<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): DECEMBER 31, 1998
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
590 MADISON AVENUE
NEW YORK, NEW YORK 10022
(Former address of principal executive offices)
----------
<PAGE> 2
ITEM 5. OTHER EVENTS.
On December 31, 1998, PennCorp Financial Group, Inc. ("PFG") executed
a Purchase Agreement (the "PennUnion Purchase Agreement") dated as of December
31, 1998, among Universal American Financial Corp. ("UAFC"), PFG, Pacific Life
and Accident Insurance Company ("PLAC"), Pennsylvania Life Insurance Company,
Southwestern Financial Corporation, Constitution Life Insurance Company and
PennCorp Financial Services, Inc., pursuant to which UAFC has agreed to
purchase, subject to the conditions contained therein, (a) all of the
outstanding shares of common stock of the following direct or indirect
subsidiaries of PFG: PennCorp Financial, Inc., Pennsylvania Life Insurance
Company, Peninsular Life Insurance Company, PennCorp Life Insurance Company,
Constitution Life Insurance Company, Union Bankers Insurance Company and
Marquette National Life Insurance Company and (b) certain assets of PennCorp
Financial Services, Inc., for an aggregate purchase price, as subject to
adjustment as provided therein, of $136,000,000 in cash and $39,000,000
aggregate principal amount of 8% subordinated notes of UAFC.
Also on December 31, 1998, PFG's subsidiary, PLAC, executed a Stock
Purchase Agreement (the "PIC Purchase Agreement" and, together with the
PennUnion Purchase Agreement, the "Purchase Agreements") dated as of December
31, 1998, between GE Financial Assurance Holdings, Inc. ("GEFAH") and PLAC,
pursuant to which GEFAH agreed to purchase from PLAC all of the outstanding
shares of common stock of Professional Insurance Company, for an aggregate
purchase price, as subject to adjustment as provided therein, of $47,500,000 in
cash plus interest through the closing date. Pursuant to an Agreement dated as
of December 31, 1998, between GEFAH and PFG, PFG agreed to cause PLAC to
perform, or to perform itself, as appropriate, all obligations of PLAC under the
PIC Agreement and agreed to be jointly and severally liable for PLAC's
obligations thereunder.
In connection with the execution of the Purchase Agreements, on
December 31, 1998, the Credit Agreement dated as of March 12, 1997, as
previously amended, among PFG, 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 to, among other things, permit the
transactions contemplated by the PennUnion Purchase Agreement.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(c) Exhibits.
10.1 - 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.
10.2 - Stock Purchase Agreement dated as of December 31, 1998,
between GE Financial Assurance Holdings, Inc. and Pacific
Life and Accident Insurance Company.
2
<PAGE> 3
10.3 - Agreement dated as of December 31, 1998, between General
Electric Financial Assurance Holdings, Inc. and PennCorp
Financial Group, Inc.
10.4 - Amendment No. 5 dated as of December 31, 1998, 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.
99.1 - Press Release
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.
By: /s/ SCOTT D. SILVERMAN
----------------------------------
Scott D. Silverman
Executive Vice President and
Secretary
Date: January 11, 1999
4
<PAGE> 5
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<S> <C>
10.1 - 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.
10.2 - Stock Purchase Agreement dated as of December 31, 1998,
between GE Financial Assurance Holdings, Inc. and Pacific
Life and Accident Insurance Company.
10.3 - Agreement dated as of December 31, 1998, between General
Electric Financial Assurance Holdings, Inc. and PennCorp
Financial Group, Inc.
10.4 - Amendment No. 5 dated as of December 31, 1998, 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.
99.1 - Press Release
</TABLE>
<PAGE> 1
EXHIBIT 10.1
PURCHASE AGREEMENT
AMONG
UNIVERSAL AMERICAN FINANCIAL CORP.
PENNCORP FINANCIAL GROUP, INC.,
PACIFIC LIFE AND ACCIDENT INSURANCE COMPANY,
PENNSYLVANIA LIFE INSURANCE COMPANY,
SOUTHWESTERN FINANCIAL CORPORATION,
CONSTITUTION LIFE INSURANCE COMPANY
AND
PENNCORP FINANCIAL SERVICES, INC.
Dated December 31, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I DEFINITIONS........................................................................................ 2
SECTION 1.1 Definitions........................................................................................ 2
SECTION 1.2 Other Definitions.................................................................................. 7
SECTION 1.3 Reserves........................................................................................... 10
SECTION 1.4 Certain Interpretive Matters....................................................................... 10
ARTICLE II THE ACQUISITION.................................................................................... 10
SECTION 2.1 Consideration for the Shares and the PCFS Assets................................................... 10
SECTION 2.2 Closing Transactions............................................................................... 12
SECTION 2.3 Purchase Price Adjustment.......................................................................... 14
SECTION 2.4 Reserves Adjustment................................................................................ 16
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PFG, PLAC, SFC AND PCFS.......................................... 18
SECTION 3.1 Organization and Qualification..................................................................... 18
SECTION 3.2 Authorization...................................................................................... 19
SECTION 3.3 No Violation....................................................................................... 19
SECTION 3.4 Capitalization of the Companies.................................................................... 20
SECTION 3.5 PFI Subsidiaries and PCFS Assets................................................................... 21
SECTION 3.6 Consents and Approvals............................................................................. 22
SECTION 3.7 Financial Statements; Reserves..................................................................... 22
SECTION 3.8 Absence of Undisclosed Liabilities................................................................. 24
SECTION 3.9 Absence of Certain Changes......................................................................... 24
SECTION 3.10 Litigation......................................................................................... 25
SECTION 3.11 Property; Liens and Encumbrances................................................................... 25
SECTION 3.12 Certain Agreements................................................................................. 26
SECTION 3.13 Employee Benefit Plans............................................................................. 27
SECTION 3.14 Taxes.............................................................................................. 30
SECTION 3.15 Compliance with Applicable Law; Permits; Policies.................................................. 34
SECTION 3.16 Brokers Fees and Commissions....................................................................... 36
SECTION 3.17 Proprietary Rights; Year 2000 Compliance........................................................... 36
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 3.18 Insurance.......................................................................................... 37
SECTION 3.19 Environmental Matters.............................................................................. 37
SECTION 3.20 Books and Records.................................................................................. 38
SECTION 3.21 Bank Accounts...................................................................................... 38
SECTION 3.22 Insurance and Reinsurance.......................................................................... 38
SECTION 3.23 Labor Matters...................................................................................... 39
SECTION 3.24 Purchase for Investment............................................................................ 40
SECTION 3.25 Affiliate Transactions............................................................................. 40
SECTION 3.26 Bonuses............................................................................................ 40
SECTION 3.27 All Related Assets................................................................................. 40
SECTION 3.28 Litigation Arising Between Signing and Closing..................................................... 41
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER............................................................ 41
SECTION 4.1 Organization; Qualifications and Operations........................................................ 41
SECTION 4.2 Authorization...................................................................................... 41
SECTION 4.3 No Violation....................................................................................... 42
SECTION 4.4 Capitalization..................................................................................... 42
SECTION 4.5 Consents and Approvals............................................................................. 42
SECTION 4.6 Brokers' Fees and Commissions...................................................................... 43
SECTION 4.7 Purchase for Investment............................................................................ 43
SECTION 4.8 Financing.......................................................................................... 43
SECTION 4.9 SEC Reports........................................................................................ 44
SECTION 4.10 Absence of Undisclosed Liabilities................................................................. 44
SECTION 4.11 Absence of Certain Changes......................................................................... 44
SECTION 4.12 Compliance with Applicable Law; Permits; Licenses.................................................. 44
ARTICLE V COVENANTS.......................................................................................... 45
SECTION 5.1 Conduct of Business Prior to the Closing........................................................... 46
SECTION 5.2 Management of Companies............................................................................ 47
SECTION 5.3 Access to Information.............................................................................. 48
SECTION 5.4 HSR Act Filings.................................................................................... 49
SECTION 5.5 State Regulatory Approvals......................................................................... 49
SECTION 5.6 Pre-Closing Restructuring Transactions............................................................. 49
SECTION 5.7 Estimated Statement................................................................................ 50
SECTION 5.8 Transaction Bonuses................................................................................ 50
SECTION 5.9 Payments to Agents................................................................................. 50
SECTION 5.10 All Reasonable Efforts............................................................................. 51
SECTION 5.11 Public Announcements............................................................................... 51
SECTION 5.12 Disclosure Supplements............................................................................. 51
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 5.13 Employment and Employee Benefits................................................................... 52
SECTION 5.14 Nonsolicitation.................................................................................... 53
SECTION 5.15 Acquisition Proposals.............................................................................. 54
SECTION 5.16 Section 338(h)(10) Election, Allocation of Purchase Price under Sections 338 and 1060 and
Matters Relating to SWLIC.......................................................................... 54
SECTION 5.17 Tax Matters........................................................................................ 55
SECTION 5.18 Financial Matters; Proxy Statement................................................................. 57
SECTION 5.19 Peninsular Licenses................................................................................ 58
SECTION 5.20 PCFS Licenses...................................................................................... 58
SECTION 5.21 Change of Name..................................................................................... 58
SECTION 5.22 Litigation Arising Between Signing and Closing..................................................... 58
ARTICLE VI CLOSING CONDITIONS................................................................................. 59
SECTION 6.1 Conditions to the Obligations of Buyer under this Agreement........................................ 59
SECTION 6.2 Conditions to the Obligations of Sellers under this Agreement...................................... 61
ARTICLE VII CLOSING............................................................................................ 63
SECTION 7.1 Closing............................................................................................ 63
ARTICLE VIII SURVIVAL/INDEMNIFICATION........................................................................... 64
SECTION 8.1 Survival of Representations and Warranties; Indemnification Obligations............................ 64
SECTION 8.2 Obligation of Buyer to Indemnify................................................................... 67
SECTION 8.3 Notice and Opportunity to Defend................................................................... 67
SECTION 8.4 Limitations on Indemnification..................................................................... 68
SECTION 8.5 Set-off Rights..................................................................................... 68
SECTION 8.6 Adjustment to Purchase Price; Offsetting Tax Benefits.............................................. 69
SECTION 8.7 Exclusive Remedy................................................................................... 69
ARTICLE IX TERMINATION AND ABANDONMENT........................................................................ 69
SECTION 9.1 Termination........................................................................................ 69
SECTION 9.2 Expenses in the Event of Termination............................................................... 70
SECTION 9.3 Procedure and Effect of Termination................................................................ 71
SECTION 9.4 Mutual Agreement of Parties........................................................................ 71
SECTION 9.5 Confidentiality.................................................................................... 72
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE X MISCELLANEOUS PROVISIONS........................................................................... 72
SECTION 10.1 Post-Closing DI Reserves Information............................................................... 72
SECTION 10.2 Amendment and Modification......................................................................... 73
SECTION 10.3 Waiver of Compliance; Consents..................................................................... 73
SECTION 10.4 Validity........................................................................................... 73
SECTION 10.5 Expenses and Obligations........................................................................... 73
SECTION 10.6 Parties in Interest................................................................................ 73
SECTION 10.7 Notices............................................................................................ 73
SECTION 10.8 Governing Law...................................................................................... 75
SECTION 10.9 Counterparts....................................................................................... 75
SECTION 10.10 Headings........................................................................................... 75
SECTION 10.11 Entire Agreement................................................................................... 76
SECTION 10.12 Assignment......................................................................................... 76
ANNEX A Disclosure Schedule
ANNEX B Terms of the Acquisition Notes
ANNEX C Terms of Pledge and Security Agreement
ANNEX D Form of Voting Agreement
ANNEX E Pre-Closing Restructuring Transactions
ANNEX F Opinions of Counsel to Sellers
ANNEX G Opinions of Counsel to Buyer
EXHIBIT A Terms of AmeriLife Marketing/Equity Arrangement
EXHIBIT B Terms of Cologne Re Reinsurance Agreement
EXHIBIT C Terms of Sale or Reinsurance of Union Bankers Comprehensive Accident and Health Insurance
EXHIBIT D Terms of Raleigh Lease Agreement
EXHIBIT E Form of ConLife-Peninsular Reinsurance Agreement
EXHIBIT F Terms of PCFS Services Agreement
EXHIBIT G NOL Example
</TABLE>
<PAGE> 6
PURCHASE AGREEMENT
PURCHASE AGREEMENT (this "Agreement"), dated December 31, 1998, among
Universal American Financial Corp., a New York corporation ("Buyer"), and
PennCorp Financial Group, Inc., a Delaware corporation ("PFG"), Pacific Life and
Accident Insurance Company, a Texas corporation ("PLAC"), Pennsylvania Life
Insurance Company, a Pennsylvania corporation ("PennLife"), Southwestern
Financial Corporation, a Delaware corporation ("SFC"), Constitution Life
Insurance Company, a Texas corporation ("ConLife"), and PennCorp Financial
Services, Inc., a Delaware corporation ("PCFS"). PFG, PLAC, PennLife, SFC,
ConLife and PCFS are collectively referred to herein as the "Sellers."
RECITALS:
WHEREAS, PFG is the record and beneficial owner of all of the issued
and outstanding shares of common stock, par value $1.00 per share (the "PFI
Shares"), of PennCorp Financial, Inc., a Delaware corporation ("PFI");
WHEREAS, PLAC, a wholly owned Subsidiary of PFG, is the record and
beneficial owner of all of the issued and outstanding shares of common stock,
par value $100.00 per share (the "PennLife Shares"), of PennLife;
WHEREAS, PennLife is the record and beneficial owner of all of the
issued and outstanding shares of common stock, par value $2.25 per share (the
"Peninsular Shares"), of Peninsular Life Insurance Company, a North Carolina
corporation ("Peninsular");
WHEREAS, PennLife is the record and beneficial owner of all of the
issued and outstanding shares of common stock, no par value (the "PC-Canada
Common Shares"), of PennCorp Life Insurance Company, a Canadian corporation
("PC-Canada"), and all of the issued and outstanding preferred shares, no par
value (the "PC-Canada Preferred Shares" and, together with the PC-Canada Common
Shares, the "PC-Canada Shares"), of PC-Canada;
WHEREAS, SFC, a wholly owned Subsidiary of PFG, is the record and
beneficial owner of all of the issued and outstanding shares of common stock,
par value $60.00 per share (the "ConLife Shares"), of ConLife;
WHEREAS, ConLife is the record and beneficial owner of all of the
issued and outstanding shares of common stock, par value $2.00 per share (the
"Union Bankers Shares"), of Union Bankers Insurance Company, a Texas corporation
("Union Bankers");
WHEREAS, Union Bankers is the record and beneficial owner of all of
the issued and outstanding shares of common stock, par value $1.00 per share
(the
<PAGE> 7
"Marquette Shares"), of Marquette National Life Insurance Company, a Texas
corporation ("Marquette");
WHEREAS, PCFS is a wholly owned Subsidiary of PFG;
WHEREAS, PennLife and ConLife and their respective Subsidiaries are
engaged in the insurance business and PFI and its Subsidiaries are engaged in
the financial services business; and
WHEREAS, Buyer, acting through its Subsidiaries, is engaged in the
life and accident and health insurance business.
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements herein contained, the parties hereto
agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 Definitions. For purposes of this Agreement, the term:
(a) "affiliate" means, as to a specified Person, any other Person
that directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, the specified Person.
(b) "Allocation Schedule" means the Allocation Schedule relating to
the 338(h)(10) Election.
(c) "Annual Statement" means, with respect to a referenced Person,
the annual statement of such Person filed with or submitted to the insurance
regulatory authority in the jurisdiction in which such Person is domiciled on
forms prescribed or permitted by such authority.
(d) "Assumed Liabilities" means all obligations under the PCFS
Licenses and other contracts (if any) included as part of the PCFS Assets, to
the extent such obligations arise after the Closing Date.
(e) "AVR" means, with respect to any Person domiciled in the United
States, the Asset Valuation Reserve set forth in the balance sheet of such
Person in accordance with SAP.
(f) "Business Day" means any day that is not a Saturday, Sunday or
other day on which banking institutions in the city of New York, New York are
authorized or required by law or executive order to be closed.
<PAGE> 8
(g) "Chase Bank Facility" means the term loan facility and
revolving credit facility provided to Buyer upon the terms and subject to the
conditions of the Chase Commitment.
(h) "Closing Statement" means the statement prepared by PennLife
and ConLife calculating the capital and surplus (excluding AVR and IMR) of each
of the PennLife Companies and each of the ConLife Companies in accordance with
SAP as of the Closing Date (immediately prior to the Closing but after giving
effect to the Closing Transactions) using the same assumptions and methodologies
utilized in the preparation of such companies' December 31, 1998 Annual
Statements and the preparation of the Estimated Statement.
(i) "Code" means the Internal Revenue Code of 1986, as amended
(including any successor code), and the rules and regulations promulgated
thereunder.
(j) "Commission" means the Securities and Exchange Commission.
(k) "Companies" means the ConLife Companies, the PennLife Companies
and the PFI Companies.
(l) "ConLife Companies" means ConLife, Union Bankers and Marquette,
but shall not include SWLIC.
(m) "ConLife Employees" means (i) those employees of Services who
primarily render services to or on behalf of any or all of the ConLife Companies
as listed on Schedule 1.1(m) and (ii) all former employees of Services who,
during the term of their employment with Services, primarily rendered services
to or on behalf of any or all of the ConLife Companies and whose employment with
Services was terminated for any reason (including retirement) prior to the
Closing Date and who, as of the Closing Date, are not employed by PFG or any of
its affiliates (excluding any of the Companies).
(n) "ConLife Surplus Notes" mean (i) the Surplus Debenture, dated
December 14, 1995, in the original principal amount of $80 million, issued by
ConLife in favor of SFC or a wholly owned Subsidiary of SFC and (ii) the Surplus
Debenture dated January 1, 1996, in the original principal amount of $40
million, issued by ConLife in favor of SFC or a wholly owned Subsidiary of SFC,
each as amended from time to time to comply with requests or the requirements of
the Texas Department of Insurance.
(o) "Disclosure Schedule" means the Disclosure Schedule attached
hereto as Annex A.
(p) "Environmental Laws" means all applicable U.S. and Canadian
federal, state, provincial or local laws (including but not limited to
<PAGE> 9
federal and state common law), statutes, codes, rules or regulations relating to
the environment, natural resources, and pollution including, without limitation,
the Comprehensive Environmental Response, Compensation and Liability Act
(CERCLA), the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801 et
seq., as amended from time to time (HMTA), the Resource Conservation and
Recovery Act, 42 U.S.C. Section 6901 et seq., as amended from time to time
(RCRA), the Federal Water Pollution Control Act, 33 U.S.C. Section 1251 et seq.,
as amended from time to time (FWPCA), the Clean Air Act, 42 U.S.C. Section 7401
et seq., as amended from time to time (CAA), and/or the Toxic Substances Control
Act, 15 U.S.C. Section 2601 et seq., as amended from time to time (TSCA).
(q) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(r) Governmental Authority" means any nation or government, any
state or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
(s) "Hazardous Materials" means (i) any wastes, substances, or
materials which are defined as "hazardous material," "hazardous waste,"
"hazardous substance," "toxic material" or other similar designations in, or
otherwise subject to regulation under, any applicable Environmental Laws; (ii)
petroleum or petroleum byproducts; (iii) friable asbestos and/or any material
which contains friable asbestos; and (iv) electrical equipment containing
polychlorinated biphenyls (PCBs) in excess of 50 parts per million.
(t) "IMR" means, with respect to any Person domiciled in the
United States, the Interest Maintenance Reserve set forth on the balance sheet
of such Person in accordance with SAP.
(u) "Lincoln National Agreement" means the reinsurance agreement,
dated September 30, 1998, between PennLife and Lincoln National Reassurance
Company.
(v) "Material Adverse Effect" means a materially adverse effect on
the business, results of operations or financial condition of the PennLife
Companies, the PFI Companies and the PCFS Assets, taken as a whole, or the
ConLife Companies, taken as a whole, excluding the reserve deficiencies
specifically identified in the reports of the Reserves Consultants.
(w) "Nasdaq" means The Nasdaq Stock Market, Inc.
(x) "PennLife Companies" means PennLife, Peninsular and PC-
Canada.
<PAGE> 10
(y) "PennLife Employees" means (i) all employees of the PennLife
Companies and (ii) all former employees of the PennLife Companies whose
employment with the PennLife Companies was terminated for any reason (including
retirement) prior to the Closing Date and who, as of the Closing Date, are not
employed by PFG or any of its affiliates (excluding any of the Companies).
(z) "Person" means an individual, corporation, limited liability
company, partnership, joint venture, association, trust, unincorporated
organization or, as applicable, any other entity.
(aa) "PCFS Assets" means those assets of PCFS listed on Schedule
1.1(aa).
(ab) "PCFS Employees" means (i) those employees of PCFS who
primarily render services to or on behalf of any or all of the Companies as
listed on Schedule 1.1(ab) and any other employees of PCFS performing services
primarily for the Companies who are hired between the date hereof and the
Closing Date in accordance with Section 5.13(a) and (ii) all former employees of
PCFS who, during the term of their employment with PCFS, primarily rendered
services to or on behalf of any or all of the Companies and whose employment
with PCFS was terminated for any reason (including retirement) prior to the
Closing Date and who, as of the Closing Date, are not employed by PFG or any of
its affiliates (excluding any of the Companies).
(ac) "PFI Companies" means PFI and its wholly owned Subsidiaries.
(ad) "PFI Employees" means (i) all employees of the PFI Companies
and (ii) all former employees of the PFI Companies whose employment with the
PennLife Companies was terminated for any reason (including retirement) prior to
the Closing Date and who, as of the Closing Date, are not employed by PFG or any
of its affiliates (excluding any of the Companies).
(ae) "Phase III Taxes" means Taxes imposed under Section 815(f) of
the Code by reference to Section 815 as in effect prior to the enactment of the
Tax Reform Act of 1984.
(af) "Quarterly Statement" means, with respect to a referenced
Person, the quarterly statement of such Person submitted to the insurance
regulatory authority in the state in which such Person is domiciled on forms
prescribed or permitted by such authority.
(ag) "Release" means any emission, spill, seepage, leak, escape,
leaching, discharge, injection, pumping, pouring, emptying, dumping, disposal,
release, or threatened release of Hazardous Materials into the environment.
<PAGE> 11
(ah) "Reserves Consultants" means (i) with respect to the
disability income claims reserves of PennLife, Tillinghast, (ii) with respect to
the non-disability income claims reserves of PennLife, BAS Actuarial Services,
and (iii) with respect to all other reserves of PennLife (excluding life
insurance reserves), another independent actuarial firm of national reputation.
(ai) "SAP" means the statutory accounting practices required or
permitted by the National Association of Insurance Commissioners or the
insurance regulatory authority in the jurisdiction of domicile of the referenced
Person.
(aj) "Services" means Southwestern Financial Services Corporation,
a Delaware corporation and wholly owned Subsidiary of SFC.
(ak) "Settlement Actuary" means Tillinghast, excluding the St.
Louis office ("Tillinghast") or, if such firm is not available, such other
independent actuarial firm of national reputation selected by the mutual
agreement of Buyer and PFG or if Buyer and PFG cannot agree, a nationally
recognized actuarial firm chosen by Tillinghast.
(al) "Settlement Auditor" means PricewaterhouseCoopers or, if such
firm is not available, such other independent accounting firm of national
reputation selected by the mutual agreement of Buyer and PFG, or if Buyer and
PFG cannot agree, a nationally recognized accounting firm chosen by
PricewaterhouseCoopers.
(am) "Shares" means the PFI Shares, the PennLife Shares, the
Peninsular Shares, the PC-Canada Shares, the ConLife Shares and the Union
Bankers Shares, collectively.
(an) "Subsidiary" means, as to any Person, any other Person of
which at least a majority of the outstanding shares or other equity interests
having ordinary voting power for the election of directors or comparable
managers of such Person is owned, directly or indirectly, by the referenced
Person. For purposes of this Agreement, Buyer's Subsidiaries shall not include
any of the Companies, notwithstanding the consummation of any of the Closing
Transactions.
(ao) "SWLIC" means Southwestern Life Insurance Company, a Texas
corporation and wholly owned Subsidiary of ConLife.
(ap) "Taxes" means any and all federal, state, provincial, local,
<PAGE> 12
foreign and other taxes, levies, fees, imposts, duties, and similar governmental
charges (including any interest, fines, assessments, penalties or additions to
tax imposed in connection therewith or with respect thereto) including, without
limitation, taxes imposed on, or measured by, income, franchise, profits or
gross receipts, ad valorem, value added, capital gains, sales, goods and
services, use, real or personal property, capital stock, license, branch,
payroll, Phase III Taxes, estimated withholding, employment, social security (or
similar), unemployment, compensation, utility, severance, production, excise,
stamp, occupation, premium, windfall profits, transfer and gains taxes, and
customs duties.
(aq) "Tax Returns" means any report, return, declaration, claim for
refund, information report or return or statement required to be supplied to a
taxing authority in connection with Taxes, including any schedule or attachment
thereto or amendment thereof.
(ar) "Union Bankers Special Dividend" means the sum of the
Peninsular Purchase Price and the PC-Canada Purchase Price, or such lesser
amount necessary to keep the Union Bankers Target Capital Amount at the level
specified in Section 2.3(e) based on the Estimated Statement.
(as) "U.S. Insurance Companies" means ConLife, Union Bankers,
Marquette, PennLife and Peninsular, collectively.
(at) "WARN" means the Worker Adjustment and Retraining Notification
Act of 1988 and any similar state, local or Canadian "plant closing" or layoff
statute.
SECTION 1.2 Other Definitions. When used in this Agreement, the
following terms shall have the meanings ascribed to them in Sections noted
below:
<TABLE>
<CAPTION>
Term Defined in
- ---- ----------
<S> <C>
1998 SAP Financial Statements Section 5.18(a)
338(h)(10) Election Section 5.16
Accounts Section 3.21
Acquisition Note Purchase Price Section 2.1
Acquisition Notes Section 2.1
Actual Loss Experience Section 2.4(a)
Advest Section 4.6
Agent Compensation Section 3.15(e)
Aggregate Target Capital Amount Section 2.3(e)
Agreement Preamble
Asserted Liability Section 8.3(a)
Audited Financial Statements Section 5.18
Banks Section 3.21
Basket Amount Section 8.4(a)
</TABLE>
<PAGE> 13
<TABLE>
<S> <C>
Basket Exclusions Section 8.4(a)
Benefit Plans Section 3.13(a)
Bill of Sale, Assignment and Assumption Agreement Section 2.2
Buyer Preamble
Buyer Actuary Section 2.4(a)
Buyer Approvals Section 4.5
Buyer Common Stock Section 4.4
Buyer Indemnitees Section 8.1(b)
Buyer Material Adverse Effect Section 4.1
Buyer Parties Section 4.1
Buyer Plans Section 5.13(b)
Buyer Sub Section 2.2(i)
Capital Z Section 4.8
Cash Purchase Price Section 2.1
Chase Bank Section 4.8
Chase Commitment Section 4.8
Chase Securities Section 4.6
Claim Section 8.1(b)
Claims Notice Section 8.3(a)
Closing Section 7.1
Closing Date Section 7.1
Closing Transactions Section 2.2
Cologne Re Section 2.3(e)
Company Employees Section 5.13(a)
Confidentiality Agreement Section 9.4(a)
ConLife Preamble
ConLife Acquisition Note Purchase Price Section 2.1(b)
ConLife Cash Purchase Price Section 2.1(b)
ConLife Group Section 3.14(n)
ConLife Insurance Approvals Section 3.6
ConLife Purchase Price Section 2.1(b)
ConLife Shares Recitals
Deposit Section 3.15(i)
DOJ Section 3.6
ERISA Section 3.13(a)
ERISA Affiliate Section 3.13(e)
Estimated Statement Section 5.7
Financial Statements Section 3.7(d)
Fundamental Representations Section 8.1
GAAP Section 3.7(d)
HSR Act Section 3.6
Indemnifying Party Section 8.3(a)
Indemnitee Section 8.3(a)
</TABLE>
<PAGE> 14
<TABLE>
<S> <C>
Integon Section 6.1(g)
Investment Agreements Section 5.9(b)
Intellectual Property Section 3.17
IRS Section 1.1(k)
KPMG Section 5.18(a)
Leased Properties Section 3.11(b)
Liens Section 3.11(b)
Litigation Section 3.10
Losses Section 8.1(b)
Marquette Recitals
Marquette Shares Recitals
Material Contract Section 3.12(a)
MEC Section 3.14(x)
Multiemployer Plan Section 3.13(a)
New Employee Claims Section 5.22
New Litigation Section 5.22
NOLs Section 3.14(ac)
Offsetting Tax Benefit Section 8.6(b)
Owned Properties Section 3.11(b)
PBGC Section 3.13(e)
PC-Canada Recitals
PC-Canada Common Shares Recitals
PC-Canada Preferred Shares Recitals
PC-Canada Purchase Price Section 2.1(d)
PC-Canada Shares Recitals
PCFS Preamble
PCFS Licenses Section 5.20
PCFS Purchase Price Section 2.1(g)
Peninsular Recitals
Peninsular Purchase Price Section 2.1(c)
Peninsular Shares Recitals
PennLife Preamble
PennLife Acquisition Note Purchase Price Section 2.1(e)
PennLife Cash Purchase Price Section 2.1(e)
PennLife Insurance Approvals Section 3.6
PennLife Insurance Reserves Section 5.3(b)
PennLife Purchase Price Section 2.1(e)
PennLife Shares Recitals
PFG Preamble
PFG Group Section 3.14(n)
PFI Recitals
PFI Acquisition Note Purchase Price Section 2.1(f)
PFI Cash Purchase Price Section 2.1(f)
PFI Purchase Price Section 2.1(f)
PFI Shares Recitals
PFI Subsidiaries Section 3.5(a)
PLAC Preamble
</TABLE>
<PAGE> 15
<TABLE>
<S> <C>
PLAC Group Section 3.14(n)
Post-Closing Compensation Obligations Section 5.9(b)
Pre-Closing Restructuring Transactions Section 5.6
Pre-Sale Obligations Section 5.9(a)
Proxy Statement Section 5.18(c)
Purchase Price Section 2.1
Reinsurance Agreements Section 3.22(a)
Required Permits Section 3.15(b)
Review Letter Section 5.18(a)
SAP Financial Statements Section 3.7(a)
SEC Reports Section 4.9
Seller Refund Section 5.17(d)
Seller Net Refund Amount Section 5.17(d)
Sellers Preamble
Series C-1 Holders Section 4.2
SFC Preamble
Substituted Buyer Section 10.12
SWLIC Basis Adjustments Section 5.16(c)
SWLIC Valuation Opinion Section 5.16(c)
SWLIC Value Section 5.16(c)
Target Capital Amount Section 2.3(e)
Tax Representation Claim Section 8.1(a)
Technology Systems Section 3.17(b)
Transaction Bonus Section 3.26
UAFC Share Purchase Agreement Section 4.8
Unaudited Financial Statements Section 3.7(d)
Union Bankers Recitals
Union Bankers Acquisition Note Purchase Price Section 2.1(a)
Union Bankers Cash Purchase Price Section 2.1(a)
Union Bankers Purchase Price Section 2.1(a)
Union Bankers Shares Recitals
</TABLE>
SECTION 1.3 Reserves. With respect to health claims reserves, references
herein to such reserves include loss adjustment expenses.
SECTION 1.4 Certain Interpretive Matters. Unless otherwise noted, all
references herein to "$" or dollar amounts are to lawful currency of the United
States of America. Unless the context otherwise requires, all references to
Sections, Articles, Annexes or Exhibits are to Sections, Articles, Annexes or
Exhibits to this Agreement.
<PAGE> 16
ARTICLE II
THE ACQUISITION
SECTION 2.1 Consideration for the Shares and the PCFS Assets. At the
Closing, upon the terms and subject to the conditions of this Agreement and in
reliance upon the representations, warranties and agreements contained herein,
Sellers shall sell to Buyer, and Buyer shall purchase or cause to be purchased
from Sellers, in the manner described in Section 2.2, all of the Shares and the
PCFS Assets for an aggregate purchase price of $136,000,000 in cash (the "Cash
Purchase Price") and 8.0% subordinated notes (the "Acquisition Notes") issued by
Buyer in the aggregate original principal amount of $39,000,000, containing the
material terms set forth on Annex B and otherwise in form and substance mutually
satisfactory to Buyer and Sellers, subject to adjustment as provided in Sections
2.3 and 2.4, allocable as set forth below, and subject to Section 5.19:
(a) for the Union Bankers Shares, $18,748,000 in cash (the "Union
Bankers Cash Purchase Price") and $7,052,000 principal amount of Acquisition
Notes (the "Union Bankers Acquisition Note Purchase Price" and, together with
the Union Bankers Cash Purchase Price, the "Union Bankers Purchase Price");
(b) for the ConLife Shares, $6,250,000 in cash (the "ConLife Cash
Purchase Price") and $2,350,000 principal amount of Acquisition Notes (the
"ConLife Acquisition Note Purchase Price" and, together with the ConLife Cash
Purchase Price, the "ConLife Purchase Price");
(c) for the Peninsular Shares, $13,300,000 in cash (the "Peninsular
Purchase Price");
(d) for the PC-Canada Shares, $18,000,000 in cash (the "PC-Canada
Purchase Price");
(e) for the PennLife Shares, $73,542,000 in cash (the "PennLife Cash
Purchase Price") and $27,658,000 principal amount of Acquisition Notes (the
"PennLife Acquisition Note Purchase Price" and, together with the PennLife Cash
Purchase Price, the "PennLife Purchase Price");
(f) for the PFI Shares, $5,160,000 in cash (the "PFI Cash Purchase
Price") and $1,940,000 principal amount of Acquisition Notes (the "PFI
Acquisition Note Purchase Price" and, together with the PFI Cash Purchase Price,
the "PFI Purchase Price"); and
(g) for the PCFS Assets, $1.0 million in cash (the "PCFS Purchase
Price").
<PAGE> 17
The Union Bankers Acquisition Note Purchase Price, the ConLife
Acquisition Note Purchase Price, the PennLife Acquisition Note Purchase Price
and the PFI Acquisition Note Purchase Price are collectively referred to as the
"Acquisition Note Purchase Price," and the Cash Purchase Price and the
Acquisition Note Purchase Price, as adjusted pursuant to Sections 2.3 and 2.4,
are collectively referred to as the "Purchase Price."
SECTION 2.2 Closing Transactions. Subject to Section 5.19, at and
simultaneously with the Closing, on the terms and subject to the conditions of
this Agreement, the parties shall cause the following transactions (the "Closing
Transactions") to occur in the order set forth below:
(a) Union Bankers shall distribute to ConLife the Union Bankers
Special Dividend;
(b) in consideration for the Peninsular Purchase Price, PennLife shall
sell, assign, transfer and convey to Buyer, and Buyer shall purchase and acquire
from PennLife, the Peninsular Shares, free and clear of any Liens, other than
those which may be created by Buyer;
(c) (i) in consideration for payment by PLAC of an amount equal to the
PC-Canada Purchase Price, PennLife shall sell, assign, transfer and convey to
PLAC, and PLAC shall purchase and acquire from PennLife, the PC-Canada Shares,
free and clear of any Liens, and (ii) in consideration for the PC-Canada
Purchase Price, PLAC shall sell, assign, transfer and convey to Buyer or such
other entity as Buyer may designate, and Buyer or Buyer's designee shall
purchase and acquire from PLAC, the PC-Canada Shares, free and clear of any
Liens, other than those which may be created by Buyer;
(d) in consideration for the Union Bankers Purchase Price, ConLife
shall sell, assign, transfer and convey to Buyer, and Buyer shall purchase and
acquire from ConLife, the Union Bankers Shares, free and clear of any Liens,
other than those which may be created by Buyer, and in consideration for the
PennLife Purchase Price, PLAC shall sell, assign, transfer and convey to Buyer,
and Buyer shall purchase and acquire from PLAC, the PennLife Shares, free and
clear of any Liens, other than those which may be created by Buyer;
(e) in full repayment of ConLife's obligations under the ConLife
Surplus Notes after which, without further action, such Notes shall be canceled
and shall be null and void and ConLife shall have no further liability to SFC
with respect thereto, ConLife (i) shall distribute all of the issued and
outstanding capital stock of SWLIC to SFC and (ii) shall pay to SFC the Union
Bankers Acquisition Note Purchase Price and an amount in cash equal to the sum
of (x) the Union Bankers Cash Purchase Price and (y) the Union Bankers Special
Dividend and (iii) shall distribute and transfer to SFC any remaining capital
and
<PAGE> 18
surplus of ConLife in excess of $3.3 million;
(f) in consideration for the ConLife Purchase Price, SFC shall sell,
assign, transfer and convey to Buyer, and Buyer shall purchase and acquire from
SFC, the ConLife Shares, free and clear of any Liens, other than those which may
be created by Buyer;
(g) in consideration for the PFI Purchase Price, PFG shall sell,
assign, transfer and convey to Buyer, and Buyer shall purchase and acquire from
PFG, the PFI Shares, free and clear of any Liens, other than those which may be
created by Buyer; and
(h) in consideration for the PCFS Purchase Price, PCFS shall sell,
assign, transfer and convey to Buyer, and Buyer shall purchase and acquire from
PCFS, the PCFS Assets, free and clear of any Liens, other than those which may
be created by Buyer; and
(i) Buyer shall sell, assign, transfer and convey to American Exchange
Life Insurance Company, a Texas corporation, and/or such other subsidiary
of Buyer as Buyer may designate ("Buyer Sub"), all (or, at Buyer's option, a
portion) of the Shares and other assets acquired by Buyer under this Agreement
in exchange for (x) shares of Buyer Sub and (y) surplus notes of Buyer Sub with
an aggregate principal amount less than or equal to the sum of the Acquisition
Note Purchase Price attributable to the Shares sold to Buyer Sub and the amount
borrowed from Chase Bank and other financial institutions to finance the
acquisition contemplated hereby.
(j) On the Closing Date or, at the option of Buyer, on the day
following the Closing Date, Union Bankers shall distribute the Marquette Shares
to Buyer Sub.
If requested by Buyer, Sellers shall cooperate in good faith to
restructure the manner and order in which the Companies or their operations are
acquired and if Buyer designates a purchaser for the PC-Canada Shares as
described in Section 2.2(c) above, Sellers shall transfer the PC-Canada Shares
to Buyer's designee, provided that such restructuring or designation either (x)
does not result in additional cost to Sellers or additional indemnification
obligations of Sellers under Section 8.1 or (y) at Buyer's option, Buyer
unconditionally indemnifies Sellers with respect to any such additional costs
and waives any such additional indemnification obligations as referenced in (x)
above.
Upon each sale, assignment, transfer and conveyance of the respective
Shares described above, the relevant Seller shall deliver to Buyer, in
<PAGE> 19
the case of (b), (c), (d), (f) and (g) above, share certificates constituting
such Shares, duly endorsed in blank or accompanied by stock powers duly executed
in blank, in proper form for transfer.
Upon the sale, assignment, transfer and conveyance of the PCFS Assets
as described above, PCFS and Buyer will execute and deliver a bill of sale,
assignment and assumption agreement (the "Bill of Sale, Assignment and
Assumption Agreement") with respect to the sale by PCFS of the PCFS Assets and
the assumption by Buyer of the Assumed Liabilities. Subject to the
indemnification provided in Section 8.1(b)(xii), Buyer waives compliance with
any and all bulk sales laws in connection with the sale and purchase of the PCFS
Assets.
SECTION 2.3 Purchase Price Adjustment.
(a) As promptly as practicable (but in no event more than 90 days)
after the Closing Date, Buyer will cause PennLife and ConLife to prepare the
Closing Statement and will deliver it to PFG. The capital and surplus amounts
reflected in the Closing Statement shall be in sufficient detail to permit PFG
to verify the same. The Closing Statement to be delivered to PFG will be
accompanied by a certificate of Buyer's Chief Financial Officer certifying that
the Closing Statement has been prepared in accordance with SAP as of the Closing
Date using the same assumptions and methodologies utilized in the preparation of
the Estimated Statement. At the request of PFG, after the Closing Statement has
been prepared, Buyer will cause its personnel and independent auditors to (i)
provide to PFG and PFG's independent auditors (A) a reconciliation of the
differences between the Closing Statement and the Estimated Statement in
sufficient detail for PFG to reconcile such differences and (B) copies of
financial statements and such work papers and other documents relating to the
preparation of the Closing Statement as PFG or PFG's independent auditors may
reasonably request and (ii) cooperate with, and be reasonably available to, PFG
and PFG's independent auditors and provide such other information reasonably
requested by PFG or PFG's independent auditors concerning the Closing Statement
and any accounting, auditing and actuarial issues related thereto, in each case
in good faith and in a manner and at such times so as to enable PFG to complete
its review and analysis of the Closing Statement within the period specified in
paragraph (b) below.
(b) Within 20 Business Days after PFG's receipt of the Closing
Statement, PFG will provide Buyer with written notice indicating whether PFG
agrees or disagrees with the capital and surplus amounts (excluding AVR and IMR)
reflected in such statement. If PFG in such notice agrees with the capital and
surplus amounts (excluding the AVR and IMR) reflected in the Closing Statement
or if PFG fails to deliver to Buyer such written notice within such 20 Business
Day period, the Closing Statement shall be deemed final and binding upon the
parties. If PFG in such notice disagrees with the capital and surplus amounts
(excluding AVR and IMR) reflected in the Closing Statement, within ten
<PAGE> 20
Business Days after PFG delivers such notice to Buyer of its disagreement with
Buyer's calculation, PFG and Buyer will begin good faith negotiations to resolve
such disagreement.
(c) If PFG and Buyer are unable to resolve such disagreement in good
faith within ten Business Days after such negotiations begin, such disagreement
will be submitted to the Settlement Auditor for resolution. PFG and Buyer will
cooperate with the Settlement Auditor and will proceed in good faith to cause
the Settlement Auditor to resolve such disagreement within 30 days after such
disagreement is submitted to the Settlement Auditor. PFG and Buyer will each pay
one-half of the fees and expenses of the Settlement Auditor; provided, however,
that if the Settlement Auditor's written report indicates that PFG or Buyer was
the prevailing party in the dispute, the non-prevailing party shall pay 100% of
the fees and expenses of the Settlement Auditor.
(d) The Settlement Auditor, in its sole discretion, will determine (i)
the nature and extent of the participation by PFG, Buyer, and their respective
agents in connection with any disagreement submitted to the Settlement Auditor
for resolution, (ii) the nature and extent of information that PFG and Buyer may
submit to the Settlement Auditor for consideration in connection with such
resolution and (iii) the personnel of the Settlement Auditor who will review
such information and resolve such disagreement. The Settlement Auditor's
resolution of any such disagreement, with respect to dollar amounts, must fall
within the range of the disputed amounts stated by PFG and Buyer and will be
reflected in a written report which will be delivered promptly to, and will be
final and binding upon, PFG and Buyer. The Closing Statement will be adjusted
accordingly to reflect any such resolution and, as adjusted, shall be final and
binding upon the parties.
(e) Upon the earlier to occur of (i) the parties' agreement with
respect to the capital and surplus amounts reflected in the Closing Statement or
(ii) the delivery of the report of the Settlement Auditor as provided in Section
2.3(d) hereof with respect to a dispute relating to the Closing Statement: (A)
PFG will pay to Buyer the amount, if any, by which (x) in the case of the
PennLife Companies (excluding PC-Canada) or the ConLife Companies, the capital
and surplus (excluding AVR and IMR) reflected in the Closing Statement for such
Company is less than the Target Capital Amount (defined below) for such Company
and (y) in the case of PC-Canada, total shareholders equity (calculated in
accordance with Canadian generally accepted accounting principles) reflected in
the Closing Statement under the heading "PC-Canada Section 2.3(e)(A) Amount" is
less than the Target Capital Amount for PC-Canada; and (B) PFG will pay to Buyer
the amount, if any, by which the aggregate capital and surplus (for all PennLife
Companies, including PC-Canada, and all ConLife Companies, calculated in
accordance with SAP) of the PennLife Companies and the ConLife Companies, taken
as a whole, reflected in the Closing Statement is less than (x) the sum of $72.3
million plus the earnings of the PennLife Companies and the ConLife Companies
for the
<PAGE> 21
period commencing on January 1, 1999 and ending on the Closing Date, as
reflected in the Closing Statement (the "Aggregate Target Capital Amount") minus
(y) any amounts payable by PFG pursuant to clause (A) of this Section 2.3(e).
For purposes of this Section 2.3(e), "earnings" means operating earnings of the
Companies and specifically excludes (A) earnings from wholly owned Subsidiaries
that are not Companies and the earnings of the Companies otherwise includable in
another Company's earnings if duplicative or redundant, (B) earnings that do not
increase surplus, including, without limitation, the amortization of the ceding
commission of Cologne Life Reinsurance Company ("Cologne Re") at Union Bankers,
(C) tax payments or liabilities from wholly owned Subsidiaries (including the
Companies) and (D) earnings associated with the transactions contemplated or
required by this Agreement, including without limitation those set forth in
Annex E. Such payment will be made by wire transfer of immediately available
funds to such account as the party entitled to receive such payment specifies in
writing to the party required to make such payment. "Target Capital Amount"
means (i) $3.3 million, in respect of ConLife, (ii) $14.0 million, in respect of
Union Bankers (not including any amounts attributable to Marquette), (iii) $5.1
million, in respect of Marquette, (iv) $36.0 million, in respect of PennLife,
(v) $10.2 million, in respect of Peninsular (which amounts will be reflected in
the Forms A to be filed with the appropriate insurance regulatory authorities),
and (vi) Can.$21.946 million, in respect of PC-Canada. Sellers will use their
reasonable best efforts to cause any additional capital and surplus in the
Companies over and above the sum of their individual Target Capital Amounts (but
not greater than the Aggregate Target Capital Amount) to be contributed to
PennLife; provided, that for purposes only of this sentence, the Target Capital
Amount for PC-Canada will be deemed to be $500,000 or actual capital and surplus
in accordance with SAP, if greater.
(f) At the Closing, PFI will have $4.5 million in cash recorded on its
balance sheet.
(g) If Buyer does not request that Sellers recapture the Lincoln
National Agreement prior to the Closing, the Target Capital Amount for PennLife
and the Aggregate Target Capital Amount will be calculated without giving effect
to the surplus generated as a result of the Lincoln National Agreement through
the Closing Date.
SECTION 2.4 Reserves Adjustment.
(a) On the fifth anniversary of the Closing Date, Buyer will cause an
actuary of national reputation (the "Buyer Actuary") to compare (i) the
disability insurance claims reserves of PennLife as of the Closing Date, as set
forth in the Closing Statement (the "DI Reserves"), to (ii) actual loss payments
<PAGE> 22
and loss adjustment expense payments and actual losses and loss adjustment
expenses incurred by PennLife during the five-year period following the Closing
Date relating to all disability insurance policies in force as of the Closing
Date, together with any outstanding claims reserves in respect of disability
insurance policies in force as of the Closing Date that remain in force as of
the fifth anniversary of the Closing Date (if any) (the "Actual Loss
Experience"). The Buyer Actuary will prepare and deliver a report on the
adequacy of the DI Reserves in relation to Actual Loss Experience, including a
calculation of the difference between the DI Reserves and the Actual Loss
Experience (the "DI Claims Report"). The DI Claims Report shall be prepared in
accordance with sound actuarial practice, taking into account SAP and the
actuarial assumptions and methodologies used by Buyer for SAP financial
reporting purposes, and shall set forth in reasonable detail, including the
supporting assumptions and methodologies, the actuaries' determination of the
amount by which the DI Reserves were deficient compared to Actual Loss
Experience or the amount by which the DI Reserves exceeded Actual Loss
Experience. Upon completion of such review (which shall not be later than 90
days after the fifth anniversary of the Closing Date), Buyer shall deliver the
DI Claims Report to PFG. At the request of PFG, after the DI Claims Report has
been prepared, Buyer will cause its personnel and the Buyer Actuary to (i)
provide to PFG and its independent actuaries copies of such workpapers and other
documents relating to the preparation of the DI Claims Report as PFG or its
independent actuaries may reasonably request and (ii) cooperate with, and be
reasonably available to, PFG and its independent actuaries and provide such
other information reasonably requested by PFG or its independent actuaries
concerning the DI Claims Report and any issues related thereto, in each case in
good faith and in a manner and at such times as to enable PFG and its
independent actuaries to complete its review and analysis of the DI Claims
Report within the period specified in paragraph (b) below. The amount by which
the DI Reserves are deficient compared to Actual Loss Experience or the amount
by which the DI Reserves exceed Actual Loss Experience, as agreed by the parties
or reflected in the DI Claims Report (as modified by the Settlement Actuary), in
each case discounting the Actual Loss Experience to the Closing Date at a
discount rate of 4.5%, are referred to as the "DI Reserve Deficiency" and the
"DI Reserve Positive Development," respectively.
(b) Within 30 Business Days after PFG's receipt of the DI Claims
Report, PFG will provide Buyer with written notice indicating whether PFG agrees
or disagrees with the information contained in the DI Claims Report. If PFG in
such notice agrees with the information contained in the DI Claims Report or if
PFG fails to deliver to Buyer such written notice within such 30 Business Day
period, the information contained in the DI Claims Report shall be final and
binding upon the parties. If PFG in such notice disagrees with the information
contained in the DI Claims Report, within ten Business Days after PFG delivers
such notice to Buyer of its disagreement with the DI Claims Report, PFG and
Buyer will begin good faith negotiations to resolve such disagreement.
<PAGE> 23
(c) If PFG and Buyer are unable to resolve such disagreement in good
faith within ten Business Days after such negotiations begin, such disagreement
will be submitted to the Settlement Actuary for resolution. PFG and Buyer will
cooperate with the Settlement Actuary and will proceed in good faith to cause
the Settlement Actuary to resolve such disagreement within 30 days after such
disagreement is submitted to the Settlement Actuary. PFG and Buyer will each pay
one-half of the fees and expenses of the Settlement Actuary.
(d) The Settlement Actuary, in its sole discretion, will determine (i)
the nature and extent of the participation by PFG, Buyer and their respective
agents in connection with any disagreement submitted to the Settlement Actuary
for resolution, (ii) the nature and extent of information that PFG and Buyer may
submit to the Settlement Actuary for consideration in connection with such
resolution and (iii) the personnel of the Settlement Actuary who will review
such information and resolve such disagreement. The Settlement Actuary's
resolution of any such disagreement, with respect to dollar amounts, must fall
within the range of the disputed amounts stated by PFG and Buyer and will be
reflected in a written report which will be delivered promptly to, and will be
final and binding upon, PFG and Buyer.
(e) Within five Business Days after the earlier to occur of (i) the
parties' agreement with respect to the level of the DI Reserve Deficiency or DI
Reserve Positive Development or (ii) the delivery of the report of the
Settlement Actuary as provided in Section 2.4(d) hereof: (A) in the event of a
DI Reserve Deficiency, PFG will make a cash payment to Buyer equal to the DI
Reserve Deficiency (tax-effected in accordance with the principles of Section
8.6) plus interest thereon at a rate equal to the interest rate on the
Acquisition Notes, compounded quarterly from the Closing Date to the date on
which such payment is made up to a maximum amount equal to the original
principal amount of the Acquisition Notes plus accrued interest thereon at a
rate equal to the interest rate on the Acquisition Notes compounded quarterly
from the Closing Date to the date of such payment; provided, however, that PFG
may, at its option, satisfy any portion or all of its obligation by directing
Buyer to reduce the then-accreted value of the Acquisition Notes by the amount
that it is satisfying pursuant to this proviso; and (B) in the event of a
Positive Reserve Development, Buyer will issue additional Acquisition Notes
having an aggregate principal amount as of the date of issuance equal to the
amount of the DI Reserve Positive Development (tax-effected in accordance with
the principles of Section 8.6(b) to take into account the amount by which
Buyer's taxable income is greater than it would have been had there been no DI
Reserve Positive Development) plus interest thereon at a rate equal to the
interest rate on the Acquisition Notes, compounded quarterly from the Closing
Date to the date on which such additional Acquisition Notes are issued, up to a
maximum of $10 million plus interest thereon at a rate equal to the interest
rate on the Acquisition Notes, compounded quarterly. Any reduction in the
principal amount of the Acquisition Notes pursuant to the proviso in clause (A)
above will be effected in accordance with, and upon the terms and subject to the
conditions of, the Pledge and Security Agreement to be entered
<PAGE> 24
into by PFG and Buyer, on the terms attached hereto as Annex C.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PFG, PLAC, SFC AND PCFS
PFG, with respect to all matters set forth in this Article III, jointly
and severally with PLAC, SFC and PCFS, represents and warrants to Buyer; PLAC,
with respect only to matters relating to itself and the PennLife Companies,
severally and not jointly with any other Seller (except PFG) represents and
warrants to Buyer; and SFC, with respect only to matters relating to itself and
the ConLife Companies, severally and not jointly with any other Seller (except
PFG) represents and warrants to Buyer; and PCFS, with respect to matters
relating to itself and the PCFS Assets, severally and not jointly with any other
Seller (except PFG) represents and warrants to Buyer, as follows:
SECTION 3.1 Organization and Qualification.
(a) Each of the Sellers and the Companies is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation, which as to each of the Companies is set forth
opposite its name in Section 3.1(a) of the Disclosure Schedule, with all
requisite corporate power and authority to own, operate and lease its properties
and to carry on its business as it is now being conducted. Sellers have
delivered or made available to Buyer a true and complete copy of the Certificate
or Articles of Incorporation and Bylaws (or similar organizational documents) of
each of the Companies.
(b) Each of the Companies is qualified or licensed to do business as a
foreign corporation or extra-provincial corporation and is in good standing in
every jurisdiction where the nature of the business conducted by it or the
properties owned or leased by it requires qualification, except where the
failure to be so qualified, licensed or in good standing would not reasonably be
expected to have a Material Adverse Effect. Schedule T of each of the PennLife
Companies' (except PC-Canada) and ConLife Companies' Annual Statements for the
year ended December 31, 1997 and the Annual Statement of PC-Canada set forth a
true and complete list of each jurisdiction in which each of the respective
PennLife Companies (including PC-Canada) and ConLife Companies is qualified or
licensed to do business and is in good standing to transact the business of life
and/or accident and health insurance.
(c) Each U.S. domiciled PennLife Company and ConLife Company is
domiciled in its jurisdiction of incorporation, is not deemed to be domiciled in
any other jurisdiction, and is licensed to write the types of insurance
<PAGE> 25
shown in Section 3.1(c) of the Disclosure Schedule in the jurisdictions shown in
such Section, which are all the types of insurance issued by such Companies and
all the jurisdictions in which each such Company writes such insurance. Except
as set forth in Section 3.1(c) of the Disclosure Schedule, no such license is
the subject of a proceeding for suspension or revocation or any similar
proceedings and, to the knowledge of Sellers, there is no pending threat of such
suspension or revocation by any licensing authority. Each U.S. domiciled
PennLife Company and ConLife Company is a "life insurance company" within the
meaning of Section 816 of the Code.
SECTION 3.2 Authorization. Sellers have full corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by Sellers, the performance by Sellers of their respective obligations
hereunder, and the consummation by Sellers of the transactions contemplated
hereby, have been duly authorized by their respective Boards of Directors and,
where applicable, their respective shareholders. No other corporate action on
the part of Sellers is necessary to authorize the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby. This
Agreement has been duly and validly executed and delivered by each Seller and
constitutes a valid and binding obligation of each Seller, enforceable against
each Seller in accordance with its terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally, and subject, as to
enforceability, to general principles of equity, including principles of
commercial reasonableness, good faith and fair dealing (regardless of whether
enforcement is sought in a proceeding at law or in equity).
SECTION 3.3 No Violation. Except as set forth in Section 3.3 of the
Disclosure Schedule, neither the execution and delivery of this Agreement by
Sellers, the performance by Sellers of their obligations hereunder nor the
consummation by Sellers or the Companies of the transactions contemplated hereby
will (a) violate, conflict with or result in any breach of any provision of the
Certificate or Articles of Incorporation or Bylaws (or similar organizational
documents) of any Seller or any of the Companies, (b) violate or conflict with
or result in a violation or breach of, or constitute a default or give rise to
any right of termination or acceleration (with or without due notice or lapse of
time or both) or result in the acceleration of any payments under the terms,
conditions or provisions of any note, bond, mortgage, indenture or deed of
trust, license, lease or agreement to which any Seller or any of the Companies
is a party or by which any of their assets is bound, (c) violate any order,
writ, judgment, injunction, decree, statute, rule or regulation of any
Governmental Authority applicable to any Seller or any of the Companies or any
of their respective assets or (d) result in the creation of any Lien upon any of
the assets of any Seller, any of the Companies or PCFS (other than any Liens
created by Buyer), except in the cases of clauses (b), (c) and (d) above, for
those violations, conflicts, breaches and defaults which would not reasonably be
expected to have a Material Adverse Effect.
<PAGE> 26
SECTION 3.4 Capitalization of the Companies.
(a) The authorized capital stock of PennLife consists of 50,000
PennLife Shares. As of the date hereof, there are 45,946 PennLife Shares issued
and outstanding, all of which have been validly issued, are fully paid and
non-assessable and were not issued in violation of any preemptive rights. The
authorized capital stock of PFI consists of 1,000 PFI Shares. As of the date
hereof, there are 1,000 PFI Shares issued and outstanding, all of which have
been validly issued, are fully paid and non-assessable and were not issued in
violation of any preemptive rights. The authorized capital stock of ConLife
consists of 50,000 ConLife Shares. As of the date hereof, there are 49,998
ConLife Shares issued and outstanding, all of which have been validly issued,
are fully paid and non-assessable and were not issued in violation of any
preemptive rights. The authorized capital stock of Union Bankers consists of
1,360,000 Union Bankers Shares. As of the date hereof, there are 1,334,001 Union
Bankers Shares issued and outstanding, all of which have been validly issued,
are fully paid and non-assessable and were not issued in violation of any
preemptive rights. The authorized capital stock of Marquette consists of
2,100,000 Marquette Shares. As of the date hereof, there are 175,000 Marquette
Shares issued and outstanding, all of which have been validly issued, are fully
paid and non-assessable and were not issued in violation of any preemptive
rights. The authorized capital stock of Peninsular consists of 7,200,000
Peninsular Shares. As of the date hereof, there are 1,208,599 Peninsular Shares
issued and outstanding, all of which have been validly issued, are fully paid
and non-assessable and were not issued in violation of any preemptive rights.
The authorized capital stock of PC-Canada is unlimited. As of the date hereof,
there are 100 PC-Canada Common Shares and 100 PC-Canada Preferred Shares issued
and outstanding, all of which have been validly issued, are fully paid and
non-assessable and were not issued in violation of any preemptive rights.
(b) Except as set forth in Section 3.4(b) of the Disclosure Schedule,
there are no (i) options, warrants, calls, subscriptions, conversion or other
rights, agreements or commitments obligating any Company to issue any additional
shares of capital stock or any other securities convertible into, exchangeable
for or evidencing the right to subscribe for any shares of capital stock of such
Company, (ii) agreements or commitments obligating such Company to repurchase,
redeem or otherwise acquire any shares of its capital stock, (iii) restrictions
on transfer of any shares of capital stock of such Company (other than pursuant
to this Agreement) or (iv) voting or similar shareholder agreements relating to
any shares of capital stock of such Company.
<PAGE> 27
(c) The Peninsular Shares and the PC-Canada Shares are owned
beneficially and of record by PennLife, free and clear of all Liens. The PFI
Shares are owned beneficially and of record by PFG, free and clear of all Liens.
The ConLife Shares are owned beneficially and of record by SFC, free and clear
of all Liens, except as set forth in Section 3.4(c) of the Disclosure Schedule.
The Union Bankers Shares are owned beneficially and of record by ConLife, free
and clear of all Liens, except as set forth in Section 3.4(c) of the Disclosure
Schedule. The Marquette Shares are owned beneficially and of record by Union
Bankers, free and clear of all Liens. The PennLife Shares are owned beneficially
and of record by PLAC, free and clear of all Liens. At the Closing, good and
valid title to the Shares shall be conveyed to Buyer or the other parties as
provided for in Section 2.2, in the manner contemplated by Section 2.2, free and
clear of all Liens, other than those which may be created by Buyer.
(d) Except as set forth in Section 3.4(d) of the Disclosure Schedule,
none of the Companies owns, directly or indirectly, 5% or more of the
outstanding voting securities of or otherwise possesses, directly or indirectly,
the power to direct or cause the direction of the management or policies of any
Person, other than capital stock of one of the Companies owned by another
Company and securities held for investment purposes only.
SECTION 3.5 PFI Subsidiaries and PCFS Assets.
(a) Section 3.5(a) of the Disclosure Schedule sets forth (i) the name
of all Subsidiaries of PFI (the "PFI Subsidiaries") and their respective
jurisdictions of incorporation and (ii) the name and number of all authorized,
issued and outstanding shares of capital stock of each PFI Subsidiary. Except
for the PFI Subsidiaries, PFI directly or indirectly does not own or have the
power to vote the shares of any capital stock or other ownership interest or
have ordinary voting power to elect the majority of directors of any corporation
or other entity or other Person or body performing a similar function of any
such entity, as the case may be.
(b) All of the outstanding shares of capital stock of each PFI
Subsidiary have been duly authorized and validly issued, are fully paid and
non-assessable, have not been issued in violation of any preemptive rights, and
are owned of record and beneficially by the entities named in Section 3.5(a) of
the Disclosure Schedule, free and clear of any Liens except as set forth in
Section 3.5(a) of the Disclosure Schedule.
(c) Except as set forth in Section 3.5(c) of the Disclosure Schedule,
there are no (i) options, warrants, calls, subscriptions, conversion or other
rights, agreements or commitments obligating any of the PFI Subsidiaries to
issue any additional shares of capital stock of such Subsidiary or any other
securities convertible into, exchangeable for or evidencing the right to
subscribe for any shares of such capital stock, (ii) agreements or commitments
obligating
<PAGE> 28
any such Subsidiary to repurchase, redeem or otherwise acquire any shares of its
capital stock, (iii) restrictions on the transfer of any shares of capital stock
of any such Subsidiary (other than pursuant to this Agreement) or (iv) voting or
similar shareholder agreements relating to any shares of capital stock of any
such Subsidiary.
(d) PCFS has good and indefeasible title to all of the PCFS Assets, in
each case free and clear of all Liens, and PCFS will convey to Buyer good and
indefeasible title to all of the PCFS Assets, in each case free and clear of all
Liens other than those which may be created by Buyer.
SECTION 3.6 Consents and Approvals. Except as set forth in Section 3.6 of
the Disclosure Schedule, no filing or registration with, no notice to and no
permit, authorization, consent or approval of any Governmental Authority is
necessary for the consummation by any Seller or the Companies of the
transactions contemplated by this Agreement other than consents and approvals of
or filings or registrations with (a) the Antitrust Division of the United States
Department of Justice (the "DOJ") pursuant to the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), and (b) the insurance
departments of the States of Pennsylvania and North Carolina and the federal or
provincial government and other requisite federal and provincial regulatory
authorities of Canada (the "PennLife Insurance Approvals") and the insurance
department of the State of Texas (the "ConLife Insurance Approvals").
SECTION 3.7 Financial Statements; Reserves.
(a) Sellers have previously delivered to Buyer true and complete
copies of the following (the "SAP Financial Statements"):
(i) the Annual Statements for each PennLife Company and ConLife
Company for each of the years ended December 31, 1996 and 1997 and for Executive
Fund Life Insurance Company for the year ended December 31, 1995, in each case
as filed with the departments of insurance in the respective states of domicile
or Canada, as the case may be, of each PennLife Company and ConLife Company
including all exhibits, interrogatories, notes and schedules thereto and any
actuarial opinion, affirmation or certification filed in connection therewith;
(ii) the Quarterly Statements for each PennLife Company and
ConLife Company for the quarters ended March 31, June 30 and September 30, 1998
including all exhibits, interrogatories, notes and schedules thereto; and
(iii) the statutory annual statements and quarterly statements of
each PennLife Company and ConLife Company which were filed for 1996, 1997 or
1998 (with respect to the quarters ended March 31, June 30 and September 30) in
any jurisdiction other than such Company's jurisdiction of domicile and that
differ from the corresponding Annual Statements and Quarterly
<PAGE> 29
Statements for such periods.
Except as set forth in Section 3.7(a) of the Disclosure Schedule, the SAP
Financial Statements were, and when delivered in accordance with the provisions
of Section 5.18, the 1998 SAP Financial Statements will be, prepared in all
material respects in accordance with SAP. Except as set forth in Section 3.7(a)
of the Disclosure Schedule, the SAP Financial Statements present fairly in all
material respects and, when delivered in accordance with the provisions of
Section 5.18, the 1998 SAP Financial Statements will present fairly in all
material respects, the statutory financial position of the applicable Company as
of the respective dates thereof and the related summary of operations and
changes in capital and surplus and in cash flows of such Company for and during
the respective periods covered thereby in conformity with SAP, applied on a
consistent basis.
(b) Except as set forth in Section 3.7(b) of the Disclosure Schedule,
all statutory reserves and other similar amounts with respect to insurance as
established or reflected in the December 31, 1997 Annual Statement and September
30, 1998 Quarterly Statement of each PennLife Company and ConLife Company were
determined (and, when delivered in accordance with the provisions of Section
5.18, all statutory reserves and other similar amounts with respect to insurance
as reflected or established in the 1998 SAP Financial Statements will be
determined) in all material respects in accordance with SAP and sound actuarial
practice, based on actuarial assumptions and methodologies that were (or will
be), as of the date of preparation, in compliance in all material respects with,
and met (or will meet) in all material respects the requirements of the
insurance laws of the respective states of domicile of, the PennLife Companies
and ConLife Companies. Except as set forth in Section 3.7(b) of the Disclosure
Schedule or in the report delivered by the Reserves Consultants pursuant to
Section 5.3(b) hereof, all such reserves and other similar amounts are (and, in
the case of the 1998 SAP Financial Statements, will be) adequate in all material
respects, based upon then-current information and assumptions concerning
investment income, mortality and morbidity experience, persistency and expenses,
to cover the total amount of all reasonably anticipated matured and unmatured
benefits, dividends, claims and other liabilities of such Company under all
insurance contracts under which such Company had any liability (including
without limitation any liability arising under or as a result of any
reinsurance, coinsurance or other similar contract) on the respective dates of
such financial statements. Except as set forth in Section 3.7(b) of the
Disclosure Schedule, each PennLife Company and ConLife Company owns assets that
qualify as legal reserve assets under insurance laws applicable to such Company
in an amount at least equal to all such reserves and other similar amounts
required by such laws to be owned by such Company.
<PAGE> 30
(c) Since January 1, 1998, Sellers have recorded in accordance with
GAAP and SAP additional reserves of at least $20 million relating to adverse
reserve development applicable to the disability income claim reserves of
PennLife, which additional reserves have not been released.
(d) Sellers have previously delivered or made available to Buyer a
true and complete copy of the unaudited combined financial statements for the
Companies (and PCFS, to the extent required under Item 13 of Schedule 14A under
the Exchange Act for purposes of the Proxy Statement) as at and for the
nine-month period ended September 30, 1998 (the "Unaudited Financial
Statements"). The Unaudited Financial Statements fairly present in all material
respects and, when delivered in accordance with the provisions of Section 5.18,
the Audited Financial Statements, taken together with the notes thereto, will
fairly present in all material respects the financial position and results of
operations of the Companies (and PCFS, to the extent required under Item 13 of
Schedule 14A under the Exchange Act for purposes of the Proxy Statement) as of
the respective dates and for the periods indicated therein, in each case in
accordance with generally accepted accounting principles ("GAAP") consistently
applied except as identified in the report delivered by the Reserves Consultants
pursuant to Section 5.3(b) hereof and, in the case of the Unaudited Financial
Statements, for the absence of notes. The Unaudited Financial Statements were
prepared consistent with past practices of the Companies in the preparation of
unaudited financial statements (subject to normal, recurring year-end audit
adjustments that in the aggregate are not materially adverse). As used herein,
"Financial Statements" means the Unaudited Financial Statements, the Audited
Financial Statements and the SAP Financial Statements, collectively.
SECTION 3.8 Absence of Undisclosed Liabilities. As of the date hereof,
and as of the date of the 1998 Audited Financial Statements, except for matters
relating to the transactions contemplated by this Agreement, there are and will
be no liabilities or obligations of the Companies or PCFS (including without
limitation any Liens) that are required to be reflected on a balance sheet
prepared in accordance with SAP or GAAP, as applicable, other than (a)
liabilities and obligations reserved against in the Financial Statements and not
heretofore discharged, (b) policyholder benefits payable or other liabilities or
obligations arising in the ordinary course of business after September 30, 1998,
or (c) liabilities and obligations disclosed in Section 3.8 of the Disclosure
Schedule.
SECTION 3.9 Absence of Certain Changes. Except as disclosed in Section
3.9 of the Disclosure Schedule or as permitted or contemplated by this
Agreement, since September 30, 1998, none of the Companies or PCFS has (a)
experienced any change, event or condition which, individually or in the
aggregate, has had or could reasonably be expected to have a Material Adverse
Effect, (b) conducted its business in any material respect other than in the
ordinary course, (c) except in the ordinary course of business, incurred any
indebtedness for borrowed money or issued any debt securities or assumed,
<PAGE> 31
guaranteed or endorsed the obligations of any other Person, (d) except in the
ordinary course of business, (i) sold, transferred or otherwise disposed of any
of its property or assets or (ii) mortgaged or encumbered any of its property or
assets, (e) suffered any material casualty losses not covered by insurance, (f)
repurchased any of its capital stock or any capital stock of any of its
Subsidiaries, (g) declared, set aside or paid any dividend or other distribution
in respect of its capital stock, other than ordinary dividends and payments
pursuant to the ConLife Surplus Notes permitted under applicable insurance laws,
(h) amended its Certificate or Articles of Incorporation or Bylaws (or similar
organizational documents) or merged with or into or consolidated with any other
Person, (i) split, combined or reclassified its capital stock, (j) issued or
sold (or agreed to issue or sell) any of its equity securities or any options,
warrants, conversion or other rights to purchase any such securities or any
securities convertible into or exchangeable for such securities, or granted, or
agreed to grant any such rights, (k) increased the rates of compensation
(including bonuses) payable or to become payable to any of its officers,
employees, agents, independent contractors or consultants other than increases
made in the ordinary course of business, (l) entered into any new or amended any
existing employment contracts, severance agreements or consulting contracts or
instituted or agreed to institute any increase in benefits or altered its
employment practices or the terms and conditions of employment in each case
other than in the ordinary course of business, (m) changed in any material
respect its underwriting, actuarial or tax accounting methods, principles or
practices, (n) in the case of the PennLife Companies and the ConLife Companies,
ceased its lead generation activities other than in the ordinary course of
business, (o) in the case of the PennLife Companies and the ConLife Companies,
terminated any material reinsurance or coinsurance contract (including without
limitation, any surplus relief or financial reinsurance contract), whether as
reinsurer or reinsured other than in the ordinary course of business, (p)
entered into any joint ventures or partnerships of any kind, or (q) entered into
any contract or other agreements to do any of the foregoing.
SECTION 3.10 Litigation. Section 3.10 of the Disclosure Schedule sets
forth a list, as of the date hereof, of all material actions, suits,
arbitrations, investigations or proceedings ("Litigation") pending or, to the
knowledge of Sellers, threatened against any of the Companies or PCFS before any
Governmental Authority or arbitrator. Except as set forth in Section 3.10 of the
Disclosure Schedule, none of the Companies is in default under any material
judgment, decree, injunction or order of any Governmental Authority or
arbitrator outstanding against it.
SECTION 3.11 Property; Liens and Encumbrances.
(a) Section 3.11(a) of the Disclosure Schedule contains a complete and
accurate list of all real property owned or leased by the Companies as of the
date hereof.
<PAGE> 32
(b) Except as set forth in Section 3.11(b) of the Disclosure Schedule
or in the Financial Statements, all properties and assets owned by the Companies
(the "Owned Properties") or leased by the Companies (the "Leased Properties")
are free and clear of all liens, pledges, claims, security interests, mortgages,
assessments, easements, rights of way, covenants, restrictions, rights of first
refusal, defects in title, encroachments and other burdens (collectively,
"Liens") except (i) statutory Liens not yet delinquent or the validity of which
are being contested in good faith by appropriate actions, (ii) purchase money
Liens arising in the ordinary course, (iii) Liens for taxes not yet delinquent,
(iv) Liens reflected in the Financial Statements (which have not been
discharged) and (v) Liens which in the aggregate do not materially detract from
the value or, in the case of personal property, materially impair the use by the
Companies of the property subject thereto or, in the case of real property,
materially impair the present and continued use of such property in the usual
and normal conduct of the business of the Companies. The Companies have good and
indefeasible title to the Owned Properties and good and valid leasehold
interests in the Leased Properties and there are no pending or, to the knowledge
of Sellers, threatened condemnation proceedings affecting any of the Owned
Properties or Leased Properties. To the knowledge of Sellers, the use, occupancy
and condition of each parcel of real property that is an Owned Property or a
Leased Property is in compliance in all material respects with all applicable
laws.
SECTION 3.12 Certain Agreements.
(a) Except as disclosed in Section 3.12 of the Disclosure Schedule or
in the Financial Statements, none of the Companies or PCFS is a party to any
written (a) agreement, contract, indenture or other instrument relating to the
borrowing of money or the guarantee of any obligation for the borrowing of
money; (b) employment, consulting, compensation or severance agreement with any
of its directors, employees or consultants; (c) agreement, contract or
commitment limiting or restraining it from engaging or competing in any
business; (d) lease pursuant to which it leases the real property set forth in
Section 3.11(a) of the Disclosure Schedule; (e) distribution, dealer,
representation, commission or agency agreement, other than agency agreements
with insurance agents in the ordinary course of business; (f) contract or
agreement with any of its affiliates that will continue after Closing; or (g)
any other contract that is material to the businesses of the Companies to the
extent such contract would be required to be filed pursuant to Item 601(b)(10)
of Regulation S-K under the Exchange Act if the Companies (as a whole) were
subject to the reporting requirements thereunder (each of the foregoing a
"Material Contract"). Each Material Contract is in full force and effect and has
been complied with in all material respects by the Companies and PCFS and, to
the knowledge of Sellers, has been complied with in all material respects by all
other parties thereto. Except as set forth in Section 3.12 of the Disclosure
Schedule, no consent is required under any Material Contract in connection with
the consummation of the transactions contemplated by this Agreement.
<PAGE> 33
(b) Sellers have delivered to Buyer copies of all compensation
agreements, and have otherwise disclosed to Buyer in Section 3.12 of the
Disclosure Schedule all compensation arrangements, between Sellers and/or the
Companies on the one hand, and Gerald Weiner on the other hand.
SECTION 3.13 Employee Benefit Plans. Section 3.13(a) of the Disclosure
Schedule contains (i) a true and complete list by employer of all Persons
employed by the Companies, (ii) all ConLife Employees and PCFS Employees who
will be offered employment as contemplated by Section 5.13 and (iii) the terms
of any severance plans pursuant to which any Company Employee would be entitled
to receive payments.
(a) No Seller or any of their affiliates and none of the Companies (i)
currently maintains, administers or contributes to or has any liability under or
with respect to, other than benefits claims in the ordinary course of business,
or (ii) during the six year period preceding the Closing Date maintained,
administered or contributed to: (A) in respect of any plans or employees in the
United States, any employee benefit plan, as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), including
without limitation, any multiemployer plan as defined in Section 3(37) of ERISA
("Multiemployer Plan") or any other plan subject to Title IV of ERISA; or (B)
any employment contract, bonus, deferred compensation, incentive compensation,
performance compensation, stock purchase, stock option, stock appreciation,
phantom stock, saving and profit sharing, severance or termination pay other
than statutory or the common law requirements for reasonable notice, health or
other medical, salary continuation, vacation, sick leave, holiday pay, fringe
benefit, reimbursement program, incentive, life, disability or other (whether
insured or self-insured) insurance, supplementary unemployment benefit, pension
retirement, supplementary retirement, welfare or other employee plan, program,
policy or arrangement, whether written or unwritten, for the benefit of PFI
Employees, PCFS Employees, PennLife Employees or ConLife Employees, except as
described in Section 3.13(a) of the Disclosure Schedule ("Benefit Plans"), but
for greater certainty excluding any such Benefit Plans which are required to be
maintained, administered or complied with under applicable law.
(b) All Benefit Plans comply in all material respects with and are
operated in all material respects in accordance with their terms and applicable
laws and, in respect of U.S. Benefit Plans, all such Benefit Plans comply in all
material respects with and are, and during the six year period preceding the
Closing Date have been, operated in all material respects in accordance with
their terms and in accordance with ERISA and the Code.
(c) True and complete copies of each written Benefit Plan and a
<PAGE> 34
description of any unwritten benefit plan, summary plan descriptions, and the
most recent annual reports on Form 5500, including schedules, audited financial
statements and actuarial valuation reports and funding agreements, if any, have
been delivered to Buyer.
(d) Each Benefit Plan intended to be qualified under Section 401(a) of
the Code has received a favorable determination letter from the IRS as to its
qualification under the Code and to the effect that any trust of such Benefit
Plan is exempt from taxation under Section 501(a) of the Code, all of which have
been delivered or made available to Buyer; and nothing has occurred since the
date of such determination letter that reasonably would be expected to
negatively affect such qualification or exemption. Except as disclosed in
Section 3.13(d) of the Disclosure Schedule, all Canadian Benefit Plans are duly
registered where required by applicable law (including registration with the
relevant tax authorities where such registration is required to qualify for tax
exemption or other beneficial tax status) and are in material compliance with,
all applicable legislation and administrative guidelines issued by the
regulatory authorities having jurisdiction over such plans.
(e) None of the Companies or any entity required to be aggregated with
any of the Companies pursuant to Code section 414 or ERISA section 4001(b)
("ERISA Affiliate") have incurred or are reasonably expected to incur, either
directly or indirectly, any liability (other than premiums) to the Pension
Benefit Guaranty Corporation ("PBGC"). No ERISA Affiliate has contributed to or
been obligated to contribute to a Multiemployer Plan during the six year period
preceding the Closing Date.
(f) Except as disclosed in Section 3.13(f) of the Disclosure Schedule,
there are no pending or, to the knowledge of Sellers, threatened actions, suits,
claims, trials, arbitrations, investigations or other proceedings by any person,
including any present or former participant or beneficiary under any Benefit
Plan (or any beneficiary of any such participant or beneficiary) involving any
Benefit Plan or any rights or benefits under any Benefit Plan other than
ordinary and usual claims for benefits by participants or beneficiaries
thereunder. There has been no failure to act on the part of Sellers, their
affiliates, the Companies, or, to the knowledge of Sellers, any funding agent or
any administrator of any of the Benefit Plans that could reasonably be expected
to subject Sellers, their affiliates, the Companies or the fund of any such
Benefit Plan to the imposition of any penalty with respect to any Benefit Plans,
whether by way of indemnity or otherwise. All contributions required to have
been made or remitted by Sellers or the Companies to any Benefit Plan under the
terms of any such plan any agreement or any other applicable law have been made
within the time prescribed by any such plan, agreement or law. No "reportable
events" (as defined in ERISA section 4043), "prohibited transactions" (as
defined in ERISA section 406) or "accumulated funding deficiency" (as defined in
ERISA section 302) have occurred with respect to any Benefit Plan for which
liability would be incurred by Buyer.
<PAGE> 35
(g) Except as disclosed in Section 3.13(g) of the Disclosure Schedule,
neither PFG nor any of its affiliates maintains or contributes to any Benefit
Plan which provides, or has any liability or obligation to provide, life
insurance, medical or other employee welfare benefits to PFI Employees, PCFS
Employees, PennLife Employees or ConLife Employees (or their beneficiaries) upon
and/or after their retirement, except as may be required by U.S. or Canada
federal, state, provincial or local laws, rules or regulations, and all such
Benefit Plans may be amended and terminated in accordance with the terms
thereof.
(h) Section 3.13(h) of the Disclosure Schedule properly and adequately
reflects, and in the case of clause (ii) below, reflects in accordance with
accounting principles agreed to by Buyer and the Companies and reflected in
Section 3.13(h) of the Disclosure Schedule, any and all liabilities and
obligations of the Companies, on a company-by-company basis, as of January 1,
1998 (or such more recent date as is practicable) for or in respect of: (i)
severance benefits (except for statutory or common law requirements for
reasonable notice); (ii) post-retirement welfare benefits payable in respect of
any PFI Employees, PCFS Employee, PennLife Employees or ConLife Employees who
have retired as of such date; and (iii) any short term disability compensation
or benefits in respect of any active PFI Employees, PCFS Employee, PennLife
Employees or ConLife Employees.
(i) Except as disclosed in Section 3.13(i) of the Disclosure Schedule,
none of the Benefit Plans contains any provision which would result in any
additional benefits, accelerated vesting and/or accelerated payments or which
would subject any employee to an excise tax or result in the loss of
deductibility under Sections 280G or 4999 of the Code solely as a result of the
consummation of the transactions contemplated by this Agreement. No step has
been taken, no event has occurred and no condition or circumstance exists that
has resulted or could reasonably result in any Canadian Benefit Plan being
ordered or required to be terminated or wound-up in whole or in part or having
its registration under any applicable law being refused or revoked or being
placed under the administration of any trustee or receiver or any regulatory
authority.
(j) None of the Companies, or any organization with respect to which
such Company is a successor or parent corporation (within the meaning of ERISA
section 4069) has engaged in any transaction described in ERISA section 4069.
(k) Since the date of the documents provided in accordance with
Section 3.13(c) above, no promises or commitments have been made by Sellers or
any of their affiliates or the Companies to amend any Benefit Plan or to provide
increased benefits thereunder, except as required by applicable law or by the
Benefit Plans.
(l) Any Benefit Plan that is a pension plan registered under the
<PAGE> 36
Income Tax Act (Canada) which has been created as a result of the division of a
predecessor pension plan or the merger of one or more pension plans, has
received approval therefor from all appropriate regulatory authorities.
(m) Except as permitted by the Canadian Benefit Plans and applicable
law, there has been no withdrawal of surplus assets or any other amounts from
any of the Canadian Benefit Plans other than proper payments of benefits to
eligible beneficiaries, refunds of over-contributions to plan members and
permitted payments of reasonable expenses incurred by or in respect of such
Benefit Plan, for which there is any unsatisfied liability.
(n) All employer contribution holidays have been permitted by the
terms by the Canadian Benefit Plans and have been in accordance with applicable
law, except where there is no unsatisfied liability.
SECTION 3.14 Taxes. Except as set forth in Section 3.14 of the Disclosure
Schedule:
(a) all Tax Returns required to be filed by or with respect to each of
the Companies have been filed, and the Companies have paid all Taxes that are
shown to be due on such Tax Returns and all information provided with respect to
such Tax Returns is complete and accurate in all material respects;
(b) the Companies have paid all Taxes owed by such Companies (whether
or not shown on any Tax Return) for all taxable periods through and including
the Closing Date and there are not and will not be any additional liabilities
for Taxes for any such period other than as reflected in the Financial
Statements as current Taxes and, with respect to any period between the latest
Financial Statements and the Closing Date, as reflected in the Closing
Statement;
(c) the Companies have given or otherwise made available to Buyer
correct and complete copies of all Tax Returns, examination reports and
statements of deficiencies for periods ending, or transactions consummated,
after December 31, 1994;
(d) there are no outstanding agreements extending or waiving the
statutory period of limitation applicable to any claim for, or the period for
the collection or assessment or reassessment of, Taxes due from any Company for
any taxable period;
(e) no audit or other proceeding by any Governmental Authority is
pending or, to the knowledge of Sellers, threatened with respect to any Taxes
due from or with respect to any Company and no claim has been made by any
Governmental Authority in a jurisdiction where any of the Companies does not
file Tax Returns that it is or may be subject to taxation by that jurisdiction;
(f) there are no Liens for Taxes upon the assets or properties of
<PAGE> 37
any of the Companies, except for statutory Liens for current Taxes not yet due;
(g) no Company is a party to any agreement relating to the sharing or
allocation of, or indemnification agreement with respect to, Taxes, or any
similar contract or arrangement;
(h) each U.S. domiciled PennLife Company and ConLife Company is an
"insurance company" within the meaning of Treas. Reg. Sections 1.801-3(a) (under
former Section 801 of the Code) and subject to taxation under Subchapter L of
the Code for the taxable period ending on the Closing Date and for all prior
taxable periods for which the statute of limitations has not expired;
(i) none of the Companies (i) has income that is includable in
computing the taxable income of a United States person (defined in Section 7701
of the Code) under Section 951 of the Code and (ii) is a passive foreign
investment company within the meaning of Section 1297 of the Code;
(j) none of the Companies has filed a consent under Section 341(f) of
the Code;
(k) no property owned by any of the Companies (i) is property required
to be treated as being owned by another Person pursuant to the provisions of
Section 168(f)(8) of the Internal Revenue Code of 1954, as amended and in effect
immediately prior to the enactment of the Tax Return Act of 1986, (ii)
constitutes "tax-exempt use property" within the meaning of Section 168(h)(1) of
the Code or (iii) is tax-exempt bond financed property within the meaning of
Section 168(g) of the Code;
(l) none of the Companies is a party to any contract, agreement or
other arrangement which could result in the payment of amounts that could be
nondeductible by reason of Section 162(m) of the Code;
(m) none of the Companies has agreed, or is required to make, any
adjustment under Section 481(a) or Section 807(f) of the Code;
(n) none of the Companies has been a member of an affiliated group
filing a consolidated federal Income Tax Return (other than a group the common
parent of which was PLAC (the "PLAC Group"), in the case of the PennLife
Companies, ConLife (the "ConLife Group"), in the case of the ConLife Companies,
PFG (the "PFG Group"), in the case of the PFI Companies) or has any liability
for Taxes of any Person (other than any member of the PLAC Group, the ConLife
Group or the PFG Group, as the case may be) under Treas. Reg. Sections 1.1502-6,
Sections 1.1502-78 or similar provision of state, local or foreign law or
regulation, as a transferee or successor, by contract or otherwise;
(o) federal consolidated income Tax Returns or extensions to file have
been (or will be timely) filed by or on behalf of the PLAC Group, the
<PAGE> 38
ConLife Group and the PFG Group for periods with filing dates prior to the
Closing Date;
(p) the Companies have each withheld from their respective employees,
independent contractors, creditors, stockholders and third parties and timely
paid to the appropriate taxing authority proper and accurate amounts in all
respects through all periods in compliance with all Tax withholding and
remitting provisions of applicable laws and have each complied in all material
respects with all Tax information reporting provisions of all applicable laws;
(q) no Seller is a foreign person within the meaning of Section 1445
of the Code;
(r) the amount of the policyholders surplus account and shareholder
surplus account (as defined in Section 815 of the Code) of each of the U.S.
Insurance Companies is accurately set forth in Section 3.14 of the Disclosure
Schedule;
(s) each U.S. Insurance Company is taxable as a life insurance company
within the meaning of Section 816 of the Code;
(t) all life insurance contracts issued by each U.S. Insurance Company
(whether developed or administered by or reinsured with any unrelated party)
that are subject to Section 7702 of the Code qualify as "life insurance
contracts" within the meaning of Section 7702(a) of the Code;
(u) all contracts issued by each U.S. Insurance Company (whether
developed or administered by or reinsured with any unrelated party) that are
subject to Section 817 of the Code and the Treasury Regulations promulgated
thereunder have met the diversification requirements applicable thereto since
the issuance of the contract;
(v) all annuity contracts issued by each U.S. Insurance Company
(whether developed or administered by or reinsured with any unrelated party)
that are subject to Section 72(s) of the Code contain all of the necessary
provisions of Section 72(s) of the Code;
(w) the Tax treatment under the Code of all insurance, annuity or
investment policies or contracts; all financial products or annuities; or any
similar or related policy, contract, plan or product, whether individual, group,
or otherwise, issued or sold by any of the U.S. Insurance Companies (whether
developed or administered by or reinsured with any unrelated party) is and at
all times has been the same or not less favorable to the purchaser,
policyholder, or beneficiaries thereof than the Tax treatment under the Code for
which such
<PAGE> 39
contracts (products, etc.) qualified or purported to qualify or which the
Insurance Companies represented could be obtained at the time of its issuance,
purchase, modification, or exchange. For purposes of this Section 3.14(w), the
provisions of the Code relating to the Tax treatment of such contracts shall
include, but shall not be limited to, Sections 72, 79, 101, 104, 105, 106, 125,
130, 401, 402, 403, 404, 408, 412, 415, 419, 419A, 457, 501, 505, 817, 817A,
818, 1035, 7702, and 7702A of the Code;
(x) any life insurance contract issued by any U.S. Insurance Company
(whether developed or administered or reinsured with any unrelated party) which
is a modified endowment contract under Section 7702A of the Code (each, an
"MEC") has been marketed as such at all relevant times or the policyholder
otherwise has consented to such MEC status;
(y) all U.S. Insurance Companies have computed their respective tax
reserves in accordance with the requirements of Sections 807, 811 and 846 of the
Code;
(z) all annuity contracts issued by each U.S. Insurance Company
(whether developed or administered by or reinsured with any unrelated party)
that are provided under or connected with a plan described in Section 401(a),
403(a) or 403(b) of the Code or which is an individual retirement annuity or
provided under an individual retirement account or annuity, satisfies the
federal income tax laws applicable to such annuity contract;
(aa) there are no currently pending or, to the knowledge of Sellers,
threatened federal, state, provincial, local or foreign audits or other
administrative or judicial proceedings with regard to the Tax treatment of any
product or plan sold, issued or administered by the Insurance Companies (whether
developed by or reinsured with any unrelated third party);
(ab) no Insurance Company is a party to any hold harmless, sharing,
allocation or indemnification agreement with respect to the Tax qualification or
treatment of any product or plan sold, issued or administered by any Insurance
Company (whether developed by or reinsured with any unrelated third party);
(ac) there is no claim, audit, action, suit, proceeding or
investigation now pending or threatened against, with respect to or in
limitation of the net operating loss carryforwards of the Companies as set forth
in Section 3.14 of the Disclosure Schedule (the "NOLs") as of the Closing Date,
including without limitation any limitations under Section 382 of the Code
(other than limitations incurred in connection with the Closing Transactions);
(ad) PennLife is a "qualified insurance corporation" within the
meaning of Section 810 of the Income Tax Regulations (Canada) for the purposes
of Section 116 of the Income Tax Act (Canada) and no Section 116 certificate is
required to be obtained pursuant to the Income Tax Act (Canada) in
<PAGE> 40
respect of the transfer of the PC-Canada Shares by PennLife to PLAC;
(ae) PennLife is not and will not be required to pay any Taxes
pursuant to subsection 219(5.1) of the Income Tax Act (Canada) in respect of any
period ending on or prior to the Closing Date and neither PennLife nor PC-Canada
has made or will make in respect of any period ending on or prior to the Closing
Date any election pursuant to subsection 219(5.2) of the Income Tax Act
(Canada);
(af) PC-Canada is a "life insurance corporation" as defined for
purposes of the Income Tax Act (Canada);
(ag) PennLife and PC-Canada are registered under Part IX of the Excise
Tax Act (Canada); and
(ah) each of PennLife and PC-Canada has remitted all Canada Pension
Plan and Quebec Pension Plan contributions, employment insurance premiums,
employer health taxes, workers' compensation premiums and assessments and any
other Taxes payable by it for any period ending on or before the Closing Date in
respect of its employees to the appropriate taxing authority within the time
required by law.
SECTION 3.15 Compliance with Applicable Law; Permits; Policies.
(a) The businesses of the Companies and PCFS are being conducted in
all material respects in compliance with all applicable provisions of any U.S.
and Canadian federal, state, provincial, local or foreign statute, law,
ordinance, rule, regulation, judgment, decree, order, concession, grant,
franchise, permit or license or other governmental authorization or approval
applicable to them, except as set forth in Section 3.15(a) of the Disclosure
Schedule and except for such noncompliance as has not had or could not
reasonably be expected to have a Material Adverse Effect.
(b) Each Company and PCFS own or validly hold all licenses,
franchises, permits, approvals, authorizations, exemptions, classifications,
certificates, registrations and similar documents or instruments that are
required for its business and operations (in the case of PCFS, relating to the
PCFS Assets), except for those the failure of which to have has not had or could
not reasonably be expected to have a Material Adverse Effect (the "Required
Permits"). All Required Permits relating to insurance are set forth in Schedule
T of each of the PennLife Companies' and ConLife Companies' Annual Statements
for the year ended December 31, 1997, and all other Required Permits are listed
in Section 3.15(b) of the Disclosure Schedule. In all cases, the Required
Permits are valid and in full force and effect and none of Sellers or any
Company has received any notice of any inquiry or proceeding that could
reasonably be expected to result in the suspension, revocation or material
limitation of any such permit; and to the knowledge of Sellers, there is no
<PAGE> 41
reasonable basis for any such suspension, revocation or limitation. None of the
Companies or PCFS is currently the subject of any supervision, conservation,
rehabilitation, liquidation, receivership, insolvency or other similar
proceeding nor, other than as described in Section 3.15(b) of the Disclosure
Schedule, are any of the Companies or PCFS operating under any formal or
informal agreement or understanding with the licensing authority of any State
which restricts its authority to do business or requires it to take, or refrain
from taking, any action.
(c) Except as disclosed in Section 3.15(c) of the Disclosure Schedule,
all forms of insurance policies and riders thereto currently issued by any
PennLife Company or ConLife Company are, to the extent required under applicable
laws, on forms approved by applicable insurance regulatory authorities of the
jurisdictions in which issued or have been filed with and not objected to by
such insurance regulatory authorities within the period provided for such
objection and any premium rates with respect to such policies or riders required
to be filed with or approved by such applicable insurance regulatory authorities
have been so filed or approved and premiums charged conform thereto. No material
deficiencies have been asserted by any Governmental Authority with respect to
any such filings which have not been cured or otherwise resolved to the
satisfaction of such Governmental Authority.
(d) Except as set forth in Section 3.15(d) of the Disclosure Schedule,
each Company (exclusive of their independent agents) and, to the knowledge of
Sellers, their independent agents, have marketed, sold and issued products of
such Company in compliance in all material respects with all laws applicable to
the business of such Company in the respective jurisdictions in which such
products have been sold, including but not limited to laws regulating
advertisements, requiring mandatory disclosure of policy information, requiring
employment of standards to determine if the purchase of a policy or contract is
suitable for an applicant, prohibiting the use of unfair methods of competition
and deceptive acts or practices and regulating replacement transactions. For
purposes of this Section 3.15(d), "advertisement" means any material designed to
create public interest in life and health insurance policies, annuity contracts
or in an insurer, or in an insurance producer, or to induce the public to
purchase, increase, modify, reinstate, borrow on, surrender, replace or retain
such a policy or contract, and (ii) "replacement transaction" means a
transaction in which a new life or health insurance policy or annuity contract
is to be purchased by a prospective insured and the proposing producer should
know that one or more existing life or health insurance policies or annuity
contracts is to be lapsed, forfeited, surrendered, reduced in value or pledged
as collateral. Except as set forth in Section 3.15(d) of the Disclosure
Schedule, Sellers have not received notice (written or oral) and are not
otherwise aware of any review or investigation by any Governmental Authority of
any marketing conduct and/or selling practices
<PAGE> 42
of the Companies or their independent agents, other than periodic market conduct
examinations arising in the ordinary course of business and Attorney General
inquiries in connection with which no material issues have been raised that have
not been resolved to the satisfaction of the relevant insurance authorities or
Attorneys General, as the case may be.
(e) Except as set forth in Section 3.15(e) of the Disclosure Schedule,
no agent of any of the Companies has any claim against any of the Companies for
any compensation or other amounts (the "Agent Compensation") (other than the
Pre-Sale Obligations, Post-Closing Compensation Obligations or sales commissions
and advances in the ordinary course of business and except for commitments made
by Buyer or by a designee of Buyer on Buyer's behalf, including PFG but only to
the extent PFG is specifically authorized by Buyer in writing).
(f) The Companies have previously delivered or made available to Buyer
true and complete copies of the reports (or the most recent draft thereof, to
the extent any final report is not available) reflecting the results of the two
most recent financial examinations and market conduct examinations of any of the
Companies issued by any insurance regulator.
(g) Except as set forth in Section 3.15(g) of the Disclosure Schedule,
no insurance policy gives the holder thereof the right to receive dividends,
distributions or other benefits based on the earnings or revenues of such
Company.
(h) The PennLife Companies and the ConLife Companies have (i) timely
paid all material state and Canadian guaranty association assessments that are
due, or claimed or asserted by any insurance regulatory authority to be due,
from such Companies, or (ii) provided for all such material assessments in their
statutory financial statements, filed with the appropriate insurance regulatory
authority, to the extent necessary to be in conformity in all material respects
with SAP for such statements.
(i) Except as set forth in Section 3.15(i) of the Disclosure Schedule,
the December 31, 1997 SAP Financial Statements list all material funds
maintained in a state of licensure by any of the PennLife Companies or the
ConLife Companies under any applicable insurance law (each a "Deposit"),
including, without limitation, any Deposit the beneficial interest of which may
have been transferred in connection with a Reinsurance Agreement. Except as set
forth in Section 3.15(i) of the Disclosure Schedule, the December 31, 1997 SAP
Financial Statements accurately set forth as of December 31, 1997 the dollar
amount of each such Deposit and the name of the depository in which such Deposit
is maintained.
SECTION 3.16 Brokers Fees and Commissions. Except for Salomon Smith
Barney and Fox-Pitt, Kelton Inc., no Seller and no Company (or their
<PAGE> 43
respective directors, officers, employees or agents) has employed any investment
banker, broker or finder in connection with the transactions contemplated
hereby. PFG shall be solely responsible for the fees and expenses of Salomon
Smith Barney and Fox-Pitt, Kelton Inc. in connection with the transactions
contemplated hereby.
SECTION 3.17 Proprietary Rights; Year 2000 Compliance. (a) Except as
disclosed in Section 3.17(a) of the Disclosure Schedule, each Company owns or
possesses the right to use all material trademarks, service marks, patents,
patent rights, assumed names, logos, trade secrets, copyrights and trade names
("Intellectual Property") and all material computer software, programs and
similar systems that are used by it in the conduct of its business and PCFS owns
or possesses the right to use all Intellectual Property and all material
computer software, programs and systems that are used by PCFS in the conduct of
its business, and all such assets and rights are included in the PCFS Assets.
All such Intellectual Property and material computer software, programs and
similar systems are in full force and effect in accordance with their terms.
None of the Companies or PCFS has received any notice of any conflict with or
violation or infringement of or any claimed conflict with or violation or
infringement of, any asserted rights of any other Person with respect to any
such Intellectual Property or computer software, programs, or similar systems.
None of the Companies or PCFS is in conflict with or in violation or
infringement of any asserted rights of any other Person with respect to any such
Intellectual Property or computer software, programs, or similar systems, except
to the extent that any such conflict, violation or infringement does not have,
or could not be reasonably expected to have, a Material Adverse Effect.
(b) Except as disclosed in Section 3.17(b) of the Disclosure Schedule,
all material computer hardware and software (including all computer hardware and
software in embedded systems) used by the Companies and PCFS (whether such
hardware and software is owned by the Companies or PCFS or licensed from third
parties) (collectively, the "Technology Systems") is designed or is being
modified to be used prior to, during and after the calendar year 2000 and the
Companies have taken measures they believe to be sufficient to prepare such
hardware and software to continue to operate during each such time period to
accurately process date data (including, but not limited to calculating,
comparing and sequencing) from, into and between the twentieth and twenty-first
centuries, including leap year calculations.
SECTION 3.18 Insurance. Section 3.18 of the Disclosure Schedule
summarizes the amount and scope of the insurance currently in force insuring the
Companies and the PCFS Assets and their respective operations and properties
against loss or liability. All such policies or contracts of insurance are in
material compliance with all applicable laws and all Material Contracts to which
any of the Companies or PCFS is a party. All insurance policies pursuant to
which any such insurance is provided are in full force and effect. No notice of
cancellation or termination of any such insurance policy has been given to any
<PAGE> 44
Company or PCFS and all premiums required to be paid in connection with such
insurance policies have been paid in full.
SECTION 3.19 Environmental Matters. Except as disclosed on Section 3.19
of the Disclosure Schedule:
(a) the operations of the Companies and the real property currently
owned, leased or operated by the Companies or included in the PCFS Assets are in
compliance and, during the period of the ownership or tenancy of the Companies
and PCFS have been in compliance, with all applicable Environmental Laws, except
for such noncompliance as would not reasonably be expected to have a Material
Adverse Effect;
(b) no judicial or administrative proceedings or investigations are
pending or, to the knowledge of Sellers, threatened against any of the Companies
or to the extent relating to the PCFS Assets, PCFS, pursuant to any applicable
Environmental Laws, except for judicial or administrative proceedings or
investigations that could not reasonably be expected to have a Material Adverse
Effect;
(c) no condition exists on any real property currently (or to the
knowledge of Sellers, formerly) owned, operated or leased by any of the
Companies or included in the PCFS Assets arising out of or resulting from any
Release of any Hazardous Material that could reasonably be expected to result in
the Companies or PCFS incurring any liability under Environmental Laws that
would have a Material Adverse Effect and no such property is listed or has been
proposed for listing on the National Priorities List, the Comprehensive
Environmental Response Compensation and Liability and Information System
(CERCLIS) or any analogous state or Canadian federal or provincial lists; and
(d) Sellers have delivered or made available to Buyer copies of all
environmental investigations, audits, assessments or other analyses conducted by
or on behalf of, or which are otherwise in the possession of, Sellers or any
Company relating to any real property currently or formerly owned or leased by
any of the Companies or included in the PCFS Assets.
SECTION 3.20 Books and Records. Copies of all the minute books and
stock record books of the Companies have been delivered or made available to
Buyer for inspection and contain accurate records of all meetings of, and
written consents by, the boards of directors (and any committees thereof) and
shareholders of the Companies from January 1, 1995 to the date hereof and, to
the knowledge of Seller, since their respective incorporations.
SECTION 3.21 Bank Accounts. Section 3.21 of the Disclosure Schedule
<PAGE> 45
contains (a) a true and complete list of the names and locations of all banks,
trust companies, securities brokers, and other financial institutions ("Banks")
at which each of the Companies has an account or safe deposit box or maintains a
banking, custodial, trading, trust or other similar relationship ("Accounts"),
(b) a true and complete list and description of each such Account, including a
list of all authorized signatories and (c) a true and complete description of
all Accounts included in the PCFS Assets and a list of the names and locations
of all Banks where such Accounts are located.
SECTION 3.22 Insurance and Reinsurance.
(a) Section 3.22(a) of the Disclosure Schedule is a true and complete
description of each material contract providing for reinsurance, coinsurance,
excess insurance, ceding of insurance, assumption of insurance or
indemnification of insurance liabilities to which any PennLife Company or
ConLife Company is a party which is currently in effect (the "Reinsurance
Agreements").
(b) Except as required by law or as disclosed in Section 3.22(b) of
the Disclosure Schedule, all amounts payable as of the date of this Agreement by
any PennLife Company or ConLife Company under any Reinsurance Agreement and, to
the knowledge of Sellers, all amounts payable as of the date of this Agreement
by any other Person that is a party to any Reinsurance Agreement have been paid
in accordance with the terms of the contracts under which they arose except, in
each case, for immaterial non-payments or discrepancies that would not adversely
affect any of the rights of any PennLife Company or ConLife Company under any
such Reinsurance Agreement. Except as disclosed in Section 3.22(b) of the
Disclosure Schedule, to the knowledge of Sellers, no reinsurer (other than the
Companies) that is a party to any of the Reinsurance Agreements has a valid
defense to payment of its material obligations under such Reinsurance Agreements
or is in default in any material respect under any Reinsurance Agreement and
Seller is not aware of any impairment of the financial condition of any such
other party to the extent that a default thereunder could reasonably be
anticipated. Each Reinsurance Agreement is in compliance in all material
respects with applicable insurance laws and regulations regarding life and
health reinsurance agreements. The Companies have not entered into any
transaction or series of transactions that are required to be recorded as
financial reinsurance pursuant to SAP.
(c) As of the date hereof, the A.M. Best rating presently held by any
of the Companies has not been reduced since August 27, 1998, and other than as
set forth in Section 3.22(c) of the Disclosure Schedule, the Sellers have not,
as of the date hereof, received any notice of any intended or potential
downgrading by A.M. Best.
SECTION 3.23 Labor Matters.
(a) None of the Companies is a party to any labor or collective
bargaining agreement.
<PAGE> 46
(b) No employees of any Company and none of the ConLife Employees or
PCFS Employees are represented by any labor organization that is certified to
represent such employees under the National Labor Relations Act or other
applicable law. No labor organization or group of employees of any Company or
any ConLife Employees or PCFS Employees has made a pending demand for
recognition, certification, successor rights or a related employer declaration,
and there are no representation, certification, successor rights or related
employer proceedings or petitions or applications for certification seeking a
representation proceeding presently pending or threatened to be brought before
or filed with the National Labor Relations Board or any other labor relations
tribunal or authority. To the knowledge of Sellers, there are no organizing
activities involving any Company or PCFS or Services pending with any labor
organization or group of employees of any Company or any ConLife Employees or
PCFS Employees.
(c) Except as set forth in Section 3.23(c) of the Disclosure Schedule,
there are no strikes, work stoppages, slowdowns, lockouts, material arbitrations
or material grievances or other material labor disputes pending or threatened
against or involving any Company or Services or PCFS, to the extent applicable
to the ConLife Employees or PCFS Employees who are currently employed by
Services or PCFS, as the case may be.
(d) Each of the Companies and Services (with respect to the ConLife
Employees) and PCFS (with respect to the PCFS Employees) is in compliance with
all laws, regulations and orders applicable to such Company or the ConLife
Employees or PCFS Employees, as the case may be, relating to the employment of
labor, including all such laws, regulations and orders relating to wages, hours,
employment standards, WARN, collective bargaining, discrimination, civil rights,
safety and health, workers' compensation and the collection and payment of
withholding and/or social security taxes and any similar tax, other than such
noncompliance that could not reasonably be expected to have a Material Adverse
Effect.
(e) There is no "mass layoff," "plant closing" or similar event as
defined by WARN or similar Canadian legislation with respect to any of the
Companies; provided, that no representation is made as to actions taken by Buyer
in connection with or after the Closing.
(f) Except as set forth in Section 3.23(f) of the Disclosure Schedule,
as of the date hereof, there are no pending or, to the knowledge of Sellers,
threatened complaints, charges or claims against any Company or Services or PCFS
brought or filed with any Governmental Authority, arbitrator or court based on,
arising out of, in connection with or otherwise relating to the employment or
termination of employment by any Company or Services or, to the extent relating
to the PCFS Employees, PCFS, of any individual.
<PAGE> 47
SECTION 3.24 Purchase for Investment. PFG is acquiring the Acquisition
Notes for its own account for investment purposes and not with a view to the
resale or distribution of the Acquisition Notes. PFG has such knowledge and
experience in financial and business matters so as to be capable of evaluating
the merits and risks of its investment in the Acquisition Notes. PFG is an
"accredited investor" as defined in Rule 501 of the Securities Act of 1933, as
amended. PFG will not, directly or indirectly, dispose of the Acquisition Notes
except in compliance with applicable federal and state securities laws.
SECTION 3.25 Affiliate Transactions. Section 3.25 of the Disclosure
Schedule sets forth, as of the date hereof, all contracts, agreements,
obligations, commitments and liabilities between any of the Companies and/or
between any of the Companies and PFG or any of PFG's affiliates (other than the
Companies). All such transactions which were required to have been identified or
reported to or approved by the applicable departments of insurance have been
identified, reported and/or approved.
SECTION 3.26 Bonuses. Except as set forth on Section 3.26 of the
Disclosure Schedule, no current or former officer, director or employee or agent
of any of the Companies is a party to or beneficiary of any contract or other
agreement pursuant to which such Person shall receive or is entitled to receive
any retention or other transaction bonus or other payment (a "Transaction
Bonus") from any Company in connection with the transactions contemplated
hereby.
SECTION 3.27 All Related Assets. As of the Closing Date, immediately
following the Closing Transactions, the Companies will own, lease or license all
property and assets necessary to carry on their business and operations as
presently conducted (except to the extent such property or assets have been
transferred or disposed of in connection with the Pre-Closing Restructuring
Transactions), all such assets and properties (other than as Buyer and Sellers
may mutually agree) will be conveyed to Buyer (either indirectly by means of the
transfer of Shares or through the transfer of the PCFS Assets in accordance with
Section 2.2) at the Closing and will as of the Closing permit Buyer to conduct
such businesses and operations in the same manner as such businesses and
operations have been conducted prior to the Closing (except to the extent such
property or assets have been transferred or disposed of in connection with the
Pre-Closing Restructuring Transactions).
SECTION 3.28 Litigation Arising Between Signing and Closing. The
Litigation pending or, to the knowledge of Sellers, threatened against any of
the Companies or PCFS before any Governmental Authority or arbitrator as of the
Closing Date (including the New Litigation and New Employee Claims),
<PAGE> 48
considered in the aggregate, will not expose the Companies to any materially
greater risks or liabilities than the Litigation set forth on Section 3.10 of
the Disclosure Schedule, considered in the aggregate.
ARTICLE IV
REPRESENTATIONS AND
WARRANTIES OF BUYER
Buyer hereby represents and warrants to Sellers as follows:
SECTION 4.1 Organization; Qualifications and Operations. Each of Buyer
and its Subsidiaries (collectively, the "Buyer Parties") is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, with all requisite corporate power and
authority to own, operate and lease its properties and to carry on its business
as it is now being conducted and, in the case of Buyer, to own the Shares and
the PCFS Assets. Each Buyer Party is qualified or licensed to do business and is
in good standing in each jurisdiction in which the ownership or leasing of
property by it or the conduct of its business requires such licensing or
qualification, except where the failure to be so qualified or licensed will not
affect Buyer's ability to consummate the transactions contemplated by this
Agreement and will not have a material adverse effect on the business, results
of operations or financial condition of the Buyer Parties, taken as a whole (a
"Buyer Material Adverse Effect").
SECTION 4.2 Authorization. Buyer has full corporate power and authority
to execute and deliver this Agreement and each other document to be delivered by
Buyer in connection herewith, including the Acquisition Notes and the UAFC Share
Purchase Agreement, and to consummate the transactions contemplated hereby and
thereby. The execution and delivery by Buyer of this Agreement, the Acquisition
Notes and the UAFC Share Purchase Agreement, the performance by Buyer of its
obligations hereunder and thereunder, and the consummation by Buyer of the
transactions contemplated hereby and thereby, have been duly authorized by
Buyer's Board of Directors. Except for the approval of the shareholders of Buyer
of the matters requiring shareholder approval set forth in the UAFC Share
Purchase Agreement, no other corporate proceeding on the part of Buyer is
necessary to authorize the execution and delivery of this Agreement and each
other document to be delivered by Buyer in connection herewith, including the
Acquisition Notes and the UAFC Share Purchase Agreement, or to consummate the
transactions contemplated hereby and thereby. Simultaneously with the execution
of this Agreement, (i) shareholders owning at least 51% of the issued and
outstanding voting securities of Buyer and (ii) shareholders owning at least 51%
of the issued and outstanding Series C-1 Convertible Preferred Stock of Buyer
(the "Series C-1 Holders") are executing a voting agreement in the form attached
hereto as Annex G, pursuant to which such shareholders are agreeing to vote in
favor of
<PAGE> 49
the matters requiring shareholder approval set forth in the UAFC Share Purchase
Agreement (which percentage of shareholders, in respect of the issued and
outstanding voting securities and in respect of the Series C-1 Holders, voting
as a separate class, is sufficient to approve such matters). Each of this
Agreement, the Acquisition Notes and the UAFC Share Purchase Agreement has been
duly and validly executed and delivered by Buyer and constitutes a valid and
binding obligation of Buyer enforceable against it in accordance with its terms,
subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally, and subject, as to enforceability, to general principles of
equity, including principles of commercial reasonableness, good faith and fair
dealing (regardless of whether enforcement is sought in a proceeding at law or
in equity).
SECTION 4.3 No Violation. Subject to the receipt by Buyer of the Buyer
Approvals identified in Section 4.5 below and except as set forth in Section 4.3
of the Disclosure Schedule, neither the execution and delivery by Buyer of this
Agreement, the Acquisition Notes or the UAFC Share Purchase Agreement, the
performance by Buyer of its obligations hereunder and thereunder nor the
consummation by Buyer of the transactions contemplated hereby and thereby will
(a) violate, conflict with or result in any breach of any provision of the
Articles of Incorporation or Bylaws of any Buyer Party, (b) violate or conflict
with or result in a violation or breach of, or constitute a default (with or
without due notice or lapse of time or both) under the terms, conditions or
provisions of any note, bond, mortgage, indenture or deed of trust, or any
license, lease or agreement to which any Buyer Party is a party or by which any
of their assets is bound or (c) violate any order, writ, judgment, injunction,
decree, statute, rule or regulation of any Governmental Authority applicable to
any Buyer Party or any of their assets, except in each case as would not have a
Buyer Material Adverse Effect.
SECTION 4.4 Capitalization. As of the date hereof, the authorized capital
stock of Buyer consists of: (i) 20,000,000 shares of common stock, par value
$0.01 per share ("Buyer Common Stock"); (ii) 500 shares of Series B Convertible
Preferred Stock, par value $1.00 per share, of the Company (the "Series B
Preferred"); (iii) 100,000 shares of Series C Convertible Preferred Stock, par
value $1.00 per share, of the Company (the "Series C Preferred"); (iv) 22,500
shares of Series D-1 Convertible Preferred Stock, par value $1.00 per share, of
the Company (the "Series D-1 Preferred"); and (v) 17,500 shares of Series D-2
Convertible Preferred Stock, par value $1.00 per share, of the Company (the
"Series D-2 Preferred"). As of the date hereof, Buyer has 7,638,057 shares of
Buyer Common Stock, 400 shares of Series B Preferred, 51,680 shares of Series C
Preferred, 22,500 shares of Series D-1 Preferred and no shares of Series D-2
Preferred issued and outstanding. All of such outstanding shares have been
validly issued, are fully paid and, except as provided under
<PAGE> 50
Section 630 of the Business Corporation Law of New York (relating to employee
wages), nonassessable, and were not issued in violation of any preemptive
rights. Except as set forth in Section 4.4 of the Disclosure Schedule, as of the
date hereof, there are 2,673,991 warrants to purchase Buyer Common Stock issued
and outstanding.
SECTION 4.5 Consents and Approvals. Except as set forth in Section 4.5 of
the Disclosure Schedule, no filing or registration with, no notice to and no
permit, authorization, consent or approval of any third party or any
Governmental Authority is necessary for Buyer to enter into this Agreement or
the UAFC Share Purchase Agreement and issue the Acquisition Notes or for the
consummation by Buyer of the transactions contemplated by this Agreement or the
UAFC Share Purchase Agreement other than consents and approvals of or filings or
registrations with (a) the DOJ pursuant to the HSR Act, (b) the PennLife
Insurance Approvals and the ConLife Insurance Approvals, (c) the insurance
departments of the States of New York, Texas, Florida; (d) and the federal and
provincial governments of Canada, (e) the Commission pursuant to the
requirements of the Exchange Act and (f) the approval of the shareholders of
Buyer at a special meeting of shareholders of Buyer of the matters requiring
shareholder approval as set forth in the UAFC Share Purchase Agreement, in
accordance with New York law and the rules of Nasdaq (collectively, the "Buyer
Approvals"). Sellers acknowledge that Buyer intends to sell some or all of the
Shares and the PCFS Assets to one or more Subsidiaries of Buyer pursuant to
Section 2.2(j), and that the term "Buyer Approval" will include, for purposes of
this Section 4.5 and of Section 6.1(a), any and all approvals of the relevant
insurance regulators in connection with such transactions.
SECTION 4.6 Brokers' Fees and Commissions. Except for Chase Securities
Inc. ("Chase Securities"), Capital Z Management Inc., Chase Bank and Advest,
Inc. ("Advest"), neither Buyer nor any of its directors, officers, employees or
agents has employed any investment banker, broker or finder in connection with
the transactions contemplated hereby. Buyer shall be solely responsible for the
fees and expenses of Chase Securities, Capital Z Management Inc., Chase Bank and
Advest in connection with the transactions contemplated hereby.
SECTION 4.7 Purchase for Investment. Buyer is acquiring the Shares for
its own account for investment purposes and not with a view to the distribution
of the Shares. Buyer has such knowledge and experience in financial and business
matters so as to be capable of evaluating the merits and risks of its investment
in the Shares. Buyer is an "accredited investor" as defined in Rule 501 of the
Securities Act of 1933, as amended. Buyer will not, directly or indirectly,
dispose of the Shares except in compliance with applicable federal and state
securities laws.
SECTION 4.8 Financing. Concurrently with the execution of this Agreement
Buyer is entering into a Stock Purchase Agreement, dated as of the
<PAGE> 51
date hereof (the "UAFC Share Purchase Agreement"), with Capital Z Financial
Services Fund II, L.P. ("Capital Z"), pursuant to which Buyer has agreed to
issue and sell to Capital Z, and Capital Z has agreed to purchase and acquire
from Buyer, on the terms and subject to the conditions contained therein, shares
of Buyer Common Stock (subject to adjustment in accordance with the UAFC Share
Purchase Agreement) for the purchase price set forth in the UAFC Share Purchase
Agreement. The proceeds of such issuance will be used to fund a portion of the
Cash Purchase Price. In addition, Chase Manhattan Bank, N.A. ("Chase Bank") and
Chase Securities have issued a commitment letter (the "Chase Commitment") for
the Chase Bank Facility, the proceeds of which will be used to finance the
balance of the Cash Purchase Price. True and complete copies of the UAFC Share
Purchase Agreement and the Chase Commitment have been delivered to PFG.
SECTION 4.9 SEC Reports. Except as set forth in Section 4.9 of the
Disclosure Schedule, Buyer has timely filed with the Commission (a) Buyer's
Annual Report on Form 10-K for the year ended December 31, 1997, (b) Buyer's
Quarterly Reports on Form 10-Q for the quarters ended March 31 June 30, and
September 30, 1998, (c) all proxy statements relating to meetings of
shareholders of Buyer occurring in 1997 and 1998, (d) all Current Reports on
Form 8-K required to be filed since January 1, 1998, (e) all amendments and
supplements required to be filed to all such reports, and (f) all other forms,
reports, statements and other documents required to be filed with the Commission
(all such documents in clauses (a) through (f) herein are referred to as the
"SEC Reports"). Such SEC Reports filed with the Commission were prepared in all
material respects in accordance with the requirements of applicable law and did
not at the time they were filed contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary in
order to make the statements therein not misleading in light of the
circumstances under which they were made. Buyer has delivered or made available
to Sellers true and complete copies of all of the SEC Reports.
SECTION 4.10 Absence of Undisclosed Liabilities. Except as set forth in
Section 4.10 of the Disclosure Schedule, as of the date hereof, and as of the
Closing Date, except for matters relating to the transactions contemplated by
this Agreement or as disclosed in the SEC Reports filed prior to the date
hereof, there are no liabilities or obligations of the Buyer Parties that are
required to be reflected on a balance sheet prepared in accordance with GAAP
other than (a) liabilities and obligations reserved against in the financial
statements constituting a part of the SEC Reports and not heretofore discharged,
(b) policyholder benefits payable or other liabilities or obligations arising in
the ordinary course of business, or (c) liabilities and obligations disclosed in
Section 4.10 of the Disclosure Schedule.
SECTION 4.11 Absence of Certain Changes. Except as disclosed in Section
4.11 of the Disclosure Schedule or the SEC Reports filed prior to the date
hereof or as permitted or contemplated by this Agreement, since
<PAGE> 52
September 30, 1998, none of the Buyer Parties has (a) experienced any change,
event or condition which, individually or in the aggregate, has had or could
reasonably be expected to have a Buyer Material Adverse Effect or (b) conducted
its business in any material respect other than in the ordinary course.
SECTION 4.12 Compliance with Applicable Law; Permits; Licenses. Except
as set forth in Section 4.12 of the Disclosure Schedule:
(a) The businesses of the Buyer Parties are being conducted in all
material respects in compliance with all applicable provisions of any material
federal, state, local or foreign statute, law, ordinance, rule, regulation,
judgment, decree, order, concession, grant, franchise, permit or license or
other governmental authorization or approval applicable to them, except for such
noncompliance as has not had or could not reasonably be expected to have a Buyer
Material Adverse Effect.
(b) Each Buyer Party owns or validly holds all material licenses,
franchises, permits, approvals, authorizations, exemptions, classifications,
certificates, registrations and similar documents or instruments that are
required for its business and operations, except for those the failure of which
to have has not had or could not reasonably be expected to have a Buyer Material
Adverse Effect. All such licenses, franchises, permits, approvals,
authorizations, exemptions, classifications, certificates, registrations and
similar documents or instruments are valid and in full force and effect and none
of the Buyer Parties has received any notice of any inquiry or proceeding that
could reasonably be expected to result in the suspension, revocation or material
limitation of any such license; and to the knowledge of Buyer, there is no
reasonable basis for any such suspension, revocation or limitation. None of the
Buyer Parties is currently the subject of any supervision, conservation,
rehabilitation, liquidation, receivership, insolvency or other similar
proceeding nor are any of the Buyer Parties operating under any formal or
informal agreement or understanding with the licensing authority of any State
which restricts its authority to do business or requires it to take, or refrain
from taking, any action.
ARTICLE V
COVENANTS
SECTION 5.1 Conduct of Business Prior to the Closing. Except as expressly
contemplated by this Agreement (including without limitation the Pre-Closing
Restructuring Transactions (defined below), the Closing Transactions and the
other transactions described as conditions to the consummation of the
transactions contemplated by this Agreement specified in Article VI hereof), as
set forth in Section 5.1 of the Disclosure Schedule or with the prior written
consent of Buyer (not to be unreasonably withheld or delayed),
<PAGE> 53
during the period from the date of this Agreement to the Closing, PFG and PLAC
will cause each PennLife Company to, PFG and SFC will cause each ConLife Company
and Services to, and PFG will cause each PFI Company and PCFS to, conduct its
business and operations according to its ordinary and usual course of business
and will use all reasonable efforts consistent therewith to preserve intact and,
as applicable, maintain in good repair its properties, assets and business
organizations, to keep available the services of its officers, agents and
employees and to maintain satisfactory relationships with policyholders, agents
and regulators, in each case in the ordinary course of business. Without
limiting the generality of the foregoing, and except as otherwise provided in
this Agreement and as set forth in Section 5.1 of the Disclosure Schedule or
with the prior written consent of Buyer (not to be unreasonably withheld or
delayed), prior to the Closing, PFG and PLAC will not permit any of the PennLife
Companies to, PFG and SFC will not permit any of the ConLife Companies or
Services to, and PFG will not permit any of the PFI Companies or PCFS to:
(a) propose or adopt any amendment to its Certificate or Articles of
Incorporation or Bylaws (or similar organizational documents);
(b) except in the ordinary course of business, incur any indebtedness
for borrowed money or issue any debt securities or assume, guarantee or endorse
the obligations of any other Person except for obligations of its Subsidiaries;
(c) (i) adopt any new Benefit Plan (including any stock option, stock
benefit or stock purchase plan) or amend any existing Benefit Plan in any
material respect, except for changes which are less favorable to participants in
such plans or as may be required by applicable law or (ii) increase in any
manner the rate or terms of compensation of any of its directors, officers,
agents or employees, except such increases as are granted in the ordinary course
of business consistent with past practice, or enter into any employment,
severance or collective bargaining agreement;
(d) enter into any agreement with any officer, director, employee,
general agent or sales agent of the Companies, Services or PCFS pursuant to
which such Persons will be entitled to receive from any Company any Transaction
Bonus;
(e) (i) sell, transfer or otherwise dispose of any of its property or
assets (not including those assets constituting investment securities of the
Companies, which are the subject of paragraph (f) below) other than in the
ordinary course consistent with past practices and, in any event, if the value
of such properties or assets would, individually or in the aggregate, exceed
$500,000 or (ii) mortgage or encumber any of its property or assets;
<PAGE> 54
(f) except in the ordinary course consistent with past practices,
sell, transfer or otherwise dispose of any securities in the Companies'
investment portfolios;
(g) enter into or terminate any other material agreements, commitments
or contracts, except agreements, commitments or contracts made or terminated in
the ordinary course of business;
(h) (i) split, combine or reclassify the Shares, (ii) declare, set
aside or pay any dividend or other distribution payable in cash, stock or
property with respect to the Shares, other than those dividends or distributions
set forth in Section 5.1(h) of the Disclosure Schedule, (iii) issue, sell or
pledge, or authorize or propose the issuance, sale or pledge of any additional
shares of, or securities convertible into or exchangeable for, or options,
warrants, calls, commitments or rights of any kind to acquire, the Shares or any
of its capital stock, or (iv) redeem, purchase or otherwise acquire directly or
indirectly any of its capital stock;
(i) except in the ordinary course of business or with respect to
capital projects approved prior to the date hereof, enter into any agreement or
commitment involving an aggregate capital expenditure or commitment exceeding
$100,000;
(j) take any action that would intentionally result in a breach of the
representations and warranties contained in Article III of this Agreement;
(k) adopt a plan of complete or partial liquidation or resolutions
providing for or authorizing such liquidation or a dissolution, merger,
consolidation, restructuring, recapitalization or other reorganization;
(l) materially change any of the tax or financial accounting methods
or practices used by it unless required by GAAP, SAP or applicable law;
(m) settle or compromise any claim (including arbitration) or
litigation, which after insurance reimbursement involves an amount in excess of
$250,000 or otherwise is material to the Company involved or the Companies taken
as a whole;
(n) file any amended Tax Return or settle or compromise any claim
relating to Taxes;
(o) make any payment, loan or advance of any amount to or in respect
of, or engage in the sale, transfer or lease of any of its property or assets
to, or enter into any contract with, any affiliate (other than those dividends
or distributions set forth in Section 5.1(h) of the Disclosure Schedule or
pursuant to
<PAGE> 55
arrangements already in place prior to the date hereof and described in Section
3.25 of the Disclosure Schedule);
(p) amend the terms of or terminate any (i) Material Contracts or
Reinsurance Agreements (other than an extension of the terms, or termination in
accordance with the scheduled termination, of such Material Contract or
Reinsurance Agreements expressly required by their terms) or (ii) contracts,
agreements or arrangements with any affiliate to cause any change in the cost,
services being provided, or term of any such agreements, other than as
specifically contemplated by this Agreement;
(q) enter into or renew (other than a renewal of such contract
expressly required by the terms of such contract) any contract that would be
considered a Material Contract or Reinsurance Agreement (including any
contracts, agreements or arrangements with any affiliates);
(r) engage in any transaction with any affiliate, except to the extent
provided in this Agreement; or
(s) agree to take any of the foregoing actions.
SECTION 5.2 Management of Companies. Sellers shall, from the date of this
Agreement through the Closing Date, cause management of the Companies to consult
on a periodic basis and in good faith with the employees and representatives of
Buyer concerning the management of the Companies' businesses, including without
limitation the policies and practices of the Companies with respect to (i) the
ceding or assumption of reinsurance or the termination or modification of
existing Reinsurance Agreements (except as contemplated by this Agreement), (ii)
significant underwriting, actuarial, Tax or accounting issues (including matters
related to Tax audits or the establishment, review and modification of insurance
and other reserves), (iii) significant matters relating to the conditions, forms
and pricing of new kinds of policies and (iv) significant matters relating to
the agency force, product distribution, commissions and similar matters;
provided, however, that management of the Companies shall not consult with
employees and representatives of Buyer on any matter if, based on advice of
counsel, management determines that such consultation might violate the
provisions of the HSR Act or any other laws.
SECTION 5.3 Access to Information.
(a) Between the date hereof and the Closing Date, PLAC, PFG and SFC
shall cause the Companies, Services and PCFS to give to Buyer and its counsel,
accountants and other authorized representatives and agents, full access, during
regular business hours and upon reasonable advance notice, to any and all of
their respective premises, properties, contracts, books and
<PAGE> 56
records, and will cause their respective officers and employees to furnish to
Buyer and its representatives, except where prohibited by law, any and all data
and information pertaining, directly or indirectly, to the Companies, the
ConLife Employees, the PCFS Employees and the PCFS Assets that Buyer shall from
time to time reasonably request, and shall permit Buyer and its representatives
to make extracts and copies thereof. Buyer shall not exercise its rights
under this Section 5.3(a) in such a manner as to unreasonably interfere with the
ordinary operations of any of the Companies, Services or PCFS.
(b) As part of the foregoing review, PennLife shall, and PFG and PLAC
shall cause PennLife to, retain and permit the Reserves Consultants to conduct
independent reviews of all insurance reserves of PennLife (other than life
insurance reserves) (the "PennLife Insurance Reserves"), including but not
limited to disability income claim reserves.
(c) If the transactions contemplated herein are consummated, Buyer
covenants and agrees that it shall preserve and keep the records of the
Companies delivered to it hereunder for a period of seven years from the Closing
Date, and shall make such records available to PLAC, PFG and SFC (without
charge, other than reasonable photocopying expenses if copies are so requested
by PFC, PLAC or SFC), as reasonably requested by PLAC, PFG and SFC in connection
with any legal proceedings by or against, or governmental investigations of,
PLAC, PFG and SFC or any of their affiliates, or in connection with any tax
examination of PLAC, PFG and SFC or any consolidated group of which any of them
was a part or for any other proper business purpose of PLAC, PFG or SFC or their
affiliates.
(d) If the transactions contemplated herein are consummated, Buyer,
Sellers and the Companies jointly covenant and agree that, from and after the
Closing Date, each will use its reasonable best efforts to cooperate with each
other in connection with (i) the preparation of any Tax Return described in
Section 5.17(e) or 5.17(f) of this Agreement and (ii) any action, suit,
proceeding, investigation or audit of any of them relating to any Tax liability
that may be the subject of indemnification under Article VIII of this Agreement.
In furtherance thereof, Buyer, Sellers and the Companies further covenant and
agree to promptly respond to all inquiries related to such matters and to
provide, to the extent reasonably possible, substantiation of transactions and
to make available and furnish appropriate documents and personnel in connection
therewith.
SECTION 5.4 HSR Act Filings. As soon as practicable after the date
hereof, PFG and Buyer shall make appropriate filings with the DOJ under the HSR
Act, with respect to the transactions contemplated by this Agreement. In
connection with such filings, the parties hereto shall, in cooperation with each
other, and as promptly as reasonably practicable from time to time hereafter,
make all such further filings and submissions, and take such further action, as
may be required in connection therewith. Each party shall furnish the others all
information in its possession necessary for compliance by the others with the
<PAGE> 57
provisions of this Section 5.4. No party shall withdraw any such filing or
submission prior to the termination of this Agreement without the written
consent of the other parties.
SECTION 5.5 State Regulatory Approvals. As soon as practicable after the
date hereof, Buyer shall file all applications and other documents, and shall
use its reasonable best efforts to obtain all consents and approvals, as are
required to be filed or obtained by it under the applicable laws of the States
of Texas, North Carolina, Pennsylvania, New York and Florida and the federal or
provincial government of Canada, as applicable, and of any other applicable
jurisdictions, including all requisite approvals of the insurance regulatory
authorities in such jurisdictions and all other governmental approvals required
for consummation of the transactions contemplated by this Agreement, in each
case as promptly as is practicable. PFG and PLAC shall cause the PennLife
Companies, PFG and SFC shall cause the ConLife Companies and Services, to the
extent necessary, and PFG shall cause the PFI Companies and PCFS, to the extent
necessary, to take all such actions (other than the payment of money not then
due and owing or the provision of other consideration) as are reasonably
requested by Buyer to assist Buyer in completing all such filings and obtaining
all such consents and approvals as are required to be made and obtained. Buyer
shall take all such actions (other than the payment of money not then due and
owing or the provision of other consideration) as are reasonably requested by
PLAC, PFG, SFC and ConLife to assist in completing all filings and obtaining all
consents and approvals as any of them may be required to make and obtain.
SECTION 5.6 Pre-Closing Restructuring Transactions; Other Pre-Closing
Matters.
(a) At or prior to the Closing, PLAC, PFG and SFC shall cause to occur
the transactions listed in Annex H (the "Pre-Closing Restructuring
Transactions"); provided, however, that the parties acknowledge that a portion
of the Cash Purchase Price will be used to effect certain Pre-Closing
Restructuring Transactions simultaneously with the Closing.
(b) Prior to the Closing, Sellers shall pay in full all amounts due or
to become due in respect of the lease for 3 Bethesda Metro Center, Suite 1600,
Bethesda, Maryland. In addition, prior to the Closing, PFG will assign the Jack
Kent Cook Stadium Lease Agreement to a Subsidiary of PFG (other than any of the
Companies); provided, that if PFG is unable to assign such lease agreement, PFG
shall pay all amounts owing and due with respect to such lease agreement for the
full term thereof and shall be entitled to all of the benefits thereof.
SECTION 5.7 Estimated Statement. PFG shall prepare and deliver (no later
than five Business Days prior to the Closing Date) to Buyer a pro forma
statement (the "Estimated Statement") reflecting PFG's good faith estimate of
<PAGE> 58
the capital and surplus (excluding AVR and IMR) of the PennLife Companies and
the ConLife Companies as of the Closing Date assuming that the transactions
contemplated hereby (including the Closing Transactions and the Pre-Closing
Restructuring Transactions) occurred on and as of such date. The Estimated
Statement shall be prepared in accordance with SAP using the assumptions and
methodologies used in the preparation of the 1998 SAP Financial Statements.
SECTION 5.8 Transaction Bonuses. PFG, PLAC or SFC shall pay at or prior
to Closing all Transaction Bonuses payable to those officers, directors,
employees or agents set forth on Section 3.26 of the Disclosure Schedule or
otherwise agreed by Buyer and Sellers prior to Closing in accordance with
Section 5.1(d). To the extent such payments are made by any of the Companies,
PFG, PLAC or SFC shall reimburse the relevant Companies for the full amount of
such payments at Closing. Buyer shall cause the Companies to assume all
obligations under the retention agreements referenced in Section 3.26 of the
Disclosure Schedule arising after the Closing, other than the obligation to pay
the Transaction Bonuses.
SECTION 5.9 Payments to Agents. (a) Except as provided in Sections 5.9(b)
or (c) below, at or prior to Closing, PFG, PLAC or SFC shall pay any and all
amounts payable to any and all agents and other persons under compensation
arrangements made or allegedly made in connection with, in contemplation of or
otherwise relating to the proposed management-led buyout of PennLife (the
"Pre-Sale Obligations").
(b) At or prior to Closing, Buyer will (i) enter into investment
agreements (the "Investment Agreements") with respect to the Buyer Common Stock
to be purchased by certain agents of PennLife, (ii) adopt commission schedules
and (iii) adopt stock-based and other compensation plans, in each case on terms
consistent with Schedule 5.9(b) (the "Post-Closing Compensation Obligations").
(c) At and after the Closing, Buyer will cause PennLife to make all
cash payments that relate to the Pre-Sale Obligations to the extent that such
amounts are reserved for such purpose on the Unaudited Financial Statements and
the Audited Financial Statements and set forth in Section 5.9 of the Disclosure
Schedule.
SECTION 5.10 All Reasonable Efforts.
(a) Subject to the terms and conditions herein provided, each of the
parties hereto agrees to use all reasonable efforts to take, or cause to be
taken, all action, and to do, or cause to be done as promptly as practicable,
all things necessary, proper and advisable under applicable laws and regulations
to consummate and make effective as promptly as practicable the transactions
contemplated by this Agreement including, without limitation, all actions
necessary to satisfy any conditions set forth in the Chase Commitment. If at any
<PAGE> 59
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.
(b) At the Closing, PFG will assign to Buyer the non-exclusive right
to enforce the rights of PFG under the confidentiality agreements entered into
between Salomon Smith Barney, as agent for PFG and the Companies, and the
prospective purchasers of the Companies to the extent that such rights pertain
to the Companies.
SECTION 5.11 Public Announcements. The parties hereto will consult with
each other and will mutually agree (the agreement of each party not to be
unreasonably withheld or delayed) upon the content and timing of any press
release or other public statements with respect to the transactions contemplated
by this Agreement and shall not issue any such press release or make any such
public statement prior to such consultation and agreement, except as may be
required by applicable law or by obligations pursuant to any listing agreement
with any securities exchange or any stock exchange regulations as advised by
counsel; provided, however, that each party will give prior notice to the other
parties of the content and timing of any such press release or other public
statement required by applicable law or by obligations pursuant to any listing
agreement with any securities exchange or any stock exchange regulations.
SECTION 5.12 Disclosure Supplements. From time to time prior to the
Closing, PLAC, PFG and SFC may supplement or amend the Disclosure Schedule
delivered in connection herewith with respect to any matter which, if existing
or occurring at or prior to the date of this Agreement, would have been required
to be set forth or described in such Disclosure Schedule or which is necessary
to correct any information in such Disclosure Schedule which has been rendered
inaccurate thereby. Such supplements and amendments shall not be given effect
for purposes of Section 6.1(d); however, if the Closing occurs, Buyer shall be
deemed to have waived any right or claim it may otherwise have or have had on
account of any matter so disclosed in such supplement or amendment.
SECTION 5.13 Employment and Employee Benefits.
(a) Buyer shall offer employment to all PCFS Employees (other than
such employees who are disabled for purposes of the long-term disability plans,
if any, applicable to such employees) employed immediately prior to the Closing
Date upon the same terms and conditions of employment as in effect immediately
prior to the Closing Date, which employment shall be effective on the Closing
Date; provided, however, that Buyer shall not be obligated to offer
<PAGE> 60
employment to any PCFS Employees hired between the date hereof and the Closing
Date who were hired without the consent of Buyer other than replacement
employees performing functions substantially similar to his or her predecessor.
Buyer shall be liable, and shall indemnify and hold Sellers harmless from any
and all obligations or liabilities, contingent or otherwise, relating to or
arising from the employment or termination of employment of the PennLife
Employees or PFI Employees or any PCFS Employees hired pursuant to the first
sentence of this Section 5.13(a) (together, the "Company Employees"), with
respect to periods after the Closing Date. Sellers shall be liable for, and
shall indemnify and hold Buyer harmless from any and all obligations or
liabilities, contingent or otherwise, relating to or arising from the employment
or termination of employment of any other employees of PFG or any of its
affiliates (other than any of the Companies), including any PCFS Employees not
hired pursuant to the first sentence of this Section 5.13(a) and any ConLife
Employees with respect to periods up to and after the Closing Date, except to
the extent that such obligations and liabilities are accrued for and are
reflected on the Companies' balance sheets.
(b) At and following the Closing Date: (i) Buyer shall administer and
pay the claims, liabilities and expenses, and shall indemnify and hold Sellers
harmless with respect to Benefit Plans that are sponsored or maintained by the
Companies (the "Buyer Plans"), to the extent that such claims, liabilities and
expenses relate to the Company Employees and (A) relate to periods after the
Closing Date or (B) relate to periods prior to the Closing to the extent that
such claims, liabilities and expenses are accrued and are reflected on the
Companies' balance sheets; and (ii) Sellers shall indemnify and hold Buyer
harmless with respect to claims, liabilities and expenses under the Buyer Plans,
to the extent that such claims, liabilities and expenses relate to periods prior
to the Closing and are not accrued or reflected on the Companies' balance
sheets. At and following the Closing Date, Sellers shall administer and pay the
claims, liabilities and expenses, and shall indemnify and hold Buyer harmless,
with respect to all claims, liabilities and expenses relating to (i) any Benefit
Plans that are not Buyer Plans, (ii) any "employee benefit plans" (as defined in
Section 3(3) of ERISA) other than the Benefit Plans currently or previously
sponsored by Sellers, and (iii) any pension plans, whether or not subject to
Title IV of ERISA, and any liabilities or expenses incurred by any entity that
is required to be aggregated with the Companies pursuant to section 414(b), (c)
or (m) of the Code, immediately prior to, but not immediately after, the Closing
Date, to the extent that any such claims, liabilities and expenses are not
accrued or are not reflected in the Companies' balance sheets.
(c) Without limiting or expanding Buyer's obligations with respect to
the Post-Closing Stock-Based Compensation contemplated in Section 5.9(b) and
subject to the last sentence of Section 5.13(d), Buyer shall, and shall cause
its Subsidiaries (including the Companies), to provide employee benefits for
Company Employees that are at least substantially comparable in the aggregate to
the employee benefits and compensation provided to similarly
<PAGE> 61
situated Persons (i) by Sellers or their affiliates under the Benefit Plans and
compensation arrangements in effect as of the Closing Date or (ii) by Buyer
under its employee benefit plans and compensation arrangements in effect for its
employees. Buyer shall or shall cause the Companies to pay all accrued and
unpaid compensation, including vacation pay, as of the Closing Date in respect
of the Company Employees except as provided in Section 5.8 or 5.13(b).
(d) If Company Employees are included in any benefit plan (including
without limitation, provision for vacation) of Buyer or its Subsidiaries, such
employees shall receive credit for service prior to the Closing Date with
Sellers or any of their Subsidiaries or affiliates to the same extent such
service was counted under similar Benefit Plans for purposes of eligibility,
vesting and eligibility for retirement, and benefit accrual with respect to
vacation, disability and severance. Buyer shall use reasonable efforts to
provide medical, dental and health plan coverage to Company Employees as of the
Closing Date that shall not include pre-existing condition exclusions, except to
the extent such exclusions were applicable under the similar Benefit Plan as of
the Closing Date, and such plans shall provide credit for any deductibles and
co-payments applied or made with respect to each Company Employee in the
calendar year of the Closing. Buyer assumes the obligation, if any, to provide
coverage to the extent required by Part 6 of Title I of ERISA from and after the
Closing Date to Company Employees (but not any ConLife Employees or PCFS
Employees) who terminated their employment on or before the Closing Date. No
benefits are guaranteed or promised hereunder to any Company Employee with
respect to stock option, bonus or incentive plans, but may be so provided by
Buyer in its sole discretion.
(e) Prior to or effective as of the Closing Date, Sellers shall cause
the Companies to contribute or accrue employer matching contributions for the
portion of the calendar year prior to the Closing Date, with respect to all
Company Employees, and shall immediately thereafter fully vest all such Company
Employees' accounts under any 401(k) plan maintained by Sellers or their
Subsidiaries prior to the Closing Date for the benefit of Company Employees. As
soon as practicable after the Closing Date, Buyer shall cause a 401(k) plan
maintained by Buyer or the Companies to accept "eligible rollover
contributions," within the meaning of Section 402(f)(2)(A) of the Code, from any
401(k) plan maintained by Sellers or their Subsidiaries prior to the Closing
Date, for the benefit of Company Employees.
SECTION 5.14 Nonsolicitation. Each of PLAC, PFG and SFC and any of its
affiliates (other than the Companies) hereby agrees that, for a period
commencing on the Closing Date and ending on the second anniversary of the
Closing Date, it shall not, without Buyer's prior written consent, directly or
indirectly, solicit or hire any of the current officers, general agents or sales
agents (down to the level of district manager) of any of the Companies except
those officers disclosed in Section 5.14 of the Disclosure Schedule; provided,
however, that nothing herein shall prohibit it or any of its Subsidiaries from
<PAGE> 62
publishing a general solicitation of employment in any newspaper, magazine,
trade publication or other medium or from soliciting or hiring any person who
was an officer of any of the Companies on the Closing Date but whose employment
by such Company thereafter ceases, except as a result of Sellers' solicitation
or hiring of such person in violation of the first clause of this Section 5.14.
SECTION 5.15 Acquisition Proposals. No Seller shall, nor shall it
authorize or permit any of its officers, directors or employees or any
investment banker, attorney or other advisor or representative acting on its
behalf to, directly or indirectly, (a) make any offer or proposal to any Person
or enter into any contract with any Person to (i) sell or otherwise transfer any
of the capital stock or assets or properties of the Companies or any of the PCFS
Assets or (ii) effect any recapitalization, refinancing, restructuring, merger,
consolidation or other business combination involving the Companies or any of
the PCFS Assets; (b) entertain, solicit, encourage, accept, negotiate or
otherwise hold substantive discussions regarding any offer or proposal from any
Person to (i) purchase or otherwise acquire any of the capital stock or assets
or properties of the Companies or any of the PCFS Assets, (ii) effect any
recapitalization, refinancing, restructuring, merger, consolidation, or other
business combination involving the Companies or any of the PCFS Assets, or (c)
provide any non-public information regarding the Companies or the PCFS Assets to
any prospective purchaser thereof. If any such offer or proposal is made to or
received from any Person, Sellers will promptly advise such Person by written
notice of the terms of this Section 5.15 and will promptly deliver a copy of
such notice to Buyer.
SECTION 5.16 Section 338(h)(10) Election, Allocation of Purchase Price
under Sections 338 and 1060 and Matters Relating to SWLIC. (a) An election under
Section 338(h)(10) of the Code and any corresponding elections under the state,
local or foreign tax law (the "338(h)(10) Election") shall be made by PFG and
Buyer in respect of the purchase and sale of the PFI Shares. The parties agree
that the Purchase Price will be allocated as provided in Section 2.1 to the
assets of PCFS and PFI for all purposes (including Tax and financial accounting
purposes) in accordance with the rules under Section 338(b)(5) and Section 1060
of the Code and the Treasury Regulations promulgated thereunder. The parties
agree to cooperate in good faith in preparing the Allocation Schedule as soon as
practicable. Sellers, PCFS, PFI and Buyer will file all Tax Returns (including
amended returns and claims for refund) and information reports in a manner
consistent with such allocation.
(b) If requested by Buyer, Sellers shall also join in the filing of a
Section 338(h)(10) Election with respect to the purchase and sale of the ConLife
Shares. Any Tax liability resulting from such election and all costs associated
with such election shall be borne by Buyer. If such election is made, the
<PAGE> 63
principles of the second, third and fourth sentences of Section 5.16(a) shall
apply.
(c) As promptly as practicable (but in no event more than 90 days)
after the Closing Date, PFG shall deliver to Buyer (i) a calculation certified
by PFG's Chief Financial Officer stating ConLife's estimated tax basis in the
shares of common stock, par value $1.00 per share, of SWLIC as of the Closing
Date, which shall separately state adjustments for income, losses,
distributions, contributions and other relevant adjustments from January 1, 1998
through the Closing Date with respect to such tax basis (the "SWLIC Basis
Adjustments") and (ii) if requested by Buyer, an updated appraisal from
Tillinghast setting forth the fair market value of SWLIC as of the latest
practical date up to and including the Closing Date (the "SWLIC Valuation
Opinion"). If Buyer requests the SWLIC Valuation Opinion, the costs thereof
shall be shared equally by Buyer and PFG. If Buyer requests the SWLIC Valuation
Opinion, the Buyer Actuary shall review the SWLIC Valuation Opinion with
Tillinghast in order to arrive at a mutually agreed upon fair market value of
SWLIC (the "SWLIC Value"). If the SWLIC Value is greater than $220 million plus
the SWLIC Basis Adjustments, 35% of such excess shall be recorded as a liability
for Taxes on the Closing Statement with respect to ConLife. PFG and SFC agree
that unless such a liability is recorded on the Closing Statement as set forth
in the preceding sentence, they shall not take the position in any Tax Return
that the Tax basis of SWLIC immediately after the Closing Transactions exceeds
$220 million plus or minus, as the case may be, the SWLIC Basis Adjustments.
SECTION 5.17 Tax Matters.
(a) Sellers shall be responsible and shall pay all Taxes imposed on
the income of the Companies, including, without any limitation, any amounts
included in income under Treasury Regulation Sections 1.1502-13 and 1.1502-14,
any excess loss accounts taken into income under Treasury Regulation Section
1.1502-19 and any Taxes resulting from the transactions contemplated under this
Agreement, for all periods through and including the Closing Date to the extent
not provided as a current Tax liability on the Closing Statement. Except as
required by law, PFG, PLAC and SFC shall take no position on such Tax Returns
that relate to the Companies that would adversely affect the Companies after the
Closing Date. The income of the Companies shall be apportioned to the period up
to and including the Closing Date (excluding income after the Closing but prior
to the end of the Closing Date (i) that is not incurred in the ordinary course
of business, (ii) that is not incurred pursuant to the transactions contemplated
by this Agreement and (iii) that is caused by Buyer, which in each case shall be
attributed to the period after the Closing Date) and the period after the
Closing Date by closing the books of the Companies as of the end of the Closing
Date.
(b) PFG, PLAC and SFC shall make no election to retain any net
operating loss carryovers or capital loss carryovers of the Companies under
<PAGE> 64
Treasury Regulation Section 1.1502-20(g) or any similar provision of federal,
state, local or foreign law.
(c) PFG, PLAC and SFC shall allow the Companies and its counsel to
participate in any audits of the consolidated federal income Tax Returns of PFG,
PLAC or SFC to the extent that such Tax Returns relate to the Companies.
(d) PFG, PLAC and SFC shall immediately pay to Buyer any Tax refund
(or reduction in Tax liability) resulting from a carryback of a postacquisition
Tax attribute of any of the Companies into a consolidated, combined or unitary
Tax Return of PFG, PLAC or SFC, when such refund or reduction is realized by
PFG, PLAC or SFC. PFG, PLAC and SFC shall cooperate with the Companies in
obtaining such refunds (or reduction in Tax liability), including through the
filing of amended Tax Returns. PFG shall be entitled to any Tax refund (or
reduction in Tax liability) from a Tax Return for a taxable year that ends on or
prior to the Closing Date or the portion ending on the Closing Date of any
taxable year that includes the Closing Date that was not reflected on the
Closing Statement and is not described in the first sentence of this Section
5.17(d) (a "Seller Refund"), net of any tax payable by Buyer or the Companies in
respect of the receipt or accrual of such Seller Refund or any additional
correlative tax liability in another taxable year (a "Seller Net Refund
Amount"). If Buyers or any of the Companies realize such Seller Refund in cash
or through the reduction of another Tax liability for which Buyer is responsible
hereunder after the Closing Date, they shall pay the associated Seller Net
Refund Amount over to PFG within five days of receipt.
(e) PFG, PLAC and SFC will prepare or cause to be prepared, and file
or cause to be filed in a manner consistent with past practice and in the
ordinary course of business (subject to any departure required to comply with
any applicable law) (i) all consolidated, combined, or unitary Tax Returns of
the Sellers, the PLAC Group, the ConLife Group or the PFG Group that include the
Companies for all periods that begin prior to the Closing Date and (ii) all
other Tax Returns required to be filed by or on behalf of the Companies on or
prior to the Closing Date. PFG, PLAC and SFC agree to consult with Buyer with
respect to the Tax Returns described in this section, and shall deliver drafts
of such Tax Returns to Buyer no later than 10 Business Days prior to the date,
including extensions, on which such Tax Returns are required to be filed.
(f) Buyer will prepare or cause to be prepared, and file or cause to
be filed, all Tax Returns of the Companies other than those set forth in Section
5.17(e). Buyer will prepare all Tax Returns which reflect any Taxes for which
PFG, PLAC and SFC may be obligated to indemnify the Buyer Indemnitees under this
Agreement, in a manner consistent with past practice (subject to any departure
required to comply with any applicable law). Buyer agrees to consult with PFG
with respect to the Tax Returns described in the preceding sentence, and shall
deliver drafts of such Tax Returns to PFG no later than 10 Business Days prior
to the date, including extensions, on which such
<PAGE> 65
Tax Returns are required to be filed.
(g) The Consolidated Federal Income Tax Liability Allocation
Agreement, dated December 14, 1995, among ConLife, Union Bankers and Marquette,
as amended by the First Amendment to Consolidated Federal Income Tax Liability
Allocation Agreement, dated as of January 1, 1996, among ConLife, Union Bankers,
Marquette and SWLIC (other than Section 4 thereof) shall remain in effect solely
as between ConLife and SWLIC with respect to taxable periods through and
including the Closing Date. Except as provided in the foregoing sentence,
effective as of the Closing Date, PFG, PLAC and SFC shall terminate, or cause to
be terminated, any agreements relating to the sharing or allocation of, or
indemnification agreement with respect to, Taxes, or any similar contract or
arrangement to which any of the Companies is party such that none of the
Companies has any further Tax liability thereunder except as provided as a
current Tax liability on the Closing Statement, which shall be paid as soon as
reasonably practicable after the Closing.
SECTION 5.18 Financial Matters; Proxy Statement. (a) As soon as
reasonably practicable following the date of this Agreement, PFG shall deliver
to Buyer true and complete copies of (i) the audited combined financial
statements of the Companies (and PCFS, to the extent required under Item 13 of
Schedule 14A under the Exchange Act for purposes of the Proxy Statement) as at
and for the years ended December 31, 1995, 1996, 1997 and 1998, together with
the notes thereto (the "Audited Financial Statements"), which shall be certified
by KPMG Peat Marwick LLP ("KPMG"), independent public accountants for PFG, (ii)
a review letter in form and substance reasonably satisfactory to Buyer relating
to the Unaudited Financial Statements (the "Review Letter") and (iii) the Annual
Statements for each PennLife Company and ConLife Company for the year ended
December 31, 1998, including all exhibits, interrogatories, notes and schedules
thereto and any actuarial opinion, affirmation or certification filed in
connection therewith (the "1998 SAP Financial Statements"). In addition, PFG
shall, as promptly as practicable, provide all other financial data and other
information relating to the Companies reasonably requested by Buyer, so as to
permit Buyer to satisfy any reporting or disclosure obligations of Buyer
relating to the transactions contemplated by this Agreement.
(b) Prior to the Closing Date, PennLife shall, and PFG and PLAC shall
cause PennLife to, record in accordance with GAAP and SAP additional reserves
relating to adverse loss development applicable to the disability income claim
reserves of PennLife to the extent appropriate as indicated in the applicable
report of the Reserves Consultants; provided, that PennLife shall not be
required to record additional reserves in excess of $5 million.
<PAGE> 66
(c) As soon as reasonably practicable after the delivery to Buyer of
the Audited Financial Statements for 1995, 1996 and 1997, Buyer shall file with
the Commission a preliminary proxy statement (the "Proxy Statement") with
respect to, among other things, the solicitation of shareholder votes to amend
Buyer's certificate of incorporation to increase its authorized capital stock.
Buyer shall use its commercially reasonable efforts to promptly respond to any
comments raised by the Commission with respect to the Proxy Statement and shall
cause the definitive Proxy Statement to be mailed to the shareholders of Buyer
at the earliest practicable date. If any event with respect to Buyer, or with
respect to other information supplied by the Companies or Sellers for inclusion
in the Proxy Statement, shall occur which is required to be described in a
supplement to the Proxy Statement, such event shall be so described, and such
supplement shall be promptly filed with the Commission and, as required by law,
disseminated to shareholders of Buyer. The Proxy Statement will comply as to
form in all material respects with the provisions of the Exchange Act and the
rules and regulations thereunder.
SECTION 5.19 Peninsular Licenses.
(a) Prior to the Closing, Sellers shall cooperate with and assist, and
shall cause the Companies to cooperate with and assist, Buyer in causing
Peninsular (i) to remove such restrictions as is reasonably necessary to permit
Peninsular to write new business in the states in which Peninsular holds
licenses to conduct insurance business as of the date hereof and (ii) to obtain
licenses to conduct insurance business in the states listed in Section 5.19 of
the Disclosure Schedule and to obtain such product approvals in such states as
Buyer reasonably requests.
(b) Buyer will reimburse PFG and/or PLAC, as applicable, for all
actual out-of-pocket costs incurred in connection with obtaining the licenses
and product approvals contemplated in Section 5.19(a) above.
(c) If Buyer is unable to acquire the Peninsular Shares, (i) the Cash
Purchase Price will be reduced by the Peninsular Purchase Price, (ii) PFG or its
designee will purchase the Peninsular Shares for an amount in cash equal to the
Peninsular Purchase Price, (iii) the Aggregate Capital Amount will be reduced by
$12,725,000 and the Target Capital Amount for Peninsular will be eliminated, and
(iv) all ConLife business being reinsured by Peninsular pursuant to the
reinsurance transaction contemplated in item 9 of Annex E will be transferred by
Peninsular to a party designated by Buyer under a reinsurance agreement
containing terms reasonably satisfactory to Buyer.
SECTION 5.20 PCFS Licenses. At or prior to Closing, Sellers shall use
their commercially reasonable best efforts to obtain all software licenses (the
"PCFS Licenses") required to be obtained in connection with the sale of the PCFS
Assets to Buyer. At the Closing, Buyer shall reimburse PFG for 50% of all costs
incurred in connection with obtaining the PCFS Licenses.
<PAGE> 67
SECTION 5.21 Change of Name. As soon as reasonably practicable after the
Closing Date, Buyer shall cause PC-Canada and PFI (and, to the extent
applicable, any Subsidiaries thereof) to amend their respective organizational
documents and take all other regulatory and other actions to change their
respective names to a name that does not include the word "PennCorp" or any
variant thereof. Notwithstanding the foregoing, PC-Canada and PFI (and any
applicable Subsidiaries thereof) may, until such name change occurs, continue to
use stationery, letterhead, policy forms, business cards and other property or
assets on which the name "PennCorp" or any variant thereof appears so long as
Buyer uses its reasonable efforts to cause appropriate notations to be made
thereon indicating that such Companies are divisions of UAFC and are not part of
the PennCorp Financial Group, Inc. group of companies.
SECTION 5.22 Litigation Arising Between Signing and Closing. Sellers will
provide Buyer with prompt notice in reasonable detail of any Litigation,
complaints, charges or claims against any of the Companies or PCFS before any
Governmental Authority or arbitrator initiated or, to the knowledge of Sellers,
threatened between the date hereof and the Closing Date that would have been
required to be disclosed in Section 3.10 of the Disclosure Schedule ("New
Litigation") or Section 3.23(f) of the Disclosure Schedule ("New Employee
Claims") had they arisen or been in existence on or prior to the date of this
Agreement.
ARTICLE VI
CLOSING CONDITIONS
SECTION 6.1 Conditions to the Obligations of Buyer under this Agreement.
The obligations of Buyer under this Agreement to consummate the Closing
Transactions shall be subject to the satisfaction, at or prior to the Closing,
of the following conditions:
(a) subject to Section 5.19(c) hereof, all authorizations, consents
and approvals contemplated by Sections 3.6 and 4.5, including the PennLife
Insurance Approvals, the ConLife Insurance Approvals (which shall include
approval to restructure the capital of the PennLife Companies and the ConLife
Companies to reset unassigned surplus to not less than zero) and the Buyer
Approvals, shall have been obtained and shall be in full force and effect and
applicable regulators shall not have imposed any material and adverse
prohibitions, limitations, conditions or restrictions on Buyer or any of the
Companies in connection with the approvals by such regulators of the Forms A to
be filed by the parties as contemplated hereby, including but not limited to a
restriction on the ability of any of the Companies to pay ordinary dividends or
to write any material line of business.
(b) any waiting period applicable to the consummation of the
<PAGE> 68
sale and purchase of the Shares under the HSR Act shall have expired or been
terminated;
(c) no injunction, restraining order or other ruling or order issued
by any Governmental Authority or other legal restraint or prohibition preventing
the consummation of the Closing Transactions shall be in effect;
(d) each of the obligations of PLAC, PFG, SFC and PCFS required to be
performed by it at or prior to the Closing pursuant to this Agreement shall have
been duly performed and complied with in all material respects, and the
representations and warranties of PLAC, PFG, SFC and PCFS contained in this
Agreement shall be true and correct in all material respects as of the date of
this Agreement and as of the Closing Date as though made at and as of the
Closing Date (except (i) as to those representations or warranties which
specifically relate to an earlier date, which need to be true and correct in all
material respects as of such specified dates and (ii) to the extent that the
representation and warranty set forth in Section 3.15(e) has been rendered
inaccurate as the result of any claims asserted with respect to Agent
Compensation between the date hereof and the Closing), and Buyer shall have
received a certificate to that effect signed by a senior officer of each of
PLAC, PFG, SFC and PCFS;
(e) any and all material permits, consents, waivers, clearances,
approvals and authorizations of Governmental Authorities and all material
consents, licenses, waivers or approvals of any other third parties (other than
those contemplated by subparagraph (a) above), including the PCFS Licenses,
which are necessary in connection with the consummation of the Closing
Transactions and the consummation of the transactions contemplated by the
Universal Share Purchase Agreement shall have been obtained;
(f) Buyer shall have received opinions of counsel to Sellers, in the
forms attached hereto as Annex E;
(g) Security Life and Trust Insurance Company ("Integon") and PennLife
shall have entered into a lease agreement containing the material terms set
forth on Exhibit D on terms reasonably satisfactory to Buyer pursuant to which,
following the Closing, PennLife will continue to occupy office space currently
occupied by PennLife Employees at the facility located at Wycliff Road in
Raleigh, North Carolina, for the term described in Exhibit D;
(h) Buyer or any of the Companies and AmeriLife Marketing Inc. shall
have entered into an agreement containing the material terms set forth on
Exhibit A and otherwise on terms reasonably satisfactory to Buyer;
<PAGE> 69
(i) the capital and surplus (excluding AVR and IMR) of the PennLife
Companies and the ConLife Companies reflected on the Estimated Statement shall
equal or exceed the Target Capital Amount for each Company and the Aggregate
Target Capital Amount shall have been satisfied;
(j) all intercompany indebtedness owed by PFG and its affiliates
(other than the Companies) to any of the Companies or owed by the Companies to
PFG or its affiliates (other than the Companies) as listed on Section 3.25 of
the Disclosure Schedule shall have been paid in full, and all other affiliate
transactions described on Section 3.25 of the Disclosure Schedule shall have
been terminated (other than such affiliate transactions solely among the
Companies), with no further liability to any of the Companies or relating to the
PCFS Assets;
(k) PFG shall have executed and delivered the Pledge and Security
Agreement;
(l) the conditions set forth in the Chase Commitment shall have been
satisfied, to the satisfaction of Chase Bank and Chase Securities; provided,
however, that upon receipt of notice from Chase Bank that the reports delivered
by the Reserves Consultants and the 1998 Audited Financial Statements are
satisfactory under the terms of the Chase Commitment (which shall be deemed
satisfactory for purposes of this clause if no objection is made within 30 days
of delivery of the last of such reports and financial statements), the
conditions specified in this Section 6.1(m) shall no longer be conditions to the
consummation by Buyer of the Closing Transactions;
(m) the Reserves Consultants shall have completed their review of all
of the PennLife Insurance Reserves and the results of such reviews shall be
reasonably satisfactory to Buyer; provided, however, that Buyer shall make its
determination of the adequacy of such reports within 30 days of delivery of the
last of such reports;
(n) each of the Pre-Closing Restructuring Transactions shall have been
completed or otherwise provided for to the reasonable satisfaction of Buyer;
(o) Sellers shall have delivered to Buyer for inclusion in the Proxy
Statement the 1998 Audited Financial Statements specified in Section 5.18(a)(i)
and the shareholders of Buyer shall have approved at a special meeting of
shareholders of Buyer the matters requiring shareholder approval as set forth in
the UAFC Share Purchase Agreement, in accordance with New York law and the rules
of Nasdaq;
(p) the Companies shall have received either (i) a rating of B+ or
better from A.M. Best or (ii) assurances from A.M. Best satisfactory to Buyer
that on or immediately after the Closing, the Companies will be assigned at
least a B+ rating;
<PAGE> 70
(q) Buyer or a designated subsidiary of Buyer shall have entered into
an agreement with Integon, Occidental Life Insurance Company of North Carolina
and Professional Insurance Company containing the material terms set forth on
Exhibit F or otherwise on terms reasonably satisfactory to Buyer and PFG
pursuant to which Buyer or such subsidiary shall have agreed to provide the
services specified in Exhibit F for the period specified in Exhibit F;
(r) the Review Letter shall not indicate any material deficiency in
the Unaudited Financial Statements; and
(s) Sellers shall have delivered to Buyer a certificate complying with
Treasury Regulations section 1.1445-2(b)(2), in form and substance reasonably
satisfactory to Buyer, duly executed and acknowledged, certifying that Sellers
are not foreign persons within the meaning of such section.
SECTION 6.2 Conditions to the Obligations of Sellers under this
Agreement. The obligation of Sellers under this Agreement to consummate the
Closing Transactions shall be subject to the satisfaction, at or prior to the
Closing, of the following conditions:
(a) all authorizations, consents and approvals contemplated by
Sections 3.6 and 4.5, including the PennLife Insurance Approvals, the ConLife
Insurance Approvals and the Buyer Approvals shall have been obtained and shall
be in full force and effect and applicable regulators shall not have imposed any
material and adverse prohibitions, liabilities, limitations, conditions or
restrictions on Sellers or (to the extent Sellers would be prevented from
consummating the transactions contemplated by this Agreement) the Companies, in
connection with the approvals by such regulators of the Forms A to be filed by
the parties as contemplated hereby including but not limited to a restriction on
the ability of Union Bankers to pay the Union Bankers Special Dividend or on the
ability of the Sellers or the Companies to make any other reallocation of
capital and surplus as otherwise permitted or required by this Agreement;
(b) any waiting period applicable to the consummation of the sale and
purchase of the Shares under the HSR Act shall have expired or been terminated;
(c) no injunction, restraining order or other ruling or order issued
by any Governmental Authority or other legal restraint or prohibition preventing
the consummation of the Closing Transactions shall be in effect;
(d) each of the obligations of Buyer required to be performed by it at
or prior to the Closing pursuant to the terms of this Agreement shall have been
duly performed and complied with in all material respects, and the
<PAGE> 71
representations and warranties of Buyer contained in this Agreement shall be
true and correct in all material respects as of the date of this Agreement and
as of the Closing Date as though made at and as of the Closing Date (except as
to any representation or warranty which specifically relates to an earlier
date), and Sellers shall have received a certificate to that effect signed by an
officer of Buyer;
(e) Buyer or a designated subsidiary of Buyer shall have entered into
an agreement with Integon, Occidental Life Insurance Company of North Carolina
and Professional Insurance Company containing the material terms set forth on
Exhibit F or otherwise on terms reasonably satisfactory to Buyer and PFG
pursuant to which Buyer or such subsidiary shall have agreed to provide the
services specified in Exhibit F after the Closing for the period specified in
Exhibit F;
(f) Sellers shall have received an opinion of counsel to Buyer, in the
form attached hereto as Annex F; and
(g) the shareholders of Buyer shall have approved at a special meeting
of shareholders of Buyer the matters requiring shareholder approval as set forth
in the UAFC Share Purchase Agreement, in accordance with New York law and the
rules of Nasdaq.
ARTICLE VII
CLOSING
SECTION 7.1 Closing. The closing of the Closing Transactions (the
"Closing") shall take place at the offices of Weil, Gotshal & Manges LLP, 767
Fifth Avenue, New York, NY 10153, subject to the satisfaction or waiver of the
conditions set forth in Sections 6.1 and 6.2, as soon as practicable after the
date hereof and in any event not later than June 30, 1999, or at such other time
and place and on such other date as Buyer and PFG shall agree (the "Closing
Date"). As a further condition to Closing, at the Closing:
(a) PLAC, PFG, SFC and PCFS, as applicable, shall deliver or cause to
be delivered to Buyer the following:
(i) the certificates described in Section 6.1(d);
(ii) share certificates representing all of the Shares in
appropriate form for transfer to Buyer duly endorsed in blank or
accompanied by stock powers duly executed in blank;
<PAGE> 72
(iii) resignations of the directors of each of the Companies;
(iv) an executed Bill of Sale, Assignment and Assumption
Agreement; and
(v) a section 116 certificate in respect of the PC-Canada shares
bearing a certificate amount not less than the amount of the PC-Canada
Purchase Price; provided, that if the certificate is not so delivered,
Buyer shall make such withholdings as may be required pursuant to the
Income Tax Act (Canada).
(b) Buyer shall deliver or cause to be delivered to Sellers the
following:
(i) the certificate described in Section 6.2(d);
(ii) the Acquisition Notes; and
(iii) an executed Bill of Sale, Assignment and Assumption
Agreement; and
(c) Buyer shall pay or cause to be paid to Sellers, by wire transfer
of immediately available funds to such account or accounts as Sellers shall have
designated in writing at least two days prior to the Closing Date, the Cash
Purchase Price.
ARTICLE VIII
SURVIVAL/INDEMNIFICATION
SECTION 8.1 Survival of Representations and Warranties; Indemnification
Obligations.
(a) Notwithstanding any right of Buyer to investigate fully the
affairs of the Company and the Subsidiaries and notwithstanding any knowledge of
facts determined or determinable by Buyer pursuant to such investigation or
right of investigation, Buyer has the right to rely fully upon the
representations, warranties, covenants and agreements of Sellers contained in
this Agreement or in any documents delivered pursuant to this Agreement. All
representations and warranties contained in this Agreement shall survive the
execution and delivery of this Agreement and the Closing (except that the
representations and warranties contained in Sections 4.9, 4.10, 4.11 and 4.12
shall not survive the Closing). The representations and warranties of Sellers
contained in this Agreement shall terminate and expire (i) with respect to any
Claim (as defined
<PAGE> 73
below) based on the representations and warranties contained in Section 3.14 (a
"Tax Representation Claim") on the date which is 30 days after the date upon
which the liability to which any such Tax Representation Claim may relate is
barred by all applicable statutes of limitations (including all periods of
extension, whether automatic or permissive); (ii) with respect to any Claim
based on the representations and warranties contained in Section 3.19, three
years after the Closing Date; (iii) with respect to any Claim based on the
representations and warranties contained in Section 3.13, on the date upon which
the liability to which any such Claim may relate is barred by all applicable
statutes of limitations (including all periods of extension, whether automatic
or permissive); and (iv) with respect to any Claim based on any other
representation and warranty (except for those representations and warranties in
Sections 3.1, 3.2, 3.4, 3.5, 3.16 and 3.24 (the "Fundamental Representations"),
all of which Fundamental Representations shall survive without limitation), on
the date which is 18 months after the Closing Date. Unless a specified period is
set forth in this Agreement (in which event such specified period will control),
the covenants and agreements of this Agreement will survive the Closing and
remain in effect indefinitely.
(b) PFG, with respect to all matters contemplated by this Agreement,
jointly and severally with PLAC, SFC and PCFS; PLAC, with respect only to
matters relating to itself and the PennLife Companies, severally and not jointly
with any other Seller (except PFG); SFC, with respect only to matters relating
to itself and the ConLife Companies, severally and not jointly with any other
Seller (except PFG); and PCFS, with respect only to matters relating to itself,
severally and not jointly with any other Seller (except PFG), will indemnify,
defend and hold harmless Buyer and, following the Closing, the Companies
(together with their respective directors, officers, employees, affiliates,
successors and assigns, the "Buyer Indemnitees") from and against all actions,
causes of action, suits, claims, complaints, demands, litigations, or legal,
administrative or arbitral proceedings or investigations ("Claim"), losses,
liabili ties, damages (excluding any indirect, consequential or special
damages), deficiencies, judgments, assessments, fines, settlements, costs or
expenses (including interest, penalties and fees, reasonable expenses and
disbursements of outside attorneys, experts and consultants) incurred by the
indemnified party in any action or proceeding between the indemnifying party and
the indemnified party or between the indemnified party and any third party, or
otherwise ("Losses") based upon, arising out of or otherwise in respect of:
(i) any inaccuracy in or any breach of any representation,
warranty, covenant or agreement of Sellers contained in this Agreement
or in any documents delivered by Sellers pursuant to this Agreement
(including any breach of the representation and warranty in Section
3.15(e) relating to claims for Agent Compensation not listed in
<PAGE> 74
Section 3.15(e) of the Disclosure Schedule); provided, that for purposes
of this Section 8.1(b)(i) only, any inaccuracy in or breach of a
representation or warranty shall be determined without reference to any
materiality or Material Adverse Effect qualifier (other than such
qualifier contained in Section 3.28 hereof) that may be set forth
therein;
(ii) any derivative lawsuits or lawsuits based upon violations of
federal and state securities laws against PFG or its affiliates or their
respective officers and directors which are pending as of the date of
this Agreement or which may be brought after the date of this Agreement,
whether or not Buyer, the Companies or any Buyer Indemnitee is named or
joined as a party thereto; provided, that Buyer shall not be entitled to
indemnification under this Section 8.1(b)(ii) for any Losses incurred by
Buyer in connection with such lawsuits that result from any actions of
Buyer that are independent from, and not in breach or violation of, any
of the transactions or other matters contemplated by this Agreement or
any other documents executed and delivered in connection with the
transactions contemplated by this Agreement;
(iii) any Taxes of any member of an affiliated, consolidated,
combined, or unitary group of which any of the Companies is or was a
member on or prior to the Closing Date by reason of the liability of the
Companies pursuant to Treasury Regulation Section 1.1502-6(a) or any
analogous or similar state, local or foreign law or any contractual
liability for Taxes of any party other than the Companies;
(iv) any Phase III Taxes of any Company relating to any period up
to and including the Closing Date;
(v) any Phase III Taxes of any Company relating to any period
after the Closing Date up to and including five taxable years following
the Closing Date and all or any portion of any later taxable year through
and including the fifth anniversary of the Closing Date; provided, that
if any Phase III Taxes arise after the Closing Date as a result of any
action taken by Buyer, Buyer shall only be entitled to be indemnified for
75% of such Taxes; provided further, that PFG, SFC and PLAC shall not be
liable hereunder with respect to any Phase III Taxes caused solely by
Buyer's failure to make reasonable efforts, for such period, to (A)
maintain in force the reinsurance agreement between ConLife and
Peninsular contemplated by item 9 of Annex H (unless otherwise required
by applicable regulators) and (B) maintain Peninsular as a life insurance
company within the meaning of Section 816 of the Code;
(vi) any reductions in or limitations on the NOLs resulting from
any challenge by a Governmental Authority or limitation imposed under the
Code (other than limitations imposed solely by reason of the Closing
Transactions), including without limitation any increased liability or
Taxes with respect to periods after the Closing;
<PAGE> 75
(vii) in the event the NOLs available for carryover, as provided
in Section 3.14(ac), are less than $20 million, the amount of the
difference multiplied by 35%, utilizing a discount rate of 15% per annum,
utilizing the date when such unavailable amount of NOLs would otherwise
have been available and reflecting the principles of Section 382 of the
Code, will constitute the amount of Buyer's loss. An example of the
application of this calculation is set forth in Exhibit G.
(viii) any of the Pre-Closing Restructuring Transactions (whether
such Losses relate to Taxes or otherwise);
(ix) any Taxes, or for any Loss of Tax benefits, incurred in
connection with or as a result of any 338(h)(10) Election pursuant to
Section 5.16 of this Agreement;
(x) any Taxes related to the Closing Transactions;
(xi) the Transaction Bonuses and the Pre-Sale Obligations (other
than any Losses resulting from the failure by Buyer to perform its
obligations under Section 5.9(b) or (c));
(xii) any liabilities of PCFS that Buyer has not expressly
assumed;
(xiii) the failure of PCFS to comply, in connection with the sale
of the PCFS Assets, with all applicable bulk sales or bulk transfer laws;
(xiv) the presence at any time prior to the Closing of underground
fuel storage tanks at, or the use prior to the Closing as an auto service
station of, the commercial property located at 645 Riverside Avenue,
Jacksonville, Florida 32204 (referred to in Section 3.19 of the
Disclosure Schedule) and arising pursuant to Environmental Laws; and
(xv) the wrongful discharge claim by Mr. Ernie Brezden (item 16 of
Section 3.10 of the Disclosure Schedule), the discrimination claim by
Bernadette Somerville (item 6 of Section 3.10 of the Disclosure Schedule)
and the discrimination claim by Robert Foster (item 18 of Section 3.10 of
the Disclosure Schedule).
SECTION 8.2 Obligation of Buyer to Indemnify. Buyer agrees to indemnify,
defend and hold harmless Sellers (other than, following the Closing, the
Companies) and their respective directors, officers, employees, affiliates,
successors and assigns from and against all Losses based upon, arising out of or
otherwise in respect of (i) any inaccuracy in or any breach of any
representation, warranty, covenant or agreement of Buyer contained in this
<PAGE> 76
Agreement or in any documents delivered by Buyer pursuant to this Agreement and
(ii) a breach by Buyer of its obligations under Section 5.9(b) or (c) of this
Agreement, including the Post-Closing Compensation Obligations.
SECTION 8.3 Notice and Opportunity to Defend.
(a) Notice of Asserted Liability. The party making a claim under this
Article VIII is referred to as the "Indemnitee," and the party against whom such
claims are asserted under this Article VIII is referred to as the "Indemnifying
Party." All claims by any Indemnitee under this Article VIII shall be asserted
and resolved as follows: Promptly after receipt by the Indemnitee of notice of
any Claim or circumstances which, with the lapse of time, would or might give
rise to a Claim or the commencement (or threatened commencement) of a Claim
including any action, proceeding or investigation (an "Asserted Liability") that
may result in a Loss, the Indemnitee shall give notice thereof (the "Claims
Notice") to the Indemnifying Party. The Claims Notice shall describe the
Asserted Liability in reasonable detail, and shall indicate the amount
(estimated, if necessary and to the extent feasible) of the Loss that has been
or may be suffered by the Indemnitee.
(b) Opportunity to Defend. (i) The Indemnifying Party may elect to
compromise or defend, at its own expense and by its own counsel, any Asserted
Liability (excluding those related to Taxes relating to any period ending after
the Closing Date). If the Indemnifying Party elects to compromise or defend such
Asserted Liability, it shall within 30 days (or sooner, if the nature of the
Asserted Liability so requires) notify the Indemnitee of its intent to do so,
and the Indemnitee shall cooperate, at the expense of the Indemnifying Party, in
the compromise of, or defense against, such Asserted Liability. If the
Indemnifying Party elects not to compromise or defend the Asserted Liability,
fails to notify the Indemnitee of its election as herein provided or contests
its obligation to indemnify under this Agreement, the Indemnitee may pay,
compromise or defend such Asserted Liability. Notwithstanding the foregoing,
neither the Indemnifying Party nor the Indemnitee may settle or compromise any
Asserted Liability over the objection of the other; provided, however, that
consent to settlement or compromise shall not be unreasonably withheld. In any
event, the Indemnitee and the Indemnifying Party may participate, at their own
expense, in the defense of such Asserted Liability. If the Indemnifying Party
chooses to defend any Asserted Liability, the Indemnitee shall make available to
the Indemnifying Party any books, records or other documents within its control
as well as reasonable access to its employee and consultants, in each case to
the extent necessary or appropriate for such defense. In the event it is
determined by a court of competent jurisdiction that an Indemnitee is not
entitled to indemnification pursuant to this Article VIII for any Asserted
Liability, then the Indemnitee shall promptly reimburse the Indemnifying Party
for all fees, costs and expenses
<PAGE> 77
(including reasonable fees, expenses and disbursements of outside attorneys,
experts and consultants) incurred by the Indemnitee in connection with the
defense of such Asserted Liability.
SECTION 8.4 Limitations on Indemnification. The indemnification provided
for in Sections 8.1 and 8.2 shall be subject to the following limitations:
(a) The Indemnifying Parties shall not be obligated to indemnify the
Buyer Indemnitees for Losses arising under Section 8.1(b)(i) with respect to
breaches of representations and warranties until the aggregate amounts for
indemnification under Section 8.1(b)(i) equals $2.5 million (the "Basket
Amount"), whereupon the Indemnifying Parties shall be obligated to pay only the
amount of such Losses in excess of the Basket Amount; provided, however, that
the foregoing limitation shall not apply to, and the Indemnifying Parties shall
be obligated to indemnify the Buyer Indemnitees for the full amount of, Losses
arising under Section 8.1(b)(i) based upon, arising out of or otherwise in
respect of the Fundamental Representations and Sections 3.13 and 3.14
(collectively, the "Basket Exclusions") without regard to the Basket Amount;
provided further, that any Losses based upon, arising out of or otherwise in
respect of the Basket Exclusions shall not be counted against the Basket Amount.
(b) The Sellers, collectively, shall not be obligated to make any
payment for indemnification under Section 8.1(b) with respect to breaches of
representations and warranties (except those based upon, arising out of or
otherwise in respect of the Fundamental Representations and Sections 3.13(e) and
3.14(n)) and under Sections 8.1(b)(iv), (v), (vi), (ix) and (x) in excess of the
Purchase Price; provided, that (i) SFC shall not be obligated to make any
payment for indemnification under Section 8.1(b) in excess of the sum of the
Union Bankers Purchase Price and the ConLife Purchase Price, (ii) PLAC shall not
be obligated to make any payment for indemnification under Section 8.1(b) in
excess of the sum of the Peninsular Purchase Price, the PC-Canada Purchase Price
and the PennLife Purchase Price and (iii) PCFS shall not be obligated to make
any payment for indemnification under this Section 8.1(b) in excess of $1.0
million.
(c) Buyer shall not be obligated to make any payment for
indemnification under Section 8.2 in excess of $50 million.
SECTION 8.5 Set-off Rights. In addition to, and not in replacement of,
the rights of Buyer set forth in Section 2.4 above, each of PFG, PLAC, SFC and
PCFS agrees that Buyer shall have the right, but not the obligation, to set-off
against the payment obligations under the Acquisition Notes the full amount of
any Losses required to be paid by such Seller pursuant to Section 8.1(b), as
more fully set forth in the Pledge and Security Agreement. Buyer's set-off right
<PAGE> 78
will terminate on the fifth anniversary of the Closing Date; provided, that such
rights will continue unimpaired beyond the fifth anniversary of the Closing Date
with respect to any Claim as to which Buyer shall have notified PFG and is
pending as of the fifth anniversary of the Closing Date or as to which Buyer
shall have given notice in good faith to PFG prior to such date. The termination
of Buyer's set-off rights as provided in the preceding sentence shall not apply
to Buyer's rights to set-off in connection with the DI Reserves, which rights
are set forth in Section 2.4 of this Agreement.
SECTION 8.6 Adjustment to Purchase Price; Offsetting Tax Benefits.
(a) It is the intention of the parties hereto that any payment under
Sections 2.3 or 2.4 or under this Article VIII shall be treated as an adjustment
to the Purchase Price for all Tax purposes and the parties agree to file their
Tax returns accordingly. In the event that any such payment to Buyer or its
Subsidiaries (including the Companies) is not so treated, the amount of such
payment shall be increased so that, after payments of all Taxes due thereon, the
amount retained by Buyer is equal to the amount that Buyer would have retained
if no such Taxes had been due.
(b) The amount of an indemnified Loss shall be reduced by (or the
Indemnitee shall pay to the Indemnifying Party) any Tax benefits actually
realized by the Indemnitee or its affiliates which are directly attributable to
the Indemnifiable Loss (including, without limitation, any Tax benefits arising
from the payment or accrual of the indemnified Loss or any correlative
offsetting Tax benefit realized in a taxable period) (an "Offsetting Tax
Benefit"), promptly after realizing such Offsetting Tax Benefit in cash.
SECTION 8.7 Exclusive Remedy. Each party hereto agree that, to the
fullest extent permitted by law, such party's sole and exclusive remedy with
respect to any claim or cause of action asserted by it relating to or arising
from breaches of the representations and warranties or covenants and agreements
of any other party contained in this Agreement shall be limited to its rights
under, and subject to the terms and conditions of, this Article VIII.
Notwithstanding the foregoing, (i) the parties shall have the right to obtain
equitable relief in the form of a temporary or permanent injunction or order for
specific performance and (ii) each party shall have the right to assert any
claim for fraud against any other party for any breach of this Agreement.
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:
<PAGE> 79
(a) by mutual consent of each of the Sellers and Buyer;
(b) by any of the Sellers or Buyer:
(i) if a Governmental Authority shall have issued an order,
decree or ruling or taken any other action (which order, decree or ruling
the parties hereto shall use their best efforts to lift), in each case
permanently restraining, enjoining or otherwise prohibiting any of the
Closing Transactions and such order, decree, ruling or other action shall
have become final and nonappealable; or
(ii) if the Closing shall not have occurred on or before March 31,
1999; provided, however, that this Agreement shall automatically extend
for up to two consecutive 30-day periods commencing on March 31, 1999 if
(A) Sellers prior to such time shall not have secured the PennLife
Insurance Approvals, ConLife Insurance Approvals and the Buyer Approvals
have not yet been obtained or (B) the Proxy Statement prior to such time
shall not have cleared review by the Commission or the Proxy Statement
has cleared review by the Commission but additional time is required to
hold the meeting of shareholders of Buyer contemplated by Section 4.5(e)
of this Agreement or to close the transactions contemplated by this
Agreement after such meeting; provided further, however, that the right
to terminate this Agreement shall not be available to any party whose
breach of this Agreement has been the cause of, or resulted in, the
failure of the Closing to occur on or before March 31, 1999 (or the end
of the second 30-day period, if applicable);
(c) by Buyer if a material default or breach shall be made by Sellers
with respect to the due and timely performance of any of their covenants or
agreements contained herein, or in any of their representations or warranties
contained in the Agreement, if such default or breach has not been cured or
waived within 30 days after written notice to such breaching party specifying,
in reasonable detail, such claimed material default or breach and demanding its
cure or satisfaction;
(d) by Sellers if a material default or breach shall be made by Buyer
with respect to the due and timely performance of any of its covenants or
agreements contained herein, or in any of its representations or warranties
contained in the Agreement, if such default or breach has not been cured or
waived within 30 days after written notice to Buyer specifying, in reasonable
detail, such claimed material default or breach and demanding its cure or
satisfaction; or
SECTION 9.2 Expenses in the Event of Termination. If this Agreement is
terminated by Buyer or Sellers for any reason other than pursuant to
<PAGE> 80
Section 9.1(a), (b)(i), (b)(ii)(A) (with respect to approvals to be obtained in
Florida and New York by Buyer (only if such approvals are not obtained because
of the unsuitability of Buyer, Buyer Sub or Capital Z)), (b)(ii)(B) (except if
the Proxy Statement has not cleared review by the Commission solely because of
the Financial Statements required to be included in the Proxy Statement) or (d)
or the failure of Buyer to obtain the shareholder approval contemplated by
Section 4.5, Sellers shall pay to Buyer and Capital Z an amount necessary to
reimburse Buyer and Capital Z for 75% of all actual out-of-pocket costs and
expenses of Buyer and Capital Z incurred through the date of termination by
Capital Z and Buyer in connection with the transactions contemplated by this
Agreement (exclusive of any bank commitment fees) and the UAFC Share Purchase
Agreement (including the negotiation of the Chase Bank Facility), which payment
shall be made by Sellers by wire transfer of immediately available funds within
three business days after receipt by Sellers from Buyer and/or Capital Z of an
invoice or invoices identifying such costs and expenses in reasonable detail,
together with all supporting invoices, and specifying the account or accounts
into which funds should be deposited.
SECTION 9.3 Procedure and Effect of Termination. In the event of
termination and abandonment of the transactions contemplated hereby pursuant to
Section 9.1, written notice thereof shall forthwith be given to the other
parties to this Agreement and this Agreement shall terminate and the
transactions contemplated hereby shall be abandoned, without further action by
any of the parties hereto. If this Agreement is terminated as provided herein:
(a) upon request therefor, each party will redeliver all documents,
work papers and other material of any other party relating to the transactions
contemplated hereby, whether obtained before or after the execution hereof, to
the party furnishing the same; and
(b) no party hereto shall have any liability or further obligation to
any other party to this Agreement resulting from such termination except (i)
that the provisions of this Section 9.3 and Sections 9.2, 9.4 and 9.5 shall
remain in full force and effect and (ii) no party waives any claim or right
against a breaching party to the extent that such termination results from the
breach by a party hereto of any of its representations, warranties, covenants or
agreements set forth in this Agreement.
SECTION 9.4 Mutual Agreement of Parties. (a) In the event of termination
of this Agreement, neither Buyer nor any Seller shall, for a period commencing
on the date of such termination and ending 18 months thereafter, without the
consent of the other, directly or indirectly solicit for employment or hire any
employee or agent of Buyer or any Seller, as the case may be, of whom Buyer or
any Seller, as the case may be, became aware as a result of the
<PAGE> 81
transactions contemplated by this Agreement; provided, however, that no party
shall be prohibited from publishing a general solicitation of employment in any
newspaper or magazine or from hiring an employee or agent of another party who
seeks employment without solicitation. This Section 9.4 will supersede the
agreement between the parties with respect to the subject matter hereof
contained in the Confidentiality Agreement, dated May 29, 1998, between PFG and
Capital Z (the "Confidentiality Agreement").
(b) Notwithstanding the foregoing, nothing contained in Section 9.4(a)
shall mean or shall be interpreted to mean that, upon termination of this
Agreement, Buyer or Sellers in any way would be restricted or prohibited from
working with or engaging in business in any form whatsoever with Gary Boesch or
any affiliated entity.
SECTION 9.5 Confidentiality. Each party hereto acknowledges that the
other parties have legitimate and continuing proprietary interests in the
protection of their confidential information and that the parties have invested
substantial sums and will continue to invest substantial sums to develop,
maintain and protect such confidential information. Prior to and after the
Closing, each party agrees not to disclose, furnish or make accessible to anyone
or use for its own benefit (other than as contemplated hereby) any trade secrets
or other confidential or proprietary information of another party relating to
the Companies and/or their respective businesses, the PCFS Assets or the other
parties including, but not limited to, information obtained by or revealed to
such party during any investigations, negotiations or review relating to this
Agreement, the UAFC Share Purchase Agreement and any other document contemplated
hereby or thereby or any past or future actions taken in connection with,
pursuant to, in accordance with, or under this Agreement, including without
limitation any business plans, marketing plans, financial information,
strategies, systems, programs, methods, employee lists, computer programs,
insurance profiles and customer lists; provided, however, that such protected
information shall not include (i) information required to be disclosed by law,
legal or judicial process (including a court order, subpoena or order of a
Governmental Authority) or the rules of any stock exchange (including Nasdaq),
(ii) information that is or becomes available to the disclosing party on a
non-confidential basis from a source other than the other parties and not
obtained in violation of this Agreement and (iii) information known to the
public or otherwise in the public domain without violation of this Section 9.5.
ARTICLE X
MISCELLANEOUS PROVISIONS
SECTION 10.1 Post-Closing DI Reserves Information. Until the fifth
anniversary of the Closing Date, from time to time, Buyer shall afford Sellers
reasonable access, and shall cause the officers, employees, agents and
<PAGE> 82
representatives of PennLife to permit Sellers, reasonable access to review and
examine Buyer's procedures and policies for payment of claims and estimation of
reserves relating solely to the DI Reserves (the "DI Reserve Information"). In
connection therewith, Buyer shall cause PennLife to give Sellers (including
Sellers' officers, attorneys, accountants and actuaries) access, during normal
business hours, to the books and records of PennLife to the extent they relate
to the DI Reserves Information; provided, that such access does not unreasonably
disrupt the normal operations of Buyer. Buyer will cause the employees and
agents of PennLife to cooperate fully with Sellers in connection with such
review, to the extent such cooperation does not unreasonably interfere with the
normal operations of PennLife. Sellers acknowledge the strict confidential
nature of the DI Reserves Information and hereby agree that any information
prepared in connection with or in any way relating to Sellers' review and
examination of the DI Reserves Information shall be kept confidential in
accordance with Section 9.5 of this Agreement, except as may otherwise be
necessary in connection with the Reserves Adjustment to take place on the fifth
anniversary of the Closing Date in accordance with Section 2.4 of this
Agreement. Notwithstanding the foregoing, Buyer shall not be required under this
Section 10.1 to take any action that would unreasonably interfere with the
conduct of its business or that of PennLife or cause Buyer or PennLife to incur
any expense (unless Sellers agree to promptly reimburse Buyer and PennLife for
any such expense).
SECTION 10.2 Amendment and Modification. This Agreement may only be
amended, modified or supplemented by a written instrument signed by all the
parties hereto.
SECTION 10.3 Waiver of Compliance; Consents. Any failure of Buyer to
comply with any obligation, covenant, agreement or condition contained herein
may be waived in writing by PFG, but such waiver or failure to insist upon
strict compliance with such obligation, covenant, agreement or condition shall
not operate as a waiver of, or estoppel with respect to, any other failure. Any
failure of Sellers to comply with any obligation, covenant, agreement or
condition contained herein may be waived in writing by Buyer, but such waiver or
failure to insist upon strict compliance with such obligation, covenant,
agreement or condition shall not operate as a waiver of, or estoppel with
respect to, any other failure.
SECTION 10.4 Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provisions of this Agreement, which shall remain in full force and
effect.
SECTION 10.5 Expenses and Obligations. PFG, PLAC, SFC and PCFS shall be
responsible for paying all third-party costs and expenses incurred by them and
all third-party costs and expenses in excess of $1.5 million incurred by the
Companies in connection with the Pre-Closing Restructuring Transactions (not
including those costs associated with the termination by Sellers prior to the
Closing of the Lincoln National Agreement) and in preparing the Companies for
sale to Buyer.
SECTION 10.6 Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto and their successors and
assigns. Except for Section 9.1(e), nothing in this Agreement, express or
implied, is intended to confer upon any other Person any rights or remedies of
any nature whatsoever under or by reason of this Agreement, whether by a claim
of third party beneficiary or otherwise, and PFG agrees that it has no third
party beneficiary rights or any other enforceable rights under the UAFC Share
Purchase Agreement and the Chase Commitment Letter.
SECTION 10.7 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given upon the earlier of delivery
thereof if by hand or upon receipt if sent by mail (registered or certified,
postage prepaid, return receipt requested) or on the second next Business Day
after deposit if sent by a recognized overnight delivery service or upon
transmission if sent by telecopy or facsimile transmission (with electronic
acknowledgment of transmission confirmed) as follows:
(a) If to Buyer or, after the Closing, any of the Companies, to:
Universal American Financial Corp.
Six International Drive
Suite 190
Rye Brook, New York 10573-1068
Attention: Richard A. Barasch
Facsimile No.: (914) 934-9123
with copies to:
Capital Z Partners
One Chase Manhattan Plaza
44th Floor
New York, New York 10005
Attention: Bradley E. Cooper
Facsimile No.: (212) 898-8720
and
Harnett Lesnick & Ripps P.A.
NationsBank Tower 150
East Palmetto Park Road
Suite 500
Boca Raton, Florida 33432-4832
Attention: Judge Bertram Harnett
Facsimile No.: (561) 368-4315
and
<PAGE> 83
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017-3909
Attention: Gary I. Horowitz
Facsimile No.: (212) 455-2502
and
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: David K. Lakhdhir
Facsimile No.: (212) 757-3000
(b) If to any Seller including, prior to the Closing, any Seller
which is a Company, to:
PennCorp Financial Group, Inc.
c/o Southwestern Financial Services Corporation
717 North Harwood Street
Dallas, Texas 75201
Attention: Scott D. Silverman
Facsimile No.: (214) 954-7906
with a copy to:
Weil, Gotshal & Manges LLP
100 Crescent Court, Suite 1300
Dallas, Texas 75201
Attention: Jeremy W. Dickens
Facsimile No.: (214) 746-7777
SECTION 10.8 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts to be performed within that state.
SECTION 10.9 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement.
SECTION 10.10 Headings. The article and section headings contained in
this Agreement are solely for the purpose of reference, are not part of the
<PAGE> 84
agreement of the parties and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 10.11 Entire Agreement. This Agreement, the Disclosure Schedule,
the Annexes hereto and the Confidentiality Agreement embody the entire agreement
and understanding of the parties hereto in respect of the subject matter
contained herein or therein. There are no agreements, representations,
warranties or covenants other than those expressly set forth herein or therein.
This Agreement, the Disclosure Schedule and the Annexes hereto supersede all
prior agreements and understandings (other than the Confidentiality Agreement)
between the parties with respect to such subject matter.
SECTION 10.12 Assignment. Except as otherwise provided in this Section
10.12, this Agreement shall not be assigned by operation of law or otherwise;
provided, however, that each of Buyer and PFG may assign all of its rights and
delegate all of its obligations under this Agreement to any Person in connection
with the sale of Buyer or PFG, as the case may be, or all or substantially all
of the assets of Buyer or PFG, as the case may be, to such Person, whether by
stock sale, merger, share exchange, asset sale, consolidation or otherwise, so
long as such Person expressly assumes Buyer's or PFG's (as the case may be)
obligations hereunder; provided, further, however, that Buyer will not assign
its rights or delegate its obligations under this Agreement to any Person prior
to the Closing. Notwithstanding anything in this Agreement to the contrary,
Buyer may give notice to PFG that, pursuant to the terms of the UAFC Share
Purchase Agreement, Buyer is assigning all of its rights and obligations under
this Agreement to an affiliate of Capital Z (the "Substituted Buyer"); provided,
that (a) such Substituted Buyer is a newly-formed acquisition company or other
entity, in each case, reasonably acceptable to PFG and (b) Capital Z shall have
committed to provide equity financing to the Substituted Buyer, and Chase Bank
(and/or other financial institutions) shall have committed to provide debt
financing to the Substituted Buyer, in an aggregate amount at least equal to
that necessary to consummate the Closing Transactions. If Buyer so elects to
assign its rights and obligations under this Agreement, (i) the date specified
in Section 9.1(ii) shall be extended for 90 days (or such later date as shall be
mutually agreed to by the Substituted Buyer and Sellers) and (ii) the
Substituted Buyer and Sellers shall agree to such conforming modifications to
this Agreement (such agreement or modifications not to be unreasonably withheld)
as may be necessary to reflect the assignment by Buyer (without recourse) of all
of its rights and obligations to the Substituted Buyer.
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.
<PAGE> 85
UNIVERSAL AMERICAN FINANCIAL CORP.
By: /s/ RICHARD BARASCH
______________________________________
Name: Richard Barasch
Title: Chief Executive Officer
PENNCORP FINANCIAL GROUP, INC.
By: /s/ SCOTT D. SILVERMAN
______________________________________
Name: Scott D. Silverman
Title: Executive Vice President
PACIFIC LIFE AND ACCIDENT INSURANCE COMPANY
By: /s/ SCOTT D. SILVERMAN
______________________________________
Name: Scott D. Silverman
Title: Senior Vice President
SOUTHWESTERN FINANCIAL CORPORATION
By: /s/ SCOTT D. SILVERMAN
______________________________________
Name: Scott D. Silverman
Title: Senior Vice President
<PAGE> 86
PENNSYLVANIA LIFE INSURANCE COMPANY
By: /s/ SCOTT D. SILVERMAN
______________________________________
Name: Scott D. Silverman
Title: Senior Vice President
CONSTITUTION LIFE INSURANCE
COMPANY
By: /s/ CHARLES LUBOCHINSKI
______________________________________
Name: Charles Lubochinski
Title: Senior Vice President
PENNCORP FINANCIAL SERVICES, INC.
By: /s/ SCOTT D. SILVERMAN
______________________________________
Name: Scott D. Silverman
Title: Senior Vice President
<PAGE> 1
EXHIBIT 10.2
STOCK PURCHASE AGREEMENT
BETWEEN
GE FINANCIAL
ASSURANCE HOLDINGS, INC.
AND
PACIFIC LIFE AND ACCIDENT INSURANCE COMPANY
Dated December 31, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE I DEFINITIONS........................................................................... 1
SECTION 1.1. Definitions...................................................................... 1
SECTION 1.2. Other Definitions................................................................ 4
ARTICLE II THE ACQUISITION....................................................................... 6
SECTION 2.1. Purchase and Sale of Shares...................................................... 6
SECTION 2.2. Consideration for the Shares..................................................... 7
SECTION 2.3. Post-Closing Purchase Price Adjustment; Closing Balance Sheet.................... 7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PLAC................................................ 9
SECTION 3.1. Organization and Qualification................................................... 9
SECTION 3.2. Authorization.................................................................... 10
SECTION 3.3. No Violation..................................................................... 10
SECTION 3.4. Capitalization of Professional................................................... 11
SECTION 3.5. Subsidiaries of Professional..................................................... 11
SECTION 3.6. Consents and Approvals........................................................... 11
SECTION 3.7. Financial Statements; Reserves................................................... 11
SECTION 3.8. Absence of Undisclosed Liabilities............................................... 13
SECTION 3.9. Absence of Certain Changes....................................................... 13
SECTION 3.10 Litigation....................................................................... 14
SECTION 3.11. Property; Liens and Encumbrances................................................. 14
SECTION 3.12. Investment Assets................................................................ 15
SECTION 3.13. Certain Agreements............................................................... 15
SECTION 3.14. Professional Employees........................................................... 17
SECTION 3.15. Taxes............................................................................ 19
SECTION 3.16. Compliance with Applicable Law; Permits; Policies................................ 21
SECTION 3.17. Powers of Attorney............................................................... 23
SECTION 3.18. Brokers' Fees and Commissions.................................................... 23
SECTION 3.19. Proprietary Rights............................................................... 23
SECTION 3.20. Insurance........................................................................ 24
SECTION 3.21. Environmental Matters............................................................ 24
</TABLE>
i
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
SECTION 3.22. Bank Accounts.................................................................... 25
SECTION 3.23. Insurance and Reinsurance........................................................ 25
SECTION 3.24. Labor Matters.................................................................... 25
SECTION 3.25. Threats of Cancellation.......................................................... 26
SECTION 3.26. Regulatory Qualifications........................................................ 26
SECTION 3.27. Year 2000 Compliance............................................................. 27
SECTION 3.28. Affiliate Security Ownership..................................................... 28
SECTION 3.29. Financial Condition.............................................................. 28
ARTICLE IV [RESERVED]............................................................................ 28
ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER............................................... 28
SECTION 5.1. Organization; Qualifications and Operations...................................... 29
SECTION 5.2. Authorization.................................................................... 29
SECTION 5.3. No Violation..................................................................... 29
SECTION 5.4. Consents and Approvals........................................................... 29
SECTION 5.5. Brokers' Fees and Commissions.................................................... 29
SECTION 5.6. Purchase for Investment.......................................................... 30
SECTION 5.7. Financing........................................................................ 30
ARTICLE VI COVENANTS............................................................................. 30
SECTION 6.1. Conduct of Business Prior to the Closing......................................... 30
SECTION 6.2. Share Ownership.................................................................. 32
SECTION 6.3. Access to Information............................................................ 32
SECTION 6.4. Notice of Litigation and Requests................................................ 33
SECTION 6.5. HSR Act Filings; Consents........................................................ 33
SECTION 6.6. State Regulatory Approvals....................................................... 33
SECTION 6.7. Interim Financial Statements..................................................... 34
SECTION 6.8. Year End Financial Statements.................................................... 34
SECTION 6.9. Maintenance of Insurance: Post-Closing Claims.................................... 34
SECTION 6.10. Intercompany Accounts, Investments and Agreements................................ 35
SECTION 6.11. All Reasonable Efforts........................................................... 36
</TABLE>
ii
<PAGE> 4
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
SECTION 6.12. Public Announcements............................................................. 36
SECTION 6.13. Disclosure Supplements........................................................... 37
SECTION 6.14. No Implied Representations or Warranties......................................... 37
SECTION 6.15. Tax Matters...................................................................... 37
SECTION 6.16. Employment and Employee Benefits................................................. 33
SECTION 6.17. Nonsolicitation.................................................................. 46
SECTION 6.18. Noncompetition................................................................... 46
SECTION 6.19. Acquisition Proposals............................................................ 46
SECTION 6.20. Environmental Assessments........................................................ 47
SECTION 6.21. Policy Approvals................................................................. 47
SECTION 6.22. Distribution Agreements.......................................................... 48
SECTION 6.23. PESCO Joint Venture.............................................................. 48
ARTICLE VII CLOSING CONDITIONS.................................................................... 50
SECTION 7.1. Conditions to the Obligations of Buyer under this Agreement...................... 50
SECTION 7.2. Conditions to the Obligations of PLAC under this Agreement....................... 51
ARTICLE VIII CLOSING............................................................................... 52
SECTION 8.1. Closing.......................................................................... 52
ARTICLE IX SURVIVAL AND INDEMNIFICATION.......................................................... 52
SECTION 9.1. Survival of Representations, Warranties and Covenants............................ 52
SECTION 9.2. Limitations on Liability......................................................... 53
SECTION 9.3. Indemnification.................................................................. 53
SECTION 9.5. Defense of Claims................................................................ 54
SECTION 9.6. Adjustment to Purchase Price..................................................... 56
SECTION 9.7. Exclusive Remedy................................................................. 57
ARTICLE X TERMINATION AND ABANDONMENT........................................................... 57
SECTION 10.1. Termination...................................................................... 57
SECTION 10.2. Procedure and Effect of Termination.............................................. 58
SECTION 10.3. Certain Fees and Expenses....................................................... 59
</TABLE>
iii
<PAGE> 5
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE XI MISCELLANEOUS PROVISIONS.............................................................. 60
SECTION 11.1. Amendment and Modification..................................................... 60
SECTION 11.2. Waiver of Compliance; Consents................................................. 60
SECTION 11.3. Validity 60
SECTION 11.4. Expenses and Obligations....................................................... 60
SECTION 11.5. Parties in Interest............................................................ 60
SECTION 11.6. Notices 60
SECTION 11.7. Governing Law.................................................................. 61
SECTION 11.8. Counterparts................................................................... 61
SECTION 11.9. Headings 61
SECTION 11.10 Entire Agreement............................................................... 61
SECTION 11.11. Assignment..................................................................... 62
SECTION 11.12. PLAC Covenants................................................................. 62
</TABLE>
Annex A Disclosure Schedule
iv
<PAGE> 6
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT (this "Agreement"), dated December 31, 1998, by
and between GE Financial Assurance Holdings, Inc., a Delaware corporation
("Buyer"), and Pacific Life and Accident Insurance Company, a Texas corporation
("PLAC").
RECITALS:
WHEREAS, PLAC is the record and beneficial owner of 49,996.5 (99.9%) of
the issued and outstanding shares of common stock, par value $50.00 per share,
of Professional Insurance Company, a Texas corporation ("Professional");
WHEREAS, PLAC intends to acquire all of the issued and outstanding shares
of common stock of Professional not currently owned by PLAC;
WHEREAS, Professional is engaged in the insurance business; and
WHEREAS, subject to the terms and conditions set forth herein, PLAC
desires to sell to Buyer, and Buyer desires to purchase from PLAC, all of the
shares of common stock of Professional issued and outstanding on the Closing
Date (the "Shares").
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements herein contained, the parties hereto
agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. Definitions. For purposes of this Agreement, the term:
(a) "affiliate" means as to a specified Person any other Person that
directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, the specified Person.
(b) "Annual Statement" means, with respect to a referenced Person, the
annual statement of such Person filed with or submitted to the insurance
regulatory authority in the jurisdiction in which such Person is domiciled on
forms prescribed or permitted by such authority.
(c) "AVR" means, with respect to any person, the Asset Valuation Reserve
set forth in the balance sheet of such person in accordance with SAP.
(d) "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.
<PAGE> 7
(e) "Closing SAP Balance Sheet" means the balance sheet of Professional,
as of the Closing Date (immediately prior to consummation of the Closing),
prepared in accordance with SAP using Professional's customary standards of
practice used in preparing year-end financial statements.
(f) "Closing SAP Capital" means the sum of (i) Professional's capital and
surplus as reflected in the Closing SAP Balance Sheet plus (ii) the amount of
AVR as of the Closing Date for Professional, all determined in accordance with
SAP as in effect on the Closing Date.
(g) "Cobra" refers to the provisions of the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended, relating to continuation of health
benefits in certain circumstances.
(h) "Code" means the Internal Revenue Code of 1986, as amended (including
any successor code), and the rules and regulations promulgated thereunder.
(i) "Competing Transaction" shall mean (i) any merger, consolidation,
share exchange, business combination, or other similar transaction involving
PLAC (but only if Professional is included in such transaction) or Professional;
(ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition
of 25% or more of the assets of PLAC (but only if Professional is included in
such transaction) or Professional, taken as a whole, in a single transaction or
series of transactions, or (iii) any public announcement of a proposal, plan or
intention to do any of the foregoing or any agreement to engage in any of the
foregoing.
(j) "Contracts and Other Agreements" means all contracts, agreements,
reinsurance treaties, undertakings, indentures, notes, bonds, loans,
instruments, leases, mortgages, commitments or other binding agreements, other
than (i) policies, endorsements, binders, riders, certificates and other
contracts of insurance issued, underwritten, assumed or renewed by Professional
or (ii) any of the foregoing included in the investment portfolio of
Professional.
(k) "Disclosure Schedule" means the Disclosure Schedule attached hereto
as Annex A.
(l) "Environmental Claim" means any investigation, notice, demand,
allegation, action, suit, injunction, judgment, order, consent decree, penalty,
fine, lien, proceeding or claim, whether administrative, judicial or private in
nature, arising: (A) pursuant to, or in connection with, any actual or alleged
violation of any Environmental Law; (B) in connection with any Hazardous
Material or actual or alleged activity associated with any Hazardous Material;
(C) from any abatement, removal, cleanup, corrective or other response action in
connection with any Hazardous Material, Environmental Law or other order or
directive of any federal, state or local governmental authority; or (D) from any
actual or alleged damage, loss, injury, threat or harm to the environment.
2
<PAGE> 8
(m) "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 in effect as of the date of this Agreement, including, without
limitation, the Comprehensive Environmental Response, Compensation and Liability
Act, 42 U.S.C. Section 9601 et seq., as amended from time to time ("CERCLA"),
the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801 et seq., as
amended from time to time ("HMTA"), the Resource Conservation and Recovery Act,
42 U.S.C. Section 6901 et seq., as amended from time to time ("RCRA"), the
Federal Water Pollution Control Act, 33 U.S.C. Section 1251 et seq., as amended
from time to time ("FWPCA"), the Clean Air Act, 42 U.S.C. Section 7401 et seq.,
as amended from time to time ("CAA"), and/or the Toxic Substances Control Act,
15 U.S.C. Section 2601 et seq., as amended from time to time ("TSCA"), the Solid
Waste Disposal Act, 42 U.S.C. Section 6901, et seq., as amended from time to
time ("SWDA"), the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C.
Section 1361 et seq., as amended from time to time ("FIFRA"), the Safe Drinking
Water Act, 41 U.S.C. Section 300f. et seq., as amended from time to time
("SDWA"), and the Occupational Safety and Health Act of 1970, 29 U.S.C. Section
600, et seq., as amended from time to time ("OSHA") to the extent it regulates
occupational exposure to Hazardous Materials.
(n) "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the regulations promulgated thereunder.
(o) "GAAP" means United States generally accepting accounting principles,
consistently applied throughout the specified period and in the immediately
prior comparable period.
(p) "Governmental Authority" means any nation or government, any state or
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
(q) "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 Environmental Laws; (ii) petroleum or petroleum
byproducts; (iii) friable asbestos and/or any material which contains friable
asbestos; and (iv) polychlorinated biphenyls ("PCBs").
(r) "Investment Assets" means all securities, mortgages and other
investment assets held by Professional that are listed on Section 3.12 of the
Disclosure Schedule, and all securities, mortgages and other investment assets
acquired on or after the date hereof 1998 by Professional, as all of the
foregoing may be sold, disposed of, invested or reinvested from time to time
prior to the Closing.
(s) "Material Adverse Effect" means an effect or series of related
effects that individually or in the aggregate is materially adverse to any of
(i) the business, results of operations or financial condition of Professional,
(ii) the ability of
3
<PAGE> 9
PLAC to consummate the transactions contemplated by this Agreement, or (iii) the
validity or enforceability of this Agreement.
(t) "Parent" means PennCorp Financial Group, Inc., the sole stockholder
of PLAC.
(u) "Person" means an individual, corporation, limited liability company,
partnership, joint venture, association, trust, unincorporated organization or,
as applicable, any other entity.
(v) "PLAC's knowledge," "to the knowledge of PLAC" and similar terms or
phrases shall be deemed to include the knowledge of Parent.
(w) "Quarterly Statement" means, with respect to a referenced Person, the
quarterly statement of such Person with or submitted to the insurance regulatory
authority in the state in which such Person is domiciled on forms prescribed or
permitted by such authority.
(x) "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.
(y) "SAP" means the statutory accounting practices required or permitted
by the insurance regulatory authority in the jurisdiction of domicile of the
referenced Person, consistently applied throughout the specified period and in
the immediately prior comparable period.
(z) "Taxes" means any and all federal, state, local, foreign and other
taxes, levies, fees, imposts, duties, tariffs and similar governmental charges
(including any interest, penalties or additions to tax imposed in connection
therewith or with respect thereto or in relation to requirements to file tax
returns) 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, estimated, alternative minimum,
environmental, disability, occupation, premium, windfall profits, transfer and
gains taxes, and customs duties.
(aa) "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>
1997 Schedule T Section 3.1(b)
Acquisition Section 7.1
</TABLE>
4
<PAGE> 10
<TABLE>
<S> <C>
Advance Notes Section 6.23(a)
Affected Employees Section 3.14(a)
Agent Advances Section 6.23(a)
Agreement Preamble
Auditor Section 6.15(j)
Benefit Arrangements Section 3.14(c)
Benefited Party Section 6.15(j)
Buyer Preamble
Buyer Material Adverse Effect Section 5.1
Buyer's Plans Section 3.14(c)
CERCLIS Section 3.21(e)
Certain Damages Section 9.3(b)
Closing Section 8.1
Closing Adjustment Calculations Section 2.3(c)
Closing Date Section 8.1
Closing Purchase Price Section 2.2
Company Plans Section 3.14(b)
Current Employees Section 3.14(a)
Direct Claim Section 9.5(d)
DOJ Section 3.6
Effective Tax Rate Section 6.15(j)
Employee Benefit Programs Section 3.14(b)
ERISA Affiliate Section 3.14(e)
Expenses Section 10.3(a)
Fee Section 10.3(b)
Final Purchase Price Section 2.2
Financial Statements Section 3.7(a)
First Advance Note Section 6.23(a)
Form 8023 Section 6.15(k)(ii)
GAAP Financial Statements Section 3.7(c)
HSR Act Section 3.6
Identified Agents Section 6.22
Identified Employees Section 3.14(a)
Inactive Employees Section 6.16(a)
Indemnifiable Tax Losses Section 6.15(a)
Indemnifying Party Section 9.2(a)
Indemnitee Section 9.2(a)
Indemnity Payment Section 9.2(a)
Intellectual Property Section 3.19
Intercompany Accounts Section 6.10(a)
Interim Quarterly GAAP Statements Section 6.7(b)
Interim SAP Statements Section 6.7(a)
Joint Venture Section 6.23(a)
Joint Venture Agreement Section 6.23(a)
Liens Section 3.11(b)
Litigation Section 3.10
</TABLE>
5
<PAGE> 11
<TABLE>
<S> <C>
Loan Agreement Section 6.23(a)
Modified Form 8023 Section 6.15(k)(ii)
New Distribution Agreements Section 6.22
Occidental Section 6.17(b)
Other Returns Section 6.15(f)
Owned Properties Section 3.11(b)
Parent Agreement Section 7.1(l)
PBGC Section 3.14(c)
PESCO Section 6.23(a)
PLAC Preamble
PLAC Consolidated Returns Section 6.15(f)
PLAC Returns Section 6.15(f)
Pre-Closing Taxes Section 6.15(a)(ii)
Professional Recitals
Reduction Amount Section 2.3(b)
Reinsurance Agreements Section 3.23(a)
Retention Bonuses Section 6.16(i)
Second Advance Note Section 6.23(a)
Section 338 Elections Section 6.15(k)(i)
Section 338 Forms Section 6.15(k)(ii)
Section 338 Taxes Section 6.15(a)(iii)
Settlement Auditor Section 2.3(f)
Shares Recitals
Straddle Periods Section 6.15(b)
Superior Transaction Section 6.19(c)
Tax Benefit Section 6.15(j)
Tax Claim Section 6.15(b)
Tax Returns Section 3.15(d)
Tax Sharing Agreement Section 6.15(e)
Third Party Claim Section 9.2(a)
Transferred Employee Section 6.16(a)
Transition Services Agreement Section 6.10(d)
Year 2000 Complaint Section 3.27(a)
Year End GAAP Financial Statements Section 6.8
</TABLE>
ARTICLE II
THE ACQUISITION
SECTION 2.1. Purchase and Sale of Shares. 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 PLAC will sell, assign, transfer and convey to Buyer,
and Buyer will purchase and acquire from PLAC, the Shares, free and clear of all
Liens, other than Liens created by Buyer.
6
<PAGE> 12
SECTION 2.2. Consideration for the Shares. The aggregate purchase price
payable by Buyer for the Shares shall be the sum of $47.5 million in cash (the
"Closing Purchase Price"), subject to adjustment following the Closing in
accordance with the provisions of Section 2.3 (as so adjusted, the "Final
Purchase Price"). On the Closing Date, Buyer will pay the Closing Purchase Price
by wire transfer of immediately available funds to such accounts as PLAC shall
have designated in writing at least two days prior to the Closing Date.
SECTION 2.3. Post-Closing Purchase Price Adjustment; Closing Balance
Sheet.
(a) Upon the earlier to occur of (i) the parties' agreement (or deemed
agreement pursuant to Section 2.3(e)) with respect to the calculation of the
Final Purchase Price and (ii) the delivery of any report of the Settlement
Auditor as provided in Section 2.3(g), the Closing Purchase Price shall be
decreased by the Reduction Amount, if any. Within five Business Days after the
earlier to occur of the events described in clauses (i) and (ii) above, (A) PLAC
shall, if the Reduction Amount is payable, pay to Buyer the difference between
the Reduction Amount less the amount to be paid by Buyer to PLAC as provided in
clause (B) below, plus simple interest thereon from and including the Closing
Date to but not including the date of payment at an annual interest rate equal
to 4.5%, and (B) Buyer shall pay to PLAC simple interest on the Closing Purchase
Price at an annual rate of 4.5% for the period from and including the date of
this Agreement to but excluding the Closing Date, except to the extent offset by
the payment required to be made by PLAC pursuant to clause (A) above. The
payments described in the foregoing sentence shall be made by wire transfer of
immediately available funds to such account or accounts of the party entitled to
receive such payment as such party specifies in writing to the party required to
make such payment in the manner specified herein for the delivery of notices.
The allocation of any such payments to particular Shares shall be determined by
mutual agreement of PLAC and Buyer.
(b) The "Reduction Amount" shall equal the greater of: (i) $0.00 or (ii)
the amount by which $7,897,000 exceeds the Closing SAP Capital.
(c) Within 30 Business Days after the Closing Date, PLAC shall prepare
and deliver to KPMG Peat Marwick LLP ("KPMG") for audit the Closing SAP Balance
Sheet. Buyer shall, and shall cause Professional and their officers and
employees to, afford to PLAC and its officers, employees and agents reasonable
access at reasonable times to the officers, employees, properties, books and
records of Professional and shall furnish to PLAC all financial and other data
and information relating to Professional as PLAC may reasonably request in
connection with PLAC's preparation of the Closing SAP Balance Sheet. As promptly
as practicable following such delivery (and, in any event, within 40 Business
Days), PLAC shall cause (at its expense) KPMG to complete an audit of the
Closing SAP Balance Sheet. Buyer shall, and shall cause Professional and its
officers and employees to, cooperate with KPMG in connection with such audit. As
promptly as practicable after such audit is completed, PLAC shall deliver to
Buyer (i) the audited Closing SAP Balance Sheet together with
7
<PAGE> 13
the report thereon of KPMG to the effect that such audit was conducted in
accordance with generally accepted auditing standards and that such firm
believes that such audit provides a reasonable basis for such firm's opinion
thereon and that the Closing SAP Balance Sheet presents fairly in all material
respects the statutory financial condition of Professional as of the Closing
Date in conformity with this Agreement, and (ii) a statement signed by PLAC
setting forth the calculation of the Reduction Amount, if any (the "Closing
Adjustment Calculations"), in sufficient detail to permit Buyer to verify such
calculation.
(d) As promptly as practicable after the conduct of the audit required
pursuant to Section 2.3(c), PLAC shall cause KPMG to (i) provide to Buyer's
independent auditors such work papers and other documents of KPMG relating to
such audits as Buyer's independent auditors may reasonably request and (ii)
cooperate with, and be reasonably available to, Buyer's independent auditors to
provide such other information reasonably requested by Buyer's independent
auditors concerning such audits and the accounting and auditing issues that
arise from or relate to such audits. Buyer shall pay the fees and expenses of
its independent auditors.
(e) Within 30 Business Days after Buyer's receipt of the audited Closing
SAP Balance Sheet (together with the Closing Adjustment Calculations of PLAC),
Buyer shall provide PLAC with written notice indicating whether Buyer agrees or
disagrees with such calculations, and, if Buyer disagrees with such calculations
of PLAC, setting forth Buyer's calculation of the Closing Adjustment
Calculations. If Buyer agrees with such calculations, or if Buyer fails to
deliver to PLAC such written notice within such 30 Business Day period, such
Closing SAP Balance Sheet and such calculations shall be deemed final. To the
extent Buyer, on the one hand, and PLAC, on the other hand, are in agreement as
to calculation of the Closing Adjustment Calculations, the Reduction Amount, if
any, shall be paid as contemplated in Section 2.3(a).
(f) Within ten Business Days after PLAC's timely receipt of any notice of
disagreement with the calculations of the Closing Adjustment Calculations, Buyer
and PLAC shall begin, and shall cause their independent auditors to participate
in, good faith negotiations to resolve such disagreement. If such parties and
their independent auditors are unable to resolve such disagreement within ten
Business Days after such negotiations begin, such disagreement shall be
submitted to an independent nationally recognized auditing firm selected by the
parties (the "Settlement Auditor") for resolution in a manner consistent with
the provisions of this Agreement. The parties shall, and shall cause their
independent auditors to, cooperate with the Settlement Auditor and shall proceed
in good faith to cause the Settlement Auditor to resolve such disagreement
within 40 Business Days after such disagreement is submitted to the Settlement
Auditor. The fees and expenses of the Settlement Auditor (i) shall be paid by
PLAC if the Buyer's
8
<PAGE> 14
calculation of the Closing Adjustment Calculations is closer to the Settlement
Auditor's calculation of the Closing Adjustment Calculations than PLAC's
calculation of the Closing Adjustment Calculations, (ii) shall be paid by Buyer
if PLAC's calculation of the Closing Adjustment Calculation is closer to the
Settlement Auditor's calculation of the Closing Adjustment Calculations than the
Buyer's calculation of the Closing Adjustment Calculations and (iii) shall be
paid on-half by PLAC and one-half by Buyer if neither PLAC's calculation of the
Closing Adjustment Calculations nor the Buyer's calculation of the Closing
Adjustment Calculations is closer to the Settlement Auditor's calculation of the
Closing Adjustment Calculations than the other.
(g) The Settlement Auditor, in its sole discretion, shall determine (i)
the nature and extent of the participation by Buyer, PLAC and their respective
independent auditors in connection with the resolution of any disagreement
submitted to the Settlement Auditor, (ii) the nature and extent of information
that Buyer and PLAC may submit to the Settlement Auditor for consideration in
connection with such resolution and (iii) the personnel of the Settlement
Auditor who shall review such information and resolve such disagreement;
provided, however, that the Settlement Auditor shall permit PLAC and Buyer to
submit any information relating to the audit by the auditors of PLAC or Buyer of
the Closing SAP Balance Sheet or the calculation of the Closing Adjustment
Calculations prepared by PLAC or Buyer in connection with the Settlement
Auditor's resolution of any such disagreement. The Settlement Auditor's
resolution of any such disagreement shall be reflected in a written report that
shall be delivered promptly to, and shall be final and binding upon, the parties
and the Closing Purchase Price shall be adjusted accordingly to reflect any such
resolution and, as adjusted, shall be deemed to be the Final Purchase Price and
any Reduction Amount resulting therefrom will be paid in accordance with Section
2.3(a). Notwithstanding anything in this Agreement to the contrary, in no event
shall the Settlement Auditors' calculation of the Closing SAP Capital be greater
than PLAC's auditors' calculation or less than Buyer's auditors' calculation of
the Closing SAP Capital.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PLAC
PLAC represents and warrants to Buyer as follows:
SECTION 3.1. Organization and Qualification.
(a) Each of PLAC and Professional is an insurance company duly organized,
validly existing and in good standing under the laws of its jurisdiction of
domicile, which, as to each is set forth opposite its name in Section 3.1(a) of
the Disclosure Schedule, with all requisite corporate power and authority to
own, operate and lease its properties and to carry on its business as it is now
being conducted. PLAC has delivered to Buyer a true and complete copy of the
Articles of Incorporation and Bylaws of Professional, as currently in effect.
The minute books of Professional accurately reflect in all material respects the
actions taken at all meetings and all consents in lieu of meetings of the board
of directors of Professional and all committees thereof since the date
Professional was acquired by PLAC. True and complete copies of such minute books
previously have been made available to Buyer.
(b) Professional is qualified or licensed to do business as a foreign
corporation and is in good standing in every jurisdiction in which such
qualification or
9
<PAGE> 15
licensing is required by applicable law. Schedule T of Professional's Annual
Statement for the year ended December 31, 1997 (the "1997 Schedule T"), sets
forth a true and complete list of each jurisdiction in which Professional is
qualified or licensed to do business.
(c) Professional is not deemed to be commercially domiciled in any
jurisdiction other than its domiciliary state. Professional is licensed to write
the types of insurance shown on the 1997 Schedule T in the jurisdictions shown
on the 1997 Schedule T, which are all the types of insurance issued by
Professional and all the jurisdictions in which Professional writes such
insurance. Except as set forth in Section 3.1(c) of the Disclosure Schedule, no
such license or related document is the subject of a proceeding for suspension
or revocation or any similar proceedings and, to the knowledge of PLAC, there is
no pending threat of such suspension or revocation by any licensing or other
regulatory authority.
SECTION 3.2. Authorization. PLAC has full corporate power and authority
to execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by PLAC, the
performance by PLAC of its obligations hereunder, and the consummation by PLAC
of the transactions contemplated hereby, have been duly authorized by its Boards
of Directors and by Parent as its sole stockholder. No other corporate action on
the part of PLAC is necessary to authorize the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby. This
Agreement has been duly and validly executed and delivered by PLAC and
constitutes a valid and binding obligation of PLAC, enforceable against PLAC in
accordance with its terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally, and subject, as to enforceability, to
general principles of equity, including principles of commercial reasonableness,
good faith and fair dealing (regardless of whether enforcement is sought in a
proceeding at law or in equity).
SECTION 3.3. No Violation. Except as set forth in Section 3.3 of the
Disclosure Schedule, neither the execution and delivery of this Agreement by
PLAC, the performance by PLAC of its obligations hereunder nor the consummation
of the transactions contemplated hereby will (a) violate, conflict with or
result in any breach of any provision of the Articles of Incorporation or Bylaws
of PLAC or Professional, (b) violate or conflict with or result in a violation
or breach of, result in a material modification of the effect 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 PLAC
or Professional is a party or by which any of their assets are bound, (c)
violate any order, writ, judgment, injunction, decree, statute, rule or
regulation of any Governmental Authority applicable to PLAC or Professional or
any of their respective assets or (d) result in the creation of any Lien upon
any of the assets of PLAC or Professional, except in the cases of clauses (b)
and (d) above, for those violations, conflicts, breaches, defaults and Liens
which would not, individually or in the aggregate, reasonably be expected to
10
<PAGE> 16
have a Material Adverse Effect or materially impair PLAC's ability to consummate
the transactions contemplated hereby.
SECTION 3.4. Capitalization of Professional.
(a) As of the date hereof, the authorized capital stock of Professional
consists of 50,000 shares of common stock, par value $50.00 per share. As of the
date hereof, Professional has 50,000 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 (x) Professional 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
Professional or (y) PLAC to sell or otherwise transfer all or any portion of the
Shares, (ii) agreements or commitments obligating Professional to repurchase,
redeem or otherwise acquire any shares of its capital stock, (iii) restrictions
on transfer of any shares of capital stock of Professional (other than pursuant
to this Agreement), (iv) voting or similar shareholder agreements relating to
any shares of capital stock of Professional, or (v) any bonds, debentures, notes
or other indentures of Professional granting the right to vote on any matters on
which stockholders of Professional vote issued and outstanding.
(b) As of the date hereof, PLAC owns 49,996.5 shares of common stock of
Professional and on the Closing Date PLAC will own all of the shares of common
stock of Professional issued and outstanding on the Closing Date, beneficially
and of record, free and clear of all Liens. At Closing, good title to the Shares
will be conveyed to Buyer, free and clear of all Liens other than those that may
be created by Buyer. SECTION 3.5. Subsidiaries of Professional. Except as set
forth in Section 3.5 of the Disclosure Schedule, Professional does not own
directly or indirectly, 5% or more of the outstanding voting securities of or
otherwise possesses, directly or indirectly, the power to direct or cause the
direction of the management or policies of any Person, other than 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 PLAC of the transactions contemplated by this
Agreement other than consents and approvals of or filings or registrations with
(a) the Antitrust Division of the United States Department of Justice (the
"DOJ") pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), and (b) the approval of the Texas Department of
Insurance.
11
<PAGE> 17
SECTION 3.7. Financial Statements; Reserves.
(a) PLAC has previously delivered to Buyer true and complete copies of
the following (the "Financial Statements"):
(i) the Annual Statements for Professional for each of the years ended
December 31, 1995, 1996 and 1997, together with any exhibits, schedules and
notes thereto and any affirmations or certifications filed therewith;
(ii) the Quarterly Statements for Professional for the quarters ended
March 31, June 30, and September 30, 1998, together with any exhibits,
schedules and notes thereto and any affirmations or certifications filed
therewith; and
(iii) the statutory annual statements of Professional that were filed for
1995, 1996, and 1997 and the quarterly statements with respect to the
quarters ended March 31, June 30 and September 30, 1998, together with any
exhibits, schedules and notes thereto and any affirmations or certifications
filed therewith, in any jurisdiction (other than such company's jurisdiction
of domicile) and that differ from the corresponding Annual Statements and
Quarterly Statements for such periods.
Each such statement was prepared in all material respects in accordance with SAP
and, except as set forth in Section 3.7(a) of the Disclosure Schedule, presents
fairly in all material respects the statutory financial condition of
Professional as of the respective dates thereof and the related summary of
operations and changes in capital and surplus and in cash flows of Professional
for and during the respective periods covered thereby. No deficiencies or
required adjustments with respect to such Annual Statements or Quarterly
Statements have been asserted by any regulatory authority that have not been
cured or otherwise resolved to the satisfaction of such insurance regulatory
authority and that have not been disclosed on Section 3.7(a) of the Disclosure
Schedule.
(b) Except as set forth in Section 3.7(b) of the Disclosure Schedule, all
statutory reserves and other similar amounts with respect to insurance as
established or reflected in the December 31, 1997 Annual Statement and the
September 30, 1998 Quarterly Statement of Professional were determined in all
material respects in accordance with SAP and meet the requirements of the
insurance laws of the State of Texas in all material respects. Except as set
forth in Section 3.7(b) of the Disclosure Schedule, all such reserves and other
similar amounts were adequate in all material respects as of the respective
dates of such statements, based upon then-current information and assumptions
concerning investment income, mortality and morbidity experience, persistency,
and expenses, to cover the total amount of all reasonably anticipated matured
and unmatured benefits, dividends, claims, and other liabilities of such company
under all insurance contracts under which such company had any liability
(including without limitation any liability arising under or as a result of any
reinsurance, coinsurance, or other similar contract) on the respective dates of
such financial statements. Except as set forth in Section 3.7(b) of the
Disclosure Schedule, Professional owns assets that qualify as legal reserve
assets under applicable insurance laws in an amount at least equal to all such
required reserves and other similar amounts of such company.
12
<PAGE> 18
(c) Section 3.7(c) of the Disclosure Schedule contains a true and correct
copy of the unaudited balance sheets and income statements of Professional for
the years ended December 31, 1997 and 1996, and the unaudited quarterly balance
sheets and income statements of Professional for the periods ended after January
1, 1998 and on or prior to September 30, 1998 (collectively, the "GAAP Financial
Statements"). The GAAP Financial Statements are based on the books and records
of Professional, and fairly present, in all material respects, the financial
condition and results of operations of Professional as of the dates and for the
periods indicated therein and have been prepared in conformity with GAAP (except
for the absence of notes thereto). All reserves and other similar amounts with
respect to insurance as established or reflected in the GAAP Financial
Statements were determined in all material respects in accordance with GAAP. All
such reserves and other similar amounts were adequate in all material respects
as of the respective dates of such statements, based upon then current
information and assumptions concerning investment income, mortality and
morbidity experience, persistency, and expenses, to cover the total amount of
all reasonably anticipated matured and unmatured benefits, dividends, claims,
and other liabilities of Professional under all insurance contracts under which
Professional had any liability (including, without limitation, any liability
arising under or as a result of any reinsurance, coinsurance or similar
contract) on the respective dates of such financial statements.
SECTION 3.8. Absence of Undisclosed Liabilities. As of the date hereof,
except for matters relating to the transactions contemplated by this Agreement,
there are no liabilities or financial obligations of Professional that are
required to be reflected on a balance sheet prepared in accordance with SAP,
other than (a) liabilities and obligations reserved against in the Financial
Statements, (b) benefits payable or other liabilities or obligations arising
under insurance policies issued by Professional, (c) liabilities and obligations
disclosed in Section 3.8 of the Disclosure Schedule, and (d) liabilities and
obligations arising in the ordinary course of business after September 30, 1998.
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 that reasonably could be expected to have,
a Material Adverse Effect, and Professional has not (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 property or assets or (ii)
mortgaged or encumbered any of its property 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, (g) amended its 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 securities or any securities
13
<PAGE> 19
convertible into or exchangeable for such securities, or granted, or agreed to
grant any such rights, (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 employment
contracts, severance agreements or consulting contracts or instituted or agreed
to institute any increase in benefits or altered its employment practices or the
terms and conditions of employment, in each case other than in the ordinary
course of business, (l) changed in any material respect its underwriting,
actuarial or tax accounting methods, 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 its 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) made any payments to Parent, PLAC or any
other affiliates, (p) entered into any joint ventures or partnerships or any
kind, or (q) entered into any contract or other written agreements to do any of
the foregoing.
SECTION 3.10. Litigation. Except as set forth in Section 3.10 of the
Disclosure Schedule, as of the date hereof, (a) there is no action, suit,
arbitration, investigation or proceeding ("Litigation") pending or, to the
knowledge of PLAC, threatened against PLAC or Professional before any
Governmental Authority or arbitrator, that if resolved adversely to PLAC or
Professional, would reasonably be expected to have a Material Adverse Effect and
(b) there are no judgments, orders or decrees of any Governmental Authority or
arbitrator binding on PLAC or Professional that (i) have been issued by any
insurance regulatory authority, (ii) would materially restrict the ability of
Professional to conduct its business as now being conducted or (iii) has had or
would reasonably be expected to have a Material Adverse Effect. Professional is
not in default under any judgment, decree, injunction or order of any
Governmental Authority or arbitrator outstanding against it, except for those
defaults 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 Professional 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 Professional (the "Owned Properties") are
free and clear of all liens, pledges, claims, security interests, mortgages,
assessments, easements, rights of way, covenants, restrictions, rights of first
refusal, defects in title, encroachments and other burdens (collectively,
"Liens") except (i) statutory Liens not yet delinquent or the validity of which
are being contested in good faith by appropriate actions, (ii) purchase money
Liens arising in the ordinary course, (iii) Liens for taxes not yet delinquent,
(iv) Liens reflected in the Financial Statements (which have not been
discharged) and (v) Liens that in the aggregate do not materially detract from
the value or, in the case of personal property, materially impair the use by
Professional of the
14
<PAGE> 20
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 Professional. Professional has good and indefeasible title to
the Owned Properties and there are no pending or, to the knowledge of PLAC,
threatened condemnation proceedings affecting any of the Owned Properties.
SECTION 3.12. Investment Assets.
(a) Section 3.12(a) of the Disclosure Schedule contains (i) a list of all
Investment Assets owned by Professional as of September 30, 1998 together with
the carrying value on the balance sheet included in the Professional Financial
Statements for the quarter ended September 30, 1998 of each such Investment
Asset, and (ii) a list of all purchases, acquisitions, sales or dispositions of
Investment Assets by Professional since September 30, 1998 through the date
hereof (including the Investment Assets involved and the dates and prices of the
transactions). Professional has good title to the Investment Assets listed in
Section 3.12(a) of the Disclosure Schedule or purchased or acquired since
September 30, 1998, free and clear of any Liens or other encumbrances, other
than Investment Assets sold or disposed of in the ordinary course of business
since such date.
(b) From the date hereof until the Closing Date, Professional shall
purchase and sell its Investment Assets, and invest and reinvest income and
proceeds in respect thereof only in accordance with the investment policies set
forth in Section 3.12(b) of the Disclosure Schedule or as otherwise mutually
agreed upon by Buyer and PLAC. Within ten (10) Business Days after the end of
each month occurring between the date hereof and the Closing Date, Professional
shall provide Buyer with a written statement of all purchases, acquisitions,
sales and dispositions of Investment Assets, and all investments and
reinvestments of income and proceeds in respect thereof during the preceding
month.
SECTION 3.13. Certain Agreements. Section 3.13 of the Disclosure Schedule
lists all of the Contracts and Other Agreements to which Professional is a party
or by which any of its assets or properties are bound (other than the Employee
Benefit Programs set forth in Section 3.14(b) of the Disclosure Schedule):
(a) all employment, agency, consultation or representation contracts and
other agreements with any present officer, director, employee, agent,
consultant, or other similar representative of Professional (or former officer,
director, employee, agent, consultant or similar representative of Professional
if there exists any present or future liability with respect to such contract),
other than Contracts and Other Agreements with employees, agents, consultants
and similar representatives who do not receive compensation of $75,000 or more
per year and other than Contracts and Other Agreements with agents or producers
who did not receive commissions of at least $37,500 during the six months ended
June 30, 1998;
(b) all Contracts and Other Agreements with any person containing any
provision or covenant limiting the ability of Professional to (i) sell any
products or
15
<PAGE> 21
services of any person, (ii) engage in any line of business or (iii) compete
with or obtain products or services from any person or limit the ability of any
person to compete with or provide products or services to Professional;
(c) all Contracts and Other Agreements pursuant to which Professional has
agreed to indemnify or hold harmless any person (other than pursuant to
reinsurance and coinsurance agreements and other than indemnifications in the
ordinary course of business);
(d) all Contracts and Other Agreements (including without limitation
those relating to allocations of expenses, personnel, services or facilities)
between or among Professional on the one hand, and Parent or any direct or
indirect affiliate of Parent, on the other hand;
(e) all reinsurance and coinsurance contracts relating to Professional;
and
(f) all other Contracts and Other Agreements (other than any Contracts
and Other Agreements with agents or producers); provided, however, that Section
3.13 of the Disclosure Schedule need not include any Contracts or Other
Agreements not specified in clauses (a)-(e) above that do not involve one or
more payments or potential payments, pursuant to the terms of such Contracts and
Other Agreements, by or to Professional, in excess of $100,000 in any
twelve-month period or that provide for a remaining term in excess of twelve
months.
Each Contract or Other Agreement required to be disclosed in Section 3.13 of the
Disclosure Schedule is in full force and effect and constitutes a legal, valid
and binding obligation of Professional and, to the knowledge of each of PLAC and
Professional, each other party thereto, enforceable in accordance with its
terms, except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, rehabilitation, liquidation, moratorium and other similar laws
relating to or affecting rights and remedies of creditors generally or rights
and remedies of creditors of insurance companies generally, by general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law) or by an implied covenant of good faith and
fair dealing. Except as set forth in Section 3.13 of the Disclosure Schedule,
neither PLAC nor Professional has received from any other party any notice of
termination with respect to any Contract or Other Agreement required to be
disclosed in Section 3.13 of the Disclosure Schedule. Except as set forth in
Section 3.13 of the Disclosure Schedule, neither Professional nor, to the
knowledge of each of PLAC or Professional, any other party to any contract or
other agreement required to be disclosed in Section 3.13 of the Disclosure
Schedule is in violation or breach of or default under any such Contract or
Other Agreement (or, with or without notice or lapse of time or both, would be
in violation or breach of or default under any such Contract or Other
Agreement), which violation, breach or default has or could reasonably be
expected to have, individually, or in the aggregate, a Material Adverse Effect.
There have been made available to Buyer true and complete copies of all
Contracts and Other Agreements required to be set forth
16
<PAGE> 22
in Section 3.13 of the Disclosure Schedule or in any other Section of the
Disclosure Schedule.
SECTION 3.14. Professional Employees.
(a) Section 3.14 (a)(i) of the Disclosure Schedule contains a true and
complete list of all persons employed by Professional (the "Current Employees")
as of November 30, 1998. Any Current Employee who remains employed by
Professional or its subsidiaries as of the Closing Date shall be referred to as
a "Transferred Employee".
(b) Section 3.14(b) of the Disclosure Schedule lists each "employee
benefit plan" (within the meaning of ERISA Section 3(3)) that, as of the date
hereof, is maintained or otherwise contributed to by Parent, PLAC or
Professional for the benefit of the Current Employees (including, without
limitation, pension, profit sharing, stock bonus, medical reimbursement, life
insurance, disability and severance pay plans) (collectively, the "Company
Plans") and all other material employee benefit plans and arrangements, payroll
practices, employment agreements, change-in-control or transition agreements, or
retention agreements, policies or other arrangements, not subject to ERISA, that
are maintained or otherwise contributed to by Parent, PLAC or Professional for
the benefit of the Current Employees and providing for deferred compensation,
bonuses, stock options, employee insurance coverage or any similar compensation
or welfare benefit plan (collectively, "Benefit Arrangements" and, together with
the Company Plans, the "Employee Benefit Programs"). Except as disclosed in
Section 3.14(b) of the Disclosure Schedule, all Employee Benefit Programs so
listed are sponsored by Parent.
(c) Except as set forth in Section 3.14(c) of the Disclosure Schedule,
(i) each Employee Benefit Program has been established and administered in all
material respects in compliance with the applicable provisions of ERISA, the
Code and the terms of all documents relating to such programs; (ii) each Company
Plan that is intended to be qualified under Code Section 401(a) has received a
favorable determination letter as to its qualification; (iii) as of the date of
this Agreement no "reportable event" (as such term is used in ERISA Section
4043, but other than any event for which notice to the Pension Benefit Guaranty
Corporation ("PBGC") has been waived), "prohibited transaction" (as such term is
used in Code Section 4975 or ERISA Section 406) or "accumulated funding
deficiency" (as such term is used in Code Section 412 or 4971) has heretofore
occurred with respect to any Company Plan where such occurrence has a reasonable
probability of resulting in a termination of a Company Plan subject to Title IV
of ERISA; and (iv) there are no pending or, to the knowledge of PLAC,
Professional or any of their subsidiaries, threatened actions, claims or
lawsuits that have been asserted or instituted against the Employee Benefit
Programs, the assets of any of the trusts under such plans or the plan sponsor
or the plan administrator, or against any fiduciary of the Employee Benefit
Programs with respect to the operation of such plans (other than routine benefit
claims).
(d) Current, accurate and complete copies of each Employee Benefit
Program (or to the extent no such copy exists, an accurate description), all
existing
17
<PAGE> 23
amendments and to the extent applicable, trust agreements, annuity contracts or
other funding arrangements, summary plan descriptions, Internal Revenue Service
determination letters, and the most recent annual reports on Form 5500, if any,
have been made available to Buyer.
(e) None of PLAC, Professional or any entity required to be aggregated
with them pursuant to Code Section 414 or ERISA Section 4001(b) ("ERISA
Affiliate") maintains or contributes, or has maintained or contributed within
the preceding six years, to any "multiemployer plan" (as such term is defined in
ERISA Section 3(37)), and none of PLAC, Professional or any of their
subsidiaries has incurred any material liability that remains unsatisfied under
ERISA Section 4062, 4063, 4064, 4069 or 4201. No ERISA Affiliate has incurred
any material liability to the PBGC that remains unsatisfied (other than PBGC
premiums), including as a result of the voluntary or involuntary termination of
any Company Plan that is subject to Title IV of ERISA. There is currently no
active filing by Professional with the PBGC (and no proceeding has been
commenced by the PBGC) to terminate any Company Plan that is subject to Title IV
of ERISA and that has been maintained or funded, in whole or in part, by
Professional.
(f) Except as disclosed in Section 3.14(f) of the Disclosure Schedule,
none of PLAC or Professional maintains or contributes to any Employee Benefit
Program that provides, or has any liability or obligation to provide, life
insurance or medical benefits to any employee (or his beneficiary) upon and/or
after such employee's retirement, except as may be required by federal, state or
local laws, rules or regulations.
(g) Except as disclosed in Section 3.14(g) of the Disclosure Schedule,
none of the Employee Benefit Programs contains any provision that 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 or would, in the aggregate as to any one individual, constitute an
"excess parachute payment" under Code Section 280G solely as a result of the
consummation of the transactions contemplated by this Agreement.
(h) Except as disclosed in Section 3.14(h) of the Disclosure Schedule,
since January 1, 1998, there has not been any adoption or amendment by PLAC,
Professional or any subsidiary of Professional, of any collective bargaining
agreement or any Employee Benefit Program. Except as disclosed in Section
3.14(h) of the Disclosure Schedule, there exist no written employment,
consulting, severance, termination or indemnification agreements or arrangements
between Professional and any current or former employee, officer or director of
Professional.
(i) Any individual who performs services for Professional (other than
through a contract with an organization other than such individual) and who is
not treated as an employee for federal income tax purposes by PLAC, Professional
or any of their subsidiaries is not an employee for such purposes.
18
<PAGE> 24
SECTION 3.15. Taxes. Except as set forth in Section 3.15 of the
Disclosure Schedule:
(a) Professional has filed all Tax Returns (as hereinafter defined), or
in the case of consolidated, unitary or combined returns, Tax Returns have been
filed on its behalf (as used herein, references to Tax Returns of Professional
shall include any such returns), including those required under applicable
withholding laws and regulations, required to be filed by it on or prior to the
date hereof or requests for extensions to file such Tax Returns have been timely
filed or granted (if required) and have not expired. No claim has ever been made
in writing by an authority in a jurisdiction where Professional does not file
Tax Returns that it is or may be required to file Tax Returns in that
jurisdiction. All Tax Returns filed by Professional are complete and accurate in
all material respects. Professional has paid (or has had paid on its behalf), or
has established adequate reserves, in accordance with GAAP and SAP, for the
payment of, all Taxes shown due on such Tax Returns, and liabilities and
reserves for Taxes reflected on the Closing SAP Balance Sheet are adequate in
all material respects for Taxes payable by Professional for all taxable periods
and portions thereof through the Closing Date. Professional has timely paid (or
has had paid on its behalf) all required current estimated tax payments
sufficient to avoid material underpayment penalties. There are no Liens with
respect to Taxes on any of the assets of Professional.
(b) No deficiencies for any Taxes have been proposed, asserted or
assessed in writing against Professional that are not adequately reserved for in
accordance with SAP and GAAP, except for deficiencies that would not have a
Material Adverse Effect, and no agreements or arrangements for waivers of the
time to assess any such Taxes have been made or are pending. The Tax Returns of
Professional for all years prior to 1995 have been examined by and settled with
the applicable Governmental Authority or the statutes of limitations on
assessment or collection of any Taxes due in respect of such Tax Returns from
Professional have expired. No closing agreement pursuant to Section 7121 of the
Code or any similar provision of any state, local or foreign law has been
entered into by or with respect to Professional.
(c) No audit or other proceeding by any court, Governmental Authority, or
similar person is pending or threatened with respect to any Taxes due from or
with respect to Professional or any Tax Return filed by or with respect to
Professional. No assessment of Tax is proposed against Professional or any of
its assets.
(d) As used in this Agreement, "Tax Returns" shall include any return,
report, information return, or other document (including any related or
supporting information) filed or required to be filed with any Governmental
Authority in connection with the determination, assessment, collection, or
administration of any Taxes.
(e) PLAC is not a "foreign person" within the meaning of Section
1445(b)(2) of the Code. At or prior to Closing, PLAC will provide to Buyer a
certification of nonforeign status to the extent and in the form required under
Treas. Reg. Section 1.1445-2(b).
19
<PAGE> 25
(f) (i) Professional has not agreed or been requested to, does not have
an application pending and is not required to make any adjustment under Section
446(e) or Section 481(a) of the Code, (ii) Professional does not have any
accounting method changes pending, either initiated by the IRS or by it and
(iii) there are no elections in effect under Sections 108, 168, 441, 472, 1017,
1033, 4977 or 341(f)(2) of the Code that would result in conjunction with the
Section 338 Elections (as defined below), in recognition of income for federal
income tax purposes on the Closing Date. None of the assets of Professional is
tax exempt use property within the meaning of Section 168(h) of the Code.
(g) Professional has paid or has established adequate reserves in its
Financial Statements for the payment of all guarantee fund assessments in
respect of any period through the Closing Date.
(h) Professional is a member of the group of corporations filing a
consolidated federal income tax return having PLAC as its common parent, and
PLAC is a domestic corporation. Other than pursuant to this Agreement,
Professional has not issued, granted or transferred any outstanding call
options, warrants, convertible obligations, put options, redemption agreements
(including any rights to cause the redemption of stock), cash settlement
options, phantom stock, stock appreciation rights, or any similar interests
(except for stock), or any other instruments that provide for the right to
issue, redeem, or to transfer the stock (including any option on an option),
with respect to Professional.
(i) To the knowledge of PLAC, (i) for any taxable year in respect of
which the applicable statute of limitations on assessment or collection of Taxes
has not yet expired, Professional (or any predecessor) has not been a member of
any group of corporations filing a consolidated federal income tax return and
having as a common parent any corporation other than PLAC and (ii) PLAC has
disclosed to Buyer (or its representatives) each member of the group of
corporations filing a consolidated federal income tax return and having PLAC as
the common parent of such group.
(j) PLAC has properly prepared and filed information statements required
pursuant to Section 1.382-2T(a)(2)(ii) of the Treasury Regulations promulgated
under Section 382 of the Code.
(k) All life insurance contracts issued by Professional qualify as "life
insurance contracts" within the meaning of Section 7702(a) of the Code. None of
the life insurance contracts issued by Professional are Modified Endowment
Contracts within the meaning of Section 7702A(a) of the Code except as
adequately disclosed to the policyholder. All annuity contracts issued by
Professional that are subject to Section 72(s) of the Code contain the necessary
provisions of Section 72(s) of the Code.
(l) To the extent applicable, all contracts issued by Professional that
are subject to Section 817 of the Code have met the diversification requirements
applicable thereto since the issuance of such contracts.
20
<PAGE> 26
(m) PLAC and Professional are and for all prior taxable periods have been
taxable as life insurance companies as defined in Section 816 of the Code.
(n) Professional is not subject to any adjustment under Section 807(f) of
the Code.
(o) The insurance reserves and the unearned premiums with respect to
Professional set forth in all federal income tax returns of Professional were
determined substantially in accordance with Section 807 of the Code.
(p) Professional's policyholders' surplus account (as defined in Section
815 of the Code) balance is zero as of December 31, 1993 and for all subsequent
taxable periods through the Closing Date.
(q) The fair market value of Occidental Life Insurance Company as of the
date of its sale by Pennsylvania Life Insurance Company was not in excess of
$48.7 million.
(r) Professional has not been a United States real property holding
corporation within the meaning of Code Section 897(c)(2) during the applicable
period specified in Code Section 897(c)(1)(A)(ii).
(s) Each of the surplus notes issued by any of the members of the
consolidated groups for which PLAC is or was the common parent constitutes, and
for all prior periods did constitute, valid indebtedness under the Code.
(t) The acquisition of United Life & Annuity Insurance Company, formerly
known as United Companies Life Insurance Company, and related Section 338(h)(10)
calculations as reflected on the federal income tax returns of PLAC filed as of
the Closing Date, have been made in accordance with the Code, the Regulations
and any other item that would constitute substantial authority under Treasury
Regulation Section 1.6662-4(d).
SECTION 3.16. Compliance with Applicable Law; Permits; Policies.
(a) Professional is 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 Professional, its
business or its assets, except for such noncompliance as would not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect.
(b) Professional owns or validly holds all licenses, franchises, permits,
approvals, authorizations, exemptions, classifications, certificates,
registrations, and similar documents or instruments that are required for its
business and operations. 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
21
<PAGE> 27
the aggregate, a Material Adverse Effect, and no proceeding is pending or, to
the knowledge of each of PLAC and Professional, threatened that could result in
the suspension, revocation or limitation of any material license, franchise,
permit, approval, authorization, exemption, classification, certificate,
registration, or similar document which are applicable to Professional.
(c) Except as disclosed in Section 3.16(c) of the Disclosure Schedule,
(i) all forms of insurance policies and all amendments, applications, brochures,
illustrations, certificates and riders thereto in force that were issued by
Professional 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, (ii) all
such forms have been administered in accordance with applicable law and (iii)
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. Except as described
in Section 3.16(c) of the Disclosure Schedule, all contracts to which
Professional is a party that are required to be filed with or approved by a
Governmental Authority have been so filed or approved. Except as disclosed in
Section 3.16(c) of the Disclosure Schedule, Professional (exclusive of its
independent agents) and, to the knowledge of each of PLAC and Professional, its
independent agents, have marketed, sold, issued and enrolled products of
Professional in compliance with all laws applicable to the business of
Professional in the respective jurisdictions in which such products have been
marketed, sold, issued or enrolled.
(d) Except as set forth in Section 3.16(d) of the Disclosure Schedule,
Professional has filed or otherwise provided all material reports, data,
registrations and other information and applications required to be filed with
or otherwise provided to the office of the Texas Insurance Commissioner and all
other Federal, state or local Governmental Authorities having jurisdiction over
Professional, and all required regulatory approvals in respect thereof are in
force and effect on the date hereof. No material deficiencies have been asserted
by any such Governmental Authority with respect to any such regulatory filings
or submissions that have not been satisfied.
(e) Professional has 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 Professional issued by any
insurance regulator.
(f) Professional has delivered or made available to Buyer true and
complete copies of all underwriting manuals (including each amendment thereto)
utilized by Professional since January 1, 1993. Except as set forth in Section
3.16(f) of the Disclosure Schedule, the underwriting standards and ratings
applied by Professional with respect to policies issued since the date on which
PLAC acquired Professional have conformed in all material respects to those
contained in the foregoing underwriting manuals as in effect at the times such
policies were underwritten.
22
<PAGE> 28
(g) To the knowledge of each of PLAC and Professional, all insurance or
annuity contract benefits payable by Professional have been paid, and all
insurance or annuity contract claims have been settled, in a timely manner in
accordance with the terms of the insurance, annuity and other contracts under
which they arose, except for such benefits or claims for which Professional
believes there is a reasonable basis to contest.
(h) Since the date on which PLAC acquired Professional, each insurance
agent of Professional, at the time Professional issued any policy wrote, sold,
or produced by such agent for Professional, was duly licensed and properly
appointed by Professional as an insurance agent (for the type of policy written,
sold, or produced by such insurance agent) in the particular jurisdiction in
which such agent wrote, sold, or produced such policy.
SECTION 3.17. Powers of Attorney. Except as set forth in Section 3.17 of
the Disclosure Schedule, there are no outstanding powers of attorney or proxies
granted by Professional to any other person.
SECTION 3.18. Brokers' Fees and Commissions. Except for Salomon Smith
Barney Inc. and Fox-Pitt, Kelton Inc., none of PLAC, Professional or their
respective affiliates, directors, officers, employees or agents has employed or
is in any way obliged to any investment banker, broker or finder in connection
with the transactions contemplated hereby. PLAC shall be responsible for the
fees and expenses of Salomon Smith Barney Inc. and Fox-Pitt, Kelton Inc. in
connection with the transactions contemplated by this Agreement. Neither Buyer
nor Professional shall be responsible for the fees or expenses of any investment
banker or finder retained by Parent, PLAC or Professional in connection with the
transactions contemplated by this Agreement.
SECTION 3.19. Proprietary Rights. Except as disclosed in Section 3.19 of
the Disclosure Schedule, Professional owns or possesses the right to use all
material trademarks, service marks, patents, patent rights, assumed names,
logos, trade secrets, copyrights, trade names, computer software, programs and
similar systems ("Intellectual Property") that are used or required by it in the
conduct of its business, operations or affairs and all such Intellectual
Property and computer software, programs and similar systems are in full force
and effect in accordance with their terms. Section 3.19 of the Disclosure
Schedule sets forth separately (v) all Intellectual Property licensed to
Professional by a third party, (w) all Intellectual Property licensed by
Professional to a third party, (x) all Intellectual property of which
Professional is the exclusive owner, (y) all Intellectual Property jointly owned
by Professional and a third party and (z) those items of Intellectual Property
for which any filings have been made with any Governmental Authority.
Professional is not in conflict with, or in violation or infringement of, nor
has it received any notice of any conflict with or violation or infringement of
or any claimed conflict with or violation or infringement of, any asserted
rights of any other Person with respect to any such Intellectual Property or
computer software, programs, or similar systems, except as would not reasonably
be expected to have a Material Adverse Effect.
23
<PAGE> 29
SECTION 3.20. Insurance. Section 3.20 of the Disclosure Schedule
summarizes the amount and scope of the insurance currently in force insuring
Professional and its operations and properties against loss or liability. All
such policies or contracts of insurance are sufficient for compliance in all
material respects with all requirements of law and of all agreements to which
Professional is a party. All insurance policies pursuant to which any such
insurance is provided are in full force and effect. No notice of cancellation or
termination of any such insurance policy or contract has been received by
Professional and neither the execution of this Agreement nor the consummation of
the transactions contemplated thereby will give rise to any right to terminate
or cancel such policies or contracts. All premiums required to be paid in
connection with such insurance policies and contracts have been paid in full.
SECTION 3.21. Environmental Matters. Except as disclosed on Section 3.21
of the Disclosure Schedule:
(a) the operations of Professional and the real property currently (or to
the knowledge of each of PLAC and Professional, formerly) owned, leased or
operated by Professional are in material compliance and, during the period of
the ownership or tenancy of Professional have been or were in material
compliance, with all applicable Environmental Laws;
(b) no judicial or administrative proceedings or investigations are
pending or, to the knowledge of PLAC, threatened against Professional pursuant
to any applicable Environmental Laws;
(c) Professional has obtained and will maintain through the Closing Date,
all material governmental approvals that are required with respect to its
operations under any Environmental Law;
(d) Professional (i) does not have any liability of which it is aware for
response costs or corrective action pursuant to any Environmental Law with
respect to any real property or facility currently or previously owned, leased
or operated by Professional or any other real property or facility where such
liability arises from or relates to the offsite transport, treatment, storage or
disposal of any Hazardous Material by or on behalf of Professional or the
offsite migration of any Hazardous Material from any of the foregoing types of
properties, (ii) has not received any notice of any Environmental Claim
involving Professional or any real property of facility owned, leased or
operated by Professional and which is outstanding, (iii) has no knowledge of any
Environmental Claim involving any real property or facility owned, leased or
operated by Professional, and (iv) has not received any written request for
information under Section 104 of the Comprehensive Environmental Response,
Compensation and Liability Act or any comparable state law;
(e) no real property currently (or to the knowledge of each of PLAC and
Professional, formerly) owned, operated or leased by Professional is listed or
has been proposed for listing on the National Priorities List, the Comprehensive
24
<PAGE> 30
Environmental Response Compensation and Liability and Information System
("CERCLIS") or any analogous state lists; and
(f) PLAC has made available to Buyer copies of all environmental
investigations, audits, assessments or other analyses conducted by or on behalf
of, or that are otherwise in the possession of, Parent, PLAC or Professional
relating to any real property currently or formerly owned, leased or operated by
Professional.
SECTION 3.22. Bank Accounts. Section 3.22 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
Professional 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.
SECTION 3.23. Insurance and Reinsurance.
(a) Section 3.23(a) of the Disclosure Schedule is a true and complete
description of each material contract providing for reinsurance, coinsurance,
excess insurance, ceding of insurance, assumption of insurance or
indemnification of insurance liabilities to which Professional is a party that
is currently in effect or pursuant to which a party continues to or should
reserve against potential liability (the "Reinsurance Agreements").
(b) Except as required by law or as disclosed in Section 3.23(b) of the
Disclosure Schedule, all amounts payable by Professional under any Reinsurance
Agreement and 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 as disclosed in Section 3.23(b) of the
Disclosure Schedule, to the knowledge of PLAC, no reinsurer (other than
Professional) that is a party to any of the Reinsurance Agreements has a valid
defense to payment of its material obligations under such Reinsurance
Agreements. Except as disclosed in Section 3.23(b) of the Disclosure Schedule,
since the date on which PLAC acquired Professional, Professional has not entered
into any series of transactions that are required to be recorded as financial
reinsurance pursuant to either GAAP or SAP. Neither the execution of this
Agreement nor the consummation of the transactions contemplated thereby will
give rise to any right to cancel or terminate any Reinsurance Agreement.
(c) No outstanding insurance or annuity contract issued, reinsured or
underwritten by Professional entitles the holder thereof or any other person to
receive any dividends, distributions, experience rating refunds or other
benefits based on the revenues or earnings of Professional or any other Person.
SECTION 3.24. Labor Matters.
(a) Professional is not a party to any labor or collective bargaining
agreement.
25
<PAGE> 31
(b) No employees of Professional 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 Professional
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 overtly 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 PLAC, there are no
organizing activities involving Professional pending with any labor organization
or group of employees of Professional.
(c) There are no strikes, work stoppages, slowdowns, lockouts, material
arbitrations or material grievances or other material labor disputes pending or
threatened against or involving Professional. There are no unfair labor practice
charges, grievances or complaints pending or threatened by or on behalf of any
employee or group of employees of Professional that, if individually or
collectively resolved against Professional, as the case may be, could reasonably
be expected to result in a Material Adverse Effect.
(d) Professional is in material 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.
(e) There are no complaints, charges or claims against Professional
pending or to the knowledge of each of PLAC and Professional 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 Professional 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 3.25. Threats of Cancellation. Except as disclosed in Section
3.25 of the Disclosure Schedule, as of the date of this Agreement, no (i) holder
of any insurance policy issued by Professional, (ii) group of affiliated holders
of insurance policies issued by Professional or (iii) persons writing, selling
or producing insurance business that, individually or in the aggregate,
accounted for 5% or more of the premium or annuity income of Professional, for
the year ended December 31, 1997 or the nine months ended September 30, 1998,
has terminated or, to the knowledge of each of PLAC and Professional, threatened
to terminate its relationship with Professional and neither PLAC nor
Professional have knowledge of any fact which could reasonably be expected to
cause any such holders, groups of holders or other persons to terminate their
relationships with Professional.
SECTION 3.26. Regulatory Qualifications. To the knowledge of each of PLAC
and Professional, no event has occurred or condition exists or, to the extent it
is within the control of any of them, will occur or exist with respect to any of
them, that in
26
<PAGE> 32
connection with the transactions contemplated by this Agreement would cause any
of them to fail to satisfy any applicable law or regulation of any insurance
regulatory authority that prevents or would reasonably be likely to prevent them
from obtaining necessary approvals from any Governmental Authority to consummate
the transactions contemplated by this Agreement.
SECTION 3.27. Year 2000 Compliance.
(a) Professional has reviewed the areas within its business and
operations which Professional believes could be adversely affected if not Year
2000 Compliant on or before December 31, 1999 and is making related inquiries of
third parties with whom Professional exchanges data electronically (including,
without limitation, Regional Area Directors, insurance agents, customers,
clients, suppliers, service providers, subcontractors, processors, converters,
outsourcers, data processors, regulatory agencies and banks) whose lack of Year
2000 Compliance would be materially or significantly adverse to Professional.
The term "Year 2000 Compliant" as used herein means that Professional's computer
systems (i) are capable of recognizing, processing, managing, representing,
interpreting and manipulating correctly date related data for dates earlier and
later then January 1, 2000, including, but not limited to, calculating,
comparing, sorting, storing, tagging and sequencing, without resulting in or
causing logical or mathematical errors or inconsistencies in any user-interface
functionalities or otherwise, including data input and retrieval, data storage,
data fields, calculations, reports, processing or any other input or output,
(ii) have the ability to provide date recognition for any data element without
limitation (including, but not limited to, date-related data represented without
a century designation, date-related data represented by only two digits and date
fields assigned special values), (iii) have the ability to automatically
function into and beyond the year 2000 without human intervention and without
any change in operations associated with the advent of the year 2000, (iv) have
the ability to correctly interpret data, dates and time into and beyond the year
2000, (v) have the ability not to produce noncompliance in existing information,
nor otherwise corrupt such data into and beyond the year 2000, (vi) have the
ability to correctly process after January 1, 2000 data containing dates before
that date and (vii) have the ability to recognize all "leap years". Based on the
reviews of its own business and operations, Professional believes that it has
implemented an industry-standard compliance methodology that has taken all the
major systems related to Professional and its business (the "Professional
Systems") through a five-step process: (i) assessment, (ii) remediation or
upgrade, (iii) testing of individual systems and systemwide tests, (iv)
implementation into a Year 2000 Compliant environment, and (v) contingency
planning. Professional developed and implemented this five-step process in the
good faith belief that it will lead to a Year 2000 Compliant systems environment
for Professional, except where such noncompliance would not have a Material
Adverse Effect. Section 3.27 of the Disclosure Schedule indicates the progress
of the Professional Systems against the five steps outlined above. The
Professional Systems for which the five-step process is complete show completion
dates in the column entitled "Production Certified (Actual)". Each of the
Professional Systems are or will be Year 2000 Compliant no later than the Target
Date indicated on Section 3.27 of the Disclosure Schedule to the extent such
Target Date is before the Closing Date, and, with respect to
27
<PAGE> 33
each Target Date after the Closing Date, PLAC is not aware of any fact which
could reasonably be expected to cause the applicable Professional System not to
be Year 2000 Compliant on such Target Date.
(b) Notwithstanding anything in this Agreement to the contrary, PLAC (i)
shall not be deemed to have breached any representation or warranty contained in
this Section 3.27 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 Professional's 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 Professional's computer systems will
be Year 2000 Compliant if Professional's plans, methodologies, processes or
vendors are changed after the Closing, and (iv) are not making any
representation or warranty that Professional's computer systems will be Year
2000 Compliant in the event any change, noncompliance, failure, act of God or
other external event beyond the reasonable control of Professional shall occur
which directly or indirectly affects the operation of Professional's computer
systems.
SECTION 3.28. Affiliate Security Ownership. Professional does not own,
beneficially or of record, any debt or equity securities, or ownership interests
of any kind, of Parent or any of its Subsidiaries or affiliates.
SECTION 3.29. Financial Condition. The sale of the Shares is not being
made with the actual intent to hinder, delay or defraud any entity to which PLAC
is indebted as of the date hereof or any entity to which PLAC may become
indebted subsequent to the date hereof. PLAC has valid business reasons for
selling the Shares and has concluded that the Closing Purchase Price represents
reasonably equivalent value for the Shares. PLAC is not engaged in any business
or transaction, nor is PLAC about to engage in any business or transaction, for
which any property remaining with PLAC is or will be an unreasonably small
capital, and PLAC does not intend to incur, nor believes that is has incurred,
debts beyond its ability to pay as they mature or as PLAC expects to otherwise
become due and payable.
ARTICLE IV
[RESERVED]
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to PLAC as follows:
28
<PAGE> 34
SECTION 5.1. 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 5.2. 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 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 each
other document to be delivered by Buyer in connection herewith or to consummate
the transactions contemplated hereby and thereby. This Agreement has been duly
and validly executed and delivered by Buyer and constitutes a valid and binding
obligation of Buyer, enforceable against it in accordance with its terms,
subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally, and subject, as to enforceability, to general principles of
equity, including principles of commercial reasonableness, good faith and fair
dealing (regardless of whether enforcement is sought in a proceeding at law or
in equity).
SECTION 5.3. No Violation. Neither the execution and delivery of this
Agreement by Buyer, the performance by Buyer of its obligations hereunder nor
the consummation by Buyer of the transactions contemplated hereby will (a)
violate, conflict with or result in any breach of any provision of the
Certificate or Articles of Incorporation or Bylaws 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 5.4. Consents and Approvals. Except as set forth in Section 5.4
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 other than consents and approvals of
or filings or registrations with (a) the DOJ pursuant to the HSR Act and (b) the
approval of the Texas Department of Insurance.
SECTION 5.5. 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.
29
<PAGE> 35
SECTION 5.6. 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 5.7. Financing. Buyer has sufficient funds available necessary to
consummate the acquisition by Buyer of the Shares.
ARTICLE VI
COVENANTS
SECTION 6.1. Conduct of Business Prior to the Closing. Except as
expressly contemplated by this Agreement, as set forth in Section 6.1 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, PLAC will cause Professional 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 maintain all licenses and permits currently in place, to keep
available the services of its officers and employees, to maintain at least its
current rating as assigned by A.M. Best & Co., to continue to pursue appropriate
rate filings and other profitability efforts, and to maintain satisfactory
relationships with policyholders, Regional Area Directors, agents and
regulators, in each case in the ordinary course of business. PLAC agrees that it
will cause Professional to notify Buyer promptly in writing should any (i)
holder of any insurance policies issued by Professional, (ii) group of
affiliated holders of insurance policies issued by Professional or (iii) persons
writing selling or producing insurance business that, individually or in the
aggregate, accounted for 5% or more of the premium or annuity income of
Professional for the year ended December 31, 1997 or the nine months ended
September 30, 1998 terminate or threaten to terminate their relationship with
Professional. Without limiting the generality of the foregoing, and except as
otherwise provided in this Agreement and as set forth in Section 6.1 of the
Disclosure Schedule, prior to the Closing, PLAC will not permit Professional to,
without the prior written consent of Buyer:
(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;
30
<PAGE> 36
(b) redeem, purchase or otherwise acquire any outstanding shares of its
capital stock, except in connection with PLAC's acquisition of the shares of
common stock of Professional not owned by PLAC on the date of this Agreement;
(c) propose or adopt any amendment to its Articles of Incorporation or
Bylaws, except in connection with PLAC's acquisition of the shares of common
stock of Professional not owned by PLAC on the date of this Agreement;
(d) 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
or materially modify any employment, severance or collective bargaining
agreement;
(f) except in the ordinary course of business, (i) sell, transfer or
otherwise dispose of any of its property or assets or (ii) mortgage or encumber
any of its property or assets;
(g) enter into any Contracts or Other Agreements (including, without
limitation, any Reinsurance Agreements, which shall not be deemed made in the
ordinary course of business), commitments or contracts, except agreements,
commitments or Contracts or Other Agreements made in the ordinary course of
business;
(h) declare, set aside or pay any dividend or other distribution in
respect of its capital stock, except in connection with PLAC's acquisition of
the shares of common stock of Professional not owned by PLAC on the date of this
Agreement;
(i) except in the ordinary course of business or with respect to capital
projects approved prior to the date hereof and described in Section 6.1(i) of
the Disclosure Schedule, enter into any agreement or commitment involving an
aggregate capital expenditure or commitment exceeding $100,000;
(j) amend, adopt or terminate any of the Employee Benefit Programs,
except as required by law;
(k) take any action that would result in a breach of the representations
and warranties contained in Article III of this Agreement;
(l) (i) acquire, form or commence the operations of any business or any
corporation, partnership, joint venture, association or other business
organization or division thereof or (ii) acquire any assets (other than
Investment Assets) having an aggregate purchase price in excess of $50,000;
(m) Except with respect to Taxes, which shall be governed under Section
6.15 hereof, discharge, settle or satisfy any claims, liabilities or obligations
31
<PAGE> 37
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction, in the ordinary course of business
consistent with past practice or in accordance with their terms, of liabilities
reflected or reserved against in, or contemplated by, the Financial Statements
of Professional for the quarter ended September 30, 1998 or incurred since
September 30, 1998 in the ordinary course of business consistent with past
practice;
(n) invest Professional's future cash flow, any cash from matured and
maturing investments, any cash proceeds from the sale of Professional's assets
(including Investment Assets) and properties, and any cash funds currently held
by Professional, or dispose of any Investment Assets, unless in accordance with
the terms of the investment guidelines attached as Section 3.12(b) of the
Disclosure Schedule;
(o) make any change in accounting methods, principles or practices,
including but not limited to any change with respect to establishment of
reserves for unearned premiums, losses and loss adjustment expenses, except
insofar as may be required by a change in SAP or GAAP;
(p) except in the ordinary course of business consistent with past
practices, modify, amend or terminate any material Contract or Other Agreement
(including any confidentiality agreement), permit, concession, franchise,
license or similar instrument to which Professional is a party or waive, release
or assign any material rights or claims thereunder;
(q) settle or compromise, (i) any litigation or claim arising out of the
transactions contemplated hereby, or (ii) any other litigation or claim if the
settlement thereof involves payment of in excess of $50,000 (other than claims
for contractual benefits under any insurer or reinsurer in the ordinary course
of business and consistent with past practices); provided, that Buyer will not
unreasonably withhold its consent to any such settlement or compromise;
(r) move the operations of any business or division of Professional to
any location other than where it is located on the date hereof;
(s) change in any manner the rate or terms of compensation of any
insurance agent or Regional Area Director;
(t) make any payments to Parent, PLAC or any affiliates, except pursuant
to any Contract or Other Agreement set forth in Section 3.13 of the Disclosure
Schedule; or
(u) agree in writing to take any of the foregoing actions.
SECTION 6.2. Share Ownership. Prior to the Closing, PLAC will have
obtained record and beneficial ownership of all of the Shares, free and clear of
all Liens.
SECTION 6.3. Access to Information. Between the date hereof and the
Closing Date, PLAC shall cause Professional to give to Buyer and its counsel,
32
<PAGE> 38
accountants, and other authorized representatives and agents, reasonable 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 Professional 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 6.3 shall not be exercised in a manner
which would materially interfere with the day-to-day operations of Parent, PLAC
or Professional. If the acquisition contemplated herein is consummated, Buyer
covenants and agrees that it shall preserve and keep the records of Professional
delivered to it hereunder for a period of five years from the Closing Date, and
shall make such records available to PLAC and its affiliates, as reasonably
required by PLAC or its affiliates in connection with any legal proceedings by
or against, or governmental investigations of, PLAC or any of its affiliates, or
in connection with any tax examination of PLAC or any consolidated group of
which it was a part.
SECTION 6.4. Notice of Litigation and Requests. From the date hereof
through the Closing Date, PLAC agrees to notify Buyer promptly of any pending or
threatened Litigation that, if pending or threatened as of the date hereof,
would be required to be described in Section 3.10 of the Disclosure Schedule and
of any written requests for additional information or documentary materials by
any Governmental Authority in connection with the transactions contemplated by
this Agreement.
SECTION 6.5. HSR Act Filings; Consents. As soon as practicable, but in
any event not later than 10 Business Days after the date hereof, PLAC 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 6.5. No party shall withdraw any such filing or
submission prior to the termination of this Agreement without the written
consent of the other parties. Each party hereto shall and PLAC shall cause
Professional to use its reasonable best efforts to obtain all consents,
approvals and authorizations of all third parties and Governmental Authorities
necessary to the consummation of the transactions contemplated by this
Agreement.
SECTION 6.6. State Regulatory Approvals. As soon as practicable, but in
any event not later than 20 days after the date hereof, each party hereto 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 required for consummation of the transactions contemplated by this
Agreement, in each case as promptly as is practicable. PLAC shall cause
Professional 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
33
<PAGE> 39
and owing or the provision of other consideration) as are reasonably requested
by PLAC to assist PLAC and Professional in completing all filings and obtaining
all consents and approvals as any of them may be required to make and obtain.
SECTION 6.7. Interim Financial Statements.
(a) As soon as reasonably practicable after they become available, PLAC
shall make available to Buyer true and complete copies of the statutory
Quarterly Statements of Professional filed with the appropriate Insurance
Commissioners, for all quarterly periods after December 31, 1998 and prior to
the Closing Date (collectively, the "Interim SAP Statements"). The Interim SAP
Statements will present fairly in all material respects the statutory financial
condition of Professional as of the respective dates thereof and the statutory
results of its operations and changes in its financial position and cash flow
for each of the periods then ended and will be prepared in conformity in all
material respects with SAP.
(b) As soon as practicable after they become available, PLAC shall make
available to Buyer true and complete copies of the quarterly balance sheets and
income statements of Professional (on a basis consistent with the GAAP Financial
Statements), for all quarterly periods on or after December 31, 1998 and prior
to the Closing Date (collectively, the "Interim Quarterly GAAP Statements"). The
Interim Quarterly GAAP Statements will present fairly in all material respects
the financial condition of Professional as of the respective dates thereof and
the results of Professional's operations for each of the periods then ended will
be prepared in conformity in all material respects with GAAP and with prior
periods.
SECTION 6.8. Year End Financial Statements. PLAC shall cause to be
prepared and delivered to Buyer at Professional's sole expense audited financial
statements of Professional for the year ending December 31, 1998 (the "Year End
GAAP Financial Statements"). The Year End GAAP Financial Statements shall be
accompanied by the unqualified report of a nationally recognized accounting firm
to the effect that such Year End GAAP Financial Statements present fairly in all
material respects the financial condition of Professional as of December 31,1998
and the results of its operations and changes in its financial condition and
cash flow for the year then ended, in conformity in all material respects with
GAAP. PLAC shall deliver the Year End GAAP Financial Statements as soon as
practicable, but in no event later than the earlier of the Closing Date or March
31, 1999.
SECTION 6.9. Maintenance of Insurance: Post-Closing Claims. From the date
hereof through the Closing Date, PLAC shall, and shall cause Professional to,
use reasonable efforts to maintain or cause to be maintained in force insurance
with respect to Professional as described in Section 3.20. Following the
Closing, Professional shall, and Buyer shall cause Professional to, pay or be
liable for the amount of any
34
<PAGE> 40
deductible or self-insured retention applicable to any claims incurred prior to
the Closing under the policies specified in Section 3.20 of the Disclosure
Schedule (or any replacement policy or other form of coverage substituted
therefor), to the extent reflected in the Closing Financial Statements. With
respect to the workers' compensation, general and automobile liability policies
specified in Section 3.20 of the Disclosure Schedule, PLAC will continue to
manage all claims incurred prior to the Closing and made or reported thereunder
(whether before or after the Closing), on behalf of Professional, and
Professional will promptly reimburse PLAC for the amount of any insurance
payments made in respect of such claims, all in accordance with past practice.
SECTION 6.10. Intercompany Accounts, Investments and Agreements.
(a) Except with respect to Taxes or matters related thereto, the parties
agree that all intercompany accounts and balances payable or receivable, whether
or not currently due, between Professional, on the one hand, and Parent or any
of its affiliates, on the other hand ("Intercompany Accounts"), shall be settled
as follows:
(i) At least five Business Days prior to the Closing Date, PLAC shall
cause to be prepared and delivered to Buyer a written statement setting forth
the estimated amount and a description of all Intercompany Accounts expected
to be outstanding on the Closing Date.
(ii) Buyer shall have the right, exercisable upon notice to PLAC not
later than two Business Days following delivery of the foregoing statements
of Intercompany Accounts, to object to any Intercompany Accounts set forth in
such statement; provided, however, that, notwithstanding anything herein to
the contrary, Buyer shall only be entitled to object to those Intercompany
Accounts that Buyer, in good faith reasonably believes (A) have been
calculated in manifest error; (B) are being charged for goods and services
not actually provided; (C) have not been determined reasonably in accordance
with past practice; or (D) are not payable or have not been determined in
accordance with the terms of the intercompany contracts or other agreements
under which such Intercompany Accounts arose. Without limiting the foregoing,
Buyer shall not be entitled to object to (I) whether any Intercompany Account
should or should not have been incurred or whether any transaction under
which any Intercompany Account arose should or should not have been
undertaken, (II) any particular past practice for determining intercompany
accounts or balances or (III) the particular terms of any intercompany
contract or other agreement under which an Intercompany Account arose.
(iii) If Buyer so objects to any Intercompany Account, Buyer and PLAC
will negotiate in good faith to resolve the objections set forth in Buyer's
notice of objection. If, as of the Closing Date, Buyer and PLAC are unable to
resolve all such objections, all Intercompany Accounts with respect to which
Buyer and PLAC are not in dispute or have resolved shall be settled in full
at or prior to the Closing, and any remaining objections as to Intercompany
Accounts that have not then been resolved by Buyer and PLAC shall be
submitted to the
35
<PAGE> 41
Settlement Auditor for resolution. Buyer and PLAC shall cooperate with the
Settlement Auditor and proceed in good faith to cause the Settlement Auditor
to resolve all such disputes within thirty days after the Closing. Buyer and
PLAC shall each pay one-half of the fees and expenses of the Settlement
Auditor. The Settlement Auditor's resolution of any such disagreement will be
reflected in a written report which will be delivered promptly to, and will
be final and binding upon, Buyer and PLAC.
(b) Except with respect to Taxes or matters related thereto, PLAC shall
cause Professional to modify, at or prior to the Closing, any Contracts or Other
Agreements between Professional, on the one hand, and Parent, PLAC or any of its
affiliates, on the other hand, to the extent necessary to exclude Professional
therefrom, except those Contracts or Other Agreements that are designated by
Buyer. For the purposes of this subsection, the termination of Contracts and
Other Agreements shall include recapture of reinsurance.
(c) On or prior to the Closing Date, Buyer, Professional and the
appropriate affiliates of Parent shall enter into an agreement (the "Transition
Services Agreement") with the terms set forth in Section 6.10(c) of the
Disclosure Schedule regarding the provision of certain services (including,
without limitation, information technology, operational support, customer
services and agent support) for a term of up to 18 months after the Closing
Date, subject to termination by Buyer on 30 days notice. Any costs or expenses,
not to exceed $20,000, required to be incurred to obtain any consents necessary
to effect the transactions contemplated by the Transition Services Agreement
shall be paid by Buyer with the advance approval of Buyer.
(d) On or prior to the Closing Date, Buyer and Security Life and Trust
Company shall enter into a lease agreement for a term not to exceed 18 months,
for the lease of the real property described on Section 6.10(d) of the
Disclosure Schedule on the terms set forth in Section 6.10(d) of the Disclosure
Schedule.
SECTION 6.11. 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 6.12. Public Announcements. Buyer and PLAC 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
36
<PAGE> 42
obligations pursuant to any listing agreement with any securities exchange or
any stock exchange regulations; provided, however, that each party will give
prior written 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 6.13. Disclosure Supplements. From time to time prior to the
Closing PLAC shall supplement or amend the Disclosure Schedule delivered in
connection herewith with respect to any matter that, 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 that is necessary to correct any
information in such Disclosure Schedule that has been rendered inaccurate
thereby. Such supplements and amendments shall not be given effect for purposes
of Section 7.1(d) (except to the extent such supplements and amendments relate
to any matter with respect to which PLAC has obtained Buyer's consent pursuant
to Section 6.1 or with respect to which such consent is not required); however,
if the Closing occurs, Buyer shall be deemed to have waived any right or claim
it may otherwise have or have had on account of any matter so disclosed in such
supplement or amendment.
SECTION 6.14. No Implied Representations or Warranties. Buyer hereby
acknowledges and agrees that neither Parent nor PLAC is making any
representation or warranty whatsoever, express or implied, except those
representations and warranties of Parent or PLAC explicitly set forth in this
Agreement, the Disclosure Schedule, the Parent Agreement or in any certificate
contemplated hereby and delivered by Parent or PLAC in connection herewith.
Except as explicitly set forth herein, none of PLAC, its 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.
SECTION 6.15. Tax Matters.
(a) PLAC will be responsible for, will pay or cause to be paid, and will
indemnify and hold harmless Buyer from and against, any and all monetary
damages, liabilities, loss suffered as a result of imposition by any taxing
authority of an offset right against an amount otherwise recoverable by the
indemnitee, fines, fees, penalties, interest and expenses (including, without
limitation, reasonable fees and disbursements of counsel incident to the
enforcement of rights to indemnification under this Section 6.15, but excluding
any expenses attributable to Buyer's pursuing (whether itself or through its
representatives) its right to consult, defend, consent or otherwise participate
in any Tax Claim (defined below) under this Section 6.15) ("Indemnifiable Tax
Losses") for or in respect of each of the following:
(i) any Taxes imposed or attributable to the income, assets or operations
of Professional to the extent such Tax is imposed with respect to any taxable
period or any portion thereof of Professional commencing prior to the Closing
Date; provided, however, that no claim by Buyer under this Section
37
<PAGE> 43
6.15(a)(i) for indemnification may be made in respect of any such Taxes by
virtue of the fact that such Taxes were paid by, or in respect of which a
payment was made by, Professional prior to the Closing Date; provided,
however, that in determining the amount of Taxes attributable to a taxable
period ending after the Closing Date, the amount shall be limited to the
Taxes determined as if the taxable year ended at the close of the Closing
Date;
(ii) any Taxes not described in clause (i) of this Section 6.15(a) and
imposed on Professional and attributable to the income, assets or operations
of any member of a consolidated or combined group of which Professional is or
was a member on or prior to the Closing Date and so imposed pursuant to
Treasury Regulation Section 1.1502-6(a) or any analogous or similar state,
local or foreign law ("Pre-Closing Taxes");
(iii) any Taxes attributable to the deemed sale of assets pursuant to the
Section 338 Elections ("Section 338 Taxes"); and
(iv) any breach of a representation or warranty contained in Section 3.15
or any obligation pursuant to this Section 6.15.
(b) Buyer will promptly notify PLAC of the commencement of any claim,
audit, examination, or other proposed change or adjustment by any taxing
authority, as well as any notice of assessment and any notice and demand for
payment issued under Section 6303 of the Code (or similar provision), concerning
any Taxes or other Indemnifiable Tax Losses covered by Section 6.15(a) ("Tax
Claim"). PLAC shall promptly notify Buyer of the commencement of any audit
concerning any pre-Closing taxable period of Professional. PLAC shall control
the strategy, defense and settlement of any Tax audit or administrative or court
proceeding relating to Taxes, including but not limited to extension of the
applicable statute(s) of limitations, of PLAC or Professional that may be
subject to indemnification under Section 6.15(a), provided, however, that Buyer
shall have the right to participate, at its own expense, in any such audit or
proceeding. Buyer agrees to fully cooperate with PLAC and to cause Professional
to fully cooperate with PLAC, including, but not limited to, providing powers of
attorney authorizing PLAC (or its designees) to control and take action in
connection with any such Taxes; provided, however, that PLAC may not, without
the prior written consent of Buyer, which consent shall not be unreasonably
withheld, execute final settlement agreements concerning any such Taxes if such
settlement would have a Material Adverse Effect on Professional or would result
in material Taxes for which Buyer is responsible under Section 6.15(c) hereof.
PLAC shall promptly notify Buyer if PLAC decides not to participate in the
defense of any such Tax audit or administrative or court proceeding and Buyer
thereupon shall be permitted (at its own expense) to defend such Tax audit or
proceeding, in which event PLAC agrees to fully cooperate with Buyer, including,
but not limited to, providing any necessary powers of attorney authorizing Buyer
(or its designee) to control and take action in connection with such defense;
provided, however, that no settlement shall be made without the prior written
consent of PLAC, which consent shall not be unreasonably withheld. In the event
of a failure of Buyer to provide notice to PLAC or to provide cooperation as
38
<PAGE> 44
required under this Section 6.15(b), PLAC's obligation to indemnify Buyer under
this Section 6.15 shall be reduced to the extent of the Indemnifiable Tax Losses
with respect to which PLAC's ability to defend against the claim underlying such
indemnity obligation has been prejudiced by such failure. Notwithstanding the
foregoing, Buyer shall control the strategy, defense and settlement of any Tax
audit or administrative or court proceeding relating to Taxes, including but not
limited to extension of the applicable statute of limitation(s), of PLAC or
Professional that may be subject to indemnification under Section 6.15, for Tax
periods beginning before and ending after the Closing Date ("Straddle Periods");
provided, that Buyer shall not execute any final settlement or agreements
concerning such Taxes without the prior written consent of PLAC which consent
shall not be unreasonably withheld.
(c) Buyer and Professional will be responsible for, will pay or cause to
be paid, and will indemnify and hold harmless PLAC from and against, any and all
Indemnifiable Tax Losses for or in respect of any Taxes (excluding any Taxes
described in clause (ii) or (iii) of Section 6.15(a) hereof) with respect to any
taxable period of Professional beginning after the Closing Date, or portion of
the Straddle Period beginning after the Closing Date. PLAC agrees to fully
cooperate with Buyer in preparing to defend against the imposition of such Taxes
by any taxing authority. In the event of a failure of PLAC to provide
cooperation as required under this Section 6.15(c), Buyer's obligation to
indemnify PLAC under this Section 6.15 shall be reduced to the extent of the
Indemnifiable Tax Losses with respect to which Buyer's ability to defend against
the claim underlying such indemnity obligation has been prejudiced by such
failure.
(d) Any claim for indemnity under this Section 6.15 may be made at any
time prior to the expiration of the applicable Tax statute of limitations with
respect to the relevant taxable period (including all periods of extension,
whether automatic or permissive), or, if later, within 30 days of receipt of
notice of assessment or notice and demand for payment issued under Section 6303
of the Code (or similar provision). Any such claim shall be made by the
indemnitee by providing to the indemnifying party written notice thereof,
provided, however, that such provision of notice shall not be a condition to
indemnification under this Section 6.15 except to the extent of actual and
material prejudice to the indemnifying party.
(e) Except as provided in the succeeding sentences, as of the Closing
Date, Professional shall not be a party to or have any further obligations or
rights under any tax sharing or tax allocation agreement with PLAC and its
affiliates. Professional currently is a party to a tax sharing agreement with
PLAC, copies of which have been made available to Buyer (the "Tax Sharing
Agreement"). Professional shall make a payment for Taxes through the Closing
Date equal to the accrual for Taxes as reflected in the Closing SAP Balance
Sheet; provided that if, but for this provision, the Closing SAP Balance Sheet
would have reflected a benefit for Taxes, such amount shall have been paid to
Professional by PLAC on or prior to the Closing Date. Such accrual shall be
calculated and recorded in accordance with principles consistent with prior
practice, provided, however, that the amount of the Taxes through the Closing
Date excludes the amount of the Section 338 Taxes as provided in Section
6.15(a)(iii) hereof. Such
39
<PAGE> 45
payment by Professional for Taxes through the Closing Date shall be made within
fifteen days of the timely filing (including extensions) of the Tax Return
pursuant to which the Tax liability arose.
(f) PLAC shall prepare and file or cause to be prepared and filed (i) all
Tax Returns required to reflect the income, assets or operations of Professional
and required to be filed (taking into account any extensions) on or prior to the
Closing Date and any Tax Returns of Professional required to be filed thereafter
in respect of any Taxes for which PLAC is responsible pursuant to Section
6.15(a), and (ii) PLAC Consolidated Returns (as hereinafter defined, together
with the Tax Returns referred to in clause (i) above, the "PLAC Returns"). PLAC
shall prepare or cause to be prepared all Tax Returns required to be filed after
the Closing Date relating to Tax periods ending on or before the Closing Date,
and shall submit them to Buyer not less than 20 days prior to their due date.
Buyer shall be responsible for preparing and filing, or causing
Professional to prepare and file, all other Tax Returns required to be filed by
Professional after the Closing Date ("Other Returns"). "PLAC Consolidated
Returns" shall mean all consolidated or combined Tax Returns that include the
taxable income or loss of Professional and PLAC.
(g) Neither Buyer nor Professional shall file any amended Tax Return that
may give rise to a claim for indemnification hereunder without the prior written
consent of PLAC, which may not be unreasonably withheld. PLAC shall have
exclusive authority to make all decisions with respect to matters relating to
any PLAC Return, including, but not limited to, decisions to amend a PLAC
Return, to extend the statutes of limitations with respect to any periods
covered by a PLAC Return, and to concede, settle, compromise or contest any
adjustment asserted by a taxing authority with respect to a PLAC Return;
provided, however, that PLAC may not voluntarily file any amended Tax Return
(except in connection with the resolution of any Tax Claim described in Section
6.15(b), provided that any such resolution is reached in a manner consistent
with Section 6.15(b)), that would materially increase any indemnifiable Tax Loss
described in Section 6.15(a), except with the prior written consent of Buyer,
which may not be unreasonably withheld.
(h) PLAC and Buyer will cooperate with one another in connection with the
preparation and filing of PLAC Returns and Other Returns and will provide to
each other access, at any reasonable time and from time to time, at the business
location at which the books and records are maintained, after the Closing Date,
to such Tax data relating to Professional as PLAC or Buyer, as the case may be,
may from time to time reasonably request (including the relevant portions of
PLAC Consolidated Returns). PLAC agrees that, prior to Closing, PLAC and
Professional will provide such information and documentation regarding Taxes as
Buyer shall reasonably request. PLAC and Buyer further agree upon request each
to provide the other party with all information that may be needed to report
pursuant to Section 6043 of the Code and the Treasury Regulations promulgated
thereunder.
40
<PAGE> 46
(i) PLAC shall be entitled to receive and to retain any and all refunds
of Taxes (i) relating to PLAC Returns (including any refunds of Taxes arising
from a carryback of losses by Professional) or (ii) in respect of Professional
for any taxable period or any portion thereof ending on or prior to the Closing
Date. Buyer shall be entitled to retain all other refunds relating to Taxes of
Professional. In the event Buyer (PLAC) or Professional receives any refund
(whether through payment, credit or reduction in Taxes) to which PLAC (Buyer) is
entitled hereunder, Buyer (PLAC) shall promptly pay, or cause the payment of,
such refund to PLAC (Buyer).
(j) Notwithstanding anything to the contrary contained herein, in
calculating the amount of any claim for indemnification pursuant to this
Agreement (including pursuant to this Section 6.15 and Article IX hereof),
Indemnifiable Tax Losses and Indemnifiable Losses (as defined in Section 9.2(a)
hereof) shall be reduced (but not below zero) by any Tax Benefit attributable
to, realized (or to be realized) in connection with or relating to such
indemnifiable claim. The term "Tax Benefit" means the amount by which any Taxes
of the indemnified party (Buyer or Professional on the one hand, or PLAC on the
other hand) or any affiliate thereto (the "Benefited Party") are or would be
reduced by any loss, deduction, refund, credit or other Tax Benefit and
includes, without limitation, the amount of any Tax Benefit realized or to be
realized by the Benefited Party in a subsequent taxable period (including,
without limitation, a taxable period ending after the Closing Date) attributable
to, realized (or to be realized) in connection with or relating to an adjustment
with respect to Taxes in a prior taxable period. For purposes of the
determination of the amount of any Tax Benefit that is not currently realized,
(i) the Benefited Party shall be assumed to have sufficient taxable income to
use any Tax Benefit in the taxable period or periods in which such Tax Benefit
will first arise; (ii) the Effective Tax Rate (as hereinafter defined) in the
most recent applicable taxable period shall be treated as applying to such Tax
Benefit to be realized in such future taxable period: (iii) the amount of Tax
Benefits shall be discounted to the present value of such Tax Benefits,
determined using a discount rate equal to the applicable federal rate under
Section 1274(d) of the Code for the period over which such Tax Benefits will be
realized under clause (i) above; (iv) appropriate adjustments shall be made
taking account of any income recognition (or other costs) resulting from such
Tax Benefit for Professional in any period covered by the Other Returns, using
the assumptions and discounting convention provided in this Section 6.15(j); (v)
no Tax Benefit shall be ascribed to additional tax basis in an asset or other
tax attribute of a Benefited Party if (X) the additional tax basis or other tax
attribute is neither depreciable nor amortizable (or otherwise recoverable by
its nature over a period of time), and (Y) the Benefited Party is not otherwise
likely to realize any Tax Benefit from such additional tax basis or other tax
attribute, provided, however, that in the case of any such additional tax basis
or other tax attribute describe in this clause (v), the amount of any Tax
Benefit (to the extent not in excess of the amount previously received by the
Benefitted Party in satisfaction of the underlying indemnity obligation)
actually realized by the Benefited Party in satisfaction of the underlying
indemnity obligation) actually realized by the Benefited Party at a subsequent
time shall be paid to the other (indemnifying) party; and (vi) any dispute
concerning the amount of a Tax Benefit for purposes of Section 6.15(j) shall be
resolved first by good faith negotiations among the parties and, if such dispute
is not resolved within 30 days, it shall be referred to a
41
<PAGE> 47
nationally recognized accounting firm (the "Auditor") that is mutually
acceptable to PLAC and Buyer for resolution, which Auditor shall issue a report
stating the amount of the Tax Benefit. Such report shall be final and binding on
the parties. The fees and expenses of the Auditor shall be shared equally by
PLAC, on the one hand, and Buyer on the other hand. For purposes of this Section
6.15(j), Tax Benefits shall not include the amount of any benefit realized by a
Benefited Party attributable to the tax basis of assets resulting from the
Section 338 Elections except in the case of an indemnification pursuant to this
Agreement arising from an allocation of tax basis inconsistent with the Section
338 Allocation Principles (defined below). The term "Effective Tax Rate" means
the sum of (i) the maximum federal income tax rate imposed on corporations for
the period in question plus (ii) the product of (A) the state and local income
tax rates imposed on the applicable corporation for the immediately preceding
taxable year times (B) one minus the maximum federal income tax rate referred to
in clause (i). For this purpose, the state and local income tax rates shall
equal the sum of the total amount of income tax imposed in each jurisdiction
divided by the sum of the total amount of taxable income in each such
jurisdiction.
(k) Section 338(h)(10) Election.
(i) Election. At the request of Buyer, Buyer and PLAC shall join in an
election pursuant to Section 338(h)(10) of the Code with respect to the
purchase and sale or the deemed purchased and sale of the Shares, and in all
comparable elections under state and local Tax law with respect to the
purchase and sale of such Shares (together with the election under Section
338(h)(10) of the Code, the "Section 338 Elections"). Consistent with the
following provisions of this Section 6.15(k), each of Buyer and PLAC shall
take all steps to properly and timely effect the Section 338 elections.
(ii) Forms. Buyer shall prepare drafts and execution copies of all forms
and schedules required to be filed to effect (and otherwise in connection
with) the Section 338 Elections ("Section 338 Forms"), including, without
limitation, IRS Form 8023 and all attachments required to be filed therewith
pursuant to applicable Treasury Regulations and the instructions to such
form, including without limitation the allocation of deemed purchase price
among the assets of Professional, which allocation shall be made pursuant to
the Code and related Treasury Regulations ("Form 8023"). PLAC shall provide
Buyer with such information and records, and shall make its employees
available for consultation under regular business hours, as Buyer reasonably
requires to prepare such Section 338 Forms. PLAC shall provide to Buyer the
necessary information to prepare Form 8023 and related attachments (except
that tax reserves shall be computed by Professional) no later than four
months after the Closing Date. Buyer shall prepare a draft version of Form
8023 and shall deliver such draft version to PLAC for its review no later
than five months after the Closing Date. PLAC may propose good faith
modifications no later than six months after the Closing Date. PLAC and Buyer
will use reasonable efforts to cooperate in arriving at agreed-upon
modifications no later than seven months after the Closing Date ("Modified
Form 8023"). If there is a dispute regarding the
42
<PAGE> 48
proposed modifications, any such dispute shall be resolved by a nationally
recognized accounting firm, to be mutually agreed upon. Buyer shall prepare
three copies of the Modified Form 8023, as determined according to such
procedures, and PLAC shall promptly execute, or cause the proper party to
execute and deliver such forms to Buyer within fifteen days of receipt of
Modified Form 8023, but not later than eight months after the Closing Date.
Buyer shall timely file such executed Modified Form 8023.
(iii) Modification; Revocation. Except as provided in this Section, Buyer
and PLAC shall not take, and shall not permit any of their affiliates to
take, any action to modify the Modified Form 8023 or any other Section 338
Forms, following the execution thereof by PLAC, or to modify or revoke the
Section 338 Elections following the filing of such Forms, without the written
consent of PLAC and Buyer.
(iv) Consistent Treatment: Reporting. Buyer and PLAC shall file, and
shall cause their respective affiliates to file, all Tax Returns in a manner
consistent with the information contained in the Section 338 Forms. Except as
otherwise required by law, Buyer and PLAC shall not take, and shall not
permit any of their affiliates to take, any position contrary to the
allocations reflected in such Section 338 Forms with any government agency of
taxing authority without the express written consent of the other party.
(v) Buyer Representation. Buyer represents that it is a domestic
corporation, and, other than pursuant to this Agreement, owns no stock or
rights to acquire stock, either directly or indirectly, in PLAC.
(vi) PLAC Representation. PLAC will convey, directly or indirectly, to
Buyer all of the shares of the outstanding stock of Professional as of the
Closing Date, which shares shall possess 100 percent of the total voting
power of all the shares of stock in Professional and have a value equal to
100 percent of the total value of all the shares of stock in Professional.
SECTION 6.16. Employment and Employee Benefits.
(a) Any Current Employee who is actively employed (including such
employees who are on vacation) immediately prior to the Closing shall remain an
employee of Professional immediately following the Closing at the same base
compensation and wage levels as in effect immediately preceding the Closing.
Each Current Employee who remains employed by Professional and each other
employee of Professional immediately prior to the Closing Date shall be a
"Transferred Employee"; provided, however, that the total number of Transferred
Employees shall not exceed 99. PLAC shall deliver the list of Transferred
Employees to Buyer no later than five days before the Closing Date for approval
by Buyer, which approval shall not be unreasonably withheld . Notwithstanding
anything herein to the contrary, nothing in this Agreement shall create any
obligation on the part of Professional or Buyer to continue
43
<PAGE> 49
the employment of any Transferred Employee for any definite period following the
Closing Date.
(b) Buyer shall, and shall cause its subsidiaries (including
Professional) to provide employee benefits to the Transferred Employees which
are substantially comparable in the aggregate to the employee benefits provided
to similarly situated employees of Buyer ("Buyer's Plans").
(c) If the Transferred Employees are included in any of Buyer's Plans,
such employees shall receive credit as employees thereunder for service prior to
the Closing Date with Professional under the terms of Buyer's Plans solely for
purposes of eligibility to participate, vesting and eligibility for retirement,
and solely with respect to vacation, disability and severance, for benefit
accrual purposes. If the Transferred Employees are included in any medical,
dental or health plan, any such plans shall not include pre-existing condition
exclusions, and such plans shall provide credit for any deductibles and
co-payments applied or made with respect to each such employee in the calendar
year of the change. PLAC shall deliver a list of amounts to be credited pursuant
to the foregoing sentence to Buyer at or prior to the Closing.
(d) On the Closing Date, PLAC shall cause Parent to fully vest each
Transferred Employee with respect to his account balance under the PennCorp
Financial Inc. Retirement and Savings Plan. Professional shall cease to be a
participating employer in the Employee Benefit Programs that are sponsored by
Parent (as set forth in Section 3.14(b) of the Disclosure Schedule) as of the
Closing Date. The Transferred Employees shall be entitled to receive
distributions pursuant to the terms of such programs and the provisions of
applicable law. With respect to any Transferred Employee who has an outstanding
loan balance under the terms of the PennCorp Financial Inc. Retirement and
Savings Plan (or similar plan in which the Transferred Employee is a
participant), PLAC shall cause Parent to permit, and Buyer shall permit, each
such Transferred Employee to repay the outstanding loan balance over the
remaining time period specified in the applicable promissory note in monthly or
quarterly payments by cash, check or through direct deduction from a checking or
savings account.
(e) PLAC and its affiliates shall retain liability for any and all of the
Employee Benefit Programs not expressly assumed by Buyer, including without
limitation, any retiree life or medical, bonus, severance, deferred
compensation, long-term disability or other program maintained by Professional
or Parent or its affiliates, and for any obligations under COBRA with respect to
any individual who terminated employment with Professional prior to the Closing.
(f) With respect to each Transferred Employee, PLAC shall retain the
obligation and liability for any workers' compensation or similar workers'
protection claims with respect to any such individual incurred prior to the
Closing Date.
(g) Buyer agrees to indemnify PLAC and its affiliates and to defend and
hold PLAC and its affiliates harmless from and against any and all Indemnifiable
44
<PAGE> 50
Losses (i) arising from obligations or liabilities that Buyer has agreed to
cause Professional to assume or (ii) for events occurring after the Closing
arising out of the employment or termination of employment of the Transferred
Employees, including but not limited to any claims by or in respect of any
Transferred Employee (or such Transferred Employee's successors or assigns)
arising out of, or in connection with, or otherwise relating to, any allegations
of unlawful discrimination or sexual harassment that occurred after the Closing.
(h) PLAC agrees to indemnify Buyer and its affiliates and to defend and
hold Buyer and its affiliates harmless from and against any and all
Indemnifiable Losses for events occurring prior to the Closing (i) arising out
of the employment or termination of employment of the Current Employees or (ii)
under any of the Employee Benefit Programs, including but not limited to (x) any
claims under any of the Employee Benefit Programs with respect to any of the
obligations or liabilities that Buyer has not agreed to cause Professional to
assume, (y) any "employee pension benefit plan" (within the meaning of Section
3(2) of ERISA) or any "group health plan" (within the meaning of Section 607 of
ERISA) in respect of which Professional has any liability solely as a result of
being a member of a "controlled group" (within the meaning of Section
4001(a)(14) of ERISA) prior to the Closing Date which includes PLAC or (z) any
claims by or in respect of any Transferred Employee (or such Transferred
Employee's successors or assigns) arising out of, or in connection with, or
otherwise relating to, any allegations of unlawful discrimination or sexual
harassment that occurred prior to the Closing; provided, however, that the
indemnities provided for in this sentence will not include any claims with
respect to cash compensation that is accrued prior to the Closing Date and
reflected on the Closing SAP Balance Sheet but that is payable after the Closing
Date. Notwithstanding any other provision of this Agreement to the contrary, the
indemnities provided for herein shall not be subject to the deductible and
maximum liability contained in Section 6.16, and all such indemnities shall
survive until 60 days after the expiration of the applicable statute of
limitations with respect thereto. Any claim for indemnification by Buyer or PLAC
pursuant to this Section 6.16 shall be subject to the procedures set forth in
Section 9.5.
(i) No provision of this Section 6.16 shall create any third-party
beneficiary rights in any employee or former employee (including any beneficiary
or dependent thereof) of PLAC any of its affiliates or Professional, in respect
of continued employment (or resumed employment) for any specified period of any
nature or kind whatsoever, and no provision of this Section 6.16 shall create
such third-party beneficiary rights in any such persons in respect of any
benefits that may be provided, directly or indirectly, under any employee
benefit plan or arrangement.
(j) Buyer affirms Professional's obligations and liabilities arising
after the Closing under each Employee Benefit Program that is sponsored by
Professional (as set forth in item 7 of Section 3.14(b) of the Disclosure
Schedule), including, but not limited to, each of the Retention Agreements set
forth in Section 6.16(j) of the Disclosure Schedule. Notwithstanding anything in
this Agreement to the contrary, PLAC shall pay, or shall cause Parent to pay,
all retention bonuses and transaction
45
<PAGE> 51
bonuses identified on Schedule 6.16(j) (the "Retention Bonuses") at such time as
such bonuses are payable pursuant to their terms.
SECTION 6.17. Nonsolicitation.
(a) PLAC hereby agrees that neither it nor any of the affiliates of
Parent will, for a period commencing on the Closing Date and ending on the
second anniversary of the Closing Date, without Buyer's prior written consent,
directly or indirectly, (i) solicit for employment or employ any employee of
Professional listed in Section 3.14(a)(i) of the Disclosure Schedule who
continues as an employee of Professional after the Closing Date; provided,
however that such agreement of non-solicitation shall not prohibit any general
advertisements or general solicitation that is not specifically directed to such
employees, (ii) solicit for appointment or appoint as agent any Regional Area
Directors ("RADs") of Professional on the Closing Date (except to the extent
PLAC or any of its affiliates (other than Professional) has a relationship with
any such RAD on the Closing Date), or (iii) solicit any policyholder of
Professional or twist or exchange (or seek to twist or exchange) any policy
issued by Professional.
(b) Buyer hereby agrees that neither it nor any of its affiliates
(including Professional) will, for a period commencing on the Closing Date and
ending on the second anniversary of the Closing Date, without Parent's prior
written consent, directly or indirectly, (i) solicit for employment or employ
any employee of Occidental Life Insurance Company of North Carolina
("Occidental"); provided, however that such agreement of non-solicitation shall
not prohibit any general advertisements or general solicitation that is not
specifically directed to such employees, (ii) solicit for appointment or appoint
as agent any general agents of Occidental on the Closing Date (except to the
extent Buyer or any of its affiliates (including Professional) has a
relationship with any such insurance agent or Regional Area Director on the
Closing Date), or (iii) solicit any policyholder or Occidental or twist or
exchange (or seek to twist or exchange) any policy issued by Occidental.
SECTION 6.18. Noncompetition. For a period commencing on the Closing Date
and ending on the fifth anniversary of the Closing Date, without Buyer's prior
written consent, directly or indirectly (i) PLAC will not permit Occidental or
any Subsidiaries or affiliates of Parent to market or encourage the sale of any
insurance product through Professional's RADs; provided, however, that if, after
the Closing Date, Professional enters into a contract with a new RAD which, at
the time of such retention, has a relationship with Occidental or any
Subsidiaries or affiliates of Parent, then Occidental, or such Subsidiary or
affiliate, shall be entitled to continue its relationship with such RAD and such
relationship shall not constitute a violation of this Section 6.18; and (ii)
PLAC will not nor will PLAC permit any of its affiliates to use the name
"Professional Insurance Company", or "Professional Insurance Corporation" or any
name that is confusingly similar to such name to market or sell any worksite
distributed insurance product or to otherwise engage in the worksite distributed
insurance business in the United States of America.
46
<PAGE> 52
SECTION 6.19. Acquisition Proposals.
(a) PLAC shall not, nor shall it authorize or permit any of its officers,
directors or employees, or any investment banker, attorney or other advisor or
representative acting on its behalf to, directly or indirectly, (a) solicit or
initiate the submission of any proposal regarding a Competing Transaction 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 Competing Transaction; provided, however, that if
PLAC shall receive a proposal regarding a Competing Transaction which (i) was
unsolicited or that did not otherwise result from a breach of this Section and
(ii) PLAC's Board of Directors determines is reasonably likely to lead to a
Superior Transaction, then PLAC may (x) furnish non-public information with
respect to Professional to the Person who made such proposal (pursuant to a
customary confidentiality agreement) and (y) participate in discussions and
negotiations regarding such Competing Transaction.
(b) PLAC shall not, and shall cause Professional not to, enter into any
letter of intent, agreement in principle, acquisition agreement or merger or
similar agreement with respect to any Competing Transaction unless: (i) PLAC's
Board of Directors shall have determined that such Competing Transaction is a
Superior Transaction and (ii) PLAC shall have terminated this Agreement pursuant
to Section 10.1(f). Notwithstanding the foregoing, PLAC shall not be entitled to
terminate this Agreement pursuant to Section 10.1(f) unless PLAC delivers notice
of its intent to terminate to Buyer at least five Business Days prior to the
date of termination. Such notice shall be accompanied by a description of the
terms of the Superior Transaction. PLAC agrees to consider any revised offer
communicated to PLAC by Buyer in response to such notice.
(c) The term "Superior Transaction" shall mean a Competing Transaction
that the Board of Directors of PLAC determines in good faith contains terms and
conditions, including likelihood of consummation, that are materially more
favorable to the PLAC than those set forth in this Agreement (as Buyer may have
proposed to amend it pursuant to the provisions of clause (b) above).
SECTION 6.20. Environmental Assessments. Buyer shall have the right,
within 30 days following the date of this Agreement, to retain an environmental
consultant to undertake and complete environmental assessments of the real
property listed on Section 6.20 of the Disclosure Schedule.
SECTION 6.21. Policy Approvals. Upon the request of Buyer prior to the
Closing, Professional shall, and PLAC shall cause Professional to, furnish to
Buyer copies of all policy forms (including riders and endorsements), rating
information, actuarial demonstrations and other documents relating to the
insurance products of Professional that have been filed with Professional with
insurance regulatory authorities or that Professional has determined are exempt
from filing and have been listed as such with any insurance regulatory
authorities, as are necessary to enable Buyer or an affiliate
47
<PAGE> 53
of Buyer to make all rate and policy form filings, and obtain all regulatory
approvals with respect thereto, required for buyer or an affiliate of Buyer to
issue directly, following the Closing, in all states in which Buyer or such
affiliate transacts insurance business, the insurance products currently being
offered for sale by Professional; provided, however, that (i) Buyer will not,
and will cause its affiliates not to, use any such rates or forms in any manner
whatsoever to market, sell, issue, underwrite, assume or otherwise transact
insurance at any time prior to the Closing and (ii) in the event that this
Agreement is terminated prior to the Closing, Buyer shall, and shall cause its
affiliates to, (A) promptly withdraw all such rate and policy form filings, and
promptly rescind any regulatory approvals, with respect thereto, and keep all
such filing, approvals, forms, actuarial demonstrations and information and
documents related thereto that are not publicly available confidential, and (B)
not resubmit such rate and policy form filings, or sell or apply for regulatory
approvals to sell the insurance products currently offered for sale by
Professional, in each case for a period of one year from the date this Agreement
is terminated. PLAC and Professional shall cooperate with Buyer and its
affiliates in any reasonable manner in connection with the preparation for
filing and filing of such rate and form filings of Buyer or its affiliates;
provided, however, that Buyer and such affiliates shall bear all out-of-pocket
expenses related to such cooperation and the performance by PLAC and
Professional of their obligations under this Section.
SECTION 6.22. Distribution Agreements. Buyer shall use its commercially
reasonable efforts and shall work in good faith to negotiate and enter into, as
soon as practicable after the date hereof, distribution agreements (the "New
Distribution Agreements") with the Persons listed in Section 6.22 of the
Disclosure Schedule (the "Identified Agents"); provided, however, that Buyer
shall ensure that William Ealy, as a representative of PLAC, shall be present or
otherwise included in all material discussions and negotiations between Buyer
and the Identified Agents. Buyer agrees that in no event shall the New
Distribution Agreements materially reduce the aggregate compensation of the
Identified Agents. Buyer further agrees that the effectiveness of the New
Distribution Agreements shall be conditioned upon the consummation of the
Closing and that, in the event the Closing does not occur, Buyer will promptly
terminate the New Distribution Agreements and will not solicit the Identified
Agents for a period of three years from the termination of this Agreement. PLAC
agrees that it will cause Professional to reasonably cooperate with and assist
Buyer in Buyer's efforts to enter into the New Distribution Agreements.
SECTION 6.23. PESCO Joint Venture.
(a) At or prior to Closing, subject to paragraph (c) below, PLAC shall
cause Professional to transfer and/or assign to PLAC or Parent all agreements,
contracts, notes, receivables, payables, investments and other assets,
liabilities, obligations of any kind, documents or securities held by
Professional or to which Professional is a party which relate to PESCO
Interstate, L.L.C. (the "Joint Venture"), the joint venture organized by
Professional and Public Employees Services Company, a Florida corporation
("PESCO"), or any other joint ventures to which either (x) both PESCO and
Professional are parties or (y) PESCO is a party and with which Professional has
a contractual relationship. Without limiting the generality of the foregoing, at
or prior to
48
<PAGE> 54
Closing, PLAC shall cause Professional to (i) assign to PLAC or Parent all of
Professional's rights and obligations under (A) the Joint Venture Agreement
(herein so called), dated as of March 30, 1998, between Professional and PESCO
and (B) all other Related Agreements (as defined in the Joint Venture Agreement)
to which Professional is a party, (ii) transfer to PLAC or Parent the 50%
membership interest in the Joint Venture held by Professional in exchange for a
payment by PLAC or Parent, as the case may be, in the amount of $200,000,
representing the amount contributed by Professional to the Joint Venture in
connection with the formation of the Joint Venture, (iii) assign to PLAC or
Parent that certain Loan Agreement (herein so called) dated July 24, 1998
between Professional and PESCO, as amended, (iv) transfer to PLAC or Parent (A)
that certain Promissory Note dated July 28, 1998 executed by PESCO in favor of
Professional pursuant to the Loan Agreement in the amount of $218,000 (the
"First Advance Note") and (B) that certain Future Advance Promissory Note dated
September 8, 1998 executed by PESCO in favor of Professional pursuant to the
Loan Agreement in the amount of $82,000 (the "Second Advance Note," and together
with the First Advance Note, the "Advance Notes"), in exchange for a payment by
PLAC or Parent, as the case may be, equal to the aggregate principal amounts,
together with accrued and unpaid interest, if any, outstanding under the Advance
Notes on the date of such transfer, and (v) transfer to PLAC or Parent all
balances due to Professional with respect to agent advances (the "Agent
Advances") made pursuant to, or otherwise payable to Professional under, that
certain General Agent Contract (herein so called) between Professional and PESCO
dated December 18, 1997, in exchange for a payment by PLAC or Parent, as the
case may be, in an amount equal to the aggregate balances of such Agent Advances
on the date of such transfer.
(b) In order to effect the assignments and transfers contemplated by
paragraph (a) above, PLAC shall, or shall cause Parent or Professional, as
applicable, to (i) deliver written notice to Buyer, at least two business days
prior to the date on which such assignments and transfers are to be made,
specifying the date on which such assignments and transfers are to be made and
accompanied by a certificate, executed by an executive officer of Professional
and PLAC, certifying (A) the principal amount, and the accrued and unpaid
interest, if any, outstanding under the Advance Notes as of the date specified
for the transfer of such Advance Notes, (B) the aggregate balances of the Agent
Advances as of the date specified for the transfer of such Agent Advances, and
(C) the aggregate amount to be paid to Professional in connection with the
transfers and assignments to be effected pursuant to paragraph (a) above, (ii)
make the payments to Professional described in paragraph (a) above in the
amounts specified in the notice delivered pursuant to clause (i) above on the
date the assignments and transfers are effected, and (iii) obtain such consents
and execute such documents as may be necessary to effect the assignments and
transfers described in paragraph (a) above. Buyer agrees that, from and after
the Closing, Buyer shall cause Professional to forward and pay over to PLAC or
Parent, as the case may be, any payments received by Professional with respect
to the Advance Notes or the Agent Advances pursuant to the terms of a payment
schedule to be agreed upon by the parties prior to Closing.
(c) Notwithstanding anything in this Section 6.23 to the contrary, Buyer
shall have the option, which option must be exercised on or prior to February
28, 1999,
49
<PAGE> 55
to allow Professional to continue the General Agent Contract after the
Closing. If such option is exercised, Professional shall retain, and Buyer and
Professional shall indemnify and hold PLAC and its affiliates harmless from, all
liabilities and obligations of Professional and its affiliates arising from and
after the Closing Date under the General Agent Contract. If Buyer shall not have
exercised such option on or prior to February 28, 1999, PLAC shall cause
Professional to terminate the General Agent Contract on or prior to Closing and
PLAC shall retain, and shall indemnify and hold Professional and Buyer harmless
from, all liabilities and obligations relating to the General Agent Contract
and/or the termination thereof.
SECTION 6.24. Professional Software. No later than the Closing Date, PLAC
will cause Parent to transfer, or cause to be transferred, to Professional at no
charge any and all interests of any kind that Parent or any of its Subsidiaries
or affiliates holds in the items of software listed in Section 6.24 of the
Disclosure Schedule. PLAC will be solely liable for all costs associated with
obtaining any third-party consents or assignments related to such transfers.
ARTICLE VII
CLOSING CONDITIONS
SECTION 7.1. Conditions to the Obligations of Buyer under this Agreement.
The obligation of Buyer under this Agreement to consummate the acquisition of
the Shares (the "Acquisition") shall be subject to the satisfaction, at or prior
to the Closing, of the following conditions:
(a) [reserved];
(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) Each of the obligations of PLAC or Professional required to be
performed by it at or prior to the Closing pursuant to this Agreement shall have
been duly performed and complied with in all material respects, and the
representations and warranties of PLAC contained in this Agreement shall be true
and correct in all material respects as of the date of this Agreement and as of
the Closing as though made at and as of the Closing (except as to any
representation or warranty that specifically relates to an earlier date), and
Buyer shall have received a certificate to that effect signed by a senior
officer of PLAC;
(e) Any and all permits, consents, waivers, clearances, approvals and
authorizations of all third parties and Governmental Authorities specified on
Section 7.1(e) of the Disclosure Schedule shall have been obtained; and
50
<PAGE> 56
(f) 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.
(g) There shall not have occurred since September 30, 1998, any change in
the business condition (financial or otherwise) of Professional that has had or
would be reasonably likely to have a Material Adverse Effect.
(h) PLAC shall own all of the shares of Professional's common stock
issued and outstanding on the Closing Date free and clear of any Liens.
(i) PLAC shall have delivered the audited Year End GAAP Financial
Statements to Buyer and such financial statements shall conform in all material
respects to and shall reflect no material adjustments from the unaudited
financial statements provided to Buyer for the same period, except for
nonconformities or adjustments which have a positive effect on such financial
statements.
(j) Buyer shall have completed the environmental assessments referenced
in Section 6.20 and either (i) such environmental assessments shall be to
Buyer's reasonable satisfaction or (ii) PLAC shall have cured any objectionable
condition reflected in any such environmental assessments to Buyer's reasonable
satisfaction.
(k) Professional and the Identified Agents shall have entered into the
New Distribution Agreements on terms reasonably satisfactory to Buyer, subject
to the provisions of Section 6.22; provided, however, that Buyer shall not be
entitled to exercise this closing condition with respect to any New Distribution
Agreement based on the respective Identified Agent's refusal to agree to (i) an
alteration or modification of the territory currently granted to the Identified
Agent, (ii) a change in the current exclusive/ nonexclusive status of the
Identified Agent or (iii) a change in the current employee/ independent
contractor status of the Identified Agent.
(l) Each of the obligations of Parent required to be performed by it at
or prior to the Closing pursuant to the Agreement of even date herewith between
Parent and Buyer (the "Parent Agreement") shall have been performed or complied
with in all material respects and the representations and warranties of Parent
under the Parent Agreement shall be true and correct in all material respects as
of the date of the Parent Agreement and as of the Closing as though made at and
as of the Closing (except as to any representation or warranty that specifically
relates to an earlier date) and Buyer shall have received a certificate to that
effect signed by a senior officer of Parent.
(m) No later than January 15, 1999, PLAC shall have caused Professional
to deliver to Buyer current claims, premium and reserve experience and related
information with respect to the items listed in Section 3.16(f) of the
Disclosure Schedule and no later than January 31, 1999, Buyer shall have
determined that such experience and related information is satisfactory to Buyer
in its sole discretion.
51
<PAGE> 57
SECTION 7.2. Conditions to the Obligations of PLAC under this Agreement.
The obligation of PLAC under this Agreement to consummate the Acquisition shall
be subject to the satisfaction, at or prior to the Closing, of the following
conditions:
(a) Any and all permits, consents, waivers, clearances, approvals and
authorizations of all third parties and Governmental Authorities specified on
Section 7.1(e) of the Disclosure Schedule shall have been obtained;
(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) Each of the obligations of Buyer required to be performed by it at or
prior to the Closing pursuant to the terms of this Agreement shall have been
duly performed and complied with in all material respects, and the
representations and warranties of Buyer contained in this Agreement shall be
true and correct in all material respects as of the date of this Agreement and
as of the Closing Date as though made at and as of the Closing Date (except as
to any representation or warranty that specifically relates to an earlier date),
and PLAC shall have received a certificate to that effect signed by an officer
of Buyer; and
(e) PLAC shall have received an opinion of Buyer's legal counsel, in form
reasonably acceptable to PLAC.
ARTICLE VIII
CLOSING
SECTION 8.1. 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 7.1 and 7.2, as soon as practicable after the
date hereof and in any event not later than March 31, 1999, or at such other
time and place and on such other date as Buyer and PLAC shall agree (the
"Closing Date"). As a further condition to Closing, at the Closing:
(a) PLAC shall deliver or cause to be delivered to Buyer the following:
(i) the certificate described in Section 7.1(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; and
52
<PAGE> 58
(iii) resignations of the directors of Professional who are not
Professional Employees; and
(iv) the opinion described in Section 7.1(f).
(b) Buyer shall deliver or cause to be delivered to PLAC (i) the
certificate described in Section 7.2(d) and (ii) the opinion described in
Section 7.2(e).
(c) Buyer shall pay the Closing Purchase Price to PLAC, by wire transfer
of immediately available funds.
ARTICLE IX
SURVIVAL AND INDEMNIFICATION
SECTION 9.1. Survival of Representations, Warranties and Covenants.
(a) Except as to (i) the representations and warranties contained in
Sections 3.4 and 3.21 and the covenants contained in Section 9.3(c), which shall
survive the Closing indefinitely and (ii) the representations and warranties
contained in Sections 3.14 and 3.15, which shall survive the Closing until 60
days after the expiration of the applicable statute of limitations, the
representations, warranties and pre-Closing covenants of PLAC and Buyer
contained in this Agreement shall survive until the expiration of 24 months from
the Closing Date. Any claim for indemnification with respect to any of such
matters that 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 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) 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 after the Closing will survive the Closing and remain in effect
indefinitely.
SECTION 9.2. 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
53
<PAGE> 59
Indemnitee from and after the Closing Date, 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) No Indemnitee will be entitled to indemnification pursuant to Section
9.3 (except indemnification with respect to covenants to be performed after the
Closing) unless and until the aggregate amount of Indemnifiable Losses under
Section 9.3 exceeds $350,000, in which event the Indemnitee will be entitled to
indemnification only to the extent the amount of Indemnifiable Losses exceed
such amount; provided, however, in no event will an Indemnitee be entitled to
indemnification pursuant to Section 9.3 (except indemnification with respect to
covenants to be performed after the Closing) for aggregate Indemnifiable Losses
in excess of the aggregate Final Purchase Price.
SECTION 9.3. Indemnification.
(a) Subject to Sections 9.1 and 9.2, PLAC agrees to 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 PLAC under the terms of
this Agreement; and
(ii) any breach or nonfulfillment of any agreement or covenant of PLAC
under the terms of this Agreement.
(b) In addition to the foregoing, subject to Section 9.5, PLAC shall
indemnify and hold harmless Buyer for any and all Indemnifiable Losses: (i)
arising out of a breach of the representations and warranties contained in
Section 3.21 hereof or arising out of or relating to any Environmental Claim
that arises out of or relates to (A) the conduct of the business of Professional
prior to the Closing Date; (B) the ownership or lease of real property or
facilities by Professional prior to the Closing Date; or (C) conditions that
existed at such real property and facilities prior to the Closing Date; (ii)
arising out or relating to any fiduciary or securities laws claims by any
shareholders of Parent; provided, that Buyer shall not be entitled to
indemnification hereunder for any losses, costs, expenses or other damages
incurred by Buyer in connection with such claims that result, directly or
indirectly, from any actions taken by Buyer, except for actions that are
required by, and that are not in breach or violation of, this Agreement or any
documents executed in connection herewith; (iii) arising out of relating to the
acquisition by PLAC of any Shares not owned by it beneficially and of record as
of the date of this Agreement and (iv) arising out of or related to PESCO, PESCO
Plus, L.C., PESCO, Inc. or the Joint Venture, except, in the event Buyer shall
have exercised the option set forth in Section 6.23(c), with respect to matters
arising from and after the Closing Date and relating to the General Agent
Contract. PLAC's liability under this Section 9.3(b) shall survive the Closing
indefinitely. Indemnifiable Losses that are indemnifiable under this Section
9.3(b) are referred to herein as "Certain Damages."
54
<PAGE> 60
(c) Subject to Sections 9.1 and 9.2, Buyer agrees to indemnify, defend
and hold harmless PLAC and its affiliates 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; and
(ii) any breach or nonfulfillment of any agreement or covenant of Buyer
under the terms of this Agreement.
(d) Notwithstanding the foregoing, indemnification for Taxes shall be
governed by Section 6.15 hereof and not by Article IX; indemnification in
connection with employee matters shall be governed by Section 6.16 hereof; and
indemnification for Certain Damages (as defined in Section 9.3(b) hereof) shall
be governed by Section 9.3(b) hereof and shall not be subject to Section 9.2(b)
hereof.
SECTION 9.4. [reserved]
SECTION 9.5. 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 9.5(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 9.5(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 within twenty calendar days
after receiving written notice from the Indemnitee, (i) the Indemnifying Party
fails to take reasonable steps necessary to defend diligently such Third Party
Claim or (ii) the Indemnifying Party has not undertaken fully to indemnify the
Indemnitee in respect of all Indemnifiable Losses relating to the matter, the
Indemnitee 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
55
<PAGE> 61
the prior written consent of the Indemnitee, which consent shall not be
unreasonably withheld. 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 9.5(a) or 9.5(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 that 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 that 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 IX.
(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 request all
instruments reasonably necessary to evidence and perfect the above-described
subrogation and subordination rights.
56
<PAGE> 62
(f) With respect to a Third Party Claim for which PLAC 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 PLAC and its 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 PLAC and its 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 PLAC shall
have entered into such agreements as Buyer reasonably deems to be necessary in
light of all surrounding circumstances (including, without limitation, PLAC's
need for information in connection with the investigation or defense of a Third
Party Claim) to protect such confidentiality or privilege.
SECTION 9.6. Adjustment to Purchase Price. The parties hereto agree that
any Indemnity Payment, including Tax and other Indemnity Payments, hereunder
shall be treated as an adjustment to the Purchase Price and subject to the
provisions of Section 6.15(j).
SECTION 9.7. 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 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 IX and Sections 6.15 or
6.16, to the extent applicable.
ARTICLE X
TERMINATION AND ABANDONMENT
SECTION 10.1. Termination. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned at any time prior to the
Closing:
(a) by mutual consent of each of PLAC and Buyer;
(b) by PLAC 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 Acquisition, and such
order, decree, ruling or other action shall have become final and
nonappealable;
57
<PAGE> 63
(ii) if any Governmental Authority whose consent or approval is required
to consummate the transactions contemplated hereby shall have informed PLAC
or Buyer that such consent or approval will not be granted; or (iii) if the
Closing shall not have occurred on or before March 31, 1999; provided,
however, that the right to terminate this Agreement shall not be available to
any party whose breach of this Agreement has been the cause of, or resulted
in, the failure of the Closing to occur on or before such date; provided,
further, that the termination date contemplated by this clause
(iii) may be extended by either party for not more than three 30 day
periods if, as of the date of extension, the sole reason that the Closing
shall not have occurred previously is that one or more insurance regulatory
authorities shall not have approved the transaction and the party exercising
the right of extension provided above shall be using all reasonable efforts,
in good faith, to ensure such insurance regulatory authorities to promptly
approve the transaction contemplated hereby; or
(c) by Buyer if a material default or breach shall be made by PLAC 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 the Agreement, if such default or
breach has not been cured or waived within 30 days after written notice to PLAC
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 PLAC of a
representation or warranty unless the failure of such representation or warranty
to be true and complete would have a Material Adverse Effect;
(d) by PLAC if a material default or breach shall be made by Buyer with
respect to the due and timely performance of any of its covenants or agreements
contained herein, or in any of its representations or warranties contained in
the Agreement, if such default or breach has not been cured or waived within 30
days after written notice to Buyer specifying, in reasonable detail, such
claimed material default or breach and demanding its cure or satisfaction; or
(e) by Buyer upon the occurrence of either of the following:
(i) Parent, PLAC or Professional applies for, consents to or acquiesces
in the appointment of a trustee, receiver or other custodian for Parent, PLAC
or Professional or a substantial part of the property of Parent, PLAC or
Professional, 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 by Parent, PLAC or Professional, or for a substantial part of
the property of Parent, PLAC or Professional that is not discharged or
dismissed within 30 days; or
(ii) any bankruptcy, reorganization, debt arrangement or other proceeding
under any bankruptcy or insolvency law, or any dissolution or
58
<PAGE> 64
liquidation proceeding, is instituted by or against Parent and, if instituted
against Parent, is not dismissed within 30 days; or (f) by PLAC pursuant to
and in compliance with Section 6.19.
SECTION 10.2. Procedure and Effect of Termination. In the event of
termination and abandonment of the transactions contemplated hereby pursuant to
Section 10.1, 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 10.2 and the provisions of Section 10.3 shall
remain in full force and effect and (ii) subject to Section 10.3, 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.
SECTION 10.3. Certain Fees and Expenses. PLAC acknowledges that Buyer has
spent, and will be required to spend, substantial time and effort in examining
the business, properties, affairs, financial condition and prospects of
Professional and has incurred, and will continue to incur, substantial fees and
expenses in connection with such examination, the preparation of this Agreement
and the accomplishment of the transactions contemplated hereby. Therefore, to
induce Buyer to enter this Agreement:
(a) EXPENSES. In the event that PLAC terminates this Agreement other than
pursuant to Sections 10.1(a), (b) or (d) or Buyer terminates this Agreement
pursuant to Section 10.1(c), then PLAC shall reimburse Buyer for the total
amount of the Expenses. The reimbursement of Buyer's Expenses pursuant to this
Section 10.3(a) shall be Buyer's sole and exclusive remedy for such termination,
subject to Section 10.3(b), if applicable. For purposes of this Section 10.3,
"Expenses" shall include all reasonable out-of-pocket expenses and fees
(including, without limitation, fees and expenses payable to all investment
banking firms and their respective agents and outside counsel, and all
reasonable fees of counsel, accountants, experts and consultants to Buyer)
actually incurred by Buyer on its behalf since October 15, 1998, in connection
with the transactions contemplated by this Agreement; provided, that such
Expenses shall not exceed $500,000. The Expenses, if due, shall be paid promptly
after such termination.
59
<PAGE> 65
(b) FEE. If this Agreement is terminated by PLAC pursuant to Section
10.1(f), then PLAC shall pay to Buyer, promptly after the consummation of the
Superior Transaction giving rise to such termination, a fee in the amount of
$2.0 million in addition to the amount of any Expenses paid or payable under
subsection (a) above (the "Fee"), not as a penalty but as full and complete
liquidated damages and a Buyer's sole and exclusive remedy.
The Expenses and the Fee shall be payable to Buyer notwithstanding that
any action taken by the Board of Directors of any of Parent, PLAC or
Professional that may give rise to the obligation to pay the Expenses and the
Fee may have been taken in accordance with the fiduciary duties of the Board of
Directors.
(c) PAYMENT. Any payment required pursuant to this Section 10.3 shall be
made promptly as practicable, but in no event later than three Business Days
after Buyer's delivery to PLAC of a statement setting forth the amount payable
and the facts causing such amount to be payable, including (if applicable) the
Expenses in reasonable detail, and shall be made by wire transfer of immediately
available funds to an account designated by Buyer. In the event that Buyer is
entitled to the Expenses or the Fee, PLAC shall also pay to Buyer interest at
the rate of 4.5% per year on any amounts that are not paid when due, plus all
costs and expenses in connection with or arising out of the enforcement of the
obligation of PLAC to pay the Expenses, the Fee or such interest.
ARTICLE XI
MISCELLANEOUS PROVISIONS
SECTION 11.1. Amendment and Modification. This Agreement may only be
amended, modified or supplemented by a written instrument signed by all the
parties hereto.
SECTION 11.2. 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 PLAC, 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 PLAC 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.
SECTION 11.3. Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provisions of this Agreement, which shall remain in full force and
effect.
SECTION 11.4. Expenses and Obligations. Except as otherwise expressly set
forth herein, each party shall be responsible for paying all costs and
60
<PAGE> 66
expenses incurred by it in connection with the consummation of the transactions
contemplated by this Agreement.
SECTION 11.5. Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, 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 PLAC shall have the right to
assert and recover with respect to claims made in connection with Buyer's
obligations under Section 6.16 and Article IX.
SECTION 11.6. 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:
G.E. Financial Assurance Holdings, Inc.
6604 West Broad Street
Richmond, Virginia 23230
Attention: Leon Roday, Esq.
Facsimile No.: (804) 662-2414
with a copy to:
Hunton & Williams
951 East Byrd Street
Richmond, Virginia 23212
Attention: Louanna O. Heuhsen, Esq.
Facsimile No.: (804) 788-8218
(b) If to PLAC, to:
Pacific Life and Accident Insurance Company
c/o PennCorp Financial Group, Inc.
3 Bethesda Metro Center
Suite 1600
Bethesda, Maryland 20814
Attention: Scott D. Silverman
Facsimile No.: (301) 657-1786
61
<PAGE> 67
with a copy to:
Weil, Gotshal & Manges LLP
100 Crescent Court, Suite 1300
Dallas, Texas 75201
Attention: Jeremy W. Dickens
Facsimile No.: (214) 746-7777
SECTION 11.7. 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 11.8. 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 11.9. 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 11.10. Entire Agreement. This Agreement, the Disclosure Schedule
and the Annexes hereto, the Confidentiality Agreement between Buyer and Parent,
and the Letter Agreement dated of even date herewith between PLAC and Buyer
embody the entire agreement and understanding of the parties hereto in respect
of the subject matter contained herein or therein. There are no agreements,
representations, warranties or covenants other than those expressly set forth
herein or therein. This Agreement, the Disclosure Schedule and the Annexes
hereto, and the Letter Agreement referenced above supersede all prior agreements
and understandings between the parties (other than the Confidentiality Agreement
referenced above) with respect to such subject matter.
SECTION 11.11. Assignment. This Agreement shall not be assigned by
operation of law or otherwise.
SECTION 11.12. PLAC Covenants. No failure of any covenant of PLAC
contained herein shall be excused by virtue of the fact that PLAC does not
control any party, including Parent, which PLAC is obligated, pursuant to such
covenant, to cause to take any action or omit to take any action.
[The remainder of this page is intentionally left blank.]
62
<PAGE> 68
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.
GE FINANCIAL ASSURANCE HOLDINGS, INC.
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
PACIFIC LIFE AND ACCIDENT INSURANCE COMPANY
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
63
<PAGE> 1
EXHIBIT 10.3
AGREEMENT
AGREEMENT (this "Agreement"), dated as of December 31, 1998, by and
between GE Financial Assurance Holdings, Inc., a Delaware corporation ("GEFA"),
and PennCorp Financial Group, Inc., a Delaware corporation ("PennCorp").
RECITALS:
WHEREAS, GEFA has entered into a Stock Purchase Agreement (the "PIC
Agreement"), dated as of December 31, 1998, with Pacific Life and Accident
Insurance Company, a Texas corporation ("PLAC"), whereby GEFA has agreed,
subject to the terms and conditions of the PIC Agreement, to purchase all of the
outstanding shares (the "Shares") of Professional Insurance Corporation, a Texas
corporation and a subsidiary of PLAC; and
WHEREAS, PLAC is a wholly owned subsidiary of PennCorp.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
REPRESENTATIONS AND WARRANTIES OF PENNCORP
PennCorp hereby represents and warrants to GEFA as set forth below.
Section 1.01. Organization and Qualification. PennCorp 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 its properties and assets.
Section 1.02. Authorization. PennCorp has full corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement has been duly authorized by the Board of Directors of PennCorp
and no other corporate proceeding on the part of PennCorp is necessary to
authorize the execution and delivery of this Agreement or to consummate the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by PennCorp and constitutes a valid and binding
obligation of PennCorp, 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 principals of
equity, including principles of
<PAGE> 2
commercial reasonableness, good faith and fair dealing (regardless of whether
enforcement is sought in a proceeding at law or in equity).
Section 1.03. No Violation. Neither the execution and delivery of this
Agreement by PennCorp and the performance by PennCorp of its obligations
hereunder nor the consummation by PennCorp of the transactions contemplated
hereby will (a) violate, conflict with or result in any breach of any provisions
of the Certificate of Incorporation or Bylaws of PennCorp, (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 of 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 PennCorp or any of its
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 PennCorp or any of its subsidiaries or
any of their assets, except in each case as would not have a material adverse
effect on PennCorp's ability to consummate the transactions contemplated by this
Agreement.
Section 1.04. Consents and Approvals. 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 PennCorp of the
transactions contemplated by this Agreement.
Section 1.05. Financial Condition. The sale of the Shares pursuant to the
PIC Agreement is not being made with the actual intent to hinder, delay or
defraud any entity to which PennCorp or PLAC is indebted as of the date hereof
or any entity to which PennCorp may become indebted subsequent to the date
hereof. PLAC has valid business reasons for selling the Shares and has concluded
that the Purchase Price payable pursuant to the PIC Agreement represents
reasonably equivalent value for the Shares. PennCorp has concluded that the
Purchase Price for the Shares constitutes reasonably equivalent value for its
obligations hereunder. Neither PennCorp nor PLAC is engaged in business or a
transaction, or is about to engage in business or a transaction, for which any
property remaining with PennCorp or PLAC is or will be an unreasonably small
capital, and neither PennCorp nor PLAC intends to incur, or believes that it has
incurred, debts beyond its ability to pay as they mature or as PennCorp and PLAC
expect to otherwise become due and payable. The Board of Directors of PennCorp
has not authorized, and has no present intent to authorize, any bankruptcy,
reorganization, debt arrangement or other proceeding under any bankruptcy or
insolvency law, nor has the Board of Directors authorized the officers of
PennCorp to take any action with respect to any bankruptcy, reorganization, debt
arrangement or other proceeding under any bankruptcy or insolvency law.
2
<PAGE> 3
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF GEFA
GEFA hereby represents and warrants to PennCorp as follows:
Section 2.01. Organization; Qualifications and Operations. GEFA 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 its properties and assets.
Section 2.02. Authorization. GEFA has full corporate power and authority
to execute and deliver this Agreement and each other document to be delivered by
GEFA in connection herewith and to consummate the transactions contemplated
hereby and thereby. No other corporate proceeding on the part of GEFA is
necessary to authorize the execution and delivery of this Agreement or to
consummate the transactions contemplated hereby. This Agreement has been duly
and validly executed and delivered by GEFA and constitutes a valid and binding
obligation of GEFA, enforceable against it in accordance with its terms, subject
to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and similar laws affecting creditors' rights and remedies generally,
and subject, as to enforceability, to general principles of equity, including
principles of commercial reasonableness, good faith and fair dealing (regardless
of whether enforcement is sought in a proceeding at law or in equity).
Section 2.03. No Violation. Neither the execution and delivery of this
Agreement by GEFA, the performance by GEFA of its obligations hereunder nor the
consummation by GEFA of the transactions contemplated hereby will (a) violate,
conflict with or result in any breach of any provision of the Certificate or
Articles of Incorporation or Bylaws of GEFA (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 GEFA or any of
GEFA'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 GEFA or any of GEFA's
subsidiaries or any of their assets, except in each case as would not have a
material adverse effect on GEFA's ability to consummate the transactions
contemplated by this Agreement.
Section 2.04. Consents and Approvals. 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 GEFA of the
transactions contemplated by this Agreement.
3
<PAGE> 4
ARTICLE III
JOINDER
Section 3.01. Joinder. PennCorp, by its execution of this Agreement,
hereby, jointly and severally with PLAC, represents and warrants to GEFA all of
the representations and warranties made by PLAC in Article III of the PIC
Agreement. PennCorp, by its execution of this Agreement, hereby agrees to cause
PLAC to perform, or to perform itself, as appropriate, subject to the conditions
and other terms of the PIC Agreement, each and every obligation of PLAC under
the PIC Agreement. Without limiting the generality of the foregoing, Parent
agrees that it shall be jointly and severally liable to GEFA with respect to:
(i) PLAC's obligation to pay the Reduction Amount, if any, pursuant to Section
2.3 of the PIC Agreement, (ii) the indemnification obligations of PLAC pursuant
to Sections 6.15 and 6.16 and Article IX of the PIC Agreement, and (iii) the
obligations of PLAC for certain fees and expenses pursuant to Section 10.3 of
the PIC Agreement; and Parent further agrees to, jointly and severally,
indemnify, defend and hold harmless GEFA from and against any and all
Indemnifiable Losses (as defined in the PIC Agreement), which indemnification
shall be subject to and governed by the provisions set forth in Article IX of
the PIC Agreement.
ARTICLE IV
MISCELLANEOUS PROVISIONS
Section 4.01. Amendment and Modification. This Agreement may only be
amended, modified or supplemented by a written instrument signed by all the
parties hereto.
Section 4.02. Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provisions of this Agreement, which shall remain in full force and
effect.
Section 4.03. Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, 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.
Section 4.04. 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 4.05. 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 4.06. 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.
4
<PAGE> 5
Section 4.07. Entire Agreement. This Agreement, the PIC Agreement and the
Disclosure Schedule and the Annexes thereto, the Confidentiality Agreement
between Penncorp and GEFA, and the Letter Agreements dated of even date herewith
between GEFA and PLAC, and between GEFA and PennCorp, embody the entire
agreement and understanding of the parties hereto in respect of the subject
matter contained herein or therein. There are no agreements, representations,
warranties or covenants other than those expressly set forth herein or therein.
This Agreement, the PIC Agreement and the Disclosure Schedule and the Annexes
thereto, and the Letter Agreements referenced above supersede all prior
agreements and understandings between the parties (other than the
Confidentiality Agreement referenced above) with respect to such subject matter.
Section 4.08. 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.
Section 4.09. Termination. This Agreement shall terminate automatically,
without further action by the parties hereto, upon the termination of the PIC
Agreement; provided, however, that PennCorp's obligations pursuant to clause
(iii) of Section 3.01 shall survive such termination in the event the fee set
forth in Section 10.3(b) of the PIC Agreement is payable as a result of such
termination, until such time as such fee has been paid.
[The remainder of this page is intentionally left blank.]
5
<PAGE> 6
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.
GE FINANCIAL ASSURANCE HOLDINGS, INC.
By: /s/ LEON RODAY
----------------------------------------
Name: Leon Roday
--------------------------------------
Title:
-------------------------------------
PENNCORP FINANCIAL GROUP, INC.
By: /s/ SCOTT D. SILVERMAN
----------------------------------------
Name: Scott D. Silverman
--------------------------------------
Title: Executive Vice President
-------------------------------------
6
<PAGE> 1
EXHIBIT 10.4
AMENDMENT NO. 5
Dated as of December 31, 1998
to
CREDIT AGREEMENT
Dated as of March 12, 1997
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"),
and, with respect to paragraph 3, as Collateral Agent under the Security
Agreement, hereby agree as follows:
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 (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. The Credit Agreement
as modified 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. Upon and after the Amendment No. 5 Effective Date (as
defined below), the Credit Agreement shall be amended as follows:
(a) The definition of "PennUnion Companies" set forth in Section 1.01
of the Credit Agreement shall be amended and restated in its entirety to read as
follows:
"`PennUnion Companies' means PennCorp Financial, Inc., Pennsylvania Life
Insurance Company, PennCorp Life Insurance Company (Canada), Union
Bankers Insurance Company, Constitution Life Insurance Company,
Peninsular Life Insurance Company, and Marquette National Life Insurance
Company."
(b) Section 1.01 of the Credit Agreement is hereby amended to include the
following new definitions in alphabetical order:
"Amendment No. 5 Effective Date" shall have the meaning ascribed to that
term in Amendment No. 5, dated as of December 31, 1998, to the Credit
Agreement.
<PAGE> 2
"PennUnion Purchase Contract" shall mean that certain purchase agreement
dated December __, 1998 in the form attached hereto as Schedule A, as
such form may be amended or modified from time to time after the
Amendment No. 5 Effective Date, provided that 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 of $175,000,000 to be received by the Company or
the net cash component thereof of $79,400,000 was consented to in writing
by the Majority Banks; it being understood that the reduction of the
consideration or the net cash component thereof to be received by the
Company pursuant to the exercise by the purchaser of a right or the
satisfaction of a condition under the PennUnion Purchase Contract or
because an insurance regulator required that a portion of the
consideration or the net cash component thereof 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.
(c) Section 8.01 of the Credit Agreement shall be amended as follows:
(i) to delete the period at the end of subsection (n) and replace it
with "; and" and
(ii) to add a new subsection "(o)" as follows:
"(o) as soon as available (i) a copy of the PennUnion Purchase Contract
as executed and delivered by the Company and of each amendment thereto
and modifications thereof, (ii) the opinion of Salomon Smith Barney with
respect to the fairness of the sale of the PennUnion Companies, and (iii)
any third party actuarial study of the reserves of the PennUnion
Companies, and (iv) a copy of the Company's 1999 business plan and
budget, on or before January 15, 1999."
(d) Clause (i) of Section 8.06(b) of the Credit Agreement shall be
amended and restated in its entirety as follows:
"(i) the PennUnion Companies in accordance with and pursuant to the terms
of the PennUnion Purchase Contract and"
(e) Section 8.09 of the Credit Agreement shall be amended as follows:
(i) to insert in subsection (b) immediately following the word
"Subsidiary" the second time it appears therein the following:
", other than the net proceeds of sales of assets pursuant to the
PennUnion Purchase Contract,"; and
(ii) to add a new subsection (c) reading as follows:
"(c) The Company shall use its best efforts and act as expeditiously as
possible (i) to cause, subject to Applicable Law and disapproval by an
Applicable Insurance Regulatory Authority, each of its Subsidiaries
2
<PAGE> 3
receiving any of the proceeds (whether cash or non-cash) from the sale of
assets pursuant to the PennUnion Purchase Contract to transfer such
proceeds to the Collateral Account, and (ii) to comply with any such
Applicable Law and to obtain any required approval; and for this purpose
"transfer" includes by way of dividend, loan, purchase of shares or
capital contribution, and the second sentence of Section 8.06, insofar as
it applies to the acquisition of Property, and Section 8.15 shall not
apply to such transfers."
(f) Section 9(p) of the Credit Agreement shall be amended and restated
in its entirety as follows:
"The Company shall fail to receive, during the period of December 30,
1998 through the close of business on March 3, 1999, the payments due to
be made pursuant to the terms of certain of the Surplus Notes in an
aggregate amount of no less than $15,000,000; or"
3. Representations and Warranties. In order to induce the Banks to agree
to amend the Credit Agreement, the Company hereby represents and warrants as
follows:
(a) The Company has the power, and has taken all necessary action
(including, if a corporation, 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 Company and is a legal, valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms, except as enforceability may be limited by 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 do not and
(absent any change in any Applicable Law or applicable Contract) will not (i)
require any Governmental Approval or any other consent or approval, including
any consent or approval of the stockholders of the Company, other than
Governmental Approvals and other consents and approvals that have been obtained,
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 required under any Applicable
Law or Contract as in effect on the Amendment No. 5 Effective Date, are listed
on Schedule 5.3, or (ii) 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 any such Person under, (A)
any Contract to which any such Person is a party or by which any such Person or
any of its properties may be bound or (B) any Applicable Law.
(b) The copy of the PennUnion Purchase Contract attached as Schedule A
hereto is (i) in substantially the form approved by the Company's Board of
Directors at the meeting of the Board of Directors of the Company held on
December 22, 1998, and (ii) in the form to be executed by the parties, and the
PennUnion Purchase Contract in the form attached has not been amended or
modified subsequent to its having been furnished to the Administrative Agent and
prior to the Amendment No. 5 Effective Date, except by amendments and
modifications of which the Banks have been furnished copies.
3
<PAGE> 4
(c) Of the $50,000,000 specified in Section 8.06(b), as of the Amendment
No. 5 Effective Date, $50,000,000 will be available to the Company and its
Subsidiaries for sales, leases, transfers and other dispositions of the types
contemplated thereby.
(d) Each of the foregoing representations and warranties shall constitute
representations and warranties subject to Section 9(d) of the Credit Agreement
and shall be made at and as of the Amendment No. 5 Effective Date.
4. Conditions to Effectiveness; Amendment No. 5 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 time (such time, the "Amendment No. 5
Effective Date") as:
(a) this Amendment has been executed and delivered by the Company, the
Majority Banks and the Administrative Agent;
(b) the Company has paid to the Administrative Agent for the account of
each Bank a non-refundable fee in an amount equal to 0.25% of such Bank's
Commitment;
(c) all amounts payable pursuant to Section 11.03 of the Credit Agreement
for which invoices have been delivered to the Company on or prior to such date,
have been paid in full; and
(d) Messrs. Winthrop, Stimson, Putnam & Roberts and Ernst & Young LLP
shall each have had two (2) Business Days during normal business hours, or such
lesser time as they shall have deemed adequate, to have reviewed (i) the
PennUnion Purchase Contract in the form attached as Schedule A, and (ii) the
opinion of Salomon Smith Barney with respect to the fairness of the sale of the
PennUnion Companies. The delivery by Messrs. Winthrop, Stimson, Putnam & Roberts
and Ernst & Young LLP to the Company of their written statements to the effect
that they have had adequate time for such review shall constitute conclusive
confirmation of the fulfillment of this condition.
6. Governing Law. This Amendment shall be governed by, and construed in
accordance with, the law of the State of New York.
7. Counterparts. This Amendment may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Amendment by signing
any such counterpart.
4
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 5
to be duly executed as of the day and year first above written.
PENNCORP FINANCIAL GROUP, INC.
By: /s/ SCOTT D. SILVERMAN
------------------------------------
Name: Scott D. Silverman
Title: Executive Vice President
THE BANK OF NEW YORK, as
Administrative Agent, Collateral Agent
and as a Bank
By: /s/ PETER W. HELT
------------------------------------
Name: Peter W. Helt
Title: Vice President
THE CHASE MANHATTAN BANK, as a
Managing Agent and as a Bank
By:
------------------------------------
Name:
Title:
THE FIRST NATIONAL BANK OF CHICAGO,
as a Managing Agent and as a Bank
By:
------------------------------------
Name:
Title:
<PAGE> 6
NATIONSBANK, N.A., as a Managing Agent
and as a Bank
By: [ILLEGIBLE]
------------------------------------
Name: [ILLEGIBLE]
FLEET NATIONAL BANK, as a Co-Agent
and as a Bank
By: /s/ DONALD R. NICHOLSON
------------------------------------
Name: Donald R. Nicholson
Title: Senior Vice President
MELLON BANK, N.A., as a Co-Agent
and as a Bank
By: /s/ GARY A. SAUL
------------------------------------
Name: Gary A. Saul
Title: Vice President
BANK OF MONTREAL, as a Co-Agent
and as a Bank
By: /s/ THOMAS E. MCGRAW
------------------------------------
Name: Thomas E. McGraw
Title: Director
CIBC INC., as a Co-Agent and as a Bank
By: /s/ GERALD GIRARDI
------------------------------------
Name: Gerald Girardi
Title: Executive Director
<PAGE> 7
DRESDNER BANK AG, NEW YORK BRANCH &
GRAND CAYMAN BRANCH, as a Co-Agent
and as a Bank
By: /s/ LLOYD C. STEVENS
------------------------------------
Name: Lloyd C. Stevens
Title: Vice President
SUNTRUST BANK, CENTRAL FLORIDA
NATIONAL ASSOCIATION
By:
------------------------------------
Name:
Title:
BANK ONE, TEXAS N.A.
By:
------------------------------------
Name:
Title:
FIRST UNION NATIONAL BANK
By: ____________________________________
Name:
Title:
LTCB TRUST COMPANY
By:
------------------------------------
Name:
Title:
ING (U.S.) CAPITAL CORPORATION
By: /s/ JON EBIHARA
------------------------------------
Name: Jon Ebihara
Title: Senior Vice President
<PAGE> 1
EXHIBIT 99.1
NEW YORK, Jan. 4/PRNews wire/ -- PennCorp Financial Group, Inc. (NYSE: PFG)
today announced that it and certain of its subsidiaries have entered into a
definitive agreement to sell PennCorp's Career Sales Division and related assets
to Universal American Financial Corp. (Nasdaq: UHCO). The purchase price is $175
million, consisting of $136 million in cash, subject to adjustment, and $39
million initial principal amount of subordinated notes of Universal American.
The subordinated notes will bear interest at a rate of 8% per annum and will
mature 10 years from the date of issuance. Interest on the notes may be paid in
cash or, at the option of Universal American, through the issuance of additional
subordinated notes. The accreted value of the notes will be subject to offset in
the event of adverse development (or subject to increase in the event of
positive development) in the disability income claim reserves of Pennsylvania
Life Insurance Company, one of the companies included in the Career Sales
Division, and may be offset for other indemnification claims under the purchase
and sale agreement.
In addition, PennCorp announced that its subsidiary, Pacific Life and Accident
Insurance Company, has entered into a definitive agreement to sell its worksite
insurance subsidiary Professional Insurance Company to GE Capital's GE Financial
Assurance Holdings, Inc. ("GEFAH") for $47.5 million in cash plus interest
through the closing date. The purchase price is subject to an adjustment based
on Professional's capital and surplus at the closing date. Closing of the sale
of Professional is subject to certain conditions, including: receipt of
insurance department approvals; expiration of the waiting period under federal
antitrust laws; and delivery and review of certain underwriting experience
reports and of audited financial statements for Professional. PennCorp currently
expects that it would realize net cash proceeds (after capital and surplus
adjustments, settlement of intercompany liabilities and payment of transaction
expenses) of approximately $40 million.
PennCorp also announced that it and an affiliate have sold their common stock
investment in ACO Brokerage Holdings Corp., the parent company of Acordia, Inc.
This sale, combined with the receipt of $1.0 million in financial settlement of
the escrow account established in connection with the earlier sale by PennCorp
of its preferred stock investment in ACO Brokerage Holdings for $21.0 million,
resulted in approximately $11.9 million of additional cash proceeds to PennCorp
and its affiliate.
The Company is currently marketing for potential sale United Life and Annuity
Insurance Company. Initial due diligence has occurred and the Company is
expecting final expressions of interest from a group of potential strategic
purchasers shortly. The Company intends to evaluate these bids with a view to
negotiating a definitive agreement with a purchaser if an acceptable bid is
received.
Finally, PennCorp announced that it closed its office in New York City on
December 31, 1998. Substantially all of the Bethesda, Md. operations have been
consolidated into Dallas and the Bethesda office will close upon termination of
the lease in May, 1999.
Keith Maib, President and Chief Executive Officer of PennCorp stated, "Selling
the Career Sales Division and Professional Insurance Company will simplify
PennCorp's operations and business mix, provide the Company with cash to pay
down debt and allow the Company to focus its time and resources on its core
group of companies consolidated in Texas, principally Southwestern Life
Insurance Company, American-Amicable Life Insurance Company of Texas, and
Security Life and Trust Insurance Company."
The net cash proceeds that PennCorp will receive from the Career Sales Division
transaction will depend upon the capital and surplus levels of the divested
insurance companies as of the closing date and will be affected by the amounts
that PennCorp is required to pay to settle intercompany and other liabilities,
we well as expenses associated
<PAGE> 2
with the transaction. PennCorp currently expects that it would realize net cash
proceeds of approximately $75 million.
Consummation of the sale of the Career Sales Division is subject to several
conditions, including: insurance department approval; expiration or early
termination of the waiting period under federal antitrust laws; approval by the
stockholders of Universal American of an amendment to its charter, satisfactory
conclusion of a review by Universal American of the claims reserves of
Pennsylvania Life; delivery of audited financial statements of the Career Sales
division; and maintenance by the relevant insurance companies of a rating from
AM Best and Company of at least B+ (which is the current AM Best rating), or
assurances satisfactory to Universal American that the rating will be at least
B+ on or immediately after closing.
The Career Sales Division consists of Pennsylvania Life Insurance Company, Union
Bankers Insurance Company, Peninsular Life Insurance Company, PennCorp Life
Insurance Company, Constitution Life Insurance Company, Marquette National Life
Insurance Company, PennCorp Financial, Inc. and substantially all of the assets
of PennCorp Financial Services, Inc.
The parties expect both the Career Sales Division and the Professional
transactions to close prior to the end of the second quarter of 1999.
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 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.
2
