<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM 8-K
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
-------------------------
Date of Report: July 24, 1996
PENNCORP FINANCIAL GROUP, INC.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
DELAWARE
- --------------------------------------------------------------------------------
(State or Other Jurisdiction of Incorporation)
1-11422 13-3543540
- --------------------------------------------------------------------------------
(Commission File Number) (I.R.S. Employer Identification Code)
745 FIFTH AVENUE, NEW YORK, NEW YORK 10151
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(212) 832-0700
- --------------------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On July 24, 1996, PennCorp Financial Group, Inc. (the "Company" or "PennCorp"),
through its wholly owned subsidiary, Pacific Life and Accident Insurance
Company, a Texas corporation ("PLAIC"), acquired 100% of the outstanding capital
stock of United Companies Life Insurance Company, a Louisiana corporation
("UCLIC or UC Life") from United Companies Financial Corporation ("UCFC") for
$167.6 million (excluding estimated expenses to be incurred of $10.0 million),
consisting of $100.3 million in cash paid by the Company and a $10.0 million
cash dividend paid by, and certain real estate and other assets distributed by,
UCLIC to UCFC immediately prior to the closing of the acquisition of UCLIC.
In connection with the acquisition of UCLIC, UCFC purchased a convertible note
of the Company in the principal amount of $14,999,000, and immediately
converted the note into 483,839 shares of the Company's common stock.
Immediately following the acquisition of UCLIC, the Company contributed $57.3
million in cash to UCLIC, which represented the market value of the real estate
and other assets (but excluded the $10.0 million cash dividend) distributed by
UCLIC to UCFC.
The Company borrowed funds under its revolving credit agreement with The Bank
of New York as Administrative Agent (i) to fund the cash portion of the
purchase price for UCLIC, (ii) to make required capital contributions to UCLIC
and (iii) to pay related acquisition expenses. The net proceeds from the sale
of the Company's $3.50 Series II Convertible Preferred Stock will be used to
repay a substantial portion of such borrowings.
<PAGE> 3
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Business Acquired.
The audited consolidated balance sheets of UCLIC and its
subsidiary, United Variable Services, Inc. as of December 31,
1995 and 1994, and the related consolidated statements of
income, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1995 are attached
hereto as Attachment 7(a) and are incorporated herein by
reference.
(b) Pro Forma Financial Information.
Attached hereto as Attachment 7(b) and incorporated herein by
reference is unaudited pro forma selected financial
information which has been prepared to illustrate the pro
forma effects of (i) the sale of 3,750,000 shares of the
Company's common stock in March 1995 and the use of the
proceeds therefrom, (ii) the sale of 2,300,000 shares of $33.75
Convertible Preferred Stock in July 1995 and the use of the
proceeds therefrom, (iii) the acquisition of Integon Life
Corporation and its life insurance subsidiaries, including the
financing thereof, (iv) the Company's $120.0 million
investment in Southwestern Financial Corporation consummated
on December 14, 1995, including the financing thereof, (v) the
sale of 5,131,300 shares of the Company's common stock in
February 1996 and the use of the proceeds therefrom, (vi) the
acquisition of UCLIC, including the financing thereof, and
(vii) the sale of 2,500,000 shares of $3.50 Series II
Convertible Preferred Stock in August 1996 and the use of the
proceeds therefrom. The pro forma statement of operations for
the year ended December 31, 1995 and for the three months
ended March 31, 1996 give effect to the foregoing transactions
as though each had occurred on January 1, 1995. The pro forma
balance sheets as of March 31, 1996 gives effect to the
acquisition of UCLIC and the financing thereof (including the
sale of the $3.50 Series II Convertible Preferred Stock and
the use of proceeds therefrom), as though each such
transaction had occurred on March 31, 1996.
(c) Exhibits. The exhibits filed as part of this Current Report
on Form 8-K are listed in the Index to Exhibits immediately
following the signature page.
<PAGE> 4
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
PENNCORP FINANCIAL GROUP, INC.
Date: August 8, 1996 By: /s/ Scott D. Silverman
------------------------------------
Scott D. Silverman
Senior Vice President, General Counsel
and Secretary
<PAGE> 5
ATTACHMENT 7(a)
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and
Board of Directors of
United Companies Life Insurance Company
We have audited the accompanying consolidated balance sheets of United
Companies Life Insurance Company (a wholly-owned subsidiary of United Companies
Financial Corporation) and its subsidiary as of December 31, 1995 and 1994, and
the related consolidated statements of income, stockholder's equity, and cash
flows for each of the three years in the period ended December 31, 1995. Our
responsibility is to express an opinion on the financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of United Companies Life Insurance
Company and its subsidiary at December 31, 1995 and 1994, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1995 in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Baton Rouge, Louisiana
February 29, 1996
<PAGE> 6
UNITED COMPANIES LIFE INSURANCE COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Net investment income...................................... $123,107 $114,380 $109,661
Net insurance premiums..................................... 8,508 11,373 18,684
Realized investment losses................................. (3,498) (4,811) (19,393)
-------- -------- --------
Total.............................................. 128,117 120,942 108,952
-------- -------- --------
Expenses:
Interest on annuity policies............................... 79,086 73,065 76,086
Amortization of deferred policy acquisition costs.......... 13,159 13,528 10,229
Insurance commissions...................................... 432 328 3,116
Insurance benefits......................................... 9,930 12,654 18,200
Other operating expenses................................... 13,410 12,287 13,686
-------- -------- --------
Total.............................................. 116,017 111,862 121,317
-------- -------- --------
Income (loss) before income taxes............................ 12,100 9,080 (12,365)
-------- -------- --------
Provision (benefit) for income taxes:
Current.................................................... 5,259 5,915 (2,263)
Deferred................................................... (1,194) (2,721) (1,844)
-------- -------- --------
Total.............................................. 4,065 3,194 (4,107)
-------- -------- --------
Net income (loss).......................................... $ 8,035 $ 5,886 $ (8,258)
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
<PAGE> 7
UNITED COMPANIES LIFE INSURANCE COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1995 1994
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Investments:
Fixed maturity securities:
Available-for-sale at fair value............................... $1,140,160 $ 959,857
Held-to-maturity at amortized cost............................. 50,919 57,074
Equity securities at fair value................................... 794 721
Mortgage loans on real estate..................................... 336,269 311,537
Investment real estate............................................ 32,423 17,292
Policy loans...................................................... 20,291 20,243
Investments in limited partnerships............................... 25,594 26,672
Short-term investments............................................ 22,804 54,664
Other invested assets............................................. 2,469 5,034
---------- ----------
Total investments......................................... 1,631,723 1,453,094
Cash................................................................ 3,028 13,169
Investment in indebtedness of affiliate............................. 10,000 10,000
Accrued investment income........................................... 16,529 15,032
Due from reinsurers................................................. 33,583 34,985
Deferred policy acquisition costs................................... 90,703 91,915
Property -- net..................................................... 575 20,299
Deferred income tax benefit......................................... -- 17,128
Other assets........................................................ 3,256 2,532
Assets held in separate accounts.................................... 211 --
---------- ----------
Total assets.............................................. $1,789,608 $1,658,154
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Annuity reserves.................................................... $1,417,803 $1,425,973
Policy benefit reserves............................................. 111,209 116,501
Unearned premium reserves........................................... 1,793 4,491
Repurchase agreements............................................... 40,857 --
Deferred income tax payable......................................... 22,770 --
Other liabilities................................................... 8,440 9,010
Liabilities related to separate accounts............................ 211 --
---------- ----------
Total liabilities......................................... 1,603,083 1,555,975
---------- ----------
Stockholder's equity:
Common stock, $2 par value; Authorized -- 4,200,528 shares;
Issued -- 4,200,528 shares..................................... 8,401 8,401
Additional paid-in capital........................................ 28,980 28,980
Retained earnings................................................. 119,667 111,632
Net unrealized gains (losses) on securities....................... 29,477 (46,834)
---------- ----------
Total stockholder's equity................................ 186,525 102,179
---------- ----------
Total liabilities and stockholder's equity................ $1,789,608 $1,658,154
========== ==========
</TABLE>
See notes to consolidated financial statements.
<PAGE> 8
UNITED COMPANIES LIFE INSURANCE COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
NET
UNREALIZED
ADDITIONAL GAINS TOTAL
COMMON PAID-IN RETAINED (LOSSES) STOCKHOLDER'S
STOCK CAPITAL EARNINGS ON SECURITIES EQUITY
--------- ----------- ---------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1992................. $ 8,401 $ 13,980 $ 114,004 $ 136,385
Net loss................................... (8,258) (8,258)
Capital contribution....................... 15,000 15,000
-------- --------- ---------- ------------- -----------
Balance, December 31, 1993................. 8,401 28,980 105,746 143,127
Net income................................. 5,886 5,886
Mark-to-market adjustment on investments... (46,834) (46,834)
-------- --------- ---------- ------------- -----------
Balance, December 31, 1994................. 8,401 28,980 111,632 (46,834) 102,179
Net income................................. 8,035 8,035
Mark-to-market adjustment on investments... 76,311 76,311
-------- ---------- ----------- ------------- -----------
Balance, December 31, 1995................. $ 8,401 $ 28,980 $ 119,667 $ 29,477 $ 186,525
======== ========== =========== ============= ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE> 9
UNITED COMPANIES LIFE INSURANCE COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1995 1994 1993
----------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)...................................... $ 8,035 $ 5,886 $ (8,258)
Adjustments to reconcile net income to net cash
provided by operating activities:
Decrease (increase) in deferred policy
acquisition costs................................. 1,212 (8,419) (3,488)
(Increase) decrease in policy loans................. (48) (609) 332
(Increase) in accrued interest and accounts
receivable........................................ (1,497) (498) (129)
Decrease in due from reinsurers..................... 1,402 1,574 1,158
Decrease in other invested assets................... 2,565 2,241 921
(Increase) in other assets.......................... (1,215) (1,924) (875)
(Decrease) in policy benefit reserves............... (5,292) (6,827) (1,699)
Interest on annuity policies........................ 79,086 73,065 76,086
(Decrease) in unearned premium reserves............. (2,698) (5,769) (6,878)
Deferred income tax (benefit)....................... (1,194) (2,721) (1,844)
Increase (decrease) in other liabilities............ 359 (1,404) 813
Provision for loan losses........................... 4,051 5,059 4,994
Amortization and depreciation....................... 1,648 1,883 1,914
Amortization of prior loan sale gains............... 2,451 2,012 735
Investment (gains) losses........................... (381) (256) 14,400
Net cash flows from trading investment securities... (73) (679) --
----------- --------- ---------
Net cash provided by operating activities...... 88,411 62,614 78,182
----------- --------- ---------
Cash flows from investment activities:
Proceeds from sales of loans held for investment....... 1,111,636 940,099 457,945
Principal collected on loans........................... 71,294 94,084 95,752
Loan originations and acquisitions..................... (39,547) (8,799) (4,560)
Loans purchased from affiliates........................ (1,168,648) (893,099) (572,576)
Proceeds from sales, calls or maturities of
available-for-sale securities....................... 75,937 84,155 --
Proceeds from maturities or calls of held-to-maturity
securities.......................................... 2,188 2,256 136,429
Purchase of available-for-sale securities.............. (136,503) (300,384) --
Purchase of held-to-maturity securities................ -- -- (293,816)
Change in investment in limited partnerships........... 1,078 26 6,126
Change in short-term investments....................... 31,860 (17,813) (20,926)
Capital expenditures................................... (1,258) (656) (133)
----------- --------- ---------
Net cash (used) by investing activities........ (51,963) (100,131) (195,759)
----------- --------- ---------
Cash flows from financing activities:
Deposits received from annuities and interest sensitive
products............................................ 135,325 249,738 207,681
Payments on annuities and interest sensitive
products............................................ (222,791) (191,812) (136,489)
Increase (decrease) in repurchase agreement............ 40,857 (30,000) 30,000
Decrease in debt with maturities of three months or
less................................................ -- -- (15,570)
Proceeds from capital contribution..................... -- -- 15,000
Other.................................................. 20 44 242
----------- --------- ---------
Net cash (used) provided by financing
activities................................... (46,589) 27,970 100,684
----------- --------- ---------
(Decrease) in cash....................................... (10,141) (9,547) (16,893)
Cash at beginning of period.............................. 13,169 22,716 39,609
----------- --------- ---------
Cash at end of period.................................... $ 3,028 $ 13,169 $ 22,716
=========== ========= =========
</TABLE>
See notes to consolidated financial statements.
<PAGE> 10
UNITED COMPANIES LIFE INSURANCE COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1. ACCOUNTING POLICIES
1.1 Principles of Consolidation. The consolidated financial statements
include United Companies Life Insurance Company (the "Company") and its
wholly-owned subsidiary, United Variable Services, Inc. All significant
intercompany balances and transactions have been eliminated in the consolidated
financial statements.
1.2 Organization. United Companies Life Insurance Company (the "Company")
is a wholly-owned subsidiary of United Companies Financial Corporation ("UCFC"
or the "Parent"), a financial services holding company founded in 1946. UCFC
focuses on the origination, sale and servicing of first mortgage,
nonconventional, home equity loans and insurance.
The Company, a life insurance company domiciled in Louisiana and organized
in 1955, is currently authorized to conduct business in 47 states, the District
of Columbia and Puerto Rico. The primary products of the Company are tax
deferred annuity contracts marketed to individuals principally through financial
institutions and independent agents.
1.3 Investments.
1.3(a) Fixed Maturity and Equity Securities. During the first quarter of
1994, the Company implemented the provisions of Financial Accounting Standards
Board ("FASB") Statement of Financial Accounting Standards No. 115 ("SFAS 115"),
which revised the method of accounting for certain of the Company's investments.
Prior to adoption of SFAS 115, the Company reported its investments in fixed
income investments at amortized cost, adjusted for declines in value considered
to be other than temporary. SFAS 115 requires the classification of securities
in one of three categories: "available-for-sale," "held-to-maturity" or
"trading." Securities classified as held-to-maturity are carried at amortized
cost, whereas securities classified as trading securities or available-for-sale
are recorded at fair value. Effective with the adoption of SFAS 115, the Company
determined the appropriate classification of its investments and, if necessary,
adjusted the carrying value of such securities, accordingly, as if the
unrealized gains or losses had been realized. The adjustment, net of applicable
income taxes, for investments classified as available-for-sale is recorded in
"Net unrealized gains (losses) on securities" and is included in stockholder's
equity on the balance sheet. The adjustment for investments classified as
trading is recorded in "Realized investment losses" in the statement of income.
In accordance with the provisions of SFAS 115, prior year investments were not
restated.
1.3(b) Mortgage Loans on Real Estate. Loans are carried at amortized cost,
net of an allowance for losses. The Company provides for estimated loan losses
on loans owned by the Company by establishing an allowance for loan losses
through a charge to earnings. The Company conducts periodic reviews of the
quality of the loan portfolio and estimates the risk of loss based upon
historical loss experience, prevailing economic conditions, estimated collateral
value and such other factors which, in management's judgment, are relevant in
estimating the adequacy of the Company's allowance for loan losses. While
management uses the best information available in conducting its evaluation,
future adjustments to the allowance may be necessary if there are significant
changes in economic conditions, collateral value or other elements used in
conducting the review.
1.3(c) Investment Real Estate. The Company's investments in real estate
are comprised of properties received in settlement of loans ("foreclosed
properties") and two office buildings, adjacent land, and related improvements
(its former home office property). The Company records foreclosed properties at
the lower of their market value less estimated costs to sell ("market") or the
outstanding loan amount plus accrued interest ("cost"). The Company accomplishes
this by providing a specific reserve, on a property by property basis, for the
difference between market and cost. Market value is determined by property
appraisals performed either by its affiliate, United Companies Lending
Corporation ("UCLC"), or independent appraisers. The related adjustments are
included in the Company's provision for losses.
<PAGE> 11
UNITED COMPANIES LIFE INSURANCE COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During 1995, the Company moved its offices from its previous location, and
converted One and Two United Plaza to investment real estate. One and Two United
Plaza are leased primarily by the Company to its Parent and other affiliates.
One and Two United Plaza are stated at cost less accumulated depreciation.
Depreciation is computed on the straight-line method over its estimated useful
life.
1.3(d) Policy Loans. Policy loans are reported at unpaid principal
balance.
1.3(e) Investment in Limited Partnerships. The Company's investment in
limited partnerships, whose affairs are not controlled by the Company, is
reflected on the equity method.
1.3(f) Short-term Investments. At December 31, 1995, short-term
investments totaled $22.8 million bearing interest rates ranging from 5.25% to
5.61% per annum.
1.4 Investment in Indebtedness of Affiliate. The Company has invested in
three subordinated debentures of an affiliate, which are carried at cost.
1.5 Deferred Policy Acquisition Costs. Commissions and other costs related
to the production of new and renewal business have been deferred. The deferred
costs related to traditional life insurance are amortized over the premium
payment period using assumptions consistent with those used in computing policy
benefit reserves. Deferred costs related to annuities and interest sensitive
products are amortized over the estimated life of the policy in relation to the
present value of estimated gross profits on the contract. The Company
periodically reviews the appropriateness of assumptions used in calculating the
estimated gross profits on annuity contracts. Any change required in these
assumptions may result in an adjustment to deferred policy acquisition costs
which would affect income.
1.7 Property-Net. Property is stated at cost less accumulated
depreciation. Depreciation is computed on the straight-line and accelerated
methods over the estimated useful lives on the assets.
1.8 Policy Benefit Reserves. Policy benefit reserves for traditional life
insurance policies have been provided on a net level premium method including
assumptions as to investment yield, mortality and withdrawals based on the
Company's experience and industry standards with provisions for possible adverse
deviation. Investment yield assumptions range from 5.5% to 8.5% per annum.
Policy benefit reserves include certain deferred profits on limited payment
policies. These profits are being recognized in income over the policy term.
Reserves for annuity policies and interest sensitive life policies
represent the policy account balance, or accumulated fund value, before
applicable surrender charges. Benefit claims incurred in excess of related
policy account balances and interest credited during the period to policy
account balances are charged to expense.
1.9 Repurchase agreements. At December 31, 1995, the Company had a
liability of approximately $40.9 million incurred pursuant to securities sold
under agreements to repurchase ("repurchase agreements"). The securities sold
under these agreements are classified as "Available-for-sale" investment
securities and are carried at their aggregate market value of $42.2 million at
December 31, 1995. The repurchase agreements bear interest at 5.70% and 5.74%
and matured in January, 1996.
1.10 Income Taxes. The Company files a consolidated federal income tax
return with its Parent and other affiliated companies. The Parent allocates to
the Company its proportionate share of the consolidated tax liability under a
tax allocation agreement whereby each affiliate's federal income tax provision
is computed on a separate return basis. Deferred income taxes are provided for
the effect of revenues and expenses which are reported in different periods for
financial reporting purposes than for tax purposes. Such differences result
primarily from deferring policy acquisition costs, providing for bond, real
estate and loan losses, differences in the methods of computing reserves, and
depreciation.
<PAGE> 12
UNITED COMPANIES LIFE INSURANCE COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1.11 Premiums. Income on short duration single premium contracts,
primarily credit insurance products, is recognized over the contract period.
Premiums on other insurance contracts principally traditional life insurance and
limited payment life insurance policies, are recognized as revenue when due.
1.12 Reinsurance. The Company generally reinsures with other insurance
companies the portion of any one risk which exceeds $100,000. On certain types
of policies this limit is $25,000. The Company is contingently liable for
insurance ceded to reinsurers. Premiums ceded under reinsurance agreements were
$1.7 million, $2.1 million and $3.6 million in 1995, 1994 and 1993,
respectively. Reserve credit taken under reinsurance agreements totaled $32.9
million, $34.0 million and $35.2 million at December 31, 1995, 1994 and 1993,
respectively.
The Company has assumed the following reinsurance from other insurers:
<TABLE>
<CAPTION>
INSURANCE
IN FORCE PREMIUMS
---------- --------
(IN THOUSANDS)
<S> <C> <C>
1995.......................................................... $ 992,979 $2,589
1994.......................................................... 1,106,148 2,966
1993.......................................................... 1,106,721 3,039
</TABLE>
The Company has a receivable at December 31, 1995 of approximately $33.9
million from one reinsurer; however, the funds supporting the receivable are
escrowed in a separate trust account for the benefit of the Company by the
reinsurer. The following table reflects the effect of reinsurance agreements on
premiums and the amounts earned for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Direct premiums....................................... $ 7,659 $10,537 $19,294
Reinsurance assumed................................... 2,589 2,966 3,039
Reinsurance ceded..................................... (1,740) (2,130) (3,649)
------- ------- -------
Net insurance premiums...................... $ 8,508 $11,373 $18,684
======= ======= =======
</TABLE>
1.13 Participating Policies. Direct participating business, primarily
related to the Company's pre-need funeral policies, represented 8.2%, 7.2% and
6.3% of the life insurance in force as of December 31, 1995, 1994 and 1993,
respectively. The amount of dividends paid on participating policies is based on
published dividend scales and totaled $1.2 million, $1.0 million and $1.5
million for the years ended December 31, 1995, 1994 and 1993, respectively.
1.14 Accounting Standards. In May, 1993 and in October, 1994, respectively
the FASB issued Statements of Financial Accounting Standards Nos. 114 and 118
("SFAS 114" and "SFAS 118") which address the accounting by creditors for
impairment of loans and specify how allowances for credit losses related to
certain loans should be determined. The statements also address the accounting
by creditors for all loans that are restructured in a troubled debt
restructuring involving modification of terms of a receivable. The
implementation of the provisions of SFAS 114 and SFAS 118 in the first quarter
of 1995 did not have a material effect on the financial statements of the
Company.
1.15 Use of Estimates. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
<PAGE> 13
UNITED COMPANIES LIFE INSURANCE COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1.16 Reclassifications. Certain prior year amounts have been reclassified
to conform with the current year presentation. Such reclassifications had no
effect on net income.
2. INVESTMENTS
2.1 Fixed Maturity Securities. The Company's portfolio of fixed maturity
securities consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
----------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Available-for-Sale:
U.S. Government................................ $ 11,504 $ 409 $ -- $ 11,913
Municipal...................................... 425 21 -- 446
Foreign........................................ 20,394 1,916 -- 22,310
Corporate...................................... 328,546 22,452 679 350,319
Mortgage-backed................................ 733,516 22,258 602 755,172
---------- ------- ------ ----------
Total.................................. $1,094,385 $ 47,056 $1,281 $1,140,160
========== ======= ====== ==========
Held-to-Maturity:
Corporate...................................... $ 6,692 $ 550 $ -- $ 7,242
Mortgage-backed................................ 44,227 1,414 3,272 42,369
---------- ------- ------ ----------
Total.................................. $ 50,919 $ 1,964 $3,272 $ 49,611
========== ======= ====== ==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1994
--------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Available-for-Sale:
U.S. Government................................. $ 10,720 $ 31 $ 238 $ 10,513
Municipal....................................... 425 13 -- 438
Foreign......................................... 18,433 190 603 18,020
Corporate....................................... 258,549 321 13,148 245,722
Mortgage-backed................................. 743,359 22 58,217 685,164
---------- ---- -------- --------
Total................................... $1,031,486 $577 $ 72,206 $959,857
========== ==== ======== ========
Held-to-Maturity:
Corporate....................................... $ 10,828 $300 $ 211 $ 10,917
Mortgage-backed................................. 46,246 110 2,188 44,168
---------- ---- -------- --------
Total................................... $ 57,074 $410 $ 2,399 $ 55,085
========== ==== ======== ========
</TABLE>
<PAGE> 14
UNITED COMPANIES LIFE INSURANCE COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Included in Held-to-Maturity Securities are investments in subordinated
junior certificates in securitized pools of commercial real estate loans for
which an election under the real estate mortgage investment conduit provisions
("REMIC") of the Internal Revenue Code was made. Associated with the ownership
of those junior certificates are certain credit risks for which the Company has
established an estimate of future credit losses as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1995 1994 1993
------- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of period............................ $ 317 $ 1,515 $ 98
Losses charged to allowance............................... (1,664) (3,047) (811)
Loss provision............................................ 2,013 1,849 2,228
------- ------- ------
Balance at end of period.................................. $ 666 $ 317 $1,515
======= ======= ======
</TABLE>
The cost and estimated fair value of fixed maturity securities by
contractual maturity are shown below. Expected maturities may differ from
contractual maturities because certain issuers may have the right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
DECEMBER 31, 1995
------------------------------------------------
AVAILABLE-FOR-SALE HELD-TO-MATURITY
------------------------ --------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
---------- ---------- --------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1 year or less........................... $ 6,601 $ 6,513 $ -- $ --
Over 1 year through 5 years.............. 80,080 84,349 2,286 2,361
Over 5 years through 10 years............ 266,238 285,826 4,406 4,881
After 10 years........................... 7,950 8,300 -- --
Mortgage-backed securities............... 733,516 755,172 44,227 42,369
---------- ---------- ------- -------
Total.......................... $1,094,385 $1,140,160 $50,919 $49,611
========== ========== ======= =======
</TABLE>
Net unrealized gains on available-for-sale securities of $29.5 million
included in Stockholder's equity at December 31, 1995, are presented net of
deferred income taxes of $15.9 million. Net unrealized losses of $46.8 million
at December 31, 1994, were net of deferred income taxes of $25.2 million.
Proceeds from the sales, calls and maturities of investments in debt
securities during 1995 totaled $78.1 million and resulted in realized investment
gains of approximately $.5 million and realized investment losses of
approximately $2.1 million. During 1994 and 1993, proceeds totaled $86.4 million
and $136.4 million, respectively; resulting in realized capital gains of
$303,000 and $1.5 million, respectively. Realized losses for 1994 and 1993 were
$4.5 million and $3.2 million, respectively. In addition to losses incurred in
connection with the sale of investments during 1993, the Company reduced the
carrying value of a corporate bond by $.5 million to reflect the Company's
estimate of a permanent decline in the value of this investment. At December 31,
1995, securities with a cost of $9.4 million were on deposit with insurance
regulatory authorities.
In 1990, the Company securitized pools of commercial real estate loans
owned by it in two transactions and in connection therewith sold pass-through
certificates ("Series 90-1" and "Series 90-2") for which an election under the
real estate mortgage investment conduit provisions ("REMIC") of the Internal
Revenue Code of 1986, as amended were made. The Company retained as an
investment subordinated junior certificates in both issues, as well as a senior
certificate interest in Series 90-2.
Included in "Held-to-maturity," fixed maturity securities are investments
in the two REMIC's of approximately $44.2 million at December 31, 1995 and $46.2
million at December 31, 1994.
<PAGE> 15
UNITED COMPANIES LIFE INSURANCE COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the Company's investment at December 31, 1995 in the REMIC's
is as follows:
<TABLE>
<CAPTION>
REMAINING
DATE OF PRINCIPAL CARRYING INTEREST MATURITY
ISSUE BALANCE VALUE RATE DATE
------------- --------- -------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
United Companies life REMIC
Series 90-1, Class B-1........... Mar 29, 1990 $10,794 $ 10,296 10.05% Sep 25, 2009
Series 90-2, Class A-3........... Dec 18, 1990 20,250 19,974 9.88% May 25, 2000
Series 90-2, Class B-1........... Dec 18, 1990 15,709 13,957 9.88% Jan 25, 2009
------- -------
$46,753 $ 44,227
======= =======
</TABLE>
2.2 Equity Securities. The net unrealized gains and losses on common stock
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-------------------------------------------
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------ ---------- ---------- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Trading......................................... $ 545 $215 $ 8 $ 752
Available-for-Sale.............................. 467 -- 425 42
------ ---- ---- ----
Total................................. $1,012 $215 $433 $ 794
====== ==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1994
-------------------------------------------
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------ ---------- ---------- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Trading......................................... $ 656 $ 51 $ 28 $ 679
Available-for-Sale.............................. 467 -- 425 42
------ --- ---- ----
Total................................. $1,123 $ 51 $453 $ 721
====== === ==== ====
</TABLE>
2.3 Mortgage Loans on Real Estate. The following schedule summarizes the
composition of mortgage loans on real estate:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Residential.................................................... $169,175 $158,943
Unearned loan charges.......................................... (301) (418)
-------- --------
168,874 158,525
-------- --------
Commercial..................................................... 169,512 154,790
Allowance for loan losses...................................... (2,117) (1,778)
-------- --------
167,395 153,012
-------- --------
Total................................................ $336,269 $311,537
======== ========
</TABLE>
Included in the loans owned at December 31, 1995 and 1994 were nonaccrual
loans of $2.4 million and $2.6 million, respectively.
<PAGE> 16
UNITED COMPANIES LIFE INSURANCE COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company provides an estimate for future credit losses in an allowance
for loan losses. A summary analysis of the changes in the Company's allowance
for loan losses is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1995 1994 1993
------ ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year.............................. $1,778 $ 2,639 $2,489
Loans charged to allowance................................ (194) (1,510) (508)
Loan loss provision....................................... 533 649 658
------ ------- ------
Balance at end of year.................................... $2,117 $ 1,778 $2,639
====== ======= ======
Specific reserves......................................... $1,117 $ 752 $1,376
Unallocated reserves...................................... 1,000 1,026 1,263
------ ------- ------
Total reserves.................................. $2,117 $ 1,778 $2,639
====== ======= ======
</TABLE>
2.4 Investment Real Estate. Investment real estate at December 31, 1995
and 1994 was as follows:
<TABLE>
<CAPTION>
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Investment real estate........................................... $22,845 $ 3,073
Foreclosed real estate........................................... 13,565 19,339
Allowance for losses............................................. (3,987) (5,120)
------- -------
$32,423 $17,292
======= =======
</TABLE>
The specific allowance for investment real estate losses was as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance, January 1.................................... $ 5,120 $ 4,473 $ 4,062
Additions(a).......................................... 1,505 2,561 2,607
Deductions(b)......................................... (2,638) (1,914) (2,196)
------- ------- -------
Balance, December 31.................................. $ 3,987 $ 5,120 $ 4,473
======= ======= =======
</TABLE>
- ---------------
(a) Charged to realized investment gains (losses).
(b) Resulting from sales.
2.5 Investment in Limited Partnerships. Following is an analysis of the
Company's investment in limited partnerships:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1995 1994 1993
-------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance, beginning of year.......................... $ 26,672 $26,698 $ 32,824
Contributions and capitalized costs................. 9,869 5,168 4,326
Net partnership income.............................. 6,279 1,480 2,944
Distributions....................................... (17,226) (6,674) (13,396)
-------- ------- --------
Balance, end of year................................ $ 25,594 $26,672 $ 26,698
======== ======= ========
</TABLE>
<PAGE> 17
UNITED COMPANIES LIFE INSURANCE COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The limited partnerships were formed for the purpose of participating in
privately placed mezzanine investments. These investments, acquired in leveraged
investment transactions, generally include higher risk subordinated debt
combined with equity securities.
2.6 Investment Income. Investment income by type that exceeds five percent
of total investment income was as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Fixed maturity securities.......................... $ 85,852 $ 74,443 $ 63,751
Mortgage loans on real estate...................... 35,056 42,763 45,709
All other investment income........................ 14,386 8,925 11,243
-------- -------- --------
135,294 126,131 120,703
Less: Investment expenses.......................... (12,187) (11,751) (11,042)
-------- -------- --------
Net investment income.................... $123,107 $114,380 $109,661
======== ======== ========
</TABLE>
2.7 Realized Investment Gains (Losses). Net realized investment gains
(losses) were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1995 1994 1993
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Fixed maturity securities:
Gross gains.......................................... $ 524 $ 303 $ 1,536
Gross losses......................................... (1,807) (3,373) (1,816)
Loss provision....................................... (350) 1,198 (1,417)
------- ------- --------
Net losses on fixed maturity securities...... (1,633) (1,872) (1,697)
------- ------- --------
Equity securities:
Gross gains.......................................... 205 51 882
Gross losses......................................... (33) (59) (15,715)
------- ------- --------
Net gains (losses) on equity securities...... 172 (8) (14,833)
------- ------- --------
Mortgage loans on real estate:
Losses on sale....................................... (194) -- --
Loss provision....................................... (339) 861 (150)
------- ------- --------
Net losses on mortgage loans on real
estate..................................... (533) 861 (150)
------- ------- --------
Investment real estate:
Losses on sale....................................... (2,638) (2,840) (2,302)
Loss provision....................................... 1,134 (952) (411)
------- ------- --------
Net losses on investment real estate......... (1,504) (3,792) (2,713)
------- ------- --------
Realized investment losses................... $(3,498) $(4,811) $(19,393)
======= ======= ========
</TABLE>
<PAGE> 18
UNITED COMPANIES LIFE INSURANCE COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY -- NET
Property is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Land and buildings............................................... $ -- $27,350
Furniture, fixtures and equipment................................ 2,370 2,084
------- -------
Total.................................................. 2,370 29,434
Less accumulated depreciation.................................... (1,795) (9,135)
------- -------
Property -- net........................................ $ 575 $20,299
======= =======
</TABLE>
Rental expense on operating leases, including real estate, computer
equipment and automobiles, totaled $.7 million, $.5 million and $.4 million
during 1995, 1994 and 1993, respectively. Minimum annual commitments under
noncancellable operating leases are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
1996.................................................................... $ 509
1997.................................................................... 503
1998.................................................................... 503
1999.................................................................... 481
2000.................................................................... 241
------
Total......................................................... $2,237
======
</TABLE>
4. INCOME TAXES
The provision (benefit) for income taxes attributable to operations is as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1995 1994 1993
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current................................................. $ 5,259 $ 5,915 $(2,263)
Deferred................................................ (1,194) (2,721) (1,844)
------- ------- -------
Total......................................... $ 4,065 $ 3,194 $(4,107)
======= ======= =======
</TABLE>
Reported income tax expense attributable to operations differs from the
amount computed by applying the statutory federal income tax rate to income from
operations before income taxes for the following reasons:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1995 1994 1993
------ ------ -------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal income tax (benefit) at statutory rate............ $4,235 $3,178 $(4,328)
Differences resulting from:
Reversal of temporary differences at prior tax rates.... -- -- 48
Other................................................... (170) 16 173
------ ------ -------
Reported income provision benefit......................... $4,065 $3,194 $(4,107)
====== ====== =======
</TABLE>
<PAGE> 19
UNITED COMPANIES LIFE INSURANCE COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The significant components of the Company's net deferred income tax benefit
and liability are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
--------------------
1995 1994
------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred income tax benefit:
Policy reserves............................................... $21,530 $ 21,457
Investment securities......................................... -- 27,263
Real estate and loan income................................... 1,861 1,956
Other......................................................... -- 4
------- --------
Total................................................. 23,391 50,680
------- --------
Deferred income tax liabilities:
Other......................................................... 11 --
Investment securities......................................... 12,495 --
Real estate and loan income................................... 4,180 3,926
Deferred policy acquisition costs............................. 29,475 29,626
------- --------
Total................................................. 46,161 33,552
------- --------
Net deferred income tax (benefit) liability..................... $22,770 $(17,128)
======= ========
</TABLE>
Payments made for income taxes, net of refunds received, during the years
ended December 31, 1995, 1994 and 1993 were $4.6 million, $1.4 million and $.6
million, respectively.
Retained earnings at December 31, 1995 include approximately $5.2 million
of "Policyholders' Surplus" on which no federal income tax payment will be
required unless it is distributed as a dividend or exceeds the limits prescribed
by tax laws applicable to life insurance companies. A deferred income tax
liability has not been recognized for this amount. The maximum federal income
tax provision possibly required based on the current federal income tax rate
would be $1.8 million.
The Company had a current income tax payable, which is included in "Other
liabilities," in the amount of $2.3 million at December 31, 1995, and $1.7
million at December 31, 1994.
5. TRANSACTIONS WITH AFFILIATES
The Company has an agreement with UCLC to purchase qualifying residential
home equity mortgage loans originated or purchased and underwritten by UCLC.
These loans are usually held three to six months until resold to UCLC for sale
by UCLC in loan securitizations. Also, under an agreement, UCLC is obligated to
repurchase these home-equity loans previously sold to the Company at the time of
foreclosure. At December 31, 1995, approximately $166.5 million of home-equity
loans originated by UCLC were owned by the Company. During the years ended
December 31, 1995, 1994 and 1993 the Company purchased home-equity loans of
approximately $1,169 million, $893 million and $569.9 million, respectively,
from UCLC. Sales of these home-equity loans to UCLC by the Company were $1,112
million in 1995, $932.7 million in 1994, and $457.3 million in 1993. No gain or
loss was recorded by the Company in these transactions.
As of December 31, 1995, 1994 and 1993 UCLC serviced loans owned by the
Company having aggregate unpaid principal balances of approximately $338.4
million, $296.9 million and $338.7 million, respectively. The Company paid
servicing fees relative to these loans of approximately $.9 million in 1995,
$1.1 million in 1994 and $1.3 million in 1993.
The Company leases home office space to its Parent and other affiliates.
Rent income attributable to these affiliates was approximately $1.0 million in
each of the years ended December 31, 1995, 1994 and 1993.
<PAGE> 20
UNITED COMPANIES LIFE INSURANCE COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
United Companies Realty & Development Co., Inc. ("UCRD"), an affiliate,
managed the home office buildings leased by the Company to its Parent and other
third party tenants under a real estate management contract in 1995, 1994 and
1993. The Company paid approximately $443,000, $306,000 and $312,000 to UCRD in
management fees in 1995, 1994 and 1993, respectively.
The Company is allocated certain costs from its Parent and affiliates under
a cost sharing agreement. Amounts allocated to the Company from UCFC and
affiliates were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------
1995 1994 1993
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Personnel expense........................................ $2,014 $1,776 $ 937
Other operating expenses................................. 2,116 1,532 1,452
------ ------ ------
Total.......................................... $4,130 $3,308 $2,389
====== ====== ======
</TABLE>
In May 1993, the Company purchased three subordinated debentures from UCLC.
Listed below is summarized information on the subordinated debentures that were
issued by UCLC:
<TABLE>
<CAPTION>
DATE OF PRINCIPAL INTEREST MATURITY
SERIES ISSUE BALANCE RATE DATE
---------------------------------- ------------- ----------- -------- -------------
<S> <C> <C> <C> <C>
A-1............................... May 14, 1993 $ 3,000,000 6.05% May 20, 1998
B................................. May 14, 1993 3,000,000 6.64% May 20, 2000
C................................. May 14, 1993 4,000,000 7.18% May 20, 2003
-----------
Total................... $10,000,000
===========
</TABLE>
Interest income received from UCLC with respect to these subordinated
debentures totaled approximately $668,000 in each of 1995 and 1994 and $345,000
in 1993. All principal is payable upon maturity.
The Company is a participant in UCFC's consolidated income tax agreement.
See Note 1.9.
6. EMPLOYEE BENEFIT PLANS
All employees who meet minimum age and service requirements participate in
UCFC's Employee stock Ownership Plan ("ESOP"). Under the ESOP, UCFC makes six
deductible contributions of its common stock (or cash which is used to purchase
its common stock or to repay debt used by the ESOP to purchase such stock) to a
trust for the benefit of participating employees. Contributions are allocated
among participants based on years of service and compensation. Upon retirement,
death or disability, the employee or a beneficiary receives the designated
common stock.
Contributions to the ESOP are determined on an annual basis. The Company's
contributions to the ESOP were $244,000, $189,000 and $74,000 for the years
ended December 31, 1995, 1994 and 1993, respectively.
Eligible employees may elect to participate in the UCFC Employees' Savings
Plan which is designed to be a qualified plan under Sections 401(a) and 401(k)
of the Internal Revenue Code of 1988, as amended. Under the plan, employees are
allowed to defer income on a pre-tax basis through contributions to the plan and
the Company matches a portion of such contributions. The Company's matching
contributions totaled $170,000, $138,000 and $49,000 during 1995, 1994 and 1993,
respectively. Employees have five investment options, one of which is to invest
in the Parent's common stock.
<PAGE> 21
UNITED COMPANIES LIFE INSURANCE COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. REGULATORY ACCOUNTING
Accounting records of the Company are also maintained in accordance with
practices prescribed or authorized by insurance regulatory authorities.
Prescribed statutory accounting principles include a variety of publications of
the National Association of Insurance Commissioners, as well as state laws,
regulations, and general administrative rules. Permitted statutory accounting
practices encompass all accounting practices not so prescribed. The Company's
capital and surplus pursuant to the regulatory accounting basis as of December
31, 1995 and 1994 was $99.9 million and $90.0 million, respectively. On a
regulatory accounting basis, net gain from operations for the years ended
December 31, 1995, 1994 and 1993 was $12.8 million, $9.7 million and $13.0
million, respectively. Net income (loss) on a regulatory accounting basis, which
includes realized capital gains and losses, was $10.0 million, $5.8 million and
$(1.7) million for the years ended December 31, 1995, 1994 and 1993,
respectively. As a Louisiana domiciled insurance company, the Company is subject
to certain regulatory restrictions on the payment of dividends. At December 31,
1995 dividends of $9.2 million may be paid without prior regulatory approval.
The Company did not pay any dividends during 1995, 1994 or 1993 in order to
retain capital.
The Company received written approval from the Louisiana Department of
Insurance to invest in first lien residential mortgage loans originated by UCLC
on a short-term basis without recording the assignment of the mortgage loans to
the company, which differs from prescribed statutory accounting practices.
Statutory accounting practices prescribed by the State of Louisiana require that
investments in mortgage loans be secured by unrestricted first liens on the
underlying property. As of December 31, 1995, statutory surplus was increased by
approximately $53.7 million as a result of this permitted practice.
8. DISCLOSURE ABOUT FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 ("SFAS 107") requires
that the Company disclose the estimated fair values of its financial
instruments, both assets and liabilities recognized and not recognized in its
financial statements.
SFAS 107 defines financial instruments as cash and contractual rights and
obligations that require settlement in cash or by exchange of financial
instruments. Fair value is defined as the amount at which the instrument could
be exchanged in a current transaction between willing parties other than in a
forced or liquidation sale.
<PAGE> 22
UNITED COMPANIES LIFE INSURANCE COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The carrying value and fair value of the Company's financial assets and
liabilities were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
------------------------ ------------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Financial assets:
Investments:
Fixed maturity securities:
Available-for-sale............ $1,140,160 $1,140,160 $ 959,857 $ 959,857
Held-to-maturity.............. 50,919 49,611 57,074 55,085
Equity securities:
Trading....................... 752 752 679 679
Available-for-sale............ 42 42 42 42
Mortgage loans on real estate... 336,269 335,157 311,537 307,775
Investment real estate.......... 32,423 38,978 17,292 15,179
Policy loans.................... 20,291 20,291 20,243 20,243
Investment in limited
partnership................... 25,594 25,594 26,672 26,672
Short-term investments.......... 22,804 22,804 54,664 54,664
Other invested assets........... 2,469 2,469 5,034 5,034
Cash............................ 3,028 3,028 13,169 13,169
Financial liabilities:
Annuity reserves................... 1,417,803 1,350,626 1,425,973 1,354,944
Repurchase agreements.............. 40,857 40,857 --
</TABLE>
The above values do not reflect any premium or discount from offering for
sale at one time the Company's entire holdings of a particular financial
instrument. Fair value estimates are made at a specific point in time based on
relevant market information, if available. Because no market exists for certain
of the Company's financial instruments, fair value estimates for these assets
and liabilities were based on subjective estimates of market conditions and
perceived risks of the financial instruments. Fair value estimates were also
based on judgments regarding future loss and prepayment experience and were
influenced by the Company's historical information.
The following methods and assumptions were used to estimate the fair value
of the Company's financial instruments.
Fixed Maturity and Equity Securities. The estimated fair value for the
Company's investment portfolio was generally determined from quoted market
prices for publicly traded securities. Certain of the securities owned by the
Company may trade infrequently or not at all; therefore, fair value for these
securities was determined by management by evaluating the relationship between
quoted market values and carrying value and assigning a liquidity factor to this
segment of the investment portfolio.
Mortgage Loans on Real Estate. The fair value of the Company's loan
portfolio was determined by segregating the portfolio by type of loan and
further by its performing and non-performing components. Performing loans were
further segregated based on the due date of their payments, an analysis of
credit risk by category was performed and a matrix of pricing by category was
developed. Loans which were current were valued at remaining principal balance
which is believed to represent an estimate of market discount from similar loans
identified for sale. The fair value of delinquent loans was estimated by using
the Company's historical recoverable amount on defaulted loans.
Investment Real Estate. The fair value of the Company's investment real
estate was based upon independent appraisals of the properties.
<PAGE> 23
UNITED COMPANIES LIFE INSURANCE COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Policy Loans. Policy loans are generally settled at the loan amount plus
accrued interest; therefore, the carrying value of these assets is a reasonable
estimate of their fair values.
Other Invested Assets. The fair value of the Company's investment in other
invested assets approximates their carrying value.
Short-term Investments. The carrying amounts of short-term investments
approximates their fair values because these assets generally mature in 90 days
or less and do not present any significant credit concerns.
Investment in Limited Partnerships. The fair value of the Company's
investment in limited partnerships approximated their carrying value.
Annuity Reserves. The Company's annuity contracts generally do not have a
defined maturity and are considered as deposits under SFAS 97. SFAS 107 states
that the fair value to be disclosed for deposit liabilities with no defined
maturities is the amount payable on demand at the reporting date. Accordingly,
the Company has estimated the fair value of its annuity reserves as the cash
surrender value of these contracts.
Repurchase Agreements. The repurchase agreements mature in less than 60
days; therefore, the carrying value of the repurchase agreements is considered
to be a reasonable estimate of fair value.
9. SUBSEQUENT EVENT
On February 2, 1996, UCFC signed a stock purchase agreement dated as of
January 30, 1996, for the sale of all of the outstanding capital stock of the
Company to UC Life Holding Corp., a new Delaware corporation, formed by
Knightsbridge Capital Fund I, L.P. for an aggregate amount of $164 million plus
earnings of the Company from January 1, 1996, to closing of the transaction.
Knightsbridge, which is a private investment partnership with institutional
partners, was formed in 1995 to make equity investments in companies engaged
primarily in the life insurance industry.
Under the terms of the agreement, the sales price is comprised of cash,
currently estimated to be $109 million, and real estate and other assets owned
by the Company to be distributed to UCFC prior to the closing. The real estate
to be distributed includes portions of the United Plaza office park, including
the home office. In addition, UCFC will purchase a convertible promissory note
from an affiliate of the purchaser for $15 million in cash. The note matures in
11 years and bears interest at 8% per annum payable at maturity.
The purchaser also agreed that the Company would continue to be an investor
in first lien home equity loans originated by UCFC's lending operations and that
the Company's home office operations would be maintained in its present location
in Baton Rouge, Louisiana following the closing for at least two years. The
agreement is subject to approval by UCFC's shareholders and regulatory
authorities and the satisfaction of other conditions, and provides that the
closing will occur on or before July 31, 1996.
10. CONTINGENCIES
The Company is subject to various litigation arising during the ordinary
course of business. While the outcome of such litigation cannot be predicted
with certainty, management does not expect the resolution of these matters to
have a material adverse effect on the financial condition or results of
operations of the Company.
<PAGE> 24
ATTACHMENT 7(b)
PRO FORMA SELECTED FINANCIAL INFORMATION
The following unaudited pro forma selected financial information (the "Pro
Forma Financial Information") has been prepared to illustrate the pro forma
effects of (i) the sale of 3,750,000 shares of Common Stock in March 1995 and
the use of the proceeds therefrom, (ii) the sale of 2,300,000 shares of $3.375
Convertible Preferred Stock in July 1995 and the use of the proceeds therefrom,
(iii) the acquisition of Integon Life on July 25, 1995, including the financing
thereof, (iv) the Company's $260 million investment in Southwestern Financial
Corporation ("SWF") (the "SWF Investment") consummated on December 14, 1995,
including the financing thereof, (v) the sale of 5,131,300 shares of Common
Stock in February 1996 and the use of the proceeds therefrom, (vi) the
acquisition of UCLIC, including the financing thereof, and (vii) the sale of the
Convertible Preferred Stock in August 1996 and the use of proceeds therefrom.
The pro forma statement of operations for the year ended December 31, 1995 and
for the three months ended March 31, 1996 give effect to the foregoing
transactions as though each had occurred on January 1, 1995. The pro forma
balance sheet as of March 31, 1996 gives effect to the acquisition of UCLIC, and
the financing thereof (including the sale of the $3.50 Series II Convertible
Preferred Stock and the use of proceeds therefrom), as though each such
transaction had occurred on March 31, 1996.
The UC Life Acquisition will be accounted for using the purchase method of
accounting. The total purchase price of the acquisition will be allocated to the
tangible and intangible assets and liabilities acquired based upon their
respective fair values as of the date of acquisition. The allocation of the
aggregate purchase price reflected in the Pro Forma Financial Information is
preliminary and based upon assumed acquisition dates of January 1, 1995 and
March 31, 1996 for the Pro Forma Statement of Operations and the Pro Forma
Balance Sheet, respectively. The final allocation of the purchase price is
contingent upon the final valuation of the acquired assets; however, that
allocation is not expected to differ materially from the preliminary allocation.
The Pro Forma Financial Information is not necessarily indicative of either
future results of operations or the results that might have occurred had the
above-described transactions been consummated on the indicated dates. The Pro
Forma Financial Information should be read in conjunction with the historical
financial statements and related notes included elsewhere in this Offering
Memorandum.
<PAGE> 25
PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ADJUSTMENTS
---------------------------------------------
1995 $3.375
CONVERTIBLE
HISTORICAL ACQUISITION PREFERRED STOCK
----------------------------- OF AND
INTEGON INTEGON COMMON STOCK SWF
COMPANY LIFE(1) UC LIFE LIFE OFFERINGS INVESTMENT
-------- ------- -------- ----------- ---------------- ----------
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues:
Policy revenues...........................$301,889 $30,806 $ 8,508
Net investment income..................... 102,291 46,385 123,107 4,170 (2a) 2,650(2b)
Net gains (losses) from sale of
investments............................. 595 (2,233) (3,498)
Other income (loss)....................... 17,563 -- -- (3,808)(3) (910)(3)
------- ------- --------
Total revenues...................... 422,338 74,958 128,117
Benefits and expenses:
Claims incurred........................... 141,876 16,108 9,930
Change in liability for future policy
benefits and other benefits............. 18,126 32,544 79,086
Amortization:
Present value of insurance in force..... 25,498 6,431 -- (2,528)(4a)
Deferred policy acquisition costs....... 22,234 5,224 13,159 (1,670)(5a)
Costs in excess of net assets
acquired.............................. 6,557 -- -- 938 (6a)
Underwriting and other administrative
expenses:
Commissions............................. 31,949 5,247 432
General expenses........................ 61,323 14,646 13,410
Interest and amortization of deferred debt
issuance costs.......................... 19,780 2,139 -- (189)(8a) (3,048)(8b) 7,500(8c)
------- ------- --------
Total benefits and expenses......... 327,343 82,339 116,017
Income before income taxes, undistributed
earnings from unconsolidated affiliates
and extraordinary charge.................. 94,995 (7,381) 12,100
Income tax expense......................... 31,642 (5,506) 4,065 9,654 (9) 1,067 (9) (1,698)(9)
------- ------- --------
Net income before undistributed
earnings from unconsolidated
affiliates, and extraordinary
charge(10)......................... 63,353 (1,875) 8,035
Undistributed earnings from unconsolidated
affiliates................................ -- -- -- 23,432(11)
------- ------- --------
Net income before extraordinary
charge............................. 63,353 (1,875) 8,035
Less dividends and amortization of discount
on preferred stock........................ 6,540 -- -- 1,397 (12a) 2,516 (12b)
------- ------- --------
Net income (loss) applicable to
common shareholders before
extraordinary charge............... $56,813 $(1,875) $ 8,035
======= ======= ========
Net income before net gains (losses) from
sale of investments and extraordinary
charge, net of tax effects................ $56,426
=======
PER SHARE DATA:
Net income before extraordinary charge.... $ 2.47
Net income (loss) before net gains
(losses) from sale of investments and
extraordinary charge, net of tax
effects................................. 2.45
Fully diluted net income before
extraordinary charge.................... 2.36
Fully diluted net income before net gains
(losses) from sale of investments and
extraordinary charge, net of tax
effects................................. 2.35
Weighted average shares outstanding (in
thousands).............................. 22,985
Weighted average fully diluted shares
outstanding (in thousands).............. 25,566
<CAPTION>
1996 UC LIFE
COMMON STOCK ACQUISITION AND
OFFERING THIS OFFERING PRO FORMA
------------ --------------- ---------
<S> <C> <C> <C>
OPERATING DATA:
Revenues:
Policy revenues........................... $341,203
Net investment income..................... 10,643(2c) 289,246
Net gains (losses) from sale of
investments............................. (5,136)
Other income (loss)....................... 12,845
--------
Total revenues...................... 638,158
Benefits and expenses:
Claims incurred........................... 167,914
Change in liability for future policy
benefits and other benefits............. 129,756
Amortization:
Present value of insurance in force..... 20,579(4b) 49,980
Deferred policy acquisition costs....... (11,709)(5b) 27,238
Costs in excess of net assets
acquired.............................. 1,083(6b) 8,578
Underwriting and other administrative
expenses:
Commissions............................. 37,628
General expenses........................ (4,112)(7) 85,267
Interest and amortization of deferred debt (10,960)(8d)
issuance costs.......................... 2,174 (8e) 17,396
--------
Total benefits and expenses......... 523,757
Income before income taxes, undistributed
earnings from unconsolidated affiliates
and extraordinary charge.................. 114,401
Income tax expense......................... 3,836 (9) 920 (9) 43,980
--------
Net income before undistributed
earnings from unconsolidated
affiliates, and extraordinary
charge(10)......................... 70,421
Undistributed earnings from unconsolidated
affiliates................................ 23,432
--------
Net income before extraordinary
charge............................. 93,853
Less dividends and amortization of discount
on preferred stock........................ 8,750 (12c) 19,203
--------
Net income (loss) applicable to
common shareholders before
extraordinary charge............... $ 74,650
========
Net income before net gains (losses) from
sale of investments and extraordinary
charge, net of tax effects................ $ 77,988
========
PER SHARE DATA:
Net income before extraordinary charge.... $ 2.57
Net income (loss) before net gains
(losses) from sale of investments and
extraordinary charge, net of tax
effects................................. 2.68
Fully diluted net income before
extraordinary charge.................... 2.41
Fully diluted net income before net gains
(losses) from sale of investments and
extraordinary charge, net of tax
effects................................. 2.50
Weighted average shares outstanding (in
thousands).............................. 29,100
Weighted average fully diluted shares
outstanding (in thousands).............. 37,770
</TABLE>
See accompanying notes to pro forma selected financial information.
<PAGE> 26
PRO FORMA STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ADJUSTMENTS
--------------------------
1996 UC LIFE
HISTORICAL COMMON ACQUISITION
------------------ STOCK AND THIS
COMPANY UC LIFE OFFERING OFFERING PRO FORMA
-------- ------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues:
Policy revenues............................. $ 87,090 $ 1,618 $ 88,708
Net investment income....................... 41,334 29,121 2,746 (2c) 73,201
Net gains (losses) from sale of
investments............................... (527) 144 (383)
Other income (loss)......................... 4,281 -- (4,318)(3) (37)
-------- -------
Total revenues....................... 132,178 30,883 161,489
Benefits and expenses:
Claims incurred............................. 44,326 2,776 47,102
Change in liability for future policy
benefits and other benefits............... 11,490 18,549 30,039
Amortization:
Present value of insurance in force......... 8,118 -- 3,926 (4b) 12,044
Deferred policy acquisition costs........... 6,741 3,303 (2,991)(5b) 7,053
Costs in excess of net assets acquired...... 2,030 -- 271 (6b) 2,301
Underwriting and other administrative
expenses:
Commissions............................... 7,710 116 7,826
General expenses.......................... 15,922 3,478 (915) (7) 18,485
Interest and amortization of deferred debt
issuance costs............................ 6,057 -- (1,827)(8d) 524 (8e) 4,754
-------- -------
Total benefits and expenses.......... 102,394 28,222 129,604
Income before income taxes, undistributed
earnings from unconsolidated affiliates
and extraordinary charges................. 29,784 2,661 31,885
Income tax expense.......................... 9,630 931 630 (9) 945 (9) 12,136
-------- -------
Net income before undistributed
earnings from unconsolidated
affiliates and extraordinary
charge(10)......................... 20,154 1,730 19,749
Undistributed earnings from unconsolidated
affiliates................................ -- -- 4,318 (3) 4,318
-------- -------
Net income before extraordinary
charge............................. 20,154 1,730 24,067
Less dividends and amortization of discount
on preferred stock........................ 2,691 -- 2,188 (12c) 4,879
-------- -------
Net income applicable to common
shareholders before extraordinary
charge............................. $ 17,463 $ 1,730 $ 19,188
======== =======
Net income before net gains (losses) from
sale of investments and extraordinary
charge, net of tax effects................ $ 17,806 $ 19,437
========
PER SHARE DATA:
Net income before extraordinary charge...... $ 0.69 $ 0.65
Net income (loss) before net gains (losses)
from sale of investments and extraordinary
charge, net of tax effects................ 0.70 0.66
Fully diluted net income before
extraordinary
charge.................................... 0.63 0.61
Fully diluted net income before net gains
(losses) from sale of investments and
extraordinary charge, net of tax
effects................................... 0.65 0.62
Weighted average shares outstanding (in
thousands)................................ 25,483 29,375
Weighted average fully diluted shares
outstanding (in thousands)................ 30,593 38,060
</TABLE>
<PAGE> 27
PRO FORMA BALANCE SHEET
AS OF MARCH 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADJUSTMENTS
-----------
UC LIFE
HISTORICAL ACQUISITION
----------------------- AND THIS
COMPANY UC LIFE OFFERING PRO FORMA
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Invested assets............................. $2,238,636 $1,578,327 (6,401)(13) 3,810,562
Insurance assets............................ 529,538 137,981 (15,250)(14) 652,269
Other assets................................ 362,765 7,491 21,665 (6b) 391,921
---------- ---------- ----------
Total assets........................... $3,130,939 $1,723,799 $4,854,752
========== ========== ==========
Insurance liabilities....................... $2,202,549 1,501,911 $3,704,460
Long-term debt.............................. 170,271 -- 32,200 (8e) 202,471
Other liabilities........................... 104,343 53,903 158,246
Redeemable preferred stock.................. 30,757 -- 30,757
Convertible preferred stock................. 110,513 -- 120,800 (12c) 231,313
Common shareholders' equity................. 512,506 167,985 (152,986)(15) 527,505
---------- ---------- ----------
Total liabilities and shareholders'
equity............................... $3,130,939 $1,723,799 $4,854,752
========== ========== ==========
</TABLE>
See accompanying notes to pro forma selected financial information.
<PAGE> 28
NOTES TO PRO FORMA SELECTED FINANCIAL INFORMATION
(1) The historical financial information presented for Integon Life reflects
its results for the six months ended June 30, 1995. Historical results of
Integon Life are not available through the acquisition date of July 25,
1995. The Company does not believe that those 25 days of financial results
are material to the Pro Forma Financial Information presented herein.
(2) Investments -- During 1995, the Company expended cash in conjunction with
the acquisition of Integon Life utilizing internally generated funds. For
purposes of these pro forma financial statements the Company assumes that
internally generated funds have been replaced with funds generated as a
result of the 1995 $3.375 Convertible Preferred Stock and Common Stock
offerings.
(2a) The average fair market value of the Integon Life investment portfolio was
less than its average historical cost based upon the blended values as of
January 20, 1995 (the date on which the Company acquired a 49.0% interest
in Integon Life) and July 25, 1995 (the date on which the Company acquired
the remaining 51.0% of Integon Life). Based upon purchase accounting
mark-to-market adjustments, Integon Life's investment yield would increase
approximately 60 basis points resulting in an increase in investment
income of approximately $4.2 million for the six-month period ended prior
to the consummation of the Integon Life acquisition on July 25, 1995.
(2b) In conjunction with the SWF Investment, the Company purchased $31.0
million of preferred stock of SWF and one of its subsidiaries. The
effective yield of that preferred stock is 8.6% resulting in additional
investment income on a pro forma basis of approximately $2.7 million for
the year ended December 31, 1995.
(2c) The average fair market value of the UC Life investment portfolio was less
than its average historical cost. Based upon purchase accounting
mark-to-market adjustments, UC Life's investment yield would increase
approximately 69 basis points resulting in an increase in investment
income of approximately $10.6 million and $2.7 million for the year ended
December 31, 1995 and the three months ended March 31, 1996, respectively.
(3) Other income -- For the year ended December 31, 1995, the Company's
historical financial statements included $4.7 million of income from
undistributed earnings of unconsolidated affiliates, of which $3.8 million
was related to the Company's 49.0% equity interest in the undistributed
earnings of Integon Life for the first six months of 1995 and $910,000 was
related to the SWF Investment for the period from December 14, 1995 to
December 31, 1995. For the three months ended March 31, 1996, the
Company's equity in undistributed earnings of affiliates related to the
SWF Investment was $4.3 million. Each such amount has been eliminated or
reclassified, as appropriate, in the preparation of the Pro Forma
Financial Information.
(4) Present value of insurance in force -- As part of the purchase accounting
adjustments for each of the Company's acquisitions, the Company
establishes an asset for the present value of the insurance in force as of
the date of such acquisition based upon the present value of future
premiums or the emergence of gross profits utilizing the Company's
purchase accounting actuarial lapse and interest rate assumptions.
(4a) As part of the purchase accounting adjustments for the acquisition of
Integon Life, the Company established a present value of insurance in
force asset of $123.8 million. This asset is determined based upon the
present value of expected future gross profits for the business acquired
using actuarial assumptions established by the Company and discounting
such profits at a risk rate of return of 15.0 percent. On a pro forma
basis, the first five years' expected amortization of the present value of
<PAGE> 29
insurance in force related to the acquisition of Integon Life, as if such
assets had been established on January 1, 1995, would be as follows:
<TABLE>
<CAPTION>
GROSS INTEREST EXPECTED
AMORTIZATION ACCRETED AMORTIZATION
------------ -------- ------------
<S> <C> <C> <C>
1995...................................... $ 14,942 $7,135 $ 7,807
1996...................................... 15,736 6,632 9,104
1997...................................... 16,547 6,050 10,497
1998...................................... 16,778 5,399 11,379
1999...................................... 16,233 4,718 11,515
</TABLE>
(4b) As part of the pro forma purchase accounting adjustments for the UC Life
Acquisition, the Company established a present value of insurance in force
asset of $74.1 million. This asset is determined based upon the present
value of future gross profits for the business acquired using appropriate
actuarial assumptions established by the Company (as of January 1, 1995)
and discounting such profits at a risk rate of return of 18.0 percent. On
a pro forma basis, the first five years' expected amortization of the
present value of insurance in force related to the UC Life Acquisition, as
if such assets had been established on January 1, 1995, would be as
follows:
<TABLE>
<CAPTION>
GROSS INTEREST EXPECTED
AMORTIZATION ACCRETED AMORTIZATION
------------ -------- ------------
<S> <C> <C> <C>
1995...................................... $ 24,841 $4,262 $ 20,579
1996...................................... 18,869 3,170 15,699
1997...................................... 13,595 2,300 11,295
1998...................................... 9,721 1,638 8,083
1999...................................... 7,033 1,142 5,891
</TABLE>
(5) Deferred policy acquisition costs -- As described in Note 4 above, the
Company establishes a present value of insurance in force asset as of the
acquisition date which approximates the discounted value of anticipated
profits of the business in force as of the acquisition date. As a result
of establishing such an asset, the historical amount for deferred policy
acquisition costs is eliminated.
Subsequent to the date of acquisition, deferred policy acquisition costs
are established and amortized for new business issuance costs.
Differences in historical and pro forma amortization of deferred policy
acquisition costs result from the different accounting bases, including
the establishment of the present value of insurance in force asset, as
described in Note 4.
(5a) On a pro forma basis, the amortization of deferred policy acquisition
costs for Integon Life for the year ended December 31, 1995 amounted to
$3.5 million.
(5b) On a pro forma basis, the amortization of deferred policy acquisition
costs for UC Life for the year ended December 31, 1995 and the three
months ended March 31, 1996 amounted to $1.5 million and $312,000,
respectively.
(6) Costs in excess of net assets acquired -- The Company establishes an asset
for costs in excess of net assets acquired to the extent that the purchase
price of an acquisition exceeds the net assets acquired. It is the
Company's policy to amortize such costs over 20 years on a straight line
basis.
(6a) The aggregate purchase price for Integon Life was approximately $48.6
million (including expenses of approximately $3.2 million), but excluding
assumed indebtedness of $37.7 million, and net assets acquired, based upon
purchase accounting estimates, amounted to $11.1 million, which resulted
in costs in excess of net assets acquired of approximately $37.5 million.
On a pro forma basis this resulted in amortization of costs in excess of
net assets acquired of $938,000 for the six months ended June 30, 1995.
(6b) The aggregate purchase price for UC Life was approximately $110.3 million
(including estimated expenses to be incurred of $10.0 million and earnings
through the date of consummation of the UC Life Acquisition of $3.6
million). The estimated fair value of the net assets acquired amounted to
$88.6 million resulting in costs in excess of net assets acquired of $21.7
million. On a pro forma basis,
<PAGE> 30
for the year ended December 31, 1995 and the three months ended March 31,
1996 the amortization of costs in excess of net assets acquired would be
$1.1 million and $271,000, respectively.
(7) On a pro forma basis, the costs associated with UC Life's service
agreement with its current parent, UCFC have been eliminated because
that agreement was cancelled as of the closing date; PennCorp, with
its current cost structure, will be able to perform any such similar
services required by UC Life without an incremental increase in overhead
expenses. Fees charged to UC Life under the service agreement amounted to
$4.1 million and $915,000 for the year ended December 31, 1995 and the
three months ended March 31, 1996, respectively.
(8) Interest and amortization of deferred debt issuance costs -- In
conjunction with each of the Company's acquisitions, the Company has
utilized internally generated funds as well as various forms of financing.
In addition, proceeds from the 1995 $3.375 Convertible Preferred Stock and
Common Stock offerings and the February 1996 Common Stock offering were
utilized to repay amounts outstanding under certain credit agreements.
(8a) Costs related to the Integon Life credit facility on a pro forma basis
would have amounted to $1.9 million for the six months ended June 30,
1995.
(8b) Net proceeds from the $3.375 Convertible Preferred Stock offering were
$110.5 million. The 1995 Common Stock offering provided the Company with
net proceeds of $51.2 million. The proceeds from these two offerings were
used to (i) consummate the acquisition of Integon Life, which utilized
funds totaling $33.4 million (including a capital contribution of $15.0
million), (ii) repay $28.5 million outstanding under, and subsequently
cancel, the Company's revolving credit facility, (iii) repurchase for
$34.6 million all the Company's Series A Preferred Stock, par value $0.01
per share ("Series A Preferred Stock"), (iv) repay $11.2 million due to
Integon Life's former parent company under a subordinated debenture, (v)
pay the $15.4 million cash portion of the purchase price of Occidental
Life Insurance Company of North Carolina (a wholly owned subsidiary of the
Company (which PennCorp purchased from Pennsylvania Life Insurance Company
(a wholly owned subsidiary of the Company and subsequently contributed to
Integon Life), (vi) prepay $20.0 million principal amount of indebtedness
under American-Amicable Holding Corporation's (a wholly owned subsidiary
of the Company) then existing credit facility and (vii) make payments for
general corporate purposes, including interest payments and the
cancellation of certain interest rate swap agreements.
On a pro forma basis, after giving effect to items (ii), (iv) and (vi)
above, the Company's interest and amortization of deferred debt issuance
costs would have been reduced by $3.0 million for the year ended
December 31, 1995.
(8c) The Company utilized funds borrowed under a $100.0 million credit facility
to fund a portion of the SWF Investment. The pro forma effective interest
rate assumed under that credit agreement was 7.5% per annum.
(8d) Of the $156.8 million net proceeds of the February 1996 Common Stock
offering, the Company utilized $137.0 million to repay amounts outstanding
under certain of the Company's credit facilities and to pay approximately
$10.0 million to ICH in lieu of issuing an equivalent value of Common
Stock as part of the SWF Investment.
(8e) After giving effect to the receipt of the expected net proceeds from this
offering and the repayment of a substantial portion of the borrowings
under the Company's revolving credit agreement made in connection with the
UC Life Acquisition as described in "Use of Proceeds," the Company's
revolving credit borrowings would have increased by $32.2 million if the
UC Life Acquisition had been consummated on March 31, 1996. The pro forma
interest costs associated with such incremental borrowings would have been
$2.2 million and $524,000 for the year ended December 31, 1995 and the
three months ended March 31, 1996, respectively.
(9) Income taxes -- Amounts shown represent the tax effects of the foregoing
adjustments calculated based upon the Company's effective tax rates for
the periods presented.
(10) As a result of the retirement of $137.0 million of certain indebtedness
(see Note (8d) above) the Company recorded an extraordinary charge of
approximately $816,000, net of tax benefits, related to the write off of
deferred financing costs during the three months ended March 31, 1996.
<PAGE> 31
(11) The Company accounts for the SWF Investment using the equity method of
accounting. As a result of the acquisition of Southwestern Life and Union
Bankers by SWF, the historical financial basis of accounting has been
adjusted to reflect the fair value of the acquired assets and liabilities
as of the acquisition date. Pro forma results of the adjustments to the
historical financial statements of the acquired companies are summarized
below:
<TABLE>
<CAPTION>
PERIOD ENDED
DECEMBER 14, 1995
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Net earnings*................................................. $ 10,202
Pro forma adjustments to historical results:
Amortization of present value of insurance in force and
deferred acquisition costs............................... 26,613
Elimination of permanent impairment adjustments............. 9,499
Interest expenses........................................... (13,417)
Amortization of costs in excess of net assets acquired...... 10,615
Income taxes................................................ (15,836)
Other adjustments, net...................................... 5,084
-------
32,760
Less preferred stock dividend................................. 2,650
-------
Income applicable to common shareholders.................... $ 30,110
=======
PennCorp's economic participation at 74.8%**.................. $ 22,522
PennCorp's equity in undistributed earnings of affiliate for
the period December 14, 1995 through December 31, 1995...... 910
-------
Total PennCorp pro forma equity in undistributed earnings of
affiliate................................................... $ 23,432
=======
---------------
* Excludes loss on securities required to be sold as a condition to closing the
acquisition of Southwestern Life and Union Bankers.
** Excludes exercise of common stock purchase warrants.
</TABLE>
(12a) As part of the consideration for the acquisition of Integon Life, the
Company issued two additional series of preferred stock:
(i) 127,500 shares of Series B Preferred Stock, par value $0.01 per
share (the "Series B Preferred Stock"), with an initial stated
value of $100.00 per share, accreting at the rate of 10.4% per
annum until maturity in June 1997.
(ii) 178,500 shares of Series C Preferred Stock, par value $0.01 per
share (the "Series C Preferred Stock"), with an initial stated
value of $100.00 per share, accreting at the rate of 9.3% per
annum until maturity in June 1998. The accreted value of this
series of preferred stock, however, is subject to offset under
certain circumstances.
On a pro forma basis for the period ended July 25, 1995, aggregate
dividends on the Series B Preferred Stock and the Series C Preferred
Stock would have been $1.4 million.
(12b) As described in Note (8b) above, in 1995 the Company used a portion of the
proceeds of the $3.375 Convertible Preferred Stock offering to retire
450,000 shares of Series A Preferred Stock. On a pro forma basis, the net
effect of the issuance of the $3.375 Convertible Preferred Stock and the
retirement of the Series A Preferred Stock would have increased dividends
and amortization of discount on preferred stock by $2.5 million for the
year ended December 31, 1995.
(12c) The Company anticipates issuing 2,500,000 shares of Convertible Preferred
Stock. Net proceeds are anticipated to be $120.8 million, which the
Company will use to repay a substantial portion of the borrowings under
its revolving credit agreement incurred in connection with the UC Life
Acquisition (i) to fund the cash portion of the purchase price for UC
Life, (ii) to make required capital contributions to UC Life and (iii) to
pay related acquisition expenses. On a pro forma basis the dividends on
the Convertible Preferred Stock would be $8.8 million and $2.2 million for
the year ended December 31, 1995 and the three months ended March 31,
1996, respectively.
(13) As part of the purchase and sale agreement to acquire UC Life, certain of
the assets of UC Life were distributed to UC Financial and subsequently
replaced with a cash contribution. The net effect of such transactions was
to reduce the invested assets of UC Life by approximately $6.4 million.
<PAGE> 32
(14) As described in Note (4b) above, as part of the pro forma purchase
accounting adjustments, historical deferred acquisition costs are
eliminated and a present value of insurance in force asset is established.
Based upon pro forma purchase accounting adjustments it is anticipated
that the present value of the insurance in force asset will be $74.1
million, which is $15.3 million less than UC Life's historical deferred
acquisition costs as of March 31, 1996.
(15) In connection with the UC Life Acquisition, UCFC purchased a convertible
promissory note of the Company in a principal amount of $14,999,000, and
immediately converted such note into 483,389 shares of Common Stock. The
adjustment reflected on a pro forma basis eliminates the historical
shareholder's equity of UC Life concurrently with the issuance of such
shares of Common Stock valued at $14,999,000.
<PAGE> 33
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Document Description
<S> <C>
2.1 Amended and Restated Stock Purchase Agreement between United Companies Financial Corporation and
Pacific Life and Accident Insurance Company dated as of July 24, 1996.
10.1 Note Purchase Agreement between PennCorp Financial Group, Inc. and United Companies Financial
Corporation dated July 24, 1996.
10.2 Conversion, Standstill and Registration Rights Agreement between United Companies Financial Corporation
and PennCorp Financial Group, Inc. dated as of July 24, 1996.
10.3 Assignment Agreement by and between PennCorp Financial Group, Inc. and Knightsbridge Capital Fund I,
L.P. dated as of June 19, 1996.
23.1 Deloitte & Touche LLP Independent Auditors' Consent.
</TABLE>
<PAGE> 1
EXHIBIT 2.1
================================================================================
----------------------------
AMENDED AND RESTATED
STOCK PURCHASE AGREEMENT
----------------------------
Between
UNITED COMPANIES FINANCIAL CORPORATION
as Seller
and
PACIFIC LIFE AND ACCIDENT INSURANCE COMPANY
as Purchaser
Dated as of July 24, 1996
================================================================================
Purchase of All of the Outstanding Capital Stock of United
Companies Life Insurance Company.
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
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----
<S> <C>
ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.01. Certain Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II PURCHASE AND SALE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 2.01. Purchase and Sale of the Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 2.02. Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 2.03. Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 2.04. Closing Deliveries by the Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 2.05. Closing Deliveries by the
Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 2.06. Purchase Price Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE III REPRESENTATIONS AND WARRANTIES
OF THE SELLER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 3.01. Organization, Authority and
Qualification of the Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 3.02. Organization, Authority and
Qualification of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 3.03. Capital Stock of the Company;
Ownership of the Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 3.04. Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 3.05. Corporate Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 3.06. No Conflict . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 3.07. Governmental and Other
Authorizations; Notices and Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 3.08. Financial Information and Books
and Records . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 3.09. Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 3.10. No Undisclosed Liabilities or
Capital Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 3.11. Acquired Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 3.12. Conduct in the Ordinary Course;
Absence of Certain Changes,
Events and Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 3.13. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 3.14. Certain Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 3.15. Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 3.16. Environmental and Other Permits
and Licenses; Related Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 3.17. Material Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 3.18. Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 3.19. Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 3.20. Tangible Personal Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 3.21. Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 3.22. Insurance Issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 3.23. Distributors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 3.24. Employee Benefit Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 3.25. Labor Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 3.26. Key Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
SECTION 3.27. Risk Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
SECTION 3.28. Accounts; Lockboxes; Safe Deposit
Boxes; Powers of Attorney . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 3.29. Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
SECTION 3.30. Proxy Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
SECTION 3.31. Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
ARTICLE IV REPRESENTATIONS AND WARRANTIES
OF THE PURCHASER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
SECTION 4.01. Organization and Authority of the
Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
SECTION 4.02. No Conflict . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
SECTION 4.03. Governmental and Other
Authorizations; Notices and Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
SECTION 4.04. Investment Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 4.05. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 4.06. Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 4.07. Reserved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 4.08. Funding and Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
ARTICLE V ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
SECTION 5.01. Conduct of Business Prior to the
Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
SECTION 5.02. Access to Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
SECTION 5.03. Confidentiality by Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
SECTION 5.04. Governmental and Other
Authorizations; Notices and Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
SECTION 5.05. Notice of Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
SECTION 5.06. Acquisition Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
SECTION 5.07. Use of Names and Intellectual
Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
SECTION 5.08. Non-Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
SECTION 5.09. Release of Indemnity and other
Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
SECTION 5.10. Further Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
SECTION 5.11. Release of Liens on Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
SECTION 5.12. Excluded Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
SECTION 5.13. Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
SECTION 5.14. Termination of Inter-Company
Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
SECTION 5.15. Commercial Real Estate Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
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<S> <C>
SECTION 5.16. Master Loan Sale Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
SECTION 5.17. Proxy Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
SECTION 5.18. Meeting of the Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
SECTION 5.19. Appraisal Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
SECTION 5.20. Location . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
SECTION 5.21. Rating Agencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
SECTION 5.22. Confidentiality by Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
SECTION 5.23. New Director and Officer Slates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
SECTION 5.24. Section 338(h)(10) Election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
SECTION 5.25. Cash Dividend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
ARTICLE VI EMPLOYEE MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
SECTION 6.01. 401(k) Plan and ESOP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
SECTION 6.02. Supplemental Pension Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
SECTION 6.03. Other Benefits; Qualified Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
SECTION 6.04. No Third Party Beneficiary Rights
or Rights to Continued Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
ARTICLE VII TAX MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
SECTION 7.01. Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
SECTION 7.02. Section 338(h)(10) Election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
SECTION 7.03. Access to Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
SECTION 7.04. Returns and Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
SECTION 7.05. Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
SECTION 7.06. Contests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
SECTION 7.07. Time of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
SECTION 7.08. Cooperation and Exchange of
Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
SECTION 7.09. Retention of Tax Returns and
Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
SECTION 7.10. Conveyance Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
SECTION 7.11. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
SECTION 7.12. Refunds of Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
SECTION 7.13. Tax Cooperation by Successors and
Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
ARTICLE VIII CONDITIONS TO CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
SECTION 8.01. Conditions to Obligations of the
Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
SECTION 8.02. Conditions to Obligations of the
Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
ARTICLE IX SURVIVAL AND INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
SECTION 9.01. Survival of Representations,
Warranties and Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
</TABLE>
iii
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<TABLE>
<CAPTION>
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----
<S> <C>
SECTION 9.02. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
SECTION 9.03. Limits on Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
ARTICLE X TERMINATION AND WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
SECTION 10.01. Termination by the Seller or
Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
SECTION 10.02. Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
SECTION 10.03. Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
ARTICLE XI GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
SECTION 11.01. Reserved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
SECTION 11.02. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
SECTION 11.03. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
SECTION 11.04. Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
SECTION 11.05. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
SECTION 11.06. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
SECTION 11.07. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
SECTION 11.08. Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
SECTION 11.09. No Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
SECTION 11.10. Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
SECTION 11.11. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
SECTION 11.12. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
SECTION 11.13. Specific Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
SECTION 11.14. Further Clarification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
</TABLE>
iv
<PAGE> 6
Disclosure Schedule
3.02 Organization, Authority and Qualification of the Company
3.04 Subsidiaries
3.07 Governmental Consents and Approvals
3.10 No Undisclosed Liabilities on Capital Commitments
3.12 Conduct in the Ordinary Course; Absence of Certain Changes,
Events and Conditions
3.13 Litigation
3.14 Certain Interests
3.15 Compliance with Laws
3.16 Environmental and Other Permits and Licenses; Related Matters
3.17 Material Contracts
3.18 Intellectual Property
3.19 Real Property
3.20 Tangible Personal Property
3.22 Insurance Issued
3.23 Distributors
3.24 Employee Benefit Matters
3.25 Labor Matters
3.26 Key Employees
3.27 Risk Management
3.28 Accounts; Lockboxes; Safe Deposit Boxes; Powers of Attorney
5.01 Certain Prohibited Actions
5.04 Consents and Approvals
5.12 Excluded Assets
7.01 Tax Matters
Exhibits
Exhibit 1 List of Individuals in connection with Special
Knowledge Definition
Exhibit 2.06 Memorandum Adjustment Amount
Exhibit 5.07 (a) Seller's Logo
Exhibit 5.13 (a) Company Services
Exhibit 5.13 (c) Seller Services
Exhibit 5.16 Master Loan Sale Agreement
Exhibit 8.01(f) Dewey Ballantine Legal Opinion
Exhibit 8.02(f) Kantrow, Spaht, Weaver & Blizter (A Professional
Law Corporation) Legal Opinion
Exhibit 8.02(v) Note Purchase Agreement
v
<PAGE> 7
AMENDED AND RESTATED STOCK PURCHASE AGREEMENT, dated as of
July 24, 1996, between UNITED COMPANIES FINANCIAL CORPORATION, a Louisiana
company (the "Seller") and PACIFIC LIFE AND ACCIDENT INSURANCE COMPANY, a Texas
domiciled insurance company, as amended (the "Purchaser").
W I T N E S S E T H:
WHEREAS, Seller owns all the issued and outstanding shares
(the "Shares") of common stock, $2.00 par value per share (the "Common Stock"),
of United Companies Life Insurance Company, a Louisiana stock life insurance
company (the "Company");
WHEREAS, Seller entered into that certain Amended and Restated
Stock Purchase Agreement dated as of January 30, 1996, with UC Life Holding
Company ("UC Life Holding");
WHEREAS, UC Life Holding was merged with and into PennCorp
Financial Group, Inc. (pursuant to which merger PennCorp succeeded to UC Life
Holding's rights pursuant to the aforesaid stock purchase agreement) which
thereafter assigned the aforesaid stock purchase agreement to the Purchaser;
WHEREAS, the Seller and the Purchaser desire to amend and
restate the aforesaid stock purchase agreement as set forth herein;
WHEREAS, the Seller wishes to sell the Shares to the
Purchaser, and the Purchaser wishes to purchase the Shares from the Seller,
upon the terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the
mutual agreements and covenants hereinafter set forth, the Seller and the
Purchaser hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Certain Defined Terms. As used in this
Agreement, the following terms shall have the following meanings:
"Accounting Principles" has the meaning specified in Section
2.06.
"Acquisition Documents" has the meaning specified in Section
9.01.
<PAGE> 8
"Acquisition Proposal" has the meaning specified in Section
5.06.
"Action" means any claim, action, suit, arbitration, inquiry,
proceeding or investigation by or before any Governmental Authority.
"Actual Income Statement" has the meaning specified in Section
2.06.
"Additional Scheduled Information" has the meaning specified
in the definition of "Disclosure Schedule".
"Adjusted Adjustment Amount" has the meaning specified in
Section 2.06.
"Adjustment Amount" has the meaning specified in Section 2.06.
"Adjustment Period" has the meaning specified in Section 2.06.
"Affiliate" means, with respect to any specified Person, any
other Person that directly, or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with, such specified
Person.
"Agreement" or "this Agreement" means this Amended and
Restated Stock Purchase Agreement, dated as of the date set forth in the
preamble to this Agreement, between the Seller and the Purchaser, (including
the Exhibits hereto and the Disclosure Schedule) and all amendments hereto made
in accordance with the provisions of Section 11.10.
"Asset" or "Assets" has the meaning specified in Section 3.21.
"Balance Sheet" means the statement of assets and the
statement of liabilities, surplus and other funds included in the annual
statement of the Company filed with, or submitted to, the Louisiana Department
for the year ended December 31, 1994, together with all related notes, exhibits
and schedules thereto, a copy of each of which has been delivered to the
Purchaser by the Seller.
"Balance Sheet Date" means June 30, 1995.
"Best" means A.M. Best Company, Inc.
"Bona Fide Acquisition Proposal" has the meaning set forth in
Section 10.01.
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<PAGE> 9
"Business" means the life insurance and annuity business and
all other business which are on the date hereof being conducted by the Company
and the Subsidiary.
"Business Day" means any day that is not a Saturday, a Sunday
or other day on which banks are required or authorized by law to be closed in
The City of New York or Baton Rouge, Louisiana.
"Calculation Date" has the meaning specified in Section 2.06.
"Cash Dividend" has the meaning specified in Section 5.25.
"CERCLA" means the Comprehensive Environmental Response
Compensation and Liability Act, 42 U.S.C. Sections 9601 et seq.
"Cigna Partnership" means CIGNA Mezzanine Partners III, L.P.
"Claim Notice" has the meaning specified in Section 9.02.
"Closing" has the meaning specified in Section 2.03.
"Closing Income Statement" has the meaning specified in
Section 2.06.
"Closing Date" has the meaning specified in Section 2.03.
"COBRA" means continuation coverage as set forth in Sections
601 and 602 of ERISA.
"Code" means the Internal Revenue Code of 1986, as amended
through the date hereof.
"Commercial Real Estate Group" has the meaning specified in
Section 5.15.
"Commission" has the meaning specified in Section 3.15.
"Common Stock" has the meaning specified in the recitals to
this Agreement.
"Company" has the meaning specified in the recitals to this
Agreement.
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<PAGE> 10
"Company Annual Statements" has the meaning specified in
Section 3.08.
"Company GAAP Statements" has the meaning specified in Section
3.08.
"Company Interim GAAP Statement" has the meaning specified in
Section 3.08.
"Company Quarterly Statements" has the meaning specified in
Section 3.08.
"Company Separate Accounts Annual Statement" has the meaning
specified in Section 3.08.
"Company Services" has the meaning specified in Section 5.13.
"Consistent With Past Practice" means substantially consistent
with the past applicable practice of the Company or the Subsidiary, as
applicable, but without regard to inconsistencies of practice resulting from
changes in the assets, liabilities, business or products of the Company or the
Subsidiary, as applicable.
"Control" (including, without limitation, the terms
"controls", "controlled by" and "under common control with"), with respect to
the relationship between or among two or more Persons, means the possession,
directly or indirectly, or as trustee or executor, of the power to direct or
cause the direction of the affairs or management of a Person, whether through
the ownership of voting securities, as trustee or executor, by contract or
otherwise, including, without limitation, the ownership, directly or
indirectly, of securities having the power to elect a majority of the board of
directors or similar body governing the affairs of such Person.
"Corrected Amount" has the meaning specified in Section 2.06.
"Dewey Ballantine" means Dewey Ballantine, legal counsel to
the Purchaser in connection with this Agreement and the transactions
contemplated hereby.
"D&P" means Duff & Phelps Credit Rating Co.
"Disclosure Schedule" means the schedules attached hereto and
delivered to the Purchaser by the Seller together with this Agreement, as
amended in writing from time to time during the period commencing on the date
hereof through the date that is 5 Business Days prior to the Closing Date by
delivery by the Seller to the Purchaser (information
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<PAGE> 11
contained in such amendments to the Disclosure Schedule shall be referred to as
"Additional Scheduled Information").
"Encumbrance" or "Encumbrances" means any security interest,
pledge, mortgage, lien (including, without limitation, environmental and tax
liens), charge, encumbrance, adverse claim, preferential arrangement or
restriction of any kind, including, without limitation, any restriction on the
use, voting, transfer, receipt of income or other exercise of any attributes of
ownership; provided, however, that such term does not include the right, if
any, imposed by applicable insurance laws of insurance regulatory authorities
to attach such an encumbrance upon occurrence of certain violations of
applicable insurance laws or regulations; provided, further, that the exercise
of such right by any such authority, or the existence of any such encumbrance
due to the exercise of such regulatory authority, shall be included in the
definition of Encumbrance.
"Enhanced Special Knowledge" means (subject to Section 11.14
hereof) (i) Special Knowledge and (ii) those facts, circumstances and
information which the Seller Knowledge Group should have known in the
reasonable conduct of the Business prior to the Closing Date.
"Environmental Claims" means any and all administrative,
regulatory or judicial actions, suits, demands, demand letters, claims, liens,
notices of non-compliance or violation, notices of liability or potential
liability, investigations, proceedings, settlements, consent orders or consent
agreements by any Person relating in any way to, any Environmental Law,
Environmental Permits or Hazardous Materials, or arising from alleged injury or
threat of injury to health, safety or the environment.
"Environmental Law" means any Law, now or hereafter in effect
and as amended, and any judicial or administrative interpretation thereof,
including, without limitation, any judicial or administrative order, consent
decree or judgment, relating to or addressing the environment, health, safety
or Hazardous Materials.
"Environmental Lien" means a lien in favor of any Governmental
Authority for any (a) liability under any Environmental Law, or (b) damages
arising from, or costs incurred by, such Governmental Authority in response to
a Release of a Hazardous Material.
"Environmental Permits" means all Permits required under any
applicable Environmental Law.
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<PAGE> 12
"ERISA" has the meaning specified in Section 3.24.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Excluded Assets" has the meaning specified in Section 5.12.
"Excluded Assets Value Amount" has the meaning specified in
Section 5.12.
"Financial Statements" has the meaning specified in Section
3.08.
"GAAP" means United States generally accepted accounting
principles and practices as in effect at the time of preparation and delivery
of the applicable Financial Statements.
"Governmental Authority" means any United States federal,
state or local or any foreign government, governmental, regulatory or
administrative authority, agency or commission or any court, tribunal, or
judicial or arbitral body.
"Governmental Order" or "Governmental Orders" means any order,
writ, judgment, injunction, decree, stipulation, determination or award entered
by or with any Governmental Authority.
"Hazardous Materials" means any pollutant, hazardous
substance, radioactive substance, toxic substance, hazardous waste, medical
waste, radioactive waste, special waste, petroleum or petroleum-derived
substance or waste, asbestos, polychlorinated biphenyls, or any hazardous or
toxic constituent thereof and includes, but is not limited to, any substance
defined in or regulated under any Environmental Law.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, and the rules and regulations promulgated thereunder.
"Indebtedness" means, with respect to any Person, (a) all
indebtedness of such Person, whether or not contingent, for borrowed money, (b)
all obligations of such Person for the deferred purchase price of property or
services, (c) all obligations of such Person evidenced by notes, bonds,
debentures or other similar instruments, (d) all indebtedness created or
arising under any conditional sale or other title retention agreement with
respect to property acquired by such Person (even though the rights and
remedies of the seller or lender under such
6
<PAGE> 13
agreement in the event of default are limited to repossession or sale of such
property), (e) all obligations of such Person as lessee under leases that have
been or should be, in accordance with GAAP, recorded as capital leases, (f) all
obligations, contingent or otherwise, of such Person under acceptance, letter
of credit or similar facilities, (g) all obligations of such Person to
purchase, redeem, retire, defease or otherwise acquire for value any capital
stock of such Person or any warrants, rights or options to acquire such capital
stock, valued, in the case of redeemable preferred stock, at the greater of its
voluntary or involuntary liquidation preference plus accrued and unpaid
dividends, (h) all Indebtedness of others referred to in clauses (a) through
(f) above guaranteed directly or indirectly in any manner by such Person, or in
effect guaranteed directly or indirectly by such Person through an agreement
(i) to pay or purchase such Indebtedness or to advance or supply funds for the
payment or purchase of such Indebtedness, (ii) to purchase, sell or lease (as
lessee or lessor) property, or to purchase or sell services, primarily for the
purpose of enabling the debtor to make payment of such Indebtedness or to
assure the holder of such Indebtedness against loss, (iii) to supply funds to
or in any other manner invest in the debtor (including, without limitation, any
agreement to pay for property or services irrespective of whether such property
is received or such services are rendered) or (iv) otherwise to assure a
creditor against loss, and (i) all Indebtedness referred to in clauses (a)
through (f) above secured by (or for which the holder of such Indebtedness has
an existing right, contingent or otherwise, to be secured by) any Encumbrance
on property (including, without limitation, accounts and contract rights) owned
by such Person, even though such Person has not assumed or become liable for
the payment of such Indebtedness.
"Indemnified Party" has the meaning specified in Section 9.02.
"Indemnifying Party" has the meaning specified in Section
9.02.
"Indemnity Notice" has the meaning specified in Section 9.02.
"Intellectual Property" means (a) trademarks, service marks,
trade dress, logos, trade names and corporate names, whether or not registered,
(b) copyrights, whether or not registered, (c) registrations of and
applications for registration of any of the foregoing, (d) computer software,
including, without limitation, source code, operating systems and
specifications, data, data bases, files, documentation and other materials
related thereto, data and
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<PAGE> 14
documentation, (e) trade secrets and confidential, technical and business
information, and (f) whether or not confidential, technology (including,
without limitation, know-how and show-how), research and development
information, drawings, plans, proposals, technical data, copyrightable works,
financial, marketing and business data, pricing information, business and
marketing plans and distributor, policyholder, contractholder and supplier
lists and information.
"Inter-Company Arrangements" has the meaning specified in
Section 3.14.
"Investment Advisers Act" means the Investment Advisers Act of
1940, as amended.
"IRS" means the Internal Revenue Service of the United States.
"Law" or "Laws" means any United States federal, state, local
or foreign statute, law, ordinance, regulation, rule, code, order, Permit other
requirement or rule of law.
"Lease" for purposes of Sections 3.17, 3.19 and 3.20 means any
and all leases, subleases, sale/leaseback agreements or similar arrangements,
whether or not capitalized.
"Leased Real Property" means the real property leased by the
Company or the Subsidiary, as tenant, together with, to the extent leased by
the Company or the Subsidiary, all buildings and other structures, facilities
or improvements currently or hereafter located thereon, all fixtures, systems,
equipment and items of personal property of the Company or the Subsidiary
attached or appurtenant thereto, and all easements, licenses, rights and
appurtenances relating to the foregoing.
"Lender MAEs" means those changes in economic conditions,
interest rates or stock or debt markets (such as, without limitation as to
other such changes, suspensions of trading on major stock exchanges, a general
moratorium on commercial banking activities, and an outbreak of hostilities),
the absence of which are customarily included by lenders in standard loan
documentation (including, without limitation, commitment letters) for loans in
connection with leveraged acquisitions as conditions precedent to the lender's
or lenders' requirement to close the lending transaction.
"Liabilities" means any and all debts, liabilities and
obligations, whether accrued or fixed, absolute or contingent, matured or
unmatured or determined or
8
<PAGE> 15
determinable, including, without limitation, those arising under any Law
(including, without limitation, any Environmental Law), Action or Governmental
Order and those arising under any contract, agreement, arrangement, commitment
or undertaking.
"Licensed Intellectual Property" means all Intellectual
Property licensed or sublicensed to the Company or the Subsidiary from a third
party.
"Losses" has the meaning specified in Section 9.02.
"Louisiana Department" means the Department of Insurance of
the State of Louisiana.
"Louisiana Lease" has the meaning specified in Section 5.20.
"Master Loan Sale Agreement" has the meaning specified in
Section 5.16.
"Material Adverse Effect" means any circumstance, change in,
or effect on the Business, the Company and the Subsidiary taken as a whole
(other than changes in market interest rates or general economic conditions
(except for any of the foregoing which are Lender MAEs)) that, individually or
in the aggregate with any other circumstances, changes in, or effects on, the
Business, the Company and the Subsidiary taken as a whole: (a) is or is
reasonably likely to be materially adverse to the business, operations,
prospects, results of operations or financial condition of the Company and the
Subsidiary, taken as a whole, or (b) is reasonably likely to adversely affect
the ability of the Purchaser, the Company or the Subsidiary to operate or
conduct the Business in the manner in which it is currently operated or
conducted by the Company and the Subsidiary.
"Material Contracts" has the meaning specified in Section
3.17.
"Multiemployer Plan" has the meaning specified in Section
3.24.
"Multiple Employer Plan" has the meaning specified in Section
3.24.
"Name" has the meaning specified in Section 5.07.
"Notice Period" has the meaning specified in Section 9.02.
9
<PAGE> 16
"Other Departments" has the meaning specified in Section 3.08.
"Owned Intellectual Property" means all Intellectual Property
in and to which the Company or the Subsidiary holds, or has a right to hold,
right, title and interest.
"Owned Real Property" means the real property owned by the
Company or the Subsidiary prior to the Closing (including any properties then
in the process of being foreclosed), together with all buildings and other
structures, facilities or improvements currently or hereafter located thereon,
all fixtures, systems, equipment and items of personal property of the Company
or the Subsidiary attached or appurtenant thereto and all easements, licenses,
rights and appurtenances relating to the foregoing.
"Permits" has the meaning specified in Section 3.16.
"Permitted Encumbrances" means such of the following as to
which no enforcement, collection, execution, levy or foreclosure proceeding
shall have been commenced: (a) liens for taxes, assessments and governmental
charges or levies not yet due and payable which are not in excess of $100,000
in the aggregate or which are being contested in good faith and for which
reserves in accordance with GAAP have been established on the Financial
Statements; (b) Encumbrances imposed by law, such as materialmen's, mechanics',
carriers', workmen's and repairmen's liens and other similar liens arising in
the ordinary course of business securing obligations that (i) are not overdue
for a period of more than 30 days or (ii) are not in excess of $100,000 in the
case of a single property or $250,000 in the aggregate at any time or which are
being contested in good faith and for which reserves in accordance with GAAP
have been established on the Financial Statements; (c) pledges or deposits to
secure obligations under workers' compensation laws or similar legislation or
to secure public or statutory obligations; (d) Liens related to deposits to
secure policyholders' obligations as required by the insurance departments of
the various states; and (e) minor survey exceptions, reciprocal easement
agreements and other customary encumbrances on title to real property that (i)
were not incurred in connection with any Indebtedness, (ii) do not render title
to the property encumbered thereby unmarketable and (iii) do not, individually
or in the aggregate, materially adversely affect the value or use of such
property for its current and reasonably foreseeable purposes.
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<PAGE> 17
"Person" means any individual, partnership, firm, corporation,
association, trust, unincorporated organization, governmental authority or
other entity, as well as any syndicate or group that would be deemed to be a
person under Section 13(d)(3) of the Exchange Act.
"Plans" has the meaning specified in Section 3.24.
"Pooling and Servicing Agreements" has the meaning specified
in Section 5.15.
"Promissory Note" means specified in Section 8.02.
"Proxy Statement" has the meaning specified in Section 3.30.
"Purchase Price" has the meaning specified in Section 2.02.
"Purchase Price Bank Account" means a bank account in the
United States of America to be designated by the Seller in a written notice to
the Purchaser at least five Business Days before the Closing.
"Purchaser" has the meaning specified in the preamble to this
Agreement.
"Purchaser Knowledge" means the actual knowledge of the
Purchaser Knowledge Group at or prior to the Closing Date or which the
Purchaser Knowledge Group is conclusively presumed to know, based on facts,
circumstances or information contained or described at any time prior to the
Closing Date in the books, records, files or other documents of the Purchaser
Knowledge Group. For purposes hereof, "Purchaser Knowledge Group" means each
of Messrs. David J. Stone, James P. McDermott, Charles Lubochinski, Michael
Prager and Steven W. Fickes.
"Purchaser Knowledge Group" has the meaning specified in the
definition of "Purchaser Knowledge."
"Real Property" means the Leased Real Property and the Owned
Real Property.
"Regulations" means the Treasury Regulations (including,
without limitation, Temporary Regulations) promulgated by the United States
Department of Treasury with respect to the Code or other federal tax statutes
and in effect as of the date hereof.
"Release" means the release or threatened release, spill,
emission, leaking, pumping, injection, deposit,
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<PAGE> 18
disposal, discharge, dispersal, leaching or migrating into the indoor or
outdoor environment of any Hazardous Material.
"Reserve Liabilities" has the meaning specified in Section
3.09.
"Returns" has the meaning specified in Section 7.01.
"S&P" means Standard & Poor's Corporation.
"SAP" means, with respect to an insurance company, the
accounting practices prescribed or permitted by the National Association of
Insurance Commissioners and the insurance regulatory authority in the state in
which such insurance company is domiciled.
"SAP Statements" means the Company Annual Statements and the
Company Quarterly Statements.
"Section 338(h)(10) Election" has the meaning specified in
Section 7.02.
"Section 338 Forms" has the meaning specified in Section 7.02.
"Secured Real Property" has the meaning specified in Section
3.16.
"Seller" has the meaning specified in the preamble to this
Agreement.
"Seller Group" has the meaning specified in Section 7.01.
"Seller Group Consolidated Returns" has the meaning specified
in Section 7.01.
"Seller Master Loan Sale Parties" has the meaning specified in
Section 3.01.
"Seller Services" has the meaning specified in Section 5.13.
"Seller's Accountants" means Deloitte & Touche, LLP
independent accountants of the Seller.
"Seller's Knowledge Group" has the meaning specified in the
definition of "Special Knowledge."
"Shares" has the meaning specified in the recitals to this
Agreement.
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<PAGE> 19
"Special Knowledge" means (subject to Section 11.14 hereof)
the actual knowledge of the executive officers of the Seller or the
subsidiaries of the Seller (including, without limitation, the Company and the
Subsidiary) at or prior to the Closing Date (collectively, the "Seller's
Knowledge Group") or which the Seller's Knowledge Group is conclusively
presumed to know, based on facts, circumstances or information contained or
described at any time prior to the date hereof in the books, records, files or
other documents of Seller, the Company, the Subsidiary or any other subsidiary
of the foregoing. For purposes hereof, the executive officers of the Seller or
the subsidiaries of Seller shall mean the individuals listed on Exhibit 1
hereto.
"Specified Lawsuits" means any action, suit or proceeding
brought after July 24, 1996, in the State of Alabama alleging claims against
the Company for non-return of unearned premiums and arising out of or related
to any loan transaction in which:
(a) UCFC or any of its subsidiaries (other than the Company)
originated or refinanced a loan to any Person; and
(b) the Company, acting through an Employee, agent or
representative of UCFC or any of its subsidiaries (other than the Company),
issued a credit life insurance policy in connection with the origination or
refinancing of such loan."
"Specified Returned Premium Lawsuits" means any Specified
Lawsuit in which the Company properly and in full accordance with the
applicable policy refunded to the policyholder or in accordance with directions
from UCFC, remitted to UCFC the unearned premium amount, and for which any
Indemnified Party notified any Indemnifying Party on or prior to the third
anniversary of the date hereof of its intent to seek indemnification hereunder.
"Specified Non-Returned Premium Lawsuits" means any Specified
Lawsuit which is not a Specified Returned Premium Lawsuit .
"Special Meeting" has the meaning specified in Section 3.30.
"Statutory Statements" has the meaning specified in Section
3.08.
"Subsidiary" means United Variable, the only entity which is
controlled by the Company directly or indirectly through one or more
intermediaries.
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<PAGE> 20
"Tangible Personal Property" has the meaning specified in
Section 3.20.
"Tax" or "Taxes" means any and all taxes, fees, levies,
duties, tariffs, imposts, and other charges of any kind (together with any and
all interest, penalties, additions to tax and additional amounts imposed with
respect thereto) imposed by any government or taxing authority, including,
without limitation: taxes or other charges on or with respect to income,
franchises, windfall or other profits, gross receipts, premiums, property,
sales, use, capital stock, payroll, employment, social security, workers'
compensation, unemployment compensation, or net worth; taxes or other charges
in the nature of excise, withholding, ad valorem, stamp, transfer, value added,
or gains taxes; license, registration and documentation fees; and customs
duties, tariffs, and similar charges.
"Tax Returns" has the meaning specified in Section 7.01.
"Third Party" has the meaning specified in Section 5.06.
"Third Party Claim" has the meaning specified in Section 9.02.
"United Variable" means United Variable Services, Inc., a
Louisiana corporation which is wholly-owned by the Company.
"401(k) and ESOP Plans" has the meaning specified in Section
6.01.
ARTICLE II
PURCHASE AND SALE
SECTION 2.01. Purchase and Sale of the Shares. Upon the
terms and subject to the conditions of this Agreement, at the Closing, the
Seller shall sell to the Purchaser, and the Purchaser shall purchase from the
Seller, the Shares.
SECTION 2.02. Purchase Price. The aggregate purchase price
for the Shares shall be $164 million in cash (the "Purchase Price"), as
adjusted pursuant to Section 2.06.
SECTION 2.03. Closing. Upon the terms and subject to the
conditions of this Agreement, the sale and purchase of the Shares contemplated
by this Agreement shall
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<PAGE> 21
take place at a closing (the "Closing") to be held at the offices of Dewey
Ballantine, 1301 Avenue of the Americas, New York, New York at 10:00 A.M. New
York time on the last day of the calendar month following the later to occur of
(i) expiration or termination of all applicable waiting periods under the HSR
Act and (ii) receipt of the last required approval or consent to consummate
this Agreement, or at such other place or at such other time or on such other
date as the Seller and the Purchaser may mutually agree upon in writing (the
day on which the Closing takes place being the "Closing Date"). Immediately
prior to the Closing, Seller shall cause the Company to distribute to Seller
the Cash Dividend as set forth in Section 5.25 and the Excluded Assets as set
forth in Section 5.12.
SECTION 2.04. Closing Deliveries by the Seller. At the
Closing, the Seller shall deliver or cause to be delivered to the Purchaser:
(a) stock certificates evidencing the Shares duly
endorsed in blank, or accompanied by stock powers duly executed in
blank, in form satisfactory to the Purchaser and with all required
stock transfer tax stamps affixed, if applicable;
(b) a receipt from the Seller for (i) the Purchase Price
minus the Cash Dividend and the Excluded Assets Value Amount, (ii) the
Adjustment Amount and (iii) the Promissory Note; and
(c) the opinions, certificates and other documents
required to be delivered pursuant hereto.
SECTION 2.05. Closing Deliveries by the Purchaser. (a) At
the Closing, the Purchaser shall deliver to the Seller:
(i) the Purchase Price minus the Cash Dividend and the
Excluded Assets Value Amount plus the Adjustment Amount by wire
transfer in immediately available funds to the Purchase Price Bank
Account or as requested by Seller; and
(ii) the Promissory Note registered in the name of Seller;
and
(iii) the opinions, certificates and other documents
required to be delivered pursuant hereto.
(b) At the Closing, the Purchaser shall deliver to the
Company the Excluded Assets Value Amount, as determined in accordance
with Section 5.12(b), by wire
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<PAGE> 22
transfer in immediately available funds to one or more accounts
designated by the Company.
SECTION 2.06. Purchase Price Adjustment. (a) Subject to
and in accordance with the procedures set forth in this Section 2.06, the Cash
Purchase Price shall be increased by an amount (the "Adjustment Amount") equal
to the income of the Company, computed in accordance with GAAP net of all
applicable income Taxes and excluding any capital gains or losses (provided,
however, that capital gains or losses attributable to the Cigna Partnership, to
the extent not otherwise included in income, shall be included), for the period
beginning on January 1, 1996 and ending on the Closing Date (the "Adjustment
Period"), which amount may be adjusted following the Closing in accordance with
this Section 2.06; provided, however, that the Adjustment Amount shall not
include any income or liability for Taxes arising from the Section 338(h)(10)
Election, and for the distribution of the Excluded Assets, transfer of the
Commercial Real Estate Group or the payment of the Cash Dividend. The parties
agree that the methodology for computing the Adjustment Amount shall be as set
forth in the Memorandum from Laura Martin of Seller attached hereto as Exhibit
2.06.
(b) Not less than ten calendar days prior to the Closing Date
(the "Calculation Date"), Seller shall deliver to the Purchaser (i) an
unaudited consolidated income statement of the Company for the Adjustment
Period which shall include a projection of income from the Calculation Date
through the Closing Date (the "Closing Income Statement") and (ii) Seller's
calculation of the Adjustment Amount. Such Closing Income Statement shall be
(i) prepared in accordance with GAAP and on the basis of the same accounting
principles, consistently applied, as used in the preparation of the Company's
most recent annual GAAP financial statements previously provided to the
Purchaser, other than the normal estimation of accruals and normal year end
audit adjustments (the "Accounting Principles") and (iii) certified by the
chief financial officer of the Seller as fairly presenting in all material
respects, in accordance with the Accounting Principles, the Adjustment Amount.
(c) No less than five calendar days prior to the Closing
Date, the Purchaser shall in good faith notify Seller in writing of any
objections based on an indication of manifest error in Seller's calculation of
the Adjustment Amount. If the Purchaser does not so notify Seller, then on the
Closing Date, the Adjustment Amount will be paid by the Purchaser to the Seller
in addition to the Cash Purchase Price, as provided in Section 2.05(a).
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<PAGE> 23
(d) If the Purchaser shall in good faith give such notice of
objection no less than five calendar days prior to the Closing Date, the
Purchaser and Seller shall negotiate in good faith to resolve all or any part
of such dispute on or prior to the Closing Date, and the amount as so agreed,
if any, will be paid by the Purchaser to the Seller in addition to the Cash
Purchase Price. If, after such good faith negotiations, Purchaser and Seller
are nevertheless unable to agree as to any portion of the Adjustment Amount,
such portion shall not be paid at the Closing, and shall be determined and paid
pursuant to subsections (e) through (h) below.
(e) As promptly as practicable, but in any event within 60
calendar days following the Closing Date, the Purchaser shall deliver to the
Seller a consolidated income statement of the Company for the Adjustment Period
prepared on the basis of the Accounting Principles consistently applied in
accordance with past practice (the "Actual Income Statement") which will
include a separate calculation of the actual income of the Company completed in
accordance with GAAP, net of all applicable Taxes and excluding any capital
gains or losses (provided, however, that capital gains or losses attributable
to the Cigna Partnership, to the extent not otherwise included in income, shall
be included), during the Adjustment Period (the "Adjusted Adjustment Amount").
(f) Seller (and its advisors) shall be entitled to review,
and the Purchaser shall make available for review at mutually agreeable times
and places, the work papers, schedules, memoranda and other documents used by
the Purchaser and its advisors in the preparation of the Actual Income
Statement and calculation of the Adjusted Adjustment Amount. Such review, and
any review or determination by the independent public accountants referred to
below, shall be only for the limited purposes of calculating the Adjusted
Adjustment Amount, and shall not be used for any other purpose. If Seller
shall in good faith disagree with the Purchaser's calculation of the Adjusted
Adjustment Amount, it shall deliver a notice to the Purchaser, within 20
Business Days after completion of such review by Seller, which review shall
take no longer than 20 Business Days following delivery to Seller of such
calculation, setting forth Seller's disagreement with such calculation and
setting forth Seller's calculation of such amount. A failure to give such
notice within such period shall be deemed to constitute Seller's acceptance of
such calculation. If Seller gives such notice, Seller and the Purchaser shall,
during the 20 Business Days after delivery to the Purchaser of such notice,
negotiate in good faith to resolve the disagreement. If at the end of such 20
Business Days period no resolution is reached, either party may request that
the disagreement be resolved by a firm of
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independent public accountants of national recognition agreed upon by Seller
and the Purchaser (it being agreed that, in the absence of a further agreement,
the firm of Coopers & Lybrand, L.L.P. will be mutually agreeable to Seller and
the Purchaser). The calculation of the Adjusted Adjustment Amount shall be
made by such firm within the range of the respective calculations of the
Purchaser and the Seller and when so made shall be conclusive, and shall be
binding on, and nonappealable by, the parties. The fees and disbursements of
such firm shall be borne by the party requesting such independent audit, or
equally by the parties requesting such audit.
(g) The difference between the Adjustment Amount, or, if not
previously paid in full, the portion thereof that was paid by the Purchaser to
the Seller at the Closing, and the Adjusted Adjustment Amount (the "Corrected
Amount") shall be paid to Seller by the Purchaser or to the Purchaser by
Seller, as applicable. If the Adjustment Amount, or, if not previously paid in
full, the portion thereof that was paid by the Purchaser to the Seller at the
Closing equals the Adjusted Adjustment Amount, no payment by the Purchaser or
Seller shall be made. If the Purchaser or Seller is required to make a payment
pursuant to this Section, such payment shall be made no later than two Business
Days after (i) the parties agree to the Corrected Amount or (ii) the
independent auditor provided for above calculates the Corrected Amount, as
applicable, and shall be in immediately available funds by wire transfer to an
account designated by the party entitled to receive the Corrected Amount.
(h) The Corrected Amount shall be accompanied by the payment
of interest at the prime rate from the Closing Date to the date of additional
payment or refund, as the case may be. For this purpose, the "prime rate"
shall mean the rate announced by the Bank of New York at its principal office
as its prime commercial lending rate as of the Closing Date.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE SELLER
Subject to the terms and conditions of this Agreement, the
Seller hereby represents and warrants to the Purchaser as of the date hereof,
except as may otherwise be set forth on the Disclosure Schedule, as set forth
in Sections 3.01 through 3.32, as follows:
SECTION 3.01. Organization, Authority and Qualification of
the Seller. The Seller is a corporation
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duly organized, validly existing and in good standing under the laws of the
State of Louisiana and has all necessary power and authority to enter into this
Agreement, to carry out its obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by the Seller, the performance by the Seller of its obligations hereunder and
the consummation by the Seller of the transactions contemplated hereby have
been duly authorized by all requisite action on the part of the Seller other
than approval by its shareholders. This Agreement has been duly executed and
delivered by the Seller, and (assuming due authorization, execution and
delivery by the Purchaser) upon receipt of the requisite approval by its
shareholders, and the necessary approvals by Governmental Authorities, this
Agreement will constitute a legal, valid and binding obligation of the Seller
enforceable against the Seller in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting rights of creditors of
insurance companies, rights of creditors generally or by general principles of
equity. The Affiliates of Seller which are parties to the Master Loan Sale
Agreement (the "Seller Master Loan Sale Parties") shall have at the Closing
each taken all requisite action to authorize the Master Loan Sale Agreement,
and shall have at the Closing all necessary power and authority to enter into
the Master Loan Sale Agreement and to consummate the transactions contemplated
thereby. The Master Loan Sale Agreement, upon its execution and delivery by
Purchaser and the Seller Master Loan Sale Parties, will constitute a legal,
valid and binding obligation of the Seller Master Loan Sale Parties enforceable
against the Seller Master Loan Sale Parties in accordance with its terms except
as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting rights of creditors of
insurance companies, rights of creditors generally or by general principles of
equity.
SECTION 3.02. Organization, Authority and Qualification of
the Company. The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Louisiana and has all necessary
power and authority to own, operate or lease the properties and assets now
owned, operated or leased by it and to conduct the Business. The Company is
duly licensed or qualified to do business and is in good standing in each
jurisdiction in which the properties owned or leased by it or the operation of
its business makes such licensing or qualification necessary, other than those
jurisdictions where the failure to be so licensed or qualified are not
reasonably likely to have a Material Adverse Effect, and all such jurisdictions
are set forth on Section 3.02 of the
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Disclosure Schedule. The Company is licensed to write life and health
insurance, which includes fixed annuities, and variable products, which include
variable annuities, in each of the jurisdictions listed in Section 3.02 of the
Disclosure Schedule (which also specifies each jurisdiction as to which the
license held by the Company specifically authorizes reinsurance activities).
All of the foregoing registrations, licenses, qualifications and memberships
are in full force and effect and neither the Company nor the Subsidiary has
received any notice of any event, inquiry, investigation or proceeding that is
reasonably likely to result in the suspension, revocation or limitation of any
such registration, license, qualification or membership, and to the best
knowledge of the Seller, there is no sustainable basis for any such suspension,
revocation or limitation. All corporate actions taken by the Company have been
duly authorized, and the Company has not taken any action that in any respect
conflicts with, constitutes a default under or results in a violation of any
provision of its Articles of Incorporation or By-laws except where such actions
taken or not taken are not reasonably likely to have a Material Adverse Effect.
True and correct copies of the Articles of Incorporation and By-laws of the
Company, each as in effect on the date hereof, have been delivered by the
Seller to the Purchaser.
SECTION 3.03. Capital Stock of the Company; Ownership of
the Shares. (a) The authorized capital stock of the Company consists of
4,200,528 shares of Common Stock. As of the date hereof, 4,200,528 shares of
Common Stock are issued and outstanding, all of which are validly issued, fully
paid and nonassessable. None of the issued and outstanding shares of Common
Stock was issued in violation of any preemptive rights.
(b) There are no options, warrants, convertible securities or
other rights, agreements, arrangements or commitments of any character relating
to the capital stock of the Company or obligating the Seller or the Company to
issue or sell any shares of capital stock of, or any securities or obligations
convertible into or exchangeable for shares of capital stock of the Company, or
any other interest in, the Company.
(c) The Shares constitute all the issued and outstanding
capital stock of the Company and are owned of record and beneficially solely by
Seller and are registered in the name of Seller free and clear of all
Encumbrances. Upon consummation of the transactions contemplated by this
Agreement and registration of the Shares in the name of the Purchaser in the
stock records of the Company, the Purchaser, assuming it shall have purchased
the Shares for value in good faith and without notice of any adverse claim,
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will own all the issued and outstanding capital stock of the Company free and
clear of all Encumbrances other than those, if any, created by the Purchaser.
(d) There are no voting trusts, stockholder agreements,
proxies or other agreements or understandings in effect with respect to the
voting or transfer of any of the Shares.
SECTION 3.04. Subsidiaries. (a) There are no Subsidiaries
other than United Variable. Section 3.04 of the Disclosure Schedule sets
forth, with respect to the Subsidiary, the jurisdiction and date of its
incorporation, its authorized capital stock, the number and type of its issued
and outstanding shares of capital stock and the current ownership of such
shares.
(b) The Company is not a member of (nor is any part of the
Business conducted through) any partnership other than those identified in
Section 3.04 of the Disclosure Schedule. The Company is not a participant in
any joint venture or similar arrangement.
(c) The Subsidiary is a corporation duly organized, validly
existing and in good standing under the laws of the State of Louisiana and has
all necessary power and authority to own, operate or lease the properties and
assets now owned, operated or leased by it and to conduct its business. The
Subsidiary is duly licensed or qualified to do business and is in good standing
in each jurisdiction in which the properties owned or leased by it or the
operation of its business makes such licensing or qualification necessary,
other than those jurisdictions where the failure to be so qualified or licensed
is not reasonably likely to have a Material Adverse Effect, and all such
jurisdictions are set forth on Section 3.04(a) of the Disclosure Schedule. The
Subsidiary is a registered broker-dealer under the Exchange Act and, in
connection with its present business activities, is not required to register as
a broker-dealer in any state. The Subsidiary is a registered investment
adviser under the Investment Advisers Act and, in connection with its present
business activities, is not required to register as an investment adviser in
any state, other than those jurisdictions where the failure to be so registered
is not reasonably likely to have a Material Adverse Effect. All of the
foregoing registrations, licenses, qualifications and memberships are in full
force and effect and the Subsidiary has not received any notice of any event,
inquiry, investigation or proceeding that is reasonably likely to result in the
suspension, revocation or limitation of any such registration, license,
qualification or membership, and to the best knowledge of the Seller,
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there is no sustainable basis for any such suspension, revocation or
limitation.
(d) All the outstanding shares of capital stock of the
Subsidiary are validly issued, fully paid, nonassessable, free of preemptive
rights and owned by the Company, free and clear of all Encumbrances.
(e) There are no options, warrants, convertible securities,
or other rights, agreements, arrangements or commitments of any character
relating to the capital stock of the Subsidiary or obligating the Seller, the
Company or the Subsidiary to issue or sell any shares of capital stock of, or
any other interest in, the Subsidiary.
(f) All corporate actions taken by the Subsidiary have been
duly authorized and the Subsidiary has not taken any action that in any respect
conflicts with, constitutes a default under or results in a violation of any
provision of, its charter or by-laws (or similar organizational documents)
except where such actions taken or not taken are not reasonably likely to have
a Material Adverse Effect. True and complete copies of the charter and by-laws
(or similar organizational documents), in each case as in effect on the date
hereof, of the Subsidiary have been delivered by the Seller to the Purchaser.
(g) The Subsidiary is not a member of (nor is any part of its
business conducted through) any partnership nor is the Subsidiary a participant
in any joint venture or similar arrangement.
(h) There are no voting trusts, stockholder agreements,
proxies or other agreements or understandings in effect with respect to the
voting or transfer of any shares of capital stock of or any other interests in
the Subsidiary.
SECTION 3.05. Corporate Books and Records. The minute
books of the Company and the Subsidiary contain minutes of all meetings of, and
accurately reflect all material actions taken by, the stockholders, Boards of
Directors and all committees of the Boards of Directors of the Company and the
Subsidiary. Complete and accurate copies of all such minute books of the
Company and the Subsidiary from and after 1979 have been made available to the
Purchaser by the Seller.
SECTION 3.06. No Conflict. Assuming that the requisite
approval of the shareholders of the Seller is obtained and that all consents,
approvals, authorizations and other actions described in Section 3.07 have been
obtained and all filings and notifications listed in Section
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<PAGE> 29
3.07 of the Disclosure Schedule have been made, the execution, delivery and
performance of this Agreement by the Seller do not and will not (a) violate,
conflict with or result in the breach of any provision of the charter or
by-laws (or similar organizational documents) of the Seller, the Company or the
Subsidiary, (b) conflict with or violate (or cause an event which would be
reasonably likely to have a Material Adverse Effect as a result of) any Law or
Governmental Order applicable to the Seller, the Company, the Subsidiary or any
of their respective assets, properties or businesses, including, without
limitation, the Business, except where such conflict or violation is not
reasonably likely to have a Material Adverse Effect or (c) conflict with,
result in any breach of, constitute a default (or event which with the giving
of notice or the lapse of time, or both, would become a default) under, require
any consent under, or give to others any rights of termination, amendment,
acceleration, suspension, revocation or cancellation of, or result in the
creation of any Encumbrance on any of the Shares or on any of the assets or
properties of the Seller, the Company or the Subsidiary pursuant to any note,
bond, mortgage or indenture, contract, agreement, lease, sublease, license,
permit, franchise or other instrument or arrangement to which the Seller, the
Company or the Subsidiary is a party or by which any of the Shares or any of
such assets or properties is bound or affected except where such conflict or
breach is not reasonably likely to have a Material Adverse Effect.
SECTION 3.07. Governmental and Other Authorizations;
Notices and Consents. (a) The execution, delivery and performance of this
Agreement do not and will not require any consent, approval, authorization or
other order of, action by, filing with or notification to any Governmental
Authority or any other third party, except (a) as required by the insurance
laws of the State of Louisiana and any other state in which the Company is
doing business, (b) the notification requirements of the HSR Act and (c) as set
forth on Section 3.07 of the Disclosure Schedule.
(b) The Seller does not have knowledge of any facts or
circumstances pertaining to the Purchaser which are reasonably likely to
prevent the parties hereto from obtaining the governmental consents and
approvals contemplated by Section 3.07(a).
SECTION 3.08. Financial Information and Books and Records.
(a) The Seller has previously furnished, and for the period ended December 31,
1995 will furnish, to the Purchaser true and complete copies of (i) the audited
consolidated GAAP balance sheet of the Company and its Subsidiary for each of
the fiscal years ended as of December
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<PAGE> 30
31, 1995, December 31, 1994 and December 31, 1993, and the related audited GAAP
consolidated statements of earnings, stockholder's equity and cash flows for
each of such periods then ended together with all related notes and schedules
thereto, accompanied by the reports thereon of the Company and the Seller's
Accountants, which reports shall be "unqualified" except for references therein
to adoption of new accounting policies agreed to by the auditors (collectively
referred to herein as the "Company GAAP Statements") and (ii) the unaudited
GAAP consolidated balance sheets of the Company and its Subsidiary as of March
31, June 30, September 30 and December 31, 1995, the end of each fiscal quarter
thereafter and the related unaudited GAAP consolidated statements of earnings,
stockholder's equity and cash flows for each three-month period then ended,
together with all related notes and schedules thereto (collectively referred to
herein as the "Company Interim GAAP Statements" and, together with the Company
GAAP Statements, the "Financial Statements"). The Financial Statements (i)
were or will be prepared in accordance with the books of account and other
financial records of the Company and the Subsidiary, (ii) present or will
present fairly in all material respects the consolidated financial condition
and results of operations of the Company and the Subsidiary as of the dates
thereof or for the periods covered thereby in accordance with GAAP, applied on
a basis consistent with the past practices of the Company except as noted
therein and (iii) include or will include all adjustments that are necessary
for a fair presentation of the consolidated financial condition and the results
of the operations of the Company and the Subsidiary as of the dates thereof or
for the periods covered thereby in accordance with GAAP (subject, in the case
of the Company Interim GAAP Statements, to normal estimation of accruals and
normal year-end audit adjustments).
(b) The Seller has previously furnished, and for the period
ended December 31, 1995 will furnish, to the Purchaser true and complete copies
of (i) the statutory annual statement of the Company filed with or submitted to
the Louisiana Department, and any other state department of insurance or
similar regulatory authority with which the Company has filed statutory annual
statements which are different from those filed with the Louisiana Department
(the "Other Departments"), for each of the four years ended as of December 31,
1995, December 31, 1994, December 31, 1993, and December 31, 1992, together
with all related notes, exhibits and schedules thereto (collectively referred
to herein as the "Company Annual Statements") and (ii) the statutory quarterly
statements of the Company filed with or submitted to the Louisiana Department
and any Other Departments for each of the three-month periods ended as of March
31, June 30, and September 30, 1995 and the end of
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<PAGE> 31
each fiscal quarter thereafter, together with all related notes, exhibits and
schedules thereto (collectively referred to herein as the "Company Quarterly
Statements" and, together with the Company Annual Statements, the "Statutory
Statements"). The Statutory Statements (i) were or will be prepared from the
books of account and other financial records of the Company, (ii) were or will
be filed with or submitted to the Louisiana Department or Other Departments on
forms prescribed or permitted by the Louisiana Department or the Other
Departments, as applicable, (iii) were or will be prepared in accordance with
SAP applied on a basis consistent with the past practices of the Company except
as noted therein and complied on their respective dates of filing or submission
in all material respects with Louisiana Law and with all other applicable Laws;
provided that any such non-compliance is not reasonably likely to have a
Material Adverse Effect and (iv) present or will present fairly in all material
respects the assets, liabilities, capital and surplus, results of operations
and cash flows of the Company as of the dates thereof or for the periods
covered thereby in accordance with SAP (subject, in the case of the Company
Quarterly Statement, to normal estimation of accruals and reserves and normal
year-end audit adjustments).
(c) The Seller for the period ended December 31, 1995 will
deliver to the Purchaser a true and complete copy of the annual statement of
the separate accounts of the Company to be filed with or submitted to the
Louisiana Department for the year ended as of December 31, 1995, together with
all related notes, exhibits and schedules thereto (referred to herein as the
"Company Separate Accounts Annual Statement"). The Company Separate Accounts
Annual Statement (i) was or will be prepared from the books of account and
other financial records of the Company, (ii) was or will be filed with or
submitted to the Louisiana Department on forms prescribed or permitted by the
Louisiana Department, (iii) was or will be prepared in accordance with SAP
applied on a basis consistent with the past practices of the Company (except as
set forth in the notes, exhibits or schedules thereto) and complied on their
respective dates of filing or submission in all material respects with
Louisiana Law and with all other applicable Laws; provided that any such
non-compliance is not reasonably likely to have a Material Adverse Effect and
(iv) present or will presents fairly in all material respects the combined
statutory assets, liabilities and surplus, and results of operations of the
separate accounts of the Company as of the dates thereof or for the periods
covered thereby in accordance with SAP.
(d) The books of account and other financial records of the
Company and the Subsidiary: (i) reflect or
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will reflect, in all material respects, all items of income and expense and all
assets and liabilities required to be reflected therein in accordance with GAAP
or SAP, as applicable, (ii) are or will be in all material respects complete
and correct, and (iii) have been or will be maintained in accordance with good
business, accounting and, with respect to the Company, actuarial practices.
SECTION 3.09. Reserves. All reserves and other liabilities
reflected in lines 1, 2, 3, and 4 of page 3 of the 1994 and 1995 Company Annual
Statements ("Reserve Liabilities") (i) were and will be, as applicable,
determined in accordance with commonly accepted actuarial standards
consistently applied except as noted therein, (ii) were and will be, as
applicable, fairly stated in accordance with sound actuarial principles, (iii)
were and will be, as applicable, based on actuarial assumptions which were in
accordance with or more conservative than those appropriate for such insurance
policies and annuity contracts, (iv) met or will meet, as applicable, the
requirements of the insurance Laws of the state of domicile and, in the
aggregate, each other jurisdiction in which the Company is licensed to write
life insurance or issue annuities and (v) reflected or will reflect, as
applicable, the related reinsurance, coinsurance and other similar agreements
of the Company. Adequate provision for all such Reserve Liabilities has been
made (under commonly accepted actuarial principles consistently applied) to
cover the total amount of all reasonably anticipated matured and unmatured
benefits, claims and other liabilities of the Company under all insurance
policies and annuity contracts under which the Company has any liability
(including, without limitation, any liability arising under or as a result of
any reinsurance, coinsurance or other similar agreement) on December 31, 1994.
At the time of the Closing, the Reserve Liabilities will be sufficient to
satisfy all cash flow testing requirements applicable thereto under applicable
Law.
SECTION 3.10. No Undisclosed Liabilities or Capital
Commitments. To Seller's Enhanced Special Knowledge: (a) There are no
Liabilities of the Company or the Subsidiary, other than liabilities (i)
reflected or reserved against in the Financial Statements, (ii) under life and
health insurance and annuity policies issued by the Company, (iii) disclosed in
Section 3.10 of the Disclosure Schedule, (iv) relating to post-Closing state
insurance guaranty fund assessments relating to insurance companies that are
insolvent or are taken under conservatorship, placed in receivership or
rehabilitation or subject to similar action prior to the Closing or (v)
incurred since the Balance Sheet Date in the ordinary course of the Business
Consistent With Past Practice and which have not
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had and are not reasonably likely to have a Material Adverse Effect.
(b) Except as set forth in Section 3.10 of the Disclosure
Schedule and except for purchases and sales of home equity loans and investment
assets in the ordinary course of business Consistent With Past Practice,
neither the Company nor the Subsidiary is subject to any commitment, actual or
contingent, to make any investment or capital contribution, or otherwise expend
capital, or purchase any securities, or supply funds to any Person, in each
case in excess of $100,000 in the aggregate.
SECTION 3.11. Acquired Assets. Each asset of the Company
and the Subsidiary (including, without limitation, the benefit of any licenses,
leases or other agreements or arrangements) acquired since the Balance Sheet
Date has been acquired for consideration, to the Seller's knowledge, of not
more than the fair market value of such asset at the date of such acquisition.
SECTION 3.12. Conduct in the Ordinary Course; Absence of
Certain Changes, Events and Conditions. Since the Balance Sheet Date, except
as disclosed on the Disclosure Schedule or contemplated by this Agreement (a)
the Business has been conducted in the ordinary course and Consistent With Past
Practice and (b) neither the Company nor the Subsidiary has:
(i) permitted or allowed any of the assets or
properties (whether tangible or intangible) of the Company or the
Subsidiary to be subjected to any Encumbrance, other than Permitted
Encumbrances and Encumbrances that will be released at or prior to the
Closing;
(ii) except in the ordinary course of business
Consistent with Past Practice, discharged or otherwise obtained the
release of any Encumbrance or paid or otherwise discharged any
Liability, other than current liabilities reflected on the Balance
Sheet and current liabilities incurred in the ordinary course of
business Consistent With Past Practice since the Balance Sheet Date;
(iii) other than loans to policyholders and commercial
real estate loans in the ordinary course of business Consistent With
Past Practice, made any loan to, guaranteed any Indebtedness of, or
otherwise incurred any Indebtedness on behalf of any Person;
(iv) failed to pay any creditor any amount owed to such
creditor when due, except any amounts being
27
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contested in good faith and not in excess of $100,000 in the aggregate
or for which reserves in accordance with GAAP have been established on
the Financial Statements;
(v) redeemed any of the capital stock or declared,
made or paid any dividends or distributions with respect to capital
(whether in cash, securities or other property) to the holders of
capital stock of the Company or the Subsidiary or otherwise, other
than dividends, distributions and redemptions declared, made or paid
by the Subsidiary solely to the Company;
(vi) made any material changes in the customary methods
of operations of the Company or the Subsidiary, including, without
limitation, purchasing, marketing, selling, pricing, underwriting,
investing or actuarial practices and policies;
(vii) merged with, entered into a consolidation with or
acquired an interest of 5% or more in any Person or acquired a
substantial portion of the assets or business of any Person or any
division or line of business thereof, or otherwise acquired any
material assets other than in the ordinary course of business
Consistent With Past Practice;
(viii) made any capital expenditure or commitment for any
capital expenditure in excess of $100,000 in the aggregate;
(ix) sold, transferred, leased, subleased, licensed or
otherwise disposed of any properties or assets, real, personal or
mixed (including, without limitation, investment assets, leasehold
interests and intangible assets), other than (A) the sale of
investment assets (including, without limitation, home equity loans)
in the ordinary course of business Consistent With Past Practice and
(B) the distribution of Excluded Assets in accordance with Section
5.12;
(x) issued or sold any capital stock, notes, bonds or
other securities, or any option, warrant or other right to acquire the
same, of, or any other interest in, the Company or the Subsidiary,
other than the sale of annuity contracts in the ordinary course of
business Consistent With Past Practice or as contemplated by Section
5.12;
(xi) except as set forth in Section 3.12 of the
Disclosure Schedule and except as disclosed in the Seller's most
recent proxy statement, and except for salary and benefits which are
provided Consistent With
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Past Practice, entered into any agreement, arrangement or transaction
with any of its directors, officers, employees or shareholders (or
with any relative, beneficiary, spouse or Affiliate of such Person),
other than an insurance policy or annuity contract containing standard
terms and purchased by such Person;
(xii) except as set forth in Section 3.12 of the
Disclosure Schedule, (A) granted any increase, or announced any
increase, in the wages, salaries, compensation, bonuses, incentives,
pension or other benefits payable by the Company or the Subsidiary to
any of its employees, including, without limitation, any increase or
change pursuant to any Plan except for regular salary increases in the
ordinary course of business Consistent With Past Practice or (B)
established or increased or promised to increase any benefits under
any Plan;
(xiii) revalued (other than in accordance with SAP or
GAAP, as appropriate) or, except as set forth in Section 3.12 of the
Disclosure Schedule, restructured any assets of the Company or the
Subsidiary;
(xiv) amended, terminated, cancelled or compromised any
material claims of the Company or the Subsidiary or waived any other
rights of substantial value to the Company or the Subsidiary;
(xv) made any change in any method of accounting or
accounting practice or policy used by the Company or the Subsidiary
and disclosed in the Financial Statements or the SAP Statements other
than changes which were required by GAAP or SAP or Guideline 33 of the
National Association of Insurance Commissioners;
(xvi) failed to maintain the Assets Consistent With Past
Practices;
(xvii) allowed any material Permit or material
Environmental Permit that was issued or relates to the Company or the
Subsidiary or otherwise relates to any material Asset to lapse or
terminate or failed to renew any such Permit or Environmental Permit
or any insurance policy under which the Company or the Subsidiary is
an insured that is scheduled to terminate or expire on or prior to the
Closing Date;
(xviii) incurred any Indebtedness in excess of $100,000 in
the aggregate (other than repurchase agreements and reverse repurchase
agreements entered into in the ordinary course of business Consistent
With Past Practice);
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(xix) amended, modified or consented to the termination
of any Material Contract or the Company's or the Subsidiary's rights
thereunder;
(xx) amended or restated the Articles of Incorporation
or the By-laws (or other organizational documents) of the Company or
the Subsidiary;
(xxi) terminated, discontinued, closed or disposed of
any office, facility or other business operation, or laid off any
employees other than in the ordinary course of business Consistent
With Past Practice) or implemented any early retirement, separation or
program providing early retirement window benefits within the meaning
of Section 1.401(a)-4 of the Regulations or announced or planned any
such action or program for the future;
(xxii) except pursuant to confidentiality agreements,
disclosed any secret or confidential Intellectual Property or
permitted to lapse or abandoned any Intellectual Property (or any
registration or grant thereof or any application relating thereto) to
which, or under which, the Company or the Subsidiary has any right,
title, interest or license and which is material to the Business;
(xxiii) except as set forth in Section 3.12 of the
Disclosure Schedule, settled or compromised any liability, with
respect to Taxes of the Company or the Subsidiary;
(xxiv) suffered any casualty loss or damage with respect
to any of the Assets which in the aggregate have a replacement cost in
excess of $100,000, whether or not such loss or damage shall have been
covered by insurance;
(xxv) except as set forth in Section 3.12 of the
Disclosure Schedule, made any material amendment to the insurance
policies or annuity contracts in force of the Company or made any
material change in the methodology used in the determination of, or
destrengthened the Reserve Liabilities of the Company or any reserves
contained in the 1994 Company GAAP Statements with respect to
insurance policies and annuity contracts;
(xxvi) except as set forth in Section 3.12 of the
Disclosure Schedule, terminated, amended or entered into as ceding or
assuming insurer any reinsurance, coinsurance or other similar
agreement or any trust agreement or security agreement related
thereto, other
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than renewals on substantially the same terms, in the ordinary course
of business;
(xxvii) except as set forth in Section 3.12 of the
Disclosure Schedule, amended or introduced any life insurance policy
or annuity contract;
(xxviii) suffered any Material Adverse Effect;
(xxix) agreed, whether in writing or otherwise, to take
any of the actions specified in this Section 3.12 or granted any
options to purchase, rights of first refusal, rights of first offer or
any other similar rights or commitments with respect to any of the
actions specified in this Section 3.12, except as expressly
contemplated by this Agreement; or
(xxx) except for the transactions contemplated by this
Agreement, taken or failed to take any action which could cause the
Adjustment Amount to be greater than it would otherwise be in the
ordinary course of business.
SECTION 3.13. Litigation. Set forth in Section 3.13 of the
Disclosure Schedule (with respect to each Action disclosed therein) are the
parties, the nature of the proceeding, the date and method commenced and the
amount of damages (if known) or other relief sought and, if applicable, paid or
granted. Except as set forth in Section 3.13 of the Disclosure Schedule, there
are no Actions by or against the Company or the Subsidiary (or by or against
the Seller or any Affiliate thereof and relating to the Business, the Company
or the Subsidiary), or affecting any of the Assets, pending before any
Governmental Authority (or, to the best knowledge of the Seller, threatened to
be brought by or before any Governmental Authority). No such Action is
reasonably likely to have a Material Adverse Effect or is reasonably likely to
affect the legality, validity or enforceability of this Agreement or the
consummation of the transactions contemplated hereby. None of the Company, the
Subsidiary, any of the Assets or the Seller is subject to any Governmental
Order (nor, to the best knowledge of the Seller, are there any such
Governmental Orders threatened to be imposed by any Governmental Authority)
which is reasonably likely to have a Material Adverse Effect.
SECTION 3.14. Certain Interests. Seller or any Affiliate
of Seller (other than the Company or the Subsidiary) does not have, and no
officer or director of the Seller, the Company or the Subsidiary and no
relative or spouse (or relative of such spouse) who resides with, or is a
dependent of, any such officer or director has
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(i) outstanding any Indebtedness to the Company or the Subsidiary or (ii)
except as set forth in Section 3.12(a)(xi) and Section 3.14 of the Disclosure
Schedule, entered into any transactions with the Company or the Subsidiary (any
arrangement referred to in (i) or (ii) shall be referred to as an
"Inter-Company Arrangement"). All Inter-Company Arrangements are set forth in
Section 3.14 of the Disclosure Schedule.
SECTION 3.15. Compliance with Laws. To the Seller's
Enhanced Special Knowledge, the Company and the Subsidiary have each conducted
and continue to conduct the Business in accordance with all material Laws and
Governmental Orders applicable to the Company or the Subsidiary or any of the
Assets or the Business, and neither the Company nor the Subsidiary is in
violation of any such Law or Governmental Order, except as set forth in
Section 3.15 of the Disclosure Schedule. The Company and the Subsidiary have
duly and validly filed or caused to be filed all material reports, statements,
documents, registrations, filings or submissions that were required by
applicable Laws to be filed; all such filings complied with all applicable Laws
in all material respects when filed, and no material deficiencies have been
asserted with respect to any such filings which have not been satisfied. All
outstanding insurance policies, annuity contracts and assumption certificates
issued by the Company and now in force are, to the extent required under
applicable Laws, on forms approved by the insurance regulatory authority of the
jurisdiction where issued or have been filed with and not objected to by such
authority within the period provided for objection, and utilize premium rates
which if required to be filed with or approved by insurance regulatory
authorities have been so filed or approved and the premiums charged conform
thereto. The Company and the Subsidiary, as applicable, have filed all forms,
reports, statements and other documents required by Law to be filed by them
with the Securities and Exchange Commission (the "Commission"), including,
without limitation, (a) all Annual Reports on Form 10-K, (b) all Quarterly
Reports on Form 10-Q, (c) all Current Reports on Form 8-K, (d) all other
reports and registration statements, including, without limitation, in
connection with sales of variable annuity or variable life contracts, and (e)
all amendments and supplements to all such reports and registration statements,
and all such forms, reports, statements and other documents, including, without
limitation, those filed after the date hereof, did not at the time they were
filed (at the time they became effective and so long as they remain effective
in the case of registration statements and amendments thereto), or will not at
the time they are filed (at the time they became effective and so long as they
remain effective in the case of registration statements and amendments
thereto), contain
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any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. Each of the separate accounts of the Company or the Subsidiary
that is required to be registered as an investment company under the Investment
Company Act of 1940 is so registered (each of which is listed in Section 3.15
of the Disclosure Schedule). All forms, reports, statements and other
documents required by Law to be filed with the Commission by or on behalf of
each of the separate accounts of the Company or the Subsidiary, including,
without limitation, all registration statements and all amendments and
supplements to all such registration statements, including, without limitation,
in connection with sales of variable life insurance policies and variable
annuity contracts, have been so filed by or on behalf of such separate
accounts, and all such forms, reports, statements and other documents,
including, without limitation, those filed after the date hereof, did not at
the time they were filed (at the time they became effective and so long as they
remain effective in the case of registration statements and amendments
thereto), or will not at the time they are filed (at the time they became
effective and so long as they remain effective in the case of registration
statements and amendments thereto), contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary in order to make the statement therein, in the light of the
circumstances under which they were made, not misleading.
SECTION 3.16. Environmental and Other Permits and Licenses;
Related Matters. To the Seller's Special Knowledge except as set forth in
Section 3.10 or 3.16 of the Disclosure Schedule:
(a) The Seller, the Company and the Subsidiary currently hold
all the permits, licenses, authorizations, certificates, consents, exemptions
and approvals required under any Law (collectively, "Permits"), including,
without limitation, Environmental Permits, necessary for the ownership, use,
occupancy and operation of each Asset of the Company and the Subsidiary and the
conduct of the Business, and all such Permits are in full force and effect,
except where the failure to hold any such Permit is not reasonably likely to
have a Material Adverse Effect.
(b) (i) Each tenant and occupant of the Real Property holds
all Permits, including, without limitation, Environmental Permits, necessary
for the use, occupancy and operation of the Real Property by such tenant or
occupant, and all such Permits are in full force and effect, except where the
failure to hold any such Permit is not reasonably
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likely to have a Material Adverse Effect; (ii) there is no existing practice,
action or activity of any tenant or occupant of the Real Property, or of any
owner, tenant or occupant of any real property in which the Company or a
Subsidiary or with respect to the Business, the Seller currently holds a
security interest (the "Secured Real Property") which will give rise to any
criminal liability or civil Liability under, or violate or prevent compliance
with, any applicable Law, including, without limitation, any applicable
Environmental Law; (iii) no tenant or occupant of the Real Property has
received any notice from any Governmental Authority revoking, cancelling,
rescinding, materially modifying or refusing to renew any Permit or providing
written notice of violations under any Law, including, without limitation, any
applicable Environmental Law; (iv) each tenant and occupant of the Real
Property is in all respects in compliance with its Permits, including, without
limitation, Environmental Permits, except where the failure to be in compliance
with such Permits is not reasonably likely to have a Material Adverse Effect;
(v) there is no existing practice, action or activity of the Company or the
Subsidiary or, with respect to any portion of the Business, the Seller and no
existing condition of the Assets of the Company or the Subsidiary or the
Business which has given (except to the extent already resolved) or will give
rise to any criminal liability or civil Liability under, or violate or prevent
compliance with, any applicable Law, including, without limitation, any
applicable Environmental Law; (vi) none of the Seller, the Company nor the
Subsidiary has received any notice from any Governmental Authority revoking,
cancelling, rescinding, materially modifying or refusing to renew any Permit;
and (vii) the Company and the Subsidiary are in all respects in compliance with
the Permits, including, without limitation, Environmental Permits, except where
the failure to be in compliance with such Permits is not reasonably likely to
have a Material Adverse Effect. Section 3.16(a) of the Disclosure Schedule
identifies all Permits, including, without limitation, Environmental Permits
and indicates by asterisk those that will require the consent of any
Governmental Authority in the event of the execution of this Agreement or the
consummation of the transactions contemplated by this Agreement.
(c) (i) Neither the Company nor the Subsidiary nor, with
respect to any portion of the Business, the Seller has violated or is violating
any applicable Environmental Law except for any such violation which is not
reasonably likely to have a Material Adverse Effect; (ii) no tenant or occupant
of the Real Property or owner, tenant or occupant of the Secured Real Property
is violating any applicable Environmental Law in connection with the ownership,
use, occupancy or operation of the Real Property or the Secured
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Real Property except for any such violation which is not reasonably likely to
have a Material Adverse Effect; (iii) there has been no Release of Hazardous
Materials at, to, from, or under any real property currently or formerly owned,
leased, or operated by the Company or the Subsidiary, or, with respect to any
portion of the Business, the Seller, or at, to, from or under any Secured Real
Property, except (x) Releases which individually or collectively do not exceed
the applicable reportable quantity established pursuant to CERCLA, or (y)
Releases of petroleum or its derivatives which individually or collectively do
not exceed ten gallons; (iv) none of the Company or the Subsidiary or, with
respect to any portion of the Business, the Seller, has generated, transported
or arranged for the transport of, or disposed of any Hazardous Materials at any
location, other than amounts and types of Hazardous Materials normally present
in ordinary office trash or household waste; (v) no tenant or occupant of the
Real Property has generated at such Real Property any Hazardous Material, other
than amounts and types of Hazardous Materials normally present in ordinary
office trash or household waste; (vi) none of the Company or the Subsidiary,
or, with respect to any portion of the Business, the Seller, has any
Liabilities in connection with the Release of any Hazardous Material at any
location; (vii) except as set forth in Section 3.16 of the Disclosure Schedule,
there is not present at any of the Real Property any underground storage tanks
or sumps, asbestos, or polychlorinated biphenyls; (viii) no Environmental Lien
has attached to any of the Real Property or the Secured Real Property; and (ix)
there are no past (except to the extent already resolved), pending or
threatened Environmental Claims against the Company or the Subsidiary or, with
respect to the Business, the Seller, nor are there any circumstances that may
form the basis of any such Environmental Claim.
SECTION 3.17. Material Contracts. (a) Section 3.17 of the
Disclosure Schedule lists each of the following contracts and agreements
(including, without limitation, oral agreements) of the Company and the
Subsidiary (such contracts and agreements, together with all contracts,
agreements and Leases concerning the management or operation of any Real
Property (including, without limitation, brokerage contracts) listed or
otherwise disclosed in Section 3.19(a) or 3.19(b) of the Disclosure Schedule to
which the Company or the Subsidiary is a party and all agreements relating to
Intellectual Property set forth in Section 3.18(a) of the Disclosure Schedule,
being "Material Contracts"):
(i) each contract and agreement for the purchase of
materials or personal property with any supplier or for the furnishing
of services to the
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Company, the Subsidiary or otherwise related to the Business under the
terms of which the Company or the Subsidiary: (A) is likely to pay or
otherwise give consideration of more than $50,000 individually and
$250,000 in the aggregate during the calendar year ending December 31,
1995, (B) is likely to pay or otherwise give consideration of more
than $100,000 in the aggregate over the remaining term of such
contract or (C) cannot be cancelled by the Company or the Subsidiary
without penalty or further payment in an amount more than $50,000
individually and $250,000 in the aggregate and without more than 90
days' notice;
(ii) each contract and agreement for the sale of
personal property or for the furnishing of services by the Company or
the Subsidiary, other than the insurance policies and annuity
contracts sold in the ordinary course of business Consistent With Past
Practice, which: (A) is likely to involve consideration of more than
$50,000 in the aggregate during the calendar year ending December 31,
1995, (B) is likely to involve consideration of more than $100,000 in
the aggregate over the remaining term of the contract or (C) cannot be
cancelled by the Company or the Subsidiary without penalty or further
payment in an amount more than $50,000 individually and $250,000 in
the aggregate and without more than 90 days' notice;
(iii) all broker, distributor, agency, sales promotion,
market research, marketing consulting and advertising contracts and
agreements to which the Company or the Subsidiary is a party pursuant
to which services were being provided on the Balance Sheet Date in an
amount more than $500,000 in the aggregate;
(iv) all management contracts and contracts with
independent contractors or consultants (or similar arrangements) to
which the Company or the Subsidiary is a party and which are not
cancelable without penalty or further payment in an amount more than
$50,000 individually and $250,000 in the aggregate and without more
than 90 days' notice;
(v) all contracts and agreements relating to
Indebtedness of the Company or the Subsidiary including any
commitments of the Company for mortgage loans, other than policy
loans, in an amount more than $50,000 individually and $250,000 in the
aggregate;
(vi) all contracts and agreements with any Governmental
Authority to which the Company or the Subsidiary is a party;
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(vii) all contracts and agreements that limit or purport
to limit the ability of the Company or the Subsidiary to compete in
any line of business or with any Person or in any geographic area or
during any period of time;
(viii) all Inter-Company Arrangements;
(ix) all reinsurance, coinsurance or other similar
agreements, and all trust agreements or other security agreements
related thereto, to which the Company is a party that remain in force;
(x) all other contracts and agreements (other than
fixed or variable annuity, life contracts or other insurance policies
issued by the Company or the Subsidiary) whether or not made in the
ordinary course of business, which are material to the Company, the
Subsidiary or the conduct of the Business or the absence of which
would have a Material Adverse Effect; and
(xi) all obligations to pay any amounts or to perform
any obligations owing to, or to indemnify, the Seller or otherwise
hold the Seller harmless pursuant to any agreement or other
arrangement entered into prior to Closing between the Seller or any
Affiliate (other than the Company and the Subsidiary) and the Company
or the Subsidiary.
(b) Each Material Contract is legal, valid, binding,
enforceable against the other party(ies) thereto and in full force and effect,
and will not cease to be in full force and effect on terms identical to those
currently in effect as a result of the consummation of the transactions
contemplated by this Agreement, except, in either case, as enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting rights of creditors of insurance companies, rights of
creditors generally or by general principles of equity, nor will the
consummation of the transactions contemplated by this Agreement constitute a
breach or default under such Material Contract. Neither the Company nor the
Subsidiary is in breach of, or default under, any Material Contract.
(c) To the best knowledge of the Seller, no other party
to any Material Contract is in breach thereof or default thereunder.
(d) There is no contract, agreement or other arrangement
granting any Person any preferential right to purchase, other than as
contemplated hereby and in the
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ordinary course of business Consistent With Past Practice, any of the
properties or assets of the Company or the Subsidiary.
SECTION 3.18. Intellectual Property. (a) Section
3.18(a)(i) of the Disclosure Schedule sets forth a true and complete list and a
brief description of the Owned Intellectual Property consisting of trademarks,
service marks, corporate and assumed names, trade names and copyrights and
pending registrations therefor and Section 3.18(a)(ii) of the Disclosure
Schedule sets forth a true and complete list and a brief description,
including, without limitation, a description of any license or sublicense
thereof, of all Licensed Intellectual Property. In each case where a
registration or application for registration listed in Section 3.18(a)(i) of
the Disclosure Schedule is held by assignment, the assignment has been duly
recorded with the United States Patent and Trademark Office. To Seller's
Special Knowledge, the rights of the Company or the Subsidiary, as the case may
be, in or to such Intellectual Property do not conflict with or infringe on the
rights of any other Person, except where such conflict or infringement is not
reasonably likely to have a Material Adverse Effect, and none of the Seller,
the Company or the Subsidiary has received any claim or written notice of
infringement or conflict in respect of any Intellectual Property.
(b) (i) all the Owned Intellectual Property is owned by
either the Company or the Subsidiary, as the case may be, free and clear of any
Encumbrance other than Permitted Encumbrances, (ii) the Company or the
Subsidiary has the right, pursuant to valid and enforceable licenses, to use
the Licensed Intellectual Property in the manner in which the Licensed
Intellectual Property is currently being used and (iii) no Actions have been
made or asserted or are pending (nor, to the best knowledge of the Seller, has
any such Action been threatened) against the Company or the Subsidiary either
(A) based upon or challenging or seeking to deny or restrict the use by the
Company or the Subsidiary of any of the Intellectual Property or (B) alleging
that any services provided or products sold by the Company or the Subsidiary
are being provided or sold in violation of any trademarks, or any other rights
of any Person except such Actions which, if adversely determined, are not
reasonably likely to have a Material Adverse Effect. To the best knowledge of
the Seller, no Person is using any trademarks, service marks, trade names or
similar property that are confusingly similar to the Owned Intellectual
Property or that infringe upon the Owned Intellectual Property or upon the
rights of the Company or the Subsidiary therein. None of the Seller, the
Company nor the Subsidiary has granted any license or other right to any other
Person with respect to the Owned Intellectual Property. The consummation of
the
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transactions contemplated by this Agreement will not result in the termination
or impairment of any of the Owned Intellectual Property or any of the rights of
the Company or the Subsidiary in any of the Licensed Intellectual Property.
(c) The Intellectual Property described in Sections
3.18(a)(i) and 3.18(a)(ii) of the Disclosure Schedule constitutes all of the
Intellectual Property used or held or intended to be used by the Company or the
Subsidiary or forming a part of all such Intellectual Property necessary and
material in the conduct of the Business and there are no other items of
Intellectual Property that are material to the Company, the Subsidiary or the
Business.
SECTION 3.19. Real Property. (a) Section 3.19(a) of the
Disclosure Schedule lists: (i) the street address of each parcel of Owned Real
Property, (ii) the date on which each parcel of Owned Real Property was
acquired, (iii) the current owner of each such parcel of Owned Real Property,
(iv) information relating to the recordation of the deed pursuant to which each
such parcel of Owned Real Property was acquired and (v) the current use of each
such parcel of Owned Real Property.
(b) Section 3.19(b) of the Disclosure Schedule lists: (i) the
street address of each parcel of Leased Real Property, (ii) the identity of the
lessor, lessee and current occupant (if different from lessee) of each such
parcel of Leased Real Property and (iii) the current use of each such parcel of
Leased Real Property.
(c) The Seller has, or has caused to be, delivered to the
Purchaser true and complete copies of all Leases listed in Section 3.19(b) of
the Disclosure Schedule. Each such Lease is legal, valid, binding, enforceable
and in full force and effect with respect to the Company or the Subsidiary, as
applicable, and, to Seller's knowledge, each such Lease is legal, valid,
binding, enforceable and in full force and effect with respect to the lessor
thereof. Except as set forth in Section 3.19 of the Disclosure Schedule, each
such Lease will not cease to be in full force and effect on terms identical to
those currently in effect as a result of the consummation of the transactions
contemplated by this Agreement, except, in either case, as enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting rights of creditors of insurance companies, rights of
creditors generally or by general principles of equity, nor will the
consummation of the transactions contemplated by this Agreement constitute a
breach or default under such Lease or otherwise give the landlord a right to
terminate such Lease in accordance with the terms thereof.
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(d) There are no condemnation proceedings or eminent domain
proceedings of any kind pending or, to the best knowledge of the Seller,
threatened against the Real Property.
(e) The rental set forth in each Lease of the Leased Real
Property is the actual rental being paid, and there are no separate agreements
or understandings with respect to the same.
SECTION 3.20. Tangible Personal Property. (a) Section
3.20 of the Disclosure Schedule lists each group of equipment, supplies,
furniture, fixtures, personalty, vehicles and other tangible personal property
(the "Tangible Personal Property") used in the Business or owned or Leased by
the Company or the Subsidiary with a value reasonably estimated by the Seller
for each group to exceed $100,000.
(b) The Seller has, or has caused to be, delivered to the
Purchaser true and complete copies of all Leases for Tangible Personal Property
providing for annual rentals in excess of $50,000 and any and all material
ancillary documents pertaining thereto. Each such Lease is legal, valid,
binding, enforceable and in full force and effect with respect to the Company
or the Subsidiary, as applicable, and, to Seller's knowledge, each such Lease
is legal, valid, binding, enforceable and in full force and effect with respect
to the lessor thereof. Except as set forth in Section 3.20 of the Disclosure
Schedule, each such Lease will not cease to be legal, valid, binding,
enforceable and in full force and effect on terms identical to those currently
in effect as a result of the consummation of the transactions contemplated by
this Agreement except, in either case, as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting rights of creditors of insurance companies, rights of creditors
generally or by general principles of equity, nor will the consummation of the
transactions contemplated by this Agreement constitute a breach or default
under such Lease or otherwise give the lessor a right to terminate such Lease
in accordance with the terms thereof.
SECTION 3.21. Assets. (a) Either the Company or the
Subsidiary, as the case may be, owns, leases or has the legal right to use all
the properties and assets, including, without limitation, the Owned
Intellectual Property, the Licensed Intellectual Property, the Real Property
and the Tangible Personal Property, used in the conduct of the Business or
otherwise owned, leased or used by the Company or the Subsidiary and, with
respect to contract rights, is a party to and enjoys the right to the
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benefits of all material contracts, agreements and other arrangements used by
the Company or the Subsidiary or in or relating to the conduct of the Business
(all such properties, assets and contract rights being the "Assets"). Either
the Company or the Subsidiary, as the case may be, has good and marketable
title to, or, in the case of leased or subleased Assets, valid and subsisting
leasehold interests in, all the Assets, free and clear of all Encumbrances,
except for Permitted Encumbrances.
(b) All the Assets are in such operating condition and repair
as is Consistent With Past Practice.
(c) Immediately following the Closing, either the Company or
the Subsidiary, as the case may be, will continue to own, pursuant to good and
marketable title, or lease, under valid and subsisting leases, or otherwise
retain its respective interest in the Assets (except the Excluded Assets)
without incurring any material penalty or other materially adverse consequence,
including, without limitation, any increase in rentals, royalties, or licenses
or other fees imposed as a result of, or arising from, the consummation of the
transactions contemplated by this Agreement. Immediately following the
Closing, either the Company or the Subsidiary, as the case may be, shall own
and possess all presently existing documents, books, records, agreements and
financial data of any sort used by the Company or such Subsidiary in the
conduct of the Business or otherwise. The Company owns assets that qualify as
legal reserve assets under applicable insurance Laws in an amount equal to its
Reserve Liabilities.
SECTION 3.22. Insurance Issued. (a) Except as set forth in
Section 3.22 of the Disclosure Schedule, with respect to all insurance issued:
(i) All insurance policy and annuity contract benefits
payable by the Company and, to the best knowledge of the Seller, by
any other Person that is a party to or bound by any reinsurance,
coinsurance or other similar agreement with the Company, have in all
material respects been paid in accordance with the terms of the
insurance policies, annuity contracts and other contracts under which
they arose, except for such benefits for which there is a reasonable
basis to contest payment.
(ii) Except as set forth in Section 3.22 of the
Disclosure Schedule, no outstanding insurance policy or annuity
contract issued or assumed by the Company entitles the holder thereof
or any other Person to receive dividends, distributions or other
benefits
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based on the revenues or earnings of the Company or any other Person.
(iii) The Company has not received any information which
would reasonably cause it to believe that the financial condition of
any other party to any reinsurance, coinsurance or other similar
agreement with the Company is so impaired as to result in a default
thereunder.
(iv) Except as set forth in Section 3.22 of the
Disclosure Schedule, all advertising, promotional and sales materials
and other marketing practices used by the Company or any agent of the
Company have complied and are currently in compliance with applicable
Laws.
(v) Each insurance agent, at the time such agent
wrote, sold or produced business for the Company since January 1, 1991
was duly licensed as an insurance agent (for the type of business
written, sold or produced by such insurance agent) in the particular
jurisdiction in which such agent wrote, sold or produced such
business.
(vi) The tax treatment under the Code of all insurance
or annuity policies, plans or contracts; all financial products,
employee benefit plans (other than the Plans), individual retirement
accounts or annuities; or any similar or related policy, contract,
plan, or product, whether individual, group, or otherwise, if any,
issued or sold by the Company or the Subsidiary on or before the
Closing Date is and at all times has been in all material respects the
same or more favorable to the purchaser, policyholder or intended
beneficiaries thereof as the tax treatment under the Code for which
such contracts qualified or purported to qualify at the time of their
issuance or purchase, except for changes resulting from changes to the
Code which do not apply to such issuance or purchase due to their
effective date and except as set forth in Section 3.22 of the
Disclosure Schedule. For purposes of this Section 3.22(a)(vi), the
provisions of the Code relating to the tax treatment of such contracts
shall include, but not be limited to, Sections 72, 79, 101, 104, 105,
106, 125, 130, 401, 402, 403, 404, 408, 412, 415, 419, 419A, 457, 501,
505, 817, 818, 7702 and 7702A. In addition, except as set forth in
Section 3.22 of the Disclosure Schedule, each annuity contract issued
by the Company qualifies as an annuity contract under Section 72 of
the Code. Each life insurance policy issued by the Company qualifies
as a life insurance contract for federal income tax purposes and any
such policy which is a modified
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endowment contract under Section 7702A of the Code, (each, a "MEC")
has been marketed as such at all relevant times or the policyholder
otherwise has consented to such MEC status.
(vii) Except as set forth in Section 3.22 of the
Disclosure Schedule, each of the employee benefit plans issued or sold
by the Company qualifies under Section 401(a), 403(b) or 457, as
applicable, of the Code.
(b) Except as set forth in Section 3.22 of the Disclosure
Schedule, since December 31, 1993, no policyholder, contractholder, group of
policyholder or contractholder Affiliates, or Persons writing, selling or
producing insurance business that individually or in the aggregate for each
such policyholder, contractholder, group or Person, accounted for 5% or more of
the premium or annuity income of the Company for the year ended December 31,
1994, has terminated, is reasonably likely to terminate or, to the best
knowledge of the Seller, has threatened to terminate its business relationship
with the Company as a result of the transactions contemplated by this Agreement
or for any other reason.
SECTION 3.23. Distributors. Listed in Section 3.23 of the
Disclosure Schedule are the names and addresses of the ten most significant
distributors (by premium and annuity income written, sold or produced) of the
Company for the twelve-month period ended December 31, 1994 and the amount of
premium and annuity income which each such distributor wrote, sold or produced
during such period.
SECTION 3.24. Employee Benefit Matters. (a) Plans and
Material Documents. Section 3.24(a) of the Disclosure Schedule lists (i) all
employee benefit plans (as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")) and all bonus, stock option,
stock purchase, restricted stock, incentive, deferred compensation, retiree
medical or life insurance, supplemental retirement, severance or other benefit
plans, programs or arrangements, and all employment, termination, severance or
other contracts or agreements, whether legally enforceable or not, covering any
current or former employee, officer or director of the Company or the
Subsidiary, to which the Company or the Subsidiary is a party, with respect to
which the Company or the Subsidiary has any obligation or which are maintained,
contributed to or sponsored by the Company or the Subsidiary, (ii) each
employee benefit plan for which the Company or the Subsidiary could reasonably
be expected to incur liability under Section 4069 of ERISA in the event such
plan has been or were to be terminated, and (iii) any plan in respect of which
the Company or the Subsidiary could reasonably be expected to incur liability
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under Section 4212(c) of ERISA (collectively, the "Plans"). The Seller has
furnished the Purchaser with a description of each Plan that is not in writing
and, with respect to each Plan that is in writing, with a complete and accurate
copy of each Plan and a complete and accurate copy of each material document
prepared in connection with each such Plan including, where applicable, without
limitation, (i) a copy of each trust or other funding arrangement, (ii) the
most recently distributed summary plan description and summary of material
modifications, (iii) the most recently filed IRS Form 5500, (iv) the most
recently received IRS determination letter for each such Plan, and (v) the most
recently prepared actuarial report and financial statement in connection with
each such Plan. Except as set forth in Section 3.24(a) of the Disclosure
Schedule, neither the Company nor the Subsidiary has any express or implied
commitment (i) to create, incur liability with respect to or cause to exist any
other employee benefit plan, program or arrangement, (ii) to enter into any
contract or agreement to provide compensation or benefits to any individual or
(iii) to modify, change or terminate any Plan, other than with respect to a
modification, change or termination required by ERISA or the Code.
(b) Absence of Certain Types of Plans. None of the Plans
is a multiemployer plan (within the meaning of Section 3(37) or 4001(a)(3) of
ERISA) (a "Multiemployer Plan") or a single employer pension plan (within the
meaning of Section 4001(a)(15) of ERISA) for which the Company or the
Subsidiary could incur liability under Section 4063 or 4064 of ERISA (a
"Multiple Employer Plan"), and no trust maintained or contributed to by the
Company or the Subsidiary is intended to qualify as a voluntary employees'
beneficiary association which is intended to be exempt from taxation pursuant
to Section 501(c)(9) of the Code. Except as disclosed in Section 3.24(b) of
the Disclosure Schedule, none of the Plans provides for the payment of
separation, severance, termination or similar-type benefits to any Person or
obligates the Company or the Subsidiary to pay separation, severance,
termination or similar-type benefits solely as a result of any transaction
contemplated by this Agreement or as a result of a "change in control", within
the meaning of such term under Section 280G of the Code. Except as described
in Section 3.24(b) of the Disclosure Schedule, none of the Plans provides for
the deferral of compensation (other than any Plan intended to be qualified
under Section 401(a) of the Code) or for the grant of stock options, restricted
stock, stock appreciation rights, phantom shares or other equity-based awards
or contingent compensation. Each of the Plans is subject only to the laws of
the United States or a political subdivision thereof.
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(c) Compliance with Applicable Law. Except as disclosed
in Section 3.24(c) of the Disclosure Schedule, each Plan is now and always has
been operated in all material respects in accordance with the requirements of
all applicable Law, including, without limitation, ERISA and the Code, and to
Seller's knowledge all Plan "fiduciaries" (within the meaning of Section 3(21)
of ERISA) have always acted in accordance with the provisions of all applicable
Law, including, without limitation, ERISA and the Code. Each of the Company
and the Subsidiary has performed all material obligations required to be
performed by it under, is not in any material respect in default under or in
violation of, and has no knowledge of any material default or violation by any
party to, any Plan. No legal action, suit or claim is pending or threatened
with respect to any Plan (other than claims for benefits in the ordinary
course) and to Seller's knowledge no fact or event exists that could reasonably
be expected to give rise to any such action, suit or claim which is reasonably
likely to have a Material Adverse Effect.
(d) Qualification of Certain Plans. Except as disclosed
in Section 3.24(d) of the Disclosure Schedule, each Plan which is intended to
be qualified under Section 401(a) of the Code or Section 401(k) of the Code has
received a favorable determination letter from the IRS that it is so qualified
and each trust established in connection with any Plan which is intended to be
exempt from federal income taxation under Section 501(a) of the Code has
received a determination letter from the IRS that it is so exempt, and no fact
or event has occurred since the date of such determination letter from the IRS
which could reasonably be expected to materially adversely affect the qualified
status of any such Plan or the exempt status of any such trust.
(e) Absence of Certain Liabilities and Events. There has
been no non-exempt prohibited transaction (within the meaning of Section 406 of
ERISA or Section 4975 of the Code) with respect to any Plan. Except as set
forth in Section 3.24(e) of the Disclosure Schedule, neither the Company nor
the Subsidiary has incurred any liability for any penalty or tax arising under
Section 4971, 4972, 4980, 4980B or 6652 of the Code or any liability under
Section 502 of ERISA, and no fact or event exists which could reasonably be
expected to give rise to any such liability. Neither the Company nor the
Subsidiary has incurred any liability under, arising out of or by operation of
Title IV of ERISA (other than liability for premiums to the Pension Benefit
Guaranty Corporation arising in the ordinary course), including, without
limitation, any liability in connection with (i) the termination or
reorganization of any employee benefit plan subject to Title IV of ERISA or
(ii) the withdrawal from any
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Multiemployer Plan or Multiple Employer Plan, and no fact or event exists which
could reasonably be expected to give rise to any such liability. Except as set
forth in Section 3.24(e) of the Disclosure Schedule, no complete or partial
termination has occurred within the five years preceding the date hereof with
respect to any Plan. No reportable event (within the meaning of Section 4043
of ERISA) for which the 30 days' notice to the Pension Benefit Guaranty
Corporation is not waived has occurred or is expected to occur with respect to
any Plan subject to Title IV of ERISA. No Plan had an accumulated funding
deficiency (within the meaning of Section 302 of ERISA or Section 412 of the
Code), whether or not waived, as of the most recently ended plan year of such
Plan. None of the assets of the Company or the Subsidiary is the subject of
any lien arising under Section 302(f) of ERISA or Section 412(n) of the Code;
neither the Company nor the Subsidiary has been required to post any security
under Section 307 of ERISA or Section 401(a)(29) of the Code; and no fact or
event exists which could reasonably be expected to give rise to any such lien
or requirement to post any such security.
(f) Plan Contributions and Funding. All contributions,
premiums or payments required to be made with respect to any Plan have been
made on or before their due dates. All such contributions have been fully
deducted for income tax purposes and no such deduction has been challenged or
disallowed by any government entity and no fact or event exists which could
reasonably be expected to give rise to any such challenge or disallowance.
(g) Certain Employee-Benefit Assets. Except as disclosed
in Section 3.24(g) of the Disclosure Schedule, each of the guaranteed
investment contracts and other funding contracts with any insurance company
that are held by any of the Plans and any annuity contracts purchased by any of
the Plans was issued by an insurance company which carried the highest rating
from each of D&P, S&P, Best and Moody's Investors Service, Inc., as of the date
such contract was issued, the date hereof and the Closing Date.
(h) Retiree Medical Benefits. No Plan is or includes any
plan or arrangement providing for post-employment health and/or medical benefit
coverage except to the extent required by COBRA.
SECTION 3.25. Labor Matters. (a) Neither the Company nor
the Subsidiary is a party to any collective bargaining agreement or other labor
union contract applicable to persons employed by the Company or the Subsidiary
and currently there are no known organizational campaigns, petitions or other
unionization activities
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seeking recognition of a collective bargaining unit which is reasonably likely
to have Material Adverse Effect.
(b) there are no strikes, slowdowns, work stoppages or
material labor relations controversies pending or, to the best knowledge of the
Seller, threatened between the Company or the Subsidiary and any of their
respective employees, and neither the Company nor the Subsidiary has
experienced any such strike, slowdown, work stoppage or material controversy
within the past three years;
(c) the Company and the Subsidiary to the knowledge of Seller
are in compliance, in all material respects with all applicable Laws relating
to the employment of labor, including, without limitation, those related to
wages, hours and the payment and withholding of taxes and other sums as
required by the appropriate Governmental Authority, and have withheld and paid
to the appropriate Governmental Authority or is holding for payment not yet due
to such Governmental Authority all amounts required to be withheld from
employees of the Company or the Subsidiary and are not liable for any arrears
of wages, taxes, penalties or other sums for failure to comply with any of the
foregoing;
(d) the Company and the Subsidiary have paid in full to all
their respective employees, retired employees and contractors or adequately
accrued for in accordance with GAAP or SAP, as the case may be, all wages,
salaries, commissions, bonuses, benefits and other compensation due to or on
behalf of such employees, retired employees and contractors;
(e) Except as set forth in Section 3.25 of the Disclosure
Schedule, there is no claim against the Company or the Subsidiary with respect
to payment of wages, salary or overtime pay that has been asserted or is now
pending or, to the best knowledge of the Seller, threatened before any
Governmental Authority with respect to any Persons currently or formerly
employed by the Company or the Subsidiary;
(f) Except as set forth in Section 3.25 of the Disclosure
Schedule, neither the Company nor the Subsidiary is a party to, or otherwise
bound by, any consent decree with, or citation by, any Governmental Authority
relating to employees or employment practices;
(g) there is no charge or proceeding with respect to a
violation of any occupational safety or health standards that has been asserted
or is now pending or, to the best knowledge of the Seller, threatened with
respect to the Company or the Subsidiary;
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(h) Except as set forth in Section 3.25 of the Disclosure
Schedule, there is no charge against the Company or the Subsidiary of
discrimination in employment or employment practices, for any reason,
including, without limitation, age, gender, race, religion or other legally
protected category, which has been asserted or is now pending or, to the best
knowledge of the Seller, threatened before the United States Equal Employment
Opportunity Commission, or any other Governmental Authority in any jurisdiction
in which the Company or the Subsidiary has employed or currently employs any
Person.
SECTION 3.26. Key Employees. Section 3.26 of the
Disclosure Schedule lists the name, place of employment, the current annual
salary rates, bonuses, deferred or contingent compensation, pension, accrued
vacation, "golden parachute" and other like benefits paid or payable (in cash
or otherwise) in 1995, 1994, 1993 and 1992, the date of employment and a brief
description of position and job function of each current salaried employee
exempt from overtime, officer or director of the Company or the Subsidiary
whose current base salary exceeded (or, in 1995, is expected to exceed)
$100,000.
SECTION 3.27. Risk Management. (a) Section 3.27(a) of the
Disclosure Schedule sets forth the following information with respect to each
insurance policy (including, without limitation, policies providing property,
casualty, liability, workers' compensation, and bond and surety arrangements)
under which the Company or the Subsidiary is an insured, a named insured or
otherwise the principal beneficiary of coverage: (i) the name of the agent or
broker; (ii) the name of the insurer and the names of the principal insured and
each named insured; (iii) the policy number and the period of coverage; (iv)
the type, scope (including an indication of whether the coverage was on a
claims made, occurrence or other basis) and amount of coverage; and (v) the
premium charged for the policy, including, without limitation, a description of
any retroactive premium adjustments or other loss-sharing arrangements.
(b) With respect to each such material insurance policy:
(i) to Seller's knowledge, the policy is in full force and effect; (ii) neither
the Company nor the Subsidiary is in breach or default (including any breach or
default with respect to the payment of premiums or the giving of notice), and,
to the best knowledge of the Seller, no event has occurred which, with the
giving of notice or the lapse of time or both, would constitute such a breach
or default or permit termination or modification, under the policy; (iii) no
party to the policy has repudiated in writing, or given written notice of an
intent to repudiate,
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any provision thereof; and (iv) to the best knowledge of the Seller, no insurer
on the policy has been declared insolvent or placed in receivership,
conservatorship or liquidation or currently has a rating of "B+" or below from
Best or a claims paying ability rating of "BBB" or below from S&P.
(c) Section 3.27(c) of the Disclosure Schedule sets forth
all risks of the Company or the Subsidiary which are covered under any material
risk retention program in which the Company or the Subsidiary participates,
together with details for the two years ended December 31, 1994 and the six
months ended June 30, 1995 of the Company's and the Subsidiary's loss
experience with respect to such risks.
(d) Since January 1, 1993, the Company and the Subsidiary
have been covered by insurance policies or binders of insurance in such types
and covering such risks deemed reasonable by the Company or the Subsidiary, as
the case may be.
(e) Except as set forth in Section 3.27(e) of the Disclosure
Schedule, at no time subsequent to January 1, 1993 has the Company or the
Subsidiary (i) been denied any insurance or indemnity bond coverage which it
has requested, (ii) made any material reduction in the scope or amount of its
insurance coverage, or received notice from any of its insurance carriers that
any insurance coverage listed in Section 3.27(a) of the Disclosure Schedule
will not be available in the future substantially on the same terms as are now
in effect or (iii) suffered any extraordinary increase in premium for renewed
coverage. Except as set forth in Section 3.27 of the Disclosure Schedule,
since January 1, 1993, no insurance carrier has cancelled, failed to renew or
materially reduced any insurance coverage for the Company or the Subsidiary or
given any notice or other indication of its intention to cancel, not renew or
reduce any such coverage.
(f) The Seller is not aware of any facts pertaining to the
Company, the Subsidiary or the Business which are reasonably likely to prevent
the Purchaser from obtaining insurance following the consummation of the
transactions contemplated by this Agreement on terms substantially similar to
the terms currently in effect.
SECTION 3.28. Accounts; Lockboxes; Safe Deposit Boxes;
Powers of Attorney. Section 3.28 of the Disclosure Schedule is a true and
complete list of (a) the names of each bank, savings and loan association,
securities or commodities broker or other financial institution in which the
Company or the Subsidiary has an account, including, without limitation, cash
contribution accounts, and the names of all persons authorized to draw thereon
or have
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access thereto, (b) the location of all lockboxes and safe deposit boxes of the
Company and the Subsidiary and the names of all Persons authorized to draw
thereon or have access thereto and (c) the names of all Persons, if any,
holding powers of attorney from the Seller relating to the Company, the
Subsidiary or the Business, or from the Company or the Subsidiary. At the time
of the Closing, without the prior written consent of the Purchaser, neither the
Company nor the Subsidiary shall have any such account, lockbox or safe deposit
box other than those listed in Section 3.28 of the Disclosure Schedule, nor
shall any additional Person have been authorized, from the date of this
Agreement, to draw thereon or have access thereto or to hold any such power of
attorney relating to the Company, the Subsidiary or the Business or from the
Company or the Subsidiary. There are no commingled monies or accounts of the
Company or the Subsidiary with other monies or accounts of the Seller or
relating to the other businesses of the Seller (other than servicing accounts
established by Seller's subsidiary United Companies Lending Corporation in
connection with its servicing activities for home equity and commercial loans,
and certain pass-through certificates issued under the Pooling and Servicing
Agreements (as hereinafter defined) and owned by the Company or the Subsidiary)
nor has the Seller transferred monies or accounts of the Company or the
Subsidiary other than to an account of the Company or such Subsidiary. At the
time of the Closing, all monies and accounts of the Company and the Subsidiary
shall be held by, and be accessible only to, the Company or such Subsidiary.
Each of the investment assets held in the investment account of the Company
will be an admissible asset under the Laws of the State of Louisiana.
SECTION 3.29. Full Disclosure. (a) To Seller's Enhanced
Special Knowledge there are no facts pertaining to the Company, the Subsidiary
or the Business which are reasonably likely to have a Material Adverse Effect
and which have not been disclosed in this Agreement, the Disclosure Schedule,
the Financial Statements or the Statutory Statements.
(b) To the extent limited by Seller's knowledge as provided
in this Agreement, no representation or warranty of the Seller in this
Agreement, nor any statement or certificate furnished or to be furnished by the
Seller to the Purchaser pursuant to this Agreement, or in connection with the
transactions contemplated by this Agreement, contains or will contain any
untrue statement of a material fact, or omits or will omit to state a material
fact necessary to make the statements contained herein or therein not
misleading.
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SECTION 3.30. Proxy Statement. The proxy statement to be
mailed to the stockholders of the Seller (the "Proxy Statement") in connection
with the meeting of the stockholders of the Seller called to consider and vote
upon the transactions contemplated hereby (the "Special Meeting", which may be
the Seller's 1996 Annual Meeting of Stockholders) and any amendment thereof or
supplement thereto, when mailed and at the time of the Special Meeting, shall
not contain any untrue statement of material fact, or omit to state any
material fact necessary in order to make the statements therein, in light of
the circumstances in which they were made, not false or misleading, and shall
comply as to form in all material respects with all requirements of the
Exchange Act.
SECTION 3.31. Brokers. No broker, finder or investment
banker is entitled to any brokerage, finder's or other fee or commission in
connection with the transactions contemplated by this Agreement from the
Company or the Subsidiary based upon arrangements made by or on behalf of the
Seller, the Company or the Subsidiary.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF THE PURCHASER
The Purchaser hereby represents and warrants to the Seller as
follows:
SECTION 4.01. Organization and Authority of the Purchaser.
The Purchaser is an insurance company domiciled in the State of Texas and has
all necessary power and authority to enter into this Agreement, to carry out
its obligations hereunder and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement by the Purchaser, the
performance by the Purchaser of obligations hereunder and the consummation by
the Purchaser of the transactions contemplated hereby have been duly authorized
by all requisite action on the part of the Purchaser. This Agreement has been
duly executed and delivered by the Purchaser, and (assuming due authorization,
execution and delivery by the Seller) upon receipt of the necessary approvals
by Governmental Authorities, this Agreement will constitute a legal, valid and
binding obligation of the Purchaser enforceable against the Purchaser in
accordance with its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting rights of creditors or by general principles of equity. At the
Closing, the Company shall have taken all requisite action to authorize the
Master Loan Sale
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Agreement, and shall have all necessary power and authority to enter into the
Master Loan Sale Agreement, and to consummate the transactions contemplated
thereby. The Master Loan Sale Agreement, upon its execution and delivery by
the Company and the Seller Master Loan Sale Parties, will constitute a legal,
valid and binding obligation of the Company enforceable in accordance with its
terms except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting rights of
creditors of insurance companies, rights of creditors generally or by general
principles of equity.
SECTION 4.02. No Conflict. Assuming compliance with the
notification requirements of the HSR Act and the making and obtaining of all
filings, notifications, consents, approvals, authorizations and other actions
referred to in Section 4.03, except as may result from any facts or
circumstances relating solely to the Seller, the execution, delivery and
performance of this Agreement do not and will not (a) violate, conflict with or
result in the breach of any provision of the Certificate of Incorporation or
By-laws or other organizational documents, as applicable, of the Purchaser, (b)
conflict with or violate any Law or Governmental Order applicable to the
Purchaser which would have a material adverse effect on the ability of the
Purchaser to consummate the transactions contemplated by this Agreement or (c)
conflict with, or result in any breach of, constitute a default (or event which
with the giving of notice or the lapse of time, or both, would become a
default) under, require any consent under, or give to others any rights of
termination, amendment, acceleration, suspension, revocation, or cancellation
of, or result in the creation of any Encumbrance on any of the assets or
properties of the Purchaser pursuant to, any note, bond, mortgage or indenture,
contract, agreement, lease, sublease, license, permit, franchise or other
instrument or arrangement to which the Purchaser is a party or by which any of
such assets or properties are bound or affected which would have a material
adverse effect on the ability of the Purchaser to consummate the transactions
contemplated by this Agreement.
SECTION 4.03. Governmental and Other Authorizations;
Notices and Consents. (a) The execution, delivery and performance of this
Agreement do not and will not require any consent, approval, authorization or
other order of, action by, filing with, or notification to, any Governmental
Authority or any other third party, except (a) as required by the insurance
Laws of the State of Louisiana and any other state in which the Company is
doing business, (b) as required by the Insurance Laws of the State of Texas,
(c) the notification requirements of the HSR Act
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and (d) as set forth in Section 3.07 of the Disclosure Schedule.
(b) The Purchaser does not have knowledge of any facts or
circumstances pertaining to the Purchaser which are reasonably likely to
prevent the parties hereto from obtaining the governmental consents and
approvals contemplated by Section 4.03(a).
SECTION 4.04. Investment Purpose. The Purchaser is
acquiring the Shares solely for the purpose of investment and not with a view
to, or for offer or sale in connection with, any distribution thereof. The
Purchaser is aware and understands that the Shares have not been registered
under the Securities Act of 1933 or under the securities laws of any state,
that any transfer of the Shares by the Purchaser shall be restricted under the
provisions of such act and such state laws, and that the certificates
representing the Shares will bear legends to such effect. The Purchaser
possesses such knowledge and experience in financial and business matters
generally and with respect to the Business so as to enable it to evaluate the
risks and merits of its purchase of the Shares.
SECTION 4.05. Litigation. Except as disclosed in a writing
given to the Seller by the Purchaser on a date prior to the execution of this
Agreement, no claim, action, proceeding or investigation is pending or, to the
best knowledge of the Purchaser after due inquiry, threatened, which seeks to
delay or prevent the consummation of, or which could reasonably be expected to
materially adversely affect the Purchaser's ability to consummate, or which
could otherwise affect the legality, validity or enforceability of, the
transactions contemplated by this Agreement.
SECTION 4.06. Brokers. No broker, finder or investment
banker is entitled to any brokerage, finder's or other fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Purchaser, except for the fee
arrangement between the Purchaser and (i) ING Capital Corporation and (ii)
Knightsbridge Management, L.L.C.
SECTION 4.07. Reserved.
SECTION 4.08. Funding and Assets. (a) The Purchaser has,
and will continue to have at the time of Closing, financing commitments from
third parties to the extent necessary to enable the Purchaser to consummate the
transactions contemplated by this Agreement.
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ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.01. Conduct of Business Prior to the Closing.
(a) The Seller covenants and agrees that from the date hereof through the
earlier of the Closing Date or the termination of this Agreement, neither the
Company nor the Subsidiary shall conduct its business other than in the
ordinary course and Consistent With Past Practice. Without limiting the
generality of the foregoing, Seller shall cause the Company and the Subsidiary
to (i) continue their advertising and promotional activities, pricing and
purchasing policies, operations, and business plan implementation, Consistent
With Past Practice; (ii) not materially shorten or lengthen the customary
payment cycles for any of their payables or receivables; (iii) use reasonable
efforts to attempt to (A) keep available to the Purchaser the services of the
employees of the Company, (B) continue in full force and effect without
material modification all existing policies or binders of insurance currently
maintained in respect of the Company and the Business except as required by
applicable law and (C) preserve their current relationships with their
employees, distributors, policyholders, contractholders, regulators, rating
agencies and other persons with which they have significant business
relationships; (iv) exercise, but only after notice to the Purchaser and
receipt of the Purchaser's prior written approval, any rights of renewal
pursuant to the terms of any of the leases or subleases set forth in Section
3.19(b) or Leases for Tangible Personal Property set forth in Section 3.20(a)
of the Disclosure Schedule which by their terms would otherwise expire; (v)
maintain all material licenses, qualifications, registrations and
authorizations to do business in each jurisdiction in which they are so
licensed, qualified, registered or authorized; and (vi) not engage in any
practice, take any action, fail to take any action or enter into any
transaction, in each case outside the normal course of business or not
Consistent With Past Practice, which is reasonably likely to cause any
representation or warranty of the Seller to be untrue as of the date made and
as of the Closing Date, other than such representations and warranties as are
made as of another date (in which case to be untrue as of such date), or result
in a breach of any covenant made by the Seller in this Agreement where, in each
case, the consequences thereof are reasonably likely to have a Material Adverse
Effect.
(b) Seller covenants and agrees that, prior to the Closing,
except as the Purchaser may otherwise consent in writing, the Company and the
Subsidiary (i) will conduct their investment activities (including without
limitation
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commercial real estate loans) only in the ordinary course of business
Consistent With Past Practice and (ii) will not permit the Company to take any
of the actions set forth on Section 5.01 of the Disclosure Schedule.
(c) Seller covenants and agrees that, prior to the Closing,
without the prior written consent of the Purchaser, which consent will not be
unreasonably withheld, neither the Company nor the Subsidiary will make any
commitment, actual or contingent, to make any investment or capital
contribution, or otherwise expend capital, or purchase any securities, or
supply funds to any Person, in each case in excess of $100,000 in the
aggregate, except for purchases and sales of home equity loans, investment
assets and the making of commercial real estate loans in the ordinary course of
business Consistent With Past Practice.
(d) Seller covenants and agrees to, and shall cause the
Company to, use reasonable efforts Consistent With Past Practice to minimize
the termination, withdrawal or nonrenewal of in force insurance policies and
annuity contracts issued by the Company whether as a result of "twisting" or
otherwise.
(e) The Seller covenants and agrees to cause (i) all Reserve
Liabilities with respect to insurance policies and annuity contracts
established or reflected in the books and records of the Company to be (A)
established and reflected on a basis consistent with the Reserve Liabilities
and reserving methods followed in the preparation of the 1995 and 1994 Company
Annual Statements unless otherwise required by applicable Law, in which event
Seller shall promptly notify the Purchaser thereof, (B) adequate (under
commonly accepted actuarial principles consistently applied) to cover the total
amount of all reasonably anticipated matured and unmatured benefits, dividends,
claims and other liabilities of the Company under all insurance policies and
annuity contracts under which the Company has or will have any liability
(including, without limitation, any liability arising under or as a result of
any reinsurance, coinsurance or other similar agreement) and (C) in material
compliance with the insurance Laws of Louisiana and in material compliance with
the insurance Laws of all other jurisdictions in which it is licensed to write
life insurance or issue annuities; and (ii) the Company to continue to own
assets that qualify as legal reserve assets under applicable insurance Laws in
an amount equal to its respective Reserve Liabilities.
(f) The Seller covenants and agrees to cause all reserve
liabilities calculated in accordance with GAAP, established or reflected in the
books and records of the Company to be established and reflected on a basis
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consistent with the reserve liabilities and reserving methods followed in the
preparation of the December 31, 1994 Company GAAP Statement unless otherwise
required by GAAP, in which event Seller shall promptly notify the Purchaser
thereof.
SECTION 5.02. Access to Information. (a) From the date
hereof until the earlier of the Closing or the termination of this Agreement,
and subject to the provisions of Section 5.22, upon reasonable prior notice and
at mutually agreeable times and places, the Seller shall and shall cause each
of its officers, employees, agents, representatives, accountants and counsel
to: (i) afford the officers, employees and authorized agents, accountants,
counsel, financing sources, prospective financing sources, equity investors,
potential equity investors and representatives of the Purchaser reasonable
access to the offices, properties, other facilities, books and records of the
Company and the Subsidiary and to those officers, employees, agents,
accountants and counsel of the Seller who have any knowledge relating to, and
to the books and records of the Seller and its subsidiaries relating to, the
Company, the Subsidiary or the Business, (ii) furnish to the Purchaser monthly
financial and management statements of the Company and the Subsidiary as
prepared in the ordinary course of business and (iii) furnish to the officers,
employees and authorized agents, accountants, counsel, financing sources,
prospective financing sources and representatives of the Purchaser such
additional financial and operating data and other information regarding the
assets, properties and good will of the Company, the Subsidiary and the
Business (or legible copies thereof) as the Purchaser or any of its officers,
employees, authorized agents, accountants, counsel, financing sources,
prospective financing sources or representatives may from time to time
reasonably request.
(b) Subject to Section 7.09, in order to facilitate the
resolution of any claims made by or against or incurred by the Seller prior to
the Closing and claims which are the subject of Article IX hereof, for a period
of seven years after the Closing, or for such longer period as may be required
so as to extend to the end of the applicable statute of limitations, the
Purchaser shall (i) retain or cause to be retained the books and records (or
copies thereof) of the Company and the Subsidiary relating to periods prior to
the Closing in a manner reasonably Consistent With Past Practice and (ii) upon
reasonable notice, afford or cause to be afforded the officers, employees and
authorized agents and representatives of the Seller reasonable access
(including, without limitation, the right to make, at the Seller's expense,
photocopies), during normal business hours, to such books and records.
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(c) Subject to Section 7.09, in order to facilitate the
resolution of any claims made by or against or incurred by the Purchaser and
claims which are the subject of Article IX hereof, any Affiliate of the
Purchaser, the Company or the Subsidiary after the Closing, for a period of
seven years following the Closing, or for such longer period as may be required
so as to extend to the end of the applicable statute of limitations, the Seller
shall (i) retain the books and records (or copies thereof) of the Seller which
relate to the Company and the Subsidiary and their operations for periods prior
to the Closing and which shall not otherwise have been delivered to the
Purchaser, the Company or the Subsidiary and (ii) upon reasonable notice,
afford the officers, employees and authorized agents and representatives of the
Purchaser, any Affiliate of the Purchaser, the Company or the Subsidiary
reasonable access (including, without limitation, the right to make
photocopies, at the expense of the Purchaser, such Affiliate of the Purchaser,
the Company or such Subsidiary), during normal business hours, to such books
and records.
(d) The Seller covenants and agrees to provide to the
Purchaser the quarterly and annual statements of the Company filed with or
submitted to the Louisiana Department for each calendar quarter ending between
the date hereof and the Closing Date and for the year ended December 31, 1995,
together with all related notes, exhibits and schedules thereto, prior to the
filing or submission thereof and to consult with the Purchaser in respect
thereof prior to such filing or submission.
SECTION 5.03. Confidentiality by Seller. The Seller agrees
to, and shall instruct its agents, representatives, employees, officers and
directors to: (i) treat and hold as confidential all non-public information
relating to trade secrets, trademark applications, product development, price,
distributor, policyholder and contract holder lists, pricing and marketing
plans, policies and strategies, details of client and consultant contracts,
operations methods, product development techniques, business acquisition plans,
new personnel acquisition plans and all other confidential information with
respect to the Business, the Company and its Subsidiary, except as Seller
reasonably believes, based on the advice of counsel, is otherwise required to
be disclosed by applicable Law, in which event the Seller agrees to, and shall
instruct its agents, representatives, employees, officers and directors to,
furnish only that portion of such confidential information which the Seller
reasonably believes is legally required to be provided and exercise its
reasonable efforts to obtain assurances that confidential treatment will be
accorded such information, and (ii) in the event that the Seller or any such
agent,
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representative, employee, officer or director is served with a subpoena, order
or other legal process to disclose any such information, provide the Purchaser
with reasonably prompt written notice of such requirement so that the
Purchaser, the Company or the Subsidiary may, at the expense of the Purchaser,
seek a protective order or other remedy. This Section 5.03 shall not apply to
any information that, at the time of disclosure, is available publicly or was
not disclosed in breach of this Agreement by the Seller or its agents,
representatives, Affiliates, employees, officers or directors. This Section
5.03 shall also not apply to any of the foregoing non-public information
heretofore or hereafter provided by the Seller, in accordance with Section
5.06, prior to the Closing, to third parties who have expressed an interest in
acquiring the Company and who have signed a confidentiality agreement
satisfactory to the Seller. The provisions of this Section 5.03 shall not
survive the termination of this Agreement. The Seller agrees and acknowledges
that remedies at law for any breach of its obligations under this Section 5.03
are inadequate and that in addition thereto the Purchaser shall be entitled to
seek equitable relief, including injunction and specific performance, in the
event of any such breach. Seller shall assure compliance with the provisions
of this Section by all of its officers, employees and authorized agents,
accountants, counsel and representatives and shall be responsible for any
breach hereof by any of them. The provisions of this Section 5.03 do not
supersede that certain Confidentiality Agreement dated August 14, 1995 between
an Affiliate of the Purchaser and Seller which shall remain in full force and
effect.
SECTION 5.04. Governmental and Other Authorizations;
Notices and Consents. (a) Each of the Seller and the Purchaser shall use all
reasonable efforts to obtain (or cause the Company and the Subsidiary to
obtain) all authorizations, consents, orders and approvals of all Governmental
Authorities and officials that are or become necessary for their execution and
delivery of, and the performance of their obligations pursuant to, this
Agreement, including, without limitation, any required approvals of the
Louisiana Department, and will cooperate fully with each other in promptly
seeking to obtain all such authorizations, consents, orders and approvals.
Each party hereto agrees to make an appropriate filing, if necessary, pursuant
to the HSR Act with respect to the transactions contemplated by this Agreement
within twenty Business Days of the date hereof and to supply as promptly as
practicable to the appropriate Governmental Authorities any additional
information and documentary material that may be requested pursuant to the HSR
Act.
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(b) The Seller shall cause the Company and the Subsidiary to
give promptly such notices to third parties and use all reasonable efforts
to obtain such third party consents and estoppel certificates as are set forth
on Section 3.07 of the Disclosure Schedule and noted with an asterisk (*)
thereon in connection with the transactions contemplated by this Agreement.
(c) The Purchaser shall cooperate and use all reasonable
efforts to assist the Seller in giving such notices and obtaining such consents
and estoppel certificates; provided, however, that neither the Seller nor the
Purchaser shall have any obligation to give any guarantee or other
consideration of any nature in connection with any such notice, consent or
estoppel certificate or to consent to any change in the terms of any agreement
or arrangement which would be adverse to the interests of the Seller, the
Purchaser, the Company, the Subsidiary or the Business.
(d) The Seller and the Purchaser agree that, in the event any
such consent, approval or authorization is not obtained prior to the Closing,
the Seller will, subsequent to the Closing, cooperate with the Purchaser and
the Company in attempting to obtain such consent, approval or authorization as
promptly thereafter as practicable and, in the case of contracts and
agreements, so as to provide for the Purchaser the benefits under such
contracts and agreements; provided, however, that the Seller has no obligation
to give any guarantee or other consideration of any nature in connection with
any such consent, approval or authorization or to consent to any change in
terms of any agreement which would be materially adverse to the interests of
the Seller.
(e) The Seller's obligations under this Section 5.04 shall
terminate upon termination of this Agreement.
SECTION 5.05. Notice of Developments. (a) Prior to the
earlier of the Closing or termination of this Agreement, the Seller shall
notify promptly, and in any event within five Business Days, the Purchaser in
writing, to the extent of the best knowledge of the Seller, of (i) all events,
circumstances, facts and occurrences arising subsequent to the date of this
Agreement which are reasonably likely to result in any breach of a
representation or warranty or covenant of the Seller in this Agreement or which
are reasonably likely to have the effect of making any representation or
warranty of the Seller in this Agreement untrue or incorrect in any respect and
(ii) all other material developments, other than general economic or market
changes and changes in tax Law or the life insurance industry as a whole,
affecting the assets,
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Liabilities, business, financial condition, operations, results of operations,
distributor, policyholder, contractholder or employee relations or prospects of
the Company, the Subsidiary or the Business.
(b) Prior to the earlier of the Closing or termination of this
Agreement, the Purchaser shall promptly, and in any event within five Business
Days, notify the Seller in writing, to the extent of the best knowledge of the
Purchaser, of all events, circumstances, facts and occurrences arising
subsequent to the date of this Agreement which are reasonably likely to result
in any breach of a representation or warranty or covenant of the Purchaser in
this Agreement or which are reasonably likely to have the effect of making any
representation or warranty of the Purchaser in this Agreement untrue or
incorrect in any respect.
SECTION 5.06. Acquisition Proposals. (a) The Seller
and the Company and their respective officers, directors, employees,
representatives and agents shall immediately cease any existing discussions or
negotiations with any parties conducted heretofore with respect to any
Acquisition Proposal except to the extent permitted hereby. Until the earlier
of the Closing or the termination of this Agreement, neither the Seller, the
Company, nor their respective officers, directors, employees or investment
bankers, attorneys, accountants or other agents retained by either of them will
(i) initiate or solicit, directly or indirectly, any inquiries regarding the
making of any Acquisition Proposal, or (ii) except as permitted below, engage
in negotiations or discussions with, or furnish any information or data (other
than publicly available information or data) to any third party relating to an
Acquisition Proposal (other than the transactions contemplated hereby).
Notwithstanding anything to the contrary contained in this Section, or in any
other provision of this Agreement, the Seller, its Board of Directors and its
officers, representatives and agents may furnish information to, and
participate in discussions or negotiations (including, without limitation, as a
part thereof, making any counterproposals) with, any third party (the "Third
Party") which submits a written Acquisition Proposal if the Seller's Board of
Directors or the executive committee thereof determines in good faith, after
consulting with legal counsel, that such furnishing of information and
participating in discussions are required in the exercise of the Board's
fiduciary duties under applicable law. The Seller and the Company shall
promptly advise the Purchaser when they determine that they will have (or when
they continue to have, in the case of Third Parties with whom discussions are
currently ongoing) negotiations with a Third Party, including providing to the
Purchaser such information
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concerning the Third Party as shall be not inconsistent with the terms of any
agreement with the Third Party with respect to the subject of discussions or
negotiations. To the extent this Agreement has not otherwise been terminated,
the Seller and the Company shall be entitled to execute a definitive agreement
with a Third Party relating to the Acquisition Proposal of such Third Party so
long as the Board of Directors of Seller exercises, prior to or concurrently
with such execution, the right under Section 10.01(b)(v) to terminate this
Agreement, and pays the fee contemplated by Section 10.02(b)(iii)(B).
(b) For purposes of this Agreement, the term "Acquisition
Proposal" shall mean any good faith purchase offer made by a third party and
which was not directly or indirectly solicited after the date of this Agreement
by the Seller, the Company or any of their respective affiliates to acquire (i)
beneficial ownership (as defined pursuant to Section 13(d) of the Exchange Act)
of a majority or greater equity interest in the Company or the Assets or
Business pursuant to a merger, consolidation or other business combination,
sale of shares of capital stock or similar transaction involving the Company,
including, without limitation, any single or multi-step transaction or series
of related transactions which is structured in good faith to permit such third
party to acquire beneficial ownership of a majority or greater equity interest
in the Company or the Assets or Business or (ii) all or substantially all of
the business or assets of the Company or the Business (other than the
transactions contemplated by this Agreement).
SECTION 5.07. Use of Names and Intellectual Property. (a)
The Seller covenants and agrees that following the Closing, the Purchaser shall
have the exclusive (as provided in subclause (D) below and to the extent Seller
can so grant), and royalty-free right to use the name "United" (the "Name") in
connection with the Business; provided, however, that (A) (i) the Purchaser
shall, in conjunction with use of the Name, use the words "Life Insurance
Company" and at least one additional word other than "Companies" or "Title"
between the Name and the words "Life Insurance Company"; (ii) the Purchaser
will not be permitted any use of the logo of the Seller which was used by the
Company or the Subsidiary prior to the Closing and which is attached hereto as
Exhibit 5.07 (except as provided in subclause (B) below) and (iii) the
Purchaser will, in connection with the permitted use of the Name, add a
descriptive indication of the Company's affiliation with PennCorp Financial
Group, Inc.; (B) the Purchaser may continue to utilize the Company's existing
name or the logo, including but not limited to, on stationery, invoices,
purchase orders or other clerical or similar supplies until March 31, 1997 or
such later date as the Seller may agree;
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(C) any such use of the Name or logo shall not be reasonably likely to cause
confusion, mistake or deception as to the affiliation, connection or
association between Seller, on the one hand, and Purchaser or its Affiliates
(including, without limitation, the Company and the Subsidiary after the
acquisition thereof pursuant to this Agreement), on the other hand, or as to
the origin, sponsorship or approval of the Purchaser's or its Affiliates'
(including, without limitation, the Company and the Subsidiary after the
acquisition thereof pursuant to this Agreement) goods or services and (D)
Purchaser's exclusive rights described in this Section 5.07(a) shall not limit
the right of the Seller and its Affiliates to use the Name in connection with
its business as conducted following the Closing.
(b) From and after the Closing and except as contemplated
hereof, neither the Seller nor any of its Affiliates shall use any of the Owned
Intellectual Property or any of the Licensed Intellectual Property to the
extent and for the period that the Company or the Subsidiary have exclusive
rights (as determined pursuant to Section 5.07(a)(D)).
SECTION 5.08. Non-Competition. (a) For a period of two
years following the Closing, the Seller shall not, and shall not permit any of
its Affiliates to engage in any annuity business, whether directly or
indirectly, nor hold any interest in any entity that engages in any such
annuity business, except that Seller and its Affiliates may, collectively, (i)
acquire and hold such amount that is not a substantial portion, on a fully
diluted basis, of the issued and outstanding shares of equity voting securities
of such an entity or (ii) acquire and hold any or all of the outstanding
capital stock of such entity so long as the revenue and net income of such
entity from its annuity business does not constitute a substantial portion of
the total consolidated revenues and net income of the Seller and its Affiliates
(at the time of the acquisition or at any time thereafter) as reflected on any
regularly prepared financial statement of the Seller and its Affiliates;
provided, however, that Sections 5.08(a) and (c) shall not apply to the
acquisition of any or all of the outstanding capital stock, assets or
businesses of Seller or any of its subsidiaries by any entity that engages,
directly or through subsidiaries or Affiliates, in the annuity business or the
merger, consolidation or other business combination of the Seller or any of its
subsidiaries with or into any such entity.
(b) For a period of two years following the Closing, the
Seller shall not, and shall not permit any of its Affiliates to, solicit or
induce or attempt to induce any entities or persons, including, without
limitation,
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EXHIBIT 10.1
_____________________________________________________
PENNCORP FINANCIAL GROUP, INC.
8% Convertible Promissory Note
Due July 23, 2007
______________
NOTE PURCHASE AGREEMENT
______________
Dated July 24, 1996
_____________________________________________________
<PAGE> 2
TABLE OF CONTENTS
(Not Part of Agreement)
______________
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II ISSUE, PURCHASE and SALE OF NOTE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE III CONDITIONS OF CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE IV [RESERVED] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE V [RESERVED] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE VI EVENTS OF DEFAULT AND REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE VII REPRESENTATIONS, WARRANTIES AND
COVENANTS OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE VIII REPRESENTATIONS, WARRANTIES AND
COVENANTS OF THE PURCHASER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE IX CONVERSION; CONVERSION PRICE;
ADJUSTMENTS RELATIVE TO CONVERSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE X [RESERVED] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE XI [RESERVED] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE XII ADDITIONAL AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE XIII MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Exhibit A -- Form of Note
Exhibit B -- Form of Conversion, Standstill and Registration Rights Agreement
</TABLE>
<PAGE> 3
NOTE PURCHASE AGREEMENT
THIS NOTE PURCHASE AGREEMENT, dated July 24, 1996 (herein as
the same may be amended or modified from time to time, called this
"Agreement"), by and between PENNCORP FINANCIAL GROUP, INC., a Delaware
corporation (the "Company"), and UNITED COMPANIES FINANCIAL CORPORATION, a
Louisiana corporation (the "Purchaser").
W I T N E S S E T H :
WHEREAS, the Company desires to issue an 8% Convertible
Promissory Note due July 23, 2007 in a principal amount of $14,999,000 (the
"Note") on the terms and subject to the conditions hereinafter set forth; and
WHEREAS, the Purchaser desires to purchase the Note on the
terms and subject to the conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the
mutual agreements contained herein, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
For the purposes of this Agreement, the following terms shall
have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission
or any other governmental authority at the time administering the Securities
Act or the Exchange Act.
"Company Common Stock" shall mean and include the Company's
presently authorized common stock, $.01 par value per share, and, when used
herein in connection with adjustments relating to conversion and/or
modifications relating to registration rights, shall also mean and include any
capital stock of any class of the Company hereafter authorized, or both;
provided, however, that the shares issuable upon conversion of the Note shall
include only shares of capital stock of the Company designated as Company
Common Stock on the date hereof.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time.
<PAGE> 4
"Event of Default" shall mean any of the events specified in
Article VI, provided that there has been satisfied any requirement in
connection with such event for the giving of notice, or the lapse of time, or
the happening of any further condition, event or act, and "Default" shall mean
any of such events, whether or not any such requirement has been satisfied.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, or any similar or successor Federal statute, and the rules and
regulations of the Commission thereunder, all as the same shall be in effect at
the time.
"Exchange Act Documents" shall mean the Company's (i) Annual
Report on Form 10-K for the year ended December 31, 1995, as amended by the
Company's Annual Report on Form 10-K/A for the year ended December 31, 1995 and
(ii) the Company's Quarterly Report on Form 10-Q for the quarter ended March
31, 1996, as amended by the Company's Quarterly Report on Form 10-Q/A for the
quarter ended March 31, 1996.
"GAAP" means United States generally accepted accounting
principles and practices as in effect at the time of preparation and delivery
of the applicable financial statement or statements.
"Insurer" shall mean, collectively, United Companies Life
Insurance Company, a Louisiana stock life insurance company and an indirect
wholly-owned subsidiary of the Company and United Variable Services, Inc., a
Louisiana corporation and an indirect wholly-owned subsidiary of the Company.
"Lien" shall mean any interest in property securing an
obligation owed to, or a claim by, a Person other than the owner of the
property, whether such interest is based on the common law, statute or
contract, and including but not limited to the security interest lien arising
from a mortgage, encumbrance, pledge, conditional sale or trust receipt or a
lease, consignment or bailment for security purposes.
"Material Subsidiary" shall mean any Subsidiary which at the
time of determination constitutes a "significant subsidiary" as defined in Rule
1-02 of Regulation S-X promulgated by the Commission.
"Maturity Date" shall mean July 23, 2007.
"Officer's Certificate" shall mean a certificate signed in the
name of the Company by its Chairman of the Board, its President, one of its
Executive Vice Presidents or its Secretary or Treasurer or Chief Financial
Officer.
2
<PAGE> 5
"Person" shall mean and include an individual, a corporation,
a limited liability company, an association, a partnership, a trust or estate,
a government or any department or agency thereof.
"Purchaser Common Stock" shall mean and include the
Purchaser's authorized common stock, $2.00 par value per share.
"Restricted Action" shall have the meaning set forth in
paragraph 11A hereof.
"Restricted Securities" shall mean at any time (a) the Company
Common Stock, issuable upon conversion of the Note, and (b) any Company Common
Stock issued subsequent to the conversion of the Note as a dividend or other
distribution with respect to, or in exchange for or in replacement of, the
Company Common Stock issued upon such conversion. Where the context so
requires, "holders of Restricted Securities" shall include the Purchaser.
"Securities Act" shall mean the Securities Act of 1933, as
amended, and any similar or successor Federal statute, and the rules and
regulations of the Commission thereunder, all as the same may be in effect at
the time.
"Share Equivalents" of any Restricted Securities or the Note
shall mean the number of shares of Common Stock included among such Restricted
Securities or issuable upon conversion of the Note.
"Subsidiary" shall mean a corporation or other Person of which
the Company owns, directly or indirectly, more than 50% of the shares of stock
(or equivalent equity interests) entitled to vote in the election of directors
(or equivalent body) (excluding shares so entitled to vote only upon a failure
to pay dividends or other contingencies).
ARTICLE II
ISSUE, PURCHASE and SALE OF NOTE
2A. Authorization of Issue of Note. The Company has
authorized the issue of the Note in the principal amount of $14,999,000, to be
dated the date of issue, to mature on the Maturity Date, to accrue interest on
the unpaid balance thereof from the date of issue at the rate of 8% per annum,
with such interest payable only at the earlier of (i) the Maturity Date and
(ii) a Redemption Date, and to be substantially in the form of Exhibit A
attached hereto. All interest on the Note shall be computed on the basis of
the actual number of days elapsed and a year of 360 days.
3
<PAGE> 6
2B. Purchase and Sale of Note. The Company hereby agrees to
sell to the Purchaser and, subject to the terms and conditions herein set
forth, the Purchaser, agrees to purchase from the Company, the Note at a
purchase price of $14,999,000. At 10:00 a.m. New York time on July 24, 1996,
or at such other time and on such other date as the Purchaser and the Company
may agree (the "Closing Date"), the Company will deliver to the Purchaser at
the offices of Dewey Ballantine, 1301 Avenue of the Americas, New York, New
York 10019, or at such other location as the Purchaser and the Company may
agree, the Note, registered in the Purchaser's name, against payment of the
purchase price thereof by certified or official bank check or wire transfer (to
an account identified by the Company to the Purchaser) payable in same day
funds to or upon the order of the Company.
ARTICLE III
CONDITIONS OF CLOSING
3A. Conditions to Obligations of the Purchaser. The
Purchaser's obligation to purchase and pay for the Note on the Closing Date is
subject to the satisfaction, on or before the Closing Date, of the following
conditions:
(i) Representations and Warranties; No Default. The
representations and warranties contained in Article VII hereof shall be true
and correct in all material respects on and as of the Closing Date with the
same effect as though made on and as of the Closing Date, except to the extent
of changes caused by the transactions herein contemplated; there shall exist on
the Closing Date after giving effect to the transactions described herein no
Event of Default or Default; and the Company shall have delivered to the
Purchaser an Officer's Certificate, dated the Closing Date, to both such
effects.
(ii) Closing of Certain Transactions. The transactions
contemplated by that Amended and Restated Stock Purchase Agreement dated as of
January 30, 1996 by and between the Purchaser, as seller, and UC Life Holding
Corp., as assigned to Pacific Life and Accident Insurance Company, a Texas
stock insurance company ("PLAIC"), as purchaser, and thereafter amended and
restated as of July 24, 1996 (the "Stock Purchase Agreement") shall have been
consummated.
(iii) Proceedings. On or prior to the Closing Date, all
corporate and other proceedings taken or to be taken by the Company in
connection with the transactions contemplated hereby and all documents incident
thereto shall be reasonably satisfactory in form and substance to the
4
<PAGE> 7
Purchaser and its counsel, and the Purchaser and its counsel shall have
received all such counterpart originals or certified or other copies of such
documents as they may reasonably request.
(iv) Resolutions. The Purchaser shall have received a true
and complete copy, certified by the Secretary or an Assistant Secretary of the
Company, of the resolutions duly and validly adopted by the Board of Directors
of the Company evidencing its authorization of the execution and delivery of
this Agreement.
3B. Conditions to Obligations of the Company. The
Company's obligation to issue and deliver the Note on the Closing Date is
subject to the satisfaction, on or before the Closing Date, of the following
conditions:
(i) Representations and Warranties. The representations and
warranties contained in Article VIII hereof shall be true and correct in all
material respects on and as of the Closing Date with the same effect as though
made on and as of the Closing Date, except to the extent of changes caused by
the transactions herein contemplated, and the Purchaser shall have delivered to
the Company an Officer's Certificate, dated the Closing Date to such effect.
(ii) Closing of Certain Transactions. The transactions
contemplated by the Stock Purchase Agreement shall have been consummated.
(iii) Proceedings. On or prior to the Closing Date, all
corporate and other proceedings taken or to be taken by the Purchaser in
connection with the transactions contemplated hereby and all documents incident
thereto shall be reasonably satisfactory in form and substance to the Company
and its counsel, and the Company and its counsel shall have received all such
counterpart originals or certified or other copies as they may reasonably
request.
(iv) Resolutions. The Company shall have received a true and
complete copy, certified by the Secretary or an Assistant Secretary of the
Purchaser, of the resolutions duly and validly adopted by the Board of
Directors of the Purchaser evidencing its authorization of the execution and
delivery of this Agreement.
ARTICLE IV
[RESERVED]
5
<PAGE> 8
ARTICLE V
[RESERVED]
ARTICLE VI
EVENTS OF DEFAULT AND REMEDIES
6. Events of Default and Remedies. If any of the following
events shall occur and be continuing for any reason whatsoever (and whether
such occurrence shall be voluntary or involuntary or come about or be affected
by operation of law or otherwise):
(i) the Company shall default in the payment of any
principal of or accrued interest on the Note when the same shall
become due, either by the terms hereof or otherwise as herein
provided; or
(ii) if the Company or any Material Subsidiary shall
(a) apply for or consent to the appointment of a receiver, trustee,
liquidator or custodian or the like of itself or of its property, (b)
admit in writing its inability to pay its debts generally as they
become due, (c) make a general assignment for the benefit of
creditors, (d) commence a voluntary case under the Federal bankruptcy
laws of the United States of America or file a voluntary petition or
answer seeking reorganization, an arrangement with creditors or an
order for relief or seeking to take advantage of any insolvency law or
file an answer admitting the material allegations of a petition filed
against it in any bankruptcy, reorganization or insolvency proceeding,
or (e) corporate action shall be taken by it for the purpose of
effecting any of the foregoing; or
(iii) if without the application, approval or consent of
the Company or any Material Subsidiary, a proceeding shall be
instituted in any court of competent jurisdiction, under any law
relating to bankruptcy, insolvency, reorganization or relief of
debtors, seeking in respect of the Company or any Material Subsidiary
an order for relief or an adjudication in bankruptcy, reorganization,
dissolution, winding up, liquidation, a composition or arrangement
with creditors, a readjustment of debts, the appointment of a trustee,
receiver, liquidator or custodian or the like of the Company or such
Material Subsidiary or of all or any substantial part of its assets,
or other like relief in respect thereof under any bankruptcy or
insolvency law, and, if such proceeding is being contested by the
Company or such
6
<PAGE> 9
Material Subsidiary in good faith, the same shall (a) result in the
entry of an order for relief or any such adjudication or appointment
or (b) continue undismissed, or pending and unstayed, for any period
of 120 consecutive days;
then, upon the happening of any event described in clause (ii) (a-d) or (iii)
in this Article VI, the Note shall be and become immediately due and payable
without any notice of any kind at the then outstanding principal amount thereof
together with accrued but unpaid interest thereon, or, during the continuance
of an event referred to in clause (i) of this Article VI the holder of the Note
may, at its option and in addition to any right, power or remedy permitted by
law or equity or herein granted, by notice in writing to the Company, declare
the Note to be, and such Note shall thereupon be and become, forthwith due and
payable, together with interest accrued but unpaid thereon.
The above provision with respect to any acceleration of the Note
is subject to the condition that if for any reason after the principal of and
other amounts with respect to the Note shall have so become due and payable,
the Company shall demonstrate that all defaults under this Agreement, other
than nonpayment of the principal of or interest on and other amounts with
respect to the Note which have become due by such acceleration, shall have been
remedied or waived by the holder of the Note, then and in such instance such
default may be waived and its consequences rescinded and annulled by the holder
of the Note.
ARTICLE VII
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY
The Company represents, warrants and covenants as follows:
7A. Organization, Standing and Qualification of Company and
Subsidiaries. The Company is a corporation duly organized and existing in good
standing under the laws of the State of Delaware, and each Subsidiary (other
than the Insurer) is duly organized and existing in good standing under the
laws of the jurisdiction in which it is incorporated, and the Company has and
each Subsidiary (other than the Insurer) has the corporate power to own its
respective property and to carry on its respective business as now being
conducted. Except for directors' qualifying shares and the shares of
Professional Insurance Corporation owned by third parties, each of the
Subsidiaries is wholly- owned, directly or indirectly, by the Company.
7
<PAGE> 10
7B. Authorizations; Validity. The execution and delivery of
this Agreement and the performance thereof by the Company, and the issuance and
sale of the Note by the Company, have been duly authorized by all necessary
corporate action of the Company. This Agreement has been duly executed and
delivered by the Company and constitutes the legal, valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws from time to time in effect affecting the
enforcement of creditors' rights generally and to general principles of equity.
The Note, when executed and delivered by the Company as provided in this
Agreement, will constitute the legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms, subject
to applicable bankruptcy, insolvency, reorganization, moratorium and similar
laws from time to time in effect affecting the enforcement of creditors' rights
generally and to general principles of equity and principles of public policy.
7C. Actions Pending. There is no action, suit, investigation or
proceeding pending or, to the knowledge of the Company, threatened against the
Company or any of its Subsidiaries (other than the Insurer) before any court,
arbitrator or administrative or governmental body that materially and adversely
affects the Company and its consolidated Subsidiaries taken as a whole or that
seeks to set aside, restrain, enjoin or prevent the consummation of the
transactions contemplated by this Agreement. Neither the Company nor any
Subsidiary (other than the Insurer) is in violation of any judgment, order,
writ, injunction, decree, rule or regulation of any court or governmental
department, commission, board, bureau, agency or instrumentality, the violation
of which materially and adversely affects the Company and its consolidated
Subsidiaries taken as a whole.
7D. No Violation. Neither the execution nor delivery of this
Agreement nor of the Note by the Company, nor the offering, issuance and sale
of the Note by the Company, nor fulfillment of nor compliance with the terms
and provisions of this Agreement and of the Note by the Company, nor the
issuance by the Company of shares of Common Stock upon conversion of the Note
as provided in Article IX hereof, will conflict with, constitute a default or
give rise to any right of termination or acceleration of any right or
obligation of the Company or its Subsidiaries (other than the Insurer), or
result in the creation or imposition of any Lien by reason of the terms of (i)
the certificate of incorporation, by-laws or other charter or organizational
document of the Company or its Subsidiaries (other than the Insurer), (ii) any
material agreement,
8
<PAGE> 11
indenture, lease or other instrument to with the Company or any of its
Subsidiaries (other than the Insurer) is a party or by which any of them may be
bound or subject, or (iii) any statute, law, regulation or filing or judgment,
injunction, order or decree applicable to the Company or any of its
Subsidiaries (other than the Insurer), which in the case of (ii) and (iii)
above would have a material adverse effect on the Company and its Subsidiaries
taken as a whole.
7E. Governmental Consent. Neither the nature of the Company or
of any Subsidiary (other than the Insurer), nor any of their respective
businesses or properties, nor any relationship between the Company or any
Subsidiary (other than the Insurer) and any other Person, nor any circumstance
in connection with the offer, issue, sale or delivery of the Note is such as to
require any consent, approval or authorization of, or any notice to, or filing,
registration or qualification with, any court or administrative or governmental
body in connection with the execution and delivery of this Agreement or the
offer, issue, sale or delivery of the Note, fulfillment of, or compliance with,
the terms and provisions of this Agreement or of the Note (the absence of which
would have a material adverse effect on the Company and its Subsidiaries taken
as a whole or the ability of the Company to consummate the transactions
contemplated by this Agreement), except for (i) any of such arising solely
because of any status of the Purchaser or any agreement or instrument to which
the Purchaser is a party, (ii) any of such in connection with applicable state
securities or "blue sky" laws and (iii) as may be required in connection with
fulfillment of, or compliance with, the provisions of Article IX or XI hereof.
7F. Reservation of Shares. As of the Closing Date and after
giving effect to the transactions contemplated hereby, the Company shall have
reserved out of authorized but unissued Company Common Stock 483,839 shares of
Company Common Stock to permit the conversion of all of the outstanding
principal and interest on the Note.
7G. Exchange Act Documents. The Exchange Act Documents were
filed in a timely manner and, when they were filed (or, if any amendment with
respect to any such document was filed, when such amendment was filed),
conformed in all material respects to the requirements of the Exchange Act and
did not contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading. The financial statements included in the Exchange Act
Documents and the related notes thereto included therein (i) present fairly, in
all material respects, the consolidated financial position, results of
operations, cash flows and changes in stockholders' equity
9
<PAGE> 12
of the Company and its subsidiaries on the basis stated therein at the
respective dates and for the respective periods to which they apply, and (ii)
have been prepared in accordance with GAAP consistently applied throughout the
periods involved (except that the financial statements as of and for the
quarter ended March 31, 1996 exclude certain notes required by GAAP). Since
March 31, 1996, there has been no material adverse change in the financial
position or results of operations of the Company and its Subsidiaries taken as
a whole. The parties acknowledge and agree that the representations and
warranties contained in this Section 7G shall not survive the first anniversary
of the Closing Date, and shall expire immediately following the first
anniversary of the Closing Date.
ARTICLE VIII
REPRESENTATIONS, WARRANTIES AND
COVENANTS OF THE PURCHASER
The Purchaser as to itself represents, warrants and covenants as
follows:
8A. Investment Purpose. The Purchaser is acquiring the Note
for its own account for investment and not with a view to any distribution of
the Note, but subject, nevertheless, to the disposition of the Note being at
all times within its control, and no part of the funds used to purchase the
Notes constitute assets of an employee benefit plan within the meaning of
Section 3(3) of ERISA as interpreted by the Department of Labor regulations as
in effect on the date hereof.
8B. Accredited Investor. The Purchaser is an "accredited
investor" as such term is defined in Rule 501 pursuant to the Securities Act.
The Purchaser has sufficient knowledge and experience to enable it to assess
fully the risks of an investment such as a purchase of the Note. The Purchaser
has been afforded sufficient opportunity to ask any and all questions and
obtain any and all information from and pertaining to the Company and its
Subsidiaries (other than the Insurer) required by the Purchaser. The Purchaser
understands that the transferability of the Note is severely limited, and that
the certificate evidencing the Note shall bear a legend to such effect.
8C. Organization, Standing and Qualification of the Purchaser.
The Purchaser is a corporation duly organized and existing in good standing
under the laws of the State of Louisiana and has the corporate power to own
10
<PAGE> 13
its property and to carry on its business as now being conducted.
8D. Authorizations; Validity. The execution and delivery of
this Agreement and the performance thereof by the Purchaser, and the purchase
of the Note by the Purchaser, have been duly authorized by all necessary
corporate action of the Purchaser. This Agreement has been duly executed and
delivered by the Purchaser and constitutes the legal, valid and binding
obligation of the Purchaser, enforceable against the Purchaser in accordance
with its terms, subject, as to enforcement of remedies, to applicable
bankruptcy, insolvency, reorganization, moratorium and similar laws from time
to time in effect affecting the enforcement of creditors' rights generally and
to general principles of equity.
ARTICLE IX
CONVERSION; CONVERSION PRICE;
ADJUSTMENTS RELATIVE TO CONVERSION
9A. Conversion Privilege; Conversion Price; Procedures. (a)
Subject to the conditions set forth in this Article IX, the Purchaser may, at
its option, at any time and from time to time prior to and including the
Maturity Date, or, with respect to any principal amount of the Note for which
the Company has given notice of prepayment in accordance with Article IV
hereof, within 30 days from the date of notice of such prepayment, except as
otherwise specifically provided in this Agreement, convert all (but not less
than all) of the principal amount thereof and accrued but unpaid interest
thereon 483,839 shares of Company Common Stock.
(b) Subject to the provisions of this Article IX, the Note may
be converted in full or in part by the holder thereof by surrender of the Note,
with a written statement specifying the amount thereof to be converted, to the
Company at its principal office. Upon any partial conversion of the Note, the
Company at its expense shall forthwith issue and deliver to the holder thereof
a new Note in principal amount equal to the unpaid and unconverted principal
amount of such surrendered Note. Each conversion shall be deemed to have been
effected immediately prior to the close of business on the date on which such
Note was received by the Company.
9B. No Fractional Shares; No Adjustments for Dividends. No
fractional shares shall be issued upon conversion of the Note and no payment or
adjustment shall be made upon conversion of the Note for cash dividends with
11
<PAGE> 14
respect to Company Common Stock issued thereupon; provided, however, that such
shares issued upon conversion shall be entitled to receive dividends and
distributions declared subsequent to the date of conversion.
9C. Delivery of Stock Certificates and Cash in Lieu of
Fractional Shares. As promptly as practicable, but in any event not later than
20 business days, after the conversion of the Note, in full or in part, the
Company, at its expense, shall issue and deliver to the holder of such Note, or
as such holder (upon payment of any applicable transfer taxes by such holder)
may, subject to the provisions of Article XI, direct, a certificate or
certificates for the number of full shares of Company Common Stock deliverable
upon such conversion, bearing, if required by the terms hereof, the restrictive
legend set forth in paragraph 11B hereof, plus, in lieu of any fractional
shares or other fractional pieces to which such holder would otherwise be
entitled, cash equal to such fraction multiplied by the Sales Price of one full
share of Company Common Stock as of the close of business on the date of such
conversion.
9D. Shares to Be Reserved. On or prior to the Closing Date, the
Company shall have reserved out of authorized but unissued Company Common Stock
or Company Common Stock held in treasury 483,839 shares of Company Common
Stock.
ARTICLE X
[RESERVED]
ARTICLE XI
[RESERVED]
ARTICLE XII
ADDITIONAL AGREEMENT
12A. Conversion, Standstill and Registration Rights Agreement.
On the Closing Date, the Company and the Purchaser shall enter into a
Conversion, Standstill and Registration Rights Agreement, substantially in the
form attached hereto as Exhibit B.
12
<PAGE> 15
ARTICLE XIII
MISCELLANEOUS
13A. Consent to Amendments. This Agreement may be amended, and
the Company may take any action herein prohibited, or omit to perform any act
herein required to be performed by it, if the Company shall obtain the written
consent to such amendment, action or omission to act given by the Purchaser.
13B. Notices to Subsequent Holder. If the Note shall have been
transferred to another holder pursuant to paragraph 11A and such holder shall
have designated in writing the address to which communications with respect to
such Note shall be mailed, all notices, certificates, requests, statements and
other documents required or permitted to be delivered to the Purchaser by any
provision hereof shall also be delivered to any such holder.
13C. Successors and Assigns. All covenants and agreements in
this Agreement contained by or on behalf of either of the parties hereto shall
bind and inure to the benefit of the respective successors and assigns of the
parties hereto whether so expressed or not.
13D. Notices. All notices and other communications provided for
or given or made hereunder shall be in writing and shall be given or made (and
shall be deemed to have been given or made upon receipt) by delivery in person,
by courier service, by telecopy (confirmed by telephone within 24 hours
following receipt thereof), or by registered or certified mail (postage
prepaid, return receipt requested) to the respective parties at the following
addresses (or to such other address with respect to either party as such party
shall notify the other in writing):
(i) if to the Purchaser
United Companies Financial Corporation
P.O. Box 1591 (70821)
4041 Essen Lane
Baton Rouge, Louisiana 70809
Telephone: (504) 924-6007
Telecopy: (504) 924-4324
Attention: Dale E. Redman
with a copy to:
Kantrow, Spaht, Weaver & Blitzer
(A Professional Law Corporation)
Suite 300, City Plaza
445 North Boulevard
13
<PAGE> 16
P.O. Box 2997
Baton Rouge, Louisiana 70821-2997
Telephone: (504) 383-4703
Telecopy: (504) 343-0637
Attention: Lee C. Kantrow, Esq.
(ii) if to the Company
PennCorp Financial Group, Inc.
745 Fifth Avenue
New York, New York 10105
Telephone: (212) 832-0700
Telecopy: (212) 758-5442
Attention: David J. Stone
with a copy to
Dewey Ballantine
1301 Avenue of the Americas
New York, New York 10019
Telephone: (212) 259-8000
Telecopy: (212) 259-6333
Attention: Jonathan L. Freedman
and
William W. Rosenblatt
13E. Accounting Terms. Unless otherwise set forth herein, all
accounting terms and provisions in this Agreement shall be construed to be as
determined in accordance with GAAP.
13F. Governing Law. This Agreement shall be construed and
enforced in accordance with, and the rights of the parties shall be governed
by, the laws of the State of New York without giving effect to the conflicts of
laws principles of such state.
13G. Headings; Table of Contents. The descriptive headings of
the several paragraphs of this Agreement and the table of contents are inserted
for convenience only and do not constitute a part of this Agreement.
13H. Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, all of which shall be deemed but
one and the same instrument and each of which shall be deemed an original, and
it shall not be necessary in making proof of this Agreement to produce or
account for more than one such counterpart.
13I. Non Business Days. If the date for making any payment or
the last date for performance of any act or
14
<PAGE> 17
the exercising of any right, as provided in this Agreement, shall not be a
business day, such payment may be made or act performed or right exercised on
the next succeeding business day, with the same force and effect as if done on
the nominal date provided in this Agreement, except that interest shall accrue
and be payable for the period after such nominal date.
15
<PAGE> 18
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed by their respective officers thereunto duly authorized as of the
day and year first above written.
PENNCORP FINANCIAL GROUP, INC.
By:
-------------------------------------
Name: Scott Silverman
Title: Senior Vice President,
General Counsel and
Secretary
UNITED COMPANIES FINANCIAL CORPORATION
By:
-------------------------------------
Name: Laura T. Martin
Title: Senior Vice President
and Treasurer
SIGNATURE PAGES FOR NOTE PURCHASE AGREEMENT
<PAGE> 19
EXHIBIT A
The securities represented by this instrument have not been
registered under the Securities Act of 1933, as amended, or any
applicable state securities or "blue sky" laws and neither the
securities nor any interest therein may be sold, transferred,
pledged or otherwise disposed of in the absence of such
registration or an exemption under such Act and the rules and
regulations thereunder or any applicable state securities or
"blue sky" laws.
PENNCORP FINANCIAL GROUP, INC.
8% Convertible Promissory Note
Due July 23, 2007
No. 1
$14,999,000 July 24, 1996
FOR VALUE RECEIVED, the undersigned, PennCorp Financial Group,
Inc. (herein called the "Company"), a corporation organized and existing under
the laws of the State of Delaware, hereby promises to pay to United Companies
Financial Corporation (the "Purchaser") or registered assigns, the principal
sum of $14,999,000 Dollars on July 23, 2007, with interest accruing (but not
being paid) at the rate of 8% (computed on the basis of the number of days
actually elapsed and a 360-day year) on the unpaid balance thereof from the
date of issuance hereof until final maturity at July 23, 2007 or earlier
redemption pursuant to the terms hereof. Upon such final maturity or earlier
redemption, all accrued but unpaid interest to the date of maturity or
redemption, as applicable, shall be paid. This Note is subject to mandatory
and optional prepayment at the times, in the amounts and subject to the
conditions set forth in the Agreement (as hereinafter defined).
Payments of both principal and interest are to be made by
certified or official bank check made payable in New York Clearing House (next
day) funds to the order of United Companies Financial Corporation (the
"Purchaser") or in such other manner or to such other place in the United
States of America as the holder hereof shall designate to the Company in
writing, in lawful money of the United States of America.
<PAGE> 20
This Note is originally issued pursuant to a Note Purchase
Agreement (the "Agreement") dated July 24, 1996, between the Company and the
Purchaser, and is entitled to the benefit of the Agreement, and each holder of
this Note, by his acceptance hereof, agrees to be bound by the provisions of
the Agreement. As provided in the Agreement, (i) this Note is subject to
prepayment, in whole or in part, as specified in such Agreement, (ii) subject
to and upon compliance with the provisions of the Agreement, at the option of
the holder hereof, this Note may at any time after the date hereof to and
including July 23, 2007, be converted into 483,839 fully paid and nonassessable
shares of Common Stock of the Company and (iii) this Note and shares of Common
Stock issued upon the conversion hereof may be transferred only upon
fulfillment by the Company and the holder hereof of conditions specified in the
Agreement.
As provided and subject to the restrictions on transfer set forth
in the Agreement, upon surrender of this Note for registration of transfer,
duly endorsed, or accompanied by a written instrument of transfer duly
executed, by the registered holder hereof or his attorney duly authorized in
writing, a new Note for a like principal amount will be issued to, and
registered in the name of, the transferee. Prior to due presentment for
registration of transfer, the Company may treat the person in whose name this
Note is registered as the owner hereof for the purpose of receiving payment and
for all other purposes, and the Company shall not be affected by any notice to
the contrary.
This Note shall be governed by and enforced in accordance with
the laws of the State of New York.
PENNCORP FINANCIAL GROUP, INC.
By:
--------------------------------------
Name: Scott Silverman
Title: Senior Vice President,
General Counsel and
Secretary
2
<PAGE> 21
EXHIBIT B
CONVERSION, STANDSTILL AND REGISTRATION RIGHTS AGREEMENT
THIS AGREEMENT dated as of July 24, 1996 between United Companies
Financial Corporation, a Louisiana corporation ("UCFC") and PennCorp Financial
Group, Inc., a Delaware corporation ("PennCorp").
Preliminary Statement
UCFC and PennCorp (as assignee of UC Life Holding Corp.) are
parties to that certain Amended and Restated Stock Purchase Agreement dated as
of January 30, 1996 (as amended or restated from time to time, the
"Agreement"). Pursuant to the Agreement, PennCorp is today issuing to UCFC a
convertible promissory note in the principal amount of $14,999,000 (the
"Note").
NOW, THEREFORE, in consideration of the premises and the mutual
agreements set forth herein, UCFC and PennCorp hereby agree as follows:
XIV UCFC shall, immediately upon receipt of the Note, and
pursuant to the procedures set forth therein, convert the Note into 483,839
shares of common stock, par value $0.01 per share, of PennCorp (the "Common
Stock"), and PennCorp shall deliver or cause to be delivered one or more
certificates for such 483,839 shares of Common Stock (the "Shares"), registered
in the name of UCFC, and in such denominations as UCFC shall have provided in
writing to PennCorp.
XV The certificates evidencing the Shares shall bear a
legend substantially identical to the following:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED,
TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT
FROM, OR NOT SUBJECT TO, SUCH REGISTRATION. IN ADDITION,
TRANSFER OF THIS SECURITY IS RESTRICTED AS SET FORTH IN THAT
CERTAIN CONVERSION, STANDSTILL AND REGISTRATION RIGHTS AGREEMENT
DATED JULY 24,
3
<PAGE> 22
1996 BETWEEN PENNCORP FINANCIAL GROUP, INC. AND UNITED COMPANIES
FINANCIAL CORPORATION, A COPY OF WHICH IS AVAILABLE FROM THE
SECRETARY OF PENNCORP FINANCIAL GROUP, INC."
Upon a sale of any of the Shares under the Shelf Registration Statement (as
defined below) as permitted by this Agreement, PennCorp agrees to instruct its
stock transfer agent to issue certificate(s) evidencing the number of Shares
being sold without the foregoing legend.
Except for sales of the Shares pursuant to the Shelf Registration Statement,
the Shares shall not be transferable unless and until PennCorp has received
such opinions of counsel as to compliance with all applicable federal and state
securities laws, and other certificate and documentation, as it may reasonably
request.
XVI PennCorp represents and warrants to UCFC that the Shares,
upon issuance upon conversion of the Note as contemplated by Paragraph 1 above,
will be (a) duly authorized, validly issued, fully paid and nonassessable and
(b) free and clear of all liens, claims and encumbrances other than those
created by any action or inaction of UCFC. PennCorp shall use commercially
reasonable efforts to cause the Shares to be listed on the New York Stock
Exchange, subject to notice of issuance, as promptly as practicable, but in no
event later than the end of the Lock-Up Period (as hereinafter defined).
PennCorp further represents and warrants to UCFC that as of July 23, 1996 it
had issued and outstanding 28,099,745 shares of Common Stock.
XVII PennCorp and UCFC each represent and warrant to the other
that (a) it has the corporate power and authority to enter into and perform its
obligations under this Agreement, (b) this Agreement has been duly and validly
authorized by all necessary action, corporate or otherwise, (c) this Agreement
has been duly executed and delivered by it, and (d) this Agreement constitutes
the valid and legally binding obligation of it, enforceable against it in
accordance with its terms, except that (i) the enforceability hereof may be
limited by bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium or other similar laws now or hereinafter in effect relating to
creditors' rights generally and (ii) the remedy of specific performance and
other forms of equitable relief may be subject to certain equitable defenses
and to the discretion of the court before which proceedings therefor may be
brought.
4
<PAGE> 23
XVIII UCFC agrees that it will not sell, offer to sell,
contract to sell or otherwise transfer or dispose of any of the Shares (or any
securities convertible into or exercisable or exchangeable for the Shares), or
grant any options or warrants to purchase the Shares, pursuant to which the
sale or transaction will occur during the period of 180 days after the date of
original issuance of the Shares (the "Lock-Up Period") without the prior
written consent of PennCorp.
XIX For so long as UCFC shall own at least 1% of PennCorp's
outstanding Common Stock, or, if shorter, until the first anniversary of the
date hereof, UCFC will not, and will cause each of its subsidiaries not to,
singly or as part of a partnership, limited partnership, syndicate or other
group (as those terms are used in Section 13(d)(3) of the Securities Exchange
Act of 1934, as amended) (the "Securities Exchange Act"), directly or
indirectly, without the approval of the Board of Directors of PennCorp:
19A. acquire, offer to acquire, or agree to acquire, by
purchase, gift or otherwise, any Voting Securities (as hereinafter defined)
except pursuant to a stock split, stock dividend, rights offering,
recapitalization, reclassification or similar transaction; provided, however,
that nothing in this clause (a) shall prevent UCFC from acquiring any Voting
Securities (i) solely for the purposes of hedging the Shares, (ii) solely for
the purpose of covering short positions or (iii) so long as after any such
acquisition, UCFC owns less than or equal to 2% of the outstanding Common
Stock;
19B. make, or in any way participate in, any solicitation of
proxies to vote, solicit any consent or communicate with or seek to advise or
influence any person or entity with respect to the voting of, any Voting
Securities or become a participant in an election contest (as such terms are
defined or used in Rule 14a-11 under the Securities Exchange Act) with respect
to the Company;
19C. form, join or encourage the formation of, any person
(within the meaning of Section 13(d)(3) of the Securities Exchange Act) with
respect to any Voting Securities;
19D. deposit any Voting Securities into a voting trust or
subject any Voting Securities to any arrangement or agreement with respect to
the voting thereof;
19E. initiate, propose or otherwise solicit stockholders for
the approval of one or more stockholder proposals with respect to PennCorp as
described in Rule 14a-8 under the Securities Exchange Act, or induce or
5
<PAGE> 24
attempt to induce any other person to initiate any stockholder proposal;
19F. vote any Voting Securities in favor of the election to
the Board of Directors of PennCorp of, or otherwise seek to elect to the Board
of Directors of PennCorp, any person not recommended by the Board of Directors
of PennCorp;
19G. call or seek to have called any meeting of the
stockholders of PennCorp;
19H. act to seek to control, disrupt or influence the
management, policies or affairs of PennCorp;
19I. sell or otherwise transfer in any manner any Voting
Securities to any person (within the meaning of Section 13(d)(3) of the
Securities Exchange Act) who has filed prior thereto a disclosure with the
Commission under the Securities Exchange Act stating that such person owns more
than ten percent (10%) of any class of Voting Securities or who, to UCFC's
actual knowledge, owns more than ten percent (10%) of any class of Voting
Securities; or who, without the approval of the Board of Directors of PennCorp,
has publicly proposed a business combination or similar transaction with, or a
change of control of, PennCorp or who has publicly proposed a tender offer for
Voting Securities or who has discussed the possibility of proposing a business
combination or similar transaction with, or a change in control of, PennCorp
with UCFC or any of its affiliates;
19J. solicit, seek to effect, negotiate with or provide any
information to any other party with respect to, or make any statement or
proposal, whether written or oral, to the Board of Directors of PennCorp or any
director or officer of PennCorp or otherwise make any public announcement or
proposal whatsoever with respect to, any form of business combination
transaction involving PennCorp, including, without limitation, a merger,
exchange offer or liquidation of PennCorp's assets, or any restructuring,
recapitalization or similar transaction with respect to PennCorp; or
19K. instigate or encourage any third party to do any of the
foregoing.
XX For purposes of Paragraph 6 above, "Voting Securities"
shall mean any securities of PennCorp entitled to vote or take action by
written consent, or securities convertible into or exchangeable or exercisable
for such securities.
6
<PAGE> 25
XXI21A. PennCorp shall cause to be filed with the Securities and
Exchange Commission (the "Commission") on or prior to 120 days after the date
hereof, a shelf registration statement pursuant to Rule 415 under the
Securities Act (as may then be amended) (the "Shelf Registration Statement") on
Form S-1 or Form S-3, as determined by PennCorp, to cover resales of Transfer
Restricted Securities (as hereinafter defined). UCFC shall have provided the
information required pursuant to Section 8(b) hereof. PennCorp shall use its
reasonable best efforts to cause such Shelf Registration Statement to be
declared effective by the Commission on or prior to 180 days after the Closing
Date. PennCorp shall use its commercially reasonable efforts to keep such
Shelf Registration Statement continuously effective for a period ending two
years from the effective date thereof or such shorter period that will
terminate when each of the Transfer Restricted Securities covered by the Shelf
Registration Statement shall cease to be a Transfer Restricted Security.
If there shall occur any event that would cause the Shelf
Registration Statement (i) to contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading or (ii) to be not effective and
usable for resale of Transfer Restricted Securities during the period that such
Shelf Registration Statement is required to be effective and usable, PennCorp
shall as promptly as practicable file an amendment to the Shelf Registration
Statement, in the case of clause (i), correcting any such misstatement or
omission, and in the case of either clause (i) or (ii), use its reasonable best
efforts to cause such amendment to be declared effective and such Shelf
Registration Statement to become usable as soon as practicable thereafter, and
the foregoing two year period during which such Shelf Registration Statement is
to be kept effective shall be extended by a period equal to the period it was
not effective.
Notwithstanding anything to the contrary in this Section 8,
PennCorp may prohibit offers and sales of Transfer Restricted Securities
pursuant to the Shelf Registration Statement at any time if (A)(i) it is in
possession of material non-public information, (ii) the Board of Directors of
PennCorp determines (based on advice of counsel) that such prohibition is
necessary in order to avoid a requirement to disclose such material non-public
information and (iii) the Board of Directors of PennCorp determines in good
faith that disclosure of such material non-public information would not be in
the best interests of PennCorp and its shareholders or (B) PennCorp has made a
public announcement relating to an acquisition or business combination
transaction including PennCorp and/or one or
7
<PAGE> 26
more of its subsidiaries (i) that is material to PennCorp and its subsidiaries
taken as a whole and (ii) the Board of Directors of PennCorp determines in good
faith that offers and sales of Transfer Restricted Securities pursuant to the
Shelf Registration Statement prior to the consummation of such transaction (or
such earlier date as the Board of Directors shall determine) is not in the best
interests of PennCorp and its shareholders or (C) (i) disclosure is required in
the Shelf Registration Statement of financial information of any person or
entity other than PennCorp or its subsidiaries and affiliates pursuant to
Article 3 or Article 11 of Regulation S-X under the Securities Act and (ii) any
of such required financial information (including related audit reports and
consents of independent accountants) is not available to PennCorp after use of
commercially reasonable efforts to obtain such financial information) (the
period during which any such prohibition of offers and sales of Transfer
Restricted Securities pursuant to the Shelf Registration Statement is in effect
pursuant to clause (A) or (B) of this subparagraph (a) is referred to herein as
a "Suspension Period"). A Suspension Period shall commence on and include the
date on which PennCorp provides written notice to UCFC that offers and sales of
Transfer Restricted Securities cannot be made thereunder in accordance with
this Section 8 and shall end on the date on which UCFC is advised in writing by
PennCorp that offers and sales of Transfer Restricted Securities pursuant to
the Shelf Registration Statement and use of the prospectus constituting a part
of the Shelf Registration Statement may be resumed; provided, however, that the
aggregate number of days in all Suspension Periods during any calendar year
shall not exceed 90.
21B. UCFC may not include any of its Transfer Restricted
Securities in any Shelf Registration Statement pursuant to this Agreement
unless UCFC furnishes to PennCorp in writing, within 10 business days after
receipt of a request therefor, such public information concerning UCFC as
PennCorp may reasonably request for use in connection with any Shelf
Registration Statement or prospectus or preliminary prospectus included
therein.
21C. All expenses incident to PennCorp's performance of or
compliance with its obligations to register and list the Shares, and maintain
the effectiveness thereof, as set forth in this Agreement will be borne by UCFC
(and, if applicable, reimbursed to PennCorp promptly following receipt by UCFC
of appropriate documentation); provided, however, that UCFC's obligation to pay
expenses pursuant to this Section 8(c) shall not exceed 50% of the first
$50,000 of expenses, with all other expenses being borne by PennCorp. Such
expenses shall include, without limitation, (i) all registration and filing
fees (including
8
<PAGE> 27
those of the Commission and the National Association of Securities Dealers,
Inc.)), (ii) fees and expenses of compliance with all applicable state
securities or "blue sky" laws, (iii) printing and engraving expenses, (iv) fees
and disbursements of counsel and independent accountants for PennCorp, (v)
listing fees on any applicable stock exchange or trading system, and (vi)
rating agency fees.
21D. For purposes of this Section 8, "Transfer Restricted
Securities" shall mean each Share, until each such Share (A) has been
effectively registered under the Securities Act and disposed of in accordance
with the Shelf Registration Statement covering it, (B) is distributed to the
public pursuant to Rule 144, (C) is sold or is available to be sold pursuant to
Rule 144(k) (or any similar provisions then in force) under the Securities Act
or otherwise or (D) is sold pursuant to Rule 904 of Regulation S under the
Securities Act.
XXII If, after the end of the Lock-Up Period and on or prior to
the first anniversary of the date hereof (the "Payment Period"), UCFC desires
to sell any or all of the Shares in one or more transactions, then in each case
UCFC shall promptly so notify PennCorp, and request PennCorp's assistance in
such sale, and PennCorp shall provide such assistance. As consideration for
such assistance, UCFC shall pay to PennCorp, with respect to each such sale
consummated during the Payment Period, promptly following the consummation of
any such sale, $600,000 (or, if less than all of the Shares are sold, then a
percentage of $600,000 calculated by multiplying $600,000 by a fraction, the
numerator of which is the number of Shares so sold, and the denominator of
which is 483,839, appropriately adjusted for stock splits, stock dividends, and
other similar transactions) (such $600,000, or any portion thereof, the
"Specified Fee"); provided, however, that no portion of the Specified Fee shall
be paid unless the net amount received by UCFC in any such sale (net of
brokerage commissions, fees and expenses contemplated by Section 8(c) hereof)
and other direct selling expenses, and net of the Specified Fee) is greater
than $31.00 per Share.
XXIII23A. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telex, telecopier or air
courier guaranteeing overnight delivery:
9
<PAGE> 28
If to UCFC:
United Companies Financial Corporation
P.O. Box 1591 (70821)
4041 Essen Lane
Baton Rouge, Louisiana 70809
Telephone: (504) 924-6007 (ext. 2282)
Telecopy: (504) 924-4324
Attention: Dale E. Redman
If to PennCorp:
c/o PennCorp Financial, Inc.
3 Bethesda Metro Center
Suite 1600
Bethesda, Maryland 20814
Telephone: (301) 656-1777
Telecopy: (301) 657-4770
Attention: General Counsel
XXIV This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York, applicable to contracts
executed in and to be performed entirely within that state.
10
<PAGE> 29
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed as of the date first written above by their respective officers
thereunto duly authorized.
UNITED COMPANIES FINANCIAL CORPORATION
By:
-------------------------------------
Name: Dale E. Redman
Title:Executive Vice President
and Chief Financial
Officer
PENNCORP FINANCIAL GROUP, INC.
By:
-------------------------------------
Name: Scott Silverman
Title:Senior Vice President,
General Counsel and
Secretary
11
<PAGE> 1
EXHIBIT 10.2
CONVERSION, STANDSTILL AND REGISTRATION RIGHTS AGREEMENT
THIS AGREEMENT dated as of July 24, 1996 between United
Companies Financial Corporation, a Louisiana corporation ("UCFC") and PennCorp
Financial Group, Inc., a Delaware corporation ("PennCorp").
Preliminary Statement
UCFC and PennCorp (as assignee of UC Life Holding Corp.) are
parties to that certain Amended and Restated Stock Purchase Agreement dated as
of January 30, 1996 (as amended or restated from time to time, the
"Agreement"). Pursuant to the Agreement, PennCorp is today issuing to UCFC a
convertible promissory note in the principal amount of $14,999,000 (the
"Note").
NOW, THEREFORE, in consideration of the premises and the
mutual agreements set forth herein, UCFC and PennCorp hereby agree as follows:
1. UCFC shall, immediately upon receipt of the Note, and
pursuant to the procedures set forth therein, convert the Note into 483,839
shares of common stock, par value $0.01 per share, of PennCorp (the "Common
Stock"), and PennCorp shall deliver or cause to be delivered one or more
certificates for such 483,839 shares of Common Stock (the "Shares"), registered
in the name of UCFC, and in such denominations as UCFC shall have provided in
writing to PennCorp.
2. The certificates evidencing the Shares shall bear a
legend substantially identical to the following:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED,
TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN
THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS
EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION. IN
ADDITION, TRANSFER OF THIS SECURITY IS RESTRICTED AS SET FORTH
IN THAT CERTAIN CONVERSION, STANDSTILL AND REGISTRATION
<PAGE> 2
RIGHTS AGREEMENT DATED JULY 24, 1996 BETWEEN PENNCORP
FINANCIAL GROUP, INC. AND UNITED COMPANIES FINANCIAL
CORPORATION, A COPY OF WHICH IS AVAILABLE FROM THE SECRETARY
OF PENNCORP FINANCIAL GROUP, INC."
Upon a sale of any of the Shares under the Shelf Registration Statement (as
defined below) as permitted by this Agreement, PennCorp agrees to instruct its
stock transfer agent to issue certificate(s) evidencing the number of Shares
being sold without the foregoing legend.
Except for sales of the Shares pursuant to the Shelf Registration Statement,
the Shares shall not be transferable unless and until PennCorp has received
such opinions of counsel as to compliance with all applicable federal and state
securities laws, and other certificate and documentation, as it may reasonably
request.
3. PennCorp represents and warrants to UCFC that the
Shares, upon issuance upon conversion of the Note as contemplated by Paragraph
1 above, will be (a) duly authorized, validly issued, fully paid and
nonassessable and (b) free and clear of all liens, claims and encumbrances
other than those created by any action or inaction of UCFC. PennCorp shall use
commercially reasonable efforts to cause the Shares to be listed on the New
York Stock Exchange, subject to notice of issuance, as promptly as practicable,
but in no event later than the end of the Lock-Up Period (as hereinafter
defined). PennCorp further represents and warrants to UCFC that as of July 23,
1996 it had issued and outstanding 28,099,745 shares of Common Stock.
4. PennCorp and UCFC each represent and warrant to the
other that (a) it has the corporate power and authority to enter into and
perform its obligations under this Agreement, (b) this Agreement has been duly
and validly authorized by all necessary action, corporate or otherwise, (c)
this Agreement has been duly executed and delivered by it, and (d) this
Agreement constitutes the valid and legally binding obligation of it,
enforceable against it in accordance with its terms, except that (i) the
enforceability hereof may be limited by bankruptcy, insolvency, reorganization,
fraudulent conveyance, moratorium or other similar laws now or hereinafter in
effect relating to creditors' rights generally and (ii) the remedy of specific
performance and other forms of equitable relief may be subject to certain
equitable defenses and to the discretion of the court before which proceedings
therefor may be brought.
2
<PAGE> 3
5. UCFC agrees that it will not sell, offer to sell,
contract to sell or otherwise transfer or dispose of any of the Shares (or any
securities convertible into or exercisable or exchangeable for the Shares), or
grant any options or warrants to purchase the Shares, pursuant to which the
sale or transaction will occur during the period of 180 days after the date of
original issuance of the Shares (the "Lock-Up Period") without the prior
written consent of PennCorp.
6. For so long as UCFC shall own at least 1% of
PennCorp's outstanding Common Stock, or, if shorter, until the first
anniversary of the date hereof, UCFC will not, and will cause each of its
subsidiaries not to, singly or as part of a partnership, limited partnership,
syndicate or other group (as those terms are used in Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended) (the "Securities Exchange Act"),
directly or indirectly, without the approval of the Board of Directors of
PennCorp:
(a) acquire, offer to acquire, or agree to acquire, by
purchase, gift or otherwise, any Voting Securities (as hereinafter defined)
except pursuant to a stock split, stock dividend, rights offering,
recapitalization, reclassification or similar transaction; provided, however,
that nothing in this clause (a) shall prevent UCFC from acquiring any Voting
Securities (i) solely for the purposes of hedging the Shares, (ii) solely for
the purpose of covering short positions or (iii) so long as after any such
acquisition, UCFC owns less than or equal to 2% of the outstanding Common
Stock;
(b) make, or in any way participate in, any solicitation
of proxies to vote, solicit any consent or communicate with or seek to advise
or influence any person or entity with respect to the voting of, any Voting
Securities or become a participant in an election contest (as such terms are
defined or used in Rule 14a-11 under the Securities Exchange Act) with respect
to the Company;
(c) form, join or encourage the formation of, any person
(within the meaning of Section 13(d)(3) of the Securities Exchange Act) with
respect to any Voting Securities;
(d) deposit any Voting Securities into a voting trust or
subject any Voting Securities to any arrangement or agreement with respect to
the voting thereof;
(e) initiate, propose or otherwise solicit stockholders
for the approval of one or more stockholder proposals with respect to PennCorp
as described in Rule 14a-8 under the Securities Exchange Act, or induce or
3
<PAGE> 4
attempt to induce any other person to initiate any stockholder proposal;
(f) vote any Voting Securities in favor of the election
to the Board of Directors of PennCorp of, or otherwise seek to elect to the
Board of Directors of PennCorp, any person not recommended by the Board of
Directors of PennCorp;
(g) call or seek to have called any meeting of the
stockholders of PennCorp;
(h) act to seek to control, disrupt or influence the
management, policies or affairs of PennCorp;
(i) sell or otherwise transfer in any manner any Voting
Securities to any person (within the meaning of Section 13(d)(3) of the
Securities Exchange Act) who has filed prior thereto a disclosure with the
Commission under the Securities Exchange Act stating that such person owns more
than ten percent (10%) of any class of Voting Securities or who, to UCFC's
actual knowledge, owns more than ten percent (10%) of any class of Voting
Securities; or who, without the approval of the Board of Directors of PennCorp,
has publicly proposed a business combination or similar transaction with, or a
change of control of, PennCorp or who has publicly proposed a tender offer for
Voting Securities or who has discussed the possibility of proposing a business
combination or similar transaction with, or a change in control of, PennCorp
with UCFC or any of its affiliates;
(j) solicit, seek to effect, negotiate with or provide
any information to any other party with respect to, or make any statement or
proposal, whether written or oral, to the Board of Directors of PennCorp or any
director or officer of PennCorp or otherwise make any public announcement or
proposal whatsoever with respect to, any form of business combination
transaction involving PennCorp, including, without limitation, a merger,
exchange offer or liquidation of PennCorp's assets, or any restructuring,
recapitalization or similar transaction with respect to PennCorp; or
(k) instigate or encourage any third party to do any of
the foregoing.
7. For purposes of Paragraph 6 above, "Voting
Securities" shall mean any securities of PennCorp entitled to vote or take
action by written consent, or securities convertible into or exchangeable or
exercisable for such securities.
4
<PAGE> 5
8.(a) PennCorp shall cause to be filed with the Securities and
Exchange Commission (the "Commission") on or prior to 120 days after the date
hereof, a shelf registration statement pursuant to Rule 415 under the
Securities Act (as may then be amended) (the "Shelf Registration Statement") on
Form S-1 or Form S-3, as determined by PennCorp, to cover resales of Transfer
Restricted Securities (as hereinafter defined). UCFC shall have provided the
information required pursuant to Section 8(b) hereof. PennCorp shall use its
reasonable best efforts to cause such Shelf Registration Statement to be
declared effective by the Commission on or prior to 180 days after the Closing
Date. PennCorp shall use its commercially reasonable efforts to keep such
Shelf Registration Statement continuously effective for a period ending two
years from the effective date thereof or such shorter period that will
terminate when each of the Transfer Restricted Securities covered by the Shelf
Registration Statement shall cease to be a Transfer Restricted Security.
If there shall occur any event that would cause the Shelf
Registration Statement (i) to contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading or (ii) to be not effective and
usable for resale of Transfer Restricted Securities during the period that such
Shelf Registration Statement is required to be effective and usable, PennCorp
shall as promptly as practicable file an amendment to the Shelf Registration
Statement, in the case of clause (i), correcting any such misstatement or
omission, and in the case of either clause (i) or (ii), use its reasonable best
efforts to cause such amendment to be declared effective and such Shelf
Registration Statement to become usable as soon as practicable thereafter, and
the foregoing two year period during which such Shelf Registration Statement is
to be kept effective shall be extended by a period equal to the period it was
not effective.
Notwithstanding anything to the contrary in this Section 8,
PennCorp may prohibit offers and sales of Transfer Restricted Securities
pursuant to the Shelf Registration Statement at any time if (A)(i) it is in
possession of material non-public information, (ii) the Board of Directors of
PennCorp determines (based on advice of counsel) that such prohibition is
necessary in order to avoid a requirement to disclose such material non-public
information and (iii) the Board of Directors of PennCorp determines in good
faith that disclosure of such material non-public information would not be in
the best interests of PennCorp and its shareholders or (B) PennCorp has made a
public announcement relating to an acquisition or business combination
transaction including PennCorp and/or one or
5
<PAGE> 6
more of its subsidiaries (i) that is material to PennCorp and its subsidiaries
taken as a whole and (ii) the Board of Directors of PennCorp determines in good
faith that offers and sales of Transfer Restricted Securities pursuant to the
Shelf Registration Statement prior to the consummation of such transaction (or
such earlier date as the Board of Directors shall determine) is not in the best
interests of PennCorp and its shareholders or (C) (i) disclosure is required in
the Shelf Registration Statement of financial information of any person or
entity other than PennCorp or its subsidiaries and affiliates pursuant to
Article 3 or Article 11 of Regulation S-X under the Securities Act and (ii) any
of such required financial information (including related audit reports and
consents of independent accountants) is not available to PennCorp after use of
commercially reasonable efforts to obtain such financial information) (the
period during which any such prohibition of offers and sales of Transfer
Restricted Securities pursuant to the Shelf Registration Statement is in effect
pursuant to clause (A) or (B) of this subparagraph (a) is referred to herein as
a "Suspension Period"). A Suspension Period shall commence on and include the
date on which PennCorp provides written notice to UCFC that offers and sales of
Transfer Restricted Securities cannot be made thereunder in accordance with
this Section 8 and shall end on the date on which UCFC is advised in writing by
PennCorp that offers and sales of Transfer Restricted Securities pursuant to
the Shelf Registration Statement and use of the prospectus constituting a part
of the Shelf Registration Statement may be resumed; provided, however, that the
aggregate number of days in all Suspension Periods during any calendar year
shall not exceed 90.
(b) UCFC may not include any of its Transfer Restricted
Securities in any Shelf Registration Statement pursuant to this Agreement
unless UCFC furnishes to PennCorp in writing, within 10 business days after
receipt of a request therefor, such public information concerning UCFC as
PennCorp may reasonably request for use in connection with any Shelf
Registration Statement or prospectus or preliminary prospectus included
therein.
(c) All expenses incident to PennCorp's performance of or
compliance with its obligations to register and list the Shares, and maintain
the effectiveness thereof, as set forth in this Agreement will be borne by UCFC
(and, if applicable, reimbursed to PennCorp promptly following receipt by UCFC
of appropriate documentation); provided, however, that UCFC's obligation to pay
expenses pursuant to this Section 8(c) shall not exceed 50% of the first
$50,000 of expenses, with all other expenses being borne by PennCorp. Such
expenses shall include, without limitation, (i) all registration and filing
fees (including
6
<PAGE> 7
those of the Commission and the National Association of Securities Dealers,
Inc.)), (ii) fees and expenses of compliance with all applicable state
securities or "blue sky" laws, (iii) printing and engraving expenses, (iv) fees
and disbursements of counsel and independent accountants for PennCorp, (v)
listing fees on any applicable stock exchange or trading system, and (vi)
rating agency fees.
(d) For purposes of this Section 8, "Transfer Restricted
Securities" shall mean each Share, until each such Share (A) has been
effectively registered under the Securities Act and disposed of in accordance
with the Shelf Registration Statement covering it, (B) is distributed to the
public pursuant to Rule 144, (C) is sold or is available to be sold pursuant to
Rule 144(k) (or any similar provisions then in force) under the Securities Act
or otherwise or (D) is sold pursuant to Rule 904 of Regulation S under the
Securities Act.
9. If, after the end of the Lock-Up Period and on or prior to
the first anniversary of the date hereof (the "Payment Period"), UCFC desires
to sell any or all of the Shares in one or more transactions, then in each case
UCFC shall promptly so notify PennCorp, and request PennCorp's assistance in
such sale, and PennCorp shall provide such assistance. As consideration for
such assistance, UCFC shall pay to PennCorp, with respect to each such sale
consummated during the Payment Period, promptly following the consummation of
any such sale, $600,000 (or, if less than all of the Shares are sold, then a
percentage of $600,000 calculated by multiplying $600,000 by a fraction, the
numerator of which is the number of Shares so sold, and the denominator of
which is 483,839, appropriately adjusted for stock splits, stock dividends, and
other similar transactions) (such $600,000, or any portion thereof, the
"Specified Fee"); provided, however, that no portion of the Specified Fee shall
be paid unless the net amount received by UCFC in any such sale (net of
brokerage commissions, fees and expenses contemplated by Section 8(c) hereof)
and other direct selling expenses, and net of the Specified Fee) is greater
than $31.00 per Share.
10.(a) All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telex, telecopier or air
courier guaranteeing overnight delivery:
7
<PAGE> 8
If to UCFC:
United Companies Financial Corporation
P.O. Box 1591 (70821)
4041 Essen Lane
Baton Rouge, Louisiana 70809
Telephone: (504) 924-6007 (ext. 2282)
Telecopy: (504) 924-4324
Attention: Dale E. Redman
If to PennCorp:
c/o PennCorp Financial, Inc.
3 Bethesda Metro Center
Suite 1600
Bethesda, Maryland 20814
Telephone: (301) 656-1777
Telecopy: (301) 657-4770
Attention: General Counsel
11. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York, applicable to contracts
executed in and to be performed entirely within that state.
8
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
UNITED COMPANIES FINANCIAL
CORPORATION
By:
------------------------------------
Name: Dale E. Redman
Title:Executive Vice President
and Chief Financial
Officer
PENNCORP FINANCIAL GROUP, INC.
By:
------------------------------------
Name: Scott Silverman
Title:Senior Vice President,
General Counsel and
Secretary
9
<PAGE> 1
EXHIBIT 10.3
ASSIGNMENT AGREEMENT
THIS ASSIGNMENT AGREEMENT, dated as of June 19, 1996,
("Assignment Agreement") is by and between PennCorp Financial Group, Inc., a
Delaware corporation ("PennCorp") and Knightsbridge Capital Fund I, L.P., a
Delaware limited partnership ("Knightsbridge").
PRELIMINARY STATEMENT
WHEREAS, Knightsbridge caused to be formed and incorporated UC
Life Acquisition Corp. ("UC Life Acquisition") and UC Life Holding Corp. ("UC
Life Holding") in Delaware on January 16, 1996 and Knightsbridge had the
exclusive rights to subscribe to the stock of both UC Life Acquisition and UC
Life Holding; and
WHEREAS, UC Life Acquisition was incorporated with the
intention that UC Life Acquisition would acquire all of the stock of UC Life
Holding and UC Life Holding would become a wholly-owned subsidiary of UC Life
Acquisition; and
WHEREAS, UC Life Holding was incorporated for the purpose of
entering into that certain Amended and Restated Stock Purchase Agreement, dated
as of January 30, 1996 (as amended or restated from time to time, the "Stock
Purchase Agreement") by and between UC Life Holding and United Companies
Financial Corporation, a Louisiana corporation ("UCFC"); and
WHEREAS, UC Life Holding did enter into the Stock Purchase
Agreement and thereby acquired the right to purchase all the outstanding shares
of common stock, $2.00 par value per share (the "Common Stock"), of United
Companies Life Insurance Company, a Louisiana stock life insurance company and
a wholly-owned subsidiary of UCFC (the "Company"); and
WHEREAS, pursuant to this Assignment Agreement, PennCorp
hereby wishes to purchase Knightsbridge's rights to subscribe to the stock of
UC Life Acquisition and UC Life Holding, and Knightsbridge desires to sell all
such rights; and
WHEREAS, PennCorp hereby agrees to release Knightsbridge from
any and all potential liability that may arise in connection with the Stock
Purchase Agreement.
NOW THEREFORE, in consideration of the promises and the mutual
agreements set forth below, UCFC and PennCorp hereby agree as follows:
<PAGE> 2
1. PennCorp hereby agrees to pay Knightsbridge seven
million five hundred thousand dollars ($7,500,000) within ninety days from the
date of this Assignment Agreement in immediately available funds by wire
transfer of New York Clearinghouse Funds (the "Payment").
2. In exchange for PennCorp's agreement to make the
Payment, Knightsbridge hereby sells, assigns, conveys and transfers to PennCorp
all of its right, title and interest in and to its rights to subscribe to the
stock of both UC Life Acquisition and UC Life Holding, which is the sole right
that Knightsbridge has relating to the acquisition of the Company.
3. Knightsbridge, upon receipt of the Payment, agrees to
deliver or cause to be delivered to PennCorp a receipt from Knightsbridge, in
form and substance reasonably satisfactory to PennCorp, evidencing the delivery
of the Payment by PennCorp.
4. PennCorp hereby releases Knightsbridge, its partners,
affiliates, representatives and agents, and each of their respective successors
and assigns from any and all liabilities, losses, claims, damages, obligations,
costs or expenses (including reasonable attorneys' fees, attorneys' litigation
support costs and costs of investigating possible claims) which Knightsbridge
ever had, now has or may have in the future pursuant to the Stock Purchase
Agreement, the acquisition of all of the issued and outstanding capital stock
of UC Life Holding and the acquisition of all of the Common Stock of the
Company or arising out of or related thereto.
5. PennCorp, to the full extent permitted by law, shall
indemnify and hold harmless each of Knightsbridge, David J. Stone, Steven W.
Fickes, Allan D. Greenberg, their respective affiliates and their respective
partners, members, employees and agents ("Indemnified Persons") from and
against any and all liabilities, losses, claims, damages, obligations, costs or
expenses (including reasonable attorneys' fees, attorneys' litigation support
costs and costs of investigating possible claims) which such Indemnified
Persons may be or become subject to in connection with any matter arising from
or related to the Stock Purchase Agreement, the acquisition of all of the
issued and outstanding capital stock of UC Life Holding and the acquisition of
all of the Common Stock of the Company.
6. All notices, requests, demands and other
communications required or permitted hereunder shall be made in writing by
hand-delivery, first-class mail (registered or return receipt requested),
telex, telecopier or air courier guaranteeing overnight delivery:
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If to PennCorp Financial Group, Inc.
PennCorp Financial Group, Inc.
745 Fifth Avenue, 5th Floor
New York, NY 10151
Telephone: (212) 832-0700
Telecopy: (212) 758-5442
If to Knightsbridge Capital Fund I, L.P.:
Knightsbridge Capital Fund I, L.P.
745 Fifth Avenue, 5th Floor
New York, NY 10151
Telephone: (212) 832-0700
Telecopy: (212) 758-5442
7. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York, applicable to contracts
executed in and to be performed entirely within that state.
8. This Assignment Agreement may be executed in several
counterparts, each of which shall be deemed to be an original and all of which
shall constitute one and the same instrument.
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<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this
Assignment Agreement to be executed as of the date first written above by their
respective officers thereunto duly authorized.
PENNCORP FINANCIAL GROUP, INC.
By: /s/ SCOTT D. SILVERMAN
-------------------------------
Name: Scott D. Silverman
Title: Senior Vice President,
General Counsel and
Secretary
KNIGHTSBRIDGE CAPITAL FUND I, L.P.
By: KNIGHTSBRIDGE CAPITAL, L.L.C.
as General Partner
By: /s/ DAVID J. STONE
-------------------------------
David J. Stone
Manager
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EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference into the Registration Statement on
Form S-8 (File Nos. 333-2930 and 333-2928) of PennCorp Financial Group, Inc.
relating to the Senior Management Warrant Award Plan and the PennCorp Financial
Group, Inc. Stock Option Plan, of our report dated February 29, 1996, on the
consolidated balance sheets of United Companies Life Insurance Company and its
subsidiary as of December 31, 1995 and 1994, and the related consolidated
statements of income, stockholder's equity, and cash flows for each of the three
years in the period ended December 31, 1995, and all related schedules, which
report is included in the PennCorp Financial Group, Inc. Current Report of Form
8-K, filed with the Securities and Exchange Commission.
Deloitte & Touche LLP
Baton Rouge, Louisiana
August 8, 1996
