Stock Purchase Agreement (the "Agreement"),
dated April ___, 1995, between the Buyer and Southwestern Life Insurance
Company, a Texas stock life insurance company (the "Seller"), pursuant to
which the Buyer will acquire from Seller all of the outstanding capital stock
of Bankers Life Insurance Company of New York, a New York stock life insurance
company (the "Company"). Capitalized terms used herein and not otherwise
defined herein have the respective meanings assigned to such terms in the
Agreement.
In connection with our representation of Buyer, we have examined the Agreement
and such other records, certificates and other documents and such matters of
law as we have considered necessary and appropriate for the purpose of
rendering the opinion set forth below.
For purposes of rendering this opinion, we have, with your consent and without
investigation, assumed:
(a) the genuineness of the signature of all persons signing the
Agreement and all instruments, documents, certificates,
applications, consents, filings and/or agreements related to the
transactions contemplated thereby or included in the schedules and
exhibits thereto (collectively, the "Pertinent Documents");
-53-<PAGE>
<PAGE>
Southwestern Life Insurance Company
____________, 1995
Page 2
(b) the authority of the person executing the Pertinent Documents on
behalf of the parties thereto (other than the Buyer);
(c) the authenticity of all documents submitted to us as originals;
(d) the accuracy and completeness of all corporate public documents
and records made available to us;
(e) the conformity to authentic original documents of all documents
submitted to us as certified, conformed or photostatic copies;
(f) the due authorization, execution and delivery of the Pertinent
Documents by the parties thereto (other than the Buyer);
(g) the legal existence of the Seller and the Company;
(h) the legal competency of all natural persons who are parties to the
Pertinent Documents;
(i) the compliance by the Seller and the Company with all laws
applicable to each of them that affect the transactions
contemplated by the Pertinent Documents; and
(j) that the Pertinent Documents are binding upon all the parties
thereto (other than the Buyer), and that all the parties thereto
(other than the Buyer) will act in accordance with the terms and
provisions thereof.
In addition, we have assumed that:
(a) all decisional authorities, statutes, rules and regulations
comprising the applicable law for which we are assuming
responsibility are published or otherwise generally accessible in
each case in a
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Southwestern Life Insurance Company
____________, 1995
Page 3
manner generally available to lawyers practicing in the State of
Indiana; and
(b) routine procedural matters, such as service of process or
qualification to do business in the jurisdiction, will be
satisfied by the party seeking to enforce any of the Pertinent
Documents;
Based on the foregoing and subject to the exceptions hereinafter set forth, we
are of the opinion that:
1. The Buyer is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of Indiana.
2. The execution and delivery of, and the performance of its
obligations under, the Agreement by the Buyer were duly authorized
by all necessary corporate action, including without limitation,
any necessary director or policyholder approval on the part of
Buyer. The Buyer has the requisite corporate power and authority
to execute and deliver the Agreement and to perform its obligation
thereunder. The Agreement is a legal, valid and binding obligation
of Buyer, enforceable against Buyer in accordance with its terms,
except to the extent that (i) 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
creditor's rights generally or (ii) 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 similar authority before which any proceeding therefor
may be brought.
3. The execution and delivery of, and the performance of its
obligations under, the Agreement by Buyer does not, and the
consummation of the transactions contemplated thereby will not:
-55-<PAGE>
<PAGE>
Southwestern Life Insurance Company
____________, 1995
Page 4
(i) violate any provision of the Buyer's charter, bylaws or other
organizational document; or (ii) violate or conflict with any law,
statute, rule or regulation, or to our knowledge any ordinance,
order, writ, injunction, decree, judgment or arbitration award
binding on or applicable to the Buyer except as may result from
the failure to obtain the consents and approvals specifically
contemplated in the Agreement, which consents and approvals have
been received on or before the date hereof.
In rendering the opinion expressed in paragraph 1 above with respect to
existence and good standing, we have relied exclusively upon certificates
issued by the Secretary of State of the State of Indiana.
The terms "to our knowledge" and "known to us" and other terms of similar
import used in this opinion shall mean a verification only to the extent of
the existing actual knowledge of lawyers in this firm that have participated
in the representation of Buyer and are not intended to imply that we in fact
have actual knowledge of the subject matter to which such terms apply.
However, in the course of rendering the legal services described in this
opinion letter, no facts or circumstances have come to the attention of the
lawyers in this firm that have participated in the representation of Buyer
that any such information is incorrect in any material respect. You are
advised that our engagement by Buyer has been limited to specific matters
about which we have been consulted; consequently, there are matters of a legal
nature involving Buyer about which we have not advised or represented them.
This opinion letter is limited to the current Federal laws of the United
States and current internal laws of the State of Indiana and the State of
Delaware (without giving effect to any conflict of law principles thereof),
and we have not considered, and express no opinion on, the laws of any other
jurisdiction. This opinion letter is dated and speaks as of the date of
delivery and is based on facts and conditions currently known to us and the
laws and regulations currently in effect. We have no obligation to advise you
or any third parties of changes in law or fact that may hereafter occur or
come to our attention, even though the legal analysis or legal conclusions
contained in this opinion letter may be affected by such changes.
-56-<PAGE>
<PAGE>
Southwestern Life Insurance Company
____________, 1995
Page 5
This opinion is furnished to you pursuant to the Agreement, is solely for your
benefit in connection with the transactions contemplated thereby and may not
be used or relied upon by, nor published or communicated to, any other person
for any purpose whatsoever without in each instance our prior and express
written consent.
Very truly yours,
BOSE McKINNEY & EVANS
-57-<PAGE>
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