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FORM 8-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report: November 13, 1997
The Liberty Corporation
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(Exact name of registrant as specified in its Charter)
South Carolina 1-5846 57-0507055
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(State or other Commission IRS Employer
jurisdiction of incorporation) File Number Identification No.
2000 Wade Hampton Boulevard
Greenville, South Carolina 29602
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(Address of Principal Executive Offices and Zip Code)
(864) 609-8256
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(Registrant's telephone number, including area code)
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(Former Name or Former Address, if Changed Since Last Report)
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Item 2. Acquisition or Disposition of Assets.
On November 13, 1997, The Liberty Corporation ("the Registrant") announced that
it had agreed to sell its wholly-owned subsidiary, Pierce National Life
Insurance Company ("Pierce or the Company"), to Fortis, Inc. Under the terms of
the stock purchase agreement Fortis will acquire Pierce for $180,000,000 cash,
payable to the Registrant at closing. Additionally, Fortis has entered into a
five-year contract with Liberty Insurance Services, Inc. (a wholly-owned
subsidiary of the Registrant), in which Liberty Insurance Services will provide
back-office administrative services for the existing business of Pierce National
Life and the current block of business of United Family Life (a wholly-owned
subsidiary of Fortis, Inc.). The transaction is expected to close during the
first quarter of 1998 pending regulatory approvals.
For further information concerning the stock purchase agreement, see Exhibit 10
hereto, which is incorporated herein by reference.
FORWARD LOOKING INFORMATION
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward looking statements. Certain information contained herein or in any
other written or oral statements made by, or on behalf of the Company, are or
may be viewed as forward looking. Although the Company has used appropriate care
in developing any such forward looking information, forward looking information
involves risks and uncertainties that could significantly impact actual results.
These risks and uncertainties include, but are not limited to, the following:
changes in general economic conditions, including the performance of financial
markets and interest rates; competitive, regulatory, or tax changes that affect
the cost of or demand for the Company's products; and adverse litigation
results. The Company undertakes no obligation to publicly update or revise any
forward looking statements, whether as a result of new information, future
developments, or otherwise.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(b) Pro Forma Condensed Financial Statements of The Liberty
Corporation and Subsidiaries
(c) Exhibits.
Exhibit 10.1 Stock Purchase Agreement by and among
Fortis, Inc., Interfinancial Inc., The
Liberty Corporation, Liberty Life Insurance
Company, and The Liberty Marketing
Corporation
Exhibit 99.1 Pro Forma Condensed Financial Statements of
The Liberty Corporation and Subsidiaries
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: November 25, 1997
The Liberty Corporation
By: /s/ Martha G. Williams
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Martha G. Williams
Vice President, General Counsel
and Secretary
By: /s/ Kenneth W. Jones
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Kenneth W. Jones
Corporate Controller
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Index to Exhibits
Exhibit Number Designation
10.1 Stock Purchase Agreement by and among Fortis, Inc.,
Interfinancial Inc., The Liberty Corporation, Liberty
Life Insurance Company, and The Liberty Marketing
Corporation
99.1 Pro Forma Condensed Financial Statements of The
Liberty Corporation and Subsidiaries
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EXHIBIT 10.1
STOCK PURCHASE AGREEMENT
BY AND AMONG
FORTIS, INC.,
INTERFINANCIAL INC.,
THE LIBERTY CORPORATION,
LIBERTY LIFE INSURANCE COMPANY
AND
THE LIBERTY MARKETING CORPORATION
DATED AS OF NOVEMBER 13, 1997
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TABLE OF CONTENTS
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ARTICLE 1 CERTAIN DEFINITIONS.................................................................... 9
ARTICLE 2 STOCK PURCHASE AND CLOSING............................................................. 16
2.1 Purchase and Sale of the Shares......................................................... 16
2.2 Consideration........................................................................... 16
2.3 Closing................................................................................. 16
2.4 Deliveries and Proceedings at the Closing............................................... 17
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SELLER............................................... 17
3.1 Organization and Good Standing of Seller; Power and Authority........................... 17
3.2 Organization and Good Standing of the Company; Power and Authority...................... 17
3.3 Capitalization and Ownership............................................................ 18
3.4 Subsidiaries............................................................................ 18
3.5 No Violation of Laws or Agreements...................................................... 18
3.6 Books and Records....................................................................... 18
3.7 Financial Statements.................................................................... 19
3.8 Absence of Certain Changes.............................................................. 20
3.9 Reserves................................................................................ 21
3.10 Tax Matters............................................................................. 21
3.11 Guaranty Fund Assessments............................................................... 23
3.12 Insurance Contracts..................................................................... 24
3.13 Permits................................................................................. 25
3.14 Regulatory Filings and Reports.......................................................... 25
3.15 Reinsurance............................................................................. 26
3.16 Cancellation............................................................................ 26
3.17 Investment Assets....................................................................... 26
3.18 Pending Litigation or Proceedings....................................................... 26
3.19 Compliance With Laws, Including Environmental........................................... 27
3.20 Consents and Approvals.................................................................. 28
3.21 Other Material Contracts................................................................ 28
3.22 Title................................................................................... 30
3.23 Computer Software and Other Intellectual Property....................................... 31
3.24 Employee Benefit Plans.................................................................. 32
3.25 Intercompany Contracts.................................................................. 35
3.26 Labor Matters........................................................................... 35
3.27 Operations Insurance.................................................................... 35
3.28 Brokerage............................................................................... 35
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF FORTIS AND PURCHASER................................. 36
4.1 Organization and Good Standing; Power and Authority..................................... 36
4.2 No Violation of Laws or Agreements...................................................... 36
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4.3 Pending Litigation or Proceedings....................................................... 37
4.4 Consents and Approvals.................................................................. 37
4.5 Brokerage............................................................................... 37
4.6 Investment Intent....................................................................... 37
4.7 Financing............................................................................... 37
ARTICLE 5 CERTAIN ADDITIONAL COVENANTS AND AGREEMENTS............................................ 37
5.1 Operation of the Company's Business Pending Closing..................................... 37
5.2 Certain Transactions.................................................................... 41
5.3 Access to Information and Confidentiality............................................... 41
5.4 Certain Tax Matters..................................................................... 42
5.5 Intercompany Contracts.................................................................. 47
5.6 Regulatory Approvals and Consents....................................................... 48
5.7 Efforts to Close........................................................................ 49
5.8 Expenses................................................................................ 49
5.9 Resignations............................................................................ 49
5.10 Guaranty Fund Assessments............................................................... 49
5.11 Maintenance of Records.................................................................. 50
5.12 Certain Agreements Regarding Benefit Plans and Other Employee Matters................... 50
5.13 Publicity............................................................................... 52
5.14 Access.................................................................................. 52
5.15 Trademarks, Tradenames and Records...................................................... 53
5.16 Assumed Liabilities..................................................................... 53
5.17 Investment Assets....................................................................... 54
5.18 Commitment to Make Capital Contribution................................................. 55
ARTICLE 6 CONDITIONS TO CLOSING.................................................................. 55
6.1 Conditions to Obligations of Fortis and Purchaser....................................... 55
6.2 Conditions to Obligations of Seller..................................................... 57
ARTICLE 7 INDEMNIFICATION........................................................................ 58
7.1 Nature and Survival of Representations.................................................. 58
7.2 Obligations of Seller to Indemnify...................................................... 59
7.3 Obligations of Fortis and Purchaser to Indemnify........................................ 60
7.4 Procedures for Indemnification.......................................................... 60
7.5 Third-Party Claims...................................................................... 61
7.6 Sole Remedy............................................................................. 62
7.7 Reduction for Certain Benefits.......................................................... 63
7.8 Subrogation Rights...................................................................... 63
ARTICLE 8 TERMINATION............................................................................ 63
8.1 When Agreement May be Terminated........................................................ 63
8.2 Effect of Termination................................................................... 64
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ARTICLE 9 MISCELLANEOUS.......................................................................... 65
9.1 Amendment............................................................................... 65
9.2 Waiver.................................................................................. 65
9.3 Governing Law........................................................................... 65
9.4 Notices................................................................................. 65
9.5 Invalid Provision....................................................................... 66
9.6 Assignment.............................................................................. 66
9.7 Binding Effect.......................................................................... 66
9.8 Further Assurances...................................................................... 66
9.9 Headings................................................................................ 66
9.10 Person and Gender....................................................................... 67
9.11 Entire Agreement........................................................................ 67
9.12 Interpretations......................................................................... 67
9.13 Execution in Counterparts............................................................... 67
9.14 No Third-Party Beneficiaries............................................................ 67
9.15 Waiver of Jury Trial.................................................................... 67
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made as of November
13, 1997, by and among FORTIS, INC., a Nevada corporation ("Fortis"),
INTERFINANCIAL INC., a Georgia corporation ("Purchaser"), THE LIBERTY
CORPORATION, a South Carolina corporation ("Seller"), LIBERTY LIFE INSURANCE
COMPANY, a South Carolina corporation ("Liberty Life"), and THE LIBERTY
MARKETING CORPORATION, a South Carolina corporation ("LMC").
RECITALS
WHEREAS, Seller owns 100% of the issued and outstanding capital stock
of each of Pierce National Life Insurance Company, a California corporation (the
"Company"), Liberty Life and LMC; and
WHEREAS, Fortis owns 100% of the issued and outstanding capital stock
of Purchaser; and
WHEREAS, Seller desires to sell to Purchaser, and Fortis and Purchaser
desire that Purchaser acquire, all of the capital stock of the Company, in
accordance with the terms and conditions of this Agreement; and
WHEREAS, Liberty Life and LMC are subsidiaries of Seller and are
Parties to this Agreement for purposes of Section 5.5 with respect to Liberty
Life, and Section 5.16 with respect to LMC;
NOW, THEREFORE, in consideration of the mutual promises contained
herein, and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Seller, Purchaser and Fortis (collectively,
the "Parties" and sometimes individually, a "Party"), intending to be legally
bound, agree as follows:
ARTICLE 1
CERTAIN DEFINITIONS
As used herein, the following terms have the following respective
meanings (such meanings to be equally applicable to both the singular and plural
forms of the terms defined):
"ADMINISTRATIVE SERVICES AGREEMENT" means the Administrative Service
Agreement of even date herewith by, between and among Liberty Insurance Services
Corporation, the Seller on the one hand, and Fortis and Fortis' indirect wholly
owned subsidiary, United Family Life Insurance Company, on the other hand.
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"AFFILIATE" of a Person means any Person directly, or indirectly
through one or more intermediaries, controlling, controlled by or under common
control with such Person. For purposes of this Agreement, "control" shall be
conclusively presumed if a Person holds the power, by equity ownership or
otherwise, to elect at least 50% of the directors of the other Person or
otherwise direct the policies and business activities of the other Person.
"AGREEMENT" means this Stock Purchase Agreement, as the same may be
supplemented, modified or amended from time to time.
"ASSETS" of a Person means all of the assets, properties, businesses
and rights of such Person of every kind, nature, character and description,
whether real, personal or mixed, tangible or intangible, accrued or contingent,
utilized in such Person's business, whether or not carried on the books and
records of such Person, and whether or not owned in the name of such Person and
wherever located.
"ASSUMED LIABILITIES" means the obligations described in SECTION 1.1 of
the Seller Disclosure Memorandum.
"BUSINESS DAY" means any day other than a Saturday, a Sunday, or any
day upon which commercial banks in the city of New York are authorized or
required by law to be closed.
"CALIFORNIA INSURANCE CODE" means the California Insurance Code, all
regulations promulgated pursuant thereto, and all orders, bulletins and the like
issued by the California Department of Insurance.
"CLOSING" means the consummation of the transactions described in this
Agreement.
"CLOSING DATE" means the date upon which Closing occurs.
"COMMISSION CONTRACTS" means all Contracts pursuant to which the
Company is obligated to pay commissions, overrides or other fees for the sale,
issuance or production of In Force Insurance Contracts.
"COMPANY MATERIAL ADVERSE EFFECT" means a material adverse change in
the Assets, Liabilities, results of operations or financial condition of the
Company, or any material adverse effect on the ability of Seller to perform its
obligations under this Agreement or to consummate the transactions contemplated
hereby.
"CONSENT" means any consent, approval, authorization, clearance,
exemption, waiver, or similar affirmation by any Person pursuant to any
Contract, Law, Order, or Permit.
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"CONTRACT" means any written agreement, arrangement, authorization,
commitment, contract, indenture, instrument, lease, obligation, plan, course of
conduct, restriction, understanding, treaty or undertaking of any kind or
character, or other document to which any Person is a party or that is binding
on any Person or its capital stock, assets or business.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
in effect from time to time.
"ERISA OBLIGATION" means any Loss, Liability, Expense or other cost
arising out of or relating to (i) the establishment, funding, operation,
administration, amendment or termination of or withdrawal or partial withdrawal
from, any Seller's Plan as listed in SECTION 3.24(A) of the Seller Disclosure
Memorandum, or any other Benefit Plan provided to Persons other than or in
addition to employees, retirees, dependents, spouses, directors, independent
contractors, agents or other beneficiaries of the Company, which is now or
previously has been in existence, established, maintained or contributed to, or
required to be established, maintained or contributed to, by Seller, the Company
or any ERISA Affiliate, including, without limitation, any Liabilities arising
under Title IV of ERISA, Section 302 of ERISA and Section 412 or 4971 of the Tax
Code, and (ii) any failure prior to the Closing Date by Seller, the Company or
any ERISA Affiliate to comply with the continuation coverage requirements
contained in Section 4980B(f) of the Tax Code and/or Section 6012 of ERISA;
provided, however, that ERISA Obligation does not include any obligation
expressly assumed by Purchaser pursuant to Section 5.12 hereof.
"EXPENSES" means reasonable attorneys' and other professional fees,
costs of defense, costs of investigation, and other out-of-pocket costs.
"FINAL DETERMINATION" means (i) with respect to federal income Taxes, a
"determination" as defined in Section 1313(a) of the Tax Code or execution of an
IRS Form 870AD and, with respect to Taxes other than federal income Taxes, any
final determination of liability in respect of a Tax that, under applicable Law,
is not subject to further appeal, review or modification through proceedings or
otherwise, or (ii) the payment of Tax by Seller, Purchaser or any of their
Affiliates, whichever is responsible for payment of such Tax under applicable
Law, with respect to any item disallowed or adjusted by a Governmental
Authority, provided that such responsible party determines that no action should
be taken to recoup such payment and the other party agrees.
"GAAP" means United States generally accepted accounting principles
consistently applied, including, but not limited to, Statement of Financial
Accounting Standards No. 5 issued by the Financial Accounting Standards Board.
"GOVERNMENTAL AUTHORITY" means any federal, state, county, local,
foreign or other governmental or public agency, instrumentality, commission,
authority, board or body, including, without limitation, Insurance Authorities.
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"HART-SCOTT ACT" means the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended, and all regulations promulgated thereunder.
"HAZARDOUS MATERIALS" means materials defined as "hazardous waste or
substances" under the Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C. ss. 9601 et seq. and the Resource Conservation and
Recovery Act, 42 U.S.C. ss. 6903 et seq., and other solid, semi-solid, liquid or
gaseous substances which are toxic, ignitable, corrosive, carcinogenic or
otherwise dangerous to the environment.
"INCLUDIBLE CORPORATION" means an "includible corporation" as defined
in Section 1504 of the Tax Code.
"IN FORCE INSURANCE CONTRACTS" means the Insurance Contracts in effect
on the date hereof, or as of the Closing Date, as the case may be.
"INSURANCE AUTHORITY" means the insurance regulatory authority of
California, Canada and each other jurisdiction with regulatory authority over
the Company's insurance activities.
"INSURANCE CONTRACTS" means all preneed life and other insurance
policies, annuity contracts, binders, slips, certificates and other agreements
of insurance (including all applications, supplements, endorsements, riders and
ancillary agreements in connection therewith) that are issued by the Company.
"INTERCOMPANY LOSS" means any Loss relating to or arising out of any
payments (including any recharacterization of such payments) to Seller or any
Seller Related Party in connection with the services provided by Seller or such
Seller Related Party to or on behalf of the Company pursuant to any Intercompany
Contract.
"INVESTMENT ASSETS" means all bonds, stocks, mortgage-backed
securities, real estate and other Assets (other than cash and policy loans) held
for investment purposes as defined by SAP.
"IRS" means the U.S. Internal Revenue Service.
"KNOWLEDGE" (i) with respect to Seller means those facts known by any
of Hayne Hipp, Jennie Johnson, Martha G. Williams, Ken Jones, Ron Loewen, Joel
Conrad, Susan Cyr and Susan Mink; and (ii) with respect to Fortis and Purchaser,
means those facts known by any of the directors or officers having a title of
Vice President or higher of Fortis and Purchaser.
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"LAW" means any law, ordinance, regulation, rule or statute of any
federal, state, local or foreign Governmental Authority applicable to a Person
or its Assets, Liabilities or business.
"LIABILITY" means any direct or indirect, primary or secondary,
liability, indebtedness, obligation, penalty, cost or expense (including costs
of investigation, collection and defense), claim, deficiency, guaranty or
endorsement of or by any Person (other than endorsements of notes, bills, checks
and drafts presented for collection or deposit in the Ordinary Course of
Business) of any type.
"LIEN" means any conditional sale agreement, default of title,
easement, encroachment, encumbrance, hypothecation, infringement, lien,
mortgage, option, pledge, reservation, restriction, security interest, title
retention or other security arrangement, or any adverse right or interest,
charge or claim of any nature whatsoever of, on or with respect to any property
or property interest.
"LOSS" means any claim, assessment, loss, diminution in value, damages
(excluding punitive damages), Liability, cost or Expense.
"NAIC" means the National Association of Insurance Commissioners.
"ORDINARY COURSE OF BUSINESS" means, with respect to the Company, the
ordinary and usual course of business of the Company as generally conducted
since January 1, 1996 with only those changes in the manner of conducting
business that are reasonably intended for the benefit of the Company, that are
reasonable to reflect the matters disclosed in the Seller Disclosure Memorandum,
or that are approved by Purchaser in writing from time to time.
"ORDER" shall mean any administrative decision or award, decree,
injunction, judgment, order, quasi-judicial decision or award, ruling, or writ
of any federal, state, local or foreign or other court, arbitrator, mediator,
tribunal, administrative agency or other Governmental Authority.
"PERMIT" means all licenses, permissions, authorizations and permits
issued by any Governmental Authority with respect to any permitted action or
undertaking, including but not limited to a Permit granted by any insurance
regulatory body.
"PERSON" means an individual, corporation, partnership, association,
trust or unincorporated organization, or a government or any agency or political
subdivision thereof.
"PURCHASER DISCLOSURE MEMORANDUM" means the written information
entitled "Purchaser Disclosure Memorandum" delivered to Seller prior to the date
of this Agreement and referencing specific Sections of this Agreement. Any
matter disclosed by Fortis or Purchaser with respect to one Section shall be
deemed disclosed with respect to all other Sections, provided that the relevance
to the
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Section from which any such matter is omitted is apparent from the disclosure
with respect to the Section for which such matter is included.
"PURCHASER MATERIAL ADVERSE EFFECT" means a material adverse change in
the Assets, Liabilities, results of operations or financial condition of Fortis,
or any material adverse effect on the ability of Fortis or Purchaser to perform
its obligations under this Agreement or to consummate the transactions
contemplated hereby.
"QUALIFIED INVESTMENTS" means (i) publicly traded corporate bonds with
a rating of A or better from a rating agency generally accepted by the insurance
industry, (ii) U.S. government securities, (iii) Canadian federal and provincial
securities, but only as required to fund deposit requirements of Canadian
Insurance Authorities, (iv) cash equivalents, and (v) other investments approved
specifically or as a category by Purchaser in writing from time to time.
"RELEASE" means any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping or other disposal
in any amount into or onto the air, ground or surface water, land or other parts
of the environment, however caused.
"SAP" means the statutory accounting principles and practices, as in
effect from time to time, required or permitted for life insurance companies by
the California Insurance Code or other applicable Law (including, without
limitation, Canadian Law and applicable promulgations of the NAIC), consistently
applied throughout the specified period and in the immediately comparable
period.
"SELLER DISCLOSURE MEMORANDUM" means the written information entitled
"Seller Disclosure Memorandum" delivered to Purchaser prior to the date of this
Agreement and referencing specific Sections of this Agreement. Any matter
disclosed by Seller with respect to one Section shall be deemed disclosed with
respect to all other Sections, provided that the relevance to the Section from
which any such matter is omitted is apparent from the disclosure with respect to
the Section for which such matter is included.
"SELLER GROUP" means, with respect to federal income Taxes, the
affiliated group of corporations (as defined in Section 1504(a) of the Tax Code)
of which Seller is a member and, with respect to state income or franchise
Taxes, the consolidated, combined or unitary group of which Seller or any of its
Affiliates is a member.
"SELLER RELATED PARTY" means (i) Seller, (ii) any Affiliate of Seller
or the Company, (iii) any senior officer or director of Seller, the Company or
any Affiliate thereof, and (iv) any Person in which any senior officer or
director of Seller, the Company or any Affiliate thereof, individually or in the
aggregate, holds a majority interest.
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"TAX CODE" means the Internal Revenue Code of 1986, as amended, and the
rules and regulations promulgated thereunder.
"TAX RETURNS" means all returns, reports, statements, estimates,
declarations, notices or forms, including accompanying schedules, in each case
with respect to Taxes.
"TAXES" means all federal, state, local and foreign income, premium,
payroll, withholding, excise, sales, use, gains, transfer, real and personal
property, use and occupation, capital stock, franchise and other taxes,
including interest and penalties thereon and all estimated taxes.
"TRANSACTION AGREEMENTS" means the Administrative Services Agreement
and Amended Reinsurance Agreement.
The following terms are defined in the following Sections of this
Agreement:
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TERM SECTION
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AFAG 3.4
Amended Reinsurance Agreement 5.5(b)
Applicable Tax Rate 5.4(a)(ii)
Audit Reports 3.14
Benefit Plans 3.24(a)
COBRA 3.24(g)
Company Employee 5.12(a)
Company's Plans 3.24(a)
Confidential Information 5.3(b)
Environmental Laws 3.19(c)
ERISA Plans 3.24(a)
Fair Market Value 5.17(b)
Fortis Plan 5.12(c)
GAAP Statements 3.7(b)
Indemnification Claim 7.4(a)
Indemnitee 7.4(a)
Indemnitor 7.4(a)
Insurance Forms 3.12
Intellectual Property 3.23(a)
Intercompany Contract 3.25(a)
Lease 3.22(b)
Liberty Plan 5.12(b)
Liberty Reinsurance Agreement 5.5(b)
Pension Plans 3.24(a)
Permitted Liens 3.22(a)(vi)
Purchase Price 2.2
Reinsurance Contracts 3.15
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<TABLE>
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Reserve Liabilities 3.9
SAP Statements 3.7(a)
Seller's Plans 3.24(a)
Shares 2.1
Stub Period 5.4(f)(i)
Tax Loss 5.4(a)(i)
Tax Proceeding 5.4(a)(iv)
Termination Date 8.1(d)
Third-Party Claim 7.5(a)
Transferred Assets 5.17(a)(i)
</TABLE>
ARTICLE 2
STOCK PURCHASE AND CLOSING
2.1 PURCHASE AND SALE OF THE SHARES. Upon and subject to the terms and
conditions of this Agreement, Seller shall sell to Purchaser, and Purchaser
shall purchase, all of Seller's right, title and interest in and to 10,000
shares of common stock, par value $250 per share, of the Company, which
constitutes 100% of the Company's issued and outstanding shares of capital
stock (the "Shares").
2.2 CONSIDERATION. In consideration of the sale of the Shares to
Purchaser, (i) at the Closing Purchaser shall pay to Seller the purchase price
of One Hundred Eighty Million U.S. Dollars ($180,000,000) (1) reduced by any
dividend or other distribution in respect of the capital stock of the Company
paid or declared on or after January 1, 1997 until the time of Closing, (2)
reduced by interest on the amount of such dividend or distribution at the annual
rate of 8% for the period from the date of payment of the dividend or
distribution through the Closing Date, and (3) increased by any capital
contribution to the Company by Seller on or after January 1, 1997 until the time
of Closing, and (4) increased by interest on the amount of such capital
contributions made on or after any such dividend or distribution, up to the
amount of any such dividend or distribution, at the annual rate of 8% for the
period from the date of payment of the capital contribution through the Closing
Date (the "Purchase Price") and (ii) effective at the time of Closing,
Purchaser, or any U.S. Affiliate of Purchaser reasonably acceptable to Seller,
shall assume all of the Assumed Liabilities. Purchaser shall pay the Purchase
Price to Seller on the Closing Date by wire transfer of immediately available
funds to such bank account as Seller shall designate to Purchaser at least three
Business Days prior to the Closing Date.
2.3 CLOSING. The Closing shall take place at 10:00 a.m. local time, at
the offices of Fortis at One Chase Manhattan Plaza, 41st Floor, New York, New
York, or at such other place as Seller and Purchaser shall mutually agree, on
the last Business Day of the month in which all of the conditions set forth in
Article 6 are satisfied or waived, but no sooner than January 31, 1998, and,
subject to completion, shall be deemed to have been consummated and become
effective for all purposes as of 11:59 p.m. on the Closing Date.
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2.4 DELIVERIES AND PROCEEDINGS AT THE CLOSING. At the Closing, the
parties shall execute and deliver each agreement and instrument required or
contemplated by this Agreement to be so executed and delivered and not
theretofore executed and delivered, including, without limitation: (a) Purchaser
shall deliver to Seller the payment required by Section 2.2; and (b) Seller
shall deliver to Purchaser (i) the certificate or certificates evidencing the
Shares, duly endorsed in blank for transfer or accompanied by duly executed
irrevocable stock powers in blank, free and clear of all Liens, voting
agreements, contractual rights or other claims whatsoever; and (ii) a
certificate in accordance with Treasury Regulation Section 1.1445-2(b)(2)
certifying that Seller is not a "foreign person." If, on or prior to the
Closing, Purchaser shall not have received such certificate identified in (ii)
above, Purchaser may withhold from the Purchase Price such sums as are required
to be withheld therefrom under Section 1445 of the Code. All actions taken at
the Closing shall be deemed to occur simultaneously.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Purchaser as follows:
3.1 ORGANIZATION AND GOOD STANDING OF SELLER; POWER AND AUTHORITY.
Seller is a corporation duly organized, validly existing and in good standing
under the laws of the State of South Carolina. Seller has the requisite
corporate power and authority to execute and deliver this Agreement and the
Transaction Agreements and to consummate the transactions contemplated hereby
and thereby. The execution and delivery by Seller of this Agreement and the
Transaction Agreements, and the performance by Seller of its obligations
hereunder and thereunder, have been duly and validly authorized by all necessary
corporate action on the part of Seller. No shareholder proceedings on the part
of Seller are necessary to approve this Agreement or the Transaction Agreements
or to consummate the transactions contemplated hereby or thereby. This Agreement
and the Transaction Agreements, when executed by all of the parties thereto,
will each constitute a valid and binding obligation of Seller, enforceable
against Seller in accordance with its terms, except (i) the enforceability
hereof may be limited by bankruptcy, insolvency, fraudulent conveyance,
moratorium or other similar Laws affecting the enforcement of creditors' rights
generally and (ii) the availability of equitable remedies may be limited by
equitable principles of general applicability.
3.2 ORGANIZATION AND GOOD STANDING OF THE COMPANY; POWER AND AUTHORITY.
The Company is a corporation duly organized, validly existing and in good
standing under the laws of the State of California. The Company has all
requisite corporate power and authority to own or lease its Assets as now owned
or leased. Copies of the Company's articles of incorporation and bylaws, as
amended
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<PAGE> 14
to date, which Seller has delivered to Purchaser, are correct and complete and
are in full force and effect.
3.3 CAPITALIZATION AND OWNERSHIP. The Company's authorized capital
stock consists solely of 10,000 shares of common stock, par value $250 per
share, 10,000 of which are currently issued and outstanding and none of which
are held in its treasury. All of such outstanding shares of the Company have
been duly authorized, validly issued and are fully paid and nonassessable. Other
than this Agreement, there are no outstanding options, warrants, rights,
agreements or calls relating to the capital stock of the Company and no
securities convertible into or exchangeable for any of such capital stock.
Seller (a) is the sole record and beneficial owner of the Shares and (b) owns
all of the issued and outstanding capital stock of the Company, free and clear
of any and all Liens, other than Liens for Taxes, assessments and similar
charges that are not yet due and payable. Upon consummation of the transactions
contemplated hereby, good and valid title and interest in and to the Shares
shall have been sold, assigned and delivered to Purchaser free and clear of all
Liens.
3.4 SUBSIDIARIES. Except as set forth in SECTION 3.4 of the Seller
Disclosure Memorandum, the Company does not, directly or indirectly, own any
stock of, or any other interest in, any Person, except that the Company may own
interests held for investment purposes not exceeding 5% of any such single
Person, and the Company does not control any Person, whether directly or
indirectly, whether through the ownership of securities or by Contract, whether
alone or in combination with others. The Company owns 100% of the capital stock
of American Funeral Assurance Group, Inc. ("AFAG").
3.5 NO VIOLATION OF LAWS OR AGREEMENTS. The execution and delivery by
Seller of this Agreement and the Transaction Agreements do not, and Seller's
compliance with the terms, conditions and provisions of this Agreement and the
Transaction Agreements will not, (a) violate or conflict with any provision of
Seller's or the Company's articles of incorporation or bylaws; (b) except as set
forth in SECTION 3.5 of the Seller Disclosure Memorandum, violate or result in
the breach or termination of, or otherwise give any contracting party (which has
not consented to such execution, delivery and consummation) the right to change
the terms of, or to terminate or accelerate the maturity of, or constitute a
default under the terms of, any material Contract to which either Seller or the
Company is a party or by which either of them or any of their Assets may be
bound or affected, or violate any Law or Order; or (c) result in the creation or
imposition of any Lien upon any of the Company's capital stock or Assets or give
to others any interests or rights therein.
3.6 BOOKS AND RECORDS. The minute books and other similar records of
the Company contain a true and complete record of all actions taken at all
meetings and by all written consents in lieu of meetings of its shareholders,
Board of Directors and each committee thereof since July 2, 1992.
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<PAGE> 15
3.7 FINANCIAL STATEMENTS.
(a) SAP Statements. Seller has delivered to Purchaser
complete and correct copies of the following (collectively, the "SAP
Statements"):
(i) the Annual Statements of the Company filed
with the Department of Insurance of the State of California
for the years ending December 31, 1994, 1995 and 1996,
together with the exhibits and schedules thereto;
(ii) the Quarterly Statements of the Company
filed with the Department of Insurance of the State of
California for the quarters ending March 31, 1997 and June
30, 1997, together with the exhibits and schedules thereto;
(iii) the Annual Returns-OSFI-55 of the Company
filed with the Canadian Office of the Superintendent of
Financial Institutions for the years ending December 31,
1994, 1995 and 1996, together with the exhibits and schedules
thereto; and
(iv) the Quarterly Returns-OSFI-55 of the
Company filed with the Canadian Office of the Superintendent
of Financial Institutions for the quarters ending March 31,
1997 and June 30, 1997, together with the exhibits and
schedules thereto.
Each SAP Statement complied in all material respects with all
applicable Laws when filed, and no material deficiencies have been
asserted to the Company by any Insurance Authority or are otherwise
Known by Seller with respect thereto. Each SAP Statement, including
without limitation each balance sheet and each of the statements of
operations, capital and surplus, and cash flow contained in the
respective SAP Statement, was prepared in accordance with SAP, is
complete in all material respects and fairly presents, in accordance
with SAP, the financial condition of the Company as of the respective
dates thereof and its respective results of operations, capital and
surplus, and cash flows for and during the respective periods covered
thereby.
(b) GAAP Statements. Seller has delivered to Purchaser
complete and correct copies of the following (collectively, the "GAAP
Statements"):
(i) the unaudited balance sheets of
the Company as of December 31, 1994, 1995 and 1996, and the
related unaudited statements of income, cash flows and
shareholders' equity for each of the periods then ended,
prepared for purposes of consolidating with the financial
statements of Seller and its other Affiliates; and
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<PAGE> 16
(ii) the unaudited balance sheet of the
Company as of June 30, 1997 and the related unaudited
statements of income, cash flows and shareholder's equity for
the six-month period then ended, prepared for purposes of
consolidating with the financial statements of Seller and its
other Affiliates.
Each GAAP Statement was prepared in accordance with GAAP, is
true and complete in all material respects and fairly presents the
financial position of the Company as of the respective dates thereof
and the related results of operations, shareholder's equity and cash
flows of the Company for and during the respective periods covered,
except that the unaudited GAAP Statements are subject to normal
immaterial year-end adjustments and the omission of certain footnote
disclosures.
3.8 ABSENCE OF CERTAIN CHANGES.
(a) Except as described in SECTION 3.8 of the Seller
Disclosure Memorandum, since June 30, 1997 there has been no
occurrence having, or which would reasonably be expected to result in,
a Company Material Adverse Effect. Since December 31, 1996, the
business of the Company has been conducted only in the Ordinary Course
of Business, except with respect to the transactions contemplated by
this Agreement.
(b) Except as disclosed in SECTION 3.8 of the Seller
Disclosure Memorandum, since December 31, 1996 until the date of this
Agreement, there has not been any transaction or occurrence, whether
or not in the Ordinary Course of Business, in which the Company has:
(i) Sold, assigned, transferred, mortgaged,
pledged, leased, granted or permitted to exist any Lien
(other than Permitted Liens) on or otherwise disposed of any
Assets that are material to the Company's business as
presently conducted, other than with respect to Investment
Assets in the Ordinary Course of Business;
(ii) Incurred any new or increased any existing
indebtedness for borrowed money;
(iii) Changed in any material respect the
underwriting, investment, actuarial, financial reporting or
accounting practices, principles or policies of the Company
or in any material assumption underlying such an actuarial
practice or policy, other than as required by a change in
GAAP, SAP or Law;
(iv) Split, combined, exchanged, redeemed,
repurchased or reclassified the capital stock of the Company
or declared, set aside,
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<PAGE> 17
made or paid any dividend or other distribution in respect of
the capital stock of the Company;
(v) Other than pursuant to this Agreement,
issued or sold (or agreed to issue or sell) any Company note,
debenture, stock, or other security of the Company or any
Company options, warrants, conversion or other rights to
purchase any such securities or any Company securities
convertible into or exchangeable for such securities or
granted, or agreed to grant, any such options; or
(vi) (1) Amended any Intercompany Contract, (2)
paid any cash or other consideration (including, without
limitation, via an intercompany charge) to a Seller Related
Party for any purpose other than pursuant to an Intercompany
Contract or as reimbursement of a pass-through of third-party
costs for services performed solely on behalf of the Company,
or (3) since June 30, 1997, paid an amount of cash or other
consideration (including, without limitation, via
intercompany charges) to any Seller Related Party under any
Intercompany Contract that is computed in accordance with
methodology (including, without limitation, unit costs and
rates) that is not consistent with such methodology used to
compute the payment under such Intercompany Contract between
January 1, 1997 and June 30, 1997, or that is not appropriate
under SAP or applicable Law, or that is not fair and
reasonable; provided, however, that the unit costs and rates
for charges under such Intercompany Contracts may be
increased beginning January 1, 1998 to amounts not greater
than those charged by Seller to its Affiliates other than the
Company.
3.9 RESERVES. All reserves and other Liabilities with
respect to Insurance Contracts and Reinsurance Contracts, and all
other provisions made for claims and benefits incurred but not
reported, as established or reflected in the respective SAP Statements
of the Company (collectively, the "Reserve Liabilities"), (i) were
determined in accordance with generally accepted actuarial standards
consistently applied, (ii) are fairly stated in accordance with sound
actuarial principles, (iii) are based on actuarial assumptions that
are in accordance with those called for by the provisions of the
related Insurance Contracts and Reinsurance Contracts, including
without limitation using prescribed morbidity and mortality tables and
interest rates that are in accordance with the nature of the benefits
specified in the related Insurance Contracts and Reinsurance
Contracts, and (iv) in all material respects meet the requirements of
the California Insurance Code and Laws applicable to Canadian
insurance companies.
3.10 TAX MATTERS. Except as set forth in SECTION 3.10 of
the Seller Disclosure Memorandum:
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<PAGE> 18
(a) All Tax Returns required to be filed with respect to the
Company have been timely filed for all time periods for which such Tax
Returns were due (taking into account all filing date extensions); all
Taxes due and payable for the periods covered by such Tax Returns have
been duly and timely paid; there are no outstanding waivers or
extensions of statutes of limitation with respect to any Taxes required
to be shown on any Tax Return; all required estimated payments of Taxes
sufficient to avoid any penalties for underpayment have been made; and
there are no material misstatements contained in any such Tax Return.
Since December 31, 1996, the Company has not incurred any material
Liability with respect to any Taxes, except in the Ordinary Course of
Business. There are no Liens with respect to Taxes upon any of the
Assets of the Company, except Liens for Taxes not yet due and payable.
The Company has timely filed all material information returns or
reports, including Forms 1099, that are required to be filed and has
accurately reported in all material respects all information required
to be included on such returns or reports.
(b) With respect to any period ending on or before December
31, 1996 for which Tax Returns have not yet been filed, or for which
Taxes are not yet due or owing, the Company has made due and sufficient
current accruals for such Taxes in accordance with SAP and GAAP, and
such current accruals through such date are duly and fully provided for
in the SAP Statements and the GAAP Statements, respectively, of the
Company for the period then ended.
(c) The statutes of limitations for the Tax Returns for all
periods through the respective Taxable periods specified in SECTION
3.10 of the Seller Disclosure Memorandum have expired. Seller has
delivered to Purchaser correct and complete copies of (i) the most
recent audit reports relating to all Taxes due by the Company for the
Tax years ended December 31, 1994, 1995 and 1996, and (ii) the Tax
Returns filed by the Company for each of such three Taxable periods.
(d) No audit or other proceeding by any Governmental Authority
is pending or, to Seller's Knowledge, threatened with respect to any
Taxes due from the Company, any Tax Return filed by or relating to the
Company, or any material Asset of the Company, and there is no such
audit or proceeding involving material issues that pertain to the
Company. To Seller's Knowledge, no assessment of Tax has been formally
proposed by any Governmental Authority, orally or in writing, against
the Company. No Governmental Authority in a jurisdiction where the
Company does not file Tax Returns has made a claim or threat that the
Company is or may be subject to Taxation by that jurisdiction.
(e) At all times from December 31, 1992 until December 31,
1997, the Company was not a member of any affiliated group that files
any
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<PAGE> 19
consolidated Tax Returns with respect to which the Company was treated
as an Includible Corporation, and the Company has no Liability for any
Taxes owed by Seller or any Affiliate of Seller other than the Company
for such period. As a result of an election under Section 1504(c) of
the Tax Code, the Company may be treated as an Includible Corporation
of the Seller Group for the taxable year beginning January 1, 1998.
The Company is not a party to, is not bound by and has no obligation
under, any Tax sharing Contract (other than the one described in
Section 5.4 hereof), and the Company does not have any Liability for
indemnification of third parties with respect to Taxes or Liabilities
for Taxes as a transferee.
(f) The insurance reserves set forth in the Tax Returns filed
by the Company have been determined in all material respects in
accordance with all applicable sections of the Tax Code, and with all
other similar applicable Laws.
(g) The Company has not (i) filed any consent agreement under
Section 341(f) of the Tax Code, (ii) been the subject of a ruling of
the IRS or any other Taxing authority that has continuing application
to the Company, (iii) been the subject of a closing agreement with any
Taxing authority that has continuing effect, (iv) filed an election
under Section 338(g) or Section 338(h)(10) of the Tax Code or caused a
deemed election under Section 338(e) thereof, or (v) granted a power of
attorney with respect to any Tax matters that has continuing effect.
The Company has not agreed to make nor is it required to make any
adjustment under Section 481 of the Tax Code or any comparable
provision of state, local or foreign Law by reason of a change in
accounting method or otherwise, and the IRS (or other Taxing authority)
has not proposed any such change in accounting method in connection
with an ongoing audit of the Company. The Company has not disposed of
property in a transaction being accounted for under the installment
method pursuant to Section 453 of the Tax Code, or any comparable
state, local or foreign Law.
3.11 GUARANTY FUND ASSESSMENTS. The Company has paid or adequately
reserved for all insurance guaranty fund and similar types of assessment
Liabilities for which a notice of assessment or demand for payment has been
received or which are otherwise due and payable. Except as described in SECTION
3.11 of the Seller Disclosure Memorandum, and except for regular periodic
assessments in the Ordinary Course of Business or assessments based on
developments that are publicly known within the insurance industry, there is no
claim or assessment pending or, to Seller's Knowledge, threatened, against the
Company that is peculiar or unique to the Company by any insurance guaranty
association in connection with such association's fund relating to insolvent
insurers which, if determined adversely, would, individually or in the
aggregate, have a Company Material Adverse Effect.
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<PAGE> 20
3.12 INSURANCE CONTRACTS. The forms of all policies, binders,
slips, certificates and endorsements utilized for the In Force Insurance
Contracts of the Company that are currently available for sale by the Company
(the "Insurance Forms") are listed in SECTION 3.12(A)(1) of the Seller
Disclosure Memorandum, and Seller has provided to Purchaser correct and
complete copies of all such forms. The Insurance Forms have been approved by
applicable Insurance Authorities or have been filed and not objected to by such
Insurance Authorities within the period provided for objection, and such
Insurance Forms comply in all material respects and have been administered in
all material respects in accordance with applicable Law, except as described in
SECTION 3.12(A)(2) of the Seller Disclosure Memorandum. Except as described in
SECTION 3.12(A)(3) of the Seller Disclosure Memorandum, the terms of
substantially all Commission Contracts that the Company is currently using
(including, without limitation, the amounts of payments required by the Company
thereunder) are reasonable and customary for the preneed life insurance
industry. Without limiting the foregoing:
(a) Except as set forth in SECTION 3.12(A)(4) of the
Seller Disclosure Memorandum, since January 1, 1995, the Company has
offered and sold each In Force Insurance Contract in compliance in all
material respects with all applicable Laws and all of the Company's
registrations, filings or submissions made by it with respect to the
In Force Insurance Contracts with any Governmental Authority were in
material compliance with applicable Laws when filed.
(b) The transactions contemplated by this Agreement or
the Transaction Agreements will not materially affect the validity and
binding character of any In Force Insurance Contract entered into or
issued by the Company or render any admitted assets of the Company
non-admitted under applicable Laws up to and including the Closing
Date.
(c) All In Force Insurance Contract benefits payable by
the Company, and to Seller's Knowledge, by any other Person that is a
party to or bound by any Reinsurance Contract with the Company, have
been paid in accordance with the terms of the In Force Insurance
Contracts under which they arose, except for such benefits of which
there is, in the reasonable opinion of the Company, a reasonable basis
to contest (or the Company is reviewing whether there exists a
reasonable basis to contest).
(d) Except as disclosed in SECTION 3.12(D) of the Seller
Disclosure Memorandum, (i) no In Force Insurance Contract issued,
reinsured or underwritten by the Company entitles the holder thereof
or any other Person to receive dividends, distributions or other
benefits based on the revenues or earnings of the Company or any other
Person (other than insurance agents entitled to commissions based on
the Company's insurance premiums), and (ii) there are no participating
In Force Insurance Contracts.
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<PAGE> 21
(e) To Seller's Knowledge, the underwriting standards
utilized and ratings applied by the Company conform in all material
respects to industry accepted practices.
(f) To Seller's Knowledge, substantially all of the
producers who wrote, sold or produced an In-Force Insurance Contract
were duly licensed as insurance agents (for the type of business
written, sold or produced by such producers) in the particular
jurisdiction in which such producers wrote, sold or produced such
contract.
(g) Except as disclosed in SECTION 3.12(G) of the Seller
Disclosure Memorandum, substantially all of the In Force Life
Insurance Contracts issued to U.S. residents after December 31, 1984
qualify as life insurance contracts under Section 7702 of the Tax
Code.
(h) The Commission Contracts constitute the only
Liabilities of the Company with respect to payment of commissions
relating to the In Force Insurance Contracts. The Company is not in
material violation of its obligation to pay commissions under any
Commission Contract.
(i) As of the date of this Agreement, the Company is
assigned a rating of B++ by A.M. Best Company, Inc.
3.13 PERMITS. SECTION 3.13 of the Seller Disclosure Memorandum
contains a true and complete list of all states of the United States and all
provinces of Canada in which the Company is authorized to issue life insurance.
The Company is duly authorized to issue the Insurance Contracts that it is
currently writing. The Company has all material Permits necessary to conduct
its business as currently conducted. Neither the ownership of its Assets nor
the business conducted by the Company requires the qualification, registration,
license or admission in any jurisdiction where the Company is not currently
qualified, registered, licensed or admitted, except where the failure to be so
qualified, registered, licensed or admitted would not have a Company Material
Adverse Effect. Except as disclosed in SECTION 3.13 of the Seller Disclosure
Memorandum, all of the material Permits are in full force and effect, and the
Company has not received notice from any Governmental Authority since January
1, 1995 of its intention to revoke or not renew any material Permit.
3.14 REGULATORY FILINGS AND REPORTS. The Company has filed all
material reports, statements, documents, registrations, filings or submissions
(including without limitation any marketing, advertising or sales material)
required to be filed by it with any Insurance Authority. Seller has made
available to Purchaser complete and correct copies of all such material
registrations, filings and submissions made by the Company with any Insurance
Authority since December 31, 1994. Seller has also provided to Purchaser
complete and correct copies of the reports relating to all financial, market
conduct and similar audits and examinations performed with respect to the
Company by any Insurance Authority within or relating to the period of
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<PAGE> 22
time beginning January 1, 1995 (the "Audit Reports"), along with the Company's
or Seller's responses thereto. Except as described in SECTION 3.14 of the
Seller Disclosure Memorandum, (a) other than as set forth in the Audit Reports
no material deficiencies have been asserted to the Company or Seller by any
such Insurance Authority with respect to such registrations, filings or
submissions, (b) such registrations, filings and submissions were in material
compliance with applicable Law when filed, (c) since January 1, 1995 no fine or
penalty in excess of $5,000 has been imposed on the Company (or on Seller with
respect to the Company) by any Insurance Authority, (d) no deposits have been
made by the Company (or by Seller with respect to the Company) with, or at the
direction of, any Insurance Authority that were not shown in the most recent
SAP Statement of the Company, and (e) no financial, market conduct or similar
audits are currently being performed, and none have been performed since
January 1, 1995 for which the Company has not yet received a written report
from the applicable Insurance Authority.
3.15 REINSURANCE. SECTION 3.15 of the Seller Disclosure Memorandum
lists all reinsurance and coinsurance Contracts to which the Company is a party
related to the In Force Insurance Contracts, and all other such Contracts under
which the Company has any obligation to cede or assume insurance, in each case
as of the date of this Agreement (collectively, the "Reinsurance Contracts").
All such Reinsurance Contracts are valid and binding against the Company and,
to Seller's Knowledge, the other parties thereto and are in full force and
effect in accordance with their terms (except (i) the enforceability thereof
may be limited by bankruptcy, insolvency, fraudulent conveyance, moratorium or
other similar Laws affecting the enforcement of creditors' rights generally and
(ii) the availability of equitable remedies may be limited by equitable
principles of general applicability) and conform in all material respects to
all applicable Laws, and neither the Company nor, to Seller's Knowledge, any
other party thereto is in material default under any such Reinsurance Contract.
3.16 CANCELLATION. Except as set forth in SECTION 3.16 of the
Seller Disclosure Memorandum, from December 31, 1996 through the date of this
Agreement, (i) no contract providing the terms and conditions for writing,
selling or producing, either directly or through coinsurance where the Company
is the reinsurer, insurance business of the Company with any Person who
accounted for 3% or more of the annual premium of the Company (as determined in
accordance with SAP) during the twelve-month period ended December 31, 1996,
has been terminated, and (ii) no such Person has given Seller or the Company a
written notice of such termination.
3.17 INVESTMENT ASSETS. SECTION 3.17 of the Seller Disclosure
Memorandum is a true and complete list of all of the Company's Investment
Assets as of June 30, 1997.
3.18 PENDING LITIGATION OR PROCEEDINGS. Except for claims against
the Company for contract benefits under the Insurance Contracts in the Ordinary
Course
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of Business, or as set forth in SECTION 3.18 of the Seller Disclosure
Memorandum, there are no claims, suits, actions, proceedings, arbitrations or
investigations pending or, to Seller's Knowledge, threatened against or
otherwise involving the Company or any of its Assets.
3.19 COMPLIANCE WITH LAWS, INCLUDING ENVIRONMENTAL.
(a) Except as disclosed in SECTION 3.12, 3.13, 3.14 OR
3.19 of the Seller Disclosure Memorandum, (i) the Company and AFAG are
in compliance in all material respects with the requirements of
applicable insurance Laws, and (ii) neither Seller, the Company nor
AFAG has received notice from any Governmental Authority of material
noncompliance.
(b) Except as disclosed in SECTION 3.19 of the Seller
Disclosure Memorandum, (i) the Company and AFAG are in compliance in
all material respects with all Laws applicable to the Company or AFAG
(excluding insurance Laws and Environmental Laws), and (ii) neither
Seller, the Company nor AFAG has received notice from any Governmental
Authority of any material noncompliance.
(c) The Company and AFAG are in compliance in all
material respects with all Laws relating to air, water, soil, solid
waste management, Hazardous Materials, or the protection of health or
the environment, in each case as in effect on or prior to the date
hereof (collectively, the "Environmental Laws"). Except for claims
against the Company for contract benefits under the Insurance
Contracts in the Ordinary Course of Business, or as set forth in
SECTION 3.18 of the Seller Disclosure Memorandum, there are no claims,
actions, suits or proceedings pending or, to Seller's Knowledge,
threatened against or involving the Company or AFAG relating to any
real property presently owned, leased, used by the Company or AFAG or
subject to a Lien in favor of the Company or AFAG or, to Seller's
Knowledge, formerly owned, leased or used by the Company or AFAG or
subject to a Lien in favor of the Company or AFAG under any of the
Environmental Laws (whether by reason of any failure to comply with
any of the Environmental Laws or otherwise). No decree, judgment or
order of any kind under any of the Environmental Laws has been entered
against the Company or AFAG which has not been fully resolved. There
has not been a Release of any Hazardous Material on any real property
owned, leased or used by the Company or AFAG or subject to a Lien in
favor of the Company or AFAG. To Seller's Knowledge, neither the
Company nor AFAG has received any written notification from any
Governmental Authority that, as to any real property owned, leased or
used by it or any business or activities conducted on any such
property, there exists or has occurred a violation of applicable
Environmental Laws or potential liability for Release of Hazardous
Materials.
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<PAGE> 24
3.20 CONSENTS AND APPROVALS. Except (a) as set forth in SECTION
3.20 of the Seller Disclosure Memorandum, (b) as required under the Hart-Scott
Act, (c) as required under the California Insurance Code, (d) as required by
the Insurance Authority of the State of Michigan, (e) as required under the
insurance Laws of those jurisdictions that will require Purchaser to file
pre-acquisition notices on Form E prescribed by the NAIC (or a similar form),
or (f) as required under applicable Canadian Laws, no Consent is required to be
obtained from, no notice is required to be given to, and no filing is required
to be made with, any third party (including without limitation Governmental
Authorities of competent jurisdiction) by Seller or the Company in order for
(i) this Agreement and the Transaction Agreements to constitute valid and
binding obligations of Seller, (ii) to authorize or permit the consummation by
Seller of the transactions contemplated hereby and thereby, or (iii) to prevent
the termination of any material Permit or Contract.
3.21 OTHER MATERIAL CONTRACTS.
(a) SECTION 3.21 of the Seller Disclosure Memorandum
lists (including the parties to and the date of) each Contract to
which the Company is a party or which is binding upon the Company,
except (i) those specifically listed in Section 3.15, 3.22, 3.23(c),
3.24 or 3.25 of the Seller Disclosure Memorandum, (ii) the Insurance
Contracts and the Commission Contracts, (iii) those that may be
terminated by the Company without penalty or other Liability to the
Company upon 60 days or shorter notice, (iv) those having a value to
or imposing an obligation upon the Company not in excess of $100,000
in the aggregate annually, (v) Investment Assets, and (vi) the
Administrative Services Agreement.
(b) Without limiting the foregoing, SECTION 3.21 of the
Seller Disclosure Memorandum identifies each Contract in force entered
into by the Company in connection with or related to the Company's
business and operations within the following categories:
(i) all employment, golden parachute, or
severance Contracts (excluding Commission Contracts);
(ii) all Contracts containing any provision
limiting the ability of the Company (A) to engage in any
business or to compete with any Person or (B) to obtain
products or services from any Person or, to Seller's
Knowledge, limiting the ability of any Person to compete with
or to provide products or services to the Company;
(iii) all direct or indirect guarantees by the
Company of any obligation of another Person;
(iv) all Contracts relating to the future
disposition or acquisition by the Company of any Assets or of
any interest in any
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<PAGE> 25
business enterprise (other than Contracts entered into in the
Ordinary Course of Business or Contracts within the exception
of Section 3.21(a)(iv) or (v));
(v) all outstanding proxies, powers of attorney
or similar delegations of authority (other than ordinary
course delegations of authority for the service of process
pursuant to applicable insurance or corporate Laws);
(vi) all Contracts for the provision of
consulting services and all material Contracts for the
provision of administrative or managerial services by or for
the Company to or from any other Person (other than the
Intercompany Contracts and the Administrative Services
Agreement);
(vii) all partnerships, joint ventures,
profit-sharing or similar Contracts (excluding Commission
Contracts, Investment Assets and the Benefit Plans listed in
SECTION 3.24 of the Seller Disclosure Memorandum);
(viii) all Contracts relating to the borrowing of
money by the Company or to the direct or indirect guarantee
by the Company of any obligation for borrowed money in
excess, individually or in the aggregate, of $100,000 in
respect of indebtedness of any other Person, including
without limitation any Contract relating to (1) the
maintenance of compensating balances in excess of $100,000
that are not terminable by the Company without penalty or
other Liability upon not more than 60 days' notice, (2) any
line of credit or similar facility in excess of $100,000, or
(3) the obligation to take-or-pay, keep-well, make-whole or
maintain surplus or earnings levels or perform other
financial ratios or requirements; and
(ix) all leases or subleases of real property
used in the business, operations or affairs of the Company;
and
(x) all other leases, subleases or rental
Contracts for which the Company is liable (other than
Contracts within the exceptions of Section 3.21(a)(iii) or
(iv)).
(c) Except as set forth in SECTION 3.21 of the Seller
Disclosure Memorandum, each of the Contracts listed in such SECTION
3.21 and each of the agreements listed in SECTION 1.1 of the Seller
Disclosure Memorandum is in full force and effect and is legal, valid
and binding on the Company and, to Seller's Knowledge, the other
parties thereto, and is enforceable against the Company and, to
Seller's Knowledge, the other parties thereto in accordance with its
terms, except (i) the enforceability thereof may be limited by
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bankruptcy, insolvency, fraudulent conveyance, moratorium or other
similar Laws affecting the enforcement of creditors' rights generally
and (ii) the availability of equitable remedies may be limited by
equitable principles of general applicability. Neither the Company
nor, to Seller's Knowledge, any other party to such Contract is in
material violation, breach or default of any such Contract. Seller has
delivered or made available to Purchaser correct and complete copies
of all of the Contracts set forth in SECTION 3.21 or SECTION 1.1 of
the Seller Disclosure Memorandum.
3.22 TITLE.
(a) The Company has good and marketable title (or valid
and binding leasehold rights in the case of leased property) to all of
its Assets, free and clear of all Liens whatsoever other than:
(i) those reflected in the Company's SAP
Statements as of and for the six-month period ending June 30,
1997, or in the notes thereto, including, without limitation,
Liabilities with respect to the Insurance Contracts;
(ii) Liens for Taxes, charges and assessments
imposed by any Taxing authority that are not yet due and
payable or that are being contested in good faith by
appropriate proceedings (as described in SECTION 3.10 of the
Seller Disclosure Memorandum), and purchase money security
interests and similar security interests for goods purchased
by the Company;
(iii) mechanics', suppliers', installment sales
and similar Liens for services rendered or materials
furnished, the charges for which are not yet due and payable
or which are being contested in good faith by appropriate
proceedings;
(iv) in the case of real property and equipment,
defects or imperfections in title or Liens that do not
materially interfere with the use of such properties as
presently used by the Company or the conduct of the business
as presently conducted by the Company;
(v) Liens arising through securities lending in
the ordinary course of the Company's business; and
(vi) Liens arising by operation of Law and in
the Ordinary Course of Business (none of which would
materially impair or interfere with the use or operation of
such property or Asset) (items referred to in clauses (i)
through (vi) of this Section 3.22 are collectively "Permitted
Liens").
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The Company owns or has valid leasehold rights to all Assets (excluding
Intellectual Property) necessary for the conduct of its business as it
is currently conducted, and all of the Company's owned and leased
Assets are in good working condition.
(b) Except as set forth in SECTION 3.22 of the Seller
Disclosure Memorandum, the Company does not own any real property used
in its business (other than real property held in the Company's
Investment Assets). SECTION 3.22 of the Seller Disclosure Memorandum
sets forth a correct and complete list of all real property leased by
the Company, including the location of the property, the name of the
lessor, the date of the lease Contract, and the date that the lease
expires. Except as set forth in SECTION 3.22 of the Seller Disclosure
Memorandum, each of such lease Contracts listed in such SECTION 3.22
(each a "Lease") is in full force and effect and is legal, valid and
binding on the Company and, to Seller's Knowledge, the other parties
thereto, and is enforceable against the Company and, to Seller's
Knowledge, the other parties thereto in accordance with its terms,
except (i) the enforceability thereof may be limited by bankruptcy,
insolvency, fraudulent conveyance, moratorium or other similar laws
affecting the enforcement of creditors' rights generally and (ii) the
availability of equitable remedies may be limited by equitable
principles of general applicability. Neither the Company nor, to
Seller's Knowledge, any other party to such Lease is in material
violation, breach or default of any such Lease. Seller has delivered
or made available to Purchaser correct and complete copies of all of
the Leases set forth in SECTION 3.22 of the Seller Disclosure
Memorandum.
3.23 COMPUTER SOFTWARE AND OTHER INTELLECTUAL PROPERTY.
(a) For purposes of this Agreement, the term
"Intellectual Property" shall mean, collectively, patents, copyrights,
designs, designs-in-progress, formulations, know-how, inventions,
trademarks, trade names, trade styles, service marks and computer
software. SECTION 3.23(A)(1) of the Seller Disclosure Memorandum sets
forth a complete and accurate list of all material patents,
copyrights, trademarks, trade names, service marks and computer
software programs and systems used in the conduct of the business of
the Company, stating for each item whether it is owned or licensed by
the Company or whether the Company has some other contractual right to
use such Intellectual Property. The Company owns or has the
uncontested right to use all Intellectual Property necessary for the
conduct of the Company's business as presently conducted, except (i)
the name "FamilySide" and the mark "FamilySide" with logo which are
owned by Seller, (ii) the software described in Section 3.23(A)(2) of
the Seller Disclosure Memorandum, (iii) the marks and names listed in
SECTION 5.15 of the Seller Disclosure Memorandum and (iv) the general
ledger, accounts payable and investment management systems that are
licensed by Seller and used by the Company.
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(b) Except as set forth in SECTION 3.23(B) of the Seller
Disclosure Memorandum, no claim is pending or, to Seller's Knowledge,
threatened, and neither Seller nor the Company has received any
notice, that the conduct of the Company's business (including without
limitation, its use of any Intellectual Property) infringes upon,
misappropriates or conflicts with any rights in Intellectual Property
claimed by any third party, nor is there any basis Known to Seller for
such a claim. No use by the Company of any material Intellectual
Property licensed to it violates the terms of any Contract pursuant to
which it is licensed. No claim is pending or, to Seller's Knowledge,
threatened which alleges that any material Intellectual Property owned
or licensed by or to the Company or that the Company otherwise has the
right to use is invalid or unenforceable by the Company, nor is there
any basis Known to Seller or the Company for any such claim.
(c) Except as set forth in SECTION 3.23(C) of the Seller
Disclosure Memorandum, no royalties or fees are payable by the Company
to anyone for use of the Intellectual Property. Other than the
Intercompany Contracts, there are no Contracts pursuant to which the
Company has a license or right to use any Intellectual Property or
pursuant to which it licenses any Intellectual Property.
3.24 EMPLOYEE BENEFIT PLANS.
(a) SECTION 3.24(A) of the Seller Disclosure Memorandum
contains a correct and complete list of, and Seller has delivered to
Purchaser correct and complete copies in each case of, all pension,
retirement, profit-sharing, deferred compensation, stock option,
employee stock ownership, severance pay, vacation, bonus or other
incentive plan, all other written employee programs, arrangements or
agreements, all medical, vision, dental or other health plans, all
life insurance plans, and all other employee benefit plans or fringe
benefit plans, including "employee benefit plans" as that term is
defined in Section 3(3) of ERISA, currently adopted, maintained by,
sponsored in whole or in part by, or contributed to by the Company,
Seller or any Affiliate of Seller for the benefit of any of the
Company's employees, retirees, dependents, spouses, directors,
independent contractors, agents or other beneficiaries and under which
any of the Company's employees, retirees, dependents, spouses,
directors, independent contractors, agents or other beneficiaries are
eligible to participate (collectively, the "Benefit Plans"). Seller
has also made available to Purchaser correct and complete copies of
all trust or other funding agreements executed in conjunction with any
Benefit Plan, copies of Form 5500 annual reports for each Benefit Plan
for the last three years (together with all schedules and financial
statements which constitute a part of such annual report), copies of
any currently effective employee handbooks that describe the terms of
any Benefit Plan, and copies of any other currently effective
description of any Benefit Plan. Any of the Benefit Plans which is an
"employee pension benefit plan" or "employee
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welfare benefit plan" as those terms are defined in Sections 3(1) and
3(2) of ERISA, are referred to herein as "ERISA Plans". Any Company
ERISA Plan which is an "employee pension benefit plan" as defined in
Section 3(2) of ERISA is referred to herein as a "Pension Plan."
SECTION 3.24(A) of the Seller Disclosure Memorandum identifies whether
each Benefit Plan is provided by Seller or an Affiliate thereof as
part of an employee benefit plan also covering Persons other than the
Company's employees, retirees, dependents, spouses, directors,
independent contractors, agents or other beneficiaries ("Seller's
Plans"), or is provided separately by the Company ("Company's Plans")
and does not cover Persons other than the Company's employees,
retirees, dependents, spouses, directors, independent contractors,
agents or other beneficiaries.
(b) All Benefit Plan documents and annual reports or
returns, audited or unaudited financial statements, summary annual
reports, and summary plan descriptions issued with respect to the
Benefit Plans are correct and complete in all material respects, have
been timely filed with the IRS and/or Department of Labor and have
been timely distributed to participants and beneficiaries under the
Benefit Plans (as required by Law), and there have been no changes to
any material information contained therein.
(c) Except as set forth in SECTION 3.24(C) of the Seller
Disclosure Memorandum, neither the Company, nor Seller with respect to
the Company, has, within the previous five years (i) maintained an
ERISA Plan which is also a "defined benefit plan" (as defined in
Section 414(j) of the Tax Code), (ii) contributed to or been required
to contribute to a "multiemployer plan" as defined in Section 3(37) of
ERISA, or (iii) incurred any "withdrawal liability" as defined in
ERISA Section 4201 et seq. There has not been any "reportable event"
(as defined in ERISA Section 4043) as to which the 30 day notice
period has not been waived by applicable regulation or any event
described in ERISA Sections 4041, 4042, 4062 (including 4062(e)),
4063, 4064 or 4069 with respect to any ERISA Plan.
(d) All the Benefit Plans and related trusts are in
compliance in all material respects with the applicable terms of
ERISA, the Tax Code and any other applicable Laws. Except as set forth
in SECTION 3.24(D) of the Seller Disclosure Memorandum, each ERISA
Plan which is intended to be qualified under Section 401(a) of the Tax
Code has received a favorable determination letter from the IRS which
determines that the currently effective provisions of such ERISA Plan
meet the currently effective requirements for qualification under
Section 401(a) of the Tax Code (or, if such letter from the IRS has
not yet been received, then such letter has been applied for on a
timely basis), and to Seller's Knowledge, there are no circumstances
reasonably likely to result in revocation of any such favorable
determination letter. The Benefit
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Plans have received all other applicable approvals from Governmental
Authorities.
(e) Neither the Company, nor Seller with respect to the
Company, has engaged in a transaction with respect to any Benefit Plan
that, assuming the Taxable period of such transaction expired as of
the date hereof, would subject the Company to a Tax imposed by either
Section 4975 of the Tax Code or Section 502(i) of ERISA. Except as set
forth in SECTION 3.24(E) of the Seller Disclosure Memorandum, there
are no pending or, to Seller's Knowledge, threatened actions or claims
against any Benefit Plan other than claims for benefits in the normal
course, and there are no pending or, to Seller's Knowledge, threatened
audits or investigations of any Benefit Plan by any Governmental
Authority.
(f) Since the date of the most recent valuation, there
has been (i) no material adverse change in the financial position of
any Pension Plan, and (ii) no material increase in benefits under any
Pension Plan as a result of plan amendments or changes in applicable
Law.
(g) Except as set forth in SECTION 3.24(G) of the Seller
Disclosure Memorandum, neither the Company, nor Seller with respect to
the Company, has incurred Liability for retiree health or retiree life
benefits or any other employee benefits after termination of
employment under any of the Benefit Plans, other than healthcare
continuation benefits under Section 4980B of the Tax Code ("COBRA").
(h) All contributions, premiums and payments required to
be made under the terms of any Benefit Plan on or before June 30, 1997
have been made.
(i) Except as set forth in SECTION 3.24(I) of the Seller
Disclosure Memorandum, no written representations or communications
with respect to any aspect of the Benefit Plans have been made by
Seller or the Company to any of the Company's employees, retirees,
dependents, spouses, directors, independent contractors, agents or
other beneficiaries prior to the date hereof which is not in
accordance with the written or otherwise preexisting terms and
provisions of such plans. Except as set forth in SECTION 3.24(I) of
the Seller Disclosure Memorandum, or as set forth in Section 5.12
hereof, neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result
in any payment (including severance, unemployment compensation, golden
parachute or otherwise) becoming due to any such Person from the
Company under any Benefit Plan or otherwise, (ii) increase any
benefits otherwise payable under any Benefit Plan, or (iii) result in
any acceleration of the time of payment or vesting of any such
benefit.
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3.25 INTERCOMPANY CONTRACTS.
(a) SECTION 3.25(A) of the Seller Disclosure Memorandum
sets forth a true and complete list of all material Contracts and
other arrangements, whether oral, informal or otherwise (other than
Insurance Contracts, the Administrative Services Agreement, and
compensation or benefits arrangements), pursuant to which the Company
paid (or was deemed to have paid via an intercompany charge) cash or
other consideration to a Seller Related Party during the fiscal year
ended December 31, 1996 (collectively, the "Intercompany Contracts").
Except for the Intercompany Contracts and the Administrative Services
Agreement, the Company has no Contract or other arrangement with
Seller or a Seller Related Party.
(b) SECTION 3.25(B) of the Seller Disclosure Memorandum
describes all loans issued by the Company to any Seller Related Party.
All such Seller Related Party loans are issued in accordance with
commercially reasonable underwriting standards and there is no default
on any such loan.
(c) The aggregate amount paid or owed by the Company for
the period January 1, 1997 through the Closing Date under the
marketing participation agreements that are part of the Assumed
Liabilities and identified as items (A) and (B) in SECTION 1.1 of the
Seller Disclosure Memorandum shall not exceed $5,000.
3.26 LABOR MATTERS. Except as disclosed in SECTION 3.26 of the
Seller Disclosure Memorandum, (a) the Company is not, nor has it been, bound by
any collective bargaining agreement or other Contract with a labor union; (b)
there is no unfair labor practice, employment discrimination, or wage/hour
complaint pending or, to Seller's Knowledge, threatened; (c) there is no labor
strike, dispute, slow down or stoppage actually pending or, to Seller's
Knowledge, threatened against or involving the Company; and (d) since January
1, 1995, the Company has not effectuated a "plant closing" as defined in The
Worker Adjustment and Retraining Notification Act, 29 U.S.C. ss.ss. 2101-2109
or engaged in layoffs or employment terminations sufficient in number to
trigger application of any similar state, local or foreign law.
3.27 OPERATIONS INSURANCE. SECTION 3.27 of the Seller Disclosure
Memorandum lists all casualty, liability, property and other similar insurance
Contracts that insure the business, operations or affairs of the Company or
affect or relate to the ownership, use or operations of any of the Company's
assets (including without limitation the names of the insurers and the type of
coverage thereof) as of the date of this Agreement and that have (a) been
issued to the Company or (b) that are held by Seller or by any Affiliate of
Seller (other than the Company) for the benefit of the Company.
3.28 BROKERAGE. Neither Seller nor the Company has made any
agreement or taken any other action which might cause anyone to become entitled
to a broker's
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fee or commission as a result of the transactions contemplated hereby, except
for Goldman Sachs & Co., whose fees and expenses for services rendered in
connection with such transactions shall be paid by Seller.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF FORTIS AND PURCHASER
Fortis and Purchaser hereby, jointly and severally, represent and
warrant to Seller as follows:
4.1 ORGANIZATION AND GOOD STANDING; POWER AND AUTHORITY.
Purchaser is a corporation duly organized, validly existing and in good
standing under the laws of the State of Georgia. Fortis is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Nevada. Each of Purchaser and Fortis has the requisite corporate power and
authority to execute and deliver this Agreement and the Transaction Agreements
and to consummate the transactions contemplated hereby and thereby. The
execution and delivery by Purchaser and Fortis of this Agreement and the
Transaction Agreements, and the performance by Purchaser and Fortis of their
obligations hereunder and thereunder, have been duly and validly authorized by
all necessary corporate action on the part of Purchaser and Fortis,
respectively. No shareholder proceedings on the part of Purchaser or Fortis are
necessary to approve this Agreement or the Transaction Agreements or to
consummate the transactions contemplated hereby or thereby. This Agreement and
the Transaction Agreements, when executed by all of the parties thereto, will
each constitute a valid and binding obligation of Purchaser and Fortis,
enforceable against Purchaser and Fortis in accordance with its terms, except
(i) the enforceability hereof may be limited by bankruptcy, insolvency,
fraudulent conveyance, moratorium or other similar Laws affecting the
enforcement of creditors' rights generally and (ii) the availability of
equitable remedies may be limited by equitable principles of general
applicability.
4.2 NO VIOLATION OF LAWS OR AGREEMENTS. The execution and
delivery of this Agreement and the Transaction Agreements do not, and the
compliance with the terms, conditions and provisions of this Agreement and the
Transaction Agreements by Fortis and Purchaser will not, (a) violate or
conflict with any provision of Fortis's or Purchaser's articles of
incorporation, bylaws or other governing documents; (b) except as set forth in
SECTION 4.2 of the Purchaser Disclosure Memorandum, violate or result in the
breach or termination of, or otherwise give any contracting party (which has
not consented to such execution, delivery and consummation) the right to change
the terms of, or to terminate or accelerate the maturity of, or constitute a
default under the terms of, any material Contract to which either Fortis or
Purchaser is a party or by which either of them or any of their Assets may be
bound or affected, or violate any Law or Order; (c) result in the creation or
imposition of any Lien upon any of Fortis's or Purchaser's Assets or give to
others any interests or rights therein.
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4.3 PENDING LITIGATION OR PROCEEDINGS. Except as set forth in
SECTION 4.3 of the Purchaser Disclosure Memorandum, there are no claims, suits,
actions, proceedings, arbitrations or investigations pending or, to the
Knowledge of Fortis or Purchaser, threatened, against or otherwise relating to
or involving Fortis or Purchaser or any of their Assets, the outcome of which
would reasonably be expected to materially adversely affect the ability of
Fortis or Purchaser to consummate the transactions contemplated by this
Agreement or the Transaction Agreements.
4.4 CONSENTS AND APPROVALS. Except (a) as set forth in SECTION
4.4 of the Purchaser Disclosure Memorandum, (b) as required under the
Hart-Scott Act, (c) as required under the California Insurance Code, (d) as
required by the Insurance Authority of the State of Michigan, (e) as required
under the insurance Laws of those jurisdictions that will require Purchaser to
file pre-acquisition notices on Form E prescribed by the NAIC (or a similar
form), or (f) as required under applicable Canadian Laws, no Consent is
required to be obtained from, no notice is required to be given to, and no
filing is required to be made with, any third party (including without
limitation Governmental Authorities of competent jurisdiction) by Fortis or
Purchaser in order for (i) this Agreement and the Transaction Agreements to
constitute valid and binding obligations of Fortis and Purchaser, or (ii) to
authorize or permit the consummation by Fortis and Purchaser of the
transactions contemplated hereby and thereby.
4.5 BROKERAGE. Neither Fortis nor Purchaser has made any
agreement or taken any other action which might cause anyone to become entitled
to a broker's fee or commission as a result of the transactions contemplated
hereby, except for UBS Securities LLC, whose fees and expenses for services
rendered in connection with such transactions shall be paid by Fortis.
4.6 INVESTMENT INTENT. Purchaser is acquiring the Shares for
investment for its own account and not with a view to, or for offer or sale in
connection with, any public distribution thereof.
4.7 FINANCING. Purchaser has or will have, as and when required,
the funds necessary to consummate the transactions contemplated hereby in
accordance with the terms hereof.
ARTICLE 5
CERTAIN ADDITIONAL COVENANTS AND AGREEMENTS
5.1 OPERATION OF THE COMPANY'S BUSINESS PENDING CLOSING.
(a) Except as set forth in SECTION 5.1 of the Seller
Disclosure Memorandum or as provided in this Agreement, from the date
of this Agreement until the earlier of the termination of this
Agreement and the
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Closing, Seller shall, and shall cause the Company to, unless Seller shall
receive the prior written consent of Purchaser (which consent shall not be
unreasonably withheld, conditioned or delayed):
(i) Operate the business of the Company as
presently operated and only in the Ordinary Course of
Business subject, however, to such changes as may be required
by changes in Laws or contemplated by this Agreement; and
(ii) Use all commercially reasonable efforts to
preserve its relationship with and the goodwill of its
brokers, agents, customers, suppliers, employees and other
Persons having business dealings with Seller and/or the
Company in connection with the Company's business.
(b) In addition to the foregoing requirements, except as
set forth in SECTION 5.1 of the Seller Disclosure Memorandum or as
provided in this Agreement, from the date of this Agreement until the
earlier of the termination of this Agreement and the Closing, unless
Seller obtains the prior written consent of Purchaser (which consent
shall not be unreasonably withheld, conditioned or delayed), Seller
will or will cause the Company to:
(i) Use all commercially reasonable efforts to
maintain all licenses, qualifications and authorizations
necessary for the Company to do business in the jurisdictions
in which it is currently doing business.
(ii) Cause the books and records of the Company
to be maintained in the Ordinary Course of Business and not
permit a material change in any underwriting, investment,
actuarial, financial reporting or accounting practice or
policy of the Company or in any material assumption
underlying an actuarial practice or policy, except as may be
required by a change in GAAP, SAP or applicable Law or as may
be required by this Agreement.
(iii) Cause all Reserve Liabilities with respect
to Insurance Contracts established or reflected in the books
and records of the Company to be established or reflected on
a basis consistent with those Reserve Liabilities and
reserving methods followed by the Company in the preparation
of its December 31, 1996 Annual Statement filed with the
California Department of Insurance, except as may be required
by a change in GAAP, SAP or applicable Law.
(iv) Use all commercially reasonable efforts to
maintain in full force and effect until the Closing
substantially the same levels of coverage for the Company as
the operations insurance afforded under the Contracts listed
in SECTION 3.27 of the Seller Disclosure Memorandum and
cooperate with Purchaser, at Purchaser's cost and
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expense, to obtain additional or carry-on insurance with
respect to the Company after the Closing. Any and all
benefits under the operations insurance Contracts listed in
SECTION 3.27 of the Seller Disclosure Memorandum paid or
payable prior to the Closing with respect to the business,
operations, affairs or Assets of the Company shall be paid or
payable to the Company.
(v) Cause the Company to continue to administer
the Insurance Contracts (including surrenders) in the
Ordinary Course of Business.
(vi) Cause the Company to continue to comply
with all Laws, except for such failures to comply as would
not, individually or in the aggregate, have a Company
Material Adverse Effect.
(vii) Cause any new investments in Investment
Assets by the Company to be made only in Qualified
Investments.
(c) Except as set forth in SECTION 5.1 of the Seller
Disclosure Memorandum or as otherwise provided in this Agreement, and
without the prior consent of Purchaser (which consent shall not be
unreasonably withheld, conditioned or delayed), Seller will prevent
the Company from the date of this Agreement until the earlier of
termination of this Agreement and the Closing, from:
(i) Selling, assigning, transferring,
mortgaging, pledging, leasing, granting or permitting to
exist any Lien (other than Permitted Liens) on or otherwise
disposing of any Assets that are material to the Company's
business as presently conducted, other than with respect to
Investment Assets in the Ordinary Course of Business;
(ii) Increasing the rates of compensation
(including bonuses) payable or to become payable to any
director, officer or employee of the Company, except for
normal and customary increases consistent with past practice
and not exceeding the greater of 5% and $5,000 for any single
Person;
(iii) Except in the Ordinary Course of Business,
incurring any material Liability (including, without
limitation, incurring any new or increasing any existing
indebtedness for borrowed money);
(iv) Entering into or amending or terminating
any transaction or Contract that could reasonably be expected
to have a Company Material Adverse Effect;
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<PAGE> 36
(v) Splitting, combining, exchanging,
redeeming, repurchasing or reclassifying the capital stock of
the Company or declaring, setting aside, making or paying any
dividend or other distribution in respect of the capital
stock of the Company; provided that the Company may declare
and pay dividends on or before the Closing Date to the extent
that such dividends are in full compliance with applicable
Laws and any applications to or authorizations of Insurance
Authorities related to this Agreement, and provided further
that the Company must provide Purchaser with written notice
of any such dividends at least 5 days prior to such
declaration and payment;
(vi) Issuing or selling (or agreeing to issue or
sell) any Company note (except as may be required by any
Insurance Authority), debenture, stock, or other security of
the Company or any options, warrants, conversion or other
rights to purchase any such Company securities or any
securities convertible into or exchangeable for such Company
securities or granting, or agreeing to grant, any such
options, other than securities of the Company that may be
issued or sold to Purchaser;
(vii) Merging, consolidating, liquidating or
dissolving the Company;
(viii) Amending the articles of incorporation or
bylaws or other organizational or corporate governance
documents of the Company;
(ix) Except in the Ordinary Course of Business,
terminating, amending or executing any material reinsurance,
coinsurance or other similar contract, as ceding or assuming
insurer related to the Insurance Contracts;
(x) (1) Amend any Intercompany Contract, (2)
pay any cash or other consideration (including, without
limitation, via an intercompany charge) to a Seller Related
Party for any purpose other than pursuant to an Intercompany
Contract or as reimbursement of a pass-through of third-party
costs for services performed solely on behalf of the Company,
or (3) pay an amount of cash or other consideration
(including, without limitation, via intercompany charges) to
any Seller Related Party under any Intercompany Contract that
is computed in accordance with methodology (including,
without limitation, unit costs and rates) that is not
consistent with such methodology used to compute the payment
under such Intercompany Contract between January 1, 1997 and
June 30, 1997, or that is not appropriate under SAP or
applicable Law, or that is not fair and reasonable; provided,
however, that the unit costs and rates for charges under such
Intercompany Contracts may be increased beginning January 1,
1998
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<PAGE> 37
to amounts not greater than those charged by Seller to its
Affiliates other than the Company; or
(xi) Entering into any Contract to do any of the
foregoing.
5.2 CERTAIN TRANSACTIONS. From the date of this Agreement until
the earlier of the termination of this Agreement and the Closing, neither
Seller, the Company nor any Seller Related Party will (nor will Seller permit
its investment bankers, legal counsel or other authorized representatives to)
solicit, encourage, engage in or initiate any negotiations or discussions with,
or provide any information to, or otherwise cooperate in any other manner with,
any Person or group (other than Fortis, Purchaser, their Affiliates or their
respective investment bankers, legal advisors or other authorized
representatives) concerning any sale, coinsurance, reinsurance, replacement or
other disposition, directly or indirectly of the business or a substantial
portion of the Assets (except as otherwise expressly permitted under this
Agreement) of the Company or the Company's capital stock (except, in the case
of coinsurance or reinsurance, for performance of obligations under the
Reinsurance Contracts listed in SECTION 3.15 of the Seller Disclosure
Memorandum).
5.3 ACCESS TO INFORMATION AND CONFIDENTIALITY.
(a) From the date hereof until the earlier of the
termination of this Agreement and the Closing Date, Seller shall, and
shall cause the Company to, give Purchaser and Fortis and their
authorized representatives reasonable access during normal working
hours to all of the Company's books, records, Contracts, properties,
officers and employees, and Seller shall furnish or cause to be
furnished to Purchaser and Fortis and their authorized representatives
such available financial, legal and other information with respect to
the Company that Purchaser or Fortis or any of their authorized
representatives may reasonably request, provided that any such access
shall not unreasonably interfere with the conduct of the business of
Seller or the Company. The Parties acknowledge and agree that any
investigation by Purchaser and Fortis shall not diminish or obviate
any of the representations, warranties, covenants or agreements made
or to be performed by Seller pursuant to this Agreement
(b) All data, reports, records and other information of
any kind received by Fortis, Purchaser or any of their Affiliates or
representatives from Seller or the Company or their representatives
under this Agreement or in connection with the transactions
contemplated hereby shall be treated as confidential (collectively,
"Confidential Information"). Except as otherwise provided herein,
neither Fortis nor Purchaser shall use (and they shall not permit
their Affiliates or representatives to use) Confidential Information
for their own benefit or for any other purpose except as provided in
paragraph (c) hereof, and they shall use all commercially reasonable
efforts to maintain the confidentiality of Confidential Information.
If any of Fortis, Purchaser, their
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Affiliates or their representatives is required to disclose
Confidential Information by or to any court, arbitrator or
Governmental Authority of competent jurisdiction, Purchaser shall,
prior to such disclosure, promptly notify Seller of such requirement
and all particulars related to such requirement. Seller shall have the
right, at its own cost and expense, to object to such disclosure and
to seek confidential treatment of any Confidential Information to be
so disclosed on such terms as it shall determine.
(c) The restrictions set forth in Section 5.3(b) shall
not apply to the use or disclosure of Confidential Information to the
extent, but only to the extent, (1) permitted or required pursuant to
any other agreement between or among the Parties; (2) necessary by
Purchaser in connection with exercising its rights or performing its
duties or obligations under this Agreement or the Transaction
Agreements; (3) contemplated by the last two sentences of Section
5.3(b); or (4) that Purchaser can demonstrate such Confidential
Information (A) is or becomes generally available to the public
through no fault or neglect of Fortis, Purchaser, or any of their
Affiliates or representatives, (B) is received in good faith on a
non-confidential basis from a third party who discloses such
Confidential Information without violating any obligations of secrecy
or confidentiality, (C) is independently developed after the time of
receipt as shown by dated written records, or (D) was already
possessed at the time of receipt as shown by prior dated written
records.
5.4 CERTAIN TAX MATTERS.
(a) Indemnification by Seller.
(i) Seller hereby agrees to indemnify, defend
and hold harmless Purchaser, its Affiliates and the Company
from and against: (1) any Taxes of the Company with respect
to taxable years ending on or before December 31, 1996, and
any and all Losses arising out of or incident to the
imposition, assessment or assertion of any such Taxes,
including, without limitation, those incurred in the contest
in good faith in appropriate proceedings relating to the
imposition, assessment or assertion of any such Taxes, (2)
any Taxes of the Company arising solely from transactions
between the Company and Seller or any of its Affiliates with
respect to any taxable period ending on or before the Closing
Date, in each case incurred or suffered by Purchaser, any of
its Affiliates or the Company, and (3) any and all Losses
that Purchaser, any of its Affiliates or the Company may
suffer arising out of or incident to any liability of the
Company for Taxes of any Person other than the Company under
Treasury Regulation Section 1.1502-6 (the sum of (1), (2) and
(3) being referred to as a "Tax Loss"); provided, however,
that all payments made by Seller pursuant to Section
5.4(a)(i)(1) are subject to the limitations on
indemnification set forth in Section 7.2 hereof.
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(ii) If a Tax Loss under this Section 5.4 is
paid by Seller and a deduction, amortization, credit,
exclusion from income or other allowance made allowable with
respect to such Tax Loss will result in a Taxes benefit to
Purchaser, its Affiliates or the Company, Seller shall be
entitled to a credit against any such Tax Loss equal to the
amount by which (i) the present value of the amount by which
the federal and state income Taxes of the Purchaser, its
Affiliates or the Company are reduced by reason of any such
deduction, amortization, credit, exclusion from income or
other allowance allowed the Purchaser, its Affiliates or the
Company in connection with any payment, settlement or
satisfaction by Seller (or by the Purchaser, its Affiliates
or the Company to the extent the Seller reimburses the same)
with respect to the items giving rise to such Tax Loss,
exceeds (ii) the present value of any increase, if any, in
the federal and state income Taxes payable by the Purchaser,
its Affiliates or the Company by reason of any
indemnification payment received under this Section 5.4. Any
payment of a Tax Loss by Seller to Purchaser, its Affiliates
or the Company under this Section 5.4 shall be treated by the
Parties as a reduction in the Purchase Price hereunder to the
extent such payment is for Tax Losses related to Company's
Taxes on or before Closing Date.
(iii) Any payment by Seller pursuant to this
Section 5.4 shall be made not later than 45 days after
receipt by Seller of written notice from Purchaser stating
that any Loss has been paid by Purchaser, any of its
Affiliates or the Company, and the amount thereof and of the
indemnity payment requested.
(iv) If any claim or demand for Taxes in respect
of which indemnity may be sought pursuant to this Section 5.4
is asserted in writing against Purchaser, any of its
Affiliates or the Company, Purchaser shall notify Seller of
such claim or demand within 10 days of receipt thereof, or
such earlier time that would allow Seller to respond timely
to such claim or demand, and shall give Seller such
information with respect thereto as Seller may reasonably
request; provided, however, that the failure of Purchaser to
notify Seller of such claim or demand shall not relieve
Seller of any liability that it may have with respect to such
claim or demand except to the extent Seller is prejudiced by
such failure. Seller may, at its own expense, participate in
any claim, suit, action, litigation or proceeding (including
any Tax audit) with respect to the Company's Taxes as to
which indemnification under this provision may apply (each a
"Tax Proceeding"). In addition, upon notice to Purchaser,
Seller may assume the defense of any such Tax Proceeding,
provided that such Tax Proceeding is either (1) with respect
to an item in the Seller Group's consolidated Tax Return or
(2) with respect to an item as to which Seller has
acknowledged its obligation to pay upon the final resolution
thereof and with respect to
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which the minimum level of $10,000,000 set forth in Section
7.2(a)(i) for all claims referred to in such Section
7.2(a)(i) does not apply or it is reasonably likely that such
$10,000,000 minimum level will be exceeded with the
resolution of this Taxes Loss. If Seller assumes such
defense, Purchaser shall have the right (but not the duty) to
participate in the defense thereof and to employ counsel, at
its own expense, separate from the counsel employed by
Seller. Whether or not Seller chooses to defend or prosecute
any claim, all of the Parties hereto shall cooperate in the
defense or prosecution thereof.
(v) Neither Seller nor Purchaser shall settle
any such Taxes Loss without giving ten days prior written
notice to the other Party of the action to be taken. Any
settlement by Seller without Purchaser's written consent
(which will not be unreasonably withheld, delayed or
conditioned) must fully and finally resolve the matter
without requiring any payment by Purchaser and without
causing any Taxes Liability of Purchaser in any subsequent
years. Any settlement by Purchaser without Seller's written
consent (which will not be unreasonably withheld, delayed or
conditioned) shall not establish Seller's liability for the
same; but Seller shall be responsible under its obligations
under Section 5.4 for only the reasonable amount of such
settlement and shall be entitled to litigate the
reasonableness of any such settlement by Purchaser.
(b) Cooperation on Tax Matters.
(i) The Company will prepare, with Seller's
cooperation, the Company's federal income Tax Return for the
taxable year ending December 31, 1997. In addition, the
Company and Seller will furnish or cause to be furnished to
each other, upon request, as promptly as practicable, such
information (including access to books and records) and
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 or defense of any claim, suit
or proceeding relating to any proposed adjustment. The
Company and Seller will retain or cause to be retained all
books and records pertinent to the Company until the
applicable period for assessment under applicable Law (giving
effect to any and all extensions, waivers or mitigations) has
expired, and to provide to the other Party all record
retention agreements entered into with any Governmental
Authority and to abide by or cause the abidance with such
agreements. The Company will give Seller reasonable notice
prior to transferring, discarding or destroying any such
books and records relating to Tax matters and, if Seller so
requests, the Company shall allow Seller to take possession
of such books and records. Purchaser and Seller shall
cooperate with each other in the conduct of any audit or
other proceedings involving the Company for any Tax
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purposes and each shall execute and deliver such powers of
attorney and other documents as are necessary to carry out
the intent of this subsection.
(ii) Purchaser and Seller further agree, upon
request, to provide the other Party with all information that
either Party may be required to report pursuant to Section
6043 of the Tax Code and all Treasury Department Regulations
promulgated thereunder.
(c) Survival. Notwithstanding anything in this Agreement
to the contrary, the provisions of this Section 5.4 shall survive for
the full period of the applicable statutes of limitations (giving
effect to any waiver, mitigation or extension thereof).
(d) Tax Covenants. The Parties agree that they will not
make any election or deemed election under Section 338 of the Tax
Code.
(e) Transfer Taxes. All transfer, documentary, sales,
use stamp, registration and other comparable taxes and fees (including
any penalties and interest) incurred in connection with the
consummation of the transactions contemplated by this Agreement and
all expenses related thereto, including any expenses related to filing
any required returns shall be borne and paid equally by Seller and
Purchaser. Purchaser shall file all necessary tax returns and other
documentation with respect to all such fees and taxes that Purchaser
and Seller agree must be filed and Purchaser and Seller shall join in
the execution of such returns and other documentation to the extent
required.
(f) Tax Sharing for Stub Period.
(i) If the Company is treated as an Includible
Corporation of the Seller Group during all or a portion of
the period from January 1, 1998 until the Closing Date, then,
with respect to the period during which the Company is so
treated (the "Stub Period"), Purchaser shall prepare, or
cause to be prepared pro forma tax returns of the Company
reflecting the Company's share of the Seller Group's
consolidated, combined and unitary Tax liabilities for such
period. Such pro forma returns shall be (1) prepared in a
manner consistent with the Company's past practice on its
separate company Tax Returns, (2) based on assumptions
reasonably acceptable to Seller, (3) prepared without a
change of any election or any accounting method, and (4)
submitted by Purchaser to Seller (together with schedules,
statements and, to the extent reasonably requested by Seller,
supporting documentation) at least 45 days prior to the due
date (including extensions) of the relevant Seller Group's
Tax Returns. Seller shall have the right to review all work
papers and procedures used to
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prepare any pro forma return. If Seller, within 10 business
days after delivery of any such pro forma return, notifies
Purchaser in writing that it objects to any items in such pro
forma return, the disputed items shall be resolved (within a
reasonable time, taking into account the deadline for filing
the relevant Seller Group Tax Return) by a nationally
recognized independent accounting firm chosen and mutually
acceptable to both Purchaser and Seller, the costs, fees and
expenses of which shall be borne equally by Purchaser and
Seller. Upon resolution of all such items, the relevant pro
forma returns shall be adjusted to reflect such resolution.
Seller Group agrees to prepare and file its consolidated Tax
Return for its Taxable year ending December 31, 1998,
consistently with the pro forma returns supplied by Purchaser
pursuant to this Section 5.4(f). At the time the Seller Group
files a Tax Return as to which the Company is treated as an
Includible Corporation (or as a similar entity under state or
local Law), (1) if any pro forma return for the Stub Period
shows that Taxes would be due in respect of the Company's
income during such period if the Company had filed a separate
company Tax Return substantively identical to such pro forma
return, then the amount shown as Taxes due on such pro forma
return shall by paid by the Company, Purchaser or Fortis,
which shall be jointly and severally liable for such payment,
to Seller, and (2) if any pro forma return for the Stub
Period shows that a refund would be due in respect of such
period if the Company had filed a separate company Tax Return
substantively identical to such pro forma return, then Seller
shall pay the Company an amount equal to the Tax refund shown
on such return.
(ii) Purchaser and Fortis hereby jointly and
severally agree to indemnify, defend and hold harmless the
Seller from and against (1) any Taxes resulting from an
adjustment to any of the Seller Group's Tax Returns for the
taxable year ending December 31, 1998, with respect to any
Tax item relating to the Company other than any Taxes for
which Seller is indemnifying Purchaser, its Affiliates and
the Company pursuant to Section 5.4(a)(i)(2), and (2) any
liabilities, costs, expenses (including, without limitation,
reasonable expenses of investigation and attorneys' fees and
expenses), arising out of or incident to the imposition,
assessment or assertion of any such Tax, including those
incurred in the contest in good faith in appropriate
proceedings rating to the imposition, assessment or assertion
of any such Tax. Seller will promptly pay to the Company any
refund caused by a Tax item related to the Company.
(g) Includible Corporation. Seller and Purchaser shall
use their reasonable commercial efforts prior to Closing to prevent
the Company from becoming an Includible Corporation. Upon receipt of
an opinion of counsel concluding that Seller is not obligated to so
include the Company, it shall file
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its Tax Returns for the taxable year ending December 31, 1998 without
including the Company, the provisions of Section 5.4(f) shall be
inapplicable, and the Company shall be responsible for filing its own
federal income Tax Return for the Stub Period and shall do so without
the consent or involvement of Seller.
5.5 INTERCOMPANY CONTRACTS.
(a) Effective as of Closing, all Intercompany Contracts
and any other Contracts or arrangements (whether oral, informal or
otherwise) between the Company and any Seller Related Party (other
than employment relationships with officers of the Company who are
Company Employees and other than the Liberty Reinsurance Agreement)
shall be terminated, and all outstanding obligations between such
parties (including, without limitation, the Liberty Reinsurance
Agreement) shall be settled with payment in full of all such
obligations (in accordance with the provisions of this Agreement. The
Administrative Services Agreement, which provides for services to
Company, shall not be terminated at Closing.
(b) That certain Indemnity Reinsurance Agreement between
Liberty Life and the Company, effective as of January 1, 1994 (the
"Liberty Reinsurance Agreement"), shall not be amended or terminated
between the date hereof and the earlier of termination of this
Agreement and the Closing Date. On the Closing Date, the Liberty
Reinsurance Agreement shall be amended to provide for the following
agreements among the parties hereto, and such amended agreement is
referred to herein as the "Amended Reinsurance Agreement":
(i) For up to one year after the
Closing Date, Liberty Life will write preneed life
insurance policies and preneed annuity contracts as
requested by the Company, but Liberty Life will not
be required to use any policy or contract form not
currently in use or to write any such policies or
contracts in any state in which Liberty Life does
not currently write such policies and contracts.
Purchaser will cause either the Company or another
insurance Affiliate of Fortis to file, as soon as
practicable after the Closing Date, such policy and
contract forms with the applicable insurance
regulatory authorities and otherwise use all
commercially reasonable efforts to obtain approval
to issue those policy and contract forms.
(ii) Any and all policies and contracts
written by Liberty Life after Closing as
contemplated by (i) immediately above shall be
reinsured by the Company on a 100% indemnity
coinsurance basis. The Company will have all
responsibility for the administration of such
polices and contracts, and the Company
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will reimburse Liberty Life for all premium taxes,
guaranty fund assessments, commissions and policy
benefits that Liberty Life is required to pay on
such policies and contracts and any other reasonable
out-of-pocket costs of Liberty Life. Otherwise,
there will be no fee paid to Liberty Life for such
policy writing services.
(iii) All of the Liberty Life policies
and contracts in force and reinsured under the
Liberty Reinsurance Agreement as of the Closing Date
will continue to be reinsured by the Company on a
100% indemnity coinsurance basis, pursuant to the
terms of the Amended Reinsurance Agreement.
(iv) Notwithstanding Section 5.15(b)
hereof, the Company may use the name "Liberty Life
Insurance Agreement" after Closing in connection
with the Amended Reinsurance Agreement, but only if
and to the extent required by Law or any Insurance
Authority.
(c) For a period of up to 30 days after Closing, Seller
shall provide the Company with use of the office space that the
Company Employees are currently using at no charge to the Company.
5.6 REGULATORY APPROVALS AND CONSENTS.
(a) As soon as practicable, but in any event within 30
days, after the date hereof:
(i) Each of Seller and Purchaser will make all
necessary filings under the Hart-Scott Act. Each Party shall
pay the expenses of preparing its own filing, and Purchaser
shall pay the required filing fee.
(ii) Purchaser shall make such filings as are
required by the California Department of Insurance in order
to request such Department's approval of the change in
control of the Company that will be effected by the transfer
of the Shares. Seller shall, and shall cause the Company to,
cooperate reasonably with Purchaser in preparing such filing.
(b) Seller and Purchaser shall promptly advise the other
of all oral, and promptly provide each other with copies of all
written, communications, requests, inquiries or other notifications
received from any Governmental Authorities with respect to the
transactions contemplated hereby.
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(c) Seller shall use all commercially reasonable efforts
required to obtain prior to Closing all Consents listed in SECTION
3.20 of the Seller Disclosure Memorandum.
(d) Purchaser shall use all commercially reasonable
efforts required to obtain prior to Closing all Consents listed in
SECTION 4.4 of the Purchaser Disclosure Memorandum.
5.7 EFFORTS TO CLOSE. Subject to the terms and conditions of this
Agreement, each Party agrees to use all commercially reasonable efforts to
take, or cause to be taken, all actions, and to do, or cause to be done, all
things necessary, proper or advisable under applicable Laws to consummate and
make effective the transactions contemplated by this Agreement, including,
without limitation, using all commercially reasonable efforts to lift or
rescind any Order adversely affecting its ability to consummate the
transactions contemplated herein and to cause to be satisfied the conditions
referred to in Article 6 of this Agreement; provided, that nothing herein shall
preclude either Party from exercising its rights under this Agreement and
nothing herein shall require Seller to make any additional investment in the
Company; and provided, further, that nothing in this Agreement shall require
any Party to hold separate or make any divestiture of any Asset or otherwise
agree to, and no Consent shall be deemed to be obtained for purposes of this
Agreement if such Consent contains, any restriction on such Party's operations,
other than provisions generally applicable to all insurance companies, or other
materially burdensome conditions which would in any such case be material to
the Assets, Liabilities or business of a Party. None of the Parties hereto will
take or permit to be taken any action that would be in breach of the terms or
provisions of this Agreement or that would cause any of the representations
contained herein to be or become untrue.
5.8 EXPENSES. Whether or not the Closing occurs, except as
otherwise stated herein, all costs and expenses incurred in connection with
this Agreement and the transactions contemplated hereby shall be paid by the
Party incurring such expense, provided that, if the Closing occurs, all of
Seller's and the Company's expenses shall be paid by Seller and not the
Company.
5.9 RESIGNATIONS. At Closing, Seller will deliver to Purchaser
written resignations of all the Company's directors and those officers of the
Company that are specified by Purchaser not less than 3 Business Days prior to
the Closing Date, who will resign as officers but not as employees of the
Company if they are Company Employees as defined in Section 5.12 hereof.
5.10 GUARANTY FUND ASSESSMENTS. The Company shall be responsible
for paying any guaranty or other solvency-type fund assessment that is assessed
against the Company and that relates to or is computed based upon the Company's
business with respect to any time period ending before, on or after the Closing
Date,
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whether or not such assessment exceeds the amount of any reserve established
therefor on the Company's balance sheet as of Closing
5.11 MAINTENANCE OF RECORDS. For a period of 7 years after
Closing, or for any longer period (i) as may be required by any federal, state,
local or foreign Governmental Authority, (ii) as may be reasonably necessary in
respect of the prosecution or defense of any suit, action, litigation or
administrative, arbitration or other proceeding or investigation that is
pending or threatened at the time of any notice to Purchaser while such records
are still maintained, or (iii) that is equivalent to the period established by
any applicable statute of limitations (or any extension or waiver thereof) with
respect to matters pertaining to Taxes, Purchaser shall maintain and shall
allow Seller, during normal business hours, through its employees and
representatives, the right, at Seller's expense, to examine and make copies of,
the books and records of the Company pertaining to the Company's business prior
to the Closing Date, for any reasonable business purpose.
5.12 CERTAIN AGREEMENTS REGARDING BENEFIT PLANS AND OTHER EMPLOYEE
MATTERS.
(a) For purposes of this Section 5.12, (i) "Company
Employee" means (i) each individual who is listed in SECTION 5.12(A)
of the Seller Disclosure Memorandum and (ii) each individual who is
hired by the Company in the Ordinary Course of Business between the
date of this Agreement and the Closing Date.
(b) With respect to each Company Employee, service with
the Company or any of its Affiliates shall be counted for purposes of
determining any period of eligibility to participate or to vest in
benefits under the Company's or Purchaser's benefit plans to the same
extent such service was counted under any similar type of benefit plan
under which such employee or former employee was covered or
participated immediately prior to the Closing Date, including, without
limitation, carry over of, and/or cash payments in lieu of,
accumulated and unused sick leave or vacation, in each case as of the
Closing Date, but expressly excluding any such service for the
purposes of benefit accrual under any defined benefit plan. For
calendar year 1998, Purchaser and the Company, for purposes of
deductible limits and out of pocket annual maximums under their
welfare plans, shall credit each Company Employee with the actual
applicable deductibles satisfied and amounts toward out of pocket
annual maximums, in each case in the year in which Closing occurs,
under the same type of benefit plan in which such Company Employee is
participating as of the Closing Date. With respect to each Company
Employee, Purchaser's and the Company's group health plans shall not
exclude coverage for pre-existing conditions. Seller shall retain sole
liability for employee benefits which accrue for a Company Employee
prior to Closing, including, but not limited to, (i) liability for
medical and dental claims which are incurred but not reported prior to
Closing and (ii) the employer
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matching contribution which accrues to the Company Employees under the
Liberty Corporation Retirement and Savings Plan (as amended and
restated effective April 1, 1997) (the "Liberty Plan") for the portion
of the plan year which begins on January 1 of the plan year in which
the Closing occurs and which ends on the Closing; provided, however,
that Seller shall also retain sole liability for long term disability
benefits and life insurance benefits which are payable after Closing
for any Company Employee who becomes disabled prior to Closing (even
if the determination of disability is not made until after Closing).
Except as provided in the immediately preceding sentence, Purchaser
shall be solely liable for employee benefits which accrue for a
Company Employee after Closing, including employee benefits for any
Company Employee who is not actively at work as of Closing, to the
extent such benefits would be provided to similarly situated employees
of Purchaser, including but not limited to sick pay, short-term
disability, medical and dental benefits for claims incurred on or
after Closing (including medical and dental benefits for a Company
Employee who is disabled prior to Closing, even if the determination
of disability is not made until after Closing), and health care
continuation benefits required under Section 4980B of the Tax Code
(i.e., COBRA).
(c) Seller and Purchaser agree that this transaction
constitutes a "disposition of a subsidiary" within the meaning of
Section 410(k)(10)(A)(iii) of the Tax Code. As soon as practicable
after the Closing, Seller shall cause the Liberty Plan to be amended
to (i) fully vest all Company Employees in their account balances
under the Liberty Plan; and (ii) permit immediate distribution of the
accounts of the Company Employees, as permitted by Section 401(k)(10)
of the Tax Code. Purchaser will permit any such employee to add his or
her account balance to the Purchaser's plan. In addition, (1) Seller
shall cause to be contributed to the Liberty Plan at or prior to
Closing the employer matching contribution which accrues to the
Company Employees for the portion of the plan year which begins on
January 1 of the plan year in which the Closing occurs and which ends
on the Closing, and (2) Seller shall permit any Company Employee who
elects to make a direct rollover (as determined under Section
401(a)(31) of the Tax Code) of any portion of his account balance from
the Liberty Plan to the Fortis, Inc. Employees' Uniform Profit Sharing
Plan (the "Fortis Plan"), to transfer to the Fortis Plan as part of
such direct rollover any outstanding loan which such Company Employee
has with the Liberty Plan as of Closing.
(d) Each Company Employee whose employment with the
Company is terminated by the Company or an Affiliate thereof within 12
months after the Closing Date shall receive severance and outplacement
benefits from the Company in an amount not less than that determined
and paid pursuant to the existing Company severance plan.
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(e) The Company shall be responsible after Closing for
the deferred compensation payments to the individuals and in the
amounts set forth in SECTION 5.12(E) of the Seller Disclosure
Memorandum.
(f) Purchaser shall cause the Company to pay each
Company Employee all bonuses accrued or earned in respect of 1997 in
the Ordinary Course of Business.
5.13 PUBLICITY. Neither Party shall or shall permit its Affiliates
to issue any publicity, press release or public announcement concerning the
execution and delivery of this Agreement, the provisions hereof or the
transactions contemplated hereby without the prior approval of the form and
content of such publicity, release or announcement by the other; provided,
however, that no such approval shall be required when such publicity, release
or announcement is required by (i) applicable Law, (ii) applicable rules or
regulations of, or any listing agreement with, a national or foreign stock
exchange or the Automated Quotation System maintained by the National
Association of Securities Dealers, Inc. or (iii) any Order of any court,
arbitrator or Governmental Authority of competent jurisdiction; and, provided
further, that, prior to issuing any publicity, release or announcement without
such prior written approval, the Party issuing or whose Affiliate is issuing
such publicity, release or announcement shall have given reasonable prior
notice to, and shall consult with, the other Party regarding such intended
issuance and, if requested by the other Party, shall have used reasonable
efforts at such other Party's own cost and expense to obtain a protective order
or similar protection for the benefit of the other Party. In addition, with the
prior written consent of the Parties, not to be unreasonably withheld, Goldman
Sachs & Co. and UBS Securities LLC each may cause to be published such
tombstone advertisements with respect to the transactions contemplated by this
Agreement as it shall deem appropriate. Nothing contained herein shall prevent
the communication of information with any Governmental Authority or any agency
or other organization which rates the financial solvency or claims-paying
ability of Seller, Purchaser, Fortis or the Company, including without
limitation, A.M. Best Company, Inc., Duff & Phelps, Standard & Poor's
Corporation and Moody's Investors Services, Inc. or state insurance departments
or other regulatory bodies.
5.14 ACCESS.
(a) Fortis and Purchaser will cause the Company, on and
after the Closing Date, to afford promptly to Seller and its agents
reasonable access to the Company's properties, books, records,
employees and auditors to the extent necessary to permit Seller to
determine any matter relating (i) to its rights and obligations
hereunder or (ii) to any period ending on or before the Closing Date;
provided that any such access by Seller shall not unreasonably
interfere with the conduct of the business of Purchaser or the
Company.
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(b) On and after the Closing Date, Seller will, and will
cause its Affiliates to, afford promptly to Purchaser, Company and
their agents reasonable access to Seller's and its Affiliates'
properties, books, records, employees and auditors to the extent they
deal with operations or Assets of Company before the Closing Date so
as to permit Purchaser or the Company to determine any matter relating
(i) to its rights and obligations hereunder or (ii) to any period
ending on or before the Closing Date; including, but not limited to,
the Company's obligations for Taxes, provided that any such access by
Purchaser or the Company shall not unreasonably interfere with the
conduct of the business of Seller. In addition, Seller shall transfer
to the Company or Purchaser (at the expense of Purchaser) any and all
records reasonably requested by the Company or Purchaser, including
computer records and databases (to the extent permitted by applicable
licensing agreements), containing information about the Company or its
business.
5.15 TRADEMARKS, TRADENAMES AND RECORDS.
(a) At or prior to the Closing, Seller shall transfer
all right, title and interest in and to the tradename and trademark
"FamilySide" and "FamilySide" with logo to the Company, together with
all goodwill associated therewith, and shall warrant that it is
transferring at Closing to the Company the ownership of the same free
and clear of all Liens of any nature whatsoever.
(b) After the Closing, Fortis and Purchaser shall not
permit the Company or its Affiliates to use any of the marks or names
set forth on SECTION 5.15 of the Seller Disclosure Memorandum, except
to exhaust existing supplies and assets with the same for a period not
exceeding one year after the Closing Date, and except as set forth in
Section 5.5(c)(iv). Purchaser shall use reasonable commercial efforts
to avoid any material confusion as to the owner of the Company.
5.16 ASSUMED LIABILITIES.
(a) At Closing, Purchaser, or a U.S. Affiliate thereof
reasonably acceptable to Seller, shall assume and agree to pay,
perform and discharge promptly and fully when due all of the Assumed
Liabilities and to perform any and all other obligations of Seller and
LMC in respect of the Assumed Liabilities, as provided in Section 2.2
hereof. At Closing, each of Seller and LMC shall assign to such
Purchaser or Affiliate thereof all of Seller's or LMC's, as the case
may be, rights, interests and benefits to, in and under such Assumed
Liabilities.
(b) Seller and Purchaser shall use their commercially
reasonable efforts first to eliminate all surplus commitments made by
Seller with respect to the Company that are part of the Assumed
Liabilities or, second, in the
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event that such surplus commitments cannot be eliminated at or prior
to Closing, to substitute for Seller on such surplus commitments
either Purchaser, or a U.S. Affiliate of Purchaser reasonably
acceptable to Seller as soon as practicable after Closing.
5.17 INVESTMENT ASSETS.
(a) On or prior to the Closing Date, Seller will:
(i) cause the Company to sell all of the
Company's right, title and interest in and to, and cause the
purchaser thereof to assume any and all of the Company's
obligations under, (1) all of the Investment Assets listed on
SECTION 5.17 of the Purchaser Disclosure Memorandum, and (2)
any Investment Asset acquired by the Company since June 30,
1997 that is of a type or classification of investment asset
set forth in said SECTION 5.17 of the Purchaser Disclosure
Memorandum (including, without limitation, any and all
mortgage loans, but not including any private placements
denominated by the issuer in Canadian currency) (the
Investment Assets described in (1) and (2) are collectively,
the "Transferred Assets"); and
(ii) ensure that the Company owns, in exchange
for all of the Transferred Assets, an amount of cash equal to
the aggregate Fair Market Value (as defined in subsection (c)
below) of the Transferred Assets.
(b) For purposes of this Section 5.17, "Fair Market
Value" shall be determined as follows:
(i) With respect to each mortgage loan, the
Fair Market Value shall be the principal balance owed under
the loan as of the date of sale.
(ii) With respect to each private placement, the
Fair Market Value shall be the discounted expected future
cash flows using a discount rate equal to (1) the U.S.
Treasury securities yield on the date of sale for comparable
maturity U.S. Treasuries, plus (2) the "spread at purchase,"
which means for this purpose the amount by which the yield of
such private placement at the date of purchase exceeded the
yield on U.S. Treasury securities of comparable maturity on
the date of purchase.
(iii) With respect to each investment in real
estate and each other invested asset, the Fair Market Value
shall be (1) the value of such investment as carried on the
SAP financial statements of the Company as of the date of the
sale, (2) plus the amount of any
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impairment in value of the investment from January 1, 1997 to
the date of sale (excluding any normal recurring depreciation
and/or amortization), and (3) plus any losses incurred on
sales and minus any gains realized on sales, from January 1,
1997 to the date of sale.
(c) Seller shall deliver to Purchaser not less than 5
business days prior to the Closing Date a schedule of all Transferred
Assets sold or to be sold on the Closing Date pursuant to this Section
5.17, showing for each such Transferred Asset the date of sale, the
Fair Market Value, the form of consideration received or to be
received by the Company for such sale and, if the consideration is
other than cash, a description of the consideration.
5.18 COMMITMENT TO MAKE CAPITAL CONTRIBUTION. Purchaser agrees
that at or after Closing it shall make, and Fortis shall cause it to make, a
capital contribution to the Company equal to the net amount, if any, of
dividends paid by the Company to, and capital contributions made to the Company
by, Seller between January 1, 1997 and the Closing Date and used to compute the
actual Purchase Price pursuant to Section 2.2, if such capital contribution by
Purchaser is required by the California Insurance Department in order for
Purchaser to obtain the approval contemplated by Section 5.6(a)(ii).
ARTICLE 6
CONDITIONS TO CLOSING
6.1 CONDITIONS TO OBLIGATIONS OF FORTIS AND PURCHASER. The
obligations of Fortis and Purchaser to proceed with the Closing under this
Agreement are subject to the fulfillment prior to or at Closing of the
following conditions (any one or more of which may be waived in whole or in
part by Fortis and Purchaser at their option):
(a) Bringdown of Representations and Warranties. The
accuracy of the representations and warranties of Seller contained in
this Agreement shall be determined on and as of the time of Closing,
with the same force and effect as though such representations and
warranties had been made on, as of and with reference to such time;
and (i) the representation and warranty contained in Section 3.3 shall
be true and correct in all respects, (ii) there shall not exist
inaccuracies in the representations and warranties of Seller,
including Section 3.3, such that the aggregate effect of such
inaccuracies has or is reasonably likely to have a Company Material
Adverse Effect, and (iii) Purchaser shall have received a certificate
to such effect signed by an authorized officer of Seller.
(b) Performance and Compliance. Seller shall have
performed in all material respects all of the covenants and complied
with all of the provisions required by this Agreement to be performed
or complied with by it on or before
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the Closing, and Purchaser shall have received a certificate to such
effect signed by an authorized officer of Seller.
(c) Opinion of Counsel. Purchaser shall have received
from Martha G. Williams, Esq., General Counsel for Seller, an opinion
dated the Closing Date in form and substance reasonably satisfactory
to Purchaser relating to matters customary for transactions of this
type. Purchaser shall also have received from Davis Polk & Wardwell,
counsel for Seller, an opinion dated the Closing Date in form and
substance reasonably satisfactory to Purchaser relating to matters
governed by New York Law.
(d) Hart-Scott Act. The applicable waiting period under
the Hart-Scott Act (and any extension thereof) shall have expired or
been terminated.
(e) Regulatory Approval. The California Insurance
Department shall have approved the change in control of the Company
effected by the transfer of the Shares, and all other regulatory
approvals described in Section 4.4(d), (e) or (f) shall have been
obtained.
(f) Required Consents. All Consents listed in SECTION
3.20 of the Seller Disclosure Memorandum shall have been obtained.
(g) Litigation. No Order of any court or Governmental
Authority shall be in effect which enjoins or prohibits the
transactions contemplated hereby or which would limit or materially
adversely affect Purchaser's ownership or control of the Company or
its business, and there shall not have been threatened, nor shall
there be pending, any action or proceeding by or before any
Governmental Authority reasonably likely to enjoin or prohibit any of
the transactions contemplated by this Agreement or seeking significant
monetary relief by reason of the consummation of such transactions.
(h) Incumbency Certificate. Seller shall have delivered
to Purchaser an incumbency certificate dated the Closing Date
certifying the incumbency of all officers of Seller who have executed
this Agreement, the Transaction Agreements or any of the other
agreements, documents or instruments required to be delivered
hereunder. These certificates shall contain specimens of the
signatures of each of such officers and shall be executed by an
officer of Seller other than an officer whose incumbency or authority
is certified.
(i) Certificates of Existence and Licensure. Seller
shall have delivered to Purchaser, with respect to Seller and the
Company, a certificate of the Secretary of State of the state in which
each such corporation is incorporated, dated not more than 15 days
before the Closing Date, stating that such corporation is a
corporation in existence under the Laws of such state and has paid all
applicable Taxes due to such state. In addition, Seller
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shall have delivered to Purchaser a certificate of licensure with
respect to the Company, dated not more than 30 days before the Closing
Date, issued by the Insurance Authority in each U.S. state and
Canadian province in which the Company presently conducts insurance
business stating that the Company is authorized to conduct insurance
business in such jurisdiction.
(j) Certified Copies of Resolutions. Seller shall have
delivered to Purchaser copies, certified by the duly qualified and
acting Secretary or Assistant Secretary of Seller, of resolutions
adopted by the Board of Directors of Seller approving this Agreement
and the consummation of the transactions contemplated hereby.
(k) Delivery of Original Records. Seller shall have
delivered to Purchaser the original corporate minute books for the
Company, along with the certificates representing the Shares.
(l) Delivery of Administrative Services Agreement.
Seller and Liberty Insurance Services Corporation shall have executed
and delivered to Purchaser the Administrative Services Agreement.
6.2 CONDITIONS TO OBLIGATIONS OF SELLER. The obligations of
Seller to proceed with the Closing under this Agreement are subject to the
fulfillment prior to or at Closing of the following conditions (any one or more
of which may be waived in whole or in part by Seller at Seller's option):
(a) Bringdown of Representations and Warranties. The
representations and warranties of Fortis and Purchaser contained in
this Agreement shall be true and correct in all material respects on
and as of the time of Closing, with the same force and effect as
though such representations and warranties had been made on, as of and
with reference to such time, and Seller shall have received a
certificate to such effect signed by an authorized officer of each of
Fortis and Purchaser.
(b) Performance and Compliance. Fortis and Purchaser
shall have performed in all material respects all of the covenants and
complied with all of the provisions required by this Agreement to be
performed or complied with by them on or before the Closing, and
Seller shall have received a certificate to such effect signed by an
authorized officer of each of Fortis and Purchaser.
(c) Opinion of Counsel. Seller shall have received from
Alston & Bird LLP, counsel for Fortis and Purchaser, or from the
General Counsel of Fortis, an opinion dated the Closing Date in form
and substance reasonably satisfactory to Seller relating to matters
customary for transactions of this type.
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(d) Hart-Scott Act. The applicable waiting period under
the Hart-Scott Act (and any extension thereof) shall have expired or
been terminated.
(e) Regulatory Approval. The California Insurance
Department shall have approved the change in control of the Company
effected by the transfer of the Shares, and all other regulatory
approvals described in Section 3.20(d), (e) or (f) shall have been
obtained.
(f) Required Consents. All Consents listed in SECTION
4.4 of the Purchaser Disclosure Memorandum shall have been obtained.
(g) Litigation. No Order of any court or Governmental
Authority shall be in effect which enjoins or prohibits the
transactions contemplated hereby, and there shall not have been
threatened, nor shall there be pending, any action or proceeding by or
before any Governmental Authority reasonably likely to enjoin or
prohibit any of the transactions contemplated by this Agreement or
seeking significant monetary relief by reason of the consummation of
such transactions.
(h) Incumbency Certificate. Each of Fortis and Purchaser
shall have delivered to Seller an incumbency certificate dated the
Closing Date certifying the incumbency of all officers of Fortis and
Purchaser who have executed this Agreement, the Transaction Agreements
or any of the other agreements, documents or instruments required to
be delivered hereunder. These certificates shall contain specimens of
the signatures of each of such officers and shall be executed by an
officer of Fortis and Purchaser, respectively, other than an officer
whose incumbency or authority is certified.
(i) Certificates of Existence. Fortis and Purchaser
shall have delivered to Seller, with respect to Fortis and Purchaser,
a certificate of the Secretary of State of the state in which each
such corporation is incorporated, dated not more than 15 days before
the Closing Date, stating that such corporation is a corporation in
existence under the Laws of such state.
(j) Certified Copies of Resolutions. Fortis and
Purchaser shall have delivered to Seller copies, certified by the duly
qualified and acting Secretary or Assistant Secretary of Fortis and
Purchaser, respectively, of resolutions adopted by their respective
Boards of Directors approving this Agreement and the consummation of
the transactions contemplated hereby.
ARTICLE 7
INDEMNIFICATION
7.1 NATURE AND SURVIVAL OF REPRESENTATIONS. The representations
and warranties in Articles 3 and 4 of this Agreement, and the covenants in
Article 5 of this Agreement, shall not survive the Closing, except that: (i)
the representations and warranties of the Parties hereto contained in Sections
3.1, 3.2, 3.3, 4.1, 4.6 and 4.7 shall survive indefinitely; (ii) the
representations and warranties of the Parties hereto contained in Sections 3.7,
3.19(a) and 3.19(b) shall survive until the second anniversary of the Closing
Date; and (iii) the representations and warranties of Seller contained in
Section 3.19(c), and the covenants of the Parties contained in Sections 5.3(a),
5.4, 5.5, 5.8, 5.10, 5.11, 5.12, 5.13, 5.14, 5.15, 5.16 and 5.18, shall survive
until the expiration of the statute of limitations applicable to the matters
covered thereby (giving effect to any waiver, mitigation or extension thereof).
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7.2 OBLIGATIONS OF SELLER TO INDEMNIFY.
(a) Subject to Section 7.2(b) below, Seller hereby
agrees to indemnify, defend and hold harmless Fortis, Purchaser, the
Company, Fortis's other Affiliates and their respective officers,
employees, directors, agents, successors and assigns from and against
any and all Losses relating to or arising out of:
(i) (1) the breach of any representation or
warranty of Seller in Section 3.7, 3.19(a), 3.19(b) or
3.19(c) of this Agreement, and (2) any Intercompany Loss;
provided that Seller shall not be liable under this Section
7.2(a)(i) unless and until the sum of the aggregate amount of
Losses with respect to all matters referred to above in this
Section 7.2(a)(i) plus the aggregate amount of all Tax Losses
referred to in clause (i)(1) of Section 5.4(a) which are
payable by Seller (determined in accordance with Seller's
indemnity to Purchaser, its Affiliates and the Company in
Section 5.4(a)) exceeds $10,000,000, at which point Seller
will then responsible for paying all claims including the
first $10,000,000;
(ii) any breach of any representation or
warranty of Seller in Section 3.1, 3.2 or 3.3 of this
Agreement;
(iii) any ERISA Obligation;
(iv) any employees or former employees of the
Company other than Company Employees (excluding the deferred
compensation payments set forth in SECTION 5.12(E) of the
Seller Disclosure Memorandum); and
(v) any breach of any covenant of Seller in
Section 5.4, 5.5, 5.8, 5.11, 5.12, 5.13 or 5.14 of this
Agreement.
(b) Seller's maximum aggregate liability under Section
5.4 and this Section 7.2 shall be $180,000,000. No claim for indemnity
pursuant to Section 7.2(a) above may be made after the second
anniversary of the Closing Date, except as follows: (i) a claim for
breach of a representation or warranty in Section 3.19(c), a claim for
any ERISA Obligation, and a claim pursuant to Section 7.2(a)(v), may
be made until the expiration of the statute of limitation applicable
thereto (giving effect to any waiver, mitigation or extension
thereof); (ii) a claim pursuant to Section 7.2(a)(ii) or (iv) may be
made at any time; and (iii) a claim for indemnity pursuant to Section
7.2(a) may be made after the time when it would otherwise be
prohibited by this paragraph if prior to such time Purchaser, the
Company or Fortis shall have given Seller written notice of such
claim, specifying in reasonable detail the nature of the claim.
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7.3 OBLIGATIONS OF FORTIS AND PURCHASER TO INDEMNIFY.
(a) Subject to Section 7.3(b) below, Fortis and
Purchaser hereby indemnifies Seller and its officers, employees,
directors, agents, successors and assigns from and against any and all
Losses relating to or arising out of (i) any breach of a
representation or warranty in Section 4.1, 4.6 or 4.7 of this
Agreement or (ii) any breach of any covenant of Fortis or Purchaser in
Section 5.4, 5.5, 5.8, 5.10, 5.11, 5.12, 5.13, 5.14, 5.15, 5.16 or
5.18 of this Agreement.
(b) A claim pursuant to clause (i) of Section 7.3(a) may
be made at any time. A claim pursuant to clause (ii) of Section 7.3(a)
may be made until the expiration of the statute of limitation
applicable thereto (giving effect to any waiver, mitigation or
extension thereof). Notwithstanding the foregoing, a claim for
indemnity pursuant to Section 7.3(a) may be made after the time when
it would otherwise be prohibited if prior to such time Seller shall
have given Fortis written notice of such claim, specifying in
reasonable detail the nature of the claim.
7.4 PROCEDURES FOR INDEMNIFICATION.
(a) Any claim for indemnification under Section 7.2 or
7.3 (an "Indemnification Claim") shall be made by the Party claiming
indemnification (the "Indemnitee") by delivery of a written notice to
the Party against whom indemnification is claimed (the "Indemnitor")
requesting indemnification and specifying the basis on which
indemnification is sought and the amount of asserted Losses and, in
the case of a Third-Party Claim (as defined below), containing (by
attachment or otherwise) such other information as such Indemnitee
shall have concerning such Third-Party Claim.
(b) If the Indemnification Claim involves a Third-Party
Claim, the procedures set forth in Section 7.5 shall be observed by
the Indemnitee and the Indemnitor.
(c) If the Indemnification Claim involves a matter other
than a Third-Party Claim, the Indemnitor shall have 30 days to object
to such Indemnification Claim by delivery of a written notice of such
objection to such Indemnitee specifying in reasonable detail the basis
for such objection. Failure to so object timely shall constitute a
final and binding acceptance of the Indemnification Claim by the
Indemnitor. If an objection is timely interposed by the Indemnitor,
and the dispute is not resolved by such Indemnitee and the Indemnitor
within 15 days from the date the Indemnitee receives such objection,
such dispute shall be resolved by litigation as provided in Section
9.15.
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7.5 THIRD-PARTY CLAIMS.
(a) For purposes of this Agreement, "Third-Party Claim"
means any action, arbitration, cause of action, claim, complaint,
criminal prosecution, governmental or other examination or
investigation, hearing, administrative or other proceeding (including,
without limitation, an audit by any Governmental Authority) that is
instituted against an Indemnitee by a Person other than an Indemnitor
(but excluding any matter that is handled pursuant to Section 5.4(a))
and which, if prosecuted successfully, would result in a Loss for
which such Indemnitee is entitled to indemnification hereunder.
(b) The obligations and Liabilities of the Parties
hereunder with respect to a Third-Party Claim shall be subject to the
following terms and conditions:
(i) The Indemnitee shall give the Indemnitor
written notice of a Third-Party Claim promptly after receipt
by the Indemnitee of notice thereof, and the Indemnitor may
undertake the defense, compromise and settlement thereof by
representatives of its own choosing reasonably acceptable to
the Indemnitee. The failure of the Indemnitee to notify the
Indemnitor of such claim shall not relieve the Indemnitor of
any liability that it may have with respect to such claim
except to the extent the Indemnitor demonstrates that the
defense of such claim is prejudiced by such failure. The
assumption of the defense, compromise and settlement of any
such Third-Party Claim by the Indemnitor shall be an
acknowledgment of the obligation of the Indemnitor to
indemnify the Indemnitee with respect to such claim
hereunder. If the Indemnitee desires to participate in, but
not control, any such defense, compromise and settlement, it
may do so at its sole cost and expense. If, however, the
Indemnitor fails or refuses to undertake the defense of such
Third-Party Claim within 10 days after written notice of such
claim has been given to the Indemnitor by the Indemnitee, or
if outside legal counsel for the Indemnitee advises that
there are substantive issues which raise conflicts of
interest between Indemnitor and Indemnitee, then the
Indemnitee shall have the right to undertake the defense,
compromise and settlement of such claim with counsel of its
own choosing. In the circumstances described in the preceding
sentence, the Indemnitee shall, promptly upon its assumption
of the defense of such claim, make an Indemnification Claim
as specified in Section 7.4 which shall be deemed an
Indemnification Claim that is not a Third-Party Claim for the
purposes of the procedures set forth herein.
(ii) If any Third-Party Claim or the litigation
or resolution thereof involves an issue or matter which could
have a material adverse effect on the business, operations,
Assets or Liabilities of the
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Indemnitee (including, without limitation, the administration
of the Tax Returns and responsibilities under the Tax Laws of
the Indemnitee), the Indemnitee shall have the right to
control the defense, compromise and settlement of such
Third-Party Claim undertaken by the Indemnitor, and the
reasonable costs and expenses of the Indemnitee in connection
therewith shall be included as part of the indemnification
obligations of the Indemnitor hereunder. If the Indemnitee
shall elect to exercise such right, the Indemnitor shall have
the right to participate in, but not control, the defense,
compromise and settlement of such Third-Party Claim at its
sole cost and expense.
(iii) No settlement of a Third-Party Claim
involving the asserted liability of an Indemnitor under
Section 7.2 or 7.3 shall be made without the prior written
consent by or on behalf of the Indemnitor, which consent
shall not be unreasonably withheld, conditioned or delayed.
Consent shall be presumed in the case of settlements of
$15,000 or less where the Indemnitor has not responded within
5 Business Days of notice of a proposed settlement. If the
Indemnitor assumes the defense of such a Third-Party Claim,
(1) no compromise or settlement thereof may be effected by
the Indemnitor without the Indemnitee's consent unless (A)
there is no finding or admission of any violation of Law or
any violation of the rights of any Person and no effect on
any other claim that may be made against the Indemnitee, (B)
the sole relief provided is monetary damages that are paid in
full by the Indemnitors, and (C) the compromise or settlement
includes, as an unconditional term thereof, the giving by the
claimant or the plaintiff to the Indemnitee of a release, in
form and substance satisfactory to the Indemnitee, from all
liability in respect of such Third-Party Claim, and (2) the
Indemnitee shall have no liability with respect to any
compromise or settlement thereof effected without its
consent.
(iv) In connection with the defense, compromise
or settlement of any Third-Party Claim, the Parties to this
Agreement shall execute such powers of attorney as may
reasonably be necessary or appropriate to permit
participation of counsel selected by any Party hereto and, as
may reasonably be related to any such claim or action, shall
provide access to the counsel, accountants and other
representatives of each Party during normal business hours to
all properties, personnel, books, Tax records, Contracts,
commitments and all other business records of such other
Party and will furnish to such other Party copies of all such
documents as may reasonably be requested (certified, if
requested), to the extent said request is related to the
subject Third-Party Claim.
7.6 SOLE REMEDY. Purchaser's and Fortis's sole remedy for any
breach of this Agreement (other than an intentional breach or fraudulence) by
Seller shall be
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the provisions in Section 5.4 or Section 7.2, and Purchaser and Fortis hereby
waive any and all other remedies which may be available to Purchaser and Fortis
at Law or in equity for any breach or alleged breach of this Agreement (other
than an intentional breach or fraudulence). Seller's sole remedy for any breach
of this Agreement (other than an intentional breach or fraudulence) by
Purchaser or Fortis shall be the provisions in Section 5.4 or Section 7.3, and
Seller hereby waives any and all other remedies which may be available to
Seller at Law or in equity for any breach or alleged breach of this
Agreement(other than an intentional breach or fraudulence).
7.7 REDUCTION FOR CERTAIN BENEFITS.
(a) Any insurance or other recovery payment or credit
received by the Indemnitee from any third party that was not taken
into account in computing the amount of any Indemnification Claim
shall promptly be paid over to the Indemnitor up to the amount of the
indemnification payment made by the Indemnitor with respect thereto.
(b) If a claim under this Article 7 results in a Tax
benefit to the Indemnitee, the Indemnitor shall be entitled to a
credit against any Losses hereunder equal to the amount by which (i)
the present value of the amount by which the federal and state income
Taxes of the Indemnitee are reduced by reason of any deduction allowed
the Indemnitee for any payment, settlement or satisfaction of such
claim, exceeds (ii) the present value of any increase in the federal
and state income Taxes payable by the Indemnitee by reason of any
indemnification payment received under this Article 7.
7.8 SUBROGATION RIGHTS. In the event that Indemnitee has an
Indemnification Claim hereunder, the Indemnitor shall, upon payment of such
Indemnification Claim in full, be subrogated to all rights of the Indemnitee
with respect to the Loss to which such Indemnification Claim relates; provided,
however, that the Indemnitor shall only be subrogated to the extent of any
amount paid by it pursuant to this Article 7 in connection with such Loss.
ARTICLE 8
TERMINATION
8.1 WHEN AGREEMENT MAY BE TERMINATED. This Agreement may be
terminated:
(a) at any time prior to the Closing, by mutual written
consent of Seller and Purchaser;
(b) by written notice by Purchaser to Seller if events
render impossible compliance with one or more conditions set forth in
Section 6.1
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and such conditions are not waived by Fortis and Purchaser; provided that such
events did not result from any action or omission by Fortis or Purchaser which
was within its control and which Fortis or Purchaser, as the case may be, was
not expressly permitted to take or omit by the terms of this Agreement;
(c) by written notice by Seller to Purchaser if events
render impossible compliance with one or more conditions set forth in
Section 6.2 and such conditions are not waived by Seller; provided
that such events did not result from any action or omission by Seller
which was within its control and which Seller was not expressly
permitted to take or omit by the terms of this Agreement;
(d) at any time after March 31, 1998 (the "Termination
Date") (unless all conditions of Closing have been met on or before
March 31, 1998, other than regulatory approvals required from
Governmental Authorities, in which case the Termination Date shall be
extended for not more than three periods of 30 days each at the
request of either Purchaser or Seller) and prior to the Closing, by
Purchaser by written notice to Seller, if (i) the Closing shall not
have been consummated on or before the Termination Date and (ii) the
failure to consummate the Closing on or before the Termination Date
did not result from the failure by Purchaser or Fortis to perform or
comply with any covenant or agreement contained in this Agreement
required to be performed or complied with prior to the Closing by
Purchaser or Fortis;
(e) at any time after the Termination Date and prior to
the Closing, by Seller by written notice to Purchaser, if (i) the
Closing shall not have been consummated on or before the Termination
Date and (ii) the failure to consummate the Closing on or before the
Termination Date did not result from the failure by Seller to perform
or comply with any covenant or agreement contained in this Agreement
required to be performed or complied with prior to the Closing by
Seller; or
(f) at any time prior to Closing by written notice from
Purchaser or Seller to the other, if a Governmental Authority having
jurisdiction over Purchaser, Seller or the Company has notified such
Party that it will not provide a Consent necessary for the terminating
Party to consummate the transactions contemplated by this Agreement or
the Transaction Agreements and the Parties cannot subsequently procure
such Consent using their respective commercially reasonable efforts.
8.2 EFFECT OF TERMINATION. In the event that this Agreement shall
be terminated pursuant to Section 8.1, all further obligations of the Parties
under this Agreement shall terminate without further liability of either Party
to the other; provided that the obligations of the Parties contained in
Articles 7 and 9 shall survive any such termination. A termination under
Section 8.1 shall not relieve any Party of
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<PAGE> 61
any liability for a breach of, or for any misrepresentation under, this
Agreement, or be deemed to constitute a waiver of any available remedy
(including specific performance if available) for any such breach or
misrepresentation.
ARTICLE 9
MISCELLANEOUS
9.1 AMENDMENT. This Agreement may not be amended or modified
without the prior written consent of all Parties.
9.2 WAIVER. Failure to insist upon strict compliance with any of
the terms or conditions of this Agreement at any one time shall not be deemed a
waiver of such term or condition at any other time; nor shall any waiver or
relinquishment of any right or power granted herein at any time be deemed a
waiver or relinquishment of the same or any other right or power at any other
time.
9.3 GOVERNING LAW. Notwithstanding the place where this Agreement
may be executed or delivered by any of the Parties, the Parties expressly agree
that this Agreement shall in all respects be governed by, and construed in
accordance with, the Laws of the State of New York, without regard for its
conflict of laws doctrine.
9.4 NOTICES. Any notice or other communication to be given
hereunder shall be in writing and shall be deemed sufficient when (i) mailed by
United States certified mail, return receipt requested, (ii) mailed by
overnight express mail, (iii) sent by facsimile or telecopy machine, followed
by confirmation mailed by first-class mail or overnight express mail, or (iv)
delivered in person, at the address set forth below, or such other address as a
Party may provide to the other in accordance with the procedure for notices set
forth in this Section:
If to Fortis or Purchaser:
Fortis, Inc.
One Chase Manhattan Plaza, 41st Floor
New York, New York 10005
Attention: Jerome A. Atkinson
Telephone: 212-859-7000
Telecopy: 212-859-7034
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<PAGE> 62
with a copy (which shall not constitute notice) to:
Alston & Bird LLP
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
Attention: B. Harvey Hill, Jr.
Telephone: 404-881-7446
Telecopy: 404-881-4777
If to Seller:
The Liberty Corporation
2000 Wade Hampton Boulevard
Greenville, South Carolina 29615
Attention: Martha G. Williams
Telephone: 864-609-8300
Telecopy: 864-609-3176
with a copy (which shall not constitute notice) to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York, 10017
Attention: Dennis S. Hersch
Telephone: 212 450 4000
Telecopy: 212 450 4800
9.5 INVALID PROVISION. If any provision of this Agreement shall
be determined to be invalid or unenforceable, this Agreement shall be deemed
amended to delete such provision and the remainder of this Agreement shall be
enforceable by its terms.
9.6 ASSIGNMENT. This Agreement may not be assigned or delegated
by any Party without the prior written consent of all other Parties.
9.7 BINDING EFFECT. This Agreement shall be binding upon and
inure to the benefit of the Parties hereto and their respective permitted
successors and assigns.
9.8 FURTHER ASSURANCES. Each Party agrees to execute and deliver
all such further instruments and do all such further acts as may be reasonably
necessary or appropriate to effectuate this Agreement.
9.9 HEADINGS. Headings and captions contained in this Agreement
are inserted only as a matter of convenience and for reference and in no way
define, limit, extend or prescribe the scope of this Agreement or the intent of
any provision.
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<PAGE> 63
9.10 PERSON AND GENDER. The masculine gender shall include the
feminine and neuter genders and the singular shall include the plural.
9.11 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement of the Parties with respect to matters set forth in this Agreement
and supersedes any prior understanding or agreement, oral or written, with
respect to such matters.
9.12 INTERPRETATIONS. Neither this Agreement nor any uncertainty
or ambiguity herein shall be construed or resolved against any Party hereto,
whether under any rule of construction or otherwise. No Party shall be
considered the draftsman. On the contrary, this Agreement has been reviewed,
negotiated and accepted by all Parties and their lawyers and shall be construed
and interpreted according to the ordinary meaning of the words used so as to
fairly accomplish the purposes and intentions of all Parties hereto.
9.13 EXECUTION IN COUNTERPARTS. This Agreement may be executed in
any number of counterparts, each of which shall be an original, and all such
counterparts shall constitute one and the same Agreement, binding on all the
Parties notwithstanding that all the Parties are not signatories to the same
counterpart.
9.14 NO THIRD-PARTY BENEFICIARIES. This Agreement is for the sole
benefit of the Parties hereto and nothing herein expressed or implied shall
give or be construed to give to any Person, other than the Parties hereto, any
legal or equitable rights hereunder.
9.15 WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHTS TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATED TO THIS AGREEMENT FOR THE TRANSACTIONS CONTEMPLATED
HEREBY. IN ADDITION, EACH PARTY HERETO HEREBY AGREES THAT THE FEDERAL COURT IN
THE SOUTHERN DISTRICT OF NEW YORK SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND
DETERMINE ANY CLAIMS OR DISPUTES AMONG THE PARTIES, PERTAINING DIRECTLY OR
INDIRECTLY TO THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY;
PROVIDED, HOWEVER, THAT THE EXCLUSIVE CHOICE OF JURISDICTION SET FORTH IN THIS
SECTION SHALL NOT BE DEEMED TO PRECLUDE THE ENFORCEMENT OF ANY JUDGMENT
OBTAINED IN SUCH JURISDICTION IN ANY OTHER APPROPRIATE JURISDICTION. EACH PARTY
EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR
PROCEEDING COMMENCED IN SUCH COURTS, HEREBY WAIVING PERSONAL SERVICE OF THE
SUMMONS AND COMPLAINT, OR OTHER PROCESS OR PAPERS ISSUED IN THE ACTION OR
PROCEEDING, AND AGREES THAT SERVICE OF SUCH SUMMONS AND COMPLAINT OR OTHER
PROCESS OR PAPERS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO THE
PARTY AT THE ADDRESS SET FORTH IN THIS AGREEMENT.
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<PAGE> 64
[SIGNATURES ON NEXT PAGE]
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<PAGE> 65
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
day and year first above written.
FORTIS, INC.
By: /s/ J. GROVER THOMAS, JR.
------------------------------
Name: J. Grover Thomas, Jr.
-----------------------------
Title: Executive Vice President
----------------------------
INTERFINANCIAL INC.
By: /s/ J. GROVER THOMAS, JR.
------------------------------
Name: J. Grover Thomas, Jr.
-----------------------------
Title: Executive Vice President
----------------------------
THE LIBERTY CORPORATION
By: /s/ W. HAYNE HIPP
------------------------------
Name: W. Hayne Hipp
-----------------------------
Title: President
----------------------------
LIBERTY LIFE INSURANCE COMPANY
By: /s/ RONALD F. LOEWEN
------------------------------
Name: Ronald F. Loewen
-----------------------------
Title: President
----------------------------
THE LIBERTY MARKETING CORPORATION
By: /s/ W. HAYNE HIPP
------------------------------
Name: W. Hayne Hipp
-----------------------------
Title: President
----------------------------
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<PAGE> 1
EXHIBIT 99.1
The Liberty Corporation and Subsidiaries
Pro Forma Condensed Financial Statements of
The Liberty Corporation and Subidiaries
The following unaudited pro forma condensed statements of income for the nine
months ended September 30, 1997 and the year ended December 31, 1996, and the
unaudited pro forma condensed balance sheet as of September 30, 1997 give effect
to the stock purchase transaction whereby Pierce National Life Insurance Company
will be sold to Fortis, Inc. The condensed statements of income were prepared
assuming the sale occurred January 1, 1996, and the condensed balance sheet was
prepared assuming the sale occurred September 30, 1997.
The unaudited pro forma condensed financial statements presented do not purport
to represent what the results of operations or financial condition would
actually have been if the pro forma adjustments had occured on the dates
referred to above or to be indicative of the future results of operations or
financial position of The Liberty Corporation. The pro forma adjustments are
based on available information and certain assumptions the Registrant believes
are reasonable. The pro forma condensed financial statements should be read in
conjunction with the audited financial statements and notes thereto as included
in The Liberty Corporation 1996 Annual Report on Form 10-K.
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<PAGE> 2
The Liberty Corporation and Subsidiaries
Pro Forma Condensed Income Statement
For the Nine Months ended September 30, 1997
<TABLE>
<CAPTION>
(UNAUDITED)
(In 000's, except per share data)
---------------------------------------------------
(a)
1997 Sale of Other
As Pierce Pro Forma 1997
Reported National Adjustments Pro Forma
---------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES
Insurance premiums and policy charges $263,807 (79,744) $184,063
Broadcasting revenues 100,753 100,753
Net investment income 118,454 (41,658) 3,702 b 80,498
Service contract revenues 5,302 7,500 c 12,802
Realized investment gains 8,739 2,353 11,092
---------------------------------------------------
Total Revenues 497,055 (119,049) 11,202 389,208
---------------------------------------------------
EXPENSES
Policyholder benefits 172,293 (74,978) 97,315
Insurance commissions 59,262 (7,679) 51,583
General insurance expenses 50,584 (13,173) 7,950 c,f 45,361
Amortization of deferred acquisition costs 33,105 (8,001) 25,104
Broadcasting expenses 70,282 70,282
Interest expense 10,093 (4,068) d 6,025
Other expenses 14,470 14,470
---------------------------------------------------
Total Expenses 410,089 (103,831) 3,882 310,140
---------------------------------------------------
Income before income taxes 86,966 (15,218) 7,320 79,068
Provision for income taxes 30,472 (5,030) 2,142 e 27,584
---------------------------------------------------
Net Income $ 56,494 (10,188) 5,178 $ 51,484
===================================================
Preferred Dividends $ 1,976 $ 1,976
Net Income Available to Common Shares $ 54,518 $ 49,508
Weighted Average Common Shares 21,130 21,130
Earnings Per Common Share $ 2.58 $ 2.34
</TABLE>
See notes to condensed pro forma income statement.
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<PAGE> 3
The Liberty Corporation and Subsidiaries
Pro Forma Condensed Income Statement
For the Year ended December 31, 1996
<TABLE>
<CAPTION>
(UNAUDITED)
(In 000's, except per share data)
------------------------------------------------------
(a)
1996 Sale of Other
As Pierce Pro Forma 1996
Reported National Adjustments Pro Forma
------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES
Insurance premiums and policy charges $ 321,371 (104,653) $ 216,718
Broadcasting revenues 137,336 137,336
Net investment income 155,221 (52,176) 4,935 b 107,980
Service contract revenues 7,751 10,000 c 17,751
Realized investment losses (2,582) (672) (3,254)
----------------------------------------------------
Total Revenues 619,097 (157,501) 14,935 476,531
----------------------------------------------------
EXPENSES
Policyholder benefits 218,751 (95,788) 122,963
Insurance commissions 66,483 (11,931) 54,552
General insurance expenses 73,790 (21,465) 10,600 c,f 62,925
Amortization of deferred acquisition costs 73,967 (13,029) 60,938
Broadcasting expenses 94,867 94,867
Interest expense 15,139 (5,424)d 9,715
Other expenses 19,601 19,601
----------------------------------------------------
Total Expenses 562,598 (142,213) 5,176 425,561
----------------------------------------------------
Income before income taxes 56,499 (15,288) 9,759 50,970
Provision for income taxes 19,159 (5,643) 2,856 e 16,372
----------------------------------------------------
Net Income $ 37,340 (9,645) 6,903 $ 34,598
====================================================
Preferred Dividends $ 2,652 $ 2,652
Net Income Available to Common Shares $ 34,688 $ 31,946
Weighted Average Common Shares 20,903 20,903
Earnings Per Common Share $ 1.66 $ 1.53
</TABLE>
See notes to condensed pro forma income statement.
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<PAGE> 4
The Liberty Corporation and Subsidiaries
Notes to Pro Forma Condensed Income Statements
a) The pro forma condensed income statement reflects, for the periods
presented, the exclusion of the actual reported amounts for Pierce
National Life Insurance Company.
b) The pro forma condensed income statement reflects, for the periods
presented, the earnings, net of investment expenses, on assets
retained by Liberty Corporation subsequent to the sale of Pierce. The
adjustment assumes approximately $78 million of assets are held in the
Parent Company and financed by debt.
c) The pro forma condensed income statement reflects, for the periods
presented, the revenues and expenses associated with the five year
servicing contract between Liberty Insurance Services Corporation and
Fortis, Inc., whereby Liberty Insurance Services will provide
administrative services for Pierce and United Family Life Insurance
Company (a subsidiary of Fortis, Inc.).
d) The pro forma condensed income statement reflects, for the periods
presented, the interest savings resulting from the reduction in bank
debt using the net proceeds from the sale of Pierce National, less the
cost of financing the assets to be retained in the Parent Company as
referred to in footnote (b) above.
e) The pro forma condensed income statement reflects, for the periods
presented, the tax effects of the adjustments made using a 35%
effective tax rate. Additionally, the pro forma income statement
assumes a tax credit of approximately $.5 million associated with
certain investments that will be retained by Liberty Corporation as
described in footnote (b) above.
f) The pro forma condensed income statement reflects, for the periods
presented, an estimate of the expenses that will remain in the Company
subsequent to the sale of Pierce, that previously had been absorbed by
Pierce. Actual future expenses may be higher or lower than those
reflected in the pro forma income statements.
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<PAGE> 5
The Liberty Corporation and Subsidiaries
Pro Forma Condensed Balance Sheet
September 30, 1997
<TABLE>
<CAPTION>
(In 000's) (UNAUDITED)
As (a) Pro
Reported Sale Assets Forma
9/30/97 Transaction Retained 9/30/97
----------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
INVESTMENTS
Fixed Maturity Securities-available for sale $ 1,637,923 (711,472) 47,862 c $ 974,313
Equity Securities 75,563 (2,479) 73,084
Mortgage Loans 237,464 (47,456) 24,449 c 214,457
Investment in Real Estate 54,208 (1,497) 347 c 53,058
Loans to Policyholders 100,590 (8,671) 91,919
Other Long Term Investments 22,738 (5,895) 5,895 c 22,738
Short Term Investments 250 250
-------------------------------------------------
Total Investments 2,128,736 (777,470) 78,553 1,429,819
=================================================
Cash 36,852 (5,916) 30,936
Accrued Investment Income 21,527 (8,389) 13,138
Receivables 62,867 (4,958) 57,909
Receivable from Reinsurers 280,113 (236) 279,877
Deferred Acquisition Costs 337,950 (56,514) 281,436
Buildings & Equipment 74,742 74,742
Intangibles Related to Television Operations 91,055 91,055
Goodwill related to Insurance Acquisitions 34,381 (10,308) 24,073
Other Assets 49,576 (1,520) 48,056
-------------------------------------------------
TOTAL ASSETS $ 3,117,799 (865,311) 78,553 $ 2,331,041
=================================================
LIABILITIES
Policy Liabilities 1,949,813 (623,788) 1,326,025
Notes Mortgages & Other Debt 199,914 (169,080) b 78,553 c 109,387
Accrued Income Taxes 2,671 2,194 4,865
Deferred Income Taxes 171,557 (44,722) 126,835
Accounts Payable & Accrued Expenses 103,030 (6,417) 96,613
Other Liabilities 3,834 3,834
-------------------------------------------------
TOTAL LIABILITIES 2,430,819 (841,813) 78,553 1,667,559
-------------------------------------------------
Redeemable Preferred Stock 44,688 44,688
Convertible Preferred Stock 20,999 20,999
Common Stock 20,504 20,504
Capital in Excess of Par 154,717 154,717
Unearned Stock Compensation (11,921) (11,921)
Net Unrealized Investment Gains 51,220 (20,513) 30,707
Cumulative Foreign Currency Translation Adjustment 826 (826) 0
Retained Earnings 405,947 (2,159) 403,788
-------------------------------------------------
TOTAL SHAREHOLDERS EQUITY 642,292 (23,498) 0 618,794
-------------------------------------------------
TOTAL LIABILITIES, REDEEMABLE
PREFERRED STOCK AND SHAREHOLDERS
EQUITY
$ 3,117,799 (865,311) 78,553 $ 2,331,041
=================================================
</TABLE>
See notes to pro forma condensed balance sheet.
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<PAGE> 6
The Liberty Corporation and Subsidiaries
Notes to Pro Forma Condensed Balance Sheet
a) The pro forma condensed balance sheet reflects the effect of the sale
of Pierce National Life Insurance Company on the consolidated assets
and liabilities of The Liberty Corporation. Additionally, the effect
on consolidated equity related to net unrealized investment gains
associated with fixed maturity and equity securities and the
cumulative foreign currency translation adjustment are reported as an
adjustment to consolidated equity.
b) The pro forma condensed balance sheet assumes the repayment of debt
using the proceeds (net of expenses and income taxes paid related to
the sale) from the sale of Pierce National Life Insurance Company.
c) The pro forma condensed balance sheet reflects the purchase of certain
assets previously held by Pierce. The assets purchased would initially
be retained in The Liberty Corporation and financed using debt.
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