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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
UNIVERSAL AMERICAN FINANCIAL CORP.
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(Name of Issuer)
COMMON STOCK, PAR VALUE $.01 PER SHARE
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(Title of Class of Securities)
91337710
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(CUSIP Number)
ROBERT WAEGELEIN
UNIVERSAL AMERICAN FINANCIAL CORP.
SUITE 190
RYE BROOK, NEW YORK 10573
TELEPHONE: (914) 934-5200
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(Name, Address and Telephone Number of Person Authorized to Receive Notices
and Communications)
Copy to:
GARY I. HOROWITZ, ESQ.
SIMPSON THACHER & BARTLETT
425 LEXINGTON AVENUE
NEW YORK, NY 10017
TELEPHONE: (212) 455-2000
DECEMBER 31, 1998
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(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box [ ].
Note: Six copies of this statement, including all exhibits, should be filed with
the Commission. See Rule 13d-1(a) for other parties to whom copies are to be
sent.
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
Page 1 of 10 Pages
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<PAGE>
SCHEDULE 13D
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CUSIP No. 91337710 PAGE 2 OF 10 PAGES
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1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Bertram Harnett S.S. # ###-##-####
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ]
(b) [ ]
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3 SEC USE ONLY
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4 SOURCE OF FUNDS*
None
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(e) [ ]
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
United States
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7 SOLE VOTING POWER
None
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NUMBER OF 8 SHARED VOTING POWER
SHARES
BENEFICIALLY 3,119,986
OWNED BY ----------------------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING
PERSON None
WITH ----------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
None
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
3,119,986
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12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
[ ]
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
40.8%
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14 TYPE OF REPORTING PERSON*
IN
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*SEE INSTRUCTIONS BEFORE FILLING OUT!
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Page 3 of 9 Pages
This Statement on Schedule 13D (the "Schedule 13D") relates to the
transactions to be carried out in connection with the purchase by Universal
American Financial Corp., a New York corporation (the "Company"), of certain
subsidiaries and assets (the "Business") of PennCorp Financial Group
("PennCorp") pursuant to a purchase agreement by and among the Company,
PennCorp, Pacific Life and Accident Insurance Company, Pennsylvania Life
Insurance Company, Southwestern Financial Corporation, Constitution Life
Insurance Company and PennCorp Financial Services, Inc. dated December 31, 1998
(the "PennCorp Purchase Agreement"). As part of the financing for the
transactions contemplated by the PennCorp Purchase Agreement, the Company will
issue and sell to Capital Z Financial Services Fund II, L.P. ("Capital Z")
shares of Common Stock, par value $.01 per share, of the Company pursuant to a
share purchase agreement between the Company and Capital Z, dated as of December
31, 1998 (the "UA Share Purchase Agreement"). In connection with this issuance
of stock for sale to Capital Z, certain holders of the voting securities of the
Company have executed an irrevocable proxy in respect of their securities (the
"Security Holders") granting Richard A. Barasch ("Barasch") and Bertram Harnett
("Harnett") the right to vote the shares of the Company subject to the proxy
(the "Shares") in favor of the issuance of shares to Capital Z and certain
matters set forth below under "Item 4. Purpose of the Transaction."
ITEM 1. SECURITY AND ISSUER.
This Schedule 13D relates to the Common Stock, par value $.01 per share,
of the Company. The Company's principal executive office is located at Six
International Drive, Suite 190, Rye Brook, NY 10573.
ITEM 2. IDENTITY AND BACKGROUND.
(a)-(c), (f) This Schedule 13D is filed by Barasch, a United States
citizen, whose present principal occupation is a partner at Harnett Lesnick &
Ripps, P.A., Nationsbank Tower, Suite 500, 150
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Page 4 of 9 Pages
East Palmetto Park Road, Boca Raton, Florida 33432 (which is also the address of
the firm at which his employment is conducted).
(d)-(e) During the last five years Harnett (i) has not been convicted in a
criminal proceeding (excluding traffic violations or similar misdemeanors) and
(ii) was not a party to a civil proceeding of a judicial or administrative body
of competent jurisdiction and as a result of such proceeding was or is subject
to a judgment, decree or final order enjoining future violations of, or
prohibiting activities subject to, federal or state securities laws or finding
any violation of such laws.
ITEM 3. SOURCE AND AMOUNT OF FUNDS.
Harnett is not acquiring the Shares. The Security Holders granted an
unconditional and irrevocable proxy to Barasch and Harnett, individually, to
vote the Shares in favor of certain Transaction Matters (as defined below).
Harnett does not have the right to, directly or indirectly, acquire or dispose
of the Shares.
ITEM 4. PURPOSE OF THE TRANSACTION.
(a), (e) Harnett acquired the unconditional and irrevocable proxy to vote
the Shares at a meeting of the Company's shareholders. Pursuant to the
irrevocable proxy, Harnett must vote in favor of (a) authorizing the issuance of
additional shares of Common Stock as contemplated in the UA Share Purchase
Agreement as amended (if applicable); (b) amending the Company's Certificate of
Incorporation in the following manner: (i) increase the authorized number of
shares, (ii) provide that the maximum number of directors on the Board of
Directors is nine and eliminate the classified board, (iii) specifically provide
for action of the shareholders by written consent in lieu of a meeting, and that
such written consent may only be by the number of shareholders required to
approve such action, (iv) provide for supermajority approval by the Board of
Directors for certain corporate actions, (v) no longer require supermajority
approval by shareholders of the Company for certain corporate transactions with
interested parties, and (vi) no longer require supermajority approval by
shareholders of the Company to amend
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Page 5 of 9 Pages
certain provisions of the Certificate of Incorporation; and (c) such other
related matters as the Company deems appropriate (the "Transaction Matters").
(b)-(c) None.
(d) Certain shareholders of the Company have agreed that upon the sale of
shares to Capital Z, the Company's board of directors shall consist of nine (9)
directors, four of which shall be designated by Capital Z, two of which shall be
designated by the Company, two of which shall be designated by Barasch and one
of which shall be designated collectively by AAM Capital Partners L.P., UAFC,
L.P. and Chase Equity Associates, L.P.
(f),(h)-(j) None.
(g) See (a) above.
ITEM 5. INTEREST IN THE SECURITIES OF THE ISSUER.
(a) Pursuant to the unconditional and irrevocable proxy granted by the
Security Holders, Harnett may be deemed the beneficial owner of 3,119,986 shares
of Common Stock of the Company (constituting 40.8% of the outstanding shares of
the Common Stock of the Company).
(b) Harnett has sole voting power with respect to none of the securities;
may be deemed to have shared voting power with respect to 3,119,986 of the
shares of Common Stock of the Company; has sole dispositive power with respect
to none of the securities; and has shared dispositive power with respect to none
of the securities.
(c) None
(d) None
(e) Not applicable.
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Page 6 of 9 Pages
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO
SECURITIES OF THE ISSUER.
In addition to the irrevocable proxy, the Company, PennCorp, Capital Z,
Barasch, Harnett, and certain shareholders of the Company named therein have
entered into a voting agreement, dated as of December 31, 1998 (the "Voting
Agreement"). The Voting Agreement provides that Barasch or Harnett,
individually, shall, at any meeting of the shareholders or action by written
consent in lieu thereof, during the term set forth in the Voting Agreement, vote
or cause to be voted the Shares in favor of an amendment to the Company's
Certificate of Incorporation to increase the number of authorized shares of
Common Stock of the Company. In addition, the Voting Agreement provides that at
any such meeting or action by written consent, Barasch or Harnett, individually,
shall vote or cause to be voted the Shares against (i) approval of any proposal
made in opposition to or in competition with the transactions contemplated by
the UA Share Purchase Agreement or the PennCorp Purchase Agreement, (ii) any
change in the capital structure of the Company (other than transactions
contemplated by the Voting Agreement, UA Share Purchase Agreement and PennCorp
Purchase Agreement) and (iii) any action or agreement that could impede,
interfere with, delay, postpone or attempt to discourage the transactions
contemplated by the Voting Agreement, the UA Share Purchase Agreement or the
PennCorp Purchase Agreement, or result in a breach in any material respect of
any covenant, representation or warranty by the Company under the Voting
Agreement which would be reasonably likely to result in any conditions to the
Company's obligations under the UA Share Purchase Agreement or the PennCorp
Purchase Agreement not being consummated.
The Voting Agreement also provides that each Security Holder, for a period
of two years (with certain exceptions) shall not without Capital Z's written
consent directly or indirectly vote or cause to be voted the Shares, whether at
a meeting or by written consent, in favor of any transaction contemplating or
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Page 7 of 9 Pages
proposing the purchase or acquisition (by merger or otherwise) by the Company of
any of the businesses or assets of PennCorp.
Item 4(a) is incorporated herein by reference.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS.
Exhibit 7.1 Share Purchase Agreement between Universal American
Financial Corp. and Capital Z Financial Services Fund
II, L.P. dated as of December 31, 1998.
Exhibit 7.2 Purchase Agreement by and among Universal American
Financial Corp., PennCorp Financial Group, Inc.,
Pacific Life and Accident Insurance Company,
Pennsylvania Life Insurance Company, Southwestern
Financial Corporation, Constitution Life Insurance
Company and PennCorp Financial Services, Inc. dated
December 31, 1998.
Exhibit 7.3 Agreement among Shareholders and Irrevocable Proxy,
dated December 31, 1998, executed by Richard A.
Barasch, Bertram Harnett and the security holders
named therein.
Exhibit 7.4 Voting Agreement by and among Universal American
Financial Corp., PennCorp Financial Group Inc.,
Capital Z Financial Services Fund II, L.P.,
Richard A. Barasch and certain persons listed on a
schedule thereto dated as of December 31, 1998.
Exhibit 7.5 Form of Shareholders' Agreement.
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Page 8 of 9 Pages
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this Statement is true, complete and
correct.
BERTRAM HARNETT, ESQ.
/s/ BERTRAM HARNETT
-------------------------
Name: Bertram Harnett, Esq.
Date: January 6, 1999
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Page 9 of 9 Pages
Exhibit Index
Exhibit No. Description
- ----------- -----------
Exhibit 7.1 Share Purchase Agreement between Universal American Financial
Corp. and Capital Z Financial Services Fund II, L.P. dated as
of December 31, 1998.
Exhibit 7.2 Purchase Agreement by and among Universal American Financial
Corp., PennCorp Financial Group, Inc., Pacific Life and
Accident Insurance Company, Pennsylvania Life Insurance
Company, Southwestern Financial Corporation, Constitution Life
Insurance Company and PennCorp Financial Services, Inc. dated
December 31, 1998.
Exhibit 7.3 Agreement among Shareholders and Irrevocable Proxy, dated
December 31, 1998, executed by Richard A. Barasch, Bertram
Harnett and the security holders named therein.
Exhibit 7.4 Voting Agreement by and among Universal American Financial
Corp., PennCorp Financial Group Inc., Capital Z Financial
Services Fund II, L.P., Richard A. Barasch and certain persons
listed on a schedule thereto dated as of December 31, 1998.
Exhibit 7.5 Form of Shareholders' Agreement.
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SHARE PURCHASE AGREEMENT
between
UNIVERSAL AMERICAN FINANCIAL CORP.
AND
CAPITAL Z FINANCIAL SERVICES FUND II, L.P.
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Dated as of December 31, 1998
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<PAGE>
TABLE OF CONTENTS
Page
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ARTICLE I THE TRANSACTIONS............................................... 2
1.1 Purchase and Sale.............................................. 2
1.2 Closing Matters................................................ 2
1.3 The Closing.................................................... 2
1.4 Fee............................................................ 3
1.5 PennCorp Purchase Agreement.................................... 3
1.6 Per Share Purchase Price Adjustment............................ 3
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE
PURCHASER...................................................... 6
2.1 Organization................................................... 6
2.2 Authority...................................................... 7
2.3 No Violation................................................... 7
2.4 Brokers........................................................ 8
2.5 Funds Available................................................ 8
2.6 Securities Act Representation.................................. 8
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE
COMPANY........................................................ 8
3.1 Corporate Organization......................................... 8
3.2 Subsidiaries................................................... 9
3.3 Capital Stock.................................................. 9
3.4 Books and Records.............................................. 10
3.5 Newly Issued Shares............................................ 10
3.6 Authority for and Title to Properties.......................... 10
3.7 Authority...................................................... 10
3.8 No Violation................................................... 11
3.9 SEC Filings.................................................... 12
3.10 SAP Financial Statements; Reserves............................. 13
3.11 Litigation..................................................... 14
3.12 Compliance with Laws........................................... 14
3.13 No Material Adverse Change..................................... 15
3.14 Private Offering............................................... 15
3.15 Taxes.......................................................... 15
3.16 Brokers........................................................ 16
3.17 Certain Agreements............................................. 17
3.18 Year 2000 Compliance........................................... 17
3.19 Insurance and Reinsurance...................................... 17
3.20 Employee Benefit Plans......................................... 18
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3.21 Labor Relations................................................ 19
3.22 Potential Conflicts of Interest................................ 19
3.23 Representations and Warranties on Closing Date................. 20
ARTICLE IV COVENANTS AND AGREEMENTS....................................... 20
4.1 Conduct of Business Prior to the Closing; Management of the
Company........................................................ 20
4.2 Proxy Statement and Meeting of Company's Shareholders.......... 21
4.3 Further Assurances............................................. 22
4.4 Indemnification by the Company................................. 23
4.5 Indemnification by the Purchaser............................... 24
4.6 Limitations on Indemnification................................. 25
4.7 Disclosure Supplements......................................... 25
4.8 Additional Indemnification Obligation.......................... 25
4.9 Consents....................................................... 27
4.10 Use of Proceeds................................................ 28
4.11 HSR Reports.................................................... 28
4.12 Exclusivity.................................................... 28
4.13 SEC Filings and Annual Statements.............................. 28
4.14 Amendment or Termination of Purchase Agreement................. 29
4.15 Actions Relating to the PennCorp Purchase Agreement............ 29
4.16 Registration Rights Agreement.................................. 29
4.17 Shareholders Agreement......................................... 29
4.18 Employment Agreements.......................................... 29
ARTICLE V CONDITIONS PRECEDENT........................................... 29
5.1 Conditions to Each Party's Obligations......................... 29
5.2 Conditions to the Obligations of the Company................... 30
5.3 Conditions to the Obligations of the Purchaser................. 31
ARTICLE VI MISCELLANEOUS.................................................. 32
6.1 Termination.................................................... 32
6.2 Amendment...................................................... 32
6.3 Waiver......................................................... 32
6.4 Survival....................................................... 33
6.5 Notices........................................................ 33
6.6 Headings; Agreement............................................ 34
6.7 Publicity...................................................... 34
6.8 Entire Agreement............................................... 34
6.9 Assignment..................................................... 35
6.10 Counterparts................................................... 35
6.11 Governing Law.................................................. 35
6.12 Third Party Beneficiaries...................................... 35
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6.13 Costs and Expenses............................................. 35
6.14 Specific Performance........................................... 35
EXHIBITS
Exhibit A PennCorp Purchase Agreement
Exhibit B Chase Commitment Letter
Exhibit C Form of Registration Rights Agreement
Exhibit D Form of Shareholders Agreement
Exhibit E Form of Opinion of Simpson Thatcher & Bartlett
<PAGE>
SHARE PURCHASE AGREEMENT
SHARE PURCHASE AGREEMENT ("Agreement"), dated as of December
__, 1998, between Universal American Financial Corp., a New York corporation
(the "Company"), and Capital Z Financial Services Fund II, L.P., a Bermuda
limited partnership (the "Purchaser").
R E C I T A L S:
WHEREAS, the Purchaser wishes to purchase from the Company,
and the Company wishes to issue and sell to the Purchaser, the number of shares
of common stock, par value $.01 per share (the "Common Stock"), of the Company
set forth in Section 1.1 below, on the terms and subject to the conditions set
forth herein;
WHEREAS, the Purchaser, together with the Company, has
participated in the negotiation of a Stock Purchase Agreement (the "PennCorp
Purchase Agreement") to be entered into between the Company and PennCorp
Financial Group, Inc. ("PennCorp"), pursuant to which the Company will acquire
(the "Acquisition") certain subsidiaries and assets of PennCorp (the "PennCorp
Subsidiaries");
WHEREAS, concurrently with the execution of this Agreement,
the Company and PennCorp are entering into the PennCorp Purchase Agreement, a
copy of which is attached hereto as Exhibit A;
WHEREAS, concurrently with the execution of this Agreement,
the Company, Chase Manhattan Bank, N.A. ("Chase") and Chase Securities Inc.
("CSI") are entering into a Commitment Letter (the "Chase Commitment Letter"), a
copy of which is attached hereto as Exhibit B, for a term loan facility and a
revolving credit facility (the "Chase Facility");
WHEREAS, the proceeds of the Chase Facility, together with the
proceeds of the issuance and sale of the Shares to the Purchaser are intended to
be used to consummate the Acquisition.
WHEREAS, the Board of Directors of the Company (the "Board of
Directors") has approved this Agreement and the transactions contemplated
hereby, upon the terms and subject to the conditions set forth herein.
A G R E E M E N T:
NOW, THEREFORE, in consideration of the foregoing and the
respective representations, warranties, covenants, agreements and conditions
contained
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2
herein, the sufficiency of which is hereby acknowledged, and in order to set
forth the terms and conditions of the transactions described herein and the mode
of carrying the same into effect, the parties hereby agree as follows:
ARTICLE I
THE TRANSACTIONS
1.1 Purchase and Sale. Subject to the terms and conditions of
this Agreement, the Purchaser agrees to purchase from the Company and the
Company agrees to issue and sell to the Purchaser (the "Purchase") at the
Closing (as defined below) an aggregate of Twenty Six Million Thirty One
Thousand Seven Hundred Forty Six (26,031,746) shares of Common Stock at a
purchase price per share equal to Three Dollars and Fifteen Cents ($3.15), for
an aggregate purchase price equal to Eighty Two Million Dollars ($82,000,000),
in each case subject to adjustment as provided in Section 1.6 below. The number
of shares of Common Stock to be purchased at $3.15 per share by the Purchaser
and the aggregate purchase price to be paid by the Purchaser will be reduced by
the aggregate number of shares of Common Stock purchased at or prior to the
Closing (defined below) by certain members of management of the Company and
certain agents of the Company (the "Management Investors") and the aggregate
purchase price paid for such shares by such Management Investors pursuant to
subscription agreements entered into between the Company and such Management
Investors (which will be in form and substance reasonably satisfactory to the
Purchaser). Notwithstanding the foregoing, the aggregate purchase price paid by
the Purchaser will be at least Sixty Two Million Five Hundred Thousand Dollars
($62,500,000) for which the Purchaser will receive Nineteen Million Eight
Hundred Forty One Thousand Two Hundred Seventy (19,841,270) shares of Common
Stock at a purchase price per share equal to $3.15, subject to adjustment as
provided in Section 1.6. The shares of Common Stock to be purchased by the
Purchaser under this Agreement, after the adjustments, if any, made as described
above and in Section 1.6, are referred to as the "Shares," and the aggregate
purchase price actually paid by the Purchaser as reduced by the purchase price
paid by the Management Investors as contemplated above is referred to as the
"Purchase Price."
1.2 Closing Matters. At the Closing, the Purchaser shall wire
transfer or otherwise make available in same day funds to the Company the
Purchase Price and the Company shall deliver to the Purchaser certificates
representing the Shares.
1.3 The Closing. Subject to the fulfillment of the conditions
precedent specified in Article V hereof (any or all of which may be waived in
writing by the respective parties whose performance is conditioned upon
satisfaction of such conditions precedent), the purchase and sale of the Shares
shall be consummated (the
<PAGE>
3
"Closing") simultaneously with the closing of the Acquisition in accordance with
Section 7.1 of the PennCorp Purchase Agreement (the "Closing Date").
1.4 Fee. If the transactions contemplated by this Agreement
are consummated and the Purchase occurs, the Company shall pay to Capital Z
Management, Inc. at the Closing by wire transfer of immediately available funds
to an account or accounts designated by Capital Z Management, Inc. a transaction
fee (the "Fee") equal to Five Million Dollars ($5,000,000); provided, that the
Purchaser may elect to receive up to One Million Three Hundred Seventy Five
Thousand Dollars ($1,375,000) of such Fee in a number of shares of Common Stock
equal to the amount elected by the Purchaser divided by the per Share purchase
price (as adjusted pursuant to Section 1.6); provided, further, however, that no
Fee is payable if the transactions contemplated by this Agreement are not
consummated.
1.5 PennCorp Purchase Agreement.
(a) The parties hereto understand that the purpose of this
Agreement is to enable the Company to have funds necessary for the Acquisition.
(b) Notwithstanding anything in this Agreement to the
contrary, neither party hereto makes any representation or warranty of any type
with respect to PennCorp or any PennCorp Subsidiary. Neither party hereto has
made any inducements to the other with respect to the PennCorp Purchase
Agreement or to the status, prospects or profitability of the PennCorp
Subsidiaries.
(c) The Purchaser and the Company agree that, in the event
that (i) the PennCorp Purchase Agreement is terminated under Section 9.1 thereof
and (ii) the Purchaser and the Company supply to PennCorp an invoice or invoices
identifying their costs and expenses pursuant to Section 9.2 thereof, the
Purchaser and the Company will cooperate with each other to prepare such invoice
or invoices (and collect all supporting information), which invoice or invoices
will clearly (i) distinguish between amounts owed by PennCorp to the Purchaser
and amounts owed by PennCorp to the Company and (ii) identify the account or
accounts of the Purchaser into which payment by PennCorp should be made to the
Purchaser and the account or accounts of the Company into which payment by
PennCorp should be made to the Company. The Purchaser and the Company agree to
work together to ensure that payment by PennCorp is made in accordance with the
invoice or invoices provided to it by the Purchaser and the Company, including,
to the extent necessary, transferring money to each other in the amount of any
overpayment by PennCorp to one party and underpayment by PennCorp to the other
so as either (i) to cause each of the Purchaser and the Company to be reimbursed
for all of such party's reimbursable costs and expenses or (ii) if the amount
paid or payable by PennCorp is insufficient fully to reimburse all of the
Purchaser's and the Company's reimbursable costs and expenses, ratably in
proportion to each party's total expenses.
<PAGE>
4
1.6 Per Share Purchase Price Adjustment.
(a) If between the date hereof and the Closing the
Purchaser believes that an MAE Event (defined below) has occurred, the Purchaser
shall promptly deliver to the Company, before the Closing, a written notice (the
"MAE Notice") setting forth in reasonable detail the grounds for its belief that
an MAE Event has occurred and the diminution in the value of the Company the
Purchaser believes has or will occur as a result of such MAE Event. "MAE Event"
means any one (or a series of related) event(s), condition(s) or circumstance(s)
occurring after the date hereof and before the Closing Date that has had, or is
reasonably likely to have, an adverse impact on the business, results of
operations or financial condition of the Company and its Subsidiaries (taken as
a whole) that would reduce the value of the Company and its Subsidiaries (taken
as a whole) by an amount in excess of $3 million (assuming the Benchmark Value
set forth on Schedule 1.6).
(b) Promptly following the delivery of the MAE Notice (if
any) by the Purchaser, the Purchaser and the Company will begin good faith
negotiations to agree on a mutually acceptable adjustment to the per share
purchase price to be paid by Purchaser (it being understood by both parties that
any such adjustment will be determined in accordance with paragraph (d) below).
If within 10 business days following the inception of negotiations the parties
have not agreed on a mutually acceptable adjustment to the per share purchase
price, such disagreement will be submitted for resolution to, and the amount of
the adjustment, if any, will be determined by PricewaterhouseCoopers (the
"Settlement Valuator") (or if PricewaterhouseCoopers is not available, such
other independent accounting firm of national reputation selected by the mutual
agreement of the Purchaser and the Company or, if the Purchaser and the Company
cannot agree, a nationally recognized accounting firm or investment bank
selected by PricewaterhouseCoopers. The Purchaser and the Company will cooperate
with the Settlement Valuator and will proceed in good faith to cooperate with
the Settlement Valuator to resolve any such disagreement within 45 days after
such disagreement is submitted to the Settlement Valuator (the "Settlement
Date"). The Purchaser and the Company will each pay one-half of the fees and
expenses of the Settlement Valuator.
(c) Promptly (but in any event within 10 business days)
following the submission of any dispute to the Settlement Valuator, the
Purchaser and the Company shall each deliver to the Settlement Valuator and the
other party a statement setting forth in reasonable detail (with such supporting
data as such party deems appropriate), its determination of the adjustment to
the per share purchase price to be paid by Purchaser (the "Per Share Purchase
Price Adjustment"). The Settlement Valuator, in its reasonable discretion, will
determine (i) the nature and extent of the participation by the Purchaser and
the Company and their respective agents in connection with any disagreement
submitted to the Settlement Valuator for resolution and (ii) the nature and
extent of information, whether documentary or by live witness,
<PAGE>
5
that the Purchaser and the Company may submit to the Settlement Valuator for
consideration in connection with such resolution. The Settlement Valuator's
resolution of any such disagreement, with respect to dollar amounts, must fall
within the range of the disputed amounts stated by the Purchaser and the Company
in the statements supplied by them to the Settlement Valuator pursuant to this
Section 1.6(c) and will be reflected in a written report which will be delivered
on or before the Settlement Date to, and will be final and binding upon, the
Purchaser and the Company. The report of the Settlement Valuator will contain
the Settlement Valuator's determination of the Per Share Purchase Price
Adjustment in accordance with paragraph (d) below.
(d) The parties agree that the diminution of value that
has resulted or is reasonably likely to result from a MAE Event will be
determined in accordance with the principles set forth on Schedule 1.6, and
without regard to the trading price of the Common Stock as listed on Nasdaq (or
such other stock exchange on which the Common Stock is then listed). The Per
Share Purchase Price Adjustment will be determined in accordance with the
following formula:
Per Share Purchase = the after-tax amount of the
Price Adjustment diminution in P value resulting from
the MAE Event minus the product of
(x) all out-of-the-money options,
warrants or other securities
convertible into or exchangeable or
exercisable for shares of Common
Stock existing on the date of this
Agreement times (y) $3.15 less the
applicable conversion, exchange or
exercise price of each such option
divided by
----------
the aggregate number of shares of
Common Stock outstanding on the date
of this Agreement plus all
in-the-money options, warrants or
other securities convertible into or
exchangeable or exercisable for
shares of Common Stock existing on
the date of this Agreement.
For purposes of determining whether options, warrants or other securities
convertible into or exchangeable or exercisable for shares of Common Stock are
"in-the-money" or "out-of-the-money," the applicable conversion, exchange or
exercise price will be compared to the post-adjustment per Share purchase price.
In addition, all shares of Series D-1 and Series D-2 Preferred Stock, par value
$1.00 per share, of the Company
<PAGE>
6
outstanding on the date hereof (and all shares of Common Stock issuable upon
conversion or exchange thereof) are expressly excluded from the foregoing
formula.
(e) If there is to be an adjustment pursuant to the
foregoing provisions, upon the earlier to occur of (i) the parties' agreement
with respect to the amount of the Per Share Purchase Price Adjustment or (ii)
the delivery of the report of the Settlement Valuator as provided in Section
1.6(c) hereof with respect to a dispute submitted to the Settlement Valuator
pursuant to Section 1.6(b), either:
(i) if the Closing has not yet occurred, then, at the
Closing, the Company shall issue to the Purchaser, and the Purchaser will
acquire from the Company, instead of the number of Shares described in
Section 1.1, that number of Shares determined by dividing the Purchaser's
money commitment under Section 1.1 by the adjusted purchase price per Share
which shall be $3.15 less the Per Share Purchase Price Adjustment; or
(ii) if the Closing has already occurred, the Company
promptly (but in any event no later than 10 days thereafter) will issue to
the Purchaser, for no additional consideration, certificates representing
such number of additional Shares necessary to cause the Purchaser's
purchase price per share to equal $3.15 less the Per Share Purchase Price
Adjustment.
(f) The parties hereby agree that, so long as all
conditions precedent set forth in Article V have been satisfied or waived,
neither the delivery of an MAE Notice nor the pendency of proceedings before the
Settlement Valuator will in any way prevent or delay the Closing, regardless of
whether an adjustment is requested or may be made pursuant to the foregoing
provisions.
(g) Notwithstanding the foregoing or any other provision
of this Agreement, if an MAE Event causes (or would be reasonably likely to
cause) the purchase price per share payable by the Purchaser (determined in
accordance with the formula set forth in paragraph (d) above) to be $2.25 per
share or less (i.e., if the Per Share Purchase Price Adjustment would be $0.90
or more), the Purchaser shall have the absolute right (i) to cause the Company
to assign to another person (the "Substituted Buyer") all of the Company's
rights and obligations under the PennCorp Purchase Agreement pursuant to Section
10.12 of the PennCorp Purchase Agreement and (ii) upon such assignment to and
assumption by the Substituted Buyer, the parties' obligations under this
Agreement, except for the indemnification obligations set forth in Section
4.8(b) and 6.13 (to the extent set forth therein), shall terminate; provided,
however, that if the PennCorp Purchase Agreement is assigned to a Substituted
Buyer and the Acquisition is consummated by such Substituted Buyer, the Company
shall not be liable for, and the Purchaser shall indemnify and hold harmless the
Company from, any and all liabilities, including without limitation, defense
costs, relating to PennCorp or the PennCorp Purchase Agreement. It is further
understood that the right of
<PAGE>
7
substitution hereunder will terminate and have no further force or effect upon
the consummation of the Acquisition.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF THE PURCHASER
The Purchaser represents and warrants to the Company as
follows:
2.1 Organization. The Purchaser is a limited partnership duly
organized, validly existing and in good standing under the laws of its
jurisdiction of formation.
2.2 Authority. (i) The Purchaser has full partnership power
and authority to execute and deliver this Agreement and each other agreement
contemplated hereby to which it is a party, to carry out its obligations
hereunder and thereunder and to consummate the transactions contemplated on its
part hereby and thereby, (ii) the execution, delivery and performance by the
Purchaser of this Agreement and each other agreement contemplated hereby to
which it is a party have been duly authorized by all necessary partnership
action on the part of the Purchaser, (iii) no other action on the part of the
Purchaser is necessary to authorize the execution and delivery of this Agreement
and each other agreement contemplated hereby by the Purchaser or the performance
by the Purchaser of its obligations hereunder and (iv) this Agreement has been
duly executed and delivered by the Purchaser and (assuming due execution and
delivery by the other parties hereto) constitutes a legal, valid and binding
agreement of the Purchaser, enforceable against it in accordance with its terms,
subject to applicable bankruptcy, insolvency, moratorium, reorganization or
similar laws affecting creditors' rights generally and subject to general
equitable principles (regardless of whether such enforceability is considered in
a proceeding in equity or at law). Each other agreement to be executed by the
Purchaser in connection with this Agreement on or prior to the Closing Date will
be duly executed and delivered by the Purchaser, and (assuming due execution and
delivery by the other party or parties thereto) will constitute a legal, valid
and binding obligation of the Purchaser, enforceable against it in accordance
with its terms, subject to applicable bankruptcy, insolvency, moratorium,
reorganization or similar laws affecting creditors' rights generally and subject
to general equitable principles (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
<PAGE>
8
2.3 No Violation. The execution and delivery by the Purchaser
of this Agreement and each other agreement contemplated hereby to which it is a
party, the performance by the Purchaser of its obligations hereunder and
thereunder and the consummation by it of the transactions contemplated hereby
and thereby will not (a) violate any provision of law, rule or regulation or
final order, judgment, injunction, decree, determination or award found against
it (collectively, "Requirements of Law") applicable to the Purchaser, (b)
require the Purchaser to obtain the consent, waiver, approval, license or
authorization of or make any filing with any person or governmental authority
except for (i) filings to be made in connection with or in compliance with the
provisions of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), Regulation D as promulgated under the Securities Act of 1933, as amended
(the "Securities Act"), and applicable state securities laws, (ii) if required,
the filing by the Company or the Purchaser of a pre-merger notification report
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (an
"HSR Report"), and (iii) the filing of a Form A Information Statement ("Form A")
by the Purchaser with the insurance departments of such states as may be
required in connection with the transactions contemplated by this Agreement or
(c) violate, result (with or without notice or the passage of time, or both) in
a breach of or give rise to the right to accelerate, terminate or cancel any
obligation under or constitute (with or without notice or the passage of time,
or both) a default under, any of the terms or provisions of any charter or
bylaw, partnership agreement, indenture, mortgage, agreement, contract, order,
judgment, ordinance, regulation or decree to which the Purchaser is subject or
by which the Purchaser is bound, except for any of the foregoing matters which
would not reasonably be expected to have, individually or in the aggregate, a
materially adverse impact upon the ability of the Purchaser to consummate the
transactions contemplated hereby or to perform its obligations hereunder.
2.4 Brokers. Neither the Purchaser nor any of its affiliates
has committed on behalf of itself or a third party to pay any fee or commission
to any broker, finder, investment banker or other intermediary in connection
with this Agreement.
2.5 Funds Available. The Purchaser has funds available, or
firm commitments from third parties to provide funds, sufficient to pay the
Purchase Price as evidenced by Schedule 2.5.
2.6 Securities Act Representation. As of the Closing
hereunder, the Purchaser will be an "accredited investor" as defined in Rule 501
promulgated as part of Regulation D under the Securities Act. The Purchaser is
not purchasing the Shares with a view to a distribution or resale of any of such
securities in violation of any applicable securities laws.
<PAGE>
9
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
The Company represents and warrants to the Purchaser as
follows:
3.1 Corporate Organization. Each of the Company and its
Subsidiaries (as defined below) is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation, with all requisite corporate power and authority to carry on its
business as it is now being conducted in any such jurisdiction as described in
the SEC Filings (as defined herein), and is duly qualified or licensed to do
business and is in good standing in each jurisdiction in which it currently
carries on its business, except where the failure to be so qualified or licensed
or be in good standing would not reasonably be expected to have, individually or
in the aggregate, a materially adverse impact on the business, results of
operations or financial condition (a "Material Adverse Effect") of the Company.
With respect to the Company, a "Material Adverse Effect" as that term is used
throughout this Agreement, shall mean and refer to the Company and its
Subsidiaries on a consolidated basis. True and complete copies of the
Certificate of Incorporation and the Bylaws of the Company and respective
charter documents of the Subsidiaries, each as amended to date, heretofore have
been delivered to the Purchaser. "Subsidiaries" means, with respect to the
Company, a corporation or other entity of which 50% or more of the voting power
of the outstanding voting securities or 50% or more of the outstanding equity
interests is held, directly or indirectly, by the Company.
3.2 Subsidiaries. Schedule 3.2 sets forth a complete and
accurate list of all of the Subsidiaries of the Company, together with their
respective jurisdictions of incorporation or organization. Unless otherwise
indicated on Schedule 3.2, each such Subsidiary is directly wholly owned by the
Company. All of the outstanding shares of capital stock of the Subsidiaries are
validly issued, fully paid and, except as provided under Section 630 of the
Business Corporation Law of New York (relating to employee wages),
non-assessable. Except as indicated on Schedule 3.2, all of the outstanding
shares of capital stock of, or other ownership interests in, each of the
Subsidiaries are owned by the Company or by a wholly owned Subsidiary free and
clear of any and all liens, encumbrances, security interests, preemptive rights,
adverse claims or rights in favor of another ("Liens"). Except as indicated on
Schedule 3.2, no Subsidiary has outstanding options, warrants, subscriptions,
calls, rights convertible securities or other agreements or commitments
obligating the Subsidiary to issue, transfer or sell any securities of the
Subsidiary.
3.3 Capital Stock. The authorized capital stock of the Company
consists of: (a) 20,000,000 shares of Common Stock, of which, as of the date
hereof, 7,638,057 shares are issued and outstanding; (b) 500 shares of Series B
Convertible
<PAGE>
10
Preferred Stock, par value $1.00 per share (the "Series B Preferred Stock"), of
which, as of the date hereof, 400 are issued and outstanding; (c) 100,000 shares
of Series C Convertible Preferred Stock, par value $1.00 per share (the "Series
C Preferred Stock"), of which, as of the date hereof, 45,680 shares designated
as Series C-1 (the "Series C-1 Shares") are issued and outstanding and 6,000
shares designated as Series C-2 are issued and outstanding; (d) 22,500 shares of
Series D-1 Convertible Preferred Stock, par value $1.00 per share (the "Series
D-1 Preferred Stock"), of which, as of the date hereof, 22,500 shares are issued
and outstanding; and (e) 17,500 shares of Series D-2 Convertible Preferred
Stock, par value $1.00 per share (collectively with the Series B Preferred
Stock, the Series C Preferred Stock and the Series D-1 Preferred Stock, the
"Preferred Stock"), of which, as of the date hereof, no shares are issued and
outstanding. In addition, as of the date hereof, there are 2,673,991 warrants to
purchase shares of Common Stock (the "Common Stock Warrants") issued and
outstanding. All of the outstanding shares of Common Stock and Preferred Stock
have been duly and validly authorized and issued, are fully paid and, except as
provided under Section 630 of the Business Corporation Law of New York (relating
to employee wages), nonassessable, and were issued in compliance with all
applicable federal and state securities laws. Upon exercise of the Common Stock
Warrants, the shares of Common Stock issued pursuant to such warrants will be
validly issued, fully paid and, except as provided under Section 630 of the
Business Corporation Law of New York (relating to employee wages) nonassessable,
and issued in compliance with all applicable federal and state securities laws.
Except for the Common Stock Warrants, for options and other stock rights
authorized for issuance pursuant to the Company's stock plans and director,
employee and agent stock option and purchase plans described in the SEC Filings
and except as set forth on Schedule 3.3, there are no preemptive rights,
options, warrants, conversion privileges or other rights presently outstanding
to purchase or otherwise acquire any authorized but unissued shares of capital
stock or other securities of the Company or any of the Subsidiaries.
3.4 Books and Records. Copies of all the minute books and
stock record books of the Company and the Subsidiaries have been delivered to
the Purchaser for inspection and contain records of all meetings of, and written
consents by, the boards of directors (and any committees thereof) and
shareholders of the Company and each Subsidiary since, in the case of the
Company, the date of its incorporation and, in the case of the Subsidiaries, the
date on which the Company acquired such Subsidiary, in each case through the
date hereof.
3.5 Newly Issued Shares. The Shares to be issued and sold by
the Company to the Purchaser in accordance with the terms of this Agreement have
been or will be, when approved by the shareholders of the Company as provided in
Section 4.2, duly authorized and, when issued as contemplated hereby, will be
validly issued, fully paid and, except as provided under Section 630 of the
Business Corporation Law of New York (relating to employee wages) non-assessable
and the
<PAGE>
11
issuance of the Shares by the Company will not be subject to preemptive or other
similar rights. At the Closing, the Purchaser will acquire good and marketable
title to the Shares free and clear of any and all Liens, except for such Liens
as may be created pursuant to this Agreement or imposed by applicable federal
and state securities laws.
3.6 Authority for and Title to Properties. The Company and
each Subsidiary have all requisite corporate power and authority to lease the
properties it operates as lessee. The Company and each Subsidiary have good
record and marketable title in fee simple to, or hold interests as lessee under
leases in full force and effect in, all of their respective real properties,
except for such defects in title as would not be reasonably expected to have,
individually or in the aggregate, a Material Adverse Effect on the Company.
3.7 Authority. The Company has full corporate power and
authority to execute and deliver this Agreement and each other agreement
contemplated hereby to which it is a party, to carry out its obligations
hereunder and thereunder and to consummate the transactions contemplated on its
part hereby and thereby. The execution, delivery and performance by the Company
of this Agreement and each other agreement contemplated hereby to which it is a
party and the consummation of the transactions contemplated on its part hereby
have been duly authorized by the Board of Directors, and no other corporate
proceedings on the part of the Company, except for the shareholder approval
specified in Section 4.2 hereof, are necessary to authorize the execution and
delivery of this Agreement and each other agreement contemplated hereby by the
Company or the performance by the Company of its obligations hereunder or
thereunder. This Agreement has been duly executed and delivered by the Company
and (assuming due execution and delivery by the other parties hereto)
constitutes the legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, subject to applicable
bankruptcy, insolvency, moratorium, reorganization or similar laws affecting
creditors' rights generally and subject to general equitable principles
(regardless of whether such enforceability is considered in a proceeding in
equity or at law). Each other agreement to be executed by the Company in
connection with this Agreement on or prior to the Closing Date will be duly
executed and delivered by the Company, and (assuming due execution and delivery
by the other party or parties thereto) will constitute a legal, valid and
binding obligation of the Company, enforceable against the Company in accordance
with their respective terms, subject to applicable bankruptcy, insolvency,
moratorium, reorganization, or similar laws affecting creditors' rights
generally and subject to general equitable principles (regardless of whether
such enforceability is considered in a proceeding in equity or at law).
3.8 No Violation. The execution, delivery and performance of
this Agreement and each other agreement contemplated hereby by the Company and
the consummation by it of the transactions contemplated hereby and thereby do
not (a) violate any Requirements of Law applicable to the Company or any of the
<PAGE>
12
Subsidiaries, (b) require the consent, waiver, approval, license or
authorization of or any notice or filing by the Company or any of the
Subsidiaries with any person or governmental authority except for (i) filings to
be made in connection with or in compliance with the provisions of the
Securities Act, the Exchange Act and applicable state securities laws and
Canadian federal and provisional laws, (ii) the filing of (A) HSR Reports by the
Company or the Purchaser, if required, in connection with this Agreement and (B)
the filing and approval of Forms A by the Purchaser and, where required, the
Company, with the insurance departments as may be required by the insurance
departments in order for the Company to implement this Agreement and (iii) the
shareholder approval specified in Article V or (c) violate, result (with or
without notice or the passage of time, or both) in a breach of or give rise to
the right to accelerate, terminate or cancel any obligation under, constitute
(with or without notice or the passage of time, or both) a default under, any of
the terms or provisions of any charter or bylaw, indenture, mortgage, agreement,
contract, order, judgment, ordinance, regulation or decree to which the Company
or any of its Subsidiaries is subject or by which the Company or any of its
Subsidiaries is bound, except for any of the foregoing which would not be
reasonably expected to have, individually or in the aggregate, a Material
Adverse Effect on the Company. Except as set forth on Schedule 3.8, neither the
Company nor any of the Subsidiaries is party to any agreement which is currently
in effect, or by which the Company or any of the Subsidiaries is currently
bound, granting any rights to any person which conflict with the rights to be
granted by the Company in this Agreement (including the registration rights
granted to the Purchaser pursuant to Section 4.16) and each other agreement
contemplated hereby. Except as set forth on Schedule 3.8, the execution,
delivery and performance of this Agreement and each other agreement contemplated
hereby by the Company and the consummation by it of the transactions
contemplated hereby and thereby will not result in a "change of control" or
similar event occurring under any agreement, indenture, mortgage, contract or
plan to which the Company or any of its Subsidiaries is subject or by which the
Company or any of its Subsidiaries is bound or give rise to a payment by the
Company or any of its Subsidiaries under a change of control or similar
provision in any agreement, indenture, mortgage or contract to which the Company
or any of its Subsidiaries is subject or by which the Company or any of its
Subsidiaries is bound.
3.9 SEC Filings. Except as set forth on Schedule 3.9, the
Company has filed all SEC Filings required to be filed by it since December 31,
1997 under the Securities Act or the Exchange Act, and all amendments thereto.
The Company heretofore has delivered to the Purchaser true and complete copies
of (a) its audited consolidated financial statements of the Company and the
Subsidiaries (balance sheet and statements of operations, cash flows and
stockholders' equity and cash flows, together with the notes thereto) for the
fiscal years ended and as at December 31, 1996 and December 31, 1997 (as such
financial statements appear in the Company's Form 10-K for each of the fiscal
years ended December 31, 1996 and December 31, 1997, which were filed with the
Securities and Exchange Commission (the "Commission") on
<PAGE>
13
April 1, 1997 and March 30, 1998, respectively, and the Company's Amendment No.
1 to Form 10-K for the fiscal year ended December 31, 1997, which was filed with
the Commission on April 29, 1998 ("Amendment No. 1") (collectively, the
"Financial Statements")), (b) its Quarterly Reports on Form 10-Q for the
quarters ended September 30, 1997, March 1, 1998, June 30, 1998 and September
30, 1998, (c) its Annual Report on Form 10-K for the fiscal year ended December
31, 1997, as amended by Amendment No. 1, (d) each of its Proxy Statements on
Schedule 14A under the Exchange Act, dated May 7, 1997 and April 27, 1998,
respectively, and (e) all other reports, statements, registration statements and
other documents (including Current Reports on Form 8-K) filed by it with the
Commission under the Securities Act or the Exchange Act, and all amendments and
supplements thereto, since December 31, 1997 (the foregoing subsections (a)
through (e), including all exhibits and Schedules thereto and documents
incorporated by reference therein, are collectively referred to in this
Agreement as the "SEC Filings"). As of the respective date that it was filed
with the Commission, each of the SEC Filings complied as to form and content, in
all material respects, with the requirements of the Securities Act or the
Exchange Act, as the case may be, and the rules and regulations promulgated
thereunder, and did not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading. Except as set forth on Schedule 3.9, the Financial
Statements included in the SEC Filings were prepared in accordance with
generally accepted accounting principles ("GAAP"), consistently applied, and
(except as may be indicated therein or in the notes thereto) present fairly the
consolidated financial position, results of operations and cash flows of Company
as of the dates and for the respective periods indicated (subject, in the case
of unaudited financial statements, to normal recurring year-end adjustments and
any other adjustments described therein). The Company has (i) delivered to the
Purchaser true and complete copies of (x) all correspondence relating to the
Company between the Commission, on the one hand, and the Company or its legal
counsel or, to the Knowledge of the Company, after inquiry, its accountants, on
the other hand, since January 1, 1996 (other than routine filing package cover
letters) and (y) all audit letters delivered to the Company by its counsel and
all correspondence relating thereto, and all letters to or from the Company
relating to any dispute or disagreement between the Company and the Company's
auditors with respect to any audit or financial review or with respect to the
Company's accounting policies, in each case since January 1, 1996, and (ii)
disclosed to the Purchaser the content of all material discussions between the
Commission, on the one hand, and the Company or its legal counsel and, to the
Knowledge of the Company, after inquiry, its accountants, on the other hand,
concerning the adequacy or form of any SEC Filings filed with the Commission
since January 1, 1996, except for routine discussions with respect to filings
now effective. The Company is not aware of any issues raised by the Commission
with respect to any of the SEC Filings, other than those disclosed to the
Purchaser pursuant to this paragraph. For purposes of this Agreement, "Knowledge
of the Company" means the
<PAGE>
14
actual knowledge of Richard A. Barasch ("Barasch"), Robert Waegelein
("Waegelein"), Gary Bryant ("Bryant"), Bradley Leonard and Bertram Harnett, Esq.
3.10 SAP Financial Statements; Reserves.
(a) The Company heretofore has delivered to the Purchaser
true and complete copies of the following (the "SAP Financial Statements"):
(i) the annual statements required by applicable state
statutes ("Annual Statements") for American Exchange Life Insurance
Company, a Texas corporation, (ii) American Pioneer Life Insurance Company,
a Florida corporation, and (iii) American Progressive Life & Health
Insurance Company of New York, a New York corporation ((i), (ii) and (iii)
being collectively referred to herein as the "Insurance Company
Subsidiaries") for each of the years ended December 31, 1996 and 1997, in
each case as filed with the departments of insurance in the respective
states of domicile of the Insurance Company Subsidiaries including all
exhibits, interrogatories, notes and schedules thereto and any actuarial
opinions, affirmation or certification filed in connection therewith;
(ii) the Quarterly Statements for the Insurance
Company Subsidiaries for the quarters ended March 31, June 30 and September
30, 1998, including all exhibits, interrogatories, notes and schedules
thereto; and
(iii) the statutory annual statements and quarterly
statements of the Insurance Company Subsidiaries which were filed for 1996,
1997 or 1998 (with respect to the quarters ended March 31 and June 30) in
any jurisdiction (other than such Subsidiary's jurisdiction of domicile)
and that differ from the corresponding Annual Statements and Quarterly
Statements for such periods.
Each such statement was prepared in accordance with SAP and, except as set forth
in Schedule 3.10, presents fairly in all material respects the statutory
financial position of the Insurance Company Subsidiaries as of the respective
dates thereof and the related summary of operations and changes in capital and
surplus and in cash flows of the Insurance Company Subsidiaries for and during
the respective periods covered thereby.
(b) Except as set forth on Schedule 3.10, all statutory
reserves and other similar amounts with respect to insurance as established or
reflected in the December 31, 1997 Annual Statement and September 30, 1998
Quarterly Statement of the Insurance Company Subsidiaries were determined in
accordance with SAP and were based on actuarial assumptions that were in
material compliance with the then-applicable requirements of the insurance laws
of the respective states of domicile of the Insurance Company Subsidiaries.
Except as set forth on Schedule 3.10, all such reserves and other similar
amounts were adequate in all material respects as of the respective dates of
such statements, based upon then-current information and
<PAGE>
15
assumptions concerning investment income, mortality and morbidity experience,
persistency and expenses, to cover the total amount of all reasonably
anticipated matured and unmatured benefits, dividends, claims and other
liabilities of the Insurance Company Subsidiaries under all insurance contracts
under which the Insurance Company Subsidiaries had any liability (including
without limitation any liability arising under or as a result of any
reinsurance, coinsurance or other similar contract) on the respective dates of
such financial statements. Except as set forth above, nothing in this Section
3.10(b) shall be deemed a guaranty or warranty by the Company that claims
actually paid and other liabilities actually incurred by the Insurance Company
Subsidiaries will not exceed the reserves established as set forth hereinabove
in this Section 3.10(b) by the Insurance Company Subsidiaries. Except as set
forth on Schedule 3.10, the Insurance Company Subsidiaries own assets that
qualify as admitted assets under applicable insurance laws in an amount at least
equal to all such required reserves of such Subsidiaries.
3.11 Litigation. Except as set forth in the SEC Filings or
otherwise disclosed to the Purchaser in writing, there are no actions, suits,
proceedings, claims, complaints, disputes or investigations pending of which the
Company has received notice or, to the Knowledge of the Company, threatened, at
law, in equity, in arbitration or before any governmental authority against the
Company or any of its Subsidiaries and with respect to which the Company or any
of its Subsidiaries is responsible by way of indemnity or otherwise, that would,
if adversely determined, (a) have a Material Adverse Effect on the Company or
(b) materially impede or impair the ability of the Company to perform its
obligations under this Agreement and each other agreement contemplated hereby to
which it is a party. No injunction, writ, temporary restraining order, decree or
order of any nature has been issued by any court or other governmental authority
against the Company or any of its Subsidiaries purporting to enjoin or restrain
the execution, delivery or performance of this Agreement or any other agreement
contemplated hereby.
3.12 Compliance with Laws. Except as set forth on Schedule
3.12:
(a) each of the Company and the Subsidiaries (including
the forms of insurance policies and riders issued by the Company and the
Subsidiaries) is in compliance with all Requirements of Law in all respects,
except to the extent that the failure to comply with such Requirements of Law
would not have a Material Adverse Effect on the Company;
(b) (i) each of the Company and the Subsidiaries has all
licenses, permits, orders or approvals of any governmental authority
(collectively, "Permits") that are material to or necessary for the conduct of
the business of the Company in the manner described in the SEC Filings filed
with the Commission prior to the date hereof, except to the extent that the
failure to have such Permits would not
<PAGE>
16
have a Material Adverse Effect on the Company, (ii) such Permits are in full
force and effect, and (iii) no material violations are recorded in respect to
any Permit;
(c) the Company and the Subsidiaries (exclusive of their
independent agents) and, to the Knowledge of the Company, their independent
agents, have marketed, sold and issued products of the Company and the
Subsidiaries in material compliance with all laws applicable to the business of
the Company and the Subsidiaries in the respective jurisdictions in which such
products have been sold; and
(d) the Company has previously delivered or made available
to the Purchaser true and complete copies of the reports (or the most recent
draft thereof, to the extent any final report is not available) reflecting the
results of the two most recent financial examinations and market conduct
examinations of the Company and any Subsidiary issued by any insurance
regulator.
3.13 No Material Adverse Change. Except (a) as set forth in
the SEC Filings, (b) as contemplated by this Agreement, the Shareholders'
Agreement, the Registration Rights Agreement and the Employment Agreements and
(c) as set forth on Schedule 3.13, since December 31, 1997, neither the Company
nor any of the Subsidiaries, taken as a whole, has (a) experienced any material
adverse change in their business, financial condition or results of operations,
(b) conducted its business in any material respect other than in the ordinary
course or (c) suffered any material casualty losses not covered by insurance.
3.14 Private Offering. No form of general solicitation or
general advertising was used by the Company or any of the Subsidiaries or their
respective representatives in connection with the offer or sale of the Shares.
Assuming the accuracy of the Purchaser's representations in Section 2.6, no
registration of the Shares, pursuant to the provisions of the Securities Act or
any state securities or "blue sky" laws, will be required by the offer, sale or
issuance of the Shares.
3.15 Taxes. Except as provided in Schedule 3.15, (a) (i) all
income tax returns required to be filed by or with respect to each of the
Company and its Subsidiaries have been timely filed, (ii) all such income tax
returns are correct and complete in all material respects, (iii) all income
taxes owed and due by the Company or its Subsidiaries (whether or not shown on
any income tax return) have been paid, (iv) the Company has given or otherwise
made available to the Purchaser correct and complete copies of all income tax
returns, examination reports and statements of deficiencies for all periods for
which the statute of limitations has not expired, (v) there are no outstanding
agreements to extend or waive the statutory period of limitations with respect
to income taxes due from the Company or its Subsidiaries for any taxable period
and (vi) the Company has delivered to the Purchaser true and complete copies of
any Tax sharing agreements to which it or any of its Subsidiaries is party and
such agreements have not been amended in any manner.
<PAGE>
17
(b) No audit or other proceeding by any taxing authority,
court or similar person is pending or, to the knowledge of the Company,
threatened with respect to any Taxes due from or with respect to the operations
of the Company or any of its Subsidiaries or any Tax return filed by or with
respect to the operations of the Company or any of its Subsidiaries. To the
Knowledge of the Company, no assessment of Taxes is proposed against the
Company, any of its Subsidiaries or any of their assets.
(c) the Tax treatment under the Code of each insurance,
annuity, contract, agreement or product, or any similar or related policy,
contract, agreement or product, issued or sold by the Company or the
Subsidiaries (collectively, "Products") is and at all times has been the same as
or not less favorable to any purchaser, policyholder, or beneficiaries thereof
that is subject to U.S. Tax than the Tax treatment under the Code which the
Company or any Subsidiary represented could be obtained at the time of its
issuance, purchase, modification or exchange. The Company promptly investigates
complaints made by customers to the Company regarding conduct of its independent
agents, including conduct regarding representations made regarding the Tax
treatment of any of the Products. For purposes of this Section 3.15(c), the
provisions of the Code relating to the Tax treatment of such contracts shall
include, but shall not be limited to, Sections 72, 79, 101, 104, 105, 106, 125,
130, 401, 402, 403, 404, 408, 412, 415, 419, 419A, 457, 501, 505, 817, 817A,
818, 1035, 7702, and 7702A of the Code.
(d) each Insurance Company Subsidiary is taxable as a life
insurance company within the meaning of Section 816 of the Code.
(e) For purposes of this Agreement, "Tax" or "Taxes" (or
any derivation thereof) means any and all federal, state, local, foreign and
other taxes, levies, fees, imposts duties and similar governmental charges
(including any interest, fines, assessments, penalties or additions to tax
imposed in connection therewith or with respect thereto) including, without
limitation, taxes imposed on, or measured by, income, franchise, profits or
gross receipts, ad valorem, value added, sales, use, service, real or personal
property, capital stock, license, payroll, estimated, withholding, employment,
social security (or similar), unemployment, compensation, utility, severance,
production, excise, stamp, occupation, premium, windfall profits, transfer and
gains taxes and customs duties.
3.16 Brokers. Except with respect to fees payable to Chase,
CSI and to Advest, Inc., the Company has not paid or become obligated to pay any
fee or commission to any broker, finder, investment banker or other intermediary
in connection with this Agreement.
3.17 Certain Agreements. (a) Except as disclosed on Schedule
3.17 or in the SEC Filings, neither the Company nor any of the Subsidiaries is a
party to any
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18
written (i) agreement, contract, indenture or other instrument relating to the
borrowing of money or the guarantee of any obligation for the borrowing of
money, (ii) employment, consulting, compensation or severance agreement with any
of its directors, employees or consultants, (iii) agreement, contract or
commitment limiting or restraining it from engaging or competing in any
business, (iv) distribution, dealer, representation or agency agreement, other
than agency agreements, brokerage agreements or other distribution agreements
with insurance agents in the ordinary course of business, or (v) contract,
agreement, obligation or commitment with any affiliates (each of the foregoing a
"Listed Contract"). Each Listed Contract is in full force and effect and has
been complied with by the Company and the Subsidiaries and, to the Knowledge of
the Company, has been complied with by all other parties thereto.
(b) All transactions between the Company and its
affiliates which were required to have been identified or reported to and/or
approved by the applicable departments of insurance have been identified,
reported and/or approved in all material respects. For purposes of this
Agreement, "affiliates" means, as to a specified person, any other person that
directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, the specified person.
3.18 Year 2000 Compliance. The information included under the
heading "Impact of Year 2000" in the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1998, filed with the Commission on November 16,
1998, accurately reflects the status of the Company's program to address, on a
timely basis, the risk that its computer systems are not Year 2000 compliant.
There have been no circumstances or events since September 30, 1998 that would
adversely effect or change, in any material respect, the Company's expectations
to resolve its Year 2000 issues on a timely basis.
3.19 Insurance and Reinsurance.
(a) Schedule 3.19 is a true and complete list of each
material contract providing for reinsurance, coinsurance, excess insurance,
ceding of insurance, assumption of insurance or indemnification of insurance
liabilities to which the Company or any Subsidiary is a party which is currently
in effect (the "Reinsurance Agreements").
(b) Except as disclosed on Schedule 3.19, neither the
Company nor any Subsidiary is in material default under any Reinsurance
Agreement and, to the Knowledge of the Company, there is no reasonable basis for
a reinsurer to terminate or refuse to pay under any Reinsurance Agreement.
Except as disclosed in Schedule 3.19, to the Knowledge of the Company, no
reinsurer that is a party to any of the Reinsurance Agreements has a valid
defense to payment of its material obligations under such Reinsurance Agreements
or is in default in any material respect under any
<PAGE>
19
Reinsurance Agreement. Each Reinsurance Agreement is in compliance with
applicable insurance laws and regulations regarding life and health reinsurance
agreements. Schedule 3.19 sets forth a list of all surplus relief reinsurance
treaties of the Company. The Company is appropriately recording all reinsurance
in accordance with SAP.
(c) The A.M. Best rating presently held by the Insurance
Company Subsidiaries has not been reduced, and none of the Insurance Company
Subsidiaries have been given any notice of any intended or potential downgrading
by A.M. Best.
3.20 Employee Benefit Plans.
(a) Schedule 3.20 lists all employee benefit plans,
arrangements, policies or commitments (whether or not an employee benefit plan
within the meaning of Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA")), including any employment (other than the
Employment Agreements), consulting or deferred compensation agreement, executive
compensation, bonus, incentive, pension, profit-sharing, savings, retirement,
stock option, stock purchase or severance pay plan, any life, health,
disability, or accident insurance plan or any holiday or vacation practice, as
to which the Company or the Subsidiaries has or in the future would have any
direct or indirect, actual or contingent liability ("Benefit Plans"). With
respect to each such Benefit Plan, the Company heretofore has delivered to the
Purchaser true, correct and complete copies of (i) all plan texts and agreements
and related trust agreements or annuity contracts, (ii) all summary plan
descriptions and material employee communications, (iii) the most recent annual
report (including all schedules thereto); (iv) if the plan is intended to
qualify under Section 401(a) or 403(a) of the Code, the most recent
determination letter received from the Internal Revenue Service (the "IRS"), and
(v) all material communications with any governmental authority with respect to
Benefit Plans.
(b) Each Benefit Plan conforms in all material respects
to, and its administration is in substantial compliance with, its terms and all
Requirements of Law and regulations. Each Benefit Plan intended to be qualified
under Code section 401(a) has been determined to be so qualified by the IRS and
each trust established in connection with any Benefit Plan that is intended to
be exempt from federal income taxation under Code section 501(a) has been
determined to be so exempt by the IRS and, since the date of each most recent
determination, no event has occurred and no condition or circumstance has
existed to adversely affect the qualified status of any Benefit Plan.
(c) Except as set forth on Schedule 3.20 or as
contemplated by this Agreement, the consummation of the transactions
contemplated by this Agreement will not (i) entitle any current or former
employee to severance pay or
<PAGE>
20
unemployment compensation, (ii) accelerate the time of payment or vesting, or
increase the amount of any compensation due to, any current or former employee
or (iii) result in a payment that would constitute a parachute payment within
the meaning of Section 280G of the Code.
(d) No Benefit Plan is a "multiple employer plan" or a
"multiemployer plan" within the meaning of the Code or ERISA and neither the
Company nor the Subsidiaries, or any member of their controlled group (as
defined in Section 414 of the Code) has had any liability to contribute to a
multiemployer plan in the previous six years.
(e) No Benefit Plan that is a welfare plan (as defined in
Section 3611 of ERISA) provides for payments of medical or death benefits with
respect to current or former employees of the Company or the Subsidiaries beyond
their termination of employment (other than as mandated by law).
(f) No "reportable event" as defined in Section 4043 of
ERISA has occurred with respect to any Benefit Plan and no accumulated funding
deficiency, whether or not waived, exists with respect to any Benefit Plan; and,
to the Knowledge of the Company, there is no risk of termination of any Benefit
Plan by the Pension Benefit Guaranty Corporation under Section 4042 of ERISA and
no event has occurred which has or is likely to subject the Company or any of
the Subsidiaries to liability under Section 4062 of ERISA.
(g) None of the Company or the Subsidiaries, or any
organization with respect to which the Company is a successor or parent
corporation, within the meaning of Section 4069(b) of ERISA, has engaged in any
transaction described in Section 4069 of ERISA.
3.21 Labor Relations. Neither the Company nor any of the
Subsidiaries is engaged in any unfair labor practice. There is (a) no unfair
labor practice complaint pending or, to the Knowledge of the Company, threatened
in writing against the Company or any of the Subsidiaries before the National
Labor Relations Board and no grievance or arbitration proceeding arising out of
or under any collective bargaining agreement is so pending or, to the Knowledge
of the Company, threatened, (b) no strike, labor dispute, slowdown or stoppage
pending or threatened against the Company, (c) no union representation question
existing with respect to the employees of the Company or any of the Subsidiaries
and, to the Knowledge of the Company, no union organizing activities are taking
place and (d) there is and has not been a "mass layoff" or "plant closing," as
such terms are defined by the Worker Adjustment and Retraining Notification Act,
with respect to the employees of the Company or any of the Subsidiaries.
<PAGE>
21
3.22 Potential Conflicts of Interest. To the Knowledge of the
Company, except as set forth on Schedule 3.22, no officer, director or affiliate
of the Company or any of the Subsidiaries: (a) owns, directly or indirectly, any
interest in a company (excepting less than 1% stock holdings for investment
purposes in securities of publicly held and traded companies), or is an officer,
director, employee or consultant of, any such company that is engaged in
business as, a competitor, lessor, lessee, supplier, distributor, sales agent or
customer of, or lender to or borrower from, the Company or any of its
Subsidiaries; (b) owns, directly or indirectly, in whole or in part, any
tangible or intangible property that the Company or any of the Subsidiaries uses
in the conduct of its business; or (c) has any cause of action or other claim
whatsoever against, or owes any amount to, the Company or any of the
Subsidiaries, except for claims in the ordinary course of business such as for
accrued vacation pay, accrued benefits under the Benefit Plans, and similar
matters and agreements arising in the ordinary course of business.
3.23 Representations and Warranties on Closing Date. The
representations and warranties contained in this Article III shall be true and
correct in all material respects on and as of the Closing Date with the same
force and effect as though such representations had been made on and as of the
Closing Date (except as to those representations or warranties which
specifically relate to an earlier date, which are or will be true and correct in
all material respects as of such specified date).
ARTICLE IV
COVENANTS AND AGREEMENTS
4.1 Conduct of Business Prior to the Closing; Management of
the Company. During the period from the date hereof to the Closing Date, except
as otherwise contemplated by this Agreement, the PennCorp Purchase Agreement or
as the Purchaser shall otherwise agree in writing in advance (which agreement
shall not be unreasonably withheld), or except as set forth on Schedule 4.1, the
Company shall not:
(a) except in the ordinary course of business, incur any
indebtedness for borrowed money or issue any debt securities or assume,
guarantee or endorse the obligations of any other person;
(b) except in the ordinary course of business (including
the managing by the Company of its investment assets), (i) sell, transfer or
otherwise dispose of any of its property or assets, (ii) mortgage or encumber
any of its property or assets or (iii) enter into any material contracts;
(c) repurchase any of its capital stock or any capital
stock of any of the Subsidiaries;
<PAGE>
22
(d) declare, set aside or pay any dividend or other
distribution in respect of its capital stock;
(e) amend its Certificate of Incorporation or Bylaws or
merge with or into or be consolidated with any other person;
(f) split, combine or reclassify its capital stock;
(g) other than in connection with ordinary course
exercises of outstanding options or grants under existing stock option plans of
the Company described in the SEC Filings, issue or sell (or agree to issue or
sell) any of its equity securities or any options, warrants, conversion or other
rights to purchase any such securities or any securities convertible into or
exchangeable for such securities, or grant, or agree to grant any such rights;
(h) increase the rates of compensation (including bonuses)
payable or to become payable to any of its officers, employees, agents,
independent contractors or consultants other than increases made in the ordinary
course of business consistent with past practice;
(i) enter into any new or amend any existing employment
contracts, severance agreements or consulting contracts, other than the
Employment Agreements; or other than in the ordinary course of business,
institute or agree to institute any increase in benefits or alter its employment
practices or the terms and conditions of employment;
(j) except as may be required by applicable law, change in
any material respect its underwriting, actuarial or tax or financial accounting
methods, principles or practices;
(k) enter into or amend or terminate any transaction or
contract the result of which is reasonably likely to have a Material Adverse
Effect on the Company;
(l) enter into any joint ventures or partnerships of any
kind; or
(m) enter into any contract or other agreements to do any
of the foregoing.
During the period from the date hereof to the Closing Date or
this Agreement is terminated in accordance with its terms, at the request of the
Purchaser, the Company will discuss in good faith with the Purchaser significant
policies, decisions and practices of the Company and the Subsidiaries.
<PAGE>
23
4.2 Proxy Statement and Meeting of Company's Shareholders.
(a) As soon as reasonably practicable following the date
hereof, the Company shall (i) prepare and file with the Commission, (ii) use its
reasonable efforts to cause to be cleared by the Commission and (iii) within 5
business days following clearance with the Commission, mail to its shareholders
the Proxy Statement (as defined below) with respect to a special meeting of
shareholders of the Company (the "Special Meeting") to consider and vote, among
other things, (A) to amend the Certificate of Incorporation to authorize for
issuance additional shares of Common Stock and, with respect to the holders of
the Series C-1 Shares, to obtain approval for the issuance of debt to finance
the Acquisition (the "Amendment and Approval"), (B) to issue the Shares as
contemplated hereby and (C) such other related matters as the Company deems
appropriate. The Board of Directors of the Company has authorized and approved
the Amendment and Approval and the issuance of the Shares to the Purchaser and
shall submit to its shareholders for approval the Amendment and Approval and the
issuance of the Shares to the Purchaser. The Purchaser agrees to assist and
cooperate with the Company in the preparation of the Proxy Statement with
respect to the information therein concerning the Purchaser.
(b) The Company, on the one hand, and the Purchaser, on
the other hand, hereby represents, warrants and agrees with the other that the
Proxy Statement will not, at the time the Proxy Statement is mailed, and at the
date of the Special Meeting, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they are
made, not misleading, or to correct any statement made in any earlier
communication with respect to the solicitation of any proxy or approval of the
transactions contemplated by this Agreement in connection with which the Proxy
Statement shall be mailed, except that no representation or warranty is being
made by any party hereto with respect to information supplied in writing by any
other party hereto for inclusion in the Proxy Statement. The Company further
represents, warrants and agrees that the Proxy Statement will comply as to form
in all material respects with the provisions of the Exchange Act. The letter to
shareholders, notice of meeting, proxy statement and form of proxy, or any
information statement filed under the Exchange Act, as the case may be, that may
be provided to shareholders of the Company in connection with the transactions
contemplated by this Agreement (including any supplements), and any schedules
required to be filed with the Commission in connection therewith, as from time
to time amended or supplemented, are collectively referred to as the "Proxy
Statement."
(c) The Company shall take all actions necessary in
accordance with the Business Corporation Law of New York and the Certificate of
Incorporation and Bylaws of the Company to duly call, give notice of, convene
and hold the Special Meeting within 45 calendar days after the mailing of the
Proxy Statement to approve the matters set forth therein.
<PAGE>
24
4.3 Further Assurances. Upon the terms and subject to the
conditions herein provided, the Purchaser and the Company agree to use their
reasonable best efforts to take, or cause to be taken, all action, and to do, or
cause to be done, all things necessary, proper or advisable to consummate the
transactions contemplated by this Agreement and each other agreement
contemplated hereby including (a) to lift or rescind any injunction or
restraining order or other order adversely affecting the ability of the parties
to consummate the transactions contemplated hereby and (b) to fulfill all
conditions on its part to be fulfilled under this Agreement and each other
agreement contemplated hereby. In case at any time after the Closing Date any
further action is reasonably necessary or desirable to carry out the purposes of
this Agreement and each other agreement contemplated hereby, the proper
partners, officers or directors of all parties to this Agreement shall take all
such reasonably necessary action. No party hereto will take any action for the
purpose of delaying, impairing or impeding the receipt of any required consent,
authorization, order or approval or the making of any required filing. Each
party hereto shall give prompt notice to all other parties of (i) the
occurrence, or failure to occur, of any event which occurrence or failure would
be likely to cause any representation or warranty of such party contained in
this Agreement to be untrue or inaccurate in any material respect any time from
the date hereof to the Closing Date and (ii) any material failure of such party,
as the case may be, to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder, and such party shall
use all reasonable efforts to remedy such failure.
4.4 Indemnification by the Company.
(a) If the Closing occurs, the Company will indemnify the
Purchaser and its affiliates and their respective directors, officers, partners,
members, employees, agents and representatives (the "Purchaser Indemnified
Parties"), against and hold the Purchaser Indemnified Parties harmless from all
claims, obligations, costs and expenses (including, without limitation,
reasonable attorneys' fees and expenses of one counsel for all Purchaser
Indemnified Parties in any action between such Purchaser Indemnified Party and
the Company or between any Purchaser Indemnified Party and any third party or
otherwise) and liabilities of and damages to such Purchaser Indemnified Party
arising out of the breach of any representation, warranty, covenant or agreement
of the Company in this Agreement.
(b) Such Purchaser Indemnified Party agrees to give the
Company prompt written notice of any claim, assertion, event or proceeding by or
in respect of a third party of which it has knowledge concerning any liability
or damage as to which such Purchaser Indemnified Party is entitled to
indemnification hereunder. The Company shall have the right to direct, through
counsel of its own choosing, the defense or settlement of any such claim,
assertion, event or proceeding (provided that the Company shall have
acknowledged its indemnification obligations hereunder specifically in respect
of such claim, assertion, event or proceeding) at its own expense,
<PAGE>
25
which counsel shall be reasonably satisfactory to such Purchaser Indemnified
Party. If the Company elects to assume the defense of any such claim, assertion,
event or proceeding, such Purchaser Indemnified Party may participate in such
defense, but in such case the expenses of such Purchaser Indemnified Party
incurred in connection with such participation shall be paid by such Purchaser
Indemnified Party. Such Purchaser Indemnified Party shall cooperate with the
Company in the defense or settlement of any such claim, assertion, event or
proceeding. If the Company elects to direct the defense of any such claim or
proceeding, such Purchaser Indemnified Party shall not pay, or permit to be
paid, any part of any claim or demand arising from such asserted liability,
unless the Company consents in writing (which consent shall not unreasonably be
withheld) to such payment or unless the Company withdraws from the defense of
such asserted liability, or unless a final judgment from which no appeal may be
taken by or on behalf of the Company is entered against such Purchaser
Indemnified Party for such liability. If the Company shall elect not to defend
any such claim, assertion, event or proceeding, such Purchaser Indemnified Party
shall have the right to undertake the defense or settlement thereof at the
Company's expense, but such matter shall not be settled without the Company's
consent, which consent shall not be unreasonably withheld. If the Company shall,
after commencing or undertaking a defense, fail to prosecute or withdraws from
such defense, such Purchaser Indemnified Party shall have the right to undertake
the defense or settlement thereof at the Company's expense.
4.5 Indemnification by the Purchaser.
(a) If the Closing occurs, the Purchaser will indemnify
the Company and its affiliates, and their respective officers, directors,
employees, agents and representatives (the "Company Indemnified Parties"),
against and hold the Company Indemnified Parties harmless from all claims,
obligations, costs and expenses (including, without limitation, reasonable
attorneys' fees and expenses of one counsel for all Company Indemnified Parties
in any action between any Company Indemnified Party and the Purchaser or between
such Company Indemnified Party and any third party or otherwise) and liabilities
of and damages to such Company Indemnified Party arising out of the breach of
any representation, warranty, covenant or agreement of the Purchaser in this
Agreement.
(b) Such Company Indemnified Party agrees to give the
Purchaser prompt written notice of any claim, assertion, event or proceeding by
or in respect of a third party of which it has knowledge concerning any
liability or damage as to which such Company Indemnified Party is entitled to
indemnification hereunder. The Purchaser shall have the right to direct, through
counsel of their own choosing, the defense or settlement of any such claim,
assertion, event or proceeding (provided that the Purchaser shall have first
acknowledged its indemnification obligations hereunder specifically in respect
of such claim, assertion, event or proceeding) at its own expense, which counsel
shall be reasonably satisfactory to such Company Indemnified Party. If the
Purchaser elects to assume the defense of any such claim, assertion, event or
<PAGE>
26
proceeding, such Company Indemnified Party may participate in such defense, but
in such case the expenses of such Company Indemnified Party incurred in
connection with such participation shall be paid by such Company Indemnified
Party. Such Company Indemnified Party shall cooperate with the Purchaser in the
defense or settlement of any such claim, assertion, event or proceeding. If the
Purchaser elects to direct the defense of any such claim, assertion, event or
proceeding, such Company Indemnified Party shall not pay, or permit to be paid,
any part of any claim or demand arising from such asserted liability, unless the
Purchaser consents in writing (which consent shall not unreasonably be withheld)
to such payment or unless the Purchaser withdraws from the defense of such
asserted liability, or unless a final judgment from which no appeal may be taken
by or on behalf of the Purchaser is entered against such Company Indemnified
Party for such liability. If the Purchaser shall elect not to defend any such
claim, assertion, event or proceeding, such Company Indemnified Party shall have
the right to undertake the defense or settlement thereof at the Purchaser's
expense, but such matter shall not be settled without the Purchaser's consent,
which consent shall not be unreasonably withheld. If the Purchaser shall, after
commencing or undertaking a defense, fail to prosecute or withdraws from such
defense, such Company Indemnified Party shall have the right to undertake the
defense or settlement thereof at such Purchaser's expense.
4.6 Limitations on Indemnification.
(a) Neither the Company nor the Purchaser shall be
obligated to pay any amounts for indemnification under Section 4.4 or Section
4.5 for any breaches of any representations and warranties in Article II or
Article III until the aggregate amount for indemnification equals Five Hundred
Thousand Dollars ($500,000), whereupon the Company and the Purchaser shall be
obligated to pay only amounts in excess thereof.
(b) Neither the Company nor the Purchaser shall be
obligated to pay any amounts for indemnification under Section 4.4 or Section
4.5 for breaches of any representations and warranties in Article II or Article
III in excess of the Purchase Price.
(c) The Company shall not be liable in any event to pay
any amounts for indemnification under Section 4.4 in respect of any events,
conditions or circumstances for which an adjustment was made pursuant to Section
1.6.
4.7 Disclosure Supplements. From time to time prior to the
Closing, the Company may supplement the Schedules delivered in connection with
this Agreement with respect to any matter which, if existing or occurring at or
prior to the date of this Agreement, would have been required to be set forth or
described in such Schedule or which is necessary to correct any information in
such Schedule which has been rendered inaccurate thereby. Such supplements shall
not be given effect for
<PAGE>
27
purposes of Section 5.3(b); however, if the Closing occurs, the Purchaser shall
be deemed to have waived any right or claim it may otherwise have or have had on
account of any matter so disclosed in such supplement.
4.8 Additional Indemnification Obligation.
(a) Indemnification Relating to Section 4.15 of this
Agreement.
(i) The Purchaser agrees to indemnify and hold
harmless, without offset, the Company Indemnified Parties from any
liability under the PennCorp Purchase Agreement resulting from the
Company's inability to take action under the PennCorp Purchase Agreement as
a result of the failure of or refusal by the Purchaser to give any consent
required pursuant to Section 4.15 of this Agreement.
(ii) Responsibility for any liability under the
PennCorp Purchase Agreement resulting from actions of the character
described in Section 4.15 that are taken (or not taken) by the Company upon
mutual agreement with the Purchaser will be allocated as follows: the
Purchaser will be responsible for, and will indemnify and hold harmless,
without offset, the Company Indemnified Parties from and against, 60% and
the Company will be responsible for, and indemnify and hold harmless,
without offset, the Purchaser Indemnified Parties from and against, 40%.
(iii) The Company will be responsible for, and will
indemnify and hold harmless, without offset, the Purchaser Indemnified
Parties from and against, any liability resulting from any actions taken by
the Company in violation of Section 4.15 (including the failure of the
Company to close the transactions contemplated by the PennCorp Purchase
Agreement, if the Purchaser has notified the Company in writing that all
conditions to closing thereunder have been satisfied and that the Purchaser
demands that the Company close such transaction).
(b) Indemnification Relating to the Unavailability of the
Chase Facility. The Purchaser will indemnify and hold harmless, without offset,
the Company Indemnified Parties, and/or the Company will indemnify and hold
harmless, without offset, the Purchaser Indemnified Parties, in each case from
and against any and all liabilities arising under the PennCorp Purchase
Agreement as a result of the Company's failure to proceed with the Acquisition
(the "Acquisition Liabilities"), as follows:
(i) If the conditions to the Chase Facility have not
been satisfied as a result solely of (A) conditions, events or
circumstances which
<PAGE>
28
cause any of the conditions contained in Section 5.3(a), (b) or (e) of this
Agreement not to be satisfied or (B) conditions, events or circumstances
which constitute (x) a breach or violation of any representation or
warranty under this Agreement that involves or results from false
statements or omissions made intentionally (in the sense of intending to
mislead) or (y) a willful breach (in the sense that such breach is not
inadvertent) by the Company of any covenant or agreement under this
Agreement, then, in either such case, the Company, without offset, shall be
solely responsible for, and shall indemnify and hold harmless, without
offset, the Purchaser Indemnified Parties from and against, all Acquisition
Liabilities.
(ii) If the conditions to the Chase Facility have not
been satisfied as a result of conditions, events or circumstances which
constitute a breach or violation of any representation, warranty, covenant
or agreement of the Company under this Agreement (other than (x) those set
forth in clause (i) above or (y) breaches of representations or warranties
that did not exist as of the date hereof but arise after such date and
prior to the Closing Date because of conditions, events or circumstances
outside the reasonable control of the Company), then the Company, without
offset, shall be responsible for, and shall indemnify and hold harmless
Purchaser Indemnified Parties from and against, 6% of the Acquisition
Liabilities, and the Purchaser, without offset, shall be responsible for,
and shall indemnify and hold harmless the Company Indemnified Parties from
and against, 94% of the Acquisition Liabilities.
(iii) If the conditions to the Chase Facility have not
been met for any other reason whatsoever (including as a result of the
failure of the Purchaser to proceed with the Purchase in violation of the
terms of this Agreement), then the Purchaser, without offset, shall be
solely responsible for, and shall indemnify and hold harmless the Company
Indemnified Parties from and against all fees and expenses due to Chase
under the Chase Commitment Letter and all Acquisition Liabilities.
(c) Required Additional Investment. If Chase and/or the
lenders under the Chase Facility has notified the Company that the Chase
Facility will not be available to the Company unless a specified amount of
additional equity is invested in the Company (the "Required Equity"), then the
Purchaser, together with the other shareholders of the Company, shall have the
right (but no obligation) to purchase additional shares of Common Stock in order
to fund such Required Equity. If the Purchaser and any shareholder of the
Company as of the date hereof (any such shareholders, the "Opting Shareholders")
opt to purchase such shares, the Purchase Price Per Share shall be (x) if the
Purchaser and the Company prior to the Closing agree on the price to be paid by
the Purchaser and the Opting Shareholders for such additional shares of Common
Stock, such agreed price, and (y) if the Purchaser and the Company cannot agree
on the price to be paid for such additional shares of Common
<PAGE>
29
Stock by the Purchaser and the Opting Shareholders, a price per share equal to
60% of the per share Purchase Price determined under Article I. The Purchaser
and the Opting Shareholders will be entitled to purchase such additional shares
of Common Stock in proportion to their respective percentage shareholdings of
the Company (after giving effect to the Closing but without giving effect to the
infusion of the Required Equity). Nothing in this subsection (c), or any failure
to invest under this subsection, shall impair any indemnity obligation under
Sections 4.8(a) and (b).
4.9 Consents. The Company and the Purchaser will use their
reasonable best efforts to obtain all necessary waivers, consents and approvals
of all third parties and governmental authorities necessary to the consummation
of the transactions contemplated by this Agreement and each agreement
contemplated hereby, including, but not limited to, those required in connection
with the filing of any required HSR Reports and Forms A to the Departments of
Insurance of the applicable states and any filings to be made in connection with
or in compliance with the provisions of each of the Securities Act, the Exchange
Act and any applicable state securities laws.
4.10 Use of Proceeds. The Company covenants and agrees that it
will use the proceeds from the sale of the Shares hereunder solely to consummate
the Acquisition.
4.11 HSR Reports. If the Purchaser is required to file an HSR
Report in connection with the Purchase, then the Purchaser shall so notify the
Company in writing and, within 15 business days from the receipt by the Company
of such notice, the Purchaser and the Company shall file with the Federal Trade
Commission and the Antitrust Division of the Department of Justice, an HSR
Report and any supplemental information which may be requested in connection
with such HSR Reports. The Purchaser and the Company shall cooperate fully in
the preparation of such filings.
4.12 Exclusivity. The Company hereby agrees that prior to the
Closing Date, the Company shall not, directly or indirectly, solicit, entertain
or accept offers from persons (other than the Purchaser) for the investment
contemplated by this Agreement. The Company hereby agrees that it will not,
during the term of this Agreement and for a period of two years thereafter,
consummate the Acquisition (or any other purchase or acquisition (by merger or
otherwise) of any of the businesses or assets of PennCorp) without first
consummating the Purchase, unless (i) this Agreement is terminated due to a
breach by Purchaser of its obligations hereunder (ii) the Company and the
Purchaser mutually agree not to consummate the transactions contemplated by the
PennCorp Purchase Agreement or (iii) the Company is unable to consummate the
transactions contemplated by the PennCorp Purchase Agreement as a result of the
failure of or refusal by the Purchaser to give consent pursuant to Section 4.15
of this Agreement. If the Company enters into a transaction with PennCorp after
the occurrence of any of the events described in (i), (ii) or (iii) above, the
Company
<PAGE>
30
will either (x) obtain from PennCorp a complete release of the Purchaser from
any liability or claims relating to the PennCorp Purchase Agreement (and the
transactions contemplated thereby) or (y) indemnify the Purchaser for all such
liabilities and claims.
4.13 SEC Filings and Annual Statements. From and after the
date hereof to the Closing the Company shall make all SEC Filings required to be
filed under the Securities Act or the Exchange Act, and all amendments thereto.
The Company shall deliver to the Purchaser a copy of each such SEC Filing and
any Annual Statements of the Insurance Company Subsidiaries filed with any
departments of insurance from and after the date hereof to the Closing
(including all exhibits, interrogatories, notes and schedules thereto and any
actuarial opinions, affirmations or certifications filed in connection
therewith).
4.14 Amendment or Termination of Purchase Agreement. The
Company shall not amend or terminate the PennCorp Purchase Agreement without the
prior written consent of the Purchaser (which consent may be given or withheld
in the Purchaser's sole discretion).
4.15 Actions Relating to the PennCorp Purchase Agreement. The
Company shall not, without the Purchaser's prior consent (which consent may be
given or withheld in the Purchaser's sole discretion), (i) indicate or
acknowledge fulfillment of or waive any of the conditions to Closing set forth
in Article VI of the PennCorp Purchase Agreement or (ii) with respect to any
such conditions in the PennCorp Purchase Agreement that by their terms require
that a specified event, action or circumstance occur or be performed to the
satisfaction of the Company, indicate or acknowledge the Company's satisfaction
as to such occurrence or performance. The Company shall perform all of its
obligations under the PennCorp Purchase Agreement required to be performed by it
prior to the closing of the Acquisition.
4.16 Registration Rights Agreement. In connection with the
transactions contemplated by this Agreement, the Company and the Purchaser will
enter into the Registration Rights Agreement, a form of which is attached hereto
as Exhibit C (the "Registration Rights Agreement").
4.17 Shareholders Agreement. In connection with the
transactions contemplated by this Agreement, the Company, the Purchaser and
certain other shareholders of the Company will enter into a shareholders
agreement, a form of which is attached hereto as Exhibit D (the "Shareholders
Agreement").
4.18 Employment Agreement. In connection with the transactions
contemplated by this Agreement, the Company and Richard Barasch, President and
Chief Executive Officer of the Company, will enter into an employment agreement,
in the form of the draft dated December 30, 1998 (10:12 p.m. version) (the
"Employment Agreement").
<PAGE>
31
ARTICLE V
CONDITIONS PRECEDENT
5.1 Conditions to Each Party's Obligations. The respective
obligations of each party to effect the transactions contemplated by this
Agreement shall be subject to the fulfillment (or waiver by the Purchaser and
the Company) on or prior to the Closing Date of the following conditions:
(a) no United States or state authority or other agency or
commission or United States or state court of competent jurisdiction shall have
enacted, issued, promulgated, enforced or entered any statute, rule, regulation,
injunction or other order (whether temporary, preliminary, or permanent) which
is in effect and has the effect of prohibiting consummation of the transactions
contemplated by this Agreement or restricting the operation of the business of
the Company and the Subsidiaries as conducted on the date hereof in a manner
that would have a Material Adverse Effect on the Company;
(b) any waiting period applicable to the transactions
contemplated by this Agreement and each agreement contemplated hereby,
including, without limitation, those applicable to any HSR Report, any Form A
required to be filed by, or any further approval required by, any Department of
Insurance of any State or any other regulatory filing or any filing in
connection with or in compliance with the provisions of each of the Securities
Act, the Exchange Act and any applicable state securities laws shall have
expired or been terminated;
(c) the Closing provided for in Section 1.3 hereof shall
occur simultaneously with the closing of the transactions contemplated by the
PennCorp Purchase Agreement;
(d) the shareholders of the Company shall have duly
approved at the Special Meeting the Amendment, the issuance of the Shares to
Capital Z and the other matters set forth in Section 4.2 of this Agreement; and
(e) each of the Purchaser and the Company shall have
received fully executed copies of the Registration Rights Agreement, the
Shareholders' Agreement, the Employment Agreement and any and all other
agreements, documents, certificates or instruments contemplated by this
Agreement and any of the foregoing.
5.2 Conditions to the Obligations of the Company. The
obligation of the Company to effect the transactions contemplated by this
Agreement shall be subject to the fulfillment (or waiver by the Company) on or
prior to the Closing Date of the following additional conditions:
<PAGE>
32
(a) the Purchaser shall have performed in all material
respects its obligations under this Agreement required to be performed by it on
or prior to the Closing Date pursuant to the terms hereof, including without
limitation payment of the Purchase Price pursuant to Section 1.1;
(b) the representations and warranties of the Purchaser
contained in this Agreement shall be true and correct in all material respects
at and as of the Closing Date as if made at and as of such date, except to the
extent that any such representation or warranty is made as of a specified date
in which case such representation or warranty shall have been true and correct
as of such date. The Purchaser shall have delivered a certificate to the effect
set forth in Sections 5.2(a) and (b);
(c) the Company shall have received fully executed copies
of the Chase Facility set forth in the Chase Commitment Letter or similar
arrangement;
(d) all of the conditions to Closing set forth in Article
VI of the PennCorp Purchase Agreement shall have been satisfied or waived;
(e) the Company shall have received, in a form reasonably
satisfactory to the Company, a favorable fairness opinion of its financial
advisor in connection with the transactions contemplated hereunder and under the
PennCorp Purchase Agreement, as of the date of the mailing of the Proxy
Statement, as to the fairness on a financial basis of the terms of the Purchase
and the transactions contemplated by this Agreement; and
(f) all necessary waivers or consents to, approvals of and
notices or filings with respect to the transactions contemplated by Sections
2.3, 3.8 and 3.17 of this Agreement shall have been obtained.
5.3 Conditions to the Obligations of the Purchaser. The
obligations of the Purchaser to effect the transactions contemplated by this
Agreement shall be subject to the fulfillment (or waiver by the Purchaser) on or
prior to the Closing Date of the following additional conditions (and the
Purchaser agrees that if the conditions set forth below and in Section 5.1 above
have been satisfied (or waived by the Purchaser), the Purchaser shall consummate
the Purchase):
(a) the Company shall not have violated its obligations
under Sections 4.1(a), (c), (d), (e), (f) and (g), or Section 4.14 or 4.15 of
this Agreement;
(b) the representations and warranties of the Company
contained in Sections 3.1, 3.2, 3.3, 3.5 and 3.7 of this Agreement shall be true
and correct in all material respects at and as of the Closing Date as if made at
and as of such date, except to the extent that any such representation or
warranty is made as of a
<PAGE>
33
specified date in which case such representation or warranty shall have been
true and correct in all material respects as of such date. The Company shall
have delivered to the Purchaser a certificate to the effect set forth in
Sections 5.3(a) and (b);
(c) the Purchaser shall have received the opinion of
Simpson Thacher & Bartlett, special counsel to the Company in the form attached
hereto as Exhibit E;
(d) all necessary waivers or consents to, approvals of and
notices or filings with respect to the transactions contemplated by Sections 2.3
and 3.8 of this Agreement shall have been obtained;
(e) neither the Company nor any of Barasch, Waegelein and
Bryant shall have committed criminal fraud or otherwise engaged in felonious
criminal conduct with respect to, or in the operation of, the business or
affairs of the Company or any of its Subsidiaries;
(f) all of the conditions to Closing set forth in Article
VI of the PennCorp Purchase Agreement shall have been satisfied or waived; and
(g) the Purchaser shall not have exercised its option,
pursuant to Section 4.19 of this Agreement and Section 10.12 of the PennCorp
Purchase Agreement, to cause an affiliate to assume the rights and obligations
of the Company under the PennCorp Purchase Agreement and to terminate the
Purchaser's obligation to Purchase the Shares pursuant to this Agreement.
ARTICLE VI
MISCELLANEOUS
6.1 Termination. This Agreement may be terminated and the
transactions contemplated hereby abandoned:
(a) by either the Company or the Purchaser, simultaneously
with or at any time following the termination of the PennCorp Purchase
Agreement;
(b) by the Company, on the one hand, or the Purchaser, on
the other hand, upon notice to the other, five Business Days after the failure
by the shareholders of the Company to approve at the Special Meeting the
Amendment and the issuance of the Shares pursuant to this Agreement;
<PAGE>
34
(c) if the transactions contemplated by the PennCorp
Purchase Agreement fail to close by the date set forth in Section 9(b)(ii) of
the PennCorp Purchase Agreement;
(d) by either the Company or the Purchaser at any time
after May 30, 1999; or
(e) pursuant to the terms of Section 1.6(g).
6.2 Amendment. This Agreement may be amended only by written
agreement between the parties hereto.
6.3 Waiver. At any time prior to the Closing Date, either
party may (a) extend the time for the performance of any of the obligations or
other acts of the other party, (b) waive any inaccuracies in the representations
and warranties of the other party contained herein or in any document delivered
pursuant hereto, and (c) waive compliance by the other party with any of the
agreements or conditions herein; provided, that any such waiver of or failure to
insist on strict compliance with any such representation, warranty, agreement or
condition shall not operate as a waiver of, or estoppel with respect to, any
subsequent or other failure. Any agreement on the part of one party to any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed on behalf of such party.
6.4 Survival. The representations and warranties set forth in
this Agreement shall survive the Closing for a period of 18 months thereafter.
Notwithstanding the foregoing, (i) the representations and warranties contained
in Sections 3.1, 3.2, 3.3, 3.5 and 3.7 shall survive without limitation and (ii)
the representations and warranties contained in Sections 3.15 and 3.20 shall
survive until the date which is 30 days after the date upon which the liability
to which any claim may relate is barred by all applicable statutes of
limitations (including all periods of extension, whether automatic or
permissive). Claims based on the covenants and agreements set forth in Sections
1.4 and Articles II, III and IV which, by their terms are to be performed at or
prior to the Closing may be made during the 18 month period following the
Closing. All other covenants (including without limitation those contained in
Section 1.6(g)) shall survive the Closing without limitation.
6.5 Notices. All notices and other communications given or
made pursuant hereto shall be in writing and shall be deemed to have been given
or made if in writing and delivered personally, sent by commercial carrier or
registered or certified mail (postage prepaid, return receipt requested) or
transmuted by facsimile with automated receipt confirmation to the parties at
the following addresses and numbers:
<PAGE>
35
If to the Company, to:
Universal American Financial Corp.
Six International Drive, Suite 190
Rye Brook, NY 10573-1068
Fax: (914) 934-9123
Attention: Richard A. Barasch
with copies to:
Harnett Lesnick & Ripps, P.A.
NationsBank Tower
150 E. Palmetto Park Road
Suite 500
Boca Raton, FL 33432-4832
Fax: (561) 368-4315
Attention: Judge Bertram Harnett
and
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017-3954
Fax: (212) 455-2502
Attention: Gary I. Horowitz, Esq.
If to the Purchaser, to:
Capital Z Partners, Ltd.
One Chase Manhattan Plaza
44th Floor
New York, NY 10005
Fax: (212) 898-8720
Attention: Bradley E. Cooper
with copies to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, NY 10019-6064
Fax: (212) 757-3990
Attention: David K. Lakhdhir, Esq.
<PAGE>
36
6.6 Headings; Agreement. The headings contained in this
Agreement are inserted for convenience only and do not constitute a part of this
Agreement. The term "Agreement" for purposes of representations and warranties
hereunder shall be deemed to include the Exhibits hereto to be executed and
delivered by parties relevant thereto.
6.7 Publicity. So long as this Agreement is in effect, except
as required by law, regulation or stock exchange requirements, the parties
hereto shall not, and shall cause their affiliates not to, issue or cause the
publication of any press release or other announcement with respect to the
transactions contemplated by this Agreement or the other agreements contemplated
hereby without the consent of the other party, which consent shall not be
unreasonably withheld or delayed or without consulting with the other parties as
to the content of such press release or other announcement.
6.8 Entire Agreement. This Agreement (including all Exhibits
hereto) constitutes the entire agreement among the parties with respect to the
subject matter hereof and supersedes all other prior agreements and
understandings, both written and oral, among the parties, or any of them.
6.9 Assignment. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns. The Purchaser may transfer or
assign this Agreement and all of its rights, interests and obligations hereunder
to one or more of the following entities: any partnership of which the Purchaser
is, directly or indirectly, the general partner, any limited liability company
of which the Purchaser is, directly or indirectly, the managing member or any
Associate of the Purchaser (provided that the Purchaser remains fully liable
under this Agreement) or any other fund of which the general partner of the
Purchaser is the general partner, and such assignee shall be a "Purchaser" for
all purposes under this Agreement. Except as provided in the immediately
preceding sentence, neither this Agreement nor any of the rights, interests or
obligations shall be assigned by any of the parties hereto without the prior
written consent of the other party.
6.10 Counterparts. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same agreement
and each of which shall be deemed an original.
6.11 Governing Law. The validity and interpretation of this
Agreement shall be governed by the laws of the State of New York, without
reference to the conflict of laws principles thereof which might indicate the
applicability of the laws of any other jurisdiction.
<PAGE>
37
6.12 Third Party Beneficiaries. This Agreement is not intended
to confer upon any other person any rights or remedies hereunder.
6.13 Costs and Expenses. Upon the consummation of the
transactions contemplated hereby, the Company will pay all costs and expenses
(including sales or transfer taxes, if any) incurred by the Purchaser in
connection with the transactions contemplated hereby, including without
limitation the reasonable legal fees and expenses of Paul, Weiss, Rifkind,
Wharton & Garrison and any filing fees paid in connection with the filing of HSR
Reports and Forms A by the Purchaser; provided, that if the transactions
contemplated hereby are not consummated and the Company would be required to
indemnify the Purchaser pursuant to Section 4.8(b)(i), the Company will pay all
costs and expenses of the Purchaser referred to above.
6.14 Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement is
not performed in accordance with the terms hereof, and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or in equity.
<PAGE>
IN WITNESS WHEREOF, the Purchaser and the Company have caused
this Agreement to be duly signed as of the date first written above.
UNIVERSAL AMERICAN FINANCIAL CORP.
By: /s/ RICHARD A. BARASCH
------------------------------------------------
Name: Richard A. Barasch
Title: President and Chief
Executive Officer
CAPITAL Z FINANCIAL SERVICES FUND II, L.P.
By: Capital Z Partners, L.P., general partner
By: Capital Z Partners Ltd., its General Partner
By: /s/ BRADLEY COOPER
------------------------------------------------
Name: Bradley Cooper
Title: Partner
================================================================================
PURCHASE AGREEMENT
AMONG
UNIVERSAL AMERICAN FINANCIAL CORP.
PENNCORP FINANCIAL GROUP, INC.,
PACIFIC LIFE AND ACCIDENT INSURANCE COMPANY,
PENNSYLVANIA LIFE INSURANCE COMPANY,
SOUTHWESTERN FINANCIAL CORPORATION,
CONSTITUTION LIFE INSURANCE COMPANY
AND
PENNCORP FINANCIAL SERVICES, INC.
Dated December 31, 1998
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
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ARTICLE I DEFINITIONS............................................... 2
SECTION 1.1 Definitions............................................... 2
SECTION 1.2 Other Definitions......................................... 7
SECTION 1.3 Reserves.................................................. 10
SECTION 1.4 Certain Interpretive Matters.............................. 10
ARTICLE II THE ACQUISITION........................................... 10
SECTION 2.1 Consideration for the Shares and the PCFS Assets.......... 10
SECTION 2.2 Closing Transactions...................................... 12
SECTION 2.3 Purchase Price Adjustment................................. 14
SECTION 2.4 Reserves Adjustment....................................... 16
ARTICLE III REPRESENTATIONS AND WARRANTIES OF
PFG, PLAC, SFC AND PCFS.................................. 18
SECTION 3.1 Organization and Qualification............................ 18
SECTION 3.2 Authorization............................................. 19
SECTION 3.3 No Violation.............................................. 19
SECTION 3.4 Capitalization of the Companies........................... 20
SECTION 3.5 PFI Subsidiaries and PCFS Assets.......................... 21
SECTION 3.6 Consents and Approvals.................................... 22
SECTION 3.7 Financial Statements; Reserves............................ 22
SECTION 3.8 Absence of Undisclosed Liabilities........................ 24
SECTION 3.9 Absence of Certain Changes................................ 24
SECTION 3.10 Litigation................................................ 25
SECTION 3.11 Property; Liens and Encumbrances.......................... 25
SECTION 3.12 Certain Agreements........................................ 26
SECTION 3.13 Employee Benefit Plans.................................... 27
SECTION 3.14 Taxes..................................................... 30
SECTION 3.15 Compliance with Applicable Law; Permits; Policies......... 34
SECTION 3.16 Brokers Fees and Commissions.............................. 36
SECTION 3.17 Proprietary Rights; Year 2000 Compliance.................. 36
SECTION 3.18 Insurance................................................. 37
SECTION 3.19 Environmental Matters..................................... 37
SECTION 3.20 Books and Records......................................... 38
SECTION 3.21 Bank Accounts............................................. 38
SECTION 3.22 Insurance and Reinsurance................................. 38
SECTION 3.23 Labor Matters............................................. 39
SECTION 3.24 Purchase for Investment................................... 40
SECTION 3.25 Affiliate Transactions.................................... 40
SECTION 3.26 Bonuses................................................... 40
i
<PAGE>
Page
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SECTION 3.27 All Related Assets........................................ 40
SECTION 3.28 Litigation Arising Between Signing and Closing............ 41
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER................... 41
SECTION 4.1 Organization; Qualifications and Operations............... 41
SECTION 4.2 Authorization............................................. 41
SECTION 4.3 No Violation.............................................. 42
SECTION 4.4 Capitalization............................................ 42
SECTION 4.5 Consents and Approvals.................................... 42
SECTION 4.6 Brokers' Fees and Commissions............................. 43
SECTION 4.7 Purchase for Investment................................... 43
SECTION 4.8 Financing................................................. 43
SECTION 4.9 SEC Reports............................................... 44
SECTION 4.10 Absence of Undisclosed Liabilities........................ 44
SECTION 4.11 Absence of Certain Changes................................ 44
SECTION 4.12 Compliance with Applicable Law; Permits; Licenses......... 44
ARTICLE V COVENANTS................................................. 45
SECTION 5.1 Conduct of Business Prior to the Closing.................. 45
SECTION 5.2 Management of Companies................................... 47
SECTION 5.3 Access to Information..................................... 48
SECTION 5.4 HSR Act Filings........................................... 49
SECTION 5.5 State Regulatory Approvals................................ 49
SECTION 5.6 Pre-Closing Restructuring Transactions.................... 49
SECTION 5.7 Estimated Statement....................................... 50
SECTION 5.8 Transaction Bonuses....................................... 50
SECTION 5.9 Payments to Agents........................................ 50
SECTION 5.10 All Reasonable Efforts.................................... 51
SECTION 5.11 Public Announcements...................................... 51
SECTION 5.12 Disclosure Supplements.................................... 51
SECTION 5.13 Employment and Employee Benefits.......................... 52
SECTION 5.14 Nonsolicitation........................................... 53
SECTION 5.15 Acquisition Proposals..................................... 54
SECTION 5.16 Section 338(h)(10) Election, Allocation of Purchase
Price under Sections 338 and 1060 and Matters
Relating to SWLIC........................................ 54
SECTION 5.17 Tax Matters............................................... 55
SECTION 5.18 Financial Matters; Proxy Statement........................ 57
SECTION 5.19 Peninsular Licenses....................................... 58
SECTION 5.20 PCFS Licenses............................................. 58
SECTION 5.21 Change of Name............................................ 58
SECTION 5.22 Litigation Arising Between Signing and Closing............ 58
ii
<PAGE>
Page
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ARTICLE VI CLOSING CONDITIONS........................................ 59
SECTION 6.1 Conditions to the Obligations of Buyer under this
Agreement................................................ 59
SECTION 6.2 Conditions to the Obligations of Sellers under this
Agreement................................................ 61
ARTICLE VII CLOSING................................................... 63
SECTION 7.1 Closing................................................... 63
ARTICLE VIII SURVIVAL/INDEMNIFICATION.................................. 64
SECTION 8.1 Survival of Representations and Warranties;
Indemnification Obligations.............................. 64
SECTION 8.2 Obligation of Buyer to Indemnify.......................... 67
SECTION 8.3 Notice and Opportunity to Defend.......................... 67
SECTION 8.4 Limitations on Indemnification............................ 68
SECTION 8.5 Set-off Rights............................................ 68
SECTION 8.6 Adjustment to Purchase Price; Offsetting Tax Benefits..... 69
SECTION 8.7 Exclusive Remedy.......................................... 69
ARTICLE IX TERMINATION AND ABANDONMENT............................... 69
SECTION 9.1 Termination............................................... 69
SECTION 9.2 Expenses in the Event of Termination...................... 70
SECTION 9.3 Procedure and Effect of Termination....................... 71
SECTION 9.4 Mutual Agreement of Parties............................... 71
SECTION 9.5 Confidentiality........................................... 72
ARTICLE X MISCELLANEOUS PROVISIONS.................................. 72
SECTION 10.1 Post-Closing DI Reserves Information...................... 72
SECTION 10.2 Amendment and Modification................................ 73
SECTION 10.3 Waiver of Compliance; Consents............................ 73
SECTION 10.4 Validity.................................................. 73
SECTION 10.5 Expenses and Obligations.................................. 73
SECTION 10.6 Parties in Interest....................................... 73
SECTION 10.7 Notices................................................... 73
SECTION 10.8 Governing Law............................................. 75
SECTION 10.9 Counterparts.............................................. 75
SECTION 10.10 Headings.................................................. 75
SECTION 10.11 Entire Agreement.......................................... 76
SECTION 10.12 Assignment................................................ 76
ANNEX A Disclosure Schedule
iii
<PAGE>
Page
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ANNEX B Terms of the Acquisition Notes
ANNEX C Terms of Pledge and Security Agreement
ANNEX D Form of Voting Agreement
ANNEX E Pre-Closing Restructuring Transactions
ANNEX F Opinions of Counsel to Sellers
ANNEX G Opinions of Counsel to Buyer
EXHIBIT A Terms of AmeriLife Marketing/Equity Arrangement
EXHIBIT B Terms of Cologne Re Reinsurance Agreement
EXHIBIT C Terms of Sale or Reinsurance of Union Bankers
Comprehensive Accident and Health Insurance
EXHIBIT D Terms of Raleigh Lease Agreement
EXHIBIT E Form of ConLife-Peninsular Reinsurance Agreement
EXHIBIT F Terms of PCFS Services Agreement
EXHIBIT G NOL Example
iv
<PAGE>
PURCHASE AGREEMENT
PURCHASE AGREEMENT (this "Agreement"), dated December __, 1998, among
Universal American Financial Corp., a New York corporation ("Buyer"), and
PennCorp Financial Group, Inc., a Delaware corporation ("PFG"), Pacific Life and
Accident Insurance Company, a Texas corporation ("PLAC"), Pennsylvania Life
Insurance Company, a Pennsylvania corporation ("PennLife"), Southwestern
Financial Corporation, a Delaware corporation ("SFC"), Constitution Life
Insurance Company, a Texas corporation ("ConLife"), and PennCorp Financial
Services, Inc., a Delaware corporation ("PCFS"). PFG, PLAC, PennLife, SFC,
ConLife and PCFS are collectively referred to herein as the "Sellers."
RECITALS:
WHEREAS, PFG is the record and beneficial owner of all of the issued and
outstanding shares of common stock, par value $1.00 per share (the "PFI
Shares"), of PennCorp Financial, Inc., a Delaware corporation ("PFI");
WHEREAS, PLAC, a wholly owned Subsidiary of PFG, is the record and
beneficial owner of all of the issued and outstanding shares of common stock,
par value $100.00 per share (the "PennLife Shares"), of PennLife;
WHEREAS, PennLife is the record and beneficial owner of all of the issued
and outstanding shares of common stock, par value $2.25 per share (the
"Peninsular Shares"), of Peninsular Life Insurance Company, a North Carolina
corporation ("Peninsular");
WHEREAS, PennLife is the record and beneficial owner of all of the issued
and outstanding shares of common stock, no par value (the "PC-Canada Common
Shares"), of PennCorp Life Insurance Company, a Canadian corporation ("PC-
Canada"), and all of the issued and outstanding preferred shares, no par value
(the "PC-Canada Preferred Shares" and, together with the PC-Canada Common
Shares, the "PC-Canada Shares"), of PC-Canada;
WHEREAS, SFC, a wholly owned Subsidiary of PFG, is the record and
beneficial owner of all of the issued and outstanding shares of common stock,
par value $60.00 per share (the "ConLife Shares"), of ConLife;
WHEREAS, ConLife is the record and beneficial owner of all of the issued
and outstanding shares of common stock, par value $2.00 per share (the "Union
Bankers Shares"), of Union Bankers Insurance Company, a Texas corporation
("Union Bankers");
<PAGE>
WHEREAS, Union Bankers is the record and beneficial owner of all of the
issued and outstanding shares of common stock, par value $1.00 per share (the
"Marquette Shares"), of Marquette National Life Insurance Company, a Texas
corporation ("Marquette");
WHEREAS, PCFS is a wholly owned Subsidiary of PFG;
WHEREAS, PennLife and ConLife and their respective Subsidiaries are engaged
in the insurance business and PFI and its Subsidiaries are engaged in the
financial services business; and
WHEREAS, Buyer, acting through its Subsidiaries, is engaged in the life and
accident and health insurance business.
NOW, THEREFORE, in consideration of the mutual covenants, representations,
warranties and agreements herein contained, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 Definitions. For purposes of this Agreement, the term:
(a) "affiliate" means, as to a specified Person, any other Person
that directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, the specified Person.
(b) "Allocation Schedule" means the Allocation Schedule relating to
the 338(h)(10) Election.
(c) "Annual Statement" means, with respect to a referenced Person,
the annual statement of such Person filed with or submitted to the insurance
regulatory authority in the jurisdiction in which such Person is domiciled on
forms prescribed or permitted by such authority.
(d) "Assumed Liabilities" means all obligations under the PCFS
Licenses and other contracts (if any) included as part of the PCFS Assets, to
the extent such obligations arise after the Closing Date.
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(e) "AVR" means, with respect to any Person domiciled in the United
States, the Asset Valuation Reserve set forth in the balance sheet of such
Person in accordance with SAP.
(f) "Business Day" means any day that is not a Saturday, Sunday or
other day on which banking institutions in the city of New York, New York are
authorized or required by law or executive order to be closed.
(g) "Chase Bank Facility" means the term loan facility and revolving
credit facility provided to Buyer upon the terms and subject to the conditions
of the Chase Commitment.
(h) "Closing Statement" means the statement prepared by PennLife and
ConLife calculating the capital and surplus (excluding AVR and IMR) of each of
the PennLife Companies and each of the ConLife Companies in accordance with SAP
as of the Closing Date (immediately prior to the Closing but after giving effect
to the Closing Transactions) using the same assumptions and methodologies
utilized in the preparation of such companies' December 31, 1998 Annual
Statements and the preparation of the Estimated Statement.
(i) "Code" means the Internal Revenue Code of 1986, as amended
(including any successor code), and the rules and regulations promulgated
thereunder.
(j) "Commission" means the Securities and Exchange Commission.
(k) "Companies" means the ConLife Companies, the PennLife Companies
and the PFI Companies.
(l) "ConLife Companies" means ConLife, Union Bankers and Marquette,
but shall not include SWLIC.
(m) "ConLife Employees" means (i) those employees of Services who
primarily render services to or on behalf of any or all of the ConLife Companies
as listed on Schedule 1.1(m) and (ii) all former employees of Services who,
during the term of their employment with Services, primarily rendered services
to or on behalf of any or all of the ConLife Companies and whose employment with
Services was terminated for any reason (including retirement) prior to the
Closing Date and who, as of the Closing Date, are not employed by PFG or any of
its affiliates (excluding any of the Companies).
(n) "ConLife Surplus Notes" mean (i) the Surplus Debenture, dated
December 14, 1995, in the original principal amount of $80 million, issued by
ConLife in favor of SFC or a wholly owned Subsidiary of SFC and (ii) the Surplus
Debenture
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dated January 1, 1996, in the original principal amount of $40 million, issued
by ConLife in favor of SFC or a wholly owned Subsidiary of SFC, each as amended
from time to time to comply with requests or the requirements of the Texas
Department of Insurance.
(o) "Disclosure Schedule" means the Disclosure Schedule attached
hereto as Annex A.
(p) "Environmental Laws" means all applicable U.S. and Canadian
federal, state, provincial or local laws (including but not limited to federal
and state common law), statutes, codes, rules or regulations relating to the
environment, natural resources, and pollution including, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act (CERCLA),
the Hazardous Materials Transportation Act, 49 U.S.C. ss. 1801 et seq., as
amended from time to time (HMTA), the Resource Conservation and Recovery Act, 42
U.S.C. ss. 6901 et seq., as amended from time to time (RCRA), the Federal Water
Pollution Control Act, 33 U.S.C. ss. 1251 et seq., as amended from time to time
(FWPCA), the Clean Air Act, 42 U.S.C. ss. 7401 et seq., as amended from time to
time (CAA), and/or the Toxic Substances Control Act, 15 U.S.C. ss. 2601 et seq.,
as amended from time to time (TSCA).
(q) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(r) "Governmental Authority" means any nation or government, any
state or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
(s) "Hazardous Materials" means (i) any wastes, substances, or
materials which are defined as "hazardous material," "hazardous waste,"
"hazardous substance," "toxic material" or other similar designations in, or
otherwise subject to regulation under, any applicable Environmental Laws; (ii)
petroleum or petroleum byproducts; (iii) friable asbestos and/or any material
which contains friable asbestos; and (iv) electrical equipment containing
polychlorinated biphenyls (PCBs) in excess of 50 parts per million.
(t) "IMR" means, with respect to any Person domiciled in the United
States, the Interest Maintenance Reserve set forth on the balance sheet of such
Person in accordance with SAP.
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(u) "Lincoln National Agreement" means the reinsurance agreement,
dated September 30, 1998, between PennLife and Lincoln National Reassurance
Company.
(v) "Material Adverse Effect" means a materially adverse effect on
the business, results of operations or financial condition of the PennLife
Companies, the PFI Companies and the PCFS Assets, taken as a whole, or the
ConLife Companies, taken as a whole, excluding the reserve deficiencies
specifically identified in the reports of the Reserves Consultants.
(w) "Nasdaq" means The Nasdaq Stock Market, Inc.
(x) "PennLife Companies" means PennLife, Peninsular and PC-Canada.
(y) "PennLife Employees" means (i) all employees of the PennLife
Companies and (ii) all former employees of the PennLife Companies whose
employment with the PennLife Companies was terminated for any reason (including
retirement) prior to the Closing Date and who, as of the Closing Date, are not
employed by PFG or any of its affiliates (excluding any of the Companies).
(z) "Person" means an individual, corporation, limited liability
company, partnership, joint venture, association, trust, unincorporated
organization or, as applicable, any other entity.
(aa) "PCFS Assets" means those assets of PCFS listed on Schedule
1.1(aa).
(ab) "PCFS Employees" means (i) those employees of PCFS who primarily
render services to or on behalf of any or all of the Companies as listed on
Schedule 1.1(ab) and any other employees of PCFS performing services primarily
for the Companies who are hired between the date hereof and the Closing Date in
accordance with Section 5.13(a) and (ii) all former employees of PCFS who,
during the term of their employment with PCFS, primarily rendered services to or
on behalf of any or all of the Companies and whose employment with PCFS was
terminated for any reason (including retirement) prior to the Closing Date and
who, as of the Closing Date, are not employed by PFG or any of its affiliates
(excluding any of the Companies).
(ac) "PFI Companies" means PFI and its wholly owned Subsidiaries.
(ad) "PFI Employees" means (i) all employees of the PFI Companies and
(ii) all former employees of the PFI Companies whose employment with the
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PennLife Companies was terminated for any reason (including retirement) prior to
the Closing Date and who, as of the Closing Date, are not employed by PFG or any
of its affiliates (excluding any of the Companies).
(ae) "Phase III Taxes" means Taxes imposed under Section 815(f) of the
Code by reference to Section 815 as in effect prior to the enactment of the Tax
Reform Act of 1984.
(af) "Quarterly Statement" means, with respect to a referenced Person,
the quarterly statement of such Person submitted to the insurance regulatory
authority in the state in which such Person is domiciled on forms prescribed or
permitted by such authority.
(ag) "Release" means any emission, spill, seepage, leak, escape,
leaching, discharge, injection, pumping, pouring, emptying, dumping, disposal,
release, or threatened release of Hazardous Materials into the environment.
(ah) "Reserves Consultants" means (i) with respect to the disability
income claims reserves of PennLife, Tillinghast, (ii) with respect to the
non-disability income claims reserves of PennLife, BAS Actuarial Services, and
(iii) with respect to all other reserves of PennLife (excluding life insurance
reserves), another independent actuarial firm of national reputation.
(ai) "SAP" means the statutory accounting practices required or
permitted by the National Association of Insurance Commissioners or the
insurance regulatory authority in the jurisdiction of domicile of the referenced
Person.
(aj) "Services" means Southwestern Financial Services Corporation, a
Delaware corporation and wholly owned Subsidiary of SFC.
(ak) "Settlement Actuary" means Tillinghast, excluding the St. Louis
office ("Tillinghast") or, if such firm is not available, such other independent
actuarial firm of national reputation selected by the mutual agreement of Buyer
and PFG or if Buyer and PFG cannot agree, a nationally recognized actuarial firm
chosen by Tillinghast.
(al) "Settlement Auditor" means PricewaterhouseCoopers or, if such
firm is not available, such other independent accounting firm of national
reputation selected by the mutual agreement of Buyer and PFG, or if Buyer and
PFG cannot agree, a nationally recognized accounting firm chosen by
PricewaterhouseCoopers.
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(am) "Shares" means the PFI Shares, the PennLife Shares, the
Peninsular Shares, the PC-Canada Shares, the ConLife Shares and the Union
Bankers Shares, collectively.
(an) "Subsidiary" means, as to any Person, any other Person of which
at least a majority of the outstanding shares or other equity interests having
ordinary voting power for the election of directors or comparable managers of
such Person is owned, directly or indirectly, by the referenced Person. For
purposes of this Agreement, Buyer's Subsidiaries shall not include any of the
Companies, notwithstanding the consummation of any of the Closing Transactions.
(ao) "SWLIC" means Southwestern Life Insurance Company, a Texas
corporation and wholly owned Subsidiary of ConLife.
(ap) "Taxes" means any and all federal, state, provincial, local,
foreign and other taxes, levies, fees, imposts, duties, and similar governmental
charges (including any interest, fines, assessments, penalties or additions to
tax imposed in connection therewith or with respect thereto) including, without
limitation, taxes imposed on, or measured by, income, franchise, profits or
gross receipts, ad valorem, value added, capital gains, sales, goods and
services, use, real or personal property, capital stock, license, branch,
payroll, Phase III Taxes, estimated withholding, employment, social security (or
similar), unemployment, compensation, utility, severance, production, excise,
stamp, occupation, premium, windfall profits, transfer and gains taxes, and
customs duties.
(aq) "Tax Returns" means any report, return, declaration, claim for
refund, information report or return or statement required to be supplied to a
taxing authority in connection with Taxes, including any schedule or attachment
thereto or amendment thereof.
(ar) "Union Bankers Special Dividend" means the sum of the Peninsular
Purchase Price and the PC-Canada Purchase Price, or such lesser amount necessary
to keep the Union Bankers Target Capital Amount at the level specified in
Section 2.3(e) based on the Estimated Statement.
(as) "U.S. Insurance Companies" means ConLife, Union Bankers,
Marquette, PennLife and Peninsular, collectively.
(at) "WARN" means the Worker Adjustment and Retraining Notification
Act of 1988 and any similar state, local or Canadian "plant closing" or layoff
statute.
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SECTION 1.2 Other Definitions. When used in this Agreement, the following
terms shall have the meanings ascribed to them in Sections noted below:
Term Defined in
---- ----------
1998 SAP Financial Statements Section 5.18(a)
338(h)(10) Election Section 5.16
Accounts Section 3.21
Acquisition Note Purchase Price Section 2.1
Acquisition Notes Section 2.1
Actual Loss Experience Section 2.4(a)
Advest Section 4.6
Agent Compensation Section 3.15(e)
Aggregate Target Capital Amount Section 2.3(e)
Agreement Preamble
Asserted Liability Section 8.3(a)
Audited Financial Statements Section 5.18
Banks Section 3.21
Basket Amount Section 8.4(a)
Basket Exclusions Section 8.4(a)
Benefit Plans Section 3.13(a)
Bill of Sale, Assignment and Assumption Agreement Section 2.2
Buyer Preamble
Buyer Actuary Section 2.4(a)
Buyer Approvals Section 4.5
Buyer Common Stock Section 4.4
Buyer Indemnitees Section 8.1(b)
Buyer Material Adverse Effect Section 4.1
Buyer Parties Section 4.1
Buyer Plans Section 5.13(b)
Buyer Sub Section 2.2(i)
Capital Z Section 4.8
Cash Purchase Price Section 2.1
Chase Bank Section 4.8
Chase Commitment Section 4.8
Chase Securities Section 4.6
Claim Section 8.1(b)
Claims Notice Section 8.3(a)
Closing Section 7.1
Closing Date Section 7.1
Closing Transactions Section 2.2
Cologne Re Section 2.3(e)
Company Employees Section 5.13(a)
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Confidentiality Agreement Section 9.4(a)
ConLife Preamble
ConLife Acquisition Note Purchase Price Section 2.1(b)
ConLife Cash Purchase Price Section 2.1(b)
ConLife Group Section 3.14(n)
ConLife Insurance Approvals Section 3.6
ConLife Purchase Price Section 2.1(b)
ConLife Shares Recitals
Deposit Section 3.15(i)
DOJ Section 3.6
ERISA Section 3.13(a)
ERISA Affiliate Section 3.13(e)
Estimated Statement Section 5.7
Financial Statements Section 3.7(d)
Fundamental Representations Section 8.1
GAAP Section 3.7(d)
HSR Act Section 3.6
Indemnifying Party Section 8.3(a)
Indemnitee Section 8.3(a)
Integon Section 6.1(g)
Investment Agreements Section 5.9(b)
Intellectual Property Section 3.17
IRS Section 1.1(k)
KPMG Section 5.18(a)
Leased Properties Section 3.11(b)
Liens Section 3.11(b)
Litigation Section 3.10
Losses Section 8.1(b)
Marquette Recitals
Marquette Shares Recitals
Material Contract Section 3.12(a)
MEC Section 3.14(x)
Multiemployer Plan Section 3.13(a)
New Employee Claims Section 5.22
New Litigation Section 5.22
NOLs Section 3.14(ac)
Offsetting Tax Benefit Section 8.6(b)
Owned Properties Section 3.11(b)
PBGC Section 3.13(e)
PC-Canada Recitals
PC-Canada Common Shares Recitals
PC-Canada Preferred Shares Recitals
PC-Canada Purchase Price Section 2.1(d)
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PC-Canada Shares Recitals
PCFS Preamble
PCFS Licenses Section 5.20
PCFS Purchase Price Section 2.1(g)
Peninsular Recitals
Peninsular Purchase Price Section 2.1(c)
Peninsular Shares Recitals
PennLife Preamble
PennLife Acquisition Note Purchase Price Section 2.1(e)
PennLife Cash Purchase Price Section 2.1(e)
PennLife Insurance Approvals Section 3.6
PennLife Insurance Reserves Section 5.3(b)
PennLife Purchase Price Section 2.1(e)
PennLife Shares Recitals
PFG Preamble
PFG Group Section 3.14(n)
PFI Recitals
PFI Acquisition Note Purchase Price Section 2.1(f)
PFI Cash Purchase Price Section 2.1(f)
PFI Purchase Price Section 2.1(f)
PFI Shares Recitals
PFI Subsidiaries Section 3.5(a)
PLAC Preamble
PLAC Group Section 3.14(n)
Post-Closing Compensation Obligations Section 5.9(b)
Pre-Closing Restructuring Transactions Section 5.6
Pre-Sale Obligations Section 5.9(a)
Proxy Statement Section 5.18(c)
Purchase Price Section 2.1
Reinsurance Agreements Section 3.22(a)
Required Permits Section 3.15(b)
Review Letter Section 5.18(a)
SAP Financial Statements Section 3.7(a)
SEC Reports Section 4.9
Seller Refund Section 5.17(d)
Seller Net Refund Amount Section 5.17(d)
Sellers Preamble
Series C-1 Holders Section 4.2
SFC Preamble
Substituted Buyer Section 10.12
SWLIC Basis Adjustments Section 5.16(c)
SWLIC Valuation Opinion Section 5.16(c)
SWLIC Value Section 5.16(c)
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Target Capital Amount Section 2.3(e)
Tax Representation Claim Section 8.1(a)
Technology Systems Section 3.17(b)
Transaction Bonus Section 3.26
UAFC Share Purchase Agreement Section 4.8
Unaudited Financial Statements Section 3.7(d)
Union Bankers Recitals
Union Bankers Acquisition Note Purchase Price Section 2.1(a)
Union Bankers Cash Purchase Price Section 2.1(a)
Union Bankers Purchase Price Section 2.1(a)
Union Bankers Shares Recitals
SECTION 1.3 Reserves. With respect to health claims reserves, references
herein to such reserves include loss adjustment expenses.
SECTION 1.4 Certain Interpretive Matters. Unless otherwise noted, all
references herein to "$" or dollar amounts are to lawful currency of the United
States of America. Unless the context otherwise requires, all references to
Sections, Articles, Annexes or Exhibits are to Sections, Articles, Annexes or
Exhibits to this Agreement.
ARTICLE II
THE ACQUISITION
SECTION 2.1 Consideration for the Shares and the PCFS Assets. At the
Closing, upon the terms and subject to the conditions of this Agreement and in
reliance upon the representations, warranties and agreements contained herein,
Sellers shall sell to Buyer, and Buyer shall purchase or cause to be purchased
from Sellers, in the manner described in Section 2.2, all of the Shares and the
PCFS Assets for an aggregate purchase price of $136,000,000 in cash (the "Cash
Purchase Price") and 8.0% subordinated notes (the "Acquisition Notes") issued by
Buyer in the aggregate original principal amount of $39,000,000, containing the
material terms set forth on Annex B and otherwise in form and substance mutually
satisfactory to Buyer and Sellers, subject to adjustment as provided in Sections
2.3 and 2.4, allocable as set forth below, and subject to Section 5.19:
(a) for the Union Bankers Shares, $18,748,000 in cash (the "Union
Bankers Cash Purchase Price") and $7,052,000 principal amount of Acquisition
Notes (the "Union Bankers Acquisition Note Purchase Price" and, together with
the Union Bankers Cash Purchase Price, the "Union Bankers Purchase Price");
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(b) for the ConLife Shares, $6,250,000 in cash (the "ConLife Cash
Purchase Price") and $2,350,000 principal amount of Acquisition Notes (the
"ConLife Acquisition Note Purchase Price" and, together with the ConLife Cash
Purchase Price, the "ConLife Purchase Price");
(c) for the Peninsular Shares, $13,300,000 in cash (the "Peninsular
Purchase Price");
(d) for the PC-Canada Shares, $18,000,000 in cash (the "PC-Canada
Purchase Price");
(e) for the PennLife Shares, $73,542,000 in cash (the "PennLife Cash
Purchase Price") and $27,658,000 principal amount of Acquisition Notes (the
"PennLife Acquisition Note Purchase Price" and, together with the PennLife Cash
Purchase Price, the "PennLife Purchase Price");
(f) for the PFI Shares, $5,160,000 in cash (the "PFI Cash Purchase
Price") and $1,940,000 principal amount of Acquisition Notes (the "PFI
Acquisition Note Purchase Price" and, together with the PFI Cash Purchase Price,
the "PFI Purchase Price"); and
(g) for the PCFS Assets, $1.0 million in cash (the "PCFS Purchase
Price").
The Union Bankers Acquisition Note Purchase Price, the ConLife
Acquisition Note Purchase Price, the PennLife Acquisition Note Purchase Price
and the PFI Acquisition Note Purchase Price are collectively referred to as the
"Acquisition Note Purchase Price," and the Cash Purchase Price and the
Acquisition Note Purchase Price, as adjusted pursuant to Sections 2.3 and 2.4,
are collectively referred to as the "Purchase Price."
SECTION 2.2 Closing Transactions. Subject to Section 5.19, at and
simultaneously with the Closing, on the terms and subject to the conditions of
this Agreement, the parties shall cause the following transactions (the "Closing
Transactions") to occur in the order set forth below:
(a) Union Bankers shall distribute to ConLife the Union Bankers
Special Dividend;
(b) in consideration for the Peninsular Purchase Price, PennLife
shall sell, assign, transfer and convey to Buyer, and Buyer shall purchase and
acquire from PennLife, the Peninsular Shares, free and clear of any Liens, other
than those which may be created by Buyer;
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(c) (i) in consideration for payment by PLAC of an amount equal to
the PC-Canada Purchase Price, PennLife shall sell, assign, transfer and convey
to PLAC, and PLAC shall purchase and acquire from PennLife, the PC-Canada
Shares, free and clear of any Liens, and (ii) in consideration for the PC-Canada
Purchase Price, PLAC shall sell, assign, transfer and convey to Buyer or such
other entity as Buyer may designate, and Buyer or Buyer's designee shall
purchase and acquire from PLAC, the PC-Canada Shares, free and clear of any
Liens, other than those which may be created by Buyer;
(d) in consideration for the Union Bankers Purchase Price, ConLife
shall sell, assign, transfer and convey to Buyer, and Buyer shall purchase and
acquire from ConLife, the Union Bankers Shares, free and clear of any Liens,
other than those which may be created by Buyer, and in consideration for the
PennLife Purchase Price, PLAC shall sell, assign, transfer and convey to Buyer,
and Buyer shall purchase and acquire from PLAC, the PennLife Shares, free and
clear of any Liens, other than those which may be created by Buyer;
(e) in full repayment of ConLife's obligations under the ConLife
Surplus Notes after which, without further action, such Notes shall be canceled
and shall be null and void and ConLife shall have no further liability to SFC
with respect thereto, ConLife (i) shall distribute all of the issued and
outstanding capital stock of SWLIC to SFC and (ii) shall pay to SFC the Union
Bankers Acquisition Note Purchase Price and an amount in cash equal to the sum
of (x) the Union Bankers Cash Purchase Price and (y) the Union Bankers Special
Dividend and (iii) shall distribute and transfer to SFC any remaining capital
and surplus of ConLife in excess of $3.3 million;
(f) in consideration for the ConLife Purchase Price, SFC shall sell,
assign, transfer and convey to Buyer, and Buyer shall purchase and acquire from
SFC, the ConLife Shares, free and clear of any Liens, other than those which may
be created by Buyer;
(g) in consideration for the PFI Purchase Price, PFG shall sell,
assign, transfer and convey to Buyer, and Buyer shall purchase and acquire from
PFG, the PFI Shares, free and clear of any Liens, other than those which may be
created by Buyer; and
(h) in consideration for the PCFS Purchase Price, PCFS shall sell,
assign, transfer and convey to Buyer, and Buyer shall purchase and acquire from
PCFS, the PCFS Assets, free and clear of any Liens, other than those which may
be created by Buyer; and
(i) Buyer shall sell, assign, transfer and convey to American
Exchange Life Insurance Company, a Texas corporation, and/or such other
subsidiary
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of Buyer as Buyer may designate ("Buyer Sub"), all (or, at Buyer's option, a
portion) of the Shares and other assets acquired by Buyer under this Agreement
in exchange for (x) shares of Buyer Sub and (y) surplus notes of Buyer Sub with
an aggregate principal amount less than or equal to the sum of the Acquisition
Note Purchase Price attributable to the Shares sold to Buyer Sub and the amount
borrowed from Chase Bank and other financial institutions to finance the
acquisition contemplated hereby.
(j) On the Closing Date or, at the option of Buyer, on the day
following the Closing Date, Union Bankers shall distribute the Marquette Shares
to Buyer Sub.
If requested by Buyer, Sellers shall cooperate in good faith to
restructure the manner and order in which the Companies or their operations are
acquired and if Buyer designates a purchaser for the PC-Canada Shares as
described in Section 2.2(c) above, Sellers shall transfer the PC-Canada Shares
to Buyer's designee, provided that such restructuring or designation either (x)
does not result in additional cost to Sellers or additional indemnification
obligations of Sellers under Section 8.1 or (y) at Buyer's option, Buyer
unconditionally indemnifies Sellers with respect to any such additional costs
and waives any such additional indemnification obligations as referenced in (x)
above.
Upon each sale, assignment, transfer and conveyance of the respective
Shares described above, the relevant Seller shall deliver to Buyer, in the case
of (b), (c), (d), (f) and (g) above, share certificates constituting such
Shares, duly endorsed in blank or accompanied by stock powers duly executed in
blank, in proper form for transfer.
Upon the sale, assignment, transfer and conveyance of the PCFS Assets
as described above, PCFS and Buyer will execute and deliver a bill of sale,
assignment and assumption agreement (the "Bill of Sale, Assignment and
Assumption Agreement") with respect to the sale by PCFS of the PCFS Assets and
the assumption by Buyer of the Assumed Liabilities. Subject to the
indemnification provided in Section 8.1(b)(xii), Buyer waives compliance with
any and all bulk sales laws in connection with the sale and purchase of the PCFS
Assets.
SECTION 2.3 Purchase Price Adjustment.
(a) As promptly as practicable (but in no event more than 90 days)
after the Closing Date, Buyer will cause PennLife and ConLife to prepare the
Closing Statement and will deliver it to PFG. The capital and surplus amounts
reflected in the Closing Statement shall be in sufficient detail to permit PFG
to verify the same. The Closing Statement to be delivered to PFG will be
accompanied by a certificate of Buyer's Chief Financial Officer certifying that
the Closing Statement has been prepared
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in accordance with SAP as of the Closing Date using the same assumptions and
methodologies utilized in the preparation of the Estimated Statement. At the
request of PFG, after the Closing Statement has been prepared, Buyer will cause
its personnel and independent auditors to (i) provide to PFG and PFG's
independent auditors (A) a reconciliation of the differences between the Closing
Statement and the Estimated Statement in sufficient detail for PFG to reconcile
such differences and (B) copies of financial statements and such work papers and
other documents relating to the preparation of the Closing Statement as PFG or
PFG's independent auditors may reasonably request and (ii) cooperate with, and
be reasonably available to, PFG and PFG's independent auditors and provide such
other information reasonably requested by PFG or PFG's independent auditors
concerning the Closing Statement and any accounting, auditing and actuarial
issues related thereto, in each case in good faith and in a manner and at such
times so as to enable PFG to complete its review and analysis of the Closing
Statement within the period specified in paragraph (b) below.
(b) Within 20 Business Days after PFG's receipt of the Closing
Statement, PFG will provide Buyer with written notice indicating whether PFG
agrees or disagrees with the capital and surplus amounts (excluding AVR and IMR)
reflected in such statement. If PFG in such notice agrees with the capital and
surplus amounts (excluding the AVR and IMR) reflected in the Closing Statement
or if PFG fails to deliver to Buyer such written notice within such 20 Business
Day period, the Closing Statement shall be deemed final and binding upon the
parties. If PFG in such notice disagrees with the capital and surplus amounts
(excluding AVR and IMR) reflected in the Closing Statement, within ten Business
Days after PFG delivers such notice to Buyer of its disagreement with Buyer's
calculation, PFG and Buyer will begin good faith negotiations to resolve such
disagreement.
(c) If PFG and Buyer are unable to resolve such disagreement in good
faith within ten Business Days after such negotiations begin, such disagreement
will be submitted to the Settlement Auditor for resolution. PFG and Buyer will
cooperate with the Settlement Auditor and will proceed in good faith to cause
the Settlement Auditor to resolve such disagreement within 30 days after such
disagreement is submitted to the Settlement Auditor. PFG and Buyer will each pay
one-half of the fees and expenses of the Settlement Auditor; provided, however,
that if the Settlement Auditor's written report indicates that PFG or Buyer was
the prevailing party in the dispute, the non-prevailing party shall pay 100% of
the fees and expenses of the Settlement Auditor.
(d) The Settlement Auditor, in its sole discretion, will determine
(i) the nature and extent of the participation by PFG, Buyer, and their
respective agents in connection with any disagreement submitted to the
Settlement Auditor for resolution, (ii) the nature and extent of information
that PFG and Buyer may submit to the Settlement Auditor for consideration in
connection with such resolution and (iii) the
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personnel of the Settlement Auditor who will review such information and resolve
such disagreement. The Settlement Auditor's resolution of any such disagreement,
with respect to dollar amounts, must fall within the range of the disputed
amounts stated by PFG and Buyer and will be reflected in a written report which
will be delivered promptly to, and will be final and binding upon, PFG and
Buyer. The Closing Statement will be adjusted accordingly to reflect any such
resolution and, as adjusted, shall be final and binding upon the parties.
(e) Upon the earlier to occur of (i) the parties' agreement with
respect to the capital and surplus amounts reflected in the Closing Statement or
(ii) the delivery of the report of the Settlement Auditor as provided in Section
2.3(d) hereof with respect to a dispute relating to the Closing Statement: (A)
PFG will pay to Buyer the amount, if any, by which (x) in the case of the
PennLife Companies (excluding PC-Canada) or the ConLife Companies, the capital
and surplus (excluding AVR and IMR) reflected in the Closing Statement for such
Company is less than the Target Capital Amount (defined below) for such Company
and (y) in the case of PC-Canada, total shareholders equity (calculated in
accordance with Canadian generally accepted accounting principles) reflected in
the Closing Statement under the heading "PC-Canada Section 2.3(e)(A) Amount" is
less than the Target Capital Amount for PC-Canada; and (B) PFG will pay to Buyer
the amount, if any, by which the aggregate capital and surplus (for all PennLife
Companies, including PC-Canada, and all ConLife Companies, calculated in
accordance with SAP) of the PennLife Companies and the ConLife Companies, taken
as a whole, reflected in the Closing Statement is less than (x) the sum of $72.3
million plus the earnings of the PennLife Companies and the ConLife Companies
for the period commencing on January 1, 1999 and ending on the Closing Date, as
reflected in the Closing Statement (the "Aggregate Target Capital Amount") minus
(y) any amounts payable by PFG pursuant to clause (A) of this Section 2.3(e).
For purposes of this Section 2.3(e), "earnings" means operating earnings of the
Companies and specifically excludes (A) earnings from wholly owned Subsidiaries
that are not Companies and the earnings of the Companies otherwise includable in
another Company's earnings if duplicative or redundant, (B) earnings that do not
increase surplus, including, without limitation, the amortization of the ceding
commission of Cologne Life Reinsurance Company ("Cologne Re") at Union Bankers,
(C) tax payments or liabilities from wholly owned Subsidiaries (including the
Companies) and (D) earnings associated with the transactions contemplated or
required by this Agreement, including without limitation those set forth in
Annex E. Such payment will be made by wire transfer of immediately available
funds to such account as the party entitled to receive such payment specifies in
writing to the party required to make such payment. "Target Capital Amount"
means (i) $3.3 million, in respect of ConLife, (ii) $14.0 million, in respect of
Union Bankers (not including any amounts attributable to Marquette), (iii) $5.1
million, in respect of Marquette, (iv) $36.0 million, in respect of PennLife,
(v) $10.2 million, in respect of Peninsular (which amounts will be reflected in
the Forms A to be filed with the appropriate insurance regulatory
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authorities), and (vi) Can.$21.946 million, in respect of PC-Canada. Sellers
will use their reasonable best efforts to cause any additional capital and
surplus in the Companies over and above the sum of their individual Target
Capital Amounts (but not greater than the Aggregate Target Capital Amount) to be
contributed to PennLife; provided, that for purposes only of this sentence, the
Target Capital Amount for PC-Canada will be deemed to be $500,000 or actual
capital and surplus in accordance with SAP, if greater.
(f) At the Closing, PFI will have $4.5 million in cash recorded on
its balance sheet.
(g) If Buyer does not request that Sellers recapture the Lincoln
National Agreement prior to the Closing, the Target Capital Amount for PennLife
and the Aggregate Target Capital Amount will be calculated without giving effect
to the surplus generated as a result of the Lincoln National Agreement through
the Closing Date.
SECTION 2.4 Reserves Adjustment.
(a) On the fifth anniversary of the Closing Date, Buyer will cause an
actuary of national reputation (the "Buyer Actuary") to compare (i) the
disability insurance claims reserves of PennLife as of the Closing Date, as set
forth in the Closing Statement (the "DI Reserves"), to (ii) actual loss payments
and loss adjustment expense payments and actual losses and loss adjustment
expenses incurred by PennLife during the five-year period following the Closing
Date relating to all disability insurance policies in force as of the Closing
Date, together with any outstanding claims reserves in respect of disability
insurance policies in force as of the Closing Date that remain in force as of
the fifth anniversary of the Closing Date (if any) (the "Actual Loss
Experience"). The Buyer Actuary will prepare and deliver a report on the
adequacy of the DI Reserves in relation to Actual Loss Experience, including a
calculation of the difference between the DI Reserves and the Actual Loss
Experience (the "DI Claims Report"). The DI Claims Report shall be prepared in
accordance with sound actuarial practice, taking into account SAP and the
actuarial assumptions and methodologies used by Buyer for SAP financial
reporting purposes, and shall set forth in reasonable detail, including the
supporting assumptions and methodologies, the actuaries' determination of the
amount by which the DI Reserves were deficient compared to Actual Loss
Experience or the amount by which the DI Reserves exceeded Actual Loss
Experience. Upon completion of such review (which shall not be later than 90
days after the fifth anniversary of the Closing Date), Buyer shall deliver the
DI Claims Report to PFG. At the request of PFG, after the DI Claims Report has
been prepared, Buyer will cause its personnel and the Buyer Actuary to (i)
provide to PFG and its independent actuaries copies of such workpapers and other
documents relating to the preparation of the DI Claims Report as PFG or its
independent actuaries may
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reasonably request and (ii) cooperate with, and be reasonably available to, PFG
and its independent actuaries and provide such other information reasonably
requested by PFG or its independent actuaries concerning the DI Claims Report
and any issues related thereto, in each case in good faith and in a manner and
at such times as to enable PFG and its independent actuaries to complete its
review and analysis of the DI Claims Report within the period specified in
paragraph (b) below. The amount by which the DI Reserves are deficient compared
to Actual Loss Experience or the amount by which the DI Reserves exceed Actual
Loss Experience, as agreed by the parties or reflected in the DI Claims Report
(as modified by the Settlement Actuary), in each case discounting the Actual
Loss Experience to the Closing Date at a discount rate of 4.5%, are referred to
as the "DI Reserve Deficiency" and the "DI Reserve Positive Development,"
respectively.
(b) Within 30 Business Days after PFG's receipt of the DI Claims
Report, PFG will provide Buyer with written notice indicating whether PFG agrees
or disagrees with the information contained in the DI Claims Report. If PFG in
such notice agrees with the information contained in the DI Claims Report or if
PFG fails to deliver to Buyer such written notice within such 30 Business Day
period, the information contained in the DI Claims Report shall be final and
binding upon the parties. If PFG in such notice disagrees with the information
contained in the DI Claims Report, within ten Business Days after PFG delivers
such notice to Buyer of its disagreement with the DI Claims Report, PFG and
Buyer will begin good faith negotiations to resolve such disagreement.
(c) If PFG and Buyer are unable to resolve such disagreement in good
faith within ten Business Days after such negotiations begin, such disagreement
will be submitted to the Settlement Actuary for resolution. PFG and Buyer will
cooperate with the Settlement Actuary and will proceed in good faith to cause
the Settlement Actuary to resolve such disagreement within 30 days after such
disagreement is submitted to the Settlement Actuary. PFG and Buyer will each pay
one-half of the fees and expenses of the Settlement Actuary.
(d) The Settlement Actuary, in its sole discretion, will determine
(i) the nature and extent of the participation by PFG, Buyer and their
respective agents in connection with any disagreement submitted to the
Settlement Actuary for resolution, (ii) the nature and extent of information
that PFG and Buyer may submit to the Settlement Actuary for consideration in
connection with such resolution and (iii) the personnel of the Settlement
Actuary who will review such information and resolve such disagreement. The
Settlement Actuary's resolution of any such disagreement, with respect to dollar
amounts, must fall within the range of the disputed amounts stated by PFG and
Buyer and will be reflected in a written report which will be delivered promptly
to, and will be final and binding upon, PFG and Buyer.
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(e) Within five Business Days after the earlier to occur of (i) the
parties' agreement with respect to the level of the DI Reserve Deficiency or DI
Reserve Positive Development or (ii) the delivery of the report of the
Settlement Actuary as provided in Section 2.4(d) hereof: (A) in the event of a
DI Reserve Deficiency, PFG will make a cash payment to Buyer equal to the DI
Reserve Deficiency (tax-effected in accordance with the principles of Section
8.6) plus interest thereon at a rate equal to the interest rate on the
Acquisition Notes, compounded quarterly from the Closing Date to the date on
which such payment is made up to a maximum amount equal to the original
principal amount of the Acquisition Notes plus accrued interest thereon at a
rate equal to the interest rate on the Acquisition Notes compounded quarterly
from the Closing Date to the date of such payment; provided, however, that PFG
may, at its option, satisfy any portion or all of its obligation by directing
Buyer to reduce the then-accreted value of the Acquisition Notes by the amount
that it is satisfying pursuant to this proviso; and (B) in the event of a
Positive Reserve Development, Buyer will issue additional Acquisition Notes
having an aggregate principal amount as of the date of issuance equal to the
amount of the DI Reserve Positive Development (tax-effected in accordance with
the principles of Section 8.6(b) to take into account the amount by which
Buyer's taxable income is greater than it would have been had there been no DI
Reserve Positive Development) plus interest thereon at a rate equal to the
interest rate on the Acquisition Notes, compounded quarterly from the Closing
Date to the date on which such additional Acquisition Notes are issued, up to a
maximum of $10 million plus interest thereon at a rate equal to the interest
rate on the Acquisition Notes, compounded quarterly. Any reduction in the
principal amount of the Acquisition Notes pursuant to the proviso in clause (A)
above will be effected in accordance with, and upon the terms and subject to the
conditions of, the Pledge and Security Agreement to be entered into by PFG and
Buyer, on the terms attached hereto as Annex C.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PFG, PLAC, SFC AND PCFS
PFG, with respect to all matters set forth in this Article III, jointly and
severally with PLAC, SFC and PCFS, represents and warrants to Buyer; PLAC, with
respect only to matters relating to itself and the PennLife Companies, severally
and not jointly with any other Seller (except PFG) represents and warrants to
Buyer; and SFC, with respect only to matters relating to itself and the ConLife
Companies, severally and not jointly with any other Seller (except PFG)
represents and warrants to Buyer; and PCFS, with respect to matters relating to
itself and the PCFS Assets, severally and not jointly with any other Seller
(except PFG) represents and warrants to Buyer, as follows:
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SECTION 3.1 Organization and Qualification.
(a) Each of the Sellers and the Companies is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation, which as to each of the Companies is set forth
opposite its name in Section 3.1(a) of the Disclosure Schedule, with all
requisite corporate power and authority to own, operate and lease its properties
and to carry on its business as it is now being conducted. Sellers have
delivered or made available to Buyer a true and complete copy of the Certificate
or Articles of Incorporation and Bylaws (or similar organizational documents) of
each of the Companies.
(b) Each of the Companies is qualified or licensed to do business as
a foreign corporation or extra-provincial corporation and is in good standing in
every jurisdiction where the nature of the business conducted by it or the
properties owned or leased by it requires qualification, except where the
failure to be so qualified, licensed or in good standing would not reasonably be
expected to have a Material Adverse Effect. Schedule T of each of the PennLife
Companies' (except PC-Canada) and ConLife Companies' Annual Statements for the
year ended December 31, 1997 and the Annual Statement of PC-Canada set forth a
true and complete list of each jurisdiction in which each of the respective
PennLife Companies (including PC- Canada) and ConLife Companies is qualified or
licensed to do business and is in good standing to transact the business of life
and/or accident and health insurance.
(c) Each U.S. domiciled PennLife Company and ConLife Company is
domiciled in its jurisdiction of incorporation, is not deemed to be domiciled in
any other jurisdiction, and is licensed to write the types of insurance shown in
Section 3.1(c) of the Disclosure Schedule in the jurisdictions shown in such
Section, which are all the types of insurance issued by such Companies and all
the jurisdictions in which each such Company writes such insurance. Except as
set forth in Section 3.1(c) of the Disclosure Schedule, no such license is the
subject of a proceeding for suspension or revocation or any similar proceedings
and, to the knowledge of Sellers, there is no pending threat of such suspension
or revocation by any licensing authority. Each U.S. domiciled PennLife Company
and ConLife Company is a "life insurance company" within the meaning of Section
816 of the Code.
SECTION 3.2 Authorization. Sellers have full corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by Sellers, the performance by Sellers of their respective obligations
hereunder, and the consummation by Sellers of the transactions contemplated
hereby, have been duly authorized by their respective Boards of Directors and,
where applicable, their respective shareholders. No other corporate action on
the part of Sellers is necessary to authorize the execution and delivery of this
Agreement or the consummation of the transactions contemplated
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hereby. This Agreement has been duly and validly executed and delivered by each
Seller and constitutes a valid and binding obligation of each Seller,
enforceable against each Seller in accordance with its terms, subject to
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and similar laws affecting creditors' rights and remedies generally,
and subject, as to enforceability, to general principles of equity, including
principles of commercial reasonableness, good faith and fair dealing (regardless
of whether enforcement is sought in a proceeding at law or in equity).
SECTION 3.3 No Violation. Except as set forth in Section 3.3 of the
Disclosure Schedule, neither the execution and delivery of this Agreement by
Sellers, the performance by Sellers of their obligations hereunder nor the
consummation by Sellers or the Companies of the transactions contemplated hereby
will (a) violate, conflict with or result in any breach of any provision of the
Certificate or Articles of Incorporation or Bylaws (or similar organizational
documents) of any Seller or any of the Companies, (b) violate or conflict with
or result in a violation or breach of, or constitute a default or give rise to
any right of termination or acceleration (with or without due notice or lapse of
time or both) or result in the acceleration of any payments under the terms,
conditions or provisions of any note, bond, mortgage, indenture or deed of
trust, license, lease or agreement to which any Seller or any of the Companies
is a party or by which any of their assets is bound, (c) violate any order,
writ, judgment, injunction, decree, statute, rule or regulation of any
Governmental Authority applicable to any Seller or any of the Companies or any
of their respective assets or (d) result in the creation of any Lien upon any of
the assets of any Seller, any of the Companies or PCFS (other than any Liens
created by Buyer), except in the cases of clauses (b), (c) and (d) above, for
those violations, conflicts, breaches and defaults which would not reasonably be
expected to have a Material Adverse Effect.
SECTION 3.4 Capitalization of the Companies.
(a) The authorized capital stock of PennLife consists of 50,000
PennLife Shares. As of the date hereof, there are 45,946 PennLife Shares issued
and outstanding, all of which have been validly issued, are fully paid and
non-assessable and were not issued in violation of any preemptive rights. The
authorized capital stock of PFI consists of 1,000 PFI Shares. As of the date
hereof, there are 1,000 PFI Shares issued and outstanding, all of which have
been validly issued, are fully paid and non-assessable and were not issued in
violation of any preemptive rights. The authorized capital stock of ConLife
consists of 50,000 ConLife Shares. As of the date hereof, there are 49,998
ConLife Shares issued and outstanding, all of which have been validly issued,
are fully paid and non-assessable and were not issued in violation of any
preemptive rights. The authorized capital stock of Union Bankers consists of
1,360,000 Union Bankers Shares. As of the date hereof, there are 1,334,001 Union
Bankers Shares issued and outstanding, all of which have been validly issued,
are fully
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paid and non-assessable and were not issued in violation of any preemptive
rights. The authorized capital stock of Marquette consists of 2,100,000
Marquette Shares. As of the date hereof, there are 175,000 Marquette Shares
issued and outstanding, all of which have been validly issued, are fully paid
and non-assessable and were not issued in violation of any preemptive rights.
The authorized capital stock of Peninsular consists of 7,200,000 Peninsular
Shares. As of the date hereof, there are 1,208,599 Peninsular Shares issued and
outstanding, all of which have been validly issued, are fully paid and
non-assessable and were not issued in violation of any preemptive rights. The
authorized capital stock of PC-Canada is unlimited. As of the date hereof, there
are 100 PC-Canada Common Shares and 100 PC-Canada Preferred Shares issued and
outstanding, all of which have been validly issued, are fully paid and
non-assessable and were not issued in violation of any preemptive rights.
(b) Except as set forth in Section 3.4(b) of the Disclosure Schedule,
there are no (i) options, warrants, calls, subscriptions, conversion or other
rights, agreements or commitments obligating any Company to issue any additional
shares of capital stock or any other securities convertible into, exchangeable
for or evidencing the right to subscribe for any shares of capital stock of such
Company, (ii) agreements or commitments obligating such Company to repurchase,
redeem or otherwise acquire any shares of its capital stock, (iii) restrictions
on transfer of any shares of capital stock of such Company (other than pursuant
to this Agreement) or (iv) voting or similar shareholder agreements relating to
any shares of capital stock of such Company.
(c) The Peninsular Shares and the PC-Canada Shares are owned
beneficially and of record by PennLife, free and clear of all Liens. The PFI
Shares are owned beneficially and of record by PFG, free and clear of all Liens.
The ConLife Shares are owned beneficially and of record by SFC, free and clear
of all Liens, except as set forth in Section 3.4(c) of the Disclosure Schedule.
The Union Bankers Shares are owned beneficially and of record by ConLife, free
and clear of all Liens, except as set forth in Section 3.4(c) of the Disclosure
Schedule. The Marquette Shares are owned beneficially and of record by Union
Bankers, free and clear of all Liens. The PennLife Shares are owned beneficially
and of record by PLAC, free and clear of all Liens. At the Closing, good and
valid title to the Shares shall be conveyed to Buyer or the other parties as
provided for in Section 2.2, in the manner contemplated by Section 2.2, free and
clear of all Liens, other than those which may be created by Buyer.
(d) Except as set forth in Section 3.4(d) of the Disclosure Schedule,
none of the Companies owns, directly or indirectly, 5% or more of the
outstanding voting securities of or otherwise possesses, directly or indirectly,
the power to direct or cause the direction of the management or policies of any
Person, other than capital stock of one of the Companies owned by another
Company and securities held for investment purposes only.
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SECTION 3.5 PFI Subsidiaries and PCFS Assets.
(a) Section 3.5(a) of the Disclosure Schedule sets forth (i) the name
of all Subsidiaries of PFI (the "PFI Subsidiaries") and their respective
jurisdictions of incorporation and (ii) the name and number of all authorized,
issued and outstanding shares of capital stock of each PFI Subsidiary. Except
for the PFI Subsidiaries, PFI directly or indirectly does not own or have the
power to vote the shares of any capital stock or other ownership interest or
have ordinary voting power to elect the majority of directors of any corporation
or other entity or other Person or body performing a similar function of any
such entity, as the case may be.
(b) All of the outstanding shares of capital stock of each PFI
Subsidiary have been duly authorized and validly issued, are fully paid and
non-assessable, have not been issued in violation of any preemptive rights, and
are owned of record and beneficially by the entities named in Section 3.5(a) of
the Disclosure Schedule, free and clear of any Liens except as set forth in
Section 3.5(a) of the Disclosure Schedule.
(c) Except as set forth in Section 3.5(c) of the Disclosure Schedule,
there are no (i) options, warrants, calls, subscriptions, conversion or other
rights, agreements or commitments obligating any of the PFI Subsidiaries to
issue any additional shares of capital stock of such Subsidiary or any other
securities convertible into, exchangeable for or evidencing the right to
subscribe for any shares of such capital stock, (ii) agreements or commitments
obligating any such Subsidiary to repurchase, redeem or otherwise acquire any
shares of its capital stock, (iii) restrictions on the transfer of any shares of
capital stock of any such Subsidiary (other than pursuant to this Agreement) or
(iv) voting or similar shareholder agreements relating to any shares of capital
stock of any such Subsidiary.
(d) PCFS has good and indefeasible title to all of the PCFS Assets, in
each case free and clear of all Liens, and PCFS will convey to Buyer good and
indefeasible title to all of the PCFS Assets, in each case free and clear of all
Liens other than those which may be created by Buyer.
SECTION 3.6 Consents and Approvals. Except as set forth in Section 3.6
of the Disclosure Schedule, no filing or registration with, no notice to and no
permit, authorization, consent or approval of any Governmental Authority is
necessary for the consummation by any Seller or the Companies of the
transactions contemplated by this Agreement other than consents and approvals of
or filings or registrations with (a) the Antitrust Division of the United States
Department of Justice (the "DOJ") pursuant to the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), and (b) the insurance
departments of the States of Pennsylvania and North Carolina and the federal or
provincial government and other requisite federal and
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provincial regulatory authorities of Canada (the "PennLife Insurance Approvals")
and the insurance department of the State of Texas (the "ConLife Insurance
Approvals").
SECTION 3.7 Financial Statements; Reserves.
(a) Sellers have previously delivered to Buyer true and complete
copies of the following (the "SAP Financial Statements"):
(i) the Annual Statements for each PennLife Company and
ConLife Company for each of the years ended December 31, 1996 and 1997 and for
Executive Fund Life Insurance Company for the year ended December 31, 1995, in
each case as filed with the departments of insurance in the respective states of
domicile or Canada, as the case may be, of each PennLife Company and ConLife
Company including all exhibits, interrogatories, notes and schedules thereto and
any actuarial opinion, affirmation or certification filed in connection
therewith;
(ii) the Quarterly Statements for each PennLife Company and
ConLife Company for the quarters ended March 31, June 30 and September 30, 1998
including all exhibits, interrogatories, notes and schedules thereto; and
(iii) the statutory annual statements and quarterly statements
of each PennLife Company and ConLife Company which were filed for 1996, 1997 or
1998 (with respect to the quarters ended March 31, June 30 and September 30) in
any jurisdiction other than such Company's jurisdiction of domicile and that
differ from the corresponding Annual Statements and Quarterly Statements for
such periods.
Except as set forth in Section 3.7(a) of the Disclosure Schedule, the SAP
Financial Statements were, and when delivered in accordance with the provisions
of Section 5.18, the 1998 SAP Financial Statements will be, prepared in all
material respects in accordance with SAP. Except as set forth in Section 3.7(a)
of the Disclosure Schedule, the SAP Financial Statements present fairly in all
material respects and, when delivered in accordance with the provisions of
Section 5.18, the 1998 SAP Financial Statements will present fairly in all
material respects, the statutory financial position of the applicable Company as
of the respective dates thereof and the related summary of operations and
changes in capital and surplus and in cash flows of such Company for and during
the respective periods covered thereby in conformity with SAP, applied on a
consistent basis.
(b) Except as set forth in Section 3.7(b) of the Disclosure Schedule,
all statutory reserves and other similar amounts with respect to insurance as
established or reflected in the December 31, 1997 Annual Statement and September
30, 1998 Quarterly Statement of each PennLife Company and ConLife Company were
determined (and, when delivered in accordance with the provisions of Section
5.18, all
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statutory reserves and other similar amounts with respect to insurance as
reflected or established in the 1998 SAP Financial Statements will be
determined) in all material respects in accordance with SAP and sound actuarial
practice, based on actuarial assumptions and methodologies that were (or will
be), as of the date of preparation, in compliance in all material respects with,
and met (or will meet) in all material respects the requirements of the
insurance laws of the respective states of domicile of, the PennLife Companies
and ConLife Companies. Except as set forth in Section 3.7(b) of the Disclosure
Schedule or in the report delivered by the Reserves Consultants pursuant to
Section 5.3(b) hereof, all such reserves and other similar amounts are (and, in
the case of the 1998 SAP Financial Statements, will be) adequate in all material
respects, based upon then-current information and assumptions concerning
investment income, mortality and morbidity experience, persistency and expenses,
to cover the total amount of all reasonably anticipated matured and unmatured
benefits, dividends, claims and other liabilities of such Company under all
insurance contracts under which such Company had any liability (including
without limitation any liability arising under or as a result of any
reinsurance, coinsurance or other similar contract) on the respective dates of
such financial statements. Except as set forth in Section 3.7(b) of the
Disclosure Schedule, each PennLife Company and ConLife Company owns assets that
qualify as legal reserve assets under insurance laws applicable to such Company
in an amount at least equal to all such reserves and other similar amounts
required by such laws to be owned by such Company.
(c) Since January 1, 1998, Sellers have recorded in accordance with
GAAP and SAP additional reserves of at least $20 million relating to adverse
reserve development applicable to the disability income claim reserves of
PennLife, which additional reserves have not been released.
(d) Sellers have previously delivered or made available to Buyer a
true and complete copy of the unaudited combined financial statements for the
Companies (and PCFS, to the extent required under Item 13 of Schedule 14A under
the Exchange Act for purposes of the Proxy Statement) as at and for the
nine-month period ended September 30, 1998 (the "Unaudited Financial
Statements"). The Unaudited Financial Statements fairly present in all material
respects and, when delivered in accordance with the provisions of Section 5.18,
the Audited Financial Statements, taken together with the notes thereto, will
fairly present in all material respects the financial position and results of
operations of the Companies (and PCFS, to the extent required under Item 13 of
Schedule 14A under the Exchange Act for purposes of the Proxy Statement) as of
the respective dates and for the periods indicated therein, in each case in
accordance with generally accepted accounting principles ("GAAP") consistently
applied except as identified in the report delivered by the Reserves Consultants
pursuant to Section 5.3(b) hereof and, in the case of the Unaudited Financial
Statements, for the absence of notes. The Unaudited Financial Statements were
prepared consistent with past practices of the Companies in the preparation of
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unaudited financial statements (subject to normal, recurring year-end audit
adjustments that in the aggregate are not materially adverse). As used herein,
"Financial Statements" means the Unaudited Financial Statements, the Audited
Financial Statements and the SAP Financial Statements, collectively.
SECTION 3.8 Absence of Undisclosed Liabilities. As of the date hereof,
and as of the date of the 1998 Audited Financial Statements, except for matters
relating to the transactions contemplated by this Agreement, there are and will
be no liabilities or obligations of the Companies or PCFS (including without
limitation any Liens) that are required to be reflected on a balance sheet
prepared in accordance with SAP or GAAP, as applicable, other than (a)
liabilities and obligations reserved against in the Financial Statements and not
heretofore discharged, (b) policyholder benefits payable or other liabilities or
obligations arising in the ordinary course of business after September 30, 1998,
or (c) liabilities and obligations disclosed in Section 3.8 of the Disclosure
Schedule.
SECTION 3.9 Absence of Certain Changes. Except as disclosed in Section
3.9 of the Disclosure Schedule or as permitted or contemplated by this
Agreement, since September 30, 1998, none of the Companies or PCFS has (a)
experienced any change, event or condition which, individually or in the
aggregate, has had or could reasonably be expected to have a Material Adverse
Effect, (b) conducted its business in any material respect other than in the
ordinary course, (c) except in the ordinary course of business, incurred any
indebtedness for borrowed money or issued any debt securities or assumed,
guaranteed or endorsed the obligations of any other Person, (d) except in the
ordinary course of business, (i) sold, transferred or otherwise disposed of any
of its property or assets or (ii) mortgaged or encumbered any of its property or
assets, (e) suffered any material casualty losses not covered by insurance, (f)
repurchased any of its capital stock or any capital stock of any of its
Subsidiaries, (g) declared, set aside or paid any dividend or other distribution
in respect of its capital stock, other than ordinary dividends and payments
pursuant to the ConLife Surplus Notes permitted under applicable insurance laws,
(h) amended its Certificate or Articles of Incorporation or Bylaws (or similar
organizational documents) or merged with or into or consolidated with any other
Person, (i) split, combined or reclassified its capital stock, (j) issued or
sold (or agreed to issue or sell) any of its equity securities or any options,
warrants, conversion or other rights to purchase any such securities or any
securities convertible into or exchangeable for such securities, or granted, or
agreed to grant any such rights, (k) increased the rates of compensation
(including bonuses) payable or to become payable to any of its officers,
employees, agents, independent contractors or consultants other than increases
made in the ordinary course of business, (l) entered into any new or amended any
existing employment contracts, severance agreements or consulting contracts or
instituted or agreed to institute any increase in benefits or altered its
employment practices or the terms and conditions of employment in each case
other than in the ordinary course of business, (m) changed in any material
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respect its underwriting, actuarial or tax accounting methods, principles or
practices, (n) in the case of the PennLife Companies and the ConLife Companies,
ceased its lead generation activities other than in the ordinary course of
business, (o) in the case of the PennLife Companies and the ConLife Companies,
terminated any material reinsurance or coinsurance contract (including without
limitation, any surplus relief or financial reinsurance contract), whether as
reinsurer or reinsured other than in the ordinary course of business, (p)
entered into any joint ventures or partnerships of any kind, or (q) entered into
any contract or other agreements to do any of the foregoing.
SECTION 3.10 Litigation. Section 3.10 of the Disclosure Schedule sets
forth a list, as of the date hereof, of all material actions, suits,
arbitrations, investigations or proceedings ("Litigation") pending or, to the
knowledge of Sellers, threatened against any of the Companies or PCFS before any
Governmental Authority or arbitrator. Except as set forth in Section 3.10 of the
Disclosure Schedule, none of the Companies is in default under any material
judgment, decree, injunction or order of any Governmental Authority or
arbitrator outstanding against it.
SECTION 3.11 Property; Liens and Encumbrances.
(a) Section 3.11(a) of the Disclosure Schedule contains a complete
and accurate list of all real property owned or leased by the Companies as of
the date hereof.
(b) Except as set forth in Section 3.11(b) of the Disclosure Schedule
or in the Financial Statements, all properties and assets owned by the Companies
(the "Owned Properties") or leased by the Companies (the "Leased Properties")
are free and clear of all liens, pledges, claims, security interests, mortgages,
assessments, easements, rights of way, covenants, restrictions, rights of first
refusal, defects in title, encroachments and other burdens (collectively,
"Liens") except (i) statutory Liens not yet delinquent or the validity of which
are being contested in good faith by appropriate actions, (ii) purchase money
Liens arising in the ordinary course, (iii) Liens for taxes not yet delinquent,
(iv) Liens reflected in the Financial Statements (which have not been
discharged) and (v) Liens which in the aggregate do not materially detract from
the value or, in the case of personal property, materially impair the use by the
Companies of the property subject thereto or, in the case of real property,
materially impair the present and continued use of such property in the usual
and normal conduct of the business of the Companies. The Companies have good and
indefeasible title to the Owned Properties and good and valid leasehold
interests in the Leased Properties and there are no pending or, to the knowledge
of Sellers, threatened condemnation proceedings affecting any of the Owned
Properties or Leased Properties. To the knowledge of Sellers, the use, occupancy
and condition of each parcel of real property that is an Owned Property or a
Leased Property is in compliance in all material respects with all applicable
laws.
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SECTION 3.12 Certain Agreements.
(a) Except as disclosed in Section 3.12 of the Disclosure Schedule or
in the Financial Statements, none of the Companies or PCFS is a party to any
written (a) agreement, contract, indenture or other instrument relating to the
borrowing of money or the guarantee of any obligation for the borrowing of
money; (b) employment, consulting, compensation or severance agreement with any
of its directors, employees or consultants; (c) agreement, contract or
commitment limiting or restraining it from engaging or competing in any
business; (d) lease pursuant to which it leases the real property set forth in
Section 3.11(a) of the Disclosure Schedule; (e) distribution, dealer,
representation, commission or agency agreement, other than agency agreements
with insurance agents in the ordinary course of business; (f) contract or
agreement with any of its affiliates that will continue after Closing; or (g)
any other contract that is material to the businesses of the Companies to the
extent such contract would be required to be filed pursuant to Item 601(b)(10)
of Regulation S-K under the Exchange Act if the Companies (as a whole) were
subject to the reporting requirements thereunder (each of the foregoing a
"Material Contract"). Each Material Contract is in full force and effect and has
been complied with in all material respects by the Companies and PCFS and, to
the knowledge of Sellers, has been complied with in all material respects by all
other parties thereto. Except as set forth in Section 3.12 of the Disclosure
Schedule, no consent is required under any Material Contract in connection with
the consummation of the transactions contemplated by this Agreement.
(b) Sellers have delivered to Buyer copies of all compensation
agreements, and have otherwise disclosed to Buyer in Section 3.12 of the
Disclosure Schedule all compensation arrangements, between Sellers and/or the
Companies on the one hand, and Gerald Weiner on the other hand.
SECTION 3.13 Employee Benefit Plans. Section 3.13(a) of the Disclosure
Schedule contains (i) a true and complete list by employer of all Persons
employed by the Companies, (ii) all ConLife Employees and PCFS Employees who
will be offered employment as contemplated by Section 5.13 and (iii) the terms
of any severance plans pursuant to which any Company Employee would be entitled
to receive payments.
(a) No Seller or any of their affiliates and none of the Companies
(i) currently maintains, administers or contributes to or has any liability
under or with respect to, other than benefits claims in the ordinary course of
business, or (ii) during the six year period preceding the Closing Date
maintained, administered or contributed to: (A) in respect of any plans or
employees in the United States, any employee benefit plan, as defined in Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), including without limitation, any multiemployer plan as defined in
Section 3(37) of ERISA ("Multiemployer Plan") or any other plan subject to Title
IV of ERISA; or (B) any employment contract, bonus, deferred compensation,
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incentive compensation, performance compensation, stock purchase, stock option,
stock appreciation, phantom stock, saving and profit sharing, severance or
termination pay other than statutory or the common law requirements for
reasonable notice, health or other medical, salary continuation, vacation, sick
leave, holiday pay, fringe benefit, reimbursement program, incentive, life,
disability or other (whether insured or self-insured) insurance, supplementary
unemployment benefit, pension retirement, supplementary retirement, welfare or
other employee plan, program, policy or arrangement, whether written or
unwritten, for the benefit of PFI Employees, PCFS Employees, PennLife Employees
or ConLife Employees, except as described in Section 3.13(a) of the Disclosure
Schedule ("Benefit Plans"), but for greater certainty excluding any such Benefit
Plans which are required to be maintained, administered or complied with under
applicable law.
(b) All Benefit Plans comply in all material respects with and are
operated in all material respects in accordance with their terms and applicable
laws and, in respect of U.S. Benefit Plans, all such Benefit Plans comply in all
material respects with and are, and during the six year period preceding the
Closing Date have been, operated in all material respects in accordance with
their terms and in accordance with ERISA and the Code.
(c) True and complete copies of each written Benefit Plan and a
description of any unwritten benefit plan, summary plan descriptions, and the
most recent annual reports on Form 5500, including schedules, audited financial
statements and actuarial valuation reports and funding agreements, if any, have
been delivered to Buyer.
(d) Each Benefit Plan intended to be qualified under Section 401(a)
of the Code has received a favorable determination letter from the IRS as to its
qualification under the Code and to the effect that any trust of such Benefit
Plan is exempt from taxation under Section 501(a) of the Code, all of which have
been delivered or made available to Buyer; and nothing has occurred since the
date of such determination letter that reasonably would be expected to
negatively affect such qualification or exemption. Except as disclosed in
Section 3.13(d) of the Disclosure Schedule, all Canadian Benefit Plans are duly
registered where required by applicable law (including registration with the
relevant tax authorities where such registration is required to qualify for tax
exemption or other beneficial tax status) and are in material
compliance with, all applicable legislation and administrative guidelines issued
by the regulatory authorities having jurisdiction over such plans.
(e) None of the Companies or any entity required to be aggregated
with any of the Companies pursuant to Code section 414 or ERISA section 4001(b)
("ERISA Affiliate") have incurred or are reasonably expected to incur, either
directly or indirectly, any liability (other than premiums) to the Pension
Benefit Guaranty
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Corporation ("PBGC"). No ERISA Affiliate has contributed to or been obligated to
contribute to a Multiemployer Plan during the six year period preceding the
Closing Date.
(f) Except as disclosed in Section 3.13(f) of the Disclosure
Schedule, there are no pending or, to the knowledge of Sellers, threatened
actions, suits, claims, trials, arbitrations, investigations or other
proceedings by any person, including any present or former participant or
beneficiary under any Benefit Plan (or any beneficiary of any such participant
or beneficiary) involving any Benefit Plan or any rights or benefits under any
Benefit Plan other than ordinary and usual claims for benefits by participants
or beneficiaries thereunder. There has been no failure to act on the part of
Sellers, their affiliates, the Companies, or, to the knowledge of Sellers, any
funding agent or any administrator of any of the Benefit Plans that could
reasonably be expected to subject Sellers, their affiliates, the Companies or
the fund of any such Benefit Plan to the imposition of any penalty with respect
to any Benefit Plans, whether by way of indemnity or otherwise. All
contributions required to have been made or remitted by Sellers or the Companies
to any Benefit Plan under the terms of any such plan any agreement or any other
applicable law have been made within the time prescribed by any such plan,
agreement or law. No "reportable events" (as defined in ERISA section 4043),
"prohibited transactions" (as defined in ERISA section 406) or "accumulated
funding deficiency" (as defined in ERISA section 302) have occurred with respect
to any Benefit Plan for which liability would be incurred by Buyer.
(g) Except as disclosed in Section 3.13(g) of the Disclosure
Schedule, neither PFG nor any of its affiliates maintains or contributes to any
Benefit Plan which provides, or has any liability or obligation to provide, life
insurance, medical or other employee welfare benefits to PFI Employees, PCFS
Employees, PennLife Employees or ConLife Employees (or their beneficiaries) upon
and/or after their retirement, except as may be required by U.S. or Canada
federal, state, provincial or local laws, rules or regulations, and all such
Benefit Plans may be amended and terminated in accordance with the terms
thereof.
(h) Section 3.13(h) of the Disclosure Schedule properly and
adequately reflects, and in the case of clause (ii) below, reflects in
accordance with accounting principles agreed to by Buyer and the Companies and
reflected in Section 3.13(h) of the Disclosure Schedule, any and all liabilities
and obligations of the Companies, on a company-by-company basis, as of January
1, 1998 (or such more recent date as is practicable) for or in respect of: (i)
severance benefits (except for statutory or common law requirements for
reasonable notice); (ii) post-retirement welfare benefits payable in respect of
any PFI Employees, PCFS Employee, PennLife Employees or ConLife Employees who
have retired as of such date; and (iii) any short term disability compensation
or benefits in respect of any active PFI Employees, PCFS Employee, PennLife
Employees or ConLife Employees.
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(i) Except as disclosed in Section 3.13(i) of the Disclosure
Schedule, none of the Benefit Plans contains any provision which would result in
any additional benefits, accelerated vesting and/or accelerated payments or
which would subject any employee to an excise tax or result in the loss of
deductibility under Sections 280G or 4999 of the Code solely as a result of the
consummation of the transactions contemplated by this Agreement. No step has
been taken, no event has occurred and no condition or circumstance exists that
has resulted or could reasonably result in any Canadian Benefit Plan being
ordered or required to be terminated or wound-up in whole or in part or having
its registration under any applicable law being refused or revoked or being
placed under the administration of any trustee or receiver or any regulatory
authority.
(j) None of the Companies, or any organization with respect to which
such Company is a successor or parent corporation (within the meaning of ERISA
section 4069) has engaged in any transaction described in ERISA section 4069.
(k) Since the date of the documents provided in accordance with
Section 3.13(c) above, no promises or commitments have been made by Sellers or
any of their affiliates or the Companies to amend any Benefit Plan or to provide
increased benefits thereunder, except as required by applicable law or by the
Benefit Plans.
(l) Any Benefit Plan that is a pension plan registered under the
Income Tax Act (Canada) which has been created as a result of the division of a
predecessor pension plan or the merger of one or more pension plans, has
received approval therefor from all appropriate regulatory authorities.
(m) Except as permitted by the Canadian Benefit Plans and applicable
law, there has been no withdrawal of surplus assets or any other amounts from
any of the Canadian Benefit Plans other than proper payments of benefits to
eligible beneficiaries, refunds of over-contributions to plan members and
permitted payments of reasonable expenses incurred by or in respect of such
Benefit Plan, for which there is any unsatisfied liability.
(n) All employer contribution holidays have been permitted by the
terms by the Canadian Benefit Plans and have been in accordance with applicable
law, except where there is no unsatisfied liability.
SECTION 3.14 Taxes. Except as set forth in Section 3.14 of the Disclosure
Schedule:
(a) all Tax Returns required to be filed by or with respect to each
of the Companies have been filed, and the Companies have paid all Taxes that are
shown
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to be due on such Tax Returns and all information provided with respect to
such Tax Returns is complete and accurate in all material respects;
(b) the Companies have paid all Taxes owed by such Companies (whether
or not shown on any Tax Return) for all taxable periods through and including
the Closing Date and there are not and will not be any additional liabilities
for Taxes for any such period other than as reflected in the Financial
Statements as current Taxes and, with respect to any period between the latest
Financial Statements and the Closing Date, as reflected in the Closing
Statement;
(c) the Companies have given or otherwise made available to Buyer
correct and complete copies of all Tax Returns, examination reports and
statements of deficiencies for periods ending, or transactions consummated,
after December 31, 1994;
(d) there are no outstanding agreements extending or waiving the
statutory period of limitation applicable to any claim for, or the period for
the collection or assessment or reassessment of, Taxes due from any Company for
any taxable period;
(e) no audit or other proceeding by any Governmental Authority is
pending or, to the knowledge of Sellers, threatened with respect to any Taxes
due from or with respect to any Company and no claim has been made by any
Governmental Authority in a jurisdiction where any of the Companies does not
file Tax Returns that it is or may be subject to taxation by that jurisdiction;
(f) there are no Liens for Taxes upon the assets or properties of any
of the Companies, except for statutory Liens for current Taxes not yet due;
(g) no Company is a party to any agreement relating to the sharing or
allocation of, or indemnification agreement with respect to, Taxes, or any
similar contract or arrangement;
(h) each U.S. domiciled PennLife Company and ConLife Company is an
"insurance company" within the meaning of Treas. Reg. ss. 1.801-3(a) (under
former Section 801 of the Code) and subject to taxation under Subchapter L of
the Code for the taxable period ending on the Closing Date and for all prior
taxable periods for which the statute of limitations has not expired;
(i) none of the Companies (i) has income that is includable in
computing the taxable income of a United States person (defined in Section 7701
of the Code) under Section 951 of the Code and (ii) is a passive foreign
investment company within the meaning of Section 1297 of the Code;
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(j) none of the Companies has filed a consent under Section 341(f) of
the Code;
(k) no property owned by any of the Companies (i) is property
required to be treated as being owned by another Person pursuant to the
provisions of Section 168(f)(8) of the Internal Revenue Code of 1954, as amended
and in effect immediately prior to the enactment of the Tax Return Act of 1986,
(ii) constitutes "tax-exempt use property" within the meaning of Section
168(h)(1) of the Code or (iii) is tax-exempt bond financed property within the
meaning of Section 168(g) of the Code;
(l) none of the Companies is a party to any contract, agreement or
other arrangement which could result in the payment of amounts that could be
nondeductible by reason of Section 162(m) of the Code;
(m) none of the Companies has agreed, or is required to make, any
adjustment under Section 481(a) or Section 807(f) of the Code;
(n) none of the Companies has been a member of an affiliated group
filing a consolidated federal Income Tax Return (other than a group the common
parent of which was PLAC (the "PLAC Group"), in the case of the PennLife
Companies, ConLife (the "ConLife Group"), in the case of the ConLife Companies,
PFG (the "PFG Group"), in the case of the PFI Companies) or has any liability
for Taxes of any Person (other than any member of the PLAC Group, the ConLife
Group or the PFG Group, as the case may be) under Treas. Reg. ss. 1.1502-6, ss.
1.1502-78 or similar provision of state, local or foreign law or regulation, as
a transferee or successor, by contract or otherwise;
(o) federal consolidated income Tax Returns or extensions to file
have been (or will be timely) filed by or on behalf of the PLAC Group, the
ConLife Group and the PFG Group for periods with filing dates prior to the
Closing Date;
(p) the Companies have each withheld from their respective employees,
independent contractors, creditors, stockholders and third parties and timely
paid to the appropriate taxing authority proper and accurate amounts in all
respects through all periods in compliance with all Tax withholding and
remitting provisions of applicable laws and have each complied in all material
respects with all Tax information reporting provisions of all applicable laws;
(q) no Seller is a foreign person within the meaning of Section 1445
of the Code;
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(r) the amount of the policyholders surplus account and shareholder
surplus account (as defined in Section 815 of the Code) of each of the U.S.
Insurance Companies is accurately set forth in Section 3.14 of the Disclosure
Schedule;
(s) each U.S. Insurance Company is taxable as a life insurance
company within the meaning of Section 816 of the Code;
(t) all life insurance contracts issued by each U.S. Insurance
Company (whether developed or administered by or reinsured with any unrelated
party) that are subject to Section 7702 of the Code qualify as "life insurance
contracts" within the meaning of Section 7702(a) of the Code;
(u) all contracts issued by each U.S. Insurance Company (whether
developed or administered by or reinsured with any unrelated party) that are
subject to Section 817 of the Code and the Treasury Regulations promulgated
thereunder have met the diversification requirements applicable thereto since
the issuance of the contract;
(v) all annuity contracts issued by each U.S. Insurance Company
(whether developed or administered by or reinsured with any unrelated party)
that are subject to Section 72(s) of the Code contain all of the necessary
provisions of Section 72(s) of the Code;
(w) the Tax treatment under the Code of all insurance, annuity or
investment policies or contracts; all financial products or annuities; or any
similar or related policy, contract, plan or product, whether individual, group,
or otherwise, issued or sold by any of the U.S. Insurance Companies (whether
developed or administered by or reinsured with any unrelated party) is and at
all times has been the same or not less favorable to the purchaser,
policyholder, or beneficiaries thereof than the Tax treatment under the Code for
which such contracts (products, etc.) qualified or purported to qualify or which
the Insurance Companies represented could be obtained at the time of its
issuance, purchase, modification, or exchange. For purposes of this Section
3.14(w), the provisions of the Code relating to the Tax treatment of such
contracts shall include, but shall not be limited to, Sections 72, 79, 101, 104,
105, 106, 125, 130, 401, 402, 403, 404, 408, 412, 415, 419, 419A, 457, 501, 505,
817, 817A, 818, 1035, 7702, and 7702A of the Code;
(x) any life insurance contract issued by any U.S. Insurance Company
(whether developed or administered or reinsured with any unrelated party) which
is a modified endowment contract under Section 7702A of the Code (each, an
"MEC") has been marketed as such at all relevant times or the policyholder
otherwise has consented to such MEC status;
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(y) all U.S. Insurance Companies have computed their respective tax
reserves in accordance with the requirements of Sections 807, 811 and 846 of the
Code;
(z) all annuity contracts issued by each U.S. Insurance Company
(whether developed or administered by or reinsured with any unrelated party)
that are provided under or connected with a plan described in Section 401(a),
403(a) or 403(b) of the Code or which is an individual retirement annuity or
provided under an individual retirement account or annuity, satisfies the
federal income tax laws applicable to such annuity contract;
(aa) there are no currently pending or, to the knowledge of Sellers,
threatened federal, state, provincial, local or foreign audits or other
administrative or judicial proceedings with regard to the Tax treatment of any
product or plan sold, issued or administered by the Insurance Companies (whether
developed by or reinsured with any unrelated third party);
(ab) no Insurance Company is a party to any hold harmless, sharing,
allocation or indemnification agreement with respect to the Tax qualification or
treatment of any product or plan sold, issued or administered by any Insurance
Company (whether developed by or reinsured with any unrelated third party);
(ac) there is no claim, audit, action, suit, proceeding or
investigation now pending or threatened against, with respect to or in
limitation of the net operating loss carryforwards of the Companies as set forth
in Section 3.14 of the Disclosure Schedule (the "NOLs") as of the Closing Date,
including without limitation any limitations under Section 382 of the Code
(other than limitations incurred in connection with the Closing Transactions);
(ad) PennLife is a "qualified insurance corporation" within the
meaning of Section 810 of the Income Tax Regulations (Canada) for the purposes
of Section 116 of the Income Tax Act (Canada) and no Section 116 certificate is
required to be obtained pursuant to the Income Tax Act (Canada) in respect of
the transfer of the PC-Canada Shares by PennLife to PLAC;
(ae) PennLife is not and will not be required to pay any Taxes
pursuant to subsection 219(5.1) of the Income Tax Act (Canada) in respect of any
period ending on or prior to the Closing Date and neither PennLife nor PC-Canada
has made or will make in respect of any period ending on or prior to the Closing
Date any election pursuant to subsection 219(5.2) of the Income Tax Act
(Canada);
(af) PC-Canada is a "life insurance corporation" as defined for
purposes of the Income Tax Act (Canada);
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(ag) PennLife and PC-Canada are registered under Part IX of the
Excise Tax Act (Canada); and
(ah) each of PennLife and PC-Canada has remitted all Canada Pension
Plan and Quebec Pension Plan contributions, employment insurance premiums,
employer health taxes, workers' compensation premiums and assessments and any
other Taxes payable by it for any period ending on or before the Closing Date in
respect of its employees to the appropriate taxing authority within the time
required by law.
SECTION 3.15 Compliance with Applicable Law; Permits; Policies.
(a) The businesses of the Companies and PCFS are being conducted in
all material respects in compliance with all applicable provisions of any U.S.
and Canadian federal, state, provincial, local or foreign statute, law,
ordinance, rule, regulation, judgment, decree, order, concession, grant,
franchise, permit or license or other governmental authorization or approval
applicable to them, except as set forth in Section 3.15(a) of the Disclosure
Schedule and except for such noncompliance as has not had or could not
reasonably be expected to have a Material Adverse Effect.
(b) Each Company and PCFS own or validly hold all licenses,
franchises, permits, approvals, authorizations, exemptions, classifications,
certificates, registrations and similar documents or instruments that are
required for its business and operations (in the case of PCFS, relating to the
PCFS Assets), except for those the failure of which to have has not had or could
not reasonably be expected to have a Material Adverse Effect (the "Required
Permits"). All Required Permits relating to insurance are set forth in Schedule
T of each of the PennLife Companies' and ConLife Companies' Annual Statements
for the year ended December 31, 1997, and all other Required Permits are listed
in Section 3.15(b) of the Disclosure Schedule. In all cases, the Required
Permits are valid and in full force and effect and none of Sellers or any
Company has received any notice of any inquiry or proceeding that could
reasonably be expected to result in the suspension, revocation or material
limitation of any such permit; and to the knowledge of Sellers, there is no
reasonable basis for any such suspension, revocation or limitation. None of the
Companies or PCFS is currently the subject of any supervision, conservation,
rehabilitation, liquidation, receivership, insolvency or other similar
proceeding nor, other than as described in Section 3.15(b) of the Disclosure
Schedule, are any of the Companies or PCFS operating under any formal or
informal agreement or understanding with the licensing authority of any State
which restricts its authority to do business or requires it to take, or refrain
from taking, any action.
(c) Except as disclosed in Section 3.15(c) of the Disclosure
Schedule, all forms of insurance policies and riders thereto currently issued by
any PennLife Company or ConLife Company are, to the extent required under
applicable
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laws, on forms approved by applicable insurance regulatory authorities of the
jurisdictions in which issued or have been filed with and not objected to by
such insurance regulatory authorities within the period provided for such
objection and any premium rates with respect to such policies or riders required
to be filed with or approved by such applicable insurance regulatory authorities
have been so filed or approved and premiums charged conform thereto. No material
deficiencies have been asserted by any Governmental Authority with respect to
any such filings which have not been cured or otherwise resolved to the
satisfaction of such Governmental Authority.
(d) Except as set forth in Section 3.15(d) of the Disclosure
Schedule, each Company (exclusive of their independent agents) and, to the
knowledge of Sellers, their independent agents, have marketed, sold and issued
products of such Company in compliance in all material respects with all laws
applicable to the business of such Company in the respective jurisdictions in
which such products have been sold, including but not limited to laws regulating
advertisements, requiring mandatory disclosure of policy information, requiring
employment of standards to determine if the purchase of a policy or contract is
suitable for an applicant, prohibiting the use of unfair methods of competition
and deceptive acts or practices and regulating replacement transactions. For
purposes of this Section 3.15(d), "advertisement" means any material designed to
create public interest in life and health insurance policies, annuity contracts
or in an insurer, or in an insurance producer, or to induce the public to
purchase, increase, modify, reinstate, borrow on, surrender, replace or retain
such a policy or contract, and (ii) "replacement transaction" means a
transaction in which a new life or health insurance policy or annuity contract
is to be purchased by a prospective insured and the proposing producer should
know that one or more existing life or health insurance policies or annuity
contracts is to be lapsed, forfeited, surrendered, reduced in value or pledged
as collateral. Except as set forth in Section 3.15(d) of the Disclosure
Schedule, Sellers have not received notice (written or oral) and are not
otherwise aware of any review or investigation by any Governmental Authority of
any marketing conduct and/or selling practices of the Companies or their
independent agents, other than periodic market conduct examinations arising in
the ordinary course of business and Attorney General inquiries in connection
with which no material issues have been raised that have not been resolved to
the satisfaction of the relevant insurance authorities or Attorneys General, as
the case may be.
(e) Except as set forth in Section 3.15(e) of the Disclosure
Schedule, no agent of any of the Companies has any claim against any of the
Companies for any compensation or other amounts (the "Agent Compensation")
(other than the Pre-Sale Obligations, Post-Closing Compensation Obligations or
sales commissions and advances in the ordinary course of business and except for
commitments made by Buyer or by a designee of Buyer on Buyer's behalf, including
PFG but only to the extent PFG is specifically authorized by Buyer in writing).
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(f) The Companies have previously delivered or made available to
Buyer true and complete copies of the reports (or the most recent draft thereof,
to the extent any final report is not available) reflecting the results of the
two most recent financial examinations and market conduct examinations of any of
the Companies issued by any insurance regulator.
(g) Except as set forth in Section 3.15(g) of the Disclosure
Schedule, no insurance policy gives the holder thereof the right to receive
dividends, distributions or other benefits based on the earnings or revenues of
such Company.
(h) The PennLife Companies and the ConLife Companies have (i) timely
paid all material state and Canadian guaranty association assessments that are
due, or claimed or asserted by any insurance regulatory authority to be due,
from such Companies, or (ii) provided for all such material assessments in their
statutory financial statements, filed with the appropriate insurance regulatory
authority, to the extent necessary to be in conformity in all material respects
with SAP for such statements.
(i) Except as set forth in Section 3.15(i) of the Disclosure
Schedule, the December 31, 1997 SAP Financial Statements list all material funds
maintained in a state of licensure by any of the PennLife Companies or the
ConLife Companies under any applicable insurance law (each a "Deposit"),
including, without limitation, any Deposit the beneficial interest of which may
have been transferred in connection with a Reinsurance Agreement. Except as set
forth in Section 3.15(i) of the Disclosure Schedule, the December 31, 1997 SAP
Financial Statements accurately set forth as of December 31, 1997 the dollar
amount of each such Deposit and the name of the depository in which such Deposit
is maintained.
SECTION 3.16 Brokers Fees and Commissions. Except for Salomon Smith
Barney and Fox-Pitt, Kelton Inc., no Seller and no Company (or their respective
directors, officers, employees or agents) has employed any investment banker,
broker or finder in connection with the transactions contemplated hereby. PFG
shall be solely responsible for the fees and expenses of Salomon Smith Barney
and Fox-Pitt, Kelton Inc. in connection with the transactions contemplated
hereby.
SECTION 3.17 Proprietary Rights; Year 2000 Compliance. (a) Except as
disclosed in Section 3.17(a) of the Disclosure Schedule, each Company owns or
possesses the right to use all material trademarks, service marks, patents,
patent rights, assumed names, logos, trade secrets, copyrights and trade names
("Intellectual Property") and all material computer software, programs and
similar systems that are used by it in the conduct of its business and PCFS owns
or possesses the right to use all Intellectual Property and all material
computer software, programs and systems that are used by PCFS in the conduct of
its business, and all such assets and rights are included in the PCFS Assets.
All such Intellectual Property and material computer software,
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programs and similar systems are in full force and effect in accordance with
their terms. None of the Companies or PCFS has received any notice of any
conflict with or violation or infringement of or any claimed conflict with or
violation or infringement of, any asserted rights of any other Person with
respect to any such Intellectual Property or computer software, programs, or
similar systems. None of the Companies or PCFS is in conflict with or in
violation or infringement of any asserted rights of any other Person with
respect to any such Intellectual Property or computer software, programs, or
similar systems, except to the extent that any such conflict, violation or
infringement does not have, or could not be reasonably expected to have, a
Material Adverse Effect.
(b) Except as disclosed in Section 3.17(b) of the Disclosure
Schedule, all material computer hardware and software (including all computer
hardware and software in embedded systems) used by the Companies and PCFS
(whether such hardware and software is owned by the Companies or PCFS or
licensed from third parties) (collectively, the "Technology Systems") is
designed or is being modified to be used prior to, during and after the calendar
year 2000 and the Companies have taken measures they believe to be sufficient to
prepare such hardware and software to continue to operate during each such time
period to accurately process date data (including, but not limited to
calculating, comparing and sequencing) from, into and between the twentieth and
twenty-first centuries, including leap year calculations.
SECTION 3.18 Insurance. Section 3.18 of the Disclosure Schedule
summarizes the amount and scope of the insurance currently in force insuring the
Companies and the PCFS Assets and their respective operations and properties
against loss or liability. All such policies or contracts of insurance are in
material compliance with all applicable laws and all Material Contracts to which
any of the Companies or PCFS is a party. All insurance policies pursuant to
which any such insurance is provided are in full force and effect. No notice of
cancellation or termination of any such insurance policy has been given to any
Company or PCFS and all premiums required to be paid in connection with such
insurance policies have been paid in full.
SECTION 3.19 Environmental Matters. Except as disclosed on Section 3.19
of the Disclosure Schedule:
(a) the operations of the Companies and the real property currently
owned, leased or operated by the Companies or included in the PCFS Assets are in
compliance and, during the period of the ownership or tenancy of the Companies
and PCFS have been in compliance, with all applicable Environmental Laws, except
for such noncompliance as would not reasonably be expected to have a Material
Adverse Effect;
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(b) no judicial or administrative proceedings or investigations are
pending or, to the knowledge of Sellers, threatened against any of the Companies
or to the extent relating to the PCFS Assets, PCFS, pursuant to any applicable
Environmental Laws, except for judicial or administrative proceedings or
investigations that could not reasonably be expected to have a Material Adverse
Effect;
(c) no condition exists on any real property currently (or to the
knowledge of Sellers, formerly) owned, operated or leased by any of the
Companies or included in the PCFS Assets arising out of or resulting from any
Release of any Hazardous Material that could reasonably be expected to result in
the Companies or PCFS incurring any liability under Environmental Laws that
would have a Material Adverse Effect and no such property is listed or has been
proposed for listing on the National Priorities List, the Comprehensive
Environmental Response Compensation and Liability and Information System
(CERCLIS) or any analogous state or Canadian federal or provincial lists; and
(d) Sellers have delivered or made available to Buyer copies of all
environmental investigations, audits, assessments or other analyses conducted by
or on behalf of, or which are otherwise in the possession of, Sellers or any
Company relating to any real property currently or formerly owned or leased by
any of the Companies or included in the PCFS Assets.
SECTION 3.20 Books and Records. Copies of all the minute books and
stock record books of the Companies have been delivered or made available to
Buyer for inspection and contain accurate records of all meetings of, and
written consents by, the boards of directors (and any committees thereof) and
shareholders of the Companies from January 1, 1995 to the date hereof and, to
the knowledge of Seller, since their respective incorporations.
SECTION 3.21 Bank Accounts. Section 3.21 of the Disclosure Schedule
contains (a) a true and complete list of the names and locations of all banks,
trust companies, securities brokers, and other financial institutions ("Banks")
at which each of the Companies has an account or safe deposit box or maintains a
banking, custodial, trading, trust or other similar relationship ("Accounts"),
(b) a true and complete list and description of each such Account, including a
list of all authorized signatories and (c) a true and complete description of
all Accounts included in the PCFS Assets and a list of the names and locations
of all Banks where such Accounts are located.
SECTION 3.22 Insurance and Reinsurance.
(a) Section 3.22(a) of the Disclosure Schedule is a true and
complete description of each material contract providing for reinsurance,
coinsurance, excess insurance, ceding of insurance, assumption of insurance
or indemnification of insurance
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liabilities to which any PennLife Company or ConLife Company is a party which is
currently in effect (the "Reinsurance Agreements").
(b) Except as required by law or as disclosed in Section 3.22(b) of
the Disclosure Schedule, all amounts payable as of the date of this Agreement by
any PennLife Company or ConLife Company under any Reinsurance Agreement and, to
the knowledge of Sellers, all amounts payable as of the date of this Agreement
by any other Person that is a party to any Reinsurance Agreement have been paid
in accordance with the terms of the contracts under which they arose except, in
each case, for immaterial non-payments or discrepancies that would not adversely
affect any of the rights of any PennLife Company or ConLife Company under any
such Reinsurance Agreement. Except as disclosed in Section 3.22(b) of the
Disclosure Schedule, to the knowledge of Sellers, no reinsurer (other than the
Companies) that is a party to any of the Reinsurance Agreements has a valid
defense to payment of its material obligations under such Reinsurance Agreements
or is in default in any material respect under any Reinsurance Agreement and
Seller is not aware of any impairment of the financial condition of any such
other party to the extent that a default thereunder could reasonably be
anticipated. Each Reinsurance Agreement is in compliance in all material
respects with applicable insurance laws and regulations regarding life and
health reinsurance agreements. The Companies have not entered into any
transaction or series of transactions that are required to be recorded as
financial reinsurance pursuant to SAP.
(c) As of the date hereof, the A.M. Best rating presently held by any
of the Companies has not been reduced since August 27, 1998, and other than as
set forth in Section 3.22(c) of the Disclosure Schedule, the Sellers have not,
as of the date hereof, received any notice of any intended or potential
downgrading by A.M. Best.
SECTION 3.23 Labor Matters.
(a) None of the Companies is a party to any labor or collective
bargaining agreement.
(b) No employees of any Company and none of the ConLife Employees or
PCFS Employees are represented by any labor organization that is certified to
represent such employees under the National Labor Relations Act or other
applicable law. No labor organization or group of employees of any Company or
any ConLife Employees or PCFS Employees has made a pending demand for
recognition, certification, successor rights or a related employer declaration,
and there are no representation, certification, successor rights or related
employer proceedings or petitions or applications for certification seeking a
representation proceeding presently pending or threatened to be brought before
or filed with the National Labor Relations Board or any other labor relations
tribunal or authority. To the knowledge of Sellers,
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there are no organizing activities involving any Company or PCFS or Services
pending with any labor organization or group of employees of any Company or any
ConLife Employees or PCFS Employees.
(c) Except as set forth in Section 3.23(c) of the Disclosure
Schedule, there are no strikes, work stoppages, slowdowns, lockouts, material
arbitrations or material grievances or other material labor disputes pending or
threatened against or involving any Company or Services or PCFS, to the extent
applicable to the ConLife Employees or PCFS Employees who are currently employed
by Services or PCFS, as the case may be.
(d) Each of the Companies and Services (with respect to the ConLife
Employees) and PCFS (with respect to the PCFS Employees) is in compliance with
all laws, regulations and orders applicable to such Company or the ConLife
Employees or PCFS Employees, as the case may be, relating to the employment of
labor, including all such laws, regulations and orders relating to wages, hours,
employment standards, WARN, collective bargaining, discrimination, civil rights,
safety and health, workers' compensation and the collection and payment of
withholding and/or social security taxes and any similar tax, other than such
noncompliance that could not reasonably be expected to have a Material Adverse
Effect.
(e) There is no "mass layoff," "plant closing" or similar event as
defined by WARN or similar Canadian legislation with respect to any of the
Companies; provided, that no representation is made as to actions taken by Buyer
in connection with or after the Closing.
(f) Except as set forth in Section 3.23(f) of the Disclosure
Schedule, as of the date hereof, there are no pending or, to the knowledge of
Sellers, threatened complaints, charges or claims against any Company or
Services or PCFS brought or filed with any Governmental Authority, arbitrator or
court based on, arising out of, in connection with or otherwise relating to the
employment or termination of employment by any Company or Services or, to the
extent relating to the PCFS Employees, PCFS, of any individual.
SECTION 3.24 Purchase for Investment. PFG is acquiring the Acquisition
Notes for its own account for investment purposes and not with a view to the
resale or distribution of the Acquisition Notes. PFG has such knowledge and
experience in financial and business matters so as to be capable of evaluating
the merits and risks of its investment in the Acquisition Notes. PFG is an
"accredited investor" as defined in Rule 501 of the Securities Act of 1933, as
amended. PFG will not, directly or indirectly, dispose of the Acquisition Notes
except in compliance with applicable federal and state securities laws.
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SECTION 3.25 Affiliate Transactions. Section 3.25 of the Disclosure
Schedule sets forth, as of the date hereof, all contracts, agreements,
obligations, commitments and liabilities between any of the Companies and/or
between any of the Companies and PFG or any of PFG's affiliates (other than the
Companies). All such transactions which were required to have been identified or
reported to or approved by the applicable departments of insurance have been
identified, reported and/or approved.
SECTION 3.26 Bonuses. Except as set forth on Section 3.26 of the
Disclosure Schedule, no current or former officer, director or employee or agent
of any of the Companies is a party to or beneficiary of any contract or other
agreement pursuant to which such Person shall receive or is entitled to receive
any retention or other transaction bonus or other payment (a "Transaction
Bonus") from any Company in connection with the transactions contemplated
hereby.
SECTION 3.27 All Related Assets. As of the Closing Date, immediately
following the Closing Transactions, the Companies will own, lease or license all
property and assets necessary to carry on their business and operations as
presently conducted (except to the extent such property or assets have been
transferred or disposed of in connection with the Pre-Closing Restructuring
Transactions), all such assets and properties (other than as Buyer and Sellers
may mutually agree) will be conveyed to Buyer (either indirectly by means of the
transfer of Shares or through the transfer of the PCFS Assets in accordance with
Section 2.2) at the Closing and will as of the Closing permit Buyer to conduct
such businesses and operations in the same manner as such businesses and
operations have been conducted prior to the Closing (except to the extent such
property or assets have been transferred or disposed of in connection with the
Pre-Closing Restructuring Transactions).
SECTION 3.28 Litigation Arising Between Signing and Closing. The
Litigation pending or, to the knowledge of Sellers, threatened against any of
the Companies or PCFS before any Governmental Authority or arbitrator as of the
Closing Date (including the New Litigation and New Employee Claims), considered
in the aggregate, will not expose the Companies to any materially greater risks
or liabilities than the Litigation set forth on Section 3.10 of the Disclosure
Schedule, considered in the aggregate.
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ARTICLE IV
REPRESENTATIONS AND
WARRANTIES OF BUYER
Buyer hereby represents and warrants to Sellers as follows:
SECTION 4.1 Organization; Qualifications and Operations. Each of Buyer
and its Subsidiaries (collectively, the "Buyer Parties") is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, with all requisite corporate power and
authority to own, operate and lease its properties and to carry on its business
as it is now being conducted and, in the case of Buyer, to own the Shares and
the PCFS Assets. Each Buyer Party is qualified or licensed to do business and is
in good standing in each jurisdiction in which the ownership or leasing of
property by it or the conduct of its business requires such licensing or
qualification, except where the failure to be so qualified or licensed will not
affect Buyer's ability to consummate the transactions contemplated by this
Agreement and will not have a material adverse effect on the business, results
of operations or financial condition of the Buyer Parties, taken as a whole (a
"Buyer Material Adverse Effect").
SECTION 4.2 Authorization. Buyer has full corporate power and authority
to execute and deliver this Agreement and each other document to be delivered by
Buyer in connection herewith, including the Acquisition Notes and the UAFC Share
Purchase Agreement, and to consummate the transactions contemplated hereby and
thereby. The execution and delivery by Buyer of this Agreement, the Acquisition
Notes and the UAFC Share Purchase Agreement, the performance by Buyer of its
obligations hereunder and thereunder, and the consummation by Buyer of the
transactions contemplated hereby and thereby, have been duly authorized by
Buyer's Board of Directors. Except for the approval of the shareholders of Buyer
of the matters requiring shareholder approval set forth in the UAFC Share
Purchase Agreement, no other corporate proceeding on the part of Buyer is
necessary to authorize the execution and delivery of this Agreement and each
other document to be delivered by Buyer in connection herewith, including the
Acquisition Notes and the UAFC Share Purchase Agreement, or to consummate the
transactions contemplated hereby and thereby. Simultaneously with the execution
of this Agreement, (i) shareholders owning at least 51% of the issued and
outstanding voting securities of Buyer and (ii) shareholders owning at least 51%
of the issued and outstanding Series C-1 Convertible Preferred Stock of Buyer
(the "Series C-1 Holders") are executing a voting agreement in the form attached
hereto as Annex G, pursuant to which such shareholders are agreeing to vote in
favor of the matters requiring shareholder approval set forth in the UAFC Share
Purchase Agreement (which percentage of shareholders, in respect of the issued
and outstanding voting securities and in respect of the Series C-1 Holders,
voting as a
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separate class, is sufficient to approve such matters). Each of this Agreement,
the Acquisition Notes and the UAFC Share Purchase Agreement has been duly and
validly executed and delivered by Buyer and constitutes a valid and binding
obligation of Buyer enforceable against it in accordance with its terms, subject
to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and similar laws affecting creditors' rights and remedies generally,
and subject, as to enforceability, to general principles of equity, including
principles of commercial reasonableness, good faith and fair dealing (regardless
of whether enforcement is sought in a proceeding at law or in equity).
SECTION 4.3 No Violation. Subject to the receipt by Buyer of the Buyer
Approvals identified in Section 4.5 below and except as set forth in Section 4.3
of the Disclosure Schedule, neither the execution and delivery by Buyer of this
Agreement, the Acquisition Notes or the UAFC Share Purchase Agreement, the
performance by Buyer of its obligations hereunder and thereunder nor the
consummation by Buyer of the transactions contemplated hereby and thereby will
(a) violate, conflict with or result in any breach of any provision of the
Articles of Incorporation or Bylaws of any Buyer Party, (b) violate or conflict
with or result in a violation or breach of, or constitute a default (with or
without due notice or lapse of time or both) under the terms, conditions or
provisions of any note, bond, mortgage, indenture or deed of trust, or any
license, lease or agreement to which any Buyer Party is a party or by which any
of their assets is bound or (c) violate any order, writ, judgment, injunction,
decree, statute, rule or regulation of any Governmental Authority applicable to
any Buyer Party or any of their assets, except in each case as would not have a
Buyer Material Adverse Effect.
SECTION 4.4 Capitalization. As of the date hereof, the authorized
capital stock of Buyer consists of: (i) 20,000,000 shares of common stock, par
value $0.01 per share ("Buyer Common Stock"); (ii) 500 shares of Series B
Convertible Preferred Stock, par value $1.00 per share, of the Company (the
"Series B Preferred"); (iii) 100,000 shares of Series C Convertible Preferred
Stock, par value $1.00 per share, of the Company (the "Series C Preferred");
(iv) 22,500 shares of Series D-1 Convertible Preferred Stock, par value $1.00
per share, of the Company (the "Series D-1 Preferred"); and (v) 17,500 shares of
Series D-2 Convertible Preferred Stock, par value $1.00 per share, of the
Company (the "Series D-2 Preferred"). As of the date hereof, Buyer has 7,638,057
shares of Buyer Common Stock, 400 shares of Series B Preferred, 51,680 shares of
Series C Preferred, 22,500 shares of Series D-1 Preferred and no shares of
Series D-2 Preferred issued and outstanding. All of such outstanding shares have
been validly issued, are fully paid and, except as provided under Section 630 of
the Business Corporation Law of New York (relating to employee wages),
nonassessable, and were not issued in violation of any preemptive rights. Except
as set forth in Section 4.4 of the Disclosure Schedule, as of the date hereof,
there are 2,673,991 warrants to purchase Buyer Common Stock issued and
outstanding.
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SECTION 4.5 Consents and Approvals. Except as set forth in Section 4.5 of
the Disclosure Schedule, no filing or registration with, no notice to and no
permit, authorization, consent or approval of any third party or any
Governmental Authority is necessary for Buyer to enter into this Agreement or
the UAFC Share Purchase Agreement and issue the Acquisition Notes or for the
consummation by Buyer of the transactions contemplated by this Agreement or the
UAFC Share Purchase Agreement other than consents and approvals of or filings or
registrations with (a) the DOJ pursuant to the HSR Act, (b) the PennLife
Insurance Approvals and the ConLife Insurance Approvals, (c) the insurance
departments of the States of New York, Texas, Florida; (d) and the federal and
provincial governments of Canada, (e) the Commission pursuant to the
requirements of the Exchange Act and (f) the approval of the shareholders of
Buyer at a special meeting of shareholders of Buyer of the matters requiring
shareholder approval as set forth in the UAFC Share Purchase Agreement, in
accordance with New York law and the rules of Nasdaq (collectively, the "Buyer
Approvals"). Sellers acknowledge that Buyer intends to sell some or all of the
Shares and the PCFS Assets to one or more Subsidiaries of Buyer pursuant to
Section 2.2(j), and that the term "Buyer Approval" will include, for purposes of
this Section 4.5 and of Section 6.1(a), any and all approvals of the relevant
insurance regulators in connection with such transactions.
SECTION 4.6 Brokers' Fees and Commissions. Except for Chase Securities
Inc. ("Chase Securities"), Capital Z Management Inc., Chase Bank and Advest,
Inc. ("Advest"), neither Buyer nor any of its directors, officers, employees or
agents has employed any investment banker, broker or finder in connection with
the transactions contemplated hereby. Buyer shall be solely responsible for the
fees and expenses of Chase Securities, Capital Z Management Inc., Chase Bank and
Advest in connection with the transactions contemplated hereby.
SECTION 4.7 Purchase for Investment. Buyer is acquiring the Shares for
its own account for investment purposes and not with a view to the distribution
of the Shares. Buyer has such knowledge and experience in financial and business
matters so as to be capable of evaluating the merits and risks of its investment
in the Shares. Buyer is an "accredited investor" as defined in Rule 501 of the
Securities Act of 1933, as amended. Buyer will not, directly or indirectly,
dispose of the Shares except in compliance with applicable federal and state
securities laws.
SECTION 4.8 Financing. Concurrently with the execution of this
Agreement, Buyer is entering into a Stock Purchase Agreement, dated as of the
date hereof (the "UAFC Share Purchase Agreement"), with Capital Z Financial
Services Fund II, L.P. ("Capital Z"), pursuant to which Buyer has agreed to
issue and sell to Capital Z, and Capital Z has agreed to purchase and acquire
from Buyer, on the terms and subject to the conditions contained therein, shares
of Buyer Common Stock (subject to adjustment in accordance with the UAFC Share
Purchase Agreement) for the purchase price set
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forth in the UAFC Share Purchase Agreement. The proceeds of such issuance will
be used to fund a portion of the Cash Purchase Price. In addition, Chase
Manhattan Bank, N.A. ("Chase Bank") and Chase Securities have issued a
commitment letter (the "Chase Commitment") for the Chase Bank Facility,
the proceeds of which will be used to finance the balance of the Cash Purchase
Price. True and complete copies of the UAFC Share Purchase Agreement and the
Chase Commitment have been delivered to PFG.
SECTION 4.9 SEC Reports. Except as set forth in Section 4.9 of the
Disclosure Schedule, Buyer has timely filed with the Commission (a) Buyer's
Annual Report on Form 10-K for the year ended December 31, 1997, (b) Buyer's
Quarterly Reports on Form 10-Q for the quarters ended March 31 June 30, and
September 30, 1998, (c) all proxy statements relating to meetings of
shareholders of Buyer occurring in 1997 and 1998, (d) all Current Reports on
Form 8-K required to be filed since January 1, 1998, (e) all amendments and
supplements required to be filed to all such reports, and (f) all other forms,
reports, statements and other documents required to be filed with the Commission
(all such documents in clauses (a) through (f) herein are referred to as the
"SEC Reports"). Such SEC Reports filed with the Commission were prepared in all
material respects in accordance with the requirements of applicable law and did
not at the time they were filed contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary in
order to make the statements therein not misleading in light of the
circumstances under which they were made. Buyer has delivered or made available
to Sellers true and complete copies of all of the SEC Reports.
SECTION 4.10 Absence of Undisclosed Liabilities. Except as set forth in
Section 4.10 of the Disclosure Schedule, as of the date hereof, and as of the
Closing Date, except for matters relating to the transactions contemplated by
this Agreement or as disclosed in the SEC Reports filed prior to the date
hereof, there are no liabilities or obligations of the Buyer Parties that are
required to be reflected on a balance sheet prepared in accordance with GAAP
other than (a) liabilities and obligations reserved against in the financial
statements constituting a part of the SEC Reports and not heretofore discharged,
(b) policyholder benefits payable or other liabilities or obligations arising in
the ordinary course of business, or (c) liabilities and obligations disclosed in
Section 4.10 of the Disclosure Schedule.
SECTION 4.11 Absence of Certain Changes. Except as disclosed in Section
4.11 of the Disclosure Schedule or the SEC Reports filed prior to the date
hereof or as permitted or contemplated by this Agreement, since September 30,
1998, none of the Buyer Parties has (a) experienced any change, event or
condition which, individually or in the aggregate, has had or could reasonably
be expected to have a Buyer Material Adverse Effect or (b) conducted its
business in any material respect other than in the ordinary course.
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SECTION 4.12 Compliance with Applicable Law; Permits; Licenses. Except as
set forth in Section 4.12 of the Disclosure Schedule:
(a) The businesses of the Buyer Parties are being conducted in all
material respects in compliance with all applicable provisions of any material
federal, state, local or foreign statute, law, ordinance, rule, regulation,
judgment, decree, order, concession, grant, franchise, permit or license or
other governmental authorization or approval applicable to them, except for such
noncompliance as has not had or could not reasonably be expected to have a Buyer
Material Adverse Effect.
(b) Each Buyer Party owns or validly holds all material licenses,
franchises, permits, approvals, authorizations, exemptions, classifications,
certificates, registrations and similar documents or instruments that are
required for its business and operations, except for those the failure of which
to have has not had or could not reasonably be expected to have a Buyer Material
Adverse Effect. All such licenses, franchises, permits, approvals,
authorizations, exemptions, classifications, certificates, registrations and
similar documents or instruments are valid and in full force and effect and none
of the Buyer Parties has received any notice of any inquiry or proceeding that
could reasonably be expected to result in the suspension, revocation or material
limitation of any such license; and to the knowledge of Buyer, there is no
reasonable basis for any such suspension, revocation or limitation. None of the
Buyer Parties is currently the subject of any supervision, conservation,
rehabilitation, liquidation, receivership, insolvency or other similar
proceeding nor are any of the Buyer Parties operating under any formal or
informal agreement or understanding with the licensing authority of any State
which restricts its authority to do business or requires it to take, or refrain
from taking, any action.
ARTICLE V
COVENANTS
SECTION 5.1 Conduct of Business Prior to the Closing. Except as
expressly contemplated by this Agreement (including without limitation the
Pre-Closing Restructuring Transactions (defined below), the Closing Transactions
and the other transactions described as conditions to the consummation of the
transactions contemplated by this Agreement specified in Article VI hereof), as
set forth in Section 5.1 of the Disclosure Schedule or with the prior written
consent of Buyer (not to be unreasonably withheld or delayed), during the period
from the date of this Agreement to the Closing, PFG and PLAC will cause each
PennLife Company to, PFG and SFC will cause each ConLife Company and Services
to, and PFG will cause each PFI Company and PCFS to, conduct its business and
operations according to its ordinary and usual course of business and will use
all reasonable efforts consistent
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therewith to preserve intact and, as applicable, maintain in good repair its
properties, assets and business organizations, to keep available the services of
its officers, agents and employees and to maintain satisfactory relationships
with policyholders, agents and regulators, in each case in the ordinary course
of business. Without limiting the generality of the foregoing, and except as
otherwise provided in this Agreement and as set forth in Section 5.1 of the
Disclosure Schedule or with the prior written consent of Buyer (not to be
unreasonably withheld or delayed), prior to the Closing, PFG and
PLAC will not permit any of the PennLife Companies to, PFG and SFC will not
permit any of the ConLife Companies or Services to, and PFG will not permit any
of the PFI Companies or PCFS to:
(a) propose or adopt any amendment to its Certificate or Articles of
Incorporation or Bylaws (or similar organizational documents);
(b) except in the ordinary course of business, incur any indebtedness
for borrowed money or issue any debt securities or assume, guarantee or endorse
the obligations of any other Person except for obligations of its Subsidiaries;
(c) (i) adopt any new Benefit Plan (including any stock option, stock
benefit or stock purchase plan) or amend any existing Benefit Plan in any
material respect, except for changes which are less favorable to participants in
such plans or as may be required by applicable law or (ii) increase in any
manner the rate or terms of compensation of any of its directors, officers,
agents or employees, except such increases as are granted in the ordinary course
of business consistent with past practice, or enter into any employment,
severance or collective bargaining agreement;
(d) enter into any agreement with any officer, director, employee,
general agent or sales agent of the Companies, Services or PCFS pursuant to
which such Persons will be entitled to receive from any Company any Transaction
Bonus;
(e) (i) sell, transfer or otherwise dispose of any of its property or
assets (not including those assets constituting investment securities of the
Companies, which are the subject of paragraph (f) below) other than in the
ordinary course consistent with past practices and, in any event, if the value
of such properties or assets would, individually or in the aggregate, exceed
$500,000 or (ii) mortgage or encumber any of its property or assets;
(f) except in the ordinary course consistent with past practices,
sell, transfer or otherwise dispose of any securities in the Companies'
investment portfolios;
(g) enter into or terminate any other material agreements,
commitments or contracts, except agreements, commitments or contracts made or
terminated in the ordinary course of business;
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(h) (i) split, combine or reclassify the Shares, (ii) declare, set
aside or pay any dividend or other distribution payable in cash, stock or
property with respect to the Shares, other than those dividends or distributions
set forth in Section 5.1(h) of the Disclosure Schedule, (iii) issue, sell or
pledge, or authorize or propose the issuance, sale or pledge of any additional
shares of, or securities convertible into or exchangeable for, or options,
warrants, calls, commitments or rights of any kind to acquire, the Shares or any
of its capital stock, or (iv) redeem, purchase or otherwise acquire directly or
indirectly any of its capital stock;
(i) except in the ordinary course of business or with respect to
capital projects approved prior to the date hereof, enter into any agreement or
commitment involving an aggregate capital expenditure or commitment exceeding
$100,000;
(j) take any action that would intentionally result in a breach of
the representations and warranties contained in Article III of this Agreement;
(k) adopt a plan of complete or partial liquidation or resolutions
providing for or authorizing such liquidation or a dissolution, merger,
consolidation, restructuring, recapitalization or other reorganization;
(l) materially change any of the tax or financial accounting methods
or practices used by it unless required by GAAP, SAP or applicable law;
(m) settle or compromise any claim (including arbitration) or
litigation, which after insurance reimbursement involves an amount in excess of
$250,000 or otherwise is material to the Company involved or the Companies taken
as a whole;
(n) file any amended Tax Return or settle or compromise any claim
relating to Taxes;
(o) make any payment, loan or advance of any amount to or in respect
of, or engage in the sale, transfer or lease of any of its property or assets
to, or enter into any contract with, any affiliate (other than those dividends
or distributions set forth in Section 5.1(h) of the Disclosure Schedule or
pursuant to arrangements already in place prior to the date hereof and described
in Section 3.25 of the Disclosure Schedule);
(p) amend the terms of or terminate any (i) Material Contracts or
Reinsurance Agreements (other than an extension of the terms, or termination in
accordance with the scheduled termination, of such Material Contract or
Reinsurance Agreements expressly required by their terms) or (ii) contracts,
agreements or
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arrangements with any affiliate to cause any change in the cost, services being
provided, or term of any such agreements, other than as specifically
contemplated by this Agreement;
(q) enter into or renew (other than a renewal of such contract
expressly required by the terms of such contract) any contract that would be
considered a Material Contract or Reinsurance Agreement (including any
contracts, agreements or arrangements with any affiliates);
(r) engage in any transaction with any affiliate, except to the
extent provided in this Agreement; or
(s) agree to take any of the foregoing actions.
SECTION 5.2 Management of Companies. Sellers shall, from the date of
this Agreement through the Closing Date, cause management of the Companies to
consult on a periodic basis and in good faith with the employees and
representatives of Buyer concerning the management of the Companies' businesses,
including without limitation the policies and practices of the Companies with
respect to (i) the ceding or assumption of reinsurance or the termination or
modification of existing Reinsurance Agreements (except as contemplated by this
Agreement), (ii) significant underwriting, actuarial, Tax or accounting issues
(including matters related to Tax audits or the establishment, review and
modification of insurance and other reserves), (iii) significant matters
relating to the conditions, forms and pricing of new kinds of policies and (iv)
significant matters relating to the agency force, product distribution,
commissions and similar matters; provided, however, that management of the
Companies shall not consult with employees and representatives of Buyer on any
matter if, based on advice of counsel, management determines that such
consultation might violate the provisions of the HSR Act or any other laws.
SECTION 5.3 Access to Information.
(a) Between the date hereof and the Closing Date, PLAC, PFG and SFC
shall cause the Companies, Services and PCFS to give to Buyer and its counsel,
accountants and other authorized representatives and agents, full access, during
regular business hours and upon reasonable advance notice, to any and all of
their respective premises, properties, contracts, books and records, and will
cause their respective officers and employees to furnish to Buyer and its
representatives, except where prohibited by law, any and all data and
information pertaining, directly or indirectly, to the Companies, the ConLife
Employees, the PCFS Employees and the PCFS Assets that Buyer shall from time to
time reasonably request, and shall permit Buyer and its representatives to make
extracts and copies thereof. Buyer shall not exercise its rights
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under this Section 5.3(a) in such a manner as to unreasonably interfere with the
ordinary operations of any of the Companies, Services or PCFS.
(b) As part of the foregoing review, PennLife shall, and PFG and PLAC
shall cause PennLife to, retain and permit the Reserves Consultants to conduct
independent reviews of all insurance reserves of PennLife (other than life
insurance reserves) (the "PennLife Insurance Reserves"), including but not
limited to disability income claim reserves.
(c) If the transactions contemplated herein are consummated, Buyer
covenants and agrees that it shall preserve and keep the records of the
Companies delivered to it hereunder for a period of seven years from the Closing
Date, and shall make such records available to PLAC, PFG and SFC (without
charge, other than reasonable photocopying expenses if copies are so requested
by PFC, PLAC or SFC), as reasonably requested by PLAC, PFG and SFC in connection
with any legal proceedings by or against, or governmental investigations of,
PLAC, PFG and SFC or any of their affiliates, or in connection with any tax
examination of PLAC, PFG and SFC or any consolidated group of which any of them
was a part or for any other proper business purpose of PLAC, PFG or SFC or their
affiliates.
(d) If the transactions contemplated herein are consummated, Buyer,
Sellers and the Companies jointly covenant and agree that, from and after the
Closing Date, each will use its reasonable best efforts to cooperate with each
other in connection with (i) the preparation of any Tax Return described in
Section 5.17(e) or 5.17(f) of this Agreement and (ii) any action, suit,
proceeding, investigation or audit of any of them relating to any Tax liability
that may be the subject of indemnification under Article VIII of this Agreement.
In furtherance thereof, Buyer, Sellers and the Companies further covenant and
agree to promptly respond to all inquiries related to such matters and to
provide, to the extent reasonably possible, substantiation of transactions and
to make available and furnish appropriate documents and personnel in connection
therewith.
SECTION 5.4 HSR Act Filings. As soon as practicable after the date
hereof, PFG and Buyer shall make appropriate filings with the DOJ under the HSR
Act, with respect to the transactions contemplated by this Agreement. In
connection with such filings, the parties hereto shall, in cooperation with each
other, and as promptly as reasonably practicable from time to time hereafter,
make all such further filings and submissions, and take such further action, as
may be required in connection therewith. Each party shall furnish the others all
information in its possession necessary for compliance by the others with the
provisions of this Section 5.4. No party shall withdraw any such filing or
submission prior to the termination of this Agreement without the written
consent of the other parties.
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SECTION 5.5 State Regulatory Approvals. As soon as practicable after
the date hereof, Buyer shall file all applications and other documents, and
shall use its reasonable best efforts to obtain all consents and approvals, as
are required to be filed or obtained by it under the applicable laws of the
States of Texas, North Carolina, Pennsylvania, New York and Florida and the
federal or provincial government of Canada, as applicable, and of any other
applicable jurisdictions, including all requisite approvals of the insurance
regulatory authorities in such jurisdictions and all other governmental
approvals required for consummation of the transactions contemplated by this
Agreement, in each case as promptly as is practicable. PFG and PLAC shall cause
the PennLife Companies, PFG and SFC shall cause the ConLife Companies and
Services, to the extent necessary, and PFG shall cause the PFI Companies and
PCFS, to the extent necessary, to take all such actions (other than the payment
of money not then due and owing or the provision of other consideration) as are
reasonably requested by Buyer to assist Buyer in completing all such filings and
obtaining all such consents and approvals as are required to be made and
obtained. Buyer shall take all such actions (other than the payment of money not
then due and owing or the provision of other consideration) as are reasonably
requested by PLAC, PFG, SFC and ConLife to assist in completing all filings and
obtaining all consents and approvals as any of them may be required to make and
obtain.
SECTION 5.6 Pre-Closing Restructuring Transactions; Other Pre-
Closing Matters.
(a) At or prior to the Closing, PLAC, PFG and SFC shall cause to
occur the transactions listed in Annex H (the "Pre-Closing Restructuring
Transactions"); provided, however, that the parties acknowledge that a portion
of the Cash Purchase Price will be used to effect certain Pre-Closing
Restructuring Transactions simultaneously with the Closing.
(b) Prior to the Closing, Sellers shall pay in full all amounts due
or to become due in respect of the lease for 3 Bethesda Metro Center, Suite
1600, Bethesda, Maryland. In addition, prior to the Closing, PFG will assign the
Jack Kent Cook Stadium Lease Agreement to a Subsidiary of PFG (other than any of
the Companies); provided, that if PFG is unable to assign such lease agreement,
PFG shall pay all amounts owing and due with respect to such lease agreement for
the full term thereof and shall be entitled to all of the benefits thereof.
SECTION 5.7 Estimated Statement. PFG shall prepare and deliver (no
later than five Business Days prior to the Closing Date) to Buyer a pro forma
statement (the "Estimated Statement") reflecting PFG's good faith estimate of
the capital and surplus (excluding AVR and IMR) of the PennLife Companies and
the ConLife Companies as of the Closing Date assuming that the transactions
contemplated hereby (including the Closing Transactions and the Pre-Closing
Restructuring Transactions) occurred on and
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as of such date. The Estimated Statement shall be prepared in accordance with
SAP using the assumptions and methodologies used in the preparation of the 1998
SAP Financial Statements.
SECTION 5.8 Transaction Bonuses. PFG, PLAC or SFC shall pay at or prior
to Closing all Transaction Bonuses payable to those officers, directors,
employees or agents set forth on Section 3.26 of the Disclosure Schedule or
otherwise agreed by Buyer and Sellers prior to Closing in accordance with
Section 5.1(d). To the extent such payments are made by any of the Companies,
PFG, PLAC or SFC shall reimburse the relevant Companies for the full amount of
such payments at Closing. Buyer shall cause the Companies to assume all
obligations under the retention agreements referenced in Section 3.26 of the
Disclosure Schedule arising after the Closing, other than the obligation to pay
the Transaction Bonuses.
SECTION 5.9 Payments to Agents.
(a) Except as provided in Sections 5.9(b) or (c) below, at or prior
to Closing, PFG, PLAC or SFC shall pay any and all amounts payable to any and
all agents and other persons under compensation arrangements made or allegedly
made in connection with, in contemplation of or otherwise relating to the
proposed management-led buyout of PennLife (the "Pre-Sale Obligations").
(b) At or prior to Closing, Buyer will (i) enter into investment
agreements (the "Investment Agreements") with respect to the Buyer Common Stock
to be purchased by certain agents of PennLife, (ii) adopt commission schedules
and (iii) adopt stock-based and other compensation plans, in each case on terms
consistent with Schedule 5.9(b) (the "Post-Closing Compensation Obligations").
(c) At and after the Closing, Buyer will cause PennLife to make all
cash payments that relate to the Pre-Sale Obligations to the extent that such
amounts are reserved for such purpose on the Unaudited Financial Statements and
the Audited Financial Statements and set forth in Section 5.9 of the Disclosure
Schedule.
SECTION 5.10 All Reasonable Efforts.
(a) Subject to the terms and conditions herein provided, each of the
parties hereto agrees to use all reasonable efforts to take, or cause to be
taken, all action, and to do, or cause to be done as promptly as practicable,
all things necessary, proper and advisable under applicable laws and regulations
to consummate and make effective as promptly as practicable the transactions
contemplated by this Agreement including, without limitation, all actions
necessary to satisfy any conditions set forth in the Chase Commitment. If at any
time after the Closing any further action is necessary or desirable to carry out
the purposes of this Agreement, including, without limitation, the execution of
additional instruments, the proper officers and directors of each party to this
Agreement shall take all such necessary action.
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(b) At the Closing, PFG will assign to Buyer the non-exclusive right
to enforce the rights of PFG under the confidentiality agreements entered into
between Salomon Smith Barney, as agent for PFG and the Companies, and the
prospective purchasers of the Companies to the extent that such rights pertain
to the Companies.
SECTION 5.11 Public Announcements. The parties hereto will consult with
each other and will mutually agree (the agreement of each party not to be
unreasonably withheld or delayed) upon the content and timing of any press
release or other public statements with respect to the transactions contemplated
by this Agreement and shall not issue any such press release or make any such
public statement prior to such consultation and agreement, except as may be
required by applicable law or by obligations pursuant to any listing agreement
with any securities exchange or any stock exchange regulations as advised by
counsel; provided, however, that each party will give prior notice to the other
parties of the content and timing of any such press release or other public
statement required by applicable law or by obligations pursuant to any listing
agreement with any securities exchange or any stock exchange regulations.
SECTION 5.12 Disclosure Supplements. From time to time prior to the
Closing, PLAC, PFG and SFC may supplement or amend the Disclosure Schedule
delivered in connection herewith with respect to any matter which, if existing
or occurring at or prior to the date of this Agreement, would have been required
to be set forth or described in such Disclosure Schedule or which is necessary
to correct any information in such Disclosure Schedule which has been rendered
inaccurate thereby. Such supplements and amendments shall not be given effect
for purposes of Section 6.1(d); however, if the Closing occurs, Buyer shall be
deemed to have waived any right or claim it may otherwise have or have had on
account of any matter so disclosed in such supplement or amendment.
SECTION 5.13 Employment and Employee Benefits.
(a) Buyer shall offer employment to all PCFS Employees (other than
such employees who are disabled for purposes of the long-term disability plans,
if any, applicable to such employees) employed immediately prior to the Closing
Date upon the same terms and conditions of employment as in effect immediately
prior to the Closing Date, which employment shall be effective on the Closing
Date; provided, however, that Buyer shall not be obligated to offer employment
to any PCFS Employees hired between the date hereof and the Closing Date who
were hired without the consent of Buyer other than replacement employees
performing functions substantially similar to his or her predecessor. Buyer
shall be liable, and shall indemnify and hold Sellers harmless from any and all
obligations or liabilities, contingent or otherwise, relating to or arising from
the employment or termination of employment of the PennLife Employees or PFI
Employees or any PCFS Employees hired pursuant to the first sentence of this
Section 5.13(a) (together, the "Company
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Employees"), with respect to periods after the Closing Date. Sellers shall be
liable for, and shall indemnify and hold Buyer harmless from any and all
obligations or liabilities, contingent or otherwise, relating to or arising from
the employment or termination of employment of any other employees of PFG or any
of its affiliates (other than any of the Companies), including any PCFS
Employees not hired pursuant to the first sentence of this Section 5.13(a) and
any ConLife Employees with respect to periods up to and after the Closing Date,
except to the extent that such obligations and liabilities are accrued for and
are reflected on the Companies' balance sheets.
(b) At and following the Closing Date: (i) Buyer shall administer and
pay the claims, liabilities and expenses, and shall indemnify and hold Sellers
harmless with respect to Benefit Plans that are sponsored or maintained by the
Companies (the "Buyer Plans"), to the extent that such claims, liabilities and
expenses relate to the Company Employees and (A) relate to periods after the
Closing Date or (B) relate to periods prior to the Closing to the extent that
such claims, liabilities and expenses are accrued and are reflected on the
Companies' balance sheets; and (ii) Sellers shall indemnify and hold Buyer
harmless with respect to claims, liabilities and expenses under the Buyer Plans,
to the extent that such claims, liabilities and expenses relate to periods prior
to the Closing and are not accrued or reflected on the Companies' balance
sheets. At and following the Closing Date, Sellers shall administer and pay the
claims, liabilities and expenses, and shall indemnify and hold Buyer harmless,
with respect to all claims, liabilities and expenses relating to (i) any Benefit
Plans that are not Buyer Plans, (ii) any "employee benefit plans" (as defined in
Section 3(3) of ERISA) other than the Benefit Plans currently or previously
sponsored by Sellers, and (iii) any pension plans, whether or not subject to
Title IV of ERISA, and any liabilities or expenses incurred by any entity that
is required to be aggregated with the Companies pursuant to section 414(b), (c)
or (m) of the Code, immediately prior to, but not immediately after, the Closing
Date, to the extent that any such claims, liabilities and expenses are not
accrued or are not reflected in the Companies' balance sheets.
(c) Without limiting or expanding Buyer's obligations with respect to
the Post-Closing Stock-Based Compensation contemplated in Section 5.9(b) and
subject to the last sentence of Section 5.13(d), Buyer shall, and shall cause
its Subsidiaries (including the Companies), to provide employee benefits for
Company Employees that are at least substantially comparable in the aggregate to
the employee benefits and compensation provided to similarly situated Persons
(i) by Sellers or their affiliates under the Benefit Plans and compensation
arrangements in effect as of the Closing Date or (ii) by Buyer under its
employee benefit plans and compensation arrangements in effect for its
employees. Buyer shall or shall cause the Companies to pay all accrued and
unpaid compensation, including vacation pay, as of the Closing Date in respect
of the Company Employees except as provided in Section 5.8 or 5.13(b).
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(d) If Company Employees are included in any benefit plan (including
without limitation, provision for vacation) of Buyer or its Subsidiaries, such
employees shall receive credit for service prior to the Closing Date with
Sellers or any of their Subsidiaries or affiliates to the same extent such
service was counted under similar Benefit Plans for purposes of eligibility,
vesting and eligibility for retirement, and benefit accrual with respect to
vacation, disability and severance. Buyer shall use reasonable efforts to
provide medical, dental and health plan coverage to Company Employees as of the
Closing Date that shall not include pre-existing condition exclusions, except to
the extent such exclusions were applicable under the similar Benefit Plan as of
the Closing Date, and such plans shall provide credit for any deductibles and
co-payments applied or made with respect to each Company Employee in the
calendar year of the Closing. Buyer assumes the obligation, if any, to provide
coverage to the extent required by Part 6 of Title I of ERISA from and after the
Closing Date to Company Employees (but not any ConLife Employees or PCFS
Employees) who terminated their employment on or before the Closing Date. No
benefits are guaranteed or promised hereunder to any Company Employee with
respect to stock option, bonus or incentive plans, but may be so provided by
Buyer in its sole discretion.
(e) Prior to or effective as of the Closing Date, Sellers shall cause
the Companies to contribute or accrue employer matching contributions for the
portion of the calendar year prior to the Closing Date, with respect to all
Company Employees, and shall immediately thereafter fully vest all such Company
Employees' accounts under any 401(k) plan maintained by Sellers or their
Subsidiaries prior to the Closing Date for the benefit of Company Employees. As
soon as practicable after the Closing Date, Buyer shall cause a 401(k) plan
maintained by Buyer or the Companies to accept "eligible rollover
contributions," within the meaning of Section 402(f)(2)(A) of the Code, from any
401(k) plan maintained by Sellers or their Subsidiaries prior to the Closing
Date, for the benefit of Company Employees.
SECTION 5.14 Nonsolicitation. Each of PLAC, PFG and SFC and any of its
affiliates (other than the Companies) hereby agrees that, for a period
commencing on the Closing Date and ending on the second anniversary of the
Closing Date, it shall not, without Buyer's prior written consent, directly or
indirectly, solicit or hire any of the current officers, general agents or sales
agents (down to the level of district manager) of any of the Companies except
those officers disclosed in Section 5.14 of the Disclosure Schedule; provided,
however, that nothing herein shall prohibit it or any of its Subsidiaries from
publishing a general solicitation of employment in any newspaper, magazine,
trade publication or other medium or from soliciting or hiring any person who
was an officer of any of the Companies on the Closing Date but whose employment
by such Company thereafter ceases, except as a result of Sellers' solicitation
or hiring of such person in violation of the first clause of this Section 5.14.
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SECTION 5.15 Acquisition Proposals. No Seller shall, nor shall it
authorize or permit any of its officers, directors or employees or any
investment banker, attorney or other advisor or representative acting on its
behalf to, directly or indirectly, (a) make any offer or proposal to any Person
or enter into any contract with any Person to (i) sell or otherwise transfer any
of the capital stock or assets or properties of the Companies or any of the PCFS
Assets or (ii) effect any recapitalization, refinancing, restructuring, merger,
consolidation or other business combination involving the Companies or any of
the PCFS Assets; (b) entertain, solicit, encourage, accept, negotiate or
otherwise hold substantive discussions regarding any offer or proposal from any
Person to (i) purchase or otherwise acquire any of the capital stock or assets
or properties of the Companies or any of the PCFS Assets, (ii) effect any
recapitalization, refinancing, restructuring, merger, consolidation, or other
business combination involving the Companies or any of the PCFS Assets, or (c)
provide any non-public information regarding the Companies or the PCFS Assets to
any prospective purchaser thereof. If any such offer or proposal is made to or
received from any Person, Sellers will promptly advise such Person by
written notice of the terms of this Section 5.15 and will promptly deliver a
copy of such notice to Buyer.
SECTION 5.16 Section 338(h)(10) Election, Allocation of Purchase Price
under Sections 338 and 1060 and Matters Relating to SWLIC.
(a) An election under Section 338(h)(10) of the Code and any
corresponding elections under the state, local or foreign tax law (the
"338(h)(10) Election") shall be made by PFG and Buyer in respect of the purchase
and sale of the PFI Shares. The parties agree that the Purchase Price will be
allocated as provided in Section 2.1 to the assets of PCFS and PFI for all
purposes (including Tax and financial accounting purposes) in accordance with
the rules under Section 338(b)(5) and Section 1060 of the Code and the Treasury
Regulations promulgated thereunder. The parties agree to cooperate in good faith
in preparing the Allocation Schedule as soon as practicable. Sellers, PCFS, PFI
and Buyer will file all Tax Returns (including amended returns and claims for
refund) and information reports in a manner consistent with such allocation.
(b) If requested by Buyer, Sellers shall also join in the filing of a
Section 338(h)(10) Election with respect to the purchase and sale of the ConLife
Shares. Any Tax liability resulting from such election and all costs associated
with such election shall be borne by Buyer. If such election is made, the
principles of the second, third and fourth sentences of Section 5.16(a) shall
apply.
(c) As promptly as practicable (but in no event more than 90 days)
after the Closing Date, PFG shall deliver to Buyer (i) a calculation certified
by PFG's Chief Financial Officer stating ConLife's estimated tax basis in the
shares of common stock, par value $1.00 per share, of SWLIC as of the Closing
Date, which shall separately state adjustments for income, losses,
distributions, contributions and other relevant adjustments from January 1, 1998
through the Closing Date with respect to
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such tax basis (the "SWLIC Basis Adjustments") and (ii) if requested by Buyer,
an updated appraisal from Tillinghast setting forth the fair market value of
SWLIC as of the latest practical date up to and including the Closing Date (the
"SWLIC Valuation Opinion"). If Buyer requests the SWLIC Valuation Opinion, the
costs thereof shall be shared equally by Buyer and PFG. If Buyer requests the
SWLIC Valuation Opinion, the Buyer Actuary shall review the SWLIC Valuation
Opinion with Tillinghast in order to arrive at a mutually agreed upon fair
market value of SWLIC (the "SWLIC Value"). If the SWLIC Value is greater than
$220 million plus the SWLIC Basis Adjustments, 35% of such excess shall be
recorded as a liability for Taxes on the Closing Statement with respect to
ConLife. PFG and SFC agree that unless such a liability is recorded on the
Closing Statement as set forth in the preceding sentence, they shall not take
the position in any Tax Return that the Tax basis of SWLIC immediately after the
Closing Transactions exceeds $220 million plus or minus, as the case may be, the
SWLIC Basis Adjustments.
SECTION 5.17 Tax Matters.
(a) Sellers shall be responsible and shall pay all Taxes imposed on
the income of the Companies, including, without any limitation, any amounts
included in income under Treasury Regulation Sections 1.1502-13 and 1.1502-14,
any excess loss accounts taken into income under Treasury Regulation Section
1.1502-19 and any Taxes resulting from the transactions contemplated under this
Agreement, for all periods through and including the Closing Date to the extent
not provided as a current Tax liability on the Closing Statement. Except as
required by law, PFG, PLAC and SFC shall take no position on such Tax Returns
that relate to the Companies that would adversely affect the Companies after the
Closing Date. The income of the Companies shall be apportioned to the period up
to and including the Closing Date (excluding income after the Closing but prior
to the end of the Closing Date (i) that is not incurred in the ordinary course
of business, (ii) that is not incurred pursuant to the transactions contemplated
by this Agreement and (iii) that is caused by Buyer, which in each case shall be
attributed to the period after the Closing Date) and the period after the
Closing Date by closing the books of the Companies as of the end of the Closing
Date.
(b) PFG, PLAC and SFC shall make no election to retain any net
operating loss carryovers or capital loss carryovers of the Companies under
Treasury Regulation Section 1.1502-20(g) or any similar provision of federal,
state, local or foreign law.
(c) PFG, PLAC and SFC shall allow the Companies and its counsel to
participate in any audits of the consolidated federal income Tax Returns of PFG,
PLAC or SFC to the extent that such Tax Returns relate to the Companies.
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(d) PFG, PLAC and SFC shall immediately pay to Buyer any Tax refund
(or reduction in Tax liability) resulting from a carryback of a postacquisition
Tax attribute of any of the Companies into a consolidated, combined or unitary
Tax Return of PFG, PLAC or SFC, when such refund or reduction is realized by
PFG, PLAC or SFC. PFG, PLAC and SFC shall cooperate with the Companies in
obtaining such refunds (or reduction in Tax liability), including through the
filing of amended Tax Returns. PFG shall be entitled to any Tax refund (or
reduction in Tax liability) from a Tax Return for a taxable year that ends on or
prior to the Closing Date or the portion ending on the Closing Date of any
taxable year that includes the Closing Date that was not reflected on the
Closing Statement and is not described in the first sentence of this Section
5.17(d) (a "Seller Refund"), net of any tax payable by Buyer or the Companies in
respect of the receipt or accrual of such Seller Refund or any additional
correlative tax liability in another taxable year (a "Seller Net Refund
Amount"). If Buyers or any of the Companies realize such Seller Refund in cash
or through the reduction of another Tax liability for which Buyer is responsible
hereunder after the Closing Date, they shall pay the associated Seller Net
Refund Amount over to PFG within five days of receipt.
(e) PFG, PLAC and SFC will prepare or cause to be prepared, and file
or cause to be filed in a manner consistent with past practice and in the
ordinary course of business (subject to any departure required to comply with
any applicable law) (i) all consolidated, combined, or unitary Tax Returns of
the Sellers, the PLAC Group, the ConLife Group or the PFG Group that include the
Companies for all periods that begin prior to the Closing Date and (ii) all
other Tax Returns required to be filed by or on behalf of the Companies on or
prior to the Closing Date. PFG, PLAC and SFC agree to consult with Buyer with
respect to the Tax Returns described in this section, and shall deliver drafts
of such Tax Returns to Buyer no later than 10 Business Days prior to the date,
including extensions, on which such Tax Returns are required to be filed.
(f) Buyer will prepare or cause to be prepared, and file or cause to
be filed, all Tax Returns of the Companies other than those set forth in Section
5.17(e). Buyer will prepare all Tax Returns which reflect any Taxes for which
PFG, PLAC and SFC may be obligated to indemnify the Buyer Indemnitees under this
Agreement, in a manner consistent with past practice (subject to any departure
required to comply with any applicable law). Buyer agrees to consult with PFG
with respect to the Tax Returns described in the preceding sentence, and shall
deliver drafts of such Tax Returns to PFG no later than 10 Business Days prior
to the date, including extensions, on which such Tax Returns are required to be
filed.
(g) The Consolidated Federal Income Tax Liability Allocation
Agreement, dated December 14, 1995, among ConLife, Union Bankers and Marquette,
as amended by the First Amendment to Consolidated Federal Income Tax Liability
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Allocation Agreement, dated as of January 1, 1996, among ConLife, Union Bankers,
Marquette and SWLIC (other than Section 4 thereof) shall remain in effect solely
as between ConLife and SWLIC with respect to taxable periods through and
including the Closing Date. Except as provided in the foregoing sentence,
effective as of the Closing Date, PFG, PLAC and SFC shall terminate, or cause to
be terminated, any agreements relating to the sharing or allocation of, or
indemnification agreement with respect to, Taxes, or any similar contract or
arrangement to which any of the Companies is party such that none of the
Companies has any further Tax liability thereunder except as provided as a
current Tax liability on the Closing Statement, which shall be paid as soon as
reasonably practicable after the Closing.
SECTION 5.18 Financial Matters; Proxy Statement. (a) As soon as
reasonably practicable following the date of this Agreement, PFG shall deliver
to Buyer true and complete copies of (i) the audited combined financial
statements of the Companies (and PCFS, to the extent required under Item 13 of
Schedule 14A under the Exchange Act for purposes of the Proxy Statement) as at
and for the years ended December 31, 1995, 1996, 1997 and 1998, together with
the notes thereto (the "Audited Financial Statements"), which shall be certified
by KPMG Peat Marwick LLP ("KPMG"), independent public accountants for PFG, (ii)
a review letter in form and substance reasonably satisfactory to Buyer relating
to the Unaudited Financial Statements (the "Review Letter") and (iii) the Annual
Statements for each PennLife Company and ConLife Company for the year ended
December 31, 1998, including all exhibits, interrogatories, notes and schedules
thereto and any actuarial opinion, affirmation or certification filed in
connection therewith (the "1998 SAP Financial Statements"). In addition, PFG
shall, as promptly as practicable, provide all other financial data and other
information relating to the Companies reasonably requested by Buyer, so as to
permit Buyer to satisfy any reporting or disclosure obligations of Buyer
relating to the transactions contemplated by this Agreement.
(b) Prior to the Closing Date, PennLife shall, and PFG and PLAC shall
cause PennLife to, record in accordance with GAAP and SAP additional reserves
relating to adverse loss development applicable to the disability income claim
reserves of PennLife to the extent appropriate as indicated in the applicable
report of the Reserves Consultants; provided, that PennLife shall not be
required to record additional reserves in excess of $5 million.
(c) As soon as reasonably practicable after the delivery to Buyer of
the Audited Financial Statements for 1995, 1996 and 1997, Buyer shall file with
the Commission a preliminary proxy statement (the "Proxy Statement") with
respect to, among other things, the solicitation of shareholder votes to amend
Buyer's certificate of incorporation to increase its authorized capital stock.
Buyer shall use its commercially reasonable efforts to promptly respond to any
comments raised by the Commission with respect to the Proxy Statement and shall
cause the definitive Proxy Statement to be
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mailed to the shareholders of Buyer at the earliest practicable date. If any
event with respect to Buyer, or with respect to other information supplied by
the Companies or Sellers for inclusion in the Proxy Statement, shall occur which
is required to be described in a supplement to the Proxy Statement, such event
shall be so described, and such supplement shall be promptly filed with the
Commission and, as required by law, disseminated to shareholders of Buyer. The
Proxy Statement will comply as to form in all material respects with the
provisions of the Exchange Act and the rules and regulations thereunder.
SECTION 5.19 Peninsular Licenses.
(a) Prior to the Closing, Sellers shall cooperate with and assist,
and shall cause the Companies to cooperate with and assist, Buyer in causing
Peninsular (i) to remove such restrictions as is reasonably necessary to permit
Peninsular to write new business in the states in which Peninsular holds
licenses to conduct insurance business as of the date hereof and (ii) to obtain
licenses to conduct insurance business in the states listed in Section 5.19 of
the Disclosure Schedule and to obtain such product approvals in such states as
Buyer reasonably requests.
(b) Buyer will reimburse PFG and/or PLAC, as applicable, for all
actual out-of-pocket costs incurred in connection with obtaining the licenses
and product approvals contemplated in Section 5.19(a) above.
(c) If Buyer is unable to acquire the Peninsular Shares, (i)
the Cash Purchase Price will be reduced by the Peninsular Purchase Price, (ii)
PFG or its designee will purchase the Peninsular Shares for an amount in cash
equal to the Peninsular Purchase Price, (iii) the Aggregate Capital Amount will
be reduced by $12,725,000 and the Target Capital Amount for Peninsular will be
eliminated, and (iv) all ConLife business being reinsured by Peninsular pursuant
to the reinsurance transaction contemplated in item 9 of Annex E will be
transferred by Peninsular to a party designated by Buyer under a reinsurance
agreement containing terms reasonably satisfactory to Buyer.
SECTION 5.20 PCFS Licenses. At or prior to Closing, Sellers shall use
their commercially reasonable best efforts to obtain all software licenses (the
"PCFS Licenses") required to be obtained in connection with the sale of the PCFS
Assets to Buyer. At the Closing, Buyer shall reimburse PFG for 50% of all costs
incurred in connection with obtaining the PCFS Licenses.
SECTION 5.21 Change of Name. As soon as reasonably practicable after
the Closing Date, Buyer shall cause PC-Canada and PFI (and, to the extent
applicable, any Subsidiaries thereof) to amend their respective organizational
documents and take all other regulatory and other actions to change their
respective names to a name that does
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not include the word "PennCorp" or any variant thereof. Notwithstanding the
foregoing, PC-Canada and PFI (and any applicable Subsidiaries thereof) may,
until such name change occurs, continue to use stationery, letterhead, policy
forms, business cards and other property or assets on which the name "PennCorp"
or any variant thereof appears so long as Buyer uses its reasonable efforts to
cause appropriate notations to be made thereon indicating that such Companies
are divisions of UAFC and are not part of the PennCorp Financial Group, Inc.
group of companies.
SECTION 5.22 Litigation Arising Between Signing and Closing. Sellers
will provide Buyer with prompt notice in reasonable detail of any Litigation,
complaints, charges or claims against any of the Companies or PCFS before any
Governmental Authority or arbitrator initiated or, to the knowledge of Sellers,
threatened between the date hereof and the Closing Date that would have been
required to be disclosed in Section 3.10 of the Disclosure Schedule ("New
Litigation") or Section 3.23(f) of the Disclosure Schedule ("New Employee
Claims") had they arisen or been in existence on or prior to the date of this
Agreement.
ARTICLE VI
CLOSING CONDITIONS
SECTION 6.1 Conditions to the Obligations of Buyer under this Agreement.
The obligations of Buyer under this Agreement to consummate the Closing
Transactions shall be subject to the satisfaction, at or prior to the Closing,
of the following conditions:
(a) subject to Section 5.19(c) hereof, all authorizations, consents
and approvals contemplated by Sections 3.6 and 4.5, including the PennLife
Insurance Approvals, the ConLife Insurance Approvals (which shall include
approval to restructure the capital of the PennLife Companies and the ConLife
Companies to reset unassigned surplus to not less than zero) and the Buyer
Approvals, shall have been obtained and shall be in full force and effect and
applicable regulators shall not have imposed any material and adverse
prohibitions, limitations, conditions or restrictions on Buyer or any of the
Companies in connection with the approvals by such regulators of the Forms A to
be filed by the parties as contemplated hereby, including but not limited to a
restriction on the ability of any of the Companies to pay ordinary dividends or
to write any material line of business.
(b) any waiting period applicable to the consummation of the sale and
purchase of the Shares under the HSR Act shall have expired or been terminated;
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(c) no injunction, restraining order or other ruling or order issued
by any Governmental Authority or other legal restraint or prohibition preventing
the consummation of the Closing Transactions shall be in effect;
(d) each of the obligations of PLAC, PFG, SFC and PCFS required to be
performed by it at or prior to the Closing pursuant to this Agreement shall have
been duly performed and complied with in all material respects, and the
representations and warranties of PLAC, PFG, SFC and PCFS contained in this
Agreement shall be true and correct in all material respects as of the date of
this Agreement and as of the Closing Date as though made at and as of the
Closing Date (except (i) as to those representations or warranties which
specifically relate to an earlier date, which need to be true and correct in all
material respects as of such specified dates and (ii) to the extent that the
representation and warranty set forth in Section 3.15(e) has been rendered
inaccurate as the result of any claims asserted with respect to Agent
Compensation between the date hereof and the Closing), and Buyer shall have
received a certificate to that effect signed by a senior officer of each of
PLAC, PFG, SFC and PCFS;
(e) any and all material permits, consents, waivers, clearances,
approvals and authorizations of Governmental Authorities and all material
consents, licenses, waivers or approvals of any other third parties (other than
those contemplated by subparagraph (a) above), including the PCFS Licenses,
which are necessary in connection with the consummation of the Closing
Transactions and the consummation of the transactions contemplated by the
Universal Share Purchase Agreement shall have been obtained;
(f) Buyer shall have received opinions of counsel to Sellers, in the
forms attached hereto as Annex E;
(g) Security Life and Trust Insurance Company ("Integon") and
PennLife shall have entered into a lease agreement containing the material terms
set forth on Exhibit D on terms reasonably satisfactory to Buyer pursuant to
which, following the Closing, PennLife will continue to occupy office space
currently occupied by PennLife Employees at the facility located at Wycliff Road
in Raleigh, North Carolina, for the term described in Exhibit D;
(h) Buyer or any of the Companies and AmeriLife Marketing Inc. shall
have entered into an agreement containing the material terms set forth on
Exhibit A and otherwise on terms reasonably satisfactory to Buyer;
(i) the capital and surplus (excluding AVR and IMR) of the PennLife
Companies and the ConLife Companies reflected on the Estimated Statement
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shall equal or exceed the Target Capital Amount for each Company and the
Aggregate Target Capital Amount shall have been satisfied;
(j) all intercompany indebtedness owed by PFG and its affiliates
(other than the Companies) to any of the Companies or owed by the Companies to
PFG or its affiliates (other than the Companies) as listed on Section 3.25 of
the Disclosure Schedule shall have been paid in full, and all other affiliate
transactions described on Section 3.25 of the Disclosure Schedule shall have
been terminated (other than such affiliate transactions solely among the
Companies), with no further liability to any of the Companies or relating to the
PCFS Assets;
(k) PFG shall have executed and delivered the Pledge and Security
Agreement;
(l) the conditions set forth in the Chase Commitment shall have been
satisfied, to the satisfaction of Chase Bank and Chase Securities; provided,
however, that upon receipt of notice from Chase Bank that the reports delivered
by the Reserves Consultants and the 1998 Audited Financial Statements are
satisfactory under the terms of the Chase Commitment (which shall be deemed
satisfactory for purposes of this clause if no objection is made within 30 days
of delivery of the last of such reports and financial statements), the
conditions specified in this Section 6.1(m) shall no longer be conditions to the
consummation by Buyer of the Closing Transactions;
(m) the Reserves Consultants shall have completed their review of all
of the PennLife Insurance Reserves and the results of such reviews shall be
reasonably satisfactory to Buyer; provided, however, that Buyer shall make its
determination of the adequacy of such reports within 30 days of delivery of the
last of such reports;
(n) each of the Pre-Closing Restructuring Transactions shall have
been completed or otherwise provided for to the reasonable satisfaction of
Buyer;
(o) Sellers shall have delivered to Buyer for inclusion in the Proxy
Statement the 1998 Audited Financial Statements specified in Section 5.18(a)(i)
and the shareholders of Buyer shall have approved at a special meeting of
shareholders of Buyer the matters requiring shareholder approval as set forth in
the UAFC Share Purchase Agreement, in accordance with New York law and the rules
of Nasdaq;
(p) the Companies shall have received either (i) a rating of B+ or
better from A.M. Best or (ii) assurances from A.M. Best satisfactory to Buyer
that on or immediately after the Closing, the Companies will be assigned at
least a B+ rating;
(q) Buyer or a designated subsidiary of Buyer shall have entered into
an agreement with Integon, Occidental Life Insurance Company of North Carolina
and
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Professional Insurance Company containing the material terms set forth on
Exhibit F or otherwise on terms reasonably satisfactory to Buyer and PFG
pursuant to which Buyer or such subsidiary shall have agreed to provide the
services specified in Exhibit F for the period specified in Exhibit F;
(r) the Review Letter shall not indicate any material deficiency in
the Unaudited Financial Statements; and
(s) Sellers shall have delivered to Buyer a certificate complying with
Treasury Regulations section 1.1445-2(b)(2), in form and substance reasonably
satisfactory to Buyer, duly executed and acknowledged, certifying that Sellers
are not foreign persons within the meaning of such section.
SECTION 6.2 Conditions to the Obligations of Sellers under this
Agreement. The obligation of Sellers under this Agreement to consummate the
Closing Transactions shall be subject to the satisfaction, at or prior to the
Closing, of the following conditions:
(a) all authorizations, consents and approvals contemplated by
Sections 3.6 and 4.5, including the PennLife Insurance Approvals, the ConLife
Insurance Approvals and the Buyer Approvals shall have been obtained and shall
be in full force and effect and applicable regulators shall not have imposed any
material and adverse prohibitions, liabilities, limitations, conditions or
restrictions on Sellers or (to the extent Sellers would be prevented from
consummating the transactions contemplated by this Agreement) the Companies, in
connection with the approvals by such regulators of the Forms A to be filed by
the parties as contemplated hereby including but not limited to a restriction on
the ability of Union Bankers to pay the Union Bankers Special Dividend or on the
ability of the Sellers or the Companies to make any other reallocation of
capital and surplus as otherwise permitted or required by this Agreement;
(b) any waiting period applicable to the consummation of the sale and
purchase of the Shares under the HSR Act shall have expired or been terminated;
(c) no injunction, restraining order or other ruling or order issued
by any Governmental Authority or other legal restraint or prohibition preventing
the consummation of the Closing Transactions shall be in effect;
(d) each of the obligations of Buyer required to be performed by it
at or prior to the Closing pursuant to the terms of this Agreement shall have
been duly performed and complied with in all material respects, and the
representations and warranties of Buyer contained in this Agreement shall be
true and correct in all material respects as of the date of this Agreement and
as of the Closing Date as though made at
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and as of the Closing Date (except as to any representation or warranty which
specifically relates to an earlier date), and Sellers shall have received a
certificate to that effect signed by an officer of Buyer;
(e) Buyer or a designated subsidiary of Buyer shall have entered into
an agreement with Integon, Occidental Life Insurance Company of North Carolina
and Professional Insurance Company containing the material terms set forth on
Exhibit F or otherwise on terms reasonably satisfactory to Buyer and PFG
pursuant to which Buyer or such subsidiary shall have agreed to provide the
services specified in Exhibit F after the Closing for the period specified in
Exhibit F;
(f) Sellers shall have received an opinion of counsel to Buyer, in
the form attached hereto as Annex F; and
(g) the shareholders of Buyer shall have approved at a special
meeting of shareholders of Buyer the matters requiring shareholder approval as
set forth in the UAFC Share Purchase Agreement, in accordance with New York law
and the rules of Nasdaq.
ARTICLE VII
CLOSING
SECTION 7.1 Closing. The closing of the Closing Transactions (the
"Closing") shall take place at the offices of Weil, Gotshal & Manges LLP, 767
Fifth Avenue, New York, NY 10153, subject to the satisfaction or waiver of the
conditions set forth in Sections 6.1 and 6.2, as soon as practicable after the
date hereof and in any event not later than June 30, 1999, or at such other time
and place and on such other date as Buyer and PFG shall agree (the "Closing
Date"). As a further condition to Closing, at the Closing:
(a) PLAC, PFG, SFC and PCFS, as applicable, shall deliver or cause to
be delivered to Buyer the following:
(i) the certificates described in Section 6.1(d);
(ii) share certificates representing all of the Shares in
appropriate form for transfer to Buyer duly endorsed in blank or
accompanied by stock powers duly executed in blank;
(iii) resignations of the directors of each of the Companies;
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(iv) an executed Bill of Sale, Assignment and Assumption
Agreement; and
(v) a section 116 certificate in respect of the PC-Canada shares
bearing a certificate amount not less than the amount of the PC-Canada
Purchase Price; provided, that if the certificate is not so delivered,
Buyer shall make such withholdings as may be required pursuant to the
Income Tax Act (Canada).
(b) Buyer shall deliver or cause to be delivered to Sellers the
following:
(i) the certificate described in Section 6.2(d);
(ii) the Acquisition Notes; and
(iii) an executed Bill of Sale, Assignment and Assumption
Agreement; and
(c) Buyer shall pay or cause to be paid to Sellers, by wire transfer
of immediately available funds to such account or accounts as Sellers shall have
designated in writing at least two days prior to the Closing Date, the Cash
Purchase Price.
ARTICLE VIII
SURVIVAL/INDEMNIFICATION
SECTION 8.1 Survival of Representations and Warranties; Indemnification
Obligations.
(a) Notwithstanding any right of Buyer to investigate fully the
affairs of the Company and the Subsidiaries and notwithstanding any knowledge of
facts determined or determinable by Buyer pursuant to such investigation or
right of investigation, Buyer has the right to rely fully upon the
representations, warranties, covenants and agreements of Sellers contained in
this Agreement or in any documents delivered pursuant to this Agreement. All
representations and warranties contained in this Agreement shall survive the
execution and delivery of this Agreement and the Closing (except that the
representations and warranties contained in Sections 4.9, 4.10, 4.11 and 4.12
shall not survive the Closing). The representations and warranties of Sellers
contained in this Agreement shall terminate and expire (i) with respect to any
Claim (as defined below) based on the representations and warranties contained
in
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Section 3.14 (a "Tax Representation Claim") on the date which is 30 days after
the date upon which the liability to which any such Tax Representation Claim may
relate is barred by all applicable statutes of limitations (including all
periods of extension, whether automatic or permissive); (ii) with respect to any
Claim based on the representations and warranties contained in Section 3.19,
three years after the Closing Date; (iii) with respect to any Claim based on the
representations and warranties contained in Section 3.13, on the date upon which
the liability to which any such Claim may relate is barred by all applicable
statutes of limitations (including all periods of extension, whether automatic
or permissive); and (iv) with respect to any Claim based on any other
representation and warranty (except for those representations and warranties in
Sections 3.1, 3.2, 3.4, 3.5, 3.16 and 3.24 (the "Fundamental Representations"),
all of which Fundamental Representations shall survive without limitation), on
the date which is 18 months after the Closing Date. Unless a specified period is
set forth in this Agreement (in which event such specified period will control),
the covenants and agreements of this Agreement will survive the Closing and
remain in effect indefinitely.
(b) PFG, with respect to all matters contemplated by this Agreement,
jointly and severally with PLAC, SFC and PCFS; PLAC, with respect only to
matters relating to itself and the PennLife Companies, severally and not jointly
with any other Seller (except PFG); SFC, with respect only to matters relating
to itself and the ConLife Companies, severally and not jointly with any other
Seller (except PFG); and PCFS, with respect only to matters relating to itself,
severally and not jointly with any other Seller (except PFG), will indemnify,
defend and hold harmless Buyer and, following the Closing, the Companies
(together with their respective directors, officers, employees, affiliates,
successors and assigns, the "Buyer Indemnitees") from and against all actions,
causes of action, suits, claims, complaints, demands, litigations, or legal,
administrative or arbitral proceedings or investigations ("Claim"), losses,
liabilities, damages (excluding any indirect, consequential or special damages),
deficiencies, judgments, assessments, fines, settlements, costs or expenses
(including interest, penalties and fees, reasonable expenses and disbursements
of outside attorneys, experts and consultants) incurred by the indemnified party
in any action or proceeding between the indemnifying party and the indemnified
party or between the indemnified party and any third party, or otherwise
("Losses") based upon, arising out of or otherwise in respect of:
(i) any inaccuracy in or any breach of any representation,
warranty, covenant or agreement of Sellers contained in this Agreement or
in any documents delivered by Sellers pursuant to this Agreement (including
any breach of the representation and warranty in Section 3.15(e) relating
to claims for Agent Compensation not listed in Section 3.15(e) of the
Disclosure Schedule); provided, that for purposes of this Section 8.1(b)(i)
only, any inaccuracy in or breach of a representation or warranty shall be
determined
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without reference to any materiality or Material Adverse Effect qualifier
(other than such qualifier contained in Section 3.28 hereof) that may be
set forth therein;
(ii) any derivative lawsuits or lawsuits based upon violations
of federal and state securities laws against PFG or its affiliates or their
respective officers and directors which are pending as of the date of this
Agreement or which may be brought after the date of this Agreement, whether
or not Buyer, the Companies or any Buyer Indemnitee is named or joined as a
party thereto; provided, that Buyer shall not be entitled to
indemnification under this Section 8.1(b)(ii) for any Losses incurred by
Buyer in connection with such lawsuits that result from any actions of
Buyer that are independent from, and not in breach or violation of, any of
the transactions or other matters contemplated by this Agreement or any
other documents executed and delivered in connection with the transactions
contemplated by this Agreement;
(iii) any Taxes of any member of an affiliated, consolidated,
combined, or unitary group of which any of the Companies is or was a member
on or prior to the Closing Date by reason of the liability of the Companies
pursuant to Treasury Regulation Section 1.1502-6(a) or any analogous or
similar state, local or foreign law or any contractual liability for Taxes
of any party other than the Companies;
(iv) any Phase III Taxes of any Company relating to any period
up to and including the Closing Date;
(v) any Phase III Taxes of any Company relating to any period
after the Closing Date up to and including five taxable years following the
Closing Date and all or any portion of any later taxable year through and
including the fifth anniversary of the Closing Date; provided, that if any
Phase III Taxes arise after the Closing Date as a result of any action
taken by Buyer, Buyer shall only be entitled to be indemnified for 75% of
such Taxes; provided further, that PFG, SFC and PLAC shall not be liable
hereunder with respect to any Phase III Taxes caused solely by Buyer's
failure to make reasonable efforts, for such period, to (A) maintain in
force the reinsurance agreement between ConLife and Peninsular contemplated
by item 9 of Annex H (unless otherwise required by applicable regulators)
and (B) maintain Peninsular as a life insurance company within the meaning
of Section 816 of the Code;
(vi) any reductions in or limitations on the NOLs resulting from
any challenge by a Governmental Authority or limitation imposed under the
Code (other than limitations imposed solely by reason of the Closing
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Transactions), including without limitation any increased liability or
Taxes with respect to periods after the Closing;
(vii) in the event the NOLs available for carryover, as provided
in Section 3.14(ac), are less than $20 million, the amount of the
difference multiplied by 35%, utilizing a discount rate of 15% per annum,
utilizing the date when such unavailable amount of NOLs would otherwise
have been available and reflecting the principles of Section 382 of the
Code, will constitute the amount of Buyer's loss. An example of the
application of this calculation is set forth in Exhibit G.
(viii) any of the Pre-Closing Restructuring Transactions (whether
such Losses relate to Taxes or otherwise);
(ix) any Taxes, or for any Loss of Tax benefits, incurred in
connection with or as a result of any 338(h)(10) Election pursuant to
Section 5.16 of this Agreement;
(x) any Taxes related to the Closing Transactions;
(xi) the Transaction Bonuses and the Pre-Sale Obligations
(other than any Losses resulting from the failure by Buyer to perform its
obligations under Section 5.9(b) or (c));
(xii) any liabilities of PCFS that Buyer has not expressly
assumed;
(xiii) the failure of PCFS to comply, in connection with the sale
of the PCFS Assets, with all applicable bulk sales or bulk transfer laws;
(xiv) the presence at any time prior to the Closing of
underground fuel storage tanks at, or the use prior to the Closing as an
auto service station of, the commercial property located at 645 Riverside
Avenue, Jacksonville, Florida 32204 (referred to in Section 3.19 of the
Disclosure Schedule) and arising pursuant to Environmental Laws; and
(xv) the wrongful discharge claim by Mr. Ernie Brezden (item 16
of Section 3.10 of the Disclosure Schedule), the discrimination claim by
Bernadette Somerville (item 6 of Section 3.10 of the Disclosure Schedule)
and the discrimination claim by Robert Foster (item 18 of Section 3.10 of
the Disclosure Schedule).
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SECTION 8.2 Obligation of Buyer to Indemnify. Buyer agrees to
indemnify, defend and hold harmless Sellers (other than, following the Closing,
the Companies) and their respective directors, officers, employees, affiliates,
successors and assigns from and against all Losses based upon, arising out of or
otherwise in respect of (i) any inaccuracy in or any breach of any
representation, warranty, covenant or agreement of Buyer contained in this
Agreement or in any documents delivered by Buyer pursuant to this Agreement and
(ii) a breach by Buyer of its obligations under Section 5.9(b) or (c) of this
Agreement, including the Post-Closing Compensation Obligations.
SECTION 8.3 Notice and Opportunity to Defend.
(a) Notice of Asserted Liability. The party making a claim under this
Article VIII is referred to as the "Indemnitee," and the party against whom such
claims are asserted under this Article VIII is referred to as the "Indemnifying
Party." All claims by any Indemnitee under this Article VIII shall be asserted
and resolved as follows: Promptly after receipt by the Indemnitee of notice of
any Claim or circumstances which, with the lapse of time, would or might give
rise to a Claim or the commencement (or threatened commencement) of a Claim
including any action, proceeding or investigation (an "Asserted Liability") that
may result in a Loss, the Indemnitee shall give notice thereof (the "Claims
Notice") to the Indemnifying Party. The Claims Notice shall describe the
Asserted Liability in reasonable detail, and shall indicate the amount
(estimated, if necessary and to the extent feasible) of the Loss that has been
or may be suffered by the Indemnitee.
(b) Opportunity to Defend. (i) The Indemnifying Party may elect to
compromise or defend, at its own expense and by its own counsel, any Asserted
Liability (excluding those related to Taxes relating to any period ending after
the Closing Date). If the Indemnifying Party elects to compromise or defend such
Asserted Liability, it shall within 30 days (or sooner, if the nature of the
Asserted Liability so requires) notify the Indemnitee of its intent to do so,
and the Indemnitee shall cooperate, at the expense of the Indemnifying Party, in
the compromise of, or defense against, such Asserted Liability. If the
Indemnifying Party elects not to compromise or defend the Asserted Liability,
fails to notify the Indemnitee of its election as herein provided or contests
its obligation to indemnify under this Agreement, the Indemnitee may pay,
compromise or defend such Asserted Liability. Notwithstanding the foregoing,
neither the Indemnifying Party nor the Indemnitee may settle or compromise any
Asserted Liability over the objection of the other; provided, however, that
consent to settlement or compromise shall not be unreasonably withheld. In any
event, the Indemnitee and the Indemnifying Party may participate, at their own
expense, in the defense of such Asserted Liability. If the Indemnifying Party
chooses to defend any Asserted Liability, the Indemnitee shall make available to
the Indemnifying Party any books, records or other documents within its control
as well as reasonable access to its employee and consultants, in each case to
the extent necessary
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or appropriate for such defense. In the event it is determined by a court of
competent jurisdiction that an Indemnitee is not entitled to indemnification
pursuant to this Article VIII for any Asserted Liability, then the Indemnitee
shall promptly reimburse the Indemnifying Party for all fees, costs and expenses
(including reasonable fees, expenses and disbursements of outside attorneys,
experts and consultants) incurred by the Indemnitee in connection with the
defense of such Asserted Liability.
SECTION 8.4 Limitations on Indemnification. The indemnification
provided for in Sections 8.1 and 8.2 shall be subject to the following
limitations:
(a) The Indemnifying Parties shall not be obligated to indemnify the
Buyer Indemnitees for Losses arising under Section 8.1(b)(i) with respect to
breaches of representations and warranties until the aggregate amounts for
indemnification under Section 8.1(b)(i) equals $2.5 million (the "Basket
Amount"), whereupon the Indemnifying Parties shall be obligated to pay only the
amount of such Losses in excess of the Basket Amount; provided, however, that
the foregoing limitation shall not apply to, and the Indemnifying Parties shall
be obligated to indemnify the Buyer Indemnitees for the full amount of, Losses
arising under Section 8.1(b)(i) based upon, arising out of or otherwise in
respect of the Fundamental Representations and Sections 3.13 and 3.14
(collectively, the "Basket Exclusions") without regard to the Basket Amount;
provided further, that any Losses based upon, arising out of or otherwise in
respect of the Basket Exclusions shall not be counted against the Basket Amount.
(b) The Sellers, collectively, shall not be obligated to make any
payment for indemnification under Section 8.1(b) with respect to breaches of
representations and warranties (except those based upon, arising out of or
otherwise in respect of the Fundamental Representations and Sections 3.13(e) and
3.14(n)) and under Sections 8.1(b)(iv), (v), (vi), (ix) and (x) in excess of the
Purchase Price; provided, that (i) SFC shall not be obligated to make any
payment for indemnification under Section 8.1(b) in excess of the sum of the
Union Bankers Purchase Price and the ConLife Purchase Price, (ii) PLAC shall not
be obligated to make any payment for indemnification under Section 8.1(b) in
excess of the sum of the Peninsular Purchase Price, the PC-Canada Purchase Price
and the PennLife Purchase Price and (iii) PCFS shall not be obligated to make
any payment for indemnification under this Section 8.1(b) in excess of $1.0
million.
(c) Buyer shall not be obligated to make any payment for
indemnification under Section 8.2 in excess of $50 million.
SECTION 8.5 Set-off Rights. In addition to, and not in replacement of,
the rights of Buyer set forth in Section 2.4 above, each of PFG, PLAC, SFC and
PCFS agrees that Buyer shall have the right, but not the obligation, to set-off
against the payment obligations under the Acquisition Notes the full amount of
any Losses required
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<PAGE>
to be paid by such Seller pursuant to Section 8.1(b), as more fully set forth in
the Pledge and Security Agreement. Buyer's set-off right will terminate on the
fifth anniversary of the Closing Date; provided, that such rights will continue
unimpaired beyond the fifth anniversary of the Closing Date with respect to any
Claim as to which Buyer shall have notified PFG and is pending as of the fifth
anniversary of the Closing Date or as to which Buyer shall have given notice in
good faith to PFG prior to such date. The termination of Buyer's set-off rights
as provided in the preceding sentence shall not apply to Buyer's rights to
set-off in connection with the DI Reserves, which rights are set forth in
Section 2.4 of this Agreement.
SECTION 8.6 Adjustment to Purchase Price; Offsetting Tax Benefits.
(a) It is the intention of the parties hereto that any payment under
Sections 2.3 or 2.4 or under this Article VIII shall be treated as an adjustment
to the Purchase Price for all Tax purposes and the parties agree to file their
Tax returns accordingly. In the event that any such payment to Buyer or its
Subsidiaries (including the Companies) is not so treated, the amount of such
payment shall be increased so that, after payments of all Taxes due thereon, the
amount retained by Buyer is equal to the amount that Buyer would have retained
if no such Taxes had been due.
(b) The amount of an indemnified Loss shall be reduced by (or the
Indemnitee shall pay to the Indemnifying Party) any Tax benefits actually
realized by the Indemnitee or its affiliates which are directly attributable to
the Indemnifiable Loss (including, without limitation, any Tax benefits arising
from the payment or accrual of the indemnified Loss or any correlative
offsetting Tax benefit realized in a taxable period) (an "Offsetting Tax
Benefit"), promptly after realizing such Offsetting Tax Benefit in cash.
SECTION 8.7 Exclusive Remedy. Each party hereto agree that, to the
fullest extent permitted by law, such party's sole and exclusive remedy with
respect to any claim or cause of action asserted by it relating to or arising
from breaches of the representations and warranties or covenants and agreements
of any other party contained in this Agreement shall be limited to its rights
under, and subject to the terms and conditions of, this Article VIII.
Notwithstanding the foregoing, (i) the parties shall have the right to obtain
equitable relief in the form of a temporary or permanent injunction or order for
specific performance and (ii) each party shall have the right to assert any
claim for fraud against any other party for any breach of this Agreement.
74
<PAGE>
ARTICLE IX
TERMINATION AND ABANDONMENT
SECTION 9.1 Termination. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned at any time prior to the
Closing:
(a) by mutual consent of each of the Sellers and Buyer;
(b) by any of the Sellers or Buyer:
(i) if a Governmental Authority shall have issued an order,
decree or ruling or taken any other action (which order, decree or
ruling the parties hereto shall use their best efforts to lift), in
each case permanently restraining, enjoining or otherwise prohibiting
any of the Closing Transactions and such order, decree, ruling or
other action shall have become final and nonappealable; or
(ii) if the Closing shall not have occurred on or before March
31, 1999; provided, however, that this Agreement shall automatically
extend for up to two consecutive 30-day periods commencing on March
31, 1999 if (A) Sellers prior to such time shall not have secured the
PennLife Insurance Approvals, ConLife Insurance Approvals and the
Buyer Approvals have not yet been obtained or (B) the Proxy Statement
prior to such time shall not have cleared review by the Commission or
the Proxy Statement has cleared review by the Commission but
additional time is required to hold the meeting of shareholders of
Buyer contemplated by Section 4.5(e) of this Agreement or to close the
transactions contemplated by this Agreement after such meeting;
provided further, however, that the right to terminate this Agreement
shall not be available to any party whose breach of this Agreement has
been the cause of, or resulted in, the failure of the Closing to occur
on or before March 31, 1999 (or the end of the second 30-day period,
if applicable);
(c) by Buyer if a material default or breach shall be made by Sellers
with respect to the due and timely performance of any of their covenants or
agreements contained herein, or in any of their representations or warranties
contained in the Agreement, if such default or breach has not been cured or
waived within 30 days after written notice to such breaching party specifying,
in reasonable detail, such claimed material default or breach and demanding its
cure or satisfaction;
(d) by Sellers if a material default or breach shall be made by Buyer
with respect to the due and timely performance of any of its covenants or
agreements contained herein, or in any of its representations or warranties
contained in the
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<PAGE>
Agreement, if such default or breach has not been cured or waived within 30 days
after written notice to Buyer specifying, in reasonable detail, such claimed
material default or breach and demanding its cure or satisfaction; or
SECTION 9.2 Expenses in the Event of Termination. If this Agreement is
terminated by Buyer or Sellers for any reason other than pursuant to Section
9.1(a), (b)(i), (b)(ii)(A) (with respect to approvals to be obtained in Florida
and New York by Buyer (only if such approvals are not obtained because of the
unsuitability of Buyer, Buyer Sub or Capital Z)), (b)(ii)(B) (except if the
Proxy Statement has not cleared review by the Commission solely because of the
Financial Statements required to be included in the Proxy Statement) or (d) or
the failure of Buyer to obtain the shareholder approval contemplated by Section
4.5, Sellers shall pay to Buyer and Capital Z an amount necessary to reimburse
Buyer and Capital Z for 75% of all actual out-of-pocket costs and expenses of
Buyer and Capital Z incurred through the date of termination by Capital Z and
Buyer in connection with the transactions contemplated by this Agreement
(exclusive of any bank commitment fees) and the UAFC Share Purchase Agreement
(including the negotiation of the Chase Bank Facility), which payment shall be
made by Sellers by wire transfer of immediately available funds within three
business days after receipt by Sellers from Buyer and/or Capital Z of an invoice
or invoices identifying such costs and expenses in reasonable detail, together
with all supporting invoices, and specifying the account or accounts into which
funds should be deposited.
SECTION 9.3 Procedure and Effect of Termination. In the event of
termination and abandonment of the transactions contemplated hereby pursuant to
Section 9.1, written notice thereof shall forthwith be given to the other
parties to this Agreement and this Agreement shall terminate and the
transactions contemplated hereby shall be abandoned, without further action by
any of the parties hereto. If this Agreement is terminated as provided herein:
(a) upon request therefor, each party will redeliver all documents,
work papers and other material of any other party relating to the transactions
contemplated hereby, whether obtained before or after the execution hereof, to
the party furnishing the same; and
(b) no party hereto shall have any liability or further obligation to
any other party to this Agreement resulting from such termination except (i)
that the provisions of this Section 9.3 and Sections 9.2, 9.4 and 9.5 shall
remain in full force and effect and (ii) no party waives any claim or right
against a breaching party to the extent that such termination results from the
breach by a party hereto of any of its representations, warranties, covenants or
agreements set forth in this Agreement.
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<PAGE>
SECTION 9.4 Mutual Agreement of Parties. (a) In the event of termination
of this Agreement, neither Buyer nor any Seller shall, for a period commencing
on the date of such termination and ending 18 months thereafter, without the
consent of the other, directly or indirectly solicit for employment or hire any
employee or agent of Buyer or any Seller, as the case may be, of whom Buyer or
any Seller, as the case may be, became aware as a result of the transactions
contemplated by this Agreement; provided, however, that no party shall be
prohibited from publishing a general solicitation of employment in any newspaper
or magazine or from hiring an employee or agent of another party who seeks
employment without solicitation. This Section 9.4 will supersede the agreement
between the parties with respect to the subject matter hereof contained in the
Confidentiality Agreement, dated May 29, 1998, between PFG and Capital Z (the
"Confidentiality Agreement").
(b) Notwithstanding the foregoing, nothing contained in Section
9.4(a) shall mean or shall be interpreted to mean that, upon termination of this
Agreement, Buyer or Sellers in any way would be restricted or prohibited from
working with or engaging in business in any form whatsoever with Gary Boesch or
any affiliated entity.
SECTION 9.5 Confidentiality. Each party hereto acknowledges that the other
parties have legitimate and continuing proprietary interests in the protection
of their confidential information and that the parties have invested substantial
sums and will continue to invest substantial sums to develop, maintain and
protect such confidential information. Prior to and after the Closing, each
party agrees not to disclose, furnish or make accessible to anyone or use for
its own benefit (other than as contemplated hereby) any trade secrets or other
confidential or proprietary information of another party relating to the
Companies and/or their respective businesses, the PCFS Assets or the other
parties including, but not limited to, information obtained by or revealed to
such party during any investigations, negotiations or review relating to this
Agreement, the UAFC Share Purchase Agreement and any other document contemplated
hereby or thereby or any past or future actions taken in connection with,
pursuant to, in accordance with, or under this Agreement, including without
limitation any business plans, marketing plans, financial information,
strategies, systems, programs, methods, employee lists, computer programs,
insurance profiles and customer lists; provided, however, that such protected
information shall not include (i) information required to be disclosed by law,
legal or judicial process (including a court order, subpoena or order of a
Governmental Authority) or the rules of any stock exchange (including Nasdaq),
(ii) information that is or becomes available to the disclosing party on a
non-confidential basis from a source other than the other parties and not
obtained in violation of this Agreement and (iii) information known to the
public or otherwise in the public domain without violation of this Section 9.5.
77
<PAGE>
ARTICLE X
MISCELLANEOUS PROVISIONS
SECTION 10.1 Post-Closing DI Reserves Information. Until the fifth
anniversary of the Closing Date, from time to time, Buyer shall afford Sellers
reasonable access, and shall cause the officers, employees, agents and
representatives of PennLife to permit Sellers, reasonable access to review and
examine Buyer's procedures and policies for payment of claims and estimation of
reserves relating solely to the DI Reserves (the "DI Reserve Information"). In
connection therewith, Buyer shall cause PennLife to give Sellers (including
Sellers' officers, attorneys, accountants and actuaries) access, during normal
business hours, to the books and records of PennLife to the extent they relate
to the DI Reserves Information; provided, that such access does not unreasonably
disrupt the normal operations of Buyer. Buyer will cause the employees and
agents of PennLife to cooperate fully with Sellers in connection with such
review, to the extent such cooperation does not unreasonably interfere with the
normal operations of PennLife. Sellers acknowledge the strict confidential
nature of the DI Reserves Information and hereby agree that any information
prepared in connection with or in any way relating to Sellers' review and
examination of the DI Reserves Information shall be kept confidential in
accordance with Section 9.5 of this Agreement, except as may otherwise be
necessary in connection with the Reserves Adjustment to take place on the fifth
anniversary of the Closing Date in accordance with Section 2.4 of this
Agreement. Notwithstanding the foregoing, Buyer shall not be required under this
Section 10.1 to take any action that would unreasonably interfere with the
conduct of its business or that of PennLife or cause Buyer or PennLife to incur
any expense (unless Sellers agree to promptly reimburse Buyer and PennLife for
any such expense).
SECTION 10.2 Amendment and Modification. This Agreement may only be
amended, modified or supplemented by a written instrument signed by all the
parties hereto.
SECTION 10.3 Waiver of Compliance; Consents. Any failure of Buyer to
comply with any obligation, covenant, agreement or condition contained herein
may be waived in writing by PFG, but such waiver or failure to insist upon
strict compliance with such obligation, covenant, agreement or condition shall
not operate as a waiver of, or estoppel with respect to, any other failure. Any
failure of Sellers to comply with any obligation, covenant, agreement or
condition contained herein may be waived in writing by Buyer, but such waiver or
failure to insist upon strict compliance with such obligation, covenant,
agreement or condition shall not operate as a waiver of, or estoppel with
respect to, any other failure.
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<PAGE>
SECTION 10.4 Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provisions of this Agreement, which shall remain in full force and
effect.
SECTION 10.5 Expenses and Obligations. PFG, PLAC, SFC and PCFS shall be
responsible for paying all third-party costs and expenses incurred by them and
all third-party costs and expenses in excess of $1.5 million incurred by the
Companies in connection with the Pre-Closing Restructuring Transactions (not
including those costs associated with the termination by Sellers prior to the
Closing of the Lincoln National Agreement) and in preparing the Companies for
sale to Buyer.
SECTION 10.6 Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto and their successors and
assigns. Except for Section 9.1(e), nothing in this Agreement, express or
implied, is intended to confer upon any other Person any rights or remedies of
any nature whatsoever under or by reason of this Agreement, whether by a claim
of third party beneficiary or otherwise, and PFG agrees that it has no third
party beneficiary rights or any other enforceable rights under the UAFC Share
Purchase Agreement and the Chase Commitment Letter.
SECTION 10.7 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given upon the earlier of delivery
thereof if by hand or upon receipt if sent by mail (registered or certified,
postage prepaid, return receipt requested) or on the second next Business Day
after deposit if sent by a recognized overnight delivery service or upon
transmission if sent by telecopy or facsimile transmission (with electronic
acknowledgment of transmission confirmed) as follows:
(a) If to Buyer or, after the Closing, any of the Companies, to:
Universal American Financial Corp.
Six International Drive
Suite 190
Rye Brook, New York 10573-1068
Attention: Richard A. Barasch
Facsimile No.: (914) 934-9123
with copies to:
Capital Z Partners
One Chase Manhattan Plaza
44th Floor
New York, New York 10005
Attention: Bradley E. Cooper
Facsimile No.: (212) 898-8720
79
<PAGE>
and
Harnett Lesnick & Ripps P.A.
NationsBank Tower 150
East Palmetto Park Road
Suite 500
Boca Raton, Florida 33432-4832
Attention: Judge Bertram Harnett
Facsimile No.: (561) 368-4315
and
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017-3909
Attention: Gary I. Horowitz
Facsimile No.: (212) 455-2502
and
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: David K. Lakhdhir
Facsimile No.: (212) 757-3000
(b) If to any Seller including, prior to the Closing, any Seller
which is a Company, to:
PennCorp Financial Group, Inc.
c/o Southwestern Financial Services Corporation
717 North Harwood Street
Dallas, Texas 75201
Attention: Scott D. Silverman
Facsimile No.: (214) 954-7906
with a copy to:
Weil, Gotshal & Manges LLP
100 Crescent Court, Suite 1300
Dallas, Texas 75201
Attention: Jeremy W. Dickens
Facsimile No.: (214) 746-7777
80
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SECTION 10.8 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts to be performed within that state.
SECTION 10.9 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement.
SECTION 10.10 Headings. The article and section headings contained in
this Agreement are solely for the purpose of reference, are not part of the
agreement of the parties and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 10.11 Entire Agreement. This Agreement, the Disclosure Schedule,
the Annexes hereto and the Confidentiality Agreement embody the entire agreement
and understanding of the parties hereto in respect of the subject matter
contained herein or therein. There are no agreements, representations,
warranties or covenants other than those expressly set forth herein or therein.
This Agreement, the Disclosure Schedule and the Annexes hereto supersede all
prior agreements and understandings (other than the Confidentiality Agreement)
between the parties with respect to such subject matter.
SECTION 10.12 Assignment. Except as otherwise provided in this Section
10.12, this Agreement shall not be assigned by operation of law or otherwise;
provided, however, that each of Buyer and PFG may assign all of its rights and
delegate all of its obligations under this Agreement to any Person in connection
with the sale of Buyer or PFG, as the case may be, or all or substantially all
of the assets of Buyer or PFG, as the case may be, to such Person, whether by
stock sale, merger, share exchange, asset sale, consolidation or otherwise, so
long as such Person expressly assumes Buyer's or PFG's (as the case may be)
obligations hereunder; provided, further, however, that Buyer will not assign
its rights or delegate its obligations under this Agreement to any Person prior
to the Closing. Notwithstanding anything in this Agreement to the contrary,
Buyer may give notice to PFG that, pursuant to the terms of the UAFC Share
Purchase Agreement, Buyer is assigning all of its rights and obligations under
this Agreement to an affiliate of Capital Z (the "Substituted Buyer"); provided,
that (a) such Substituted Buyer is a newly-formed acquisition company or other
entity, in each case, reasonably acceptable to PFG and (b) Capital Z shall have
committed to provide equity financing to the Substituted Buyer, and Chase Bank
(and/or other financial institutions) shall have committed to provide debt
financing to the Substituted Buyer, in an aggregate amount at least equal to
that necessary to consummate the Closing Transactions. If Buyer so elects to
assign its rights and obligations under this Agreement, (i) the date specified
in Section 9.1(ii) shall be extended for 90 days (or such later date as shall be
mutually agreed to by the Substituted Buyer and Sellers) and (ii) the
Substituted Buyer and Sellers shall agree to
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<PAGE>
such conforming modifications to this Agreement (such agreement or modifications
not to be unreasonably withheld) as may be necessary to reflect the assignment
by Buyer (without recourse) of all of its rights and obligations to the
Substituted Buyer.
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<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be signed on its behalf by its duly authorized officers, all as of
the day and year first above written.
UNIVERSAL AMERICAN FINANCIAL CORP.
By: /s/ RICHARD A. BARASCH
-------------------------------
Name: Richard A. Barasch
Title: President and Chief
Executive Officer
PENNCORP FINANCIAL GROUP, INC.
By: /s/ SCOTT D. SILVERMAN
-------------------------------
Name: Scott D. Silverman
Title: Senior Vice President
PACIFIC LIFE AND ACCIDENT
INSURANCE COMPANY
By: /s/ SCOTT D. SILVERMAN
-------------------------------
Name: Scott D. Silverman
Title: Senior Vice President
SOUTHWESTERN FINANCIAL CORPORATION
By: /s/ SCOTT D. SILVERMAN
-------------------------------
Name: Scott D. Silverman
Title: Senior Vice President
<PAGE>
PENNSYLVANIA LIFE INSURANCE
COMPANY
By: /s/ SCOTT D. SILVERMAN
-------------------------------
Name: Scott D. Silverman
Title: Senior Vice President
CONSTITUTION LIFE INSURANCE
COMPANY
By: /s/ CHARLES LUBOCHINSKI
-------------------------------
Name: Charles Lubochinski
Title: Senior Vice President
PENNCORP FINANCIAL SERVICES, INC.
By: /s/ SCOTT D. SILVERMAN
-------------------------------
Name: Scott D. Silverman
Title: Senior Vice President
AGREEMENT AMONG SHAREHOLDERS
AND IRREVOCABLE PROXY
Universal American Financial Corp., a New York corporation ("Universal")
and Capital Z Financial Services Fund II, L.P. ("Capital Z") propose to enter
into a Share Purchase Agreement (the "Share Purchase Agreement"), substantially
in the form of the draft thereof dated December 21, 1998, and Universal,
PennCorp Financial Group Inc., a Delaware corporation ("PennCorp"), Capital Z,
Richard A. Barasch ("Barasch") and the undersigned other shareholders of
Universal (the "Shareholders") propose to enter into a Voting Agreement (the
"Voting Agreement"), substantially in the form of the draft thereof dated
December 21, 1998.
Barasch and each of the Shareholders are currently shareholders of
Universal.
It is a condition to Capital Z's execution and delivery of the Share
Purchase Agreement and the Voting Agreement that Barasch and each of the
Shareholders execute and deliver this Agreement among Shareholders and
Irrevocable Proxy (the "Agreement and Irrevocable Proxy").
NOW, THEREFORE, in consideration of these premises and in order to induce
Capital Z to enter into the Share Purchase Agreement and to provide Barasch with
the authority necessary to enter into, and to carry out his obligations under,
the Voting Agreement, each of the undersigned Shareholders hereby
unconditionally and irrevocably agrees as follows:
1. Such Shareholder hereby unconditionally and irrevocably appoints Barasch
and Judge Bertram Harnett, and each of them, proxies and attorneys-in-fact, with
full power to each of substitution, on behalf and in the name of the
undersigned, to represent the undersigned at the meeting of shareholders of
Universal to be held in accordance with the Purchase Agreement and Voting
Agreement (the "Meeting") to vote all shares of stock at the Meeting the
undersigned would be entitled to vote if personally present, in favor of (a)
authorizing the issuance of additional shares of Common Stock as contemplated in
the Share Purchase Agreement as amended (if applicable); (b) in the case of the
Shareholders holding shares of Series C-1 Voting Preferred Stock of the Company,
approving the issuance of indebtedness of finance the acquisition by Universal
of certain businesses of PennCorp pursuant to the purchase Agreement among
Universal, PennCorp, Pacific Life and Accident Insurance Company, Pennsylvania
Life Insurance Company, Southwestern Financial Corporation, Constitution Life
Insurance Company and PennCorp Financial Services, Inc., as amended (if
applicable); (c) amending Universal's Certificate of Incorporation in the
following manner: (i) increase the authorized number of shares, (ii) provide
that the maximum number of directors on the Board is nine and eliminate the
classified board, (iii) specifically provide for action of the Shareholders by
written consent in lieu of a meeting, and that such written consent may only be
by the number of shareholders required to approve such action, (iv) provide for
supermajority approval by the Board of Directors for certain corporate actions,
(v) no longer require supermajority
<PAGE>
2
approval by shareholders of Universal for certain corporate transactions with
interested parties, and (vi) no longer require supermajority approval by
shareholders of Universal to amend certain provisions of the Certificate of
Incorporation; and (d) such other related matters as Universal deems
appropriate.
2. In their discretion, the attorneys-in-fact shall have the unconditional
and irrevocable right to vote upon such other matters which may properly come
before the Meeting or any postponement or adjournments thereof. If after the
date hereof, any of the Shareholders acquires beneficial ownership of any shares
entitled to vote at the Meeting ("Additional Shares"), including, without
limitation, upon exercise of any option, warrant or right to acquire such shares
or through any stock dividend or stock split, this Agreement and Irrevocable
Proxy shall be applicable to all such Additional Shares as if such Additional
Shares had been held by the undersigned Shareholder as of the date hereof. The
provisions of the immediately preceding sentence shall be effective with respect
to Additional Shares without action by any person or entity immediately upon the
acquisition by the undersigned Shareholder of beneficial ownership of such
Additional Shares.
3. Each undersigned Shareholder hereby acknowledges and agrees that the
proxy conveyed hereby is issued pursuant to this Agreement and Irrevocable Proxy
and is therefore irrevocable under the New York Business Corporation Law. Such
proxy shall be effective from the date hereof until the earlier of (i) the
approval of all matters described above at the Meeting and (ii) the termination
of the Share Purchase Agreement in accordance with its terms.
4. The proxy conveyed hereby shall be irrevocable and shall not be
terminated by the incompetence or death of the undersigned Shareholder, by the
liquidation or dissolution of any non-natural person, by the bankruptcy of the
undersigned Shareholder or by the transfer by the undersigned Shareholder of
shares of stock or Additional Shares to another person or entity.
5. This Agreement and Irrevocable Proxy may be executed in counterparts
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same instrument.
This Agreement and Irrevocable Proxy shall be governed by the laws of the
State of New York.
<PAGE>
3
IN WITNESS WHEREOF, the undersigned Shareholder has executed this Agreement
and Irrevocable Proxy as of December 31, 1998.
WAND/UNIVERSAL INVESTMENTS L.P. I
By: Wand (Universal) Inc., its General Partner
By: /s/ DAVID J. CALLARD
------------------------------------------
Name: David J. Callard
Title: President
WAND/UNIVERSAL INVESTMENTS L.P. II
By: Wand (Universal) Inc., its General Partner
By: /s/ DAVID J. CALLARD
-------------------------------------------
Name: David J. Callard
Title: President
AAM CAPITAL FINANCIAL PARTNERS, L.P.
By: AAM Partners, L.P., general partner
By: AAM Investment Banking Group, Ltd.,
general partner
By: /s/ RICHARD A. VEED
-------------------------------------------
Name: Richard A. Veed
Title: President
<PAGE>
4
UAFC, L.P.
By: VWA, L.L.C., general partner
By: Veed Corp., managing member
By: /s/ RICHARD A. VEED
------------------------------------------
Name: Richard A. Veed
Title: President
/s/ RICHARD A. BARASCH
------------------------------------------
Richard A. Barasch
/s/ RENEE P. BARASCH
------------------------------------------
Renee P. Barasch
/s/ MARVIN BARASCH
------------------------------------------
Marvin Barasch
/s/ PHYLLIS BARASCH
------------------------------------------
Phyllis P. Barasch
/s/ MICHAEL BARASCH
------------------------------------------
Michael A. Barasch
/s/ ROBERT F. WRIGHT
------------------------------------------
Robert F. Wright
/s/ GARY W. BRYANT
------------------------------------------
Gary W. Bryant
/s/ ROBERT A. WAEGELEIN
------------------------------------------
Robert A. Waegelein
<PAGE>
5
/s/ WILLIAM E. WEHNER, JR.
------------------------------------------
William E. Wehner, Jr.
/s/ DONNA WEHNER
------------------------------------------
Donna Wehner
/s/ BERTRAM HARNETT
------------------------------------------
Bertram Harnett
/s/ HELEN BARASCH
------------------------------------------
Helen Barasch
/s/
------------------------------------------
David Bolger
Barasch Associates Limited Partnership
By: NMRB Corp.
By: /s/ RICHARD A. BARASCH
-------------------------------------------
Name: Richard A. Barasch
Title:
Norman Barasch Trust #1 UTA Dated 11/2/94
By: /s/ RICHARD A. BARASCH
-------------------------------------------
Name: Richard A. Barasch
Title: Trustee
Richard A. Barasch C/F Benjamin P. Barasch
UGMA NY
By: /s/ RICHARD A. BARASCH
-------------------------------------------
Name: Richard A. Barasch
Title: Authorized Signatory
<PAGE>
6
Richard A. Barasch C/F Emily P. Barasch
UGMA NY
By: /s/ RICHARD A. BARASCH
-------------------------------------------
Name: Richard A. Barasch
Title: Authorized Signatory
Bear Stearns Master Defined Benefit Money
Purchase Plan, Bear Stearns Cust. for Michael
Barasch # 054-01191-1-2-092
By: /s/ MICHAEL BARASCH
-------------------------------------------
Name: Michael A. Barasch
Title:
Robert Norman Barasch c/o Michael Barasch Cust.
By: /s/ MICHAEL BARASCH
-------------------------------------------
Name: Michael A. Barasch
Title:
Michael Barasch & Candice Barasch JT Ten.
By: /s/ MICHAEL BARASCH
-------------------------------------------
Name: Michael Barasch
Title:
Robert F. Wright Associates Inc.
By: /s/ ROBERT F. WRIGHT
-------------------------------------------
Name: Robert F. Wright
Title: President
<PAGE>
7
Universal Holding Corp. 401(k) Savings Plan
By: /s/ RICHARD A. BARASCH
-----------------------------------------
Name: Richard A. Barasch
Title:
By: /s/ ROBERT A. WAEGELEIN
-----------------------------------------
Name: Robert A. Waegelein
Title: Trustee
By: /s/ WILLIAM WEHNER
-----------------------------------------
Name: William Wehner
Title: Trustee
NMRB Corp.
By: /s/ RICHARD A. BARASCH
-----------------------------------------
Name: Richard A. Barasch
Title: President
Weiner Family LTD Partnership
By: /s/ WILLIAM WEHNER
-----------------------------------------
Name: William Wehner
Title: General Partner
Barasch Trust f.b.o. Harnett Family
By: /s/ RICHARD A. BARASCH
-----------------------------------------
Name: Richard A. Barasch
Title: Trustee
Tara Acquisition LLC
By: /s/ RICHARD A. BARASCH
-----------------------------------------
Name: Richard A. Barasch
Title: Member
<PAGE>
8
David F. Bolger Third Amended and
Restated Revocable Trust, dated March 20, 1987
By:
------------------------------------------
Name:
Title: Trustee
VOTING AGREEMENT
VOTING AGREEMENT, dated as of December 31, 1998 (this "Agreement"), by and
among Universal American Financial Corp., a New York corporation (the
"Company"), PennCorp Financial Group Inc., a Delaware corporation ("PennCorp"),
Capital Z Financial Services Fund II, L.P., a Bermuda limited partnership
("Capital Z"), Richard A. Barasch ("Barasch") and the Persons listed on Schedule
I hereof (together with Barasch, the "Security Holders").
WHEREAS, the Security Holders are holders of (i) shares of common stock,
par value $0.01 per share (the "Common Stock"), of the Company, (ii) shares of
Series B Convertible Preferred Stock, par value $1.00 per share (the "Series B
Shares"), of the Company and/or (iii) shares of Series C Convertible Preferred
Stock, par value $1.00 per share (the "Series C Shares" and, together with the
Common Stock and the Series B Shares, and any shares of Common Stock issued upon
conversion of the Series B Shares and Series C Shares, the "Voting Shares"), of
the Company;
WHEREAS, the Security Holders (other than Barasch) have executed in favor
of and delivered to Barasch an unconditional and irrevocable proxy (the
"Irrevocable Proxy"), a copy of which is attached as Exhibit A hereto, pursuant
to which such holders have appointed Barasch their proxy to represent and vote
the Voting Shares held by them of record as of the date hereof (as listed on
Schedule I hereto) for and in the name, place and stead of such holders at any
meeting of shareholders of the Company (or in any action taken by written
consent in lieu of a meeting) held to approve, among other things, the Amendment
(as defined below) and the UA Share Issuance (as defined below).
WHEREAS, concurrently with the execution of this Agreement, the Company and
Capital Z are entering into a purchase agreement for shares of Common Stock (the
"UA Share Purchase Agreement"), a copy of which is attached as Exhibit B hereto,
pursuant to which Capital Z will purchase and the Company will sell and issue to
Capital Z an aggregate of 22,857,143 shares of Common Stock of the Company,
subject to adjustment in accordance with Section 1.6 of the UA Share Purchase
Agreement (the "UA Share Issuance");
WHEREAS, the UA Share Issuance contemplated by the UA Share Purchase
Agreement will require the Company to amend its Certificate of Incorporation in
order to increase the number of authorized shares of Common Stock of the Company
(the "Amendment"), which, in accordance with Section 803 of the Business
Corporation Law of New York, requires the approval of a majority of the
shareholders of the Company;
<PAGE>
2
WHEREAS, under Item 25(H) of subsection (c) of Section 4310 of the
Marketplace Rules of The Nasdaq Stock Market, Inc., the UA Share Issuance
requires the approval of a majority of the shareholders of the Company;
WHEREAS, concurrently with the execution of this Agreement, the Company,
PennCorp and certain subsidiaries of PennCorp are entering into a Purchase
Agreement (the "PennCorp Purchase Agreement"), a copy of which is attached as
Exhibit C hereto, pursuant to which the Company will acquire certain
subsidiaries and assets of PennCorp (the "PennCorp Purchase"); and
WHEREAS, in order to induce (i) Capital Z to enter into the UA Share
Purchase Agreement and (ii) PennCorp to enter into the PennCorp Purchase
Agreement, the Security Holders have agreed to enter into this Agreement with
respect to the Voting Shares held by them.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements contained herein, and intending to be legally bound hereby, the
parties hereto hereby agree as follows:
ARTICLE I
VOTING AGREEMENT
Section 1.1 Voting Agreement. Barasch hereby irrevocably and
unconditionally agrees that during the time that this Agreement is in effect, at
any meeting of shareholders of the Company, however called, or, if in lieu of a
meeting, shareholder action is taken by written consent, Barasch shall:
(a) vote or cause to be voted, the Voting Shares (held by Barasch
directly and pursuant to the Irrevocable Proxy) at the time of such meeting
or the execution of such written consent, as the case may be, in favor of
the Amendment and the UA Share Issuance;
(b) vote or cause to be voted, the Voting Shares (held by Barasch
directly and pursuant to the Irrevocable Proxy) at the time of such meeting
or the execution of such written consent, as the case may be, against (i)
approval of any proposal made in opposition to or in competition with the
UA Share Issuance or the PennCorp Purchase, (ii) any change in the capital
structure of the Company (other than the Amendment and the UA Share
Issuance contemplated under the UA Share Purchase Agreement and the
issuance of Common Stock to holders of the Series B Shares and the Series C
Shares in connection with the conversion of such Series B Shares and Series
C Shares) and (iii) any action or agreement that could impede, interfere
with, delay, postpone or attempt to discourage the UA Share Issuance or the
PennCorp Purchase or
<PAGE>
3
result in a breach in any material respect of any covenant, representation or
warranty or any other obligation of the Company under this Agreement which is
reasonably likely to result in any conditions to the Company's obligations under
the UA Share Purchase Agreement or the PennCorp Purchase Agreement not being
consummated; and
(c) in the case of the Security Holders holding Series C-1 Convertible
Preferred Stock of the Company (the "Series C-1 Shares"), vote or cause to
be voted pursuant to the Irrevocable Proxy the Voting Shares at the time of
such meeting or the execution of such written consent, as the case may be,
in favor of the Amendment and the incurrence of indebtedness as
contemplated in the PennCorp Purchase Agreement.
Section 1.2 Other Agreement. Each of the Security Holders hereby
irrevocably and unconditionally agrees that, after termination of the UA Share
Purchase Agreement and for a period of two years thereafter (other than in the
event that (i) the UA Share Purchase Agreement is terminated due to a breach by
Capital Z of its obligations thereunder, (ii) the Company and Capital Z mutually
agree not to consummate the transactions contemplated by the PennCorp Purchase
Agreement or (iii) the Company is unable to consummate the transactions
contemplated by the PennCorp Purchase Agreement as a result of the failure of or
refusal by Capital Z to give consent pursuant to Section 4.15 of the UA Share
Purchase Agreement), such Security Holder shall not without Capital Z's written
consent directly or indirectly vote or cause to be voted, whether at a meeting
held for such purpose or pursuant to shareholder action taken by written
consent, in favor of any transaction contemplating or proposing the purchase or
acquisition (by merger or otherwise) by the Company of any of the businesses or
assets of PennCorp.
Section 1.3 Acknowledgment. Capital Z and PennCorp hereby acknowledge that
pursuant to the Second Restated Agreement of Limited Partnership of Barasch
Associates Limited Partnership ("BALP"), dated as of September 30, 1990, as
amended (the "BALP Agreement"), Barasch, as president of the general partner of
BALP, has the authority to vote the Voting Shares held by BALP (some of which
are beneficially owned by certain Security Holders); provided, further, that in
such capacity Barasch would continue under certain circumstances to have the
power to vote (by proxy or otherwise) such Voting Shares even after distribution
of such Voting Shares to a Security Holder upon withdrawal by such Security
Holder from BALP.
<PAGE>
4
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SECURITY HOLDERS
Each of the Security Holders hereby represents and warrants, severally and
not jointly, to PennCorp and Capital Z as follows:
Section 2.1 Right to Vote. Such Security Holder has all necessary legal
power, authority and right to vote its Voting Shares in favor of the approval
and adoption of the Amendment and the UA Share Issuance without the consent or
approval of, or any other action on the part of, any other person or entity.
Except for the Irrevocable Proxy and the BALP Agreement, such Security Holder
has not entered into any voting agreement with any person or entity with respect
to any Voting Shares, granted any person or entity any proxy (revocable or
irrevocable) or power of attorney with respect to any Voting Shares, deposited
any Voting Shares in a voting trust or entered into any arrangement or agreement
with any person or entity limiting or affecting such Security Holder's legal
power, authority or right to vote its Voting Shares in favor of the approval and
adoption of the Amendment and the UA Share Issuance.
Section 2.2 Authority Relative to This Agreement. Such Security Holder has
all necessary legal power and authority to execute and deliver this Agreement
and to perform its obligations hereunder. Where such Security Holder is a
corporation, partnership or a trust entity, the execution and delivery of this
Agreement by such Security Holder and the consummation by such Security Holder
of its obligations hereunder have been duly and validly authorized by the board
of directors or other governing body of such Security Holder, and no other
proceedings on the part of such Security Holder are necessary to authorize this
Agreement or to consummate such transactions. This Agreement has been duly and
validly executed and delivered by such Security Holder and, assuming the due
authorization, execution and delivery by the other parties hereto, constitutes a
legal, valid and binding obligation of such Security Holder, enforceable against
such Security Holder in accordance with its terms except to the extent
enforceability may be limited by bankruptcy, insolvency, moratorium or other
similar laws affecting creditors' rights generally or by general principles
governing the availability of equitable remedies.
Section 2.3 No Conflict. (a) The execution and delivery of this Agreement
by such Security Holder does not, and the performance of this Agreement by such
Security Holder shall not, (i) where such Security Holder is a corporation,
partnership or trust entity, conflict with or violate the organizational
documents of such Security Holder, (ii) conflict with or violate any law, rule,
regulation, order, judgment or decree applicable to such Security Holder or by
which the Voting Shares are bound or affected or (iii) result in any breach of
or constitute a default (or an event that with notice or lapse or time or both
would become a default) under, or give to others any
<PAGE>
5
rights of termination, amendment, acceleration or cancellation of, or result in
the creation of a lien or encumbrance on any of the Voting Shares pursuant to
any note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which such Security
Holder is a party or by which such Security Holder or the Voting Shares are
bound or affected, except, in the case of clauses (ii) and (iii) of this Section
2.3, for any such conflicts, violations, breaches, defaults or other occurrences
which would not impair or affect such Security Holder's ability to cast all of
its, his or her votes in favor of the Amendment and the UA Share Issuance or
prevent or delay the performance by such Security Holder of its obligations
under this Agreement.
(b) The execution and delivery of this Agreement by such Security
Holder does not, and the performance of this Agreement by such Security
Holders shall not, require any consent, approval, authorization or permit
of, or filing with or notification to, any governmental entity except for
applicable requirements, if any, of the Securities Exchange Act of 1934, as
amended, and except where the failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications, would
not prevent or delay the performance by such Security Holder of its
obligations under this Agreement.
Section 2.4 Title to the Voting Shares. As of the date hereof, such
Security Holder is the record and/or beneficial owner, as the case may be, of
the Voting Shares listed opposite the name of such Security Holder on Schedule I
hereto. The Voting Shares listed opposite the name of such Security Holder on
Schedule I hereto are all the Voting Shares owned, either of record or
beneficially, by such Security Holder. The Voting Shares are and will be owned
free and clear of all security interests, liens, claims, pledges, options,
rights of first refusal, limitations on such Security Holder's voting rights,
charges and other encumbrances of any nature whatsoever, except for the
Irrevocable Proxy, the BALP Agreement and as provided in shareholders agreements
(in each case, none of which prevent or impair the performance by such Security
Holder of the obligations under this Agreement).
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 3.1 Voting Shares. As of the date hereof, the Voting Shares held by
each Security Holder (as listed opposite the name of such Security Holder on
Schedule I hereto) represent the percentage of the total voting power of the
Company's capital stock listed opposite the name of such Security Holder on
Schedule I hereto, and during the time this Agreement is in effect, the
aggregate voting power of the Company's capital stock held by all such Security
Holders will equal at least 51% of the total voting power of the Company's
capital stock.
<PAGE>
6
Section 3.2 Requisite Vote. The Certificate of Incorporation and Bylaws of
the Company provide that a vote of a majority of the total voting power of the
Company's capital stock, together with a vote of a majority of the Series C-1
Shares, is sufficient to approve the Amendment and the UA Share Issuance. The
signatories to the Irrevocable Proxy constitute at least 51% of the holders of
the Series C-1 Shares.
ARTICLE IV
COVENANTS OF THE SECURITY HOLDERS
Section 4.1 No Inconsistent Agreement. From and after the date hereof, each
Security Holder hereby covenants and agrees that, other than as contemplated by
this Agreement, it will not, directly or indirectly, commit any act that could
restrict or otherwise affect, and will not enter into any voting agreement with
any other person or entity with respect to its Voting Shares, grant any person
or entity any proxy (revocable or irrevocable) or power of attorney with respect
to its Voting Shares, deposit any of its Voting Shares in a voting trust or
otherwise enter into any agreement or arrangement limiting or affecting such
Security Holder's legal power, authority and right to vote its Voting Shares in
favor of the approval and adoption of the Amendment and the UA Share Issuance.
Section 4.2 Transfer of Title. Without limiting the rights of the holders
of the Series B Shares and Series C Shares to convert their Series B Shares or
Series C Shares into shares of Common Stock, each of the Security Holders hereby
covenants and agrees that such Security Holder shall not, directly or
indirectly, sell, encumber, suffer a lien to exist upon, convey or transfer
record or beneficial ownership of any of the Voting Shares (other than pursuant
to the Irrevocable Proxy) unless the transferee agrees in writing to be bound in
all respects by the terms and conditions of this Agreement.
ARTICLE V
MISCELLANEOUS
Section 5.1 Amendments; Termination. (a) This Agreement may not be
modified, amended, altered or supplemented, except upon the execution and
delivery of a written instrument executed by the parties hereto.
(b) Except with respect to the obligation specified in Section 1.2,
which shall terminate upon the expiration of the 2-year period specified
therein (unless Capital Z fails to consummate the UA Share Issuance when
all conditions to Capital Z's obligation to close under the UA Share
Purchase Agreement have been satisfied in which event the obligation in
Section 1.2 shall terminate
<PAGE>
7
immediately), the provisions of this Agreement shall terminate upon the
earliest to occur of (i) the consummation of the UA Share Issuance and the
PennCorp Purchase, (ii) the termination of the UA Share Purchase Agreement
or (iii) the termination of the PennCorp Purchase Agreement; provided, that
if the events contemplated in (ii) or (iii) above occur as a result of a
breach by Barasch of any of his obligations under this Agreement, the
Company, without offset or defense, shall be solely responsible for, and
will indemnify and hold harmless Capital Z from and against any and all
liabilities arising under the PennCorp Purchase Agreement and will
reimburse Capital Z for all costs and expenses incurred by it in connection
with the transactions contemplated by the UA Share Purchase Agreement and
the PennCorp Purchase Agreement.
Section 5.2 Additional Shares. If, after the date hereof, the Security
Holders acquire beneficial ownership of any Voting Shares ("Additional Shares"),
including, without limitation, upon exercise of any option, warrant or right to
acquire Voting Shares or through any stock dividend or stock split, the
provisions of this Agreement applicable to Voting Shares shall be applicable to
such Additional Shares as if such Additional Shares had been Voting Shares as of
the date hereof. The provisions of the immediately preceding sentence shall be
effective with respect to Additional Shares without action by any person or
entity immediately upon the acquisition by the Security Holders of beneficial
ownership of such Additional Shares.
Section 5.3 Unavailability of Barasch. The Security Holders have also
executed the Irrevocable Proxy in favor of Bertram Harnett ("Harnett"). If
Barasch is unable to perform his obligations under Section 1.1 of this
Agreement, all such obligations will be performed by Harnett.
Section 5.4 Expenses. All costs and expenses incurred in connection with
this Agreement shall be paid by the party incurring such cost or expense.
Section 5.5 Further Assurances. Each of the Security Holders will execute
and deliver or cause to be executed and delivered all further documents and
instruments as may be reasonably necessary in order to consummate the
transactions contemplated hereby.
Section 5.6 Specific Performance. The parties hereto agree that irreparable
damage would occur in the event any provision of this Agreement was not
performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or in equity.
Section 5.7 Action in Security Holder Capacity Only. Each of the Security
Holders makes no agreement or understanding herein as director or officer of the
Company. Each of the Security Holders signs solely in his, her or its capacity,
as
<PAGE>
8
the case may be, as a recordholder and/or beneficial owner, as the case may be,
of the Voting Shares of such Security Holder, and nothing herein shall limit or
affect any action taken in his, her or its capacity, as the case may be, as an
officer or director of the Company.
Section 5.8 Entire Agreement. This Agreement constitutes the entire
agreement of the Security Holders with the Company, Capital Z and PennCorp with
respect to the subject matter hereof and supersedes all prior agreements and
understandings, both written and oral.
Section 5.9 Severability. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule or law, or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
this Agreement is not affected in any manner materially adverse to any party.
Section 5.10 Limited Liability of Partners. Notwithstanding any other
provision of this Agreement, in the case of any Security Holder which is a
partnership, neither the limited partners, nor any future limited partner
therein, shall have any personal liability for performance of any obligation of
such Security Holder under this Agreement.
Section 5.11 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS TO BE PERFORMED WITHIN THE STATE.
Section 5.12 Notice. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been made or
given or made if in writing and delivered personally, sent by commercial carrier
or registered or certified mail (postage prepaid, return receipt requested) or
transmitted by facsimile with automated receipt confirmation to the parties as
follows:
(i) if to the Company or to Capital Z, to the addresses for notices
set forth in the UA Share Purchase Agreement;
(ii) if to PennCorp, to the address for notices set forth in the
PennCorp Purchase Agreement; and
(iii) if to any Security Holder, to the address listed opposite the
name of such Security Holder on Schedule II hereof.
<PAGE>
9
Section 5.13 Counterparts. This Agreement may be executed in
counterparts each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the Company, PennCorp, Capital Z and the Security
Holders have caused this Agreement to be duly executed on the date hereof.
UNIVERSAL AMERICAN FINANCIAL CORP.
By: /s/ RICHARD A. BARASCH
------------------------------------
Name: Richard A. Barasch
Title: President
PENNCORP FINANCIAL GROUP, INC.
By: /s/ SCOTT D. SILVERMAN
------------------------------------
Name: Scott D. Silverman
Title: E.V.P.
CAPITAL Z FINANCIAL SERVICES FUND II, L.P.
By: Capital Z Partners, L.P., its General Partner
By: Capital Z Partners Ltd., its General Partner
By: /s/ BRADLEY COOPER
-----------------------------------
Name: Bradley Cooper
Title: Partner
WAND/UNIVERSAL INVESTMENTS L.P. I
By: Wand (Universal) Inc., its General Partner
By: /s/ DAVID J. CALLARD
-----------------------------------
Name: David J. Callard
Title: President
<PAGE>
WAND/UNIVERSAL INVESTMENTS L.P. II
By: Wand (Universal) Inc., its General Partner
By: /s/ DAVID J. CALLARD
-----------------------------------
Name: David J. Callard
Title: President
AAM CAPITAL FINANCIAL PARTNERS, L.P.
By: AAM Partners, L.P., general partner
By: AAM Investment Banking
Group, Ltd., general partner
By: Veed Corp., general partner
By: /s/ RICHARD A. VEED
-----------------------------------
Name: Richard A. Veed
Title: President
UAFC, L.P.
By: VWA, L.L.C., general partner
By: Veed Corp., managing member
By: /s/ RICHARD A. VEED
-----------------------------------
Name: Richard A. Veed
Title: President
/s/ RICHARD A. BARASCH
----------------------------------------
Richard A. Barasch
/s/ RENEE P. BARASCH
----------------------------------------
Renee P. Barasch
<PAGE>
/s/ MARVIN BARASCH
----------------------------------------
Marvin Barasch
/s/ PHYLLIS P. BARASCH
----------------------------------------
Phyllis P. Barasch
/s/ MICHAEL A. BARASCH
----------------------------------------
Michael A. Barasch
/s/ ROBERT F. WRIGHT
----------------------------------------
Robert F. Wright
/s/ GARY W. BRYANT
----------------------------------------
Gary W. Bryant
/s/ ROBERT A. WAEGELEIN
----------------------------------------
Robert A. Waegelein
/s/ WILLIAM E. WEHNER, JR.
----------------------------------------
William E. Wehner, Jr.
/s/ DONNA WEHNER
----------------------------------------
Donna Wehner
/s/ BERTRAM HARNETT
----------------------------------------
Bertram Harnett
----------------------------------------
David F. Bolger
/s/ HELEN BARASCH
----------------------------------------
Helen Barasch
<PAGE>
Barasch Associates Limited Partnership
By: NMRB Corp.
By: /s/ RICHARD A. BARASCH
--------------------------------------
Name: Richard A. Barasch
Title:
Wehner Family LTD Partnership
By: /s/ WILLIAM E. WEHNER, JR.
--------------------------------------
Name: William E. Wehner, Jr.
Title: General Partner
Norman Barasch Trust #1 UTA Dated 11/2/94
By: /s/ RICHARD A. BARASCH
---------------------------------------
Name: Richard A. Barasch
Title: Trustee
Richard A. Barasch C/F Benjamin P. Barasch
UGMA NY
By: /s/ RICHARD A. BARASCH
----------------------------------------
Name: Richard A. Barasch
Title: Authorized Signatory
Richard A. Barasch C/F Emily P. Barasch
UGMA NY
By: /s/ RICHARD A. BARASCH
----------------------------------------
Name: Richard A. Barasch
Title: Authorized Signatory
<PAGE>
Bear Stearns Master Defined Benefit Money
Purchase Plan, Bear Stearns Cust. for Michael
Barasch # 054-01191-1-2-092
By: /s/ MICHAEL A. BARASCH
----------------------------------------
Name: Michael A. Barasch
Title:
David F. Bolger Third Amended and Restated
Revocable Trust, dated March 20, 1987
By:_______________________________________
Name:
Title: Trustee
Robert Norman Barasch c/o Michael Barasch
Cust.
By: /s/ MICHAEL A. BARASCH
----------------------------------------
Name: Michael A. Barasch
Title:
Michael Barasch & Candice Barasch JT Ten.
By: /s/ MICHAEL A. BARASCH
----------------------------------------
Name: Michael A. Barasch
Title:
Robert F. Wright Associates Inc.
By: /s/ Robert F. Wright
----------------------------------------
Name: Robert F. Wright
Title: President
<PAGE>
Universal Holding Corp. 401(k) Savings Plan
By: /s/ RICHARD A. BARASCH
----------------------------------------
Name: Richard A. Barasch
Title: Trustee
By: /s/ ROBERT A. WAEGELEIN, JR.
----------------------------------------
Name: Robert A. Waegelein, Jr.
Title: Trustee
By: /s/ WILLIAM E. WEHNER, JR.
----------------------------------------
Name: William E. Wehner, Jr.
Title: Trustee
NMRB Corp.
By: /s/ RICHARD A. BARASCH
----------------------------------------
Name: Richard A. Barasch
Title: President
Barasch Trust f.b.o. Harnett Family
By: /s/ RICHARD A. BARASCH
----------------------------------------
Name: Richard A. Barasch
Title: Trustee
Tara Acquisition LLC
By: /s/ RICHARD A. BARASCH
----------------------------------------
Name: Richard A. Barasch
Title: Member
<PAGE>
<TABLE>
<CAPTION>
Schedule I
Non-BALP
Security Holder Voting Shares Percentage Percentage*
--------------- ------------- ---------- -----------
<S> <C> <C> <C>
Barasch Associates Limited Partnership 1,487,268 13.12% 0.00%
AAM Capital Financial Partners, L.P./UAFC, L.P. 1,010,526 8.92 8.92
WAND/Universal Investments L.P. I/ 1,777,777 15.68 15.68
WAND/Universal Investments L.P. II
Richard A. Barasch 329,330 2.91 3.35
Renee P. Barasch 83,784 .74 2.22
Marvin Barasch 58,500 .52 2.89
Phyllis Barasch 107,632 .95 1.29
Michael A. Barasch 65,053 .57 1.02
Robert Wright 191,947 1.69 2.58
Gary Bryant 183,171 1.62 1.62
Robert A. Waegelein 112,330 .99 .99
William E. Wehner, Jr./Donna Wehner 352,490 3.11 3.11
Bertram Harnett 57,105 .50 .66
Norman Barasch Trust #1 UTA Dated 11/2/94 66,444 .59 2.62
Richard A. Barasch C/F Benjamin P. Barasch UGMA NY 29,831 .26 .26
Richard A. Barasch C/F Emily P. Barasch 34,775 .31 .31
UGMA NY
Universal Holdings Corp. 401(k) Savings Plan 290,354 2.56 2.56
NMRB Corp. 0 0 .61
Barasch Trust f.b.o Bertram Harnett 0 0 .44
Tara Acquisition LLC 8,421 .07 .07
Helen Barasch 61,553 .54 .98
Total 6,308,291 55.65% 52.18%
</TABLE>
* This column reports the total voting percentage of the Company's capital
stock if held by each Security Holder as if BALP were dissolved.
<PAGE>
Schedule II
Security Holder Address for Notices
--------------- -------------------
Barasch Associates Limited Partnership NMRB Corp.
c/o Harnett Lesnick & Ripps, P.A.
7251 West Palmetto Park Rd.
Boca Raton, FL 33433
AAM Capital Partners, L.P./UAFC, L.P. AAM Capital Partners, L.P.
30 North LaSalle Street
35th Floor
Chicago IL 60602
Attention: Richard A. Veed
with a copy to:
Katten Muchin & Zavis
525 West Monroe Street
Suite 1600
Chicago, IL 60661-3693
Attention: Michael P. Goldman, Esq.
Wand/Universal Investments L.P. WAND/Universal Investments L.P. I and
I/WAND/Universal Investments L.P. II WAND/Universal Investments L.P. II
630 Fifth Avenue, Suite 2435
New York, NY 10111
Attention: David Callard
Richard A. Barasch*
Renee P. Barasch*
Marvin Barasch*
Phyllis Barasch*
Michael A. Barasch*
Robert Wright*
Gary Bryant*
Robert A. Waegelein*
William E. Wehner, Jr./Donna Wehner*
Bertram Harnett*
Norman Barasch Trust #1 UTA Dated 11/2/94*
Richard A. Barasch C/F Benjamin P. Barasch*
UGMA NY
Richard A. Barasch C/F Emily P. Barasch*
UGMA NY
<PAGE>
Universal Holding Corp. 401(k) Savings Plan*
NMRB Corp.*
Barasch Trust f.b.o. Bertram Harnett*
Tara Acquisition LLC*
Helen Barasch*
* If to any of these Security Holders, to the address furnished by such holder
to the Company in writing in the manner set forth herein, or, until any such
other holder so furnishes to the Company another address, then to and at the
address of the last holder of such securities who has furnished an address to
the Company.
================================================================================
SHAREHOLDERS' AGREEMENT
among
UNIVERSAL AMERICAN FINANCIAL CORP.
and
THE SHAREHOLDERS NAMED HEREIN
----------------------------------
Dated as of ___________, 1999
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TABLE OF CONTENTS
Page
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1. Definitions ............................................................ 1
2. Restrictions on Transfer of Shares ..................................... 6
2.1 Limitation on Transfer ........................................ 6
2.2 Permitted Transferees ......................................... 6
2.3 Donations to Charity .......................................... 7
3. Right of First Offer, Tag Along and Bring Along ........................ 7
3.1 Proposed Voluntary Transfer ................................... 7
3.1.1 First Offer ........................................ 7
3.1.2 Notice ............................................. 7
3.1.3 Option Period ...................................... 8
3.2 Tag Along ..................................................... 8
3.2.1 Right to Participate ............................... 8
3.2.2 Exercise of Options ................................ 8
3.3 Bring Along ................................................... 9
3.4 Sale to the Purchasing Eligible Shareholders .................. 9
3.5 Sale to Third Party Buyer ..................................... 10
3.6 Involuntary Transfers ......................................... 10
3.6.1 Rights of First Offer upon Involuntary Transfer .... 10
3.6.2 Fair Market Value .................................. 11
3.6.3 Closing ............................................ 11
3.6.4 General ............................................ 12
4. Pledges and Other Encumbrances ......................................... 12
5. All Transfers in Compliance with Law and Subject to this Agreement;
Substitution of Transferee ............................................ 12
6. Governance ............................................................. 12
6.1 General ....................................................... 12
6.2 Shareholders' Actions ......................................... 13
6.3 Election of Directors ......................................... 13
6.4 Removal and Replacement ....................................... 14
6.5 Adjustment of Board Representation ............................ 14
6.6 Board Committees .............................................. 15
6.7 Supermajority Approvals ....................................... 15
6.8 Transactions with Affiliates .................................. 16
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6.9 Reimbursement of Director Expenses ............................ 16
6.10 Liability Insurance ........................................... 16
6.11 Limitation on Merger .......................................... 16
7. Stock Certificate Legend ............................................... 16
8. Other Agreements ....................................................... 17
8.1 Financial Statements and Other Information .................... 17
8.2 Books and Records ............................................. 17
9. Confidentiality ........................................................ 18
10. Specific Performance ................................................... 18
11. Miscellaneous .......................................................... 18
11.1 Notices ....................................................... 18
11.2 Amendment and Waiver .......................................... 20
11.3 Headings; Agreements .......................................... 21
11.4 Publicity ..................................................... 21
11.5 Severability .................................................. 21
11.6 Entire Agreement .............................................. 21
11.7 Term of Agreement ............................................. 22
11.8 Assignment .................................................... 22
11.9 Counterparts .................................................. 22
11.10 Governing Law ................................................. 22
11.11 Third Party Beneficiaries ..................................... 22
Schedule 1 Ownership of Shares
Schedule 6.8 Affiliate Transactions
Exhibit A Certificate of Incorporation
Exhibit B By-laws
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SHAREHOLDERS' AGREEMENT
SHAREHOLDERS' AGREEMENT, dated as of __________, 1999, among Universal
American Financial Corp., a New York corporation (the "Company"), Capital Z
Financial Services Fund II, L.P., a Bermuda limited partnership ("Capital Z"),
Richard A. Barasch ("Barasch"), UAFC, L.P., a Delaware limited partnership
("UAFCLP"), AAM Capital Partners ("AAM"), L.P. and Chase Equity Associates, L.P.
("Chase" and, together with AAM and UAFCLP, the "AAM Investors"), and the
persons identified as "UA Shareholders" on Schedule I hereto (the "UA
Shareholders") (1).
WHEREAS, the holders of the shares of Series C Convertible Preferred
Stock, par value $1.00 per share, of the Company (the "Series C Preferred"),
including the AAM Investors, Barasch and UAFCLP, have converted their shares of
Series C Preferred into shares of common stock, par value $0.01 per share (the
"Common Stock") of the Company, pursuant to the terms of the Series C Preferred;
WHEREAS, the AAM Investors have converted their shares of Series D-1
Convertible Preferred Stock, par value $1.00 per share (the "Series D-1
Preferred"), of the Company and shares of Series D-2 Convertible Preferred
Stock, par value $1.00 per share (the "Series D-2 Preferred"), of the Company,
pursuant to the terms of the Series D-1 Preferred and the Series D-2 Preferred;
WHEREAS, as of the date hereof, each of Capital Z, Barasch, the AAM
Investors and the UA Shareholders own the shares of Common Stock set forth
beside its name on Schedule 1 hereto; and
WHEREAS, the parties hereto wish to restrict the transfer of the Shares
(as hereinafter defined) and to provide for certain other rights and
obligations, on the terms and subject to the conditions of this Agreement;
NOW, THEREFORE, in consideration of the mutual promises and agreements
set forth herein, the adequacy of which are hereby acknowledged, the parties
hereto agree as follows:
1. Definitions. As used in this Agreement, the following terms shall have
the meanings set forth below:
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(1) It is anticipated that the UA Shareholders will include, among others, the
Barasch Trust f.b.o. Harnett Family, BALP and Marvin Barasch (including
those Shares owned by his immediate family).
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2
"AAM Director" has the meaning assigned to such term in Section 6.3.
"Affiliate" means, as to any Person, any other Person directly or
indirectly controlling, controlled by or under direct or indirect common control
with such Person. For the purposes of this definition, "control," when used with
respect to any Person, means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise. The terms "controlling" and "controlled"
have meanings correlative to the foregoing.
"Barasch Directors" has the meaning assigned to such term in Section
6.3.
"Board of Directors" means the Board of Directors of the Company.
"Bona Fide Offer" has the meaning assigned to such term in Section
3.1.2.
"Bring Along Notice" has the meaning assigned to such term in Section
3.3.
"Bring Along Shareholders" has the meaning assigned to such term in
Section 3.3.
"Business Day" means any day other than a Saturday, Sunday or other day
on which commercial banks in the City of New York are authorized or required by
law or executive order to close.
"Capital Z Directors" has the meaning assigned to such term in Section
6.3.
"Charter Documents" means the Certificate of Incorporation, as amended,
and By-laws, as amended, of the Company as in effect on the date hereof. Copies
of the Certificate of Incorporation, as amended, and By-laws, as amended, are
attached hereto as Exhibits A and B, respectively.
"Closing Date" has the meaning assigned to such term in Section 3.4.
"Closing Price" shall mean, with respect to each share of Common Stock
for any day, (a) the last reported sale price regular way or, in case no such
sale takes place on such day, the average of the closing bid and asked prices
regular way, in either case as reported on the principal national securities
exchange on which such Common Stock is listed or admitted for trading or (b) if
such Common Stock is not listed or admitted for trading on any national
securities exchange, the last reported sale price or, in case no such sale takes
place on such day, the average of the highest reported bid and
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the lowest reported asked quotation for such Common Stock, in either case as
reported on NASDAQ or a similar service if NASDAQ is no longer reporting such
information.
"Commission" means the Securities and Exchange Commission or any similar
agency then having jurisdiction to enforce the Securities Act.
"Common Stock" has the meaning assigned to such term in the first
"whereas" clause.
"Condition of the Company" means the assets, business, properties,
operations or financial condition of the Company and its subsidiaries, taken as
a whole.
"Contractual Obligations" means, as to any Person, any obligations under
any agreement, undertaking, contract, indenture, mortgage, deed of trust or
other instrument to which such Person is a party or by which it or any of its
property is bound or under any security issued by such Person.
"Current Market Price" shall mean, with respect to shares of Common
Stock on any date, the average of the daily Closing Prices per share of Common
Stock for the 10 consecutive trading days commencing 15 days before such date.
"Eligible Shareholders" has the meaning assigned to such term in Section
3.1.1.
"Excess Offered Securities" has the meaning assigned to such term in
Section 3.1.2.
"Family Members" has the meaning assigned to such term in Section 2.2.
"First Offer" has the meaning assigned to such term in Section 3.1.1.
"First Offer Notice" has the meaning assigned to such term in Section
3.1.2.
"GAAP" means generally accepted accounting principles in the United
States in effect from time to time.
"Governmental Authority" means the government of any nation, state,
city, locality or other political subdivision thereof, and an entity exercising
executive, legislative, judicial, regulatory or administrative functions of any
of the foregoing.
"Independent Director" has the meaning assigned to such term in Section
6.3.
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"Involuntary Transfer" means any involuntary transfer, proceeding or
action by or in which a Shareholder shall be deprived or divested of any right,
title or interest in or to any of the Shares, including, without limitation, any
seizure under levy of attachment or execution, any transfer in connection with
bankruptcy (whether pursuant to the filing of a voluntary or an involuntary
petition under the United States Bankruptcy Code of 1978, or any modifications
or revisions thereto) or other court proceeding to a debtor in possession,
trustee in bankruptcy or receiver or other officer or agency, any transfer to a
state or to a public officer or agency pursuant to any statute pertaining to
escheat or abandoned property, and any involuntary transfer pursuant to a final
decree of a court in a divorce action, but not including any transfer occurring
pursuant to a merger or consolidation of the Company or a transfer pursuant to
Section 3.3.
"Interested Director" has the meaning assigned to such term in Section
6.8.
"Involuntary Transferee" has the meaning assigned to such term in
Section 3.6.1.
"Liens" has the meaning assigned to such term in Section 3.4.
"NASDAQ" means The NASDAQ Stock Market, Inc.
"NYBCL" means the Business Corporation Law of the State of New York.
"Offered Shares" has the meaning assigned to such term in Section 3.1.1.
"Option Period" has the meaning assigned to such term in Section 3.1.3.
"Outstanding Common Stock" means all issued and outstanding shares of
Common Stock (including any capital stock into which the Common Stock is
reclassified or reconstituted) and all securities (including Contractual
Obligations) of the Company that are convertible into or exchangeable or
exercisable for shares of Common Stock (regardless of whether such securities
are at the time convertible, exchangeable or exercisable), assuming that such
securities have been converted, exchanged or exercised at the rate such
securities are (or would be, but for the lapse of time) so convertible,
exchangeable or exercisable.
"Participating Shareholders" has the meaning assigned to such term in
Section 3.2.1.
"Permitted Transferee" has the meaning assigned to such term in Section
2.2.
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"Person" means any individual, corporation, limited liability company,
partnership, trust, incorporated or unincorporated association, joint venture,
joint stock company, Governmental Authority or other entity of any kind, and
shall include any successor (by merger or otherwise) of any such entity.
"Pro Rata Amount" has the meaning assigned to such term in Section
3.1.2.
"Registration Rights Agreement" means the Registration Rights Agreement
dated the date hereof, among the Company, Capital Z, Barasch, the Wand
Investors, the AAM Investors and the UA Shareholders.
"Regulated Shareholder" means any Shareholder that is subject to the
provisions of Regulation Y of the Board of Governors of the Federal Reserve
System, 12 C.F.R. Part 225 (or any successor to such Regulation).
"Regulatory Problem" means any set of facts or circumstances wherein it
has been asserted by any governmental regulatory agency (or a Regulated
Shareholder reasonably believes that there is a risk of such assertion) that
such Regulated Shareholder is not entitled to acquire, own, hold or control, or
exercise any significant right (including the right to vote) with respect to any
securities of the Company.
"Requirements of Law" means, as to any Person, the articles or
certificate of incorporation and by-laws or other organizational or governing
documents of such Person, and any law, treaty, rule, regulation or determination
of an arbitrator or a court or other Governmental Authority, in each case (i)
applicable or binding upon such Person or any of its properties or to which such
Person or any of its properties is subject or (ii) pertaining to any or all of
the transactions contemplated herein.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission promulgated thereunder.
"Selling Shareholder" has the meaning assigned to such term in Section
3.1.1.
"Shareholders" means, collectively or singularly, Capital Z, Barasch,
the Wand Investors, the AAM Investors and the UA Shareholders, and any
transferee who has agreed to be bound by the terms and conditions of this
Agreement in accordance with
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Section 5. For purposes of this Agreement, Shares owned by Barasch will be
deemed to include Shares owned of record by Barasch and his wife, Renee P.
Barasch, and Shares owned of record by the following trusts and other entities:
Richard A. Barasch C/F Benjamin P. Barasch UGMA NY
Richard A. Barasch C/F Emily P. Barasch UGMA NY
Tara Acquisition, LLC
Barasch Associates Limited Partnership (but only to the extent such
Shares are beneficially owned by Richard A. Barasch, Renee P.
Barasch and NMRB Corp.)
"Shareholders' Meeting" has the meaning assigned to such term in Section
6.1.
"Share Purchase Agreement" means the Share Purchase Agreement, dated as
of the date hereof, between the Company and Capital Z.
"Shares" means, with respect to each Shareholder or all Shareholders,
all shares, whether now owned or hereafter acquired, of Common Stock (including
any capital stock into which the Common Stock is reclassified or reconstituted)
and all securities (including Contractual Obligations) of the Company that are
convertible into or exchangeable or exercisable for shares of Common Stock
(regardless of whether such securities are at the time convertible, exchangeable
or exercisable), in each case that are beneficially owned, directly or
indirectly, by such Shareholder or all Shareholders.
"Third Party Buyer" has the meaning assigned to such term in Section
3.1.1.
"Third Party Sale" has the meaning assigned to such term in Section
3.2.1.
"Transaction Agreements" means, collectively, this Agreement, the Share
Purchase Agreement and the Registration Rights Agreement.
"transfer" has the meaning assigned to such term in Section 2.1.
"Transferred Shares" has the meaning assigned to such term in Section
3.6.1.
"Written Consent" has the meaning assigned to such term in Section 6.1.
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2. Restrictions on Transfer of Shares.
2.1 Limitation on Transfer. During the term of this Agreement, no
Shareholder shall sell, give, assign, hypothecate, pledge, encumber, grant a
security interest in or otherwise dispose of (whether by operation of law or
otherwise) (each a "transfer") any Shares or any right, title or interest
therein or thereto, except for (i) transfers pursuant to a registered public
offering of Common Stock and (ii) transfers effected in accordance with the
other provisions of this Agreement. Any attempt to transfer any Shares or any
rights thereunder in violation of the preceding sentence shall be null and void
ab initio and the Company shall refuse to register any such transfer.
2.2 Permitted Transferees. (a) At any time, any Shareholder may,
without the consent of the other Shareholders but subject to Sections 2.2(b) and
Article 5, transfer Shares (i) with respect to a Shareholder who is an
individual, to a member of such Shareholder's immediate family, which shall
include her or his parents, spouse or former spouse, siblings, children
(including sons-in-law, daughters-in-law and adopted children) or grandchildren
("Family Members"), or a trust, corporation or partnership, all of the
beneficial interests in which shall be held by such Shareholder or one or more
Family Members of such Shareholder; provided, however, that during the period
any such trust, corporation or partnership holds any right, title or interest in
any Shares, no Person other than such Shareholder or one or more Family Members
of such Shareholder may be or become beneficiaries, Shareholders or limited or
general partners thereof; (ii) with respect to a Shareholder that is not an
individual, to (A) any corporation, partnership or other entity which is an
Affiliate of such Shareholder or (B) any general or limited partners of such
Shareholder or Affiliate of such Shareholder (the Persons referred to in the
preceding clauses (i) and (ii) are herein each referred to as a "Permitted
Transferee").
(b) If any Shareholder desires to transfer all or any portion of its,
her or his Shares to a Permitted Transferee under this Section 2.2, such
Shareholder shall give notice to the Company (and the Company shall give notice
to the other Shareholders) of its, her or his intention to make such transfer
not less than 15 days prior to effecting such transfer, which notice shall state
the name and address of each Permitted Transferee to whom such transfer is
proposed and the number of Shares proposed to be transferred to such Permitted
Transferee.
2.3 Donations to Charity. Barasch may transfer up to 2.5% of the
Shares owned by him on the date hereof to charitable institutions.
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3. Right of First Offer, Tag Along and Bring Along.
3.1 Proposed Voluntary Transfer.
3.1.1 First Offer. If any Shareholder (a "Selling Shareholder")
desires to transfer all or any portion of its or his Shares (the "Offered
Shares") to any Person (other than a Permitted Transferee) (a "Third Party
Buyer," which term may include another Shareholder), such Selling Shareholder
shall first offer (the "First Offer") to sell the Offered Shares to Barasch and
Capital Z (the "Eligible Shareholders"); provided, however, that the Selling
Shareholder shall not be obligated to make such an offer (i) in connection with
the pledge or other encumbrance of Shares to a bank or other financial
institution pursuant to Article 4, or, in the case of Barasch, in connection
with a donation of Shares to a charitable institution pursuant to Section 2.3,
(ii) if the Selling Shareholder elects to deliver a Bring-Along Notice (as
defined below) pursuant to Section 3.3, or (iii) if the transfer by a Selling
Shareholder of Offered Shares would involve (A) the transfer of less than 1% of
the Outstanding Common Stock or (B) when aggregated with all transfers pursuant
to Section 3.1 by such Selling Shareholder and its Permitted Transferees, the
transfer of less than 2.5% of the Outstanding Common Stock.
3.1.2 Notice. The Selling Shareholder shall send written notice
of the First Offer (the "First Offer Notice") to the Company and the Eligible
Shareholders, which First Offer Notice shall state that the Selling Shareholder
proposes to effect a transfer of its Shares, the number of Shares proposed to be
transferred, and the terms and conditions of the First Offer. If the First Offer
Notice is delivered by the Selling Shareholder in connection with the receipt by
the Selling Shareholder of a bona fide written offer to purchase Shares from a
Third Party Buyer (a "Bona Fide Offer"), the First Offer Notice shall include a
copy of such offer. Upon receipt of the First Offer Notice, the Eligible
Shareholders (including any Shareholder participating in a Bona Fide Offer)
shall be entitled to purchase all (but not less than all) of the Offered Shares
upon the terms and conditions set forth in the First Offer Notice. Each Eligible
Shareholder electing to purchase Offered Shares (including, without limitation,
Shares that the other Eligible Shareholders have a right to purchase but do not
purchase under this Section 3.1) shall be entitled to purchase its Pro Rata
Amount (as defined below) of the Offered Shares. The "Pro Rata Amount" of any
Eligible Shareholder electing to purchase Offered Shares shall be the ratio of
the total number of Shares that such Eligible Shareholder then owns to the
number of Shares that all Eligible Shareholders that elect to purchase the
Offered Shares then own (including such Eligible Shareholder's Shares);
provided, however, that if any Eligible Shareholder does not fully subscribe for
the number or amount of Offered Shares it is entitled to purchase, then each
other participating Eligible Shareholder shall have the right to purchase that
percentage of the Offered Shares not so subscribed for (the "Excess Offered
Securities"), determined by dividing (i) the total number of Shares then owned
by such fully participating Eligible Shareholder by (ii) the
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total number of shares then owned by all fully participating Eligible
Shareholders who elect to purchase the Excess Offered Securities.
3.1.3 Option Period. The right of First Offer may only be
exercised by the Eligible Shareholders by delivery of written notice of exercise
to the Selling Shareholder (with a copy to the other Eligible Shareholders)
within [15] days after receipt of the First Offer Notice (the "Option Period").
If any Eligible Shareholder shall fail to respond to the Selling Shareholder
within the Option Period, such failure shall be deemed to be a waiver of its,
her or his rights under Section 3.
3.2 Tag Along.
3.2.1 Right to Participate. If the sale or transfer by a Selling
Shareholder of Common Stock would, when aggregated with all prior sales or
transfers by such Selling Shareholder and its Permitted Transferees, result in
the sale of 25% or more of the Outstanding Common Stock, and the Eligible
Shareholders do not, during the Option Period, elect pursuant to Section 3.1 to
purchase all of the Offered Shares, then each Shareholder (including any
Shareholder that is the Selling Shareholder) shall have the right, in connection
with any transfer of the Offered Shares to a Third Party Buyer within the time
specified in Section 3.5 (the "Third Party Sale"), to sell to such Third Party
Buyer upon the terms set forth in the First Offer Notice (including the amount
of per Share consideration, subject to appropriate adjustment in the case of
warrants, options and other securities that are convertible into or exchangeable
or exercisable for shares of Common Stock that have not yet been converted,
exchanged or exercised), that number of Shares equal to the product of (i) the
Shares owned by such Shareholder multiplied by (ii) a percentage calculated by
dividing the aggregate number of Shares proposed to be sold in the Third Party
Sale by the total number of Shares owned by such Shareholder and the other
Shareholders (including the Shareholder that is a Selling Shareholder)
participating in the Third Party Sale (collectively, the "Participating
Shareholders"). If one or more Shareholders who have the right to participate in
the Third Party Sale elect not to include the number of Shares which such
Shareholders would be permitted to include in the Third Party Sale, each
Participating Shareholder may elect to sell in the Third Party Sale a number of
additional Shares owned by such Participating Shareholders equal to such
Participating Shareholder's pro rata portion of the number of such Shares that
are not included in the Third Party Sale, based on the relative number of Shares
then owned by each Participating Shareholder.
3.2.2 Exercise of Options. The option of an Eligible
Shareholder under Section 3.2.1 shall be exercisable by delivering written
notice of the exercise thereof, prior to the expiration of the tenth day after
the Option Period, to the Selling Shareholder with a copy to the Company and the
other Shareholders. Such notice shall state, as appropriate, (a) the number of
Shares held by such Shareholder, and (b) the number of Shares that such
Shareholder desires to sell pursuant to Section 3.2.1. The
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failure of a Shareholder to respond within ten (10) days after the expiration of
the Option Period to the Selling Shareholder shall be deemed to be a waiver of
its, her or his rights under Section 3.2.1.
3.3 Bring Along. If one or more Selling Shareholders that, in the
aggregate, own more than 51% of the Outstanding Common Stock (which Selling
Shareholders must include one or more Shareholders other than Capital Z and its
Permitted Transferees) receives a Bona Fide Offer from a Third Party Buyer to
purchase at least 50% of the Outstanding Common Stock, such Selling Shareholders
may send written notice (the "Bring Along Notice") to the other Shareholders
(the "Bring Along Shareholders") (with a copy to the Company) notifying them
that the other Shareholders will be required to transfer Shares in such sale or
other transaction. Upon delivery of the Bring Along Notice, each Bring Along
Shareholder shall be obligated to transfer in the transaction contemplated by
the Bring-Along Notice, the number of Shares determined in accordance with the
next sentence, on the same terms and conditions as the Selling Shareholders
(including the amount of per Share consideration, subject to appropriate
adjustment in the case of warrants, options and other securities that are
convertible into or exchangeable or exercisable for shares of Common Stock that
have not yet been converted, exchanged or exercised). Each Selling Shareholder
and Bring Along Shareholder shall sell in the transaction contemplated by the
Bring Along Notice that number of Shares equal to the product of (i) the number
of Shares to be sold to the Third Party Buyer multiplied by (ii) a percentage
calculated by dividing (x) the number of Shares owned by such Selling
Shareholder or Bring Along Shareholder, as the case may be, by (y) the total
number of Shares owned by all Selling Shareholders and Bring Along Shareholders.
Each such Shareholder shall (a) take all actions (including executing documents)
in connection with the consummation of the proposed transaction as may
reasonably be requested of it by the Selling Shareholders, and (b) appoint the
Selling Shareholders as its attorneys-in-fact to do the same on its behalf. If a
contract with respect to the transaction contemplated by the Bona Fide Offer has
not been entered into within 90 days of receipt of the Bring Along Notice, the
obligations of the Shareholders under this Section 3.3 shall terminate with
respect to the transaction specified in the Bring-Along Notice, and the Selling
Shareholders may not cause such Shareholders to sell pursuant to this Section
3.3 without again complying with all of the provisions of this Section 3.3.
Notwithstanding the foregoing, no Shareholder shall be required to transfer
Shares in a sale or other transaction contemplated in this Section 3.3 if the
price at which the Selling Shareholders propose to sell their Shares is below
the Fair Market Value (calculated in accordance with Section 3.6.2) of such
Shares; provided, that in no event shall the Selling Shareholders be obligated
to make the other Shareholders a First Offer.
3.4 Sale to the Purchasing Eligible Shareholders. The closing
of the purchase of Offered Shares subscribed to by the purchasing Eligible
Shareholders under Section 3.1 shall be held at the principal office of the
Company at 11:00 a.m., local time, on the 30th day following delivery of the
First Offer Notice (the "Closing
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Date") or at such other time and place as the parties to the transaction may
agree. Notwithstanding the foregoing, the Closing Date may be extended, at the
option of the Eligible Shareholders, for such reasonable period of time as shall
be necessary to obtain requisite governmental or regulatory approvals in respect
of such purchase and sale, including the expiration of any applicable waiting
period under the Hart-Scott-Rodino Antitrust Improvements Act, as amended, or
any other applicable governmental or regulatory provision limiting or regulating
investments in any equities; provided, however, such extension shall not exceed
30 days. At such closing, the Selling Shareholders shall deliver to the
purchasing Eligible Shareholders certificates representing the Offered Shares,
duly endorsed with a signature guarantee for transfer and accompanied by all
requisite transfer taxes, if any, and such Offered Shares shall be free and
clear of any liens, claims, options, charges, encumbrances or rights ("Liens")
(other than those arising hereunder), and the Selling Shareholders shall so
represent and warrant, and each shall further represent and warrant that it is
the beneficial and record owner of such Offered Shares. Each purchasing
Eligible Shareholder shall, at the closing, deliver to the Selling Shareholders
payment in full in immediately available funds for the Offered Shares purchased
by it. At such closing, all of the parties to the transaction shall execute such
additional documents as are otherwise necessary or appropriate.
3.5 Sale to Third Party Buyer. Unless the Eligible Shareholders
elect to purchase all of the Offered Shares pursuant to Section 3.1, (i) each
Selling Shareholder may sell its or his Offered Shares or (ii) if Section 3.2
applies, all Participating Shareholders may sell such portions of their Shares
as can be sold under Section 3.2.1, in either case (i) or (ii), to the Third
Party Buyer upon the terms and conditions stated in the First Offer Notice;
provided, however, that such sale is bona fide and made prior to or within 60
days after the proposed Closing Date. Notwithstanding the foregoing, the Closing
Date may be extended, at the option of the Selling Shareholder, for such
reasonable period of time as shall be necessary to obtain requisite governmental
or regulatory approvals in respect of such purchase and sale, including the
expiration of any applicable waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act, as amended, or any other applicable governmental or
regulatory provision limiting or regulating investments in any equities;
provided, however, such extension shall not exceed 60 days. If such sale is not
consummated prior to or on the Closing Date (extended as provided above, if
applicable) for any reason, then the restrictions provided for herein shall
again become effective, and no transfer of such Offered Shares may be made
thereafter (other than to a Permitted Transferee) by the Selling Shareholders
without again offering the same to the Eligible Shareholders in accordance with
this Section 3.
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3.6 Involuntary Transfers.
3.6.1 Rights of First Offer upon Involuntary Transfer. If an
Involuntary Transfer of any Shares (the "Transferred Shares") owned by any of
the Shareholders shall occur, the Eligible Shareholders shall have the same
rights as specified in Section 3.1 with respect to such Transferred Shares as if
the Involuntary Transfer had been a proposed voluntary transfer by a Selling
Shareholder, except that (a) the Option Period shall be a period of 15 days from
the date of receipt by the Company and the Eligible Shareholders of notice of
the Involuntary Transfer, (b) the Closing Date shall be 90 days after the
expiration of the Option Period, (c) such rights shall be exercised by notice to
the transferee of such Transferred Shares (the "Involuntary Transferee") rather
than to the Shareholder who suffered or will suffer the Involuntary Transfer and
(d) the purchase price per Transferred Share shall be agreed to between the
Involuntary Transferee and the purchasing Eligible Shareholders; provided,
however, that if such parties fail to agree as to such purchase price, the
purchase price shall be the fair market value thereof as determined in
accordance with Section 3.6.2.
3.6.2 Fair Market Value. If the Common Stock is listed or
admitted for trading on any national securities exchange or quoted on NASDAQ or
a similar service, the fair market value of the Transferred Shares shall be the
Current Market Price. If the Common Stock is not listed or admitted for trading
on any national securities exchange or quoted on NASDAQ or a similar service,
the fair market value of the Transferred Shares shall be determined in
accordance with the remaining provisions of this Section 3.6.2 by a panel of
three independent appraisers, which shall be recognized investment banking firms
or recognized experts experienced in the valuation of corporations. Within 15
days after the notice to the Involuntary Transferee with respect to the exercise
of the right to purchase the Transferred Shares, the Involuntary Transferee and
the Board of Directors of the Company shall each designate one such appraiser
that is willing and able to conduct such determination. If either the
Involuntary Transferee or the Board of Directors fails to make such designation
within such period, the other party that has made the designation shall have the
right to make the designation on its behalf. The two appraisers designated
shall, within a period of 15 days after the designation of the second appraiser,
agree to designate a third appraiser. The three appraisers shall conduct their
determination as promptly as practicable, and the fair market value of the
Transferred Shares shall be the average of the determination of the two
appraisers that are closer to each other than to the determination of the third
appraiser, which third determination shall be discarded. Such determination
shall be final and binding on the Involuntary Transferee and the purchasing
Eligible Shareholders.
3.6.3 Closing. The closing of any purchase under this Section 3.6
shall be held at the principal office of the Company at 11:00 a.m.,
local time, on the Closing Date or at such other time and place as the parties
to the transaction may
<PAGE>
13
agree. At such closing, the Involuntary Transferee shall deliver to the
purchasing Eligible Shareholders certificates, if applicable, or other
instruments or documents representing the Transferred Shares being purchased
under this Section 3.6, duly endorsed with a signature guarantee for transfer
and such Transferred Shares shall be free and clear of any Lien arising through
the action or inaction of the Involuntary Transferee. Each purchasing Eligible
Shareholder shall deliver to the Selling Shareholder at the closing payment in
full in immediately available funds for such Transferred Shares. At such
closing, all of the parties to the transaction shall execute such additional
documents as are otherwise necessary or appropriate.
3.6.4 General. In the event that the provisions of this Section
3.6 shall be held to be unenforceable with respect to any particular
Involuntary Transfer, the Eligible Shareholders shall have the rights specified
in Section 3.1 with respect to any transfer by an Involuntary Transferee subject
to a Bona Fide Offer from a Third Party Buyer for such Shares, and each
Shareholder agrees that any Involuntary Transfer shall be subject to such
rights, in which case the Involuntary Transferee shall be deemed to be the
Selling Shareholder for purposes of Section 3.1 of this Agreement and shall be
bound by the provisions of Section 3.1 and the other provisions of this
Agreement, except that the requirement for the absence of Liens and giving of
representations shall be limited to those required by an Involuntary Transferee
under Section 3.6.3.
4. Pledges and Other Encumbrances. No Shareholder shall hypothecate,
pledge, grant a security interest in or otherwise encumber any of its Shares
unless (i) such Shareholder shall give notice to the Company and the other
Shareholders of its intention to encumber its Shares not less than 15 days prior
to effecting such transaction, which notice shall state the name and address of
the proposed pledgee or other beneficiary (which shall be a bank or other
financial institution acceptable to the Company) and the number of Shares
proposed to be encumbered; and (ii) the proposed pledgee or other beneficiary
shall execute an agreement acknowledging its familiarity with the terms of this
Agreement and agreeing to be bound by the terms hereof in the event of any sale,
by or following foreclosure or otherwise, of such Shares, or in the event of any
proposal or waiver that would permit the retention of such Shares in
satisfaction of the secured obligation, or in the event of any exercise of any
rights (including voting rights) of such Shares, by such pledgee or other
beneficiary.
5. All Transfers in Compliance with Law and Subject to this Agreement;
Substitution of Transferee. Notwithstanding any other provision of this
Agreement, no transfer may be made under Section 2.2, and no transfer of 5% or
more of the Outstanding Common Stock may be made pursuant to Section 3 to a
Third Party Buyer in a privately negotiated transaction, unless each transferee
of Shares has agreed in writing to be bound by the terms and conditions of this
Agreement to the same extent and in the same manner as the Shareholder
transferring such Shares. All transfers of Shares shall comply in all respects
with the applicable provisions of this Agreement and with
<PAGE>
14
applicable federal and state securities laws including, without limitation, the
Securities Act. Upon becoming a party to this Agreement, a transferee shall
enjoy the same rights and be subject to the same obligations as its predecessor
hereunder, except that the rights of such Shareholder under Section 6 are not
transferable except as specifically provided in Section 6.3.
6. Governance.
6.1 General. From and after the execution of this Agreement,
each Shareholder shall vote its Shares, at any regular or special meeting of
Shareholders of the Company (each a "Shareholders' Meeting"), or in any written
consent executed in lieu of such a meeting of Shareholders (a "Written
Consent"), and shall take all other actions necessary to give effect to the
agreements contained in this Agreement and to ensure that the Charter Documents
do not at any time hereafter conflict in any respect with the provisions of this
Agreement. In addition, each Shareholder shall vote its Shares at any
Shareholders' Meeting, or act by Written Consent with respect to such Shares,
upon any matter submitted for action by the Company's Shareholders, or with
respect to which such Shareholder may vote or act by Written Consent, in
conformity with the specific terms and provisions of this Agreement and the
Charter Documents.
6.2 Shareholders' Actions. In order to effectuate the
provisions of this Section 6, each Shareholder hereby agrees that, when any
action or vote is required to be taken by such Shareholder pursuant to this
Agreement, such Shareholder shall use its reasonable best efforts to call, or
cause the appropriate officers and directors of the Company to call, a
Shareholders' Meeting or to execute or cause to be executed a Written Consent
pursuant to Section 615 of the NYBCL to effectuate such Shareholder action.
Further, each Shareholder shall use its reasonable best efforts to cause the
Board of Directors to adopt, either at a meeting of the Board of Directors or by
unanimous written consent of the Board of Directors pursuant to Section 708 of
the NYBCL, all the resolutions necessary to effectuate the provisions of this
Agreement.
6.3 Election of Directors. Each Shareholder shall vote its
Shares at any Shareholders' Meeting, or act by Written Consent with respect to
such Shares, and take all other actions necessary to ensure that the number of
directors constituting the entire Board of Directors shall be 9, as provided for
below. Subject to Section 6.5, each Shareholder shall vote its Shares at any
Shareholders' Meeting called for the purpose of filling the positions on the
Board of Directors, or in any Written Consent executed for such purpose, in
favor of the election to the Board of Directors of the following individuals:
(a) four individuals, who shall be designated by Capital Z (the
"Capital Z Directors");
<PAGE>
15
(b) two individuals, who shall satisfy the criteria for treatment as
an "independent director" under the rules of any stock exchange on which
securities of the Company are listed (including NASDAQ), who shall be designated
by the Company (the "Independent Director");
(c) two individuals, who shall be designated by Richard Barasch (the
"Barasch Directors");
(d) one individual, who shall be designated jointly by the AAM
Investors (the "AAM Director").
On the date hereof, the Capital Z Directors shall be Robert Spass, Bradley
Cooper, Susan Fleming and one additional director to be designated by Capital Z,
the Independent Directors shall be Robert Wright and Pat McLaughlin, the Barasch
Directors shall be Richard Barasch and Judge Bertram Harnett and the AAM
Director shall be Richard Veed.
The rights of the Shareholders to designate directors pursuant to this Section
6.3 are not transferable except to Permitted Transferees; provided, however,
that Capital Z and its Permitted Transferees may assign the right to designate
one or more Capital Z Directors to any Third Party Buyer which acquires from
Capital Z or its Permitted Transferees in one or more privately negotiated
transactions Shares representing 10% or more of the Outstanding Common Stock.
6.4 Removal and Replacement. Any Shareholder that nominated a
director pursuant to Section 6.3 shall be entitled at any time and for any
reason (or for no reason), by notice to the other Shareholders and the Company,
to designate such director for removal. Upon delivery of any such notice, each
Shareholder shall, as soon as practicable thereafter and in any event prior to
the transaction of any other business by the Shareholders or the Board of
Directors, use its reasonable best efforts to cause the Board of Directors (or,
if a Shareholder vote is required pursuant to Section 706 of the NYBCL, vote its
Shares (including by Written Consent)), to remove such Director designated for
removal, and to elect a director or directors designated to fill the resulting
vacancy or vacancies, in the manner contemplated by Section 6.3. If, at any
time, a vacancy is created on the Board of Directors by reason of the death or
resignation of any Capital Z Director, the Independent Director, either Barasch
Director, the Wand Director or the AAM Director, each Shareholder shall use its
reasonable best efforts to cause the Board of Directors, as soon as practicable
thereafter and in any event prior to the transaction of business by the Board of
Directors in respect of any matter requiring supermajority or special approval
pursuant to Section 6.7 or 6.8, to vote to elect to the Board of Directors the
individual designated to fill such vacancy in the manner contemplated by Section
6.3.
<PAGE>
16
6.5 Adjustment of Board Representation. The composition of the
Board of Directors described in Section 6.3 shall be subject to adjustment as
follows:
(a) If Capital Z and its Permitted Transferees cease to own
50% or more of the Outstanding Common Stock, then Capital Z and its Permitted
Transferees collectively will have the right to designate a number of directors
equal to such proportion of the total number of directors as corresponds to the
proportion of the Outstanding Common Stock then owned by Capital Z and its
Permitted Transferees, subject to clause (c) below.
(b) Barasch shall continue to have the right to designate two
directors for so long (but only for so long) as he continues to serve as
President and Chief Executive Officer of the Company.
(c) From and after the date that any Shareholder (together
with its Permitted Transferees) does not own 10% of the Outstanding Common
Stock, such Shareholder shall no longer be entitled to designate any directors;
provided, however, that (i) if Barasch no longer serves as President and Chief
Executive Officer of the Company, he shall nevertheless continue to be entitled
to designate one director for so long as he owns (together with his Permitted
Transferees) at least 75% of the Shares owned by him on the date hereof and (ii)
the AAM Investors (and their Permitted Transferees) shall continue to have the
right to designate one director for so long as the AAM Investors and their
Permitted Transferees continue to own at least 90% of the Shares owned by them
on the date hereof.
6.6 Board Committees. The Shareholders shall cause the Company
to maintain in the By-laws of the Company a provision requiring the Board of
Directors to have an audit committee and a compensation committee. If Capital Z
continues to hold at least 10% of the Outstanding Common Stock, Capital Z shall
be entitled to appoint a member of all board committees. Each Shareholder agrees
that it will not take, cause to be taken or approve any action (including, but
not limited to, any amendment of the Certificate of Incorporation, as amended,
of the Company) that would be inconsistent with the first sentence of this
Section 6.6.
6.7 Supermajority Approvals. The Shareholders agree that they
will not vote their Shares to approve any of the following actions if such
action has not been specifically approved or ratified at a meeting of the Board
of Directors by the affirmative vote of not less than 662/3% of the total number
of directors:
(a) entering into (A) any merger or consolidation in which
either the Company or a material Subsidiary is a constituent corporation or its
securities are being issued and the shareholders following such transaction do
not own, directly or indirectly, in the aggregate a majority of the shares or
equity securities of the surviving
<PAGE>
17
corporation of any such merger or consolidation entitled to elect members of the
Board of Directors, (B) the sale of all or substantially all of the Company's
assets or properties in a single transaction or in a series of related
transactions, or (C) the sale, lease, exchange or other disposition of any
shares of a material Subsidiary or all or substantially all assets of any
material Subsidiary;
(b) changing the authorized number of directors;
(c) amending or modifying the Charter Documents;
(d) electing or removing any of the President, Chief Financial
Officer or other executive officers, and amending or modifying of the Employment
Agreement, dated ____________, 1999, between the Company and Barasch;
(e) voluntarily dissolving or winding-up the Company or any
material Subsidiary or filing with respect to the Company or any material
Subsidiary a voluntary petition in bankruptcy or for reorganization or for the
adoption of any plan or arrangement with creditors or an admission seeking the
relief therein provided under any existing or future law of any jurisdiction
relating to bankruptcy, insolvency, reorganization or relief of debtors; and
(f) approving any dividend or other distribution in respect of
the Common Stock.
6.8 Transactions with Affiliates. Without the approval of a
majority of the Company's Board of Directors (excluding directors nominated by
an Interested Shareholder (as defined below)), the Company shall not, and shall
not permit any subsidiary to, (a) enter into (or call a default under, amend in
any material respect or grant any waiver with respect to any material matter
under) any transaction or agreement with any Shareholder or any Affiliate of
such Shareholder (the "Interested Shareholders") or (b) purchase any selling,
general, management or administrative services from a Shareholder or an
Affiliate of a Shareholder; provided, however, that nothing contained in this
Section 6.8 shall prohibit the Company from performing its obligations under any
existing agreements between the Company and any Interested Shareholder or any
Affiliate of an Interested Shareholder as in effect on the date hereof and
described on Schedule 6.8; and provided, further, that any such renewal,
extension, modification or amendment of any such existing agreements shall
require approval of the Board of Directors (excluding directors nominated by an
Interested Shareholder).
6.9 Reimbursement of Director Expenses. Each Director shall be
entitled to receive from the Company reimbursement for reasonable out-of-pocket
expenses (including travel related expenses), if any, incurred in connection
with the performance of his or her duties as a director. Nothing contained in
this Section 6.9
<PAGE>
18
shall preclude any member of the Board of Directors from serving the Company or
its subsidiaries in any other capacity and receiving proper compensation
therefor.
6.10 Liability Insurance. The Company shall, and each Shareholder
shall use reasonable efforts to cause the Board of Directors to cause the
Company to, maintain a directors' liability insurance policy that is reasonably
acceptable to a majority of the Directors.
6.11 Limitation on Merger. Each Shareholder agrees that for a
period of two years from the date of this Agreement, it will not vote its Shares
to approve a merger of the Company in which the shareholders of the Company are
to receive consideration in cash or other property instead of shares in the
surviving entity, unless such merger has been approved at a meeting of the Board
of Directors by the requisite majority, including the affirmative vote of the
Barasch Directors.
7. Stock Certificate Legend. A copy of this Agreement shall be filed
with the Secretary of the Company and kept with the records of the Company. Each
certificate representing Shares now held or hereafter acquired by any
Shareholder shall, for as long as this Agreement is effective, bear legends
substantially in the following forms:
THE SALE, ASSIGNMENT, HYPOTHECATION, PLEDGE, ENCUMBRANCE OR OTHER
DISPOSITION (EACH A "TRANSFER") AND VOTING OF ANY OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE ARE RESTRICTED BY THE TERMS OF THE
SHAREHOLDERS' AGREEMENT, DATED AS OF ___________, 1999, AMONG THE COMPANY
AND THE SHAREHOLDERS NAMED THEREIN, A COPY OF WHICH MAY BE INSPECTED AT THE
COMPANY'S PRINCIPAL OFFICE. THE COMPANY WILL NOT REGISTER THE TRANSFER OF
SUCH SECURITIES ON THE BOOKS OF THE COMPANY UNLESS AND UNTIL THE TRANSFER
HAS BEEN MADE IN COMPLIANCE WITH THE TERMS OF SUCH SHAREHOLDERS' AGREEMENT.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY
STATE. SUCH SECURITIES MAY NOT BE TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF SUCH ACT AND SUCH LAWS.
<PAGE>
19
8. Other Agreements. The Company hereby covenants and agrees with each
Shareholder, as follows:
8.1 Financial Statements and Other Information. The Company shall
deliver to each Shareholder:
(a) promptly upon their becoming available, a copy of (i) all
regular or special reports, registration statements and amendments to the
foregoing which the Company files with the Commission or any securities
exchange, (ii) all reports, proxy statements, financial statements and other
information distributed by the Company to its stockholders, bondholders or the
financial community generally, and (iii) all accountants' management letters
pertaining to, all other reports submitted by accountants in connection with any
audit of, and all other material reports from outside accountants with respect
to, the Company or any of its subsidiaries; and
(b) such other financial, operating or other data or other
information of or relating to the Company or any of its Subsidiaries as any
Shareholder reasonably may request.
8.2 Books and Records. The Company shall, and shall cause its
subsidiaries to, keep proper books of record and account, in which full and
correct entries shall be made of all financial transactions and the assets and
business of the Company and each of its subsidiaries in accordance with GAAP.
8.3 Regulatory Compliance Cooperation. If, at any time, a
Regulated Shareholder notifies the Company that it has or would have a
Regulatory Problem, the Company agrees to use its reasonable best efforts to
accommodate any reasonable request of such Regulated Shareholder which may
assist in eliminating such Regulatory Problem, including, but not limited to,
the authorization and issuance to such Regulated Shareholder of shares of a
class of non-voting stock.
9. Confidentiality. All the financial statements, reports or other
information provided to any Shareholder pursuant to Section 8.1 hereof shall be
deemed to be confidential information of the Company; provided, however, that
information shall be deemed not to be confidential information of the Company if
such information (i) is generally available to the public or becomes generally
available to the public other than as a result of a disclosure by the
Shareholder receiving such information or its officers, employees, agents or
counsel or (ii) was or becomes available to the Shareholder receiving such
information prior to its disclosure to such Shareholder pursuant to Section 8.1
hereof, provided that the Shareholder had no reasonable basis for concluding
that such information was made available in violation of a confidentiality
agreement with the Company. Each Shareholder agrees to use reasonable efforts to
prevent the disclosure of such confidential information to any other person
(excluding its officers,
<PAGE>
20
employees, agents or counsel who require access to such information), except (a)
as may be necessary in connection with a request by a Governmental Authority
having or claiming jurisdiction over such Shareholder, or (b) in connection with
the enforcement of such Shareholder's rights hereunder or under the Charter
Documents or Transaction Agreements. Without limiting the generality of the
foregoing, the Company may require any Shareholder receiving any confidential
information of the Company to enter into a separate confidentiality and
non-disclosure agreement, in form and substance reasonably satisfactory to the
Company and such Shareholder.
10. Specific Performance. The parties hereto intend that each of them have
the right to seek damages or specific performance in the event that any other
party hereto fails to perform such other party's obligations hereunder.
Therefore, if any party shall institute any action or proceeding to enforce the
provisions hereof, any party against whom such action or proceeding is brought
hereby waives any claim or defense therein that the plaintiff party has an
adequate remedy at law.
11. Miscellaneous.
11.1 Notices. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been given or
made if in writing and delivered personally, sent by commercial carrier or
registered or certified mail (postage prepaid, return receipt requested) or
transmitted by facsimile with automated receipt confirmation to the parties at
the following addresses and numbers:
If to the Company, to:
Universal American Financial Corp.
Six International Drive, Suite 190
Rye Brook, NY 10573-1068
Fax: (914) 934-9123
Attention: Richard A. Barasch
with copies to:
Harnett Lesnick & Ripps, P.A.
NationsBank Tower
150 E. Palmetto Park Road
Suite 500
Boca Raton, FL 33432-4832
Fax: (561) 368-4315
Attention: Judge Bertram Harnett
and
<PAGE>
21
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017-3954
Fax: (212) 455-2502
Attention: Gary I. Horowitz, Esq.
If to Capital Z, to:
Capital Z Partners, Ltd.
One Chase Manhattan Plaza
44th Floor
New York, NY 10005
Fax: (212) 898-8720
Attention: Bradley E. Cooper
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Fax: (212) 757-3990
Attention: David K. Lakhdhir, Esq.
If to Barasch, to:
Universal American Financial Corporation
Six International Drive
Suite 190
Rye Brook, NY 10573-1068
Fax: (914) 934-9123
with a copy to:
Harnett Lesnick & Ripps, P.A.
NationsBank Tower
150 E. Palmetto Park Road
Suite 500
Boca Raton, FL 33432-4832
Fax: (561) 368-4315
Attention: Judge Bertram Harnett
<PAGE>
22
If to the AAM Investors, to:
AAM Capital Partners, L.P.
30 North LaSalle Street
35th Floor
Chicago, IL 60602
Fax: (312) 263-1196
Attention: Richard A. Veed
with a copy to:
Katten Muchin & Zavis
525 West Monroe Street
Suite 1600
Chicago, IL 60661-3693
Fax: (312) 902-1061
Attention: Michael P. Goldman, Esq.
[Add addresses for the UA Shareholders]
Any Shareholder may designate another notice address by giving notice to
the other parties in the manner provided above.
11.2 Amendment and Waiver.
(a) No failure or delay on the part of any party hereto in
exercising any right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power or
remedy preclude any other or further exercise thereof or the exercise of any
other right, power or remedy. The remedies provided for herein are cumulative
and are not exclusive of any remedies that may be available to the parties
hereto at law, in equity or otherwise.
(b) Any amendment, supplement or modification of or to any
provision of this Agreement, any waiver of any provision of this Agreement, and
any consent to any departure by any party hereto from the terms of any provision
of this Agreement, shall be effective (i) only if it is made or given in writing
and signed by each Shareholder that is or would be adversely affected by any
such amendment, supplement, modification, waiver or consent and (ii) only in the
specific instance and for the specific purpose for which made or given.
Notwithstanding the foregoing, the observance of any terms of this Agreement
which benefit only the Eligible Shareholders may be waived by Eligible
Shareholders holding a majority of the Shares owned by all Eligible
Shareholders.
<PAGE>
23
11.3 Headings; Agreements. The headings contained in this
Agreement are inserted for convenience only and do not constitute a part of this
Agreement. The term "Agreement" for purposes of representations and warranties
hereunder shall be deemed to include the Exhibits hereto to be executed and
delivered by parties relevant thereto.
11.4 Publicity. So long as this Agreement is in effect, except
as required by law, regulation or stock exchange requirements, the parties
hereto shall not, and shall cause their affiliates not to, issue or cause the
publication of any press release or other announcement with respect to the
contents of this Agreement or the other agreements contemplated hereby without
the consent of the other party, which consent shall not be unreasonably withheld
or delayed.
11.5 Severability. If any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions hereof shall not be in any way impaired, unless the
provisions held invalid, illegal or unenforceable shall substantially impair the
benefits of the remaining provisions hereof.
11.6 Entire Agreement. This Agreement (including all Exhibits
hereto) constitutes the entire agreement among the parties with respect to the
subject matter hereof and supersedes all other prior agreements and
understandings, both written and oral, among the parties, or any of them. This
Agreement, together with the exhibits hereto, supersedes all prior agreements
and understandings on the subject matter hereof, including, without limitation,
the Shareholders Agreement, dated as of December 30, 1994, as amended, among the
Company and Wand/Universal Investments L.P., and the Shareholders Agreement,
dated April 25, 1997, as amended, among the Company, AAM Capital Partners, L.P.
and the other parties named therein, all of which are being terminated effective
as of the date of this Agreement. Notwithstanding anything to the contrary
stated herein, Section 5.a.ii of the 1998 Stock Purchase Agreement, dated
December __, 1998, among the Company, UAFC, L.P., Chase Equity Associates, L.P.
and AAM Capital Partners, L.P. shall terminate effective as of the date of this
Agreement.
11.7 Term of Agreement. This Agreement shall become effective
upon the execution hereof and shall continue in effect until the termination of
this Agreement by written agreement of all Shareholders; provided, however, that
this Agreement shall cease to be effective in respect of any Shareholder which
ceases to own at least 1% of the Outstanding Common Stock.
11.8 Assignment. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto and
their
<PAGE>
24
respective successors and permitted assigns (including, in the case of any party
hereto that is an individual, the heirs, estate and personal representatives of
such party). This Agreement is not assignable except by operation of law or in
compliance with Section 2.2 and 5 and the last sentence of Section 6.3.
11.9 Counterparts. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same agreement
and each of which shall be deemed an original.
11.10 Governing Law. The validity and interpretation of this
Agreement shall be governed by the laws of the State of New York, without
reference to the conflict of laws principles thereof which might indicate the
applicability of the laws of any other jurisdiction.
11.11 Third Party Beneficiaries. This Agreement is not intended
to confer upon any other person any rights or remedies hereunder.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered as of the date first written above.
UNIVERSAL AMERICAN FINANCIAL CORP.
By:
---------------------------------------
Name:
Title:
CAPITAL Z FINANCIAL SERVICES FUND II, L.P.
By: Capital Z Partners, L.P., general partner
By: Capital Z Partners Ltd., general partner
By:
-----------------------------------
Name:
Title:
-------------------------------------------
Richard A. Barasch
<PAGE>
25
UAFC, L.P.
By: VWA, L.L.C., general partner
By: Veed Corp., managing member
By:
------------------------------------
Name:
Title:
AAM CAPITAL PARTNERS, L.P.
By: AAM Partners, L.P., general partner
By: AAM Investment Banking Group, Ltd.,
general partner
By:
------------------------------------
Name:
Title:
CHASE EQUITY ASSOCIATES, L.P.
By: Chase Capital Partners, general partner
By:
---------------=------------------
Name:
Title:
[Add signature lines for the UA Shareholders]
<PAGE>
SCHEDULE I
Ownership of Shares
