SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended June 30, 1996
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
[No Fee Required]
For the transition period from to
Commission file number 1-10522
PIONEER FINANCIAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
Delaware 36-2479273
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1750 East Golf Road, Schaumburg, Illinois 60173
(Address of principal executive, offices) (Zip Code)
Registrant's telephone number, including area code (847) 995-0400
Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO ____
The number of shares of the registrant's common stock, $1.00 par value per
share, outstanding as of July 31, 1996 was 11,024,778.
PIONEER FINANCIAL SERVICES, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
(Unaudited)
<S> <C> <C>
ASSETS
Investments-Note 1 and 3
Securities available for sale
Fixed maturities, at fair value
(cost: 1996-$646,295; 1995-$597,078) $ 640,136 $ 622,666
Equity securities, at fair value
(cost: 1996-$20,859; 1995-$13,333) 23,293 15,570
Fixed maturities held to maturity, at amortized cost
(fair value: 1996-$258,692; 1995-$252,728) 261,544 246,041
Mortgage loans--at unpaid balance 8,383 9,253
Real estate--at cost, less accumulated depreciation 18,008 18,250
Policy loans--at unpaid balance 80,640 79,122
Short-term investments--at cost,
which approximates fair value 21,656 51,690
Total Investments 1,053,660 1,042,592
Cash 24,067 20,274
Premiums and other receivables, less
allowance for doubtful accounts 21,743 23,429
Reinsurance receivables and amounts
on deposit with reinsurers 206,090 184,719
Accrued investment income 14,420 13,307
Deferred policy acquisition costs 226,801 219,874
Land, building and equipment-at cost, less
accumulated depreciation 26,650 26,433
Other 42,390 28,293
$1,615,821 $1,558,921
June 30, December 31,
1996 1995
(Unaudited)
LIABILITIES, REDEEMABLE PREFERRED STOCK,
AND STOCKHOLDERS' EQUITY
Policy liabilities:
Future policy benefits $ 963,808 $ 961,127
Policy and contract claims 170,889 166,111
Unearned premiums 79,013 71,150
Other 17,288 16,077
1,230,998 1,214,465
General expenses and other liabilities 43,760 48,580
Amounts due to reinsurers 77,466 82,954
Deferred federal income taxes 1,125 2,393
Short-term notes payable 6,519 13,534
Long-term notes payable 6,189 21,504
Convertible subordinated debentures due 2000 9,050 9,695
Convertible subordinated notes due 2003 86,250 -
1,461,357 1,393,125
Redeemable Preferred Stock, no par value:
$2.125 cumulative convertible exchangeable
preferred stock
Authorized: 5,000,000 shares
Issued and outstanding:
(1995: 848,900 shares) - 21,222
Stockholders' Equity
Common Stock, $1 par value:
Authorized: 20,000,000 shares
Issued, including shares in treasury
(1996-11,838,512; 1995-11,207,591) 11,839 11,208
Additional paid-in capital 80,901 72,198
Unrealized appreciation (depreciation) of
available-for-sale securities-Note 3 (5,945) 4,518
Retained earnings 77,889 66,870
Less treasury stock at cost
(1996-1,132,300 shares; 1995-1,132,300 shares) (10,220) (10,220)
Total Stockholders' Equity 154,464 144,574
$1,615,821 $1,558,921
See notes to condensed consolidated financial statements.
</TABLE>
PIONEER FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Income:
Premiums and policy charges $182,151 $162,706 $357,724 $332,281
Net investment income 19,067 17,338 37,058 34,835
Other income and realized gains
and losses from investments 10,224 10,208 22,838 17,155
211,442 190,252 417,620 384,271
Benefits and expenses:
Benefits 129,207 113,576 250,661 230,537
Insurance and general expenses 51,909 48,844 106,713 99,509
Interest expense 1,800 1,612 2,761 3,322
Amortization of deferred policy
acquisition costs 19,467 18,334 38,305 35,508
202,383 182,366 398,440 368,876
INCOME BEFORE INCOME TAXES 9,059 7,886 19,180 15,395
Federal income taxes 3,035 2,526 6,425 5,080
NET INCOME 6,024 5,360 12,755 10,315
PREFERRED STOCK DIVIDENDS 141 446 592 904
INCOME APPLICABLE TO
COMMON STOCKHOLDERS $ 5,883 $ 4,914 $ 12,163 $ 9,411
NET INCOME PER COMMON SHARE
Primary $ .55 $ .78 $ 1.14 $ 1.52
Fully Diluted $ .44 $ .48 $ .96 $ .94
DIVIDENDS DECLARED
PER COMMON SHARE $ .055 $ .045 $ .11 $ .09
AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING
Primary 10,771 6,284 10,630 6,185
Fully Diluted 16,562 12,638 14,702 12,629
See notes to condensed consolidated financial statements.
</TABLE>
PIONEER FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1996 1995
<S> <C> <C>
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES $ (14,321) $ 20,750
INVESTING ACTIVITIES
Net decrease in
short-term investments 32,216 31,571
Purchases of investments (185,366) (105,976)
Sale of investments 128,790 78,839
Maturities of investments 14,397 1,145
Net purchase of property and equipment (1,187) (1,273)
Purchase of subsidiaries, net of cash
acquired (22,739) (7,629)
NET CASH USED BY
INVESTING ACTIVITIES (33,889) (3,323)
FINANCING ACTIVITIES
Net proceeds from debt offering 83,016 -
Increase in notes payable 5,845 21,850
Repayments of notes payable (28,175) (21,643)
Proceeds from sale of agent receivables 13,612 8,864
Transfer of collections on previously
sold agent receivables (11,472) (10,616)
Policyholder account deposits 19,042 17,519
Policyholder account withdrawals (15,596) (20,129)
Dividends paid - preferred (592) (904)
Dividends paid - commo (1,145) (531)
Stock options exercised 518 682
Purchase of treasury stock - (485)
Retirement of preferred stock (13,058) (460)
Other 8 13
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES 52,003 (5,840)
INCREASE IN CASH 3,793 11,587
CASH AT BEGINNING OF PERIOD 20,274 8,612
CASH AT END OF PERIOD $ 24,067 $ 20,199
See notes to condensed consolidated financial statements.
</TABLE>
PIONEER FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 1996
NOTE 1 -- ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles (GAAP) for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and six month periods ended June
30, 1996 are not necessarily indicative of the results that may be expected for
the year ended December 31, 1996. For further information, refer to the
consolidated financial statements and footnotes thereto included in the Pioneer
Financial Services, Inc. ("Pioneer" or "the Company") Annual Report on Form 10-K
for the year ended December 31, 1995.
EARNINGS PER SHARE
Primary earnings per share of Common Stock are determined by dividing net income
for the period, less dividends on Preferred Stock, by the weighted average
number of common stock and common stock equivalents (dilutive stock options)
outstanding. Fully diluted earnings per share assumes conversion of the
Preferred Stock outstanding and conversion of the Subordinated Debentures and
Notes with related tax-effected interest added back to net income. (See
discussion in Exhibit 11 on page 19).
NOTE 2 -- STOCKHOLDERS' EQUITY
The statutory accounting practices prescribed for Pioneer's insurance
subsidiaries by regulatory authorities differ from GAAP. The combined
statutory-basis capital and surplus of Pioneer's direct insurance subsidiaries
was $140,769,000 and $115,423,000 at June 30, 1996 and December 31, 1995,
respectively. Statutory net income of the insurance subsidiaries amounted to
$494,000 and $1,792,000 for the three month periods ended June 30, 1996 and
1995, respectively, and $4,294,000 and $3,617,000 for the six month periods
ended June 30, 1996 and 1995, respectively.
NOTE 3 -- INVESTMENTS
Realized investment gains for the three month periods ended June 30, 1996 and
1995 were $312,000 and $1,098,000, respectively, and $771,000 and $1,415,000 for
the six month periods ended June 30, 1996 and 1995, respectively.
Unrealized depreciation of available-for-sale securities at June 30, 1996 of
$5,945,000 included unrealized depreciation of $4,278,000 less unrealized
appreciation of $4,862,000 on investments in escrow trust accounts pursuant to
agreements with certain reinsurers and net of deferred tax benefits of
$3,195,000. Unrealized appreciation on available-for-sale securities at
December 31, 1995 of $4,518,000 included gross appreciation of $27,150,000 less
unrealized appreciation of $17,397,000 on investments in escrow trust accounts
pursuant to agreements with certain reinsurers and net of deferred taxes and DAC
adjustments of $5,235,000.
NOTE 4 -- CONTINGENCIES
Pioneer and its subsidiaries are named as defendants in various legal actions,
some claiming significant damages, arising primarily from claims under insurance
policies, disputes with agents, reinsurance arbitrations, and other items.
Pioneer's management and its legal counsel are of the opinion that the
disposition of these actions will not have a material adverse effect on
Pioneer's financial position.
NOTE 5 -- BUSINESS COMBINATION
On March 12, 1996, Pioneer acquired for a cost of $26,400,000 the outstanding
common shares of Universal Fidelity Life Insurance Company (UFLIC). The
acquisition was accounted for by the purchase method and, accordingly, the
purchase price was allocated to assets and liabilities acquired based on
estimates of their fair values.
NOTE 6 -- CONVERTIBLE SUBORDINATED NOTES
In March 1996 the Company issued $86,250,000 of 6 1/2% convertible subordinated
notes due 2003. Net proceeds from the offering totaled approximately
$83,000,000. The notes are convertible into the Company's common stock at any
time prior to maturity, unless previously redeemed, at a conversion price of
$20.00 per share.
NOTE 7 -- CUMULATIVE CONVERTIBLE EXCHANGEABLE PREFERRED STOCK
In May 1996, the Company completed its offer to redeem its cumulative
convertible exchangeable preferred stock. Approximately 326,000 shares of the
Preferred Stock were converted by shareholders into 521,000 shares of Common
Stock. The cost to redeem the remaining shares was approximately $13,600,000,
which includes a charge to income of $444,000.
NOTE 8 - SUBSEQUENT EVENTS
In June 1996, the Company called for redemption effective in August 1996 of all
its outstanding 8% convertible subordinated debentures due 2000. The redemption
price is the principal amount plus accrued interest to the redemption date. The
debentures may alternatively be converted into the Company's common stock at the
price of $11.75 per share.
In July 1996, the Company has preliminarily agreed to acquire SECURA Life
Insurance Company. The purchase price is $12,500,000, subject to
adjustment. The purchase, which is subject to regulatory approval,
is expected to close in the third quarter of 1996.
In August 1996, the Company completed the acquisition of a block of individual
and small group health insurance business from Washington National Insurance
Company (WNIC) for approximately $19,000,000. The acquisition was structured as
a reinsurance transaction between WNIC and an insurance subsidiary of the
Company. The Company plans to reinsure the block of business on a 50% quota-
share basis to fund a portion of the acquisition. The Company entered into a
new term loan to fund the remaining costs and capital requirements of the
transaction (see Liquidity and Capital Resources). The total annualized
revenues of the assumed block are approximately $220,000,000. The block
produced pre-tax operating earnings of approximately $2,600,000 in 1995. WNIC
will retain a majority of the assets and reserves supporting the block of
business pursuant to the terms of the reinsurance agreement related to claims
incurred prior to the closing date of the transaction.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations - First Six Months of 1996 Compared to First Six Months of
1995
Overview
The information set forth below is based on the Company's major product lines.
<TABLE>
<CAPTION>
Six Months
Ended June 30,
1996 1995
<S> <C> <C>
Revenues
Group Medical $ 202,574 $ 207,607
Senior Health 140,174 115,293
Life Insurance 62,710 55,578
Medical Utilization Management 12,162 5,793
TOTAL $ 417,620 $ 384,271
Pre-tax operating income(1)
Group Medical $ 10,056 $ 12,935
Senior Health and Life 7,732 3,048
Life Insurance 5,711 2,003
Medical Utilization Management 12 779
Total pre-tax operating income before
corporate expense and interest 23,511 18,765
Corporate expense and interest (4,658) (4,784)
TOTAL $ 18,853 $ 13,981
(1) Represents the Company's income before taxes excluding the effects of
realized investment gains and losses. The 1996 amount also excludes
approximately $0.4 million in payments to redeeming stockholders relating to the
redemption of the Company's preferred stock.
</TABLE>
Group Medical
Revenue. Total revenue in the Group Medical Division decreased $5.0 million, or
2%, from $207.6 million to $202.6 million. Premiums decreased $4.8 million or
2%, from $193.6 million to $188.8 million. The Company has discontinued
marketing in certain states due to the unfavorable regulatory environment.
Net investment income was unchanged from the first six months of 1995. Total
realized investment losses were relatively unchanged compared to the same period
of 1995.
Other income decreased $0.7 million, or 7%, from $9.0 million to $8.3 million
due to the decrease in group medical policyholders.
Benefits. The following table sets forth the earned premium, benefits, and loss
ratios for products issued by the Group Medical Division:
Six Months
Ended June 30,
1996 1995
Earned Premium (1) $ 194,030 $ 201,150
Benefits (1) 119,536 125,343
Loss Ratio 61.6% 62.3%
(1) In the Company's statement of consolidated income, accident and health
premium revenue represent premiums written; the changes in unearned
premiums are reflected in accident and health benefits.
The loss ratio in 1996 was relatively unchanged from the first six months of
1995. The slight improvement was due to an increase in the level of managed
care savings and PPO penetration.
Insurance and General Expenses. Insurance and general expenses increased $0.7
million, or 1%, from $55.6 million to $56.3 million. The increase related to
cost containment and managed care expenses.
The amortization of Deferred Policy Acquisition Costs (DAC) decreased $0.3
million, or 1%, from $20.3 million to $20.0 million.
Senior Health and Life Division
Revenue. Total revenue in the Senior Health and Life Division increased $24.9
million, or 22%, from $115.3 million to $140.2 million. Senior health premium
increased $21.5 million, or 20%, from $110.1 million to $131.6 million due to an
increase in new Medicare supplement sales and the acquisition of Universal
Fidelity Life Insurance Company (UFLIC).
Net investment income increased $2.1 million, or 51%, from $4.1 million to $6.2
million, primarily due to the acquisition of UFLIC. The total realized gains
decreased $0.3 million from $1.0 million to $0.7 million.
Benefits. The following table sets forth the earned premium, benefits, and loss
ratios for senior health products:
Six Months
Ended June 30,
1996 1995
Earned Premium (1) $ 124,148 $ 106,884
Benefits (1) 85,976 73,165
Loss Ratio 69.3% 68.5%
(1) In the Company's statement of consolidated income, accident and health
premium revenue represent premiums written; the changes in unearned
premiums are reflected in accident and health benefits.
During the period, the division experienced higher medical claims ratios,
similar to the trend in 1995 when claims levels during the first two quarters
were higher than subsequent quarters. In addition, the mature block of Medicare
supplement business acquired from UFLIC has a higher average loss ratio and a
lower commission compensation level. Although premium rate adjustments taking
effect throughout 1996 will have some impact, the company expects claims ratios
to be about equal to or slightly higher than last year.
Insurance and General Expenses. Insurance and general expenses increased $2.9
million, or 11%, from $25.4 million to $28.3 million. The expense ratio
improved in 1996 due to efficiencies from the UFLIC acquisition.
The amortization of DAC increased $1.1 million, or 10%, from $10.7 million to
$11.8 million.
Life Insurance Divison
Revenue. Total revenue in the Life Insurance Division increased $7.1 million,
or 13%, from $55.6 million to $62.7 million. The increase was due primarily to
higher new term life sales.
Net investment income increased $0.1 million, from $25.2 million to $25.3
million.
Benefits. Total life and annuity policy benefits increased $6.5 million, or
18%, from $36.4 million to $42.9 million. This increase was primarily due to
the increased life insurance in-force and higher than projected mortality in the
second quarter.
Insurance and General Expenses. Insurance and general expenses decreased $4.3
million, or 36%, from $11.8 million to $7.5 million. The decrease was primarily
due to consolidation costs incurred pursuant to the acquisition of Connecticut
National Life (CNL) in the first quarter of 1995. The unit cost of
administration per policy in-force also decreased in 1996.
The amortization of DAC increased $1.9 million, or 42%, from $4.5 million to
$6.4 million, due to the continued increase in new life production and in force
business.
Medical Utilization Management Division
Pre-tax income decreased for the division due to HMO start-up costs. These
costs were offset to a large extent by profitability from utilization review
and precertification services.
Corporate Expenses and Interest
Corporate expenses increased $0.3 million, or 6%, from $4.8 million to $5.1
million. Interest expense decreased $0.5 million from $3.1 million to $2.6
million due to the conversion of the Company's 8% debentures in the third
quarter of 1995. The general corporate overhead increased due to expenses
incurred relative to the offering of the Company's 6 1/2% notes in the first
quarter of 1996 and redemption of the Company's preferred stock in the second
quarter of 1996.
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Net Income. The Company's consolidated net income increased $2.5 million, or
24%, from $10.3 million to $12.8 million. This increase was due primarily to
improved profitability in the Life Division as a result of lower expense levels
and increased new business production.
Premiums and Policy Charges. Total premiums and policy charges increased $25.4
million, or 8%, from $332.3 million to $357.7 million. This increase was due
primarily to the increase in accident and health premiums of $16.8 million, or
6%, which was due primarily to an increase in premiums from Medicare supplement
and long-term care products of $21.5 million, or 20%. Premiums from major
medical products decreased $4.8 million or 2%. Life insurance premiums
increased $8.7, or 30%, primarily due to new business sales.
Net Investment Income. Net investment income increased $2.3 million, or 7%,
from $34.8 million to $37.1 million due to an increase in invested assets and
the acquisition of UFLIC. Annualized investment yields remained constant at
7.0%
Other Revenue. Other income and realized investment gains and losses increased
$5.6 million, or 33%, from $17.2 million to $22.8 million. The increase in
other income was due to the July 1995 acquisition of ACMG and increased sales to
unaffiliated clients by the Medical Utilization Management Division. The
remaining other income generated by the Company's non-insurance subsidiaries and
realized investment gains remained relatively unchanged.
Benefits. Total benefits increased $20.2 million, or 9%, from $230.5 million to
$250.7 million. Accident and health benefits, which include the change in
unearned premiums, increased $13.6 million, or 7%, from $194.1 million to $207.7
million. The accident and health loss ratio increased to 64.6% from 64.4%.
Life and annuity benefits increased $6.5 million, or 18%. This increase was due
to higher than projected mortality in the month of April and an increase in
insurance in force.
Insurance and General Expenses. Insurance and general expenses (which includes
non-deferred commission compensation to agents) increased $7.2 million, or 7%,
from $99.5 million to $106.7 million. Expenses for the Medical Utilization
Management Division increased due to the increase in sales and the acquisition
of ACMG. Expenses in the insurance divisions increased due to the acquisition
of UFLIC and an increase in marketing expenses associated with new marketing
initiatives. Corporate expenses increased $0.8 million primarily due to the
March 1996 public offering of the Company's 6 1/2% notes and redemption of the
Company's preferred stock in May 1996.
Amortization of DAC. Amortization of DAC increased $2.8 million, or 8%, from
$35.5 million to $38.3 million.
Income Tax Rate. The effective federal income tax rate was 34% due to the
continued investment in non-taxable securities included in the Company's
portfolio.
Results of Operations - Three Month Period Ended June 30, 1996 Compared to 1995
Overview
The information set forth below is based on the Company's major product lines.
<TABLE>
<CAPTION> Three Months
Ended June 30,
1996 1995
<S> <C> <C>
Revenues
Group Medical $ 98,193 $ 104,754
Senior Health 75,827 54,901
Life Insurance 32,278 27,771
Medical Utilization Management 5,144 2,826
TOTAL $ 211,442 $ 190,252
Pre-tax operating income(1)
Group Medical $ 5,021 $ 8,159
Senior Health and Life 5,062 (330)
Life Insurance 2,869 1,514
Medical Utilization Management (660) 243
Total pre-tax operating income before
corporate expense and interest 12,292 9,586
Corporate expense and interest (3,101) (2,797)
TOTAL $ 9,191 $ 6,789
(1) Represents the Company's income before taxes excluding the effects of
realized investment gains and losses. The 1996 amount also excludes
approximately $0.4 million in payments to redeeming stockholders relating to the
redemption of the Company's preferred stock.
</TABLE>
Group Medical
Revenue. Total revenue in the Group Medical Division decreased $6.6 million, or
6%, from $104.8 million to $98.2 million. Premiums decreased $5.7 million, or
6%, from $96.9 million to $91.2 million. The Company has discontinued marketing
in certain states due to the unfavorable regulatory environment.
Net investment income was consistent with the second quarter of 1995. Total
realized investment losses were relatively unchanged compared to the second
quarter of 1995.
Other income decreased $1.7 million, or 31%, from $5.4 million to $3.7 million
due to the decrease in group medical policyholders.
Benefits. The following table sets forth the earned premium, benefits, and loss
ratios for products issued by the Group Medical Division:
Three Months
Ended June 30,
1996 1995
Earned Premium (1) $ 95,132 $ 98,002
Benefits (1) 58,855 61,568
Loss Ratio 61.9% 62.8%
(1) In the Company's statement of consolidated income, accident and health
premium revenue represent premiums written; the changes in unearned
premiums are reflected in accident and health benefits.
The loss ratio in 1996 was relatively unchanged from the second quarter of 1995.
The slight improvement was due to an increase in the level of managed care
savings and PPO penetration.
Insurance and General Expenses. Insurance and general expenses increased $0.6
million, from $26.6 million to $27.2 million. The increase related to an
increase in cost containment and managed care expenses.
The amortization of Deferred Policy Acquisition Costs (DAC) increased $0.9
million, or 8%, from $10.7 million to $9.8 million.
Senior Health and Life Division
Revenue. Total revenue in the Senior Health and Life Division increased $20.9
million, or 38%, from $54.9 million to $75.8 million. Senior health premium
increased $18.8 million, or 36%, from $52.1 million to $70.9 million due to an
increase in new Medicare supplement sales and the acquisition of UFLIC.
Net investment income increased $1.4 million, or 70%, from $2.0 million to $3.4
million, primarily due to increased invested assets and the acquisition of
UFLIC. The total realized gains decreased $0.5 million from $0.9 million to
$0.4 million.
Benefits. The following table sets forth the earned premium, benefits, and loss
ratios for senior health products:
Three Months
Ended June 30,
1996 1995
Earned Premium (1) $ 66,495 $ 53,455
Benefits (1) 46,097 37,084
Loss Ratio 69.3% 69.4%
(1) In the Company's statement of consolidated income, accident and health
premium revenue represent premiums written; the changes in unearned
premiums are reflected in accident and health benefits.
During the quarter, medical claims ratios were at projected levels and were
consistent with second quarter 1995 results.
Insurance and General Expenses. Insurance and general expenses increased $2.3
million, or 19%, from $12.3 million to $14.6 million. The expense ratio
remained relatively unchanged. The decline in administrative expense levels
within the insurance subsidiaries was offset by an increase in marketing
expenses associated with new marketing initiatives and the acquisiton of UFLIC.
The amortization of DAC increased $0.5 million, or 9%, from $5.6 million to $6.1
million.
Life Insurance Divison
Revenue. Total revenue in the Life Insurance Division increased $4.5 million,
or 16%, from $27.8 million to $32.3 million. The increase was due primarily to
higher sales of new term life products.
Net investment income decreased $0.2 million, or 2%, from $12.4 million to $12.2
million.
Benefits. Total life and annuity policy benefits increased $5.9 million, or
34%, from $17.4 million to $23.3 million. This increase was primarily due to
the increased life insurance in-force and higher than projected mortality in the
second quarter of 1996.
Insurance and General Expenses. Insurance and general expenses decreased $3.4
million, or 57%, from $6.0 million to $2.6 million. The decrease was primarily
due to consolidation costs incurred pursuant to the acquisition of Connecticut
National Life (CNL) in 1995. The unit cost of administration per policy in-
force also decreased in 1996.
The amortization of DAC increased $1.4 million, or 67% from $2.1 million to $3.5
million, due to the continued increase in new life production and in force
business.
Medical Utilization Management Division
Pre-tax loss for the second quarter 1996 was $0.7 million compared to pre-tax
income of $0.2 million for the same period in 1995. Revenues increased $2.3
million due primarily to the acquisition of ACMG in the third quarter of 1995.
This increase was offset by start-up costs and slower than expected development
of planned HMOs which caused the loss in the division in the quarter.
Corporate Expenses and Interest
Corporate expenses increased $0.7 million, or 25%, from $2.8 million to $3.5
million. Interest expense increased $0.3 million from $1.4 million to $1.7
million due to the issuance of the Company's 6 1/2% notes in the first quarter
of 1996, partially offset by the conversion of the Company's 8% debentures in
the third quarter of 1995. The general corporate overhead increased due to
expenses incurred relative to the redemption of the Company's preferred stock in
the second quarter of 1996.
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Net Income. The Company's consolidated net income increased $0.6 million, or
11%, from $5.4 million to $6.0 million. This increase was due primarily to
improved profitability in the Life Division and Senior Health and Life Division
as a result of lower expense levels, increased new business sales and a slight
improvement in claims ratios.
Premiums and Policy Charges. Total premiums and policy charges increased $19.5
million, or 12%, from $162.7 million to $182.2 million. This increase was due
primarily to the increase in accident and health premiums of $13.1 million, or
9%, which was due primarily to an increase in premiums from Medicare supplement
and long-term care products of $18.8 million, or 36%. Premiums from major
medical products decreased $5.7 million or 6%. Life insurance premiums
increased $6.4, or 47%, primarily due to new business sales.
Net Investment Income. Net investment income increased $1.8 million, or 10%,
from $17.3 million to $19.1 million due to an increase in invested assets and
the acquisition of UFLIC. Annualized investment yields increased from 6.9% to
7.2%.
Other Revenue. Other income and realized investment gains and losses remained
relatively unchanged. The increase in other income, due to the acquisition of
ACMG and increased sales to unaffiliated clients by the Medical Utilization
Management Division, was offset by a decrease in realized gains. The remaining
other income generated by the Company's non-insurance subsidiaries remained
relatively unchanged.
Benefits. Total benefits increased $15.6 million, or 14%, from $113.6 million
to $129.2 million. Accident and health benefits, which include the change in
unearned premiums, increased $9.7 million, or 10%, from $96.2 million to $105.9
million. The accident and health loss ratio decreased to 64.9% from 65.1%.
Life and annuity benefits increased $5.9 million, or 34%. This increase was due
to increased life insurance in force and higher than projected mortality in the
second quarter of 1996.
Insurance and General Expenses. Insurance and general expenses (which includes
non-deferred commission compensation to agents) increased $3.1 million, or 6%,
from $48.8 million to $51.9 million. Expenses for the Medical Utilization
Management Division increased due to the increase in sales and the acquisition
of ACMG. Expenses in the senior division increased due to increased marketing
expenses and the acquisition of UFLIC. Corporate expenses increased $0.7
million primarily due to the May 1996 redemption of the Company's preferred
stock.
Amortization of DAC. Amortization of DAC increased $1.2 million, or 7%, from
$18.3 million to $19.5 million.
Income Tax Rate. The effective federal income tax rate was 34% due to the
continued investment in non-taxable securities included in the Company's
portfolio.
Other. Investments, premiums and other receivables, amounts on deposit and due
from reinsurers, accrued investment income and other assets increased
principally due to the March 1996 acquisition of Universal Fidelity Life
Insurance Company (UFLIC). The decrease in short-term notes payable and the
long-term notes payable resulted from the use of proceeds from the Company's
March 1996 public offering of 6 1/2% notes to retire bank debt. General
expenses and other liabilities, and amounts due to reinsurers decreased due to
the timing of tax payments and amounts due reinsurers. These increases were
partially offset by the acquisition of UFLIC. The remaining balance sheet
amounts remained relatively consistent with the amounts at December 31, 1995.
DEFERRED POLICY ACQUISITION COSTS
Under generally accepted accounting principles, a DAC asset is established to
match properly the costs of writing new business against the expected future
revenues or gross profits from the policies. The costs which are capitalized
and amortized consist of first-year commissions in excess of renewal comissions
and certain home office expenses related to selling, policy issue, and
underwriting.
The deferred acquisition costs for accident and health policies and traditional
life policies are amortized over future premium revenues of the business to
which the costs are related. The rate of amortization depends on the expected
pattern of future premium revenues for a block of policies. The scheduled
amortization for a block of policies is established when the policies are
issued. However, the actual amortization of DAC will reflect the actual
persistency and profitability of the business. For example, if actual policy
terminations are higher than expected or if future losses are anticipated, DAC
could be amortized more rapidly than originally scheduled or written-off, which
would reduce earnings in the applicable period.
EFFECT OF INFLATION
In pricing its insurance products, the Company gives effect to anticipated
levels of inflation; however, the Company believes that the high rate of medical
cost inflation during recent years has had an adverse impact on its major
hospital accident and health claims experience. The Company continues to
implement rate increases, as permitted by state regulations, in response to this
experience.
LIQUIDITY AND CAPITAL RESOURCES
The Company's consolidated liquidity requirements are created and met primarily
by operations of its subsidiaries. The insurance subsidiaries' primary sources
of cash are premiums, investment income, and investment sales and maturities.
The insurance subsidiaries' primary uses of cash are operating costs, policy
acquisition costs, payments to policyholders and investment purchases. In
addition, liquidity requirements of the holding company are created by
dividends, interest payments on the 8% Debentures, interest payments on the
6 1/2% Notes, and other debt service requirements. These liquidity requirements
of the holding company have historically been met through dividends from the
non-insurance subsidiaries which receive payments primarily from fees charged
for administrative and marketing services provided to the Company's insurance
subsidiaries and other unaffiliated companies. Dividends from the insurance
subsidiaries could be required in the future to meet such liquidity
requirements.
The ability of the insurance subsidiaries to pay dividends and make other
payments to the Company is subject to state insurance department regulations
which generally permit dividends and other payments to be paid for any twelve
month period in amounts equal to the greater of (i) net gain from operations in
the case of a life insurance company or net income in the case of all other
insurance companies for the preceding calendar year or (ii) 10% of surplus as of
the preceding December 31st. Any dividends in excess of these levels require
the prior approval of the Director or Commissioner of the applicable state
insurance department. The amount of dividends that the Company's insurance
subsidiaries could pay in 1996 without prior approval is approximately $5.4
million.
Notwithstanding the foregoing, if insurance regulators otherwise determine that
payment of a dividend or any other payment to an affiliate would be detrimental
to an insurance subsidiary's policyholders or creditors because of the financial
condition of the insurance subsidiary or otherwise, the regulators may block
dividends or other payments to affiliates that would otherwise be permitted
without prior approval.
The Company's insurance subsidiaries require capital to fund acquisition costs
incurred in the initial year of policy issuance and to maintain adequate surplus
levels for regulatory purposes. These capital requirements have been met
principally from internally generated funds, including premiums and investment
income, and capital contributions from the holding Company.
The Company has offered agent commission financing to certain of its agents and
marketing organizations which consists primarily of annualization of first year
commissions. This means that when the first year premium is paid in
installments, the Company will advance a percentage of the commissions that the
agent would otherwise receive over the course of the first policy year. The
Company through a subsidiary has entered into agreements with an unaffiliated
corporation to provide financing for a portion of its agent commission advance
program through the sale of agent receivables. Proceeds from such sales for the
six month periods ended June 30, 1996 and 1995 were $13.6 million and $8.9
million, respectively. The termination date of the current program is December
31, 1997, subject to extension or termination as provided therein. The Company
has retained approximately $14.8 million of agent advances at June 30, 1996.
In July 1993, the Company issued $57.5 million of 8% Debentures. Net proceeds
from the offering totaled approximately $54.0 million. The 8% Debentures are
convertible into the Company's Common Stock at any time prior to maturity,
unless previously redeemed, at a conversion price of $11.75 per share. In
August 1995, the Company accepted the conversion of $46.9 million of the
outstanding 8% Debentures. The effect of the conversion was an increase in
stockholders' equity of $45.3 million and a charge of $3.5 million, net of
taxes, for payments to converting bondholders and other expenses relating to the
conversion. In June 1996, the Company called for redemption effective in August
1996 the remaining debentures outstanding.
In August 1993, a non-insurance subsidiary of the Company borrowed $1.5 million
to from a commercial bank to finance the acquisition of Healthcare Review
Corporation ("HRC"). Interest on the unsecured note is payable quarterly at the
lending bank's prime rate of interest. The note requires principal repayments
of $0.08 million per quarter plus interest through July 31, 1998.
In January 1995, an insurance subsidiary of the Company issued a note in the
amount of $1.7 million as a portion of the acquisition price of CNL. The
principal balance of the note may be reduced by the amount of capital losses
incurred by the Company on mortgage loan and real estate holdings of CNL through
January 31, 1997. Interest is payable on the note at the average earnings rate
of these investments, currently eight percent. The note matures in January
1997.
In September 1995, a non-insurance subsidiary of the Company borrowed $3.3
million from a finance company to finance the purchase of certain equipment.
The note, which is secured by the equipment purchased, bears interest at a fixed
rate of 7.81% and has principal and interest payments of $0.04 million payable
monthly through August 2005.
In March 1996, the Company issued $86.25 million of its 6 1/2% Notes. Net
proceeds from the offering totaled approximately $83.0 million. The notes are
convertible into the Company's Common Stock at any time prior to maturity,
unless previously redeemed, at a conversion price of $20.00 per share.
In March 1996, the Company issued notes totaling $5.8 million as a portion of
the acquisition price of UFLIC. Interest on the notes was 6% and was paid, with
prinicpal, in August 1996.
A non-insurance subsidiary of the Company has a line of credit arrangement with
a commerical bank amounting to $2.0 million, of which $1.2 million was used at
June 30, 1996. Interest on this facility is payable monthly at a fixed rate of
8.35%, with prinicipal due at maturity. This facility matures in September
1996.
The Company has a line of credit arrangement for short-term borrowings with six
banks amounting to $30.0 million through July 1999, all of which was unused at
June 30, 1996 (the "Credit Facility"). The line of credit arrangement can be
terminated, in accordance with the agreement, at the Company's option.
In August 1996, the Company borrowed $25.0 million under a term loan agreement
with six banks to fund the acquisition of a block of business from Washington
National Insurance Company and to repay the notes issued as a portion of the
acquisiton price of UFLIC. The note bears interest at prime, with interest and
principal payable quarterly through July 2001.
The Company's debt agreements include provisions requiring maintenance of
minimum working capital and risk based capital and limiting the Company's
ability to incur additional indebtedness. The Company's debt agreements also
restrict the amount of retained earnings which is available for dividends and
require the maintenance of certain minimum insurance company ratings at the
Company's subsidiaries.
In February and May 1996, the Company's Board of Directors announced a quarterly
Common Stock dividend of 5.5 cents per share, with an expectation of a total of
22 cents per share to be paid for 1996.
Management believes that the diversity of the Company's investment portfolio and
the liquidity attributable to the large concentration of investments in highly
liquid United States government agency securities provide sufficient liquidity
to meet foreseeable cash requirements. Because the Company's insurance
subsidiaries experience strong positive cash flows, including monthly cash flows
from mortgage-backed securities, the Company does not expect its insurance
subsidiaries to be forced to sell the held to maturity investments prior to
their maturities and realize material losses or gains. Although the Company has
the ability and intent to hold those securities to maturity, there could occur
infrequent and unusual conditions under which it would sell certain of these
securities. Those conditions would include a significant deterioration of the
issuer's creditworthiness, significant changes in tax law affecting the taxation
of securities, a significant business acquisition or disposition, and changes in
regulatory capital requirements or permissible investments.
Life insurance and annuity liabilities are generally long term in nature
although subject to earlier surrender as a result of the policyholder's ability
to withdraw funds or surrender the policy, subject to surrender and withdrawal
penalties. The Company believes its policyholder liabilities should be backed
by an investment portfolio that generates predictable investment returns. The
Company seeks to limit exposure to risks associated with interest rate
fluctuations by concentrating its invested assets principally in high quality,
readily marketable debt securities of intermediate duration and by attempting to
balance the duration of its invested assets with the estimated duration of
benefit payments arising from contract liabilities.
RECENTLY ISSUED ACCOUNTING STANDARDS
For a discussion of a new long-lived assets accounting standard and a new stock-
based employee compensation accounting standard and the impact of these
standards on the financial statements of the Company, see Note 2 of Notes to
Consolidated Financial Statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1995.
PIONEER FINANCIAL SERVICES, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Company's annual meeting was held on May 23, 1996.
(b) Not applicable.
(c) 1. At the Company's annual meeting the following persons were elected
as directors of the Company and received the following votes:
FOR WITHHELD
John W. Gardiner 8,521,709 564,899
Karl-Heinz Klaeser 8,522,799 563,809
The following person's term of office as a director continued after
the meeting:
Michael A. Cavataio
William B. Van Vleet
R. Richard Bastian, III
Peter W. Nauert
Robert F. Nauert
Michael K. Keefe
Carl Hulbert
2. At the Company's annual meeting, a proposal to amend the
Company's 1994 Omnibus Stock Incentive Program was approved
by the stockholders. 7,272,712 shares were voted in favor
of this proposal, 1,747,408 shares voted against the
proposal and 66,488 shares abstained.
3. At the Company's annual meeting, a proposal to adopt the
Company's Employee Stock Purchase Plan was approved by the
stockholders. 8,619,045 shares were voted in favor of this
proposal, 402,299 shares voted against the proposal and
65,264 shares abstained.
4. At the Company's annual meeting, a proposal to adopt the
Performance based business criteria for the Annual Incentive
Plan for the Chief Executive Officer was approved by the
stockholders. 8,036,869 shares were voted in favor of this
proposal, 976,053 voted against the proposal and 73,686 shares
abstained.
5. At the Company's annual meeting, a proposal to amend the
Company's Certificate of Incorporation was approved by the
stockholders. 8,825,057 shares were voted in favor of this
proposal, 207,188 voted against the proposal and 54,363
shares abstained.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 2.1 - Purchase Agreement between Washington National
Insurance Company and Pioneer Financial Services,
Inc.
Exhibit 2.2 - Individual/Small Group Reinsurance Agreement
Exhibit 10 - Credit Agreement among Pioneer Financial Services,
Inc. and the First National Bank of Chicago dated
July 30, 1996
Exhibit 11 - Statement of Computation
of Per Share Earnings
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
Form 8-K dated May 24, 1996 reporting Item 5 (Preferred Stock).
Form 8-K dated June 5, 1996 reporting Item 5 (Acquisition).
AGREEMENT
This Agreement (the "Agreement") is made and entered into by and between
Washington National Insurance Company, an Illinois insurance corporation
("WNIC") and Pioneer Financial Services, Inc., a Delaware corporation ("PFS").
WHEREAS, WNIC engages in various lines of insurance business, including the
issuance and administration of individual health and group underwritten life and
health insurance sold and administered throughout the United States; and
WHEREAS, WNIC desires to sell a portion of its health insurance business, and
PFS desires to purchase such portion of WNIC's health insurance business through
one or more of its insurance subsidiaries identified in Section 11.7 to be
designated by PFS prior to Closing ("Designee"), upon the terms and subject to
the conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual promises set
forth in this Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, WNIC and PFS hereby
agree as follows:
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS. The capitalized terms used in this Agreement shall have the
meanings specified in Exhibit A. Unless the context otherwise requires, such
capitalized terms shall include the singular and plural and the conjunctive and
disjunctive forms of the terms defined.
ARTICLE II
CONTEMPLATED TRANSACTIONS AND FIRST CLOSING
RELATING TO THE INDIVIDUAL/SMALL GROUP BUSINESS
2.1 TRANSFER OF ASSETS.
(a) Upon the terms and subject to the conditions of this Agreement, on the
First Effective Date, WNIC shall transfer, convey and assign to PFS, and PFS
shall accept and acquire from WNIC, all Assets and Properties of the
Individual/Small Group Business, including but not limited to those assets and
properties set forth on Exhibit B hereto and identified under the heading
"Assets and Properties of the Individual/Small Group Business" (the "Transferred
Assets of the Individual/Small Group Business").
(b) The Assets and Properties of the Individual/Small Group Business shall not
include, and WNIC shall not be obligated to transfer and PFS shall not be
obligated to accept, the assets and properties set forth on Exhibit C hereto
(the "Excluded Assets").
2.2 ASSUMPTION OF LIABILITIES.
(a) Upon the terms and subject to the conditions of this Agreement, on the
First Effective Date, PFS shall assume and be liable for those risks,
liabilities, and obligations of WNIC under or with respect to the
Individual/Small Group Business set forth on Exhibit D hereto and identified
under the heading "Assumed Liabilities of the Individual/Small Group Business"
(the "Assumed Liabilities of the Individual/Small Group Business").
(b) PFS shall have no responsibility for any risks, liabilities or obligations
of WNIC with respect to the Individual/Small Group Business, other than the
Assumed Liabilities of the Individual/Small Group Business, whether now existing
of hereafter arising, and whether known or unknown to PFS, all of which shall be
retained by WNIC, including but not limited to those set forth on Exhibit E
hereto (the "Excluded Liabilities").
2.3 INDIVIDUAL/SMALL GROUP REINSURANCE AGREEMENT. Certain of the Assets and
Properties of the Individual/Small Group Business will be transferred by WNIC
and certain of the Assumed Liabilities of the Individual/Small Group Business
will be assumed by PFS pursuant to the terms of an Individual/Small Group
Reinsurance Agreement to be entered into by WNIC and PFS substantially in the
form attached hereto as Exhibit F. The Individual/Small Group Reinsurance
Agreement will provide, among other things, for a ceding commission of $18
million (the "Ceding Commission") and that WNIC will reimburse PFS for losses on
the New Jersey Business, as described further therein.
2.4 ASSIGNMENTS. Certain of the Assets and Properties of the Individual/Small
Group Business will be transferred by WNIC and certain of the Assumed
Liabilities of the Individual/Small Group Business will be assumed by PFS
pursuant to separate Assignment Agreements of the reinsurance and related
agreements between WNIC and each of National Casualty Company, Harvest Life
Insurance Company and Federal Home Life Insurance Company in form and substance
reasonably satisfactory to the parties. The Assignment Agreement relating to
National Casualty Company shall provide that PFS has the obligation to pay all
claims regardless of the Incurred Date except that WNIC shall retain liability
for claims having an Incurred Date before the First Effective Date to the extent
such claims paid in the first twelve months on or after the First Effective Date
exceed that portion of the Mod Co reserve held by National Casualty that relates
to reserves of the type required to be reported in Exhibits 11 or 9B of the 1995
NAIC Life Insurance Statement.
2.5 SERVICES AGREEMENTS. WNIC and PFS will enter into (i) an Interim Services
and Facilities Agreement pursuant to which WNIC will continue to provide certain
services and facilities on an interim basis with respect to the Reinsured
Policies under the Individual/Small Group Reinsurance Agreement, and (ii) a
Services and Facilities Agreement pursuant to which PFS will provide certain
services and facilities with respect to the Reinsured Policies under the
Individual/Small Group Reinsurance Agreement, in each case in form and substance
reasonably satisfactory to the parties.
2.6 CONSIDERATION. In full consideration of the transfer, conveyance and
assignment of the Assets and Properties of the Individual/Small Group Business
to PFS, at the First Effective Date, PFS will assume the Assumed Liabilities of
the Individual/Small Group Business pursuant to Section 2.2(a), and WNIC will
pay to PFS the Transfer Amount for the Individual/Small Group Business as
reflected on the Closing Statement for the Individual/Small Group Business
(prepared in accordance with Exhibit G hereto and derived from the Closing
Balance Sheet prepared in accordance with Exhibit H hereto), subject to
adjustment pursuant to Section 2.8 below, minus (i) the Ceding Commission and
(ii) a purchase price of $1 million (the "Purchase Price").
2.7 FIRST CLOSING.
(a) The First Closing of the transactions contemplated by this Agreement,
including without limitation the consummation of the transfer of the Assets and
Properties of the Individual/Small Group Business and the execution and delivery
of the Closing Agreements for the Individual/Small Group Business, shall be held
at the offices of WNIC, 300 Tower Parkway, Lincolnshire, Illinois at 10:00 a.m.,
local time, on the First Closing Date or at such other place, date or time as
may be fixed by mutual agreement of the parties, but in no event later than
September 30, 1996, unless the parties to this Agreement mutually agree
otherwise.
(b) At the First Closing, PFS shall execute and/or deliver to WNIC all of the
following:
(i) a copy of PFS's charter certified by the Secretary of State of the
state of its incorporation;
(ii) Assumption Agreements, in form and substance reasonably satisfactory
to WNIC, duly executed by PFS, under which PFS assumes certain of the
Assumed Liabilities of the Individual/Small Group Business;
(iii) the Closing Agreements for the Individual/Small Group Business,
duly executed by PFS;
(iv) the officers' certificates referred to in Section 8.2(g);
(v) the opinion of counsel referred to in Section 8.2(h); and
(vi) all other documents reasonably requested by WNIC to consummate the
transactions herein contemplated.
(c) At the First Closing, WNIC shall execute and/or deliver to PFS all of the
following:
(i) the Transfer Amount for the Individual/Small Group Business as
reflected on the Closing Statement for the Individual/Small Group
Business, minus the Ceding Commission and the Purchase Price, in
immediately available funds by wire transfer to such account and at
such bank as specified by PFS in writing at least two Business Days
before the First Closing Date;
(ii) a copy of WNIC's Articles of Incorporation, certified by the Secretary
of State of the State of Illinois;
(iii) Bills of Sale, in form and substance reasonably satisfactory to
PFS, conveying to PFS all of the Assets and Properties of the
Individual/Small Group Business other than the Excluded Assets;
(iv) the Closing Statement for the Individual/Small Group Business and the
Closing Balance Sheet;
(v) the Closing Agreements for the Individual/Small Group Business, duly
executed by WNIC;
(vi) the officers' certificates referred to in Section 8.1(g);
(vii) the opinion of counsel referred to in Section 8.2(h); and
(viii) all other documents reasonably requested by PFS to consummate the
transactions herein contemplated.
2.8 FIRST POST-CLOSING ADJUSTMENT. Within 60 days after the First Closing
Date, WNIC shall prepare and deliver to PFS a statement showing the Recalculated
Transfer Amount for the Individual/Small Group Business as of the First Closing
Date. PFS shall review the Recalculated Transfer Amount for the
Individual/Small Group Business and advise WNIC in writing within 30 days
whether PFS agrees or disagrees with the data set forth therein, and in the case
of disagreement, setting forth in detail the specific items of disagreement. If
PFS and WNIC are in agreement with respect to WNIC's determination of the
Recalculated Transfer Amount for the Individual/Small Group Business or if PFS
fails to advise WNIC of any disagreement with respect to WNIC's determination
within such 30-day period, the difference between the Transfer Amount for the
Individual/Small Group Business and the Recalculated Transfer Amount for the
Individual/Small Group Business, as determined by WNIC, shall be remitted to the
party which was credited at the First Closing with an amount in excess of that
to which such party is entitled, together with interest on the difference using
a simple interest rate of 6% per year. If WNIC and PFS do not agree upon the
Recalculated Transfer Amount for the Individual/Small Group Business within 30
days after PFS has advised WNIC of any disagreement, PFS or WNIC may, not later
than 60 days after PFS has advised WNIC of any disagreement (or such longer
period of time as WNIC and PFS may mutually agree upon), submit the matter or
matters with respect to which there is a disagreement to a national firm of
independent public accountants mutually agreed upon by WNIC and PFS, and the
decision of such independent firm shall be final and binding on each party to
this Agreement. In the event that PFS and WNIC are unable to mutually agree on
the national firm of independent public accountants, Ernst & Young shall select
one of the other big six accounting firms to serve as the independent firm.
Each party shall be responsible for its own expenses in connection with this
first post-closing adjustment, and the expenses of any independent accounting
firm shall be shared equally by WNIC and PFS. WNIC and PFS agree to cooperate
in any reasonable way with any independent accounting firm in connection with
the foregoing.
ARTICLE III
CONTEMPLATED TRANSACTIONS AND SECOND CLOSING
RELATING TO THE LARGE GROUP BUSINESS
3.1 PROPOSED THIRD PARTY SALE. Prior to the Second Closing, WNIC shall use its
best efforts to sell or otherwise transfer the Large Group Business to a
qualified third party, and PFS agrees to cooperate fully in connection with such
sale or transfer; provided, however, that PFS shall not be obligated to incur
any additional expense under this provision (unless WNIC reimburses PFS for such
expense).
3.2 TRANSFER OF ASSETS.
(a) In the event that, as of the Second Closing, WNIC has not sold or
transferred, or entered into an agreement for the sale or transfer of the Large
Group Business to a qualified third party, then upon the terms and subject to
the conditions of this Agreement, on the Second Effective Date, WNIC shall
transfer, convey and assign to PFS, and PFS shall accept and acquire from WNIC,
all Assets and Properties of the Large Group Business, including but not limited
to those assets and properties set forth on Exhibit B hereto and identified
under the heading "Assets and Properties of the Large Group Business" (the
"Transferred Assets of the Large Group Business").
(b) The Assets and Properties of the Large Group Business shall not
include, and WNIC shall not be obligated to transfer and PFS shall not be
obligated to accept, the assets and properties set forth on Exhibit C hereto
(the "Excluded Assets").
3.3 ASSUMPTION OF LIABILITIES.
(a) In the event that, as of the Second Closing, WNIC has not sold or
transferred, or entered into an agreement for the sale or transfer of, the Large
Group Business to a qualified third party, then upon the terms and subject to
the conditions of this Agreement, on the Second Effective Date, PFS shall assume
and be liable for those risks, liabilities, and obligations of WNIC under or
with respect to the Large Group Business set forth on Exhibit D hereto and
identified under the heading "Assumed Liabilities of the Large Group Business"
(the "Assumed Liabilities of the Large Group Business").
(b) PFS shall have no responsibility for any risks, liabilities or
obligations of WNIC with respect to the Large Group Business, other than the
Assumed Liabilities of the Large Group Business, whether now existing of
hereafter arising, and whether known or unknown to PFS, all of which shall be
retained by WNIC, including but not limited to those set forth on Exhibit E
hereto (the "Excluded Liabilities").
3.4 LARGE GROUP REINSURANCE AGREEMENT. Certain of the Assets and Properties of
the Large Group Business will be transferred by WNIC and certain of the Assumed
Liabilities of the Large Group Business will be assumed by PFS pursuant to the
terms of a Large Group Reinsurance Agreement to be entered into by WNIC and PFS
substantially in the form attached hereto as Exhibit I, which will become
effective on September 30, 1996 unless the Large Group Business has been sold or
transferred, or WNIC has entered into an agreement for the sale or transfer of
the Large Group Business, prior to such date, in which case the Large Group
Reinsurance Agreement shall be of no effect. The Large Group Reinsurance
Agreement will provide, among other things, that WNIC will reimburse PFS for
losses on the business reinsured, and PFS will pay WNIC profits on the business
reinsured, as further described therein.
3.5 SERVICES AGREEMENTS. WNIC and PFS will enter into (i) an Interim Services
and Facilities Agreement pursuant to which WNIC will provide certain services
and facilities on an interim basis with respect to the Reinsured Policies under
the Large Group Reinsurance Agreement, and (ii) a Services and Facilities
Agreement pursuant to which PFS will provide certain services and facilities
with respect to the Reinsured Policies under the Large Group Reinsurance
Agreement, in each case in form and substance reasonably satisfactory to the
parties.
3.6 CONSIDERATION. In full consideration of the transfer, conveyance and
assignment of the Assets and Properties of the Large Group Business to PFS, at
the Second Effective Date PFS will assume the Assumed Liabilities of the Large
Group Business pursuant to Section 3.3(a), and WNIC will pay to PFS the Transfer
Amount for the Large Group Business as reflected on the Closing Statement for
the Large Group Business (prepared in accordance with Exhibit J hereto and
derived from the Closing Balance Sheet prepared in accordance with Exhibit H
hereto), subject to adjustment pursuant to Section 3.8 below.
3.7 SECOND CLOSING.
(a) The Second Closing of the transactions contemplated by this Agreement,
including without limitation the consummation of the transfer of the Assets and
Properties of the Large Group Business and the execution and delivery of the
Closing Agreements for the Large Group Business, shall be held at the offices of
WNIC, 300 Tower Parkway, Lincolnshire, Illinois at 10:00 a.m., local time, on
the Second Closing Date or at such other place, date or time as may be fixed by
mutual agreement of the parties, but in no event later than September 30, 1996,
unless the parties to this Agreement mutually agree otherwise.
(b) At the Second Closing, PFS shall execute and/or deliver to WNIC all of
the following:
(i) a copy of PFS's charter certified by the Secretary of State of
the state of its incorporation;
(ii) Assumption Agreements, in form and substance reasonably
satisfactory to WNIC, duly executed by PFS, under which PFS
assumes certain of the Assumed Liabilities of the Large Group
Business;
(iii) the Closing Agreements for the Large Group Business, duly
executed by PFS;
(iv) the officers' certificates referred to in Section 8.2(g);
(v) the opinion of counsel referred to in Section 8.2(h); and
(vi) all other documents reasonably requested by WNIC to consummate
the transactions herein contemplated.
(c) At the Second Closing, WNIC shall execute and/or deliver to PFS all of
the following:
(i) The Transfer Amount for the Large Group Business as reflected on
the Closing Statement for the Large Group Business, in
immediately available funds by wire transfer to such account and
at such bank as specified by PFS in writing at least two Business
Days before the Second Closing Date;
(ii) a copy of WNIC's Articles of Incorporation, certified by the
Secretary of State of the State of Illinois;
(iv) Bills of Sale, in form and substance reasonably satisfactory to
PFS, conveying to PFS all of the Assets and Properties of the
Large Group Business other than the Excluded Assets;
(v) the Closing Statement for the Large Group Business and the
Closing Balance Sheet;
(vi) the officers' certificates referred to in Section 8.1(g);
(vii) the opinion of counsel referred to in Section 8.2(h); and
(viii) all other documents reasonably requested by PFS to
consummate the transactions herein contemplated.
3.8 SECOND POST-CLOSING ADJUSTMENT. Within 60 days after the Second Closing
Date, WNIC shall prepare and deliver to PFS a statement showing the Recalculated
Transfer Amount for the Large Group Business as of the Second Closing Date. PFS
shall review the Recalculated Transfer Amount for the Large Group Business and
advise WNIC in writing within 30 days whether PFS agrees or disagrees with the
data set forth therein, and in the case of disagreement, setting forth in detail
the specific items of disagreement. If PFS and WNIC are in agreement with
respect to WNIC's determination of the Recalculated Transfer Amount for the
Large Group Business or if PFS fails to advise WNIC of any disagreement with
respect to WNIC's determination within such 30-day period, the difference
between the Transfer Amount for the Large Group Business and the Recalculated
Transfer Amount for the Large Group Business, as determined by WNIC, shall be
remitted to the party which was credited at the Second Closing with an amount in
excess of that to which such party is entitled, together with interest on the
difference using a simple interest rate of 6% per year. If WNIC and PFS do not
agree upon the Recalculated Transfer Amount for the Large Group Business within
30 days after PFS has advised WNIC of any disagreement, PFS or WNIC may, not
later than 60 days after PFS has advised WNIC of any disagreement (or such
longer period of time as WNIC and PFS may mutually agree upon), submit the
matters with respect to which there is a disagreement to a national firm of
independent public accountants mutually agreed upon by WNIC and PFS, and the
decision of such independent firm shall be final and binding on each party to
this Agreement. In the event that PFS and WNIC are unable to mutually agree on
the national firm of independent public accountants, Ernst & Young shall select
one of the other big six accounting firms to serve as the independent firm. Each
party shall be responsible for its own expenses in connection with this second
post-closing adjustment, and the expenses of any independent accounting firm
shall be shared equally by WNIC and PFS. WNIC and PFS agree to cooperate in any
reasonable way with any independent accounting firm in connection with the
foregoing.
3.9 OPERATION AND MANAGEMENT OF THE LARGE GROUP BUSINESS. In the event that
the Large Group Reinsurance Agreement has become effective, WNIC shall have the
right during the term of such Agreement to instruct PFS to wind down the Large
Group Business by terminating policies at the earliest permitted date or taking
other necessary or appropriate steps. PFS agrees to comply with WNIC's
instructions, to the extent permitted by Law, unless it determines to become
solely responsible for losses and profits on the business reinsured, in which
case PFS shall provide WNIC with prior written notice pursuant to the terms of
the Large Group Reinsurance Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF WNIC
WNIC represents and warrants to PFS as follows:
4.1ORGANIZATION AND EXISTENCE. WNIC is an insurance corporation duly
incorporated, validly existing, and in good standing under the Laws of the State
of Illinois and has full corporate power and authority to conduct its business
as currently conducted. WNIC is duly qualified, licensed or admitted to do
business as a foreign insurance corporation and is in good standing in each
jurisdiction in which its ownership of the Assets and Properties of the Health
Insurance Business or the conduct of the Health Insurance Business requires it
to be so qualified, licensed or admitted. WNIC is qualified, licensed or
admitted in all states other than the State of New York.
4.2 AUTHORITY. The execution, delivery, and compliance with the terms of this
Agreement and the Closing Agreements by WNIC and the performance by WNIC of its
obligations under this Agreement and the Closing Agreements have been duly and
validly authorized by all necessary corporate action on the part of WNIC. This
Agreement has been, and the Reinsurance Agreements and the Service Agreements
(when executed and delivered by WNIC as provided herein) will be, duly and
validly executed and delivered by WNIC. This Agreement constitutes, and the
Reinsurance Agreements and the Service Agreements (when executed and delivered
by WNIC as provided herein) will constitute legal, valid, and binding
obligations of WNIC enforceable against WNIC in accordance with their respective
terms, subject to (a) applicable Laws relating to bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance, or similar Laws now or
hereafter in effect relating to or limiting creditors' rights generally and
(b) general principles of equity.
4.3 NO CONFLICTING AGREEMENTS. Neither the execution and delivery of this
Agreement or any Closing Agreement by WNIC, nor the performance by WNIC of its
obligations under this Agreement or any Closing Agreement, will:
(a) subject to obtaining the approvals and making the filings contemplated by
Section 7.6, violate any Laws or Orders applicable to WNIC;
(b) conflict with or result in a violation or breach of the Articles of
Incorporation or bylaws of WNIC;
(c) except as disclosed in Schedule 4.3(c), result in the creation or
imposition of any Lien upon WNIC or any of the Assets and Properties of the
Health Insurance Business, except for Liens which individually or in the
aggregate could not reasonably be expected to have a material adverse effect on
the Business and Condition of the Health Insurance Business; or
(d) except as disclosed in Schedule 4.3(d), conflict with or result in a
violation or breach of, or constitute (with or without notice or lapse of time
or both) a default under, or give to any Person any right of termination,
cancellation, acceleration, or modification in or with respect to, any contract,
agreement or other commitment to which WNIC is a party or by which any of the
Assets and Properties of the Health Insurance Business is bound, except for such
conflicts, violations, breaches, defaults or rights which individually or in the
aggregate could not reasonably be expected to have a material adverse effect on
the Business and Condition of the Health Insurance Business.
4.4 REGULATORY FILINGS AND APPROVALS. Other than as contemplated by Section
7.6, no notices, reports or other filings are required to be made by WNIC with,
and no consents, registrations, approvals, permits, licenses, orders or
authorizations are required to be obtained by WNIC from any Person or
Governmental Authority in connection with the execution and delivery of this
Agreement or any Closing Agreement by WNIC and the consummation of the
transactions contemplated hereby or thereby.
4.5 LITIGATION. Except as disclosed in Schedule 4.5, there are no actions,
suits, inquiries, investigations, or proceedings by or before any court or
Governmental Authority pending or, to the knowledge of WNIC, threatened against
or involving WNIC and (i) related to the Health Insurance Business, or (ii)
which individually or in the aggregate could reasonably be expected to have a
material adverse effect on the validity or enforceability of this Agreement or
any Closing Agreement or on the ability of WNIC to perform its obligations under
this Agreement or any Closing Agreement; and to the knowledge of WNIC, no valid
basis exists for any such action, suit, inquiry, investigation or proceeding.
WNIC has not agreed to refrain from, and is not and has not been permanently or
temporarily enjoined by any Order of any Governmental Authority from, engaging
in or continuing any conduct or practice in connection with the Health Insurance
Business, or requiring it to take any action in connection with the Health
Insurance Business.
4.6 COMPLIANCE WITH LAWS. To the knowledge of WNIC, the Health Insurance
Business is being conducted in compliance in all material respects with all
applicable Laws. WNIC is not in violation (and with or without notice or lapse
of time or both, would not be in violation) of any Laws applicable to WNIC and
related to the Health Insurance Business, except for violations which
individually or in the aggregate do not and could not reasonably be expected to
have a material adverse effect on the validity or enforceability of this
Agreement or any Closing Agreement or on the ability of WNIC to perform its
obligations under this Agreement or any Closing Agreement.
4.7 LICENSES AND PERMITS. WNIC owns or validly holds all licenses, franchises,
permits, approvals, and other authorizations that are required to carry on the
business, operations and affairs of the Health Insurance Business as heretofore
and currently conducted. Schedule 4.7 lists each license, franchise, permit,
approval or authorization owned or held by WNIC with respect to the Health
Insurance Business.
4.8 INTELLECTUAL PROPERTY RIGHTS.
(a) To the knowledge of WNIC, WNIC has full right, title and interest in or to
use (as currently used) all Intellectual Property which is material to the
conduct of the Health Insurance Business as now conducted, and the consummation
of the transactions contemplated hereby will not alter or impair in an adverse
manner the rights of WNIC (or PFS after the First or Second Closing, as
applicable) to such Intellectual Property. Schedule 4.8 lists all Intellectual
Property, including computer software (whether owned by or licensed to WNIC)
which is used in the conduct of the Health Insurance Business as it is currently
being conducted by WNIC.
(b) To the knowledge of WNIC, WNIC is not in default under any Material
Contract or any Assumed Contract pursuant to which it is licensing Intellectual
Property of a third party or granting licenses to its own Intellectual Property.
WNIC has not notified any other party of an alleged default of any such
agreement. WNIC has not received any communications alleging that WNIC has
violated any other person's Intellectual Property or has engaged in unfair
competition against such person.
(c) To the knowledge of WNIC, WNIC does not infringe (nor has it
misappropriated) any third party's Intellectual Property and WNIC has no
material liability for any past infringement or misappropriation. No material
dispute or disagreement involving WNIC exists or is, to the knowledge of WNIC,
threatened with regard to any third party Intellectual Property, including any
allegation of Intellectual Property infringement or misappropriation or of any
breach or default of an Intellectual Property license or similar agreement.
4.9 FINANCIAL STATEMENTS. WNIC has previously delivered to PFS the copies of
unaudited SAP and GAAP balance sheets relating to the Health Insurance Business
(exclusive of any allocation of capital and surplus and exclusive of any
invested assets) as of December 31, 1995 and March 31, 1996, and separate
adjusted unaudited statements of operations relating to the Health Insurance
Business for the years ended December 31, 1994 and 1995 and for the three months
ended March 31, 1996, in each case as compiled from the SAP and GAAP balance
sheets of WNIC as of such dates and the SAP and GAAP statements of operations of
WNIC for such periods, respectively. Each such balance sheet relating to the
Health Insurance Business (exclusive of any allocation of capital and surplus
and exclusive of any invested assets) was prepared in accordance with SAP and
GAAP (as indicated therein) and fairly presents the financial condition
(exclusive of any allocation of capital and surplus and exclusive of any
invested assets) of the Health Insurance Business as of the respective date
thereof, and each such statement of operations relating to the Health Insurance
Business was prepared in accordance with SAP and GAAP (as indicated therein),
and fairly presents the results of operations of the Health Insurance Business
for the respective period covered thereby, in each case in accordance with SAP
and GAAP (as indicated therein), respectively. The March 31, 1996 SAP and GAAP
balance sheets are hereinafter referred to as the "Financial Statements." The
Closing Balance Sheet will be prepared using SAP and GAAP in a manner consistent
with the Financial Statements. The Closing Statement for the Individual/Small
Group Business and the Closing Statement for the Large Group Business will each
be derived from the Closing Balance Sheet and will be prepared using SAP and
GAAP in a manner consistent with the Closing Balance Sheet (except as otherwise
noted on Exhibit G and Exhibit J, respectively).
4.10 ASSETS AND PROPERTIES.
(a) WNIC has good and marketable title to the Assets and Properties of the
Health Insurance Business, free and clear of all Liens, except (i) for current
taxes, assessments or similar charges not yet due, (ii) for current taxes,
assessments or similar charges being contested by WNIC in good faith by
appropriate proceedings and disclosed in Schedule 4.10(a), (iii) for property as
to which WNIC holds a valid leasehold interest, and (iv) as otherwise disclosed
in Schedule 4.10(a).
(b) The Assets and Properties of the Health Insurance Business, together with
the Excluded Assets, include all rights, assets and other properties necessary
to permit the Health Insurance Business to be conducted in all material respects
in the same manner as it has been conducted prior to the date hereof. The
tangible personal property included in the Assets and Properties of the Health
Insurance Business is in serviceable condition and adequate to permit the Health
Insurance Business to be conducted as it has been conducted prior to the date
hereof.
4.11 TAXES. WNIC has duly filed all tax reports and returns required to be
filed by it with respect to the Health Insurance Business. WNIC has paid or
will pay all premium taxes that are due from WNIC with respect to the Reinsured
Policies for all taxable periods ending prior to the Closing Date except for
taxes being contested by WNIC in good faith and disclosed in Schedule 4.11
writing to PFS. WNIC has duly and timely withheld from all salaries, wages, and
other compensation of all employees of WNIC associated with the Health Insurance
Business and (if required by applicable Laws) all agents of WNIC associated with
the Health Insurance Business, and has duly and timely paid over to the
appropriate Governmental Authorities all amounts required to be so withheld and
paid over for all periods under all applicable Laws.
4.12 CONTRACTS. Schedule 4.12 lists all Material Contracts to which WNIC is a
party or by which WNIC or any of the Assets and Properties of the Health
Insurance Business is bound. WNIC has made available to PFS a true and complete
copy of each Material Contract and Assumed Contract in effect on the date of
this Agreement. WNIC has performed all obligations required to be performed by
it under any Material Contract or Assumed Contract through the date of this
Agreement and is not in default (and with or without notice or lapse of time or
both, would not be in default) under any Material Contract or Assumed Contract,
except for defaults which individually or in the aggregate do not and could not
reasonably be expected to have a material adverse effect on the Business and
Condition of the Health Insurance Business. To WNIC's knowledge, the other
party to each Material Contract or Assumed Contract is not in default under such
Material Contract or Assumed Contract.
4.13 EMPLOYEE BENEFITS.
(a) Schedule 4.13 (a) lists all current plans of WNIC in effect for pension,
profit sharing, deferred compensation, severance pay, bonuses, stock options,
stock purchases or any other form of retirement or deferred benefit, or any
health, accident or other welfare plan, or any other employee benefit plan,
program, contract, understanding or arrangement in which any employee of the
Health Insurance Business or beneficiary of any of them, is entitled to
participate. The plans, programs, contracts, understandings and arrangements
listed in Schedule 4.13 are hereinafter referred to as the "Plans".
(b) WNIC will deliver upon request to PFS true and complete copies of (or,
where copies do not exist, summaries of) each of the Plans.
(c) Each of the Plans which is intended to qualify under Section 401(a) of the
Code is designated on the Disclosure Schedule as being a "Qualified Plan" (the
Plans so designated being hereinafter referred to as the "Qualified Plans").
Each Qualified Plan is currently in compliance in all material respects with
ERISA.
(d) WNIC has received currently effective favorable determination letters from
the IRS with respect to the qualification of the Qualified Plans, and true and
correct copies of these determination letters will be delivered to PFS upon
request. To the knowledge of WNIC, there have been no developments since the
dates of the determination letters which would create a material risk of causing
the loss of such qualification.
(e) Except as disclosed in Schedule 4.13(e), (i) no liability or penalty under
ERISA has been or will be incurred by WNIC with respect to any Qualified Plan,
(ii) full payment has been made of all amounts which WNIC is required to have
paid as contributions to such Qualified Plans, (iii) there is not in the
aggregate any accumulated funding deficiency with respect to such Qualified
Plans, and (iv) the current value of accrued benefits of the Qualified Plans
does not exceed the current value of the assets of the Qualified Plans.
4.14 INSURANCE BUSINESS. All Reinsured Policies issued by WNIC with annualized
premiums of at least $2,000,000 in force on the date hereof are listed in
Schedule 4.14 and are, to the extent required under applicable Law, on forms
approved by the appropriate insurance Governmental Authorities in the
jurisdictions where issued or have been filed with and not objected to by such
authorities within the period provided for objection. Except as disclosed in
Schedule 4.14, any rates for premiums that are charged with respect to the
Reinsured Policies and are required to be filed by WNIC with or approved by any
insurance Governmental Authority have been so filed or approved, and such
premiums conform to such rates in all material respects. None of the insurance
products which have been or are being marketed or sold by WNIC's Health
Insurance Business were or are required to be registered or qualified under the
Securities Act of 1933, as amended, or any state securities laws.
4.15 THE REINSURED POLICIES. Except as required or permitted by Law or except
as disclosed in Schedule 4.15:
(a) All insurance benefits with respect to the Reinsured Policies that have
become payable by WNIC and are not in the course of settlement in good faith by
WNIC have been paid in all material respects in accordance with the terms of the
Reinsured Policy under which they arose;
(b) The underwriting standards used and ratings applied by WNIC and the claims
paying practices employed by WNIC with respect to the Reinsured Policies conform
in all material respects with such Reinsured Policies, applicable Law, accepted
industry practices and any relevant requirement in applicable reinsurance,
coinsurance or other similar contracts and, except for immaterial exceptions,
are based upon the provisions of the underwriting manuals used in the Health
Insurance Business. Schedule 4.15(b) contains a list of the underwriting
manuals used in the Health Insurance Business;
(c) Each insurance agent, at the time such agent wrote, sold, or produced
Reinsured Policies, was duly licensed (for the type of business written, sold,
or produced) in the particular jurisdiction in which such agent wrote, sold, or
produced such Reinsured Policies except to the extent that the failure to be so
licensed could not reasonably be expected to have a material adverse effect on
the Business and Condition of the Health Insurance Business; and
(d) To the best of WNIC's knowledge and belief, no such insurance agent and no
sales material written by WNIC for use by Health Insurance Business agents
violated (or with or without notice or lapse of time or both, would have
violated) any Laws or any Order applicable to the writing, sale, or production
of Reinsured Policies issued by WNIC, except to the extent that any such
violation could not reasonably be expected to have a material adverse effect on
the Business and Condition of the Health Insurance Business.
(e) Schedule 4.15(e) contains a list of all agents or brokers authorized by
WNIC to solicit insurance products on behalf of WNIC in connection with the
Heath Insurance Business. Except as disclosed in Schedule 4.15(e), true and
complete copies of each form of contract currently in force between WNIC and
each of such agents or brokers have heretofore been furnished to PFS.
4.16 MATERIAL CHANGES. Except as disclosed in Schedule 4.16 or except as
contemplated by this Agreement or any Closing Agreement, there has not been,
since March 31, 1996, any material adverse change in the Business and Condition
of the Health Insurance Business, other than any change resulting from or
relating to general economic conditions, industry-wide developments, SAP or GAAP
reporting requirements, or adoption of tax or other Laws, in each case generally
affecting companies engaged in issuing or underwriting health insurance.
4.17 NO UNDISCLOSED LIABILITIES.
(a) Except as disclosed in Schedule 4.17(a), the Health Insurance Business (i)
had, as of March 31, 1996, no material debts, liabilities or obligations,
whether accrued, absolute, contingent or otherwise and whether due or to become
due, except to the extent recorded or disclosed in the Financial Statements and
except for debts, liabilities and obligations which were not required to be
recorded or disclosed in such financial statements in accordance with SAP and
GAAP (and to the knowledge of WNIC, the Health Insurance Business has no other
such material debts, liabilities or obligations), and (ii) has not incurred
since March 31, 1996 to the date hereof any debts, liabilities or obligations
except in the ordinary course of business.
(b) Except as disclosed in Schedule 4.17(b): (i) the Health Insurance Business
has no liabilities of any nature, whether accrued, absolute or contingent or
otherwise, and whether due or to become due, which could reasonably be expected
to have a material adverse effect on the Business and Condition of the Health
Insurance Business and which were not or will not be, as the case may be,
provided for or disclosed in the Financial Statements or the Closing Balance
Sheet, or the respective notes thereto, (ii) there were no "loss contingencies"
(as such term is used in Statement of Financial Accounting Standards No. 5)
which could reasonably be expected to have a material adverse effect on the
Business and Condition of the Health Insurance Business and which were not, or
will not be, as the case may be, provided for or disclosed in the Financial
Statements or the Closing Balance Sheet, or the respective notes thereto, and
(iii) other than as reflected in the Financial Statements, or as will be
reflected in the Closing Balance Sheet, WNIC has not, or will not have,
guaranteed, in the conduct of its Health Insurance Business any obligations of
third parties.
4.18 ENVIRONMENTAL AND OSHA LIABILITY.
(a) To the knowledge of WNIC, the Health Insurance Business has been and is
operated in material compliance with all applicable Laws relating to pollution
or protection of the environment or workplace health and safety.
(b) With respect to the Health Insurance Business, WNIC, to its knowledge, has
not received any written notice or any other communication from any Governmental
Authority alleging or concerning any violation by WNIC of, or responsibility or
liability of WNIC under, any Laws relating to pollution or protection of the
environment or workplace health and safety, and has no knowledge of any fact or
condition which could reasonably be expected to give rise to any action, suit
proceeding or investigation by any Governmental Authority with respect thereto.
(c) WNIC has no knowledge of any fact or condition which could reasonably be
expected to give rise to any action, suit, proceeding, or investigation to
revoke or deny renewal of any material approval, permit or license obtained from
any Governmental Authority relating to pollution or protection of the
environment or workplace health and safety, if such revocation or denial could
reasonably be expected to have a material adverse effect on the Business and
Condition of the Health Insurance Business.
4.19 CHARGES. All charges made to customers or policyholders of WNIC's Health
Insurance Business have been properly computed and billed in material compliance
with applicable policies, agreements and procedures in place with respect to
such customers or policyholders; and no such customer or policyholder has any
right to any material refund, price or fee adjustment offset or similar right
with respect to any such charges.
4.20 AFFILIATED TRANSACTIONS.
(a) Schedule 4.20(a) lists all transactions which are now in effect with
respect to the Health Insurance Business between WNIC on the one hand, and any
Affiliate of WNIC, on the other hand, including without limitation any charge
for services (administrative or otherwise).
(b) Except as set forth in Schedule 4.20(b), no executive officer, director or
Affiliate of WNIC (i) has directly or indirectly any material interest in any
material asset used in the Health Insurance Business, or (ii) has any direct or
indirect interest of any nature whatsoever (other than as the owner of 5% or
less of any class of non-voting securities, or 1% or less of the voting
securities) in any corporation or business which competes with, conducts any
business similar to, or has any present or contemplated arrangement or agreement
with, the Health Insurance Business.
4.21 THREAT OF CANCELLATION. Since December 31, 1995, no person writing,
selling or producing insurance business that individually or in the aggregate
accounted for 10% or more of the annualized premium income of the Individual
Health Insurance Business (exclusive of the New Jersey Business) for the year
ended December 31, 1995 has terminated, or to the knowledge of WNIC, threatened
in writing to terminate, its relationship with WNIC.
4.22 EMPLOYEES. Schedule 4.22 lists all current Health Insurance Business
employees of WNIC (hereinafter collectively referred to as the "Employees" or
individually as "Employee"), including each Employee's name, position, grade
level, annual base salary, maximum bonus eligibility and whether the Employee
works exclusively for the Large Group Business.
4.23 ACTUARIAL. The amounts carried in the Financial Statements, on account of
the reserves identified in the Financial Statements or as will be identified in
the Closing Balance Sheet:
(a) are, or will be, as the case may be, computed in accordance with commonly
accepted actuarial standards consistently applied and are fairly stated in
accordance with sound actuarial principles;
(b) are, or will be, as the case may be, based on actuarial assumptions which
are in accordance with or stronger than those called for in policy provisions;
(c) meet the requirements of the insurance laws of the State of Illinois;
(d) make adequate provision for all unmatured obligations of WNIC guaranteed
under the terms of its Health Insurance Business policies;
(e) are computed on the basis of assumptions consistent with those used in
computing the corresponding items in the Annual Insurance Statement of the
preceding year-end; and
(f) include provision for all actuarial reserves and related items which
reasonably ought to be established under commonly accepted actuarial standards.
4.24 DISCLOSURE.
(a) The representations and warranties of WNIC in this Agreement, the
Reinsurance Agreements and the Services Agreements, taken as a whole, do not
contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements contained herein or therein not misleading.
(b) Except as otherwise indicated herein or in the Schedules hereto, WNIC has
delivered, or made available, to PFS copies of all written instruments,
agreements and other documents referred to in the Schedules. All instruments,
agreements and other documents referred to in the Schedules, delivered or to be
delivered, or made available or to be made available, to PFS pursuant to this
Agreement are, or when delivered or made available will be, true and complete in
all material respects. The delivery, or the making available, to PFS of any
such instrument, agreement or other document (including without limitation
policies or forms of policies of insurance relating to the Health Insurance
Business carried or issued by WNIC, contract or forms of contracts with agents
or brokers or underwriting manuals) shall not affect, or be deemed to vitiate or
otherwise modify, any representation, warranty or covenant made by WNIC herein
with respect to any item so delivered or made available or otherwise, except in
those instances, if any, where PFS expressly waives in writing the breach of a
representation, warranty or covenant.
(c) There is no fact known to WNIC which materially and adversely affects the
Business and Condition of the Health Insurance Business which has not been set
forth in this Agreement, the Exhibits attached to this Agreement, the Disclosure
Schedule or certificates in writing furnished to PFS in connection with the
transactions contemplated by this Agreement.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PFS
PFS represents and warrants to WNIC as follows:
5.1ORGANIZATION. PFS is a corporation duly incorporated, validly existing, and
in good standing under the Laws of the State of Delaware and has full corporate
power and authority to enter into this Agreement and the Closing Agreements and
to perform its obligations under this Agreement and the Closing Agreements.
5.2 AUTHORITY. The execution, delivery, and compliance with the terms of this
Agreement and the Closing Agreements by PFS and the performance by PFS of its
obligations under this Agreement and the Closing Agreements have been duly and
validly authorized by all necessary corporate action on the part of PFS. This
Agreement has been, and the Reinsurance Agreements and the Service Agreements
(when executed and delivered by PFS) will be, duly and validly executed and
delivered by PFS. This Agreement constitutes, and the Reinsurance Agreements
and the Service Agreements (when executed and delivered by PFS) will constitute,
legal, valid, and binding obligations of PFS enforceable against PFS in
accordance with their respective terms, subject to (a) applicable Laws relating
to bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, or
similar Laws now or hereafter in effect relating to or limiting creditors'
rights generally and (b) general principles of equity.
5.3 NO CONFLICTING AGREEMENTS. Neither the execution and delivery of this
Agreement or any Closing Agreement by PFS, nor the performance by PFS of its
obligations under this Agreement or any Closing Agreement, will:
(a) subject to obtaining the approvals and making the filings contemplated by
Sections 7.6, violate any Laws or Order applicable to PFS;
(b) conflict with or result in a violation or breach of the charter or bylaws
of PFS;
(c) result in the creation or imposition of any Lien upon PFS or any of its
assets and properties, except for Liens which individually or in the aggregate
could not reasonably be expected to have a material adverse effect on the
validity or enforceability of this Agreement or any Closing Agreement or on the
ability of PFS to perform its obligations under this Agreement or any Closing
Agreement; or
(d) conflict with or result in a violation or breach of, or constitute (with or
without notice or lapse of time or both) a default under, or give to any Person
any right of termination, cancellation, acceleration, or modification in or with
respect to, any contract to which PFS is a party or by which any of its assets
and properties is bound, except for such conflicts, violations, breaches,
defaults, or rights which individually or in the aggregate could not reasonably
be expected to have a material adverse effect on the validity or enforceability
of this Agreement or any Closing Agreement or on the ability of PFS to perform
its obligations under this Agreement or any Closing Agreement.
5.4 REGULATORY FILING AND APPROVALS. Other than with respect to Assumed
Contracts or as contemplated by Section 7.6, no notices, reports or other
filings are required to be made by PFS with, and no consents, registrations,
approvals, permits, licenses, orders or authorizations are required to be
obtained by PFS from any Person or Governmental Authority in connection with the
execution and delivery of this Agreement or any Closing Agreement by PFS and the
consummation of the transactions contemplated hereby and thereby.
5.5 LITIGATION. There are no actions, suits, inquiries, investigations, or
proceedings by or before any court or Governmental Authority pending or, to the
knowledge of PFS, threatened against or involving PFS or any of its assets and
properties, by any Person which individually or in the aggregate could
reasonably be expected to have a material adverse effect on the validity or
enforceability of this Agreement or any Closing Agreement or on the ability of
PFS to perform its obligations under this Agreement or any Closing Agreement.
5.6 COMPLIANCE WITH LAWS. PFS is not in violation (and with or without notice
or lapse of time or both, would not be in violation) of any Laws applicable to
PFS or any of its assets and properties, except for violations which
individually or in the aggregate do not and could not reasonably be expected to
have a material adverse effect on the validity or enforceability of this
Agreement or any Closing Agreement or on the ability of PFS to perform its
obligations under this Agreement or any Closing Agreement.
5.7 LICENSES AND PERMITS. PFS owns or validly holds all licenses, franchises,
permits, approvals, and other authorizations that are required to carry on its
business as heretofore and currently conducted and will use its best efforts to
cause to be obtained all licenses, franchises, permits, approvals and other
authorizations for the conduct, after the First Closing, of the business,
operations and affairs of the Individual/Small Group Business, and, after the
Second Closing, of the business, operations and affairs of the Large Group
Business.
5.8 CERTAIN UNDERSTANDINGS. PFS is acquiring the Health Insurance Business
without any representation or warranty whatsoever, whether express or implied,
except as expressly stated in this Agreement. PFS or its representatives are
experienced in the insurance and other businesses of the Health Insurance
Business.
5.9 FINANCIAL STATEMENTS. PFS has previously delivered to WNIC true and
complete copies of (a) the audited balance sheets of PFS as of December 31, 1994
and 1995, and the audited statements of operations of PFS for the years ended
December 31, 1994 and 1995, in each case as compiled from the GAAP balance
sheets of PFS as of such dates and the GAAP statements of operations of PFS for
such periods, respectively and (b) the balance sheets of each Designee as of
December 31, 1994 and 1995 and the statements of operations of each Designee for
the years ended December 31, 1994 and 1995, in each case as compiled from the
SAP balance sheets of such Designees as of such dates and the SAP statements of
operations of such Designees for such periods, respectively. Except as
indicated in the notes thereto, each such balance sheet of PFS and such
Designees was prepared in accordance with GAAP or SAP, as the case may be, and
fairly presents the financial condition of PFS and such Designees as of the
respective date thereof, and each such statement of operations was prepared in
accordance with GAAP or SAP, as the case may be, and fairly presents the results
of operations of PFS and such Designees for the respective periods covered
thereby.
5.10 DISCLOSURE. The representations and warranties of PFS in this Agreement,
the Reinsurance Agreements and the Services Agreements, taken as a whole, do not
contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements contained herein or therein not misleading.
ARTICLE VI
COVENANTS RELATING TO CONDUCT OF BUSINESS
WNIC covenants that, from the date of this Agreement to the First Closing with
respect to the Individual/Small Group Business, and from the date of this
Agreement to the Second Closing with respect to the Large Group Business, unless
otherwise agreed by PFS in writing or unless otherwise required to consummate
the transactions contemplated by this Agreement:
6.1 CONDUCT OF BUSINESS IN ORDINARY COURSE.
(a) WNIC shall conduct the Individual/Small Group Business and the Large Group
Business, as applicable, solely in the ordinary course of such business;
(b) WNIC shall use commercially reasonable efforts to preserve the present
business relationships that are material to the Business and Condition of the
Health Insurance Business and continue normal marketing, advertising and
promotional expenditures;
(c) WNIC shall not institute any new marketing or promotional programs;
(d) WNIC shall not change, terminate or otherwise amend any Material Contract
or any Assumed Contract;
(e) WNIC shall not enter into, or become obligated under, any Material
Contract, any Assumed Contract, or any Plan relating to the Health Insurance
Business, except in the ordinary course of business, or as contemplated by this
Agreement or any Closing Agreement; and
(f) WNIC shall not (i) create or incur any Lien on any Assets and Properties of
the Health Insurance Business, (ii) enter into any material transaction or make
any material commitment relating to the Health Insurance Business other than in
the ordinary course of business, or (iii) enter into any employment contract
with any of the employees or, except in the ordinary course of business
consistent with past practice, agents of the Health Insurance Business, or pay
or provide any increase in compensation, bonus or other benefits, except for
increases in the ordinary course of business consistent with past practices
(which increases shall be disclosed in writing to PFS prior to the First Closing
in the case of Individual/Small Group Business Employees and prior to the Second
Closing in the case of Large Group Business Employees), increases required by
agency or brokerage contracts or other increases previously disclosed to, and
agreed to by, PFS.
6.2 REGULATORY REPORTS. WNIC shall furnish to PFS promptly upon receipt
thereof, copies of any reports or other communications received from any
insurance or other regulatory authority with respect to the Health Insurance
Business.
6.3 DISPOSITIONS. Except for sales of investments in the ordinary course
consistent with past practices, WNIC will not sell, lease or otherwise dispose
of assets used or required for use in the Health Insurance Business having an
aggregate value of more than $100,000 or otherwise material to the Health
Insurance Business.
6.4 OTHER EXTRAORDINARY TRANSACTIONS. Except as permitted by Section 7.10,
WNIC will not enter into or consummate any other transaction or agreement which
would have the effect of preventing the consummation of the transactions
contemplated hereby or would adversely affect the value to be obtained by PFS as
a result of the transactions contemplated hereby.
6.5 ADDITIONAL MATTERS. WNIC will not (a) waive or relinquish any rights of
substantial value relating to the Health Insurance Business, (b) otherwise make
any material change in the conduct of the business or operations of the Health
Insurance Business, or (c) agree in writing or otherwise to take any of the
foregoing actions or to take any action which WNIC reasonably believes could
result in a material adverse effect on the Business and Condition of the Health
Insurance Business.
6.6 INVESTIGATION BY PFS. WNIC shall provide PFS and its legal counsel,
accountants, actuaries, and other representatives with reasonable access, upon
prior notice and during normal business hours, to all facilities, officers,
employees, agents, accountants, actuaries, books and records, and Assets and
Properties of the Health Insurance Business, and (at the expense of PFS) will
furnish PFS and such representatives with copies of such documents, information,
and data (including without limitations copies of Material Contracts and Plans)
concerning the business, operations, and affairs of the Health Insurance
Business as PFS reasonably may request. PFS agrees to notify WNIC in writing
prior to the First or Second Closing, as applicable, of any fact discovered by
PFS in its investigation which PFS actually concludes constitutes a breach of a
representation or warranty in Article IV. After such notice, WNIC, subject to
Section 10.1(b), shall be permitted to cure such violation (if curable) prior to
the First or Second Closing, as applicable.
6.7 NO BREACH OR DEFAULT. WNIC shall refrain from violating, breaching, or
defaulting under, and from taking or failing to take any action that (with or
without notice or lapse of time or both) would constitute a violation, breach,
or default under, any contract to which WNIC is a party or by which any of the
Assets and Properties of the Health Insurance Business is bound and which
violation, breach, or default individually or in the aggregate could reasonably
be expected to have a material adverse effect on the Business and Condition of
the Health Insurance Business.
6.8 FINANCIAL STATEMENTS AND REPORTS. WNIC shall deliver to PFS (as promptly
as practicable after their availability), true and complete copies of such
material financial statements, reports, or analyses as may be prepared or
received by WNIC in the ordinary course of business and as relate to the
Business and Condition of the Health Insurance Business, including without
limitation, a balance sheet (exclusive of any allocation of capital and surplus
and exclusive of any invested assets) at the end of each calendar quarter,
monthly statements of operations, normal internal reports (such as those
reflecting monthly sales and termination activity), and special reports (such as
those of consultants). WNIC shall continue to prepare such financial
statements, reports or analyses as have heretofore been prepared by WNIC in
accordance with its customary business practices.
6.9 EMPLOYEES. WNIC shall refrain from relocating any employees of the Health
Insurance Business other than in the ordinary course of business, and shall
permit PFS to have reasonable access to such employees for the purpose of
offering them employment related positions.
6.10 INTERIM OPERATION AND MANAGEMENT. To the extent permitted under applicable
Law, WNIC shall permit PFS to participate in, and to make requests with respect
to, the following actions in connection with the operation and management of the
Health Insurance Business from the date hereof to the First Closing Date or
Second Closing Date, as applicable: (a) the preparation of monthly reports,
financial statements and budgets for the Health Insurance Business, (b) the
development of products, (c) pricing and premium adjustments, (d) marketing or
promotional programs, and (e) all management decisions which could reasonably be
expected to have a material effect on the Business and Condition of the Health
Insurance Business. WNIC shall have final approval over all of the foregoing
actions requested to be taken by PFS, such approval not to be unreasonably
withheld or delayed. WNIC shall take such actions at its own expense, except
that PFS shall bear the expense of the actions set forth in (b) and (d) above.
WNIC shall give written notice of termination with respect to all third party
Individual Health Business reinsurance ceded agreements and all Individual
Health Business managed care agreements and shall use its best efforts to
terminate the Small Group Business portion of all other third party reinsurance
ceded agreements; provided, however, that the termination of any such agreements
shall be expressly conditioned on the consummation of the transactions
contemplated by this Agreement.
ARTICLE VII
CERTAIN ADDITIONAL COVENANTS
7.1CESSATION OF PARTICIPATION IN BENEFIT PLANS. Except as otherwise provided in
this Section 7.1, WNIC shall take such corporate and other action as is
necessary, with respect to any Plan adopted, maintained, or sponsored by WNIC
and under which any present or former employee or agent of WNIC associated with
the Health Insurance Business participates in any manner, to cause each Plan to
make a distribution to such participants of the vested account or vested accrued
benefit required under the terms of each Plan or required by Law. Such
distribution shall be made in the form and at the time set forth in the Plan.
7.2 PUBLIC ANNOUNCEMENTS. At all times on or before the Second Closing Date,
WNIC and PFS will each consult with the other before issuing or making any
reports, statements, or releases to the public with respect to this Agreement,
any Closing Agreement, or the transactions contemplated by this Agreement and
will use good faith efforts to agree on the text of a joint public report,
statement, or release or will use good faith efforts to obtain the other party's
approval of the text of any public report, statement, or release to be made
solely on behalf of a party. If any such public report, statement or release
is, in the opinion of legal counsel to a party, required by Law in order to
discharge such party's disclosure obligations, then such party may make or issue
the legally required report, statement, or release. Any such report, statement,
or release approved or permitted to be made pursuant to this Section 7.2 may be
disclosed or otherwise provided by WNIC or PFS to any Person, including without
limitation to any employee, agent, or customer of either party hereto and to any
Governmental Authority.
7.3 BOOKS, RECORDS, AND INFORMATION.
(a) All books, records, information, data, and other documents delivered to PFS
by WNIC or any representative of WNIC pursuant to this Agreement or otherwise
will be open for inspection (upon reasonable notice by WNIC) by WNIC or any
representative of WNIC at any time during regular business hours until such time
as such books, records, information, data, and other documents are destroyed or
possession thereof is given up as provided in Section 7.3(b) hereof, and WNIC
may during such period at its expense make such copies thereof as it may
reasonably request. All books, records, information, data, and other documents
that are retained by WNIC after the First Closing Date and that relate to the
Individual/Small Group Insurance Business or after the Second Closing Date and
that relate to the Large Group Business (in each case, other than tax records of
WNIC or its Affiliates, except for any portion of such tax records that relates
solely and specifically to the Health Insurance Business) will be open for
inspection (upon reasonable notice by PFS) by PFS or any representative of PFS
at any time during regular business hours until such time as such books,
records, information, data, and other documents are destroyed or possession
thereof is given up as provided in Section 7.3(b) hereof, and PFS may during
such period at its expense make such copies thereof as it may reasonably
request.
(b) Neither PFS nor WNIC shall destroy or give up possession of any item
referred to in Section 7.3(a) hereof without first offering to the other party
the opportunity, at such other party's expense (but without any other payment),
to obtain the same. If such other party declines such offer, the offering party
may give up possession of the offered items to any Person who agrees in writing
to be bound by this Section 7.3. Any item referred to in Section 7.3(a) may be
destroyed or disposed of by any party or other Person having possession thereof
after the later of (i) the sixth anniversary of the First Closing Date or
(ii) the last date on which all representations, warranties, covenants, and
agreements to which the respective item relates have expired in accordance with
Section 11.1 hereof.
(c) PFS shall use all commercially reasonable efforts to afford WNIC and the
representatives of WNIC access to any employees or agents who were previously
employees or agents of WNIC associated with the Health Insurance Business and
who remain in the employ of PFS or any of PFS's Affiliates, as WNIC may
reasonably request for its proper corporate purposes, including without
limitation the defense of legal proceedings. Such access may include attendance
at depositions or other proceedings, personal interviews, written
correspondence, or other contact.
7.4 LEASE NOVATION AGREEMENTS. PFS and WNIC shall use all commercially
reasonable efforts and will cooperate with each other in entering into novation
agreements with respect to each real estate lease which is an Assumed Contract
on Exhibit B. In the event that novation agreements are not possible, PFS
shall, to the extent permitted by such lease, sublet each such leasehold from
WNIC under identical terms and conditions as exist in the underlying lease.
7.5 AUTHORIZATION AND APPOINTMENT. Effective as of the First Closing with
respect to the Individual/Small Group Business and contingent thereupon, and
effective as of the Second Closing with respect to the Large Group Business and
contingent thereupon, WNIC authorizes and appoints PFS as its agent to use
WNIC's name insofar, but only insofar, as such use relates solely and
exclusively to the administration of the Reinsured Policies and the
Individual/Small Group Business; provided, however, that this authorization and
appointment applies only with respect to the Reinsured Policies and policies,
certificates and riders issued subsequently on the same forms currently used by
WNIC in connection with the Health Insurance Business, with such subsequent
changes in form therein as may be reasonably necessary to comply with insurance
laws and regulations or to continue the Individual/Small Group Business as it
existed on the First Closing Date and the Large Group Business as it existed on
the Second Closing Date, and only as and to the extent that the Individual/Small
Group Reinsurance Agreement and the Assignment Agreements in the case of the
Individual/Small Group Business and the Large Group Reinsurance Agreement in the
case of the Large Group Business remain in full force and effect with respect to
such policies; provided further, however, that this authorization and
appointment shall extend for a period of 180 days as to newly written group and
individual insurance policies, until the next anniversary date of any existing
group insurance policy occurring more than 90 days after the First Closing Date
or Second Closing Date, as applicable, and until the date of policy lapse,
expiration, or cancellation for existing individual policies.
7.6 REGULATORY AND THIRD PARTY APPROVALS.
(a) Each of WNIC and PFS shall (i) take all commercially reasonable steps
necessary or desirable, and proceed diligently and in good faith and use all
commercially reasonable efforts to obtain, as promptly as practicable, all
approvals, authorizations, and clearances of Governmental Authorities
respectively required of such party to consummate the transactions contemplated
by this Agreement, (ii) provide such other information and communications to
such Governmental Authorities as the other such party or such Governmental
Authorities may reasonably request, and (iii) cooperate with the other such
party in obtaining, as promptly as practicable, all approvals, authorizations,
and clearances of Governmental Authorities required of the other such party to
consummate the transactions contemplated by this Agreement, including without
limitation the approval of the insurance Governmental Authority in Illinois.
(b) Each of WNIC and PFS shall (i) take all actions necessary to make, as
promptly as practicable, the filings respectively required of it or of its
respective Affiliates under the HSR Act (and under any applicable state Laws
relating to antitrust notifications), (ii) comply as promptly as practicable
with any request for additional information respectively received by it or its
respective Affiliates from any Governmental Authority pursuant to the HSR Act
(or such state Laws), (iii) cooperate with the other such party in connection
with such other party's filings under the HSR Act (or such state Laws), and
(iv) request early termination of the applicable waiting period under the HSR
Act (and such state Laws).
(c) Each of WNIC and PFS shall use all commercially reasonable efforts, and
shall cooperate with each other, to secure all necessary consents, approvals,
authorizations, exemptions, and waivers from third Persons as are required in
order to effect the transactions contemplated by this Agreement and will
otherwise use all commercially reasonable efforts to cause as promptly as
practicable the consummation of all such transactions in accordance with the
terms and conditions hereof.
(d) After the date hereof, the parties agree to cooperate in making
presentations to the A.M. Best Company and to the Illinois Department of
Insurance.
7.7 EMPLOYEES AND RETENTION OF BUSINESS.
(a) PFS agrees to offer employment, effective as of the later of October 31,
1996 or 90 days after the First Closing, or such earlier date as WNIC and PFS
may mutually agree, to a minimum of 275 Employees, excluding those Employees who
will be retained by WNIC as identified on Schedule 7.7(a) (the "Retained
Employees"), pursuant to which each such Employee would be offered: (i) a
position with duties and responsibilities substantially similar to those
performed by such Employee for WNIC immediately prior to the First Closing, (ii)
an annual base salary or hourly compensation rate not less than that in effect
in the month prior to the month containing the First Closing Date; and (iii)
benefits customarily provided to PFS s employees with similar responsibilities
and salary level. Notwithstanding the foregoing, PFS agrees that it will not
offer employment to any Employee of the Large Group Business unless the Large
Group Reinsurance Agreement is or will become effective, in which case any such
offer by PFS shall be counted toward its obligation hereunder to offer
employment to a minimum of 275 Employees. PFS further agrees that it will
notify WNIC of its intent to offer employment to any Employee at least 14 days
prior to the effectiveness of such employment.
(b) For each benefit plan, program or arrangement, including but not limited to
pension plans, 401(k) plans, severance pay plans, and welfare plans (as defined
in Section 3(3) of ERISA) maintained by or contributed to by PFS, PFS agrees
that each Employee hired by PFS shall be entitled to receive benefits under each
such plan, program or arrangement, excluding any defined benefit pension plan
(as defined in Section 3(35) of ERISA), computing the Employee s benefit as if
the Employee s period of employment with WNIC were employment with PFS for all
purposes and further agrees that time enrolled in WNIC s medical plan shall be
treated as time enrolled in PFS s medical plan for the purpose of applying any
limitations on pre-existing conditions.
(c) PFS agrees that, during the one-year period following the First Closing
Date, it (i) will not transfer any Employee hired by it to a place of work more
than 50 miles from his or her place of employment on the First Closing Date, and
(ii) will not terminate any Employee hired by it other than for cause.
(d) PFS shall use its best efforts to have each of the Employees so hired sign
a release agreement in form and substance reasonably satisfactory to the
parties; provided that PFS's "best efforts" shall not include making the signing
of such agreement a condition to employment by PFS.
(e) In the event that the Large Group Reinsurance Agreement has become
effective, (i) PFS agrees that, prior to October 1, 1997, it will not terminate
or otherwise modify the terms and conditions of major medical health insurance
coverage provided under WNIC's Group Insurance Plan, Plan #HRM 4200, and under
Plan #HRM 4100, and (ii) WNIC agrees that it will not contract with any
insurance carrier other than PFS to provide such major medical health insurance
coverage to be effective prior to October 1, 1997; provided, however, that WNIC
reserves the right to contract with health maintenance organizations to provide
managed care type health care options to WNIC s employees and the employees of
WNIC s affiliates covered under such plans.
(f) Notwithstanding anything herein to the contrary, PFS reserves the right to
negotiate employment terms and conditions with any Employee that differ from the
terms and conditions set forth above in Section 7.7(a), (b) and (c), provided
that any Employee hired by PFS pursuant to this Section 7.7(f) shall be counted
toward PFS's obligation to offer employment to a minimum of 275 Employees under
Section 7.7(a), but only if PFS obtains written acknowledgment from such
Employee that such Employee waives all rights or otherwise releases all claims
against WNIC under WNIC's severance plans.
(g) WNIC agrees to terminate the Employees, other than the Retained Employees,
effective as of the later of October 31, 1996 or 90 days after the First
Closing, or such earlier date as WNIC and PFS may mutually agree.
(h) WNIC shall be solely responsible for (i) collecting and submitting to the
appropriate taxing authorities any taxes required to be withheld with respect to
such Employees during the period of their employment by WNIC, and (ii)
satisfying any and all COBRA and other obligations to the Employees arising from
their employment by WNIC or termination of that employment.
(i) WNIC covenants not to interfere with, compete with or in any way inhibit
any employment efforts by PFS and further covenants not to hire, attempt to
hire, retain or solicit any of the Employees hired by PFS for a period of two
(2) years commencing on the date of this Agreement.
7.8 NON-COMPETITION AGREEMENTS. WNIC, in order to induce PFS to enter into
this Agreement, expressly covenants and agrees that for a period of two (2)
years from and after the First Closing Date, WNIC will not directly or
indirectly own, manage, operate, join, control, or participate in or be
connected with any business, individual, partnership, firm or corporation, which
is at the time engaged, wholly or partly, in the marketing, sale or
administration of individual and group major medical health insurance products
in competition with the Health Insurance Business, except that WNIC may (a)
perform its obligations as required under the Closing Agreements, (b) engage in
the marketing, sale and administration of any insurance sold primarily to
teachers and other employees of school districts and municipalities, and (c)
acquire a company, business or block of insurance that competes with the Health
Insurance Business provided that (i) less than 25% of the annual premium income
of such company, business or block of insurance comes from individual and group
major medical health insurance policies that compete with the Health Insurance
Business and (ii) the annual premium income of such acquisitions do not, in the
aggregate, exceed $100,000,000. WNIC further agrees that it will not directly
or indirectly aid or assist any other party in the solicitation of insurance
business in competition with the Health Insurance Business, except as may be
required in connection with the operation or sale of its Large Group Business.
Notwithstanding this Section 7.8, WNIC may own an aggregate of not more
than five percent of the outstanding stock of any class of any corporation
engaged in marketing individual and group major medical insurance in competition
with the Health Insurance Business if such stock is listed on a national
securities exchange or regularly traded in the over-the-counter market by a
member of a national securities exchange, without violating the provisions of
this Section 7.8, provided WNIC does not have the power to control or direct the
management or affairs of such corporation and is not otherwise associated with
it.
WNIC expressly covenants and agrees that the remedy at law for any breach
of this Section 7.8 will be inadequate and that, in addition to any other
remedies PFS may have, PFS shall be entitled to temporary and permanent
injunctive relief. To the extent that any part of this provision may be
invalid, illegal or unenforceable for any reason, it is intended that such part
shall be enforceable to the extent that a court of competent jurisdiction shall
determine that such part if more limited in scope would have been enforceable
and such part shall be deemed to have been so written and the remaining parts
shall as written be effective and enforceable in all events. This non-compete
shall be of no effect in the event that WNIC exercises its right of recapture
under the Reinsurance Agreements.
7.9 CONDUCT OF BUSINESS. As of the First Closing Date, the Designee with
respect to the Individual/Small Group Business, and as of the Second Closing
Date, the Designee with respect to the Large Group Business, shall each have at
least a "B+" (B plus) rating by A.M. Best Company (or in the event that A.M.
Best Company is no longer publishing insurance company ratings, a comparable
rating by a nationally recognized independent rating company). From the date
hereof through the Second Closing Date, PFS shall cause each of its Designees to
(a) conduct its business in all material respects in accordance with all
applicable Laws, (b) use commercially reasonable efforts to maintain
underwriting, claims adjudication and policyholder service at the level provided
by its Designees on the date hereof and in accordance with industry standards to
preserve the present business relationships with the holders of the Reinsured
Policies, and (c) furnish to WNIC promptly upon receipt thereof, copies of any
reports or other communications received from the A.M. Best Company or from any
insurance regulatory authority with respect to the Health Insurance Business or
the insurance company ratings of such Designees.
7.10 NO SOLICITATION. From and after the date hereof through the First Closing
Date or the termination of this Agreement pursuant to Article X, WNIC will not,
and will use its best efforts to cause its officers, directors, employees,
attorneys, financial advisors, agents or other representatives not to, directly
or indirectly, solicit, initiate or encourage (including by way of furnishing
information) any acquisition proposal or offer from any Person with respect to
the Health Insurance Business, or engage in or continue discussions or
negotiations relating thereto; provided, however, that (a) this provision will
not apply with respect to the Large Group Business, and (b) WNIC may engage in
discussions or negotiations with, or furnish information to any third party
which makes an Acquisition Proposal (as hereinafter defined) if the Board of
Directors of WNIC concludes in good faith that the failure to take such action
would violate the fiduciary obligations of such Board to WNIC or its
stockholders under applicable Law. WNIC will promptly notify PFS of any
Acquisition Proposal, including the material terms and conditions thereof,
provided that it need not disclose the identity of the Person or group making
such Acquisition Proposal. As used in this Agreement, "Acquisition Proposal"
shall mean any proposal or offer, or any expression of interest by any third
party relating to WNIC's willingness or ability to receive or discuss a proposal
or offer, for a tender or exchange offer, a merger, acquisition, consolidation
or other business combination, or reinsurance agreement or arrangement, which
involves all or substantially all of the assets or stock of WNIC or its parent
corporation, Washington National Corporation, and includes the Health Insurance
Business or any part thereof (other than the Large Group Business) as a part of
such business combination or reinsurance agreement or arrangement.
7.11 EQUIPMENT PURCHASE OPTION. PFS shall have (a) the right, exercisable in
its sole discretion within 15 days of the termination of the Interim Services
and Facilities Agreement relating to the Reinsured Policies under the
Individual/Small Group Reinsurance Agreement, to match the highest bid and
thereby purchase the used equipment identified in paragraphs 6(a), 6(c) and 6(e)
of Exhibit C to this Agreement, and (b) the right, exercisable in its sole
discretion within 15 days of the termination of the Interim Services and
Facilities Agreement relating to the Reinsured Policies under the Large Group
Reinsurance Agreement, to match the highest bid and thereby purchase the used
equipment identified in paragraphs 6(b) and 6(d) of Exhibit C to this Agreement.
7.12 FULFILLMENT OF CONDITIONS. Each party hereto shall use its best efforts to
take or cause to be taken all actions reasonably necessary or appropriate to
cause the conditions set forth in Article VIII to be satisfied at or prior to
the First Closing with respect to the Individual/Small Group Business, and at or
prior to the Second Closing with respect to the Large Group Business.
7.13 PERFORMANCE OF CLOSING AGREEMENTS. Each party agrees to fulfill fully and
in a timely manner its obligations under the Closing Agreements.
7.14 FURTHER ASSURANCES. From time to time after the First Closing and the
Second Closing, as applicable, at the request of PFS and without further
consideration, WNIC shall execute and deliver such further instruments of
transfer and assignment (in addition to those delivered under Section 2.7(c) and
3.7(c)) and take such other action as PFS may reasonably request to more
effectively transfer and assign to, and vest in or license to, PFS the
Transferred Assets. From time to time after the First Closing and the Second
Closing, as applicable, at the request of WNIC and without further
consideration, PFS shall execute and deliver such further instruments of
assumption (in addition to those delivered under Section 2.7(b) and 3.7(b)) and
take such other action as WNIC may reasonably request in connection with PFS's
assumption of the Assumed Liabilities. In the event that the assignment of any
contract included in the Transferred Assets shall require the consent of other
parties thereto, this Agreement shall not constitute a contract for the
assignment thereof to the extent that an attempted assignment would constitute a
breach thereof; however, WNIC shall use all reasonable efforts before the First
or Second Closing, as applicable, and after the First or Second Closing, as
applicable, as needed, to obtain any necessary consents or waivers to assure PFS
of the benefits of any such contracts and shall hold for the benefit of PFS, to
the extent consented to by PFS, any contracts that may not be assigned to PFS.
From time to time after the First Closing and the Second Closing, as applicable,
WNIC shall cooperate with PFS to facilitate the orderly continuation of the
Health Insurance Business and shall in furtherance thereof: (a) promptly deliver
to PFS the original of any mail or other communication received by WNIC
pertaining to the operation of the Health Insurance Business after the First or
Second Closing, as applicable, and any monies, checks or other instruments of
payment to which PFS is entitled, (b) promptly notify PFS of any claims filed
with respect to the Reinsured Policies, and (c) take such other actions,
consistent with the purposes of this Section, as may be reasonably requested by
PFS.
7.15 SHARED EQUIPMENT. To the extent permitted by Law, WNIC shall use its best
efforts to provide PFS with the use of certain equipment jointly used in the
Health Insurance Business and certain of WNIC's other businesses for a period of
up to one year from the First Effective Date; provided, however, that (i) PFS
shall use such equipment only in connection with its conduct of the
Individual/Small Group Business and, if applicable, the Large Group Business,
and (ii) WNIC shall not be required to provide such equipment if it would incur
any additional expense in connection therewith (unless PFS reimburses WNIC for
such expense), or if its ability to conduct its other businesses would be
interfered with or otherwise adversely affected.
ARTICLE VIII
CONDITIONS PRECEDENT
8.1 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PFS TO CLOSE. The obligations
of PFS under this Agreement are subject to the fulfillment at or before the
First Closing with respect to the Individual/Small Group Business, and at or
before the Second Closing with respect to the Large Group Business, of each of
the following conditions (all or any of which may be waived in whole or in part
by PFS):
(a) No Injunction. There shall not be in effect on the First Closing Date or
the Second Closing Date, as applicable, any valid Order of any Governmental
Authority restraining, enjoining, or otherwise preventing consummation of any of
the transactions contemplated by this Agreement.
(b) No Proceeding or Litigation. There shall not be pending or (to the
knowledge of PFS or WNIC) threatened any action, suit, investigation, or other
proceeding in, before, or by any Governmental Authority or other Person to
restrain, enjoin, or otherwise prevent consummation of any of the transactions
contemplated by this Agreement or to recover any Damages (or obtain other
relief) as a result of this Agreement, any Closing Agreement, or any of the
transactions contemplated by this Agreement which action, suit, investigation,
or other proceeding may, in the reasonable opinion of PFS, result in a decision,
ruling, or finding that individually or in the aggregate could reasonably be
expected to have a material adverse effect on the validity or enforceability of
this Agreement, on the ability of PFS to perform its obligations under this
Agreement or any Closing Agreement, or (after the First Closing or Second
Closing, as applicable) on the Business and Condition of the Health Insurance
Business.
(c) HSR Act. The requirements of the HSR Act (and of any applicable state Laws
regulating antitrust notification) shall have been complied with, and the
waiting period thereunder shall have expired or been terminated.
(d) Consents and Authorizations. All orders, consents, permits,
authorizations, approvals, and waivers of every Person disclosed pursuant to
Section 5.4 hereof or otherwise necessary to permit PFS to perform its
obligations under this Agreement, the Assumed Liabilities or any Closing
Agreement (including without limitation requisite action of the insurance
Governmental Authority in Illinois) shall have been obtained and shall be in
full force and effect.
(e) Representations and Warranties. All representations and warranties of WNIC
contained in this Agreement shall be true as of the First Closing Date or the
Second Closing Date, as applicable, in all material respects as if made on and
as of such Closing Date.
(f) Performance of Agreements. WNIC shall have performed or complied with all
obligations that are required to be performed or complied with by WNIC pursuant
to the terms of this Agreement on or before the First Closing Date or the Second
Closing Date, as applicable.
(g) Officers' Certificates. WNIC shall have delivered to PFS a certificate,
dated the First Closing Date or the Second Closing Date, as applicable, in form
and substance satisfactory to PFS and executed by the officer executing this
Agreement (or by any other officer of WNIC whose title is equal or senior to
that of such executing officer), certifying (with respect to WNIC) as to the
fulfillment of the conditions set forth in Sections 8.1(a), (c), (e), and (f)
hereof. Such officer's certificate also shall certify (with respect to WNIC) as
to the fulfillment or nonfulfillment of the conditions set forth in
Sections 8.2(b) and (d) hereof. In addition, WNIC shall have delivered to PFS a
certificate, dated the First Closing Date or the Second Closing Date, as
applicable, and executed by the Secretary or any Assistant Secretary of WNIC,
certifying that WNIC has duly and validly taken all corporate action necessary
to authorize WNIC's execution and delivery of this Agreement and the Closing
Agreements and WNIC's performance of its obligations under this Agreement and
the Closing Agreements, and that the resolutions, true and complete copies of
which shall be attached to the certificate, of the Board of Directors of WNIC
with respect to this Agreement and the Closing Agreements, and the transactions
contemplated by this Agreement, have been duly and validly adopted and are in
full force and effect. WNIC also shall have delivered to PFS such certificates
or other documentation from Governmental Authorities as PFS may reasonably
request as to the matters represented by WNIC in Sections 4.1 and 4.3 hereof.
(h) Opinion of Counsel. PFS shall have received an opinion dated as of the
First Closing Date and, if applicable, the Second Closing Date of the corporate
counsel of WNIC to the effect that: (i) WNIC is a corporation duly organized,
validly existing and in good standing under the laws of the State of Illinois;
(ii) WNIC has full corporate power and authority to carry on the Health
Insurance Business substantially as it is now being conducted; (iii) the
execution and delivery of this Agreement, the Closing Agreements and the Bills
of Sale by WNIC, the consummation of the transactions contemplated hereby and
thereby, the compliance with the terms and conditions hereof and thereof and the
performance by WNIC of its obligations and undertakings hereunder and thereunder
have been duly and validly authorized by all necessary corporate action on the
part of WNIC and constitute the valid and binding obligations of WNIC,
enforceable in accordance with their terms, subject to applicable laws relating
to bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or
other similar laws affecting creditors' rights generally and to general
principles of equity; (iv) the execution and delivery of this Agreement, the
Closing Agreements and the Bills of Sale by WNIC, and the consummation of the
transactions contemplated hereby and thereby do not violate any provisions of
the Articles of Incorporation or bylaws of WNIC or any laws or regulations
applicable to WNIC, or any court decree applicable to WNIC, and none of such
actions will result in a breach of or constitute a default under any agreement,
indenture or other instrument known to such counsel to which WNIC is a party or
by which it is bound, and any and all authorizations or approvals of or consents
to the execution and delivery by WNIC of this Agreement, the Closing Agreements
and the Bills of Sale, by any Federal, state or other governmental regulatory
agency at the time having jurisdiction in the premises have been obtained; (v)
to the best of such counsel's knowledge, WNIC is not in default with respect to
any order, writ, injunction, award or decree of any court or any administrative
or other governmental authority or any arbitrator, the effect of which would
have a material adverse effect on WNIC's ability to comply with the terms of
this Agreement, the Closing Agreements and the Bills of Sale; (vi) to the best
of such counsel's knowledge, WNIC is not a party to any action, suit or
proceeding by or before any court, arbitrator or administrative or governmental
body other than (x) as disclosed in Schedule 4.5 or (y) that, if determined
adversely to WNIC, would have a material adverse effect on WNIC's ability to
comply with the terms of this Agreement, the Closing Agreements and the Bills of
Sale; and (vii) to the best of such counsel's knowledge after reasonable
investigation (which shall include an examination of appropriate UCC financing
statements and reports, a review of appropriate corporate records and
discussions with officers and representatives of WNIC), upon the execution and
delivery at Closing of the Bills of Sale, PFS will have good and marketable
title to the Transferred Assets of the Individual/Small Group Business or the
Transferred Assets of the Large Group Business, as applicable, free and clear of
any Lien (other than Liens created by PFS). In rendering such opinion, such
counsel may rely as to factual matters upon certificates of officers or other
appropriate representatives of WNIC and upon certificates of Governmental
Authorities.
(i) Closing Agreements. WNIC shall have executed and delivered to PFS each of
the Closing Agreements required to be executed by WNIC.
(j) Premium Income. As of the First Closing Date, the annualized premium
income of the Individual Health Insurance Business (exclusive of the New Jersey
Business and the reinsurance agreements with Harvest Life Insurance Company and
Federal Home Life Insurance Company) shall be equal to at least 90% of such
annualized premium income as of March 31, 1996.
8.2 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF WNIC TO CLOSE. The obligations
of WNIC under this Agreement are subject to the fulfillment at or before the
First Closing with respect to the Individual/Small Group Business and at or
before the Second Closing with respect to the Large Group Business of each of
the following conditions (all or any of which may be waived in whole or in part
by WNIC):
(a) No Injunction. There shall not be in effect on the First Closing Date or
the Second Closing Date, as applicable, any valid Order of any Governmental
Authority restraining, enjoining, or otherwise preventing consummation of any of
the transactions contemplated by this Agreement.
(b) No Proceeding or Litigation. There shall not be pending or (to the
knowledge of WNIC or PFS) threatened any action, suit, investigation, or other
proceeding in, before, or by any Governmental Authority or other Person to
restrain, enjoin, or otherwise prevent consummation of any of the transactions
contemplated by this Agreement or to recover any Damages (or obtain other
relief) as a result of this Agreement, any Closing Agreement, or any of the
transactions contemplated by this Agreement, which action, suit, investigation,
or other proceeding may, in the reasonable opinion of WNIC, result in a
decision, ruling, or finding that individually or in the aggregate could
reasonably be expected to have a material adverse effect on the validity or
enforceability of this Agreement, on the ability of WNIC to perform its material
obligations under this Agreement or any Closing Agreement, or (at or before the
First Closing or Second Closing, as applicable) on the Business and Condition of
the Health Insurance Business.
(c) HSR Act. The requirements of the HSR Act (and of any applicable state Laws
relating to antitrust notification) shall have been complied with, and the
waiting periods thereunder shall have expired or been terminated.
(d) Consents and Authorizations. All orders, consents, permits,
authorizations, approvals, and waivers of every Person disclosed pursuant to
Section 4.4 hereof or otherwise necessary to permit WNIC to perform its
obligations under this Agreement or any Closing Agreement (including without
limitation requisite action of the insurance Governmental Authority in Illinois)
shall have been obtained and shall be in full force and effect.
(e) Representations and Warranties. All representations and warranties of PFS
contained in this Agreement shall be true as of the First Closing Date or the
Second Closing Date, as applicable, in all material respects as if made on and
as of such Closing Date.
(f) Performance of Agreements. PFS shall have performed or complied with all
obligations that are required to be performed or complied with by PFS pursuant
to the terms of this Agreement on or before the First Closing Date or the Second
Closing Date, as applicable.
(g) Officers' Certificates. PFS shall have delivered to WNIC a certificate,
dated the First Closing Date, or the Second Closing Date, as applicable, in form
and substance satisfactory to WNIC and executed by the officer executing this
Agreement (or by any other officer of PFS whose title is equal or senior to that
of such executing officer), certifying (with respect to PFS) as to the
fulfillment of the conditions set forth in Sections 8.2(a), (c), (e), and (f)
hereof. Such officer's certificate also shall certify (with respect to PFS) as
to the fulfillment or nonfulfillment of the conditions set forth in
Sections 8.1(b) and (d) hereof. In addition, PFS shall have delivered to WNIC a
certificate, dated the First Closing Date or the Second Closing Date, as
applicable, and executed by the Secretary or any Assistant Secretary of PFS,
certifying that PFS has duly and validly taken all corporate action necessary to
authorize PFS's execution and delivery of this Agreement and the Closing
Agreements and PFS's performance of its obligations under this Agreement and the
Closing Agreements, and that the resolutions (true and complete copies of which
shall be attached to the certificate) of the Board of Directors of PFS with
respect to this Agreement and the Closing Agreements, and the transactions
contemplated by this Agreement, have been duly and validly adopted and are in
full force and effect. PFS also shall have delivered to WNIC such certificates
or other documentation from Governmental Authorities as WNIC may reasonably
request as to the matters represented by PFS in Sections 5.1 and 5.3 hereof.
(h) Opinion of Counsel. WNIC shall have received an opinion dated as of the
First Closing Date and, if applicable, the Second Closing Date of the corporate
counsel of PFS to the effect that: (i) PFS is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware;
(ii) PFS has full corporate power and authority to carry on its business
substantially as it is now being conducted and to operate the Health Insurance
Business; (iii) the execution and delivery of the this Agreement, the Closing
Agreements and the Assumption Agreements by PFS, the consummation of the
transactions contemplated hereby and thereby, the compliance with the terms and
conditions hereof and thereof and the performance by PFS of its obligations and
undertakings hereunder and thereunder have been duly and validly authorized by
all necessary corporate action on the part of PFS and constitute the valid and
binding obligations of PFS, enforceable in accordance with their terms, subject
to applicable laws relating to bankruptcy, insolvency, reorganization,
fraudulent conveyance, moratorium or other similar laws affecting creditors'
rights generally and to general principles of equity; (iv) the execution and
delivery of the this Agreement, the Closing Agreements and the Assumption
Agreements by PFS, and the consummation of the transactions contemplated hereby
and thereby do not violate any provisions of the Certificate of Incorporation or
bylaws of PFS or any laws or regulations applicable to PFS, or any court decree
applicable to PFS, and none of such actions will result in a breach of or
constitute a default under any agreement, indenture or other instrument known to
such counsel to which PFS is a party or by which it is bound, and any and all
authorizations or approvals of or consents to the execution and delivery by PFS
of this Agreement, the Closing Agreements and the Assumption Agreements, by any
Federal, state or other governmental regulatory agency at the time having
jurisdiction in the premises have been obtained; (v) to the best of such
counsel's knowledge, PFS is not in default with respect to any order, writ,
injunction, award or decree of any court or any administrative or other
governmental authority or to any arbitrator, the effect of which would have a
material adverse effect on PFS's ability to comply with the terms of this
Agreement, the Closing Agreements and the Assumption Agreements; and (vi) to the
best of such counsel's knowledge, PFS is not a party to any action, such or
proceeding by or before any court, arbitrator or administrative or governmental
body that, if determined adversely to PFS, would have a material adverse effect
on PFS's ability to comply with the terms of this Agreement, the Closing
Agreements and the Assumption Agreements. In rendering such opinion, such
counsel may rely as to factual matters upon certificates of officers or other
appropriate representatives of PFS and upon certificates of Governmental
Authorities.
(i) Closing Agreements. PFS shall have executed and delivered to WNIC each of
the Closing Agreements required to be executed by PFS.
ARTICLE IX
INDEMNIFICATION
9.1 INDEMNIFICATION BY WNIC. Subject to the provisions of this Article IX and
to Section 11.1 hereof, WNIC will indemnify PFS and its Affiliates in respect
of, and hold PFS harmless against, any and all Damages resulting from or
relating to any misrepresentation, breach of warranty, or nonfulfillment of or
failure to perform any covenant or agreement, made by WNIC as a part of or
contained in this Agreement or the officer's certificates delivered by or for
WNIC pursuant to Section 8.1(g) hereof. The indemnification provided under this
Article IX and the indemnification provided under the Reinsurance Agreements and
the Services Agreement will be PFS's exclusive and sole remedies for Damages or
otherwise against WNIC or any of the Affiliates of WNIC.
9.2 INDEMNIFICATION BY PFS. Subject to the provisions of this Article IX and
to Section 11.1 hereof, PFS will indemnify WNIC and its Affiliates in respect
of, and hold WNIC harmless against, any and all Damages resulting from any
misrepresentation, breach of warranty, or nonfulfillment of or failure to
perform any covenant or agreement, made by PFS as a part of or contained in this
Agreement or the officer's certificates delivered by or for PFS pursuant to
Section 8.2(g) hereof. The indemnification provided under this Article IX and
the indemnification provided under the Reinsurance Agreements and the Services
Agreements will be WNIC's exclusive and sole remedies for Damages or otherwise
against PFS or any of the Affiliates of PFS.
9.3 LIMITATIONS. Notwithstanding Section 9.1, there shall be no liability for
indemnification by WNIC hereunder unless the aggregate amount of Damages
incurred by PFS and its Affiliates (net of all offsets) exceeds $500,000 and
then only to the extent of the lesser of such excess or $ 25 million. In
determining the threshold levels of Damages for the purposes of this
Section 9.3, the amount of any such Damages incurred by WNIC shall be offset
against any such Damages incurred by PFS and its Affiliates; provided, however,
that notwithstanding anything contained herein to the contrary, WNIC shall
indemnify PFS and its Affiliates for all Damages arising as a result of or in
connection with:
(a) the nonfulfillment of or failure to perform any covenant or agreement made
by WNIC under this Agreement;
(b) all income, sales use, transfer and other taxes of any kind whatsoever
incurred by WNIC;
(c) any claims or cause of action arising under any applicable Law relating to
pollution or protection of the environment or workplace health and safety;
(d) any Plan;
(e) any claim or cause of action arising prior to the Effective Date under any
Reinsured Policy; and
(f) any Excluded Liability.
9.4 NOTICE AND OPPORTUNITY TO DEFEND. If an Indemnitee becomes aware of a
matter, including an action or proceeding by a third party, that it believes is
indemnifiable pursuant to Section 9.1 or Section 9.2 hereof, the Indemnitee will
give the Indemnifying Party prompt written notice of such matter. Such notice
will be a condition precedent to any liability of the Indemnifying Party
hereunder. Such notice shall set forth in reasonable detail the facts giving
rise to such indemnification, the nature and amount of the Damages sought and,
in the case of an action or proceeding by a third party, a copy of all documents
received by the Indemnitee in connection therewith. The Indemnifying Party will
have a period of 30 days within which to respond to such notice. If the
Indemnifying Party accepts responsibility or does not respond within such 30-day
period, the Indemnifying Party will be obligated to compromise or defend (and
will control the defense of) such matter, at its own expense and by counsel
chosen by the Indemnifying Party and reasonably satisfactory to the Indemnitee.
The Indemnitee will cooperate fully with the Indemnifying Party and counsel for
the Indemnifying Party in the defense against any such asserted liability, and
the Indemnitee will have the right to participate at its own expense in the
defense of any such asserted liability. Once the Indemnifying Party has agreed
to defend, the Indemnifying Party shall not be liable to the Indemnitee for any
fees of other counsel or any other expenses, in each case subsequently incurred
by the Indemnitee in connection with the defense thereof, other than reasonable
costs of investigation; provided, however, that if there exists or is reasonably
believed to exist a conflict of interest or any defense by an Indemnitee that is
in addition to defenses of the Indemnifying Party, that would make it
inappropriate in the judgment of the Indemnitee for the same counsel to
represent both the Indemnitee and the Indemnifying Party, then the Indemnitee
shall be entitled to retain its own counsel, at the expense of the Indemnifying
Party. If the Indemnifying Party does respond within such 30-day period and
rejects responsibility for such matter in whole or in part, the Indemnitee will
be free to pursue, without prejudice to any of the Indemnitee's rights
hereunder, such remedies as may be available to the Indemnitee under applicable
Law. Any compromise or settlement of any asserted liability (whether defended
by the Indemnitee or by the Indemnifying Party) will require the prior written
consent of the Indemnitee and the Indemnifying Party. If, however, the
Indemnitee refuses its consent to a bona fide offer of compromise or settlement
that the Indemnifying Party desires to accept, the Indemnitee may continue to
pursue such matter, free of any participation by the Indemnifying Party, at the
sole expense of the Indemnitee. In such event, the obligation of the
Indemnifying Party to the Indemnitee will be equal to the lesser of (i) the
amount of the offer of compromise or settlement that the Indemnifying Party
desired to accept, plus the reasonable out-of-pocket expenses (except for
expenses resulting from the Indemnitee's participation in any defense controlled
by the Indemnifying Party) incurred by the Indemnitee before the date the
Indemnifying Party notified the Indemnitee of the offer of compromise or
settlement, or (ii) the actual out-of-pocket amount that the Indemnitee is
obligated to pay as a result of such party's continuing to pursue such matter,
minus the reasonable out-of-pocket expenses incurred by the Indemnifying Party
after the date the Indemnifying Party notified the Indemnitee of the offer of
compromise or settlement.
9.5 REDUCTION FOR INSURANCE. The gross amount that an Indemnifying Party is
liable to, for, or on behalf of the Indemnitee pursuant to this Article IX
("Indemnifiable Loss") will be reduced (including without limitation
retroactively) by any insurance, reinsurance, or other proceeds actually
recovered by or on behalf of the Indemnitee related to the Indemnifiable Loss,
and will be further reduced to take account of any tax benefit to the Indemnitee
arising from the Indemnifiable Loss. If an indemnity payment in respect of an
Indemnifiable Loss is made to the Indemnitee, or to a third Person on behalf of
the Indemnitee, and if the Indemnitee subsequently receives (directly or
indirectly) any insurance, reinsurance, or other proceeds or tax benefits in
respect of such Indemnifiable Loss, then the Indemnitee will promptly pay to the
Indemnifying Party the amount of such proceeds and tax benefits or, if less, the
amount of such indemnity payment. The Indemnitee will use all commercially
reasonable efforts, and will proceed diligently and in good faith, to recover
such insurance, reinsurance, and other proceeds related to the Indemnifiable
Loss as may be due to the Indemnitee from any third Person and to realize such
tax benefits in respect of the Indemnifiable Loss as may be due to the
Indemnitee under applicable Laws.
ARTICLE X
TERMINATION
10.1 TERMINATION. This Agreement may be terminated, and the transactions
contemplated hereby may be abandoned, upon notice by the terminating party to
the other party:
(a) at any time before the Second Closing Date, by mutual written agreement of
WNIC and PFS; or
(b) by either party, in the event of a material breach by the other party of
any representation, warranty, covenant or agreement contained herein, which
breach shall not be cured within ten (10) days of written notice thereof; or
(c) by WNIC if the conditions set forth in Section 8.2 have not been satisfied
on or prior to (i) the First Closing Date with respect to the Individual/Small
Group Business and (ii) the Second Closing Date with respect to the Large Group
Business; or
(d) by PFS if the conditions set forth in Section 8.1 have not been satisfied
on or prior to (i) the First Closing Date with respect to the Individual/Small
Group Business and (ii) the Second Closing Date with respect to the Large Group
Business; or
(e) by either PFS or WNIC at any time after September 30, 1996, if the
transactions contemplated by this Agreement have not been consummated on or
before such date; provided, however, that the right to terminate this Agreement
under this Section 10.1(e) shall not be available to any party whose failure to
fulfill any obligation under this Agreement or whose material breach of any
representation, warranty, covenant or agreement under this Agreement has been
the cause of, or resulted in, the failure of the transactions to have occurred
on or before such date; or
(f) by WNIC (i) if WNIC receives an Acquisition Proposal from a third party,
and (ii) the Board of Directors of WNIC concludes in good faith that the failure
to accept such Acquisition Proposal would violate the Board's fiduciary
obligations to WNIC or its stockholders under applicable Law. In such event,
WNIC shall pay PFS $1.5 million in liquidated damages within sixty (60) days of
such termination.
10.2 EFFECT OF TERMINATION. If this Agreement is validly terminated pursuant to
Section 10.1 hereof, this Agreement will forthwith become null and void, and,
except as provided in Section 10.1(f), there will be no liability on the part of
WNIC or PFS, provided that termination pursuant to Section 10.1(b) above shall
not relieve the non-terminating party of any liability for misrepresentation or
breach of any representation, warranty, covenant or agreement.
ARTICLE XI
MISCELLANEOUS
11.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations,
warranties and covenants made by WNIC and PFS in this Agreement and in any
Schedule, certificate or other instrument furnished hereunder shall not be
deemed waived or otherwise affected by any investigation made by any party
hereto. Such representations and warranties shall survive the consummation of
the transactions contemplated hereby and shall continue until 18 months from the
Closing Date, provided that the representations and warranties of WNIC contained
in Sections 4.1, 4.2, 4.3(b), 4.10, 4.11 and 4.18 shall survive for a period of
three (3) years from the First Closing Date. In all cases, written notice must
be duly given in accordance with Section 9.4 hereof within the applicable
survival period. The rights of the parties to enforce the covenants under this
Agreement shall survive until the expiration of the terms specified therein.
Notwithstanding anything in this Section 11.1 to the contrary, the rights of the
parties under Article IX shall survive for a period of three (3) years from the
First Closing Date.
11.2 DISCLOSURE SCHEDULE. Concurrently with the execution of this agreement,
WNIC shall deliver the Disclosure Schedule to PFS.
11.3 BROKERS. WNIC will indemnify PFS against, and hold PFS harmless from, any
claim or demand for commission or other compensation by any broker, finder, or
similar agent (whether or not a present or former employee or agent of WNIC),
including without limitation Morgan Stanley & Co., Incorporated claiming to have
been engaged by WNIC in connection with the transactions contemplated by this
Agreement, and WNIC will bear the cost of the reasonable legal expenses incurred
by PFS in defending against any such claim. PFS will indemnify WNIC against,
and hold WNIC harmless from, any claim or demand for commission or other
compensation by any broker, finder, or similar agent (whether or not a present
or former employee or agent of PFS), claiming to have been engaged by PFS in
connection with the transactions contemplated by this Agreement, and PFS will
bear the cost of the reasonable legal expenses incurred by WNIC in defending
against any such claim.
11.4 TAXES AND EXPENSES. Notwithstanding anything herein to the contrary, each
of WNIC and PFS shall be responsible for the payment of its own federal, state
and local income taxes, and WNIC shall be responsible for the payment of any
sales or use taxes applicable to the transactions contemplated by this
Agreement. Except as specifically provided in this Agreement, each of WNIC and
PFS will pay its own expenses respectively incurred or to be incurred by it in
negotiating this Agreement or any Closing Agreement, in performing its
obligations under this Agreement or any Closing Agreement, or in consummating
the transactions contemplated by this Agreement.
11.5 NOTICES. Any notice or communication given pursuant to this Agreement must
be in writing and will be deemed to have been duly given if mailed (by
registered or certified mail, postage prepaid, return receipt requested), or if
transmitted by facsimile, or if delivered by courier, as follows:
(a) If to WNIC:
Washington National Insurance Company
300 Tower Parkway
Lincolnshire, IL 60069
Attention: Thomas Pontarelli
Executive Vice President
(847) 793-3331
(847) 793-3511 (facsimile)
Copy to:
Schiff Hardin & Waite
7200 Sears Tower
Chicago, IL 60606
Attention: Stuart L. Goodman
(312) 876-1000
(312) 258-5600 (facsimile)
(b) If to PFS:
Pioneer Financial Services, Inc.
1750 East Golf Road
Schaumburg, IL 60173
Attention: Mark S. Fischer
Executive Vice President
(847) 413-7048
(847) 413-7095 (facsimile)
Copy to:
Pioneer Financial Services, Inc.
1750 East Golf Road
Schaumburg, IL 60173
Attention: Billy B. Hill, Jr.
General Counsel
(847) 413-7077
(847) 413-7073 (facsimile)
All notices and other communications required or permitted under this Agreement
that are addressed as provided in this Section 11.5 will, whether sent by mail,
facsimile, or courier, be deemed given upon the first Business Day after actual
delivery to the party to whom such notice or other communication is sent (as
evidenced by the return receipt or shipping invoice signed by a representative
of such party or by the facsimile confirmation). Any party from time to time
may change its address for the purpose of notices to that party by giving a
similar notice specifying a new address, but no such notice will be deemed to
have been given until it is actually received by the party sought to be charged
with the contents thereof.
11.6 ENTIRE AGREEMENT. This Agreement, together with the Closing Agreements and
the Confidentiality Agreement, constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof and supersedes all
prior communications, agreements (other than the Confidentiality Agreement),
understandings, representations, and warranties whether oral or written, between
the parties hereto, including without limitation any financial or other
projections, valuations, or predictions regarding the Health Insurance Business.
There are no oral or written agreements, understandings, representations, or
warranties between the parties hereto with respect to the subject matter hereof
other than those set forth in this Agreement, the Closing Agreements, or the
Confidentiality Agreement.
11.7 ASSIGNMENT AND AMENDMENT OF AGREEMENT. This Agreement will be binding upon
the parties hereto and their respective successors and assigns and (solely as to
Section 7.3 hereof) upon any other Person having possession of any item
specified in Section 7.3(a) hereof. Neither this Agreement, nor any part
hereof, nor any right or obligation hereunder may be assigned by WNIC or PFS
without the prior written consent of the other party hereto, except that prior
to the First Closing Date, PFS may assign this Agreement or all or part of its
rights and obligations hereunder, to one or more of the following insurance
subsidiaries: Pioneer Life Insurance Company, National Group Life Insurance
Company, Manhattan National Life Insurance Company, Connecticut National Life
Insurance Company, Continental Life & Accident Company and Universal Fidelity
Life Insurance Company, with any such assignee to be a Designee for purposes of
this Agreement. If this Agreement or the rights and obligations hereunder are
assigned, the terms and conditions of this Agreement will be binding upon and
will inure to the benefit of the parties hereto and their respective assigns;
provided, however, that (a) no such assignment of this Agreement, or any part
hereof, or any of the rights or obligations hereunder will relieve the assignor
of its obligations under this Agreement and (b) in the case of PFS's assignment
to one or more Designees, all representations, warranties and covenants made by,
or other references to, PFS hereunder shall be deemed to be the representations,
warranties and covenants of, and references to, such Designee (to the extent
such rights and obligations are assigned to such Designee), with such changes as
may be necessary or appropriate to reflect that Designee is an Illinois
insurance corporation.
11.8 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the Laws of the State of Illinois (without regard to the
principles of conflicts of law) applicable to a contract executed and to be
performed in such state.
11.9 FAILURE TO CLOSE. If for any reason this Agreement is terminated before
the First or Second Closing, PFS will promptly return to WNIC all books,
records, information, data, and other documents (including without limitation
all originals and all copies thereof) theretofore delivered (by WNIC or any
representatives of WNIC) to PFS or any representatives of PFS.
11.10 COOPERATION. From time to time after the First Closing Date, upon the
reasonable request of WNIC or PFS, the other party hereto shall cooperate with
such requesting party to effect the orderly transition of the business,
operations, and affairs of the Health Insurance Business.
11.11 NO THIRD PARTY RIGHTS. This Agreement is not intended and may not be
construed to create any rights in any parties other than WNIC, PFS, and their
respective successors and assigns as permitted by Section 11.7 hereof or as
required by applicable Law, and no Person may assert any rights as third party
beneficiary hereunder.
11.12 INCORPORATION OF EXHIBITS. The Exhibits and Schedules attached hereto
are hereby incorporated into this Agreement and will be deemed a part hereof as
if set forth herein in full. In the event of any conflict between the
provisions of this Agreement and any such Exhibit or Schedule, the provisions of
this Agreement will control.
11.13 HEADINGS AND GENDER. The headings used in this Agreement have been
inserted for convenience and do not constitute matter to be construed or
interpreted in connection with this Agreement. Unless the context of this
Agreement otherwise requires, (a) words of any gender will be deemed to include
each other gender, (b) words using the singular or plural number also will
include the plural or singular number, respectively, (c) the terms "hereof,"
"herein," "hereby," "hereunder," "hereto," and derivative or similar words will
refer to this entire Agreement, (d) the terms "Article" or "Section" will refer
to the specified Article or Section of this Agreement, (e) the term "in the
ordinary course of business" will mean in the ordinary course of business and
consistent with past practices of the Health Insurance Business, and (f) the
conjunction "or" will denote any one or more, or any combination or all, of the
specified items or matters involved in the applicable list.
11.14 WAIVER AND REMEDIES. Any term or condition of this Agreement may be
waived at any time by the party that is entitled to the benefit thereof. Any
such waiver must be in writing and must be executed by the officer executing
this Agreement on behalf of such party (or by any other officer of such party
whose title is equal or senior to that of the executing officer). A waiver on
one occasion will not be deemed to be a waiver of the same or any other breach
on a future occasion. All remedies, either under this Agreement, or by Law or
otherwise afforded, will be cumulative and not alternative.
11.15 INVALID PROVISIONS. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable under any present or future Law, and if the
rights or obligations of WNIC or PFS under this Agreement will not be materially
and adversely affected thereby, (a) such provision will be fully severable, (b)
this Agreement will be construed and enforced as if such illegal, invalid, or
unenforceable provision had never comprised a part hereof, (c) the remaining
provisions of this Agreement will remain in full force and effect and will not
be affected by the illegal, invalid, or unenforceable provision or by its
severance herefrom, and (d) in lieu of such illegal, invalid, or unenforceable
provision, there will be added automatically as a part of this Agreement a
legal, valid, and enforceable provision as similar in terms to such illegal,
invalid, or unenforceable provision as may be possible.
11.16 COUNTERPARTS. This Agreement may be executed simultaneously in two or
more counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
IN WITNESS WHEREOF, WNIC and PFS have duly executed and delivered this
Agreement as of this 31st day of May, 1996.
WASHINGTON NATIONAL INSURANCE COMPANY
BY:
NAME:
TITLE:
PIONEER FINANCIAL SERVICES, INC.
BY:
NAME:
TITLE:
EXHIBITS
Exhibit A Definitions
Exhibit B Assets and Properties of the Health Insurance Business To Be
Transferred to PFS
Exhibit C Assets and Properties of the Health Insurance Business to be
Retained by WNIC
Exhibit D Liabilities and Obligations of the Health Insurance Business to
Be Assumed by PFS
Exhibit E Liabilities and Obligations of the Health Insurance Business to
Be Retained by WNIC
Exhibit F Individual/Small Group Reinsurance Agreement
Exhibit G Closing Statement for the Individual/Small Group Business
Exhibit H Closing Balance Sheet
Exhibit I Large Group Reinsurance Agreement
Exhibit J Closing Statement for the Large Group Business
EXHIBIT A
DEFINITIONS
"ACQUISITION PROPOSAL" shall have the meaning set forth in Section 7.10 of this
Agreement.
"AFFILIATE" shall mean any Person that directly, or indirectly through one or
more intermediaries, controls or is controlled by or is under common control
with the Person specified.
"AGREEMENT" shall mean this Purchase Agreement, together with the Exhibits
attached hereto and the Disclosure Schedule.
"ANNUAL STATEMENT" shall mean any annual statement of WNIC filed with or
submitted to the insurance regulatory authority in Illinois on forms prescribed
or permitted by such authority.
"ASSETS AND PROPERTIES OF THE HEALTH INSURANCE BUSINESS" shall mean all assets,
properties, rights and interests of WNIC of every kind, nature, character, and
description (whether real, personal, or mixed, whether tangible or intangible,
whether absolute, accrued, contingent, fixed, or otherwise, and wherever
situated) owned or leased by WNIC at the Closing Date and used exclusively or
required for use in connection with the conduct of the Health Insurance Business
as it is currently being conducted by WNIC (excluding the Excluded Assets),
including but not limited to, those assets and properties described on Exhibit B
hereto.
"ASSETS AND PROPERTIES OF THE INDIVIDUAL/SMALL GROUP BUSINESS" shall mean the
Assets and Properties of the Health Insurance Business used exclusively or
required for use in connection with the conduct of the Individual Health
Business and the Small Group Business as it is currently being conducted by WNIC
(excluding the Excluded Assets), including but not limited to those assets and
properties identified on Exhibit B under the heading "Assets and Properties of
the Individual/Small Group Business."
"ASSETS AND PROPERTIES OF THE LARGE GROUP BUSINESS" shall mean the Assets and
Properties of the Health Insurance Business used exclusively or required for use
in connection with the conduct of the Large Group Business as it is currently
being conducted by WNIC (excluding the Assets and Properties of the
Individual/Small Group Business and the Excluded Assets), including but not
limited to those assets and properties identified on Exhibit B under the heading
"Assets and Properties of the Large Group Business."
"ASSIGNMENT AGREEMENTS" shall mean the separate agreements pursuant to which
WNIC assigns its reinsurance agreements with each of National Casualty Company,
Harvest Life Insurance Company and Federal Home Life Insurance Company.
"ASSUMED CONTRACTS" shall mean those Material Contracts (i) listed on Schedule
4.12 marked with an asterisk and identified as an Assumed Contract, or (ii)
designated in writing by PFS in writing on or before June 30, 1996 as an Assumed
Contract.
"ASSUMED LIABILITIES" shall mean the "Assumed Liabilities of the
Individual/Small Group Business" and the "Assumed Liabilities of the Large Group
Business," as identified on Exhibit D hereto; provided, however, that the
Assumed Liabilities shall not include the Assumed Liabilities of the Large Group
Business unless the Assumed Liabilities of the Large Group Business are assumed
by PFS pursuant to Section 3.3.
"ASSUMED LIABILITIES OF THE INDIVIDUAL/SMALL GROUP BUSINESS" shall have the
meaning set forth in Section 2.2(a) and are identified on Exhibit D under the
heading "Assumed Liabilities of the Individual/Small Group Business."
"ASSUMED LIABILITIES OF THE LARGE GROUP BUSINESS" shall have the meaning set
forth in Section 3.3(a) and are identified on Exhibit D under the heading
"Assumed Liabilities of the Large Group Business."
"ASSUMPTION AGREEMENT" shall mean the instrument of assumption and such other
documents as WNIC or its counsel may reasonably deem necessary or desirable to
transfer the Assumed Liabilities to PFS.
"BILLS OF SALE" shall mean the bills of sale and such other documents and
instruments of sale, assignment, conveyance and transfer as PFS or its counsel
may reasonably deem necessary or desirable to sell assign, convey and transfer
to and vest, perfect and confirm in PFS all right, title and interest in and to
the Transferred Assets.
"BUSINESS DAY" shall mean a day other than Saturday, Sunday, or any day on which
the principal commercial banks located in Chicago, Illinois, are authorized or
obligated to close under the Laws of Illinois.
"BUSINESS AND CONDITION" shall mean the business, financial condition, and
results of operations of the Health Insurance Business considered as a whole.
"CEDING COMMISSION" shall have the meaning set forth in Section 2.3 of this
Agreement.
"CLOSING AGREEMENTS" shall mean the Assignment Agreements, the Reinsurance
Agreements, the Services and Facilities Agreements and the Evanston Lease.
"CLOSING AGREEMENTS FOR THE INDIVIDUAL/SMALL GROUP BUSINESS" shall mean the
Assignment Agreements, the Individual/Small Group Reinsurance Agreement, the two
Services and Facilities Agreements relating thereto, and the Evanston Lease.
"CLOSING AGREEMENTS FOR THE LARGE GROUP BUSINESS" shall mean the Large Group
Reinsurance Agreement and the two Services and Facilities Agreements relating
thereto.
"CLOSING BALANCE SHEET" shall mean the unaudited SAP and GAAP balance sheet
relating to the Health Insurance Business (exclusive of any allocation of
capital and surplus and exclusive of any invested assets) as of the end of the
second month prior to the month in which the First Closing Date is deemed
effective.
"CLOSING STATEMENTS" shall mean the Closing Statement for the Individual/Small
Group Business and the Closing Statement for the Large Group Business.
"CLOSING STATEMENT FOR THE INDIVIDUAL/SMALL GROUP BUSINESS" shall mean the
estimated statement of assets and liabilities of the Individual/Small Group
Business to be transferred to PFS (in the form of Exhibit G attached hereto), as
of the First Closing Date, prepared by WNIC and delivered to PFS at least five
(5) Business Days prior to the First Closing Date, using SAP in a manner
consistent with such Closing Balance Sheet (except as otherwise noted on the
Closing Statement).
"CLOSING STATEMENT FOR THE LARGE GROUP BUSINESS" shall mean the estimated
statement of assets and liabilities of the Large Group Business to be
transferred to PFS (in the form of Exhibit J attached hereto), as of the Second
Closing Date, prepared by WNIC and delivered to PFS at least five (5) Business
Days prior to the Second Closing Date, using SAP in a manner consistent with the
Closing Balance Sheet (except as otherwise noted on such Closing Statement).
"CODE" shall mean the Internal Revenue Code of 1986, as amended, and the rules
and regulations promulgated thereunder.
"CONFIDENTIALITY AGREEMENT" shall mean the letter confidentiality agreement
dated March 1, 1996 between WNIC and PFS.
"DAMAGES" shall mean any and all monetary damages, liabilities, fines, fees,
penalties, interest obligations, deficiencies, losses, costs and expenses,
including without limitation punitive treble, or other exemplary or
extracontractual damages, interest, court costs, fees and expenses of attorneys,
accountants, actuaries, and other experts, and other expenses of litigation or
of any claim, demand, suit, action, liability, loss, damage or expense.
"DESIGNEE" shall have the meaning set forth in the second WHEREAS clause to this
Agreement.
"DISCLOSURE SCHEDULE" shall mean the schedule dated the date of this Agreement
and initialled by a representative of each party, furnished by WNIC to PFS and
containing all schedules, documents, lists, descriptions, exceptions, and other
information and materials as are required to be included therein pursuant to
this Agreement.
"EMPLOYEE(S)" shall have the meaning set forth in Section 4.22.
"EVANSTON LEASE" shall mean the real property lease between PFS and WNIC
relating to that portion of the property located at 1603 Orrington, Evanston,
Illinois currently used by the Individual Health Business in form and substance
reasonably satisfactory to the parties.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder.
"EXCLUDED ASSETS" shall have the meaning set forth in Section 2.1(b) and are set
forth in Exhibit C.
"EXCLUDED LIABILITIES" shall have the meaning set forth in Section 2.2(b) and
are set forth on Exhibit E.
"FINANCIAL STATEMENTS" shall have the meaning set forth in Section 4.9.
"FIRST CLOSING" shall mean the closing of the transactions contemplated by this
Agreement with respect to the Individual/Small Group Business, as provided in
Section 2.7 of this Agreement.
"FIRST CLOSING DATE" shall mean the later of (i) the last Business Day of the
month in which the last of the orders, consents, permits, authorizations,
approvals, and waivers of Governmental Authorities described in Sections 8.1(c),
8.1(d), 8.2(c), and 8.2(d) of this Agreement has been obtained, including
without limitation the approvals under all applicable insurance Laws and the
expiration of the waiting periods under the HSR Act (and applicable state Laws
relating to antitrust notification), and in such case the First Closing shall be
deemed to have taken place as of, and all references to the First Closing Date
shall be deemed to be references to, the last calendar day of such month, or
(ii) the fifth Business Day after the receipt of the last of such orders,
consents, permits, authorizations, approvals and waivers, and in such case the
First Closing shall be deemed to have taken place as of, and all references to
the First Closing Date shall be deemed to be references to, the last calendar
day of the month prior to the First Closing Date.
"FIRST EFFECTIVE DATE" shall mean the "Effective Date" as defined in the
Individual/Small Group Reinsurance Agreement.
"GAAP" shall mean United States generally accepted accounting principles.
"GOVERNMENTAL AUTHORITY" shall mean any court, tribunal government, or other
governmental or regulatory agency, department, commission, arbitrator, board,
bureau, instrumentality, or authority, whether federal, foreign, state, or
local.
"GROUP HEALTH BUSINESS" shall mean the issuance policies recorded as group
business on WNIC's books and records, whether group life or group accidental
health, except for those group policies included in the Individual Health
Business.
"HEALTH INSURANCE BUSINESS" shall mean the individual health and group life and
health insurance business conducted by WNIC, including without limitation all
Assets and Properties of the Health Insurance Business and all risks,
liabilities, and obligations of WNIC assumed or transferred pursuant to this
Agreement or the applicable Closing Agreements.
"HSR ACT" shall mean Section 7A of the Clayton Act (Title II of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976), as amended, and the rules
and regulations promulgated thereunder.
"INCURRED DATE" is the date on which a claim arises under the terms of the
applicable insurance policy.
"INDEMNIFIABLE LOSS" shall have the meaning ascribed to it in Section 9.5 of
this Agreement.
"INDEMNIFYING PARTY" shall mean the Person against whom claims of
indemnification are being asserted under Section 9.1 or Section 9.2 of this
Agreement.
"INDEMNITEE" shall mean the Person claiming indemnification under Section 9.1 or
Section 9.2 of this Agreement.
"INDIVIDUAL HEALTH BUSINESS" shall mean the insurance policies recorded as
individual health business on WNIC's books and records, whether written on group
or individual policy forms. This will include business reinsured from others,
including but not limited to Harvest, Home Federal, and National Casualty
Company.
"INDIVIDUAL/SMALL GROUP BUSINESS" shall mean the Individual Health Business and
the Small Group Business.
"INTELLECTUAL PROPERTY" shall mean all patents, trademarks, trade names, service
marks, copyrights, trade secrets, registrations and applications therefor.
"LARGE GROUP BUSINESS" shall mean the Health Insurance Business, exclusive of
the Individual Health Business and the Small Group Business.
"LAWS" shall mean all laws, statutes, ordinances, regulations, and other
pronouncements having the effect of law of the United States, any foreign
country or any domestic or foreign state, province, commonwealth, city, county,
municipality, territory, protectorate, possession, court, tribunal, agency,
government, department, commission, arbitrator, board, bureau, or
instrumentality thereof.
"LIEN" shall mean any mortgage, pledge, assessment, security interest, lease,
sublease, lien, adverse claim, levy, charge, or other encumbrance of any kind,
or any conditional sale contract, title retention contract, or other contract to
give or to refrain from giving any of the foregoing.
"MATERIAL CONTRACT" shall mean (i) each lease, contract, agreement, commitment,
or arrangement, whether oral or written, that relates to the Health Insurance
Business and to which WNIC is a party or by which any of the Assets and
Properties of the Health Insurance Business is bound, in each case involving the
provision of services worth, or the payment or potential payment of, more than
$100,000, (ii) each employment, severance, bonus, consulting or indemnification
agreement, arrangement, understanding, plan or policy between WNIC and any
Employee, and (iii) any other contract which WNIC reasonably believes in good
faith to be material to the operation of the Health Insurance Business as it is
currently being conducted, except that "Material Contract" specifically
excludes all contracts, agreements, commitments and arrangements by and between
WNIC and any agent or broker relating to the sale of insurance entered into in
the normal course of business on WNIC's standard form of agreement for such
relationships.
"NEW JERSEY BUSINESS" shall mean the business recorded as Individual Health
Business on WNIC's books and records, which are written on New Jersey mandated
policy forms A-E.
"ORDER" shall mean any judgment, writ, order, injunction, or decree of any
Governmental Authority.
"PERSON" shall mean any natural person, corporation, general partnership,
limited partnership, proprietorship, trust, union, association, Governmental
Authority, or other entity, enterprise, authority, or business organization.
"PLAN" shall mean any employee benefit plan as defined in Section 4.13(a).
"PURCHASE PRICE" shall mean the purchase price for the Individual/Small Group
Business as set forth in Section 2.7(a) of this Agreement.
"RECALCULATED TRANSFER AMOUNT FOR THE INDIVIDUAL/SMALL GROUP BUSINESS" shall
mean an amount calculated by WNIC in the same manner as the Transfer Amount for
the Individual/Small Group Business, but as of the end of the month in which the
First Closing Date is deemed effective.
"RECALCULATED TRANSFER AMOUNT FOR THE LARGE GROUP BUSINESS" shall mean an amount
calculated in the same manner as the Transfer Amount for the Large Group
Business, but as of the end of the month in which the Second Closing Date
occurs.
"REINSURANCE AGREEMENTS" shall mean (i) the Individual/Small Group Reinsurance
Agreement, together with the attachments thereto, to be executed and delivered
by WNIC and PFS at the First Closing, in substantially the form attached as
Exhibit F to this Agreement, and (ii) the Large Group Reinsurance Agreement,
together with the attachments thereto, to be executed by WNIC and PFS at the
Second Closing, in substantially the form attached as Exhibit K to this
Agreement.
"REINSURED POLICIES" shall mean the policies, certificates, and binders of
individual and group life and health insurance that are reinsured or assigned
pursuant to the Individual/Small Group Reinsurance Agreement, the Large Group
Reinsurance Agreement, and the Assignment Agreements with respect to the
National Casualty Company, Harvest Life Insurance Company and Federal Home Life
Insurance Company Reinsurance Agreements.
"RETAINED EMPLOYEE(S)" shall have the meaning set forth in Section 7.7(a).
"SAP" shall mean the accounting practices required or permitted by the insurance
regulatory authority in Illinois.
"SECOND CLOSING" shall mean the closing of the transactions contemplated by this
Agreement with respect to the Large Group Business, as provided in Section 3.7
of this Agreement.
"SECOND CLOSING DATE" shall mean September 30, 1996.
"SECOND EFFECTIVE DATE" shall mean the "Effective Date" as defined in the Large
Group Reinsurance Agreement.
"SERVICES AGREEMENTS" shall mean (i) the Interim Services and Facilities
Agreement relating to the Reinsured Policies under the Individual/Small Group
Reinsurance Agreement, together with the attachments thereto, to be executed and
delivered by WNIC and PFS at the First Closing, (ii) the Interim Services and
Facilities Agreement relating to the Reinsured Policies under the Large Group
Reinsurance Agreement, together with the attachments thereto, to be executed and
delivered by WNIC and PFS at the Second Closing, (iii) the Services and
Facilities Agreement relating to the Reinsured Policies under the
Individual/Small Group Reinsurance Agreement, together with the attachments
thereto, to be executed and delivered by WNIC and PFS at the First Closing, and
(iv) the Services and Facilities Agreement relating to the Reinsured Policies
under the Large Group Reinsurance Agreement, together with the attachments
thereto, to be executed and delivered by WNIC and PFS at the Second Closing.
"SMALL GROUP BUSINESS" shall mean the policies coded as group policies on WNIC's
books and records meeting the following criteria:
All business issued and administered by Key Benefit Administrators of
Indianapolis, or by Gettysburg Insurance Services, Inc. of Gettysburg,
Pennsylvania.
Business in experience rating classes 1, 3 or 7 (business of under 100
lives, whether refund or non-refund).
"TRANSFER AMOUNT FOR THE INDIVIDUAL/SMALL GROUP BUSINESS" shall be the net
amount calculated by WNIC by offsetting the assets and liabilities of the
Individual/Small Group Business set forth on the Closing Statement for the
Individual/Small Group Business prepared by WNIC as of the end of the second
month prior to the month in which the First Closing Date is deemed effective.
"TRANSFER AMOUNT FOR THE LARGE GROUP BUSINESS" shall be the net amount
calculated by WNIC by offsetting the assets and liabilities of the Large Group
Business set forth on the Closing Statement for the Large Group Business
prepared by WNIC as of the end of the second month prior to the month in which
the Second Closing Date occurs.
"TRANSFERRED ASSETS" shall mean the Transferred Assets of the Individual/Small
Group Business and the Transferred Assets of the Large Group Business.
"TRANSFERRED ASSETS OF THE INDIVIDUAL/SMALL GROUP BUSINESS" shall have the
meaning set forth in Section 2.1(a).
"TRANSFERRED ASSETS OF THE LARGE GROUP BUSINESS" shall have the meaning set
forth in Section 3.2(a).
INDIVIDUAL/SMALL GROUP REINSURANCE AGREEMENT
This Individual/Small Group Reinsurance Agreement (the "Reinsurance Agreement")
is made and entered into by and between Washington National Insurance Company,
an Illinois insurance corporation ("WNIC"), and Pioneer Life Insurance Company,
an Illinois insurance corporation ("Reinsurer"). Capitalized terms not defined
herein shall have the meaning set forth in the Agreement (as defined below).
WHEREAS, WNIC and Reinsurer have entered into an Agreement dated May 31, 1996
(the "Agreement") providing for the sale and transfer to Reinsurer of the
assets, properties, liabilities, and obligations of the Health Insurance
Business of WNIC, as more fully set forth and defined in the Agreement; and
WHEREAS, pursuant to the terms of the Agreement, Reinsurer has agreed to enter
into this Reinsurance Agreement with WNIC;
NOW, THEREFORE, for and in consideration of the mutual promises set forth in the
Agreement and in this Reinsurance Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
WNIC and Reinsurer hereby agree as follows:
ARTICLE I
REINSURANCE COVERAGE
Subject to receipt of all necessary regulatory approvals of this Reinsurance
Agreement, and effective as of 12:01 a.m. (local time of the policyholder) on
the first day of the month following the First Closing Date (the "Effective
Date"), WNIC cedes to Reinsurer and Reinsurer hereby reinsures one hundred
percent (100%) of all liabilities and obligations of WNIC, to the extent such
liabilities and obligations were incurred on or after the Effective Date and to
the extent such liabilities are not reinsured under any other ancillary
reinsurance agreement or agreements relating to the Health Insurance Business
(listed on Schedule 4.12 initially and any other ancillary reinsurance agreement
entered into thereafter relating to the Reinsured Policies (as hereafter
defined)), including, but not limited to, indemnity payments, premium refunds,
commissions, unearned premiums, taxes and assessments and expenses of
administration, under or with respect to all individual health, disability
income and life insurance policies, certificates, forms, riders and binders of
insurance set forth on Attachment 1 hereto (hereinafter referred to as the
"Reinsured Policies"), that (a) are in force as of the Effective Date, (b) are
no longer in force as of the Effective Date, but are reinstated after the
Effective Date in the normal course of business, or (c) are issued or entered
into within 180 days following the Effective Date.
WNIC shall furnish Reinsurer with a specimen copy of each of the Reinsured
Policies and a list of the gross premiums charged for each of the Reinsured
Policies. Except as otherwise provided in Article IV, WNIC shall not make any
changes which alter the risk or coverage provided, the gross premiums charged,
or other reinsurance on the Reinsured Policies without prior written consent of
Reinsurer.
The amount of reinsurance under this Reinsurance Agreement on each risk shall be
maintained in force without reduction except as provided in the policy,
certificate, form, rider or binder on which the risk is written.
ARTICLE II
COMPUTATION OF REINSURANCE
PREMIUMS AND CEDING COMMISSIONS
The reinsurance premium to be paid to Reinsurer for the Reinsured Policies shall
be the Recalculated Transfer Amount for the Individual/Small Group Business. On
the First Closing Date, the reinsurance premium to be paid to Reinsurer shall be
the Transfer Amount for the Individual/Small Group Business, which amount shall
be adjusted following such Closing Date pursuant to Section 2.8 of the Agreement
to result in the Recalculated Transfer Amount for the Individual/Small Group
Business. The reinsurance premium to be paid to Reinsurer for periods following
the Effective Date shall be (a) with respect to those Reinsured Policies that
are recorded as Individual Health Business, an amount equal to 100% of the gross
premiums collected from and after the Effective Date, less amounts recorded as
an account receivable on WNIC's books and records as of the Effective Date, and
(b) with respect to those Reinsured Policies that are recorded as Small Group
Business, an amount equal to 100% of the gross premiums collected from and after
the Effective Date, except for that part of such premiums that is earned prior
to the Effective Date.
Reinsurer will allow WNIC, with respect to the Reinsured Policies, a ceding
commission of $18 million.
Reinsurer shall pay all premiums for the other ancillary reinsurance agreement
or agreements relating to the Reinsured Policies referred to in Article I, and
shall reimburse WNIC for all premium refunds, commissions, taxes, assessments
and expenses of administration from and after the Effective Date with respect to
the Reinsured Policies. Reinsurer shall remit to WNIC any and all such amounts
by wire transfer no later than twelve (12) days following the end of the month
in which such amounts were paid by WNIC.
ARTICLE III
NEW JERSEY POLICIES: PROFITS AND LOSSES
Commencing on the Effective Date, Reinsurer shall be entitled to receive one
hundred percent (100%) of the Profit and, for a period of two (2) years
following the Effective Date, WNIC shall be obligated to reimburse Reinsurer for
100% of the Losses relating to those Reinsured Policies which are set forth on
Attachment 2 hereto (hereinafter referred to as the "New Jersey Policies").
Unless the parties otherwise agree in writing, the terms Profit and Losses for
purposes of this Reinsurance Agreement shall be calculated using the amount
obtained from Line 29, Summary of Operations, of the 1995 NAIC Statutory Annual
Statement blank for each Accounting Period (as defined below) (the "Statement")
based upon completed Lines 1 through 29, prepared in accordance with the
practices prescribed for completing the 1995 Statement in the State of Illinois,
except as follows:
1. The Statement shall be completed with respect to the New
Jersey Policies solely to the extent such Policies are
reinsured pursuant to the terms of this Reinsurance
Agreement. Accordingly, to the extent liabilities and
obligations relating to the New Jersey Policies are not so
reinsured, such liabilities and obligations shall not be
included in the Statement.
2. The Statement also shall include the New Jersey policies
under the National Casualty Assignment Agreement between
WNIC and Reinsurer and the Reinsured Policies, if any,
subsequently reinsured pursuant to the Individual/Small
Group Assumption Reinsurance Agreement attached hereto as
Attachment 3.
3. The Statement for the first Accounting Period shall include
beginning reserves as reflected in the Transfer Amount for
the Individual/Small Group Business. The Statement for each
subsequent Accounting Period shall include beginning
reserves as reflected in the Recalculated Transfer Amount
for the Individual/Small Group Business and as determined in
accordance with Exhibit G to the Agreement.
4. Line 6 of the Statement, investment income, shall be
calculated at the rate of 1.5% per quarter (prorated in the
cases of first and last Accounting Periods to reflect that
portion of a quarter the first and last Accounting Periods
actually cover) of the mean of the beginning and ending
reserves for the New Jersey Policies required to be reported
in Exhibits 9 and 11 of the Statement for each Accounting
Period.
5. Administrative expenses included in Line 22 of the
Statement, general insurance expenses, shall be the sum of
7.5% of incurred claims (line 11 of the Statement), actual
managed care expenses (which are not to be duplicated
elsewhere in the Statement) and $2 times the number of
policies in force at the end of each month.
6. Line 23 of the Statement, taxes, licenses and fees, shall be
calculated as 2.1% of paid premium relating to the New
Jersey Policies, plus actual New Jersey risk pool
assessments, less actual New Jersey risk pool reimbursement.
The first Accounting Period shall begin on the Effective Date after giving
effect to the transactions contemplated by the Agreement and this Reinsurance
Agreement, and continue through the first March, June, September or December
month end to occur after the Effective Date. Each subsequent Accounting Period
shall begin on the Effective Date after giving effect to the transactions
contemplated by the Agreement and continue for three months through the first
March, June, September or December month end occurring after the end of the
immediately preceding Accounting Period. The final Accounting Period shall end
on the second anniversary of the Effective Date. Within 30 days after the end
of each Accounting Period, Reinsurer shall prepare and deliver to WNIC the
Statement showing the Profit or Loss for such Accounting Period. WNIC shall
review the Statement and advise Reinsurer in writing within 15 days whether WNIC
agrees or disagrees with the Statement, and in the case of a disagreement, shall
set forth in detail the specific items of disagreement. If Reinsurer and WNIC
do not agree upon the Statement within 30 days after WNIC has advised Reinsurer
of any disagreement, Reinsurer or WNIC may, not later than 30 days after WNIC
has advised Reinsurer of any disagreement (or such longer period of time as WNIC
and Reinsurer may mutually agree upon), submit the matter or matters with
respect to which there is a disagreement to a national firm of independent
public accountants mutually agreed upon by Reinsurer and WNIC, and the decision
of such independent firm shall be final and binding on each party to this
Reinsurance Agreement. In the event that Reinsurer and WNIC are unable to
mutually agree on the national firm of independent public accountants, Ernst &
Young shall select one of the other big six accounting firms to serve as the
independent firm. Each party shall be responsible for its own expenses, and the
expenses of any independent accounting firm shall be shared equally by WNIC and
Reinsurer. WNIC and Reinsurer agree to cooperate in any reasonable way with any
independent accounting firm in connection with the foregoing.
Such Statement as determined by the independent firm shall be the Statement for
purposes of this Reinsurance Agreement and shall be conclusive and binding on
all parties hereto. If Reinsurer and WNIC agree on a Statement within 30 days
after WNIC has received a Statement, or if WNIC fails to advise Reinsurer of any
disagreement with respect to Reinsurer's determination within such 15-day
period, the Statement for purposes of this Reinsurance Agreement shall be the
Statement delivered by Reinsurer. Within five (5) Business Days after
determination of the Statement for each Accounting Period, (a) if there is a
Loss in the first Accounting Period, WNIC shall wire transfer to Reinsurer the
amount of such Loss, (b) if there is a Loss in any Accounting Period after the
first, WNIC shall wire transfer to Reinsurer the excess of such Loss over the
Loss previously transferred for prior Accounting Periods, and (c) if the
cumulative Loss in any Accounting Period is less than the Loss in the prior
Accounting Period, Reinsurer shall wire transfer to WNIC the amount such Loss
has been reduced.
ARTICLE IV
ADMINISTRATION
WNIC will provide the services referred to herein to Reinsurer until the later
of October 31, 1996 or 90 days after the First Closing Date, and Reinsurer will
pay all costs and expenses in connection therewith, pursuant to and as
contemplated in the Interim Services and Facilities Agreement between Reinsurer
and WNIC relating to this Reinsurance Agreement and referred to in the
Agreement. Thereafter, pursuant to and as contemplated in the Services and
Facilities Agreement between Reinsurer and WNIC relating to this Reinsurance
Agreement and referred to in the Agreement, Reinsurer agrees to provide and be
responsible for all administration and servicing of the Reinsured Policies from
and after the First Closing Date and, except as provided in Article I of this
Reinsurance Agreement, to be responsible for all costs and expenses in
connection therewith. Administration and servicing of the Reinsured Policies
shall include, but shall not be limited to, marketing support and assistance
services, premium billing and collection, underwriting, reinsurance
administration, claims handling, claims payment, expense payment, commission
payment, data processing, computer programming, word processing,
telecommunications and communications services, licensing, policy service,
regulatory matters, actuarial services, accounting services, remittance
services, photocopying, recordkeeping, record maintenance, mailroom and storage
and printing services with respect to the Reinsured Policies. Notwithstanding
the foregoing, with respect to the New Jersey Policies, WNIC shall have the
right to make all decisions regarding persistency and profitability, including,
but not limited to, pricing, experience refund arrangements and underwriting
rules. WNIC shall have the right, at its own expense, to participate in the
defense of any action, suit or proceeding in which there is a demand for
punitive damages and which arises out of or in connection with a Reinsured
Policy, regardless of filing date.
ARTICLE V
DAC ELECTION STATEMENT
WNIC and Reinsurer hereby agree to the following pursuant to Section 1.848-
2(g)(8) of the Income Tax Regulation under Section 848 of the Internal Revenue
Code of 1986, as amended. This election shall be effective for the 1996 taxable
year and for all subsequent taxable years for which this Reinsurance Agreement
remains in effect.
1. The term "party" will refer to either WNIC or the Reinsurer
as appropriate.
2. The terms used in this Article V are defined by reference to
Regulation 1.848-2. The term "net consideration" will refer
to either net consideration as defined in Regulation Section
1.848-2(f) or gross amount of premiums and other
consideration as defined in Regulation Section 1.848-3(b),
as appropriate.
3. The party with the net positive consideration for this
Reinsurance Agreement for each taxable year will capitalize
specified policy acquisition expenses with respect to this
Reinsurance Agreement without regard to the general
deductions limitation of Section 848(c)(1).
4. Both parties agree to exchange information pertaining to the
amount of net consideration under this Reinsurance Agreement
each year to ensure consistency.
ARTICLE VI
INDEMNIFICATION
Reinsurer agrees to indemnify, defend and hold WNIC and its Affiliates harmless
from any and all claims, demands, suits, actions, liabilities, losses, damages
or expense (including attorneys' fees and disbursements in connection with
investigating and defending against any such matter) of any kind, nature or
description (including any claim for extraordinary, punitive or consequential
damages, misrepresentation, fraud or bad faith) if such claim results from
(a) any act, delay, error or omission of Reinsurer on or after the Effective
Date, unless such action, delay, error or omission was the result of Reinsurer's
direct reliance on instructions from WNIC, (b) any breach or nonperformance by
Reinsurer of its obligations under this Reinsurance Agreement or (c) the
Reinsured Policies, to the extent such claim was incurred on or after the
Effective Date (other than claims relating to the New Jersey Policies). WNIC
agrees to indemnify, defend and hold Reinsurer and its Affiliates harmless from
any and all claims, demands, suits, actions, liabilities, losses, damages or
expenses (including attorneys' fees) of any kind, nature or description
(including any claim for extraordinary, punitive or consequential damages,
misrepresentation, fraud or bad faith), with respect to (a) any breach by WNIC
of its obligations hereunder or (b) Reinsurer's direct reliance on instructions
from WNIC.
ARTICLE VII
CONDUCT OF BUSINESS
From the date hereof and during the term of this Reinsurance Agreement,
Reinsurer shall (a) conduct its business in all material respects in accordance
with all applicable Laws, (b) use commercially reasonable efforts to maintain at
least a "B+" (B plus) rating by A.M. Best Company (or in the event that A.M.
Best Company is no longer publishing insurance company ratings, a comparable
rating by a nationally recognized independent rating company), (c) use
commercially reasonable efforts to maintain underwriting, claims adjudication
and policyholder service at the level provided by Reinsurer on the date hereof
and in accordance with industry standards to preserve the present business
relationships with the holders of the Reinsured Policies, and (d) furnish to
WNIC promptly upon receipt thereof, copies of any reports or other
communications received from the A.M. Best Company or from any insurance
regulatory authority with respect to the Health Insurance Business or the
insurance company ratings of the Reinsurer. In the event that Reinsurer does
not maintain at least a "B+" (B plus) rating by A.M. Best Company (or in the
event that A.M. Best Company is no longer publishing insurance company ratings,
a comparable rating by a nationally recognized independent rating company),
Reinsurer shall use commercially reasonable efforts to assign this Reinsurance
Agreement to an Affiliate insurance company with such rating.
ARTICLE VIII
RECORDS
WNIC shall furnish Reinsurer on or about the First Closing Date, originals or
copies of all administrative, financial and other records and information of any
nature and type relating to the Reinsured Policies reasonably requested by
Reinsurer.
ARTICLE IX
REPORTS
Within twelve (12) days after the close of each calendar month after the First
Closing Date, Reinsurer shall furnish WNIC an income statement and balance sheet
prepared in accordance with GAAP and SAP with respect to the Reinsured Policies.
In addition, within fifteen (15) days after the close of each calendar month,
Reinsurer shall furnish WNIC with such additional financial and other
information with respect to the Reinsured Policies reasonably requested by WNIC,
which is required for financial, tax, regulatory, rating agency or other reports
or statements.
ARTICLE X
INSPECTION
Each party shall have the right, at any reasonable time and upon written notice
provided on a reasonable basis, to inspect the books, records, documents and
other information relating to the Reinsured Policies.
ARTICLE XI
ASSUMPTION REINSURANCE: TERMINATION
Reinsurer shall have the right, but not the obligation, pursuant to the form of
Assumption Reinsurance Agreement attached hereto as Attachment 3, and subject to
receipt of required regulatory approvals and policyholder consents, to assume by
assumption reinsurance some or all of the Reinsured Policies upon thirty (30)
days written notice to WNIC. This Reinsurance Agreement shall continue in
effect for so long as any Reinsured Policy remains in effect, provided that it
shall terminate on the date assumption reinsurance of 100% of the Reinsured
Policies by Reinsurer is effectuated and provided further that Article VI
Indemnification shall continue after termination of this Reinsurance Agreement.
If Reinsurer assumes by assumption reinsurance less than all of the Reinsured
Policies, this Reinsurance Agreement shall continue with respect to the
Reinsured Policies except that the Reinsured Policies that Reinsurer has assumed
shall thereafter not be considered Reinsured Policies for purposes of Articles,
II, IX and X.
ARTICLE XII
RECAPTURE
WNIC shall have the right to terminate this Reinsurance Agreement and recapture
the Reinsured Policies reinsured hereunder in the event Reinsurer (a) does not
comply with Article VII of this Reinsurance Agreement and Reinsurer fails to
comply for a period of forty-five (45) days after WNIC has given written notice
specifying a failure to comply and requesting it to be remedied, or (b) is
subject to any final, non-appealable administrative ruling or order of an
insurance regulatory authority which will have a material adverse effect on its
ability to perform its obligations under this Reinsurance Agreement. If WNIC
exercises its right to recapture the Reinsured Policies, Reinsurer shall take
all action reasonably necessary to transfer the Reinsured Policies, the reserves
relating thereto and the administration and servicing thereof back to WNIC as
promptly as possible. Reinsurer and WNIC agree to negotiate in good faith
commercially reasonable terms and conditions of the recapture of the Reinsured
Policies.
ARTICLE XIII
OVERSIGHTS
It is understood and agreed that if failure to comply with any terms of this
Reinsurance Agreement is the result of misunderstanding or oversight on the part
of either WNIC or Reinsurer, the party failing to comply shall be given a
reasonable opportunity to restore the other party to the position it would have
been in had not such failure to comply occurred, but neither party shall be
relieved of liability for any such failure to comply.
ARTICLE XIV
INSOLVENCY
In the event of the insolvency of WNIC, except as otherwise provided in the
following sentence, reinsurance under this Reinsurance Agreement shall be
payable by Reinsurer to WNIC or WNIC s liquidator, receiver or statutory
successor immediately upon demand, on the basis of claims allowed against WNIC
by any court of competent jurisdiction or by any liquidator, receiver or
statutory successor of WNIC having authority to allow such claims, without
diminution because of the insolvency of WNIC or because such liquidator,
receiver or statutory successor has failed to pay all or a portion of any
claims. The reinsurance hereunder shall be payable by the Reinsurer directly to
WNIC or its liquidator, receiver or statutory successor, except (a) where the
Reinsurance Agreement specifically provides another payee of such reinsurance in
the event of the insolvency of WNIC, or (b) where the Reinsurer with the consent
of the direct insured or insureds has assumed such policy obligations of WNIC as
direct obligations of the Reinsurer to the payees under such policies and in
substitution for the obligations of WNIC to such payees.
It is agreed, however that the liquidator, receiver or statutory successor of
WNIC shall have to give written notice to Reinsurer of the pendency of a claim
against the WNIC, indicating the policy reinsured under which the claim would
involve a possible liability on the part of Reinsurer within a reasonable time
after such claim is filed in the insolvency proceedings and that during the
pendency of such claim, the Reinsurer may investigate such claims and interpose,
at its own expense, in the proceeding where such claim is to be adjudicated any
defense or defenses which it may deem available to WNIC or its liquidator,
receiver or statutory successor. The expense thus incurred by Reinsurer shall
be chargeable, subject to court approval, against WNIC as part of the expense of
liquidation to the extent of a proportionate share of the benefits which may
accrue to WNIC solely as a result of the defense undertaken by Reinsurer.
ARTICLE XV
ARBITRATION
Except as otherwise expressly provided in this Reinsurance Agreement:
(a) WNIC and Reinsurer shall attempt in good faith to resolve any dispute,
claim or controversy arising out of or relating to this Reinsurance Agreement
(the dispute ) by negotiations between executives who have authority to settle
the dispute. Any party may initiate negotiations by delivery to the other party
of a written notice describing any dispute not resolved in the ordinary course
of business about which negotiation is requested.
(b) Within ten (10) business days after delivery of the notice, executives of
both parties shall meet at a mutually acceptable time and place, and thereafter
as soon as reasonably possible, to exchange relevant information and attempt to
resolve the dispute.
(c) If the parties fail to meet with ten (10) business days, or the dispute is
not resolved through negotiations within twenty (20) business days after
delivery of the request for negotiation, either party may initiate arbitration
of the dispute as provided below. Any dispute that has not been resolved
through negotiation as provided above shall be finally settled by confidential,
binding arbitration as provided below.
(d) Unless otherwise agreed in writing by the parties, (i) all hearings and
conferences relating to the arbitration will be held in, and the arbitrators
award will be rendered at Chicago, Illinois; (ii) the arbitration will be
conducted in accordance with the rules and procedures of J.A.M.S./Endispute (a
copy of which is attached to this Reinsurance Agreement as Attachment 4) and
(iii) there shall be three arbitrators, of whom each party shall select one and
those two shall select a third independent, impartial arbitrator who shall serve
as chairman. All arbitrators shall be active or retired disinterested officers
of insurance or reinsurance companies who are independent and impartial and not
affiliated with or under the control of either party to this Reinsurance
Agreement.
(e) The vote or approval of a majority of the arbitrators will decide any
questions considered by the Panel; provided, however, that if no two arbitrators
reach the same decision, then the average of the two closest mathematical
determinations will constitute the decision of the Panel.
(f) Any demand for arbitration under this section must be made within the time
allowed for commencement of a civil action under the statute of limitations
applicable to the claim(s) for which arbitration is demanded. The arbitrators
have no authority to make an award based on any claim that is time-barred under
that statute of limitations, and the failure to commence arbitration of a claim
within the limitations period is an absolute bar to commencement of any
arbitration or other proceeding on that claim.
(g) Each decision (including without limitation each award) of the arbitrators
will be final and binding on all parties and will be nonappealable. Judgment
upon the arbitral award may be entered by any court having jurisdiction thereof,
and each party consents and submits to the jurisdiction of such court for
purposes of such action. No such award or judgment will bear interest.
(h) The arbitration shall be governed by the United States Arbitration Act, 9
U.S.C. Sections 1-16.
(i) Each party will be responsible for paying all fees and expenses charged by
its respective counsel, accountants and other representatives in conjunction
with the arbitration. Each party shall bear the expenses of the arbitrator it
selects and shall jointly and equally bear with the other party the costs of the
arbitration proceedings and expense of the third arbitrator.
ARTICLE XVI
AMENDMENTS
This Reinsurance Agreement shall not be amended except by agreement in writing
and signed by the parties.
ARTICLE XVII
ASSIGNMENT
This Reinsurance Agreement will inure to the benefit of and be binding upon the
respective successors and permitted assigns of the parties. Neither party may
assign any of its duties or obligations hereunder without the prior written
consent of the other party.
ARTICLE XVIII
PARTIES TO THE CONTRACT, GOVERNING LAW
This is an Reinsurance Agreement for reinsurance solely between Reinsurer and
WNIC. This Reinsurance Agreement shall be governed in all respects by and
construed and enforced in accordance with the laws of the State of Illinois
(without giving effect to the provisions thereof relating to conflicts of law).
ARTICLE XIX
OFFSET
Any debts or credits, matured or unmatured, liquidated or unliquidated,
regardless of when they arose or were incurred, in favor of or against either
the Reinsurer or WNIC with respect to the Reinsurance Agreement or any other
agreement between the parties, shall be offset and only the balance allowed or
paid. If either the Reinsurer or WNIC is under formal delinquency proceedings,
this right of offset shall be subject to the laws of the state exercising
primary jurisdiction over such delinquency proceedings.
ARTICLE XX
SAVINGS CLAUSE
Notwithstanding anything in this Reinsurance Agreement to the contrary, to the
extent that any provisions of the Agreement regarding the transfer of assets and
liability to Reinsurer provides for an allocation between WNIC and Reinsurer of
rights, duties and obligations under this Reinsurance Agreement that is
inconsistent with or different than the allocation of rights, duties and
obligations between WNIC and Reinsurer effected by the terms of this Reinsurance
Agreement, such allocation of rights, duties and obligations provided by the
Agreement shall control.
IN WITNESS WHEREOF, WNIC and Reinsurer have duly executed this Reinsurance
Agreement as of the 31st day of July, 1996.
WASHINGTON NATIONAL INSURANCE
COMPANY
BY: ___________________________________
NAME:
TITLE:
PIONEER LIFE INSURANCE COMPANY,
REINSURER
BY: ___________________________________
NAME:
TITLE:
ATTACHMENT 1
[THE REINSURED POLICIES]
ATTACHMENT 2
[THE NEW JERSEY POLICIES]
EXHIBIT 10.1
$55,000,000
CREDIT AGREEMENT
AMONG
PIONEER FINANCIAL SERVICES, INC.,
as Borrower,
THE LENDERS NAMED HEREIN
and
THE FIRST NATIONAL BANK OF CHICAGO,
as Agent
DATED AS OF
July 30, 1996
TABLE OF CONTENTS
ARTICLE IDEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE IITHE CREDITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.1. Term Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.2. Term Loan Amortization . . . . . . . . . . . . . . . . . . . . . . 16
2.3. Revolving Credit Advances . . . . . . . . . . . . . . . . . . . . 16
2.4. Ratable Loans . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.5. Types of Advances . . . . . . . . . . . . . . . . . . . . . . . . 17
2.6. Commitment Fee; Reductions in Aggregate Revolving Credit Commitment17
2.7. Minimum Amount of Each Advance . . . . . . . . . . . . . . . . . . 17
2.8. Optional Principal Payments . . . . . . . . . . . . . . . . . . . 17
2.9. Method of Selecting Types and Interest Periods for New Advances . 18
2.10. Conversion and Continuation of Outstanding Advances . . . . . . . 18
2.11. Changes in Interest Rate, etc. . . . . . . . . . . . . . . . . . . 19
2.12. Rates Applicable After Default . . . . . . . . . . . . . . . . . . 19
2.13. Method of Payment . . . . . . . . . . . . . . . . . . . . . . . . 19
2.14. Notes; Telephonic Notices . . . . . . . . . . . . . . . . . . . . 20
2.15. Interest Payment Dates; Interest and Fee Basis . . . . . . . . . . 20
2.16. Notification of Advances, Interest Rates, Prepayments, Commitment
Reductions and Issuance Requests . . . . . . . . . . . . . . . . . 20
2.17. Lending Installations . . . . . . . . . . . . . . . . . . . . . . 21
2.18. Non-Receipt of Funds by the Agent . . . . . . . . . . . . . . . . 21
2.19. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.20. Agent's Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.21. Facility Letters of Credit . . . . . . . . . . . . . . . . . . . . 22
2.21.1 Issuance of Facility Letters of Credit . . . . . . . . . 22
2.21.2 Participating Interests . . . . . . . . . . . . . . . . . 23
2.21.3 Facility Letter of Credit Reimbursement Obligations . . . 23
2.21.4 Procedure for Issuance . . . . . . . . . . . . . . . . . 25
2.21.5 Nature of the Lenders' Obligations . . . . . . . . . . . 25
2.21.6 Facility Letter of Credit Fees . . . . . . . . . . . . . 26
ARTICLE IIICHANGE IN CIRCUMSTANCES . . . . . . . . . . . . . . . . . . . . . 26
3.1. Yield Protection . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.2. Changes in Capital Adequacy Regulations . . . . . . . . . . . . . 27
3.3. Availability of Types of Advances . . . . . . . . . . . . . . . . 28
3.4. Funding Indemnification . . . . . . . . . . . . . . . . . . . . . 28
3.5. Lender Statements; Survival of Indemnity . . . . . . . . . . . . . 28
ARTICLE IVCONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . . 28
4.1. Initial Loans and Facility Letters of Credit . . . . . . . . . . . 28
4.2. Each Future Advance and Facility Letter of Credit . . . . . . . . 31
ARTICLE VREPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . 31
5.1. Corporate Existence and Standing . . . . . . . . . . . . . . . . . 31
5.2. Authorization and Validity . . . . . . . . . . . . . . . . . . . . 32
5.3. Compliance with Laws and Contracts . . . . . . . . . . . . . . . . 32
5.4. Governmental Consents . . . . . . . . . . . . . . . . . . . . . . 32
5.5. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 32
5.6. Material Adverse Change . . . . . . . . . . . . . . . . . . . . . 33
5.7. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.8. Litigation and Contingent Obligations . . . . . . . . . . . . . . 33
5.9. Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.10. ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
5.11. Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
5.12. Federal Reserve Regulations . . . . . . . . . . . . . . . . . . . 34
5.13. Investment Company . . . . . . . . . . . . . . . . . . . . . . . . 34
5.14. Certain Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
5.15. Ownership of Properties . . . . . . . . . . . . . . . . . . . . . 35
5.16. Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
5.17. Environmental Laws . . . . . . . . . . . . . . . . . . . . . . . . 35
5.18. Insurance Licenses . . . . . . . . . . . . . . . . . . . . . . . . 36
5.19. Material Agreements. . . . . . . . . . . . . . . . . . . . . . . . 36
5.20. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
5.21. Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
5.22. Subordination Provisions. . . . . . . . . . . . . . . . . . . . . 36
ARTICLE VICOVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
6.1. Financial Reporting . . . . . . . . . . . . . . . . . . . . . . . 37
6.2. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . 39
6.3. Notice of Default. . . . . . . . . . . . . . . . . . . . . . . . . 39
6.4. Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . 40
6.5. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.6. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.7. Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . 40
6.8. Maintenance of Properties . . . . . . . . . . . . . . . . . . . . 40
6.9. Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.10. Capital Stock and Dividends . . . . . . . . . . . . . . . . . . . 41
6.11. Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
6.12. Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.13. Sale of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.14. Sale of Accounts . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.15. Investments and Purchases . . . . . . . . . . . . . . . . . . . . 42
6.16. Contingent Obligations . . . . . . . . . . . . . . . . . . . . . . 43
6.17. Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
6.18. Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
6.19. Prepayments of Indebtedness . . . . . . . . . . . . . . . . . . . 44
6.20. Environmental Matters . . . . . . . . . . . . . . . . . . . . . . 44
6.21. Change in Corporate Structure; Fiscal Year . . . . . . . . . . . . 44
6.22. Inconsistent Agreements . . . . . . . . . . . . . . . . . . . . . 44
6.23. Financial Covenants . . . . . . . . . . . . . . . . . . . . . . . 45
6.23.1. Net Worth . . . . . . . . . . . . . . . . . . . . . . . . 45
6.23.2. Fixed Charges Coverage Ratio . . . . . . . . . . . . . . 45
6.23.3. Debt to Capitalization Ratio . . . . . . . . . . . . . . 45
6.23.4. Adjusted Statutory Surplus . . . . . . . . . . . . . 45
6.23.5. Risk-Based Capital . . . . . . . . . . . . . . . . . . . 45
6.24. Tax Consolidation . . . . . . . . . . . . . . . . . . . . . . . . 45
6.25. ERISA Compliance . . . . . . . . . . . . . . . . . . . . . . . . . 46
6.26. Washington National . . . . . . . . . . . . . . . . . . . . . . . 46
6.27. Selling Shareholder Indebtedness . . . . . . . . . . . . . . . . . 46
ARTICLE VIIDEFAULTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
ARTICLE VIIIACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES . . . . . . . . . 49
8.1. Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
8.2. Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
8.3. Preservation of Rights . . . . . . . . . . . . . . . . . . . . . . 50
ARTICLE IXGENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . 50
9.1. Survival of Representations . . . . . . . . . . . . . . . . . . . 50
9.2. Governmental Regulation . . . . . . . . . . . . . . . . . . . . . 50
9.3. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
9.4. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
9.5. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 51
9.6. Several Obligations; Benefits of this Agreement . . . . . . . . . 51
9.7. Expenses; Indemnification . . . . . . . . . . . . . . . . . . . . 51
9.8. Numbers of Documents . . . . . . . . . . . . . . . . . . . . . . . 52
9.9. Accounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
9.10. Severability of Provisions . . . . . . . . . . . . . . . . . . . . 52
9.11. Nonliability of Lenders . . . . . . . . . . . . . . . . . . . . . 52
9.12. CHOICE OF LAW . . . . . . . . . . . . . . . . . . . . . . . . . . 52
9.13. CONSENT TO JURISDICTION . . . . . . . . . . . . . . . . . . . . . 52
9.14. WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . 53
9.15. Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
9.16. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
9.17. Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . . . 53
ARTICLE XTHE AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
10.1. Appointment . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
10.2. Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
10.3. General Immunity . . . . . . . . . . . . . . . . . . . . . . . . . 54
10.4. No Responsibility for Loans, Recitals, etc. . . . . . . . . . . . 54
10.5. Action on Instructions of Lenders . . . . . . . . . . . . . . . . 55
10.6. Employment of Agents and Counsel . . . . . . . . . . . . . . . . . 55
10.7. Reliance on Documents; Counsel . . . . . . . . . . . . . . . . . . 55
10.8. Agent's Reimbursement and Indemnification . . . . . . . . . . . . 55
10.9. Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . 55
10.10. Rights as a Lender . . . . . . . . . . . . . . . . . . . . . . 56
10.11. Lender Credit Decision . . . . . . . . . . . . . . . . . . . . 56
10.12. Successor Agent . . . . . . . . . . . . . . . . . . . . . . . 56
ARTICLE XI SETOFF; RATABLE PAYMENTS . . . . . . . . . . . . . . . . . . . . . 57
11.1. Setoff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
11.2. Ratable Payments . . . . . . . . . . . . . . . . . . . . . . . . . 57
ARTICLE XIIBENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS . . . . . . . . 57
12.1. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . 57
12.2. Participations. . . . . . . . . . . . . . . . . . . . . . . . . . 58
12.2.1. Permitted Participants; Effect. . . . . . . . . . . . . 58
12.2.2. Voting Rights . . . . . . . . . . . . . . . . . . . . . . 58
12.2.3. Benefit of Setoff . . . . . . . . . . . . . . . . . . . . 58
12.3. Assignments . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
12.3.1. Permitted Assignments . . . . . . . . . . . . . . . . . . 58
12.3.2. Effect; Effective Date . . . . . . . . . . . . . . . . . 59
12.4. Dissemination of Information . . . . . . . . . . . . . . . . . . . 59
12.5. Tax Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . 59
ARTICLE XIIINOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
13.1. Giving Notice . . . . . . . . . . . . . . . . . . . . . . . . . . 59
13.2. Change of Address . . . . . . . . . . . . . . . . . . . . . . . . 60
EXHIBITS
Exhibit A (Article 1) Revolving Credit Note
Exhibit B (Article 1) Term Note
Exhibit C (Section 2.9) Borrowing Notice
Exhibit D (Section 2.10) Conversion/Continuation Notice
Exhibit E (Section 6.1(h)) Compliance Certificate
Exhibit F (Section 12.3.1) Assignment Agreement
SCHEDULES
Schedule 5.3 - Approvals and Consents
Schedule 5.9 - Capitalization
Schedule 5.10 - ERISA
Schedule 5.15 - Owned and Leased Properties
Schedule 5.16 - Indebtedness
Schedule 5.18 - Licenses
Schedule 6.17 - Liens
CREDIT AGREEMENT
This Credit Agreement, dated as of July 30, 1996, is among PIONEER
FINANCIAL SERVICES, INC., a Delaware corporation, the Lenders and THE FIRST
NATIONAL BANK OF CHICAGO, individually and as Agent.
R E C I T A L S:
A. The Borrower has requested the Lenders to make financial accommodations
to it in the aggregate principal amount of $55,000,000, the proceeds of which
the Borrower will use (a) to repay certain indebtedness of the Borrower; (b) to
consummate the Washington National Transaction; and (c) for other general
corporate purposes of the Borrower and its Subsidiaries.
B. The Lenders are willing to extend such financial accommodations on the
terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and undertakings
herein contained, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Borrower, the Lenders and the
Agent hereby agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement:
"Adjusted Statutory Surplus" means at any time for any Insurance
Subsidiary, the sum of its Statutory Surplus and AVR.
"Advance" means a borrowing hereunder consisting of the aggregate amount of
the several Loans made on the same Borrowing Date by the Lenders to the Borrower
of the same Type and, in the case of Eurodollar Advances, for the same Interest
Period.
"Affiliate" of any Person means any other Person directly or indirectly
controlling, controlled by or under common control with such Person. A Person
shall be deemed to control another Person if the controlling Person owns 10% or
more of any class of voting securities (or other ownership interests) of the
controlled Person or possesses, directly or indirectly, the power to direct or
cause the direction of the management or policies of the controlled Person,
whether through ownership of voting securities, by contract or otherwise.
"Agent" means First Chicago in its capacity as agent for the Lenders
pursuant to Article X, and not in its individual capacity as a Lender, and any
successor Agent appointed pursuant to Article X.
"Aggregate Available Revolving Credit Commitment" means, at any time, (a)
the Aggregate Revolving Credit Commitment at such time less (b) the outstanding
Facility Letter of Credit Obligations at such time.
"Aggregate Revolving Credit Commitment" means the aggregate of the
Revolving Credit Commitments of all the Lenders hereunder.
"Aggregate Term Loan Commitment" means the aggregate of the Term Loan
Commitments of all the Lenders hereunder.
"Aggregate Total Commitment" means the aggregate of the Total Commitments
of all the Lenders hereunder.
"Agreement" means this Credit Agreement, as it may be amended, modified or
restated and in effect from time to time.
"Agreement Accounting Principles" means generally accepted accounting
principles as in effect from time to time, applied in a manner consistent with
those used in preparing the financial statements referred to in Section 5.5;
provided, however, that for purposes of all computations required to be made
with respect to compliance by the Borrower with Section 6.23, such term shall
mean generally accepted accounting principles (excluding where SAP is
applicable) as in effect on the date hereof, applied in a manner consistent with
those used in preparing the financial statements referred to in Section 5.5.
"Annual Statement" means the annual statutory financial statement of any
Insurance Subsidiary required to be filed with the insurance commissioner (or
similar authority) of its jurisdiction of incorporation, which statement shall
be in the form required by such Insurance Subsidiary's jurisdiction of
incorporation or, if no specific form is so required, in the form of financial
statements permitted by such insurance commissioner (or such similar authority)
to be used for filing annual statutory financial statements and shall contain
the type of information permitted by such insurance commissioner (or such
similar authority) to be disclosed therein, together with all exhibits or
schedules filed therewith.
"Article" means an article of this Agreement unless another document is
specifically referenced.
"Authorized Officer" means any president, the chief financial officer, the
chief executive officer or any other executive officer of the Borrower
designated as such in writing to the Agent by the Borrower, acting singly.
"AVR" means, with respect to any Insurance Subsidiary at any time, the
asset valuation reserve of such Insurance Subsidiary at such time, as determined
in accordance with SAP ("Liabilities, Surplus and Other Funds" statement, page
3, column 1, line 24.1 of the Annual Statement).
"Bankruptcy Code" means Title 11, United States Code, sections 1 et seq.,
as the same may be amended from time to time, and any successor thereto or
replacement therefor which may be hereafter enacted.
"Borrower" means Pioneer Financial Services, Inc., a Delaware corporation,
and its successors and assigns.
"Borrowing Date" means a date on which an Advance is made or a Facility
Letter of Credit is issued hereunder.
"Borrowing Notice" is defined in Section 2.9.
"Business Day" means (a) with respect to any borrowing, payment or rate
selection of Eurodollar Advances, a day (other than a Saturday or Sunday) on
which banks generally are open in Chicago for the conduct of substantially all
of their commercial lending activities and on which dealings in United States
dollars are carried on in the London interbank market, and (b) for all other
purposes, a day (other than a Saturday or Sunday) on which banks generally are
open in Chicago for the conduct of substantially all of their commercial lending
activities.
"Capitalized Lease Obligations" of a Person means the amount of the
obligations of such Person under capitalized leases which would be shown as a
liability on a balance sheet of such Person prepared in accordance with
Agreement Accounting Principles.
"Change" is defined in Section 3.2.
"Change in Control" means (a) the acquisition by any Person, or two or more
Persons acting in concert, of beneficial ownership (within the meaning of Rule
13d-3 of the Securities and Exchange Commission under the Securities Exchange
Act of 1934) of 25% or more of the outstanding shares of voting stock of the
Borrower, or (b) during any period of 25 consecutive calendar months, commencing
on the date of this Agreement, the ceasing of those individuals (the "Continuing
Directors") who (i) were directors of the Borrower on the first day of each such
period or (ii) subsequently became directors of the Borrower and whose initial
election or initial nomination for election subsequent to that date was approved
by a majority of the Continuing Directors then on the board of directors of the
Borrower, to constitute a majority of the board of directors of the Borrower.
"Code" means the Internal Revenue Code of 1986, as amended, reformed or
otherwise modified from time to time.
"Commitment" means, for each Lender, the obligation of such Lender to make
Loans and participate in Facility Letters of Credit not exceeding the amount set
forth opposite its signature below or as set forth in any Notice of Assignment
relating to any assignment which has become effective pursuant to Section
12.3.2, as such amount may be modified from time to time pursuant to the terms
hereof.
"Condemnation" is defined in Section 7.8.
"Consolidated" or "consolidated", when used in connection with any
calculation, means a calculation to be determined on a consolidated basis for
the Borrower and its Subsidiaries in accordance with Agreement Accounting
Principles.
"Consolidated Person" means, for the taxable year of reference, each Person
which is a member of the affiliated group of the Borrower if Consolidated
returns are or shall be filed for such affiliated group for federal income tax
purposes or any combined or unitary group of which the Borrower is a member for
state income tax purposes.
"Contingent Obligation" of a Person means any agreement, undertaking or
arrangement by which such Person assumes, guarantees, endorses, contingently
agrees to purchase or provide funds for the payment of, or otherwise becomes or
is contingently liable upon, the obligation or liability of any other Person, or
agrees to maintain the net worth or working capital or other financial condition
of any other Person, or otherwise assures any creditor of such other Person
against loss.
"Controlled Group" means all members of a controlled group of corporations
and all trades or businesses (whether or not incorporated) under common control
which, together with the Borrower or any of its Subsidiaries, are treated as a
single employer under Section 414 of the Code.
"Conversion/Continuation Notice" is defined in Section 2.10.
"Convertible Subordinated Notes" means, collectively, the (a) 6 1/2%
Convertible Subordinated Notes due 2003 issued by the Borrower and (b) 8%
Convertible Subordinated Debentures due 2000 issued by the Borrower.
"Corporate Base Rate" means a rate per annum equal to the corporate base
rate of interest announced by First Chicago from time to time, changing when and
as said corporate base rate changes. The Corporate Base Rate is a reference
rate and does not necessarily represent the lowest or best rate of interest
actually charged to any customer. First Chicago may make commercial loans or
other loans at rates of interest at, above or below the Corporate Base Rate.
"Debt to Capitalization Ratio" means, at any time, the ratio of (a) the
consolidated Indebtedness (excluding Subordinated Indebtedness and Indebtedness
evidenced by the Letter of Credit described in item 11 on Schedule 5.16 hereto)
of the Borrower and its Subsidiaries at such time to (b) the sum of the
consolidated Indebtedness (including Subordinated Indebtedness but excluding
Indebtedness evidenced by the Letter of Credit described in item 11 on Schedule
5.16 hereto) of the Borrower and its Subsidiaries plus the Borrower's Net Worth
at such time.
"Default" means an event described in Article VII.
"Environmental Laws" is defined in Section 5.18.
"Environmental Permits" is defined in Section 5.18.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"Eurodollar Advance" means an Advance which bears interest at the
Eurodollar Rate.
"Eurodollar Base Rate" means, with respect to a Eurodollar Advance for the
relevant Interest Period, the rate determined by the Agent to be the rate at
which deposits in U.S. dollars are offered by First Chicago to first-class banks
in the London interbank market at approximately 11 a.m. (London time) two
Business Days prior to the first day of such Interest Period, in the approximate
amount of First Chicago's relevant Eurodollar Advance and having a maturity
approximately equal to such Interest Period.
"Eurodollar Rate" means, with respect to a Eurodollar Advance for the
relevant Interest Period, the sum of (a) the quotient of (i) the Eurodollar Base
Rate applicable to such Interest Period, divided by (ii) one minus the Reserve
Requirement (expressed as a decimal) applicable to such Interest Period, plus
(b) one and one-half percent (1.50%) per annum. The Eurodollar Rate shall be
rounded to the next higher multiple of 1/16 of 1% if the rate is not such a
multiple.
"Facility Letter of Credit" means a standby Letter of Credit issued
pursuant to Section 2.21.
"Facility Letter of Credit Obligations" means as at the time of
determination thereof, the sum of (a) the Reimbursement Obligations then
outstanding and (b) the aggregate then undrawn face amount of the then
outstanding Facility Letters of Credit.
"Facility Letter of Credit Sublimit" means an aggregate amount of
$10,000,000.
"Federal Funds Effective Rate" means, for any day, an interest rate per
annum equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers on such day, as published for such day (or, if such day is not a
Business Day, for the immediately preceding Business Day) by the Federal Reserve
Bank of New York, or, if such rate is not so published for any day which is a
Business Day, the average of the quotations at approximately 10 a.m. (Chicago
time) on such day on such transactions received by the Agent from three Federal
funds brokers of recognized standing selected by the Agent in its sole
discretion.
"Financial Statements" is defined in Section 5.5.
"First Chicago" means The First National Bank of Chicago in its individual
capacity, and its successors.
"Fiscal Quarter" means one of the four three-month accounting periods
comprising a Fiscal Year.
"Fiscal Year" means the twelve-month accounting period ending December 31
of each year.
"Fixed Charges Coverage Ratio" means, as of the end of any fiscal quarter
of the Borrower, the ratio of (a) the sum of (i) the combined (without
duplication) Statutory Net Income of Insurance Subsidiaries and (ii) the
aggregate (without duplication) Net Income of Subsidiaries (other than Insurance
Subsidiaries) less (iii) operating expenses of the Borrower, in each case for
the period of four Fiscal Quarters ending on such date to (b) the sum of (i)
Interest Expense for the period of four Fiscal Quarters ending on such date,
(ii) the required principal payments and other repayments of Indebtedness
(excluding Revolving Credit Advances) required to be made by the Borrower and
its Subsidiaries on a consolidated basis for the period of four Fiscal Quarters
immediately following the date of determination and (iii) cash dividends payable
on all preferred stock of the Borrower for the period of four Fiscal Quarters
immediately following the date of determination (assuming that the number of
shares of such preferred stock remains constant during such period).
"Floating Rate" means, for any day, a rate of interest per annum equal to
the higher of (a) the Corporate Base Rate for such day, and (b) the sum of the
Federal Funds Effective Rate for such day plus 1/2% per annum, in each case
changing when and as the Floating Rate changes.
"Floating Rate Advance" means an Advance which bears interest at the
Floating Rate.
"Governmental Authority" means any government (foreign or domestic) or any
state or other political subdivision thereof or any governmental body, agency,
authority, department or commission (including without limitation any board of
insurance, insurance department or insurance commissioner and any taxing
authority or political subdivision) or any instrumentality or officer thereof
(including without limitation any court or tribunal) exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government and any corporation, partnership or other entity directly or
indirectly owned or controlled by or subject to the control of any of the
foregoing.
"Hannover Reinsurance Agreement" shall mean a reinsurance agreement to be
entered into by and between the Borrower or a Principal Insurance Subsidiary and
Reassurance Company of Hannover on substantially the terms set forth in the term
sheet therefor, dated July 24, 1996, previously delivered by the Borrower to the
Lenders relating to the reinsurance of certain insurance being assumed by the
Borrower or such Principal Insurance Subsidiary pursuant to the Washington
National Agreement.
"Hazardous Materials" is defined in Section 5.18.
"Hostile Takeover" is defined in Section 6.2.
"Indebtedness" of a Person means, without duplication, such Person's (a)
obligations for borrowed money, (b) obligations representing the deferred
purchase price of Property or services (other than commissions and accounts
payable arising in the ordinary course of such Person's business payable on
terms customary in the trade), (c) obligations, whether or not assumed, secured
by Liens (other than Liens permitted by Section 6.17) or payable out of the
proceeds or production from Property (other than commissions) now or hereafter
owned or acquired by such Person, (d) obligations which are evidenced by notes,
acceptances, or similar instruments, (e) Capitalized Lease Obligations, (f) Rate
Hedging Obligations, (g) Contingent Obligations, (h) obligations for which such
Person is obligated pursuant to or in respect of a Facility Letter of Credit and
the face amount of any other Letter of Credit and (i) repurchase obligations or
liabilities of such Person with respect to accounts or notes receivable sold by
such Person. For the purpose of determining compliance with Section 6.23.3, (x)
the amount of any Contingent Obligation shall be deemed to be an amount equal to
the stated or determinable amount of the primary obligation in respect of which
such Contingent Obligation is made or, if not stated or determinable, the
maximum reasonably anticipated liability in respect thereof (assuming such
Person is required to perform thereunder) as determined by such Person in good
faith and (y) Indebtedness of Insurance Subsidiaries of the type described in
clauses (f) and (i) and of Designs Benefit Plans, Inc. of the type described in
clause (i) shall be excluded to the extent, and only to the extent, that such
Indebtedness is incurred in the ordinary course of business and is not for
speculative purposes.
"Insurance Subsidiary" means any Subsidiary which is engaged in the
insurance business.
"Interest Expense" means the aggregate of all interest paid or accrued by
the Borrower and its Subsidiaries, including, without limitation, all interest,
fees and costs payable with respect to the Obligations (other than fees and
costs which may be capitalized as transaction costs in accordance with Agreement
Accounting Principles), and the interest portion of any Capitalized Lease
Obligations, all as determined in accordance with Agreement Accounting
Principles.
"Interest Period" means, with respect to a Eurodollar Advance, a period of
one, two, three or six months commencing on a Business Day selected by the
Borrower pursuant to this Agreement. Such Interest Period shall end on (but
exclude) the day which corresponds numerically to such date one, two, three or
six months thereafter; provided, however, that if there is no such numerically
corresponding day in such next, second, third or sixth succeeding month, such
Interest Period shall end on the last Business Day of such next, second, third
or sixth succeeding month. If an Interest Period would otherwise end on a day
which is not a Business Day, such Interest Period shall end on the next
succeeding Business Day; provided, however, that if said next succeeding
Business Day falls in a new calendar month, such Interest Period shall end on
the immediately preceding Business Day.
"Investment" of a Person means any loan, advance (other than commission,
travel and similar advances to officers, agents and employees made in the
ordinary course of business), extension of credit (other than accounts
receivable arising in the ordinary course of business on terms customary in the
trade and consistent with past practices), deposit account or contribution of
capital by such Person to any other Person or any investment in, or purchase or
other acquisition of, the stock, partnership interests, notes, debentures or
other securities of any other Person made by such Person.
"Investment Grade Obligations" means, as of any date for each Insurance
Subsidiary, investments having an NAIC investment rating of 1 or 2, or a
Standard & Poor s rating within the range of ratings from AAA to BBB-, or a
Moody s rating within the range of ratings from Aaa to Baa3.
"Issuance Request" is defined in Section 2.21.4.
"Issuer" means First Chicago.
"Lenders" means the lending institutions listed on the signature pages of
this Agreement and their respective successors and assigns.
"Lending Installation" means, with respect to a Lender or the Agent, any
office, branch, subsidiary or affiliate of such Lender or the Agent.
"Letter of Credit" of a Person means a letter of credit or similar
instrument which is issued upon the application of such Person or upon which
such Person is an account party or for which such Person is in any way liable.
"Letter of Credit Cash Collateral Account" is defined in Section 8.1. Such
account and the related cash collateralization shall be subject to documentation
satisfactory to the Agent.
"License" means any license, certificate of authority, permit or other
authorization which is required to be obtained from any Governmental Authority
in connection with the operation, ownership or transaction of insurance
business.
"Lien" means any security interest, lien (statutory or other), mortgage,
pledge, hypothecation, assignment, deposit arrangement, encumbrance or
preference, priority or other security agreement or preferential arrangement of
any kind or nature whatsoever (including, without limitation, the interest of a
vendor or lessor under any conditional sale, Capitalized Lease or other title
retention agreement).
"Loan" means, with respect to a Lender, such Lender's portion of any
Advance and "Loans" means, with respect to the Lenders, the aggregate of all
Advances.
"Loan Documents" means this Agreement, the Notes, the Reimbursement
Agreements and the other documents and agreements contemplated hereby and
executed by the Borrower in favor of the Agent or any Lender.
"Margin Stock" has the meaning assigned to that term under Regulation U.
"Material Adverse Effect" means a material adverse effect on (a) the
business, condition (financial or other), operations, performance, Properties or
prospects of the Borrower and its Subsidiaries taken as a whole, (b) the ability
of the Borrower or any Subsidiary to perform its obligations under the Loan
Documents, or (c) the validity or enforceability of any of the Loan Documents or
the rights or remedies of the Agent or the Lenders thereunder.
"Mortgage" means, as of any date, as to each Insurance Subsidiary, the
amount of such Insurance Subsidiary s mortgage loans on real estate calculated
in accordance with SAP.
"Multiemployer Plan" means a Plan maintained pursuant to a collective
bargaining agreement or any other arrangement to which the Borrower or any
member of the Controlled Group is a party to which more than one employer is
obligated to make contributions.
"NAIC" means the National Association of Insurance Commissioners or any
successor thereto, or in absence of the National Association of Insurance
Commissioners or such successor, any other association, agency or other
organization performing advisory, coordination or other like functions among
insurance departments, insurance commissioners and similar Governmental
Authorities of the various states of the United States toward the promotion of
uniformity in the practices of such Governmental Authorities.
"Net Income" means, for any computation period, with respect to any Person,
cumulative net income earned by such Person during such period as determined in
accordance with Agreement Accounting Principles.
"Net Worth" means, at any date, the consolidated stockholders' equity of
the Borrower and its Subsidiaries determined in accordance with Agreement
Accounting Principles, but excluding the effect thereon of Statement of
Financial Accounting Standards No. 115.
"Non-Excluded Taxes" is defined in Section 2.19.
"Non-Investment Grade Obligations" means, as of any date, for each
Insurance Subsidiary, any fixed maturity debt instrument investment that is not
an Investment Grade Obligation.
"Note" means any one or more of a Revolving Credit Note or a Term Note.
"Notice of Assignment" is defined in Section 12.3.2.
"Obligations" means all unpaid principal of and accrued and unpaid interest
on the Notes, the Facility Letter of Credit Obligations and all other
liabilities (if any), whether actual or contingent, of the Borrower with respect
to Facility Letters of Credit, all accrued and unpaid fees and all expenses,
reimbursements, indemnities and other obligations of the Borrower to the Lenders
or to any Lender, the Agent or any indemnified party hereunder arising under any
of the Loan Documents.
"Participants" is defined in Section 12.2.1.
"Payment Date" means the last day of each January, April, July and October.
"PBGC" means the Pension Benefit Guaranty Corporation or any successor
thereto.
"Person" means any natural person, corporation, firm, joint venture,
partnership, association, enterprise, limited liability company, trust or other
entity or organization, or any government or political subdivision or any
agency, department or instrumentality thereof.
"Plan" means an employee pension benefit plan, as defined in Section 3(2)
of ERISA, as to which the Borrower or any member of the Controlled Group may
have any liability.
"Principal Insurance Subsidiary" means (a) Pioneer Life Insurance Company,
Connecticut National Life Insurance Company, Manhattan National Life Insurance
Company, National Group Life Insurance Company and Universal Fidelity Life
Insurance Company, and (b) any other Insurance Subsidiary with an Adjusted
Statutory Surplus equal to or in excess of $20,000,000 at such time.
"Prohibited Transaction" means any (a) Hostile Takeover or (b) any
Investment or Purchase by the Borrower or any Subsidiary (other than an
Insurance Subsidiary) of or in any asset, interest or security of any Person
exclusive of (i) Investments in or Purchases of any Person who after such
Investment or Purchase will be an Insurance Subsidiary or a Subsidiary engaged
in insurance-related activities and (ii) any other such Investments or Purchases
which are for aggregate consideration, computed on a cumulative basis from the
date of this Agreement, of less than $5,000,000.
"Property" of a Person means any and all property, whether real, personal,
tangible, intangible, or mixed, of such Person, or other assets owned, leased or
operated by such Person.
"pro-rata" means, when used with respect to a Lender, and any described
aggregate or total amount, an amount equal to such Lender's pro-rata share or
portion based on its percentage of the Aggregate Total Commitment or if the
Aggregate Total Commitment has been terminated, its percentage of the aggregate
principal amount of outstanding Advances and Facility Letter of Credit
Obligations.
"Purchase" means any transaction, or any series of related transactions,
consummated on or after the date of this Agreement, by which the Borrower or any
of its Subsidiaries (a) acquires any going business or all or substantially all
of the assets of any firm, corporation or division or line of business thereof,
whether through purchase of assets, merger or otherwise, or (b) directly or
indirectly acquires (in one transaction or as the most recent transaction in a
series of transactions) at least a majority (in number of votes) of the
securities of a corporation which have ordinary voting power for the election of
directors (other than securities having such power only by reason of the
happening of a contingency) or a majority (by percentage or voting power) of the
outstanding partnership interests of a partnership or membership interests of a
limited liability company.
"Quarterly Statement" means the quarterly statutory financial statement of
any Insurance Subsidiary required to be filed with the insurance commissioner
(or similar authority) of its jurisdiction of incorporation or, if no specific
form is so required, in the form of financial statements permitted by such
insurance commissioner (or such similar authority) to be used for filing
quarterly statutory financial statements and shall contain the type of financial
information permitted by such insurance commissioner (or such similar authority)
to be disclosed therein, together with all exhibits or schedules filed
therewith.
"Rate Hedging Obligations" of a Person means any and all obligations of
such Person, whether absolute or contingent and howsoever and whensoever
created, arising, evidenced or acquired (including all renewals, extensions and
modifications thereof and substitutions therefor), under (a) any and all
agreements, devices or arrangements designed to protect at least one of the
parties thereto from the fluctuations of interest rates, exchange rates or
forward rates applicable to such party's assets, liabilities or exchange
transactions, including, but not limited to, dollar-denominated or
cross-currency interest rate exchange agreements, forward currency exchange
agreements, interest rate cap or collar protection agreements, forward rate
currency or interest rate options, puts and warrants, and (b) any and all
cancellations, buybacks, reversals, terminations or assignments of any of the
foregoing.
"Real Estate Investments " means, as of any date, as to each Insurance
Subsidiary, the sum of (a) the book value of properties acquired in satisfaction
of debt calculated in accordance with SAP plus (b) the investment in investment
real estate calculated in accordance with SAP plus (c) Mortgages; provided, that
the properties occupied by the Borrower or any Subsidiary shall be excluded from
the calculation of Real Estate Investments for purposes of this Agreement.
"Regulation D" means Regulation D of the Board of Governors of the Federal
Reserve System as from time to time in effect and any successor thereto or other
regulation or official interpretation of said Board of Governors relating to
reserve requirements applicable to depositary institutions.
"Regulation G" means Regulation G of the Board of Governors of the Federal
Reserve System as from time to time in effect and shall include any successor or
other regulation or official interpretation of said Board of Governors relating
to the extension of credit by Persons other than banks, brokers and dealers for
the purpose of purchasing or carrying margin stocks applicable to such Persons.
"Regulation T" means Regulation T of the Board of Governors of the Federal
Reserve System as from time to time in effect and shall include any successor or
other regulation or official interpretation of such Board of Governors relating
to the extension of credit by securities brokers and dealers for the purpose of
purchasing or carrying margin stocks applicable to such Persons.
"Regulation U" means Regulation U of the Board of Governors of the Federal
Reserve System as from time to time in effect and any successor or other
regulation or official interpretation of said Board of Governors relating to the
extension of credit by banks for the purpose of purchasing or carrying margin
stocks applicable to such Persons.
"Regulation X" means Regulation X of the Board of Governors of the Federal
Reserve System as from time to time in effect and shall include any successor or
other regulation or official interpretation of said Board of Governors relating
to the extension of credit by the specified lenders for the purpose of
purchasing or carrying margin stocks applicable to such Persons.
"Reimbursement Agreement" means a letter of credit application and
reimbursement agreement in such form as the Issuer may from time to time employ
in the ordinary course of business.
"Reimbursement Obligations" means, at any time, the aggregate (without
duplication) of the Obligations of the Borrower to the Lenders, the Issuer
and/or the Agent in respect of all unreimbursed payments or disbursements made
by the Lenders, the Issuer and/or the Agent under or in respect of draws made
under the Facility Letters of Credit.
"Release" is defined in the Comprehensive Environmental Response,
Compensation and Liability Act, as amended, 42 U.S.C. 39601 et seq.
"Reportable Event" means a reportable event as defined in Section 4043 of
ERISA and the regulations issued under such section, with respect to a Plan,
excluding, however, such events as to which the PBGC has by regulation waived
the requirement of Section 4043(a) of ERISA that it be notified within 30 days
of the occurrence of such event; provided, that a failure to meet the minimum
funding standard of Section 412 of the Code and of Section 302 of ERISA shall be
a Reportable Event regardless of the issuance of any such waiver of the notice
requirement in accordance with either Section 4043(a) of ERISA or Section 412(d)
of the Code.
"Required Lenders" means Lenders in the aggregate having at least fifty-one
percent (51%) of the sum of (a) the Aggregate Term Loan Commitment or, after the
Term Loan has been made, the aggregate outstanding principal amount thereof,
plus (b) the Aggregate Revolving Credit Commitment or, if the Aggregate
Revolving Credit Commitment has been terminated, the sum of (i) the aggregate
unpaid principal amount of the outstanding Revolving Credit Loans plus (ii) the
aggregate amount of the outstanding Facility Letter of Credit Obligations.
"Reserve Requirement" means, with respect to an Interest Period, the
maximum aggregate reserve requirement (including all basic, supplemental,
marginal and other reserves) which is imposed under Regulation D on Eurocurrency
liabilities.
"Revolver Termination Date" means July 30, 1999.
"Revolving Credit Advance" means an Advance made by the Lenders to the
Borrower pursuant to Section 2.3.
"Revolving Credit Commitment" means, for each Lender, the obligation of
such Lender to make Loans to the Borrower pursuant to Section 2.3 in an
aggregate amount at any one time outstanding not exceeding the amount set forth
opposite its name under the heading "Revolving Credit Commitment" on the
signature page hereto, as such amount may be modified or reduced from time to
time pursuant to the terms of this Agreement.
"Revolving Credit Loan" means, with respect to a Lender, such Lender's pro-
rata portion of all Revolving Credit Advances.
"Revolving Credit Note" means a promissory note in substantially the form
of Exhibit A hereto, with appropriate insertions, duly executed and delivered to
the Agent by the Borrower and payable to the order of a Lender in the amount of
its Revolving Credit Commitment, including any amendment, modification, renewal
or replacement of such promissory note.
"Risk Based Capital Act" means the Risk-Based Capital for Life and/or
Health Insurers Model Act and the rules, regulations and procedures prescribed
from time to time by the NAIC with respect thereto, in each case as amended,
modified or supplemented from time to time by the NAIC.
"Risk-Based Capital Guidelines" is defined in Section 3.2.
"SAP" means, with respect to any Insurance Subsidiary, the statutory
accounting practices prescribed or permitted by the insurance commissioner (or
other similar authority) in the jurisdiction of such Person for the preparation
of annual statements and other financial reports by insurance companies of the
same type as such Person in effect from time to time, applied in a manner
consistent with those used in preparing the financial statements referred to in
Section 5.5(c) and (d); provided, that, except as otherwise provided in the
definition of Agreement Accounting Principles, with respect to the financial
covenants contained in Section 6.24 hereof, and the related definitions, "SAP"
means such statutory accounting practices in effect on the date hereof, applied
in a manner consistent with those used in preparing the financial statements
referred to in Section 5.5(c) and (d).
"Section" means a numbered section of this Agreement, unless another
document is specifically referenced.
"Selling Shareholder" means each of Connie C. Mosley, Weldon V. Mosley,
Melanie Ann Mosley Johnson, Welden V. Mosley as Trustee of the Mary Clellie
Mosley Testamentary Trust, Marsha Jane Mosley Johnson, Gordon Bakken, Investors
Trust Company, First Baptist Church of Doncan, Rhodes College and University of
Oklahoma Foundation, Inc.
"Single Employer Plan" means a Plan subject to Title IV of ERISA maintained
by the Borrower or any member of the Controlled Group for employees of the
Borrower or any member of the Controlled Group, other than a Multiemployer Plan.
"Solvent" means, when used with respect to a Person, that (a) the fair
saleable value of the assets of such Person is in excess of the total amount of
the present value of its liabilities (including for purposes of this definition
all liabilities (including loss reserves as determined by such Person), whether
or not reflected on a balance sheet prepared in accordance with Agreement
Accounting Principles and whether direct or indirect, fixed or contingent,
secured or unsecured, disputed or undisputed), (b) such Person is able to pay
its debts or obligations in the ordinary course as they mature and (c) such
Person does not have unreasonably small capital to carry out its business as
conducted and as proposed to be conducted. "Solvency" shall have a correlative
meaning.
"Statutory Net Income" means, with respect to any Insurance Subsidiary for
any computation period, the net income earned by such Insurance Subsidiary
during such period, as determined in accordance with SAP ("Summary of
Operations" statement, Page 4, Line 33 of the Annual Statement).
"Statutory Surplus" means, with respect to any Insurance Subsidiary at any
time, the statutory capital and surplus of such Insurance Subsidiary at such
time, as determined in accordance with SAP ("Liabilities, Surplus and Other
Funds" statement, page 3, line 38 of the Annual Statement).
"Subordinated Indebtedness" means, collectively, (a) the Convertible
Subordinated Notes and (b) any other indebtedness the repayment of which is
subordinated to the repayment of the Obligations on terms and conditions
reasonably satisfactory to the Required Lenders.
"Subsidiary" of a Person means (a) any corporation more than 50% of the
outstanding securities having ordinary voting power of which shall at the time
be owned or controlled, directly or indirectly, by such Person or by one or more
of its Subsidiaries or by such Person and one or more of its Subsidiaries, or
(b) any partnership, association, joint venture, limited liability company or
similar business organization more than 50% of the ownership interests having
ordinary voting power of which shall at the time be so owned or controlled.
Unless otherwise expressly provided, all references herein to a "Subsidiary"
shall mean a Subsidiary of the Borrower.
"Substantial Portion" means, with respect to (a) the Borrower and its
Subsidiaries, Property which represents more than 10% of the consolidated assets
of the Borrower and its Subsidiaries, as would be shown in the consolidated
financial statements of the Borrower and its Subsidiaries as at the end of the
quarter next preceding the date on which such determination is made and (b) with
respect to the Insurance Subsidiaries, premiums which represent more than 15% of
the aggregate amount of premiums written by all Insurance Subsidiaries during
the twelve month period preceding the date on which such determination is made,
determined in accordance with SAP.
"Term Loan" means, with respect to each Lender, such Lender's pro-rata
portion of the Term Loan advances made by the Lenders.
"Term Loan Commitment" means, for each Lender, the obligation of such
Lender to make a single Loan to the Borrower pursuant to Section 2.1 in an
amount not exceeding the amount set forth opposite its name under the heading
"Term Loan Commitment" on the signature page hereto, as such amount may be
modified or reduced from time to time pursuant to the terms of this Agreement.
"Term Loan Maturity Date" means July 30, 2001.
"Term Note" means a promissory note, in substantially the form of Exhibit B
hereto, with appropriate insertions, duly executed and delivered to the Agent by
the Borrower and payable to the order of a Lender in the amount of such Lender's
Term Loan Commitment, including any amendment, modification, renewal or
replacement of such promissory note.
"Termination Event" means, with respect to a Plan which is subject to Title
IV of ERISA, (a) a Reportable Event, (b) the withdrawal of the Borrower or any
other member of the Controlled Group from such Plan during a plan year in which
the Borrower or any other member of the Controlled Group was a "substantial
employer" as defined in Section 4001(a)(2) of ERISA or was deemed such under
Section 4068(f) of ERISA, (c) the termination of such Plan, the filing of a
notice of intent to terminate such Plan or the treatment of an amendment of such
Plan as a termination under Section 4041 of ERISA, (d) the institution by the
PBGC of proceedings to terminate such Plan or (e) any event or condition which
might constitute grounds under Section 4042 of ERISA for the termination of, or
appointment of a trustee to administer, such Plan.
"Total Commitment" means, for each Lender, the aggregate of such Lender's
Revolving Credit Commitment and Term Loan Commitment.
"Total Invested Assets" means, as of any date, as to each Insurance
Subsidiary, the amount of such Insurance Subsidiary s cash and invested assets
calculated in accordance with SAP.
"Transferee" is defined in Section 12.4.
"Type" means, with respect to any Advance, its nature as a Floating Rate
Advance or Eurodollar Advance.
"Unfunded Liability" means the amount (if any) by which the present value
of all vested and invested accrued benefits under a Single Employer Plan exceeds
the fair market value of assets allocable to such benefits, all determined as of
the then most recent valuation date for such Plans using PBGC actuarial
assumptions for single employer plan terminations.
"Unmatured Default" means an event which but for the lapse of time or the
giving of notice, or both, would constitute a Default.
"Washington National Transaction" shall mean the purchase by one or more
Principal Insurance Subsidiaries of a portion of the individual and group health
insurance business of Washington National Insurance Company pursuant to the
Washington National Agreement.
"Washington National Agreement" means the Agreement, dated as of May 31,
1996, as amended, among the Borrower, one or more Principal Insurance
Subsidiaries and Washington National Insurance Company, in the form delivered to
the Lenders prior to the initial Borrowing Date and without giving effect to any
subsequent material amendment or modification thereof not consented to by the
Required Lenders.
"Wholly-Owned Subsidiary" of a Person means (a) any Subsidiary all of the
outstanding voting securities of which shall at the time be owned or controlled,
directly or indirectly, by such Person or one or more Wholly-Owned Subsidiaries
of such Person, or by such Person and one or more Wholly-Owned Subsidiaries of
such Person other than directors' or nominees' qualifying shares, or (b) any
partnership, association, joint venture, limited liability company or similar
business organization 100% of the ownership interests having ordinary voting
power of which shall at the time be so owned or controlled.
The foregoing definitions shall be equally applicable to both the singular
and plural forms of the defined terms. References hereto in particular columns,
lines or sections of any Person's Annual Statement shall be deemed, where
appropriate, to be references to the corresponding column, line or section of
such Person's Quarterly Statement, or if no such corresponding column, line or
section exists or if any report form changes, then to the corresponding item
referenced thereby. In the event that the columns, lines or sections of the
Annual Statement referenced herein are changed or renumbered, all such
references shall be deemed references to such column, line or section as so
renumbered or changed.
ARTICLE II
THE CREDITS
2.1. Term Loans. Each Lender severally (and not jointly) agrees, on the
terms and conditions set forth in this Agreement, to make a Term Loan to the
Borrower on the initial Borrowing Date, which shall be the date of this
Agreement, in the amount of its respective Term Loan Commitment. No amount of
the Term Loan which is repaid or prepaid by the Borrower may be reborrowed
hereunder. The obligation of the Borrower to repay the Term Loan shall be
evidenced by the Term Notes. Not later than noon (Chicago time) on the initial
Borrowing Date, each Lender shall make available funds equal to its Term Loan
Commitment in immediately available funds in Chicago, to the Agent at its
address specified pursuant to Article XIII.
2.2. Term Loan Amortization. The Term Loan shall be payable in twenty
(20) installments of $1,250,000 each, payable on each Payment Date, commencing
October 31, 1996.
2.3. Revolving Credit Advances. (a) From and including the date hereof
to but excluding the Revolver Termination Date, each Lender severally (and not
jointly) agrees, on the terms and conditions set forth in this Agreement, to
make Revolving Credit Advances to the Borrower from time to time in amounts not
to exceed in the aggregate at any one time outstanding the amount of its pro-
rata share of the Aggregate Available Revolving Credit Commitment existing at
such time. Subject to the terms of this Agreement, the Borrower may borrow,
repay and reborrow Revolving Credit Advances at any time prior to the Revolver
Termination Date.
(b) The Borrower hereby agrees that, if at any time as a result
of reductions in the Aggregate Revolving Credit Commitment pursuant to Section
2.6 or otherwise, the aggregate balance of the sum of the Revolving Credit Loans
and the Facility Letter of Credit Obligations exceeds the Aggregate Revolving
Credit Commitment, the Borrower shall repay immediately its then outstanding
Revolving Credit Loans in such amount as may be necessary to eliminate such
excess; provided, that if an excess remains after repayment of all outstanding
Revolving Credit Loans, then the Borrower shall cash collateralize the Facility
Letter of Credit Obligations by depositing into the Letter of Credit Cash
Collateral Account such amount as may be necessary to eliminate such excess.
(c) The Borrower's obligation to pay the principal of, and
interest on, the Revolving Credit Loans shall be evidenced by the Revolving
Credit Notes. Although the Revolving Credit Notes shall be dated the date of
the initial Revolving Credit Advance, interest in respect thereof shall be
payable only for the periods during which the Revolving Credit Loans evidenced
thereby are outstanding and, although the stated amount of each Revolving Credit
Note shall be equal to the applicable Lender's Revolving Credit Commitment, each
Revolving Credit Note shall be enforceable, with respect to the Borrower's
obligation to pay the principal amount thereof, only to the extent of the unpaid
principal amount of the Revolving Credit Loan at the time evidenced thereby.
(d) Each Revolving Credit Advance included in the Revolving
Credit Loan shall mature, and the principal amount thereof and the unpaid
accrued interest thereon shall be due and payable, on the Revolver Termination
Date.
2.4. Ratable Loans. Each Advance hereunder shall consist of Loans made
from the several Lenders ratably in proportion to the ratio that (a) in the case
of the Term Loan Advance, their respective Term Loan Commitments bear to the
Aggregate Term Loan Commitment and (b) in the case of Revolving Credit Advances,
their respective Revolving Credit Commitments bear to the Aggregate Revolving
Credit Commitment.
2.5. Types of Advances. The Advances may be Floating Rate Advances or
Eurodollar Advances, or a combination thereof, selected by the Borrower in
accordance with Sections 2.9 and 2.10.
2.6. Commitment Fee; Reductions in Aggregate Revolving Credit Commitment.
(a) The Borrower agrees to pay to the Agent for the account of each Lender a
commitment fee of one quarter of one percent (0.25%) per annum on the daily
unutilized (treating Facility Letters of Credit as utilization) portion of such
Lender's Revolving Credit Commitment from the date hereof to and including the
Revolver Termination Date, payable on each Payment Date hereafter and on the
Revolver Termination Date. All accrued commitment fees shall be payable on the
effective date of any termination of the obligations of the Lenders to make
Loans hereunder.
(b) The Borrower may permanently reduce the Aggregate Revolving
Credit Commitment in whole, or in part ratably among the Lenders in a minimum
aggregate amount of $5,000,000 or any integral multiple of $1,000,000 in excess
thereof, upon at least three (3) Business Days' written notice to the Agent,
which notice shall specify the amount of any such reduction; provided, however,
that the amount of the Aggregate Revolving Credit Commitment may not be reduced
below the sum of (i) the aggregate principal amount of the outstanding Revolving
Credit Advances, plus (ii) the aggregate amount of the outstanding Facility
Letter of Credit Obligations.
2.7. Minimum Amount of Each Advance. Each Advance shall be in the
minimum amount of $1,000,000 (and in multiples of $250,000 if in excess
thereof); provided, however, that (a) any Floating Rate Advance may be in the
amount of the unused Aggregate Revolving Credit Commitment and (b) in no event
shall more than six (6) Eurodollar Advances be permitted to be outstanding at
any time.
2.8. Optional Principal Payments. The Borrower may from time to time
pay, without penalty or premium, all outstanding Floating Rate Advances, or, in
a minimum aggregate amount of $1,000,000 or any integral multiple of $1,000,000
in excess thereof, any portion of the outstanding Floating Rate Advances upon
three (3) Business Days' prior notice to the Agent (or, in the case of Revolving
Credit Advances, notice prior to 10:00 a.m. (Chicago time) on the date of
payment). Subject to Section 3.4 and upon like notice, a Eurodollar Advance may
be paid prior to the last day of the applicable Interest Period in a minimum
amount of $1,000,000 or an integral multiple thereof. Optional principal
payments in respect of the Term Loan shall be applied to reduce the then
remaining principal installments payable under Section 2.2 on a pro rata basis
(based upon the then remaining principal amount of each such installment).
2.9. Method of Selecting Types and Interest Periods for New Advances.
The Borrower shall select the Type of Advance and, in the case of each
Eurodollar Advance, the Interest Period applicable to each Advance from time to
time; provided, however, that all Loans incurred on the initial Borrowing Date
shall be Floating Rate Advances. The Borrower shall give the Agent irrevocable
notice substantially in the form of Exhibit C hereto (a "Borrowing Notice") not
later than 10:00 a.m. (Chicago time) at least one (1) Business Day before the
Borrowing Date of each Floating Rate Advance and at least three (3) Business
Days before the Borrowing Date for each Eurodollar Advance, specifying:
(a) the Borrowing Date of such Advance, which shall be a Business
Day;
(b) the aggregate amount of such Advance;
(c) the Type of Advance selected; and
(d) in the case of each Eurodollar Advance, the Interest Period
applicable thereto, which shall end on or prior to the (x) Revolver
Termination Date, with respect to Revolving Credit Advances and (y) Term
Loan Maturity Date, with respect to Term Loans.
Not later than noon (Chicago time) on each Borrowing Date, each Lender shall
make available its Loan or Loans, in funds immediately available in Chicago, to
the Agent at its address specified pursuant to Article XIII. The Agent will
make the funds so received from the Lenders available to the Borrower at the
Agent's aforesaid address.
2.10. Conversion and Continuation of Outstanding Advances. Floating Rate
Advances shall continue as Floating Rate Advances unless and until such Floating
Rate Advances are converted into Eurodollar Advances. Each Eurodollar Advance
shall continue as a Eurodollar Advance until the end of the then applicable
Interest Period therefor, at which time such Eurodollar Advance shall be
automatically converted into a Floating Rate Advance unless the Borrower shall
have given the Agent a Conversion/Continuation Notice requesting that, at the
end of such Interest Period, such Eurodollar Advance continue as a Eurodollar
Advance for the same or another Interest Period. Subject to the terms of
Section 2.7, the Borrower may elect from time to time to convert all or any part
of an Advance of any Type into any other Type or Types of Advances; provided,
however, that any conversion of any Eurodollar Advance shall be made on, and
only on, the last day of the Interest Period applicable thereto. The Borrower
shall give the Agent irrevocable notice substantially in the form of Exhibit D
hereto (a "Conversion/Continuation Notice") of each conversion of a Floating
Rate Advance or continuation of a Eurodollar Advance not later than 10:00 a.m.
(Chicago time) at least one (1) Business Day, in the case of a conversion into a
Floating Rate Advance, or at least three (3) Business Days, in the case of a
conversion into or continuation of a Eurodollar Advance, prior to the date of
the requested conversion or continuation, specifying:
(a) the requested date of such conversion or continuation, which
shall be a Business Day;
(b) the aggregate amount and Type of the Advance which is to be
converted or continued; and
(c) the amount and Type(s) of Advance(s) into which such Advance
is to be converted or continued and, in the case of a conversion into or
continuation of a Eurodollar Advance, the duration of the Interest Period
applicable thereto, which shall end on or prior to the (x) Revolver
Termination Date, with respect to Revolving Credit Advances and (y) Term
Loan Maturity Date, with respect to Term Loans.
2.11. Changes in Interest Rate, etc. Each Floating Rate Advance shall
bear interest at the Floating Rate from and including the date of such Advance
or the date on which such Advance was converted into a Floating Rate Advance to
(but not including) the date on which such Floating Rate Advance is paid or
converted to a Eurodollar Advance. Changes in the rate of interest on that
portion of any Advance maintained as a Floating Rate Advance will take effect
simultaneously with each change in the Floating Rate. Each Eurodollar Advance
shall bear interest from and including the first day of the Interest Period
applicable thereto to, but not including, the last day of such Interest Period
at the interest rate determined as applicable to such Eurodollar Advance. No
Interest Period may end after the (x) Revolver Termination Date, with respect to
Revolving Credit Advances and (y) Term Loan Maturity Date, with respect to Term
Loans. The Borrower shall select Interest Periods so that it is not necessary
to repay any portion of a Eurodollar Advance prior to the last day of the
applicable Interest Period in order to make a mandatory repayment required
pursuant to Section 2.2.
2.12. Rates Applicable After Default. Notwithstanding anything to the
contrary contained in Section 2.9 or 2.10, no Advance may be made as, converted
into or continued as a Eurodollar Advance (except with the consent of the
Required Lenders) when any Default or Unmatured Default has occurred and is
continuing. During the continuance of a Default, the Required Lenders may, at
their option, by notice to the Borrower (which notice may be revoked at the
option of the Required Lenders notwithstanding any provision of Section 8.2
requiring unanimous consent of the Lenders to changes in interest rates),
declare that each Eurodollar Advance and Floating Rate Advance shall bear
interest at a rate per annum equal to the Floating Rate plus two percent
(2.00%) per annum; provided, however, that such increased rate shall
automatically and without action of any kind by the Lenders become and remain
applicable until cured or revoked by the Required Lenders in the event of a
Default described in Section 7.6 or 7.7.
2.13. Method of Payment. All payments of the Obligations hereunder shall
be made, without setoff, deduction or counterclaim, in immediately available
funds to the Agent at the Agent's address specified pursuant to Article XIII, or
at any other Lending Installation of the Agent specified in writing by the Agent
to the Borrower, by noon (Chicago time) on the date when due and shall be
applied ratably by the Agent among the Lenders. Each payment delivered to the
Agent for the account of any Lender shall be delivered promptly by the Agent to
such Lender in the same type of funds that the Agent received at its address
specified pursuant to Article XIII or at any Lending Installation specified in a
notice received by the Agent from such Lender. The Agent is hereby authorized
to charge the account of the Borrower maintained with First Chicago for each
payment of principal, interest and fees as it becomes due hereunder.
2.14. Notes; Telephonic Notices. Each Lender is hereby authorized to
record the principal amount of each of its Loans and each repayment on the
schedule attached to its Revolving Credit Note or Term Note, as applicable;
provided, however, that neither the failure to so record nor any error in such
recordation shall affect the Borrower's obligations under such Note. The
Borrower hereby authorizes the Lenders and the Agent to extend, convert or
continue Advances, effect selections of Types of Advances and to transfer funds
based on telephonic notices made by any person or persons the Agent or any
Lender in good faith believes to be acting on behalf of the Borrower. The
Borrower agrees to deliver promptly to the Agent a written confirmation, if such
confirmation is requested by the Agent or any Lender, of each telephonic notice
signed by an Authorized Officer. If the written confirmation differs in any
material respect from the action taken by the Agent and the Lenders, the records
of the Agent and the Lenders shall govern absent manifest error.
2.15. Interest Payment Dates; Interest and Fee Basis. Interest accrued on
each Floating Rate Advance shall be payable on each Payment Date, commencing
with the first such date to occur after the date hereof, on any date on which a
Floating Rate Advance is prepaid, whether due to acceleration or otherwise, and
at maturity. Interest accrued on that portion of the outstanding principal
amount of any Floating Rate Advance converted into a Eurodollar Advance on a day
other than a Payment Date shall be payable on the date of conversion. Interest
accrued on each Eurodollar Advance shall be payable on the last day of its
applicable Interest Period, on any date on which the Eurodollar Advance is
prepaid, whether by acceleration or otherwise, and at maturity. Interest
accrued on each Eurodollar Advance having an Interest Period longer than three
months shall also be payable on the last day of each three-month interval during
such Interest Period. Interest with respect to Eurodollar Advances shall be
calculated for actual days elapsed on the basis of a 360-day year. Interest
with respect to Floating Rate Advances and commitment fees shall be calculated
for actual days elapsed on the basis of a 365/366 day year. Interest shall be
payable for the day an Advance is made but not for the day of any payment on the
amount paid if payment is received prior to noon (Chicago time) at the place of
payment. If any payment of principal of or interest on an Advance shall become
due on a day which is not a Business Day, such payment shall be made on the next
succeeding Business Day and, in the case of a principal payment, such extension
of time shall be included in computing interest in connection with such payment.
2.16. Notification of Advances, Interest Rates, Prepayments, Commitment
Reductions and Issuance Requests. Promptly after receipt thereof, the Agent
will notify each Lender of the contents of each Aggregate Revolving Credit
Commitment reduction notice, Borrowing Notice, Conversion/Continuation Notice,
Issuance Request and repayment notice received by it hereunder. The Agent will
notify each Lender of the interest rate applicable to each Eurodollar Advance
promptly upon determination of such interest rate and will give each Lender
prompt notice of each change in the Floating Rate.
2.17. Lending Installations. Each Lender may book its Loans at any
Lending Installation selected by such Lender and may change its Lending
Installation from time to time. All terms of this Agreement shall apply to any
such Lending Installation and the Notes shall be deemed held by each Lender for
the benefit of such Lending Installation. Each Lender may, by written or telex
notice to the Agent and the Borrower, designate a Lending Installation through
which Loans will be made by it and for whose account Loan payments are to be
made.
2.18. Non-Receipt of Funds by the Agent. Unless the Borrower or a Lender,
as the case may be, notifies the Agent prior to the date on which it is
scheduled to make payment to the Agent of (a) in the case of a Lender, the
proceeds of a Loan, or (b) in the case of the Borrower, a payment of principal,
interest or fees to the Agent for the account of the Lenders, that it does not
intend to make such payment, the Agent may assume that such payment has been
made. The Agent may, but shall not be obligated to, make the amount of such
payment available to the intended recipient in reliance upon such assumption.
If the Borrower has not in fact made such payment to the Agent, the Lenders
shall, on demand by the Agent, repay to the Agent the amount so made available
together with interest thereon in respect of each day during the period
commencing on the date such amount was so made available by the Agent until the
date the Agent recovers such amount at a rate per annum equal to the Federal
Funds Effective Rate for such day. If any Lender has not in fact made such
payment to the Agent, such Lender or the Borrower shall, on demand by the Agent,
repay to the Agent the amount so made available together with interest thereon
in respect of each day during the period commencing on the date such amount was
so made available by the Agent until the date the Agent recovers such amount at
a rate per annum equal to (a) in the case of payment by a Lender, the Federal
Funds Effective Rate for such day, or (b) in the case of payment by the
Borrower, the interest rate applicable to the relevant Loan.
2.19. Taxes. (a) Any payments made by the Borrower under this Agreement
shall be made free and clear of, and without deduction or withholding for or on
account of, any present or future income, stamp or other taxes, levies, imposts,
duties, charges, fees, deductions or withholdings, now or hereafter imposed,
levied, collected, withheld or assessed by any Governmental Authority, excluding
net income taxes and franchise taxes or any other tax based upon any income
imposed on the Agent or any Lender by the jurisdiction in which the Agent or
such Lender is incorporated or has its principal place of business. If any such
non-excluded taxes, levies, imposts, duties, charges, fees, deductions or
withholdings ("Non-Excluded Taxes") are required to be withheld from any amounts
payable to the Agent or any Lender hereunder, the amounts so payable to the
Agent or such Lender shall be increased to the extent necessary to yield to the
Agent or such Lender (after payment of all Non-Excluded Taxes) interest or any
such other amounts payable hereunder at the rates or in the amounts specified in
or pursuant to this Agreement; provided, however, that the Borrower shall not be
required to increase any such amounts payable to any Lender that is not
organized under the laws of the U.S. or a state thereof if such Lender fails to
comply with the requirements of paragraph (b) of this Section 2.19. Whenever any
Non-Excluded Taxes are payable by the Borrower, as promptly as practicable
thereafter the Borrower shall send to the Agent for its own account or for the
account of such Lender, as the case may be, a certified copy of an original
official receipt received by the Borrower showing payment thereof. If the
Borrower fails to pay any Non-Excluded Taxes when due to the appropriate taxing
authority or fails to remit to the Agent the required receipts or other required
documentary evidence, the Borrower shall indemnify the Agent and the Lenders for
any incremental taxes, interest or penalties that may become payable by any
Agent or any Lender as a result of any such failure. The agreements in this
Section 2.19 shall survive the termination of this Agreement and the payment of
all other amounts payable hereunder.
(b) At least five Business Days prior to the first date on which
interest or fees are payable hereunder for the account of any Lender, each
Lender that is not incorporated under the laws of the United States of America,
or a state thereof, agrees that it will deliver to each of the Borrower and the
Agent two duly completed copies of United States Internal Revenue Service Form
1001 or 4224, certifying in either case that such Lender is entitled to receive
payments under this Agreement and the Notes without deduction or withholding of
any United States federal income taxes. Each Lender which so delivers a Form
1001 or 4224 further undertakes to deliver to each of the Borrower and the Agent
two additional copies of such form (or a successor form) on or before the date
that such form expires (currently, three successive calendar years for Form 1001
and one calendar year for Form 4224) or becomes obsolete or after the occurrence
of any event requiring a change in the most recent forms so delivered by it, and
such amendments thereto or extensions or renewals thereof as may be reasonably
requested by the Borrower or the Agent, in each case certifying that such Lender
is entitled to receive payments under this Agreement and the Notes without
deduction or withholding of any United States federal income taxes, unless an
event (including, without limitation, any change in treaty, law or regulation)
has occurred prior to the date on which any such delivery would otherwise be
required which renders all such forms inapplicable or which would prevent such
Lender from duly completing and delivering any such form with respect to it and
such Lender advises the Borrower and the Agent that it is not capable of
receiving payments without any deduction or withholding of United States federal
income tax.
2.20. Agent's Fees. The Borrower shall pay to the Agent those fees, in
addition to the commitment fees referenced in Section 2.6(a), in the amounts and
at the times separately agreed to between the Agent and the Borrower.
2.21. Facility Letters of Credit.
2.21.1 Issuance of Facility Letters of Credit. (a) From and after
the date hereof, the Issuer agrees, upon the terms and conditions set forth
in this Agreement, to issue at the request and for the account of the
Borrower, one or more Facility Letters of Credit; provided, however, that
the Issuer shall not be under any obligation to issue, and shall not issue,
any Facility Letter of Credit if (i) any order, judgment or decree of any
Governmental Authority or other regulatory body with jurisdiction over the
Issuer shall purport by its terms to enjoin or restrain such Issuer from
issuing such Facility Letter of Credit, or any law or governmental rule,
regulation, policy, guideline or directive (whether or not having the force
of law) from any Governmental Authority or other regulatory body with
jurisdiction over the Issuer shall prohibit, or request that the Issuer
refrain from, the issuance of Facility Letters of Credit in particular or
shall impose upon the Issuer with respect to any Facility Letter of Credit
any restriction or reserve or capital requirement (for which the Issuer is
not otherwise compensated) or any unreimbursed loss, cost or expense which
was not applicable, in effect and known to the Issuer as of the date of
this Agreement and which the Issuer in good faith deems material to it;
(ii) one or more of the conditions to such issuance contained in Section
4.2 is not then satisfied; or (iii) after giving effect to such issuance,
the aggregate outstanding amount of the Facility Letter of Credit
Obligations would exceed the Facility Letter of Credit Sublimit.
(b) In no event shall: (i) the aggregate amount of the Facility
Letter of Credit Obligations at any time exceed the Facility Letter of
Credit Sublimit; (ii) the sum at any time of (A) the aggregate amount of
Facility Letter of Credit Obligations and (B) the aggregate principal
balance of outstanding Revolving Credit Advances exceed the amount of the
Aggregate Revolving Credit Commitment; or (iii) the expiration date of any
Facility Letter of Credit (including, without limitation, Facility Letters
of Credit issued with an automatic "evergreen" provision providing for
renewal absent advance notice by the Borrower or the Issuer), or the date
for payment of any draft presented thereunder and accepted by the Issuer,
be later than July 23, 1999.
2.21.2 Participating Interests. Immediately upon the issuance by
the Issuer of a Facility Letter of Credit in accordance with Section
2.21.4, each Lender shall be deemed to have irrevocably and unconditionally
purchased and received from the Issuer, without recourse, representation or
warranty, an undivided participation interest equal to its pro-rata share
of the Aggregate Revolving Credit Commitment of the face amount of such
Facility Letter of Credit and each draw paid by the Issuer thereunder.
Each Lender's obligation to pay its proportionate share of all draws under
the Facility Letters of Credit, absent gross negligence or willful
misconduct by the Issuer in honoring any such draw, shall be absolute,
unconditional and irrevocable and in each case shall be made without
counterclaim or set-off by such Lender.
2.21.3 Facility Letter of Credit Reimbursement Obligations. (a) The
Borrower agrees to pay to the Issuer of a Facility Letter of Credit (i) on
each date that any amount is drawn under each Facility Letter of Credit a
sum (and interest on such sum as provided in clause (ii) below) equal to
the amount so drawn plus all other charges and expenses with respect
thereto specified in Section 2.21.6 or in the applicable Reimbursement
Agreement and (ii) interest on any and all amounts remaining unpaid under
this Section 2.21.3 until payment in full at the Floating Rate plus two
percent (2.00%) per annum. The Borrower agrees to pay to the Issuer the
amount of all Reimbursement Obligations owing in respect of any Facility
Letter of Credit immediately when due, under all circumstances, including,
without limitation, any of the following circumstances: (w) any lack of
validity or enforceability of this Agreement or any of the other Loan
Documents; (x) the existence of any claim, set-off, defense or other right
which the Borrower may have at any time against a beneficiary named in a
Facility Letter of Credit, any transferee of any Facility Letter of Credit
(or any Person for whom any such transferee may be acting), any Lender or
any other Person, whether in connection with this Agreement, any Facility
Letter of Credit, the transactions contemplated herein or any unrelated
transactions (including any underlying transaction between the Borrower and
the beneficiary named in any Facility Letter of Credit); (y) the validity,
sufficiency or genuineness of any document which the Issuer has determined
in good faith complies on its face with the terms of the applicable
Facility Letter of Credit, even if such document should later prove to have
been forged, fraudulent, invalid or insufficient or any statement therein
shall have been untrue or inaccurate; or (z) the surrender or impairment of
any security for the performance or observance of any of the terms hereof.
(b) Notwithstanding any provisions to the contrary in any
Reimbursement Agreement, the Borrower agrees to reimburse the Issuer for
amounts which the Issuer pays under such Facility Letter of Credit no later
than the time specified in paragraph (a) above. If the Borrower does not
pay any such Reimbursement Obligations when due, the Borrower shall be
deemed to have immediately requested that the Lenders make a Floating Rate
Advance under this Agreement in a principal amount equal to such
unreimbursed Reimbursement Obligations. The Agent shall promptly notify
the Lenders of such deemed request and, without the necessity of compliance
with the requirements of Sections 2.7 and 4.2, each Lender shall make
available to the Agent its Loan in the manner prescribed for Floating Rate
Advances. The proceeds of such Loans shall be paid over by the Agent to
the Issuer for the account of the Borrower in satisfaction of such
unreimbursed Reimbursement Obligations, which shall thereupon be deemed
satisfied by the proceeds of, and replaced by, such Floating Rate Advance.
(c) If the Issuer makes a payment on account of any Facility
Letter of Credit and is not reimbursed therefor by the Borrower pursuant to
paragraph (a) above and if for any reason a Floating Rate Advance may not
be made pursuant to paragraph (b) above, then as promptly as practical
during normal banking hours on the date of its receipt of such notice or,
if not practicable on such date, not later than noon (Chicago time) on the
Business Day immediately succeeding such date of notification, each Lender
shall deliver to the Agent for the account of the Issuer, in immediately
available funds, the purchase price for such Lender's interest in such
unreimbursed Facility Letter of Credit Obligations, which shall be an
amount equal to such Lender's pro-rata share of such payment. Each Lender
shall, upon demand by the Issuer, pay the Issuer interest on such Lender's
pro-rata share of such draw from the date of payment by the Issuer on
account of such Facility Letter of Credit until the date of delivery of
such funds to the Issuer by such Lender at a rate per annum, computed for
actual days elapsed based on a 365/366-day year, equal to the Federal Funds
Effective Rate for such period; provided, that such payments shall be made
by the Lenders only in the event and to the extent that the Issuer is not
reimbursed in full by the Borrower for interest on the amount of any draw
on the Facility Letters of Credit.
(d) At any time after the Issuer has made a payment on account of
any Facility Letter of Credit and has received from any other Lender such
Lender's pro-rata share of such payment, such Issuer shall, forthwith upon
its receipt of any reimbursement (in whole or in part) by the Borrower for
such payment, or of any other amount from the Borrower or any other Person
in respect of such payment (including, without limitation, any payment of
interest or penalty fees and any payment under any collateral account
agreement of the Borrower or any Loan Document but excluding any transfer
of funds from any other Lender pursuant to Section 2.21.3(b)), transfer to
such other Lender such other Lender's ratable share of such reimbursement
or other amount; provided, that interest shall accrue for the benefit of
such Lender from the time such Issuer has made a payment on account of any
Facility Letter of Credit; provided, further, that in the event that the
receipt by the Issuer of such reimbursement or other amount is found to
have been a transfer in fraud of creditors or a preferential payment under
the Bankruptcy Code or is otherwise required to be returned, such Lender
shall promptly return to the Issuer any portion thereof previously
transferred by the Issuer to such Lender, but without interest to the
extent that interest is not payable by the Issuer in connection therewith.
2.21.4 Procedure for Issuance. Prior to the issuance of each
Facility Letter of Credit, and as a condition of such issuance, the
Borrower shall deliver to the Issuer (with a copy to the Agent) a
Reimbursement Agreement signed by the Borrower, together with such other
documents or items as may be required pursuant to the terms thereof, and
the proposed form and content of such Facility Letter of Credit shall be
reasonably satisfactory to the Issuer. Each Facility Letter of Credit
shall be issued no earlier than two (2) Business Days after delivery of the
foregoing documents, which delivery may be by the Borrower to the Issuer by
facsimile transmission, telex or other electronic means followed by
delivery of executed originals within five (5) days thereafter. The
documents so delivered shall be in compliance with the requirements set
forth in Section 2.21.1(b), and shall specify therein (i) the stated amount
of the Facility Letter of Credit requested, (ii) the effective date of
issuance of such requested Facility Letter of Credit, which shall be a
Business Day, (iii) the date on which such requested Facility Letter of
Credit is to expire, (iv) the entity for whose benefit the requested
Facility Letter of Credit is to be issued, which shall be the Borrower or a
Subsidiary and (v) the aggregate amount of Facility Letter of Credit
Obligations which are outstanding and which will be outstanding after
giving effect to the requested Facility Letter of Credit issuance. The
delivery of the foregoing documents and information shall constitute an
"Issuance Request" for purposes of this Agreement. Subject to the terms
and conditions of Section 2.21.1 and provided that the applicable
conditions set forth in Section 4.2 hereof have been satisfied, the Issuer
shall, on the requested date, issue a Facility Letter of Credit on behalf
of the Borrower in accordance with the Issuer's usual and customary
business practices. In addition, any amendment of an existing Facility
Letter of Credit shall be deemed to be an issuance of a new Facility Letter
of Credit and shall be subject to the requirements set forth above. The
Issuer shall give the Agent prompt written notice of the issuance of any
Facility Letter of Credit.
2.21.5 Nature of the Lenders' Obligations. (a) As between the
Borrower and the Lenders, the Borrower assumes all risks of the acts and
omissions of, or misuse of the Facility Letters of Credit by, the
respective beneficiaries of the Facility Letters of Credit. In furtherance
and not in limitation of the foregoing, the Lenders shall not be
responsible for (i) the form, validity, sufficiency, accuracy, genuineness
or legal effect of any document submitted by any party in connection with
the application for an issuance of a Facility Letter of Credit, even if it
should in fact prove to be in any or all respects invalid, insufficient,
inaccurate, fraudulent or forged; (ii) the validity or sufficiency of any
instrument transferring or assigning or purporting to transfer or assign a
Facility Letter of Credit or the rights or benefits thereunder or proceeds
thereof, in whole or in part, which may prove to be invalid or ineffective
for any reason; (iii) the failure of the beneficiary of a Facility Letter
of Credit to comply fully with conditions required to be satisfied by any
Person other than the Issuer in order to draw upon such Facility Letter of
Credit (other than a failure to satisfy documentary conditions to drawing
where payment of the Facility Letter of Credit despite such failure would
constitute gross negligence or willful misconduct of the Issuer); (iv)
errors, omissions, interruptions or delays in transmission or delivery of
any messages, by mail, cable, facsimile transmission, telegraph, telex or
otherwise; (v) the misapplication by the beneficiary of a Facility Letter
of Credit of the proceeds of any drawing under such Facility Letter of
Credit; or (vi) any consequences arising from causes beyond control of the
Issuer.
(b) In furtherance and extension and not in limitation of the
specific provisions hereinabove set forth (including in Section 2.21.3(a)),
any action taken or omitted by the Issuer under or in connection with the
Facility Letters of Credit or any related certificates, if taken or omitted
in good faith and absent willful misconduct or gross negligence, shall not
put the Agent or any Lender under any resulting liability to the Borrower
or relieve the Borrower of any of its obligations hereunder to the Issuer
or any such Person.
2.21.6 Facility Letter of Credit Fees. The Borrower hereby agrees
to pay to the Agent for the account of the Issuer or the Lenders, as
applicable, letter of credit fees with respect to each Facility Letter of
Credit from and including the date of issuance thereof until the date such
Facility Letter of Credit is fully drawn, cancelled or expired, (a) for the
account of the Issuer, computed at such rate as may be agreed upon between
the Issuer and the Borrower, on the aggregate initial face amount of such
Facility Letter of Credit payable on the date of issuance, and (b) for the
ratable account of the Lenders, equal to one percent (1.00%) of the
aggregate amount from time to time available to be drawn on such Facility
Letter of Credit, calculated with respect to actual days elapsed on the
basis of a 365/366-day year and payable quarterly in arrears on each
Payment Date in each year and upon the expiration, cancellation or
utilization in full of such Facility Letter of Credit. In addition to the
foregoing, the Borrower agrees to pay the Issuer any other administrative
fees customarily charged by it in respect of letters of credit issued by
it.
ARTICLE III
CHANGE IN CIRCUMSTANCES
3.1. Yield Protection. If, after the date hereof, the adoption of or any
change in any law or any governmental or quasi-governmental rule, regulation,
policy, guideline or directive (whether or not having the force of law), or any
interpretation thereof, or the compliance of any Lender therewith,
(a) subjects any Lender or any applicable Lending Installation to
any tax, duty, charge or withholding on or from payments due from the
Borrower (excluding federal, state or local taxation of the overall net
income of any Lender or applicable Lending Installation imposed by the
jurisdiction in which such Lender or Lending Installation is incorporated
or has its principal place of business), or changes the basis of taxation
of principal, interest or any other payments to any Lender or Lending
Installation in respect of its Loans, its interest in the Facility Letters
of Credit or other amounts due it hereunder, or
(b) imposes or increases or deems applicable any reserve,
assessment, insurance charge, special deposit or similar requirement
against assets of, deposits with or for the account of, or credit extended
by, any Lender or any applicable Lending Installation (other than reserves
and assessments taken into account in determining the interest rate
applicable to Eurodollar Advances), or
(c) imposes any other condition the result of which is to
increase the cost to any Lender or any applicable Lending Installation of
making, funding or maintaining Loans or issuing Facility Letters of Credit
or reduces any amount receivable by any Lender or any applicable Lending
Installation in connection with any Loans or Facility Letters of Credit, or
requires any Lender or any applicable Lending Installation to make any
payment calculated by reference to the amount of Loans held, Facility
Letters of Credit issued or participated in or interest received by it, by
an amount deemed material by such Lender,
then, within 15 days of demand by such Lender, the Borrower shall pay such
Lender that portion of such increased expense incurred or resulting in an amount
received which such Lender determines is attributable to making, funding and
maintaining its Loans, its interest in the Facility Letters of Credit and its
Commitment.
3.2. Changes in Capital Adequacy Regulations. If a Lender determines the
amount of capital required or expected to be maintained by such Lender, any
Lending Installation of such Lender or any corporation controlling such Lender
is increased as a result of a Change, then, within 15 days of demand by such
Lender, the Borrower shall pay such Lender the amount necessary to compensate
for any shortfall in the rate of return on the portion of such increased capital
which such Lender determines is attributable to this Agreement, its Loans, its
interest in the Facility Letters of Credit or its obligation to make Loans or
participate in or issue Facility Letters of Credit hereunder (after taking into
account such Lender's policies as to capital adequacy). "Change" means (a) any
change after the date of this Agreement in the Risk-Based Capital Guidelines, or
(b) any adoption of or change in any other law, governmental or
quasi-governmental rule, regulation, policy, guideline, interpretation, or
directive (whether or not having the force of law) after the date of this
Agreement which affects the amount of capital required or expected to be
maintained by any Lender or any Lending Installation or any corporation
controlling any Lender. "Risk-Based Capital Guidelines" means (a) the
risk-based capital guidelines in effect in the United States on the date of this
Agreement and (b) the corresponding capital regulations promulgated by
regulatory authorities outside the United States implementing the July 1988
report of the Basle Committee on Banking Regulation and Supervisory Practices
entitled "International Convergence of Capital Measurements and Capital
Standards" and any amendments to such regulations adopted prior to the date of
this Agreement.
3.3. Availability of Types of Advances. If any Lender determines that
maintenance of its Eurodollar Loans at a suitable Lending Installation would
violate any applicable law, rule, regulation, or directive, whether or not
having the force of law, or if the Required Lenders determine that (a) deposits
of a type and maturity appropriate to match fund Eurodollar Advances are not
available, or (b) the interest rate applicable to a Type of Advance does not
accurately or fairly reflect the cost of making or maintaining such Advance,
then the Agent shall suspend the availability of the affected Type of Advance
until such circumstance no longer exists and require any Eurodollar Advances of
the affected Type to be repaid.
3.4. Funding Indemnification. If any payment of a Eurodollar Advance
occurs on a date which is not the last day of the applicable Interest Period,
whether because of acceleration, prepayment or otherwise, or a Eurodollar
Advance is not made on the date specified by the Borrower for any reason other
than default by the Lenders, the Borrower will indemnify the Agent and each
Lender for any loss or cost incurred by it resulting therefrom, including,
without limitation, any loss or cost in liquidating or employing deposits
acquired to fund or maintain the Eurodollar Advance.
3.5. Lender Statements; Survival of Indemnity. To the extent reasonably
possible, each Lender shall designate an alternate Lending Installation with
respect to its Eurodollar Advances to reduce any liability of the Borrower to
such Lender under Sections 3.1 and 3.2 or to avoid the unavailability of a Type
of Advance under Section 3.3, so long as such designation is not disadvantageous
to such Lender. Each Lender shall deliver a written statement of such Lender to
the Borrower (with a copy to the Agent) as to the amount due, if any, under
Section 3.1, 3.2 or 3.4. Such written statement shall set forth in reasonable
detail the calculations upon which such Lender determined such amount and shall
be final, conclusive and binding on the Borrower in the absence of manifest
error. Determination of amounts payable under such Sections in connection with
a Eurodollar Advance shall be calculated as though each Lender funded its
Eurodollar Advances through the purchase of a deposit of the type and maturity
corresponding to the deposit used as a reference in determining the Eurodollar
Rate applicable to such Loan, whether in fact that is the case or not. Unless
otherwise provided herein, the amount specified in the written statement of any
Lender shall be payable on demand after receipt by the Borrower of the written
statement. The obligations of the Borrower under Sections 3.1, 3.2 and 3.4
shall survive payment of the Obligations and termination of this Agreement.
ARTICLE IV
CONDITIONS PRECEDENT
4.1. Initial Loans and Facility Letters of Credit. The Lenders shall not
be required to make the Term Loan or the initial Revolving Credit Advance
hereunder and the Issuer shall not be required to issue any Facility Letter of
Credit hereunder unless the Borrower has furnished the following to the Agent
with sufficient copies for the Lenders and the other conditions set forth below
have been satisfied, in each case on or before August 31, 1996:
(a) Charter Documents; Good Standing Certificates. Copies of the
certificate of incorporation of the Borrower, together with all amendments
thereto, both certified by the appropriate governmental officer in its
jurisdiction of incorporation, together with a good standing certificate
issued by the Secretary of State of the jurisdiction of its incorporation
and such other jurisdictions in which the Borrower is qualified to transact
business as a foreign corporation.
(b) By-Laws and Resolutions. Copies, certified by the Secretary
or Assistant Secretary of the Borrower, of its by-laws and of its Board of
Directors', or executive committee of its Board of Directors, resolutions
(and resolutions of other bodies, if any are deemed necessary by counsel
for the Agent) authorizing the execution, delivery and performance of the
Loan Documents to which the Borrower is a party.
(c) Secretary's Certificate. An incumbency certificate, executed
by the Secretary or Assistant Secretary of the Borrower, which shall
identify by name and title and bear the signature of the officers of the
Borrower authorized to sign the Loan Documents and to make borrowings
hereunder, upon which certificate the Agent and the Lenders shall be
entitled to rely until informed of any change in writing by the Borrower.
(d) Officer's Certificate. A certificate, dated the initial
Borrowing Date, signed by an Authorized Officer of the Borrower, in form
and substance satisfactory to the Agent, to the effect that on the initial
Borrowing Date (both before and after giving effect to the consummation of
the transactions contemplated hereby, the making of the Loans and the
issuance of any Facility Letters of Credit hereunder: (i) no Default or
Unmatured Default has occurred and is continuing; (ii) no injunction or
temporary restraining order which would prohibit the making of the Loans or
the issuance of any Facility Letters of Credit, or other litigation which
could reasonably be expected to have a Material Adverse Effect is pending
or, to the best of such Person's knowledge, threatened; (iii) all material
orders, consents, approvals, licenses, authorizations, or validations of,
or filings, recordings or registrations with, or exemptions by, any
Governmental Authority have been or, prior to the time required, will have
been, obtained, given, filed or taken and are or will be in full force and
effect (or the Borrower has obtained effective judicial relief with respect
to the application thereof) and all applicable waiting periods have
expired; (iv) each of the representations and warranties set forth in
Article V of this Agreement is true and correct on and as of the initial
Borrowing Date; and (v) since December 31, 1995, no event or change has
occurred that has caused or evidences a Material Adverse Effect.
(e) Legal Opinions. A written opinion of A. Clark Waid III,
Esq., Assistant General Counsel of the Borrower, addressed to the Agent and
the Lenders in form and substance acceptable to the Agent and its counsel.
(f) Revolving Credit Notes. Revolving Credit Notes payable to
the order of each of the Lenders duly executed by the Borrower.
(g) Term Notes. Term Notes payable to the order of each of the
Lenders duly executed by the Borrower.
(h) Loan Documents. Executed originals of this Agreement and
each of the Loan Documents, which shall be in full force and effect,
together with all schedules, exhibits, certificates, instruments, opinions,
documents and financial statements required to be delivered pursuant hereto
and thereto.
(i) Letters of Direction. Written money transfer instructions
with respect to the initial Advances and to future Advances in form and
substance acceptable to the Agent and its counsel addressed to the Agent
and signed by an Authorized Officer, together with such other related money
transfer authorizations as the Agent may have reasonably requested.
(j) Solvency Certificate. A written solvency certificate from
the chief financial officer of the Borrower in form and content
satisfactory to the Agent, dated the initial Borrowing Date, with respect
to the value, Solvency and other factual information, or relating to, as
the case may be, of the Borrower and of the Borrower and its Subsidiaries,
taken as a whole.
(k) Fees. The Borrower shall have paid to the Agent a $25,000
closing fee, such fee to be distributed to the Lenders pro rata on the
basis of their Commitment in effect on the date of this Agreement.
(l) Insurance Subsidiary Certificate of Compliance. Copies of a
certificate of the insurance commissioner or similar official from each
Principal Insurance Subsidiary's jurisdiction of incorporation as to the
good standing of such Principal Insurance Subsidiary.
(m) Bank Payoff Letter. A bank payoff letter, or other evidence of
satisfaction, in form and substance acceptable to the Agent from American
National Bank and Trust Company, to the effect that the total amount due
under the Borrower's agreements with such lender howsoever due and owing
(whether as principal, interest or premium) shall be satisfied (and such
agreements terminated) upon payment of an amount certain, together with
such lien releases and other documents as the Agent shall require. Neither
the Borrower nor any of its Subsidiaries shall have any outstanding
Indebtedness other than the Indebtedness described in Section 5.16, and the
documentation governing any such other Indebtedness shall be in form and
substance, and on terms and conditions, reasonably satisfactory to the
Agent and the Required Lenders.
(n) Insurance Ratings. Evidence, reasonably satisfactory to the
Agent, that the rating given by A.M. Best Company, Inc. to (i) Pioneer Life
Insurance Company is equal to or higher than B++, (ii) Manhattan National
Life Insurance Company is equal to or higher than A-, (iii) National Group
Life Insurance Company is equal to or higher than B+ and (iv) Connecticut
National Life Insurance Company is equal to or higher than A-.
(o) Other. Such other documents as the Agent, any Lender or
their counsel may have reasonably requested.
4.2. Each Future Advance and Facility Letter of Credit. The Lenders
shall not be required to make any Advance and the Issuer shall not be obligated
to issue any future Facility Letter of Credit unless on the applicable Borrowing
Date:
(a) There exists no Default or Unmatured Default and none would
result from such Advance or issuance of such Facility Letter of Credit;
(b) The representations and warranties contained in Article V are
true and correct as of such Borrowing Date except to the extent any such
representation or warranty is stated to relate solely to an earlier date,
in which case such representation or warranty shall be true and correct on
and as of such earlier date.
(c) A Borrowing Notice or Issuance Request, as applicable, shall
have been properly submitted; and
(d) All legal matters incident to the making of such Advance or
issuance of such Facility Letter of Credit shall be reasonably satisfactory
to the Lenders and their counsel.
Each Borrowing Notice with respect to each such Advance and each Issuance
Request with respect to each such Facility Letter of Credit shall constitute a
representation and warranty by the Borrower that the conditions contained in
Section 4.2 have been satisfied.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Lenders that, both before and
after giving effect to the Closing Transactions:
5.1. Corporate Existence and Standing. Each of the Borrower and each
Subsidiary is a corporation duly incorporated, validly existing and in good
standing under the laws of its respective jurisdiction of incorporation and is
duly qualified and in good standing as a foreign corporation and is duly
authorized to conduct its business in each jurisdiction in which its business is
conducted or proposed to be conducted, except where the failure to be so
qualified could not reasonably be expected to have a Material Adverse Effect.
5.2. Authorization and Validity. The Borrower has all requisite power
and authority (corporate and otherwise) and legal right to execute and deliver
(or file, as the case may be) each of the Loan Documents and to perform its
obligations thereunder. The execution and delivery (or filing, as the case may
be) by the Borrower of the Loan Documents and the performance of its obligations
thereunder have been duly authorized by proper corporate proceedings and the
Loan Documents constitute legal, valid and binding obligations of the Borrower
enforceable in accordance with their terms, except as enforceability may be
limited by bankruptcy, insolvency or similar laws affecting the enforcement of
creditors' rights generally or by equitable principles (regardless of whether
enforcement is sought in equity or at law).
5.3. Compliance with Laws and Contracts. The Borrower and its Subsidi-
aries have complied in all material respects with all applicable statutes,
rules, regulations, orders and restrictions of any domestic or foreign
government or any instrumentality or agency thereof, having jurisdiction over
the conduct of their respective businesses or the ownership of their respective
properties, except where the failure to so comply could not reasonably be
expected to have a Material Adverse Effect. The execution and delivery by the
Borrower of the Loan Documents, the application of the proceeds of the Loans and
the Facility Letters of Credit and any other transaction contemplated in the
Loan Documents, and compliance with the provisions of the Loan Documents, does
not (a) violate any law, rule, regulation (including, without limitation,
Regulations G, T, U and X), order, writ, judgment, injunction, decree or award
binding on the Borrower or any Subsidiary or the Borrower's or any Subsidiary's
charter, articles or certificate of incorporation or by-laws, (b) violate the
provisions of or require the approval or consent of any party to any indenture,
instrument or agreement to which the Borrower or any Subsidiary is a party or is
subject, or by which it, or its property, is bound, or conflict with or
constitute a default thereunder, or result in the creation or imposition of any
Lien in, of or on the property of the Borrower or any Subsidiary pursuant to the
terms of any such indenture, instrument or agreement, or (c) require any consent
of the stockholders of any Person, except for approvals or consents which will
be obtained on or before the initial Borrowing Date and are disclosed on
Schedule 5.3, except for any violation of, or failure to obtain an approval or
consent required under, any such indenture, instrument or agreement that could
not reasonably be expected to have a Material Adverse Effect.
5.4. Governmental Consents. No order, consent, approval, qualification,
license, authorization, or validation of, or filing, recording or registration
with, or exemption by, or other action in respect of, any court, governmental or
public body or authority, or any subdivision thereof, any securities exchange or
other Person is or at the relevant time was required to authorize, or is or at
the relevant time was required in connection with the execution, delivery,
consummation or performance of, or the legality, validity, binding effect or
enforceability of, any of the Loan Documents. Neither the Borrower nor any
Subsidiary is in default under or in violation of any foreign, federal, state or
local law, rule, regulation, order, writ, judgment, injunction, decree or award
binding upon or applicable to the Borrower or such Subsidiary, in each case the
consequences of which default or violation could reasonably be expected to have
a Material Adverse Effect.
5.5. Financial Statements. The Borrower has heretofore furnished to each
of the Lenders (a) the December 31, 1995 audited consolidated financial
statements of the Borrower and its Subsidiaries, (b) the unaudited consolidated
financial statements of the Borrower and its Subsidiaries through March 31,
1996, (c) the December 31, 1995 Annual Statement of each Insurance Subsidiary
and (d) the March 31, 1996 Quarterly Statement of each Insurance Subsidiary
(collectively, the "Financial Statements"). Each of the Financial Statements
was prepared in accordance with Agreement Accounting Principles or SAP, as
applicable, and such Financial Statements prepared in accordance with Agreement
Accounting Principles fairly presents the consolidated financial condition and
operations of the Borrower and its Subsidiaries at such dates and the
consolidated results of their operations for the respective periods then ended
(except, in the case of such unaudited statements, for normal year-end audit
adjustments).
5.6. Material Adverse Change. No material adverse change in the
business, condition (financial or otherwise), operations, performance,
Properties or prospects of operations of the Borrower or of the Borrower and its
Subsidiaries taken as a whole has occurred since December 31, 1995.
5.7. Taxes. The Borrower and its Subsidiaries have filed or caused to be
filed on a timely basis and in correct form all United States federal and
applicable foreign, state and local tax returns and all other tax returns which
are required to be filed and have paid all taxes due pursuant to said returns or
pursuant to any assessment received by the Borrower or any Subsidiary, except
such taxes, if any, as are being contested in good faith and as to which
adequate reserves have been provided in accordance with Agreement Accounting
Principles and as to which no Lien (other than Liens permitted pursuant to
Section 6.17(a)) exists. As of the date hereof, the United States income tax
returns of the Borrower on a consolidated basis have been audited by the
Internal Revenue Service through Fiscal Year ending December 31, 1990 and there
are no pending audits or investigations regarding the Borrower's or its
Subsidiaries' federal, foreign, state or local tax returns. No tax liens have
been filed and no claims are being asserted with respect to any such taxes which
could reasonably be expected to have a Material Adverse Effect. The charges,
accruals and reserves on the books of the Borrower and its Subsidiaries in
respect of any taxes or other governmental charges are in accordance with
Agreement Accounting Principles.
5.8. Litigation and Contingent Obligations. There is no litigation,
arbitration, proceeding, inquiry or governmental investigation pending or, to
the knowledge of any of their officers, threatened against or affecting the
Borrower or any Subsidiary or any of their respective properties that could
reasonably be expected to have a Material Adverse Effect or to prevent, enjoin
or unduly delay the making of the Loans or the issuance of Facility Letters of
Credit under this Agreement. Neither the Borrower nor any Subsidiary has any
material Contingent Obligations except as required to be set forth on Schedule
5.16.
5.9. Capitalization. Schedule 5.9 hereto contains (a) an accurate
description of the Borrower's capitalization as of the date of this Agreement
and (b) an accurate list of all of the existing Subsidiaries as of the date of
this Agreement, setting forth their respective jurisdictions of incorporation
and the percentage of their capital stock owned by the Borrower or other
Subsidiaries. All of the issued and outstanding shares of capital stock of each
Subsidiary have been duly authorized and validly issued and are fully paid and
non-assessable, and are free and clear of all Liens other than restrictions
described on Schedule 6.17 hereto.
5.10. ERISA. Except as disclosed on Schedule 5.10, neither the Borrower
nor any other member of the Controlled Group maintains any Single Employer
Plans, and no Single Employer Plan has any Unfunded Liability. Neither the
Borrower nor any other member of the Controlled Group maintains, or is obligated
to contribute to, any Multiemployer Plan or has incurred, or is reasonably
expected to incur, any withdrawal liability to any Multiemployer Plan. Each
Plan complies in all material respects with all applicable requirements of law
and regulations. Neither the Borrower nor any member of the Controlled Group
has, with respect to any Plan, failed to make any contribution or pay any amount
required under Section 412 of the Code or Section 302 of ERISA or the terms of
such Plan. There are no pending or, to the knowledge of the Borrower,
threatened claims, actions, investigations or lawsuits against any Plan, any
fiduciary thereof, or the Borrower or any member of the Controlled Group with
respect to a Plan. Neither the Borrower nor any member of the Controlled Group
has engaged in any prohibited transaction (as defined in Section 4975 of the
Code or Section 406 of ERISA) in connection with any Plan which would subject
such Person to any material liability. Within the last five years neither the
Borrower nor any member of the Controlled Group has engaged in a transaction
which resulted in a Single Employer Plan with an Unfunded Liability being
transferred out of the Controlled Group. No Termination Event has occurred or
is reasonably expected to occur with respect to any Plan which is subject to
Title IV of ERISA.
5.11. Defaults. No Default or Unmatured Default has occurred and is
continuing.
5.12. Federal Reserve Regulations. Neither the Borrower nor any
Subsidiary is engaged, directly or indirectly, principally, or as one of its
important activities, in the business of extending, or arranging for the
extension of, credit for the purpose of purchasing or carrying Margin Stock. No
part of the proceeds of any Loan will be used in a manner which would violate,
or result in a violation of, Regulation G, Regulation T, Regulation U or
Regulation X. Neither the making of any Advance or issuance of any Facility
Letters of Credit hereunder nor the use of the proceeds thereof, will violate or
be inconsistent with the provisions of Regulation G, Regulation T, Regulation U
or Regulation X. Following the application of the proceeds of the Loans, less
than 25% of the value (as determined by any reasonable method) of the assets of
the Borrower and its Subsidiaries which are subject to any limitation on sale,
pledge, or other restriction hereunder taken as a whole have been, and will
continue to be, represented by Margin Stock.
5.13. Investment Company. Neither the Borrower nor any Subsidiary is, or
after giving effect to any Advance will be, an "investment company" or a company
"controlled" by an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
5.14. Certain Fees. No broker's or finder's fee or commission was, is or
will be payable by the Borrower or any Subsidiary with respect to any of the
transactions contemplated by this Agreement or the other Loan Documents. The
Borrower hereby agrees to indemnify the Agent and the Lenders against and agrees
that it will hold each of them harmless from any claim, demand or liability for
broker's or finder's fees or commissions alleged to have been incurred by the
Borrower in connection with any of the transactions contemplated by this
Agreement or the other Loan Documents and any expenses (including, without
limitation, attorneys' fees and time charges of attorneys for the Agent or any
Lender, which attorneys may be employees of the Agent or any Lender) arising in
connection with any such claim, demand or liability. No other similar fee or
commissions will be payable by the Borrower or any Subsidiary for any other
services rendered to the Borrower or any Subsidiary ancillary to any of the
transactions contemplated by this Agreement or the other Loan Documents.
5.15. Ownership of Properties. Except as set forth on Schedule 5.15
hereto, the Borrower and its Subsidiaries have a subsisting leasehold interest
in, or good and marketable title, free of all Liens, other than those permitted
by Section 6.17, to all of the properties and assets reflected in the Financial
Statements as being owned by it, except for assets sold, transferred or
otherwise disposed of in the ordinary course of business since the date thereof.
To the knowledge of the Borrower, there are no actual, threatened or alleged
defaults with respect to any leases of real property under which the Borrower or
any Subsidiary is lessee or lessor which could reasonably be expected to have a
Material Adverse Effect. The Borrower and its Subsidiaries own or possess
rights to use all licenses, patents, patent applications, copyrights, service
marks, trademarks and trade names necessary to continue to conduct their
business as heretofore conducted, and no such license, patent or trademark has
been declared invalid, been limited by order of any court or by agreement or is
the subject of any infringement, interference or similar proceeding or
challenge, except for proceedings and challenges which could not reasonably be
expected to have a Material Adverse Effect.
5.16. Indebtedness. Attached hereto as Schedule 5.16 is a complete and
correct list of all Indebtedness of the Borrower and its Subsidiaries
outstanding on the date of this Agreement (other than (a) Indebtedness in a
principal amount not exceeding $100,000 for a single item of Indebtedness and
$1,000,000 in the aggregate for all such Indebtedness and (b) Indebtedness
described in clause (y) in the definition "Indebtedness", it being understood
and agreed that any such Indebtedness shall be permitted to exist pursuant to
Section 6.11(b) notwithstanding the absence thereof on Schedule 5.16), showing
the aggregate principal amount which was outstanding on such date after giving
effect to the application of the proceeds of Loans on the initial Borrowing
Date. The Borrower has delivered or caused to be delivered to the Agent (who
shall remit copies to any Lender upon request) a true and complete copy of each
instrument evidencing any Indebtedness listed on Schedule 5.16 and of each
document pursuant to which any of such Indebtedness was issued.
5.17. Environmental Laws. There are no claims, investigations,
litigation, administrative proceedings, notices, requests for information (each
a "Proceeding"), whether pending or threatened, or judgments or orders asserting
violations of applicable federal, state and local environmental, health and
safety statutes, regulations, ordinances, codes, rules, orders, decrees,
directives and standards ("Environmental Laws") or relating to any toxic or
hazardous waste, substance or chemical or any pollutant, contaminant, chemical
or other substance defined or regulated pursuant to any Environmental Law,
including, without limitation, asbestos, petroleum, crude oil or any fraction
thereof ("Hazardous Materials") asserted against the Borrower or any of its
Subsidiaries which, in any case, could reasonably be expected to have a Material
Adverse Effect. As of the date hereof, there are no Proceedings pending, or to
the Borrower's knowledge threatened. Neither the Borrower nor any Subsidiary
has caused or permitted any Hazardous Materials to be released, either on or
under real property, currently or formerly, legally or beneficially owned or
operated by the Borrower or any Subsidiary or on or under real property to which
the Borrower or any of its Subsidiaries transported, arranged for the transport
or disposal of, or disposed of Hazardous Materials, which release could
reasonably be expected to have a Material Adverse Effect. As of the date
hereof, the Borrower and its Subsidiaries do not have liabilities exceeding
$500,000 in the aggregate for all of them with respect to compliance with
applicable Environmental Laws and Environmental Permits or related to the
generation, treatment, storage, disposal, release, investigation or cleanup of
Hazardous Materials, and, to the knowledge of the Borrower, no facts or
circumstances exist which could give rise to such liabilities with respect to
compliance with applicable Environmental Laws and Environmental Permits and the
generation, treatment, storage, disposal, release, investigation or cleanup of
Hazardous Materials.
5.18. Insurance Licenses. Schedule 5.18 hereto lists all of the
jurisdictions in which any Insurance Subsidiary holds a License as of the date
of this Agreement. No such License, the loss of which could reasonably be
expected to have a Material Adverse Effect, is the subject of a proceeding for
suspension or revocation. To the Borrower's knowledge, there is no sustainable
basis for such suspension or revocation, and no such suspension or revocation
has been threatened by any Governmental Authority. Schedule 5.18 also indicates
the line or lines of insurance in which each such Insurance Subsidiary is
engaged and the state or states in which such Insurance Subsidiary is licensed
to engage in any line of insurance, in each case as of the date of this
Agreement.
5.19. Material Agreements. Neither the Borrower nor any Subsidiary is
subject to any charter or other corporate restriction, or, to the knowledge of
the Borrower, is party to any agreement or instrument, which could reasonably be
expected to have a Material Adverse Effect. Neither the Borrower nor any
Subsidiary is in default in the performance, observance or fulfillment of any of
the obligations, covenants or conditions contained in any agreement to which it
is a party, which default could reasonably be expected to have a Material
Adverse Effect.
5.20. Insurance. The Borrower and its Subsidiaries maintain with
financially sound and reputable insurance companies insurance on their Property
in such amounts and covering such risks as is consistent with sound business
practice, as reasonably determined by the Borrower.
5.21. Disclosure. None of the (a) information, exhibits or reports
furnished or to be furnished by the Borrower or any Subsidiary to the Agent or
to any Lender in connection with the negotiation of the Loan Documents, or (b)
representations or warranties of the Borrower or any Subsidiary contained in
this Agreement, the other Loan Documents or any other document, certificate or
written statement furnished to the Agent or the Lenders by or on behalf of the
Borrower or any Subsidiary for use in connection with the transactions
contemplated by this Agreement or the other Loan Documents, as the case may be,
contained, contains or will contain any untrue statement of a material fact or
omitted, omits or will omit to state a material fact necessary in order to make
the statements contained herein or therein not misleading in light of the
circumstances in which the same were made.
5.22. Subordination Provisions. The subordination provisions contained in
all notes, debentures and other instruments entered into or issued in respect of
Subordinated Indebtedness are enforceable against the issuer of the respective
security and the holders thereof, and the Loans and all other Obligations are
within the definition of Senior Indebtedness , or other comparable definition,
included in such provisions.
ARTICLE VI
COVENANTS
During the term of this Agreement, unless the Required Lenders shall
otherwise consent in writing:
6.1. Financial Reporting. The Borrower will maintain, for itself and
each Subsidiary, a system of accounting established and administered in
accordance with generally accepted accounting principles, consistently applied,
and furnish to the Lenders:
(a) As soon as practicable and in any event within 90 days after
the close of each of its Fiscal Years, an unqualified audit report
certified by independent certified public accountants, acceptable to the
Lenders, prepared in accordance with Agreement Accounting Principles on a
consolidated and consolidating basis (consolidating statements need not be
certified by such accountants) for itself and its Subsidiaries, including
balance sheets as of the end of such period and related statements of
income, retained earnings and cash flows accompanied by (i) any material
internal control weakness letter prepared by said accountants and (ii) a
certificate of said accountants that, in the course of the examination
necessary for their certification of the foregoing, they have obtained no
knowledge of any Default or Unmatured Default, or if, in the opinion of
such accountants, any Default or Unmatured Default shall exist, stating the
nature and status thereof.
(b) As soon as practicable and in any event within 50 days after
the close of the first three Fiscal Quarters of each of its Fiscal Years,
for itself and its Subsidiaries, consolidated and consolidating unaudited
balance sheets as at the close of each such period and consolidated and
consolidating statement of income, retained earnings and cash flows for the
period from the beginning of such Fiscal Year to the end of such quarter,
all certified by its chief financial officer.
(c) (i) Upon the earlier of (A) 15 days after the regulatory
filing date or (B) 90 days after the close of each fiscal year of each
Insurance Subsidiary, copies of the unaudited Annual Statement of such
Insurance Subsidiary, all such statements to be prepared in accordance with
SAP consistently applied throughout the periods reflected therein and (ii)
no later than each June 15, copies of such Annual Statements audited and
certified by independent certified public accountants of recognized
national standing.
(d) Upon the earlier of (i) 10 days after the regulatory filing
date or (ii) 60 days after the close of each of the first three (3) fiscal
quarters of each fiscal year of each Insurance Subsidiary, copies of the
unaudited Quarterly Statement of each of the Insurance Subsidiaries, all
such statements to be prepared in accordance with SAP consistently applied
through the period reflected therein.
(e) Promptly and in any event within 10 days after (i) learning
thereof, notification of any changes in the rating given by A.M. Best & Co.
in respect of any Insurance Subsidiary and (ii) receipt thereof, copies of
ratings analysis, if any, by A.M. Best & Co. relating to any Insurance
Subsidiary.
(f) Copies of outside actuarial reports prepared with respect to
valuations or appraisals of Insurance Subsidiaries, promptly after the
receipt thereof.
(g) Together with the financial statements required by clauses
(a) and (b) above, a compliance certificate in substantially the form of
Exhibit E hereto signed by its chief financial officer showing the
calculations necessary to determine compliance with this Agreement and
stating that no Default or Unmatured Default exists, or if any Default or
Unmatured Default exists, stating the nature and status thereof.
(h) Within 270 days after the close of each Fiscal Year, a
statement of the Unfunded Liabilities of any Single Employer Plan,
certified as correct by an actuary enrolled under ERISA.
(i) As soon as possible and in any event within 20 days after the
Borrower knows that any Termination Event has occurred with respect to any
Plan, a statement, signed by the chief financial officer of the Borrower,
describing said Termination Event and the action which the Borrower
proposes to take with respect thereto.
(j) As soon as possible and in any event within 20 days after
receipt by the Borrower, a copy of (i) any notice, claim, complaint or
order to the effect that the Borrower or any of its Subsidiaries is or may
be liable to any Person as a result of the release by the Borrower, any of
its Subsidiaries, or any other Person of any Hazardous Materials into the
environment or requiring that action be taken to respond to or clean up a
Release of Hazardous Materials into the environment, and (ii) any notice,
complaint or citation alleging any violation of any Environmental Law or
Environmental Permit by the Borrower or any of its Subsidiaries. Within
ten days of the Borrower or any Subsidiary having knowledge of the
proposal, enactment or promulgation of any Environmental Law which could
reasonably be expected to have a Material Adverse Effect, the Borrower
shall provide the Agent with written notice thereof.
(k) Promptly upon the furnishing thereof to the shareholders of
the Borrower, copies of all financial statements, reports and proxy
statements so furnished.
(l) Promptly upon the filing thereof, copies of all registration
statements and annual, quarterly, monthly or other regular reports which
the Borrower or any of its Subsidiaries files with the Securities and
Exchange Commission, the National Association of Securities Dealers, any
securities exchange, the NAIC or any insurance commission or department or
analogous Governmental Authority (including any filing made by the Borrower
or any Subsidiary pursuant to any insurance holding company act or related
rules or regulations), but excluding routine or non-material filings with
the NAIC, any insurance commissioner or department or analogous
Governmental Authority.
(m) Promptly and in any event within 20 days after learning
thereof, notification of (i) any tax assessment, demand, notice of proposed
deficiency or notice of deficiency received by the Borrower or any other
Consolidated Person or (ii) the filing of any tax Lien or commencement of
any judicial proceeding by or against any such Consolidated Person, if any
such assessment, demand, notice, Lien or judicial proceeding relates to tax
liabilities in excess of ten percent (10%) of the net worth (determined
according to generally accepted accounting standards and without reduction
for any reserve for such liabilities) of the Borrower and its Subsidiaries
taken as a whole.
(n) Such other information (including, without limitation, the
annual Best's Advance Report Service report prepared with respect to each
Insurance Subsidiary rated by A.M. Best & Co. and non-financial
information) as the Agent or any Lender may from time to time reasonably
request.
6.2. Use of Proceeds. The Borrower will, and will cause each Subsidiary
to, use the proceeds of the Loans to provide funds for (i) the refinancing
referred to in Section 4.1(m), (ii) to consummate the Washington National
Transaction, (iii) the payment of related fees and expenses and (iv) to meet the
other working capital and general corporate needs of the Borrower and its
Subsidiaries. The Borrower will not, nor will it permit any Subsidiary to, use
any of the proceeds of the Advances or any Facility Letters of Credit to
purchase or carry any Margin Stock or to finance the Purchase of any Person
which has not been approved and recommended by the board of directors (or
functional equivalent thereof) of such Person (a "Hostile Takeover").
6.3. Notice of Default. The Borrower will give prompt notice in writing
to the Lenders of (a) the occurrence of any Default or Unmatured Default, (b)
the occurrence of any other event or development, financial or other, relating
specifically to the Borrower or any of its Subsidiaries (and not of a general
economic or political nature) which could reasonably be expected to have a
Material Adverse Effect, (c) receipt by the Borrower or any Subsidiary of any
notice from any Governmental Authority of the expiration without renewal,
revocation or suspension of, or the institution of any proceedings to revoke or
suspend, any License now or hereafter held by any Insurance Subsidiary which is
required to conduct insurance business in compliance with all applicable laws
and regulations and the expiration, revocation or suspension of which could
reasonably be expected to have a Material Adverse Effect, (d) receipt by the
Borrower or any Subsidiary of any notice from any Governmental Authority of the
institution of any disciplinary proceedings against or in respect of any
Insurance Subsidiary, or the issuance of any order, the taking of any action or
any request for an extraordinary audit for cause by any Governmental Authority
which, if adversely determined, could reasonably be expected to have a Material
Adverse Effect, (e) any judicial or administrative order of which they are aware
limiting or controlling the insurance business of any Insurance Subsidiary (and
not the insurance industry generally) which has been issued or adopted which
could reasonably be expected to have a Material Adverse Effect or (f) the
commencement of any litigation of which, if adversely determined, could
reasonably be expected to create a Material Adverse Effect.
6.4. Conduct of Business. The Borrower (a) and its Subsidiaries, taken
as a whole, will carry on and conduct their business in substantially the same
manner and in substantially the same fields of enterprise as is presently
conducted, (b) will, and will cause each Subsidiary to, do all things necessary
to remain duly incorporated, validly existing and in good standing as a domestic
corporation in its jurisdiction of incorporation and maintain all requisite
authority to conduct its business in each jurisdiction in which its business is
conducted, except where the failure to maintain such authority could not
reasonably be expected to have a Material Adverse Effect and (c) will, and will
cause each Subsidiary to, do all things necessary to renew, extend and continue
in effect all Licenses which may at any time and from time to time be necessary
for any Insurance Subsidiary to operate its insurance business in compliance
with all applicable laws and regulations except for any License the loss of
which could not reasonably be expected to have a Material Adverse Effect;
provided, that any Insurance Subsidiary may withdraw from one or more states
(other than its state of domicile) as an admitted insurer if such withdrawal is
determined by the Borrower's Board of Directors to be in the best interest of
the Borrower and could not reasonably be expected to have a Material Adverse
Effect. No Principal Insurance Subsidiary shall change its state of domicile or
incorporation without the prior written consent of the Required Lenders;
provided, however, that Universal Fidelity Life Insurance Company may change its
state of domicile from the State of Oklahoma to the State of Illinois.
6.5. Taxes. The Borrower will, and will cause each Subsidiary to, timely
file complete and correct United States federal and applicable foreign, state
and local tax returns required by applicable law and pay when due all taxes,
assessments and governmental charges and levies upon it or its income, profits
or Property, except those which are being contested in good faith by appropriate
proceedings and with respect to which adequate reserves have been set aside in
accordance with generally accepted accounting principles or SAP, as applicable.
6.6. Insurance. The Borrower will, and will cause each Subsidiary to,
maintain with financially sound and reputable insurance companies insurance on
all their Property in such amounts and covering such risks as is consistent with
sound business practice, as reasonably determined by the Borrower, and the
Borrower will furnish to the Agent and any Lender upon request full information
as to the insurance carried.
6.7. Compliance with Laws. The Borrower will, and will cause each
Subsidiary to, comply with all laws, rules, regulations, orders, writs,
judgments, injunctions, decrees or awards to which it may be subject, the
failure to comply with which could reasonably be expected to have a Material
Adverse Effect.
6.8. Maintenance of Properties. The Borrower will, and will cause each
Subsidiary to, do all things necessary to maintain, preserve, protect and keep
its Property in good repair, working order and condition, and make all necessary
and proper repairs, renewals and replacements so that its business carried on in
connection therewith may be properly conducted at all times.
6.9. Inspection. The Borrower will, and will cause each Subsidiary to,
permit the Agent and the Lenders, by their respective representatives and
agents, to inspect any of the Property, corporate books and financial records of
the Borrower and each Subsidiary, to examine and make copies of the books of
accounts and other financial records of the Borrower and each Subsidiary, and to
discuss the affairs, finances and accounts of the Borrower and each Subsidiary
with, and to be advised as to the same by, their respective officers at such
reasonable times and intervals as the Lenders may designate. The Borrower will
keep or cause to be kept, and cause each Subsidiary to keep or cause to be kept,
appropriate records and books of account in which complete entries are to be
made reflecting its and their business and financial transactions, such entries
to be made in accordance with Agreement Accounting Principles or SAP, as
applicable, consistently applied.
6.10. Capital Stock and Dividends. The Borrower will not, nor will it
permit any Subsidiary to, (a) issue any mandatorily redeemable preferred stock
or (b) declare or pay any dividends or make any distributions on its capital
stock (other than dividends payable in its own capital stock) or redeem,
repurchase or otherwise acquire or retire any of its capital stock or any
options or other rights in respect thereof at any time outstanding, except that
(i) any Subsidiary may declare and pay dividends or make distributions to the
Borrower or to any Wholly-Owned Subsidiary and (ii) so long as no Default or
Unmatured Default is pending before or after giving effect to the declaration or
payment of such dividends or repurchase or redemption of such stock, the
Borrower may declare and pay dividends on its preferred stock and pay dividends
on, and redeem and repurchase, its common stock.
6.11. Indebtedness. The Borrower will not, nor will it permit any
Subsidiary to, create, incur or suffer to exist any Indebtedness, except:
(a) the Loans;
(b) Indebtedness existing on the date hereof and described in
Schedule 5.16 hereto and any renewals, extensions, refundings or
refinancings of such Indebtedness (other than the Convertible Subordinated
Notes); provided that the amount thereof is not increased and the maturity
of principal thereof is not shortened (unless to a maturity occurring after
the Term Loan Maturity Date);
(c) Rate Hedging Obligations of the Borrower related to the
Loans;
(d) Indebtedness owing by (x) the Borrower to any Wholly-Owned
Subsidiary and (y) any Wholly-Owned Subsidiary to a Wholly-Owned Subsidiary
or the Borrower;
(e) Capitalized Lease Obligations in an aggregate amount not to
exceed $10,000,000;
(f) Indebtedness securing Liens permitted pursuant to Section
6.17(g) in an aggregate amount outstanding on a consolidated basis among
the Borrower and its Subsidiaries at any time not to exceed $10,000,000;
(g) Indebtedness of any Principal Insurance Subsidiary of the
type described in clause (y) of the definition "Indebtedness"; and
(h) other unsecured Indebtedness of the Borrower to the extent
not otherwise included in subparagraphs (a) through (g) of this Section
6.11, in an aggregate amount outstanding at any one time not to exceed
$10,000,000.
6.12. Merger. The Borrower will not, nor will it permit any Subsidiary
to, merge or consolidate with or into any other Person, except that (a) a
Wholly-Owned Subsidiary may merge with (i) the Borrower, (ii) any Wholly-Owned
Subsidiary of the Borrower or (iii) any other Person so long as no Default or
Unmatured Default shall have occurred or be continuing before and after giving
effect to such merger and the surviving entity of such merger is a Wholly-Owned
Subsidiary of the Borrower and (b) the Borrower may merge into any Person so
long as (i) the Borrower is the surviving entity of such merger, (ii) no Default
or Unmatured Default shall have occurred or be continuing before and after
giving effect to such merger and (iii) the covenants contained in Section 6.23
shall be complied with on a pro forma basis as if such merger occurred on the
twelfth (12) month anniversary preceding the date of such merger.
6.13. Sale of Assets. The Borrower will not, nor will it permit any
Subsidiary to, lease, sell, transfer or otherwise dispose of its Property
(including by way of bulk reinsurance or financial reinsurance arrangements) to
any other Person except for (a) sales of Investments in the ordinary course of
business, (b) sales of agent balances in the ordinary course of business
consistent with past practices, (c) leases, sales, transfers or other
dispositions of its Property (including by way of bulk reinsurance or financial
reinsurance arrangements) that, together with all other Property of the Borrower
and its Subsidiaries leased, sold or disposed of (other than sales permitted
pursuant to clauses (a) and (b) of this Section 6.13 and pursuant to or as
contemplated by the Washington National Agreement and the Hannover Reinsurance
Agreement) as permitted by this Section 6.13 since the date hereof do not
constitute a Substantial Portion, provided that any bulk reinsurance or
financial reinsurance arrangements shall be with reinsurers rated at least "A-"
by A.M. Best & Co. or reinsurers whose obligations to the Borrower or its
Subsidiaries, as applicable, are secured by letters of credit or other
collateral reasonably acceptable to the Required Lenders, and (d) sales
permitted pursuant to Section 6.14.
6.14. Sale of Accounts. The Borrower will not, nor will it permit any
Subsidiary to, sell or otherwise dispose of any notes receivable or accounts
receivable, with or without recourse, other than (a) any of the foregoing which
constitute Investments and which are sold in the ordinary course of business,
(b) sales referred to in Section 6.13(b), and (c) sales pursuant to or as
contemplated by the Washington National Agreement and the Hannover Reinsurance
Agreement.
6.15. Investments and Purchases. (a) The Borrower will not, nor will it
permit any Subsidiary to, make or enter into any Prohibited Transaction.
(b) The Borrower shall cause each Insurance Subsidiary on an individual
basis to maintain at all times a ratio of (x) the sum of its Investments
consisting of (i) equity securities (other than equity securities of other
Insurance Subsidiaries), (ii) Real Estate Investments and (iii) Non-Investment
Grade Obligations to (y) Statutory Surplus to be equal to or less than 100%;
provided that at no time shall any category of its Investments described in
subclause (x) for it constitute more than 50% of its Statutory Surplus.
6.16. Contingent Obligations. The Borrower will not, nor will it permit
any Subsidiary to, make or suffer to exist any Contingent Obligation (including,
without limitation, any Contingent Obligation with respect to the obligations of
a Subsidiary), except (a) by endorsement of instruments for deposit or
collection in the ordinary course of business, (b) for insurance policies issued
in the ordinary course of business, (c) Contingent Obligations of the Borrower
with respect to obligations of any Wholly-Owned Subsidiary to the extent
permitted pursuant to Section 6.11(h), and (d) as described on Schedule 5.16
hereto.
6.17. Liens. The Borrower will not, nor will it permit any Subsidiary to,
create, incur, or suffer to exist any Lien in, of or on the Property of the
Borrower or any of its Subsidiaries, except:
(a) Liens for taxes, assessments or governmental charges or
levies on its Property if the same shall not at the time be delinquent or
thereafter can be paid without penalty, or are being contested in good
faith and by appropriate proceedings and for which adequate reserves in
accordance with generally accepted principles of accounting shall have been
set aside on its books;
(b) Liens imposed by law, such as carriers', warehousemen's and
mechanics' liens and other similar liens arising in the ordinary course of
business which secure the payment of obligations not more than 60 days past
due or which are being contested in good faith by appropriate proceedings
and for which adequate reserves shall have been set aside on its books;
(c) Liens arising out of pledges or deposits under worker's
compensation laws, unemployment insurance, old age pensions, or other
social security or retirement benefits, or similar legislation;
(d) Utility easements, building restrictions and such other
encumbrances or charges against real property as are of a nature generally
existing with respect to properties of a similar character and which do not
in any material way affect the marketability of the same or interfere with
the use thereof in the business of the Borrower or the Subsidiaries;
(e) Liens existing on the date hereof and described in Schedule
6.17 hereto;
(f) deposits to secure the performance of bids, trade contracts
(other than for borrowed money), leases, statutory obligations, surety and
appeal bonds, performance bonds and other obligations of a like nature
incurred in the ordinary course of business;
(g) Liens in, of or on Property acquired after the date of this
Agreement (by purchase, construction or otherwise) by the Borrower or any
of its Subsidiaries, each of which Liens either (1) existed on such
Property before the time of its acquisition and was not created in
anticipation thereof, or (2) was created solely for the purpose of securing
Indebtedness representing, or incurred to finance, refinance or refund, the
cost (including the cost of construction) of such Property; provided that
no such Lien shall extend to or cover any Property of the Borrower or such
Subsidiary other than the Property so acquired and improvements thereon;
(h) Liens in trust account assets arising out of reinsurance
transactions permitted by this Agreement and entered into in the ordinary
course of business on terms and conditions customary in the insurance
industry;
(i) Liens upon Property securing Indebtedness permitted under
Section 6.11(e); and
(j) Liens upon Property subject to transactions permitted by
Section 6.13(b).
6.18. Affiliates. The Borrower will not, and will not permit any
Subsidiary to, enter into any transaction (including, without limitation, the
purchase or sale of any Property or service) with, or make any payment or
transfer to, any Affiliate (other than, in the case of a Subsidiary, the
Borrower, Continental Life and Accident Company or a Wholly-Owned Subsidiary of
the Borrower), except in the ordinary course of business and pursuant to the
reasonable requirements of the Borrower's or such Subsidiary's business and upon
fair and reasonable terms no less favorable to the Borrower or such Subsidiary
than the Borrower or such Subsidiary would obtain in a comparable arms-length
transaction.
6.19. Prepayments of Indebtedness. The Borrower will not, and will not
permit any Subsidiary to, directly or indirectly voluntarily prepay, defease or
in substance defease, purchase, redeem, retire or otherwise acquire, prior to
the date when due any Indebtedness (other than the Obligations and Indebtedness
of the type described in clause (y) of the definition "Indebtedness")
aggregating in excess of $10,000,000 on a consolidated basis.
6.20. Environmental Matters. The Borrower shall and shall cause each of
its Subsidiaries to (a) at all times comply in all material respects with all
applicable Environmental Laws and (b) promptly take any and all necessary
remedial actions in response to the presence, storage, use, disposal,
transportation or Release of any Hazardous Materials on, under or about any real
property owned, leased or operated by the Borrower or any of its Subsidiaries.
6.21. Change in Corporate Structure; Fiscal Year. The Borrower shall not,
nor shall it permit any Subsidiary to, (a) permit any amendment or modification
to be made to its certificate or articles of incorporation or by-laws which
could reasonably be expected to have a Material Adverse Effect (provided that
the Borrower shall notify the Agent of any other amendment or modification
thereto as soon as practicable thereafter) , (b) change its Fiscal Year to end
on any date other than December 31 of each year or (c) have any Insurance
Subsidiary which is not a Wholly-Owned Subsidiary of the Borrower (other than
any Subsidiary which is a non-Wholly-Owned Subsidiary on the date hereof).
6.22. Inconsistent Agreements. The Borrower shall not, nor shall it
permit any Subsidiary to, enter into any indenture, agreement, instrument or
other arrangement which by its terms, (a) directly or indirectly contractually
prohibits or restrains, or has the effect of contractually prohibiting or
restraining, or contractually imposes materially adverse conditions upon, the
incurrence of the Obligations, the granting of Liens to secure the Obligations,
the amending of the Loan Documents, the amending of the Loan Documents or the
ability of any Subsidiary to (i) pay dividends or make other distributions on
its capital stock, (ii) make loans or advances to the Borrower or (iii) repay
loans or advances from the Borrower or (b) contains any provision which would be
violated or breached by the making of Advances, by the issuance of Facility
Letters of Credit or by the performance by the Borrower or any Subsidiary of any
of its obligations under any Loan Document.
6.23. Financial Covenants. The Borrower on a consolidated basis with its
Subsidiaries shall:
6.23.1. Net Worth. At all times after the date hereof, maintain a
Net Worth equal to or greater than the sum of (a) an amount equal to 90% of
Net Worth as of June 30, 1996 plus (b) fifty percent (50%) of the sum of
the Net Income (but not net loss) of the Borrower and its Subsidiaries for
each Fiscal Quarter ending on or after September 30, 1996, plus (c) an
amount equal to 100% of the cash and non-cash proceeds of any equity
securities issued by the Borrower after the date of this Agreement and as a
result of the conversion of any Convertible Subordinated Notes.
6.23.2. Fixed Charges Coverage Ratio. As of the end of each Fiscal
Quarter, maintain a Fixed Charges Coverage Ratio of not less than 1.50:1.0.
6.23.3. Debt to Capitalization Ratio. As of the end of each Fiscal
Quarter, maintain a Debt to Capitalization Ratio of not greater than 25%.
6.23.4. Adjusted Statutory Surplus. At all times after the date
hereof, maintain an Adjusted Statutory Surplus on a combined (without
duplication) basis for direct Insurance Subsidiaries of the Borrower in an
amount equal to or greater than (a) an amount equal to 90% of Adjusted
Statutory Surplus on a combined (without duplication) basis for such
Insurance Subsidiaries as of June 30, 1996 plus (b) the amount of all
capital contributions to the direct Insurance Subsidiaries of the Borrower
made by the Borrower or any Subsidiary (other than an Insurance
Subsidiary).
6.23.5. Risk-Based Capital. At all times, cause each Principal
Insurance Subsidiary to maintain a ratio of (a) Total Adjusted Capital (as
defined in the Risk-Based Capital Act or in the rules and procedures
prescribed from time to time by the NAIC with respect thereto) to (b) the
Company Action Level RBC (as defined in the Risk-Based Capital Act or in
the rules and procedures prescribed from time to time by the NAIC with
respect thereto) of at least one hundred thirty percent (130%).
6.24. Tax Consolidation. The Borrower will not and will not permit any
of its Subsidiaries to (a) file or consent to the filing of any consolidated,
combined or unitary income tax return with any Person other than the Borrower
and its Subsidiaries or (b) amend, terminate or fail to enforce any existing tax
sharing agreement or enter into a tax sharing agreement or similar arrangement,
which, in the case of any of the foregoing, may reasonably be expected to have a
Material Adverse Effect.
6.25. ERISA Compliance.
With respect to any Plan, neither the Borrower nor any Subsidiary
shall:
(a) engage in any "prohibited transaction" (as such term is
defined in Section 406 of ERISA or Section 4975 of the Code) for which a
civil penalty pursuant to Section 502(i) of ERISA or a tax pursuant to
Section 4975 of the Code in excess of $100,000 could be imposed;
(b) incur any "accumulated funding deficiency" (as such term is
defined in Section 302 of ERISA) in excess of $100,000, whether or not
waived, or permit any Unfunded Liability to exceed $100,000;
(c) permit the occurrence of any Termination Event which could
result in a liability to the Borrower or any other member of the Controlled
Group in excess of $100,000;
(d) be an "employer" (as such term is defined in Section 3(5) of
ERISA) required to contribute to any Multiemployer Plan or a "substantial
employer" (as such term in defined in Section 4001(a)(2) of ERISA) required
to contribute to any Multiple Employer Plan; or
(e) permit the establishment or amendment of any Plan or fail to
comply with the applicable provisions of ERISA and the Code with respect to
any Plan which could result in liability to the Borrower or any other
member of the Controlled Group which, individually or in the aggregate,
could reasonably be expected to have a Material Adverse Effect.
6.26. Washington National. In the event that the Borrower or any of its
Subsidiaries shall consummate the Washington National Transaction, the Borrower
shall cause such transaction to be consummated substantially on the terms of the
Washington National Agreement.
6.27. Selling Shareholder Indebtedness. On or prior to August 2, 1996,
the Borrower shall deliver to the Agent evidence of satisfaction, in form and
substance acceptable to the Agent, from each Selling Shareholder to the effect
that the total amount due under the Borrower's agreements with each such Selling
Shareholder howsoever due and owing (whether as principal, interest or premium)
has been paid in full (and such agreements terminated), together with such lien
releases and other documents as the Agent shall require.
ARTICLE VII
DEFAULTS
The occurrence of any one or more of the following events shall constitute
a Default:
7.1. Any representation or warranty made or deemed made by or on behalf of
the Borrower or any of its Subsidiaries to the Lenders or the Agent under or in
connection with this Agreement, any other Loan Document any Loan, any Facility
Letter of Credit or any certificate or information delivered in connection with
this Agreement or any other Loan Document shall be false in any material respect
on the date as of which made.
7.2. Nonpayment of (a) any principal of any Note or any Reimbursement
Obligation when due, or (b) any interest upon any Note or any commitment fee or
other fee or obligations under any of the Loan Documents within five days after
the same becomes due.
7.3. The breach by the Borrower of any of the terms or provisions of
Section 6.2, Section 6.3(a), Sections 6.10 through 6.24 or Section 6.26.
7.4. The breach by the Borrower (other than a breach which constitutes a
Default under Section 7.1, 7.2 or 7.3) of any of the terms or provisions of this
Agreement which is not remedied within thirty (30) days after written notice
from the Agent or any Lender.
7.5. The default by the Borrower or any of its Subsidiaries in the
performance of any term, provision or condition contained in any agreement or
agreements under which any Indebtedness aggregating in excess of $5,000,000 was
created or is governed, or the occurrence of any other event or existence of any
other condition, the effect of any of which is to cause, or to permit the holder
or holders of such Indebtedness to cause, such Indebtedness to become due prior
to its stated maturity; or any such Indebtedness of the Borrower or any of its
Subsidiaries shall be declared to be due and payable or required to be prepaid
(other than by a regularly scheduled payment) prior to the stated maturity
thereof.
7.6. The Borrower or any of its Subsidiaries shall (a) have an order for
relief entered with respect to it under the Federal bankruptcy laws as now or
hereafter in effect, (b) make an assignment for the benefit of creditors, (c)
apply for, seek, consent to, or acquiesce in, the appointment of a receiver,
custodian, trustee, examiner, liquidator or similar official for it or any
Substantial Portion of its Property, (d) institute any proceeding seeking an
order for relief under the Federal bankruptcy laws as now or hereafter in effect
or seeking to adjudicate it a bankrupt or insolvent, or seeking dissolution,
winding up, liquidation, reorganization, arrangement, adjustment or composition
of it or its debts under any law relating to bankruptcy, insolvency or
reorganization or relief of debtors or fail to file an answer or other pleading
denying the material allegations of any such proceeding filed against it, (e)
take any corporate action to authorize or effect any of the foregoing actions
set forth in this Section 7.6, (f) fail to contest in good faith any appointment
or proceeding described in Section 7.7 or (g) become unable to pay, not pay, or
admit in writing its inability to pay, its debts generally as they become due.
7.7. Without the application, approval or consent of the Borrower or any of
its Subsidiaries, a receiver, trustee, examiner, liquidator or similar official
shall be appointed for the Borrower or any of its Subsidiaries or any
Substantial Portion of its Property, or a proceeding described in Section 7.6(d)
shall be instituted against the Borrower or any of its Subsidiaries and such
appointment continues undischarged or such proceeding continues undismissed or
unstayed for a period of sixty (60) consecutive days.
7.8. Any court, government or governmental agency shall condemn, seize or
otherwise appropriate, or take custody or control of (each a "Condemnation"),
all or any portion of the Property of the Borrower and its Subsidiaries which,
when taken together with all other Property of the Borrower and its Subsidiaries
so condemned, seized, appropriated, or taken custody or control of, during the
twelve-month period ending with the month in which any such Condemnation occurs,
constitutes a Substantial Portion.
7.9. The Borrower or any of its Subsidiaries shall fail within thirty days
to pay, bond or otherwise discharge any judgment or order for the payment of
money in excess of $500,000 (or multiple judgments or orders for the payment of
an aggregate amount in excess of $1,000,000), which is not stayed on appeal or
otherwise being appropriately contested in good faith and as to which no
enforcement actions have been commenced.
7.10. Any Change in Control shall occur.
7.11. Any License of any Principal Insurance Subsidiary (a) shall be
revoked by the Governmental Authority which issued such License, or any action
(administrative or judicial) to revoke such License shall have been commenced
against such Principal Insurance Subsidiary and shall not have been dismissed
within thirty (30) days after the commencement thereof, (b) shall be suspended
by such Governmental Authority for a period in excess of thirty (30) days or (c)
shall not be reissued or renewed by such Governmental Authority upon the
expiration thereof following application for such reissuance or renewal of such
Principal Insurance Subsidiary.
7.12. Any Principal Insurance Subsidiary shall be the subject of a final
non-appealable order imposing a fine in an amount in excess of $1,000,000 in any
single instance or other such orders imposing fines in excess of $2,000,000 in
the aggregate after the date of this Agreement by or at the request of any state
insurance regulatory agency as a result of the violation by such Principal
Insurance Subsidiary of such state's applicable insurance laws or the
regulations promulgated in connection therewith.
7.13. Any Principal Insurance Subsidiary shall become subject to any
conservation, rehabilitation or liquidation order, directive or mandate issued
by any Governmental Authority or any Principal Insurance Subsidiary shall become
subject to any other directive or mandate issued by any Governmental Authority
which could reasonably be expected to have a Material Adverse Effect and which
is not stayed within ten (10) days.
ARTICLE VIII
ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES
8.1. Acceleration. If any Default described in Section 7.6 or 7.7 occurs
with respect to the Borrower, the obligations of the Lenders to make Loans or
issue Facility Letters of Credit hereunder shall automatically terminate and the
Obligations shall immediately become due and payable without any election or
action on the part of the Agent or any Lender. If any other Default occurs, the
Required Lenders (or the Agent with the consent of the Required Lenders) may
terminate or suspend the obligations of the Lenders to make Loans or issue
Facility Letters of Credit hereunder, or declare the Obligations to be due and
payable, or both, whereupon the Obligations shall become immediately due and
payable, without presentment, demand, protest or notice of any kind, all of
which the Borrower hereby expressly waives. In addition to the foregoing,
following the occurrence and during the continuance of a Default, so long as any
Facility Letter of Credit has not been fully drawn and has not been cancelled or
expired by its terms, upon demand by the Agent, the Borrower shall deposit in an
account (the "Letter of Credit Cash Collateral Account") maintained with First
Chicago in the name of the Agent, for the ratable benefit of the Lenders and the
Agent, cash in an amount equal to the aggregate undrawn face amount of all
outstanding Facility Letters of Credit and all fees and other amounts due or
which may become due with respect thereto. The Borrower shall have no control
over funds in the Letter of Credit Cash Collateral Account, which funds shall be
invested by the Agent from time to time in its discretion in certificates of
deposit of First Chicago having a maturity not exceeding thirty days. Such
funds shall be promptly applied by the Agent to reimburse the Issuer for drafts
drawn from time to time under the Facility Letters of Credit. Such funds, if
any, remaining in the Letter of Credit Cash Collateral Account following the
payment of all Obligations in full or the earlier termination of all Defaults
shall, unless the Agent is otherwise directed by a court of competent
jurisdiction, be promptly paid over to the Borrower.
If, within ten Business Days after acceleration of the maturity of the
Obligations or termination of the obligations of the Lenders to make Loans
hereunder as a result of any Default (other than any Default as described in
Section 7.6 or 7.7 with respect to the Borrower) and before any judgment or
decree for the payment of the Obligations due shall have been obtained or
entered, the Required Lenders (in their sole discretion) shall so direct, the
Agent shall, by notice to the Borrower, rescind and annul such acceleration
and/or termination.
8.2. Amendments. Subject to the provisions of this Article VIII, the
Required Lenders (or the Agent with the consent in writing of the Required
Lenders) and the Borrower may enter into agreements supplemental hereto for the
purpose of adding or modifying any provisions to the Loan Documents or changing
in any manner the rights of the Lenders or the Borrower hereunder or waiving any
Default hereunder; provided, however, that no such supplemental agreement shall,
without the consent of each Lender:
(a) Extend the final maturity of any Loan or Note or reduce the
principal amount thereof, or reduce the rate or extend the time of payment
of interest or fees thereon;
(b) Reduce the percentage specified in the definition of
Required Lenders;
(c) Reduce the amount of or extend the date for the mandatory
payments required under Section 2.2, or increase the amount of the
Commitment of any Lender hereunder;
(d) Extend the Revolver Termination Date or the Term Loan
Maturity Date or permit any Facility Letter of Credit to have an expiry
date beyond July 30, 1999;
(e) Amend this Section 8.2; or
(f) Permit any assignment by the Borrower of its Obligations or
its rights hereunder.
No amendment of any provision of this Agreement relating to the Agent shall be
effective without the written consent of the Agent. The Agent may waive payment
of the fee required under Section 12.3.2 without obtaining the consent of any
other party to this Agreement.
8.3. Preservation of Rights. No delay or omission of the Lenders or the
Agent to exercise any right under the Loan Documents shall impair such right or
be construed to be a waiver of any Default or an acquiescence therein, and the
making of a Loan notwithstanding the existence of a Default or the inability of
the Borrower to satisfy the conditions precedent to such Loan shall not
constitute any waiver or acquiescence. Any single or partial exercise of any
such right shall not preclude other or further exercise thereof or the exercise
of any other right, and no waiver, amendment or other variation of the terms,
conditions or provisions of the Loan Documents whatsoever shall be valid unless
in writing signed by the Lenders required pursuant to Section 8.2, and then only
to the extent in such writing specifically set forth. All remedies contained in
the Loan Documents or by law afforded shall be cumulative and all shall be
available to the Agent and the Lenders until the Obligations have been paid in
full.
ARTICLE IX
GENERAL PROVISIONS
9.1. Survival of Representations. All representations and warranties of
the Borrower contained in this Agreement or of the Borrower or any Subsidiary
contained in any Loan Document shall survive delivery of the Notes and the
making of the Loans herein contemplated.
9.2. Governmental Regulation. Anything contained in this Agreement to the
contrary notwithstanding, no Lender shall be obligated to extend credit to the
Borrower in violation of any limitation or prohibition provided by any
applicable statute or regulation.
9.3. Taxes. Any stamp, documentary or similar taxes, assessments or
charges payable or ruled payable by any governmental authority in respect of the
Loan Documents shall be paid by the Borrower, together with interest and
penalties, if any.
9.4. Headings. Section headings in the Loan Documents are for convenience
of reference only, and shall not govern the interpretation of any of the
provisions of the Loan Documents.
9.5. Entire Agreement. The Loan Documents embody the entire agreement and
understanding among the Borrower, the Agent and the Lenders and supersede all
prior agreements and understandings among the Borrower, the Agent and the
Lenders relating to the subject matter thereof other than the fee letter dated
July 1, 1996 in favor of First Chicago.
9.6. Several Obligations; Benefits of this Agreement. The respective
obligations of the Lenders hereunder are several and not joint and no Lender
shall be the partner or agent of any other (except to the extent to which the
Agent is authorized to act as such). The failure of any Lender to perform any
of its obligations hereunder shall not relieve any other Lender from any of its
obligations hereunder. This Agreement shall not be construed so as to confer
any right or benefit upon any Person other than the parties to this Agreement
and their respective successors and assigns.
9.7. Expenses; Indemnification. (a) The Borrower shall reimburse the
Agent for any reasonable costs, internal charges and out-of-pocket expenses
(including attorneys' fees and time charges of attorneys for the Agent, which
attorneys may be employees of the Agent) paid or incurred by the Agent in
connection with the preparation, negotiation, execution, delivery, review,
amendment, modification, and administration of the Loan Documents. The Borrower
also agrees to reimburse the Agent and the Lenders for any reasonable costs,
internal charges and out-of-pocket expenses (including attorneys' fees and time
charges of attorneys for the Agent and the Lenders, which attorneys may be
employees of the Agent or the Lenders) paid or incurred by the Agent or any
Lender in connection with the collection and enforcement of the Loan Documents.
The Borrower further agrees to indemnify the Agent and each Lender, its
directors, officers and employees against all losses, claims, damages,
penalties, judgments, liabilities and expenses (including, without limitation,
all expenses of litigation or preparation therefor whether or not the Agent or
any Lender is a party thereto) which any of them may pay or incur arising out of
or relating to this Agreement, the other Loan Documents or the Transaction
Documents, the transactions contemplated hereby or thereby or the direct or
indirect application or proposed application of the proceeds of any Loan
hereunder or the use or intended use of any Facility Letter of Credit, except to
the extent that they arise out of the gross negligence or willful misconduct of
the party seeking indemnification. The obligations of the Borrower under this
Section 9.7 shall survive the termination of this Agreement.
(b) The Borrower shall indemnify, pay and hold the Agent and
each Lender harmless from and against any and all losses, costs (including,
without limitation, court costs and attorneys' fees), liabilities, injuries,
expenses, claims and damages whatsoever incurred or suffered by or asserted
against the Agent or such Lender by reason of any violation of any applicable
Environmental Law for which the Borrower or any of its Subsidiaries is liable or
which is related to any real estate owned, leased or operated by the Borrower or
any of its Subsidiaries, or by reason of the imposition of any governmental lien
for the recovery of environmental cleanup or response costs expended by reason
of any such violation, or by reason of any breach of any representation,
warranty or affirmative or negative covenant of this Agreement, including,
without limitation, by reason of any matter disclosed in Schedule 5.17 hereto;
provided, however, that, to the extent that the Borrower or any of its
Subsidiaries is strictly liable under any such statute, order or regulation, the
Borrower's obligation to the Agent and each Lender under this indemnity shall
likewise be without regard to fault on the part of the Borrower or any of its
Subsidiaries with respect to the violation of law which results in liability to
the Agent or any Lender. The provisions of and undertakings and indemnification
set out in this Section 9.7(b) shall survive the termination of this Agreement
and the payment and satisfaction of the Obligations and shall continue to be the
liability, obligation and indemnification of the Borrower, binding upon the
Borrower.
9.8. Numbers of Documents. All statements, notices, closing documents, and
requests hereunder shall be furnished to the Agent with sufficient counterparts
so that the Agent may furnish one to each of the Lenders.
9.9. Accounting. Except as provided to the contrary herein or where SAP is
applicable, all accounting terms used herein shall be interpreted and all
accounting determinations hereunder shall be made in accordance with Agreement
Accounting Principles.
9.10. Severability of Provisions. Any provision in any Loan Document
that is held to be inoperative, unenforceable, or invalid in any jurisdiction
shall, as to that jurisdiction, be inoperative, unenforceable, or invalid
without affecting the remaining provisions in that jurisdiction or the
operation, enforceability, or validity of that provision in any other
jurisdiction, and to this end the provisions of all Loan Documents are declared
to be severable.
9.11. Nonliability of Lenders. The relationship between the Borrower
and the Lenders and the Agent shall be solely that of borrower and lender.
Neither the Agent nor any Lender shall have any fiduciary responsibilities to
the Borrower. Neither the Agent nor any Lender undertakes any responsibility to
the Borrower to review or inform the Borrower of any matter in connection with
any phase of the Borrower's business or operations. The Borrower shall rely
entirely upon its own judgment with respect to its business, and any review,
inspection or supervision of, or information supplied to the Borrower by the
Agent or the Lenders is for the protection of the Agent and the Lenders and
neither the Borrower nor any other Person is entitled to rely thereon. The
Borrower agrees that neither the Agent nor any Lender shall have any liability
with respect to, and the Borrower hereby waives, releases and agrees not to sue
for, any special, indirect or consequential damages suffered by the Borrower in
connection with, arising out of, or in any way related to the Loan Documents or
the transactions contemplated thereby or the relationship established by the
Loan Documents, or any act, omission or event occurring in connection therewith.
9.12. CHOICE OF LAW. THE LOAN DOCUMENTS (OTHER THAN THOSE CONTAINING A
CONTRARY EXPRESS CHOICE OF LAW PROVISION) SHALL BE CONSTRUED IN ACCORDANCE WITH
THE INTERNAL LAWS, WITHOUT REGARD TO CONFLICT OF LAWS PROVISIONS, OF THE STATE
OF ILLINOIS, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS.
9.13. CONSENT TO JURISDICTION. THE BORROWER HEREBY IRREVOCABLY SUBMITS
TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR ILLINOIS STATE
COURT SITTING IN CHICAGO IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING
TO ANY LOAN DOCUMENTS AND THE BORROWER HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS
IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH
COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO
THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT
SUCH COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF
THE AGENT OR ANY LENDER TO BRING PROCEEDINGS AGAINST THE BORROWER IN THE COURTS
OF ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY THE BORROWER AGAINST THE
AGENT OR ANY LENDER OR ANY AFFILIATE OF THE AGENT OR ANY LENDER INVOLVING,
DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR
CONNECTED WITH ANY LOAN DOCUMENT SHALL BE BROUGHT ONLY IN A COURT IN CHICAGO,
ILLINOIS; PROVIDED, THAT SUCH PROCEEDINGS MAY BE BROUGHT IN OTHER COURTS IF
JURISDICTION MAY NOT BE OBTAINED IN A COURT IN CHICAGO, ILLINOIS.
9.14. WAIVER OF JURY TRIAL. THE BORROWER, THE AGENT AND EACH LENDER
HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR
INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY
WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT OR THE
RELATIONSHIP ESTABLISHED THEREUNDER.
9.15. Disclosure. The Borrower and each Lender hereby (a) acknowledge
and agree that First Chicago and/or its Affiliates from time to time may hold
other investments in, make other loans to or have other relationships with the
Borrower, including, without limitation, in connection with any interest rate
hedging instruments or agreements or swap transactions, and (b) waive any
liability of First Chicago or such Affiliate to the Borrower or any Lender,
respectively, arising out of or resulting from such investments, loans or
relationships other than liabilities arising out of the gross negligence or
willful misconduct of First Chicago or its Affiliates.
9.16. Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one agreement, and
any of the parties hereto may execute this Agreement by signing any such
counterpart. This Agreement shall be effective when it has been executed by the
Borrower, the Agent and the Lenders and each party has notified the Agent that
it has taken such action.
9.17. Confidentiality. Each Lender agrees to take normal and reasonable
precautions and exercise due care to maintain the confidentiality of all
information provided to it by the Borrower, or by the Agent on the Borrower's
behalf, in connection with this Agreement or any other Loan Document, and
neither it nor any of its Affiliates shall use any such information for any
purpose or in any manner other than pursuant to the terms contemplated by this
Agreement, except to the extent such information (i) was or becomes generally
available to the public other than as a result of a disclosure by such Lender,
or (ii) was or becomes available on a non-confidential basis from a source other
than the Borrower, provided that such source is not bound by a confidentiality
agreement with the Borrower known to such Lender; provided, further, however,
that any Lender may disclose such information (A) at the request or pursuant to
any requirement of any governmental or regulatory authority to which such Lender
is subject or in connection with an examination of such Lender by any such
authority; (B) pursuant to subpoena or other court process, provided that, if it
is lawful to do so. such Lender shall give prompt notice to the Borrower of
service thereof so that the Borrower may seek a protective order or other
appropriate remedy or waive compliance with the provisions of this Section 9.17;
(C) when required to do so in accordance with the provisions of any applicable
requirement of law; (D) to the extent reasonably required in connection with any
litigation or proceeding to which the Agent, any Lender or their respective
Affiliates may be party, (E) to the extent reasonably required in connection
with the exercise of any remedy hereunder or under any other Loan Document, and
(F) to such Lender's independent auditors and other professional advisors,
provided that each such entity agrees to maintain the confidentiality of such
information pursuant to the terms of this Section 9.17.
ARTICLE X
THE AGENT
10.1. Appointment. First Chicago is hereby appointed Agent hereunder
and under each other Loan Document, and each of the Lenders authorizes the Agent
to act as the agent of such Lender. The Agent agrees to act as such upon the
express conditions contained in this Article X. The Agent shall not have a
fiduciary relationship in respect of the Borrower or any Lender by reason of
this Agreement, any Loan Document or any transaction contemplated hereby or
thereby.
10.2. Powers. The Agent shall have and may exercise such powers under
the Loan Documents as are specifically delegated to the Agent by the terms of
each thereof, together with such powers as are reasonably incidental thereto.
The Agent shall have no implied duties to the Lenders, or any obligation to the
Lenders to take any action thereunder, except any action specifically provided
by the Loan Documents to be taken by the Agent.
10.3. General Immunity. Neither the Agent nor any of its directors,
officers, agents or employees shall be liable to the Borrower or any Lender for
any action taken or omitted to be taken by it or them hereunder or under any
other Loan Document or in connection herewith or therewith except for its or
their own gross negligence or willful misconduct.
10.4. No Responsibility for Loans, Recitals, etc. Neither the Agent nor
any of its directors, officers, agents or employees shall be responsible for or
have any duty to ascertain, inquire into, or verify (a) any statement, warranty
or representation made in connection with any Loan Document or any borrowing
hereunder, (b) the performance or observance of any of the covenants or
agreements of any obligor under any Loan Document; including, without
limitation, any agreement by an obligor to furnish information directly to each
Lender, (c) the satisfaction of any condition specified in Article IV, except
receipt of items required to be delivered to the Agent and not waived at
closing, or (d) the validity, effectiveness, sufficiency, enforceability or
genuineness of any Loan Document or any other instrument or writing furnished in
connection therewith. The Agent shall have no duty to disclose to the Lenders
information that is not required to be furnished by the Borrower to the Agent at
such time, but is voluntarily furnished by the Borrower to the Agent (either in
its capacity as Agent or in its individual capacity).
10.5. Action on Instructions of Lenders. The Agent shall in all cases
be fully protected in acting, or in refraining from acting, hereunder and under
any other Loan Document in accordance with written instructions signed by the
Required Lenders (or, to the extent required by Section 8.2, all Lenders), and
such instructions and any action taken or failure to act pursuant thereto shall
be binding on all of the Lenders and on all holders of Notes. The Agent shall
be fully justified in failing or refusing to take any action hereunder and under
any other Loan Document unless it shall first be indemnified to its satisfaction
by the Lenders pro rata against any and all liability, cost and expense that it
may incur by reason of taking or continuing to take any such action.
10.6. Employment of Agents and Counsel. The Agent may execute any of
its duties as Agent hereunder and under any other Loan Document by or through
employees, agents and attorneys-in-fact and shall not be answerable to the
Lenders, except as to money or securities received by it or its authorized
agents, for the default or misconduct of any such agents or attorneys-in-fact
selected by it with reasonable care. The Agent shall be entitled to advice of
counsel concerning all matters pertaining to the agency hereby created and its
duties hereunder and under any other Loan Document.
10.7. Reliance on Documents; Counsel. The Agent shall be entitled to
rely upon any Note, notice, consent, certificate, affidavit, letter, telegram,
statement, paper or document believed by it to be genuine and correct and to
have been signed or sent by the proper person or persons, and, in respect to
legal matters, upon the opinion of counsel selected by the Agent, which counsel
may be employees of the Agent.
10.8. Agent's Reimbursement and Indemnification. The Lenders agree to
reimburse and indemnify the Agent ratably in proportion to their respective
Commitments (or, if the Commitments have been terminated, in proportion to their
Commitments immediately prior to such termination) (a) for any amounts not
reimbursed by the Borrower for which the Agent is entitled to reimbursement by
the Borrower under the Loan Documents, (b) for any other expenses incurred by
the Agent on behalf of the Lenders, in connection with the preparation,
execution, delivery, administration and enforcement of the Loan Documents, and
(c) for any liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind and nature
whatsoever which may be imposed on, incurred by or asserted against the Agent in
any way relating to or arising out of the Loan Documents or any other document
delivered in connection therewith or the transactions contemplated thereby, or
the enforcement of any of the terms thereof or of any such other documents;
provided, that no Lender shall be liable for any of the foregoing to the extent
they arise from the gross negligence or willful misconduct of the Agent. The
obligations of the Lenders under this Section 10.8 shall survive payment of the
Obligations and termination of this Agreement.
10.9. Notice of Default. The Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default or Unmatured Default
hereunder unless the Agent has received written notice from a Lender or the
Borrower referring to this Agreement describing such Default or Unmatured
Default and stating that such notice is a "notice of default". In the event that
the Agent receives such a notice, the Agent shall give prompt notice thereof to
the Lenders.
10.10. Rights as a Lender. In the event the Agent is a Lender, the Agent
shall have the same rights and powers hereunder and under any other Loan
Document as any Lender and may exercise the same as though it were not the
Agent, and the term "Lender" or "Lenders" shall, at any time when the Agent is a
Lender, unless the context otherwise indicates, include the Agent in its
individual capacity. The Agent may accept deposits from, lend money to, and
generally engage in any kind of trust, debt, equity or other transaction, in
addition to those contemplated by this Agreement or any other Loan Document,
with the Borrower or any of its Subsidiaries in which the Borrower or such
Subsidiary is not restricted hereby from engaging with any other Person. The
Agent, in its individual capacity, is not obligated to remain a Lender.
10.11. Lender Credit Decision. Each Lender acknowledges that it has,
independently and without reliance upon the Agent or any other Lender and based
on the financial statements prepared by the Borrower and such other documents
and information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement and the other Loan Documents. Each Lender
also acknowledges that it will, independently and without reliance upon the
Agent or any other Lender and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under this Agreement and the other Loan Documents.
10.12. Successor Agent. The Agent may resign at any time by giving
written notice thereof to the Lenders and the Borrower, such resignation to be
effective upon the appointment of a successor Agent or, if no successor Agent
has been appointed, forty-five days after the retiring Agent gives notice of its
intention to resign. Upon any such resignation, the Required Lenders shall have
the right to appoint, on behalf of the Lenders, a successor Agent. If no
successor Agent shall have been so appointed by the Required Lenders and shall
have accepted such appointment within thirty days after the resigning Agent's
giving notice of resignation, then the resigning Agent may appoint, on behalf of
the Borrower and the Lenders, a successor Agent. If the Agent has resigned and
no successor Agent has been appointed, the Lenders may perform all the duties of
the Agent hereunder and the Borrower shall make all payments in respect of the
Obligations to the applicable Lender and for all other purposes shall deal
directly with the Lenders. Any successor Agent shall be a commercial bank having
capital and retained earnings of at least $50,000,000. Upon the acceptance of
any appointment as Agent hereunder by a successor Agent, such successor Agent
shall thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the resigning or removed Agent, and the resigning or
removed Agent shall be discharged from its duties and obligations hereunder and
under the other Loan Documents. After the effectiveness of the resignation of
an Agent, the provisions of this Article X shall continue in effect for its
benefit in respect of any actions taken or omitted to be taken by it while it
was acting as the Agent hereunder and under the other Loan Documents.
ARTICLE XI
SETOFF; RATABLE PAYMENTS
11.1. Setoff. In addition to, and without limitation of, any rights of
the Lenders under applicable law, if the Borrower becomes insolvent, however
evidenced, or any Default or Unmatured Default occurs, any and all deposits
(including all account balances, whether provisional or final and whether or not
collected or available) and any other Indebtedness at any time held or owing by
any Lender to or for the credit or account of the Borrower may be offset and
applied toward the payment of the Obligations owing to such Lender, whether or
not the Obligations, or any part hereof, shall then be due.
11.2. Ratable Payments. If any Lender, whether by setoff or otherwise,
has payment made to it upon its Loans (other than payments received pursuant to
Section 3.1, 3.2 or 3.4) in a greater proportion than its pro-rata share of such
Loans, such Lender agrees, promptly upon demand, to purchase a portion of the
Loans held by the other Lenders so that after such purchase each Lender will
hold its ratable proportion of Loans. If any Lender, whether in connection with
setoff or amounts which might be subject to setoff or otherwise, receives
collateral or other protection for its Obligations or such amounts which may be
subject to setoff, such Lender agrees, promptly upon demand, to take such action
necessary such that all Lenders share in the benefits of such collateral ratably
in proportion to their Loans. In case any such payment is disturbed by legal
process, or otherwise, appropriate further adjustments shall be made. If an
amount to be setoff is to be applied to Indebtedness of the Borrower to a
Lender, other than Indebtedness evidenced by any of the Notes held by such
Lender, such amount shall be applied ratably to such other Indebtedness and to
the Indebtedness evidenced by such Notes.
ARTICLE XII
BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS
12.1. Successors and Assigns. The terms and provisions of the Loan
Documents shall be binding upon and inure to the benefit of the Borrower and the
Lenders and their respective successors and assigns, except that (a) the
Borrower shall not have the right to assign its rights or obligations under the
Loan Documents, and (b) any assignment by any Lender must be made in compliance
with Section 12.3. Notwithstanding clause (b) of this Section, any Lender may
at any time, without the consent of the Borrower or the Agent, assign all or any
portion of its rights under this Agreement and its Notes to a Federal Reserve
Bank; provided, however, that no such assignment to a Federal Reserve Bank shall
release the transferor Lender from its obligations hereunder. The Agent may
treat the payee of any Note as the owner thereof for all purposes hereof unless
and until such payee complies with Section 12.3 in the case of an assignment
thereof or, in the case of any other transfer, a written notice of the transfer
is filed with the Agent. Any assignee or transferee of a Note agrees by
acceptance thereof to be bound by all the terms and provisions of the Loan
Documents. Any request, authority or consent of any Person, who at the time of
making such request or giving such authority or consent is the holder of any
Note, shall be conclusive and binding on any subsequent holder, transferee or
assignee of such Note or of any Note or Notes issued in exchange therefor.
12.2. Participations.
12.2.1. Permitted Participants; Effect. Any Lender may, in the
ordinary course of its business and in accordance with applicable law, at
any time sell to one or more banks or other entities ("Participants")
participating interests in any Loan owing to such Lender, any Note held by
such Lender, any Lender's interest in any Facility Letter of Credit
Obligation, any Commitment of such Lender or any other interest of such
Lender under the Loan Documents. In the event of any such sale by a Lender
of participating interests to a Participant, such Lender's obligations
under the Loan Documents shall remain unchanged, such Lender shall remain
solely responsible to the other parties hereto for the performance of such
obligations, such Lender shall remain the holder of any such Note for all
purposes under the Loan Documents, all amounts payable by the Borrower
under this Agreement shall be determined as if such Lender had not sold
such participating interests, and the Borrower and the Agent shall continue
to deal solely and directly with such Lender in connection with such
Lender's rights and obligations under the Loan Documents.
12.2.2. Voting Rights. Each Lender shall retain the sole right to
approve, without the consent of any Participant, any amendment,
modification or waiver of any provision of the Loan Documents other than
any amendment, modification or waiver which effects any of the
modifications referenced in clauses (a) through (f) of Section 8.2.
12.2.3. Benefit of Setoff. The Borrower agrees that each Participant
shall be deemed to have the right of setoff provided in Section 11.1 in
respect of its participating interest in amounts owing under the Loan
Documents to the same extent as if the amount of its participating interest
were owing directly to it as a Lender under the Loan Documents; provided,
that each Lender shall retain the right of setoff provided in Section 11.1
with respect to the amount of participating interests sold to each
Participant. The Lenders agree to share with each Participant, and each
Participant, by exercising the right of setoff provided in Section 11.1,
agrees to share with each Lender, any amount received pursuant to the
exercise of its right of setoff, such amounts to be shared in accordance
with Section 11.2 as if each Participant were a Lender.
12.3. Assignments.
12.3.1. Permitted Assignments. Any Lender may, in the ordinary
course of its business and in accordance with applicable law, at any time
assign to one or more banks or other entities ("Purchasers") all or any
part of its rights and obligations under the Loan Documents; provided,
however, that in the case of an assignment to an entity which is not a
Lender or an Affiliate of a lender, such assignment shall be in a minimum
amount of $5,000,000. Such assignment shall be substantially in the form
of Exhibit F hereto or in such other form as may be agreed to by the
parties thereto. Any assignment pursuant to this Section 12.3.1 shall be
ratable between the Term Loan and the Revolving Credit Commitment of the
assigning Lender. The written consent of the Agent and, so long as no
Default is continuing, the Borrower shall be required prior to an
assignment becoming effective with respect to a Purchaser which is not a
Lender or an Affiliate thereof. Such consents shall not be unreasonably
withheld and when granted, shall be granted through the execution of a
document in substantially the form of Exhibit I to Exhibit F hereto.
12.3.2. Effect; Effective Date. Upon (a) delivery to the Agent of a
notice of assignment, substantially in the form attached as Exhibit I to
Exhibit F hereto (a "Notice of Assignment"), together with any consents
required by Section 12.3.1, and (b) payment of a $3,500 fee to the Agent
for processing such assignment, such assignment shall become effective on
the effective date specified in such Notice of Assignment. On and after
the effective date of such assignment, (a) such Purchaser shall for all
purposes be a Lender party to this Agreement and any other Loan Document
executed by the Lenders and shall have all the rights and obligations of a
Lender under the Loan Documents, to the same extent as if it were an
original party hereto, and (b) the transferor Lender shall be released with
respect to the percentage of the Aggregate Total Commitment and Loans
assigned to such Purchaser without any further consent or action by the
Borrower, the Lenders or the Agent. Upon the consummation of any
assignment to a Purchaser pursuant to this Section 12.3.2, the transferor
Lender, the Agent and the Borrower shall make appropriate arrangements so
that replacement Notes are issued to such transferor Lender and new Notes
or, as appropriate, replacement Notes, are issued to such Purchaser, in
each case in principal amounts reflecting their Total Commitment, as
adjusted pursuant to such assignment.
12.4. Dissemination of Information. The Borrower authorizes each Lender
to disclose to any Participant or Purchaser or any other Person acquiring an
interest in the Loan Documents by operation of law (each a "Transferee") and any
prospective Transferee any and all information in such Lender's possession
concerning the creditworthiness of the Borrower and its Subsidiaries; provided,
that such Transferee or prospective Transferee shall have agreed to be bound by
the provisions of Section 9.17.
12.5. Tax Treatment. If any interest in any Loan Document is
transferred to any Transferee which is organized under the laws of any
jurisdiction other than the United States or any State thereof, the transferor
Lender shall cause such Transferee, concurrently with the effectiveness of such
transfer, to comply with the provisions of Section 2.19.
ARTICLE XIII
NOTICES
13.1. Giving Notice. Except as otherwise permitted by Section 2.14 with
respect to borrowing notices, all notices and other communications provided to
any party hereto under this Agreement or any other Loan Document shall be in
writing, by facsimile, first class U.S. mail or overnight courier and addressed
or delivered to such party at its address set forth below its signature hereto
or at such other address as may be designated by such party in a notice to the
other parties. Any notice, if mailed and properly addressed with first class
postage prepaid, return receipt requested, shall be deemed given three (3)
Business Days after deposit in the U.S. mail; any notice, if transmitted by
facsimile, shall be deemed given when transmitted; and any notice given by
overnight courier shall be deemed given when received by the addressee.
13.2. Change of Address. The Borrower, the Agent and any Lender may
each change the address for service of notice upon it by a notice in writing to
the other parties hereto.
[signature pages to follow]
13.3. IN WITNESS WHEREOF, the Borrower, the Lenders and the Agent have
executed this Agreement as of the date first above written.
PIONEER FINANCIAL SERVICES, INC.
By:
Print Name:
Title:
Address: 1750 East Golf Road
Schaumburg, Illinois 60173
Attn: Val Rajic
Telecopy: (847) 995-0400
Telephone: (847) 413-7195
Commitments
Revolving Credit THE FIRST NATIONAL BANK OF CHICAGO,
Commitment $ 8,181,818.18 Individually and as Agent
Term Loan Commitment $ 6,818,181.82
Total Commitment $15,000,000.00 By:
Print Name:
Title:
Address: One First National Plaza
Chicago, Illinois 60602
Attn: Paul T. Schultz
Telecopy: (312) 732-4033
Telephone: (312) 732-7074
13.4.Aggregate Commitments
Revolving Credit AMERICAN NATIONAL BANK & TRUST COMPANY OF
Commitment $ 4,363,636.36 CHICAGO
Term Loan Commitment $ 3,636,363.64
Total Commitment $ 8,000,000.00 By:
Print Name:
Title:
Address: 33 North LaSalle Street
Chicago, Illinois 60602
Attn: Arthur W. Murray
Telecopy: 312-641-6675
Telephone: 312-661-6943
Revolving Credit BANK ONE, ROCKFORD, N.A.
Commitment $ 4,363,636.36
Term Loan Commitment $ 3,636,363.64
Total Commitment $ 8,000,000.00 By:
Print Name:
Title:
Address: 6000 East State Street
Rockford, Illinois 61108
Attn: Robert Opperman
Telecopy: 815-394-1889
Telephone: 815-394-4672
13.5.Revolving Credit FIRSTAR BANK, MILWAUKEE, N.A.
Commitment $ 4,363,636.36
Term Loan Commitment $ 3,636,363.64
Total Commitment $ 8,000,000.00 By:
Print Name:
Title:
Address: 777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Attn: Azad Virani
Telecopy: 414-765-6236
Telephone: 414-765-6932
Copy to: Christine Stoffer
Senior Attorney
Firstar Law Department
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Revolving Credit FLEET NATIONAL BANK
Commitment $ 4,363,636.36
Term Loan Commitment $ 3,636,363.64
Total Commitment $ 8,000,000.00 By:
Print Name:
Title:
Address: 777 Main Street, Mail Stop CTM00250
Hartford, Connecticut 06115
Attn: Tino Aurigemma
Telecopy: 860-986-1264
Telephone: 860-986-2678
13.6.Revolving Credit LASALLE NATIONAL BANK
Commitment $ 4,363,636.36
Term Loan Commitment $ 3,636,363.64
Total Commitment $ 8,000,000.00 By:
Print Name:
Title:
Address: 120 South LaSalle Street
Room 210
Chicago, Illinois 60603
Attn: James C. Tucker
Telecopy: 312-904-6189
Telephone: 312-904-4970
EXHIBIT 11
PIONEER FINANCIAL SERVICES, INC.
STATEMENT OF COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net income $ 6,024 $ 5,360 $12,755 $10,315
Average shares outstanding 10,403 5,919 10,254 5,911
Common Stock equivalents from
dilutive stock options,
based on the treasury stock
method using average market
price 368 365 376 274
TOTAL-PRIMARY 10,771 6,284 10,630 6,185
Additional Common Stock equivalents
from dilutive stock options,
based on the treasury stock
method using closing market
price 10 108 2 198
Additional shares assuming
conversion of
Preferred Stock 686 1,358 1,022 1,358
Additional shares assuming
conversion of
Subordinated Debentures and
Notes 5,095 4,888 3,048 4,888
TOTAL-FULLY DILUTED 16,562 12,638 14,702 12,629
Net income per share-
Primary* $ .55 $ .78 $ 1.14 $ 1.52
Net income per share-
Fully Diluted** $ .44 $ .48 $ .96 $ .94
* Primary net income per share was calculated after deducting dividends
on Preferred Stock of $141,000 and $446,000 for the three month periods
ended June 30, 1996 and 1995 respectively, and $592,000 and $904,000 for
the six month periods ended June 30, 1996 and 1995 respectively.
** Fully diluted net income per share was calculated after adding tax
effected interest and amortization of offering costs on Subordinated
Debentures and Notes of $1,181,000 and $769,000 for the three month
periods and $1,377,000 and $1,539,000 for the six month periods ended
June 30, 1996 and 1995 respectively.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<DEBT-HELD-FOR-SALE> 640,136
<DEBT-CARRYING-VALUE> 261,544
<DEBT-MARKET-VALUE> 258,692
<EQUITIES> 23,293
<MORTGAGE> 8,383
<REAL-ESTATE> 18,008
<TOTAL-INVEST> 1,053,660
<CASH> 24,067
<RECOVER-REINSURE> 5,552
<DEFERRED-ACQUISITION> 226,801
<TOTAL-ASSETS> 1,615,821
<POLICY-LOSSES> 963,808
<UNEARNED-PREMIUMS> 79,013
<POLICY-OTHER> 170,889
<POLICY-HOLDER-FUNDS> 17,288
<NOTES-PAYABLE> 108,008<F1>
0
0
<COMMON> 11,839<F2>
<OTHER-SE> 142,625<F3>
<TOTAL-LIABILITY-AND-EQUITY> 1,615,821
357,724
<INVESTMENT-INCOME> 37,058
<INVESTMENT-GAINS> 772
<OTHER-INCOME> 22,066
<BENEFITS> 250,661
<UNDERWRITING-AMORTIZATION> 38,305
<UNDERWRITING-OTHER> 109,474
<INCOME-PRETAX> 19,180
<INCOME-TAX> 6,425
<INCOME-CONTINUING> 12,755
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,755
<EPS-PRIMARY> 1.14
<EPS-DILUTED> .96
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>Includes short-term and long-term borrowings and convertible subordinated
debentures and notes.
<F2>Common stock at par value.
<F3>Includes additional paid in capital and retained earnings less unrealized
depreciation and treasury stock.
</FN>
</TABLE>
