SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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): JANUARY 10, 2000
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PENNCORP FINANCIAL GROUP, INC.
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(Exact Name of Registrant as Specified in Charter)
DELAWARE 1-11422 13-3543540
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(State or Other Jurisdiction (Commission File Number) (IRS Employer
of Incorporation) Identification No.)
C/O SOUTHWESTERN FINANCIAL SERVICES CORPORATION
717 NORTH HARWOOD STREET
DALLAS, TEXAS 75201
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (214) 954-7111
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INFORMATION TO BE INCLUDED IN THE REPORT
ITEM 5. OTHER EVENTS
On January 10, 2000, PennCorp Financial Group, Inc., a Delaware
corporation (the "Company"), issued a press release announcing that the Company
had entered into a definitive agreement (the "Swiss Re Agreement") for the sale
of Southwestern Life Insurance Company and Security Life & Trust Insurance
Company to Reassurance America Life Insurance Company, a U.S. subsidiary of
Swiss Reinsurance Company of Zurich, Switzerland, for $260 million in cash,
subject to certain adjustments. The Swiss Re Agreement requires that the Company
effectuate the sale through a voluntary Chapter 11 case, subject to bankruptcy
court approval.
The Company also announced that it had, through its subsidiary
American-Amicable Holdings Corporation, entered into a definitive agreement (the
"Thoma Cressey Agreement") for the sale of its Waco, Texas-based insurance
operations to a new acquisition company formed by Thoma Cressey Equity Partners
for $102 million in cash, subject to certain adjustments. The Waco-based
operations include Pioneer Security Life Insurance Company, Occidential Life
Insurance Company, American-Amicable Life Insurance Company of Texas and Pioneer
American Insurance Company.
Filed herewith are the Swiss Re Agreement, the Thoma Cressey Agreement
and such press release. The descriptions of the Swiss Re Agreement and the Thoma
Cressey Agreement above do not purport to be complete and are qualified in their
entirety by reference to the Swiss Re Agreement and the Thoma Cressey Agreement,
which are filed as exhibits to this Current Report on Form 8-K
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ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(c) Exhibits.
Exhibit number Description
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10.1 Stock Purchase Agreement, dated as of
January 7, 2000, between Reassure America
Life Insurance Company and PennCorp
Financial Group, Inc.
10.2 Stock Purchase Agreement, dated as of
January 8, 2000, by and between
Pioneer-Occidental Holdings Company and
American-Amicable Holdings Corporation.
99.1 Press release of January 10, 2000.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, 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
Dated: January 10, 2000
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EXHIBIT INDEX
Exhibit number Description
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10.1 Stock Purchase Agreement, dated as of
January 7, 2000, between Reassure America
Life Insurance Company and PennCorp
Financial Group, Inc.
10.2 Stock Purchase Agreement, dated as of
January 8, 2000, by and between
Pioneer-Occidental Holdings Company and
American-Amicable Holdings Corporation.
99.1 Press release of January 10, 2000.
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Exhibit 10.1
STOCK PURCHASE AGREEMENT
BETWEEN
REASSURE AMERICA LIFE INSURANCE COMPANY
AND
PENNCORP FINANCIAL GROUP, INC.
Dated as of January 7, 2000
C:\WINDOWS\TEMP\SPAFinal1700.doc
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TABLE OF CONTENTS
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PAGE
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ARTICLE I DEFINITIONS.........................................................................................1
SECTION 1.1 Definitions..............................................................................1
SECTION 1.2 Other Definitions........................................................................5
SECTION 1.3 Certain Interpretive Matters.............................................................7
ARTICLE II THE ACQUISITION.....................................................................................7
SECTION 2.1 Consideration for the Shares.............................................................7
SECTION 2.2 Closing Transactions.....................................................................7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER............................................................8
SECTION 3.1 Organization and Qualification...........................................................8
SECTION 3.2 Authorization............................................................................8
SECTION 3.3 No Violation.............................................................................9
SECTION 3.4 Capitalization of the Companies..........................................................9
SECTION 3.5 Company Subsidiaries....................................................................10
SECTION 3.6 Consents and Approvals..................................................................11
SECTION 3.7 Financial Statements; Reserves..........................................................11
SECTION 3.8 Absence of Undisclosed Liabilities......................................................12
SECTION 3.9 Absence of Certain Changes..............................................................13
SECTION 3.10 Litigation..............................................................................13
SECTION 3.11 Property; Liens and Encumbrances........................................................14
SECTION 3.12 Certain Agreements......................................................................14
SECTION 3.13 Employee Benefit Plans..................................................................15
SECTION 3.14 Taxes...................................................................................18
SECTION 3.15 Compliance with Applicable Law; Permits; Policies.......................................22
SECTION 3.16 Fairness Opinion........................................................................24
SECTION 3.17 Proprietary Rights; Year 2000 Compliance................................................24
SECTION 3.18 Insurance...............................................................................25
SECTION 3.19 Environmental Matters...................................................................25
SECTION 3.20 Books and Records.......................................................................26
SECTION 3.21 Bank Accounts...........................................................................26
SECTION 3.22 Insurance and Reinsurance...............................................................26
SECTION 3.23 Labor Matters...........................................................................27
SECTION 3.24 Affiliate Transactions..................................................................28
SECTION 3.25 Bonuses.................................................................................28
SECTION 3.26 All Related Assets......................................................................28
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TABLE OF CONTENTS
(CONTINUED)
SECTION 3.27 Brokers' Fees and Commissions...........................................................28
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER............................................................29
SECTION 4.1 Organization; Qualifications and Operations.............................................29
SECTION 4.2 Authorization...........................................................................29
SECTION 4.3 No Violation............................................................................29
SECTION 4.4 Consents and Approvals..................................................................30
SECTION 4.5 Brokers' Fees and Commissions...........................................................30
SECTION 4.6 Purchase for Investment.................................................................30
SECTION 4.7 Sufficient Funds........................................................................30
ARTICLE V COVENANTS..........................................................................................30
SECTION 5.1 Conduct of Business Prior to the Closing................................................30
SECTION 5.2 Management of Companies.................................................................32
SECTION 5.3 Access to Information...................................................................33
SECTION 5.4 HSR Act Filings.........................................................................34
SECTION 5.5 State Regulatory Approvals..............................................................34
SECTION 5.6 Transaction Bonuses.....................................................................34
SECTION 5.7 All Reasonable Efforts..................................................................35
SECTION 5.8 Public Announcements....................................................................36
SECTION 5.9 Disclosure Supplements..................................................................36
SECTION 5.10 Employment and Employee Benefits........................................................36
SECTION 5.11 Nonsolicitation.........................................................................37
SECTION 5.12 Acquisition Proposals; Recapitalization Transaction.....................................38
SECTION 5.13 Pre-Closing Restructuring Transactions..................................................38
SECTION 5.14 Tax Matters.............................................................................39
SECTION 5.15 Financial Matters.......................................................................43
SECTION 5.16 Bankruptcy Court Approval...............................................................41
SECTION 5.17 Specific Enforcement of Covenants.......................................................45
SECTION 5.18 Intercompany Indebtedness and Transactions; Brokers and Finders Fees....................46
SECTION 5.19 Portsmouth..............................................................................46
ARTICLE VI CLOSING CONDITIONS.................................................................................47
SECTION 6.1 Conditions to the Obligations of Buyer under this Agreement.............................44
SECTION 6.2 Conditions to the Obligations of Seller under this Agreement............................49
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TABLE OF CONTENTS
(CONTINUED)
ARTICLE VII CLOSING............................................................................................49
SECTION 7.1 Closing.................................................................................49
ARTICLE VIII SURVIVAL...........................................................................................51
SECTION 8.1 Survival................................................................................51
ARTICLE IX FURTHER AGREEMENTS AND TERMINATION.................................................................51
SECTION 9.1 Certain Payments........................................................................51
SECTION 9.2 Termination.............................................................................52
SECTION 9.3 Procedure and Effect of Termination.....................................................54
SECTION 9.4 Confidentiality.........................................................................54
ARTICLE X MISCELLANEOUS PROVISIONS...........................................................................55
SECTION 10.1 Amendment and Modification..............................................................55
SECTION 10.2 Waiver of Compliance; Consents..........................................................55
SECTION 10.3 Validity................................................................................55
SECTION 10.4 Expenses and Obligations................................................................55
SECTION 10.5 Parties in Interest.....................................................................55
SECTION 10.6 Notices.................................................................................56
SECTION 10.7 Governing Law...........................................................................57
SECTION 10.8 Counterparts............................................................................57
SECTION 10.9 Headings................................................................................57
SECTION 10.10 Entire Agreement........................................................................57
SECTION 10.11 Assignment..............................................................................57
SECTION 10.12 Obligation of Parent....................................................................57
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ANNEX A Disclosure Schedule
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "AGREEMENT"), dated as
of January 7, 2000, between Reassure America Life Insurance Company, an Illinois
insurance company ("BUYER") and PennCorp Financial Group, Inc., a Delaware
corporation ("SELLER").
RECITALS:
WHEREAS, Seller is (or, immediately following the
Pre-Closing Restructuring Transactions (as hereinafter defined) will be) the
record and beneficial owner of (i) all of the issued and outstanding shares of
common stock, par value $2.50 per share (the "SLT SHARES") of Security Life and
Trust Insurance Company, a Texas corporation ("SLT") and (ii) all of the issued
and outstanding shares of common stock, par value $1.00 per share (the "SWLIC
SHARES" and together with the SLT Shares, the "Shares") of Southwestern Life
Insurance Company, a Texas corporation ("SWLIC" and together with SLT, the
"COMPANIES");
WHEREAS, subject to the terms and conditions set forth
herein, Seller desires to sell to Buyer, and Buyer desires to purchase from
Seller, the Shares on the Closing Date; and
WHEREAS, Seller has agreed that, subject to approval
thereof by its Board of Directors and the other terms of this Agreement, Seller
intends to file a voluntary petition for reorganization relief pursuant to
chapter 11 of title 11 of the United States Code, 11 U.S.C. Sections 101 et seq.
(the "BANKRUPTCY CODE") and in concert with such filing to seek the entry of an
order of the United States Bankruptcy Court having jurisdiction over such
chapter 11 case (the "BANKRUPTCY COURT") approving this Agreement and
authorizing Seller to consummate the transactions contemplated hereby;
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:
"ACQUISITION PROPOSAL" means any proposal or offer, other
than a proposal or offer (i) by Buyer or any of its Affiliates or (ii) with
respect to any Affiliates of Seller (other than the Companies), for (a) any
merger, consolidation, share exchange, business combination or other similar
transaction (including reinsurance) with Seller or any of its Subsidiaries, (b)
any sale, lease, exchange, mortgage, pledge, transfer or other disposition of
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10% or more of the assets, liabilities or policies (including through
reinsurance) of Seller or either Company, in a single transaction or series of
transactions (whether related or unrelated), (c) any tender offer or exchange
offer for 20% or more of the outstanding shares of Seller's common stock or any
class of Seller's debt securities or the filing of a registration statement
under the Securities Act of 1933, as amended in connection therewith, (d) the
acquisition by an third party of beneficial ownership or a right to acquire
beneficial ownership of, or the formation of any "group" (as defined under
Section 13(d)(3) of the Exchange Act) which beneficially owns or has the right
to acquire beneficial ownership of 20% or more of the then outstanding shares of
any class of Seller's common stock or any class of Seller's debt securities or
(e) 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; provided, however,
that "Acquisition Proposal" shall not include (i) any such proposal relating
solely to the sale of the Waco Companies or (ii) any transfer by either Company
of capital stock of any Company Subsidiary.
"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.
"AMERICAN-AMICABLE NOTES" means the 10% promissory note due
2021 issued by American-Amicable Holdings Corporation, a Texas corporation, to
SLT in the amount of $7,665,499, dated February 24, 1998 and the 10% promissory
note due 2021 issued by American-Amicable Holdings Corporation to SWLIC in the
amount of $15,330,998, dated February 24, 1998.
"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.
"BANKRUPTCY RESOLUTION DATE" means the date on which a
Final Order of the Bankruptcy Court has been entered dismissing, closing or
otherwise terminating the Chapter 11 Case.
"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.
"CHAPTER 11 CASE" means a voluntary case commenced by
Seller under chapter 11 of the Bankruptcy Code.
"CLOSING TRANSACTIONS" means the transactions contemplated
by Section 2.2.
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"CODE" means the Internal Revenue Code of 1986, as amended
(including any successor code), and the rules and regulations promulgated
thereunder.
"COMPANIES" means SWLIC and SLT.
"DISCLOSURE SCHEDULE" means the Disclosure Schedule
attached hereto as ANNEX A.
"EMPLOYEES" means (i) those current and former employees of
the Companies or the Company Subsidiaries and (ii) those current and former
employees of Seller or any of its Affiliates who primarily render services to or
on behalf of any or all of the Companies or the Company Subsidiaries, in each
case as listed on Section 1.1 of the Disclosure Schedule, and any other
employees of Seller, the Companies or the Company Subsidiaries performing
services primarily for the Companies or the Company Subsidiaries who are hired
between the date hereof and the Closing Date.
"ENVIRONMENTAL LAWS" means all applicable federal, state,
provincial or local laws (including but not limited to federal and state common
law), statutes, codes, rules or regulations relating to the environment, natural
resources, and pollution including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act (CERCLA), the Hazardous
Materials Transportation Act, 49 U.S.C. 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).
"EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended.
"FINAL ORDER" means an order or judgment the operation or
effect of which is not stayed, and as to which order or judgment (or any
revision, modification or amendment thereof), the time to appeal or seek review
or rehearing has expired and as to which no appeal or petition for review or
rehearing has been taken and is pending.
"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.
"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.
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"MATERIAL ADVERSE EFFECT" means a materially adverse effect
on the business, results of operations or financial condition of the Companies,
taken as a whole, other than any change, circumstance or effect relating (i) to
the economy or financial markets in general, (ii) to changes in general
political or regulatory conditions in the United States, (iii) generally to the
industries in which such entity operates and not specifically relating to such
entity, (iv) to or resulting from the announcement or pendency of the
transactions contemplated by this Agreement or (v) to or resulting from the
Chapter 11 Case.
"NASDAQ" means The NASDAQ Stock Market, Inc.
"PERSON" means an individual, corporation, limited
liability company, partnership, joint venture, association, trust,
unincorporated organization or, as applicable, any other entity.
"PHASE III TAXES" means Taxes imposed under Section 815 of
the Code.
"PRE-CLOSING RESTRUCTURING TRANSACTIONS" means the
transactions to be effected prior to the Closing pursuant to which (i) all of
the SLT Shares will be distributed or otherwise transferred (pursuant to a
series of such distributions or transfers) from a wholly-owned Subsidiary of
Seller that is not a Company or a Company Subsidiary to Seller, (ii) all of the
SWLIC Shares will be distributed or otherwise transferred to Seller, such that,
immediately prior to the Closing, Seller will be the record and beneficial owner
of all of the SLT Shares and the SWLIC Shares, (iii) SLT will declare and pay a
dividend consisting of the shares of preferred stock of Southwestern Financial
Corporation currently held by SLT and (iv) the American-Amicable Notes will be
transferred to and owned by Seller or any of its Affiliates other than the
Companies or any of the Company Subsidiaries.
"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.
"RECAPITALIZATION TRANSACTION" means a recapitalization
transaction involving Seller and its existing security holders that does not
involve the sale of any of the Companies or the Company Subsidiaries.
"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.
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"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.
"SFSC" means Southwestern Financial Services Corporation, a
Delaware corporation.
"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 or the Company Subsidiaries, notwithstanding the
consummation of any of the Closing Transactions.
"SUPERIOR PROPOSAL" means an Acquisition Proposal that the
Board of Directors of Seller has determined in good faith, if accepted, is
reasonably likely to be consummated taking into account all legal, financial,
regulatory and other aspects of the proposal and the person making the proposal,
and that the Board of Directors of Seller believes in good faith, after
consultation with an outside financial advisor would, if consummated, result in
a transaction more favorable from a financial point of view than the transaction
proposed by this Agreement.
"TAXES" means any and all federal, state, provincial,
local, foreign and other taxes, levies, fees, imposts, duties, and similar
governmental charges (including any interest, fines, assessments, penalties or
additions to tax imposed in connection therewith or with respect thereto)
including, without limitation, taxes imposed on, or measured by, income,
franchise, profits or gross receipts, ad valorem, value added, capital gains,
sales, goods and services, use, real or personal property, capital stock,
license, branch, payroll, Phase III Taxes, estimated withholding, employment,
social security (or similar), unemployment, compensation, utility, severance,
production, excise, stamp, occupation, premium, windfall profits, transfer and
gains taxes, and customs duties.
"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.
"WACO COMPANIES" means Pioneer Security Life Insurance
Company, Occidental Life Insurance Company, American-Amicable Life Insurance
Company, and Pioneer Life Insurance Company, and any of their Subsidiaries
(other than SLT).
"WARN" means the Worker Adjustment and Retraining
Notification Act of 1988 and any similar state, local or layoff statute.
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SECTION 1.2 OTHER DEFINITIONS. When used in this Agreement, the following terms
shall have the meanings ascribed to them in Sections noted below:
Term Defined in
Accounts Section 3.21
Agent Compensation Section 3.15(e)
Agreement Preamble
Allocation Agreement Section 5.14(1)
Alternative Termination Amount. Section 9.1(b)
Approval Order Section 5.16(d)
Assignment and Assumption of Lease Section 7.1(a)
Assignment and Assumption of Other Contracts Section 7.1(a)
Assignment of License Agreement Section 7.1(a)
Bankruptcy Code Recitals
Bankruptcy Court Recitals
Bankruptcy Termination Amount.. Section 9.1(b)
Banks Section 3.21
Benefit Plans Section 3.13(a)
Buyer Preamble
Buyer Approvals Section 4.4
Buyer Benefit Plans Section 5.10(b)
Buyer Employee Section 5.10(a)
Buyer Material Adverse Effect.. Section 4.1
Buyer Plans Section 5.10(b)
Buyer's TPA Section 5.10(a)
Claims Section 6.1(n)
Closing Section 7.1
Closing Date Section 7.1
Computation Section 5.14(l)
Deposit Section 3.15(i)
Company Subsidiaries Section 3.5(a)
DOJ Section 3.6
ERISA Section 3.13(a)
ERISA Affiliate Section 3.13(e)
Estate Property Section 5.16(d)
HSR Act Section 3.6
Insurance Approvals Section 3.6
Intellectual Property Section 3.17
IRS Section 1.1(k)
Liens Section 3.11(b)
Litigation Section 3.10
MADSP Section 5.14(l)
Material Contract Section 3.12(a)
MEC Section 3.14(z)
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Multiemployer Plan Section 3.13(a)
Neutral Auditors Section 5.14(1)
OID Section 3.9
Opinion Section 3.16
Owned Properties Section 3.11(b)
PBGC Section 3.13(e)
PLAIC Section 6.1(m)
PLAIC Reinsurance Agreement Section 6.1(m)
Portsmouth Section 5.19
Portsmouth Preferred Amount Section 5.19
Post-Signing Financial Statements Section 5.15
Pre-Closing Quarterly Statements Section 3.14(b)
Purchase Price Section 2.1
Reinsurance Agreements Section 3.22(a)
Releasees Section 6.1(n)
Releasing Party Section 6.1(n)
Request Section 5.14(l)
Required Permits Section 3.15(b)
Sale Procedures Order Section 5.16(a)
SAP Financial Statements Section 3.7(a)
Section 338(h)(10) Election Section 5.14(l)
Section 9.2(b)(ii) Amount Section 9.1(b)
Seller Preamble
Shares Recitals
SLT Recitals
SLT Shares Recitals
Substituted Buyer Section 10.12
SWLIC Recitals
SWLIC Purchase Price Section 2.1(a)
SWLIC Shares Recitals
Target Company Section 5.14(l)
Target Employees Section 5.10(a)
Tax Attributes Section 3.14(af)
Technology Systems Section 3.17(b)
Termination Amount Section 9.1(a)
Transaction Bonus Section 3.25
Workpapers Section 5.14(l)
SECTION 1.3 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.
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ARTICLE II
THE ACQUISITION
SECTION 2.1 CONSIDERATION FOR THE SHARES. 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, Seller shall sell
to Buyer, and Buyer shall purchase from Seller, in the manner described in
Section 2.2, all of the Shares for an amount in cash equal to Two Hundred Sixty
Million and No/100 Dollars ($260,000,000.00) (subject to adjustment pursuant to
Section 5.18(a), Section 5.19 and the immediately following sentence, the
"PURCHASE PRICE"). The Purchase Price shall be reduced by (i) $1 million, if the
Closing does not occur on or prior to the date that is 180 days after the date
hereof and (ii) an additional $1 million for each complete, successive 30-day
period between such 180th day and the Closing Date.
SECTION 2.2 CLOSING TRANSACTIONS. At the Closing:
(a) Seller shall deliver to Buyer certificates representing
the Shares, free and clear of any Liens, other than those which may be created
by Buyer, duly endorsed in blank or accompanied by stock powers duly executed in
blank, in proper form for transfer, for transfer to Buyer; and
(b) Buyer shall deliver to Seller the Purchase Price by
wire transfer to an account specified by Seller.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer as follows:
SECTION 3.1 ORGANIZATION AND QUALIFICATION.
(a) Each of Seller 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 such company 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. Seller has 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 Seller and 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 Companies'
Annual Statements for the year ended December 31, 1998 sets forth a true and
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complete list of each jurisdiction in which each of the 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 Company is domiciled in its jurisdiction of
incorporation, is not deemed to be domiciled in any other jurisdiction, and is
licensed to write the types of insurance shown in Section 3.1(c) of the
Disclosure Schedule in the jurisdictions shown in such Section, which are all
the types of insurance issued by such Companies and all the jurisdictions in
which each such Company writes such insurance. Except as set forth in Section
3.1(c) of the Disclosure Schedule, no such license is the subject of a
proceeding for suspension or revocation or any similar proceedings and, to the
knowledge of Seller, there is no pending threat of such suspension or revocation
by any licensing authority.
SECTION 3.2 AUTHORIZATION. Seller has full corporate power and authority (a) to
execute and deliver this Agreement and (b) in the event Seller commences the
Chapter 11 Case and the Sale Procedures Order and the Approval Order are entered
by the Bankruptcy Court, to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement by Seller, and subject to clause (b)
above, the performance by Seller of its obligations hereunder and the
consummation by Seller of the transactions contemplated hereby, have been duly
authorized by its Board of Directors and no other corporate action on the part
of Seller is necessary to authorize the execution and delivery of this Agreement
or the consummation of the transactions contemplated hereby (other than Board of
Directors' approval in connection with the commencement of the Chapter 11 Case).
This Agreement has been duly and validly executed and delivered by Seller and
constitutes a valid and binding obligation of Seller, enforceable against Seller
in accordance with its terms, subject (a) to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally, including, without limitation, for
purposes of the representation and warranty being made as of the Closing Date,
the discretion of the Bankruptcy Court for so long as the Bankruptcy Court
retains jurisdiction over the Chapter 11 Case, (b) 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), and (c) for purposes of the representation and
warranty being made as of the date hereof (but not for purposes of the
representation and warranty being made as of the Closing Date), to the
commencement of the Chapter 11 Case, competing offers as described in Section
5.16(a), and entry of the Approval Order.
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 Seller, nor in
the event Seller commences the Chapter 11 Case and the Approval Order is entered
by the Bankruptcy Court, the performance by Seller of its obligations hereunder
nor the consummation by Seller 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 Seller or any of the Companies, (b) violate or conflict with or
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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 Material Contract (as defined in Section
3.12(a)), (c) violate any order, writ, judgment, injunction, decree, statute,
rule or regulation of any Governmental Authority applicable to 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 Seller, any of the Companies (other than any
Liens created by Buyer), except in the case of clause (c) above, for those
violations, conflicts, breaches and defaults which would not be expected to have
a Material Adverse Effect.
SECTION 3.4 CAPITALIZATION OF THE COMPANIES.
(a) The authorized capital stock of SWLIC consists of
5,000,000 SWLIC Shares. As of the date hereof, there are 3,000,000 SWLIC 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 SLT consists of 5,000,000 SLT Shares. As of the
date hereof, there are 2,542,500 SLT 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 either Company to issue
any additional shares of capital stock or any other securities convertible into,
exchangeable for or evidencing the right to subscribe for any shares of capital
stock of such Company, (ii) agreements or commitments obligating such Company to
repurchase, redeem or otherwise acquire any shares of its capital stock, (iii)
restrictions on transfer of any shares of capital stock of such Company (other
than pursuant to this Agreement) or (iv) voting or similar shareholder
agreements relating to any shares of capital stock of such Company.
(c) Except as set forth in Section 3.4(c) of the Disclosure
Schedule, after giving effect to the Pre-Closing Restructuring Transactions and
at all times thereafter prior to the Closing, the Shares will be owned
beneficially and of record by Seller, free and clear of all Liens. At the
Closing, good and valid title to the Shares shall be conveyed to Buyer 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, neither 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.
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SECTION 3.5 COMPANY SUBSIDIARIES.
(a) Section 3.5(a) of the Disclosure Schedule sets forth
(i) the names of all Subsidiaries of each of the Companies (the "COMPANY
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 Company Subsidiary. Except for the Company Subsidiaries, no
Company directly or indirectly owns or has the power to vote the shares of any
capital stock or other ownership interest (other than capital stock or ownership
interests held in the investment portfolio of either Company) or has 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) Each of the Company Subsidiaries is a corporation or a
company duly organized or formed, validly existing and in good standing under
the laws of its jurisdiction of incorporation or formation, which as to each
such company is set forth opposite its name in Section 3.5(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.
Seller has delivered or made available to Buyer a true and complete copy of the
Certificate of Incorporation and Bylaws (or similar organizational documents) of
each of the Company Subsidiaries. All of the outstanding shares of capital stock
of each Company 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 Company
Subsidiaries to issue any additional shares of capital stock of such Subsidiary
or any other securities convertible into, exchangeable for or evidencing the
right to subscribe for any shares of such capital stock, (ii) agreements or
commitments obligating any such Subsidiary to repurchase, redeem or otherwise
acquire any shares of its capital stock, (iii) restrictions on the transfer of
any shares of capital stock of any such Subsidiary (other than pursuant to this
Agreement or applicable laws or regulations of any Governmental Authority) or
(iv) voting or similar shareholder agreements relating to any shares of capital
stock of any such Subsidiary.
(d) Except as set forth in Section 3.5(d) of the Disclosure
Schedule, none of the Company Subsidiaries is regulated or required to be
regulated as an insurance company.
SECTION 3.6 CONSENTS AND APPROVALS. Other than in connection with the
commencement of a Chapter 11 Case, entry of the Sale Procedures Order, entry of
the Approval Order and 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 or any other Person is
necessary for the consummation by Seller or the Companies of the transactions
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contemplated by this Agreement other than (a) consents and approvals of or
filings or registrations with (i) 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 (ii) the insurance
department of the State of Texas and those state insurance departments listed in
Section 3.6 of the Disclosure Schedule (the "INSURANCE APPROVALS") and (b)
consent of any counterparty to any agreement or contract that is not a Material
Contract.
SECTION 3.7 FINANCIAL STATEMENTS; RESERVES.
(a) Seller has previously delivered or made available to
Buyer true and complete copies of the following (the "SAP FINANCIAL
STATEMENTS"):
(i) the Annual Statements for each Company for each of
the years ended December 31, 1997 and 1998, in each
case as filed with the departments of insurance in
the respective states of domicile of each 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 Company for the
quarters ended March 31, June 30 and September 30,
1999 including all exhibits, interrogatories, notes
and schedules thereto; and
(iii) the statutory annual statements for each of the years
ended December 31, 1997 and 1998 and unaudited
quarterly statements for the quarters ended March 31,
June 30, and September 30, 1999 of each Company which
were filed in any jurisdiction other than such
Company's jurisdiction of domicile and that differ
from the corresponding Annual Statements and
Quarterly Statements for such periods.
Except as set forth in Section 3.7(a) of the Disclosure Schedule, the SAP
Financial Statements were, and when delivered in accordance with the provisions
of Section 5.15, the Post-Signing Financial Statements will be, prepared in all
material respects in accordance with SAP, applied on a consistent basis. 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 5.15, the Post-Signing 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 SAP Financial Statements of each
Company were determined (and, when delivered in accordance with the provisions
of Section 5.15, all statutory reserves and other similar amounts with respect
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to insurance as reflected or established in the Post-Signing Financial
Statements will be determined) in all material respects in accordance with SAP,
applied on a consistent basis, 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 Companies. Except as set forth in Section
3.7(b) of the Disclosure Schedule, each 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.
SECTION 3.8 ABSENCE OF UNDISCLOSED LIABILITIES. There are no liabilities or
obligations of the Companies or the Company Subsidiaries (including without
limitation any Liens) that are required to be reflected or reserved against on a
balance sheet prepared in accordance with SAP other than (a) liabilities and
obligations reflected or reserved against in the September 30, 1999 Quarterly
Statement of each Company and not heretofore discharged, (b) policyholder
benefits payable or other liabilities or obligations arising after September 30,
1999 in the ordinary course of business consistent with past practice and in
amounts consistent with past practice, or (c) liabilities and obligations
disclosed in Section 3.8 of the Disclosure Schedule. Neither Company nor any
Company Subsidiary has any liability or obligation on account of any of the
operations, businesses, obligations or liabilities of Seller or any of its
Affiliates (other than the Companies and the Company Subsidiaries) other than
liabilities to be settled in accordance with Section 5.18 hereof.
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
(including in connection with the commencement and prosecution of a Chapter 11
Case), since September 30, 1999, neither of the Companies nor any Company
Subsidiary has (a) experienced any change, event or condition which,
individually or in the aggregate, has had or reasonably would be expected to
have a Material Adverse Effect, (b) conducted its business in any material
respect other than in the ordinary course, (c) incurred any indebtedness for
borrowed money or issued any debt securities or assumed, guaranteed or endorsed
the obligations of any other Person, (d) other than immaterial sales or
dispositions of assets 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 certain 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
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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, (m) except as otherwise required by law, changed, in
any material respect its underwriting, actuarial or Tax accounting methods,
principles or practices, (n) ceased its lead generation activities other than in
the ordinary course of business, (o) terminated any material reinsurance or
coinsurance contract (including without limitation, any surplus relief or
financial reinsurance contract), whether as reinsurer or reinsured, (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. Except as set forth in Section 3.10 of the Disclosure
Schedule, there are no actions, suits, arbitrations, investigations or
proceedings ("LITIGATION") pending or, to the knowledge of Seller or the
Companies, threatened against Seller or any of its Affiliates before any
Governmental Authority or arbitrator relating to this transaction or to any of
the Companies or to any of the Company Subsidiaries. Except as set forth in
Section 3.10 of the Disclosure Schedule, none of the Companies is in default
under any 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 either
Company or any Company Subsidiary as of the date hereof.
(b) Except as set forth in Section 3.11(b) of the
Disclosure Schedule or in the SAP Financial Statements, all properties and
assets owned by either Company or any Company Subsidiary (the "OWNED
PROPERTIES") or leased by either Company or any Company Subsidiary (the "LEASED
PROPERTIES") are free and clear of all liens, pledges, claims, security
interests, mortgages, assessments, easements, rights of way, covenants, rights
of first refusal, defects in title, encroachments (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 SAP 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 relevant
Company or Company Subsidiary 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 relevant Company or
Company Subsidiary. The Companies and Company Subsidiaries have good and
indefeasible title to the Owned Properties and good and valid leasehold
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interests in the Leased Properties and there are no pending or, to the knowledge
of Seller, threatened condemnation proceedings affecting any of the Owned
Properties or Leased Properties. To the knowledge of Seller, 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(a) of the
Disclosure Schedule or in the SAP Financial Statements, neither of the Companies
nor any Company Subsidiary is a party to any written (i) agreement, contract,
indenture or other instrument relating to the borrowing of money or the
guarantee of any obligation for the borrowing of money; (ii) employment,
consulting, compensation or severance agreement with any of its directors,
employees or consultants; (iii) agreement, contract or commitment limiting or
restraining it from engaging or competing in any business; (iv) lease pursuant
to which it leases real property; (v) distribution, dealer, representation,
commission or agency agreement, other than agency agreements with insurance
agents in the ordinary course of business; (vi) contract or agreement with any
of its Affiliates that will continue after Closing (other than the other Company
or Company Subsidiaries); or (vii) any other contract that (A) 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, or (B) requires annual expenditures or $100,000 or more and has a
remaining term of 24 months or more (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 the Company
Subsidiaries and, to the knowledge of Seller, has been complied with in all
material respects by all other parties thereto. Except as set forth in Section
3.12 of the Disclosure Schedule, no consent is required under any Material
Contract in connection with the consummation of the transactions contemplated by
this Agreement.
(b) Except as disclosed in Section 3.12(b) of the
Disclosure Schedule, all agency agreements with insurance agents to which either
Company or any Company Subsidiary is a party are substantially in the form of
one or more standard forms thereof previously delivered by Seller to Buyer.
Seller has delivered to Buyer copies of all agency agreements disclosed in
Section 3.12(b) of the Disclosure Schedule.
(c) To the knowledge of Seller, Section 3.12(c) of the
Disclosure Schedule sets forth a complete and accurate list of all contracts of
SWFS to be assigned to and assumed by Buyer pursuant to Section 7.1(a)(vi).
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SECTION 3.13 EMPLOYEE BENEFIT PLANS.
(a) Since September 30, 1999, no Person who was an employee
of Seller or any of its Affiliates (other than the Companies and the Company
Subsidiaries) as of such date has become an Employee of any Company or any
Company Subsidiary.
(b) None of Seller or any of its Affiliates (including any
of the Companies or any Company Subsidiary) (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) any employee benefit plan, as defined in section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"); or (B) any
employment contract, bonus, deferred compensation, incentive compensation,
performance compensation, stock purchase, stock option, stock appreciation,
restricted stock, 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, cafeteria,
dependent care, vacation, sick leave, holiday pay, fringe benefit, reimbursement
program, life insurance, disability or other (whether insured or self-insured)
insurance, a supplementary unemployment benefit, pension retirement,
supplementary retirement, welfare or other employee plan, program, policy or
arrangement, whether written or unwritten, formal or informal, for the benefit
of the Employees, brokers, agents, or directors of the Companies or the Company
Subsidiaries, or leased employees, independent contractors or other Persons
performing services for or on behalf of the Companies or the Company
Subsidiaries, except for any such plans, programs, policies or arrangements, the
liabilities in respect of which are the sole responsibility of Seller or any of
its Affiliates (other than the Company and the Company Subsidiaries) and except
as set forth in Section 3.13(b) of the Disclosure Schedule ("BENEFIT PLANS").
None of the Benefit Plans is a multiemployer plan as defined in Section 3(37) of
ERISA or is subject to Title IV of ERISA.
(c) Except as set forth in Section 3.13(c) of the
Disclosure Schedule, 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, 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, including, but not limited to the
requirements of ERISA sections 601 et seq. and 701 et seq. and sections 4980B,
9801 and 9802 of the Code. None of the Benefit Plans are subject to the law of
any jurisdiction outside the United States, and no Benefit Plan covers any
Person in any jurisdiction outside the United States.
(d) True and complete copies of each written Benefit Plan
and any related trust, insurance or other related funding contract or agreement
or administrative services contract or agreement, and a description of any
unwritten Benefit Plan, the most recent summary plan descriptions for each
Benefit Plan, the most recent annual reports on Form 5500 for each Benefit Plan,
including schedules, audited financial statements and actuarial valuation
reports, most recent employee manuals, handbooks or personnel policies, sample
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copies of the current form of all notices or certifications to individuals under
ERISA sections 606, 609, 701 and 711 et seq. or sections 4980B or 9801 of the
Code, any other filings with respect to any Benefit Plan with any government
entity and any opinion or ruling from the IRS or any other government entity
with respect to any Benefit Plan, if any, have been delivered to Buyer.
(e) Except as set forth in Section 3.13(e) of the
Disclosure Schedule, 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 both as to the original plan and as to all
restatements or material amendments and the exempt status of each related trust
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 the most recent
such determination letter that would negatively affect such qualification or
exemption.
(f) Neither of the Companies nor any Company Subsidiary or
any entity required to be aggregated with any of the Companies or any Company
Subsidiary 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 for premiums) to the Pension Benefit
Guaranty Corporation ("PBGC").
(g) Except as disclosed in Section 3.13(g) of the
Disclosure Schedule, there are no pending or, to the knowledge of Seller,
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 action or failure to act on the
part of Seller, its Affiliates, the Companies, the Company Subsidiaries, any
fiduciary, funding agent or administrator of any of the Benefit Plans that could
reasonably be expected to subject Seller, its Affiliates, the Companies, the
Company Subsidiaries or the fund of any such Benefit Plan to the imposition of
any Tax or penalty with respect to any Benefit Plans, whether by way of
indemnity or otherwise. Except as set forth in Section 3.13(g) of the Disclosure
Schedule, all contributions required to have been made or remitted and all
expenses required to have been paid by Seller, the Companies or the Company
Subsidiaries to or under any Benefit Plan under the terms of any such plan, any
agreement or any applicable law have been paid within the time prescribed by any
such plan, agreement or law. All contributions to or under any Benefit Plan have
been currently deductible under the Code when made. No amount, or any asset of
any Benefit Plan, is subject to Tax as unrelated business income. Except as set
forth in Section 3.13(g) of the Disclosure Schedule, no "reportable events" (as
defined in ERISA section 4043), "prohibited transactions" (as defined in ERISA
section 406), breaches of fiduciary responsibility or "accumulated funding
deficiencies" (as defined in ERISA section 302) have occurred with respect to
any Benefit Plan for which liability would be incurred by the Companies, the
Company Subsidiaries or Buyer.
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(h) Except as disclosed in Section 3.13(h) of the
Disclosure Schedule, neither Seller nor any of its Affiliates maintains or
contributes to any Benefit Plan which provides, or has any liability or
obligation to provide, retiree life or medical insurance to Employees or other
Persons performing services for or on behalf of the Companies or the Company
Subsidiaries (or their beneficiaries) upon and/or after the last day of the
calendar month in which such Person's termination of employment or other service
occurs, except as may be required by federal, state or local laws, rules or
regulations. With respect to all Benefit Plans disclosed in Section 3.13(h) of
the Disclosure Schedule, Seller has provided or made available to Buyer all
information necessary to determine any and all liabilities of the Companies and
the Company Subsidiaries, on a company by company basis as of December 31, 1998
(or such more recent date as is practicable).
(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 or other Person to an excise Tax or
result in the loss of deductibility under sections 280G or 4999 of the Code as a
result of the consummation of the transactions contemplated by this Agreement or
the termination of an individual's employment thereafter and for which the
Companies, the Company Subsidiaries or Buyer would be liable.
(j) Neither of the Companies nor the Company Subsidiaries,
or any organization with respect to which such Company or Company Subsidiary 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 effective date of the documents provided in
accordance with Section 3.13(d) above, no promises or commitments have been made
by Seller or any of its Affiliates or the Companies or the Company Subsidiaries
to amend any Benefit Plan or to provide increased benefits thereunder.
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 and the Company Subsidiaries have been filed, the
Companies and the Company Subsidiaries have paid, or there have been paid on
their behalf, all Taxes that were shown to be due on such Tax Returns, and all
such Tax Returns were complete and accurate in all material respects;
(b) the Companies and the Company Subsidiaries have timely
paid or will timely pay or properly accrue (or there have been or will be timely
paid on their behalf) all Taxes owed by the Companies and the Company
Subsidiaries (whether or not shown on any Tax Return) for all taxable periods
for which Tax Returns are required to be filed (taking into account any
extensions) on or before the Closing Date;
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(c) the Companies and the Company Subsidiaries have timely
paid (or there have been timely paid on their behalf) all required current
estimated Tax payments in amounts sufficient to avoid interest charges and
underpayment penalties;
(d) the Companies and the Company Subsidiaries 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;
(e) 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
either Company or any Company Subsidiary for any taxable period and no power of
attorney is currently in force with respect to any matter relating to Taxes that
could affect the Companies or the Company Subsidiaries;
(f) no audit or other proceeding by any Governmental
Authority is pending or, to the knowledge of Seller, threatened with respect to
any Taxes due from or with respect to either Company or any Company Subsidiary
and no claim has been made by any Governmental Authority in a jurisdiction where
any of the Companies or any of the Company Subsidiaries does not file Tax
Returns that it is or may be subject to taxation by that jurisdiction;
(g) there are no Liens for Taxes upon the assets or
properties of either Company or any of the Company Subsidiaries, except for
statutory Liens for current Taxes not yet due;
(h) neither Company nor any Company Subsidiary is or has
been a member of any partnership or joint venture (or entity treated similarly
for Tax purposes) or the holder of a beneficial interest in any trust, in each
case for any taxable period for which the applicable statute of limitations has
not expired;
(i) neither Company nor any Company Subsidiary 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 and
neither Company nor any Company Subsidiary has made any payment under or
pursuant to any such agreement, contract, or arrangement since December 31,
1997;
(j) each Company is an "insurance company" within the
meaning of Treas. Reg. Section 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;
(k) neither Company nor any Company Subsidiary (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, (ii)
is a passive foreign investment company within the meaning of Section 1297 of
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the Code, and (iii) is or has been a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Code during the
applicable period specified in Section 897(c)(1)(A)(ii) of the Code;
(l) neither Company nor any Company Subsidiary has filed a
consent under Section 341(f) of the Code;
(m) no property owned by either Company or any Company
Subsidiary (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;
(n) neither Company nor any Company Subsidiary 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) or
Section 280G of the Code;
(o) neither Company nor any Company Subsidiary has agreed,
or is required to make, any adjustment under Section 446(e), Section 481(a) or
Section 807(f) of the Code or has entered into any closing agreement pursuant to
Section 7121 of the Code or any other agreement with similar Tax purposes;
(p) neither Company nor any Company Subsidiary has been a
member of an affiliated group filing a consolidated federal income Tax Return,
or has any liability for Taxes of any Person under Treas. Reg. Section 1.1502-6,
Treas. Reg. Section 1.1502-78 or any similar provision of state, local or
foreign law or regulation, as a transferee or successor, by contract or
otherwise;
(q) consolidated federal income Tax Returns which include
the Companies or the Company Subsidiaries, and, to the extent relevant, state,
local, and separate federal income Tax Returns of the Companies or the Company
Subsidiaries, or extensions to file such Tax Returns have been (or will be)
timely filed by or on behalf of the Companies and the Company Subsidiaries for
periods with filing dates prior to the Closing Date;
(r) the Companies and the Company Subsidiaries 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;
(s) Seller is not a foreign person within the meaning of
Section 1445 of the Code;
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(t) the amount of each of the policyholders surplus account
and the shareholders surplus account (as defined in Section 815 of the Code) of
each of the Companies and the Company Subsidiaries as of December 31, 1998 is
accurately set forth in Section 3.14 of the Disclosure Schedule, and the amount
of the policyholders surplus account of each of the Companies and the Company
Subsidiaries as of the Closing Date will not be less than each such respective
amount;
(u) each Company is and has been taxable as a life
insurance company within the meaning of Section 816 of the Code for the taxable
period ending on or including the Closing Date and for all prior taxable periods
for which the statute of limitations has not expired;
(v) all life insurance contracts issued by either 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;
(w) all contracts issued by either 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 contracts;
(x) all annuity contracts issued by either 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;
(y) the Tax treatment under the Code of all insurance or
annuity policies, plans or contracts; all financial products, employee benefit
plans (other than the Benefit Plans), individual retirement accounts or
annuities; or any similar or related policy, contract, plan, or product, whether
individual, group, or otherwise, if any, issued or sold by any of the Companies
on or before the Closing Date is and at all times has been in all material
respects the same as or more favorable to the purchaser, policyholder or
intended beneficiaries thereof than the Tax treatment under the Code for which
such policies, plans or contracts qualified or purported to qualify at the time
of their issuance or purchase, except for changes resulting from changes to the
Code which do not affect such policies, plans or contracts due to the effective
date thereof. Each hardware, software and firmware product used by each Company
to maintain the qualification of such policies, plans, products or contracts for
the Tax treatment under the Code for which such policies, plans, products or
contracts qualified or purported to qualify at the time of their issuance or
purchase is and at all relevant times has been properly designed and implemented
to maintain such qualification. For purposes of this Section 3.14(y), the
provisions of the Code relating to the Tax treatment of such contracts shall
include, but not be limited to, Sections 72, 79, 101, 104, 105, 106, 125, 130,
264, 401, 403, 404, 408, 408A, 412, 415, 419, 419A, 457, 501, 505, 817, 818,
1035, 7702, 7702A and 7702B. Each Company is and at all times has been the owner
for federal income Tax purposes of the assets in any segregated asset account
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underlying or supporting each variable annuity contract and each variable
insurance policy;
(z) any life insurance contract issued by either Company
(whether developed or administered or reinsured with any unrelated party) which
is a modified endowment contract under Section 7702A of the Code (each, a "MEC")
has been marketed as such at all relevant times or the policyholder otherwise
has consented to such MEC status;
(aa) each reserve item with respect to the Companies set
forth in the 1998 Tax Returns including the Companies was determined correctly
in accordance with the requirements of Sections 807, 811 and 846 of the Code (or
other applicable Code provisions ), and has been consistently and correctly
applied with respect to the filing of all Tax Returns including the Companies
and the Company Subsidiaries for all taxable years for which the applicable
statute of limitations has not expired, will be consistently and correctly
applied with respect to the Companies and the Company Subsidiaries in the 1999
Tax Returns including the Companies and the Company Subsidiaries when such Tax
Returns are filed, and will be consistently and correctly applied with respect
to SWLIC and SLT in the respective 2000 Tax Returns including SWLIC and SLT for
the period from January 1, 2000 through the Closing Date when such Tax Returns
are filed;
(ab) all annuity contracts issued by either 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 that are individual retirement annuities or
provided under individual retirement accounts or annuities, satisfy the federal
income Tax laws applicable to such annuity contracts;
(ac) there are no currently pending or, to the knowledge of
Seller, threatened federal, state, provincial, local or foreign audits or other
administrative or judicial proceedings with regard to the Tax treatment of any
policy, contract, product or plan sold, issued or administered by either Company
or any Company Subsidiary (whether developed by or reinsured with any unrelated
third party);
(ad) neither Company nor any Company Subsidiary is a party
to any hold harmless, sharing, allocation or indemnification agreement with
respect to the Tax qualification or treatment of any policy, contract, product
or plan sold, issued or administered by any insurance company (whether developed
by or reinsured with any unrelated third party);
(ae) each of the Companies and the Company Subsidiaries is
a calendar-year taxpayer for federal income Tax purposes;
(af) Schedule 3.14 sets forth a description prepared by
Seller of (i) the Tax bases of the assets of each Company and Company
Subsidiary, and (ii) the amount of unused net operating losses, net capital
losses and Tax credits of each Company and Company Subsidiary, in each case as
of December 31, 1998 (the "TAX ATTRIBUTES"). The information on such schedule
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was accurate in all material respects of as December 31, 1998. Such bases and
Tax Attributes would be affected by income and deductions and transactions
occurring in the ordinary course of business between December 31, 1998 and the
Closing Date. Such bases and Tax Attributes will not be affected by any
Pre-Closing Restructuring Transactions;
(ag) there is no claim, audit, action, suit, proceeding,
investigation or limitation now pending or threatened against, with respect to
or in limitation of the Tax Attributes, including without limitation any
limitations under Sections 382, 383 and 384 of the Code or other provisions of
the Code or applicable law (other than limitations incurred in connection with
the Closing Transactions); and
(ah) neither Company nor any Company Subsidiary is or has
been doing business in, is or has been engaged in a trade or business in, or has
business in force in any jurisdiction in which it has not filed all required Tax
Returns.
SECTION 3.15 COMPLIANCE WITH APPLICABLE LAW; PERMITS; POLICIES.
(a) The businesses of the Companies and the Company
Subsidiaries are being conducted in compliance with all applicable provisions of
any 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 and would not reasonably be expected to have a
Material Adverse Effect. The Companies and the Company Subsidiaries are in
compliance in all material respects with the Securities Act of 1933, as amended,
the Exchange Act, the Investment Company Act of 1940, as amended, the Investment
Advisers Act of 1940, as amended and state securities laws to the extent that
such Acts apply to their operations.
(b) Each Company and each Company Subsidiary 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, except for
those the failure of which to have has not had and would 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 Companies' Annual Statements for the year ended December 31, 1998, and all
other Required Permits are listed in Section 3.15(b) of the Disclosure Schedule.
The Required Permits are valid and in full force and effect and, except as
disclosed in Section 3.15(b) of the Disclosure Schedule, none of Seller, any
Company or any Company Subsidiary 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
Seller, there is no reasonable basis for any such suspension, revocation or
limitation. Neither of the Companies nor any Company Subsidiary is currently the
subject of any supervision, conservation, rehabilitation, liquidation,
receivership, insolvency or other similar proceeding nor, other than as
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described in Section 3.15(b) of the Disclosure Schedule, are any of the
Companies or any Company Subsidiary 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 either 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 Seller, its 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, Seller has not received notice (written or
oral) and are not otherwise aware of any review or investigation by any
Governmental Authority of any marketing conduct and/or selling practices of the
Companies or their independent agents, other than periodic market conduct
examinations arising in the ordinary course of business and Attorney General
inquiries in connection with which no material issues have been raised that have
not been resolved to the satisfaction of the relevant insurance authorities or
Attorneys General, as the case may be.
(e) Except as set forth in Section 3.15(e) of the
Disclosure Schedule, no agent of any of the Companies has any claim against any
of the Companies for any compensation or other amounts (the "AGENT
COMPENSATION") other than sales commissions and advances in the ordinary course
of business.
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(f) Seller has 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 either Company.
(h) The Companies have (i) timely paid all material state
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, 1998 SAP Financial Statements contain a
list of all material funds maintained in a state of licensure by either Company
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, the dollar amount of
each such Deposit and the name of the depository in which such Deposit is
maintained.
SECTION 3.16 FAIRNESS OPINION. Wasserstein Perella & Co., Inc., financial
advisor to Seller, has rendered to the Board of Directors of Seller an oral
opinion, dated the date hereof (the "OPINION"), regarding the fairness, from a
financial point of view, to Seller of the Aggregate Consideration (as defined in
the Opinion and which includes both the Purchase Price and the amount to be
received by Seller in connection with the sale of an additional specified
business of Seller), which oral opinion will be confirmed in writing to Seller
with a copy to be delivered to Buyer no later than the close of business on
January 11, 2000.
SECTION 3.17 PROPRIETARY RIGHTS; YEAR 2000 COMPLIANCE. (a) Except as disclosed
in Section 3.17(a) of the Disclosure Schedule, each Company and each Company
Subsidiary 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.
Each agreement pursuant to which either Company or any Company Subsidiary
licenses such Intellectual Property or material computer software, programs or
similar systems is in full force and effect in accordance with its terms.
Neither of the Companies nor any Company Subsidiary has received any notice of
any conflict with or violation or infringement of or any claimed conflict with
or violation or infringement of (which, in any such case, remains substantially
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unresolved), any asserted rights of any other Person with respect to any such
Intellectual Property or computer software, programs, or similar systems.
Neither of the Companies nor any Company Subsidiary 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 would 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 or any
Company Subsidiary (whether such hardware and software is owned 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 and the Company Subsidiaries 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 assets of the
Companies and the Company Subsidiaries and their respective operations and
properties against loss or liability. All such policies or contracts of
insurance are in compliance in all material respects with all applicable laws
and all Material Contracts to which any of the Companies or any Company
Subsidiary 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 either Company or any
Company Subsidiary 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 Company
Subsidiaries and the real property currently owned, leased or operated by either
Company or any Company Subsidiary are in compliance and, during the period of
the ownership or tenancy of the relevant Company or Company Subsidiary have been
in compliance, with all applicable Environmental Laws, except for such
noncompliance as would not be expected to have a Material Adverse Effect;
(b) no judicial or administrative proceedings or
investigations are pending or, to the knowledge of Seller, threatened against
either Company or any Company Subsidiary, pursuant to any applicable
Environmental Laws, except for judicial or administrative proceedings or
investigations that would not reasonably be expected to have a Material Adverse
Effect;
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(c) no condition exists on any real property currently (or
to the knowledge of Seller, formerly) owned, operated or leased by any of the
Companies or any Company Subsidiary arising out of or resulting from any Release
of any Hazardous Material that could reasonably be expected to result in either
Company or any Company Subsidiary 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); and
(d) Seller has 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,
Seller or either Company relating to any real property currently or formerly
owned or leased by any of the Companies or any Company Subsidiary.
SECTION 3.20 BOOKS AND RECORDS. Copies of all the minute books and stock record
books of the Companies and the Company Subsidiaries 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 and the Company Subsidiaries from
January 1, 1995 to the date hereof and, to the knowledge of Seller, from the
date of their respective incorporations to January 1, 1995 (if applicable).
SECTION 3.21 BANK ACCOUNTS. Section 3.21 of the Disclosure Schedule contains (a)
a true and complete list of the names and locations of all banks, trust
companies, securities brokers, and other financial institutions ("BANKS") at
which each of the Companies and Company Subsidiaries has an account or safe
deposit box or maintains a banking, custodial, trading, trust or other similar
relationship ("ACCOUNTS") and (b) a true and complete list and description of
each such Account, including a list of all authorized signatories.
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 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 either Company under any Reinsurance Agreement and, to the
knowledge of Seller, 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 either Company under any such Reinsurance Agreement.
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Except as disclosed in Section 3.22(b) of the Disclosure Schedule, to the
knowledge of Seller, 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 either of the Companies has not been reduced since January 1, 1999, and
other than as set forth in Section 3.22(c) of the Disclosure Schedule, neither
Company has, as of the date hereof, received any notice from A.M. Best of any
intended downgrading.
SECTION 3.23 LABOR MATTERS.
(a) Neither of the Companies nor any Company Subsidiary is
a party to any labor or collective bargaining agreement.
(b) No Target 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
Target 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 to the knowledge of Seller 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 Seller, there are no
organizing activities involving either Company or any Company Subsidiary pending
with any labor organization or group of Target 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 either Company or any Company
Subsidiary, to the extent applicable to the Target Employees.
(d) Except as set forth in Section 3.23(d) of the
Disclosure Schedule, each of the Companies and the Company Subsidiaries is in
compliance with all laws, regulations and orders applicable to such Company or
Company Subsidiary or the Employees or other Persons providing services to or on
behalf of such Company or Company Subsidiary, 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
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collection and payment of withholding and/or social security Taxes and any
similar Tax, other than such noncompliance as has not had and would not be
reasonably expected to have a Material Adverse Effect.
(e) There is no "mass layoff," "plant closing" or similar event as defined by
WARN with respect to any of the Companies or any Company Subsidiary; 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 Seller, threatened
complaints, charges or claims against either Company or any Company Subsidiary
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 either Company or any Company Subsidiary or,
relating to the Employees or other Persons providing services to or on behalf of
the Companies or any Company Subsidiary.
SECTION 3.24 AFFILIATE TRANSACTIONS. Section 3.24 of the Disclosure Schedule
sets forth, as of the date hereof, all contracts, agreements, obligations,
commitments and liabilities between any of the Companies or Company
Subsidiaries, on the one hand, and Seller or any of Seller's Affiliates (other
than the Companies and the Company Subsidiaries), on the other hand. 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 3.25 BONUSES. Except as set forth in Section 3.25 of the Disclosure
Schedule, no current or former officer, director, employee or agent of any of
the Companies or any Company Subsidiary, Seller or any of Seller's Affiliates
(other than the Companies and the Company Subsidiaries) or other Person 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 either Company
or any Company Subsidiary in connection with the transactions contemplated
hereby.
SECTION 3.26 ALL RELATED ASSETS. As of the Closing Date, immediately following
the Closing Transactions, the Companies and the Company Subsidiaries will own,
lease, license or otherwise have the valid right to use all material property
and assets necessary to carry on their respective businesses and operations as
presently conducted. Notwithstanding the foregoing, no representation is made in
this Section 3.26 with respect to any services provided pursuant to agreements
between the Company or any Company Subsidiary on the one hand and Seller or any
of its Affiliates other than the Companies and the Company Subsidiaries on the
other hand.
SECTION 3.27 BROKERS' FEES AND COMMISSIONS. Except for Wasserstein Perella &
Co., Inc. (the fees of which will be paid by Seller), neither Seller nor any of
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its directors, officers, employees or agents has employed any investment banker,
brokers or finders in connection with the transactions contemplated hereby.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Seller as follows:
SECTION 4.1 ORGANIZATION; QUALIFICATIONS AND OPERATIONS. Buyer is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Illinois, 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 to own directly or indirectly the Shares. Buyer is qualified or
licensed to do business and is in good standing in each jurisdiction in which
the ownership or leasing of property by it or the conduct of its business
requires such licensing or qualification, except where the failure to be so
qualified or licensed will not affect Buyer's ability to consummate the
transactions contemplated by this Agreement (a "BUYER MATERIAL ADVERSE EFFECT").
SECTION 4.2 AUTHORIZATION. Buyer has full corporate power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by Buyer, the
performance by Buyer of its respective obligations hereunder, and the
consummation by Buyer of the transactions contemplated hereby, have been duly
authorized by the Board of Directors of Buyer. No other corporate action on the
part of Buyer 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 Buyer and
constitutes the valid and binding obligation of Buyer, enforceable against Buyer
in accordance with their 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 4.4 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 performance by Buyer of the 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 Buyer, (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 is a party or by which any of its
assets is bound or (c) violate any order, writ, judgment, injunction, decree,
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statute, rule or regulation of any Governmental Authority applicable to Buyer or
any of its assets, except in each case as would not have a Buyer Material
Adverse Effect.
SECTION 4.4 CONSENTS AND APPROVALS. Other than the Approval Order and as set
forth in Section 4.4 of the Disclosure Schedule, no filing or registration with,
no notice to and no permit, authorization, consent or approval of any third
party or any Governmental Authority is necessary for Buyer to enter into this
Agreement or 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, (b) the Insurance Approvals, (c) the
insurance department of the State of Texas, and (d) any state insurance
department pursuant to any preacquisition notification statutes (collectively,
the "BUYER APPROVALS").
SECTION 4.5 BROKERS' FEES AND COMMISSIONS. Neither Buyer nor any of its
directors, officers, employees or agents has employed any investment banker,
broker or finder in connection with the transactions contemplated hereby.
SECTION 4.6 PURCHASE FOR INVESTMENT. Buyer is acquiring the Shares for its own
account for investment purposes and not with a view to the distribution of the
Shares. Buyer has such knowledge and experience in financial and business
matters so as to be capable of evaluating the merits and risks of its investment
in the Shares. Buyer is an "accredited investor" as defined in Rule 501 of the
Securities Act of 1933, as amended. Buyer will not, directly or indirectly,
dispose of the Shares except in compliance with applicable federal and state
securities laws.
SECTION 4.7 SUFFICIENT FUNDS. Buyer has or will have at Closing sufficient
surplus and funds available (through existing credit arrangements or otherwise)
to pay the Purchase Price and to pay all fees and expenses related to the
transactions contemplated by this Agreement.
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 contemplated hereby and the commencement and
prosecution of the Chapter 11 Case), the Closing Transactions and the other
transactions described as conditions to the consummation of the transactions
contemplated by this Agreement specified in Article VI hereof), as set forth in
Section 5.1 of the Disclosure Schedule or with the prior written consent of
Buyer (not to be unreasonably withheld or delayed), during the period from the
date of this Agreement to the Closing or termination of this Agreement, Seller
will cause each of the Companies and each Company Subsidiary 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
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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, Seller will not permit either Company or any
Company Subsidiary to:
(a) propose or adopt any amendment to its Certificate or
Articles of Incorporation or Bylaws (or similar organizational documents);
(b) incur any indebtedness for borrowed money or issue any
debt securities or assume, guarantee or endorse the obligations of any other
Person;
(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 or (ii) increase in any manner the rate or terms of
compensation of any of its directors, officers, agents or employees or enter
into any employment, severance or collective bargaining agreement other than (A)
normal, annual pay increases of employees or (B) increases in compensation to
agents in connection with new products;
(d) enter into any agreement with any officer, director,
employee, general agent or sales agent of either Company or Company Subsidiary
pursuant to which such Persons will be entitled to receive from either Company
or Company Subsidiary 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 immaterial sales or other dispositions of assets or (ii) mortgage or
encumber any of its property or assets;
(f) except in the ordinary course consistent with past
practices, sell, transfer or otherwise dispose of any securities in the
Companies' investment portfolios;
(g) enter into or terminate any other material agreements,
commitments or contracts;
(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; (provided, however, that the
Companies may declare and pay cash dividends, after September 30, 1999, in an
aggregate amount not in excess of $17,700,000, (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;
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(i) enter into any agreement or commitment (other than an
insurance policy issued in the normal course of business) (A) having a duration
of 12 months or more, or (B) involving an aggregate capital expenditure or
commitment exceeding (x) $100,000 individually, or (y) collectively with all
other such agreements, $500,000;
(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) change any of the Tax or financial accounting methods
or practices used by it unless required by SAP or applicable law, make or
terminate any Tax election, or take any Tax Return position inconsistent with
past practices;
(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 in excess of $50,000;
(o) except in accordance with any arrangement or agreement
described in Section 3.24 of the Disclosure Schedule, 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;
(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; provided, however, that the Companies and
Company Subsidiaries may perform their obligations under any agreement with any
Affiliate identified in Section 3.24 of the Disclosure Schedule and may renew
any such agreement upon the expiration thereof on terms no less favorable to the
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relevant Company or Company Subsidiary than those existing in the original
agreement; or
(s) agree to take any of the foregoing actions.
SECTION 5.2 MANAGEMENT OF COMPANIES. Seller shall, from the date of this
Agreement through the Closing Date, cause management of the Companies and the
Company Subsidiaries to consult on a periodic basis and in good faith with the
employees and representatives of Buyer concerning the management of their
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, (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 the authority to manage the Companies and the Company Subsidiaries
at all times shall remain with the management of the Companies, and that
management of the Companies and the Company Subsidiaries 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, Seller
shall cause the Companies and the Company Subsidiaries to give to Buyer and its
counsel, accountants and other authorized representatives and agents, all
reasonable access, during regular business hours and upon reasonable advance
notice, to any and all of their respective premises, properties, contracts,
books and records, and will cause their respective officers and employees to
furnish to Buyer and its representatives, except where prohibited by law, any
and all data and information pertaining, directly or indirectly, to the
Companies or the Company Subsidiaries that Buyer shall from time to time
reasonably request, and shall permit Buyer and its representatives to make
extracts and copies thereof. During such period, Seller shall furnish promptly
to Buyer (i) each written report on examination of financial condition or market
conduct (whether in draft or final form) of any of the Companies issued by any
applicable Governmental Authority, (ii) all material filings with state
insurance regulators made by either Company under the insurance holding company
statutes of its domiciliary state, (iii) all material correspondence or
communications with state insurance regulatory authorities concerning the
companies, including without limitation such items relating to rehabilitation,
insolvency, liquidation, supervision, or other comparable state proceedings and
(iv) all other information and documents concerning the business, properties and
personnel of the Companies or the Company Subsidiaries as Buyer may reasonably
request. Seller will promptly deliver to Buyer such copies of all pleadings,
motions, notices, statements, schedules, applications, reports and other papers
filed by Seller in the Chapter 11 Case as Buyer may reasonably request. Subject
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to any applicable confidentiality agreements and to Section 5.12, Seller will
promptly provide to Buyer all documents and materials relating to the proposed
sale of the Companies or any portion thereof, including, without limitation,
with respect to competing bids, and otherwise cooperate with Buyer, to the
extent reasonably necessary in connection with Buyer's preparation for or
participation in any part of the Chapter 11 Case in which Buyer's participation
is necessary, required or reasonably appropriate. Subject to Section 5.16(e),
Seller will promptly deliver to Buyer all pleadings, motions, notices,
statements, schedules, applications, reports and other papers filed in any other
judicial or administrative proceeding as Buyer may reasonably request. In
addition, Seller shall, and shall cause the Companies to, consult with Buyer
with respect to any written or oral communication concerning, in whole or in
part, the transactions contemplated by this Agreement and directed to any state
insurance department or other Governmental Authority, any rating agency, any
agent or other producer, or any policyholder, and, to the extent reasonably
practicable, shall permit a representative of Buyer to attend any meetings
(telephonic or otherwise, but excluding board of directors meetings) with any
such parties at which the transactions contemplated by this Agreement are
reasonably likely to be discussed; provided, however, that Seller shall be
deemed to have satisfied the foregoing provisions of this sentence with respect
to Seller's or the Companies' discussions, in the ordinary course of business,
with agents and other producers and with policyholders if such discussions
follow a script or other plan of communication mutually agreed-upon by Seller
and Buyer; and provided, further, that Seller shall be deemed to have satisfied
the foregoing provisions of this sentence with respect to the responses of
senior employees of Seller or the Companies to unsolicited inquiries by agents,
producers or policyholders if such responses are conceptually consistent with
the mutually agreed-upon plan of communication.
(b) If the transactions contemplated herein are
consummated, Buyer covenants and agrees that it shall preserve and keep the
records of the Companies and the Company Subsidiaries delivered to it hereunder
for a period of seven years from the Closing Date, and shall make such records
available to Seller (without charge, other than reasonable photocopying expenses
if copies are so requested by Seller), as reasonably requested by Seller in
connection with any legal proceedings by or against, or governmental
investigations of Seller or any of its Affiliates, or in connection with any Tax
examination of Seller or any consolidated group of which any of them was a part
or for any other proper business purpose of Seller or any of its Affiliates.
(c) If the transactions contemplated herein are
consummated, Buyer and Seller 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 5.14(a), (b) or (c) of this Agreement and (ii) any action, suit,
proceeding, investigation or audit of any of them relating to any Tax liability.
In furtherance thereof, Buyer and Seller 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.
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SECTION 5.4 HSR ACT FILINGS. As soon as practicable after the date hereof,
Seller and Buyer shall make appropriate filings with the DOJ under the HSR Act
with respect to the transactions contemplated by this Agreement. In connection
with such filings, the parties hereto shall, in cooperation with each other, and
as promptly as reasonably practicable from time to time hereafter, make all such
further filings and submissions, and take such further action, as may be
required in connection therewith. Each party shall furnish the others all
information in its possession necessary for compliance by the others with the
provisions of this Section 5.4. No party shall withdraw any such filing or
submission prior to the termination of this Agreement without the written
consent of the other parties.
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 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.
Seller shall cause each of the Companies to take all such actions 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 as are reasonably requested by
Seller 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 TRANSACTION BONUSES. Seller shall pay at or prior to Closing all
Transaction Bonuses approved by the Bankruptcy Court, payable to those officers,
directors, employees or agents set forth on Section 3.25 of the Disclosure
Schedule or otherwise agreed by Buyer and Seller prior to Closing in accordance
with Section 5.1(d). To the extent such payments are made by any of the
Companies or Company Subsidiaries, Seller shall reimburse the relevant Companies
or Company Subsidiaries for the full amount of such payments at Closing. Buyer
shall cause the Companies to assume all obligations for any Employee under the
retention agreements referenced in Section 3.13(b) of the Disclosure Schedule
arising after the Closing, other than the obligation to pay the Transaction
Bonuses.
SECTION 5.7 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, the
prompt preparation by Seller of all pleadings, motions, notices, statements,
schedules, applications, reports and other papers reasonably necessary to
commence the Chapter 11 Case; provided, however, that nothing in this Agreement
shall be construed as an obligation, commitment or agreement of Seller to
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commence a Chapter 11 Case if Seller's Board of Directors does not elect to
commence the Chapter 11 Case or if Seller accepts a Superior Proposal or
Recapitalization Transaction prior to the commencement of such case. 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.
(b) At the Closing, Seller will assign to Buyer the
non-exclusive right to enforce the rights of Seller under the confidentiality
agreements entered into between any investment bank acting as agent for Seller
to sell its assets, and the prospective purchasers of the Companies or any other
Affiliates of Seller to the extent that such rights affect the Companies or the
Company Subsidiaries.
(c) Prior to Closing, Seller shall use all reasonable
efforts to obtain consents of counterparties identified in Section 6.1(e) of the
Disclosure Schedules and the lessor of the Maxus Energy Tower lease. Buyer shall
use all reasonable efforts to cooperate with Seller in its efforts to obtain
such consents.
SECTION 5.8 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 5.9 DISCLOSURE SUPPLEMENTS. From time to time prior to the Closing and
as soon as reasonably practicable following a material event, Seller and Buyer
will promptly supplement or amend the Disclosure Schedules to this Agreement to
reflect any matter which, if existing, occurring or known on the date hereof
should have been so disclosed, or which is necessary to correct any information
in such Disclosure Schedules which was or has been rendered inaccurate thereby;
provided, however, that for purposes of determining the rights and obligations
of the parties under this Agreement, any such supplemental or amended disclosure
by any party shall not be deemed to have been disclosed as of the date hereof,
to constitute a part of, or an amendment or supplement to, such party's
Disclosure Schedules, or to cure any breach or inaccuracy of a representation or
warranty unless so agreed to in writing by the other party.
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SECTION 5.10 EMPLOYMENT AND EMPLOYEE BENEFITS.
(a) Section 5.10(a) of the Disclosure Schedule sets forth a
list of the Employees who currently render services primarily to or on behalf of
any or all of the Companies or the Company Subsidiaries (the "TARGET
EMPLOYEES"). Buyer shall provide to Seller, no more than sixty Business Days
after the date hereof, but no later than five Business Days prior to the Closing
Date, the names of those Target Employees to whom Buyer or a third-party
administrator utilized by Buyer ("BUYER'S TPA") will offer employment (any
Target Employee who accepts such offer of employment by Buyer being a "BUYER
EMPLOYEE"). Each such offer shall be at a salary or wage generally comparable to
that paid by Seller or its Affiliates immediately prior to the Closing, shall be
for employment in Dallas County, Texas, and shall be effective as of the Closing
Date. With respect to any Target Employee who is not offered employment by Buyer
(other than a Target Employee for whom a retention agreement is assumed in
accordance with Section 5.6), if such Target Employee is terminated by Seller or
its Affiliates without cause within 60 days after the Closing Date, Buyer shall
reimburse Seller and be responsible for the amount of severance required by
Seller's severance arrangements, practices and contracts identified on Section
5.10(a) of the Disclosure Schedule and for obligations under WARN or any similar
state law; provided, however, that Seller and Buyer will cooperate in good faith
to minimize such severance or other obligations to the extent reasonably
practicable, and Seller shall cause SFSC provide notice of termination to such
Target Employees at the time and in the form and manner specified by Buyer. For
the avoidance of doubt, Buyer shall have no obligation with respect to severance
payable to any Target Employee who does not accept an offer of employment by
Buyer or Buyer's TPA made in accordance with the preceding terms of this Section
5.10(a), other than for a Target Employee for whom a retention agreement is
assumed in accordance with Section 5.6. Except as otherwise specifically
provided in this Section 5.10 or Section 5.6, (i) SFSC shall retain liability
for all salary, commissions and other compensation and benefits of any kind due,
and any other liability relating to, any Target Employee on account of
employment by SFSC before the Closing Date (except for obligations for which a
Company is obligated to reimburse SFSC under any of the agreements listed in
Section 3.24 of the Disclosure Schedule) , and (ii) Buyer or Buyer's TPA shall
assume liability for all salary, commissions and other compensation and benefits
of any kind earned on and after the Closing Date by all Buyer Employees.
(b) Subject to the last sentence of Section 5.10(c) Buyer
or Buyer's TPA shall, and shall cause its Subsidiaries (including the Companies
and the Company Subsidiaries), to provide employee benefits for Buyer Employees
("BUYER BENEFIT PLANS") that are at least substantially comparable in the
aggregate to the employee benefits and compensation provided to similarly
situated Persons (i) by Seller or its Affiliates under the Benefit Plans and
compensation arrangements in effect as of the Closing Date or (ii) by Buyer or
Buyer's TPA under its employee benefit plans and compensation arrangements in
effect for its employees; provided, that neither Buyer nor Buyer's TPA shall be
required to grant service credit for service prior to the Closing Date under any
such benefit plans or compensation arrangements. Buyer or Buyer's TPA shall or
shall cause the Companies and the Company Subsidiaries to honor and pay all
accrued and unpaid compensation, including vacation pay, as of the Closing Date
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in respect of the Buyer Employees, except as provided in Section 5.6.
Notwithstanding the foregoing, Buyer shall assume all liabilities and expenses,
and indemnify and hold Seller harmless with respect to Seller's obligations for,
the welfare benefits provided to Employees by Integon Corporation and retiree
medical benefits provided to Employees under the PennCorp Financial Group, Inc.
Retiree Benefit Plan or the Southwestern Financial Services Corporation Retiree
Benefit Plan.
(c) Prior to or effective as of the Closing Date, Seller
shall cause the Companies and the Company Subsidiaries to contribute or accrue
employer matching contributions for the portion of the calendar year prior to
the Closing Date, with respect to all Buyer Employees, and shall immediately
thereafter fully vest all such Buyer Employees' accounts under any 401(k) plan
maintained by Seller or its Affiliates prior to the Closing Date for the benefit
of Buyer 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(c)(4) of the Code,
from any 401(k) plan maintained by Seller or its Subsidiaries prior to the
Closing Date, for the benefit of Buyer Employees.
SECTION 5.11 NONSOLICITATION. Seller hereby agrees that, for a period commencing
on the Closing Date and ending on the second anniversary of the Closing Date, it
shall not, and shall cause its Subsidiaries not to, 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 or any Company Subsidiary; provided, however, that
nothing herein shall prohibit Seller from publishing a general solicitation of
employment in any newspaper, magazine, trade publication or other medium or from
soliciting or hiring any person who was an officer of any of the Companies or
any Company Subsidiary on the Closing Date but whose employment by such Company
or Company Subsidiary thereafter ceases, except as a result of Seller's
solicitation or hiring of such person in violation of the first clause of this
Section 5.11.
SECTION 5.12 ACQUISITION PROPOSALS; RECAPITALIZATION TRANSACTION. From the date
hereof until the earlier of (a) the termination hereof or (b) the filing of a
Chapter 11 Case (in which event the provisions of Section 5.16 shall govern),
and except as expressly permitted by the following provisions of this Section
5.12, Seller will not, nor will it permit any of its Subsidiaries to, nor will
it authorize or permit any officer, director or employee of or any investment
banker, attorney, accountant or other advisor or representative of, Seller or
any of its Subsidiaries to, directly or indirectly, (i) solicit, initiate or
encourage the submission of any Acquisition Proposal or (ii) participate in any
discussions or negotiations regarding, or furnish to any person any information
with respect to any Acquisition Proposal; provided, however, that nothing
contained in this Section 5.12 shall prohibit the Board of Directors of Seller
from furnishing information to, or entering into discussions or negotiations
with, any person that makes an unsolicited bona fide written Acquisition
Proposal if, and only to the extent that (A) such Acquisition Proposal
constitutes a Superior Proposal, or (B) such Acquisition Proposal constitutes a
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Recapitalization Transaction and (C) prior to taking such action, Seller (x)
provides reasonable notice to Buyer to the effect that it is taking such action
and (y) receives from such person an executed confidentiality agreement in
reasonably customary form. Prior to providing any information to or entering
into discussions or negotiations with any person in connection with an
Acquisition Proposal by such person, Seller shall notify Buyer of any
Acquisition Proposal (including, without limitation, the material terms and
conditions thereof and the identity of the person making it) as promptly as
practicable after its receipt thereof, and shall provide Buyer with a copy of
any written Acquisition Proposal or amendments or supplements thereto, and shall
thereafter inform Buyer on a prompt basis of the status of any discussions or
negotiations with such a third party, and any material changes to the terms and
conditions of such Acquisition Proposal, and shall promptly give Buyer a copy of
any information delivered to such person which has not previously been reviewed
by Buyer. Following the commencement of the Chapter 11 Case, this Section 5.12
will be of no further force and effect and the solicitation and acceptance of
competing offers (including Acquisition Proposals) will be governed by Section
5.16 and by the Bankruptcy Court. Nothing in this Section 5.12 (or otherwise in
this Agreement) will restrict the ability of Seller to enter into or continue
discussions or negotiations, or to provide information to appropriate persons in
connection with any contemplated Recapitalization Transaction.
SECTION 5.13 PRE-CLOSING RESTRUCTURING TRANSACTIONS. Seller shall use
commercially reasonable efforts to cause the Pre-Closing Restructuring
Transactions to occur as soon as possible, but in no event later than
immediately prior to (x) the entry of the Sale Procedures Order, in the case of
the transactions contemplated by clauses (i) and (ii) of the definition of
"Pre-Closing Restructuring Transactions," and (y) the Closing Date, in the case
of the transactions contemplated by clauses (iii) and (iv) of such definition.
Following the completion of the Pre-Closing Restructuring Transactions, Seller
shall, to the extent permitted by applicable law, not include or take any action
to include either Company or any of the Company Subsidiaries in any
consolidated, unitary, or combined group of corporations for Tax purposes.
SECTION 5.14 TAX MATTERS.
(a) Except as provided in Section 5.14(c), Buyer shall
prepare or cause to be prepared, and file or cause to be filed, in a manner
consistent with past practice (subject to any departure required to comply with
any applicable law), all Tax Returns for the Companies and the Company
Subsidiaries for all periods ending on or prior to the Closing Date that are
filed after the Closing Date. Except as provided in Section 5.14(c), Buyer shall
be responsible for the payment of Taxes due with respect to such Tax Returns.
(b) Except as provided in Section 5.14(c), Buyer shall
prepare or cause to be prepared, and file or cause to be filed, in a manner
consistent with past practice (subject to any departure required to comply with
any applicable law), all Tax Returns for the Companies and the Company
Subsidiaries for Tax periods that begin before the Closing Date and end after
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the Closing Date. Except as provided in Section 5.14(c), Buyer shall be
responsible for the payment of Taxes due with respect to such Tax Returns.
(c) (i) Seller and its Affiliates shall 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), (A) all consolidated, combined, or
unitary Tax Returns of Seller or its Affiliates that include the Companies or
the Company Subsidiaries for all periods that begin prior to the Closing Date
and (B) all other Tax Returns required to be filed by or on behalf of the
Companies or the Company Subsidiaries on or prior to the Closing Date. Seller
agrees to consult with Buyer with respect to the Tax Returns described in this
Section 5.14(c), and shall deliver drafts of such Tax Returns (or, in the case
of Tax Returns that include the Companies or the Company Subsidiaries, the
portions of such Tax Returns which include the Companies or the Company
Subsidiaries) to Buyer no later than 10 Business Days prior to the date,
including extensions, on which such Tax Returns are required to be filed.
(ii) For any Taxes attributable to a taxable period that
ends on or before the Closing Date, and for which Seller or its Affiliate is
responsible for the preparation of the Tax Return pursuant to this Section
5.14(c), Seller shall pay or cause to be paid all Taxes shown due with respect
to such Tax returns. Seller and Buyer shall, on or before the Closing Date, make
a good faith estimate of the amount of any Tax liability for such period
(calculated on a separate company basis), and, subject to clause (iii), the
Companies and the Company Subsidiaries shall pay such amounts to Seller or its
Affiliate.
(iii) For any Taxes attributable to the Pre-Closing
Restructuring Transactions, Seller shall be responsible for the payment of, and
shall indemnify Buyer and its Affiliates against, such Taxes, including any
Taxes attributable to an audit adjustment. If such Taxes are due with respect to
Tax Returns filed by Buyer pursuant to Sections 5.14(a) or 5.14(b), Buyer shall
deliver drafts of such Tax Returns, or the portions of such Tax Returns which
include the Pre-Closing Restructuring Transactions, to Seller no later than 10
Business Days prior to the date, including extensions, on which such Tax Returns
are required to be filed. In the case of a dispute between Buyer and Seller as
to the proper reporting of the Pre-Closing Restructuring Transactions, Seller's
characterization shall be used, except where a departure is required to comply
with applicable Tax laws. Seller shall pay to Buyer the amount of Taxes
attributable to the Pre-Closing Restructuring Transactions within 15 Business
Days after the date on which such Taxes are paid by Buyer.
(iv) In the event that any Pre-Closing Restructuring
Transaction reduces (A) the Tax basis of the assets, (B) the amount of the Tax
Attributes (other than a reduction resulting from the election contemplated by
the proviso of Section 5.14(j), or (C) the amount of the policyholders surplus
account, in each case of any of the Companies or Company Subsidiaries, Seller
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shall pay to Buyer the reasonably anticipated Tax cost or detriment to Buyer,
the Companies, and Company Subsidiaries of such reduction. Buyer and Seller
shall use their reasonable best efforts to agree on the appropriate amount of
such payment within 60 days of Buyer's written notification to Seller of such
reduction, taking into account reasonable income projections and all other
relevant factors. If the Parties cannot agree on such amount, such dispute shall
be resolved by a law or accounting firm mutually acceptable to the Parties. The
decision of such firm shall be final, and the fees and expenses of such firm
shall be borne equally by Buyer and Seller. Seller's payment shall be made
within 15 days of the earlier of any agreement reached by the Parties and the
Parties = receipt of the decision of the law or accounting firm.
(d) Seller shall allow the Companies and the Company
Subsidiaries and their counsel to participate in any audits of the consolidated
federal income Tax Returns of Seller to the extent that such Tax Returns relate
to the Companies or the Company Subsidiaries. Seller shall not settle any such
audit in a manner that would adversely affect the Companies or the Company
Subsidiaries after the Closing Date without the prior written consent of Buyer,
which consent shall not unreasonably be withheld.
(e) Neither Seller nor any Affiliate of Seller that is a
common parent of any affiliated group that files consolidated returns for
federal income Tax purposes, and of which affiliated group any Company or
Company Subsidiary is a member, shall make an election to retain any net
operating loss carryovers or capital loss carryovers of the Companies or the
Company Subsidiaries under Treas. Reg. Section 1.1502-20(g) or any similar
provision of federal, state, local, or foreign law; except in accordance with
the proviso in Section 5.14(j).
(f) Seller shall immediately pay to Buyer any Tax refund
(or reduction in Tax liability) resulting from a carryback of a post-acquisition
Tax attribute of any of the Companies or the Company Subsidiaries into a
consolidated, combined or unitary Tax Return of any Person, when such refund or
reduction is realized. Seller shall cooperate with the Companies and the Company
Subsidiaries in obtaining such refunds (or reduction in Tax liability),
including through the filing of amended Tax Returns.
(g) Buyer, the Companies, the Company Subsidiaries, and
Seller shall cooperate fully, as and to the extent reasonably requested by the
other Party, in connection with the filing of Tax Returns pursuant to this
Section and any audit, litigation or other proceeding with respect to Taxes.
Such cooperation shall include the retention and (upon the other party's
request) the provision of records and information which are reasonably relevant
to any such audit, litigation or other proceeding and making employees available
on a mutually convenient basis to provide additional information and explanation
of any material provided hereunder. The Companies, the Company Subsidiaries and
Seller agree (A) to retain all books and records with respect to Tax matters
pertinent to the Companies or the Company Subsidiaries relating to any taxable
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period beginning before the Closing Date until the expiration of the statute of
limitations (and, to the extent notified by Buyer or Seller, any extensions
thereof) of the respective taxable periods, and to abide by all record retention
agreements entered into with any taxing authority, and (B) to give the other
party reasonable written notice prior to transferring, destroying or discarding
any such books and records and, if the other party so requests, the Companies
and the Company Subsidiaries or Seller, as the case may be, shall allow the
other party to take possession of such books and records. Buyer and Seller
further agree, upon request, to use their best efforts to obtain any certificate
or other document from any governmental authority or any other Person as may be
necessary to mitigate, reduce or eliminate any Tax that could be imposed
(including, but not limited to, with respect to the transactions contemplated
hereby). Buyer and Seller further agree, upon request, to provide the other
party with all information that either party may be required to report pursuant
to Section 6043 of the Code and all Treasury Department Regulations promulgated
thereunder.
(h) All tax sharing agreements or similar agreements with
respect to or involving the Companies or the Company Subsidiaries shall be
terminated as of the Closing Date and, after the Closing Date, neither Seller
nor the Companies or the Company Subsidiaries shall be bound thereby or have any
liability thereunder.
(i) All transfer, documentary, sales, use, stamp,
registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with this Agreement (including New York City
Transfer Tax and any similar Tax imposed in other states or subdivisions), if
any, shall be paid by Seller when due, and Seller will file all necessary Tax
Returns and other documentation with respect to any such transfer, documentary,
sales, use, stamp, registration and other Taxes and fees, and, if required by
applicable law, Buyer will, and will cause its Affiliates to, join in the
execution of any such Tax Returns and other documentation. Buyer shall reimburse
Seller, within 15 days after the date on which the above Taxes are paid, in an
amount equal to (i) one-half of the Taxes paid pursuant to this Section 5.14(i);
and (ii) one-half of the expenses incurred with respect to the filing of Tax
Returns pursuant to this Section 5.14(i).
(j) Except as otherwise required by law, as occurs in the
ordinary course of business and consistent with past practice, or with the
consent of Buyer, which consent shall not be unreasonably withheld, Seller
covenants and agrees that neither it nor its Affiliates (including the Companies
and the Company Subsidiaries prior to the Closing) shall file or amend any Tax
Return, file any claim for refund, change any method of Tax accounting (except
that certain of Seller's Affiliates have filed or will file Applications for a
Change in Accounting Method with respect to each of the Companies as set forth
in Section 3.9(m) of the Disclosure Schedule), settle or compromise any federal,
state, local, or foreign Tax liability affecting the Companies or the Company
Subsidiaries, or make or change any Tax election with respect to any Tax period,
in each case that may result in any material increased Tax liability of, or
material loss of Tax benefits by, Buyer, the Companies or the Company
Subsidiaries in respect of any Tax period ending after the Closing Date;
provided, however, that Pioneer Security Life Insurance Company, an Affiliate of
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Seller, may elect pursuant to Treasury Regulation 1.1502-20(g) to re-attribute
to itself any portion of the net operating loss carryovers attributable to SLT
in connection with its disposition of the stock of SLT.
(k) Seller shall furnish to Buyer on or before the Closing
Date a certification of Seller's non-foreign status as set forth in Section 1445
of the Code and the Treasury Regulations thereunder.
(l) (i) At Buyer's request (the "REQUEST"), Seller and
Buyer will join in making a timely election or elections under Section
338(h)(10) of the Code and any corresponding elections under state, local or
foreign tax law (collectively, the "SECTION 338(H)(10) ELECTION") with respect
to the purchase and sale of the stock of any of the Companies or Company
Subsidiaries hereunder. Buyer shall make the Request in writing no later than
180 days after the Closing Date. If Buyer does not make the Request that Seller
join in making the Section 338(h)(10) Election, the remainder of the provisions
of this Section 5.14(l) shall not apply.
(ii) Seller, Buyer, and any Company or Company Subsidiary
as to which a Request has been made (a "TARGET COMPANY") shall execute any and
all documents, statements, and other forms that are required to be submitted to
any taxing authority in connection with a Section 338(h)(10) Election (the
"Section 338 Forms") no later than 15 days prior to the date such Section 338
Forms are required to be filed. Seller, Buyer, and the Target Company shall
cause the Section 338 forms to be duly executed by an authorized person for
Seller, Buyer, and the Target Company, in each case, and shall duly and timely
file the Section 338 Forms in accordance with applicable Tax laws and the terms
of this Agreement. Seller and Buyer shall report the purchase of the shares of
stock of a Target Company consistent with any Section 338(h)(10) Election made
with respect to that company and shall take no position contrary thereto unless
and to the extent required to do so pursuant to applicable law.
(iii) Seller and Buyer agree to use their reasonable best
efforts, as soon as practicable after the date of the Request, to enter into an
agreement (the "ALLOCATION AGREEMENT"), to allocate the portion of the Purchase
Price allocable to the purchased shares of each Target Company and the
liabilities of such Target Company to the assets of the Target Company for all
applicable Tax purposes, including the computation of the Modified Aggregate
Deemed Sale Price (as defined under applicable Treasury Regulations and similar
state or local tax provisions) ("MADSP") for the assets of the Target Company.
Buyer shall initially prepare a statement setting forth a proposed computation
and allocation of MADSP (the "COMPUTATION"). Buyer shall submit the Computation
to Seller along with copies of all workpapers, reports, opinions and other
similar documents used to prepare the Computation (the "WORKPAPERS"), no later
than 30 days after the date the Request is made. If, within 30 days of Seller's
receipt of the Computation and the Workpapers, Seller shall not have objected in
writing to such Computation, the Computation shall become the Allocation
Agreement. If Seller objects in writing to the Computation within such 30 days,
Buyer and Seller shall negotiate in good faith to resolve the Computation. If
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Buyer and Seller shall not have agreed to the Computation and adopted an
Allocation Agreement within 30 days after Seller's objection, any disputed
aspects of the Allocation Agreement shall be resolved by an accounting or law
firm mutually acceptable to Seller and Buyer (the "NEUTRAL AUDITORS") as soon as
practicable but in no event later than 30 days prior to the earlier of (i) the
last date on which the Section 338 Forms may be filed or (ii) the last date on
which either Buyer or Seller (whichever is earlier) must file a Tax return
relating to the transactions contemplated hereby. The decision of the Neutral
Auditors shall be final, and the costs, expenses and fees of the Neutral
Auditors shall be borne equally by Seller and Buyer. Seller and Buyer shall not
take a position before any taxing authority or otherwise (including in any Tax
Return) inconsistent with the Allocation Agreement unless and to the extent
required to do so pursuant to applicable law.
(iv) Buyer, the Companies and the Company Subsidiaries
shall be liable for, and shall indemnify and hold Seller harmless against, any
net incremental Taxes (including Phase III Taxes, interest and penalties
associated with such election) or other costs to Seller as a consequence of the
Section 338(h)(10) Election, including, but not limited to, any audit adjustment
relating to the Section 338(h)(10) Election and the allocations reported in
accordance with Section 5.14(l)(iii) of this Agreement.
SECTION 5.15 FINANCIAL MATTERS. Not later than two business days after the
filing thereof with the applicable regulatory authorities, Seller shall cause
the Companies to deliver to Buyer true and complete copies of the Annual Report
for each Company for the year ended December 31, 1999 and the Quarterly Reports
for each Company for each calendar quarter thereafter, including all exhibits,
interrogatories, notes and schedules thereto and any actuarial opinion,
affirmation or certification filed in connection therewith (the "POST-SIGNING
SAP FINANCIAL STATEMENTS"). In addition, Seller shall, as promptly as
practicable, provide to Buyer all internally prepared management reports and all
other financial data and other information relating to the Companies reasonably
requested by Buyer.
SECTION 5.16 BANKRUPTCY COURT APPROVAL.
(a) On or before two Business Days after the commencement
of the Chapter 11 Case, Seller shall file a motion or motions with the
Bankruptcy Court seeking entry of (i) the Approval Order (as defined in Section
5.16(d)) approving, inter alia, the sale of the Estate Property (as defined in
Section 5.16(d)) to Buyer pursuant to section 363 of the Bankruptcy Code,
subject to higher and better offers and (ii) an order, in form and substance
reasonably satisfactory to Buyer and Seller (the "SALE PROCEDURES ORDER"), (A)
approving the Termination Amount and the Bankruptcy Termination Amount and
providing that, in the event the obligation of Seller to pay Buyer either the
Termination Amount or the Bankruptcy Termination Amount arises, such obligation
will constitute an administrative expense under Sections 503(b) and 507(a)(1) of
the Bankruptcy Code and will be payable in accordance with the provisions of
Section 9.1 of this Agreement without further order of the Bankruptcy Court, (B)
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establishing procedures for the submission of competing offers, including,
without limitation, that a competing offer, whether a proposed Recapitalization
Transaction or a proposed purchase of the Shares, will not be considered to be a
higher and better offer unless, at a minimum, such offer provides for aggregate
consideration of at least $7,000,000 in excess of the Purchase Price and is
otherwise a Superior Proposal and (C) scheduling a hearing to consider entry of
the Approval Order and providing that notice of such hearing be given to all of
Seller's creditors and interest holders of record. Buyer and Seller agree to
make promptly any filings, to take all actions and to use their reasonable best
efforts to obtain entry of the Sale Procedures Order, entry of the Approval
Order and any and all other approvals and orders necessary or appropriate for
the consummation of the transactions contemplated hereby.
(b) Prior to entry of the Approval Order, Seller and Buyer
will accurately inform the Bankruptcy Court of all material facts of which it is
aware relating to this Agreement and the transactions contemplated hereby.
(c) If the Approval Order, Sale Procedures Order or any
other orders of the Bankruptcy Court relating to this Agreement shall be
appealed by any party (or a petition for certiorari or motion for hearing or
reargument shall be filed with respect thereto), Seller agrees to take all steps
as may be reasonable and appropriate to defend against such appeal, petition or
motion, and Buyer agrees to cooperate in such efforts, and each party hereto
agrees to use its reasonable best efforts to obtain an expedited resolution of
such appeal; provided, however, that nothing herein shall preclude the parties
hereto from consummating the transactions contemplated herein if the Approval
Order shall have been entered and have not been stayed and Buyer, in its sole
discretion, waives the requirement that the Approval Order be a Final Order.
(d) Prior to Closing, the sale of the Shares (the "Estate
Property") to Buyer pursuant to this Agreement and the other transactions
contemplated by this Agreement shall have been approved by order of the
Bankruptcy Court pursuant to section 363 of the Bankruptcy Code, in form and
substance reasonably acceptable to Seller and Buyer (the "Approval Order") and
the Approval Order shall have been entered and become a Final Order. Buyer and
Seller agree to use their reasonable best efforts to cause the Bankruptcy Court
to enter an Approval Order which contains, among other provisions reasonably
requested by Buyer, the following provisions (it being understood that certain
of such provisions may be contained in either the findings of fact or
conclusions of law to be made by the Bankruptcy Court as part of the Approval
Order): (i) the transfers of the Estate Property by Seller to Buyer (A) are or
will be legal, valid and effective transfers of the Estate Property; (B) vest or
will vest Buyer with all right, title and interest of Seller to the Estate
Property free and clear of all Liens and claims pursuant to Section 363(f) of
the Bankruptcy Code (other than Liens created by Buyer); and (C) constitute
transfers for reasonably equivalent value and fair consideration under the
Bankruptcy Code and the laws of the State of Texas and Delaware; (ii) all
amounts to be paid to Buyer pursuant to this Agreement constitute administrative
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expenses under sections 503(b) and 507(a)(1) of the Bankruptcy Code and are
immediately payable if and when the obligations of Seller arise under this
Agreement, without any further order of the Bankruptcy Court; provided, however,
that Seller shall have the right to contest the validity and amount of such
asserted claims; (iii) all Persons are enjoined from taking any action against
Buyer, Buyer's Affiliates (as they existed immediately prior to the Closing) or
the Companies to recover any claim which such Person has solely against Seller
or its Affiliates (as they existed immediately following the Closing); (iv) the
satisfaction of the intercompany indebtedness and the termination of the
affiliate transactions as referred to in SECTION 5.18 hereof are approved; (v)
the obligations of Seller relating to Taxes shall be fulfilled by Seller; (vi)
the Bankruptcy Court retains exclusive jurisdiction through the Bankruptcy
Resolution Date to interpret and enforce the provisions of this Agreement, the
Sale Procedures Order and the Approval Order in all respects; provided, however,
that in the event the Bankruptcy Court abstains from exercising or declines to
exercise jurisdiction with respect to any matter provided for in this clause
(vi) or is without jurisdiction, such abstention, refusal or lack of
jurisdiction shall have no effect upon and shall not control, prohibit or limit
the exercise of jurisdiction of any other court having competent jurisdiction
with respect to any such matter; (vii) the provisions of the Approval Order are
nonseverable and mutually dependent; and (viii) the transactions contemplated by
this Agreement are undertaken by Buyer and Seller at arm's length, without
collusion and in good faith within the meaning of section 363(m) of the
Bankruptcy Code, and such parties are entitled to the protections of section
363(m) of the Bankruptcy Code.
(e) Seller shall cooperate reasonably with Buyer and its
representatives in connection with the Approval Order, the Sales Procedures
Order and the bankruptcy proceedings in connection therewith. Such cooperation
shall include, but not be limited to, consulting with Buyer at Buyer's
reasonable request concerning the status of such proceedings and providing Buyer
with copies of requested pleadings, notices, proposed orders and other documents
relating to such proceedings as soon as reasonably practicable prior to any
submission thereof to the Bankruptcy Court. Seller further covenants and agrees
that the terms of any plan submitted by Seller to the Bankruptcy Court for
confirmation shall not conflict with, supersede, abrogate, nullify or restrict
the terms of this Agreement, or in any way prevent or interfere with the
consummation or performance of the transactions contemplated by this Agreement
including, without limitation, any transaction that is contemplated by or
approved pursuant to the Approval Order and the Sales Procedures Order.
SECTION 5.17 SPECIFIC ENFORCEMENT OF COVENANTS. Seller acknowledges that
irreparable damage would occur in the event that any of the covenants and
agreements of Seller set forth in this Article V or in any other part of this
Agreement were not timely performed in accordance with their specific terms or
were otherwise breached. It is accordingly agreed that Buyer shall be entitled
to an injunction or injunctions to prevent or cure any breach of such covenants
and agreements of Seller and to enforce specifically the terms and provisions
thereof, this being in addition to any other remedy to which it may be entitled
at law or in equity, it being understood that, after commencement of the Chapter
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11 Case, the Bankruptcy Court shall have exclusive jurisdiction over such
matters; provided, however, that in the event the Bankruptcy Court abstains from
exercising or declines to exercise jurisdiction with respect to any matter
provided for in this sentence or is without jurisdiction, such abstention,
refusal or lack of jurisdiction shall have no effect upon and shall not control,
prohibit or limit the exercise of jurisdiction of any other court having
competent jurisdiction with respect to any such matter.
SECTION 5.18 INTERCOMPANY INDEBTEDNESS AND TRANSACTIONS; BROKERS AND
FINDERS FEES.
(a) Seller will cause all indebtedness owed to either
Company by Seller or any of its Affiliates (other than the Companies and the
Company Subsidiaries and other than the American-Amicable Notes) to be paid in
full prior to Closing, or the Purchase Price shall be reduced by the amount of
such indebtedness remaining unpaid at Closing.
(b) All other contracts, agreements, obligations,
commitments and liabilities between any of the Companies or any Company
Subsidiary and Seller or its Affiliates (other than the Companies and the
Company Subsidiaries) shall be terminated prior to the Closing without any
payment by any of the Companies or any Company Subsidiary other than (i)
payments made consistent with past practice in accordance with the agreements or
arrangements described in Section 3.24 of the Disclosure Schedule and (ii) with
respect to services subcontracted to an unaffiliated third party under such
other contracts, agreements, obligations, commitments and liabilities, such
portion as is reasonably allocable to the Companies and the Company Subsidiaries
of any early termination fee payable to such unaffiliated third party under a
termination provision identified in Section 5.18(b) of the Disclosure Schedule.
Not later than 30 days following the Closing, Seller shall prepare and submit to
Buyer a computation of amounts owing to Seller or any of its Affiliates (other
than the Companies or Company Subsidiaries) consistent with past practice in
accordance with such agreements or arrangements as of the Closing Date. Buyer
shall pay such amounts to Seller not later than 15 days following its receipt of
such computation, together with reasonably detailed documentation supporting the
allocation of any portion of an early termination fee to the Companies and the
Company Subsidiaries. Buyer and Seller will work together in good faith to
minimize any early termination fees payable hereunder.
(c) Any fees or expenses incurred by Seller or any
Affiliate of Seller payable with respect to any Person for acting as broker,
finder or in any other similar capacity in connection with the transactions
contemplated by this Agreement shall be the responsibility of Seller.
SECTION 5.19 PORTSMOUTH. Prior to the Closing, Seller shall take any and all
steps necessary to assure that neither Company nor any Company Subsidiary owns
or holds any shares of capital stock of Portsmouth Financial Group, Inc.
("PORTSMOUTH"). If no cash consideration is received by SWLIC upon the
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disposition of the shares of preferred stock of Portsmouth currently held by
SWLIC, the Purchase Price shall be reduced by Five Million Three Hundred
Thousand and No/100 Dollars ($5,300,000.00) (the "PORTSMOUTH PREFERRED AMOUNT").
If the cash consideration received by SWLIC upon such disposition is less than
the Portsmouth Preferred Amount, the Purchase Price shall be reduced by the
amount of the shortfall. If the cash consideration received by SWLIC upon such
disposition is greater than the Portsmouth Preferred Amount, the Purchase Price
shall be increased by the amount of the excess.
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) all authorizations, consents and approvals of any
Governmental Authority contemplated by Sections 3.6, 4.4 and 5.16(a), including
the 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 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, which are not consented to by Buyer;
(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) (i) each of the obligations of Seller required to be
performed by it at or prior to the Closing pursuant to this Agreement shall have
been duly performed and complied with in all material respects, (ii) the
representations and warranties of Seller contained in this Agreement shall be
true at and as of the Closing Date, as if made at and as of such date (without
giving effect to any materiality or Material Adverse Effect qualifications or
exceptions contained therein), except for those representations and warranties
made as of a specified date, which shall be true and correct as of the date
specified (without giving effect to any materiality or Material Adverse Effect
qualifications or exceptions contained therein); provided, that this condition
(ii) shall be deemed satisfied if any inaccuracies in any of such
representations and warranties at and as of the applicable date (without giving
effect to any materiality or Material Adverse Effect qualifications or
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exceptions contained therein) would not, individually or in the aggregate, have
or reasonably be expected to have a Material Adverse Effect, and (iii) Buyer
shall have received a certificate to that effect signed by a senior officer of
Seller;
(e) all consents of third parties identified on Section
6.1(e) of the Disclosure Schedule shall have been obtained;
(f) the Liens in favor of The Bank of New York, as
administrative agent, as disclosed in the Disclosure Schedule, shall have been
released concurrently with or prior to the Closing;
(g) the Approval Order shall have been entered and, shall
be in form and substance reasonably satisfactory to Buyer, and shall have become
a Final Order;
(h) Seller shall have provided to Buyer documentation
reasonably evidencing Seller's fulfillment of the requirements of Section 5.18;
(i) each of the Pre-Closing Restructuring Transactions
shall have been completed or otherwise provided for to the reasonable
satisfaction of Buyer;
(j) Seller 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 Seller is not a foreign person within the meaning of such
section;
(k) Seller shall have caused SFSC to obtain the consent of
the landlord to assign the real property lease for the Maxus Energy Tower,
located at 717 North Harwood St., Dallas, Texas to Buyer or to Buyer's TPA;
(l) No act, event or condition shall have occurred after
the date hereof which has had or would reasonably be expected to have a Material
Adverse Effect;
(m) Pacific Life and Accident Insurance Company ("PLAIC")
shall have executed and delivered to a reinsurance agreement containing economic
terms acceptable to Buyer and otherwise in a form acceptable to Buyer (the
"PLAIC REINSURANCE AGREEMENT") with respect to all of the remaining business of
PLAIC; provided, however, that prior to the Closing, Seller shall have caused
the administration of all of PLAIC's business to be converted to the CyberLife
systems of Buyer's TPA at PLAIC's sole expense; and
(n) Each Company and each Company Subsidiary (each, a
"RELEASING PARTY") shall have executed and delivered a release in a form
reasonably satisfactory to Seller and Buyer under which each Company and each
Company Subsidiary shall release and forever discharge each existing officer and
director (the "RELEASEES") of each Releasing Party from any and all claims,
demands, proceedings, causes of actions, obligations, damages, debts and
liabilities whatsoever, whether known or unknown, suspected or unsuspected, both
at law and in equity (collectively, "CLAIMS"), which such Releasing Parties then
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have, have ever had or may hereafter have against the Releasees on account of or
arising out of any matter with respect to the operations or conduct of the
business of any of the Releasing Parties; provided, however, that nothing
contained herein shall operate to release any Claim based on such Releasee's
embezzlement or similar intentional misconduct.
SECTION 6.2 CONDITIONS TO THE OBLIGATIONS OF SELLER UNDER THIS AGREEMENT. The
obligation of Seller 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 of any
Governmental Authority contemplated by Sections 3.6 and 4.4 and 5.16(a),
including the Insurance Approvals, the Buyer Approvals and the Approval Order
shall have been obtained and shall be in full force and effect;
(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) (i) each of the obligations of Buyer required to be
performed by it at or prior to the Closing pursuant to this Agreement shall have
been duly performed and complied with in all material respects, (ii) the
representations and warranties of Buyer contained in this Agreement shall be
true at and as of the Closing Date, as if made at and as of such date (without
giving effect to any materiality or Buyer Material Adverse Effect qualifications
or exceptions contained therein), except for those representations and
warranties made as of a specified date, which shall be true and correct as of
the date specified (without giving effect to any materiality or Buyer Material
Adverse Effect qualifications or exceptions contained therein); provided, that
this condition (ii) shall be deemed satisfied if any inaccuracies in any of such
representations and warranties at and as of the applicable date (without giving
effect to any materiality or Buyer Material Adverse Effect qualifications or
exceptions contained therein) would not, individually or in the aggregate, have
or reasonably be expected to have a Buyer Material Adverse Effect, and (iii)
Seller shall have received a certificate to that effect signed by a senior
officer of Buyer;
(e) the Approval Order shall have been entered, shall be in
form and substance reasonably satisfactory to Seller and shall have become a
Final Order; and
(f) Buyer shall have executed and delivered to PLAIC the
PLAIC Reinsurance Agreement.
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ARTICLE VII
CLOSING
SECTION 7.1 CLOSING. The closing of the Closing Transactions (the "CLOSING")
shall take place at the offices of Sutherland Asbill & Brennan LLP, at 350 Park
Ave., New York, NY 10022, 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 the first anniversary of the date of
this Agreement, or at such other time and place and on such other date as Buyer
and Seller shall agree (the "CLOSING DATE"). As a further condition to Closing,
at the Closing:
(a) Seller 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 or Buyer's
designee (as appropriate) duly endorsed in blank or
accompanied by stock powers duly executed in blank;
(iii) resignations of the directors of each of the
Companies and the Company Subsidiaries;
(iv) an Assignment and Assumption of Lease executed by
SFSC and the landlord under the lease for the Maxus
Energy Tower, 717 North Harwood St., Dallas, Texas in
a form reasonably acceptable to Buyer (the
"ASSIGNMENT AND ASSUMPTION OF LEASE");
(v) an Assignment and Assumption of the CYBERTEK
Corporation License Agreement executed by SWFS and
SLT (the "ASSIGNMENT OF LICENSE AGREEMENT"), in a
form reasonably acceptable to Buyer; and
(vi) an Assignment and Assumption of the rights and
obligations of SWFS under all other contracts
(including any contracts unknowingly and
unintentionally omitted from Section 3.12(c) of the
Disclosure Schedule) of SWFS entered into in the
ordinary course of business, which (A) are terminable
by SWFS within two years without penalty and (B) in
the case of any such individual contract, do not
provide for payments by SWFS of more than $50,000 in
any single year and, in the case of all such
contracts in the aggregate, do not provide for
payments by SWFS of more than $400,000 in any single
year, executed by SWFS (the "ASSIGNMENT AND
ASSUMPTION OF OTHER CONTRACTS") in a form reasonably
acceptable to Buyer.
(b) Buyer shall deliver or cause to be delivered to Seller
the following:
(i) the certificate described in Section 6.2(d);
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(ii) the Assignment and Assumption of Lease executed by
Buyer or Buyer's TPA;
(iii) the Assignment of License Agreement executed by
Buyer; and
(iv) the Assignment and Assumption of Other Contracts
executed by Buyer.
(c) Buyer shall pay or shall cause to be paid to Seller, by
wire transfer of immediately available funds to such account or accounts as
Seller shall have designated in writing at least two days prior to the Closing
Date, the Purchase Price.
ARTICLE VIII
SURVIVAL
SECTION 8.1 SURVIVAL. The covenants, agreements, representations and warranties
of the parties hereto contained in this Agreement shall not survive the Closing;
provided, that the covenants and agreements that, by their terms, are to have
effect or to be performed after the Closing Date shall survive in accordance
with their terms.
ARTICLE IX
FURTHER AGREEMENTS AND TERMINATION
SECTION 9.1 CERTAIN PAYMENTS.
(a) TERMINATION PAYMENT. In the event this Agreement is
terminated pursuant to Section 9.2(b)(i), Section 9.2(c)(iii), Section
9.2(c)(iv) (in a case in which Seller is in material default or material breach
of this Agreement, or where a representation or warranty made as of the date
hereof is shown to have been inaccurate as of the date hereof, subject to the
other terms and conditions of Section 9.2(c)(iv) regarding such inaccuracy),
Section 9.2(d)(ii) or Section 9.2(d)(iii) of this Agreement, or in the event
that this Agreement is terminated by Seller pursuant to Section 9.2(b)(iv) of
this Agreement, then in any such case Seller shall be obligated to pay Buyer, in
cash, the sum of $5,200,000 plus an amount (not to exceed $800,000) equal to
Buyer's reasonable out of pocket expenses (including but not limited to
reasonable attorney's fees and expenses) incurred in connection with the
negotiation or performance of this Agreement or its due diligence investigation
of the Companies in connection with this Agreement (such sum being the
"TERMINATION AMOUNT"). The Termination Amount shall be paid immediately upon the
termination of this Agreement.
(b) BANKRUPTCY TERMINATION PAYMENTS. In the event this
Agreement is terminated pursuant to Section 9.2(b)(ii) of this Agreement, Seller
shall be obligated to pay to Buyer, in cash, the sum of $5,200,000 plus an
amount (not to exceed $800,000) equal to Buyer's reasonable out of pocket
expenses (including but not limited to reasonable attorney's fees and expenses)
incurred in connection with the negotiation or performance of this Agreement or
53
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its due diligence investigation of the Companies in connection with this
Agreement (such sum being the "SECTION 9.2(B)(II) AMOUNT"), which amount shall
be payable no later than the earlier of (i) the consummation of the
Recapitalization Transaction or sale of either Company or all or substantially
all of the assets of either Company to a Person other than Buyer or an Affiliate
of Buyer, (ii) the effective date of a plan of any plan of reorganization
confirmed in the Chapter 11 Case, (iii) the dismissal of the Chapter 11 Case,
and (iv) the conversion of the Chapter 11 Case to a case under title 7 of the
Bankruptcy Code. In the event this Agreement is terminated pursuant to Section
9.2(c)(i) or Section 9.2(c)(ii) of this Agreement, then (i) Seller shall be
obligated to pay Buyer, immediately upon such termination of this Agreement, an
amount (not to exceed $800,000) equal to Buyer's reasonable out of pocket
expenses (including but not limited to reasonable attorney's fees and expenses)
incurred in connection with the negotiation or performance of this Agreement or
its due diligence investigation of the Companies in connection with this
Agreement, and (ii) if, within nine (9) months following such termination of
this Agreement, Seller or the Companies consummate a Recapitalization
Transaction or sale of either Company or all or substantially all of the assets
of either Company to a Person other than Buyer or an Affiliate of Buyer, then
Seller shall be obligated to pay to Buyer, immediately upon the consummation of
such transaction, an amount equal to $5,200,000 (the sum of (i) and (ii) being
the "ALTERNATIVE TERMINATION AMOUNT," with the Section 9.2(b)(ii) Amount and the
Alternative Termination Amount being referred to herein collectively as the
"BANKRUPTCY TERMINATION AMOUNT.")
SECTION 9.2 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 Seller and Buyer;
(b) by either of Seller or Buyer:
(i) if a Chapter 11 Case is not commenced on or before
the date that is 30 days following the date of this
Agreement and, as of the time that the terminating
party provides the other party with notice of such
termination of this Agreement, the Chapter 11 Case
has not been commenced; provided, that no termination
under this Section 9.2(b)(i) shall be effective until
the Termination Amount shall have been paid to Buyer;
(ii) if, following the commencement of a Chapter 11 Case,
the Bankruptcy Court approves a Recapitalization
Transaction or a sale of either Company or all or
substantially all of the assets of either Company to
a Person other than Buyer or an Affiliate of Buyer;
(iii) 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
54
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order, decree, ruling or other action shall have
become final and nonappealable;
(iv) if the Closing shall not have occurred on or before the first anniversary
of the date of this Agreement;
(c) by Buyer:
(i) if the Sale Procedures Order shall not have been
entered by the Bankruptcy Court within 20 days of the
filing of the bankruptcy petition by Seller and, as
of the time of such termination of this Agreement,
the Sales Procedures Order has not been entered by
the Bankruptcy Court;
(ii) if the Approval Order has not been entered by the
Bankruptcy Court within 50 days of the filing of the
bankruptcy petition by Seller and, as of the time of
such termination of this Agreement, the Approval
Order has not been entered by the Bankruptcy Court;
(iii) if a supervisor, conservator, rehabilitator,
liquidator, receiver or other Person in a similar
capacity shall be appointed for either Company or a
cease-and-desist order is entered, and in the case of
a cease-and-desist order, such cease-and-desist order
is not overturned, vacated or reversed within three
Business Days of the entry of such order, with
respect to either Company; or
(iv) if a material default or material breach shall be
made by Seller with respect to the due and timely
performance of any of its covenants or agreements
contained herein, or if its representations or
warranties contained in the Agreement shall have
become inaccurate (without giving effect to any
materiality or Material Adverse Effect qualifications
or exceptions contained therein) and such inaccuracy
has had or would be reasonably likely to have a
Material Adverse Effect, if such default, breach or
inaccuracy has not been cured or waived within 30
days after written notice to Seller specifying, in
reasonable detail, such claimed default, breach or
inaccuracy and demanding its cure or satisfaction.
(d) by Seller:
(i) 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 if its representations or warranties
contained in the Agreement shall have become
inaccurate (without giving effect to any materiality
or Material Adverse Effect qualifications or
exceptions contained therein) and such inaccuracy has
had or would be reasonably likely to have a Buyer
Material Adverse Effect, if such default, breach or
inaccuracy has not been cured or waived within 30
55
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days after written notice to Buyer specifying, in
reasonable detail, such claimed default, breach or
inaccuracy and demanding its cure or satisfaction;
(ii) if prior to the commencement of a Chapter 11 Case,
the Board of Directors of Seller authorizes Seller,
subject to complying with the terms of this
Agreement, to enter into a binding written agreement
concerning a transaction that constitutes a Superior
Proposal and Seller notifies Buyer in writing that it
intends to enter into such an agreement, attaching
the most current version of such agreement to such
notice and during the five-day period after Seller's
notice, (A) Seller shall have offered to Buyer the
opportunity to make such adjustments in the terms and
conditions of its offer such that any third party
Acquisition Proposal no longer continues to be a
Superior Proposal and (B) Seller shall have
reasonably concluded, upon the termination of such
five day period, that any Acquisition Proposal giving
rise to Seller's notice continues to be a Superior
Proposal; provided, that no termination under this
Section 9.2(d)(ii) shall be effective until the
Termination Amount shall have been paid to Buyer; or
(iii) if, prior to the commencement of a Chapter 11 Case,
the Board of Directors of Seller authorizes Seller to
enter into a binding written agreement for a
Recapitalization Transaction; provided, that no
termination under this Section 9.2(d)(iii) shall be
effective until the Termination Amount shall have
been paid to Buyer.
SECTION 9.3 PROCEDURE AND EFFECT OF TERMINATION. In the event of termination and
abandonment of the transactions contemplated hereby pursuant to Section 9.2,
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 Sections 9.1, this Section 9.3 and Section 9.4
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; provided, however, that in
the event Buyer is entitled to receive the Termination Amount or the Bankruptcy
Termination Amount, the right of Buyer to receive such amount shall constitute
Buyer's sole remedy for (and such amount shall constitute liquidated damages in
56
<PAGE>
respect of) any breach by Seller of any of its representations, warranties,
covenants or agreements set forth in this Agreement.
SECTION 9.4 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 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 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, (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 9.4; provided, further, that
this Section 9.4 shall not in any way limit the disclosure of information by
Seller (a) in connection with the commencement and prosecution of a Chapter 11
Case or (b) regarding the Companies or their Businesses (i) to other bidders or
potential bidders to the extent specifically permitted by this Agreement or (ii)
following the termination of this Agreement.
ARTICLE X
MISCELLANEOUS PROVISIONS
SECTION 10.1 AMENDMENT AND MODIFICATION. This Agreement may only be amended,
modified or supplemented by a written instrument signed by all the parties
hereto.
SECTION 10.2 WAIVER OF COMPLIANCE; CONSENTS. Any failure of Buyer to comply with
any obligation, covenant, agreement or condition contained herein may be waived
in writing by Seller, 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 Seller 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.
57
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SECTION 10.3 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 10.4 EXPENSES AND OBLIGATIONS. Except as specifically set forth in this
Agreement, whether or not the transactions contemplated by this Agreement are
consummated, all costs and expenses incurred in connection with this Agreement
and the transactions contemplated hereby shall be paid by the party incurring
such costs and expenses. For the avoidance of doubt, the cost of Seller's
attorneys, accountants, actuaries and other consultants shall be borne by Seller
and not by either of the Companies.
SECTION 10.5 PARTIES IN INTEREST. This Agreement shall be binding upon and inure
solely to the benefit of each party hereto and their successors and assigns.
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.
SECTION 10.6 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given upon the earlier of delivery thereof if by
hand or upon receipt if sent by mail (registered or certified, postage prepaid,
return receipt requested) or on the second next Business Day after deposit if
sent by a recognized overnight delivery service or upon transmission if sent by
telecopy or facsimile transmission (with electronic acknowledgment of
transmission confirmed) as follows:
(a) If to Buyer or, after the Closing, any of the
Companies, to:
Swiss Re Life & Health America Inc.
969 High Ridge Road
Stamford, CT 06905
Attention: General Counsel
Facsimile No.: 203-968-0920
with copies to:
Sutherland Asbill & Brennan LLP
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
Attention: David A. Massey
Facsimile No.: 202-637-3593
Lord, Bissell & Brook
115 South LaSalle Street
Chicago, IL 60603
Attention: Margaret M. Anderson
Facsimile No.: 312-443-0336
58
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(b) If to Seller, 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
767 Fifth Avenue
New York, NY 10153
Attention: Thomas A. Roberts
Facsimile No.: (212) 310-8007
SECTION 10.7 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to contracts to be
performed within that state.
SECTION 10.8 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement.
SECTION 10.9 HEADINGS. The article and section headings contained in this
Agreement are solely for the purpose of reference, are not part of the agreement
of the parties and shall not affect in any way the meaning or interpretation of
this Agreement.
SECTION 10.10 ENTIRE AGREEMENT. This Agreement, the Disclosure Schedule, the
Annexes hereto and the Confidentiality Agreement dated June 23, 1999 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 between the parties
(other than the Confidentiality Agreement referenced above) with respect to such
subject matter.
SECTION 10.11 ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of the parties and their respective successors, permitted assigns and
legal representatives. Unless otherwise provided herein, neither this Agreement
nor any right or obligation hereunder may be assigned by any party (in whole or
in part) without the prior written consent of the other parties hereto.
59
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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.
REASSURE AMERICA LIFE INSURANCE COMPANY
By: /s/ Jacques E. Dubois
---------------------------------------------
Name: Jacques E. Dubois
Title: Chairman and Chief Executive Officer
PENNCORP FINANCIAL GROUP, INC.
By: /s/ Keith A. Maib
---------------------------------------------
Name: Keith A. Maib
Title: President and Chief Executive Officer
60
Exhibit 10.2
STOCK PURCHASE AGREEMENT
BETWEEN
PIONEER-OCCIDENTAL HOLDINGS COMPANY
AND
AMERICAN-AMICABLE HOLDINGS CORPORATION
Dated January 8, 2000
C:\WINDOWS\TEMP\3n$g23.DOC
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Article I DEFINITIONS ...........................................................................................1
SECTION 1.1. Definitions.....................................................................1
SECTION 1.2. Other Definitions...............................................................6
Article II THE ACQUISITION..........................................................................................7
SECTION 2.1. Purchase and Sale of Shares.....................................................7
SECTION 2.2. Consideration for the Shares....................................................7
Article III REPRESENTATIONS AND WARRANTIES OF SELLER..................................................8
SECTION 3.1. Organization and Qualification..................................................9
SECTION 3.2. Authorization...................................................................9
SECTION 3.3. No Violation....................................................................9
SECTION 3.4. Capitalization of Pioneer......................................................10
SECTION 3.5. Subsidiaries...................................................................10
SECTION 3.6. Consents and Approvals.........................................................11
SECTION 3.7. Financial Statements...........................................................11
SECTION 3.8. Absence of Undisclosed Liabilities.............................................12
SECTION 3.9. Absence of Certain Changes.....................................................12
SECTION 3.10. Litigation..........................................................................13
SECTION 3.11. Property; Liens and Encumbrances....................................................13
SECTION 3.12. Certain Agreements..................................................................14
SECTION 3.13. Employee Benefits...................................................................14
SECTION 3.14. Taxes15
SECTION 3.15. Compliance with Applicable Law......................................................17
SECTION 3.16. Brokers' Fees and Commissions.......................................................17
SECTION 3.17. Proprietary Rights..................................................................17
SECTION 3.18. Insurance...........................................................................18
SECTION 3.19. Environmental Matters...............................................................18
SECTION 3.20. Books and Records...................................................................18
SECTION 3.21. Bank Accounts.......................................................................18
SECTION 3.22. Labor Matters.......................................................................19
SECTION 3.23. Year 2000 Compliance................................................................19
SECTION 3.24. Termination of Intercompany Agreements..............................................20
i
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Article IV REPRESENTATIONS AND WARRANTIES OF BUYER.................................................................20
SECTION 4.1. Organization; Qualifications and Operations....................................20
SECTION 4.2. Authorization..................................................................20
SECTION 4.3. No Violation...................................................................20
SECTION 4.4. Consents and Approvals.........................................................21
SECTION 4.5. Brokers' Fees and Commissions..................................................21
SECTION 4.6. Purchase for Investment........................................................21
SECTION 4.7. Financing......................................................................21
Article V COVENANTS .........................................................................................21
SECTION 5.1. Conduct of Business Prior to the Closing.......................................21
SECTION 5.2. Access to Information..........................................................23
SECTION 5.3. HSR Act Filings................................................................23
SECTION 5.4. Regulatory Approvals...........................................................24
SECTION 5.5. All Reasonable Efforts.........................................................24
SECTION 5.6. Public Announcements...........................................................24
SECTION 5.7. Disclosure Supplements.........................................................24
SECTION 5.8. No Implied Representations or Warranties.......................................25
SECTION 5.9. Employment and Employee Benefits...............................................25
SECTION 5.10. Acquisition Proposal................................................................26
SECTION 5.11. Bankruptcy Court Approval...........................................................26
SECTION 5.12. Consulting..........................................................................28
SECTION 5.13. Allocation of Purchase Price........................................................28
Article VI CLOSING CONDITIONS ...............................................................................28
SECTION 6.1. Conditions to the Obligations of Buyer under this Agreement....................28
SECTION 6.2. Conditions to the Obligations of Seller under this Agreement...................30
Article VII CLOSING..................................................................................30
SECTION 7.1. Closing........................................................................30
Article VIII SURVIVAL.................................................................................31
SECTION 8.1. Survival of Representations, Warranties and Covenants..........................31
Article IX TERMINATION AND ABANDONMENT.............................................................................31
SECTION 9.1. Termination Payment............................................................31
SECTION 9.2. Termination....................................................................32
SECTION 9.3. Procedure and Effect of Termination............................................34
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SECTION 9.4. No Default.....................................................................35
Article X MISCELLANEOUS PROVISIONS................................................................................35
SECTION 10.1. Amendment and Modification..........................................................35
SECTION 10.2. Waiver of Compliance; Consents......................................................35
SECTION 10.3. Severability........................................................................35
SECTION 10.4. Expenses and Obligations............................................................35
SECTION 10.5. Parties in Interest.................................................................35
SECTION 10.6. Notices.............................................................................36
SECTION 10.7. Governing Law.......................................................................36
SECTION 10.8. Counterparts........................................................................37
SECTION 10.9. Headings............................................................................37
SECTION 10.10. Entire Agreement....................................................................37
SECTION 10.11. Assignment..........................................................................37
SECTION 10.12. Third Party Beneficiaries...........................................................37
SECTION 10.13. Construction........................................................................37
Article XI TAX MATTERS.............................................................................................37
SECTION 11.1. Tax Sharing Agreements..............................................................37
SECTION 11.2. Preparation of Tax Returns; Payment of Taxes........................................37
SECTION 11.3. Special Provisions Affecting Security Life..........................................38
SECTION 11.4. Post-Closing Elections..............................................................38
</TABLE>
Annex A Disclosure Schedule
Annex B Bank of America Commitment Letter
Annex C Bank of America "Highly Confident" Letter
Annex D Thoma Cressey Equity Partners Commitment Letter
Annex E NOL Formula
Annex F Certain Assets
Annex G Restructuring Transactions
iii
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STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT (this "Agreement") dated January 8, 2000
(the "Execution Date"), by and between Pioneer-Occidental Holdings Company, a
Delaware corporation, ("Buyer"), and American-Amicable Holdings Corporation, a
Delaware corporation ("Seller").
RECITALS:
WHEREAS, Seller is the record and beneficial owner of all of the
outstanding shares of common stock (the "Shares") of each of Pioneer Security
Life Insurance Company, a Texas insurance corporation ("Pioneer") and Occidental
Life Insurance Company of North Carolina, a Texas insurance corporation
("Occidental");
WHEREAS, subject to the terms and conditions set forth herein, Seller
desires to sell to Buyer, and Buyer desires to purchase from Seller, the Shares
on the Closing Date; and
WHEREAS, Seller has agreed that in the event it files a voluntary
petition for reorganization relief pursuant to chapter 11 of Title 11 United
States Code, 11 U.S.C. Sections 101 et seq. (the "Bankruptcy Code") it will seek
the entry of an order of the United States Bankruptcy Court having jurisdiction
over such chapter 11 case (the "Bankruptcy Court") approving this Agreement and
authorizing Seller to consummate the transactions contemplated hereby, all
subject to higher and better offers in the Chapter 11 Case (as hereinafter
defined);
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) "AA Life" means American-Amicable Life Insurance Company of
Texas, a Texas insurance corporation.
(b) "Acquisition Proposal" means any proposal or offer, other than a
proposal or offer (i) by Buyer or any of its Affiliates or (ii) with respect to
any Affiliates of PennCorp (other than the Target Companies), for (a) any
merger, consolidation, share exchange, business combination or other similar
transaction (including reinsurance) with PennCorp or any of its Subsidiaries,
(b) any sale, lease, exchange, mortgage, pledge, transfer or other disposition
of 10% or more of the assets, liabilities or policies (including through
reinsurance) of PennCorp or any of the Insurance Companies, in a single
transaction or series of transactions (whether related or unrelated), (c) any
tender offer or exchange offer for 20% or more of the outstanding shares of
PennCorp's common stock or any class of PennCorp's debt securities or the filing
of a registration statement under the Securities Act of 1933, as amended in
connection therewith, (d) the acquisition by an third party of beneficial
ownership or a right to acquire beneficial ownership of, or the formation of any
<PAGE>
"group" (as defined under Section 13(d)(3) of the Exchange Act) which
beneficially owns or has the right to acquire beneficial ownership of 20% or
more of the then outstanding shares of any class of PennCorp's common stock or
any class of PennCorp's debt securities or (e) 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; provided, however, the term "Acquisition
Proposal" shall not include (i) a proposal only for the sale of Security Life
and Trust Insurance Company, a Texas corporation, or Southwestern Life Insurance
Company, a Texas corporation or (ii) any transfer by any Target Company of
capital stock of any Target Company.
(c) "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.
(d) "ALICO" means ALICO Management Company, a Texas corporation.
(e) "AVR" means, with respect to a referenced Person, the Asset
Valuation Reserve set forth in the balance sheet of such Person in accordance
with SAP.
(f) "Bankruptcy Resolution Date" means the date on which a Final
Order of the Bankruptcy Court has been entered dismissing, closing or otherwise
terminating a Chapter 11 Case.
(g) "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.
(h) "Chapter 11 Case" means a voluntary case commenced by Seller
under chapter 11 of the Bankruptcy Code.
(i) "Code" means the Internal Revenue Code of 1986, as amended
(including any successor code), and the rules and regulations promulgated
thereunder.
(j) "Closing Statement" means with respect to any Person a statement
prepared by Seller calculating the Statutory Capital of such Person, prepared in
accordance with SAP and consistent with past practices and methodologies, as of
the Closing Date (immediately prior to the Closing Date but after giving effect
to the transactions contemplated by this Agreement); provided that for purposes
of any Closing Statement, Seller will calculate such Statutory Capital as the
sum of (i) the Statutory Capital for the month immediately preceding the Closing
and (ii) the estimated monthly earnings (such estimated monthly earnings to be
calculated as the average of the monthly earnings for the three months preceding
the Closing).
(k) "Disclosure Schedule" means the Disclosure Schedule attached
hereto as Annex A.
(l) "Environmental Law" means any existing or past United States
local, county, state or federal Law (including common law), policy, judicial or
administrative interpretation of Law, or any legally binding requirement that
governs or purports to govern the existence of, relates to or provides a remedy
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for an actual or threatened Release of Hazardous Substances, pollution or the
protection of persons, natural resources or the environment (including, without
limitation, the protection of ambient air, surface water, groundwater, land
surface or subsurface strata, endangered species or wetlands), occupational
health and safety, the manufacture, processing, distribution, use, generation,
handling, treatment, storage, disposal, transportation, Release or management of
solid waste or Hazardous Substances, or other activities involving Hazardous
Substances including but not limited to the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA"), 42 U.S.C. ss.9601 et seq.,
as amended by the Superfund Amendments and Reauthorization Act, the Hazardous
Materials Transportation Act, 49 U.S.C. ss.1801 et seq., the Resource
Conservation and Recovery Act ("RCRA"), 42 U.S.C. ss.6901 et seq., the Clean
Water Act, 33 U.S.C. ss.1251 et seq., the Clean Air Act, 33 U.S.C. ss.2601 et
seq., the Toxic Substances Control Act, 15 U.S.C. ss.2601 et seq., the Federal
Insecticide, Fungicide, and Rodenticide Act, 7 U.S.C. ss.136 et seq., the Oil
Pollution Act of 1990, 33 U.S.C. ss.2701 et seq., the Nuclear Waste Policy Act
of 1982, 42 U.S.C. ss.10101 et seq. and the Occupational Safety and Health Act,
29 U.S.C. ss.651 et seq., as such laws have been amended or supplemented, and/or
any other similar foreign, federal, state, local and/or county laws or
regulations, in each case as in effect on or prior to the Closing Date or, with
respect to representations and warranties made on the date hereof, on or prior
to the date hereof.
(m) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(n) "Final Order" means an order or judgment the operation or effect
of which is not stayed, and as to which order or judgment (or any revision,
modification or amendment thereof), the time to appeal or seek review or
rehearing has expired and as to which no appeal or petition for review or
rehearing has been taken and is pending.
(o) "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.
(p) "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.
(q) "Insurance Companies" means, collectively, American-Amicable Life
Insurance Company of Texas, a Texas insurance corporation; Pioneer American
Insurance Company, a Texas insurance corporation; Pioneer Security Life
Insurance Company, a Texas insurance corporation; and Occidental Life Insurance
Company of North Carolina, a Texas insurance corporation.
(r) "Lien" means any charge, claim, community property interest,
condition, encumbrance, equitable interest, lien, option, pledge, security
interest, right of first refusal, or restriction of any kind, including without
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limitation any restriction on use, voting, transfer, receipt of income, or
exercise of any other attribute of ownership.
(s) "Losses" means any and all demands, claims, complaints, actions
or causes of action, suits, proceedings, investigations, arbitrations,
assessments, losses, damages, liabilities, obligations (including those arising
out of any action, such as any settlement or compromise thereof or judgment or
award therein) and any reasonable costs and expenses, including attorneys' and
other advisors' fees and disbursements.
(t) "Material Adverse Change," as used in the context of Section
9.2(c)(iii), means the occurrence or discovery following the date this Agreement
is executed by Buyer and Seller and prior to the Closing Date of (i) a ratings
downgrade from A.M. Best affecting the Target Companies or any of them; (ii) an
adverse event, change or effect occurs that is not within the control of Seller
or the Target Companies with respect to the business, results of operations or
financial condition of the Target Companies, taken as a whole, that results or
reasonably could result in a reduction in the valuation of the Target Companies
in an amount equal to or greater than 10% of the Purchase Price; or (iii)
consistent with the terms of the preamble to Article III, Seller delivers to
Buyer one or more updated Disclosure Schedules which indicate(s) an adverse
change or changes from information previously provided to Buyer that
individually or in the aggregate results or reasonably could result in a
reduction in the valuation of the Target Companies in an amount equal to or
greater than 10% of the Purchase Price.
(u) "Non-Investment Grade Assets" means any security or investment
other than (i) BBB- or higher rating issued by Standard & Poor's, (ii) Baa-3 or
higher rating issued by Moody's or (iii) a Class 2 or higher rating issued by
NAIC; provided, however, that policy loans made by the Insurance Companies to
their policyholders do not constitute "Non-Investment Grade Assets".
(v) "PennCorp" means PennCorp Financial Group, Inc., a Delaware
corporation.
(w) "Person" means an individual, corporation, limited liability
company, partnership, joint venture, association, trust, unincorporated
organization or, as applicable, any other entity.
(x) "Recapitalization Transaction" means a recapitalization
transaction involving Penncorp and its existing security holders that does not
involve the sale of any of the Target Companies.
(y) "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.
(z) "Remedial Action" means any action to investigate, clean up,
monitor, abate, transport, remove, treat or in any other way address any
Hazardous Materials that is (i) required by any Environmental Law or (ii)
reasonably required to avoid or reduce actual or potential liability under any
Environmental Law.
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(aa) "Restructuring Transaction" means the transfer of Occidental and
Security Life to Seller and those certain other transactions as set forth and
described in Annex G hereto.
(bb) "SAP" means the statutory accounting practices required or
permitted by the National Association of Insurance Commissioners or the
insurance regulatory authority in the jurisdiction of domicile of the referenced
Person, consistently applied throughout the specified period.
(cc) "Security Life" means Security Life and Trust Insurance Company,
a Texas insurance corporation.
(dd) "Statutory Annual Statements" means, with respect to a
referenced Person, the annual statement of such Person filed with or submitted
to the insurance regulatory authority in the jurisdiction in which such Person
is domiciled on forms prescribed or permitted by such authority.
(ee) "Statutory Capital" means with respect to any Person, the sum of
such Person's capital and surplus plus the amount of AVR as of the Closing Date
for such Person.
(ff) "Statutory Quarterly Statement" means, with respect to a
referenced Person, the quarterly statement of such person filed 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.
(gg) "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.
(hh) "Superior Proposal" means an Acquisition Proposal that the Board
of Directors of Seller has determined in good faith, if accepted, is reasonably
likely to be consummated taking into account all legal, financial, regulatory
and other aspects of the proposal and the person making the proposal, and that
the Board of Directors of Seller believes in good faith, after consultation with
an outside financial advisor would, if consummated, result in a transaction more
favorable, in the aggregate, to the creditors and shareholders of Seller from a
financial point of view than the transaction proposed by this Agreement.
(ii) "Target Companies" means ALICO and the Insurance Companies.
(jj) "Target Employees" shall mean those persons who render services
to or on behalf of the Target Companies.
(kk) "Taxes" means any and all federal, state, local, foreign and
other taxes, levies, fees, imposts, duties and similar governmental charges
(including any interest, penalties or additions to tax imposed in connection
therewith or with respect thereto), including, without limitation, taxes imposed
on or with respect to, or measured by, income, franchise, profits or gross
receipts, Phase III, ad valorem, value added, sales, use, service, real or
personal property, capital stock, license, payroll, withholding, employment,
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social security, unemployment, compensation, utility, severance, production,
excise, stamp, occupation, premium, windfall profits, transfer and gains taxes,
and customs duties.
(ll) "Tax Returns" means any report, return or statement required to
be supplied to a taxing authority in connection with Taxes.
(mm) "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:
Term Defined in
---- ----------
Acquisition Section 6.1
Agreement Agreement Preamble
Alico Unaudited Financial Statements Section 3.7(b)
Approval Order Section 5.11(d)
Bankruptcy Code Recitals
Bankruptcy Court Recitals
Bankruptcy Termination Amount Section 9.1(b)
Benefit Plans Section 3.13(b)
Buyer Preamble
Buyer Material Adverse Effect Section 4.1
Buyer Plans Section 5.9(b)
CERCLIS Section 3.19(c)
Closing Section 7.1
Closing Date Section 7.1
DOJ Section 3.6
ERISA Section 3.13(b)
ERISA Affiliate Section 3.13(e)
Estate Property Section 5.11(d)
Execution Date Preamble
Financial Statements Section 3.7(c)
GAAP Section 3.7(c)
HSR Act Section 3.6
Intellectual Property Section 3.17
Leased Properties Section 3.11(b)
Liens Section 3.11(b)
Litigation Section 3.10
Material Article III Preamble
Material Contract Section 3.12
Multiemployer Plan Section 3.13(b)
Occidental Recitals
Owned Properties Section 3.11(b)
PBGC Section 3.13(e)
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Permitted Liens Section 3.11(b)
Pioneer Recitals
Purchase Price Section 2.2
Request Section 5.10(a)
Required Closing Capital Section 6.1(i)
Sale Procedures Order Section 5.11(a)
SAP Financial Statements Section 3.7(a)
Seller Preamble
Shares Recitals
Termination Amount Section 9.1(a)
Unaudited Financial Statements Section 3.7(c)
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, Seller will sell, assign, transfer and convey to
Buyer, and Buyer will purchase and acquire from Seller, the Shares, free and
clear of all Liens, except Liens created by Buyer.
SECTION 2.2. Consideration for the Shares. The aggregate purchase
price payable by Buyer for the Shares shall be the sum (i) One Hundred Two
Million ($102,000,000) in cash plus (ii) the simple interest accrued on the
total purchase price after adjusting for Section 2.2, subsections (iii) through
(vii) beginning on the date of the Agreement through and including the Closing
Date at a rate of 7% per annum less (iii) an amount equal to the amount of any
dividends paid by Occidental or AA Life in respect of their capital stock, after
September 30, 1999 less (iv) an amount equal to the amount of any management
fees paid to Seller or any affiliate of Seller other than a Target Company after
September 30, 1999 (other than reasonable fees paid to Knightsbridge for
investment advisory services not to exceed $60,000 per month) or other
management fees to the extent accrued through September 30, 1999 plus (v) the
value of the net operating losses of Pioneer delivered at Closing, which values
will be calculated in accordance with the formula set forth in Annex E, plus
(vi) an amount equal to Four Million Dollars ($4,000,000) in the event that all
of the assets listed on Annex F shall have been sold as of the Closing Date and
replaced with liquid, investment grade assets or securities equal to the
aggregate September 30, 1999 book value of such disposed assets, plus (vii) an
amount equal to the value of any liquid, investment grade assets or securities
which the Seller has acquired on or prior to the Closing Date for the benefit of
Buyer in replacement of the Southwestern Financial Corporation Preferred Stock
(the "Purchase Price"). On the Closing Date, Buyer will pay the Purchase Price
by wire transfer of immediately available funds to such accounts as Seller shall
have designated in writing at least two days prior to the Closing Date.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
The Seller hereby represents and warrants to Buyer that, subject to the specific
qualifications and limitations set forth herein and in Section 9.4, the
statements contained in this Article III are correct and complete as of the date
of this Agreement and will be correct and complete as of the Closing Date (as
though made then and as though the Closing Date were substituted for the date of
this Agreement throughout this Article III), except as set forth in the
Disclosure Schedule delivered by the Seller to Buyer on the date hereof (the
"Disclosure Schedule"). The Disclosure Schedule may be updated one or more times
prior to the Closing Date. Any updated Disclosure Schedule shall be delivered no
later than three (3) business days prior to the Closing Date. In the event any
such updated Disclosure Schedule indicates a Material (as defined herein)
adverse change from information previously provided to Buyer, Buyer shall,
subject to Section 9.2(c)(i)(C), be entitled to terminate this Agreement
(without any liability whatsoever to Seller) by written notice delivered to
Seller within ten (10) business days following receipt of such updated
Disclosure Schedule if after good faith negotiations conducted during such
period Buyer and Seller are unable to mutually agree on an appropriate
adjustment to the Purchase Price. Matters representing breaches of
representations or warranties totaling less than $2,000,000 in the aggregate
shall result in a dollar for dollar reduction to the Purchase Price, provided,
however, that individual matters constituting breaches that represent a loss of
value of less than $20,000 per item shall be excluded from such reduction to the
Purchase Price. An event or matter that causes any representation or warranty
contained in this Section to be inaccurate, incorrect or false will not be
deemed to be "Material," to have a "Material" change in or in respect of, to
have a "Material" adverse effect or to be "Materially" affected unless the loss
that may reasonably be expected to occur to Seller with respect to such event or
matter, when taken together with all other related losses that may reasonably be
expected to occur to such Target Company or Companies as a result of any such
events or matters, would exceed Two Million Dollars ($2,000,000) in the
aggregate or unless such event or matter constitutes a felony violation in the
relevant jurisdiction as determined by Final Order of a court of competent
jurisdiction. For purposes of this paragraph, the word "loss" shall mean any and
all direct or indirect payments, obligations, assessments, losses, losses of
income, liabilities, costs and expenses paid or incurred, or reasonably likely
to be paid or incurred, or diminutions in value or reduction in benefits or
rights of any kind or character (whether or not known or asserted before the
date of this Agreement, fixed or unfixed, conditional or unconditional, choate
or inchoate, liquidated or unliquidated, secured or unsecured, accrued,
absolute, contingent or otherwise) that are reasonably likely to occur,
including without limitation, penalties, interest on any amount payable to a
third party as a result of the foregoing, and any reasonable legal or other
expenses reasonably expected to be incurred in connection with defending any
demands, claims, actions or causes of action that, if adversely determined,
could reasonably be expected to result in losses, and all amounts paid in
settlement of claims or actions; provided, however, that losses shall be net of
any insurance proceeds entitled to be received from a nonaffiliated insurance
company on account of such loss (after taking into account any cost incurred in
obtaining such proceeds or any increases in insurance premiums as a direct
result thereof). Nothing in the Disclosure Schedule shall be deemed adequate to
disclose an exception to a representation or warranty made herein, however,
unless the Disclosure Schedule identifies the exception in a manner sufficient
to give reasonable notice of the facts or circumstances which cause the
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disclosure in the Disclosure Schedule to constitute an exception to a
representation or warranty. The Disclosure Schedule will be arranged in
paragraphs corresponding to the lettered and numbered paragraphs contained in
this Article III.
SECTION 3.1. Organization and Qualification.
(a) Each of the Seller and the Target Companies is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation, with all requisite corporate power and authority
to own, operate and lease its properties and to carry on its business as it is
now being conducted. Seller has delivered or made available to Buyer a true and
complete copy of the Certificate or Articles of Incorporation and Bylaws of each
of the Target Companies.
(b) Each of the Insurance Companies is licensed to write the types of
insurance and other products (including fixed annuities and variable annuities)
shown in Section 3.1(b) of the Disclosure Schedule in the jurisdictions
specified in such Section. Except as set forth in Section 3.1(b) 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
Seller, there is no pending threat of such suspension or revocation by any
licensing authority. None of the Insurance Companies is currently the subject of
any supervision, conservation, rehabilitation, liquidation, receivership,
insolvency or other similar proceeding nor, other than as described in Section
3.1(b) of the Disclosure Schedule, is operating under any formal or informal
agreement or understanding with the licensing authority of any state or other
jurisdiction which restricts its authority to do business or requires it to
take, or refrain from taking, any action.
SECTION 3.2. Authorization. Seller has full corporate power and
authority to (i) execute and deliver this Agreement and (ii) in the event Seller
commences a Chapter 11 Case and the Sale Procedures Order and the Approval Order
are entered by the Bankruptcy Court, to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement by Seller, and subject to
clause (ii) above, the performance by Seller of its obligations hereunder, and
the consummation by Seller of the transactions contemplated hereby, have been
duly authorized by its Boards of Directors and no other corporate action on the
part of Seller is necessary to authorize the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby (other
than its Board of Directors' approval in connection with the commencement of a
Chapter 11 Case). This Agreement has been duly and validly executed and
delivered by Seller and (in the event of a Chapter 11 Case, subject to competing
offers as described in Section 5.11(a) and entry of the Approval Order),
constitutes a valid and binding obligation of Seller, enforceable against Seller
in accordance with its terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally, and subject, as to enforceability, to
general principles of equity, including principles of commercial reasonableness,
good faith and fair dealing (regardless of whether enforcement is sought in a
proceeding at law or in equity).
SECTION 3.3. No Violation. Except as set forth in Section 3.3 of the
Disclosure Schedule, none of the execution and delivery of this Agreement by
Seller, and in the event Seller commences a Chapter 11 Case and the Approval
Order is entered by the Bankruptcy Court, the performance by Seller of its
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obligations hereunder or the consummation by Seller of the transactions
contemplated hereby will (i) violate, conflict with or result in any breach of
any provision of the Certificate or Articles of Incorporation or Bylaws of
Seller or any of the Target Companies, (ii) 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 Seller or any of the Target Companies is a party or
by which any of their assets is bound, (iii) violate any order, writ, judgment,
injunction, decree, statute, rule or regulation of any Governmental Authority
applicable to Seller or any of the Target Companies or any of their assets or
(iv) result in the creation of any Lien upon any of the assets of the Target
Companies, except for those violations, conflicts, breaches, defaults and Liens
that would not reasonably be expected to have a Material adverse effect or
Materially impair the ability of Seller to consummate the transactions
contemplated hereby.
SECTION 3.4. Capitalization of Pioneer.
(a) The authorized capital stock of Pioneer consists of 50,000 shares
of common stock, par value $80.00 per share. Pioneer has 31,250 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 commitment obligating Pioneer 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 Pioneer,
(ii) agreements or commitments obligating Pioneer to repurchase, redeem or
otherwise acquire any shares of its capital stock, (iii) restrictions on
transfer of any shares of capital stock of Pioneer (other than pursuant to this
Agreement) or (iv) voting or similar shareholder agreements relating to any
shares of capital stock of Pioneer.
(b) Except as set forth in Section 3.4(b) of the Disclosure Schedule,
the Shares are owned of record and beneficially by Seller, free and clear of all
Liens. At Closing, good title to the Shares shall be conveyed to Buyer free and
clear of all Liens, other than those which may be created by Buyer.
SECTION 3.5 Subsidiaries.
(a) Section 3.5(a) of the Disclosure Schedule sets forth the name and
number of authorized, issued and outstanding shares of capital stock of each
Subsidiary of Pioneer. Other than such Subsidiaries, neither Pioneer nor any of
its Subsidiaries 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 securities held for investment purposes only.
(b) All of the outstanding shares of capital stock of each Subsidiary
of Pioneer have been duly authorized and validly issued, are fully paid and
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non-assessable, have not been issued in violation of any preemptive rights, and
are owned of record and beneficially, directly or indirectly, by Pioneer.
(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 such Subsidiaries to issue
any additional shares of capital stock of such Subsidiary or any other
securities convertible into, exchangeable for or evidencing the right to
subscribe for any shares of such capital stock, (ii) agreements or commitments
obligating any such Subsidiary to repurchase, redeem or otherwise acquire any
shares of its capital stock, (iii) restrictions on the transfer of any shares of
capital stock of any such Subsidiary (other than pursuant to this Agreement) or
(iv) voting or similar shareholder agreements relating to any shares of capital
stock of any such Subsidiary.
SECTION 3.6. Consents and Approvals. Except in connection with the
commencement of a Chapter 11 Case, entry of the Sale Procedures Order, entry of
the Approval Order and 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 Seller 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"), (b) the Insurance Department of the State of Texas and (c) in
the event Seller commences a Chapter 11 Case, the Bankruptcy Court.
SECTION 3.7. Financial Statements.
(a) Seller has previously delivered or made available to Buyer true
and complete copies of the following (the "SAP Financial Statements"):
(i) the Statutory Annual Statements for each of the Insurance
Companies for each of the years ended December 31, 1996, 1997 and 1998, together
with any exhibits, schedules or notes thereto;
(ii) the Statutory Quarterly Statements of each of the Insurance
Companies for each of the three-month periods ended as of March 31, June 30, and
September 30, 1999, together with all related notes, exhibits and schedules
thereto; and
(iii) the Statutory Annual Statements and Statutory Quarterly
Statements of each of the Insurance Companies that were filed for 1997, 1998 or
1999 with any other state insurance department or similar regulatory authority
in any jurisdiction (other than such company's jurisdiction of domicile) and
which differ from the corresponding Statutory Annual Statements and Statutory
Quarterly Statements for such periods.
The SAP Financial Statements were prepared in all material respects in
accordance with SAP and, except as set forth in Section 3.7(a) of the Disclosure
Schedule, present fairly in all material respects, the statutory financial
position of each applicable Insurance Company as of the dates thereof or for the
periods covered thereby in accordance with SAP.
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(b) Seller has previously delivered or made available to Buyer true
and correct copies of the unaudited consolidated financial statements of ALICO
for each of the years ended December 31, 1996, 1997 and 1998 (the "ALICO
Unaudited Financial Statements").
(c) Seller has previously delivered or made available to Buyer true
and correct copies of the unaudited consolidated financial statements of the
Target Companies for the nine months ended September 30, 1999 (collectively, the
"Unaudited Financial Statements," and together with the SAP Financial Statements
and the ALICO Unaudited Financial Statements, the "Financial Statements"). The
Unaudited Financial Statements fairly present, in all material respects, the
consolidated financial condition and results of operations of the Target
Companies (subject to normal estimation of accruals and reserves and normal
year-end audit adjustments) as of the date and for the period indicated therein
and, except as otherwise disclosed in Section 3.7(c) of the Disclosure Schedule,
have been prepared in all material respects in accordance with generally
accepted accounting principles consistently applied ("GAAP").
(d) Except as disclosed in Section 3.7(d) of the Disclosure Schedule,
no state has objected, as of the date of this Agreement, in any material respect
to the Financial Statements as filed, and the amounts shown in the Financial
Statements as reserves and liabilities for past and future insurance policy
benefits, losses, claims and expenses under insurance policies as of the end of
each year and on the Closing Statement were computed in accordance with accepted
actuarial standards consistently applied, were fairly stated in accordance with
sound actuarial principles, were based on actuarial assumptions which were in
accordance in all Material respects with those called for in policy provisions
and met in all Material respects the requirement of the insurance laws of Texas.
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 Material liabilities or Material financial obligations
of the Target Companies that are required to be reflected on a balance sheet
prepared in accordance with SAP, or GAAP, as applicable, other than (i)
liabilities and obligations reserved against in the Financial Statements, (ii)
benefits payable or other liabilities or obligations arising under insurance
policies or annuity contracts issued by the Target Companies, (iii) liabilities
and obligations disclosed in Section 3.8(a) of the Disclosure Schedule, (iv)
liabilities and obligations arising in the ordinary course of business under any
contract or agreement disclosed in Section 3.12 of the Disclosure Schedule or
not required to be disclosed thereon because of the amount or the term thereof
and (v) liabilities and obligations arising in the ordinary course of business
after September 30, 1999 consistent with past practice.
SECTION 3.9. Absence of Certain Changes. Except as disclosed in
Section 3.9(a) of the Disclosure Schedule or as contemplated or otherwise
permitted by this Agreement, since September 30, 1999, none of the Target
Companies has (i) conducted its business in any Material respect other than in
the ordinary course, (ii) 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, (iii) except in the
ordinary course of business, (1) sold, transferred or otherwise disposed of any
of its properties or assets or (2) mortgaged or encumbered any of its properties
or assets, (iv) suffered any material casualty losses not covered by insurance,
(v) repurchased any of its capital stock, (vi) declared, set aside or paid any
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dividend or other distribution in respect of its capital stock, other than
ordinary dividends permitted under applicable insurance laws, (vii) amended its
Certificate or Articles of Incorporation or Bylaws or merged with or into or
consolidated with any other Person, (viii) split, combined or reclassified its
capital stock, (ix) issued or sold (or agreed to issue or sell) any of its
equity securities or any options, warrants, conversion or other rights to
purchase any such equity securities or any securities convertible into or
exchangeable for such equity securities, (x) 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, (xi) 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, (xii) changed in any material
respect its underwriting, actuarial or accounting methods (tax or book),
principles or practices (except as disclosed on Section 3.14 of the Disclosure
Schedule), (xiii) entered into or amended or terminated any transaction or
contract that has or could reasonably be expected to have a Material adverse
effect, (xiv) in the case of the Insurance Companies, ceased their lead
generation activities or terminated any material reinsurance or coinsurance
contract, whether as reinsurer or reinsured in each case other than in the
ordinary course of business, (xv) entered into any joint ventures or
partnerships or any kind, (xvi) unless otherwise permitted by the terms of this
Agreement, transferred any assets to, or received any assets from, any affiliate
other than a Target Company, except for assets transferred or received pursuant
to a written agreement effective as of September 30, 1999, which such
agreements, and a summary of the relevant provisions thereof, are set forth in
Section 3.9(b) of the Disclosure Schedule, (xvii) entered into an agreement with
an affiliate, other than with a Target Company, that obligates the Target
Company to render payments of any kind to that affiliate, (xviii) purchased or
otherwise acquired any illiquid or Non-Investment Grade Assets or (xix) entered
into any contract or other agreements to do any of the foregoing.
SECTION 3.10. Litigation. Except as set forth in Section 3.10 of the
Disclosure Schedule, as of the date hereof, there is no action, suit,
arbitration, investigation or proceeding ("Litigation") pending or, to the
knowledge of Seller, threatened against any of the Target Companies before any
court, at law, or in equity, any other Governmental Authority or arbitrator,
that if resolved adversely, would reasonably be expected to have a Material
adverse effect. Except as set forth in Section 3.10 of the Disclosure Schedule,
none of the Target Companies are subject to any judgment, decree, injunction or
order of any court, at law or in equity, any other Governmental Authority or
arbitrator (other than orders of a Governmental Authority relating to the
ordinary operation of the Target Companies), except for those that would not
reasonably be expected to have a Material adverse effect.
SECTION 3.11. Property; Liens and Encumbrances.
(a) Section 3.11(a) of the Disclosure Schedule contains a complete
and accurate list of all real property owned or leased by the Target Companies
as of the date hereof.
(b) Except as set forth in Section 3.11(b) of the Disclosure
Schedule, all properties and assets owned by the Target Companies (the "Owned
Properties") or leased by the Target Companies (the "Leased Properties") are
free and clear of all liens, pledges, claims, security interests, mortgages,
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assessments, easements, rights of way, restrictions, defects in title or other
encumbrances ("Liens"), except (i) statutory Liens not yet delinquent or the
validity of which are being contested in good faith by appropriate actions, (ii)
purchase money Liens arising in the ordinary course, (iii) Liens for Taxes not
yet delinquent, (iv) Liens reflected in the Financial Statements (which have not
been discharged) and (v) Liens that in the aggregate do not materially detract
from the value or, in the case of personal property, materially impair the use
by the Target Companies of the property subject thereto or, in the case of real
property, materially impair the present and continued use of such property in
the usual and normal conduct of the business of the Target Companies (items (i)
through (v) above being referred to herein collectively as "Permitted Liens").
The Target Companies share good and indefeasible title to the Owned Properties
and good and valid leasehold interests in the Leased Properties.
SECTION 3.12. Certain Agreements. Except as disclosed in Section 3.12
of the Disclosure Schedule, as of the date hereof, none of the Target Companies
is a party to any (i) agreement, contract, indenture or other instrument
relating to the borrowing of money or the guarantee of any obligation for the
borrowing of money, (ii) employment, consulting, compensation or severance
agreement with any of its directors, employees or consultants providing for
compensation in excess of $200,000 per year, (iii) agreement, contract or
commitment limiting or restraining it from engaging or competing in any
business, (iv) lease pursuant to which it leases any real property set forth in
Section 3.12 of the Disclosure Schedule, (v) distribution, dealer,
representation or agency agreement, other than agency, marketing or selling
agreements with insurance agents, marketing organizations or broker-dealers in
the ordinary course of business, (vi) contract or agreement with any of its
affiliates, or (vii) any other contract that is required to be filed pursuant to
Item 601(b)(10) of Regulation S-K under the Exchange Act (each of the foregoing
a "Material Contract"). Each of the Material Contracts is in full force and
effect and has been complied with by the Target Companies and, to the knowledge
of Seller, has been complied with by all other parties thereto, except for such
noncompliance as would not reasonably be expected to have, individually or in
the aggregate, a Material adverse effect.
SECTION 3.13. Employee Benefits.
(a) Section 3.13(a) of the Disclosure Schedule contains a true and
complete list of the Target Employees as of November 1, 1999.
(b) Neither Seller nor any of its affiliates (i) currently maintains,
administers or contributes to or (ii) during the period beginning September 1,
1994 maintained, administered or contributed to: (1) any employee benefit plan,
as defined in Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), including without limitation, any multiemployer plan
as defined in Section 3(37) of ERISA ("Multiemployer Plan") or any other plan
subject to Title IV of ERISA, or (2) any bonus, deferred compensation,
retirement or excess benefit, performance compensation, stock purchase,
restricted stock, stock option, stock appreciation, severance, salary
continuation, vacation, sick leave, holiday pay, fringe benefit, personnel
policy, reimbursement program, incentive, insurance, welfare or similar plan,
program, policy or arrangement, written or unwritten, for the benefit of Target
Employees, or any director, agent, broker or independent contractor of the
Target Companies, except as described in Section 3.13(b) of the Disclosure
Schedule ("Benefit Plans").
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(c) Except as disclosed in Section 3.13(c) of the Disclosure
Schedule, all Benefit Plans comply in all material respects with and are, and
during the period beginning September 1, 1994 have been, operated in all
material respects in accordance with their terms, ERISA, the Code and other
applicable law.
(d) True and complete copies of each written Benefit Plan, a
description of each unwritten Benefit Plan, summary plan descriptions, and the
three most recent annual reports on Form 5500 (including all schedules and
attachments), if any, have been made available to Buyer.
(e) None of the Target Companies nor any entity required to be
aggregated with any of the Target Companies pursuant to Section 414 of the Code
or Section 4001(b) of ERISA ("ERISA Affiliate") have incurred any liability to
the Pension Benefit Guaranty Corporation ("PBGC"), and no Benefit Plan
established or maintained by the Target Companies nor any ERISA Affiliate or to
which the Target Companies or any ERISA Affiliate is obligated to make
contributions, has an "accumulated funding deficiency," as defined in Section
302 of ERISA and Section 412 of the Code, whether or not waived. Neither the
Target Companies, any ERISA Affiliate nor any organization with respect to which
any Target Company is a successor or parent corporation (within the meaning of
Section 4069 of ERISA) has engaged in any transaction described in Section 4069
of ERISA. 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 Seller, threatened
actions, suits, investigations or other proceedings by any present or former
participant or beneficiary under any Benefit Plan (or any beneficiary of any
such participant or beneficiary) involving any Benefit Plan or any rights or
benefits under any Benefit Plan other than ordinary and usual claims for
benefits by participants or beneficiaries thereunder.
(g) Except as disclosed in Section 3.13(g) of the Disclosure
Schedule, neither the Seller 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 Target
Employees (or their beneficiaries) upon and/or after their retirement or
termination of employment, except as may be required by federal, state or local
laws, rules or regulations.
(h) Except as disclosed in Section 3.13(h) 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 solely
as a result of the consummation of the transactions contemplated by this
Agreement.
SECTION 3.14. Taxes. Except as set forth in Section 3.14 of the
Disclosure Schedule:
(a) all material Tax Returns required to be filed by or with respect
to the Target Companies (including all Tax Returns that include the Target
Companies on an affiliated, consolidated, combined, or unitary basis) have been
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timely filed and all Taxes that are shown to be due on such Tax Returns have
been timely paid;
(b) the Target Companies have given or otherwise made available to
Buyer all Tax Returns, or portions of Tax Returns which include the Target
Companies for periods ending, or transactions consummated, after December 31,
1996;
(c) there are no outstanding agreements extending or waiving the
statutory period of limitation applicable to any claim for, or the period for
the collection or assessment of, Taxes due for any taxable period with respect
to any Tax for which any Target Company may be subject or liable;
(d) no audit, assessment, collection or other proceeding by any
Governmental Authority is pending or, to the knowledge of Seller, threatened
with respect to any Taxes due from or with respect to any Target Company or with
respect to any Tax Return by or with respect to any Target Company;
(e) there are no Liens for Taxes upon the assets or properties of any
of the Target Companies, except for statutory Liens for current Taxes not yet
due;
(f) no Target Company is a party to any agreement relating to the
sharing or allocation of, or indemnification agreement with respect to Taxes, or
similar contract or arrangement;
(g) each of the Insurance Companies is a "life insurance company"
within the meaning of Section 816 of the Code for the taxable period ending on
the Closing Date and for all prior taxable periods for which the statute of
limitations has not expired;
(h) neither the Target Companies nor any other Person (including
Seller) on behalf of the Target Companies has filed a consent pursuant to
Section 341(f) of the Code (or any predecessor provision) or agreed to permit
Section 341(f)(2) of the Code to apply to any disposition of a subsection (f)
asset (as such term is defined in Section 341(f)(4) of the Code) owned by the
Target Companies;
(i) there is no contract, agreement, plan or other arrangement
covering any person that, individually or collectively, could give rise to the
payment of any amount that would be nondeductible by the Buyer by reason of
Section 280G of the Code or would constitute compensation in excess of the
limitation set forth in Section 162(m) of the Code;
(j) none of the Target Companies has agreed, or is required to make,
any adjustment under Sections 481(a) or 807(f) of the Code;
(k) none of the Target Companies has been a member of an affiliated
group filing a consolidated federal income Tax Return or has any liability for
Taxes of any Person under Treas. Reg. ss. 1.1502-6 or ss. 1.1502-78 (or similar
provision of state, local or foreign law), as a transferee or successor, by
contract or otherwise;
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(l) each of the Target Companies has withheld from its employees,
independent contractors, creditors, stockholders, customers, policyholders, and
third parties and timely paid to the appropriate taxing authority proper and
accurate amounts in all material respects through all periods in compliance in
all material respects with all Tax withholding provisions of applicable laws;
(m) no power of attorney is currently in force with respect to any
matter relating to Taxes that could affect the Target Companies;
(n) Seller is not a foreign person within the meaning of Section 1445
of the Code; and
(o) no property owned by the Target Companies is (i) 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
in effect immediately prior to the enactment of the Tax Reform Act of 1986, (ii)
"tax-exempt use property" within the meaning of Section 168(h) of the Code or
(iii) "tax-exempt bond finance property" within the meaning of Section 168(g)(5)
of the Code.
SECTION 3.15. Compliance with Applicable Law. Except as disclosed on
Section 3.15 of the Disclosure Schedule, the business of each of the Target
Companies is being conducted in compliance with all applicable provisions of any
federal, state, local or foreign statute, law, ordinance, rule, regulation,
judgment, decree, order, concession, grant, franchise, permit or license or
other governmental authorization or approval applicable to such Target Company,
except for such noncompliance as would not reasonably be expected to have,
individually or in the aggregate, a Material adverse effect.
SECTION 3.16. Brokers' Fees and Commissions. Except for Wasserstein
Perella & Co., Inc., none of Seller, any Target Company or their respective
directors, officers, employees or agents has employed any investment banker,
broker or finder in connection with the transactions contemplated hereby. Seller
shall be responsible for the fees and expenses of Wasserstein Perella & Co.,
Inc. in connection with the sale and purchase of the Shares.
SECTION 3.17. Proprietary Rights. Except as disclosed in Section 3.17
of the Disclosure Schedule, each of the Target Companies owns or possesses the
valid right to use all trademarks, service marks, patents, patent rights,
assumed names, logos, trade secrets, copyrights and trade names ("Intellectual
Property") and all computer software, programs and similar systems that are used
or required by it in the conduct of its business and all such Intellectual
Property and computer software, programs and similar systems, and all licenses
or similar arrangements pursuant to which any Target Company uses such
Intellectual Property, computer software, programs and similar systems are in
full force and effect in accordance with their terms and the relevant Target
Company is in compliance in all material respects with the terms thereof. None
of the Target Companies is in conflict with, or in violation or infringement of,
nor has any of them received any notice of any conflict with or violation or
infringement of or any claimed conflict with or violation or infringement of,
any asserted rights of any other Person with respect to any such Intellectual
Property or computer software, programs, or similar systems, except as would not
reasonably be expected to have, individually or in the aggregate, a Material
adverse effect. Except as set forth in Section 3.17 of the Disclosure Schedule,
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no Intellectual Property, computer software, programs or similar systems owned
by any of the Target Companies is licensed to any third party.
SECTION 3.18. Insurance. Section 3.18 of the Disclosure Schedule
summarizes the amount and scope of the insurance currently in force insuring the
Target Companies and their operations and properties against loss or liability.
All insurance policies pursuant to which any such insurance is provided are in
full force and effect, no notice of cancellation or termination of any such
insurance policy has been given to any Target Company and all premiums required
to be paid in connection with such insurance policies have been paid in full,
except in each case as would not reasonably be expected to have a Material
adverse effect.
SECTION 3.19. Environmental Matters. Except as disclosed on Section
3.19 of the Disclosure Schedule:
(a) The operations of the Target Companies and the real property
currently owned, leased or operated by the Target Companies are in compliance
and, during the period of the ownership or tenancy of the Target Companies have
been in compliance, with all applicable Environmental Laws, except for such
noncompliance as would not reasonably be expected to have a Material adverse
effect.
(b) No judicial or administrative proceedings or investigations are
pending or, to the knowledge of Seller, threatened against any of the Target
Companies pursuant to any applicable Environmental Laws that if resolved
adversely to the Target Companies would reasonably be expected to have a
Material adverse effect.
(c) No real property currently (or to the knowledge of Seller,
formerly) owned, operated or leased by any of the Target Companies is listed or
has been proposed for listing on the National Priorities List, the Comprehensive
Environmental Response, Compensation and Liability and Information System
("CERCLIS") or any analogous state lists.
(d) Seller has 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, Seller or any of the Target
Companies relating to any real property currently or formerly owned, operated or
leased by any of the Target Companies.
SECTION 3.20. Books and Records. Copies of all the minute books and
stock record books of each of the Target Companies have been delivered or made
available to Buyer for inspection and contain accurate records of all meetings
of, and written consents by, the board of directors (and any committees thereof)
and stockholders of each of the Target Companies since the later of January 1,
1996, such company's incorporation, or such company's acquisition by Seller or
one of its Subsidiaries.
SECTION 3.21. Bank Accounts. Section 3.21 of the Disclosure Schedule
contains (i) a true and complete list of the names and locations of all banks,
trust companies, securities brokers, and other financial institutions at which
each of the Target Companies has an account or safe deposit box or maintains a
banking, custodial, trading, trust, or other similar relationship and (ii) a
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true and complete list and description of each such account, box, and
relationship, including a list of all authorized signatories.
SECTION 3.22. Labor Matters.
(a) None of the Target Companies is a party to any labor or
collective bargaining agreement.
(b) No employees of the Target Companies are represented by any labor
organization that is certified to represent such employees under the National
Labor Relations Act. No labor organization or group of employees of any of the
Target Companies has made a pending demand for recognition or certification, and
there are no representation or certification proceedings or petitions seeking a
representation proceeding presently pending or threatened to be brought before
or filed with the National Labor Relations Board or any other labor relations
tribunal or authority. To the knowledge of Seller, there are no organizing
activities involving any of the Target Companies pending with any labor
organization or group of employees of any of the Target Companies.
(c) Except as set forth in Section 3.22(c) of the Disclosure
Schedule, there are no strikes, work stoppages, slowdowns, lockouts, material
arbitrations or material grievances or other material labor disputes pending or
threatened against or involving any of the Target Companies.
(d) Each of the Target Companies is in compliance with all laws,
regulations and orders relating to the employment of labor, including all such
laws, regulations and orders relating to wages, hours, WARN, collective
bargaining, discrimination, civil rights, safety and health, workers'
compensation and the collection and payment of withholding and/or social
security Taxes and any similar Tax, other than such noncompliance that would not
reasonably be expected to have a Material adverse effect.
(e) There are no complaints, charges or claims against any of the
Target Companies pending or, to the knowledge of Seller, threatened that could
be brought or filed with any Governmental Authority, arbitrator or court based
on, arising out of, in connection with or otherwise relating to the employment
or termination of employment by any of the Target Companies of any individual
prior to the date hereof or the Closing Date, other than such complaints,
charges or claims that would not reasonably be expected to have a Material
adverse effect.
SECTION 3.23. Year 2000 Compliance. The Target Companies have
reviewed the areas within their businesses and operations which they believe
could be adversely affected by the "Year 2000 Problem" (that is, the risk that
computer applications used by the Target Companies may be unable to recognize
and perform properly date-sensitive functions involving certain dates prior to
and any date on or after December 31, 1999). Based on such reviews, Seller
believes that the "Year 2000 Problem" will not have a Material adverse effect.
To Seller's knowledge, except as set forth in Section 3.23 of the Disclosure
Schedule, each hardware, software and firmware product used by the Target
Companies in their business and operations will be Year 2000 Compliant on or
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before December 31, 1999, except for such noncompliances that would not have a
Material adverse effect.
SECTION 3.24. Termination of Intercompany Agreements. Section 3.24 of
the Disclosure Schedule contains a list of all of the agreements between Seller
(or between PennCorp or any of its subsidiaries or affiliates) and the Target
Companies that are to be terminated pursuant to Section 6.1(f) hereof.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Seller as follows:
SECTION 4.1. Organization; Qualifications and Operations. Buyer is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its organization, with all requisite corporate power and
authority to own the Shares. Buyer is qualified or licensed to do business and
is in good standing in each jurisdiction in which the ownership or leasing of
property by it or the conduct of its business requires such licensing or
qualification, except where the failure to be so qualified or licensed will not
affect Buyer's ability to consummate the transactions contemplated by this
Agreement (a "Buyer Material Adverse Effect").
SECTION 4.2. Authorization. Buyer has full corporate power and
authority to execute and deliver this Agreement and each other document to be
delivered by Buyer in connection herewith 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 4.3. 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 (i)
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), (ii) 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 (iii) 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.
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SECTION 4.4. Consents and Approvals. Except as set forth in Section
4.4 of the Disclosure Schedule, no filing or registration with, no notice to and
no permit, authorization, consent or approval of any third party or any
Governmental Authority is necessary for the consummation by Buyer of the
transactions contemplated by this Agreement other than consents and approvals of
or filings or registrations with (i) the DOJ pursuant to the HSR Act and (ii)
the insurance department of the State of Texas.
SECTION 4.5. Brokers' Fees and Commissions. Neither Buyer nor any of
its directors, officers, employees or agents has employed any investment banker,
broker or finder in connection with the transactions contemplated hereby.
SECTION 4.6. Purchase for Investment. Buyer is acquiring the Shares
for its own account for investment purposes and not with a view to the
distribution of the Shares. Buyer has such knowledge and experience in financial
and business matters so as to be capable of evaluating the merits and risks of
its investment in the Shares. Buyer is an "accredited investor" as defined in
Rule 501 of the Securities Act of 1933, as amended. Buyer is aware and
understands that the Shares have not been registered under the Securities Act of
1933, as amended, or under the securities laws of any state, that any transfer
of the Shares will be restricted by such act and such state laws, and that the
certificates representing the Shares will bear legends to such effect. Buyer
will not, directly or indirectly, dispose of the Shares except in compliance
with applicable federal and state securities laws.
SECTION 4.7. Financing.
(a) Buyer has delivered to Seller a true and correct copy of a full
firm commitment from Bank of America, a copy of which is attached hereto as
Annex B, to provide Buyer a portion of the debt financing required to consummate
the transactions contemplated by this Agreement, and such commitment has not
been amended, altered, rescinded or revoked.
(b) Buyer has delivered to Seller a true and correct copy of a
"Highly Confident" letter from Bank of America, a copy of which is attached
hereto as Annex C, with respect to the remaining portion of the debt financing
required to consummate the transactions contemplated by this Agreement.
(c) Buyer has delivered to Seller a true and correct copy of a full
firm commitment from Thoma Cressey Equity Partners, a copy of which is attached
hereto as Annex D, to provide Buyer the equity financing required to consummate
the transactions contemplated by this Agreement, and such commitment has not
been amended, altered, rescinded or revoked.
(d) The ratio of debt to equity in the proposed transaction structure
of Buyer under this Agreement is not greater than 2:1, and Buyer acknowledges
and agrees that, notwithstanding anything herein to the contrary, in the event
that such ratio of debt to equity is at any time greater than 2:1, any ratings
downgrade from A.M. Best that results from such debt to equity ratio shall be
deemed not to constitute a Material Adverse Change.
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ARTICLE V
COVENANTS
SECTION 5.1. Conduct of Business Prior to the Closing. Except as
expressly contemplated by this Agreement, as set forth in Section 5.1 of the
Disclosure Schedule or with the prior written consent of Buyer (not to be
unreasonably withheld or delayed), during the period from the date of this
Agreement to the Closing, Seller will cause each of the Target Companies to
conduct its business and operations according to its ordinary and usual course
of business and will use all reasonable efforts consistent therewith to cause
each of the Target Companies 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, to maintain satisfactory
relationships with policyholders, agents and regulators and to compile
information necessary for the timely preparation and filing of Tax Returns, in
each case in the ordinary course of business. Without limiting the generality of
the foregoing, and except as otherwise provided in this Agreement and as set
forth in Section 5.1 of the Disclosure Schedule, prior to the Closing, Seller
will not permit any of the Target Companies to, without the prior written
consent of Buyer (not to be unreasonably withheld or delayed):
(a) issue, sell or pledge, or authorize or propose the issuance, sale
or pledge of additional shares of capital stock of any class, or securities
convertible into any such shares, or any rights, warrants or options to acquire
any such shares or other convertible securities;
(b) redeem, purchase or otherwise acquire any outstanding shares of
its capital stock (other than in connection with the Restructuring
Transactions);
(c) propose or adopt any amendment to its Certificate or Articles of
Incorporation or Bylaws;
(d) 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;
(e) increase in any manner the rate or terms of compensation of any
of its directors, officers or other employees, except such increases as are
granted in the ordinary course of business consistent with past practice, or
enter into any employment, severance or collective bargaining agreement;
(f) except in the ordinary course of business, (i) sell, transfer or
otherwise dispose of any of its property or assets (other than in connection
with the Restructuring Transactions or as provided in clause (h) of this Section
5.1) or (ii) mortgage or encumber any of its property or assets;
(g) enter into, materially modify or amend, or terminate any material
agreements, commitments or contracts, except in the ordinary course of business;
(h) make any payments to, transfer any assets to, or receive any
assets from, any affiliate other than a Target Company, except for (i) assets
transferred or received pursuant to an agreement that is effective as of
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September 30, 1999 and disclosed on Section 3.24 of the Disclosure Schedule,
(ii) payments due and payable under (x) that certain surplus debenture in the
original principal amount of $73,000,000, dated May 17, 1996, issued by Pioneer
to Seller, as amended, and (y) that certain surplus debenture in the original
principal amount of $63,700,809, dated July 1, 1997, issued by Pioneer to
Seller, (iii) dividends or other distributions in respect of the capital stock
of any Target Company; provided, however, that with respect to Pioneer, Seller
will permit Pioneer only to distribute and transfer the Statutory Capital of
Pioneer in excess of $1,200,000 on the Closing Date or (iv) subject to
6.1(e)(ii), in connection with the Restructuring Transactions;
(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
$500,000;
(j) amend, adopt or terminate any of its Benefit Plans, except as
required by law;
(k) except as disclosed on Section 3.14 of the Disclosure Schedule,
make any change in accounting methods, principles or practices, except as may be
required by a change in SAP or GAAP or applicable law;
(l) enter into any agreement with an affiliate, other than a Target
Company, that obligates the Target Company to render payments of any kind to
that affiliate;
(m) make any change in the policies, structures or premiums of any of
the Insurance Companies' insurance products;
(n) take any action that would intentionally result in a breach of
the representations and warranties contained in Article III of this Agreement;
(o) agree in writing to take any of the foregoing actions; or
(p) invest in illiquid or Non-Investment Grade Assets.
SECTION 5.2. Access to Information. Between the date hereof and the
Closing Date, Seller shall cause the Target Companies to give to Buyer and its
counsel, accountants, and other authorized representatives and agents, full
access, during regular business hours and upon reasonable advance notice, to any
and all of its premises, properties, contracts, books and records, and will
cause its officers and employees to furnish to Buyer and its representatives any
and all data and information pertaining, directly or indirectly, to the Target
Companies that Buyer shall from time to time reasonably request; provided,
however, that Buyer's rights pursuant to this Section 5.2 shall not be exercised
in a manner which would materially interfere with the day to day operations of
Seller or any Target Company. If the acquisition contemplated herein is
consummated, Buyer covenants and agrees that it shall preserve and keep the
records of the Target Companies delivered to it hereunder for a period of the
greater of the applicable statute of limitations period or five years from the
Closing Date, and shall make such records available to Seller and its
affiliates, as reasonably required by Seller and its affiliates in connection
with any legal proceedings by or against, or governmental investigations of,
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Seller or any of its affiliates, or in connection with any tax examination of
Seller or any consolidated group of which any of it was a part or for any other
proper business purpose of Seller or its affiliates.
SECTION 5.3. HSR Act Filings. As soon as practicable, but in any
event not later than 10 Business Days after the date hereof, Seller and Buyer
shall make appropriate filings with the DOJ under the HSR Act, with respect to
the transactions contemplated by this Agreement. In connection with such
filings, the parties hereto shall, in cooperation with each other, and as
promptly as reasonably practicable from time to time hereafter, make all such
further filings and submissions, and take such further action, as may be
required in connection therewith. Each party shall furnish the others all
information in its possession necessary for compliance by the others with the
provisions of this Section 5.3. No party shall withdraw any such filing or
submission prior to the termination of this Agreement without the written
consent of the other parties.
SECTION 5.4. Regulatory Approvals. As soon as practicable, but in any
event not later than 20 Business Days after the date hereof, Buyer shall file
all applications and other documents, and shall use its reasonable best efforts
to obtain all consents and approvals, as are required to be filed or obtained by
it under the applicable laws of the State of Texas, and of any other applicable
jurisdictions, including all requisite approvals of the insurance regulatory
authorities in such jurisdictions and all other governmental approvals, required
for consummation of the transactions contemplated by this Agreement, in each
case as promptly as is practicable. Seller shall cause each Target Company to
take all such actions (other than the payment of money not then due and owing or
the provision of other consideration) as are reasonably requested by Buyer to
assist Buyer in completing all such filings and obtaining all such consents and
approvals as are required to be made and obtained. Buyer shall take all such
actions (other than the payment of money not then due and owing or the provision
of other consideration) as are reasonably requested by Seller to assist in
completing all filings and obtaining all consents and approvals as Seller or any
Target Company may be required to make and obtain.
SECTION 5.5. All Reasonable Efforts. Subject to the terms and
conditions herein provided, each of the parties hereto agrees to use all
reasonable efforts to take, or cause to be taken, all action, and to do, or
cause to be done as promptly as practicable, all things necessary, proper and
advisable under applicable laws and regulations to consummate and make effective
as promptly as practicable the transactions contemplated by this Agreement. If
at any time after the Closing any further action is necessary or desirable to
carry out the purposes of this Agreement, including, without limitation, the
execution of additional instruments, the proper officers and directors of each
party to this Agreement shall take all such necessary action.
SECTION 5.6. Public Announcements. The parties hereto will consult
with each other and will mutually agree (the agreement of each party not to be
unreasonably withheld or delayed) upon the content and timing of any press
release or other public statements with respect to the transactions contemplated
by this Agreement and shall not issue any such press release or make any such
public statement prior to such consultation and agreement, except as may be
required by applicable law or by obligations pursuant to any listing agreement
with any securities exchange or any stock exchange regulations; provided,
however, that each party will give prior notice to the other parties of the
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content and timing of any such press release or other public statement required
by applicable law or by obligations pursuant to any listing agreement with any
securities exchange or any stock exchange regulations.
SECTION 5.7. Disclosure Supplements. Consistent with the terms of the
preamble to Article III, from time to time prior to the Closing, Seller 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.
SECTION 5.8. No Implied Representations or Warranties. Buyer hereby
acknowledges and agrees that Seller is not making any representation or warranty
whatsoever, express or implied, except those representations and warranties of
Seller explicitly set forth in this Agreement or in the Disclosure Schedule or
in any certificate contemplated hereby and delivered by Seller in connection
herewith. Except as explicitly set forth herein, none of Seller or any of its
Subsidiaries, or any of its respective officers, directors, stockholders,
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 5.9. Employment and Employee Benefits.
(a) On the Closing Date, all Target Employees shall remain employees
of the Target Companies. At and following the Closing Date, Buyer shall be
liable for, and shall indemnify and hold Seller and its affiliates harmless
from, any and all obligations or liabilities, contingent or otherwise, relating
to or arising from the employment or termination of employment of the Target
Employees. Without limiting the generality of the foregoing, Buyer shall assume
and be liable for, and shall indemnify and hold Seller and its affiliates
harmless from, all obligations and other liabilities under each employment,
severance, bonus or retention agreement to which any Target Company is a party;
provided, however, that neither Buyer nor any Target Company shall be liable for
the Transaction Bonus payable pursuant to that certain Employment Agreement,
dated September 1, 1999, among PennCorp, AA Life and Shelby ("Lanny") Land
Peavy, as such term is described in Addendum B thereto.
(b) At and following the Closing Date, Buyer shall pay the
liabilities and expenses, and shall indemnify and hold Seller harmless, with
respect to the Benefit Plans as they relate to Target Employees. Such Benefit
Plans, as they relate to Target Employees, are "Buyer Plans" for purposes of
this Agreement.
(c) Buyer shall, and shall cause its subsidiaries (including the
Target Companies), to provide employee benefits and compensation for Target
Employees that are at least substantially comparable in the aggregate to the
employee benefits and compensation (i) provided by Seller or its affiliates
under the Benefit Plans and compensation arrangements in effect as of the
Closing Date or (ii) provided by Buyer to similarly situated employees of Buyer
under its employee benefit plans and compensation arrangements.
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(d) If Target 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 Seller
or any of its subsidiaries or affiliates to the same extent such service was
counted under similar Benefit Plans for purposes of eligibility, vesting and
eligibility for retirement, and benefit accrual with respect to vacation,
disability and severance. Buyer shall provide medical, dental and health plan
coverage to Target 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 Target Employee in the calendar year of the Closing.
(e) As soon as practicable after the Closing Date, Buyer shall cause
a 401(k) plan maintained by Buyer or the Target Companies to accept "eligible
rollover contributions," within the meaning of Section 402(f)(2)(A) of the Code,
from any 401(k) plan maintained by Seller or its subsidiaries or affiliates
prior to the Closing Date, for the benefit of Target Employees.
SECTION 5.10. Acquisition Proposal. From the date hereof until the
earlier of (a) the Closing, (b) the termination of this Agreement pursuant to
Section 9.2 hereof or (c) the filing of a Chapter 11 Case (in which event the
provisions of Section 5.11 shall govern), and except as expressly permitted by
the following provisions of this Section 5.10, Seller will not, nor will it
permit any of its Subsidiaries to, nor will it authorize or permit any officer,
director or employee of or any investment banker, attorney, accountant or other
advisor or representative of, Seller or any of its Subsidiaries to, directly or
indirectly, (i) solicit, initiate or encourage the submission of any Acquisition
Proposal or (ii) participate in any discussions or negotiations regarding, or
furnish to any person any information with respect to any Acquisition Proposal;
provided, however, that nothing contained in this Section 5.10 shall prohibit
the Board of Directors of Seller from furnishing information to, or entering
into discussions or negotiations with, any person that makes an unsolicited bona
fide written Acquisition Proposal if, and only to the extent that (A) such
Acquisition Proposal constitutes a Superior Proposal, or (B) such Acquisition
Proposal constitutes a Recapitalization Transaction and (C) prior to taking such
action, Seller (x) provides reasonable notice to Buyer to the effect that it is
taking such action and (y) receives from such person an executed confidentiality
agreement in reasonably customary form. Prior to providing any information to or
entering into discussions or negotiations with any person in connection with an
Acquisition Proposal by such person, Seller shall notify Buyer of any
Acquisition Proposal (including, without limitation, the material terms and
conditions thereof and the identity of the person making it) as promptly as
practicable after its receipt thereof, and shall provide Buyer with a copy of
any written Acquisition Proposal or amendments or supplements thereto, and shall
thereafter inform Buyer on a prompt basis of the status of any discussions or
negotiations with such a third party, and any material changes to the terms and
conditions of such Acquisition Proposal, and shall promptly give Buyer a copy of
any information delivered to such person which has not previously been reviewed
by Buyer. Following the commencement of a Chapter 11 Case, the solicitation and
acceptance of competing offers (including Acquisition Proposals) will be
governed by Section 5.11. Nothing in this Section 5.10 (or otherwise in this
Agreement) will restrict the ability of Seller to enter into or continue
discussions or negotiations, or to provide information to appropriate persons in
connection with any contemplated Recapitalization Transaction.
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SECTION 5.11. Bankruptcy Court Approval
(a) On or before three Business Days after the commencement of a
Chapter 11 Case, Seller shall file a motion or motions with the Bankruptcy Court
seeking entry of (i) the Approval Order (as defined in Section 5.11(d)) pursuant
to Section 363 of the Bankruptcy Code and authorization to consummate the
transactions contemplated by this Agreement, all subject to higher and better
offers, and (ii) an order (the "Sale Procedures Order"), in form and substance
reasonably satisfactory to Buyer and Seller, (A) providing that in the event the
obligation to pay the Bankruptcy Termination Amount under Section 9.1(b) of this
Agreement arises, such obligation will constitute an administrative expense
under Sections 503(b) and 507(a)(1) of the Bankruptcy Code and will be payable
in accordance with Section 9.1(b) without any further order of the Bankruptcy
Court, (B) establishing procedures for the submission of competing offers
(including Acquisition Proposals) and (C) scheduling a hearing to consider the
Approval Order and prescribing the form and manner of notice thereof. Buyer and
Seller agree to make promptly any filings, to take all actions and to use their
reasonable best efforts to obtain any and all other approvals and orders
necessary or appropriate for the consummation of the transactions contemplated
hereby.
(b) Prior to entry of the Approval Order, each of Seller and Buyer
will accurately inform the Bankruptcy Court of all material facts of which it is
aware relating to this Agreement and the transactions contemplated hereby.
(c) If the Approval Order, Sale Procedures Order or any other orders
of the Bankruptcy Court relating to this Agreement shall be appealed by any
party (or a petition for certiorari or motion for hearing or reargument shall be
filed with respect thereto), Seller agrees to take all steps as may be
reasonable and appropriate to defend against such appeal, petition or motion,
and Buyer agrees to cooperate in such efforts, and each party hereto agrees to
use its best efforts to obtain an expedited resolution of such appeal; provided,
however, that nothing herein shall preclude the parties hereto from consummating
the transactions contemplated herein if the Approval Order shall have been
entered and is not stayed and Buyer, in its sole discretion, waives the
requirement that the Approval Order be a Final Order.
(d) Prior to Closing, the sale of the Shares (the "Estate Property")
to Buyer pursuant to this Agreement and the other transactions contemplated by
this Agreement shall have been approved by order of the Bankruptcy Court
pursuant to Section 363 of the Bankruptcy Code, in form and substance reasonably
satisfactory to Buyer and Seller (the "Approval Order") and the Approval Order
shall have been entered and become a Final Order. It being understood that
certain provisions may be contained in the findings of fact or conclusions of
law to be made by the Bankruptcy Court, the proposed Approval Order shall
include provisions that: (i) the transfers of the Estate Property by Seller to
Buyer (A) are or will be legal, valid and effective transfers of the Estate
Property; (B) vest or will vest Buyer with all right, title and interest of
Seller to the Estate Property free and clear of all Liens and Claims pursuant to
Section 363(f) of the Bankruptcy Code (other than Liens created by Buyer); and
(C) constitute transfers for reasonably equivalent value and fair consideration,
(ii) all Persons are enjoined from in any way pursuing Buyer to recover any
Claim which such Person has against any of the Seller or its Affiliates
(excluding the Target Companies); (iii) the obligations of Seller relating to
Taxes shall be fulfilled by Seller; (iv) the Bankruptcy Court retains exclusive
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jurisdiction through the Bankruptcy Resolution Date to interpret and enforce the
provisions of this Agreement the Sale Procedure Order and the Approval Order in
all respects; provided, however, that in the event the Bankruptcy Court abstains
from exercising or declines to exercise jurisdiction with respect to any matter
provided for in this clause (iv) or is without jurisdiction, such abstention,
refusal or lack of jurisdiction shall have no effect upon and shall not control,
prohibit or limit the exercise of jurisdiction of any other court having
competent jurisdiction with respect to any such matter; (v) the provisions of
the Approval Order are nonseverable and mutually dependent; and (vi) the
transactions contemplated by this Agreement are undertaken by Buyer and Seller
at arm's length, without collusion and in good faith within the meaning of
section 363(m) of the Bankruptcy Code, and such parties are entitled to the
protections of section 363(m) of the Bankruptcy Code.
(e) Seller shall cooperate reasonably with Buyer and its
representatives in connection with the Approval Order and the Sale Procedures
Order. Such cooperation shall include, but not be limited to, consulting with
Buyer at Buyer's reasonable request concerning the status of such orders and the
related proceedings and providing Buyer with copies of requested pleadings,
notices, proposed orders and other documents relating to such proceedings to the
extent available prior to any submission thereof to the Bankruptcy Court.
(f) In the event Seller notifies Buyer by a written notice that
Seller will not commence a Chapter 11 Case, this Section 5.11 hereof will have
no further effect.
SECTION 5.12. Consulting. Until the Closing Date, Seller shall
consult with Buyer with respect to the conduct of the business operations of the
Target Companies and Seller shall, consistent with its fiduciary duties,
consider implementing such changes as Buyer may advise; provided, however, that
Buyer shall have no authority nor any responsibilities with respect to the
management of the Target Companies.
SECTION 5.13. Allocation of Purchase Price. The Buyer and Seller
shall, no later than 10 business days prior to the Closing Date, mutually agree
on the proper allocation of the Purchase Price as among the various Target
Companies. If the Parties cannot agree to a proper allocation, such dispute
shall be resolved by an independent accounting firm mutually acceptable to
Seller and Buyer. The fees and expenses of such accounting firm shall be borne
by Buyer. Buyer and Seller shall report the Tax consequences of the transactions
contemplated by this Agreement consistently with such allocations and shall take
no position inconsistent with such allocations in any Tax Return.
ARTICLE VI
CLOSING CONDITIONS
SECTION 6.1. Conditions to the Obligations of Buyer under this
Agreement. The obligation of Buyer under this Agreement to consummate the
acquisition of the Shares (the "Acquisition") shall be subject to the
satisfaction, at or prior to the Closing, of the following conditions:
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(a) All authorizations, consents and approvals of third parties and
Governmental Authorities specified in Section 3.6 of the Disclosure Schedule
shall have been obtained and shall be in full force and effect;
(b) Any waiting period applicable to the consummation of the
Acquisition under the HSR Act shall have expired or been terminated;
(c) No injunction, restraining order or other ruling or order issued
by any Governmental Authority or other legal restraint or prohibition preventing
the consummation of the Acquisition shall be in effect;
(d) (i) Each of the obligations of Seller required to be performed by
it at or prior to the Closing pursuant to this Agreement shall have been duly
performed and complied with in all material respects, (ii) the representations
and warranties of Seller shall be true and correct, except where the failure to
be true and correct would not reasonably be expected to have a Material adverse
effect, as of the date of this Agreement and as of the Closing as though made at
and as of the Closing (except as to any representation or warranty which
specifically relates to an earlier date) and (iii) Buyer shall have received a
certificate to the foregoing effect signed by a senior officer of Seller;
(e) Pioneer shall have (i) disposed by sale, transfer or other
disposition all of the outstanding shares of Security Life (with or without
consideration) to an entity other than a Target Company and (ii) consummated the
Restructuring Transactions, as described in Annex G hereto (without causing
Target Companies any financial obligations, tax or otherwise);
(f) All contracts, agreements, obligations, commitments and
liabilities between any of the Target Companies and Seller or its Affiliates
(other than the Target Companies) shall be terminated or rejected prior to the
Closing without any payment by any of the Target Companies other than (i)
payments made consistent with past practice in accordance with the agreements or
arrangements described in Section 3.24 of the Disclosure Schedule and (ii) with
respect to services subcontracted to an unaffiliated third party under such
other contracts, agreements, obligations, commitments and liabilities, such
portion as is reasonably allocable to the Target Companies of any early
termination fee payable to such unaffiliated third party under a termination
provision identified in Section 6.1(f) of the Disclosure Schedule. Not later
than 30 days following the Closing, Seller shall prepare and submit to Buyer a
computation of amounts owing to Seller or any of its Affiliates (other than the
Target Companies) consistent with past practice in accordance with such
agreements or arrangements as of the Closing Date. Buyer shall pay such amounts
to Seller not later than 15 days following its receipt of such computation,
together with reasonably detailed documentation supporting the allocation of any
portion of an early termination fee to the Target Companies. Buyer and Seller
will work together in good faith to minimize any early termination fees payable
hereunder.
(g) The Seller shall have prepared a Closing Statement and delivered
such Closing Statement to Buyer at least three days before the Closing;
(h) The Statutory Capital of the Target Companies as shown on the
Closing Statement for the Target Companies shall be at least $51,200,000 less an
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amount equal to the amount of dividends paid with respect to capital stock by
Occidental and AA Life (such amount, the "Required Closing Capital"); provided,
however, that if such Statutory Capital is less than the Required Closing
Capital, Seller shall contribute to Pioneer such amount at or prior to the
Closing Date as is required to provide the Required Closing Capital; and
(i) If a Chapter 11 Case is commenced, the Approval Order shall have
been entered and shall have become a Final Order;
provided, however, that any of the above conditions that is susceptible to
numerical quantification may be deemed satisfied if the Buyer and Seller
mutually agree on an adjustment to the Purchase Price.
SECTION 6.2. Conditions to the Obligations of Seller under this
Agreement. The obligations of Seller under this Agreement to consummate the
Acquisition shall be subject to the satisfaction, at or prior to the Closing, of
the following conditions:
(a) Pioneer shall have disposed by sale, transfer or other
disposition of all of the outstanding shares of Security Life (with or without
consideration) to an entity other than a Target Company and shall have
consummated the Restructuring Transactions, as described in Annex G hereto;
(b) All authorizations, consents and approvals of third parties and
Governmental Authorities specified in Section 4.4 of the Disclosure Schedule
shall have been obtained and shall be in full force and effect;
(c) Any waiting period applicable to the consummation of the
Acquisition under the HSR Act shall have expired or been terminated;
(d) 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;
(e) (i) Each of the obligations of Buyer required to be performed by
it at or prior to the Closing pursuant to the terms of this Agreement shall have
been duly performed and complied with in all material respects, (ii) the
representations and warranties of Buyer contained in this Agreement shall be
true and correct in all material respects, except where the failure to be true
and correct would not reasonably be expected to have a Buyer Material Adverse
Effect, 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 (iii) Seller shall have
received a certificate to that effect signed by an officer of Buyer;
(f) Buyer shall assume the obligations with respect to the provision
and administration of the Benefit Plans disclosed in Section 3.13(g) of the
Disclosure Schedule for the Target Employees;
(g) Buyer shall have assumed through reinsurance contracts the
insurance policies in effect as of the Closing at Pacific Life and Accident
Corporation, a Texas insurance corporation; and
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(h) If a Chapter 11 Case is commenced, the Approval Order shall have
been entered and become a Final Order.
ARTICLE VII
CLOSING
SECTION 7.1. Closing. The closing of the Acquisition (the "Closing")
shall take place at the offices of Weil, Gotshal & Manges LLP, 767 Fifth Avenue,
New York, New York 10153, subject to the satisfaction or waiver of the
conditions set forth in Sections 6.1 and 6.2, as soon as practicable after the
date hereof or at such other time and place and on such other date as Buyer and
Seller shall agree (the "Closing Date"). As a further condition to Closing, at
the Closing:
(a) Seller shall deliver or cause to be delivered to Buyer the
following:
(i) the certificate described in Section 6.1(d);
(ii) certificates representing all of the Shares in appropriate form
for transfer to Buyer, duly endorsed in blank or accompanied by stock powers
duly executed in blank; and
(iii) such other documentation as may reasonably be requested by
Buyer to evidence satisfaction of all conditions to Closing.
(b) Buyer shall deliver or cause to be delivered to Seller the
certificate described in Section 6.1(d).
(c) Buyer shall pay the Purchase Price to Seller, by wire transfer of
immediately available funds.
ARTICLE VIII
SURVIVAL
SECTION 8.1. Survival of Representations, Warranties and Covenants.
(a) The representations, warranties and pre-Closing covenants of
Seller and Buyer contained in this Agreement shall not survive the Closing.
(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 in whole or in part after the Closing will survive the Closing
and remain in effect indefinitely.
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ARTICLE IX
TERMINATION AND ABANDONMENT
SECTION 9.1. Termination Payment.
(a) In the event that this Agreement is terminated pursuant to
Section 9.2(b)(i), 9.2(c)(i), 9.2(d)(iii) or 9.2(d)(iv), then Seller shall be
obligated to pay Buyer $2,100,000 in cash (the "Termination Amount"); provided,
however, in no event shall Seller be obligated to pay to Buyer the Termination
Amount because of a breach of representation or warranty, including but not
limited to a breach within the meaning of Section 9.2(c)(i)(B), resulting from
an event or matter occurring or arising subsequent to the date of this
Agreement. The Termination Amount shall be paid immediately upon termination of
this Agreement.
(b) In the event this Agreement is terminated pursuant to Section
9.2(b)(ii) and the transaction approved by the Bankruptcy Court (as described in
Section 9.2(b)(ii)) is consummated, then Seller shall be obligated to pay Buyer,
immediately upon the consummation of the transaction that was approved by the
Bankruptcy Court, $2,100,000 in cash (the "Bankruptcy Termination Amount"). In
the event this Agreement is terminated pursuant to Section 9.2(b)(v) or Section
9.2(b)(vi), then (x) Seller shall be obligated to pay Buyer, immediately upon
such termination of this Agreement, an amount equal to Buyer's reasonable out of
pocket expenses (including but not limited to reasonable attorney's fees and
expenses incurred in connection with the negotiation or performance of this
Agreement or its due diligence investigation of the Target Companies in
connection with this Agreement (the "Buyer Expenses Amount"), and (y) if, within
nine months following such termination of this Agreement, Seller or the Target
Companies consummate a Recapitalization Transaction or a sale of the Target
Companies or substantially all of the assets of the Target Companies to a Person
other than Buyer or an Affiliate of Buyer, then Seller shall be obligated to pay
to Buyer, immediately upon the consummation of such transaction, an amount equal
to the Bankruptcy Termination Amount less the Buyer Expenses Amount previously
paid to Buyer. The payment of the amounts provided for in this Section 9.1(b)
shall be subject to Bankruptcy Court approval.
SECTION 9.2. Termination. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned at any time prior to the
Closing:
(a) by consent of Seller and Buyer;
(b) by Seller or Buyer:
(i) if both (A) a Chapter 11 Case is not commenced on or before the
date that is 60 days following the date of this Agreement and (B) a Closing
shall not have occurred within 120 days after the date of this Agreement, which
date may be extended by Buyer or Seller for up to two successive thirty (30) day
periods if any of the consents or approvals of any Governmental Authority
required to consummate the transactions contemplated hereby have not been
obtained, and as of the time of such termination of this Agreement, a Chapter 11
Case has not been commenced; provided, that no termination under this Section
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9.2(b)(i) shall be effective until the Termination Amount shall have been paid
to Buyer;
(ii) if, following the commencement of a Chapter 11 Case, the
Bankruptcy Court approves a Recapitalization Transaction or a sale of any Target
Company or all or substantially all of the assets of any Target Company to a
Person other than Buyer or an Affiliate of Buyer;
(iii) if a Governmental Authority shall have issued an order, decree
or ruling or taken any other action (which order, decree or ruling the parties
hereto shall use their best efforts to lift), in each case permanently
restraining, enjoining or otherwise prohibiting the transactions contemplated by
this Agreement, and such order, decree, ruling or other action shall have become
final and nonappealable;
(iv) if any Governmental Authority whose consent or approval is
required to consummate the transactions contemplated hereby shall have informed
Seller or Buyer in writing that such consent or approval will not be granted;
(v) if a Chapter 11 Case is commenced and if the Sale Procedures
Order shall not have been entered by the Bankruptcy Court within 20 days of the
filing of bankruptcy petition by Seller and, as of the time of such termination
of this Agreement, the Sales Procedures Order has not been entered by the
Bankruptcy Court; or
(vi) if a Chapter 11 Case is commenced and if the Approval Order has
not been entered by the Bankruptcy Court within 50 days of the filing of the
bankruptcy petition by Seller and, as of the time of such termination of this
Agreement, the Approval Order has not been entered by the Bankruptcy Court.
(vii) if Buyer has not provided evidence of financing reasonably
satisfactory to Seller and Buyer on or before January 24, 2000.
(c) by Buyer if
(i) a material default or breach shall be made by Seller (A) with
respect to the due and timely performance of any of its covenants or agreements
contained herein, or (B) (subject to the proviso set forth below) in any of its
representations or warranties contained in this Agreement, if such default or
breach within the meaning of Section 9.2(c)(i)(A) or (B) has not been cured or
waived by the earlier of the Closing Date or that date which is ten (10)
business days after written notice to Seller specifying, in reasonable detail,
such claimed material default or breach and demanding its cure or satisfaction;
provided, however, in no event shall Buyer be entitled to terminate this
Agreement in the event of a breach by Seller of a representation or warranty
unless such breach is Material and the parties have failed following good faith
negotiations to mutually agree on a reduction to the Purchase Price in respect
thereof, or (C) consistent with the terms of the preamble to Article III, Seller
delivers an updated Disclosure Schedule containing a Material adverse change and
Buyer and Seller are unable to negotiate a mutually acceptable reduction to the
Purchase Price in respect thereof.
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(ii) any condition set forth in Section 6.1 has become incapable of
fulfillment and Buyer has not waived such condition,
(iii) an event occurs that constitutes a Material Adverse Change,
(d) by Seller if
(i) a material default or breach shall be made by Buyer with respect
to the due and timely performance of any of its covenants or agreements
contained herein, or 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 by the earlier of the Closing Date or the
date which is 10 business days after written notice to Buyer specifying, in
reasonable detail, such claimed material default or breach and demanding its
cure or satisfaction; provided, however, in no event shall Seller be entitled to
terminate this Agreement in the event of a breach by Buyer of a representation
or warranty unless the failure of such representation or warranty to be true and
complete would have a Buyer Material Adverse Effect,
(ii) any condition set forth in Section 6.2 has become incapable of
fulfillment and Seller has not waived such condition,
(iii) if prior to the commencement of a Chapter 11 Case, the Board of
Directors of Seller authorizes Seller, subject to complying with the terms of
this Agreement, to enter into a binding written agreement concerning a
transaction that constitutes a Superior Proposal and Seller notifies Buyer in
writing that it intends to enter into such an agreement, attaching the most
current version of such agreement to such notice and during the five-day period
after Seller's notice, (A) Seller shall have offered to Buyer the opportunity to
make such adjustments in the terms and conditions of its offer such that any
third party Acquisition Proposal no longer continues to be a Superior Proposal
and (B) Seller shall have reasonably concluded, upon the termination of such
five day period, that any Acquisition Proposal giving rise to Seller's notice
continues to be a Superior Proposal; provided, that no termination under this
Section 9.2(d)(iii) shall be effective until the Termination Amount shall have
been paid to Buyer;
(iv) if, prior to the commencement of a Chapter 11 Case, the Board of
Directors of Seller authorizes Seller to enter into a binding written agreement
for a Recapitalization Transaction; provided, that no termination under this
Section 9.2(d)(iv) shall be effective until the Termination Amount shall have
been paid to Buyer.
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
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(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 the proviso of Section 9.2(b)(iii)
shall remain in full force and effect, (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 and (iii) that the obligations of Buyer
under the Confidentiality Agreement dated July 9, 1999, shall remain in full
force and effect; provided, however, that in the event Buyer is entitled to
receive the Termination Amount or the Bankruptcy Termination Amount, the right
of the Buyer to receive such amount shall constitute Buyer's sole remedy for
(and such amount shall constitute liquidated damages in respect of) any breach
by Seller of any of its representations, warranties, covenants or agreements set
forth in this Agreement.
SECTION 9.4. No Default. Notwithstanding anything in this Agreement
to the contrary, it is expressly understood and agreed that no default, breach,
or failure by Seller to satisfy any covenant, representation, warranty or
agreement in or under this Agreement shall be deemed to arise under this
Agreement if the event, act or omission that otherwise would constitute a
default, breach or failure to satisfy any covenant, representation, warranty or
agreement arises as a result of or in connection with (a) the commencement,
prosecution or pendency of a Chapter 11 Case or (b) the failure to commence a
Chapter 11 Case.
ARTICLE X
MISCELLANEOUS PROVISIONS
SECTION 10.1. Amendment and Modification. This Agreement may only be
amended, modified or supplemented by a written instrument signed by all the
parties hereto.
SECTION 10.2. Waiver of Compliance; Consents. Any failure of Buyer to
comply with any obligation, covenant, agreement or condition contained herein
may be waived in writing by Seller, 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 Seller 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 10.3. Severability. If any term or other provision of this
Agreement is invalid, illegal, or incapable of being enforced by any law or
public policy, all other terms or provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal, or incapable of being enforced, the parties
hereto shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as possible in an acceptable
manner in order that the transactions contemplated hereby are consummated as
originally contemplated to the greatest extent possible.
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SECTION 10.4. Expenses and Obligations. Each party shall be
responsible for paying all costs and expenses incurred by it in connection with
the consummation of the transactions contemplated by this Agreement.
SECTION 10.5. Parties in Interest. This Agreement shall be binding
upon and inure solely to the benefit of each party hereto and their permitted
successors and assigns, and nothing in this Agreement, express or implied, is
intended to confer upon any other Person any rights or remedies of any nature
whatsoever under or by reason of this Agreement; provided, however, that
affiliates of Seller shall have the right to assert and recover with respect to
claims made in connection with Buyer's obligations under Sections 5.2 and 5.9.
SECTION 10.6. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given upon the earlier of delivery
thereof if by hand or upon receipt if sent by mail (registered or certified,
postage prepaid, return receipt requested) or on the second next Business Day
after deposit if sent by a recognized overnight delivery service or upon
transmission if sent by telecopy or facsimile transmission (with electronic
acknowledgement of transmission confirmed) as follows:
(a) If to Buyer, to:
Thoma Cressey Equity Partners
Sears Tower, 44th Floor
233 South Wacker Drive
Chicago, IL 60606-6303
Attention: Carl D. Thoma
Facsimile No.: (312) 777-4421
with a copy to:
Hogan & Hartson L.L.P.
555 13th Street, N.W.
Washington, D.C. 20001
Attention: J. Hovey Kemp, Esq.
Facsimile No.: (202) 637-5910
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(b) If to Seller, to:
American-Amicable Holdings Corporation
c/o Southwestern Financial Services Corp.
717 North Harwood Street
Dallas, Texas 75201-6538
Attention: Scott D. Silverman, Esq.
Facsimile No.: (214) 954-7906
with a copy to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attention: Thomas A. Roberts, Esq.
Facsimile No.: (212) 310-8007
SECTION 10.7. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without regard to
the conflicts-of-laws rules thereof.
SECTION 10.8. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement.
SECTION 10.9. Headings. The article and section headings contained in
this Agreement are solely for the purpose of reference, are not part of the
agreement of the parties and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 10.10. Entire Agreement. This Agreement, Annexes A through G
including the Disclosure Schedule attached as Annex A hereto and the
Confidentiality Agreement dated July 9, 1999 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
and the attached annexes supersede all prior agreements and understandings
between the parties (other than the Confidentiality Agreement referenced above)
with respect to such subject matter.
SECTION 10.11. Assignment. This Agreement shall not be assigned by
operation of law or otherwise; provided, however, that Buyer may assign this
Agreement to any affiliate of Thoma Cressey Equity Partners; provided further,
that notwithstanding any such assignment, Buyer shall not be relieved of any of
its obligations pursuant to this Agreement.
SECTION 10.12. Third Party Beneficiaries. This Agreement shall not
confer any rights or remedies upon any person other than Seller, Buyer and their
respective successors and permitted assigns
SECTION 10.13. Construction. This Agreement has been jointly drafted
by, and shall not be construed against, Buyer or Seller.
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ARTICLE XI
TAX MATTERS
SECTION 11.1. Tax Sharing Agreements. Any tax sharing agreement
between Seller or certain of its Affiliates and any of the Target Companies is
terminated as of the Closing Date and will have no further effect for any
taxable year (whether the current year, a future year, or a past year).
SECTION 11.2. Preparation of Tax Returns; Payment of Taxes.
(a) Seller shall cause the Target Companies to be included in, and
shall file or cause to be filed, (i) the United States consolidated federal
income Tax Returns in which the Target Companies are required to be included for
all taxable periods of Target Companies for which Tax Returns are required to be
filed on or prior to the Closing Date (taking into account any extensions) and
(ii) where applicable, all other consolidated, combined or unitary Tax Returns
in which the Target Companies are required to be included for all taxable
periods of Target Companies for which Tax Returns are required to be filed on or
prior to the Closing Date (taking into account any extensions). Seller shall
pay, or cause to be paid, all Taxes shown due with respect to the returns
referred to in clauses (i) or (ii) of this Section 11.2(a). Seller also shall
cause Target Companies to file all other Tax Returns of, or which include,
Target Companies and are required to be filed on or prior to the Closing Date
(taking into account any extensions) and shall pay, or cause to be paid, any and
all Taxes shown due with respect to such Tax Returns. All Tax Returns described
in this Section 11.2(a) shall be prepared in a manner consistent with past
practice unless a past practice has been finally determined to be incorrect by
the applicable taxing authority or a contrary treatment is required by
applicable tax laws (or the judicial or administrative interpretations thereof).
Buyer shall be responsible for preparing, or causing to be prepared, all other
Tax Returns required to be filed by Target Companies after the Closing Date, and
shall pay or cause to be paid, all Taxes due with respect to such Tax Returns.
(b) Buyer and Seller agree to furnish or cause to be furnished to
each other, and each at their own expense, as promptly as practicable, such
information (including access to books and records) and assistance, including
making employees available on a mutually convenient basis to provide additional
information and explanations of any material provided, relating to Target
Companies as is reasonably necessary for the filing of any Tax Returns, for the
preparation for any audit, and for the prosecution or defense of any claim, suit
or proceeding relating to any adjustment or proposed adjustment with respect to
Taxes. Buyer or Target Companies shall retain in its possession, and shall
provide Seller reasonable access to (including the right to make copies of),
such supporting books and records and any other materials that Seller may
specify with respect to matters relating to Taxes for any taxable period ending
on or prior to the Closing Date until the relevant statute of limitations has
expired. After such time, Buyer may dispose of such material, provided that
prior to such disposition Buyer shall give Seller a reasonable opportunity to
take possession of such materials.
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SECTION 11.3. Special Provisions Affecting Security Life.
(a) Buyer shall immediately pay to Security Life any Tax refund (or
reduction in Tax liability) resulting from a carryback of a post-acquisition Tax
attribute of Security Life into a consolidated, combined or unitary Tax Return
of the Target Companies when such refund (or reduction in Tax liability) is
realized by the Target Companies. Seller, Buyer and Target Companies shall
cooperate in obtaining such refunds (or reduction in Tax liability), including
through the filing of amended Tax Returns.
(b) Buyer shall indemnify and hold harmless Security Life and Seller
from any liability for Taxes in respect of any Tax Returns of Security Life or
in which Security Life was included for all periods ending on or prior to the
Closing Date and for any Tax Returns which include Security Life and the Target
Companies for any period that includes the Closing Date.
SECTION 11.4. Post-Closing Elections. At Seller's request, Buyer will
cause any of the Target Companies to make or join with Seller in making any
other election if the making of such election does not have a material adverse
impact on Buyer (or any of the Target Companies) for any post-acquisition Tax,
including any election that could be made by Pioneer under Treasury Regulations
ss. 1.1502-20(g).
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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.
PIONEER-OCCIDENTAL HOLDINGS COMPANY
By: /s/ Carl D. Thoma
------------------------------------
Name: Carl D. Thoma
Title: President
AMERICAN-AMICABLE HOLDINGS CORPORATION
By: /s/ Scott D. Silverman
------------------------------------
Name: Scott D. Silverman
Title: Executive Vice President
40
Exhibit 99.1
Media Contact: Ann Julsen
Maya Pogoda
Sitrick And Company
(214) 954-7913
(310) 788-2850
Investor Contact: Linda Press
Sitrick And Company
(310) 788-2850
FOR IMMEDIATE RELEASE
PENNCORP FINANCIAL REACHES AGREEMENTS FOR SALE OF OPERATING COMPANIES
New York - January 10, 2000 -- PennCorp Financial Group, Inc.
(NYSE:PFG) announced today that it has entered into a definitive agreement for
the sale of Southwestern Life Insurance Company and Security Life & Trust
Insurance Company to Reassure America Life Insurance Company, an indirect U.S.
subsidiary of Swiss Reinsurance Company of Zurich, Switzerland, for $260 million
in cash, subject to certain adjustments. The sale agreement requires that the
Company effectuate the sale through a voluntary Chapter 11 case, subject to
bankruptcy court approval.
The Chapter 11 case will only affect the holding company, PennCorp
Financial Group, Inc., and certain non-insurance company affiliates. None of the
insurance company subsidiaries will be included in the case.
The Company, through its subsidiary American-Amicable Holdings Corp.,
has also entered into a definitive agreement for the sale of its Waco,
Texas-based insurance operations to a new acquisition company formed by Thoma
Cressey Equity Partners for $102 million in cash, subject to certain
adjustments. The Waco-based operations include Pioneer Security Life Insurance
Company, Occidental Life Insurance Company of North Carolina, American-Amicable
Life Insurance Company of Texas and Pioneer American Insurance Company.
Both sale agreements permit the Company to consider alternative sale
or recapitalization proposals. In the event alternative offers are accepted, a
transaction termination fee would be paid to Swiss Re and/or Thoma Cressey. The
closing of each sale transaction is subject to customary conditions including
regulatory approvals. In addition, the sale of the Waco-based companies is
contingent upon the buyer's receipt of financing commitments.
The gross proceeds from the sale transactions, estimated to total
approximately $360 million, should provide full payment of PennCorp's
approximately $165 million of bank debt, approximately $115 million of
subordinated debt, and other unsecured claims. It is anticipated that any
C:\WINDOWS\TEMP\455w03.DOC
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balance would be distributed to the Company's preferred stockholders, and no
distribution would be made to the Company's common stockholders.
Keith A. Maib, PennCorp President and Chief Executive Officer, said,
"PennCorp intends to move forward with the sales of the insurance companies
expeditiously in order to preserve their value. The sale transactions are
targeted to close prior to the end of the first quarter."
"During 1999, as a key component of its restructuring initiatives,
PennCorp completed a series of divestitures as part of a program to reduce debt,
decrease operating costs and seek solutions to strengthen its balance sheet,"
Mr. Maib said. "After careful evaluation, the board and management determined
that a sale of the core insurance companies is in the best interests of the
Company, including the policyholders of its insurance subsidiaries. This course
of action will allow us to maximize the value of the enterprise and ensure the
continuing operations of the core assets, and should provide full payment of all
of the Company's obligations to its creditors."
Mr. Maib also said, "The Company's senior management team has been
communicating regularly with insurance regulators, who have assured
policyholders that each of the insurance companies being sold has adequate
capitalization and sufficient liquidity to meet their obligations to
policyholders. The Company believes it will have adequate financial resources to
fund operations during the restructuring period, and the Chapter 11 proceeding
will have no material impact on the insurance subsidiaries and their
policyholders. We will continue to provide our insurance products and serve our
policyholders as before."
Wasserstein Perella & Co., Inc. acted as financial advisor on the
transactions.
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 throughout the United
States.
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
rates levels and stock market performance, which may affect the ability of
PennCorp to sell its products, the market value of PennCorp's investments and
lapse rate 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
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initiatives; (4) mortality, morbidity and other factors that may affect the
profitability of PennCorp's insurance product; (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 continued ability to address Year 2000
issues; (10) PennCorp's ability to consummate its contemplated sales of its
remaining operating subsidiaries; (11) unanticipated litigation, and (12) other
risk factors and uncertainties cited in PennCorp's periodic filings with the
Securities and Exchange Commission. There can be no assurance that other factors
not currently anticipated by management will not also materially and adversely
affect the Company.
3
