<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 (DATE OF EARLIEST EVENT REPORTED): MARCH 31, 1999
PENNCORP FINANCIAL GROUP, INC.
(Exact name of Registrant as specified in charter)
DELAWARE 1-11422 13-3543540
(State or other jurisdiction (Commission file number) (I.R.S. employer
of incorporation) identification no.)
C/O SOUTHWESTERN FINANCIAL SERVICES CORPORATION
717 NORTH HARWOOD STREET
DALLAS, TEXAS 75201
(Address of principal executive offices)
Registrant's telephone number, including area code: (214) 954-7111
---------------
<PAGE> 2
ITEM 2. Disposition.
On March 31, 1999, PennCorp Financial Group, Inc.'s (the "Company")
subsidiary, Pacific Life and Accident Insurance Company ("PLAC"), consummated
the sale of all of the outstanding shares of common stock of Professional
Insurance Company ("Professional") to GE Financial Assurance Holdings, Inc.
("GEFAH") pursuant to that certain Stock Purchase Agreement dated as of December
31, 1998, between GEFAH and PLAC (a copy of the purchase agreement relating to
the sale of Professional was filed as an exhibit to the Company's Form 8-K,
filed with the Securities and Exchange Commission on January 11, 1999), for a
net purchase price (after required capital contributions, the payment of
transaction fees and expenses, the settlement of intercompany balances and the
payment of certain amounts as required by the Stock Purchase Agreement), as
subject to adjustment as provided therein, of approximately $40.5 million in
cash. As required by the Amendment described below, $40 million of such purchase
price was paid on April 1, 1999 to the lenders under the Company's Amended
Credit Agreement (as hereinafter defined) to reduce the amount of indebtedness
outstanding thereunder.
ITEM 5. Other Events.
Effective as of March 31, 1999, the Credit Agreement dated as of March
12, 1997, as previously amended, among the Company, the lenders signatory
thereto, the Managing Agents and the Co-Agents named therein and The Bank of New
York, as administrative agent, was further amended (the "Amendment" and, as
amended, the "Amended Credit Agreement") to, among other things, (i) accelerate
the maturity date of the loans, (ii) increase pricing applicable to the loans,
(iii) provide for mandatory prepayments and commitment reductions, (iv) restrict
the use of proceeds of the loans, (v) add covenants with respect to the Company
and its subsidiaries including, without limitation, covenants with respect to
cash management and use of cash proceeds held by the agent in a cash collateral
account and (vi) adds certain additional "events of default." In conjunction
with the execution of the Amendment, certain subsidiaries of the Company entered
into security agreements providing for a pledge of all or substantially all of
their respective assets.
On the effective date of the Amendment, the total available commitments
thereunder (and the commitments of each of the banks) were reduced to $441
million. Additionally, upon the sale of the Company's Career Sales Division to
Universal American Financial Corp. ("Universal American"), the commitments will
be further reduced by $2 million. The Amendment restricts the use of proceeds of
the loans to payment of interest expense on the loans under the Amended Credit
Agreement and the Company's 9 1/4% Senior Subordinated Notes due 2003.
Additionally, the Company is restricted from using the proceeds of the loans
unless and until the amount in the Collateral Account (as hereinafter defined)
is zero.
The Amended Credit Agreement provides that upon the sale of (i) the
Career Sales Division to Universal American (a copy of the purchase agreement
relating to the sale of the Career Sales Division was filed as an
exhibit to the Company's Form 8-K, filed with the Securities and Exchange
Commission on January 11, 1999), (ii) United Life & Annuity Insurance Company,
CyberLink Development, Inc., UC Mortgage Corp., United Variable Services, Inc.
and certain assets of Marketing One, Inc. (collectively, the "United Life
Companies") to ING America Insurance Holdings, Inc. ("ING") (a copy of the
purchase agreement relating to the sale of the United Life Companies is filed
as an exhibit to this Form 8-K, and (iii) Professional to GEFAH, the loans must
be prepaid in the amounts of $70 million, $127 million and $40 million,
respectively, with a concomitant reduction in the commitments. The prepayment of
$40 million in connection with the sale of Professional was made on April 1,
1999. Any net cash proceeds of such sales in excess of the foregoing are
required to be deposited with the agent in a cash collateral account in the name
of and under the sole dominion and control of the agent (the "Collateral
Account"). Upon the sale
2
<PAGE> 3
of KIVEX, Inc. the loans must be prepaid and the commitments reduced by the
amount of the net cash proceeds of such sale.
The description of the Amendment above does not purport to be complete
and is qualified in its entirety be reference to the Amendment, which is filed
as an exhibit to this Form 8-K.
ITEM 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(c) Exhibits.
10.1 - Stock Purchase Agreement dated as of December 31, 1998,
between GE Financial Assurance Holdings, Inc. and Pacific
Life and Accident Insurance Company.(1)
10.2 - Amendment No. 6 dated as of March 31, 1999, to Credit
Agreement, among the lenders signatory thereto, the
Managing Agents and the Co-Agents named therein and The
Bank of New York, as administrative agent.
10.3 - Purchase Agreement dated as of December 31, 1998, among
Universal American Financial Corp., PennCorp Financial
Group, Inc., Pacific Life and Accident Insurance Company,
Pennsylvania Life Insurance Company, Southwestern
Financial Corporation, Constitution Life Insurance
Company and PennCorp Financial Services, Inc.(1)
10.4 - Purchase Agreement dated February 21, 1999, among ING
America Insurance Holdings, Inc., PennCorp Financial
Group, Inc., Pacific Life and Accident Insurance Company,
Marketing One Financial Corporation and Marketing One,
Inc.
99 - Press Release
- --------------
(1) Incorporated by reference to the Company's Form 8-K (File No. 1-11422)
filed on January 11, 1999.
3
<PAGE> 4
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PENNCORP FINANCIAL GROUP, INC.
Date: April 5, 1999 By: /s/ SCOTT D. SILVERMAN
---------------------------------------
Scott D. Silverman
Executive Vice President and Secretary
4
<PAGE> 5
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
10.1 - Stock Purchase Agreement dated as of December 31, 1998,
between GE Financial Assurance Holdings, Inc. and Pacific
Life and Accident Insurance Company.(1)
10.2 - Amendment No. 6 dated as of March 31, 1999, to Credit
Agreement, among the lenders signatory thereto, the
Managing Agents and the Co-Agents named therein and The
Bank of New York, as administrative agent.
10.3 - Purchase Agreement dated as of December 31, 1998, among
Universal American Financial Corp., PennCorp Financial
Group, Inc., Pacific Life and Accident Insurance Company,
Pennsylvania Life Insurance Company, Southwestern
Financial Corporation, Constitution Life Insurance
Company and PennCorp Financial Services, Inc.(1)
10.4 - Purchase Agreement dated February 21, 1999, among ING
America Insurance Holdings, Inc., PennCorp Financial
Group, Inc., Pacific Life and Accident Insurance Company,
Marketing One Financial Corporation and Marketing One,
Inc.
99 - Press Release
</TABLE>
- --------------
(1) Incorporated by reference to the Company's Form 8-K (File No. 1-11422)
filed on January 11, 1999.
<PAGE> 1
AMENDMENT NO. 6
Dated as of March 31, 1999
to
CREDIT AGREEMENT
Dated as of March 12, 1997
and to
SECURITY AGREEMENT
Dated as of September 4, 1998
PENNCORP FINANCIAL GROUP, INC., a Delaware corporation (the
"Company"), the lenders signatory to the Credit Agreement referred to below
(the "Banks"), the Managing Agents and the Co-Agents named therein (the
"Agents") and THE BANK OF NEW YORK, as administrative agent for the Banks (the
"Administrative Agent"), hereby agree as follows:
I.
CREDIT AGREEMENT
1. Credit Agreement. (a) Reference is hereby made to the Credit
Agreement, dated as of March 12, 1997, among the Company, the Banks, the Agents
and the Administrative Agent (as amended, modified or waived prior to the date
hereof, the "Credit Agreement"). Terms used in this Amendment No. 6 (this
"Amendment") that are defined in the Credit Agreement and are not otherwise
defined herein are used herein with the meanings therein ascribed to them.
(b) The Credit Agreement as amended by this Amendment is and shall
continue to be in full force and effect and is hereby in all respects
confirmed, approved and ratified.
2. Amendments to the Credit Agreement. Upon and after the Amendment
No. 6 Effective Date (as defined below), the Credit Agreement shall be amended
as follows:
(a) Section 1.01 is hereby amended:
(i) to add, in alphabetical order, the following new
definitions:
"Amendment No. 6" shall mean Amendment No. 6, dated as of March 31,
1999, to the Agreement.
"Amendment No. 6 Effective Date" shall have the meaning ascribed to
that term in Amendment No. 6.
<PAGE> 2
"Applicable Base Rate Margin" shall mean 1.875%; provided that on
January 1, 2000, the Applicable Base Rate Margin shall be increased to 2.125%.
"Bank Account" shall mean a deposit or other bank account, "money
fund" account or fund, or like arrangement. "Deposit account" shall have the
meaning ascribed to that term in the Uniform Commercial Code.
"Basic Documents" shall mean, as applied to any Person, (a) such
Person's certificate of incorporation or charter or, if such Person is a
partnership, its partnership agreement; (b) such Person's by-laws or the
equivalent thereof; and (c) the Contracts, securities and instruments
evidencing or relating to such Person's outstanding Indebtedness and Capital
Securities.
"Capital Security" shall mean, with respect to any Person, (a) any
share of capital stock of or other unit of ownership interest in such Person or
(b) any security convertible into, or any option, warrant or other right to
acquire, any share of capital stock of or other unit of ownership interest in
such Person.
"Cisco Financing" shall mean a Contract between Kivex and Cisco
Systems Capital Corporation providing for Indebtedness of Kivex to Cisco
Systems Capital Corporation in a principal amount not in excess of $3,000,000,
and consistent with the business terms and conditions set forth on Amended
Schedule 2(a)(i) to Amendment No. 6.
"Company Security Agreement" shall mean the Security Agreement,
dated as of September 4, 1998, between The Bank of New York, as Collateral
Agent, and the Company.
"Commitment Stepdown Date" shall mean (a) the date on which the
closing contemplated by the Original PennUnion Purchase Contract occurs, or (b)
if the Termination Date shall have occurred and an Other Designated Asset
Purchase Contract providing for the sale of the PennUnion Assets shall have
been entered into, the date of the closing under such Other Designated Asset
Purchase Contract with respect to the PennUnion Assets.
"Core Assets" shall mean Security Life and Trust Insurance Company,
Occidental Life Insurance Company, American-Amicable Life Insurance Company of
Texas, and Southwestern Life Insurance Company and each of their respective
Subsidiaries.
"Designated Asset Sales" shall mean the First PennUnion Sale, the
PIC Sale, the United Life Sale, the Kivex Sale and any Other Designated Asset
Sale.
"Designated Asset Sale Proceeds" shall have the meaning ascribed to
that term in Section 8.29(b).
"Depositary Bank" shall mean a Person listed under the caption
"Depositary Bank" on Amended Schedule 8.29(a) to Amendment No. 6.
"Existing Liability" shall mean any Liability of a Subsidiary to
another Subsidiary outstanding on the Amendment No. 6 Effective Date, to the
extent set forth on Amended Schedule 8.08(b) to Amendment No. 6.
2
<PAGE> 3
"Existing Securing Party" shall have the meaning ascribed to that
term in Section 8.19(a)(ii).
"First PennUnion Sale" shall mean the sale of the PennUnion Assets
pursuant to the Original PennUnion Purchase Contract.
"Kivex" shall mean Kivex, Inc., a corporation organized under the
laws of Delaware.
"Kivex Sale" shall mean the sale or other disposition of all or
substantially all of the Capital Securities or the assets of Kivex.
"Knightsbridge" shall mean KB Management, L.L.C., a New York
limited liability company.
"Knightsbridge Management Agreement" shall mean the Advisory and
Management Services Agreement effective January 1, 1998 among KB Management,
L.L.C. (formerly known as Knightsbridge Management, L.L.C.) and the
Subsidiaries parties thereto.
"Mandated Capital Requirement" shall mean, as applied to an
Insurance Company, an order or other directive, in writing, from the Applicable
Insurance Regulatory Authority having jurisdiction over such Insurance Company
requiring such Insurance Company to increase its capital by a specified amount.
"Mandated Capital Requirement Capital Securities" shall mean
Capital Securities of the Company:
(i) that were issued and sold to raise funds to fund a Mandated
Capital Requirement;
(ii) the net proceeds (gross proceeds minus underwriting
discounts and commissions, or placement fees and expenses) of which were not in
excess of the amount of such Mandated Capital Requirement minus the amount of
all funds (including those in the Collateral Account) then available to the
Company for such purpose ("Available Funds");
(iii) the net proceeds of which were in fact used to fund such
Mandated Capital Requirement; and
(iv) was duly authorized by resolution (the "Resolution") of
the Board of Directors of the Company;
provided that on or before the issuance and disposition of such Capital
Securities, the Administrative Agent shall have received a certificate (to
which shall be attached a copy of the order or other directive (the "Order")
requiring such Mandated Capital Requirement and a copy of the Resolution) of
the Financial Officer (the delivery of which shall constitute a representation
and warranty made at the time of the delivery of such certificate that such
certificate is true and correct) stating that:
3
<PAGE> 4
(x) the attached copies of the Order and of the Resolution are true
and correct copies and, in the case of the Resolution, such Resolution was duly
adopted by the Board of Directors of the Company, and such Order and Resolution
continue to be in full force and effect; and
(y) the amount of the Available Funds is the amount specified in
the certificate and that there are no other funds available to the Company to
fund the Mandated Capital Requirement.
"Mandated Capital Requirement Indebtedness" shall mean Indebtedness
of the Company that:
(i) was incurred to fund a Mandated Capital Requirement;
(ii) was not in excess of the amount of such Mandated Capital
Requirement minus the amount of all funds (including those in the Collateral
Account) then available to the Company for such purpose ("Available Funds");
(iii) was in fact used to fund such Mandated Capital Requirement;
(iv) was duly authorized by the Board of Directors of the Company
by a resolution (the "Resolution"), which shall include the determination of
the Board of Directors that the amount required to fund such Mandated Capital
Requirement cannot be raised through the sale of the Company's Capital
Securities; and
(v) is Subordinated;
provided that on or before the incurrence of such Indebtedness, the
Administrative Agent shall have received a certificate (to which shall be
attached a copy of the order or other directive (an "Order") requiring such
Mandated Capital Requirement and a copy of the Resolution referred to above) of
the Financial Officer (the delivery of which shall constitute a representation
and warranty made at the time of the delivery of such certificate that such
certificate is true and correct) stating that:
(x) the attached copies of the Order and of the Resolution are true
and correct copies and, in the case of the Resolution, such Resolution as was
duly adopted by the Board of Directors of the Company, and continue to be in
full force and effect; and
(y) the amount of the Available Funds is the amount specified in
the certificate and that there are no other funds available to the Company to
fund the Mandated Capital Requirement.
"New Securing Party" shall have the meaning ascribed to that term
in Section 8.19(a)(ii).
"Operating Bank Account" shall mean a Bank Account of an Operating
Bank Account Subsidiary that is listed on Amended Schedule 8.29(a) to Amendment
No. 6.
4
<PAGE> 5
"Operating Bank Account Indebtedness" shall mean the obligation of
the Company to pay to an Operating Bank Account Subsidiary amounts from time to
time transferred by such Operating Bank Account Subsidiary to the Company from
its Operating Bank Accounts pursuant to Section 8.29(b).
"Operating Bank Account Subsidiary" shall mean a Subsidiary (other
than an Insurance Company or a Subsidiary of an Insurance Company) in whose
name an Operating Bank Account is maintained.
"Original PennUnion Purchase Contract" shall mean the "PennUnion
Purchase Contract" as that term is defined in the PennUnion Consent.
"Other Designated Assets" shall mean Property that is the subject
of an Other Designated Asset Purchase Contract, which Property, after the
Termination Date, may include the PennUnion Assets, but in no event, or at any
time, may include Property that is, or at any time was, the subject of the PIC
Purchase Contract or the United Life Purchase Contract, or that is the Capital
Securities or Assets of Kivex or of Marketing One Financial Corporation or any
of its Subsidiaries.
"Other Designated Asset Sale" shall mean a sale of Other Designated
Assets (which may include a sale of Other Designated Assets pursuant to a
Reinsurance Transaction) pursuant to an Other Designated Asset Purchase
Contract.
"Other Designated Asset Purchase Contract" shall mean a Contract,
in form and substance, and between Persons, satisfactory to the Majority Banks,
providing for the sale of the Property subject to such Contract.
"PennUnion Assets" shall mean the Property that is the subject of
the Original PennUnion Purchase Contract.
"PennUnion Consent" shall mean the consent of the Banks to the
First PennUnion Sale pursuant to the terms of Amendment No. 5 to the Credit
Agreement.
"Permitted Liability" shall mean any Liability, other than
Indebtedness, of a Subsidiary to another Subsidiary that arises after the
Amendment No. 6 Effective Date under a Contract listed on the Exhibit to
Amended Schedule 8.08(b) to Amendment No. 6, as such Contract is in effect on
the Amendment No. 6 Effective Date.
"Permitted Operating Account Withdrawal" shall mean a withdrawal
from an Operating Bank Account to fund a payment listed or described on Amended
Schedule 8.29(b) to Amendment No. 6, subject to any limitations there set
forth; provided that such Amended Schedule 8.29(b) shall not constitute part of
Amendment No. 6 until the Section 8.29 Effective Date.
"Permitted Stock Option" shall mean a Scheduled Stock Option and a
Stock Option issued pursuant to a Scheduled Stock Option Plan, provided that,
in the case of such Schedule Stock Option, it is in the form it existed on the
Amendment No. 6 Effective Date and, in the case of a Stock Option issued
pursuant to a Scheduled Stock Option Plan, such Scheduled
5
<PAGE> 6
Stock Option Plan was in the form it existed on the Amendment No. 6 Effective
Date on the date of such issuance, without, in the case of either such
Scheduled Stock Option or Scheduled Stock Option Plan giving effect to any
amendments on or after the Amendment No. 6 Effective Date other than, in the
case of Scheduled Stock Option Plans which provide for the issuance of Stock
Options relating to the Company's shares of common stock $.01 par value,
amendments entered into after the Amendment No. 6 Effective Date which amend
such Scheduled Stock Option Plans only to provide for increases in the number
of shares of such common stock that may be subject to Stock Options issuable
thereunder in an amount, in the aggregate for all such amendments of all such
Schedule Stock Option Plans, such that the number of shares of such common
stock thereafter issuable under such Scheduled Stock Option Plans together with
the number of shares of such common stock subject to Scheduled Stock Options
outstanding on the Amendment No. 6 Effective Date, will not exceed 22.5 % of
the Company's issued and outstanding shares of such common stock on the
Amendment No. 6 Effective Date.
"PIC Consent" shall mean the consent of the Banks to the PIC Sale
as defined in the letter dated January 15, 1999 from the Bank of New York to
the Company.
"PIC Purchase Contract" shall have the meaning ascribed to that
term in the definition of PIC Sale.
"PIC Sale" shall mean the sale of assets contemplated by that
certain Stock Purchase Agreement (the "PIC Purchase Contract") dated December
31, 1998, between Pacific Life and Accident Insurance Company and General
Electric Financial Assurance Holdings, Inc., in the form executed, as of the
Amendment No. 5 Effective Date, as such form may be amended or modified from
time to time after the Amendment No. 5 Effective Date, provided that any such
amendment or modification was, in the sound business judgment of the Company
and its Board of Directors, in the best interests of the Company, and provided
further that any such amendment or modification that reduced the aggregate
consideration to be received by the Company or the net cash component thereof
was consented to in writing by the Majority Banks; it being under-stood that
the reduction of the consideration to be received by the Company pursuant to
the exercise by the purchaser of a right under the PIC Purchase Contract or
because an insurance regulator required that a portion of the consideration be
invested in an Insurance Company would not be a reduction in the consideration
to be received by the Company requiring the consent of the Majority Banks.
"Possible Securing Party" shall have the meaning ascribed to that
term in Section 8.19(a)(ii).
"Prepayment" means, with respect to any Indebtedness, any payment
on account of the principal of such Indebtedness, other than a payment of
principal at a regularly scheduled maturity (without giving effect to any
acceleration or required or optional prepayment), whether such payment is by
way of purchase, repayment, defeasance, redemption or other entitlement,
whether such payment is made by the Person obligated in such Indebtedness or
another Person.
6
<PAGE> 7
"Questionnaire" shall mean a Questionnaire in the form attached
hereto as Amended Schedule 4(a)(v) to Amendment No. 6.
"Reduced Commitment" shall mean, as applied to any Bank, the amount
at such time of such Bank's Commitment, minus the amount set forth opposite
such Bank's name under the caption "Reduced Commitment" on the signature pages
hereof.
"Scheduled InterSubsidiary Mergers" shall mean the transactions
listed on Amended Schedule 8.06 to Amendment No. 6.
"Scheduled Stock Option Plans" shall mean the Contracts listed on
Amended Schedule 8.23.
"Scheduled Stock Options" shall mean Stock Options listed on
Amended Schedule 8.23 to Amendment No. 6 or issued pursuant to Scheduled Stock
Option Plans.
"Section 8.29 Effective Date" shall have the meaning ascribed to
that term in Section 8.29(c).
"Secured Obligations" shall have the meaning ascribed to that term
in the Security Agreements.
"Securing Party" shall mean a New Securing Party, an Existing
Securing Party or a Possible Securing Party.
"Stock Option" shall mean any (a) option, warrant or similar right
to purchase Capital Securities of the Company or a Subsidiary and (b) "stock
appreciation right", "phantom stock option" or the like the subject of which is
any such Capital Security.
"Subordinated" shall mean, in the case of Indebtedness of the
Company, that is:
(a) Mandated Capital Requirement Indebtedness, that such
Indebtedness is subordinated to Senior Bank Debt (as hereinafter defined) on
the same terms as the Subordinated Notes are subordinated, assuming that the
Senior Bank Debt is both "Senior Indebtedness" and "Designated Senior
Indebtedness", as those terms are defined in the Indenture, dated as of
December 23, 1993, between the Company, as Issuer, and The Bank of New York, as
Trustee;
(b) Indebtedness, other than Operating Bank Account Indebtedness
payable to a Subsidiary, that neither the principal of, nor interest on, such
Indebtedness may be paid during a Default, without the prior written consent of
the Majority Banks; all such Indebtedness of the Company payable to a
Subsidiary shall, without any further action, be deemed to be Subordinated;
provided that, in the case of any such Indebtedness payable to an Insurance
Company or a Subsidiary of an Insurance Company, such Indebtedness shall be
Subordinated only to the extent permitted under Applicable Law;
(c) Operating Bank Account Indebtedness that represents a transfer
of Designated Asset Sale Proceeds, that neither the principal of, nor interest
on, such Indebtedness
7
<PAGE> 8
may be paid until the Secured Obligations are paid in full or otherwise
satisfied. All such Indebtedness shall, without any further action, be deemed
to be Subordinated.
For this purpose, "Senior Bank Debt" shall mean (a) the Secured Obligations and
(b) any Indebtedness of the Company the proceeds of which were used to repay
(i) the Secured Obligations or (ii) any Senior Bank Debt (including Senior Bank
Debt which is such by virtue of this clause (b)), provided, that any
Indebtedness that otherwise would be Senior Bank Debt shall not be Senior Bank
Debt if the Persons to whom such Indebtedness is payable shall have agreed in
writing that such Indebtedness shall not constitute Senior Bank Debt.
"Termination Date" shall mean, as applied to the Original PennUnion
Purchase Contract, the termination of that Contract without the closing
contemplated thereby having occurred.
"Uniform Commercial Code" shall have the meaning ascribed to that
term in the Security Agreements.
"United Life Consent" shall mean the United Life Consent Agreement,
dated as of March 5, 1999 between the Company and the Banks that are
signatories thereto.
"United Life Purchase Contract" shall have the meaning ascribed to
that term in the definition of United Life Consent.
"United Life Sale" shall mean the sale of assets contemplated by
the United Life Purchase Contract, dated as of February 21, 1999 among ING
America Insurance Holdings, Inc., the Company, Pacific Life and Accident
Insurance Company, Marketing One Financial Corporation and Marketing One, Inc.,
in the form attached to Amendment No. 6 to the Credit Agreement, as such form
may be amended or modified from time to time after the Amendment No. 6
Effective Date; provided that any such amendment or modification that reduced
the Gross Proceeds (as defined in the United Life Consent), or amended or
modified any other material term of the United Life Purchase Contract, was
furnished to the Banks prior to its execution and delivery and was consented to
in writing by the Majority Banks.
"Year 2000 Problem" shall mean any significant risk that computer
hardware, software or equipment containing embedded microchips essential to the
business or operations of the Company or any of its Subsidiaries will not, in
the case of dates or time periods occurring after December 31, 1999, function
at least as effectively and reliably as in the case of times or time periods
before January 1, 2000, including the making of accurate leap year
calculations.
(ii) to amend the following existing definitions to read as
follows:
"Applicable Insurance Regulatory Authority" shall mean, for any
Insurance Company, an insurance commission or similar administrative authority
or agency having regulatory authority over such Insurance Company.
"Applicable Margin" shall mean 3.875%; provided that on January 1,
2000, the Applicable Margin will be increased to 4.125%.
8
<PAGE> 9
"Commitment" shall mean (i) the amount set opposite each Bank's
name on the signature pages of Amendment No. 6 under the caption "Initial
Commitment" and, on and after the Commitment Stepdown Date, under the caption
"Reduced Commitment", or, in the case of a Bank that becomes a Bank pursuant to
an assignment, the amount of the assignor's Commitment assigned to such Bank
(in either case as the same may be terminated or reduced at any time or from
time to time pursuant to Section 2.04, canceled pursuant to Section 9 or
increased or reduced at any time or from time to time pursuant to assignments
made in accordance with Section 11.06) or (ii) as the context may require, the
obligation of each Bank to make RC Loans in an aggregate unpaid principal
amount not exceeding such amount.
"Existing Indebtedness" shall mean any Indebtedness outstanding on
the Amendment No. 6 Effective Date, to the extent set forth on Amended Schedule
8.08(a) to Amendment No. 6.
"Information" shall mean data, certificates, reports, statements
(including financial statements), opinions of counsel delivered to the
Administrative Agent and the Banks pursuant to the provisions of the Loan
Documents, documents and other information, in each case delivered by the
Company or a Subsidiary (or, in the case of any such being delivered in writing
by any third party, at the request of the Company or a Subsidiary) to the
Administrative Agent or any Bank.
"Interest Coverage Ratio" shall mean, as of any date,
A + B
-----
C + D
where
A is equal to the earnings of the Insurance Companies (determined
on a consolidated basis, without duplication, in accordance with SAP
and (x) for the purposes of the covenant set forth in Section 8.11(a),
before adjustment for capital gains or losses (as such amount is
shown, in the case of U.S.-domiciled Insurance Companies, on the most
recent Statutory Statement of each Insurance Company at page 4, line
29, column 1 or wherever such reference is then being made) and (y)
for purposes of the covenant set forth in Section 8.11(b), after
adjustment for capital gains or losses (as such amount is shown, in
the case of U.S.-domiciled Insurance Companies, on the most recent
Statutory Statement of each Insurance Company at page 4, line 33,
column 1 or wherever such reference is then being made, for the
current year-to-date reporting period, plus, to the extent deducted
from earnings in accordance with SAP, all interest payments under the
Surplus Notes made by the Surplus Note Companies during such period,
minus, to the extent not already deducted in calculating such
earnings, the aggregate amount of taxes paid in cash by the Insurance
Companies during such period, provided that, for purposes of
calculating the "A" portion of the "Interest Coverage Ratio", there
shall be excluded from the calculation of statutory earnings for
calendar year 1999, up to $7,000,000 of losses, if actually incurred,
in connection with the Concept 90 exchange or refund program of
Security Life and Trust Insurance Company;
9
<PAGE> 10
B is equal to the amount of Net Income of the Company (before
Interest Expense, taxes, depreciation, amortization, Income from
Subsidiaries and other non-cash charges) and its non-Insurance Company
Subsidiaries for the current year-to-date reporting period;
C is equal to the amount of actual Charges payable by the Company
for the current year-to-date reporting period; and
D is equal to the amounts payable by the Company in respect of
Interest Expense for borrowed money of the Company for the current
year-to-date reporting period."
"Investment" of any Person shall mean (a) any Capital Security,
evidence of Indebtedness or other security or instrument issued by any other
Person, (b) any loan, advance or extension of credit to (including Guarantees
of Liabilities of), or any contribution to the capital of, any other Person and
(c) any other investment in any other Person.
"Maturity Date" shall mean May 31, 2000.
"Net Worth" shall mean, for the Company and its Consolidated
Subsidiaries, on any date, the sum (determined on a consolidated basis without
duplication in accordance with GAAP) of the following:
(a) total shareholders' equity, plus
(b) to the extent not included in total shareholders' equity,
Preferred Stock other than Mandatorily Redeemable Stock,
provided that, for purposes of calculating "Net Worth", there shall be excluded
from total shareholders' equity unrealized gains and losses on securities
available for sale as reflected on such consolidated balance sheet and provided
further that for purposes of calculating "Net Worth" during calendar year 1999,
the following amounts shall be excluded, but only to the extent actually
incurred:
(a) up to $5,000,000 in mortgage loan losses related to assets
retained pursuant to the United Life Purchase Contract; and
(b) up to $16,000,000 in additional asset impairment provisions
and/or related disability income reserves by the Pennsylvania Life
Insurance Company.
"Reinsurance Transaction" shall mean any transaction consummated by
an Insurance Company after the Amendment No. 6 Effective Date with any Person
involving the reinsurance of any insurance policy then in force, including any
Reinsurance Agreements that effectively represent the sale of blocks of
business and/or financial reinsurance.
"Security Agreements" shall mean each of the security agreements
executed and delivered pursuant to (a) Section 8.19(a) and (b) Section
4(a)(iii) of Amendment No. 6.
10
<PAGE> 11
"Subsidiary" shall mean, for any Person, any other Person (i)
securities of which having ordinary voting power to elect a majority of the
board of directors (or other Persons having similar functions) (irrespective of
whether or not at the time stock of any other class or classes of such
corporation shall have or might have voting power by reason of the happening of
any contingency) are at the time, directly or indirectly, owned or controlled
by such Person, or by one or more of its Subsidiaries, or by such Person and
one or more of its Subsidiaries, or (ii) other ownership interests of which
ordinarily constituting a majority voting interest, including any partnership
in which such Person and/or one or more Subsidiaries of such Person shall have
an interest (whether in the form of voting or participation in profits or
capital contribution) of more than 50% are, at the time, owned or controlled,
directly or indirectly, by such Person. "Wholly-Owned Subsidiary" shall mean
(a) any such corporation of which all of such shares, other than directors'
qualifying shares, are so owned or controlled, directly or indirectly and (b)
any such partnership in which such Person and its Affiliates shall have 100% of
such interests, provided that, for the purposes of this Agreement, PIC shall be
deemed to be a Wholly-Owned Subsidiary of the Company. KB Investment Fund I,
L.P., a New York limited partnership, and its Subsidiaries shall not constitute
Subsidiaries. Unless otherwise specified, a Subsidiary or a Wholly-Owned
Subsidiary shall mean a Subsidiary or a Wholly-Owned Subsidiary of the Company.
(iii) to delete the following definitions from the Credit
Agreement:
"Additional Assets"
"PennUnion Purchase Contract"
"Significant Subsidiary"
"Tier", "Tier I", "Tier II", "Tier III", "Tier IV", "Tier V," "Tier
VI" and "Tier VII".
(b) Section 2.02(b)(i)(A) of the Credit Agreement shall be amended
to add the following at the end thereof:
", provided that no such request may be given after the
Amendment No. 6 Effective Date."
(c) Section 2.04(b) shall be amended to read in its entirety as
follows:
"(b) (i) On any day, prior to July 1, 1999, upon which the
aggregate amount in the Collateral Account is equal to or greater than
$26,000,000, the Commitments shall be permanently reduced by an amount
equal to (x) the aggregate amount in the Collateral Account on such
day minus (y) $25,000,000;
(ii) on any day on or after July 1, 1999 through December 31,
1999, upon which the aggregate amount in the Collateral Account is
equal to or greater than $21,000,000, the Commitments shall be
permanently reduced by an amount equal to (x) the aggregate amount in
the Collateral Account on such day minus (y) $20,000,000;
11
<PAGE> 12
(iii) on any day on or after January 1, 2000, upon which the
aggregate amount in the Collateral Account is equal to or greater than
$16,000,000, the Commitments shall be permanently reduced by an amount
equal to (x) the aggregate amount in the Collateral Account on such
day, minus (y) $15,000,000;
(iv) on the Commitment Stepdown Date, the Commitments shall be
reduced to the amounts set forth under the caption "Reduced
Commitment" on the signature pages hereto;"
(d) Section 2.04 of the Credit Agreement shall be amended to add
the following subsection (c):
"(c) Upon each prepayment by the Company made pursuant to
Section 3.03(c)(ii), the aggregate amount of the Commitments shall
be permanently reduced by the amount of such prepayment."
(e) Section 2.05 shall be amended to read in its entirety as
follows:
"Section 2.05 Commitment Fee. (a) The Company shall pay to the
Administrative Agent for the account of each Bank a commitment fee
on the daily unused amount of such Bank's Commitment for each day
from the Amendment No. 6 Effective Date through the Maturity Date
at a rate per annum of 0.75%, payable in arrears on the Quarterly
Dates.
(b) Agent Fee. The Company shall pay to the Administrative
Agent for its own account, in arrears, on the last Business Day of
each calendar month, commencing April 30, 1999, a non-refundable
agent's fee, in the amount of $15,000 per month.
(f) Section 3.02(a) of the Credit Agreement shall be amended to add
the phrase "plus the Applicable Base Rate Margin" immediately before the ";" at
the end of clause (i).
(g) Section 3.03(c) shall be amended as follows:
(i) By designating the existing paragraph as paragraph "(i)",
by changing the reference therein to "Section 2.04(b)(i) or (ii)", to "Section
2.04(b) or upon the occurrence of the Commitment Stepdown Date", and by
changing the reference therein to "Section 3.03(c)" to "Section 3.03(c)(i)";
and
(ii) By adding a new paragraph (ii) reading as follows:
"(ii) (A) On, in the case of the First PennUnion Sale, the
PIC Sale, the United Life Sale, the Kivex Sale, and any Other
Designated Asset Sale, the Business Day following the
respective closings thereunder, the Loans shall be prepaid in
the following amounts, whether or not the
12
<PAGE> 13
Company shall have received such amounts, as the proceeds of
Operating Bank Account Indebtedness, or otherwise, (unless, in
any case, the Majority Banks have agreed to a later date or a
lesser amount):
(1) PIC Sale - $40,000,000;
(2) First PennUnion Sale - $70,000,000;
(3) United Life Sale - an aggregate amount of
$127,000,000;
(4) Kivex Sale - amount equal to 100% of the net
cash proceeds of such sale; and
(5) an Other Designated Asset Sale - an amount
specified by the Majority Banks.
(B) The balance of the net cash proceeds of the PIC
Sale, the First PennUnion Sale, the United Life Sale, and so
much of any Other Designated Asset Sale as the Majority Banks
shall have specified for that purpose, shall be deposited in
the Collateral Account, and any non-cash proceeds of any such
sale and the Kivex Sale, to the extent received by the Company,
shall be delivered to the Collateral Agent under the Company
Security Agreement, to be held and disposed of as part of the
Collateral thereunder, and any such non-cash proceeds held by a
Subsidiary that is not an Insurance Company or a Subsidiary of
an Insurance Company and that cannot, under Applicable Law, be
transferred to the Company, shall be delivered to the
Collateral Agent under that Subsidiary's Security Agreement, to
be held and disposed of as part of the Collateral thereunder.
Cash proceeds of any non-cash proceeds shall be deposited in
the Collateral Account on the Business Day next following their
receipt.
(h) Section 6.02 shall be amended by:
(i) deleting the word "and" at the end of clause (e);
(ii) changing the "." at the end of clause (f) to ";"; and
(iii) adding a new clause (g) reading as follows:
"(g) In the case of Loans made after the Amendment No. 6
Effective Date, the balance in the Collateral Account on
the date of the making of such Loans shall be zero."
(i) Section 7.02(a) shall be amended by deleting the last sentence
thereof, and replacing it with the following sentence:
13
<PAGE> 14
"Since December 31, 1998, there has been no material adverse change
in the financial condition, results of operations, business or
business prospects of the Company and its Subsidiaries, taken as a
whole."
(j) Section 7.02(b) shall be amended by deleting the last sentence
thereof, and replacing it with the following sentence:
"Since December 31, 1998, there has been no material adverse change
in the financial condition, results of operations, business or
business prospects of the Insurance Companies, taken as a whole."
(k) Section 7.20 shall be amended to read in its entirety as
follows:
"7.20 Accuracy of Information. (i) All Information furnished to
the Administrative Agent and each Bank by or on behalf of the Company
or any Subsidiary in connection with or pursuant to the Loan Documents
and the relationships established thereunder, at the time the same was
so furnished, but in the case of Information dated as of a prior date,
as of such date, (i) in the case of any Information prepared in the
ordinary course of business, was complete and correct in all material
respects in the light of the purpose for which the same was prepared,
and, in the case of any Information the preparation of which was
requested by the Administrative Agent or any Bank, was complete and
correct in all material respects to the extent necessary to give the
Administrative Agent or such Bank true and accurate knowledge of the
subject matter thereof, (ii) did not contain any untrue statement of a
material fact, and (iii) did not omit to state a material fact
necessary in order to make the statements contained therein not
misleading in the light of the circumstances under which they were
made.
(ii) The delivery of any Information shall constitute a
representation and warranty by the Company (irrespective of the
identity of the Person delivering such Information) that such
Information complies with Section 7.20(i), and such representation and
warranty shall, for purposes of Section 9(d), be deemed to have been
made at the time delivered."
(l) to add the following new Sections 7.23 and 7.24
"Section 7.23 Year 2000 Problem. The Company has a reasonable
basis to believe that no Year 2000 Problem will cause a Material
Adverse Effect.
Section 7.24 Prepayment of Kivex. After March 31, 1999 and on
or prior to the Amendment No. 6 Effective Date, there was no
prepayment of the expenses of Kivex by the Company or any of its
Subsidiaries."
(m) Section 8.01 of the Credit Agreement shall be amended as
follows:
(i) to delete the period at the end of subsection (o) and
replace it with ";"
(ii) to add new subsections "(p)","(q)", "(r)" and "(s)"
reading as follows:
14
<PAGE> 15
"(p) as soon as available (i) results of the latest regulatory
reviews for each of the Core Assets, (ii) detailed GAAP
consolidating and parent only financial statements as of December
31, 1998 and as of the end of each subsequent calendar quarter,
(iii) all information pertaining to the status of the Designated
Asset Sales and, if any, Other Designated Asset Sales, and (iv) all
non-privileged information concerning the current status of (x) the
SEC investigation and (y) the shareholder litigation;
(q) monthly cash flow analyses detailing all cash in the
accounting system for the Subsidiaries that are not Insurance
Companies or Subsidiaries of Insurance Companies, including
detailed cash receipts and cash disbursement statements, reasonable
description of transactions, listing of account balances, listing
of outstanding checks, cash transfers, etc., including the details
of Permitted Operating Account Withdrawals, and of the calculation
of the amounts of Excluded Funds; such information to be provided
ten Business Days after the end of each calendar month;
(r) within two Business Days of, in the case of a written bid,
its receipt, and, in the case of a written response, its delivery,
copies of each bid relating to the Kivex Sale and of each response
to such bid provided that, notwithstanding the introductory clause
to Section 8.01, the Company shall be obligated to deliver copies
of such bids and responses only to the Administrative Agent if it
has, and to such of the Banks that have, entered into reasonable
confidentiality agreements with the Company with respect to such
bids and responses; and
(s) on or before May 25, 1999, copies of the recapitalization
and related business plans prepared by Wasserstein, Perella & Co.
and PricewaterhouseCoopers LLP; and
(iii) to add a final new sentence reading as follows:
"The Company will, in connection with the monthly cash flow
analyses to be provided pursuant to subsection (q), provide, and
cause each of its Subsidiaries to provide, access to the Banks and
their advisors to their respective personnel and records."
(n) Section 8.06 shall be amended to read in its entirety as follows:
"8.06 Prohibition of Fundamental Changes. (a) Mergers etc. The Company
will not, nor will it permit any of its Subsidiaries to, enter into any
transaction of merger, consolidation or amalgamation, or liquidate, wind up or
dissolve itself (or suffer any liquidation or dissolution), except for
Scheduled InterSubsidiary Mergers and the liquidation of Kivex pursuant to
Section 8.26.
(b) Acquisitions; Investments. The Company will not, and will not
permit any of its Subsidiaries to, acquire (including by way of merger,
consolidation or amalgamation) any business or Property from, or make any
Investments in, or be a party
15
<PAGE> 16
to any acquisition of, any Person except for (i) acquisitions of Property and
Investments made in the ordinary course of business, other than Investments in
Kivex; (ii) Investments in Kivex made by the Company from the Collateral
Account after the Amendment No. 6 Effective Date (A) out of the proceeds of the
Cisco Financing and not in excess of $1,800,000 and (B) not out of proceeds of
the Cisco Financing and not in excess of $1,100,000; and (iii) acquisitions of
Property or the making of Investments specifically permitted or required under
other sections of this Agreement or under any of the other Loan Documents;
(c) Dispositions etc. The Company will not, and will not permit any of
its Subsidiaries to, convey, sell, lease, transfer or otherwise dispose of
(including by way of merger, consolidation or amalgamation), in one transaction
or a series of transactions, any Property, whether now owned or hereafter
acquired (including, without limitation, receivables and leasehold interests)
except for (i) dispositions of assets in the ordinary course of business that
are not to Affiliates; (ii) dispositions of assets pursuant to the PIC Sale,
the First PennUnion Sale, and the United Life Sale; (iii) the disposition of
(A) all or substantially all of the Capital Securities or assets of (1) Kivex,
and (2) Marketing One Financial Corporation and its Subsidiaries and (B) Other
Designated Assets, provided that, the Majority Banks shall have, with respect
to any such disposition, waived the provisions of Section 8.06(c); (iv) in the
case of the Company, dispositions or withdrawals from the Collateral Account
permitted under Section 8.19(b); (v) dispositions of assets that constitute
payment of (A) Indebtedness permitted under Section 8.08(a) and Liabilities
permitted under Section 8.08(b); and (vi) other dispositions of assets (other
than dispositions referred to in (i), (ii), (iii), (iv) and (v)) specifically
permitted or required under other sections of this Agreement or under any
section of any other Loan Document."
(o) Section 8.07 shall be amended as follows:
(i) by amending clause (g) thereof to read as follows:
"(g) The Lien on the assets of Kivex arising under the Cisco
Financing securing an aggregate principal amount not in excess of
$3,000,000, together with interest accrued thereon, in accordance with
the terms of the Cisco Financing;"
(ii) by deleting the word "and" at the end of clause (i);
(iii) by inserting a new clause (j) reading as follows:
"(j) The Lien of the Buyer (as defined in the Original
PennUnion Purchase Contract) on the Acquisition Notes (as
defined therein);"; and
(iv) redesignating present clause (j) as clause (k).
(p) Section 8.08 shall be amended to read in its entirety as
follows:
"8.08 Indebtedness; Liabilities. (a) The Company will not, and will
not permit any of its Subsidiaries to, create, incur, or suffer to exist any
Indebtedness except:
16
<PAGE> 17
(i) Indebtedness evidenced by the Surplus Notes and other
Indebtedness of Subsidiaries to the Company,
(ii) Mandated Capital Requirement Indebtedness that is
Subordinated;
(iii) Indebtedness in an aggregate principal amount not in excess
of $3,000,000 arising under the Cisco Financing;
(iv) Indebtedness of the Company payable to a Subsidiary (other
than Operating Bank Account Indebtedness), that is Subordinated
provided, that, in the case of any such Indebtedness payable to an
Insurance Company or a Subsidiary of an Insurance Company, such
Indebtedness shall be Subordinated only to the extent permitted under
Applicable Law;
(v) Existing Indebtedness which, in the case of Indebtedness of the
Company payable to a Subsidiary, shall be Subordinated provided, that,
in the case of any such Indebtedness payable to an Insurance Company
or a Subsidiary of an Insurance Company, such Indebtedness shall be
Subordinated only to the extent permitted under Applicable Law;
(vi) Operating Bank Account Indebtedness, provided that any
Operating Bank Account Indebtedness that represents the transfer of
Designated Asset Sale Proceeds is Subordinated;
(vii) endorsements of negotiable instruments in the ordinary course
of business;
(viii) surety bonds issued in respect of obligations described in
Section 8.07(d); and
(ix) Existing Liabilities to the extent they constitute
Indebtedness of a Subsidiary to another Subsidiary.
(b) The Company will not permit any of its Subsidiaries to create,
incur or suffer to exist any Liabilities to another Subsidiary except:
(i) Existing Liabilities;
(ii) Permitted Liabilities; and.
(iii) Liabilities specifically permitted or required under other
sections of this Agreement or the other Loan Documents.
(q) Section 8.09 shall be amended to read in its entirety as follows:
"8.09 Dividends. [This Section deliberately left blank]"
(r) Section 8.10 shall be amended to read in its entirety as follows:
17
<PAGE> 18
"8.10 Leverage Ratio. The Company will not permit the Leverage
Ratio to exceed (i) 60% at any time during the quarterly period ending December
31, 1998; (ii) 62% during the quarterly period ending March 31, 1999; (iii) if
the First PennUnion Sale closes on or before June 30, 1999, (A) 49% at any time
during the quarterly period ending June 30, 1999, (B) 50% at any time during
the quarterly periods ending September 30, 1999 and December 31, 1999, and (C)
51% at any time thereafter; and (iv) if the Termination Date of the Original
PennUnion Purchase Contract shall have occurred on or before June 30, 1999, (A)
54% at any time during the quarterly period ending June 30, 1999, (B) 55% at
any time during the quarterly period ending September 30, 1999, (C) 50% at any
time during the quarterly period ending December 31, 1999 and (D) 51% at any
time thereafter."
(s) Section 8.11 shall be amended to read in its entirety as follows:
"8.11 Interest Coverage Ratio. The Company will not permit the
Interest Coverage Ratio to be less than (a) (i) 0.7 to 1.0 for the current
year-to-date period ending March 31, 1999, (ii) 1.0 to 1.0 for the current
year-to-date periods ending June 30, 1999, September 30, 1999, and December 31,
1999, and (iii) 1.1 to 1.0 thereafter; where component "A" of the definition of
Interest Coverage Ratio is determined before adjustment for capital gains or
losses as set forth in such definition; and (b) (i) 0.5 to 1.0 for the current
year-to-date period ending March 31, 1999, (ii) 0.9 to 1.0 for the current
year-to-date periods ending June 30, 1999, September 30, 1999, and December 31,
1999, and (iii) 1.0 to 1.0 thereafter, where component "A" of the definition of
Interest Coverage Ratio is determined after adjustment for capital gains or
losses as set forth in such definition. This Covenant 8.11 shall not be
applicable for the period ended December 31, 1998."
(t) Section 8.12 shall be amended to read in its entirety as follows:
"8.12 Minimum Total Adjusted Capital. (a) The Company will not
permit the Total Adjusted Capital of each of (i) Southwestern Life Insurance
Company, (ii) Pioneer American Insurance Company, (iii) Union Bankers Insurance
Company, (iv) Constitution Life Insurance Company (v) United Life and Annuity
Insurance Company, (vi) Pioneer Security Life Insurance Company, (vii) Security
Life and Trust Insurance Company, (viii) Peninsular Life Insurance Company,
(ix) Marquette Life Insurance Company, and (x) American-Amicable Life Insurance
Company (so long as such Persons are Subsidiaries) at any time to be less than
200% of the Company Action Level Risk Based Capital for such Insurance Company.
(b) The Company will not permit the Total Adjusted Capital of each of
(i) Occidental Life Insurance Company, and (ii) Pacific Life and Accident
Insurance Company at any time to be less than 150% of the Company Action Level
Risk Based Capital for such Insurance Company.
(c) The Company will not permit the Total Adjusted Capital of each of
(i) Professional Insurance Company and (ii) Pennsylvania Life Insurance Company
at any
18
<PAGE> 19
time to be less than 70% of the Company Action Level Risk Based Capital for
such Insurance Company."
(u) Section 8.13 shall be amended to read in its entirety as follows:
"8.13 Net Worth. The Company will not permit the Net Worth at any
time to be less than (i) $389,000,000 during the quarterly period ending
December 31, 1998, (ii) $350,000,000 during the quarterly period ending on
March 31, 1999, (iii) $337,000,000 during the quarterly period ending June 30,
1999, (iv) $328,000,000 during the quarterly period ending September 30, 1999,
(v) $318,000,000 during the quarterly period ending December 31, 1999, and (vi)
$309,000,000 during the quarterly period ending March 31, 2000, and during each
quarterly period thereafter."
(v) Section 8.16 shall be amended to read in its entirety as follows:
"8.16. Use of Proceeds. The Company will use the proceeds of the
Loans only to pay interest on the Loans and the Subordinated Notes."
(w) Section 8.17 shall be amended to read in its entirety as follows:
"8.17 Modifications of Basic Documents. The Company will not, and
will not permit any of its Subsidiaries to, enter into or consent to any
amendment, supplement or other modification of its Basic Documents, other than
amendments to Surplus Notes required by Applicable Insurance Regulatory
Authorities."
(x) Section 8.19 shall be amended to read in its entirety as follows:
"8.19 Security. (a) On or prior to:
(i) in the case of each New Securing Party (as hereinafter
defined), the Amendment No. 6 Effective Date, (each New Securing Party, each
Possible Securing Party (as hereinafter defined) and each Existing Securing
Party (as hereinafter defined), collectively, the "Securing Parties"), and
(ii) on or before the fifth Business Day after it is determined
that a Possible Securing Party will not be sold pursuant to the PennUnion
Purchase Contract, the PIC Purchase Contract or the United Life Purchase
Contract,
the Company shall cause each New Securing Party and Possible Securing Party, as
the case may be, to execute and deliver one or more security agreements, in the
form, of Amended Schedule 4(vi) to Amendment No. 6 (those Security Agreements,
together with the Security Agreements of the Existing Securing Parties, the
"Security Agreements"), together with such other instruments and other
documents as the Majority Banks may request, the possession of which is
necessary or appropriate in the determination of the Majority Banks to create
or perfect a first priority security interest in favor of the Banks in the
Collateral under Applicable Law, including but not limited to the certificates
representing the Pledged Securities, together with undated stock powers for
such certificates duly executed in blank and duly executed UCC-1 financing
statements, and
19
<PAGE> 20
the Company shall thereafter take all such action to ensure that the Banks have
a perfected first priority security interest in the Collateral. For this
purpose, a "New Securing Party" shall mean a Subsidiary (x) that is not an
Insurance Subsidiary, or a Subsidiary of an Insurance Company, (y) that did not
deliver a Security Agreement prior to the Amendment No. 6 Effective Date, and
(z) that is not a Possible Securing Party; a "Possible Securing Party" shall
mean a Subsidiary listed on Amended Schedule 8.19 to Amendment No. 6; and an
"Existing Securing Party" shall mean the Company and each Subsidiary that did
deliver a Security Agreement prior to the Amendment No. 6 Effective Date.
(b) The Company shall deposit any and all cash held or received by the
Company into the Collateral Account and shall be entitled to withdraw funds
therefrom solely for (i) prepaying the Loans (including prepayments pursuant to
Section 3.03(c)(i) but not prepayments pursuant to Section 3.02(c)(ii)), (ii)
paying (x) Interest Expenses of the Company, (y) ordinary course operating
expenses of the Company that are currently due and are not prepayments of such
expenses, and (z) unpaid restructuring charges of the Company principally
connected to the Company's closing of its Maryland and New York offices and
incurred after the Amendment No. 6 Effective Date in an amount not to exceed
$12,000,000 minus the aggregate of the amounts set forth on Amended Schedule
8.19(b) to Amendment No. 6, (iii) making capital contributions to Insurance
Company Subsidiaries pursuant to Mandated Capital Requirements, (iv) making
Investments after the Amendment No. 6 Effective Date in Kivex (A) out of the
proceeds of the Cisco Financing in an aggregate amount not more than $1,800,000
and (B)in an aggregate amount not in excess of $1,100,000, but only after the
proceeds of the Cisco Financing in an amount not less than $800,000 have been
so invested, and only on or before June 30, 1999, (v) paying Operating Bank
Account Indebtedness and (vi) after an Event of Default, paying its Secured
Obligations; provided that, except for withdrawals pursuant to clauses (v) and
(vi), no Default shall exist at the time of such withdrawal. Any withdrawal by
the Company from the Collateral Account shall be deemed a representation and
warranty by the Company made at the time of such withdrawal that such
withdrawal is in accordance with this Section 8.19(b) and that the funds so
withdrawn shall be used by the Company only for the purposes specified in this
Section 8.19(b)."
(y) Section 8.21 shall be amended to read in its entirety as follows:
"8.21 Restricted Payments. (a) The Company shall not make any
payment on account of any purchase, redemption, retirement, exchange,
conversion of or dividend on any of the Company's Capital Securities, except
for purchases set forth on Amended Schedule 8.21 to Amendment No. 6.
(b) The Company shall not permit any Subsidiary to make any payment on
account of (i) any dividend on the Company's Capital Securities or (ii) any
purchase, redemption, retirement, exchange or conversion of any of such
Subsidiary's Capital Securities except for purchases set forth on Amended
Schedule 8.21 to Amendment No. 6."
20
<PAGE> 21
(z) To add the following new Sections 8.22, 8.23, 8.24, 8.25, 8.26,
8.27, 8.28, 8.29, 8.30, 8.31 and 8.32.
"Section 8.22 Prepayment of Indebtedness. The Company will not, and
will not permit any of its Subsidiaries to, make any Prepayment of any of its
Indebtedness, except for, (a) in the case of the Company, the Loans and
Operating Bank Account Indebtedness, (b) in the case of Insurance Subsidiaries,
the Surplus Notes, (c) in any case, prepayments set forth on Amended Schedule
8.22 to Amendment No. 6, and (d) in the case of Kivex, Prepayment of
Indebtedness of Kivex in connection with the liquidation of Kivex pursuant to
Section 8.26.
Section 8.23 Issuance or Disposition of Capital Securities. The
Company will not, and will not permit any of its Subsidiaries to, issue any of
its Capital Securities or sell, transfer or otherwise dispose of any Capital
Securities of any Subsidiary, except for (a) dispositions of Capital Securities
pursuant to the PIC Sale, the PennUnion Sale and the United Life Sale; (b)
dispositions of all or substantially all of the Capital Securities of Kivex,
and of other Capital Securities, for the disposition of which the Majority
Banks shall have waived the provisions of Section 8.06(c); (c) issuances and
dispositions of Capital Securities set forth on Amended Schedule 8.23 to
Amendment No. 6; (d) issuances and dispositions of Mandated Capital Requirement
Capital Securities, (e) issuances by the Company of its Capital Securities
pursuant to the exercise of Permitted Stock Options and (f) dividends paid in
kind on the preferred stock of Southwestern Financial Corporation. Section 8.24
Reinsurance Transactions. The Company will not, and will not permit any of its
Subsidiaries to, on or after the Amendment No. 6 Effective Date, enter into any
Reinsurance Transaction, except for (a) Reinsurance Transactions that are
entered into in the ordinary course of an Insurance Company's business and that
are limited to and consist only of the ceding of risks that are in excess of
such Insurance Company's retention limits and (b) the Reinsurance Transactions
contemplated by the Original PennUnion Purchase Contract.
Section 8.25 Year 2000 Covenant. The Company is reviewing its
operations and those of its Subsidiaries with a view to assessing whether its
businesses, or the businesses of any of its Subsidiaries, will be vulnerable to
a Year 2000 Problem or will be vulnerable to the effects of a Year 2000 Problem
suffered by any of the Borrower's or any of its Subsidiaries' major commercial
counter-parties. The Company shall take all actions necessary and commit
adequate resources to assure that its computer-based and other systems, and
those of all of its Subsidiaries, are able effectively to process data,
including dates before, on and after January 1, 2000, without experiencing any
Year 2000 Problem that could cause a Material Adverse Effect. At the request of
the Agent, the Company will provide the Banks with reasonable assurances and
substantiations, including, but not limited to, the results of internal or
external audit reports prepared in the ordinary course of business, reasonably
acceptable to the Banks as to the capability of the Company and its
Subsidiaries to conduct its and their businesses and operations before, on and
after January 1, 2000 without a year 2000 Problem causing a Material Adverse
Effect.
21
<PAGE> 22
Section 8.26 Sale or Liquidation of Kivex. The Company shall, on or
before June 30, 1999, either have sold all or substantially all of the Capital
Securities or assets of Kivex in a transaction with respect to which the
Majority Banks shall have waived the provisions of Section 8.06(c), or, subject
to the next two succeeding sentences, have commenced the liquidation of Kivex,
and shall apply the net proceeds of any such sale or liquidation to the
prepayment of the Loans. The Company need not commence the liquidation of Kivex
by June 30, 1999 to the extent, and so long as, its existence can be continued
without any further Investment by any Person. On any date on which such is not
the case, the Company shall commence the liquidation of Kivex. In any event, a
Kivex Sale shall have been closed by July 31, 1999, unless Kivex shall have
been previously liquidated.
In connection with a Kivex Sale, the Company shall be entitled to
receive a release of any Security Interest on, if such sale is of the Capital
Securities of Kivex, such Capital Securities or, if such sale is of the assets
of Kivex, such assets.
Section 8.27 Bonus; Severance, Etc. Payments. The Company will not,
and will not permit its Subsidiaries to make bonus, severance and similar
payments to officers and directors of the Company or any of its Subsidiaries,
except pursuant to Contracts listed on Amended Schedule 8.27 to Amendment No. 6
as such Contracts are in effect on the Amendment No. 6 Effective Date.
Section 8.28 Bank Accounts. The Company will not, and will not permit
any Subsidiary (other than an Insurance Company or a Subsidiary of an Insurance
Company) to, after the Amendment No. 6 Effective Date, open any Bank Account,
without the prior written consent of the Administrative Agent.
Section 8.29. Operating Bank Accounts. (a) Subject to Section
8.29(c),the Company shall cause each Operating Bank Account Subsidiary to
deposit into its Operating Bank Account all money, instruments and other cash
items received by such Operating Bank Account Subsidiary from time to time
after the Amendment No. 6 Effective Date, including, in the case of
Knightsbridge, all payments received by it under the Knightsbridge Management
Agreement.
(b) (i) (A) Subject to Section 8.29(c), (1) the Company shall cause
each Operating Bank Account Subsidiary, with respect to each of its Operating
Bank Accounts, to transfer, at the close of business on the last Business Day
of each week (a "Transfer Date") on which there is a Book Balance (as
hereinafter defined) of good funds in such Operating Bank Account at such time,
such Book Balance (except to the extent such Book Balance represents Excluded
Funds) to: (aa) to the extent such balance represents the proceeds of a
Designated Asset Sale or an Other Designated Asset Sale ("Designated Asset Sale
Proceeds"), first, the Administrative Agent for application toward the
satisfaction of the Company's obligation under Section 3.03(c)(ii)(A) in
respect of such Designated Asset Sale or Other Designated Asset Sale, second,
to the extent of any excess, to the Collateral Agent for deposit in the
Collateral Account, and, (bb) to the extent any such Book Balance does not
represent the proceeds of a Designated Asset Sale, to the Collateral Agent for
deposit in the Collateral Account.
22
<PAGE> 23
(B) The Bank of New York and each of the other Depositary Banks are
hereby irrevocably authorized by the Company on behalf of itself and each such
Operating Bank Account Subsidiary to make such transfers.
(C) Each such transfer shall be a loan by such Operating Bank
Account Subsidiary to the Company, and shall constitute Operating Bank Account
Subsidiary Indebtedness; provided that Operating Bank Account Subsidiary
Indebtedness that represents a transfer of Designated Asset Sale Proceeds shall
be Subordinated.
(D) "Excluded Funds" shall mean funds deposited in an Operating
Bank Account, the transfer of which the Majority Banks, on the advice of
counsel, have determined prior to the Section 8.29 Effective Date would violate
Qualified Agreements or Cited Applicable Law or are otherwise not to be
transferred, provided that, in any event, Excluded Funds shall include balances
representing the deposit of withholding taxes (including those for wages, FICA,
FUTA and similar employment or employee taxes) and other balances, the transfer
of which would subject the Company or any of its directors, officers or
employees to any criminal or statutory civil liability. "Qualified Agreements"
shall mean Contracts that were executed and delivered and became effective
prior to March 1, 1999, and true and correct copies of which have been
furnished to the Administrative Agent, with copies to each of the Banks, at
least 20 days prior to the Section 8.29 Effective Date, and "Cited Applicable
Law" shall mean specific provisions of Applicable Law, citations to which have
been furnished to the Administrative Agent at least 20 days prior to the
Section 8.29 Effective Date.
(ii) (A) The Administrative Agent will notify the Company, on or
before the Section 8.29 Effective Date, of the funds determined to be Excluded
Funds. Funds referred to in the proviso to the definition of "Excluded Funds"
shall constitute "Excluded Funds", whether or not specified in such notice.
(B) (1) Each Operating Bank Account Subsidiary will advise each
Depositary Bank maintaining one of its Operating Bank Accounts before 12:00
noon (local time of such Depositary Bank) on each Transfer Date of the amount
of such Operating Bank Account Subsidiary's book balance (the "Book Balance")
of the amount of such Operating Bank Account and the amount (the "Excluded
Funds Amount") of such balance that constitutes Excluded Funds.
(2) Each Depositary Bank may, but need not, assume, for purposes of
making transfers pursuant to Section 8.29(b)(i), that any statement of the
Excluded Funds Amount furnished to it by an Operating Bank Account Subsidiary
with respect to an Operating Bank Account is correct. In the absence of each
such statement on any Transfer Date, each Depositary Bank may assume that no
such balances in such Operating Bank Account are Excluded Funds.
(iii) Any and all losses, liabilities, claims, damages and expenses
incurred by the Administrative Agent, a Bank (including in its capacity as
Depositary Bank) or any of their respective directors, officers, employees and
agents, from transfers by the Company of Operating Bank Account balances
pursuant to Section 8.29(b)(i)(a) that
23
<PAGE> 24
violate Contracts that are not Qualified Agreements or Applicable Law that is
not Cited Applicable Law or (b) that constitute Excluded Funds but that a
Depositary Bank on the basis of a statement of Excluded Funds Amount assumed
were not, shall constitute losses, liabilities, claims, damages and expenses
covered by the Company's indemnity, set forth in the last paragraph of Section
11.03; provided that for purposes of that indemnity, it shall be conclusively
presumed that any such losses, liabilities, claims, damages and expenses were
not incurred by reason of the gross negligence or willful misconduct of the
Person to be indemnified.
(iv) The Company shall not permit any Operating Bank Account
Subsidiary to make any withdrawals from any of its Operating Bank Accounts,
except for (1) the transfers to the Collateral Agent referred to in Section
8.29(b)(i), (2) Permitted Operating Bank Account Withdrawals and (3)
withdrawals of Excluded Funds. Each withdrawal by an Operating Bank Account
Subsidiary from one of its Operating Bank Accounts pursuant to clause (2) or
(3) of the previous sentence shall constitute a representation and warranty by
the Company made at the time of such withdrawal that such withdrawal is a
Permitted Operating Bank Account Withdrawal or a withdrawal of Excluded Funds,
as the case may be.
(v) The Company shall, on and after the Amendment No. 6 Effective
Date, cause (A) each Insurance Company to continue, subject to Applicable Law,
to make transfers of funds to Operating Bank Account Subsidiaries in amounts,
and at times, that are at least consistent with its past practices and (B) each
Subsidiary of an Insurance Company to continue, subject to Applicable Law, to
make transfers of funds to the Insurance Company of which it is a Subsidiary,
or to Operating Bank Account Subsidiaries, in amounts, and at times, that are
at least consistent with its past practices.
(vi) The Company shall cause all payments due to be made to
Knightsbridge under the Knightsbridge Management Agreement to be made into
Knightsbridge's Operating Bank Account.
(vii) The Company will not permit the Knightsbridge Management
Agreement to be amended after the Amendment No. 6 Effective Date without the
prior written consent of the Majority Banks, except for amendments required by
an Applicable Insurance Regulatory Authority, and amendments solely to reflect
Designated Asset Sales or other Designated Asset Sales.
(c) Section 8.29(a) and (b)(i), (ii), (iii) and (iv) shall not become
effective until, but shall, without any further action, become effective on,
the 30th day (the "Section 8.29 Effective Date") following the Amendment No. 6
Effective Date.
(d) Notwithstanding the foregoing, in the event that the funds
contained in any Operating Bank Account consist solely of Excluded Funds, the
applicable Operating Bank Account Subsidiary shall not be required to transfer
(and The Bank of New York and the Depositary Banks are not authorized to
transfer) such funds from such Operating Bank Account, and the Security
Interests shall not attach to such funds.
24
<PAGE> 25
Section 8.30 Other Designated Asset Purchase Contracts. If the
Termination Date of the Original PennUnion Contract shall have occurred on or
before June 30, 1999, the Company shall, or shall cause one or more of its
Subsidiaries to, on or before September 30, 1999, enter into one or more
definitive, binding Other Designated Asset Purchase Contracts pursuant to which
the Majority Banks have determined that the Company will receive net cash
proceeds in an amount not less than $70,000,000 that the Majority Banks have
determined will be available to the Company to be applied to the prepayment of
Loans no later than December 31, 1999.
Section 8.31 Proceeds of Cisco Financing. The Company shall cause the
proceeds of the Cisco Financing, except to the extent used to prepay
installments of rent as required by the terms of the Cisco Financing, to be
deposited in the Collateral Account, and only to be used to make Investments in
Kivex in an amount not in excess of $1,800,000, and to prepay installments of
rent under the Cisco Financing.
Section 8.32 Subordinated Acknowledgments. The Company shall cause
each Subsidiary whose Indebtedness from the Company is to be Subordinated to
execute and deliver to the Administrative Agent within thirty days after the
Amendment No. 6 Effective Date, an acknowledgement that such Indebtedness is
Subordinated in accordance with the terms of the Credit Agreement, except for
any Subsidiary in whose Security Agreement such Acknowledgement is contained."
(aa) Section 9(d) shall be amended to read in its entirety as follows:
"(d) Any representation, warranty or certification made or deemed made
by the Company or any Securing Party in any Loan Document (or in any
modification or supplement thereto), or any certificate furnished by, at the
request of or on behalf of the Company or any Subsidiary to the Administrative
Agent or any Bank pursuant to the provisions thereof shall prove to have been
false or misleading as of the time made or furnished in any material respect
(for this purpose, certificates furnished by a Financial Officer pursuant to
Section 8.01(a) or (b) shall be deemed to be certificates furnished "on behalf
of the Company"); or
(bb) Section 9(e) is hereby amended as follows:
(i) Existing clause (e) shall:
(A) be redesignated as subclause (i); and
(B) The numbers reading "8.19 or 8.20" appearing therein shall be
amended to read as follows:
"Section 8.19, 8.20, 8.21, 8.22, 8.23, 8.24, 8.26, 8.27, 8.28,
8.29, 8.30 or 8.31";
(ii) There shall be added to clause (e) a new subclause (ii) reading as
follows:
25
<PAGE> 26
"(ii) A Securing Party shall default in the performance of any of
its obligations under Sections 4.01(b), 4.01(c), 4.03, 5.01(c)(i) and
5.06(c) of its Security Agreement; or a Securing Party shall default
in the performance of any of its other obligations under its Security
Agreement and such default shall continue unremedied for a period of
thirty Business Days after notice thereof to the Company by the
Administrative Agent (or by any Bank through the Administrative
Agent);or"
(cc) New clauses 9(q) through 9(cc) shall be added reading as follows:
"(q) The Company shall fail to receive and pay into the Collateral
Account, during the period of March 4, 1999 through the close
of business on June 1, 1999, the payments due to be made
pursuant to the terms of certain of the Surplus Notes in an
aggregate amount of not less than $8,500,000; or
(r) The Company shall fail to receive and pay into the Collateral
Account, during the period of June 2, 1999 through the close
of business on September 1, 1999, the payments due to be made
pursuant to the terms of certain of the Surplus Notes in an
aggregate amount of not less than $600,000; or
(s) The Company shall fail to receive and pay into the Collateral
Account, and pay into the Collateral Account, during the
period of September 2, 1999 through the close of business on
December 1, 1999 the payments due to be made pursuant to the
terms of certain of the Surplus Notes in an aggregate amount
of not less than $3,100,000; or
(t) The Company shall fail to receive and pay into the Collateral
Account, during the period of December 2, 1999 through the
close of business on February 28, 2000 the payments due to be
made pursuant to the terms of certain of the Surplus Notes in
an aggregate amount of not less than $9,800,000; or
(u) The closing (as that term is defined in the PIC Purchase
Contract) of the PIC Sale shall not have occurred on or before
April 30, 1999, or such later date as may be approved by the
Majority Banks; or
(v) The closing (as that term is defined in the United Life
Purchase Contract) of the United Life Sale shall not have
occurred on or before May 31, 1999, or such later date as may
be approved by the Majority Banks; or
(w) The closing of the Kivex Sale shall not have occurred on or
before July 31, 1999; or
26
<PAGE> 27
(x) Unless the Termination Date of the Original PennUnion Purchase
Contract shall have occurred prior to July 1, 1999, the
closing (as that term is defined in the Original PennUnion
Purchase Contract on the Amendment No. 6 Effective Date) of
the First PennUnion Sale shall not have occurred on or before
June 30, 1999, or, if such Termination Date shall have
occurred prior to July 1, 1999, closings (as defined in those
Contracts) under one or more Other Designated Asset Purchase
Contracts shall not have occurred on or before December 31,
1999, as a result of which the Company shall not have
received, on or before December 31, 1999, net cash proceeds in
an amount not less than $70,000,000 (or such greater amount as
the Majority Banks may have specified in connection with their
approval of any such Other Designated Asset Purchase Contract)
and the Company shall not have used such proceeds to repay
Loans, on or before December 31, 1999, in a principal amount
equal to $70,000,000 or such greater amount (or on such later
date or in such lesser amount as may be approved by the
Majority Banks); or
(y) The Company shall fail to deliver to the Banks, on or before
May 25, 1999, the recapitalization and business plans prepared
by Wasserstein Perella & Co. and PricewaterhouseCoopers, LLP;
or
(z) The Company shall make any payment on any of its Indebtedness
that is Subordinated in contravention of the applicable terms
of subordination; or
(aa) The Company or any Affiliate shall challenge in writing,
including any legal challenge, the authority of The Bank of
New York (or any other Depositary Bank), contained in Section
8.29(b)(i), to transfer balances in the Operating Bank
Accounts in the manner specified in Section 8.29(b)(i); or
(bb) Any Subsidiary to which Subordinated Indebtedness is owed by
the Company shall challenge in writing, including any legal
challenge, whether such Indebtedness is Subordinated; or
(cc) The Company shall fail to deliver to the Administrative Agent
a completed Amended Schedule 8.29(a) by 4:00 p.m. (New York
time) on Monday, April 5, 1999.
(dd) Current Section 9(q) shall be relettered 9(ee).
(ee) Paragraph (vii) of Section 11.04 shall be amended to read in
its entirety as follows:
27
<PAGE> 28
"(vii) Release any Collateral, other than Collateral that is
the subject of a Designated Asset Sale or an Other Designated Asset
Sale;"
(ff) Section 11.06(b) and (c) shall be amended to delete the phrase
"the Company and" wherever such phrase appears therein.
(gg) Section 11.10 shall be amended by changing the first sentence
thereof to read as follows:
"The rights and duties of the Company, the Banks and the
Administrative Agent (including matters relating to the Maximum
Permissible Rate) shall, pursuant to New York General Obligations
Law Section 5-1401, be governed by the law of the State of New
York."
II.
SECURITY AGREEMENTS
1. Amendments to the Company Security Agreement. Upon and after the
Amendment No. 6 Effective Date, the Company Security Agreement shall be amended
as follows:
(a) Section 2(p) shall be amended and restated in its entirety as
follows:
"(p) except as otherwise permitted by this Agreement, the books
and records of the Company with respect to the Collateral, and the
chief executive office and the principal place of business of the
Company, are maintained at 717 N. Harwood Street, Dallas, Texas
75201, 2610 Wycliff Road, Raleigh, North Carolina, 27607, c/o Art
J. Giglio, CPA, 250 East Hartsdale Avenue, Suite 34, Hartsdale,
New York 10530, and 590 Madison Avenue, New York, New York 10022."
(b) Section 3 shall be amended as follows:
(i) to add the following new clauses (i) through (n), reading as
follows:
"(i) The Acquisition Notes (as such term is defined in the
PennUnion Purchase Contract);
(j) The Mortgage Loan Purchase Price Account (as such term is
defined in the United Life Consent);
(k) The Residential Mortgages and Non-Residential Mortgages
required to be purchased by Seller pursuant to Section
5.17 of the United Life Purchase Contract;
(l) The Escrow Agreement;
28
<PAGE> 29
(m) upon the closing of the PennUnion Sale, the Kivex Note;
and
(n) except to the extent the same otherwise constitutes
Collateral, all personal property and rights, including
all money, accounts, contract rights, general
intangibles, goods, instruments, chattel paper, documents
and Bank Accounts, except, (1) in the case of any such
property that is a Contract, each such Contract that the
grant of a Security Interest therein would require the
consent of any party, other than the Company, thereto (if
such consent has not been obtained) or would give any
such other party to such Contract the right to terminate
its obligations thereunder, provided that the foregoing
exception shall not affect, limit, restrict or impair the
grant by the Company of the Security Interest in any
account or general intangible for the payment of money
due, or to become due under such Contract, to the extent
provided in Section 9-318(4) of the Uniform Commercial
Code, (2) in the case of any general intangible that
represents a tax refund, any such refund that the Company
is obligated under a Tax Treaty to pay to a Subsidiary,
and for this purpose, a "Tax Treaty" shall mean a
Contract listed on Security Agreement Amended Schedule 3
to Amendment No. 6, provided that Excluded Funds shall
not constitute Collateral and (3) in the case of any such
property that is a Bank Account, each Bank Account that
is a 401(k) account, or to the extent such Bank Account
includes balances representing the deposit of withholding
taxes (including those for wages, FICA, FUTA and similar
employment or employee taxes);"
(ii) to reletter existing clauses (i) through (l) appropriately;
and
(iii) and to add a new final sentence reading as follows:
"The disbursement of Collateral from the Collateral Account,
for a purpose permitted under Section 8.19(b) at a time when
such withdrawal was permitted thereunder, shall constitute a
release of such Collateral from the Security Interest."
(c) Section 4.01(a) shall be amended by adding the following two new
final sentences:
"The Residential Mortgages and Non-Residential Mortgages shall be
released to the Company to permit their delivery to the purchasers
thereof, upon certification by the Company of the need therefore, such
certification to constitute a representation and warranty made under
this Agreement. Except during an Event of Default, there shall be
released from the Mortgage Loan Purchase Price Account amounts
necessary to pay the Post-Closing Mortgage Purchase Price upon
certification by the Company of the amount
29
<PAGE> 30
thereof, such certification to constitute a representation and
warranty made under this Agreement."
(d) Section 4.01(b) shall be amended by adding the following two new
first sentences:
"Except as otherwise provided for herein and except for any proceeds
("Loan Repayment Proceeds") which, pursuant to the terms of the Credit
Agreement, are required to be applied to the prepayment of Loans, the
Collateral Agent shall be entitled to receive and retain all proceeds
of Collateral. Loan Repayment Proceeds shall be paid to the
Administrative Agent."
(e) Section 4.01(c) is hereby amended by adding the following new
first sentence:
"The Company shall be permitted to make sales of the Residential
Mortgages and Non-Residential Mortgages released to it pursuant to
Section 4.01(a)."
(f) Section 4.03 shall be amended and restated in its entirety as
follows:
4.03 Collateral Account. There has heretofore been established at
BNY a cash collateral account (the "Collateral Account") in the name
and under the control of the Collateral Agent into which there shall
be deposited from time to time the cash proceeds of any of the
Collateral required to be delivered to the Collateral Agent pursuant
to Sections 4.01(b) or 5.06(c) hereof. The Company shall be entitled
to withdraw funds therefrom solely for (i) prepaying the Loans
(including prepayments pursuant to Section 3.03(c)(i) of the Credit
Agreement but not prepayments pursuant to Section 3.02(c)(ii) of the
Credit Agreement), (ii) paying (x) Interest Expenses of the Company,
(y) ordinary course operating expenses of the Company that are
currently due and are not prepayments of such expenses, and (z) unpaid
restructuring charges of the Company principally connected to the
Company's closing of its Maryland and New York offices and incurred
after the Amendment No. 6 Effective Date in an amount not to exceed
$12,000,000 minus the aggregate of the amounts set forth on Amended
Schedule 8.19(b) to Amendment No. 6 to the Credit Agreement, (iii)
making capital contributions to Insurance Company Subsidiaries
pursuant to Mandated Capital Requirements, (iv) making Investments
after the Amendment No. 6 Effective Date in Kivex (A) out of the
proceeds of the Cisco Financing in an aggregate amount not more than
$1,800,000 and (B)in an aggregate amount not in excess of $1,100,000,
but only after the proceeds of the Cisco Financing in an amount not
less than $800,000 have been so invested, and only on or before June
30, 1999, (v) paying Operating Bank Account Indebtedness and (vi)
after an Event of Default, paying its Secured Obligations; provided
that, except for withdrawals pursuant to clauses (v) and (vi), no
Default shall exist at the time of such withdrawal. Any withdrawal by
the Company pursuant to this Section 4.03 shall be deemed a
representation and warranty that any funds so withdrawn will be used
in accordance with this Security Agreement. Upon the occurrence and
continuance of an Event of Default, the Collateral Agent may in its
discretion apply or cause to be applied
30
<PAGE> 31
the balance from time to time outstanding in the Collateral Account to
the payment of the Secured Obligations in the manner specified in
Section 5.09 hereof.
(g) Section 5.01(c) shall be amended by:
(i) deleting the word "and" at the end of clause (iv);
(ii) changing the "." at the end of clause (v) and substituting
therefor "; and"; and
(iii) adding a new clause (vi) reading as follows:
"(vi) in the case of each Operating Bank Account that is
Collateral, enter into, no later than, in the case of Operating Bank
Accounts existing on the Amendment No. 6 Effective Date that are with
Depositary Banks that are Banks, the Section 8.29 Effective Date and,
in the case of those that are with Depositary Banks that are not
Banks, 50 days after the Section 8.29 Effective Date, and, in the case
of Operating Bank Accounts opened after the Amendment No. 6 Effective
Date, no later than 30 days after the opening of such Operating Bank
Account, arrangements with the Person maintaining such Operating Bank
Account, which shall be in form and substance acceptable to the
Collateral Agent, giving the Collateral Agent dominion and control
over such Operating Bank Account. "Dominion and control" shall mean
that the Collateral Agent shall have the authority to block
withdrawals from the Operating Bank Account during an Event of
Default, unless the Majority Banks shall have otherwise consented in
writing. "Dominion and control" shall not mean that the Person
maintaining such Operating Bank Account may not exercise from time to
time any right of set off, charge back or the like that it may be
entitled to assert."
(h) Section 5.06(c) and (d) shall be amended to read in their
respective entireties as follows:
"(c) All Distribution Collateral, all payments of principal of or
interest on the Surplus Notes and other Notes Collateral, all other
proceeds of Collateral and all other cash or other property received
by the Company (collectively, "Collateral Account Funds") shall be
delivered directly to the Collateral Agent and deposited by the
Collateral Agent in the Collateral Account as part of the Collateral,
subject to the terms of this Agreement, and the Company further agrees
that it will (i) hold in trust for the Collateral Agent Collateral
Account Funds that the Company may receive to which the Collateral
Agent shall be entitled pursuant to this Section 5.06(c), (ii) not
commingle any Collateral Account Funds received by the Company that it
is required to hold in trust with any of its other funds or property,
(iii) deliver any such Collateral Account Funds received by the
Company to the Collateral Agent in the identical form received
promptly upon receipt thereof, and (iv) shall cause any payments
required to be made by a Subsidiary to the Company under the Notes
Collateral to be deposited directly to the Collateral Account, and if
the Collateral Agent shall so request in writing, the Company agrees
to execute and deliver to the Collateral Agent any necessary
endorsements or appropriate stock or bond
31
<PAGE> 32
powers duly executed in blank and appropriate additional dividend,
distribution and other orders and documents to that end.
(d) Subject to Section 5.06(c), the Company shall not make or
consent to any amendment or other modification or waiver with respect
to the Stock Collateral in a manner adverse to the Secured Creditors
taken as a whole or enter into or permit to exist any restriction with
respect to any rights under the Stock Collateral other than
restrictions arising under the Loan Documents."
2. Amendments to the Security Agreements. Reference is hereby made to
the Security Agreements, dated as of September 4, 1998, between the Collateral
Agent and each of the Securing Parties. The Security Agreements, as amended by
this Amendment, are and shall continue to be in full force and effect and are
hereby in all respects confirmed, approved and ratified.
The Security Agreements are hereby amended as follows:
(a) Section 2 shall be amended as follows:
(i) in the case of the Security Agreement of
American-Amicable Holdings Corporation, Section 2(f)
shall be amended to insert after "10022" the following:
", c/o Art J. Giglio, CPA, 250 East Hartsdale Ave., Suite
34, Hartsdale, New York 10530"; and
(ii) in the case of the Security Agreement of Southwestern
Financial Corporation, Section 2(g) shall be amended to
insert after "10022" the following: ", c/o Art J. Giglio,
CPA, 250 East Hartsdale Ave., Suite 34, Hartsdale, New
York 10530, c/o Southwestern Financial Services, 717
North Harwood Street, Dallas, TX 75201".
(b) Section 3 shall be amended as follows:
(i) to add the following new clause (i), reading as follows:
"(i) except to the extent the same otherwise constitutes
Collateral, all personal property and rights, including
all money, accounts, contract rights, general
intangibles, goods, instruments, chattel paper, documents
and Bank Accounts (including Operating Bank Accounts),
except, (1) in the case of any such property that is a
Contract, each such Contract that the grant of a Security
Interest therein would require the consent of any party,
other than the Company, thereto (if such consent has not
been obtained) or would give any such other party to such
Contract the right to terminate its obligations
thereunder, provided, that the foregoing exception shall
not affect, limit, restrict or impair the grant by the
Company of the Security Interest in any account or
general intangible for the payment of money due, or to
become due under such Contract, to the extent provided in
Section 9-318(4) of the Uniform Commercial Code, (2) in
the case of any general intangible that
32
<PAGE> 33
represents a tax refund, any such refund that the Company
is obligated under a Tax Treaty to pay to a Subsidiary,
and for this purpose, a Tax Treaty shall mean a Contract
listed on Security Agreement Amended Schedule 3 to
Amendment No. 6, provided that Excluded Funds shall not
constitute Collateral and (3) in the case of any such
property that is a Bank Account, each Bank Account that
is not an Operating Bank Account and that is a 401(k)
account, or to the extent such Bank Account includes
balances representing the deposit of withholding taxes
(including those for wages, FICA, FUTA and similar
employment or employee taxes);" and
(ii) to reletter existing clauses (i) through (l)
appropriately.
(c) Section 5.01(c) shall be amended by:
(i) deleting the word "and" at the end of clause (iv);
(ii) changing the "." at the end of clause (v) and substituting
therefor "; and"; and
(iii) adding a new clause (vi) reading as follows:
"(vi) in the case of each Operating Bank Account that is
Collateral, enter into, no later than, in the case of
Operating Bank Accounts existing on the Amendment No. 6
Effective Date that are with Depositary Banks that are
Banks, the Section 8.29 Effective Date and, in the case of
those that are with Depositary Banks that are not Banks, 50
days after the Section 8.29 Effective Date, and, in the case
of Operating Bank Accounts opened after the Amendment No. 6
Effective Date, no later than 30 days after the opening of
such Operating Bank Account, arrangements with the Person
maintaining such Operating Bank Account, which shall be in
form and substance acceptable to the Collateral Agent,
giving the Collateral Agent dominion and control over such
Operating Bank Account. "Dominion and control" shall mean
that the Collateral Agent shall have the authority to block
withdrawals from the Operating Bank Account during an Event
of Default, unless the Majority Banks shall have otherwise
consented in writing. "Dominion and control" shall not mean
that the Person maintaining such Operating Bank Account may
not exercise from time to time any right of set off, charge
back or the like that it may be entitled to assert."
(d) Section 5.06(c) and (d) shall be amended to read in their
respective entireties as follows:
33
<PAGE> 34
"(c) All Distribution Collateral, all payments of principal of or
interest on the Surplus Notes and other Notes Collateral, and all
other proceeds of Collateral (collectively, "Collateral Account
Funds") shall be delivered directly to the Collateral Agent and
deposited by the Collateral Agent in the Collateral Account as part of
the Collateral, subject to the terms of this Agreement, and the
Company further agrees that it will (i) hold in trust for the
Collateral Agent Collateral Account Funds that the Company may receive
to which the Collateral Agent shall be entitled pursuant to this
Section 5.06(c), (ii) not commingle any Collateral Account Funds
received by the Company that it is required to hold in trust with any
of its other funds or property, (iii) deliver any such Collateral
Account Funds received by the Company to the Collateral Agent in the
identical form received promptly upon receipt thereof, and (iv) shall
cause any payments required to be made by a Subsidiary to the Company
under the Notes Collateral to be deposited directly to the Collateral
Account, and if the Collateral Agent shall so request in writing, the
Company agrees to execute and deliver to the Collateral Agent any
necessary endorsements or appropriate stock or bond powers duly
executed in blank and appropriate additional dividend, distribution
and other orders and documents to that end.
(d) Subject to Section 5.06(c), the Company shall not make or
consent to any amendment or other modification or waiver with respect
to the Stock Collateral in a manner adverse to the Secured Creditors
taken as a whole or enter into or permit to exist any restriction with
respect to any rights under the Stock Collateral other than
restrictions arising under the Loan Documents."
(e) Section 6.14 shall be amended and restated in its entirety to
read as follows:
"6.14 Governing Law, Submission to Jurisdiction. The rights and
duties of the Company and the Collateral Agent (including matters
relating to the Maximum Permissible Rate) shall, pursuant to New York
General Obligations Law Section 5-1401, be governed by the law of the
State of New York. The Company hereby submits to the nonexclusive
jurisdiction of the United States District Court for the Southern
District of New York and of any New York state court sitting in New
York City for the purposes of all legal proceedings arising out of or
relating to this Agreement, the other Security Documents or the
transactions contemplated hereby or thereby. The Company irrevocably
waives, to the fullest extent permitted by law, any objection which it
may now or hereafter have to the laying of the venue of any such
proceeding brought in such a court and any claim that any such
proceeding brought in such a court has been brought in an inconvenient
forum. The Company hereby waives personal service of process and
consents that service of process upon it may be made by certified or
registered mail, return receipt requested, and service so made shall
be deemed completed on the third Business Day after such service is
deposited in the mail. Nothing herein shall affect the right of the
Collateral Agent, any Bank, any affiliate of any of them and any
director, officer, employee or agent of any of them to serve process
in any other manner permitted by law or shall limit the right of the
Collateral Agent, any Bank, any affiliate of any of them and any
director, officer, employee or agent of any of them to bring
proceedings
34
<PAGE> 35
against the Company in the courts of any other jurisdiction. Any
judicial proceeding by the Company against the Collateral Agent or any
Bank arising out of or relating to this Agreement, the other Security
Documents or the transactions contemplated hereby or thereby shall be
brought only in a court located in, in the case of the Collateral
Agent, the City and State of New York and, in the case of a Bank, the
jurisdiction in which such Bank's principal United States office is
located."
(f) A new Section 6.15 shall be added as follows:
"6.15 Waiver of Jury Trial. THE COMPANY AND THE COLLATERAL AGENT
HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY
AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF
OR RELATING TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY."
(g) Existing Sections 6.15 and 6.16 shall be renumbered 6.16 and
6.17, respectively.
(h) A new Section 6.18 shall be added reading as follows:
"Section 6.18 Acknowledgment of Subordination. The Company hereby
acknowledges that any present and future Indebtedness (other than
Operating Bank Account Indebtedness that does not represent the
transfer of Designated Asset Sale Proceeds) payable by the Borrower to
the Company is Subordinated in accordance with the terms of the Credit
Agreement."
3. Representations and Warranties. In order to induce the Banks to
execute and deliver Amendment No. 6 (the "Amendment"), the Credit Agreement,
the Company and each Securing Party hereby represents and warrants as follows:
(a) The Company and each Securing Party has the power, and has
taken all necessary action (including any necessary stockholder action) to
authorize it, to execute, deliver and perform in accordance with their
respective terms, this Amendment and the Credit Agreement, as amended by this
Amendment. This Amendment has been duly executed and delivered by the duly
authorized officers of the Company and each Securing Party and is, and the
Credit Agreement, as amended by this Amendment is, the legal, valid and binding
obligation of the Company and each Securing Party enforceable in accordance
with its terms, except as enforceability may be limited by any applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
the enforcement of creditors' rights generally. The execution, delivery and
performance in accordance with their respective terms by the Company of this
Amendment and the Credit Agreement, as amended by this Amendment, and the
execution, delivery and performance in accordance with their respective terms
by each Securing Party of this Amendment and Security Agreement, as amended by
this Amendment, do not and (absent any change in any Applicable Law or
applicable Contract) will not (A) require any Governmental Approval or any
other consent or approval, including any consent or approval of the
stockholders of the Company or of any Subsidiary, to have been obtained, or any
Governmental Registration to have been made, other than Governmental Approvals
and other
35
<PAGE> 36
consents and approvals and Governmental Registrations that have been obtained
or made, are final and not subject to review on appeal or to collateral attack,
are in full force and effect and, in the case of any such consents or approvals
required under any Applicable Law or Contract as in effect on the Amendment No.
6 Effective Date, are listed on Schedule 3(a) hereto, or (B) violate, conflict
with, result in a breach of, constitute a default under, or result in or
require the creation of any Lien (other than the Security Interest) upon any
assets of the Company or any Securing Party or any Subsidiary under (1) any
Contract to which the Company, any Securing Party, or any Subsidiary is a party
or by which the Company, any Securing Party, or any Subsidiary or any of their
respective properties may be bound, or (2) any Applicable Law. As used herein,
"Governmental Approval" shall mean any authority, consent, approval, license
(or the like) or exemption (or the like) of any governmental unit;
"Governmental Registration" shall mean any registration or filing (or the like)
with, or report or notice (or the like) to, any governmental unit.
(b) The Information set forth on the Amended Schedules attached hereto
on the Amendment No. 6 Effective Date is complete and correct in all material
respects as of the Amendment No. 6 Effective Date.
(c) Each Questionnaire referred to in paragraph 4(a)(ii), is, as of
the Amendment No. 6 Effective Date, complete and correct in all material
respects.
(d) The name and state of incorporation of each New Securing Party is
set forth on Annex A.
(e) The Company will be, before the Section 8.29 Effective Date, duly
authorized by each of the Operating Bank Account Subsidiaries to authorize The
Bank of New York and the other Depositary Banks to take the actions specified
in Section 8.29(b)(i), other than any such action that would violate an
Applicable Law applicable to an Insurance Company or any Subsidiary of an
Insurance Company.
(f) (i) Each Insurance Company is presently transferring funds to
Operating Bank Account Subsidiaries in amounts and at times that are consistent
with its past practices and there has been no material deviation from those
past practices at any time during the six months ending on the Amendment No. 6
Effective Date.
(ii) Each Subsidiary of an Insurance Company is presently
transferring funds to the Insurance Company of which it is a Subsidiary, or to
Operating Bank Account Subsidiaries, in amounts and at times that are
consistent with its past practices, and there has been no material deviation
from those past practices at any time during the 6 months ending on the
Amendment No. 6 Effective Date.
(g) Each of the Qualified Agreements was executed and delivered and
became effective prior to March 1, 1999.
(h) (i) On the Amendment No. 6 Effective Date, the number of shares of
the Company's common stock $.01 par value, subject to outstanding Stock Options
is 5,286,977.
36
<PAGE> 37
(ii) On the Amendment No. 6 Effective Date, the number of
shares of the Company's common stock $.01 par value, subject to Stock Options
that remain to be granted under a Schedule Stock Option Plan is 1,053,792.
(i) Amended Schedule 3(i) to Amendment No. 6 is a complete and
accurate organizational chart of the Company and its Subsidiaries, as of the
Amendment No. 6 Effective Date.
(j) Each of the foregoing representations and warranties shall be
made at and as of the Amendment No. 6 Effective Date.
4. Conditions to Effectiveness: Amendment No. 6 Effective Date. This
Amendment shall be effective as of the date first written above, but shall not
become effective as of such date until the date (the "Amendment No. 6 Effective
Date"):
(a) the Administrative Agent shall have received each of the
following, in form and substance satisfactory to the Administrative Agent:
(i) this Amendment duly executed by the Company, the
Administrative Agent, and each Bank;
(ii) a duly executed Questionnaire from each Securing Party
that is not a Possible Securing Party;
(iii) a duly executed Security Agreement in the form attached
hereto as Schedule 4(a)(vi) from each New Securing Party;
(iv) appropriate UCC-3 forms for each Securing Party for each
jurisdiction in which filings against such Securing Party have been
made, and appropriate UCC-1 forms for each New Securing Party for each
jurisdiction in which filings against such New Securing Party are
necessary, duly executed by the respective Securing Party or New
Securing Party;
(b) The Company shall have paid to the Agent:
(i) all amounts payable by the Company pursuant to Section
11.02 (Expenses; Indemnification) for which invoices have been
delivered to the Company.
(ii) for the account of each Bank all amounts payable to such
Bank under the Credit Agreement for which invoices have been delivered
to the Company.
(iii) for the account of each Bank, a non-refundable amendment
fee in an amount equal to 0.25% of such Bank's Commitment immediately
prior to the Amendment No. 6 Effective Date.
(c) KPMG shall have delivered, or be delivering, to the Company,
with a copy to the Administrative Agent, a clean opinion from its independent
auditors of the
37
<PAGE> 38
Company's year end consolidated financial statements. An adverse opinion,
disclaimer of opinion or qualified opinion would not be a "clean" opinion.
(d) The Company shall have deposited in the Collateral Account,
the $2,800,000 KB Management promote fee and the $2,200,000 American Amicable
intercompany loan repayment proceeds.
(e) In addition to the amounts referred to in Section 4(d), the
Company shall, on or before the Amendment No. 6 Effective Date, have caused
there to be deposited in the Collateral Account not less than $400,000 from the
balances of good funds in the Operating Bank Accounts.
5. Governing Law. The rights and duties of the Company, the Agent and
the Banks under this Amendment shall, pursuant to New York General Obligations
Law Section 5-1401, be governed by the law of the State of New York.
6. Counterparts. This Amendment may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if
the signatures thereto were upon the same instrument.
7. Headings. Section headings in this Amendment are included herein
for convenience and reference only and shall not constitute a part of this
Amendment for any other purpose.
38
<PAGE> 1
PURCHASE AGREEMENT
AMONG
ING AMERICA INSURANCE HOLDINGS, INC.
PENNCORP FINANCIAL GROUP, INC.,
PACIFIC LIFE AND ACCIDENT INSURANCE COMPANY,
MARKETING ONE FINANCIAL CORPORATION
AND
MARKETING ONE, INC.
DATED FEBRUARY 21, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I DEFINITIONS.......................................................................2
SECTION 1.1. Definitions............................................................2
SECTION 1.2. Other Definitions......................................................5
ARTICLE II THE ACQUISITION...................................................................8
SECTION 2.1. Purchase and Sale of Shares and Marketing One
Assets.................................................................8
SECTION 2.2. Consideration for the Shares and Marketing One
Assets.................................................................8
ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLERS.........................................8
SECTION 3.1. Organization and Qualification.........................................9
SECTION 3.2. Authorization.........................................................10
SECTION 3.3. No Violation..........................................................10
SECTION 3.4. Capitalization of the Target Companies................................11
SECTION 3.5. No Other Subsidiaries.................................................12
SECTION 3.6. Consents and Approvals................................................13
SECTION 3.7. Financial Statements..................................................13
SECTION 3.8. Absence of Undisclosed Liabilities....................................15
SECTION 3.9. Absence of Certain Changes............................................15
SECTION 3.10. Litigation............................................................16
SECTION 3.11. Property; Liens and Encumbrances......................................17
SECTION 3.12A. Investment Assets................................................................18
SECTION 3.12. Certain Agreements....................................................19
SECTION 3.13. Target Employees.....................................................20
SECTION 3.14. Taxes.................................................................22
SECTION 3.15. Compliance with Applicable Law; Permits; Policies.....................26
SECTION 3.16. Brokers' Fees and Commissions.........................................28
SECTION 3.17. Proprietary Rights....................................................28
SECTION 3.18. Insurance.............................................................29
SECTION 3.19. Environmental Matters.................................................29
</TABLE>
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
SECTION 3.20. Books and Records.....................................................31
SECTION 3.21. Bank Accounts.........................................................31
SECTION 3.22. Insurance and Reinsurance.............................................31
SECTION 3.23. Labor Matters.........................................................33
SECTION 3.24. Year 2000 Compliance..................................................34
SECTION 3.25. Financial Condition...................................................35
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER..........................................36
SECTION 4.1. Organization; Qualifications and Operations...........................36
SECTION 4.2. Authorization.........................................................36
SECTION 4.3. No Violation..........................................................36
SECTION 4.4. Consents and Approvals................................................37
SECTION 4.5. Brokers' Fees and Commissions.........................................37
SECTION 4.6. Purchase for Investment...............................................37
SECTION 4.7. Financing.............................................................37
SECTION 4.8. No Assets of Benefit Plan.............................................37
ARTICLE V COVENANTS........................................................................37
SECTION 5.1. Conduct of Business Prior to the Closing..............................37
SECTION 5.2. Access to Information.................................................39
SECTION 5.3. HSR Act Filings.......................................................40
SECTION 5.4. Regulatory Approvals..................................................40
SECTION 5.5. All Reasonable Efforts................................................41
SECTION 5.6. Public Announcements..................................................41
SECTION 5.7. Disclosure Supplements; Updated Financial
Information...........................................................41
SECTION 5.8. No Implied Representations or Warranties..............................42
SECTION 5.9. Employment and Employee Benefits......................................42
SECTION 5.10. Nonsolicitation.......................................................46
SECTION 5.11. Acquisition Proposals.................................................46
SECTION 5.12. Tax Matters...........................................................46
</TABLE>
<PAGE> 4
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
SECTION 5.13. Intercompany Accounts and Agreements..................................56
SECTION 5.14. Use of Name and Intellectual Property.................................56
SECTION 5.15. Pre-Closing Reorganization............................................56
SECTION 5.16. Confidentiality and Noncompetition....................................57
SECTION 5.17. Purchase of Certain Residential Mortgages; BA
Assets................................................................58
SECTION 5.18. Insurance.............................................................60
ARTICLE VI CLOSING CONDITIONS...............................................................60
SECTION 6.1. Conditions to the Obligations of Buyer under this
Agreement.............................................................60
SECTION 6.2. Conditions to the Obligations of Seller under this
Agreement.............................................................61
ARTICLE VII CLOSING..........................................................................62
SECTION 7.1. Closing...............................................................62
ARTICLE VIII SURVIVAL AND INDEMNIFICATION.....................................................62
SECTION 8.1. Survival of Representations, Warranties and
Covenants.............................................................62
SECTION 8.2. Limitations on Liability..............................................63
SECTION 8.3. Indemnification.......................................................65
SECTION 8.4. Defense of Claims.....................................................66
SECTION 8.5. Adjustment to Purchase Price..........................................68
SECTION 8.6. Exclusive Remedy......................................................68
ARTICLE IX TERMINATION AND ABANDONMENT......................................................69
SECTION 9.1. Termination...........................................................69
SECTION 9.2. Procedure and Effect of Termination...................................71
ARTICLE X MISCELLANEOUS PROVISIONS.........................................................71
SECTION 10.1. Amendment and Modification............................................71
SECTION 10.2. Waiver of Compliance; Consents........................................71
SECTION 10.3. Severability..........................................................72
SECTION 10.4. Expenses and Obligations..............................................72
</TABLE>
<PAGE> 5
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
SECTION 10.5. Parties in Interest...................................................72
SECTION 10.6. Notices...............................................................72
SECTION 10.7. Governing Law.........................................................73
SECTION 10.8. Counterparts..........................................................73
SECTION 10.9. Headings..............................................................73
SECTION 10.10. Entire Agreement......................................................73
SECTION 10.11. Assignment............................................................74
SECTION 10.12. Specific Performance..................................................74
</TABLE>
Annex A Disclosure Schedule
Annex B Marketing One Assets
Annex C Term Sheet for Transition Services Agreement
<PAGE> 6
PURCHASE AGREEMENT
PURCHASE AGREEMENT (this "Agreement"), dated February 21, 1999, by and
among ING America Insurance Holdings, Inc., a Delaware corporation ("Buyer"),
PennCorp Financial Group, Inc., a Delaware corporation ("PennCorp"), Pacific
Life and Accident Insurance Company, a Texas corporation ("PLAC"), Marketing One
Financial Corporation, a Delaware corporation ("Marketing One Financial"),
Marketing One, Inc., a Nevada corporation ("Marketing One" and together with
Marketing One Financial, PennCorp and PLAC, "Sellers").
RECITALS:
WHEREAS, PennCorp is the record and beneficial owner of all of the
outstanding shares of common stock, par value $0.01 per share, of UC Mortgage
Corp., a Delaware corporation ("UC");
WHEREAS, PLAC is the record and beneficial owner of all of the
outstanding shares of common stock, par value $2.00 per share, of United Life &
Annuity Insurance Company, a Texas corporation ("United Life");
WHEREAS, PLAC is a wholly-owned subsidiary of PennCorp;
WHEREAS, Marketing One Financial is the record and beneficial owner of
all of the outstanding shares of common stock, par value $0.0001 per share, of
CyberLink Development Inc., a Delaware corporation ("CyberLink");
WHEREAS, Marketing One Financial is a wholly-owned subsidiary of United
Life;
WHEREAS, Marketing One is a wholly-owned subsidiary of Marketing One
Financial;
WHEREAS, subject to the terms and conditions set forth herein, Sellers
desire to sell to Buyer, and Buyer desires to purchase from Sellers, all of the
issued and outstanding shares of common stock of UC (the "UC Shares"), all of
the issued and outstanding shares of common stock of United Life (the "United
Life Shares"), and all of the issued and outstanding shares of common stock of
CyberLink (the "CyberLink Shares," and together with the UC Shares and the
United Life Shares, the "Shares"), and those assets of Marketing One (the
"Marketing One Assets") identified on Annex B hereto pursuant to an Asset
Assignment Agreement to be executed by and between Buyer and Marketing One in a
form reasonably satisfactory to Buyer and Marketing One (and their legal
counsel) (the "Asset Assignment Agreement") on the Closing Date.
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements herein contained, the parties hereto
agree as follows:
<PAGE> 7
ARTICLE I
DEFINITIONS
SECTION 1.1. Definitions. For purposes of this Agreement, the term:
(a) "affiliate" means as to a specified Person any other Person that
directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, the specified Person.
(b) "Annual Statements" means, with respect to a referenced Person, the
annual statement of such Person filed with or submitted to the insurance
regulatory authority in the jurisdiction in which such Person is domiciled on
forms prescribed or permitted by such authority.
(c) "Business Day" means any day that is not a Saturday, Sunday or
other day on which banking institutions in the city of New York, New York are
authorized or required by law or executive order to be closed.
(d) "Code" means the Internal Revenue Code of 1986, as amended
(including any successor code), and the rules and regulations promulgated
thereunder.
(e) "Commission" means the Securities and Exchange Commission.
(f) "Defined Prospects" means the prospects of CyberLink as described
in Section 1.1(f) of the Disclosure Schedule.
(g) "Disclosure Schedule" means the Disclosure Schedule attached hereto
as Annex A.
(h) "Environmental Laws" means all applicable federal, state or local
laws (including but not limited to federal and state common law), statutes,
codes, rules or regulations relating to the environment, natural resources, and
pollution including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. ss. 9601 et seq. ("CERCLA"),
the Hazardous Materials Transportation Act, 49 U.S.C. ss. 1801 et seq. ("HMTA"),
the Resource Conservation and Recovery Act, 42 U.S.C. ss. 6901 et seq. ("RCRA"),
the Federal Water Pollution Control Act, 33 U.S.C. ss. 1251 et seq ("FWPCA"),
the Clean Air Act, 42 U.S.C. ss. 7401 et seq. ("CAA"), and/or the Toxic
Substances Control Act, 15 U.S.C. ss. 2601 et seq. ("TSCA"), the Oil Pollution
act of 1990, 33 U.S.C. ss. 2701 et seq., as such laws have been amended or
supplemented, and any similar or analogous foreign, state, local or county laws
or regulations to the extent applicable.
(i) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
2
<PAGE> 8
(j) "Governmental Authority" means any nation or government, any state
or other political subdivision thereof and any entity (including, without
limitation, the NASD) exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
(k) "Hazardous Materials" means (i) any wastes, substances, or
materials which are defined as "hazardous material," "hazardous waste,"
"hazardous substance," "toxic material" or other similar designations in, or
otherwise subject to regulation under, any applicable Environmental Laws; (ii)
petroleum or petroleum byproducts; (iii) friable asbestos and/or any material
which contains friable asbestos; and (iv) electrical equipment containing
polychlorinated biphenyls ("PCBs") in excess of 50 parts per million.
(l) "Investment Asset Schedule" shall mean that certain Schedule of
Investment Assets referred to in the definition of "Investment Assets" below.
(m) "Investment Assets" shall mean those investment assets (including
"market risk sensitive instruments") of United Life (including each of its
separate accounts) set forth in the Schedule of Investment Assets, dated January
31, 1999, previously delivered by Sellers to Buyer and certified by the
controller of United Life as a true and complete schedule of the investment
assets of United Life (including each of its separate accounts) as of the date
thereof. For purposes of the Investment Asset Schedule, the term "market risk
sensitive instrument" shall have the meaning given such term under Item 305 of
Regulation S-K under the U.S. federal securities laws, including without
limitation any security commonly referred to as a "derivative security." For
these purposes, a derivative security includes any future, option, repurchase,
reverse repurchase, rate swap transaction, basis swap, forward rate transaction,
commodity swap, commodity option, equity or equity index swap, equity or equity
index option, bond option, interest rate option, foreign exchange transaction,
cap transaction, floor transaction, collar transaction, currency swap
transaction, cross-currency rate swap transaction or currency option.
(n) "Lien" means any charge, claim, community property interest,
condition, encumbrance, equitable interest, lien, option, pledge, security
interest, right of first refusal, or restriction of any kind, including without
limitation any restriction on use, voting, transfer, receipt of income, or
exercise of any other attribute of ownership.
(o) "Losses" means any and all demands, claims, complaints, actions or
causes of action, suits, proceedings, investigations, arbitrations, assessments,
losses, damages, liabilities, obligations (including those arising out of any
action, such as any settlement or compromise thereof or judgment or award
therein) and any reasonable costs and expenses, including attorneys' and other
advisors' fees and disbursements.
(p) "Material Adverse Effect" means (i) a material adverse effect with
respect to the business, results of operations or financial condition of the
Target Companies, taken as a whole, provided, however, that (A) no event or
occurrence, or the
3
<PAGE> 9
results thereof, relating to or attributable to the United Companies Financial
Corporation Agreements and (B) no effect with respect to the Target Companies
attributable to attrition of Target Employees, shall be considered in
determining whether or not a Material Adverse Effect has occurred or otherwise
exists, or (ii) a material adverse effect with respect to the Defined Prospects
of CyberLink taken individually, provided, however, that no Material Adverse
Effect shall be deemed to have occurred with respect to CyberLink as a result of
any one or more employees dedicated to CyberLink ceasing to be so employed after
the date hereof; provided that neither Sellers nor their affiliates shall
terminate any such employee without the prior consent of Buyer.
(q) "NASD" shall mean the National Association of Securities Dealers,
Inc.
(r) "Person" means an individual, corporation, limited liability
company, partnership, joint venture, association, trust, unincorporated
organization or, as applicable, any other entity.
(s) "Release" means any emission, spill, seepage, leak, escape,
leaching, discharge, injection, pumping, pouring, emptying, dumping, disposal,
release, or threatened release of Hazardous Materials into the environment.
(t) "SAP" means the statutory accounting practices required or
permitted by the National Association of Insurance Commissioners or the
insurance regulatory authority in the jurisdiction of domicile of the referenced
Person, consistently applied throughout the specified period.
(u) "Subsidiary" means, as to any Person, any other Person of which at
least a majority of the outstanding shares or other equity interests having
ordinary voting power for the election of directors or comparable managers of
such Person is owned, directly or indirectly, by the referenced Person.
(v) "Target Capital and Surplus" means the amount equal to $99.6
million minus the sum of the following items: (i) the amount of reserves
relating to litigation reflected on the 1998 Annual Statement of United Life
(the "Litigation Reserves"), plus (ii) $150,000.
(w) "Target Companies" means UC, United Life, United Variable Services,
and CyberLink.
(x) "Target Employees" shall mean those persons who primarily render
services to or on behalf of UC, the United Life Companies and the Subsidiaries
of the United Life Companies, as set forth in Section 3.13(a) of the Disclosure
Schedule.
(y) "Taxes" means any and all federal, state, local, foreign and other
taxes, levies, fees, imposts, duties and similar governmental charges (including
any interest, penalties or additions to tax imposed in connection therewith or
with respect
4
<PAGE> 10
thereto), including, without limitation, taxes imposed on or with respect to, or
measured by, income, franchise, profits or gross receipts, ad valorem, value
added, sales, use, service, real or personal property, capital stock, license,
payroll, withholding, employment, social security, unemployment, compensation,
utility, severance, production, excise, stamp, occupation, premium, windfall
profits, transfer and gains taxes, and customs duties.
(z) "Tax Returns" means any report, return or statement required to be
supplied to a taxing authority in connection with Taxes.
(aa) "United Companies Financial Corporation Agreements" means (i) that
certain Master Loan Sale Agreement, dated as of July 24, 1996, by and among
United Life (formerly United Companies Life Insurance Company), United Companies
Lending Corporation, Southern Mortgage Acquisition, Inc., Unicor Mortgage, Inc.,
Ginger Mae, Inc., United Companies Lending Group, Inc. and United Companies
Mortgage of Tennessee, Inc., (ii) that certain Revision Agreement, dated as of
May 30, 1997, by and among United Companies Financial Corporation, PennCorp and
PLAC, and (iii) that certain Servicing Agreement, dated as of July 24, 1996, by
and between United Life (formerly United Companies Life Insurance Company) and
United Companies Lending Corporation, as each of the foregoing has been amended
or supplemented through the date hereof.
(bb) "United Life Companies" means United Life, United Variable
Services, Marketing One Financial, Marketing One and CyberLink.
(cc) "United Variable Services" means United Variable Services, Inc.,
an Oregon corporation and wholly-owned subsidiary of United Life.
(dd) "WARN" means the Worker Adjustment and Retraining Notification Act
of 1988 and any similar state or local "plant closing" statute.
SECTION 1.2. Other Definitions. When used in this Agreement, the following
terms shall have the meanings ascribed to them in the Sections noted below:
<TABLE>
<CAPTION>
Term Defined in
---- ----------
<S> <C>
1998 Audited Financial Statements Section 5.7(b)
Acquisition Section 6.1
Acquisition Proposal Section 5.11
Agreement Preamble
Allocation Agreement Section 5.12(u)
American Amicable Dividend Section 5.15(b)
Ancillary Agreements Section 3 .2
Asset Assignment Agreement Recitals
Audited Financial Statements Section 3.7(c)
BA Assets Section 5.17(c)
</TABLE>
5
<PAGE> 11
<TABLE>
<S> <C>
Benefit Contracts Section 3.22(f)
Benefit Plans Section 3.13(b)
Bidder Agreements Section 5.16(a)
Buyer Preamble
Buyer Ancillary Agreements Section 4.2
Buyer Material Adverse Effect Section 4.1
CERCLIS Section 3.19(c)
Claim Section 5.12(z)
Closing Section 7.1
Closing Date Section 7.1
Computation Section 5.12(u)
CyberLink Recitals
CyberLink Shares Recitals
Designated Employees Section 5.9(a)
Determination Section 5.12(c)
Direct Claim Section 8.4(d)
Dispute Resolution Statement Section 8.2(c)
DOJ Section 3.6
Employee Plans Section 3.22(g)
ERISA Section 3.13(b)
ERISA Affiliate Section 3.13(e)
Existing Litigation Section 8.1
Final Noncurrent Loan Schedule Section 5.17(a)
Financial Statements Section 3.7(d)
Fourth Quarter Earnings Section 5.15(c)
GAAP Section 3.7(c)
HSR Act Section 3.6
Identified Statements Section 8.2(c)
Indemnifiable Losses Section 8.2(a)(iv)
Indemnifying Party Section 8.2(a)(iii)
Indemnitee Section 8.2(a)(ii)
Indemnity Payment Section 8.2(a)(i)
Intellectual Property Section 3.17(a)
Licensed Intellectual Property Section 3.17(a)
Licensed Software Section 3.17(b)
Litigation Section 3.10
MADSP Section 5.12(u)
Marketing One Preamble
Marketing One Assets Recitals
Marketing One Financial Preamble
Marketing One Liability Section 8.1(b)
Material Contract Section 3.12
MEC Section 3.22(e)
Multiemployer Plan Section 3.13(b)
Neutral Auditors Section 5.12(u)
</TABLE>
6
<PAGE> 12
<TABLE>
<S> <C>
Noncurrent Loans Section 5.17(a)
Noncurrent Residential Mortgage Section 5.17(a)
Nonresidential Mortgage Section 5.17(a)
Other Departments Section 3.7(a)(ii)
Owned Intellectual Property Section 3.17(a)
Owned Properties Section 3.11(b)
Owned Software Section 3.17(b)
PBGC Section 3.13(e)
PennCorp Preamble
Permitted Liens Section 3.11(b)
Personal Property Lease Section 3.11(f)
PLAC Preamble
Post-Signing Matter Section 5.7(a)
Pre-Closing Dividend Section 5.15(c)
Preliminary Noncurrent Loan Schedule Section 5.17(a)
Pre-Signing Matter Section 5.7(a)
Processes Section 3.24(c)
Product Tax Representations Section 8.1(b)
Proprietary Rights Section 3.17(d)
Purchase Price Section 2.2
Quarterly Statements Section 3.7(a)(iv)
Real Estate Assets Section 3.12A(b)
Real Property Lease Section 3.11(c)
Reinsurance Agreements Section 3.22(a)
Reorganization Section 5.15
Representatives Section 5.12(y)
Reserve Liabilities Section 3.7(f)
Residential Mortgages Section 5.17(a)
Retained Employees Section 5.9(a)
SAP Financial Statements Section 3.7(a)
Section 338(h)(10) Election Section 5.12(s)
Section 338 Forms Section 5.12(t)
Section 338(h)(10) Option Section 5.12(s)
Sellers Preamble
Seller Group Section 3.14(m)
Shares Recitals
Serviced Loan Section 3.15(f)
Software Section 3.17(b)
Tangible Personal Property Section 3.11(e)
Tax Indemnifying Party Section 5.12(f)
Tax Indemnitee Section 5.12(f)
Third Party Accountants Section 8.2(c)
Third Party Claim Section 8.2(a)
Transition Employees Section 5.9(a)
Transition Services Agreement Section 5.17(e)
</TABLE>
7
<PAGE> 13
<TABLE>
<S> <C>
UC Recitals
UC Shares Recitals
Unaudited UC Financial Statements Section 3.7(c)
United Life Recitals
United Life Pro Forma Balance Sheet Section 5.15(c)
United Life Shares Recitals
United Variable Services Shares Section 3.4(e)
Workpapers Section 5.12(u)
</TABLE>
ARTICLE II
THE ACQUISITION
SECTION 2.1. Purchase and Sale of Shares and Marketing One Assets. On
the terms and subject to the conditions hereof, and in reliance upon the
respective representations, warranties, covenants and agreements of each of the
respective parties to this Agreement, at the Closing, Sellers will sell, assign,
transfer and convey to Buyer, and Buyer will purchase and acquire from Sellers,
the Shares and the Marketing One Assets, in each case, free and clear of all
Liens, except Liens created by Buyer and, in the case of the Marketing One
Assets, except for Permitted Liens.
SECTION 2.2. Consideration for the Shares and Marketing One Assets. The
aggregate purchase price payable by Buyer shall be $152.0 million ($152,000,000)
in cash (the "Purchase Price"). On the Closing Date (subject to any amounts
which may be required to be paid into escrow pursuant to Section 5.17), Buyer
will pay the Purchase Price by wire transfer of immediately available funds to
such accounts as Sellers shall have designated in writing at least two days
prior to the Closing Date. In the event the Pre-Closing Dividend shall not have
been paid prior to the Closing, Buyer shall also pay to Sellers on the Closing
Date an amount equal to the amount that would have been received by PLAC if the
Pre-Closing Dividend had been paid, such amount to be paid by wire transfer of
immediately available funds to such accounts as Sellers shall have designated in
writing on the Closing Date. In the event any Target Company shall have paid a
dividend, except as provided in Section 5.15 of this Agreement and except for
dividends to policyholders as described in Section 3.22(a) of the Disclosure
Schedule, on or after January 1, 1999 and prior to the Closing Date to any
Person other than a Target Company, then the amounts payable by Buyer pursuant
to the two preceding sentences shall be reduced by the amount of any such
dividend.
8
<PAGE> 14
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLERS
PennCorp, with respect to all matters set forth in this Article III,
jointly and severally represents and warrants to Buyer, PLAC, with respect only
to the matters set forth in this Article III relating to itself and the United
Life Companies, severally represents and warrants to Buyer, and Marketing One
Financial, with respect only to the matters set forth in this Article III
relating to itself, Marketing One, the Marketing One Assets and CyberLink,
severally represents and warrants to Buyer, as follows:
SECTION 3.1. Organization and Qualification.
(a) Each of the Sellers and the Target Companies is a corporation
duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation, with all requisite corporate power and authority
to own, operate and lease its properties and to carry on its business as it is
now being conducted. Sellers have delivered or made available to Buyer a true
and complete copy of the Certificate or Articles of Incorporation and Bylaws of
each of the Target Companies.
(b) Each of the Target Companies is qualified or licensed to do
business as a foreign corporation and is in good standing in every jurisdiction
where the nature of the business conducted by it or the properties owned or
leased by it requires such qualification or licensing, except where the failure
to be so qualified, licensed or in good standing would not reasonably be
expected to have a Material Adverse Effect. Section 3.1(b) of the Disclosure
Schedule sets forth a true and complete list of each jurisdiction in which each
Target Company is organized, qualified or licensed to do business.
(c) United Life is licensed to write the types of insurance and
other products (including fixed annuities and variable annuities) shown in
Section 3.1(c) of the Disclosure Schedule in the jurisdictions specified in such
Section. Except as set forth in Section 3.1(c) of the Disclosure Schedule, (i)
no such license is the subject of a proceeding for suspension or revocation or
any similar proceedings, (ii) to the knowledge of Sellers, there is no pending
threat of such suspension or revocation by any licensing authority and (iii)
there is no fact of which Sellers are aware which Sellers reasonably believe
would provide a sustainable basis for any such suspension or revocation. United
Life currently is not the subject of any supervision, conservation,
rehabilitation, liquidation, receivership, insolvency or other similar
proceeding nor, other than as described in Section 3.1(c) of the Disclosure
Schedule, is it operating under any formal or informal agreement or
understanding with the licensing authority of any state or other jurisdiction
which restricts its authority to do business or requires it to take, or refrain
from taking, any action. The redomestication of United Life from Louisiana to
Texas has been completed in accordance with the applicable laws of Texas and
Louisiana and no additional approvals from any Governmental Authority is
required in connection with such redomestication. All other states where United
Life is licensed must be notified of the redomestication in accordance with the
applicable laws of such states. United Life is not "commercially domiciled" in
Louisiana or in any other state or jurisdiction other than Texas. United Life is
a "life insurance company" within the meaning of Section 816 of the Code.
9
<PAGE> 15
(d) None of the Target Companies is, or is required to be,
registered as an investment adviser under the Investment Advisers Act of 1940,
as amended. United Variable Services is a registered broker-dealer under the
Exchange Act and, in connection with its present business activities, is
registered as a broker-dealer in each state listed in Section 3.1(d) of the
Disclosure Schedule, which states represent all states in which such
registration is required, except for those jurisdictions where the failure to be
so registered would not have a Material Adverse Effect. The foregoing
registrations are in full force and effect and United Variable Services has not
received any notice of any investigation or proceeding that would result in the
suspension, revocation or limitation of any such registration.
SECTION 3.2. Authorization. Each Seller has full corporate power and
authority to execute and deliver this Agreement and each other agreement
contemplated hereby to be executed by such Seller (the "Ancillary Agreements")
and to consummate the transactions contemplated hereby and thereby. The
execution and delivery of this Agreement and the Ancillary Agreements by
Sellers, the performance by Sellers of their obligations hereunder and
thereunder, and the consummation by Sellers of the transactions contemplated
hereby and thereby, have been duly authorized by their respective Boards of
Directors and, where applicable, their respective stockholders. No other
corporate action on the part of Sellers is necessary to authorize the execution
and delivery of this Agreement or the Ancillary Agreements or the consummation
of the transactions contemplated hereby and thereby. This Agreement has been,
and, at Closing, the Ancillary Agreements will be, duly and validly executed and
delivered by each relevant Seller and constitutes, or will constitute, a valid
and binding obligation of each relevant Seller, enforceable against such Seller
in accordance with its terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally, and subject, as to enforceability, to
general principles of equity, including principles of commercial reasonableness,
good faith and fair dealing (regardless of whether enforcement is sought in a
proceeding at law or in equity).
SECTION 3.3. No Violation. Except as set forth in Section 3.3 of the
Disclosure Schedule, none of the execution and delivery of this Agreement or the
Ancillary Agreement by Sellers, the performance by Sellers of their obligations
hereunder or thereunder or the consummation by Sellers of the transactions
contemplated hereby or thereby will (a) violate, conflict with or result in any
breach of any provision of the Certificate or Articles of Incorporation or
Bylaws of any Seller or any of the Target Companies, (b) violate or conflict
with or result in a violation or breach of, or constitute a default or give rise
to any right of termination or acceleration (with or without due notice or lapse
of time or both) or result in the acceleration of any payments under the terms,
conditions or provisions of any note, bond, mortgage, indenture or deed of
trust, license, lease or agreement to which any Seller or any of the Target
Companies is a party or by which any of their assets is bound, (c) violate any
order, writ, judgment, injunction, decree, statute, rule or regulation of any
Governmental Authority applicable to any Seller or any of the Target Companies
or any of their assets or (d) result in the creation of any
10
<PAGE> 16
Lien upon any of the assets of the Target Companies, except in the cases of
clauses (b) and (d) above, for those violations, conflicts, breaches, defaults
and Liens which would not reasonably be expected to have a Material Adverse
Effect or materially impair the ability of Sellers to consummate the
transactions contemplated hereby.
SECTION 3.4. Capitalization of the Target Companies.
(a) The authorized capital stock of UC consists of 1,000 shares of
common stock, par value $0.01 per share. UC has 1,000 shares of common stock
issued and outstanding, all of which have been validly issued, are fully paid
and non-assessable and were not issued in violation of any preemptive rights.
Except as set forth in Section 3.4(a) of the Disclosure Schedule, there are no
(i) options, warrants, calls, subscriptions, conversion or other rights,
agreements or commitments obligating UC to issue any additional shares of
capital stock or any other securities convertible into, exchangeable for or
evidencing the right to subscribe for any shares of capital stock of UC, (ii)
agreements or commitments obligating UC to repurchase, redeem or otherwise
acquire any shares of its capital stock, (iii) restrictions on transfer of any
shares of capital stock of UC (other than pursuant to this Agreement) or (iv)
voting or similar shareholder agreements relating to any shares of capital stock
of UC.
(b) The UC Shares are owned of record and beneficially by PennCorp
free and clear of all Liens, except the Liens disclosed in Section 3.4(b) of the
Disclosure Schedule. At Closing, good title to the UC Shares shall be conveyed
to Buyer free and clear of all Liens other than those which may be created by
Buyer.
(c) The authorized capital stock of United Life consists of
4,200,528 shares of common stock, par value $2.00 per share. United Life has
4,200,528 shares of common stock issued and outstanding, all of which have been
validly issued, are fully paid and non-assessable and were not issued in
violation of any preemptive rights. Except as set forth in Section 3.4(c) of the
Disclosure Schedule, there are no (i) options, warrants, calls, subscriptions,
conversion or other rights, agreements or commitments obligating United Life to
issue any additional shares of capital stock or any other securities convertible
into, exchangeable for or evidencing the right to subscribe for any shares of
capital stock of United Life, (ii) agreements or commitments obligating United
Life to repurchase, redeem or otherwise acquire any shares of its capital stock,
(iii) restrictions on transfer of any shares of capital stock of United Life
(other than pursuant to this Agreement) or (iv) voting or similar shareholder
agreements relating to any shares of capital stock of United Life.
(d) The United Life Shares are owned of record and beneficially by
PLAC free and clear of all Liens. At Closing, good title to the United Life
Shares shall be conveyed to Buyer free and clear of all Liens other than those
which may be created by Buyer.
(e) The authorized capital stock of United Variable Services
consists of 1,000
11
<PAGE> 17
shares of common stock, no par value. United Variable Services has 1,000 shares
of common stock issued and outstanding (the "United Variable Services Shares"),
all of which have been validly issued, are fully paid and non-assessable and
were not issued in violation of any preemptive rights. Except as set forth in
Section 3.4(e) of the Disclosure Schedule, there are no (i) options, warrants,
calls, subscriptions, conversion or other rights, agreements or commitment
obligating United Variable Services to issue any additional shares of capital
stock or any other securities convertible into, exchangeable for or evidencing
the right to subscribe for any shares of capital stock of United Variable
Services, (ii) agreements or commitments obligating United Variable Services to
repurchase, redeem or otherwise acquire any shares of its capital stock, (iii)
restrictions on transfer of any shares of capital stock of United Variable
Services (other than pursuant to this Agreement) or (iv) voting or similar
shareholder agreements relating to any shares of capital stock of United
Variable Services.
(f) The United Variable Services Shares are owned of record and
beneficially by United Life, free and clear of all Liens. At Closing, good title
to the United Variable Services Shares will be held by United Life free and
clear of all Liens other than those which may be created by Buyer.
(g) The authorized capital stock of CyberLink consists of 1,000
shares of common stock, par value $0.0001 per share. CyberLink has 100 shares of
common stock issued and outstanding, all of which have been validly issued, are
fully paid and non-assessable and were not issued in violation of any preemptive
rights. Except as set forth in Section 3.4(g) of the Disclosure Schedule, there
are no (i) options, warrants, calls, subscriptions, conversion or other rights,
agreements or commitment obligating CyberLink to issue any additional shares of
capital stock or any other securities convertible into, exchangeable for or
evidencing the right to subscribe for any shares of capital stock of CyberLink,
(ii) agreements or commitments obligating CyberLink to repurchase, redeem or
otherwise acquire any shares of its capital stock, (iii) restrictions on
transfer of any shares of capital stock of CyberLink (other than pursuant to
this Agreement) or (iv) voting or similar shareholder agreements relating to any
shares of capital stock of CyberLink.
(h) The CyberLink Shares are owned of record and beneficially by
Marketing One Financial, free and clear of all Liens. At Closing, good title to
the CyberLink Shares shall be conveyed to Buyer free and clear of all Liens
other than those which may be created by Buyer.
(i) Except as set forth in Section 3.4(i) of the Disclosure
Schedule, the Marketing One Assets are owned by Marketing One free and clear of
all Liens, except for Permitted Liens. At Closing, good title to the Marketing
One Assets shall be conveyed to Buyer free and clear of all Liens other than
those which may be created by Buyer and except for Permitted Liens.
SECTION 3.5. No Other Subsidiaries. Except (i) as set forth in Section
3.5 of the Disclosure Schedule, (ii) for United Variable Services and (iii) for
the BA Assets (if Sellers shall not have exercised their rights pursuant to
Section 5.17(c)), on the Closing
12
<PAGE> 18
Date, United Life will not own, directly or indirectly, 5% or more of the
outstanding voting securities of or otherwise possess, directly or indirectly,
the power to direct or cause the direction of the management or policies of any
Person, other than securities held for investment purposes only.
SECTION 3.6. Consents and Approvals. Except as set forth in Section 3.6
of the Disclosure Schedule, no filing or registration with, no notice to and no
permit, authorization, consent or approval of any Governmental Authority is
necessary for the consummation by Sellers of the transactions contemplated by
this Agreement and the Ancillary Agreements other than consents and approvals of
or filings or registrations with (a) the Antitrust Division of the United States
Department of Justice (the "DOJ") pursuant to the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), (b) the insurance
department of the State of Texas, and (c) the NASD. There is no fact of which
Sellers are aware which Sellers reasonably believe would prevent the Sellers
from obtaining the foregoing consents and approvals.
SECTION 3.7. Financial Statements.
(a) Sellers have previously delivered or made available to Buyer
true and complete copies of the following (the "SAP Financial Statements"):
(i) the Annual Statements for United Life for each of the years
ended December 31, 1996, 1997 and 1998, together with any exhibits,
schedules or notes thereto;
(ii) the statutory annual statements of United Life which were
filed for 1996, or 1997 with any other state insurance department or
similar regulatory authority in any jurisdiction (other than such
company's jurisdiction of domicile) (the "Other Departments") and which
differ from the corresponding Annual Statements for such periods;
(iii) the annual statement of the separate accounts of United
Life filed or submitted for each of the years ended December 31, 1996,
1997 and 1998, together with any notes, exhibits and schedules thereto;
and
(iv) the statutory quarterly statements of United Life filed
with or submitted to the insurance department in its state of domicile
and any Other Departments for each of the three-month periods ended as
of March 31, June 30, and September 30, 1998, together with all related
notes, exhibits and schedules thereto (collectively referred to herein
as the "Quarterly Statements").
The SAP Financial Statements (A) were prepared from the books of account and
other financial records of United Life, (B) were filed with or submitted (or in
the case of the SAP Financial Statements for the year ended 1998, will be filed
or submitted) to the insurance department of United Life's state of domicile or
the Other Departments on forms prescribed or permitted by the applicable
department, (C) were prepared in all
13
<PAGE> 19
material respects in accordance with SAP applied on a basis consistent with past
practices of United Life except as noted therein and complied (or in the case of
the SAP Financial Statements for the year ended 1998, will comply) on their
respective dates of filing or submission in all material respects with the
insurance laws of the jurisdiction of its domicile and with all other applicable
laws; and (D) in the case of (i), (ii), and (iv) above, present fairly in all
material respects the assets, liabilities, capital and surplus, results of
operations and cash flows of United Life as of the dates thereof or for the
periods covered thereby in accordance with SAP (subject, in the case of the
Quarterly Statements, to normal estimation of accruals and reserves and normal
year-end audit adjustments) and, in the case of (iii) above, present fairly in
all material respects the assets, liabilities, and surplus, and the results of
operations of the separate accounts of United Life as of the dates thereof or
for the periods covered thereby in accordance with SAP. Buyer acknowledges that
the statements of United Life for the year ended 1998 heretofore delivered to
Buyer by Sellers are preliminary statements and agrees that upon delivery by
Sellers to Buyer of the 1998 statements of United Life pursuant to Section
5.7(b)(ii) hereof, all references in this Agreement to statements of United Life
for the year ended 1998 shall be references to the statements delivered pursuant
to Section 5.7(b)(ii) hereof and not to the preliminary statements. Buyer
further agrees that from and after the delivery of the 1998 statements pursuant
to Section 5.7(b)(ii) hereof, the preliminary statements shall have no effect
for purposes of this Agreement and that Buyer shall have no right to make any
claim with respect thereto.
(b) Sellers have previously delivered or made available to Buyer
true and correct copies of (i) the audited consolidated financial statements of
United Life and its Subsidiaries for the period ended December 31, 1996 and the
year ended December 31, 1997, (ii) the audited consolidated financial statements
of Marketing One Financial and its Subsidiaries for the years ended December 31,
1996 and 1997, and (iii) the audited financial statements of United Variable
Services for the period ended December 31, 1996 and the year ended December 31,
1997 (collectively, the "Audited Financial Statements"). The Audited Financial
Statements are based on the books and records of the applicable United Life
Companies, and fairly present, in all material respects, the consolidated
financial condition and results of operations of the applicable United Life
Companies as of the dates and for the periods indicated therein and, except as
otherwise disclosed in Section 3.7(b) of the Disclosure Schedule, have been
prepared in all material respects in accordance with generally accepted
accounting principles consistently applied ("GAAP").
(c) Sellers have (i) previously delivered or made available to
Buyer true and correct copies of the unaudited balance sheets and income
statements of UC for the period ended December 31, 1996 and the year ended
December 31, 1997 and (ii) attached to Section 3.7(c) of the Disclosure Schedule
true and correct copies of the unaudited balance sheets and income statement of
UC for the year ended December 31, 1998 (collectively, the "Unaudited UC
Financial Statements" and together with the SAP Financial Statements and the
Audited Financial Statements, the "Financial Statements"). The Unaudited UC
Financial Statements are based on the books and records of UC, and
14
<PAGE> 20
fairly present, in all material respects, the financial condition and results of
operations of UC as of the dates and for the periods indicated therein and,
except for the absence of the notes thereto and as otherwise disclosed in
Section 3.7(c) of the Disclosure Schedule, have been prepared in all material
respects in accordance with GAAP.
(d) At December 31, 1998, CyberLink's stockholder equity was zero
($0).
(e) Sellers have provided or made available to Buyer copies of all
issued auditors' reports, letters to management regarding accounting practices
and systems of internal control, and responses to such letters from management,
in each case to the extent relating specifically to the Target Companies and the
operation thereof.
(f) All reserves for policyholder liabilities reflected on lines
1., 2., 4., 5., 7., 9. and 10. of the Liabilities, Surplus and Other Funds
schedule to the 1998 Annual Statement of United Life ("Reserve Liabilities") (i)
were determined in accordance with commonly accepted actuarial standards
consistently applied except as noted in the 1998 Annual Statement, (ii) were
fairly stated in accordance with sound actuarial principles, (iii) were based on
actuarial assumptions which were in accordance with or more conservative than
those appropriate for such insurance policies and annuity contracts, (iv) met
the requirements of the insurance laws of the state of domicile and (v)
reflected the related reinsurance, coinsurance and other similar agreements of
United Life. Such Reserve Liabilities are adequate in all material respects
(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 United Life under all insurance
policies and annuity contracts under which United Life has any liability which
may become due with the passage of time (including, without limitation, any
liability arising under or as a result of any reinsurance, coinsurance or other
similar agreement) on December 31, 1998.
SECTION 3.8. Absence of Undisclosed Liabilities. Except for matters
relating to the transactions contemplated by this Agreement, there are no
liabilities or financial obligations of the Target Companies other than (a)
liabilities and obligations reserved against in the Financial Statements, (b)
benefits payable or other liabilities or obligations arising under insurance
policies or annuity contracts issued by the Target Companies, (c) liabilities
and obligations disclosed in Section 3.8(c) of the Disclosure Schedule, (d)
liabilities and obligations arising in the ordinary course of business under any
contract or agreement disclosed in Section 3.12 of the Disclosure Schedule or
not required to be disclosed thereon because of the amount or the term thereof,
and (e) liabilities and obligations arising in the ordinary course of business
after December 31, 1998 consistent with past practice and unlikely to result in
a Material Adverse Effect.
SECTION 3.9. Absence of Certain Changes. Except as disclosed in Section
3.9 of the Disclosure Schedule or as contemplated or otherwise permitted by this
Agreement, since September 30, 1998, there has not been any event, condition,
occurrence or change that has had or would have a Material Adverse Effect, and
none of
15
<PAGE> 21
the Target Companies has (a) conducted its business in any material respect
other than in the ordinary course, (b) except in the ordinary course of
business, incurred any indebtedness for borrowed money or issued any debt
securities or assumed, guaranteed or endorsed the obligations of any other
Person, (c) except in the ordinary course of business, (i) sold, transferred or
otherwise disposed of any of its properties or assets (including without
limitation any mortgage loans or mortgage servicing rights) or (ii) mortgaged or
encumbered any of its properties or assets, (d) suffered any material casualty
losses not covered by insurance, (e) repurchased any of its capital stock, (f)
declared, set aside or paid any dividend or other distribution in respect of its
capital stock, other than ordinary dividends permitted under applicable
insurance laws and other than dividends to policyholders as described in Section
3.22(a) of the Disclosure Schedule, (g) amended its Certificate or Articles of
Incorporation or Bylaws or merged with or into or consolidated with any other
Person, (h) split, combined or reclassified its capital stock, (i) issued or
sold (or agreed to issue or sell) any of its equity securities or any options,
warrants, conversion or other rights to purchase any such equity securities or
any securities convertible into or exchangeable for such equity securities, (j)
increased the rates of compensation (including bonuses) payable or to become
payable to any of its officers, employees, agents, independent contractors or
consultants other than increases made in the ordinary course of business, (k)
entered into any new or amended any existing consulting contracts or instituted
or agreed to institute any increase in benefits or altered its employment
practices or the terms and conditions of employment in each case other than in
the ordinary course of business or entered into or amended any existing
employment contracts or severance agreements, (l) changed in any material
respect its underwriting, actuarial or accounting methods (tax or book),
principles or practices, (m) entered into or amended or terminated any
transaction or contract that has or could reasonably be expected to have a
Material Adverse Effect, (n) ceased their lead generation activities or
terminated any material reinsurance or coinsurance contract (including without
limitation, any surplus relief or financial reinsurance contract), whether as
reinsurer or reinsured in each case other than in the ordinary course of
business, (o) entered into any joint ventures or partnerships of any kind, (p)
revalued (other than in accordance with SAP or GAAP, as appropriate) or
restructured any assets of any Target Company; (q) failed to maintain the assets
of the Target Companies consistent with past practices; (r) suffered any
casualty loss or damage with respect to any of the assets of any Target Company
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; (s) made any
material amendment to the insurance policies or annuity contracts in force of
United Life or made any material change in the methodology used in the
determination of any reserves contained in the 1997 Annual Statement, or
destrengthened the Reserve Liabilities, with respect to insurance policies and
annuity contracts; (t) settled or compromised (or had settled or compromised on
its behalf) any liability with respect to Taxes; (u) been informed that the A.M.
Best rating held by United Life as of December 31, 1998 was reduced or received
any notice of any intended or potential downgrading by A.M. Best; (v) amended or
introduced any life insurance policy or annuity contract, (w) made any payments
to any affiliate other than pursuant to
16
<PAGE> 22
existing agreements or arrangements disclosed in the Disclosure Schedule or (x)
entered into any contract or other agreements to do any of the foregoing.
SECTION 3.10. Litigation. Except as set forth in Section 3.10 of the
Disclosure Schedule, there is no action, suit, arbitration, investigation or
proceeding ("Litigation") that is pending or, to the knowledge of Sellers,
threatened, which involves (i) any of the Target Companies, (ii) the Marketing
One Assets or (iii) any Target Employee and any of the Sellers or its
affiliates, in each case before any court, at law, or in equity, any other
Governmental Authority or arbitrator and there is no fact of which Sellers are
aware which Sellers reasonably believe would result in such Litigation. Except
as set forth in Section 3.10 of the Disclosure Schedule, none of the Target
Companies are subject to any judgment, decree, injunction or order of any court,
at law or in equity, any other Governmental Authority or arbitrator, except for
those orders of a Governmental Authority relating to the ordinary operation of
the Target Companies that would not reasonably be expected to have a Material
Adverse Effect.
SECTION 3.11. Property; Liens and Encumbrances.
(a) Section 3.11(a) of the Disclosure Schedule contains a complete
and accurate list of all real property owned or leased by the Target Companies
as of the date hereof.
(b) Except as set forth in Section 3.11(b) of the Disclosure
Schedule, all properties and assets owned by the Target Companies, including
without limitation, the Owned Intellectual Property and the Owned Software
identified in Section 3.17 of the Disclosure Schedule, each receivable owned by
a Target Company and all right, title and interest in and to the servicing of
each mortgage loan (including the right to maintain the escrow accounts required
under each mortgage loan) serviced by any Target Company (collectively, the
"Owned Properties") are free and clear of all Liens, except (i) statutory Liens
not yet delinquent or the validity of which are being contested in good faith by
appropriate actions, (ii) purchase money Liens arising in the ordinary course,
(iii) Liens for Taxes not yet delinquent, (iv) Liens reflected in the Financial
Statements (which have not been discharged) and (v) Liens that in the aggregate
do not materially detract from the value or, in the case of personal property,
materially impair the use by the Target Companies of the property subject
thereto or, in the case of real property, materially impair the present and
continued use of such property in the usual and normal conduct of the business
of the Target Companies (items (i) through (v) above being referred to herein
collectively as "Permitted Liens"). The Target Companies have good and
indefeasible title to the Owned Properties and there are no pending or, to the
knowledge of Sellers, threatened condemnation proceedings affecting any of the
Owned Properties.
(c) Sellers have, or have caused to be, delivered to Buyer true and
complete copies of all leases relating to real property involving the Target
Companies or included in the Marketing One Assets, each of which is listed in
Section 3.11(c) of the Disclosure Schedule (each such lease referred to herein
as a "Real Property Lease"). Each Real Property Lease is in full force and
effect and has been complied with in all
17
<PAGE> 23
material respects by the relevant Target Company and, to Sellers' knowledge, has
been complied with in all material respects by the lessor thereof. Except as set
forth in Section 3.11(c) of the Disclosure Schedule, no consent is required
under any Real Property Lease in order for such Real Property Lease to remain in
full force and effect on the same terms as those currently in effect as a result
of the consummation of the transactions contemplated by this Agreement.
(d) The rental set forth in each Real Property Lease is the actual
rental being paid, and there are no separate agreements or understandings with
respect to the same.
(e) Sellers have, or have caused to be, delivered to the Purchaser
true and complete copies of all leases for equipment, supplies, furniture,
fixtures, personalty, vehicles and other tangible personal property (the
"Tangible Personal Property") providing for annual rentals in excess of $50,000
and any and all material ancillary documents pertaining thereto (each such lease
being referred to herein as a "Personal Property Lease"). Each such Personal
Property lease is in full force and effect and has been complied with by the
relevant Target Company and, to Seller's knowledge, has been complied with by
the lessor thereof. Except as set forth in Section 3.11(e) of the Disclosure
Schedule, no consent is required under any Personal Property Lease in order for
such Personal Property Lease to remain in full force and effect on the same
terms as those currently in effect as a result of the consummation of the
transactions contemplated by this Agreement.
(f) Except as disclosed in Section 3.11(f), the Target Companies
and Marketing One, as appropriate, currently, and immediately prior to the
Closing will, own, lease or license all property and assets that are necessary
to carry on their respective businesses and operations in all material respects
as presently conducted, and all such properties and assets will, at the Closing,
be conveyed to Buyer (either through the transfer of Shares or pursuant to the
Asset Assignment Agreement), free and clear of all Liens, except for Permitted
Liens, and will, immediately following the Closing, permit the Target Companies
to (i) conduct their respective businesses and operations in all material
respects in the same manner as such businesses and operations have been
conducted prior to the Closing; and (ii) conduct the business and operations of
CyberLink in all material respects in the manner contemplated by Sellers upon
the establishment of CyberLink and in accordance with the Defined Prospects.
Without limiting the generality of the foregoing, all assets of CyberLink,
together with the Marketing One Assets, in each case as will be delivered to
Buyer at Closing, constitute all assets necessary for CyberLink to conduct its
business in accordance with the Defined Prospects.
SECTION 3.12A. Investment Assets.
(a) Sellers have, prior to the date hereof, delivered to Buyer the
Investment Asset Schedule, and such schedule represents a true and correct
listing of all the investment assets of United Life (including its separate
accounts) as of the date of
18
<PAGE> 24
such schedule. Except as set forth in Section 3.12A(a) of the Disclosure
Schedule, United Life (or the appropriate separate account) has good and
marketable title to all assets included in the Investment Asset Schedule (the
"Investment Assets"), other than Investment Assets sold or otherwise disposed of
since the date of the Investment Asset Schedule, free of any Lien (subject, in
the case of the separate accounts, to claims by holders of variable insurance
and annuity products funded by the assets of the separate accounts).
(b) (i) the Schedules to the Annual Statements of United Life for
the year ended December 31, 1997 contain true and complete disclosures of all
"Real Estate Owned," "Mortgage Loans," "Partnership Interests" in partnerships
owning real estate, and "Credit Tenant Loans and Industrial Revenue Bonds with
Publicly Traded Borrowers" owned by United Life as of December 31, 1997. Except
as set forth on in Section 3.12A(b)(i) of the Disclosure Schedule, United Life
does not own any Partnership Interests in partnerships primarily investing in
Real Estate. All Real Estate Owned and Mortgage Loans owned by United Life are
collectively hereinafter referred to as "Real Estate Assets." All information
concerning the Real Estate Assets in the Annual Statements of United Life for
the year ended December 31, 1997 is true and complete in all material respects;
all values expressed in such statements fairly represent the value of the Real
Estate Owned and Partnership Interests; and reserves taken in respect of
impairment to value of the Mortgage Loans are adequate to fairly represent such
impairment.
(ii) Except as set forth in Section 3.12A(b)(ii), United Life
is a named insured on, or an assignee of, a policy of title insurance with
respect to each of the Real Estate Assets, and each of said title insurance
policies insures United Life as the holder of a first priority mortgage or deed
of trust in regard to Mortgage Loans and as the fee simple owner in regard to
Real Estate Owned.
(iii) Except as set forth in Section 3.12A(b)(iii), United Life
has actual physical possession of the original promissory note or notes creating
each Mortgage Loan debt and all other documents creating, evidencing or
modifying the Mortgage Loan or its terms and conditions. The Lien associated
with each Mortgage Loan constitutes a first priority lien against the property
purported to be encumbered.
(iv) None of the Mortgage Loans is cross-defaulted or
cross-collateralized with a loan owned by any affiliate of PennCorp.
(c) Sellers represent and warrant that United Life is not a party
to any contract or agreement constituting a "market risk sensitive instrument"
as defined in Section 1.1(m), except as may be disclosed on the Investment Asset
Schedule. Buyer represents and warrants that it has received and reviewed the
Investment Asset Schedule and Buyer acknowledges and agrees that no Investment
Asset included on such schedule constitutes a "market risk sensitive instrument"
for purposes of this Agreement.
19
<PAGE> 25
SECTION 3.12. Certain Agreements. Except as disclosed in Section 3.12
of the Disclosure Schedule or in the Financial Statements and except for
contracts and agreements entered into after the date hereof in the ordinary
course of business consistent with past practice or in compliance with Section
5.1, none of the Target Companies is a party to any (a) agreement, contract,
indenture or other instrument (written or oral) relating to the borrowing of
money or the guarantee of any obligation for the borrowing of money (other than
loans to policyholders, home equity loans and commercial real estate loans made
or acquired in the ordinary course of business); (b) employment, consulting,
compensation or severance agreement (other than "at will" arrangements) with any
of its directors, employees or consultants; (c) agreement, contract or
commitment limiting or restraining it from engaging or competing in any
business; (d) lease pursuant to which it leases any real property set forth in
Section 3.11(a) of the Disclosure Schedule; (e) distribution, dealer,
representation or agency agreement, other than agency, marketing or selling
agreements with insurance agents, marketing organizations or broker-dealers in
the ordinary course of business; (f) contract, agreement or understanding,
whether written or oral (other than an insurance policy or annuity contract
containing standard terms), with any of its affiliates; (g) contracts or
agreements relating to the disposition, by sale, lease or otherwise, of mortgage
loans or mortgage servicing, relating to property management, or for the
performance of mortgage servicing under any pooling and/or servicing agreements
(whether to be performed by or for the Target Companies); (h) contracts or
agreements for the joint performance of work or services, and all other joint
venture, partnership or other similar agreements, including without limitation
any sub-servicing contracts or mortgage origination agreements; (i) contracts or
agreements for the purchase of any mortgage loan or mortgage loan servicing; (j)
contracts or agreements for investment advisory, investment management or
similar services (and Section 3.12 of the Disclosure Schedule indicates which of
such contracts and agreements disclosed in response hereto or to (i) above are
not either (A) between Target Companies or (B) terminable on 90 or fewer days
notice without any termination penalty) or (k) agreement or contract of a type
not covered by (a) through (j) above that involves payments, pursuant to the
terms of such agreement or contract, in excess of $50,000 in any twelve-month
period and that is not terminable on notice of 90 days or less without penalty
(each of the foregoing a "Material Contract"). Each agreement or contract to
which any Target Company is a party, whether or not required to be disclosed in
Section 3.12 of the Disclosure Schedule is in full force and effect and has been
complied with by the Target Companies and, to the knowledge of Sellers, has been
complied with by all other parties thereto, except for such noncompliance as
would not reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect. Except for those Material Contracts marked with an
asterisk (*) in Section 3.12 of the Disclosure Schedule, no consent is required
under any Material Contract in connection with the consummation of the
transactions contemplated by this Agreement. With respect to any servicing
agreement, no Seller or Target Company has received any notice from an investor
that such investor has terminated the applicable servicing agreement or that it
intends to do so. All fees and expenses due and owing to any investor under any
servicing agreement have been remitted to the applicable investor.
20
<PAGE> 26
SECTION 3.13. Target Employees.
(a) Section 3.13(a) of the Disclosure Schedule contains a true and
complete list of the Target Employees as of the date of this Agreement.
(b) Section 3.13(b) of the Disclosure Schedule contains a true and
complete list of (1) any employee benefit plan, as defined in Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
including without limitation, any multiemployer plan as defined in Section 3(37)
of ERISA ("Multiemployer Plan") or any other plan subject to Title IV of ERISA,
or (2) any bonus, deferred compensation, retirement or excess benefit,
performance compensation, stock purchase, restricted stock, stock option, stock
appreciation, severance, salary continuation, vacation, sick leave, holiday pay,
material fringe benefit, material personnel policy, reimbursement program,
incentive, insurance, welfare or similar plan, program, policy or arrangement,
written or unwritten, which is, or during the six year period preceding the
Closing Date was, maintained, administered or contributed to by the Sellers or
any of their affiliates for the benefit of Target Employees, directors of the
Target Companies or any individual serving as an agent or broker of the Target
Companies, or any individual performing services as an independent contractor
for the Target Companies ("Benefit Plans").
(c) All Benefit Plans comply in all material respects with and are,
and during the six year period (or such shorter period for which Target
Employees have been covered thereby) preceding the Closing Date have been,
operated in all material respects in accordance with their terms, ERISA, the
Code and other applicable law. Each Benefit Plan intended to be qualified under
Code Section 401(a), (1) has received a favorable determination letter from the
Internal Revenue Service to the effect that it is qualified under Code Section
401(a) and exempt from tax under Code Section 501, both as to the original plan
and all restatements or material amendments and (2) nothing has occurred since
the date of such determination letter that reasonably would be expected to
adversely affect such qualification or exemption.
(d) True and complete copies of each written Benefit Plan, a
description of each unwritten Benefit Plan, summary plan descriptions, and the
two most recent annual reports on Form 5500 (including all schedules and
attachments), if any, have been made available to Buyer.
(e) All contributions to each Benefit Plan are or have been
deductible under the Code when made or properly accrued, as the case may be, and
no excise or penalty taxes are assessable against the Target Companies as a
result of any nondeductible or other contributions made or not made to a Benefit
Plan, the failure of any actual deferral percentage test or other requirement or
the occurrence or nonoccurrence of any action or event with respect to a Benefit
Plan. There has been no failure to act on the part of Sellers, their affiliates,
the Target Companies, or, to the knowledge of Sellers, any funding agent or any
administrator of any of the Benefit Plans that could reasonably be expected to
subject the Target Companies or Buyer to the
21
<PAGE> 27
imposition of any penalty with respect to any Benefit Plans, whether by way of
indemnity or otherwise. No "reportable events" (as defined in ERISA Section
4043) or "prohibited transactions" (as defined in ERISA Section 406) have
occurred with respect to any Benefit Plan for which liability would be incurred
by Buyer.
(f) None of the Target Companies nor any entity required to be
aggregated with any of the Target Companies pursuant to Code Section 414 or
ERISA Section 4001(b) ("ERISA Affiliate") have incurred any liability to the
Pension Benefit Guaranty Corporation ("PBGC"), and no Benefit Plan established
or maintained by the Target Companies nor any ERISA Affiliate or to which the
Target Companies or any ERISA Affiliate is obligated to make contributions, has
an "accumulated funding deficiency," as defined in ERISA Section 302 and Code
Section 412, whether or not waived. Neither the Target Companies, any ERISA
Affiliate nor any organization with respect to which any Target Company is a
successor or parent corporation (within the meaning of ERISA Section 4069) has
engaged in any transaction described in ERISA Section 4069. No ERISA Affiliate
has contributed to or been obligated to contribute to a Multiemployer Plan
during the six year period preceding the Closing Date.
(g) Except as disclosed in Section 3.13(g) of the Disclosure
Schedule, there are no pending or, to the knowledge of Sellers, threatened
actions, suits, investigations or other proceedings by any present or former
participant or beneficiary under any Benefit Plan (or any beneficiary of any
such participant or beneficiary) involving any Benefit Plan or any rights or
benefits under any Benefit Plan other than ordinary and usual claims for
benefits by participants or beneficiaries thereunder.
(h) Except as disclosed in Section 3.13(h) of the Disclosure
Schedule, neither of the Sellers nor any of their affiliates maintains or
contributes to any Benefit Plan which provides, or has any liability or
obligation to provide, life insurance, medical or other employee welfare
benefits coverage to Target Employees (or their beneficiaries) after their
retirement, except as may be required by federal, state or local laws, rules or
regulations or through the last day of the calendar month in which such
retirement occurs or at the sole expense of any such Target Employee or
beneficiary.
(i) Except as disclosed in Section 3.13(i) of the Disclosure
Schedule, (1) none of the Benefit Plans contains any provision which would
result in any additional benefits, accelerated vesting and/or accelerated
payments solely as a result of the consummation of the transactions contemplated
by this Agreement (other than the termination of employment of the Target
Employees); (2) subject to the accuracy of the Buyer's representation under
Section 4.8, none of the transactions contemplated by this Agreement to be taken
by Sellers or their affiliates constitute or result in a prohibited transaction
with respect to any Benefit Plan under Code Section 4975 or ERISA Sections 406
or 407 for which an exemption is not available; (3) subject to the accuracy of
the Buyer's representation under Section 4.8, none of the transactions
contemplated by this Agreement to be taken by Sellers or their affiliates
constitute or result in a breach of fiduciary duty under ERISA with respect to
any Benefit Plan; (4) the acquisition of the Target Companies, by itself, does
not constitute a "deemed severance" or "deemed
22
<PAGE> 28
termination" under any Benefit Plan or with respect to any Benefit Plan under
any applicable law; or (5) none of the amounts payable under a Benefit Plan
would be nondeductible for federal income tax purposes by reason of Code Section
280G solely as a result of the transactions contemplated by this Agreement.
(j) No Target Company paid aggregate medical expenses for any one
Target Employee in excess of $50,000 during the period from January 1, 1998 to
January 31, 1999.
SECTION 3.14. Taxes. Except as set forth in Section 3.14 of the
Disclosure Schedule:
(a) all material Tax Returns required to be filed by or with
respect to the Target Companies (including all Tax Returns that include the
Target Companies on an affiliated, consolidated, combined, or unitary basis)
have been timely filed, all Taxes that are shown to be due on such Tax Returns
have been timely paid, and all such Tax Returns are true, complete and accurate
in all material respects;
(b) the Target Companies have given or otherwise made available to
Buyer all Tax Returns for periods ending, or transactions consummated, after
December 31, 1996;
(c) there are no outstanding agreements extending or waiving the
statutory period of limitation applicable to any claim for, or the period for
the collection or assessment of, Taxes due for any taxable period with respect
to any Tax for which any Target Company may be subject or liable;
(d) no audit, assessment, collection or other proceeding by any
Governmental Authority is pending or, to the knowledge of Sellers, threatened
with respect to any Taxes due from or with respect to any Target Company or with
respect to any Tax Return by or with respect to any Target Company;
(e) there are no Liens for Taxes upon the assets or properties of
any of the Target Companies, except for statutory Liens for current Taxes not
yet due;
(f) no Target Company is a party to any agreement relating to the
sharing or allocation of, or indemnification agreement with respect to Taxes, or
similar contract or arrangement, and, except as set forth in Schedule 3.14(f),
none of the Target Companies has made any payment under or pursuant to any Tax
sharing or similar agreement or arrangement since December 31, 1997;
(g) United Life is a "life insurance company" within the meaning of
Section 816 of the Code for the taxable period ending on the Closing Date and
for all prior taxable periods for which the statute of limitations has not
expired;
23
<PAGE> 29
(h) none of the Target Companies (i) has income that is includable
in computing the taxable income of a United States person (defined in Section
7701 of the Code) under Section 951 of the Code or (ii) is a passive foreign
investment company within the meaning of Section 1297 of the Code;
(i) none of the Target Companies has filed a consent under Section
341(f) of the Code;
(j) no property owned by any of the Target Companies (i) is
property required to be treated as being owned by another Person pursuant to the
provisions of Section 168(f)(8) of the Internal Revenue Code of 1954, as amended
and in effect immediately prior to the enactment of the Tax Return Act of 1986,
(ii) constitutes "tax-exempt use property" within the meaning of Section
168(h)(1) of the Code or (iii) is tax-exempt bond financed property within the
meaning of Section 168(g) of the Code;
(k) none of the Target Companies is a party to any contract,
agreement or other arrangement which could result in the payment of amounts that
could be nondeductible by reason of Section 280G or 162(m) of the Code;
(l) none of the Target Companies has agreed, or is required to
make, any adjustment under Section 446(e), 481(a) or 807(f) of the Code or
entered into any closing agreement pursuant to Section 7121 of the Code or any
other agreement with similar Tax purposes;
(m) none of the Target Companies has been a member of an affiliated
group filing a consolidated federal income Tax Return (other than a group the
common parent of which was PennCorp (the "Seller Group")) or has any liability
for Taxes of any Person (other than any member of the Seller Group) under Treas.
Reg. Section 1.1502-6 or Section 1.1502-78 (or similar provision of state, local
or foreign law), as a transferee or successor, by contract or otherwise;
(n) each of the Target Companies has withheld from its employees,
independent contractors, creditors, stockholders, customers, policyholders, and
third parties and timely paid to the appropriate taxing authority proper and
accurate amounts in all material respects through all periods in compliance in
all material respects with all Tax withholding provisions of applicable laws;
(o) assuming Buyer is a qualified purchaser of the stock of the
Target Companies and joins Sellers in making the elections, Sellers have the
requisite ownership and are otherwise entitled to make valid elections under
Section 338(h)(10) of the Code with respect to the acquisition of the Target
Companies by Buyer;
(p) none of the Target Companies is or has been doing business in,
is or has been engaged in a trade or business, or has business in force in any
jurisdiction in which it has not filed all required material Tax Returns;
24
<PAGE> 30
(q) none of the Target Companies is obligated under any agreement
with respect to industrial development bonds or other obligations with respect
to which the excludability from gross income of the holder thereof for federal
income Tax purposes could be affected by the transactions contemplated
hereunder;
(r) no power of attorney is currently in force with respect to any
matter relating to Taxes that could affect the Target Companies;
(s) none of the Target Companies is or has been a member of any
partnership or joint venture or the holder of a beneficial interest in any
trust, in each case for any period for which the statute of limitations for any
Tax has not expired;
(t) each reserve item with respect to the Target Companies set
forth in the 1997 Tax Returns including such companies was determined correctly
in all material respects in accordance with Sections 807 and 846 of the Code, or
other applicable Code sections, and has been consistently and correctly applied
in all material respects with respect to the filing of the Tax Returns including
such companies for all taxable years for which the statute of limitations for
any Tax has not expired, and will be consistently and correctly applied in all
material respects with respect to the Target Companies in (i) the 1998 Tax
Returns including such companies and (ii) the Tax Returns including such
companies for the period from January 1, 1999 through the Closing Date when such
Tax Returns are filed;
(u) there is a zero ($0) balance in the policyholders' surplus
account (as defined in Section 815 of the Code) of United Life;
(v) the 1996 acquisition by PLAC of all of the common stock of
United Life (formerly United Companies Life Insurance Company) was properly
treated as an acquisition under Section 338(h)(10) of the Code, the parties to
that transaction made valid elections under Section 338(h)(10) of the Code, and
the Section 338(h)(10) computations and allocations shown on the Tax Returns for
or including United Life and its predecessor with respect to that acquisition
were correct and complete in all material respects;
(w) United Life is the successor of United Companies Life Insurance
Company for purposes of Section 381 of the Code and has succeeded to the items
referred to in Section 381(c) of the Code;
(x) the amounts of tax basis for the assets and liabilities of the
Target Companies as of December 31, 1997 listed on Section 3.14(x) of the
Disclosure Schedule are substantially accurate, and with respect to United Life,
the net aggregate amount of the tax basis of its assets as of December 31, 1997
was not less than $160,000,000;
(y) none of the Sellers is a foreign person within the meaning of
Section 1445 of the Code;
25
<PAGE> 31
(z) following the Closing, none of the Target Companies will be
subject to any limitation under Sections 382, 383, or 384 of the Code as a
result of pre-Closing ownership changes involving the Target Companies, Sellers,
or any of their affiliates;
(aa) the Target Companies have timely paid (or there have been
timely paid on their behalf) all required current estimated Tax payments in
amounts sufficient to avoid interest charges or underpayment penalties; and
(bb) none of the Target Companies has been a United States real
property holding company within the meaning of Section 897(c)(2) of the Code
during the applicable period set forth in Section 897(c)(1)(A)(ii) of the Code.
SECTION 3.15. Compliance with Applicable Law; Permits; Policies.
(a) The business of each of the Target Companies (including the use
and operation of its properties) is being conducted in compliance with all
applicable provisions of any federal, state, local or foreign statute, law,
ordinance, rule, regulation, judgment, decree, order, concession, grant,
franchise, permit or license or other governmental authorization or approval
applicable to such Target Company, except for such noncompliance as would not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect.
(b) Each of the Target Companies owns or validly holds, and with
respect to the Marketing One Assets, Marketing One owns or validly holds, all
licenses, franchises, permits, approvals, authorizations, exemptions,
classifications, certificates, registrations, and similar documents or
instruments that are required for its or their business and operations,
including those required under Environmental Laws, except those the failure of
which to have would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect. All such licenses, franchises, permits,
approvals, authorizations, exemptions, classifications, certificates,
registrations, and similar documents or instruments are valid and in full force
and effect, except as would not reasonably be expected to have, individually or
in the aggregate, a Material Adverse Effect.
(c) Except as disclosed in Section 3.15(c) of the Disclosure
Schedule, (i) all forms of insurance policies and riders thereto and annuity
contracts issued by United Life and currently in force are, to the extent
required under applicable laws, on forms approved by applicable insurance
regulatory authorities of the jurisdictions in which issued or have been filed
with and not objected to by such insurance regulatory authorities within the
period provided for such objection and any premium rates with respect to such
policies or riders required to be filed with or approved by such applicable
insurance regulatory authorities have been so filed or approved and premiums
charged conform thereto, (ii) United Life (exclusive of its independent agents)
and, to the knowledge of Sellers, its independent agents have marketed, sold and
issued products of such company in compliance with all laws applicable to the
business of such company in
26
<PAGE> 32
the respective jurisdictions in which such products have been sold, except where
the failure to do so, individually or in the aggregate, would not reasonably be
expected to have a Material Adverse Effect, (iii) all advertising, promotional
and sales materials and other marketing practices used by any Target Company
and, to the knowledge of Sellers, any agent of United Life, have complied and
are currently in compliance with all applicable Federal and state laws, except
for such noncompliance which, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect, and (iv) neither the
manner in which United Life compensates any Person involved in the sale or
servicing of insurance contracts that is not registered as a broker-dealer or
insurance agent, as applicable, nor, to the knowledge of Sellers, the conduct of
any such Person, renders such Person a broker-dealer or insurance agent under
any applicable Federal or state law, and the manner in which United Life
compensates each Person involved in the sale or servicing of insurance contracts
is in compliance with all applicable Federal or state laws, except, with respect
to each item set forth in this clause (iv), as would not reasonably be expected
to have a Material Adverse Effect, individually or in the aggregate.
(d) Sellers have previously made available to Buyer true and
complete copies of the reports (or the most recent draft thereof, to the extent
any final report is not available) reflecting the results of the most recent
financial examinations and market conduct examinations of United Life issued by
any insurance regulator. Other than those reports, neither Sellers nor any
Target Company has received notice (written or oral) of any review or
investigation by any Governmental Authority of any market conduct and/or selling
practices of any Target Company or any of United Life's independent agents,
other than periodic market conduct examinations arising in the ordinary course
of business and Attorney General inquiries in connection with which no material
issues have been raised that have not been resolved to the satisfaction of the
relevant insurance authorities or Attorneys General, as the case may be.
(e) Each of United Life and United Variable Services, as
applicable, have filed all forms, reports, statements and other documents
required by law to be filed by it with the Commission and the NASD, including
all reports and registration statements relating to sales of variable annuity
contracts and all amendments and supplements to all such reports and
registrations statements, and all such forms, reports, statements and other
documents did not, at the time they were filed (and at the time they became
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 statements
therein, in light of the circumstances under which they were made, not
misleading. Each separate account of United Life 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(e) 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
United Life, including without limitation, all registration statements and all
amendments and supplements to all such registration statements (including,
without
27
<PAGE> 33
limitation, in connection with sales of variable annuity contracts) have been so
filed by or on behalf of such separate accounts, and all such forms, reports
statements and other documents did not, at the time they were filed (and at the
time they became 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
statements therein, in light of the circumstances under which they were made,
not misleading.
(f) Each mortgage loan serviced by UC (a "Serviced Loan") and the
servicing of each such Serviced Loan complies, in all material respects, with
the terms of any governmental agency program, HUD program, bond program or other
investor commitment or arrangement related thereto, including without limitation
the terms of any applicable regulation or servicing agreement and all applicable
documents relating to such Serviced Loan. UC has no servicing agreements with
any Person other than United Life, the REMIC 1990-1 (as more fully described in
Section 3.5 of the Disclosure Schedule) and Southwestern Life Insurance Company.
SECTION 3.16. Brokers' Fees and Commissions. Except for Salomon Smith
Barney Inc. and Fox-Pitt, Kelton, Inc., none of the Sellers, any Target Company
or their respective directors, officers, employees or agents has employed any
investment banker, broker or finder in connection with the transactions
contemplated hereby. Sellers shall be responsible for the fees and expenses of
Salomon Smith Barney Inc. and Fox-Pitt Kelton, Inc. in connection with the sale
and purchase of the Shares.
SECTION 3.17. Proprietary Rights.
(a) Section 3.17(a) of the Disclosure Schedule sets forth a list
organized by Target Company, of all trademarks, service marks, patents, design
patents, patent rights, assumed names, logos, domain names and addresses,
copyrights and trade names, as well as any registrations or applications pending
for registration thereof that are used or required to be used by any of the
Target Companies in the conduct of their business and specifies (i) which Target
Company uses such item and (ii) whether each such item is owned by the relevant
Target Company ("Owned Intellectual Property") or is licensed from another party
("Licensed Intellectual Property," and together with the Owned Intellectual
Property, the "Intellectual Property").
(b) Section 3.17(b) of the Disclosure Schedule identifies all
computer software, programs and similar systems used by the Target Companies in
the conduct of their business and specifies (i) which Target Company uses such
item and (ii) whether each such item is owned by the relevant Target Company
("Owned Software") or is licensed from another party ("Licensed Software," and
together with the Owned Software, the "Software").
(c) Except as disclosed in Section 3.17(c) of the Disclosure
Schedule, each of the Target Companies owns or possesses the valid right to use
all Intellectual Property and Software used or required by it in the conduct of
its business and all such
28
<PAGE> 34
Intellectual Property and Software, and all licenses or similar arrangements
pursuant to which any Target Company uses such Intellectual Property or Licensed
Software are in full force and effect in accordance with their terms and the
relevant Target Company is in compliance in all material respects with the terms
thereof. None of the Target Companies is in conflict with, or in violation or
infringement of, nor has any of them received any notice of any conflict with or
violation or infringement of or any claimed conflict with or violation or
infringement of, any asserted rights of any other Person with respect to any
such Intellectual Property or Software, except as would not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect.
Except as set forth in Section 3.17(c) of the Disclosure Schedule, no
Intellectual Property or Software owned by any of the Target Companies is
licensed to any third party, including any affiliate of such Target Company.
(d) Without limiting the generality of the foregoing, except as set
forth in Section 3.17(c) of the Disclosure Schedule, CyberLink is the sole and
exclusive owner of all Owned Intellectual Property, Owned Software (including,
without limitation, source and object code and related documentation and
modifications and enhancements thereof) and each other item set forth in
paragraphs (a) through (l) of Section 1. of the CyberLink Prospects attached to
Section 1.1(f) of the Disclosure Schedule (collectively "Proprietary Rights")
used by it in the conduct of its business or by Marketing One in connection with
CyberLink's operations, free and clear of any Liens, and the transfer to
CyberLink of all Owned Intellectual Property, Owned Software and Proprietary
Rights and any other intellectual property rights from any of the Target
Companies, or from any of the past or present affiliates of CyberLink, was made
in compliance with all applicable laws. To Sellers' knowledge, none of the
Intellectual Property, Owned Software or Proprietary Rights of CyberLink is in
conflict with, or in violation or infringement of, nor has any Target Company
received any notice of any conflict with or violation or infringement of or any
claimed conflict with or violation or infringement of, any asserted rights of
any other Person with respect to any of the Intellectual Property, Owned
Software or Proprietary Rights of CyberLink.
SECTION 3.18. Insurance. Section 3.18 of the Disclosure Schedule
summarizes the amount and scope of the insurance currently in force insuring the
Target Companies their operations and properties, and the Marketing One Assets
against loss or liability. All such policies or contracts of insurance are
sufficient for compliance with all material requirements of law and of all
agreements to which the Target Companies are parties. All insurance policies
pursuant to which any such insurance is provided are in full force and effect.
No notice of cancellation or termination of any such insurance policy has been
given to any Target Company and all premiums required to be paid in connection
with such insurance policies have been paid in full.
SECTION 3.19. Environmental Matters. Except as disclosed on Section
3.19 of the Disclosure Schedule:
(a) The operations of the Target Companies, the Marketing One
Assets, and the real property currently owned, leased or operated by the Target
29
<PAGE> 35
Companies are in compliance and, during the period of the ownership or tenancy
of the Target Companies have been in compliance, with all applicable
Environmental Laws, except for such noncompliance as would not reasonably be
expected to have a Material Adverse Effect. The Target Companies are not
currently liable for any penalties, fines or forfeitures for failure to comply
with any of the foregoing, for which a failure to comply would have a Material
Adverse Effect.
(b) No judicial or administrative proceedings or investigations are
(i) pending or, to the knowledge of Sellers, threatened against any of the
Target Companies pursuant to any applicable Environmental Laws that if resolved
adversely to the Target Companies would reasonably be expected to have a
Material Adverse Effect or (ii) to the knowledge of Sellers, pending or
threatened against any predecessor in interest of any Target Company with
respect to any asset in which any Target Company has or had an interest and for
which the Target Company is reasonably likely to be liable, except for
proceedings or investigations that would not reasonably be expected to have a
Material Adverse Effect.
(c) No real property currently (or to the knowledge of Sellers,
formerly) owned, operated or leased by any of the Target Companies is listed or
has been proposed for listing on the National Priorities List, the Comprehensive
Environmental Response Compensation and Liability and Information System
("CERCLIS") or any analogous state lists.
(d) Sellers have made available to Buyer copies of all
environmental investigations, audits, assessments or other analyses conducted by
or on behalf of, or which are otherwise in the possession of, Sellers or any of
the Target Companies relating to any real property currently or formerly owned,
operated or leased by any of the Target Companies.
(e) The Target Companies are not subject to any outstanding court
or administrative judgment, order, decree or injunction are not relating to
compliance with any Environmental Law or to investigation or cleanup of
Hazardous Materials under any Environmental Law that, individually or in the
aggregate, would materially restrict Buyer's operation of the Target Companies.
The Target Companies are not in any material respect in noncompliance with,
breach of or default under any such order, decree or injunction, and, to
Sellers' knowledge, no event has occurred or is continuing which, with the
passage of time or the giving of notice or both, would constitute such material
noncompliance, breach or default thereunder.
(f) None of the Target Companies has, and, to Sellers' knowledge,
no predecessor in interest of any of the Target Companies for which the Target
Companies have assumed liability (by operation of law or otherwise) has,
Released, transported or disposed of any Hazardous Materials on or off the real
property owned, leased or operated by the Target Companies other than in a
manner that would not, taken individually or in the aggregate, have a Material
Adverse Effect; none of the Target Companies or, to the Sellers' knowledge, any
of their predecessors in interest for which
30
<PAGE> 36
the Target Companies have assumed liability (by operation of law or otherwise),
has received any written notice of the institution or pendency of any lawsuit,
action, proceeding or investigation by any Person arising under any
Environmental Laws which if adversely determined would have a Material Adverse
Effect, or which would require the removal, cleanup or disposal of any Hazardous
Materials, the costs for which would have a Material Adverse Effect.
(g) None of the Target Companies has received any notice of any
enforcement order or notice of violation issued or given by any Government
Authority or private party, which is currently outstanding, in which order or
notice the Target Companies or, to the knowledge of Sellers, any of their
predecessors in interest have been named as potentially responsible parties.
SECTION 3.20. Books and Records. Copies of all the minute books and
stock record books of each of the Target Companies have been delivered or made
available to Buyer for inspection and contain accurate records of all meetings
of, and written consents by, the board of directors (and any committees thereof)
and stockholders of each of the Target Companies since the later of January 1,
1996, such company's incorporation, or such company's acquisition by PennCorp or
one of its Subsidiaries.
SECTION 3.21. Bank Accounts. Section 3.21 of the Disclosure Schedule
contains (a) a true and complete list of the names and locations of all banks,
trust companies, securities brokers, and other financial institutions at which
each of the Target Companies has an account or safe deposit box or maintains a
banking, custodial, trading, trust, or other similar relationship and (b) a true
and complete list and description of each such account, box, and relationship,
including a list of all authorized signatories. At the time of the Closing, all
monies and accounts of the Target Companies shall be held by, and be accessible
only to, the Target Companies.
SECTION 3.22. Insurance and Reinsurance.
(a) All insurance policy and annuity contract benefits payable by
United Life have in all material respects been paid in accordance with the terms
of the insurance policies and annuity contracts under which they arose
(representative copies of which have previously been provided to Buyer), except
for such benefits for which there is a reasonable basis to contest payment.
Except as set forth in Section 3.22(a) of the Disclosure Schedule, no
outstanding insurance policy or annuity contract issued or assumed by any United
Life entitles the holder thereof or any other Person to receive dividends,
distributions or other benefits based on revenues or earnings of United Life or
any other Person.
(b) Section 3.22(b) of the Disclosure Schedule is a true and
complete description of each material contract providing for reinsurance,
coinsurance, excess insurance, ceding of insurance, assumption of insurance or
indemnification of insurance liabilities to which United Life is a party which
is currently in effect (collectively, the "Reinsurance Agreements"). United Life
has not received any information which would
31
<PAGE> 37
reasonably cause it to believe that the financial condition of any other party
to any reinsurance, coinsurance, excess insurance, ceding of insurance,
assumption of insurance or indemnification of insurance agreement with the
Company is so impaired as to result in a default thereunder.
(c) Sellers have provided to Buyer's representative copies of all
agreements with agents, brokers or other producers involved in the sale of
United Life insurance policies or annuity contracts.
(d) Except as required by law or as disclosed in Section 3.22(d) of
the Disclosure Schedule, all amounts payable by United Life under any
Reinsurance Agreement and, to the knowledge of Sellers, all amounts payable by
any other Person that is a party to any Reinsurance Agreement have been paid in
accordance with the terms of the contracts under which they arose, except for
such amounts for which United Life reasonably believes there is a reasonable
basis to contest payment or where the failure to pay would not reasonably be
expected to have a Material Adverse Effect. Except as disclosed in Section
3.22(d) of the Disclosure Schedule, to the knowledge of Sellers, no reinsurer
(other than United Life) that is a party to any of the Reinsurance Agreements
has a valid defense to payment of its material obligations under such
Reinsurance Agreements. United Life is not currently a party to any transaction
or series of transactions that are required to be recorded as financial
reinsurance pursuant to either GAAP or SAP.
(e) The tax treatment under the Code of all insurance or annuity
policies, plans or contracts; all financial products, employee benefit plans
(other than the "Benefit 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 United Life 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
policies, plans or 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 affect such policies, plans or contracts due to the effective
date thereof and except as set forth in Section 3.22(e) of the Disclosure
Schedule. Each hardware, software and firmware product used by United Life to
maintain such contracts' qualification for the tax treatment under the Code for
which such policies, plans or contracts qualified or purported to qualify at the
time of their issuance or purchase is and at all relevant times has been
properly designed and implemented to maintain such qualification. For purposes
of this Section 3.22(e), 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, 264, 401, 403, 404, 408, 408A, 412, 415, 419,
419A, 457, 501, 505, 817, 818, 1035, 7702, 7702A and 7702B. In addition, except
as set forth in Section 3.22(e) 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 United Life qualifies as a
life insurance contract for federal income tax purposes and any such policy
which is a modified endowment contract under Section 7702A of the Code (each, a
"MEC") has been
32
<PAGE> 38
marketed as such at all relevant times or the policyholder otherwise has
consented to such MEC status. United Life is and at all times has been the owner
for Federal income tax purposes of the assets in any segregated asset account
underlying or supporting each variable annuity contract and each variable
insurance policy.
(f) Except as set forth in Section 3.22(f) of the Disclosure
Schedule, to the extent that by operation of law or written agreement or
otherwise the Target Companies are legally responsible therefor, the terms of
each insurance contract issued by the Target Companies in connection with, or as
part of, or pursuant to any employee benefit plan within the meaning of ERISA
Section 3(3) or under Code Section 457 ("Benefit Contracts") and the
administration and operation thereof and of any plan funded in whole or in part
through such Benefit Contract comply, and at all relevant times have complied,
with the applicable provisions of the Code, ERISA, other applicable law and the
terms of any written agreement with respect to such plan between any contract
holder, plan sponsor, plan administrator or other plan fiduciary and the Target
Companies, except where such noncompliance would not have a Material Adverse
Effect, and to Sellers' knowledge, no transaction has occurred with respect to
any Benefit Contract or any such plan that would be considered a non-exempt
prohibited transaction under Section 406 or 407 of ERISA, except for any
transaction which would not have a Material Adverse Effect.
(g) Except as set forth in Section 3.22(g) of the Disclosure
Schedule, to the extent that by operation of law or written agreement or
otherwise the Target Companies are legally responsible therefor, the terms of
each employee benefit plan within the meaning of ERISA Section 3(3) or under
Code Section 457 sold by the Target Companies or with respect to which the
Target Companies provide funding vehicles (other than Benefit Contracts) or
administrative or other services ("Employee Plans") and the administration and
operation thereof comply, and at all relevant times have complied, with the
applicable provisions of the Code, ERISA, other applicable law and the terms of
any written agreement with respect to such Employee Plan between any contract
holder, plan sponsor, plan administrator or other plan fiduciary and the Target
Companies, except where such noncompliance would not have a Material Adverse
Effect.
(h) Except as set forth in Section 3.22(h) of the Disclosure
Schedule, as of the date of this Agreement, no policyholder, contractholder,
group of affiliated policyholders or contractholder, 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 United Life for the year ended December 31,
1998, has terminated or, to the knowledge of Sellers, has threatened to
terminate its business relationship with United Life.
(i) United Life has not engaged in any transaction or omitted to
take any action with its general account that would be considered a non exempt
prohibited transaction under Section 406 or 407 of ERISA or that would result in
a breach of fiduciary duty under Section 404 of ERISA, except for such
transactions or omissions that have not had or would not have a Material Adverse
Effect.
33
<PAGE> 39
SECTION 3.23. Labor Matters.
(a) None of the Target Companies is a party to any labor or
collective bargaining agreement.
(b) No employees of the Target Companies are represented by any
labor organization that is certified to represent such employees under the
National Labor Relations Act. No labor organization or group of employees of any
of the Target Companies has made a pending demand for recognition or
certification, and there are no representation or certification proceedings or
petitions seeking a representation proceeding presently pending or threatened to
be brought before or filed with the National Labor Relations Board or any other
labor relations tribunal or authority. To the knowledge of Sellers, there are no
organizing activities involving any of the Target Companies pending with any
labor organization or group of employees of any of the Target Companies.
(c) Except as set forth in Section 3.23(c) of the Disclosure
Schedule, there are no strikes, work stoppages, slowdowns, lockouts, material
arbitrations or material grievances or other material labor disputes pending or
threatened against or involving any of the Target Companies.
(d) Each of the Target Companies is in compliance with all laws,
regulations and orders relating to the employment of labor, including all such
laws, regulations and orders relating to wages, hours, WARN, collective
bargaining, discrimination, civil rights, safety and health, workers'
compensation and the collection and payment of withholding and/or social
security Taxes and any similar Tax, other than such noncompliance that would not
reasonably be expected to have a Material Adverse Effect.
(e) There are no complaints, charges or claims against any of the
Target Companies pending or, to the knowledge of Sellers, threatened that could
be brought or filed with any Governmental Authority, arbitrator or court based
on, arising out of, in connection with or otherwise relating to the employment
or termination of employment by any of the Target Companies of any individual
prior to the date hereof or the Closing Date, other than such complaints,
charges or claims that would not reasonably be expected to have a Material
Adverse Effect.
SECTION 3.24. Year 2000 Compliance.
(a) The Target Companies have reviewed the areas within their
businesses and operations which they believe could be adversely affected by the
"Year 2000 Problem" (that is, the risk that computer applications used by the
Target Companies may be unable to recognize and perform properly date-sensitive
functions involving certain dates prior to and any date on or after December 31,
1999), and is making related inquiries of third parties with whom the Target
Companies exchange data electronically. Based on such reviews, and except as set
forth in Section 3.24(d) below, Sellers and the
34
<PAGE> 40
Target Companies believe that the "Year 2000 Problem" will not have a Material
Adverse Effect. To Sellers' knowledge, except as set forth in Section 3.24(a) of
the Disclosure Schedule, and except as set forth in Section 3.24(d) below, each
hardware, software and firmware product used by the Target Companies in their
business and operations will be Year 2000 Compliant on or before December 31,
1999, except for such noncompliances that would not have a Material Adverse
Effect.
(b) Notwithstanding the foregoing Section 3.24(a), each hardware,
software and firmware product included in, or used in conjunction with, the
products collectively marketed as "CyberLink" is currently, and as of the date
of Closing will be, Year 2000 Compliant in all material respects, except as set
forth in Section 3.24(b) of the Disclosure Schedule and except for data feeds
from unaffiliated third parties which may not be Year 2000 Compliant.
(c) For purposes of this Section 3.24, the term "Year 2000
Compliant" means that: (i) the functions, calculations and other computing
processes of the relevant hardware, software and firmware, including without
limitation all applications and formats (collectively, "Processes") perform in a
consistent manner regardless of the date in time on which the Processes are
actually performed and regardless of the date of input, whether before, on or
after January 1, 2000, and whether or not the dates are affected by leap years;
(ii) the relevant hardware, software and firmware accepts, calculates, compares,
sorts, extracts, sequences and otherwise processes date inputs and date values,
and returns and displays date values, in a consistent manner regardless of the
dates used, whether before, on or after January 1, 2000; (iii) the relevant
hardware, software and firmware will function without interruptions caused by
the date in time on which the Processes are actually performed or by the date
input, whether before, on or after January 1, 2000; (iv) the relevant hardware,
software and firmware accepts and responds to year-date input in a manner that
resolves any ambiguities as to the century in a defined, predetermined and
appropriate manner; and (v) the relevant hardware, software and firmware stores
and displays date information in ways that are unambiguous as to the
determination of the century.
(d) Notwithstanding anything in this Agreement to the contrary,
Sellers (i) shall not be deemed to have breached any representation or warranty
contained in this Section 3.24 with respect to any software purchased or
licensed from non-affiliated third parties to the extent that such
representations and warranties relating thereto were made in good faith in
reliance upon written statements of the vendors or licensors of such software to
the effect that such software is Year 2000 Compliant, (ii) are not making any
representation and warranty that the Target Companies' computer systems will be
Year 2000 Compliant if combined with or integrated into any system or systems of
Buyer, (iii) are not making any representation or warranty that such computer
systems will be Year 2000 Compliant if the plans, methodologies, processes or
vendors of the Target Companies are changed after the Closing, and (iv) are not
making any representation or warranty that such computer systems will be Year
2000 Compliant in the event any change, noncompliance, failure, act of God or
other external event beyond
35
<PAGE> 41
the reasonable control of the Target Companies (other than the passage of time)
shall occur which directly or indirectly affects the operation of such computer
systems.
SECTION 3.25. Financial Condition. The sale of the Shares and the
Marketing One Assets is not being made with the actual intent to hinder, delay
or defraud any entity to which any Seller is indebted as of the date hereof or
any entity to which any Seller may become indebted subsequent to the date
hereof. Sellers have valid business reasons for selling the Shares and the
Marketing One Assets, as applicable, and have concluded that the Purchase Price
represents reasonably equivalent value for the Shares and Marketing One Assets.
No Seller is engaged in any business or transaction, nor is any Seller about to
engage in any business or transaction, for which any property remaining with any
Seller is or will be an unreasonably small capital, and no Seller intends to
incur, nor believe that is has incurred, debts beyond its ability to pay as they
mature or as such Seller expects them to otherwise become due and payable.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Sellers as follows:
SECTION 4.1. Organization; Qualifications and Operations. Buyer is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its organization, with all requisite corporate power and
authority to own the Shares. Buyer is qualified or licensed to do business and
is in good standing in each jurisdiction in which the ownership or leasing of
property by it or the conduct of its business requires such licensing or
qualification, except where the failure to be so qualified or licensed will not
affect Buyer's ability to consummate the transactions contemplated by this
Agreement (a "Buyer Material Adverse Effect").
SECTION 4.2. Authorization. Buyer has full corporate power and
authority to execute and deliver this Agreement and each other document to be
delivered by Buyer in connection herewith (the "Buyer Ancillary Agreements") and
to consummate the transactions contemplated hereby and thereby. No other
corporate proceeding on the part of Buyer is necessary to authorize the
execution and delivery of this Agreement and the Buyer Ancillary Agreements or
to consummate the transactions contemplated hereby and thereby. This Agreement
has been, and, at Closing, the Buyer Ancillary Agreements will be, duly and
validly executed and delivered by Buyer and constitutes, or will constitute, a
valid and binding obligation of Buyer, enforceable against it in accordance with
its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally, and subject, as to enforceability, to general principles of
equity, including principles of commercial reasonableness, good faith and fair
dealing (regardless of whether enforcement is sought in a proceeding at law or
in equity).
36
<PAGE> 42
SECTION 4.3. No Violation. None of the execution and delivery of this
Agreement or the Buyer Ancillary Agreements by Buyer, the performance by Buyer
of its obligations hereunder or thereunder or the consummation by Buyer of the
transactions contemplated hereby or thereby will (a) violate, conflict with or
result in any breach of any provision of the Certificate or Articles of
Incorporation or Bylaws of Buyer (or similar organizational documents), (b)
violate or conflict with or result in a violation or breach of, or constitute a
default (with or without due notice or lapse of time or both) under the terms,
conditions or provisions of any note, bond, mortgage, indenture or deed of
trust, or any license, lease or agreement to which Buyer or any of Buyer's
subsidiaries is a party or by which any of their assets is bound or (c) violate
any order, writ, judgment, injunction, decree, statute, rule or regulation of
any Governmental Authority applicable to Buyer or any of Buyer's subsidiaries or
any of their assets, except in each case as would not have a Buyer Material
Adverse Effect.
SECTION 4.4. Consents and Approvals. Except as set forth in Section 4.4
of the Disclosure Schedule, no filing or registration with, no notice to and no
permit, authorization, consent or approval of any third party or any
Governmental Authority is necessary for the consummation by Buyer of the
transactions contemplated by this Agreement and the Buyer Ancillary Agreements
other than consents and approvals of or filings or registrations with (a) the
DOJ pursuant to the HSR Act, (b) the insurance department of the State of Texas,
(c) the NASD, (d) the United States Federal Reserve Board and (e) a notice
filing with Netherlands Insurance Regulators. Buyer is not aware of any facts
which could reasonably be expected to prevent Buyer from obtaining the foregoing
consents and approvals.
SECTION 4.5. Brokers' Fees and Commissions. Neither Buyer nor any of
its directors, officers, employees or agents has employed any investment banker,
broker or finder in connection with the transactions contemplated hereby.
SECTION 4.6. Purchase for Investment. Buyer is acquiring the Shares for
its own account for investment purposes and not with a view to the distribution
of the Shares. Buyer has such knowledge and experience in financial and business
matters so as to be capable of evaluating the merits and risks of its investment
in the Shares. Buyer is an "accredited investor" as defined in Rule 501 of the
Securities Act of 1933, as amended. Buyer 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 will be restricted
by such act and such state laws, and that the certificates representing the
Shares will bear legends to such effect. Buyer will not, directly or indirectly,
dispose of the Shares except in compliance with applicable federal and state
securities laws.
SECTION 4.7. Financing. Buyer has sufficient funds available necessary
to consummate the acquisition by Buyer of the Shares.
SECTION 4.8. No Assets of Benefit Plan. Buyer is not using or treated
under applicable law as using the assets of any Benefit Plan to engage, directly
or indirectly, in
37
<PAGE> 43
any of the transactions contemplated by this Agreement (other than payments in
accordance with the terms of the Benefit Plans).
ARTICLE V
COVENANTS
SECTION 5.1. Conduct of Business Prior to the Closing. Except as
expressly contemplated by this Agreement, as set forth in Section 5.1 of the
Disclosure Schedule or with the prior written consent of Buyer (not to be
unreasonably withheld or delayed), during the period from the date of this
Agreement to the Closing, Sellers will cause each of the Target Companies to
conduct its business and operations according to its ordinary and usual course
of business and will use all reasonable efforts consistent therewith to preserve
intact and, as applicable, maintain in good repair its properties, assets and
business organizations, to keep available the services of its officers, agents
and employees and to maintain satisfactory relationships with policyholders,
agents and regulators, in each case in the ordinary course of business. Without
limiting the generality of the foregoing, and except as otherwise provided in
this Agreement and as set forth in Section 5.1 of the Disclosure Schedule, prior
to the Closing, Sellers will not permit any of the Target Companies to, without
the prior written consent of Buyer (not to be unreasonably withheld or delayed):
(a) issue, sell or pledge, or authorize or propose the issuance,
sale or pledge of additional shares of capital stock of any class, or
securities convertible into any such shares, or any rights, warrants or
options to acquire any such shares or other convertible securities;
(b) redeem, purchase or otherwise acquire any outstanding shares of
its capital stock;
(c) propose or adopt any amendment to its Certificate or Articles
of Incorporation or Bylaws;
(d) except in the ordinary course of business, and consistent with
past practice incur any indebtedness for borrowed money or issue any
debt securities or assume, guarantee or endorse the obligations of any
other Person;
(e) increase in any manner the rate or terms of compensation of any
of its directors, officers or other employees, except such increases as
are granted in the ordinary course of business consistent with past
practice, or enter into any employment, severance or collective
bargaining agreement;
(f) except in the ordinary course of business, and consistent with
past practice (i) sell, transfer or otherwise dispose of any of its
property or assets or (ii) mortgage or encumber any of its property or
assets;
38
<PAGE> 44
(g) enter into, materially modify or amend, or terminate any
material agreements, commitments or contracts, except as provided by
this Agreement or in the ordinary course of business and consistent
with past practice (provided, however, that any such modification,
amendment or termination of an agreement, commitment or contract
involving CyberLink must be approved by Buyer, such approval not to be
unreasonably withheld);
(h) declare, set aside or pay any dividend or other distribution in
respect of its capital stock, other than the projected dividends set
forth in Section 5.1(h) of the Disclosure Schedule and except as
provided in Section 5.15 hereof and Section 3.22(a) of the Disclosure
Schedule;
(i) except in the ordinary course of business and consistent with
past practice or with respect to capital projects approved prior to the
date hereof and disclosed in Section 5.1(i) of the Disclosure Schedule,
enter into any agreement or commitment involving an aggregate capital
expenditure or commitment exceeding $25,000;
(j) amend, adopt or terminate any of its Benefit Plans with respect
to Target Employees, except as required by law and except as
contemplated by this Agreement;
(k) make any change in accounting methods, principles or practices,
except as may be required by a change in SAP or GAAP or applicable law;
(l) take any action (other than actions specifically contemplated
by this Agreement) that would intentionally result in a breach of the
representations and warranties contained in Article III of this
Agreement;
(m) change its tax accounting or reporting principles or practices
or settle or compromise (or have settled or compromised on its behalf)
any liability with respect to Taxes;
(n) settle or compromise any Existing Litigation for other than
monetary damages or settle or compromise any other claim (including
arbitration, but excluding claims settled in the ordinary course of
business under insurance policies issued by United Life);
(o) fail to comply in any material respect with applicable laws;
(p) make any payment to any affiliate, except pursuant to existing
agreements disclosed in the Disclosure Schedule or as otherwise
permitted by this Agreement; or
(q) agree in writing to take any of the foregoing actions.
39
<PAGE> 45
In addition to the foregoing, Sellers agree that from the date hereof until the
Closing Date, United Life may purchase and sell its Investment Assets, and
invest and reinvest income and proceeds in respect thereof only in accordance
with the ordinary course investment policies of United Life as set forth in
Section 5.1 of the Disclosure Schedule or as otherwise mutually agreed upon by
Buyer and Sellers. The Sellers further agree that they shall make available to
Buyer the internal reports of the Target Companies generated in the ordinary
course of business consistent with past practice regarding purchases,
acquisitions, sales and dispositions of Investment Assets and all investments
and reinvestments of income and proceeds in respect thereof.
SECTION 5.2. Access to Information. Between the date hereof and the
Closing Date, Sellers shall cause each of the Target Companies and Southwestern
Financial Services Corporation to give to Buyer and its counsel, accountants,
and other authorized representatives and agents, full access, during regular
business hours and upon reasonable advance notice, to any and all of its
premises, properties, contracts, books and records, and will cause its officers
and employees to furnish to Buyer and its representatives any and all data and
information pertaining, directly or indirectly, to the Target Companies and the
Marketing One Assets that Buyer shall from time to time reasonably request, and
shall permit Buyer and its representatives to make extracts and copies thereof;
provided, however, that Buyer's rights pursuant to this Section 5.2 shall not be
exercised in a manner which would materially interfere with the day to day
operations of Sellers or any Target Company. If the acquisition contemplated
herein is consummated, Buyer covenants and agrees that it shall preserve and
keep the records of the Target Companies delivered to it hereunder for a period
of five years from the Closing Date, or with respect to records relating to
matters subject to a representation and warranty contained herein which survives
the Closing for a period greater than five years, for so long as such
representation and warranty survives, and shall make such records available to
Sellers and their affiliates, as reasonably required by Sellers and their
affiliates in connection with any legal proceedings by or against, or
governmental investigations of, Sellers or any of their affiliates, or in
connection with any tax examination of Sellers or any consolidated group of
which any of it was a part or for any other proper business purpose of Sellers
or their affiliates.
SECTION 5.3. HSR Act Filings. As soon as practicable after the date of
this Agreement, provided that the parties will use their commercially reasonable
best efforts to make such filings within 10 Business Days after the date hereof,
Sellers and Buyer shall make appropriate filings with the DOJ under the HSR Act,
with respect to the transactions contemplated by this Agreement. In connection
with such filings, the parties hereto shall, in cooperation with each other, and
as promptly as reasonably practicable from time to time hereafter, make all such
further filings and submissions, and take such further action, as may be
required in connection therewith. Each party shall furnish the others all
information in its possession necessary for compliance by the others with the
provisions of this Section 5.3. No party shall withdraw any such filing or
submission prior to the termination of this Agreement without the written
consent of the other parties.
40
<PAGE> 46
SECTION 5.4. Regulatory Approvals. As soon as practicable, provided
that Buyer will use its commercially reasonable best efforts to make such
filings within 20 Business Days after the date hereof, Buyer shall file all
applications and other documents, and shall use its reasonable best efforts to
obtain all consents and approvals, as are required to be filed or obtained by it
under the applicable laws of the State of Texas, and of any other applicable
jurisdictions, including all requisite approvals of the insurance regulatory
authorities in such jurisdictions and all other governmental approvals,
including approvals by the NASD, required for consummation of the transactions
contemplated by this Agreement, in each case as promptly as is practicable.
Sellers shall cause each Target Company to take all such actions (other than the
payment of money not then due and owing or the provision of other consideration)
as are reasonably requested by Buyer to assist Buyer in completing all such
filings and obtaining all such consents and approvals as are required to be made
and obtained. Buyer shall take all such actions (other than the payment of money
not then due and owing or the provision of other consideration) as are
reasonably requested by Sellers to assist in completing all filings and
obtaining all consents and approvals as Sellers or any Target Company may be
required to make and obtain.
SECTION 5.5. All Reasonable Efforts. Subject to the terms and
conditions herein provided, each of the parties hereto agrees to use all
reasonable efforts to take, or cause to be taken, all action, and to do, or
cause to be done as promptly as practicable, all things necessary, proper and
advisable under applicable laws and regulations to consummate and make effective
as promptly as practicable the transactions contemplated by this Agreement. If
at any time after the Closing any further action is necessary or desirable to
carry out the purposes of this Agreement, including, without limitation, the
execution of additional instruments, the proper officers and directors of each
party to this Agreement shall take all such necessary action.
SECTION 5.6. Public Announcements. The parties hereto will consult with
each other and will mutually agree (the agreement of each party not to be
unreasonably withheld or delayed) upon the content and timing of any press
release or other public statements with respect to the transactions contemplated
by this Agreement and shall not issue any such press release or make any such
public statement prior to such consultation and agreement, except as may be
required by applicable law or by obligations pursuant to any listing agreement
with any securities exchange or any stock exchange regulations; provided,
however, that each party will give prior notice to the other parties of the
content and timing of any such press release or other public statement required
by applicable law or by obligations pursuant to any listing agreement with any
securities exchange or any stock exchange regulations.
SECTION 5.7. Disclosure Supplements; Updated Financial Information.
(a) From time to time prior to the Closing and as soon as
reasonably practicable following a material event, Sellers shall supplement or
amend the Disclosure Schedule delivered in connection herewith (i) with respect
to any matter which was required to be disclosed or set forth in the Disclosure
Schedule on the date of this
41
<PAGE> 47
Agreement but was omitted from the Disclosure Schedule (a "Pre-Signing Matter")
and (ii) with respect to any matter which, if existing or occurring at or prior
to the date of this Agreement, would have been required to be set forth or
described in such Disclosure Schedule or which is necessary to correct any
information in such Disclosure Schedule which has been rendered inaccurate
thereby (a "Post-Signing Matter"); provided, however, that Sellers shall not be
required to supplement the Disclosure Schedule with respect to any Post-Signing
Matter complying with Section 5.1. Supplements and amendments for Pre-Signing
Matters shall not be given effect for purposes of Section 6.1(d) or 8.3(a)(i).
Supplements and amendments for Post-Signing Matters shall not be given effect
for purposes of Section 6.1(d), but if the Closing occurs, such supplements
shall be given effect for purposes of Section 8.3(a)(i) and Buyer shall be
deemed to have waived any right or claim it may otherwise have or have had on
account of any Post-Signing Matter so disclosed in such supplement or amendment
(it being understood that Buyer shall not be deemed to have waived any right or
claim as to any matter disclosed in any such supplement or amendment relating to
a covenant made by Sellers).
(b) As soon as reasonably practicable following the date of this
Agreement, Sellers shall deliver or cause to be delivered to Buyer true and
complete copies of (i) audited financial statements of United Life as at and for
the year ended December 31, 1998, together with the notes thereto (the "1998
Audited Financial Statements"), which shall be certified by KPMG, independent
public accountants for United Life, and which shall be delivered to Buyer no
later than April 15, 1999, and (ii) the 1998 Annual Statement of United Life and
the 1998 annual statement of the separate accounts of United Life in the same
form as will be filed with the insurance department of the State of Texas. In
addition, Sellers shall, as soon as reasonably practicable, provide all other
financial data and other information relating to the Target Companies filed with
any regulatory body. The 1998 Audited Financial Statements will be based on the
books and records of United Life, will fairly present, in all material respects,
the financial condition and results of operations of United Life as of the dates
and for the periods indicated therein and will be prepared in all material
respect in accordance with SAP.
SECTION 5.8. No Implied Representations or Warranties. Buyer hereby
acknowledges and agrees that Sellers are not making any representation or
warranty whatsoever, express or implied, except those representations and
warranties of Sellers explicitly set forth in this Agreement or in the
Disclosure Schedule or in any certificate contemplated hereby and delivered by
Sellers in connection herewith. Except as explicitly set forth herein, none of
Sellers or any of their subsidiaries, or any of their respective officers,
directors, shareholders, employees, affiliates or representatives has made or is
making any representation, express or implied, as to the value of any asset or
business being so acquired, or any warranty of merchantability, suitability or
fitness for a particular purpose.
42
<PAGE> 48
SECTION 5.9. Employment and Employee Benefits.
(a) No later than 45 days after the date hereof and at least five
business days before the Closing Date, Buyer shall deliver to Sellers a written
notice separately identifying (i) those Target Employees to whom Buyer will
offer employment effective as of Closing (the "Designated Employees"), (ii)
those Target Employees that Buyer desires to be retained by Sellers for purposes
of providing the services contemplated by the Transition Services Agreement (the
"Transition Employees") and (iii) those Target Employees that shall be neither
Designated Employees or Transition Employees (the "Retained Employees"). Within
five business days after Buyer delivers written notice to Sellers identifying
any Retained Employee and specifies a specific 14-day termination period with
respect to such employee, unless otherwise directed by Buyer, Sellers shall
notify in writing such Retained Employee that his or her employment shall be
terminated, contingent upon the closing of the transactions contemplated by this
Agreement, during the designated 14-day period to be set forth in such notice.
In no event shall a Retained Employee be terminated within 14 days after the
Closing Date. At Buyer's direction, Sellers shall provide written notice to any
Retained Employee amending the period for termination of such Retained Employee
to commence on a later date; provided, however, that Sellers shall not be
obligated to provide more than one extension with respect to any Retained
Employee.
(b) Notwithstanding anything in this Section 5.9 to the contrary
(except for the immediately following sentence), at and following Closing Buyer
shall assume and be liable for, and shall indemnify and hold Sellers and their
affiliates harmless from, all obligations and other liabilities under each
Employee Retention Agreement relating to a Target Employee to which either
Seller, any Target Company and/or any affiliate of either Seller is a party and
which agreement is set forth in Section 5.9(a) of the Disclosure Schedule
regardless of whether such Target Employee is a Designated Employee, Transition
Employee or Retained Employee. Notwithstanding the foregoing sentence or any
other provision of this Section 5.9 to the contrary, Sellers shall pay all
existing transaction bonuses payable as a result of the consummation of the
transactions contemplated hereby at such time as such bonuses are payable
pursuant to their terms.
(c) Without regard to the $4,000,000 limit set forth in Section
8.2(b) but subject to all other limitations under such Section, Sellers shall be
responsible for and shall defend, indemnify and hold harmless the Buyer and its
affiliates from and against all obligations and liabilities arising from or in
connection with Target Employees and persons formerly employed by Sellers or
their affiliates who primarily rendered services to or on behalf of UC, the
United Life Companies or the Subsidiaries of the United Life Companies with
respect to the following matters or persons:
(i) those claims identified in Sections 3.10, 3.13(g), (h) and
(i) and 3.23(c) of the Disclosure Schedule and undisclosed claims that
were required to be identified on such Schedules or that constitute a
breach of any representation in Section 3.13 or 3.23;
(ii) claims arising on or after the Closing Date to the extent
attributable to Seller's acts or omissions (excluding any acts or
omissions by
43
<PAGE> 49
Sellers or its affiliates at the direction of Buyer or attributable to
Buyer's failure to provide timely directions to Sellers or its
affiliates);
(iii) compensation and employee benefits through any period of
notice of termination and severance pay with respect to Designated
Employees (A) who are offered employment by Buyer at comparable
compensation and with comparable duties as such employee had
immediately prior to the Closing Date and that does not involve
relocation to a location greater than 50 miles from the location of
such Designated Employee's employment immediately prior to the Closing
Date and (B) no later than the Closing Date, do not accept such
employment;
(iv) Retained Employees who are not provided a notice of
termination by Sellers or its affiliates on or before the 60th day
following the Closing Date and compensation and benefits for Retained
Employees for (A) any period following Closing and prior to notice of
termination of employment and (B) any period of notice of termination
not required by law and greater than two weeks or such other period
reasonably and mutually agreed to by Buyer and Sellers;
(v) severance pay and compensation and benefits for any period of
notice of termination reimbursed to Sellers or their affiliates by
Buyer with respect to any Target Employee reemployed by Sellers or
their affiliates within three months following the Target Employee's
termination of employment with Sellers or their affiliates, provided
such employment is at a location not greater than 50 miles from such
Target Employee's place of employment on the Closing Date; and .
(vi) if a fixed transition services fee (inclusive of
compensation and benefits for Transition Employees) is agreed to by
Buyer and Sellers, compensation and benefits for Transition Employees
with respect to their designated transition period of employment and
for any period of notice of termination of employment not expressly
provided for in Section 5.9(d) below.
For purposes of this Section 5.9(c) and Section 5.9(d), severance pay shall
include any employee benefits provided for the period of severance under any
severance plan of Sellers or their affiliates, but in the case of medical
coverage on or after the Closing Date (i.e., claims incurred on or after the
Closing Date) under any self-insured medical plan shall be limited to COBRA
premiums for such coverage less any required employee share of premiums.
(d) Except as provided in Section 5.9(b) or 5.9(c), Buyer shall be
responsible for and shall defend, indemnify and hold harmless the Sellers and
their affiliates from and against, all obligations and liabilities arising from
or in connection with Target Employees and persons formerly employed by Sellers
or their affiliates who primarily rendered services to or on behalf of UC, the
United Life Companies or
44
<PAGE> 50
Subsidiaries of the United Life Companies with respect to the following matters
or persons:
(i) claims arising on or after the Closing Date to the extent
attributable to Buyer's acts or omissions (including, but not limited
to, Buyer's decision to offer or not offer employment to Target
Employees, Buyer's supervision of or failure to supervise Transition
Employees and Buyer's directions to Sellers or its affiliates regarding
Transition Employees;
(ii) all obligations and liabilities arising or in connection
with employment or termination of employment prior to the Closing Date;
(iii) Designated Employees who accept employment with the Buyer
or its affiliates (including claims arising prior to the Closing Date
and not retained by Sellers pursuant to the preceding Section) or who
were not offered by Buyer employment at comparable compensation and
with comparable duties as such employee had immediately prior to the
Closing Date and that does not involve relocation to a location greater
than 50 miles from the location of such Designated Employee's
employment immediately prior to the Closing Date;
(iv) severance pay for Transition Employees given notice of
termination at any time prior to the 60th day following the end of the
term of the Transition Services Agreement and compensation and benefits
for such employees for any period of notice of termination (not
exceeding 60 days) not coincident with a portion of their designated
transition period of employment;
(v) accrued and unpaid premiums as of the Closing Date on
insurance policies underlying the Sellers' Benefit Plans and other
accrued and unpaid non-insured amounts necessary to satisfy any claims
for benefits under the Sellers' and their affiliates Benefit Plans;
provided that any liability for medical coverage under any self-insured
medical plan for any individual shall be limited to claims actually
incurred (medical services or products rendered or delivered) prior to
the Closing Date; and
(vi) (A) severance pay for Retained Employees given notice of
termination at any time prior to the 60th day following the Closing
Date and compensation and benefits for such employees for any period of
notice of termination (x) required by law (but only for any portion of
such period after the Closing Date) or (y) commencing after the Closing
Date and not exceeding two weeks (unless otherwise reasonably and
mutually agreed by Sellers and Buyer), or (B) at Sellers' discretion
and in lieu of any Retained Employee, severance pay for any employee of
Sellers or their affiliates who is replaced by a Retained Employee (but
not to exceed the severance pay that would be payable to the Retained
Employee replacing such employee in the event of the Retained
Employee's termination of employment).
45
<PAGE> 51
(e) At and following the Closing Date, Sellers shall administer and
pay, and shall indemnify and hold Buyer harmless for any liabilities or
expenses, (i) with respect to the Benefit Plans, except as specified in Section
5.9(c) above, (ii) any "employee benefit plans" (as defined in Section 3(3) of
ERISA) currently or previously sponsored by Sellers other than the Benefit
Plans, and (iii) with respect to any liability arising under Title IV of ERISA
by reason of the Target Companies being required to be aggregated with any other
entity prior to and not after the Closing Date pursuant to Section 414(b), (c)
or (m) of the Code.
(f) Buyer shall, and shall cause its subsidiaries (including the
Target Companies), to provide employee benefits and compensation for Designated
Employees that are at least substantially comparable in the aggregate to the
employee benefits and compensation (i) provided by Sellers or their affiliates
under the Benefit Plans and compensation arrangements in effect as of the
Closing Date or (ii) provided by Buyer to similarly situated employees of Buyer
under its employee benefit plans and compensation arrangements.
(g) If Designated Employees are included in any benefit plan
(including without limitation, provision for vacation) of Buyer or its
subsidiaries, such employees shall receive credit for service prior to the
Closing Date with Sellers or any of their subsidiaries or affiliates to the same
extent such service was counted under similar Benefit Plans for purposes of
eligibility, vesting and eligibility for retirement, and benefit accrual with
respect to vacation, disability and severance. Buyer shall provide medical,
dental and health plan coverage to Designated Employees as of the Closing Date
that shall not include pre-existing condition exclusions, except to the extent
such exclusions were applicable under the similar Benefit Plan as of the Closing
Date, and such plans shall provide credit for any deductibles and co-payments
applied or made with respect to each Designated Employee in the calendar year of
the Closing.
(h) From the date hereof to the Closing Date, Sellers shall cause
the Target Companies to contribute or accrue employer matching contributions
with respect to the Designated Employees in accordance with the terms of the
policies of the Target Companies in effect as of the date hereof. Immediately
after the Closing, Sellers shall cause any accounts relating to Designated
Employees under any 401(k) plan maintained by Sellers or their Subsidiaries to
fully vest. As soon as practicable after the Closing Date, Buyer shall cause a
401(k) plan maintained by Buyer or the Target Companies to accept "eligible
rollover contributions," within the meaning of Section 402(f)(2)(A) of the Code,
from any 401(k) plan maintained by Sellers or their subsidiaries or affiliates
prior to the Closing Date, for the benefit of Designated Employees.
(i) Sellers and Buyer may consult with each other regarding any
Retained Employee or Transition Employee whose services prior to the Closing
Date are believed to be material to the Target Companies. In the event Sellers
determine to implement a stay bonus arrangement with respect to any such
Retained Employee or Transition Employee, the cost of such stay bonus shall be
shared equally by Sellers and the Target Companies. In the event Sellers
determine not to implement a stay bonus
46
<PAGE> 52
arrangement with respect to any such Retained Employee or Transition Employee,
but Buyer requests that a stay bonus be implemented with respect to such
Retained Employee or Transition Employee, then the entire cost of such stay
bonus will be paid by the Target Companies.
(j) At and following Closing, Sellers shall, at Buyer's sole cost
and expense, use their commercially reasonable efforts to arrange, if available,
for United Life to obtain such "stop-loss" insurance coverage with respect to
the matters set forth in this Section 5.9, as Buyer shall reasonably request.
(k) Subject to Section 10.5, this Section 5.9 shall not confer any
rights or remedies upon any Person other than Sellers, Buyer and their
respective successors and permitted assigns.
SECTION 5.10. Nonsolicitation. Sellers hereby agree that, for a period
commencing on the Closing Date and ending on the second anniversary of the
Closing Date, they will not, without Buyer's prior written consent, directly or
indirectly, solicit or hire any of the employees set forth in Section 5.10 of
the Disclosure Schedule; provided, however, that nothing herein shall prohibit
either Seller or any of its subsidiaries from publishing a general solicitation
of employment in any newspaper, magazine, trade publication or other medium or
from soliciting or hiring any person whose employment with any Target Company
was terminated by such Target Company prior to such solicitation or hiring.
SECTION 5.11. Acquisition Proposals. Sellers shall not, nor shall they
authorize or permit Target Company or any of their respective officers,
directors or employees, or any investment banker, attorney or other advisor or
representative acting on their behalf to, directly or indirectly, (a) solicit or
initiate the submission of any Acquisition Proposal (as hereinafter defined) or
(b) participate in any discussions or negotiations regarding, or furnish to any
person any information with respect to, or take any other action to facilitate
any inquiries or the making of any proposal that constitutes, or may reasonably
be expected to lead to, any Acquisition Proposal. For purposes of this
Agreement, "Acquisition Proposal" means any proposal with respect to a merger,
consolidation, share exchange or similar transaction involving any of the Target
Companies or the Marketing One Assets, or any purchase of all or any significant
portion of the assets of any of the Target Companies, or any equity interest in
any of the Target Companies or the Marketing One Assets, other than the
transactions contemplated hereby and except for the transactions set forth on
Section 5.11 of the Disclosure Schedule.
SECTION 5.12. Tax Matters.
(a) Except as provided in Section 5.12(b), Sellers shall prepare
and file (or cause to be prepared and filed) in proper form with the appropriate
Governmental Authority in a timely manner (with extensions) (i) all Tax Returns
of the Target Companies that are required to be filed on or before the Closing
Date, taking into account all available extensions, and (ii) all Tax Returns in
which the Target Companies join with
47
<PAGE> 53
Sellers or any of their affiliates (including, without limitation, any federal
consolidated income Tax Return and any state or local affiliated, consolidated,
combined, or unitary Tax Return), and shall (except to the extent provided in
Section 5.12(e)(i)) pay the Taxes required to be paid with such Tax Returns
(subject to any right of reimbursement or indemnification hereunder). All Tax
Returns of the Target Companies that are required to be filed after the Closing
Date (other than the Tax Returns described in clause (ii) above) shall be timely
filed by or at the instruction of Buyer, which shall pay any Taxes required to
be paid with such Tax Returns (subject to any right of reimbursement or
indemnification hereunder). In order to assist Buyer in the preparation of all
Tax Returns that Buyer is required to prepare hereunder (including under Section
5.12(b)), Sellers shall act in good faith to provide Buyer, within a reasonable
period after request therefor and prior to the date for filing any such Tax
Return (taking into account available extensions), with the information within
the knowledge or control of Sellers or their affiliates that may be necessary or
appropriate for the preparation of each such Tax Return.
(b) Tax Returns of or including the Target Companies for any
taxable period that begins before the Closing Date shall be prepared in a manner
consistent with past positions or practices relating to Tax Returns or Tax
matters of the Target Companies. With respect to any Tax Return required to be
filed by Buyer with respect to the Target Companies and as to which an amount of
Tax liability is allocable to Sellers under this Section 5.12, Buyer shall
provide Sellers with a copy of such completed Tax Return and a statement
certifying the amount of Tax shown on such Tax Return that is allocable to
Sellers pursuant to this Section 5.12, together with appropriate supporting
information and schedules, at least 20 Business Days prior to the due date
(including any extension thereof) for the filing of such Tax Return, and Sellers
shall have the right to review and comment on such Tax Return and Buyer's
statement prior to the filing of such Tax Return. Sellers shall have the right
to dispute the amount of Taxes allocated to them by Buyer, and any dispute that
cannot be resolved between the parties shall be resolved in accordance with the
provisions of this Section 5.12. With respect to any Tax Return required to be
filed by Sellers for or with respect to the Target Companies and as to which an
amount of Tax liability is allocable to Buyer under this Section 5.12, (i) in
the case of CyberLink and UC (and in the case of any estimated Tax Return for or
including United Life for the period January 1, 1999 through the Closing Date),
Sellers shall provide Buyer with a copy of such completed Tax Return and a
statement certifying the amount of Tax shown on such Tax Return that is
allocable to Buyer pursuant to this Section 5.12, and (ii) in the case of United
Life (except as described in clause (i)), Buyer shall provide Sellers with a
copy of the United Life Tax Return to be filed by Sellers and a statement
certifying the amount of Tax on such Tax Return that is allocable to Buyer
pursuant to this Section 5.12, together in each case with appropriate supporting
information and schedules, at least 60 Business Days prior to the due date
(including any extension thereof) for the filing of such Tax Return (except with
respect to estimated Tax Returns, which shall be provided 10 Business Days prior
to their due date), and Buyer or Seller (as the case may be) shall have the
right to review and comment on such Tax Return and the statement prior to the
filing of such Tax Return. Either party shall have
48
<PAGE> 54
the right to dispute the amount of Taxes allocated to Buyer under such Tax
Returns and statement and any dispute that cannot be resolved between the
parties shall be resolved in accordance with the provisions of this Section
5.12.
(c) Subject to Section 5.12(d), Sellers agree to indemnify and hold
Buyer and the Target Companies harmless against the following Taxes and against
any loss, damage, liability, or expense, including reasonable fees for attorneys
and consultants, incurred in contesting or otherwise in connection with any such
Taxes, but only to the extent such Taxes or other costs have not been adequately
provided for by a reserve of the Target Companies for Taxes for their 1998
taxable years (or portions thereof) (but not including any reserve for, or other
amount of, deferred Taxes) as shown on the final 1998 Annual Statement of United
Life or final 1998 financial statements for the other Target Companies (provided
that any such reserve was established in the ordinary course of business): (i)
Taxes imposed on the Target Companies with respect to taxable periods of any
such corporation ending on or before December 31, 1998; (ii) with respect to
taxable periods beginning before December 31, 1998 and ending after December 31,
1998, (A) Taxes imposed on the Target Companies which are allocable, pursuant to
Section 5.12(d), to the portion of such period ending on December 31, 1998, and
(B) Taxes imposed on the Target Companies by reason of any such corporation's
distributive share of income or loss from, or otherwise in respect of, any
partnership in which the corporation was a member on or prior to the Closing
Date that are allocable, pursuant to Section 5.12(d), to the portion of such
period ending on December 31, 1998, (iii) except as provided in Section 5.12(e)
Taxes imposed on the Target Companies by reason of any of them being a member of
any affiliated, consolidated, unitary, or combined group for a taxable period
ending on or before the Closing Date or as a transferee or successor under any
tax allocation, sharing or assumption agreement with respect to such period;
(iv) Taxes imposed on Buyer or the Target Companies as a result of any breach of
warranty or misrepresentation under Section 3.14, provided that, for purposes of
this Section 5.12(c)(iv) only, any inaccuracy in or breach of a representation
or warranty of the Sellers under Section 3.14 shall be determined without
reference to any materiality qualifier that may be set forth therein; and (v)
Taxes imposed on Sellers under Section 5.12(v) or 5.15, or as to which Sellers
have an obligation to indemnify Buyer or the Target Companies under Section 5.17
as a result of the purchase or transfer transactions contemplated by Section
5.17.
(d) In the case of Taxes that are payable with respect to a taxable
period that begins before December 31, 1998 and ends after December 31, 1998,
the portion of any such Tax that is allocable to the portion of the period
ending on December 31, 1998:
(i) in the case of Taxes that are either (A) based upon or
related to income or receipts or (B) imposed in connection with any
sale or other transfer or assignment of property (real or personal,
tangible or intangible) (other than pursuant to the Reorganization),
deemed equal to the amount that would be payable if the taxable year
ended on December 31, 1998 (except that, solely for purposes of
determining the marginal Tax rate applicable to income or receipts
49
<PAGE> 55
during such period in a jurisdiction in which such Tax rate depends
upon the amount or level of income or receipts, annualized income or
receipts may be taken into account if appropriate for an equitable
sharing of such Taxes); and
(ii) in the case of Taxes not described in subparagraph (i) that
are imposed on a periodic basis and measured by the amount, value or
level of any item, deemed to be the amount of such Taxes for the entire
period (or, in the case of such Taxes determined on an arrears basis,
the amount of such Taxes for the immediately preceding period)
multiplied by a fraction the numerator of which is the number of
calendar days in the period ending on December 31, 1998 and the
denominator of which is the number of calendar days in the entire
period.
For purposes of this determination, the Taxes attributable to any of the Target
Companies by reason of such corporation's distributive share of income, gain, or
loss from, or otherwise in respect of, any partnership in which the corporation
is a member on the Closing Date shall be determined as if such partnership's
taxable year ended on December 31, 1998.
(e) (i) Notwithstanding Sections 5.12(i) and 5.12(n), United Life
and UC may, prior to the Closing, make payments of federal income Taxes and
combined state or local Taxes that are owed to PLAC and PennCorp, respectively,
for their 1998 or earlier taxable years. In the case of United Life, such
payments shall be made under that certain Consolidated Federal Income Tax
Liability Allocation Agreement between PLAC and United Companies Life Insurance
Company, dated as of July 24, 1996 (the "United Tax Sharing Agreement) with
respect to such Tax liabilities, in amounts not to exceed its accrual of Taxes
as shown in its 1998 Annual Statement. In the case of UC, UC may pay PennCorp
the amount of $447,773, which represents UC's cumulative federal income Tax
liability to PennCorp as shown on UC's December 31, 1998 financial statements.
Notwithstanding Sections 5.12(i), 5.12(n) and 5.15, United Life shall make
payments of estimated federal income Tax to PLAC for the period January 1, 1999
through the Closing Date in accordance with the terms of the first three
sentences of section 2 of the United Tax Sharing Agreement; provided, however,
that the calculation of such Taxes in this Section 5.12(e)(i) shall not reflect
any Tax liability of United Life with respect to the purchase or transfer
transactions described in Section 5.17. In addition, notwithstanding Sections
5.12(i), 5.12(n), and 5.15, UC shall make payments of estimated federal income
Tax to PennCorp for the period January 1, 1999 to the Closing Date equal to UC's
estimated Tax liability for such period, calculated on a separate company basis.
If, with respect to either United Life or UC, the aggregate amount of such
estimated Taxes paid by such company for such period is in excess of its actual
Tax liability for such period (calculated on a separate company basis), then
Sellers shall refund such excess to such company, together with interest from
the date of payment of such excess to the date of refund at an annual rate of
4.5 percent. If the aggregate amount of such estimated Taxes paid by such
company for such period is less than its actual Tax liability for such period
(calculated on a separate company basis), then such company or Buyer shall pay
the difference to Sellers, together with interest from the date of payment of
such estimated Taxes to the date of payment of such difference at an annual rate
of 4.5 percent. In
50
<PAGE> 56
addition, United Life and UC shall make payments of estimated premium and state
and local income Taxes to Sellers or the applicable taxing authorities for the
period January 1, 1999 through the Closing Date, all in accordance with past
practices and applicable law. If, in respect of each such premium or state or
local income Tax paid to Sellers, the actual Tax liability of United Life or UC
for such period (calculated on a separate company basis) is more or less than
the aggregate amount of estimated Taxes paid, then Seller or Buyer (or United
Life or UC), as the case may be, shall make an adjusting payment to the other
party hereto consistent with the allocation of Taxes between Seller and Buyer
(and United Life and UC) under this Section 5.12, together with interest at an
annual rate of 4.5 percent.
(ii) Except as provided in clause (i), Buyer shall indemnify
and hold harmless Sellers and their affiliates from and against (A) all Taxes
for which the Target Companies may be liable for periods beginning after
December 31, 1998 (other than, except as described in clause (C), Taxes
attributable to any Section 338(h)(10) Election or the Reorganization (each as
hereinafter defined)), (B) all Taxes for periods beginning before December 31,
1998 and ending after December 31, 1998 to the extent Sellers or their
affiliates are not responsible for such Taxes under Section 5.12(d) and are not
indemnifying Buyer or the Target Companies under other provisions of this
Agreement, and (C) all costs and expenses (including reasonable attorneys' and
consultants' fees) attributable to any contest or dispute involving the
foregoing.
(f) After the Closing, each party entitled to indemnification for
Taxes hereunder (a "Tax Indemnitee") shall promptly notify the party obligated
to indemnify the Tax Indemnitee (the "Tax Indemnifying Party") in writing by
telecopier of any notice of a proposed assessment or claim in an audit or
administrative or judicial proceeding of Sellers, Buyer or the Target Companies
which, if determined adversely to the Tax Indemnitee would be grounds for
indemnification under this Section 5.12; provided, however, that a failure to
give such notice will not affect the Tax Indemnitee's rights to indemnification
under this Section 5.12 except that (i) if notice is not timely given, the Tax
Indemnifying Party shall not be liable for any legal or accounting costs
incurred before such notice is actually given, or any interest or similar charge
accruing between the time notice should have been given and the time notice is
actually given and (ii) the Tax Indemnifying Party shall not be liable for any
additional Taxes or other costs or expenses incurred as a result of a failure or
delay in giving such notice. After the Closing, Sellers shall promptly notify
Buyer in writing by telecopier of any notice of a proposed assessment or claim
in an audit or administrative or judicial proceeding concerning any pre-Closing
taxable period of any of the Target Companies.
(g) In the case of an audit or administrative or judicial
proceeding, the Tax Indemnifying Party shall have the right at its expense to
participate in and control the conduct of such audit or proceeding, but only to
the extent that such audit or proceeding relates solely to a potential
adjustment for which the Tax Indemnifying Party may have liability. The Tax
Indemnitee shall also have the right at its expense to participate in such audit
or proceeding, but the Tax Indemnitee shall have no right to control any portion
of such audit or proceeding permitted to be controlled by the Tax Indemnifying
Party under
51
<PAGE> 57
the immediately preceding sentence. If the Tax Indemnifying Party controls the
conduct of any such audit or proceeding, and the Tax Indemnifying Party and the
relevant taxing authority are thereafter willing to settle such audit or
proceeding for the payment by the Tax Indemnifying Party of a fixed amount of
Tax, but the Tax Indemnitee rejects such settlement, then the Tax Indemnifying
Party's liability under this section for Taxes with respect to such audit or
proceeding shall be limited to the aggregate amount of the proposed settlement.
If the Tax Indemnifying Party does not control the conduct of any such audit or
proceeding, the Tax Indemnitee may defend the same at the reasonable expense of
the Tax Indemnifying Party in such manner as it may deem appropriate, including,
but not limited to, settling such audit or proceeding with the consent of the
Tax Indemnifying Party, which consent shall not be unreasonably withheld. In the
event that issues relating to a potential adjustment for which the Tax
Indemnifying Party has acknowledged its liability are required to be dealt with
in the same proceeding as separate issues relating to a potential adjustment for
which the Tax Indemnitee would be liable, the Tax Indemnitee shall have the
right to control the entire audit or proceeding, but the Tax Indemnifying Party
shall have the right to participate in such proceeding; provided, however, that
the Tax Indemnitee shall not enter into any settlement with respect to such
proceeding (unless the issues to be settled relate solely to the Tax Indemnitee
and such settlement shall not adversely affect the Tax Indemnifying Party or any
affiliate of the Tax Indemnifying Party) without the prior written consent of
the Tax Indemnifying Party, not to be unreasonably withheld.
(h) Buyer and Sellers agree to cooperate, and Buyer agrees to cause
the Target Companies to cooperate, in the defense against or compromise of any
Tax claim in any audit or proceeding.
(i) Payment of any amounts due under this Section 5.12 in respect
of Taxes shall be made as follows:
(a) at least five Business Days before the due date of any Tax
Return required to be filed on which income is required to be reported
for a period ending after December 31, 1998 for which Buyer or Sellers
are responsible under Section 5.12(c), (d), or (e), without regard to
whether the Tax Return shows overall net income or loss for such
period;
(b) within five Business Days following an agreement between
Sellers and Buyer that another Tax indemnity amount under this
Agreement is payable; and
(c) within five Business Days before the due date for the payment
of any Tax pursuant to either an assessment of such Tax by a taxing
authority, or a "determination" as defined in Section 1313(a) of the
Code or any similar provision of state, local, or foreign law (a
"Determination").
52
<PAGE> 58
If liability under this Section 5.12 is in respect of costs or expenses other
than Taxes, payment by Sellers or Buyer of any amounts due under this Section
5.12 shall be made within twenty Business Days after the date when the party
required to make such payment has been notified by the party entitled to receive
such payment that such party has a liability for a determinable amount under
this Section 5.12 and is provided with calculations or other materials
supporting such liability.
(j) After the Closing, Sellers, on the one hand, and Buyer and the
Target Companies, on the other hand, will provide or cause to be provided to the
other parties such cooperation and information as any of them reasonably may
request of the others in filing any Tax Return, amended Tax Return or claim for
refund, determining a liability for Taxes or a right to a refund of Taxes, or
participating in or conducting any audit or other proceeding in respect of
Taxes. Such cooperation and information shall include providing copies of
relevant Tax Returns or portions thereof, together with accompanying schedules,
related work papers and documents relating to rulings or other determinations by
Tax authorities. Each party shall make its employees available, or cause
employees to be made available, to another party on a basis mutually convenient
to provide explanations of any documents or information provided hereunder. All
costs and expenses reasonably incurred by a party in responding to a request for
information or assistance shall be paid by the party requesting such information
or assistance.
(k) Each of the Sellers, Buyer, and the Target Companies shall
retain or cause to be retained all Tax Returns, schedules and work papers,
records and other documents in its possession relating to Tax matters of the
Target Companies for each taxable period first ending after the Closing Date and
for all prior taxable periods until the later of (i) the expiration of the
statute of limitations of the taxable periods to which such Tax Returns and
other documents relate, without regard to extensions except to the extent
notified by the other party in writing of such extensions for the respective Tax
periods, or (ii) six years following the date (without extension) for such Tax
Returns; provided, however, that Tax Returns, schedules, work papers, records
and other documents relating to the determination of the basis of any asset or
the Tax classification of any insurance policy, plan or contract shall be
retained for six years following the disposition of such asset or payment or
cancellation of such insurance policy, plan or contract, respectively; and
provided, further, that the Person in possession of such documents shall not
dispose of any such document without first notifying the other parties hereto
and providing them a reasonable period of time in which to assume possession of
such documents. Any information obtained under this Section 5.12(k) shall be
kept confidential except as may be otherwise necessary in connection with the
filing of Tax Returns or claims for refund or in conducting an audit or other
proceeding.
(l) Any stock transfer, stamp, recording, registration, or similar
Tax or fee that becomes payable in connection with the transactions contemplated
by this Agreement (other than in connection with the Reorganization) shall be
borne by Sellers. Sellers shall file such applications and documents as shall
permit any such Tax or fee to be assessed and paid on or prior to the Closing
Date in accordance with any available
53
<PAGE> 59
pre-sale filing procedure. Buyer shall execute and deliver all instruments and
certificates necessary to enable Sellers to comply with the foregoing.
(m) None of the Sellers, Buyer, or the Target Companies shall file
any Tax Return, or take a position with a Tax authority, that is inconsistent
with the Purchase Price allocation set forth in the letter agreement of even
date herewith among Buyer and the Sellers.
(n) This Agreement represents and subsumes any prior agreement or
arrangement between the Target Companies and Sellers relating to liability for
Taxes. Any agreement or arrangement between the Target Companies and any other
Person relating to liability for Taxes shall be or have been terminated on,
prior to, or as of the date hereof, and no payments shall be permitted or
required to be made thereunder by Buyer or the Target Companies, except as
provided in Section 5.12(e) after the date hereof for periods ending before, on,
or after the Closing.
(o) The obligations of each party to indemnify and hold harmless
the other party or its affiliates pursuant to this Section 5.12, and the
representations and warranties contained in Section 3.14, shall terminate at the
close of business on the 30th day following the expiration of the applicable
statute of limitations with respect to the Tax liabilities in question, giving
effect to any waiver, mitigation or extension thereof.
(p) From and after the date hereof, none of the Target Companies
shall, and Sellers shall not permit the Target Companies to, make or revoke or
cause or permit to be made or revoked, any Tax election, or adopt or change any
method of accounting, that would have effect for any taxable year ending after
December 31, 1998 without the prior written consent of Buyer, which consent
shall not be unreasonably withheld.
(q) Each of Buyer and Sellers shall be entitled to recover
professional fees and related costs that each may reasonably incur to enforce
the provisions of this Section 5.12.
(r) (i) Buyer or the Target Companies shall immediately pay or
cause to be paid to Seller any refund or credit of Taxes or similar Tax benefit
(including any interest or similar benefit received from or credited thereon by
the applicable Tax authority) received by Buyer or the Target Companies (or
their respective successors and assigns) after the Closing to the extent
attributable to Taxes for which Sellers have indemnified Buyer or the Target
Companies pursuant to this Section 5.12. Buyer will cooperate with Sellers in
obtaining such refund or credit, including through the filing of amended Tax
Returns or refund claims. Sellers will indemnify Buyer for any increased Taxes
incurred by Buyer or the Target Companies as a result of any disallowance of
such Tax benefit on audit or otherwise.
(ii) Sellers shall immediately pay or cause to be paid to Buyer
any refund or credit of Taxes or similar Tax benefit (including any interest or
similar
54
<PAGE> 60
benefit received from or credited thereon by the applicable Tax authority) after
the Closing to the extent attributable to Taxes for which Buyer has indemnified
Sellers pursuant to this Section 5.12. Sellers will cooperate with Buyer in
obtaining such refund or credit, including through the filing of amended Tax
Returns or refund claims. Buyer will indemnify Sellers for any increased Taxes
incurred by Sellers as a result of any disallowance of such Tax benefit on audit
or otherwise. In the event that no refund or credit is available under this
clause (ii) because of losses or credits (including carryovers) of Sellers or
their affiliates and Buyer or Target Companies is not allowed to retain such Tax
benefit for future use, Sellers shall immediately pay or cause to be paid to
Buyer the refund that would have been payable hereunder if such losses or
credits had not been available to Sellers or their affiliates.
(iii) Notwithstanding clause (ii) above, Sellers shall
immediately pay or cause to be paid to Buyer any Tax refund (or reduction in Tax
liability) resulting from a carryback of a post-closing Tax attribute of any of
the Target Companies into any consolidated, affiliated, combined, or unitary Tax
Return of Sellers, when such refund or reduction is realized by Sellers. Sellers
will cooperate with Buyer and the Target Companies in obtaining such refund or
reduction in Tax liability, including through the filing of amended Tax Returns
or refund claims. Buyer will indemnify Sellers for any increased Taxes incurred
by Sellers as a result of any disallowance of such post-closing Tax attribute on
audit or otherwise.
(s) Buyer and PennCorp shall join to make a timely and irrevocable
election under Section 338(h)(10) of the Code and similar elections under any
applicable state, local or foreign Tax laws (a "Section 338(h)(10) Election")
for CyberLink. At Buyer's sole option (the "Section 338(h)(10) Option"), each
Seller notified by Buyer on or before December 31, 1999 shall join with Buyer to
make a Section 338(h)(10) Election for any other Target Company sold to Buyer by
such Seller. Sellers, Buyer, and the Target Company shall report the purchase of
the shares of stock of the Target Company consistent with any Section 338(h)(10)
Election made with respect to that company and shall take no position contrary
thereto unless and to the extent required to do so pursuant to a Determination.
(t) Sellers, Buyer, and any Target Company as to which a Section
338(h)(10) Election has been made shall execute any and all documents,
statements, and other forms that are required to be submitted to any taxing
authority in connection with a Section 338(h)(10) Election (the "Section 338
Forms") no later than 15 days prior to the date such Section 338 Forms are
required to be filed. Sellers, Buyer, and the Target Company shall cause the
Section 338 Forms to be duly executed by an authorized person for Sellers,
Buyer, and the Target Company, in each case, and shall duly and timely file the
Section 338 Forms in accordance with applicable Tax laws and the terms of this
Agreement.
(u) Sellers and Buyer agree to use their best efforts, as soon as
practicable after the date hereof (in the case of CyberLink) or after the date a
Section 338(h)(10) Option is exercised (in the case of any other Target
Company), to enter into
55
<PAGE> 61
an agreement (the "Allocation Agreement"), to allocate the Purchase Price
allocable to the Purchased Shares of such Target Company and the liabilities of
such Target Company to the assets of the Target Company for all applicable Tax
purposes, including the computation of the Modified Aggregate Deemed Sale Price
(as defined under applicable Treasury Regulations and similar state or local tax
provisions) ("MADSP") for the assets of the Target Company. Buyer shall
initially prepare a statement setting forth a proposed computation and
allocation of MADSP (the "Computation") consistent with the provisions of
Article II hereof. Buyer shall submit the Computation to Sellers along with
copies of all workpapers, reports, opinions and other similar documents used to
prepare the Computation (the "Workpapers"), no later than 60 days after the date
hereof (in the case of CyberLink) and no later than 30 days after the date a
Section 338(h)(10) Option is exercised (in the case of any other Target
Company). If, within 30 days of Sellers' receipt of the Computation and the
Workpapers, Sellers shall not have objected in writing to such Computation, the
Computation shall become the Allocation Agreement. If Sellers object in writing
to the Computation within such 30 days, Buyer and Sellers shall negotiate in
good faith to resolve the Computation. If Buyer and Sellers shall not have
agreed to the Computation and adopted an Allocation Agreement within 30 days
after Sellers' objection, any disputed aspects of the Allocation Agreement shall
be resolved by an accounting or law firm mutually acceptable to Sellers and
Buyer (the "Neutral Auditors") as soon as practicable but in no event later than
30 days prior to the earlier of (i) the last date on which the Section 338 Forms
may be filed or (ii) the last date on which either Buyer or Sellers (whichever
is earlier) must file a Tax return relating to the transactions contemplated
hereby. The decision of the Neutral Auditors shall be final, and the costs,
expenses and fees of the Neutral Auditors shall be borne equally by Sellers and
Buyer. Sellers and Buyer shall not take a position before any taxing authority
or otherwise (including in any Tax Return) inconsistent with the Allocation
Agreement unless and to the extent required to do so pursuant to a
Determination.
(v) Sellers shall be responsible for, and shall indemnify and hold
Buyer and the Target Companies harmless from, any liability for Taxes resulting
from or attributable to any Section 338(h)(10) Election, including any Taxes
attributable to prior Tax elections made by or with respect to the Target
Companies. The provisions of this Section 5.12(v) shall apply regardless of
whether Sellers or Buyer is responsible for preparing and filing the Tax Return
reporting the state income Tax consequences of the Section 338(h)(10) Election
for CyberLink.
(w) Except as otherwise required by law, as occurs in the ordinary
course of business and consistent with past practice, or with the consent of the
other party to this Agreement which shall not be unreasonably withheld, (i)
Sellers covenant and agree that neither they nor their affiliates shall amend
any Tax Return, file any claim for refund, change any method of Tax accounting,
settle or compromise any federal, state, local, or foreign Tax liability
affecting the Target Companies, or make or change any Tax election with respect
to any Tax period that results in any material increased Tax liability of, or
material loss of Tax benefits by, Buyer or the Target Companies in respect of
any Tax period (or portion thereof beginning after December 31, 1998), and (ii)
Buyer
56
<PAGE> 62
covenants and agrees that neither it nor its affiliates shall amend any
Tax Return, file any claim for refund, change any method of Tax accounting,
settle or compromise any federal, state, local, or foreign Tax liability
affecting the Target Companies, or make or change any Tax election with respect
to any Tax period that results in any material increased Tax liability of, or
material loss of Tax benefits by, Sellers or the Target Companies in respect of
any Tax period (or portion thereof) ending on or before December 31, 1998.
(x) Sellers shall furnish to Buyer on or before the Closing Date a
certification of Sellers' non-foreign status as set forth in Section 1445 of the
Code and the Treasury Regulations thereunder.
(y) In the event of any dispute or disagreement between Sellers and
Buyer as to the interpretation of any provision of this Agreement relating to
Taxes (except Section 5.12(u) hereof), or the performance of related obligations
hereunder, the matter, upon written request of either party, shall be referred
to representatives of the parties for decision (the "Representatives"). The
Representatives shall promptly meet in a good faith effort to resolve the
dispute. If the Representatives do not agree upon a decision within 30 calendar
days after reference of the matter to them, Sellers and Buyer shall be free to
exercise the remedies available to them under Section 5.12(z) hereof.
(z) Any controversy, dispute or claim (a "Claim") arising out of or
relating in any way to the provisions of this Agreement related to Taxes that
cannot be resolved by negotiation pursuant to Section 5.12(y) hereof (except any
controversy or dispute arising under Section 5.12(u) hereof) shall be settled
exclusively by a binding arbitration conducted by Neutral Auditors in accordance
with this Section 5.12(z). (For this purpose, the Neutral Auditors may be a
professional firm different from the firm identified in a proceeding under
Section 5.12(u) or another proceeding under this Section 5.12(z).) Any party may
initiate the arbitration by written notice to the other. The fees and expenses
of the Neutral Auditors shall be shared equally by the parties and advanced by
them from time to time as required; provided, however, that at the conclusion of
the arbitration, the Neutral Auditors may award costs and expenses (including
the costs of the arbitration previously advanced and the fees and expenses of
attorneys, accountants and other experts) to the prevailing party. No
pre-arbitration discovery shall be permitted, except that the Neutral Auditors
shall have the power in their sole discretion, on application by either party,
to order pre-arbitration examination solely of those witnesses and documents
that the other party intends to introduce in its case-in-chief at the
arbitration hearing. The Neutral Auditors shall issue an award at the close of
the arbitration proceeding which shall dispose of all of the claims that are the
subject of the arbitration. The Neutral Auditors shall be empowered to (i) enter
equitable as well as legal relief, (ii) provide all temporary and/or provisional
remedies, and (iii) enter binding equitable orders. The Neutral Auditors may not
award punitive damages. The award rendered by the Neutral Auditors shall be
final and not subject to judicial review, and judgment thereon may be entered in
any court of competent jurisdiction.
57
<PAGE> 63
SECTION 5.13. Intercompany Accounts and Agreements.
(a) Except as set forth on Section 5.13(a) of the Disclosure
Schedule and subject to Section 5.15, Sellers shall, on or prior to the Closing
Date, settle all intercompany accounts and balances payable or receivable,
whether or not due, between the Target Companies, on the one hand, and Sellers
or any of their affiliates, on the other hand, such that, following such
settlement, the Target Companies shall have no obligation to Sellers under such
accounts or balances, or relating to the Marketing One Assets.
(b) Except as set forth on Section 5.13(b) of the Disclosure
Schedule, Sellers shall cause each Target Company to modify, on or prior to the
Closing Date, any contracts or agreements between such Target Company, on the
one hand, and Sellers or any of their affiliates, on the other hand, to the
extent necessary to exclude such Target Company therefrom.
SECTION 5.14. Intellectual Property. No later than the Closing Date,
Sellers will transfer, or cause to be transferred, to Buyer and/or the Target
Companies at no charge any and all interest of any kind that Sellers or any of
their respective Subsidiaries or affiliates holds in the items of software which
are used exclusively by the Target Companies as listed in Section 5.14 of the
Disclosure Schedule. Sellers will be solely liable for all costs associated with
obtaining any third-party consents of assignments related to such transfers.
SECTION 5.15. Pre-Closing Reorganization.
(a) Sellers shall cause the Target Companies to take all steps
necessary to transfer all of the issued and outstanding equity securities of
Marketing One Financial and its Subsidiaries (including CyberLink) to PennCorp
(such transactions referred to collectively as the "Reorganization") no later
than two days prior to the Closing, in a manner that does not preclude the
exercise by Buyer of the Section 338(h)(10) Option with respect to the
acquisition of the CyberLink Shares. Prior to the Closing, Sellers shall provide
evidence reasonably satisfactory in form and substance to Buyer that such
Reorganization has occurred and that no Target Company retains any liability
whatsoever relating to Marketing One Financial or any of its Subsidiaries. In
order to more fully carry out the intent of this Section 5.15, Sellers shall
ensure that Buyer is provided with reasonable access to the documentation
required to effectuate the Reorganization and shall consult with Buyer with
respect to the terms and conditions of the Reorganization and the documents
referred to therein. Prior to the consummation of the Reorganization, Sellers
shall, and shall cause the Target Companies to, (i) make any necessary or
appropriate filings with, and to obtain any required approvals of, governmental
authorities and (ii) obtain any required consents of third parties in each case
in connection with the foregoing transfer. Sellers shall indemnify, protect, and
hold harmless Buyer and the Target Companies from any Taxes attributable to or
resulting from the Reorganization.
(b) On or prior to Closing, Sellers shall cause United Life to
distribute to PLAC, as a dividend (the "American Amicable Dividend"), all of the
debentures of
58
<PAGE> 64
American Amicable Holdings Corp. which are held by United Life as of the date
hereof as set forth in Section 5.15(b) of the Disclosure Schedule.
(c) Simultaneously with the delivery of the 1998 Annual Statement
of United Life by Sellers pursuant to Section 5.7(b)(ii) hereof, Sellers shall
provide to Buyer an unaudited pro forma balance sheet of United Life based on
the 1998 Annual Statement which shall reflect the financial position (including
statutory capital and surplus, including AVR) of United Life as of December 31,
1998 on a pro forma basis, giving effect to the Reorganization and the American
Amicable Dividend as if the Reorganization and American Amicable Dividend had
occurred on December 31, 1998 (the "United Life Pro Forma Balance Sheet"). The
United Life Pro Forma Balance Sheet shall be acknowledged by Buyer within two
Business Days of receipt, which acknowledgement shall not be withheld, absent
mathematical inaccuracies. On or prior to the Closing Date, subject to the prior
approval of the insurance department of the State of Texas, United Life shall
pay a dividend (the "Pre-Closing Dividend") to PLAC equal to the amount by which
the statutory capital and surplus, including AVR, of United Life reflected on
the United Life Pro Forma Balance Sheet exceeds the Target Capital and Surplus.
Sellers agree that the amount of the Pre-Closing Dividend shall not exceed the
sum of (i) the difference between the net gain from operations reflected on line
31. of the 1998 Annual Statement of United Life over the net gain from
operations reflected on line 31. of the September 30, 1998 Quarterly Statement
of United Life for the nine month period ended September 30, 1998 (the "Fourth
Quarter Earnings"), plus (ii) the Litigation Reserves, plus (iii) $150,000.
SECTION 5.16. Confidentiality and Noncompetition.
(a) From the date hereof to the Closing, Sellers shall use their
commercially reasonable efforts to enforce their rights under all effective
agreements entered into between any Seller or Target Company, on the one hand,
and any proposed purchaser, on the other hand, with respect to the potential
acquisition of any Target Company or similar transaction (the "Bidder
Agreements"). Immediately following Closing, Sellers shall assign each of the
Bidder Agreements to Buyer.
(b) For a period of five years following the Closing Date, none of
Sellers or their respective Subsidiaries shall use any information about the
Target Companies' business reflected in the books and records of the Target
Companies (excluding information generally available to the public) for any
purpose other than as required by law or judicial process, or in any way,
directly or indirectly, detrimental to, or in competition with, Buyer and the
Target Companies. Each Seller agrees that under no circumstances will it take
any action intended (i) to specifically encourage or induce its employees,
agents, representatives or affiliates to interfere with Buyer's contractual or
business relationship with the policyholders of United Life or (ii) to result in
a pattern of replacement, rewriting, or "twisting" or "churning" of policies
issued by United Life, whether before or after the Closing, to any other
insurer.
59
<PAGE> 65
(c) For a period of three years following the Closing, Sellers
shall not, and shall not permit any of their affiliates to (i) utilize any
intellectual property owned by CyberLink as of the Closing Date, (ii) utilize
any knowledge with respect to CyberLink or its assets to develop any
intellectual property or software to compete with CyberLink, or (iii) without
Buyer's prior written consent, directly or indirectly, solicit or hire any of
the employees of CyberLink; provided, however, that nothing herein shall
prohibit either Seller or any of its subsidiaries from publishing a general
solicitation of employment in any newspaper, magazine, trade publication or
other medium.
(d) Sellers acknowledge that Buyer has informed them that the
covenants of Sellers set forth in Section 5.16 are an essential element of this
Agreement and that, but for the Agreement of Sellers to comply with these
covenants, Buyer represents to Sellers, that it would not have entered into this
Agreement. Sellers and Buyer acknowledge that any damage caused to Buyer or the
Target Companies by reason of the breach of any Seller of this Section 5.16
could not be adequately compensated for in monetary damages alone; therefore,
each party agrees that in addition to any other remedies, at law or otherwise,
Buyer shall be entitled, upon proper proof, to specific performance of this
Section 5.16 or an injunction to be issued by a court of competent jurisdiction
restraining and enjoining any violation of this Section 5.16.
(e) Transition Services. (i) Prior to the Closing, Sellers and
Buyer shall negotiate in good faith a Transition Services Agreement that will be
executed and delivered by Buyer and the appropriate Target Companies, on the one
hand, and an affiliate of PennCorp, on the other hand, at the Closing, such
agreement to include the terms set forth in Annex C hereto (the "Transition
Services Agreement"). Sellers and Buyer agree to cooperate in good faith prior
to Closing to determine which of the items set forth under the caption "Other
Services" in Annex C will be required by the Target Companies after the Closing
and the period of time for which such items will be provided. The cost of any
such item shall be in addition to the fees set forth in paragraph 8 of Annex C
and shall be based on the direct cost of such item to PennCorp or its relevant
affiliate plus a reasonable allocation of associated overhead. Buyer agrees, and
agrees to cause the relevant Target Companies to, and PennCorp agrees to cause
its relevant affiliate to, execute and deliver the Transition Services Agreement
at Closing.
(ii) Prior to Closing, Sellers and Buyer shall negotiate in
good faith a transition agreement pursuant to which the Target Companies shall
provide transition services to Marketing One for a reasonable period following
Closing as shall be determined by Marketing One. The fees payable under such
agreement shall be based on the direct cost of the relevant Target Companies to
provide such services plus a reasonable allocation of associated overhead. Buyer
agrees and agrees to cause the relevant Target Companies to, and PennCorp agrees
to cause Marketing One to, execute and deliver the aforementioned transition
agreement at Closing.
60
<PAGE> 66
SECTION 5.17. Purchase of Certain Residential Mortgages; BA Assets.
(a) At Closing, Sellers shall deliver to Buyer a schedule (the
"Preliminary Noncurrent Loan Schedule") setting forth a list, as of the last day
of the month immediately preceding the Closing Date or, if such month end shall
be within 15 days of the Closing Date, as of the last day of the next preceding
month, of each Residential Mortgage and each Nonresidential Mortgage held by
United Life, which schedule shall designate (i) each single family and each one
to four family residential mortgage, except for such mortgages which have an
amortization period different from the repayment period of such mortgage, held
by United Life on the Closing Date (the "Residential Mortgages") for which (A)
scheduled monthly payments of principal, interest and escrow were, as of the
date of the Preliminary Noncurrent Loan Schedule or at any time during the six
months period immediately preceding the Closing Date, past due for more than 59
days, (B) United Life did not have good and marketable title on the Closing
Date, (C) United Life or the servicer of United Life's residential mortgages
(which shall be evidenced to Buyer's reasonable satisfaction) did not have full
and complete Mortgage Files (as defined in paragraph (d) below) on the Closing
Date, properly endorsed, transferred and assigned to United Life; provided,
however, that with respect to each Residential Mortgage or Nonresidential
Mortgage, the absence of one or more items (or a portion thereof) specified by
the definition of "Mortgage Files" in paragraph (d) below, will not cause such
Residential Mortgage or Nonresidential Mortgage to be subject to this clause (C)
if the absence of such item or items (or portion thereof), in the aggregate,
would not materially affect the ability of United Life to transfer or sell such
Residential Mortgage or Nonresidential Mortgage on market terms and prices to a
third party purchaser that is in the business of purchasing residential
mortgages, or (D) United Life did not have a valid and enforceable first
mortgage (or deed of trust or deed to secured debt) lien on the Closing Date
(each of the foregoing, a "Noncurrent Residential Mortgage") and (ii) each loan
or mortgage held by United Life on the Closing Date and which is subject to the
United Companies Financial Corporation Agreements which is not a Residential
Mortgage (a "Nonresidential Mortgage") and specifying each such Nonresidential
Mortgage which falls into one of the categories specified in clause (i) above (a
"Noncurrent Nonresidential Mortgage," and together with the Noncurrent
Residential Mortgages, the "Noncurrent Loans"). The Preliminary Noncurrent Loan
Schedule will be accompanied by a certificate of a senior officer of United Life
certifying that the Preliminary Noncurrent Loan Schedule was prepared by United
Life based upon a review by United Life personnel of the loan files for each of
the Residential Mortgages and Nonresidential Mortgages. At Closing, Sellers
shall purchase each Noncurrent Loan identified on the Preliminary Noncurrent
Loan Schedule and each other Nonresidential Mortgage not retained by Buyer
pursuant to the immediately following sentence from United Life, without
recourse against United Life, for a cash purchase price equal to the statutory
book value of such Noncurrent Loan or Nonresidential Loan as reflected on the
Preliminary Noncurrent Loan Schedule, which shall be based on the books and
records of United Life on the date of the Preliminary Noncurrent Loan Schedule.
Upon receipt of the Preliminary Noncurrent Loan Schedule, Buyer shall review the
Nonresidential Mortgages listed thereon which are not Noncurrent Nonresidential
Mortgages and, after consultation with Sellers, shall designate any of such
Nonresidential Mortgages that Buyer elects for United Life to retain after
Closing. No later than 30 days after the
61
<PAGE> 67
Closing Date, Sellers shall, with the good faith cooperation of Buyer and the
Target Companies, prepare a list of each Residential Mortgage and Nonresidential
Mortgage held by United Life on the Closing Date, specifying each Noncurrent
Loan as of the Closing Date (the "Final Noncurrent Loan Schedule"). Within five
Business Days after delivery of the Final Noncurrent Loan Schedule to Buyer, (i)
Sellers shall purchase from United Life, without recourse to United Life, each
Noncurrent Loan reflected on the Final Noncurrent Loan Schedule and not
purchased from United Life on the Closing Date, for a cash purchase price equal
to the statutory book value of such Noncurrent Loan as reflected on the Final
Noncurrent Loan Schedule, which shall be based on the books and records of
United Life as of the date of such schedule and (ii) Buyer and Sellers shall
reconcile the statutory book value for each Residential Mortgage and
Nonresidential Mortgage purchased by Sellers from United Life on the Closing
Date pursuant to the Preliminary Noncurrent Loan Schedule against the statutory
book value of such Residential Mortgage and Nonresidential Mortgage reflected on
the Final Noncurrent Loan Schedule and shall settle any differing amounts by
cash payment to the party entitled to such payment based on such reconciliation.
In the event that Buyer discovers, within 90 days after the Closing Date, a loan
that was held by United Life on the Closing Date that should have been
designated as a Noncurrent Loan or a Nonresidential Mortgage on the Preliminary
Noncurrent Loan Schedule or the Final Noncurrent Loan Schedule but that was not
so designated, Buyer shall notify Sellers, who shall purchase such loan from
United Life, without recourse to United Life, at a cash purchase price equal to
the statutory book value of such loan on the date of such notice from Buyer. In
the event that Sellers, within 90 days after the Closing Date, are able to cure
a Noncurrent Residential Mortgage such that, on the date of such cure, such
Noncurrent Residential Mortgage would not have, on the Closing Date, met any of
the standards set out in clause (i) of the first sentence of this paragraph (a),
then Sellers shall notify Buyer, who shall cause United Life to purchase such
loan from Sellers, without recourse to Sellers, at a cash purchase price equal
to the statutory book value of such loan on the date of such notice from
Sellers. Sellers shall make available to Buyer, to the same extent that Sellers
shall have access thereto, access to all files to be reviewed by Sellers with
respect to, and to all personnel of any party involved with, the Residential
Mortgages and the Nonresidential Mortgages for purposes of this Section 5.17.
Buyer and Sellers agree that each of them shall treat all purchases from and
transfers by United Life of Residential Mortgages and Nonresidential Mortgages
under this Section 5.17 as purchases by Sellers, their affiliates or unrelated
third parties from United Life for all purposes (including Tax purposes). Buyer
and Sellers agree that, for purposes of this Section 5.17, the statutory book
value of each Residential Mortgage and Nonresidential Mortgage shall be equal to
the principal balance of such Residential Mortgage or Nonresidential Mortgage on
the date of determination, plus any interest thereon to the extent required to
be accrued on a financial statement prepared in accordance with SAP (without
giving effect to any reduction after the date hereof to interest accruals
reflected on the 1998 Annual Statement of United Life).
(b) In the event the United Companies Financial Corporation
Agreements have not been terminated prior to Closing, Buyer agrees that from and
after
62
<PAGE> 68
Closing, Buyer will, and will cause United Life to, cooperate with Sellers to
terminate such United Companies Financial Corporation Agreements and Buyer
further agrees that it will, and will cause United Life to, use their respective
best efforts to terminate the United Companies Financial Corporation Agreements
upon the Anniversary Date of the Master Loan Sale Agreement (as defined in such
agreement) included in the United Companies Financial Corporation Agreements.
Notwithstanding the foregoing, Buyer further agrees that it and its affiliates
(including United Life), if requested by Sellers, shall cooperate in good faith
with Sellers to allow the loans purchased by Sellers pursuant to paragraph (a)
above to continue to be subject to the Servicing Agreement included in the
United Companies Financial Corporation Agreements for so long as such agreement
stays in force from and after Closing. Sellers agree that, from and after
Closing, Sellers shall indemnify and hold harmless Buyer and its affiliates
(including United Life) from and against any Losses resulting from any claim or
action instituted against Buyer or any of its affiliates (including United Life)
by United Companies Financial Corporation or its affiliates with respect to the
United Companies Financial Corporation Agreements; provided, however, that
Sellers shall not be obligated to purchase any loans required to be purchased by
Buyer, United Life or any of their affiliates after the Closing Date pursuant to
the United Companies Financial Corporation Agreements or to indemnify Buyer or
any of its affiliates (including United Life) for any Losses attributable to any
such loans or, subject to paragraph (a) above or paragraph (c) below, any other
loans subject to this Section 5.17 held by United Life from and after the
Closing Date.
(c) In the event that the United Companies Financial Corporation
Agreements have not been terminated prior to Closing, (or if such agreements
have been terminated but United Life shall not have gained possession on the
Closing Date of the Mortgage Files relating to the Residential Mortgages and
Nonresidential Mortgages retained by United Life pursuant to paragraph (a) above
(the "Retained Mortgages")) a portion of the Purchase Price equal to the
statutory book value of the Retained Mortgages reflected on the Preliminary
Noncurrent Loan Schedule (the "Escrow Amount") shall be placed in escrow with an
escrow agent and pursuant to an escrow agreement (the "Escrow Agreement") which,
in each case, shall be mutually acceptable to Buyer and PennCorp; provided that
the terms of the Escrow Agreement shall provide that all interest and other
amounts earned during the term of such agreement shall be for the account of
PennCorp; and, provided, further, that the Escrow Agreement shall contain such
terms as are necessary and appropriate to effect the transactions contemplated
herein. With respect to the Retained Mortgages subject to the United Companies
Financial Corporation Agreements on the Closing Date, the parties hereto agree
as follows: (i) upon delivery to United Life of the Mortgage Files relating to
each Retained Mortgage, that portion of the Escrow Amount equal to the statutory
book value of such Retained Mortgage on the Closing Date shall be distributed to
Sellers; (ii) whether or not, after using its best efforts in accordance with
paragraph (b) above, United Life shall have terminated the United Companies
Financial Corporation Agreements on the Anniversary Date of the Master Loan Sale
Agreement included in such agreements, if United Life shall not have received
possession of the Mortgage Files for any Retained Mortgage on or before August
31, 1999, the portion of the Escrow Amount equal to the statutory book
63
<PAGE> 69
value of such Retained Mortgage on August 31, 1999 shall be distributed to
United Life and such Retained Mortgage shall be transferred by United Life to
Sellers; (iii) in the event Buyer shall have the right to cause Sellers to
purchase any Retained Mortgage during the 90 day period following Closing
pursuant to paragraph (a) above, that portion of the Escrow Amount equal to the
statutory book value of such Retained Mortgage on the date of Buyer's notice of
such purchase obligation shall be distributed to United Life and such Retained
Mortgage shall be transferred by United Life to Sellers; and (v) once each
Retained Mortgage has either been transferred to Sellers by United Life as
provided herein or vested in United Life by delivery of all Mortgage Files
relating to such Retained Mortgage to United Life, the Escrow Agreement shall
terminate and the remaining Escrow Amount shall be distributed to Sellers. Buyer
and Sellers further agree that, subject to the last sentence of paragraph (b)
above, from and after the date of this Agreement, all costs and expenses
incurred in connection with United Life's efforts to terminate the United
Companies Financial Corporation Agreements shall be borne by Sellers. In
consideration of the foregoing, Buyer agrees that Sellers shall control all
discussions and negotiations with respect to United Life's efforts to terminate
the United Companies Financial Corporation Agreements. Buyers and Sellers also
acknowledge and agree that, from and after the date of this Agreement, the
"Excess Service Fee" payable with respect to each Residential Mortgage and
Nonresidential Mortgage pursuant to the Servicing Agreement included in the
United Companies Financial Corporation Agreements shall be borne by the Person
that owns such mortgage at the time such fee is payable.
(d) For purposes of this Section 5.17, the following terms shall
have the following meanings:
(i) "Credit Files" means all of the following: surveys, original
appraisals, payment histories for at least the prior two calendar
years, primary mortgage guarantee insurance certificates (if required
for the applicable Residential Mortgage or Nonresidential Mortgage),
signed loan applications, disclosure statements, credit records (if
available), and hazard, flood and any other policies of insurance.
(ii) "Mortgage Files" means, with respect to each Residential
Mortgage and Nonresidential Mortgage, (i) the original note and any
riders thereto, duly executed by the mortgagor, or, if any original
note has been lost or destroyed, certified copies thereof, properly
endorsed either (a) "Pay to the order of _____________, without
recourse", or (b) in blank, (ii) the original recorded mortgage or, in
those instances where the public recording office retains the original,
a certified copy of the mortgage, duly executed by the mortgagor, (iii)
the original recorded assignment of mortgage or, in those instances
where the public recording office retains the original assignment of
mortgage, a certified copy of assignment of the mortgage, duly executed
by the appropriate party(ies) in order to perfect ownership thereof in
United Life, (iv) the original (or duplicate original) mortgagee title
insurance policy (or attorney certified title abstracts in those states
in which a mortgagee title insurance policy is not available from title
64
<PAGE> 70
insurance companies in the state for residential mortgages) (which must
insure a first priority mortgage loan), (v) all assumption,
modification, consolidation or extension agreements, if any, with
evidence of recording thereon, (vi) such other documents and records as
may be required under applicable state insurance investment code
requirements to classify such Residential Mortgage or Nonresidential
Mortgage as an admitted asset, (vii) the truth-in-lending disclosure
statement, the notice of rescission (if required by federal or state
law for the particular type of residential loan), the HUD-1 settlement
statement, and any and all documentation, disclosures and notices
required for compliance with any applicable federal and state consumer
credit laws and regulations, including without limitation, the Truth In
Lending Act (15 U.S.C. 1604 et. seq.) and Regulation Z (12 C.F.R. Part
226), (viii) the Credit Files and (ix) all guarantees of the loans, if
any, and the Servicing Documents.
(iii) "Servicing Documents" means, to the extent not already
included in the Credit File, all credit packages, escrow documents,
current escrow balances, and servicing and payment history for each
loan (for at least two prior calendar years), escrow history for each
loan, current loan balances, current escrow balances, current mailing
address of the mortgagor and taxpayer identification (or social
security) number for the mortgagor.
(e) PLAC shall have the option, at or prior to Closing, to purchase
from United Life, without recourse to United Life, those assets set forth in
Section 5.17(e) of the Disclosure Schedule, other than the United Companies
REMIC 90-1, (the "BA Assets") for a cash purchase price equal to the aggregate
statutory book value of the BA Assets on the books and records of United Life on
the date of such purchase, less $160,000.
(f) Without regard to whether the transactions described in this
Section 5.17 occur prior to, on, or after the Closing Date, Sellers shall be
solely responsible for the Taxes, if any, attributable to or incurred with
respect to the purchases and transfers of Residential Mortgages and
Nonresidential Mortgages required by this Section 5.17 and shall indemnify and
hold harmless United Life and Buyer from all liability for such Taxes. In
consideration of the foregoing, Buyer agrees that it shall cooperate in good
faith with Sellers, and that Sellers shall not be required to seek consent from
Buyer, with respect to any transactions or restructurings desired to be effected
by Sellers on or prior to Closing with respect to the Residential Mortgages and
Nonresidential Mortgages (including, without limitation, a sale by United Life
of all of the Residential Mortgages and Nonresidential Mortgages to an affiliate
of PennCorp or to an unaffiliated third party) regardless (subject to the
following sentence) of whether such transactions or restructurings are different
from the purchases by Sellers from United Life contemplated in this Section
5.17. Notwithstanding the foregoing sentence, (i) if any alternate transaction
or structure proposed by Sellers retains a provision requiring the purchase from
or sale to United Life of Residential Mortgages and/or Nonresidential Mortgages,
the standards contained in clauses (i) and (ii) of the first sentence of
paragraph (a) of this Section 5.17 shall apply to such purchase or sale, and
(ii) in no event
65
<PAGE> 71
shall any such alternate transaction or structure result in United Life not
receiving substantially the same overall economic benefit as United Life would
have received and/or retained if the transactions otherwise contemplated by this
Section 5.17 had been effected.
SECTION 5.18. Insurance. At and following Closing, Sellers shall, at
Buyer's sole cost and expense, use their commercially reasonable efforts to
arrange, if available, for the continuation of coverage for pre-closing matters
relating to the Target Companies under such of the insurance policies listed in
Section 3.18 of the Disclosure Schedule as shall be designated by Buyer.
ARTICLE VI
CLOSING CONDITIONS
SECTION 6.1. Conditions to the Obligations of Buyer under this
Agreement. The obligation of Buyer under this Agreement to consummate the
acquisition of the Shares and the Marketing One Assets (the "Acquisition") shall
be subject to the satisfaction, at or prior to the Closing, of the following
conditions:
(a) All authorizations, consents and approvals of third parties and
Governmental Authorities specified in Section 6.1(a) of the Disclosure Schedule
shall have been obtained and shall be in full force and effect;
(b) Any waiting period applicable to the consummation of the
Acquisition under the HSR Act shall have expired or been terminated;
(c) No injunction, restraining order or other ruling or order
issued by any Governmental Authority or other legal restraint or prohibition
preventing the consummation of the Acquisition shall be in effect;
(d) (i) Each of the obligations of Sellers required to be performed
by it at or prior to the Closing pursuant to this Agreement shall have been duly
performed and complied with in all material respects, (ii) the representations
and warranties of Sellers contained in Sections 3.4 and 3.7 shall be true and
correct as of the date of this Agreement and as of the Closing as though made at
and as of the Closing, (iii) all of Sellers' representations and warranties
contained in this Agreement other than in Sections 3.4 and 3.7 shall be true and
correct as of the date of this Agreement and as of the Closing as though made at
and as of the Closing (except as to any representation or warranty which
specifically relates to an earlier date) in each case without giving effect to
any materiality or Material Adverse Effect qualifications or materiality or
Material Adverse Effect exceptions; provided, however that the condition in this
clause (iii) shall be deemed satisfied if any inaccuracies in any such
representations and warranties would not, individually or in the aggregate, have
or reasonably be expected to have, a Material Adverse Effect, and (iv) Buyer
shall have received a certificate to the foregoing effect signed by a senior
officer of each Seller;
66
<PAGE> 72
(e) Buyer shall have received an opinion of Weil, Gotshal & Manges
LLP or Scott D. Silverman, Esq., General Counsel of PennCorp Financial Group,
Inc., in form reasonably acceptable to Buyer, with respect to matters customary
for transactions similar to the Acquisition; and
(f) Since December 31, 1998, no Material Adverse Effect shall have
occurred.
SECTION 6.2. Conditions to the Obligations of Seller under this
Agreement. The obligations of Sellers under this Agreement to consummate the
Acquisition shall be subject to the satisfaction, at or prior to the Closing, of
the following conditions:
(a) All authorizations, consents and approvals of third parties and
Governmental Authorities specified in Section 6.1(a) of the Disclosure Schedule
shall have been obtained and shall be in full force and effect;
(b) Any waiting period applicable to the consummation of the
Acquisition under the HSR Act shall have expired or been terminated;
(c) No injunction, restraining order or other ruling or order
issued by any Governmental Authority or other legal restraint or prohibition
preventing the consummation of the Acquisition shall be in effect;
(d) (i) Each of the obligations of Buyer required to be performed
by it at or prior to the Closing pursuant to the terms of this Agreement shall
have been duly performed and complied with in all material respects, (ii) all of
the representations and warranties of Buyer contained in this Agreement shall be
true and correct as of the date of this Agreement and as of the Closing Date as
though made at and as of the Closing Date (except as to any representation or
warranty which specifically relates to an earlier date) in each case without
giving effect to any materiality or Buyer Material Adverse Effect qualifications
or materiality or Buyer Material Adverse Effect exceptions; provided, however
that the condition in this clause (ii) shall be deemed satisfied if any
inaccuracies in any such representations and warranties would not, individually
or in the aggregate, have or reasonably be expected to have, a Buyer Material
Adverse Effect, and (iii) Sellers shall have received a certificate to the
foregoing effect signed by a senior officer of Buyer; and
(e) Sellers shall have received an opinion of Buyer's legal
counsel, in form reasonably acceptable to Sellers, with respect to matters
customary for transactions similar to the Acquisition.
67
<PAGE> 73
ARTICLE VII
CLOSING
SECTION 7.1. Closing. The closing of the Acquisition (the "Closing")
shall take place at the offices of Weil, Gotshal & Manges LLP, 767 Fifth Avenue,
New York, New York 10153, subject to the satisfaction or waiver of the
conditions set forth in Sections 6.1 and 6.2, as soon as practicable after the
date hereof and in any event not later than June 30, 1999, or at such other time
and place and on such other date as Buyer and Sellers shall agree (the "Closing
Date"). As a further condition to Closing, at the Closing:
(a) Sellers shall deliver or cause to be delivered to Buyer the
following:
(i) the certificate described in Section 6.1(d);
(ii) certificates representing all of the Shares in appropriate
form for transfer to Buyer, duly endorsed in blank or accompanied by
stock powers duly executed in blank;
(iii) resignations of the directors of each of the Target
Companies who are not Target Employees;
(iv) the opinion described in Section 6.1(e); and
(v) such other documentation as may reasonably be requested by
Buyer to evidence satisfaction of all conditions to Closing, including
without limitation any documentation reasonably necessary to effect the
transactions contemplated by the Asset Assignment Agreement.
(b) Buyer shall deliver or cause to be delivered to Sellers (i) the
certificate described in Section 6.2(d) and (ii) the opinion described in
Section 6.2(e).
(c) Buyer shall pay the Purchase Price to Sellers, by wire transfer
of immediately available funds.
ARTICLE VIII
SURVIVAL AND INDEMNIFICATION
SECTION 8.1. Survival of Representations, Warranties and Covenants.
(a) Except as set forth in paragraph (b) below, the
representations, warranties and pre-Closing covenants of Sellers and Buyer
contained in this Agreement shall survive until the expiration of twenty four
months from the Closing Date. Any claim for indemnification with respect to any
of such matters which is not asserted by notice given as herein provided within
the specified period of survival may not be pursued and is hereby irrevocably
waived after such time. Any claim for an Indemnifiable Loss asserted within such
period of survival as herein provided will be timely made for purposes hereof;
provided that any notice of claim relates to a particular
68
<PAGE> 74
item with respect to which an Indemnifiable Loss is asserted and does not
purport to assert a claim for Indemnifiable Losses that might arise in the
future with respect to matters not known at the date of delivery of such notice.
(b) Notwithstanding Section 8.1(a): (i) the representations and
warranties set forth in Section 3.13 shall survive until the expiration of the
applicable statute of limitations relating to the matters set forth therein;
(ii) the representations and warranties set forth in Section 3.4 shall survive
forever; (iii) the representations and warranties set forth in Section 3.19
shall survive until the expiration of four years from the Closing Date, (iv) the
representations and warranties set forth in Section 3.22(e) (the "Product Tax
Representations") shall survive until the expiration of four years from the
Closing Date; and (v) any claim relating to any liability arising from (A) past,
present, or future ownership of, or in any other way related to the activities
(including without limitation, the Reorganization) of Marketing One Financial or
its Subsidiaries, except for CyberLink and the Marketing One Assets, or any of
their respective current or former officers, directors, employees, agents or
representatives (collectively, a "Marketing One Liability"); provided, however,
that this clause (A) shall not (1) permit Buyer to pursue any claim relating to
any matter otherwise included in or contemplated by the representations and
warranties of Sellers in this Agreement or the Asset Assignment Agreement and
(2) shall not operate to extend the survival period of such representations and
warranties beyond the period set forth in this Agreement, and (B) any Litigation
or other matter disclosed, or required to be disclosed, in Section 3.10 of the
Disclosure Schedule to the extent such Litigation or other matter is pending, or
to the knowledge of Sellers, overtly threatened, as of the Closing Date
("Existing Litigation"), may be made at any time. Except as specifically
provided in this Article VIII, any claim with respect to Taxes is subject to the
provisions of Section 5.12.
(c) Unless a specified period is set forth in this Agreement (in
which event such specified period will control), the covenants in this Agreement
to be performed in whole or in part after the Closing will survive the Closing
and remain in effect indefinitely.
SECTION 8.2. Limitations on Liability.
(a) For purposes of this Agreement, (i) "Indemnity Payment" means
any amount of Indemnifiable Losses required to be paid pursuant to this
Agreement, (ii) "Indemnitee" means any Person entitled to indemnification under
this Agreement, (iii) "Indemnifying Party" means any Person required to provide
indemnification under this Agreement, (iv) "Indemnifiable Losses" means any and
all damages, losses, liabilities, obligations, costs and expenses, and any and
all claims, demands or suits (by any Person, including without limitation any
Governmental Authority), including without limitation the costs and expenses of
any and all actions, suits, proceedings, demands, assessments, judgments,
settlements and compromises relating thereto and including reasonable attorneys'
fees and expenses in connection therewith incurred by an Indemnitee and any
additional Taxes to the extent actually paid or actually applied to reduce an
otherwise realizable Tax loss or other Tax benefit by the Indemnitee as a result
69
<PAGE> 75
of its receipt or accrual of a payment for an Indemnifiable Loss, and (v) "Third
Party Claim" means any claim, action or proceeding made or brought by any Person
who or which is not a party to this Agreement or an affiliate of a party to this
Agreement.
(b) Notwithstanding any other provision hereof (except paragraph
(c) of this Section 8.2), (i) no Indemnitee will be entitled to indemnification
pursuant to Section 8.3 (except indemnification with respect to covenants to be
performed after the Closing) unless and until the aggregate amount of
Indemnifiable Losses under Section 8.3 exceeds $4,000,000, in which event the
Indemnitee will be entitled to indemnification only to the extent the amount of
Indemnifiable Losses exceeds such amount, and (ii) in no event will an
Indemnitee be entitled to indemnification pursuant to Section 8.3 (except
indemnification with respect to covenants to be performed after the Closing) for
aggregate Indemnifiable Losses in excess of the amount of the Purchase Price;
provided, that in no event shall the limitations set forth in clause (i) of this
Section 8.2(b) apply with respect to the Product Tax Representations; and
provided further, that in no event shall the limitations set forth in clauses
(i) and (ii) of this Section 8.2(b) apply with respect to any matter addressed
in Section 8.1(b)(v), or Section 5.12, or relating to matters set forth in
Sections 3.4 and 3.14.
(c) Buyer shall be entitled to indemnification for (i) all
Indemnifiable Losses to the extent relating to, resulting from, or arising out
of (A) a breach of a representation or warranty contained in Sections 3.9(e),
3.9(f), or 3.9(w) to the extent such representation and warranty relates to the
period from and after January 1, 1999 through the Closing Date or (B) a breach
of a covenant contained in Sections 5.1(b), 5.1(h) or 5.1(p), and (ii)
Indemnifiable Losses in excess of $200,000 to the extent relating to, resulting
from or arising out of a breach of a representation or warranty contained in
Sections 3.7 or 3.8 to the extent such representation and warranty relates to
the 1998 Annual Statement of United Life, the 1998 Unaudited UC Financial
Statements or paragraph (d) of Section 3.7 (the "Identified Statements");
provided that Buyer shall have notified Sellers of Buyer's claim for such
Indemnifiable Losses under clauses (i) or (ii) above on or before the 90th day
following the Closing Date; and, provided further, that such notice identifies a
particular item with respect to which an Indemnifiable Loss is asserted and does
not purport to assert a claim for Indemnifiable Losses that might arise in the
future with respect to matters not known at the date of delivery of such notice.
Any claim by Buyer pursuant to clause (ii) of the foregoing sentence shall, if
not resolved by good faith negotiations between Buyer and Sellers within 30 days
of delivery of notice of such claim to Sellers (during which time Buyer and
Sellers shall identify each matter in dispute), be submitted as promptly as
reasonably possible thereafter to a nationally recognized accounting firm
mutually agreed to by Buyer and Sellers (the "Third Party Accountants") whose
fees and expenses shall be borne equally by Buyer and Sellers. The Third Party
Accountants shall review each relevant Identified Statement, Buyer's objections
thereto, and all other information presented by Buyer or Sellers or requested by
such firm from Buyer and Sellers (which shall be limited to the matters
identified by Buyer and Sellers). Based on such review and limited only to
matters identified by Buyer or Sellers, the Third Party Accountants shall
prepare a restated Identified Statement (a
70
<PAGE> 76
"Dispute Resolution Statement") for each relevant Identified Statement, which
Dispute Resolution Statement(s) shall be of no force and effect for any purpose
other than this Section 8.2(c) and the contents of which shall not be disclosed
by Buyer, Sellers or the Third Party Accountants. The Indemnifiable Losses, if
any, to which Buyer is entitled under clause (ii) of the first sentence of this
Section 8.2(c) shall be based on, and shall be limited to, the amount of
Indemnifiable Losses resulting from the overall difference reflected in a
Dispute Resolution Statement, taken as a whole, as compared to the relevant
Identified Statement, taken as a whole.
SECTION 8.3. Indemnification.
(a) Subject to Sections 8.1 and 8.2, PennCorp will, with respect to
all matters contemplated by this Agreement, jointly and severally, and PLAC
will, with respect only to matters relating to itself and the United Life
Companies, severally and Marketing One Financial will, with respect only to
matters relating to itself, Marketing One, the Marketing One Assets and
CyberLink, severally indemnify, defend and hold harmless Buyer from and against
any and all Indemnifiable Losses to the extent relating to, resulting from or
arising out of:
(i) any breach of representation or warranty of Sellers under the
terms of this Agreement; provided, that for purposes of this Section
8.3(a)(i) only, any inaccuracy in or breach of a representation or
warranty of Sellers shall be determined without reference to any
materiality or Material Adverse Effect qualifier that may be set forth
therein; and provided further, that for purposes of this Section
8.3(a)(i) only, any inaccuracy in or breach of the Product Tax
Representations shall be determined without regard to any item set
forth in Section 3.22(e) of the Disclosure Schedule;
(ii) any breach or nonfulfillment of any agreement or covenant of
Sellers under the terms of this Agreement;
(iii) any Marketing One Liability;
(iv) any Existing Litigation, including any Existing Litigation
settled prior to Closing;
(v) any derivative lawsuits or lawsuits based upon violations of
federal and state securities laws against Sellers or its affiliates
(including the Target Companies) or their respective officers and
directors which are pending as of the date of this Agreement or which
may be brought after the date of this Agreement, whether or not Buyer
or the Target Companies (or any Person associated with the foregoing
who is entitled to indemnification) is named or joined as a party
thereto; provided, that Buyer shall not be entitled to indemnification
under this Section 8.3(a)(vi) for any Losses incurred by Buyer in
connection with such lawsuits that result from any actions of Buyer
that are independent from, and not in breach or violation of, any of
the transactions or
71
<PAGE> 77
other matters contemplated by this Agreement or any other documents
executed and delivered in connection with the transactions contemplated
by this Agreement; and
(vi) the Reorganization (whether such Losses relate to Taxes or
otherwise).
(b) Subject to Sections 8.1 and 8.2, Buyer agrees to indemnify,
defend and hold harmless Sellers from and against any and all Indemnifiable
Losses to the extent relating to, resulting from or arising out of:
(i) any breach of representation or warranty of Buyer under the
terms of this Agreement; provided, that for purposes of this Section
8.3(b)(i) only, any inaccuracy in or breach of a representation or
warranty of Buyer shall be determined without reference to any
materiality or Material Adverse Effect qualifier that may be set forth
therein; and
(ii) any breach or nonfulfillment of any agreement or covenant of
Buyer under the terms of this Agreement.
SECTION 8.4. Defense of Claims.
(a) If any Indemnitee receives notice of assertion or commencement
of any Third Party Claim against such Indemnitee with respect to which an
Indemnifying Party may be obligated to provide indemnification under this
Agreement, the Indemnitee will give such Indemnifying Party reasonably prompt
written notice thereof, but in any event not later than 30 calendar days after
receipt of such notice of such Third Party Claim. Such notice will describe the
Third Party Claim in reasonable detail, will include copies of all material
written evidence thereof and will indicate the estimated amount, if reasonably
practicable, of the Indemnifiable Loss that has been or may be sustained by the
Indemnitee. The Indemnifying Party will have the right to participate in or, by
giving written notice to the Indemnitee, to assume the defense of any Third
Party Claim at such Indemnifying Party's own expense and by such Indemnifying
Party's own counsel (reasonably satisfactory to the Indemnitee), and the
Indemnitee will cooperate in good faith in such defense.
(b) If, within 20 calendar days after giving notice of a Third
Party Claim to an Indemnifying Party pursuant to Section 8.4(a), an Indemnitee
receives written notice from the Indemnifying Party that the Indemnifying Party
has elected to assume the defense of such Third Party Claim as provided in the
last sentence of Section 8.4(a), the Indemnifying Party will not be liable for
any legal expenses subsequently incurred by the Indemnitee in connection with
the defense thereof; provided, however, that if the Indemnifying Party fails to
take reasonable steps necessary to defend diligently such Third Party Claim
within 20 calendar days after receiving written notice from the Indemnitee or if
the Indemnifying Party has not undertaken fully to indemnify the Indemnitee in
respect of all Indemnifiable Losses relating to the matter, the Indemnitee
72
<PAGE> 78
may assume its own defense, and the Indemnifying Party will be liable for all
reasonable costs or expenses paid or incurred in connection therewith. The
Indemnifying Party will not enter into any settlement of any Third Party Claim
without the prior written consent of the Indemnitee, which consent shall not be
unreasonably withheld if the Indemnified Party is fully released with respect to
such claim. If a firm offer is made to settle a Third Party Claim without
leading to liability or the creation of a financial or other obligation on the
part of the Indemnitee for which the Indemnitee is not entitled to
indemnification hereunder and the Indemnifying Party desires to accept and agree
to such offer, the Indemnifying Party will give written notice to the Indemnitee
to that effect. If the Indemnitee fails to consent to such firm offer within ten
calendar days after its receipt of such notice, the Indemnitee may continue to
contest or defend such Third Party Claim and, in such event, the maximum
liability of the Indemnifying Party as to such Third Party Claim will not exceed
the amount of such settlement offer, plus costs and expenses paid or incurred by
the Indemnitee through the end of such ten calendar day period.
(c) A failure to give timely notice or to include any specified
information in any notice as provided in Sections 8.4(a) or 8.4(b) will not
affect the rights or obligations of any party hereunder except and only to the
extent that, as a result of such failure, any party which was entitled to
receive such notice was deprived of its right to recover any payment under its
applicable insurance coverage or was otherwise damaged as a result of such
failure.
(d) The Indemnifying Party will have a period of 30 calendar days
within which to respond in writing to any claim by an Indemnitee on account of
an Indemnifiable Loss which does not result from a Third Party Claim (a "Direct
Claim"). If the Indemnifying Party does not so respond within such 30 calendar
day period, the Indemnifying Party will be deemed to have rejected such claim,
in which event the Indemnitee will be free to pursue such remedies as may be
available to the Indemnitee on the terms and subject to the provisions of this
Article VIII.
(e) If the amount of any Indemnifiable Loss, at any time subsequent
to the making of an Indemnity Payment, is reduced by recovery, settlement or
otherwise under or pursuant to any insurance coverage, or pursuant to any claim,
recovery, settlement or payment by or against any other Person, the amount of
such reduction, less any costs, expenses, premiums or Taxes incurred in
connection therewith will promptly be repaid by the Indemnitee to the
Indemnifying Party. Upon making any Indemnity Payment the Indemnifying Party
will, to the extent of such Indemnity Payment, be subrogated to all rights of
the Indemnitee against any third party that is not an affiliate of the
Indemnitee in respect of the Indemnifiable Loss to which the Indemnity Payment
related; provided, however, that (i) the Indemnifying Party shall then be in
compliance with its obligations under this Agreement in respect of such
Indemnifiable Loss and (ii) until the Indemnitee recovers full payment of its
Indemnifiable Loss, any and all claims of the Indemnifying Party against any
such third party on account of said Indemnity Payment will be subrogated and
subordinated in right of payment to the Indemnitee's rights against such third
party. Without limiting the generality or effect of any other provision hereof,
each such Indemnitee and Indemnifying Party will duly execute upon
73
<PAGE> 79
request all instruments reasonably necessary to evidence and perfect the
above-described subrogation and subordination rights.
(f) With respect to a Third Party Claim for which either or both
Sellers is the Indemnifying Party, Buyer shall, and shall cause each of its
affiliates and their respective directors, officers, partners, employees, agents
or representatives to, make available to Sellers and their affiliates and their
representatives all books and records of Buyer and its affiliates and their
respective directors, officers, partners, employees, agents or representatives
relating to such Third Party Claim and shall render to Sellers and their
affiliates and their representatives such assistance and access to records and
the representatives of Buyer and of its affiliates and their respective
directors, officers, partners, employees, agents or representatives as may be
reasonably requested, except that Buyer shall not be required to make available
any books, records, documents or other information that Buyer reasonably
determines to be confidential or subject to attorney-client privilege unless and
until Sellers shall have entered into such agreements as Buyer reasonably deems
to be necessary in light of all surrounding circumstances (including, without
limitation, Sellers' need for information in connection with the investigation
or defense of a Third Party Claim) to protect such confidentiality or privilege.
(g) Notwithstanding anything herein to the contrary, Sellers shall
control all Existing Litigation and shall make all necessary arrangements such
that the costs and expenses of the Existing Litigation are borne directly by the
Sellers. Buyer agrees that it shall, and shall cause the Target Companies to,
cooperate with Sellers in good faith in the defense or prosecution of all
Existing Litigation, including as provided in paragraph (f) above, and shall
execute all documents and otherwise participate as reasonably requested by
Sellers in all proceedings and settlements relating to Existing Litigation;
provided that Sellers shall not enter into any settlement of any Existing
Litigation (other than settlements for monetary payments only) without the prior
consent of Buyer, not to be unreasonably withheld. Sellers agree to provide
timely reports to Buyer with respect to any significant developments relating to
the Existing Litigation.
SECTION 8.5. Adjustment to Purchase Price. The parties hereto agree
that, to the extent possible under applicable law, any Indemnity Payment
hereunder shall be treated as an adjustment to the Purchase Price. The amount of
an Indemnified Loss shall be reduced by (or the Indemnitee shall pay to the
Indemnifying Party) any net Tax benefits actually realized, and actually used to
reduce otherwise payable Taxes, by the Indemnitee or its affiliates which are
attributable to the Indemnifiable Loss (including, without limitation, any net
Tax benefits arising from the payment or accrual of the Indemnified Loss or any
correlative offsetting Tax benefit realized in a taxable period or periods
subsequent to the period in which a deficiency for Taxes arises).
SECTION 8.6. Exclusive Remedy. The parties agree that, to the fullest
extent permitted by law, the sole and exclusive remedy of the parties after the
Closing with respect to any claim or cause of action asserted by any of them
relating to or arising from breaches of the representations, warranties or
covenants to be performed entirely on or
74
<PAGE> 80
prior to Closing of the other parties hereto contained in this Agreement or any
document, list, schedule, exhibit, certificate or other instrument furnished or
to be furnished by or on behalf of such other parties or any of their
representatives in connection with the transactions contemplated by this
Agreement shall be limited to the rights of the parties under, and shall be
subject to the terms and conditions of, this Article VIII.
ARTICLE IX
TERMINATION AND ABANDONMENT
SECTION 9.1. Termination. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned at any time prior to the
Closing:
(a) by mutual consent of PennCorp (on behalf of Sellers) and
Buyer;
(b) by PennCorp (on behalf of Sellers) or Buyer:
(i) if a Governmental Authority shall have issued an order,
decree or ruling or taken any other action (which order, decree or
ruling the parties hereto shall use their best efforts to lift), in
each case permanently restraining, enjoining or otherwise prohibiting
the transactions contemplated by this Agreement, and such order,
decree, ruling or other action shall have become final and
nonappealable;
(ii) if any Governmental Authority whose consent or approval
is required to consummate the transactions contemplated hereby shall
have informed Sellers or Buyer that such consent or approval will not
be granted; or
(iii) if the Closing shall not have occurred on or before
April 30, 1999; provided, however, that this Agreement shall
automatically extend for up to two consecutive 30-day periods
commencing on April 30, 1999 if any party has not secured the requisite
approvals from any Governmental Authority; and provided further, that
the right to terminate this Agreement shall not be available to any
party whose breach of this Agreement has been the cause of, or resulted
in, the failure of the Closing to occur on or before April 30 (or the
end of the second 30-day period, as applicable);
(c) by Buyer if (i) a material default or breach shall be made by
any Seller with respect to the due and timely performance of any of its
covenants or agreements contained herein, or (subject to the proviso set forth
below) in any of its representations or warranties contained in this Agreement,
if such default or breach has not been cured or waived within 30 days after
written notice to such Seller specifying, in reasonable detail, such claimed
material default or breach and demanding its cure or satisfaction; provided,
however, in no event shall Buyer be entitled to terminate this Agreement in the
event of a breach by a Seller of a representation or warranty unless the failure
of such representation or warranty to be true and complete would have a Material
75
<PAGE> 81
Adverse Effect; (ii) any condition set forth in Section 6.1 has become incapable
of fulfillment and Buyer has not waived such condition; (iii) any Seller or
Target Company applies for, consents to or acquiesces in the appointment of a
trustee, receiver or other custodian for the relevant Seller or Target Company
or a substantial part of the property of any Seller or Target Company, or makes
a general assignment of all its assets, rights and properties for the benefit of
creditors; or in the absence of such application, consent or acquiescence, a
trustee, receiver or other custodian is appointed for any Seller or any Target
Company or for a substantial part of the property of any Seller that is not
discharged or dismissed within 30 days; or any bankruptcy, reorganization, debt
arrangement or other proceeding under any bankruptcy or insolvency law, or any
dissolution or liquidation proceeding, is instituted by or against any Seller or
any Target Company and, if instituted against any Seller or Target Company, is
not dismissed within 30 days;
(d) by PennCorp (on behalf of Sellers) if (i) a material default or
breach shall be made by Buyer with respect to the due and timely performance of
any of its covenants or agreements contained herein, or in any of its
representations or warranties contained in the Agreement, if such default or
breach has not been cured or waived within 30 days after written notice to Buyer
specifying, in reasonable detail, such claimed material default or breach and
demanding its cure or satisfaction; provided, however, in no event shall
PennCorp be entitled to terminate this Agreement in the event of a breach by
Buyer of a representation or warranty unless the failure of such representation
or warranty to be true and complete would have a Buyer Material Adverse Effect;
(ii) any condition set forth in Section 6.2 has become incapable of fulfillment
and PennCorp has not waived such condition; or (iii) Buyer applies for, consents
to or acquiesces in the appointment of a trustee, receiver or other custodian or
a substantial part of the property of Buyer, or makes a general assignment of
all its assets, rights and properties for the benefit of creditors; or in the
absence of such application, consent or acquiescence, a trustee, receiver or
other custodian is appointed for Buyer or for a substantial part of the property
of Buyer that is not discharged or dismissed within 30 days; or any bankruptcy,
reorganization, debt arrangement or other proceeding under any bankruptcy or
insolvency law, or any dissolution or liquidation proceeding, is instituted by
or against Buyer and, if instituted against Buyer, is not dismissed within 30
days;
(e) by Buyer if Buyer shall not have entered into employment
agreements (conditioned on the closing of the transactions contemplated hereby)
with each of Messrs. Joel Kaplan, John McBride, John Jones and William Zale in
form reasonably satisfactory to Buyer provided such employment agreements shall
contain terms at least as favorable as those currently enjoyed by such
individuals; provided, however, that Buyer shall not be entitled to exercise the
right of termination set forth in this subparagraph (e) after the expiration of
ten Business Days after the date of this Agreement;
(f) by Buyer if the Fourth Quarter Earnings shall be greater than
$3,120,000; provided, however, that Buyer shall not be entitled to exercise the
right of termination set forth in this subparagraph (f) after the expiration of
two Business Days
76
<PAGE> 82
after the date on which the final 1998 Annual Statement of United Life shall be
delivered to Buyer pursuant to Section 5.7(b); or
(g) by PennCorp if PennCorp shall not have received the
unconditional approval of PennCorp's lenders with respect to this Agreement or
the transactions contemplated hereby; provided, however, that Penncorp shall not
be entitled to exercise the right of termination set forth in this subparagraph
(g) after the expiration of ten Business Days after the date of this Agreement.
SECTION 9.2. Procedure and Effect of Termination. In the event of
termination and abandonment of the transactions contemplated hereby pursuant to
Section 9.1, written notice thereof shall forthwith be given to the other
parties to this Agreement and this Agreement shall terminate and the
transactions contemplated hereby shall be abandoned, without further action by
any of the parties hereto. If this Agreement is terminated as provided herein:
(a) upon request therefor, each party will redeliver all documents,
work papers and other material of any other party relating to the transactions
contemplated hereby, whether obtained before or after the execution hereof, to
the party furnishing the same; and
(b) no party hereto shall have any liability or further obligation
to any other party to this Agreement resulting from such termination except (i)
that the provisions of this Section 9.2 and the second proviso of Section
9.1(b)(iii) shall remain in full force and effect and (ii) no party waives any
claim or right against a breaching party to the extent that such termination
results from the breach by a party hereto of any of its representations,
warranties, covenants or agreements set forth in this Agreement.
ARTICLE X
MISCELLANEOUS PROVISIONS
SECTION 10.1. Amendment and Modification. This Agreement may only be
amended, modified or supplemented by a written instrument signed by all the
parties hereto.
SECTION 10.2. Waiver of Compliance; Consents. Any failure of Buyer to
comply with any obligation, covenant, agreement or condition contained herein
may be waived in writing by Sellers, but such waiver or failure to insist upon
strict compliance with such obligation, covenant, agreement or condition shall
not operate as a waiver of, or estoppel with respect to, any other failure. Any
failure of Sellers to comply with any obligation, covenant, agreement or
condition contained herein may be waived in writing by Buyer, but such waiver or
failure to insist upon strict compliance with such obligation, covenant,
agreement or condition shall not operate as a waiver of, or estoppel with
respect to, any other failure.
77
<PAGE> 83
SECTION 10.3. Severability. If any term or other provision of this
Agreement is invalid, illegal, or incapable of being enforced by any law or
public policy, all other terms or provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal, or incapable of being enforced, the parties
hereto shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as possible in an acceptable
manner in order that the transactions contemplated hereby are consummated as
originally contemplated to the greatest extent possible.
SECTION 10.4. Expenses and Obligations. Each party shall be responsible
for paying all costs and expenses incurred by it in connection with the
consummation of the transactions contemplated by this Agreement.
SECTION 10.5. Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto and their permitted
successors and assigns, and nothing in this Agreement, express or implied, is
intended to confer upon any other Person any rights or remedies of any nature
whatsoever under or by reason of this Agreement; provided, however, that
affiliates of Sellers shall have the right to assert and recover with respect to
claims made in connection with Buyer's obligations under Sections 5.2 and 5.9
and Article VIII.
SECTION 10.6. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given upon the earlier of delivery
thereof if by hand or upon receipt if sent by mail (registered or certified,
postage prepaid, return receipt requested) or on the second next Business Day
after deposit if sent by a recognized overnight delivery service or upon
transmission if sent by telecopy or facsimile transmission (with electronic
acknowledgement of transmission confirmed) as follows:
(a) If to Buyer, to:
ING America Insurance Holdings, Inc.
5780 Powers Ferry Road N.W.
Atlanta, Georgia 30327-4390
Attention: Michael W. Cunningham
Facsimile No.: (770) 980-3303
78
<PAGE> 84
with a copy to:
ING America Insurance Holdings, Inc.
5780 Powers Ferry Road N.W.
Atlanta, Georgia 30327-4390
Attention: B. Scott Burton, Esq.
Facsimile No.: (770) 850-7660
and
Sutherland, Asbill & Brennan LLP
1275 Pennsylvania Avenue N.W.
Washington, D.C. 20004
Attention: David A. Massey, Esq.
Facsimile No.: (202) 637-3593
(b) If to Sellers, to:
PennCorp Financial Group, Inc.
c/o Southwestern Financial Services Corporation
717 North Harwood Street
Dallas, Texas 75201-6538
Attention: Scott D. Silverman
Facsimile No.: (214) 954-7906
with a copy to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attention: Jeremy W. Dickens
Facsimile No.: (212) 310-8007
SECTION 10.7. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without regard to
the conflicts-of-laws rules thereof.
SECTION 10.8. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement.
SECTION 10.9. Headings. The article and section headings contained in
this Agreement are solely for the purpose of reference, are not part of the
agreement of the parties and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 10.10. Entire Agreement. This Agreement, the Disclosure
Schedule, the Annexes hereto and the Confidentiality Agreement dated November
11, 1998 embody
79
<PAGE> 85
the entire agreement and understanding of the parties hereto in respect of the
subject matter contained herein or therein. There are no agreements,
representations, warranties or covenants other than those expressly set forth
herein or therein. This Agreement, the Disclosure Schedule and the Annexes
hereto supersede all prior agreements and understandings between the parties
(other than the Confidentiality Agreement referenced above) with respect to such
subject matter.
SECTION 10.11. Assignment. This Agreement shall not be assigned by
operation of law or otherwise; provided, however, that PennCorp may assign this
Agreement to any Person that acquires all or substantially all of the assets or
voting stock of PennCorp and Buyer may, after Closing, assign the Agreement to
an affiliate of Buyer; provided, however, that such assignment shall not relieve
Buyer of its obligations hereunder.
SECTION 10.12. Specific Performance. Subject to Section 8.6, the
parties hereto agree that irreparable damage would occur in the event any
provision of this Agreement was not performed in accordance with its terms and
that the parties shall be entitled to specific performance of the terms hereof
in addition to any other remedy available at law or in equity.
[The remainder of this page is intentionally left blank.]
80
<PAGE> 86
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be signed on its behalf by its duly authorized officers, all as of
the day and year first above written.
ING AMERICA INSURANCE HOLDINGS, INC.
By: /s/ MICHAEL W. CUNNINGHAM
------------------------------------------
Name: Michael W. Cunningham
----------------------------------------
Title: Executive V.P and Chief Financial Officer
-------------------------------------------
PENNCORP FINANCIAL GROUP, INC.
By: /s/ SCOTT D. SILVERMAN
-------------------------------------------
Scott D. Silverman
Executive Vice President, General Counsel
and Secretary
PACIFIC LIFE AND ACCIDENT INSURANCE COMPANY
By: /s/ SCOTT D. SILVERMAN
-------------------------------------------
Scott D. Silverman
Vice President and Assistant Secretary
MARKETING ONE FINANCIAL CORPORATION
By: /s/ SCOTT D. SILVERMAN
-------------------------------------------
Scott D. Silverman
Assistant Secretary
MARKETING ONE, INC.
By: /s/ SCOTT D. SILVERMAN
-------------------------------------------
Scott D. Silverman
Assistant Secretary
<PAGE> 1
PENNCORP FINANCIAL GROUP NEWS
- --------------------------------------------------------------------------------
Contact: Joseph Kist
Broadgate Consultants
212-232-2222
FOR IMMEDIATE RELEASE
PENNCORP COMPLETES SALE OF PROFESSIONAL INSURANCE TO
GE FINANCIAL ASSURANCE
-------------------------------------------------
New York, April 1, 1999 -- PennCorp Financial Group, Inc. (NYSE: PFG) announced
that it has closed the sale of its work-site business, Professional Insurance
Company to GE Financial Assurance Holdings, Inc., a unit of GE Capital. The
transaction price was $47.5 million and results in net cash proceeds of
approximately $40.5 million, after the settlement of intercompany obligations
and the payment of expenses relating to the transaction.
This sale is a key part of PennCorp's previously announced plan to
divest non-strategic assets and focus management's time and resources on its
core life operations in Dallas and Waco, Texas.
Keith Maib, President and Chief Executive Officer of PennCorp, stated,
"We are extremely pleased to complete the sale of Professional Insurance to GE
Financial Assurance ahead of our internal time schedule. The closing of this
transaction is an important milestone in meeting our ultimate objective of
reducing debt and transforming PennCorp into a more streamlined, focused
company. We expect to complete the sales of United Life and Annuity and the
Career Sales division, which are currently under contract for sale to ING
America Insurance Holdings, Inc. and Universal American Financial Corporation,
respectively, during the second quarter."
-more-
<PAGE> 2
Pursuant to the terms of the Company's Credit Agreement with its
lenders, $40.0 million of cash proceeds will be used to reduce principal and
terminate corresponding commitments under the senior bank facility, reducing the
total amount of outstanding principal to $394.0 million.
Tom Otte, President of GE Financial Assurance's Worksite Insurance
Group, stated, "The Professional Insurance Company provides GE Financial
Assurance with an additional platform to strengthen its competitive position in
the work-site marketing of insurance and other products."
PennCorp Financial Group, Inc. is an insurance holding company. Through
its subsidiaries, the Company underwrites and markets life insurance and
accident and sickness insurance to the middle market through the United States
and Canada.
Cautionary Statement for purposes of the Safe Harbor Provisions of the
Private Securities Litigation Reform Act of 1995: All statements in this press
release including words such as "anticipate," "believe," "plan," "estimate,"
"expect," "intend" and other similar expressions constitute forward-looking
statements under the Private Securities Litigation Reform Act of 1995. These
forward-looking statements are subject to known and unknown risks, uncertainties
and other factors contemplated by the forward-looking statements. Such factors
include, among other things: (1) general economic conditions and other factors,
including prevailing interest rate levels and stock market performance, which
may affect the ability of PennCorp to sell its products, the market value of
PennCorp's investments and the lapse rate and profitability of policies; (2)
PennCorp's ability to achieve anticipated levels of operational efficiencies and
cost-saving initiatives; (3) customer response to new products, distribution
channels and marketing initiatives; (4) mortality, morbidity and other factors
which may affect the profitability of PennCorp's insurance products; (5) changes
in the Federal income tax laws and regulations which may affect the relative tax
advantages of some of PennCorp's products; (6) increasing competition in the
sale of insurance and annuities; (7) regulatory changes or actions, including
those relating to regulation of insurance products and of insurance
-more-
<PAGE> 3
companies; (8) ratings assigned to PennCorp's insurance subsidiaries by
independent rating organizations such as A. M. Best Company ("A.M. Best"), which
the Company believes are particularly important to the sale of annuity and other
accumulation products; (9) PennCorp's ability to successfully complete its Year
2000 remediation efforts; (10) the ultimate realizable value of Businesses Held
for Sale; and (11) unanticipated litigation. There can be no assurance that
other factors not currently anticipated by management will not also materially
and adversely affect the Company.
# # #
