FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION
13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1998 or
TRANSITION REPORT PURSUANT TO SECTION
13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission file number: 33-64820
AMERICO LIFE, INC.
(exact name of registrant as specified in its charter)
MISSOURI
(State of other jurisdiction of incorporation or organization)
43-1627599
(I.R.S. Employer Identification No.)
1055 BROADWAY
KANSAS CITY, MISSOURI 64105
(Address of principal executive offices)
(816) 391-2000
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class and Title of Shares Outstanding
Capital Stock as of November 13, 1998
------------- -----------------------
Common Stock $1.00 Par Value 10,000
<PAGE>
AMERICO LIFE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands - unaudited)
<TABLE>
September 30, December 31,
1998 1997
---- ----
<S> <C> <C>
Assets
Investments:
Fixed maturities:
Held to maturity, at amortized cost (market: $870,533 and
$873,935) $ 823,861 $ 851,823
Available for sale, at market (amortized cost: $780,934 and
$735,955) 815,025 761,084
Equity securities, at market (cost: $48,859 and $50,837) 81,124 78,949
Investment in equity subsidiaries 15,404 21,670
Mortgage loans on real estate, net 192,183 165,630
Investment real estate, net 18,957 27,630
Policy loans 194,685 200,137
Other invested assets 23,014 18,890
----------- -----------
Total investments 2,164,253 2,125,813
Cash and cash equivalents 73,091 36,859
Accrued investment income 29,776 27,620
Amounts receivable from reinsurers 1,378,086 1,429,679
Other receivables 38,323 23,875
Deferred policy acquisition costs 86,946 87,840
Cost of business acquired 259,762 300,180
Amounts due from affiliate 9,506 -
Other assets 36,917 29,370
----------- -----------
Total assets $ 4,076,660 $ 4,061,236
=========== ===========
Liabilities and stockholder's equity
Policyholder account balances $ 2,513,060 $ 2,486,436
Reserves for future policy benefits 835,126 881,583
Unearned policy revenues 29,343 36,063
Policy and contract claims 35,374 36,570
Other policyholder funds 92,186 75,960
Notes payable 132,751 132,884
Amounts payable to reinsurers 17,189 12,200
Federal income taxes payable - 164
Deferred income taxes 63,047 58,126
Due to broker 49,222 31,836
Amounts due to affiliates - 3,137
Other liabilities 52,612 59,415
----------- -----------
Total liabilities 3,819,910 3,814,374
Stockholder's equity:
Common stock ($1 par value; 30,000 shares authorized,
10,000 shares issued and outstanding) 10 10
Additional paid-in capital 3,745 3,745
Net unrealized investment gains 55,485 56,973
Retained earnings 197,510 186,134
----------- -----------
Total stockholder's equity 256,750 246,862
----------- -----------
Commitments and contingencies
Total liabilities and stockholder's equity $ 4,076,660 $ 4,061,236
=========== ===========
</TABLE>
AMERICO LIFE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(In thousands, except per share amounts - unaudited)
<TABLE>
Three months Nine months
Ended September 30, Ended September 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Income
Premiums and policy revenues $ 51,714 $ 53,995 $ 161,467 $ 150,483
Net investment income 55,440 56,369 167,167 165,560
Net realized investment gains 2,102 611 8,318 4,063
Other income 2,213 6,028 9,323 7,739
------------- ------------- ------------- -------------
Total income 111,469 117,003 346,275 327,845
Benefits and expenses
Policyholder benefits:
Death benefits 26,427 31,001 82,028 87,098
Interest credited on universal life and
annuity products 25,495 28,820 79,121 80,820
Other policyholder benefits 13,581 14,813 42,243 43,524
Change in reserves for future policy benefits (5,580) (4,755) (17,900) (12,339)
Commissions 3,480 3,574 9,085 9,707
Amortization expense 28,037 10,310 60,518 28,419
Interest expense 3,098 3,051 9,071 9,084
Other operating expenses 21,157 21,791 63,667 57,439
------------- ------------- ------------- -------------
Total benefits and expenses 115,695 108,605 327,833 303,752
------------- ------------- ------------- -------------
Income (loss) before provision for
income taxes (4,226) 8,398 18,442 24,093
Provision for income taxes (2,004) 2,734 5,566 7,540
------------- ------------- ------------- -------------
Net income (loss) $ (2,222) $ 5,664 $ 12,876 $ 16,553
============= ============= ============= =============
Net income (loss) per common share $ (222.20) $ 566.40 $ 1,287.60 $ 1,655.30
============= ============= ============= ============
</TABLE>
<PAGE>
AMERICO LIFE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands - unaudited)
<TABLE>
Nine Months
Ended September 30,
1998 1997
<S> <C> <C>
Cash flows from operating activities
Net income $ 12,876 $ 16,553
---------- ----------
Adjustments to reconcile net income to net cash used by operating activities:
Depreciation and amortization 64,099 31,552
Deferred policy acquisition costs (28,908) (24,372)
Undistributed earnings of equity subsidiaries (1,623) (3,556)
Distribution of earnings from equity subsidiaries 8,323 -
Amortization of unrealized gains (866) (5,319)
(Increase) decrease in assets:
Accrued investment income (2,502) 313
Amounts receivable from reinsurers 60,424 (42,052)
Other receivables (14,751) (3,338)
Other assets, net of amortization expense (8,680) 4,781
Increase (decrease) in liabilities:
Policyholder account balances 31,417 32,649
Reserves for future policy benefits and unearned policy revenues (47,969) (40,177)
Policy and contract claims (1,197) (1,342)
Other policyholder funds 16,226 (2,190)
Amounts payable to reinsurers 4,989 2,971
Provision for deferred income taxes 4,164 2,812
Federal income tax payable (380) -
Amounts due to affiliates (13,631) (971)
Other liabilities (10,247) 726
Net realized losses, (gains) on investments sold (8,318) (4,063)
Gain on sale of subsidiary (4,855) (4,848)
Amortization on bonds and mortgage loans 522 927
Other changes (4,485) (7,559)
----------- -----------
Total adjustments 41,752 (63,056)
----------- -----------
Net cash used by operating activities 54,628 (46,503)
----------- -----------
</TABLE>
(Continued)
<PAGE>
AMERICO LIFE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
(In thousands - unaudited)
<TABLE>
Nine Months
Ended September 30,
1998 1997
<S> <C> <C>
Cash flows from investing activities
Purchases of fixed maturity investments $ (227,174) $ (283,747)
Purchases of other investments (104,929) (79,451)
Mortgage loans originated (44,207) (10,927)
Maturities or redemptions of fixed maturity investments 32,378 73,470
Sales of fixed maturity available for sale investments 171,397 339,663
Sales of equity securities 92,296 185,194
Sales of other investments 13,256 14,566
Receipt for subsidiary sold net of cash sold - 10,720
Payment for subsidiaries acquired, net of cash acquired - (246,348)
Sale of subsidiary, net of cash sold 13,778 -
Repayments from Mortgage loans 18,333 29,908
Change in due to brokers 17,386 (21,177)
Change in policy loans 5,452 3,280
----------- -----------
Net cash provided (used) by investing activities (12,034) 15,151
----------- -----------
Cash flows from financing activities
Receipts credited to policyholder account balances 197,096 145,544
Return of policyholder account balances (201,888) (66,374)
Repayments of notes payable (69) (287)
Dividends paid (1,500) (1,500)
----------- -----------
Net cash provided by financing activities (6,361) 77,383
----------- -----------
Net increase (decrease) in cash and cash equivalents 36,233 46,031
----------- -----------
Cash and cash equivalents at beginning of period 36,858 96,069
----------- -----------
Cash and cash equivalents at end of period $ 73,091 $ 142,100
=========== ===========
Supplemental schedule of non-cash investing and financial activities
Acquisition of subsidiaries:
Fair value of assets acquired, net of cash acquired $ - $ 947,498
Liabilities assumed - (701,150)
----------- -----------
Payments for subsidiaries acquired, net of cash acquired $ - $ 246,348
=========== ===========
</TABLE>
<PAGE>
AMERICO LIFE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Nine Months Ended September 30, 1998 and 1997 (In
thousands, except per share amounts - unaudited)
The following notes should be read in conjunction with the notes to the
consolidated financial statements contained in the Americo Life, Inc. ("the
Company") December 31, 1997 Form 10-K as filed with the Securities and Exchange
Commission.
1. ACCOUNTING POLICIES
The unaudited consolidated financial statements as of September 30, 1998 and for
the nine months ended September 30, 1998 and 1997 reflect all adjustments,
consisting of normal recurring adjustments, which are necessary for a fair
statement of financial position and results of operations on a basis consistent
with accounting principles described fully in Note 1 of the Company's December
31, 1997 consolidated financial statements. The results of operations for the
three and nine months ended September 30, 1998 and 1997 are not necessarily
indicative of the expected results for the full year 1998, nor the results
experienced for the year 1997.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income" and
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information". SFAS No. 130 establishes standards for the reporting and display
of comprehensive income and its components in financial statements. SFAS No. 131
establishes new guidelines for public business enterprises to report financial
and descriptive information about their operating segments. These statements are
effective for financial statement periods beginning after December 15, 1997, but
are not required disclosures for interim period financial statements in 1998.
Comprehensive income for the nine months ended September 30, 1998 and 1997 is as
follows:
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss) $ (2,222) $ 5,664 $ 12,876 $ 16,553
Other comprehensive income (1,107) 7,374 (1,488) 11,774
--------- --------- --------- ---------
Comprehensive income $ (3,329) $ 13,038 $ 11,388 $ 28,327
========= ========= ========= =========
</TABLE>
In December 1997, the American Institute of Certified Public Accountants
("AICPA") approved Statement of Position ("SOP") 97-3, "Accounting by Insurance
and Other Enterprises for Insurance-Related Assessments." SOP 97-3 provides
guidance for determining when an entity should recognize a liability for
guaranty-fund and other insurance-related assessments and a related asset for
assessments that may be recovered through future premium tax offsets. The SOP is
effective for financial statements for fiscal years beginning after December 15,
1998, with early adoption encouraged. Management has not determined the effects,
if any, of adopting this SOP on the Company's consolidated financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 provides guidance related to
the accounting for derivative instruments and hedging activities focusing on the
recognition and measurement of derivative instruments. This statement is
effective for all fiscal quarters of all fiscal years beginning after June 15,
1999. Adoption of this accounting standard will not have a significant impact on
the consolidated financial statements of the Company.
<PAGE>
AMERICO LIFE, INC. AND SUBSIDIARIES
2. STOCKHOLDER'S EQUITY
Following are the components of net unrealized investment gains:
<TABLE>
Nine Months
September 30, December 31, Ended
1998 1997 September 30, 1998
---- ---- ------------------
<S> <C> <C> <C>
Investment securities:
Fixed maturities available for sale $ 34,090 $ 25,129 $ 8,961
Fixed maturities reclassified from
available for sale to held to maturity 38,291 44,550 (6,259)
Equity securities 32,265 28,112 4,153
----------- ----------- -----------
104,646 97,791 6,855
Effect on other balance sheet accounts (19,145) (11,321) (7,824)
Deferred income taxes (30,016) (29,497) (519)
----------- ----------- -----------
Net unrealized investment gains $ 55,485 $ 56,973 $ (1,488)
=========== =========== ===========
</TABLE>
During the nine months ended September 30, 1998, the Company paid dividends to
Financial Holding Corporation (FHC) totaling $1,500.
3. COMMITMENTS AND CONTINGENCIES
The Company's subsidiary, Great Southern Life Insurance Company ("Great
Southern"), is a defendant in lawsuits filed as purported class actions
asserting claims related to sales practices of certain life insurance products.
Great Southern intends to defend these cases vigorously. The amount of any
liability that may arise as a result of these cases, if any, cannot be
reasonably estimated at this time and no provision for loss has been made in the
accompanying financial statements.
4. SALE OF SUBSIDIARY
On May 8, 1998, Great Southern sold all of the outstanding common stock of
Investors Guaranty Life Insurance Company ("Investors Guaranty"), a wholly-owned
subsidiary, for $14,793, resulting in a gain included in other income of $4,855.
All of the insurance business of Investors Guaranty is reinsured to an
unaffiliated insurance company under a coinsurance agreement and subsequently
reinsured to Great Southern under a modified coinsurance agreement on a 70%
quota share basis. These reinsurance agreements are unaffected by the sale. As
of the date of sale, Investors Guaranty had assets totaling $10.3 million and
liabilities totaling $0.4 million.
5. SUBSEQUENT EVENT
In October 1998, the Company entered into a series of transactions with the
individual owning the 50% of College Insurance Group, Inc. (CIG) not owned by
the Company. The purpose of the transactions was to consolidate all of the
activities in the tax-qualified markets conducted by CIG and other entities
owned by the individual with those of the Company. Specifically, the Company
acquired the other 50% of CIG for $6,236 and acquired the stock or assets of
various marketing entities wholly-owned by the individual for $9,518 plus
contingent consideration of up to an additional $5.0 million based on achieving
certain sales production levels. In addition, the Company will recapture all of
the insurance liabilities that were previously ceded to CIG or an entity owned
by the individual by reducing the quota share reinsurance over a three-year
period. The Company will pay $3,945, $2,624 and $2,580 in 1998, 1999 and 2000,
respectively, to recapture these liabilities.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following discussion analyzes significant items affecting the results of
operations and the financial condition of the Company. In connection with the
"safe harbor" provisions of the Private Securities Litigation Reform Act of
1995, the Company cautions readers regarding certain forward-looking statements
contained in this report and in any other statements made by, or on behalf of,
the Company, whether or not in future filings with the Securities and Exchange
Commission (the "SEC"). Forward-looking statements are statements not based on
historical information and which relate to future operations, strategies,
financial results, or other developments. Statements using verbs such as "plan",
"anticipate", "believe" or words of similar import generally involve
forward-looking statements. Without limiting the foregoing, forward-looking
statements include statements which represent the Company's beliefs concerning
future levels of sales and surrenders of the Company's products, investment
spreads and yields, or the earnings and profitability of the Company's
activities.
Forward-looking statements are necessarily based on estimates and assumptions
that are inherently subject to significant business, economic and competitive
uncertainties and contingencies, many of which are beyond the Company's control
and many of which are subject to change. These uncertainties and contingencies
could cause actual results to differ materially from those expressed in any
forward-looking statements made by, or on behalf of, the Company. Whether or not
actual results differ materially from forward-looking statements may depend on
numerous foreseeable and unforeseeable developments. Some may be national in
scope, such as general economic conditions, changes in tax law and changes in
interest rates. Some may be related to the insurance industry generally, such as
pricing competition, regulatory developments and industry consolidation. Others
may relate to the Company specifically, such as credit, volatility and other
risks associated with the Company's investment portfolio. Investors are also
directed to consider other risks and uncertainties discussed in documents filed
by the Company with the SEC. The Company disclaims any obligation to update
forward-looking information. This discussion should be read in conjunction with
the accompanying consolidated financial statements and the notes thereto.
In April 1997, Great Southern acquired all of the outstanding common stock of
The Ohio State Life Insurance Company ("Ohio State") and Investors Guaranty Life
Insurance Company ("Investors Guaranty") from Farmers Group, Inc. pursuant to a
stock purchase agreement. The acquisition was accounted for using the purchase
method of accounting. In April 1997, Ohio State and Investors Guaranty entered
into separate coinsurance agreements to reinsure 100% of their insurance
liabilities to an unaffiliated insurance company (the "Reinsurer") in exchange
for a ceding commission of $145.7 million. On the same day, the Reinsurer and
Great Southern entered into a modified coinsurance agreement under which the
Reinsurer ceded certain risks on a 70% quota share basis on the same insurance
liabilities to Great Southern. At September 30, 1998, the insurance business of
Ohio State and Investors Guaranty, consisting primarily of annuities and
universal life policies, had aggregate insurance liabilities of $665.3 million.
The results of operations of this business acquired in 1997, less the net 30%
coinsurance retained by the Reinsurer, are included in the Company's results of
operations for the three and nine months ended September 30, 1998 and the three
and six months ended September 30, 1997.
The Ohio State and Investors Guaranty transaction will hereinafter be referred
to as the Acquisition. The following table summarizes the effects on the
individual income statement components of the Acquisition for the nine months
ended September 30, 1998 and 1997 (in millions): <TABLE>
Nine Months Nine Months
Ended Ended
September 30, 1998 September 30, 1997
<S> <C> <C>
Premiums and policy revenues $ 40.5 $ 28.6
Net investment income 20.8 13.2
Other income 3.2 2.3
Policyholder benefits 34.4 25.1
Commissions 1.0 1.8
Amortization expense 14.4 7.3
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1997
Income before income taxes for the nine months ended September 30, 1998 was
$18.4 million compared to $24.1 million for the nine months ended September 30,
1997. The primary reasons for the decrease, excluding the impact of the
Acquisition, were (i) an increase in amortization expense, partially offset by
(ii) lower death benefits and (iii) an increase in net realized investment
gains. The increase in net realized investment gains includes $9.8 million of
gains in 1998 on sales from investments held by the Reinsurer. The effect on
income before taxes of these gains was offset by $9.8 million of amortization
expense related to these gains. The Company recorded $2.1 million of expense
for the relocation of its Columbus, Ohio operations during the nine months ended
September 30, 1998. These items and other significant changes in individual
income statement components are discussed in more detail below.
Premiums and policy revenues. Premiums and policy revenues totaled $161.5
million for the nine months ended September 30, 1998 compared to $150.5 million
for the nine months ended September 30, 1997. Excluding the effect of the
Acquisition, premiums and policy revenues decreased $0.9 million from 1997 to
1998. Traditional premiums decreased $4.2 million because lapses of the
Company's traditional policies exceeded the number of newly-issued traditional
policies. This decrease was offset by an increase in policy revenues resulting
from increased surrender charges of $2.9 million from a closed block of annuity
business.
Net investment income. Net investment income totaled $167.2 million for the nine
months ended September 30, 1998 compared to $165.6 million for the nine months
ended September 30, 1997. Excluding the effect of the Acquisition, net
investment income decreased $6.0 million, which includes a $2.2 million decrease
in income from equity subsidiaries. Also, the yields in the Company's bond
portfolio decreased in 1998 compared to 1997. Due to lower market yields, the
Company is unable to match its existing portfolio yield upon the reinvestment
of its funds.
Net realized investment gains. Net realized investment gains totaled $8.3
million for the nine months ended September 30, 1998 compared to $4.1 million
for the nine months ended September 30, 1997. During 1998 and 1997, the Company
recorded gains of $3.2 million and $5.1 million, respectively, from the sale of
investment real estate. Also, the Company realized gains of $9.8 million in 1998
on sales of investments held by the Reinsurer supporting a closed block
of annuity business, which was offset by $3.4 million of net losses on the sales
of bonds and common stock investments.
Other income. Other income totaled $9.3 million for the nine months ended
September 30, 1998 compared to $7.7 million for the nine months ended September
30, 1997. Other income includes an administrative service fee paid to the
Company associated with the reinsurance of 30% of the Ohio State and Investors
Guaranty policies. Excluding the effect of the Acquisition, other income
increased $0.7 million from 1997 to 1998. The Company recorded a gain of $4.9
million from the sale of Investors Guaranty in May 1998 and a gain of $4.8
million from the sale of Loyalty Life Insurance Company (Loyalty Life) in 1997.
Policyholder benefits. Policyholder benefits totaled $185.5 million for the nine
months ended September 30, 1998 compared to $199.1 million for the nine months
ended September 30, 1997. Excluding the effect of the Acquisition, policyholder
benefits decreased $22.9 million from 1997 to 1998. This decrease resulted
primarily from (i) a $9.3 million decrease in death benefits, (ii) a $6.4
million decrease in interest credited on universal life and annuity fund
balances, and (iii) a $4.5 million increase in the amount of benefit reserves
released from 1997 to 1998 associated with the lower traditional premiums
referred to above. The decrease in interest credited is comprised of a $7.8
million decrease resulting from reduced fund values in a closed block of
annuity business, offset by a $1.3 million increase related to new business
sales of the Company's senior market accumulation products. In addition, the
Company has reduced crediting rates in response to market conditions, thereby
reducing interest credited.
Amortization expense. Amortization expense totaled $60.5 million for the nine
months ended September 30, 1998 compared to $28.4 million for the nine months
ended September 30, 1997. Excluding the effect of the Acquisition, amortization
expense increased $25.0 million from 1997 to 1998. The higher amortization
expense in 1998 resulted primarily from (i) realized gains on sales from a bond
portfolio held by the Reinsurer supporting a closed block of annuity business,
(ii) increased surrenders in the same closed block of annuity business and (iii)
increased amortization of deferred policy acquisition costs on Great Southern's
universal life insurance business. The increase in amortization expense related
to the realized bond gains totaled $9.8 million, offsetting the effect on income
before taxes of the realized gains.
<PAGE>
Other operating expenses. Other operating expenses totaled $63.7 million for the
nine months ended September 30, 1998 compared to $57.4 million for the nine
months ended September 30, 1997. The increase in other operating expenses
resulted from the operations of Ohio State and Investors Guaranty acquired in
April 1997. This increase also includes $2.1 million of expenses related to the
relocation of the Company's Columbus, Ohio operations to other Company locations
during 1998.
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1997
The Company recorded a loss before income taxes of $4.2 million for the three
months ended September 30, 1998 compared to income of $8.4 million for the three
months ended September 30, 1997. The primary reasons for the decrease were (i)
an increase in amortization expense and (ii) a gain on the sale of Loyalty Life
in 1997, partially offset by (iii) an increase in realized investment gains and
(iv) lower death benefits. The increase in net realized investment gains
includes $9.8 million of gains in 1998 on sales of investments held by the
Reinsurer. The effect on income before taxes of these gains was offset by $9.8
million of amortization expense related to these gains. The Company also
recorded $0.8 million of expenses for the relocation of its Columbus, Ohio
operations during the three months ended September 30, 1998. These items and
other significant changes in individual income statement components are
discussed in more detail below.
Premiums and policy revenues. Premiums and policy revenues totaled $51.7 million
for the three months ended September 30, 1998 compared to $54.0 million for the
three months ended September 30, 1997. Traditional premiums decreased $3.6
million because lapses of the Company's traditional policies exceeded the
number of newly issued traditional policies. This decrease was offset by an
increase in policy revenues resulting from increased surrender charges of $0.9
million from a closed block of annuity business.
Net investment income. Net investment income totaled $55.4 million for the three
months ended September 30, 1998 compared to $56.4 million for the three months
ended September 30, 1997. This decrease was primarily due to a decrease in
income from equity subsidiaries of $0.4 million. Also, the yields in the
Company's bond portfolio decreased in 1998 compared to 1997. Due to lower
market yields, the Company is unable to match its existing portfolio yield upon
the reinvestment of its funds.
Net realized investment gains. Net realized investment gains totaled $2.1
million for the three months ended September 30, 1998 compared to the $0.6
million for the three months ended September 30, 1997. The Company realized
gains of $9.8 million on sales of investments held by the Reinsurer
supporting a closed block of annuities, which was offset by $7.4 million of net
losses on the sales of bonds and common stock investments.
Other income. Other income totaled $2.2 million for the three months ended
September 30, 1998 compared to $6.0 million for the three months ended September
30, 1997. Other income includes an administrative service fee paid to the
Company associated with the reinsurance of 30% of the Ohio State and Investors
Guaranty policies. The Company also recorded a gain of $4.8 million from the
sale of Loyalty Life in 1997.
Policyholder benefits. Policyholder benefits totaled $59.9 million for the three
months ended September 30, 1998 compared to $69.9 million for the three months
ended September 30, 1997. This decrease resulted primarily from (i) a $4.6
million decrease in death benefits and (ii) a $3.3 million decrease in interest
credited on universal life and annuity fund balances. The decrease in interest
credited includes a $6.0 million decrease resulting from reduced fund values in
a closed block of annuity business, offset by increases in the Company's other
blocks of business. In addition, the Company has reduced crediting rates in
response to market conditions, thereby reducing interest credited.
Amortization expense. Amortization expense totaled $28.0 million for the three
months ended September 30, 1998 compared to $10.3 million for the three months
ended September 30, 1997. The higher amortization expense in 1998 resulted
primarily from (i) gains realized on sales from a bond portfolio held by the
Reinsurer supporting a closed block of annuity business, (ii) increased
surrenders in a closed block of annuity business, and (iii) increased
amortization of deferred policy acquisition costs on Great Southern's universal
life insurance business. The increase in amortization expense related to the
realized bond gains totaled $9.8 million, offsetting the effect on income before
taxes of the realized gains.
Other operating expenses. Other operating expenses totaled $21.1 million for the
three months ended September 30, 1998 compared to $21.8 million for the three
months ended September 30, 1997. This increase includes $0.8 million of expenses
related to the relocation of the Company's Columbus, Ohio operations to other
Company locations during the third quarter of 1998.
FINANCIAL CONDITION AND LIQUIDITY
The changes occurring in the Company's consolidated balance sheet from December
31, 1997 to September 30, 1998 primarily reflect the normal operations of the
Company's life insurance subsidiaries.
The quality of the Company's investment in fixed maturity investments at
September 30, 1998 remained consistent with December 31, 1997. Non-investment
grade securities totaled less than 1.0% of the Company's total fixed maturity
investments at September 30, 1998. The Company has not made any significant
changes to its investment philosophy during 1998.
The Company's net unrealized investment gains decreased $1.5 million during the
first nine months of 1998. The increase in the gross unrealized investment gains
on equity securities totaled $4.2 million and the market value of the Company's
available for sale fixed maturity investment securities increased $2.6 million.
The components of the change during the nine months ended September 30, 1998
were (in millions):
Gross unrealized investment gains $ 6.8
Effect on insurance assets and liabilities (7.8)
Deferred income tax effect (0.5)
-------
$ (1.5)
SUBSEQUENT EVENT
In October 1998, the Company entered into a series of transactions with the
individual owning the 50% of College Insurance Group, Inc. not owned by the
Company. See Note 4 to the financial statements for additional information.
YEAR 2000
Many existing computer programs were designed and developed without regard to
the upcoming change in the century. If not corrected, many computer applications
could fail or create erroneous results by or at the Year 2000.
The Company has developed a comprehensive Year 2000 plan that management
believes will identify potential processing issues and allow the Company to take
any necessary corrective actions before problems arise. A committee, comprised
of a cross section of key employees from all business areas, has been formed to
execute, test and implement the remediation plan. The Company's remediation plan
is comprised of six phases. These phases are (i) a complete inventory of systems
which the Company utilizes, (ii) an initial assessment of Year 2000 preparedness
for each identified system, (iii) the development of a plan to remediate
appropriate systems, (iv) the remediation of systems, (v) the testing of
systems, and (vi) the implementation into production of systems. Because the
Company's administration systems are outsourced to a third party vendor, the
Company is coordinating the Year 2000 plan with its outsource provider. This
provider has contractual responsibility for the Year 2000 remediations of the
Company's administration systems.
The Company's plan calls for all administration systems to be prepared for Year
2000 processing by December 31, 1998. These systems are used by the Company to
process its insurance business, including premium receipts and claim payments.
Currently, we believe that all administrative systems have been renovated and
the Company, working with its outsource provider, will test the remediations by
December 31, 1998. All internal and corporate systems, such as file servers and
desktop systems, are scheduled to be Year 2000 ready by March 31, 1999.
Approximately 40% of these systems have been assessed for Year 2000 readiness
and substantially all of these are believed to be Year 2000 ready. The Company's
imbedded systems, such as phone switches, will be upgraded, as necessary, during
1999. The affected systems have been identified. If the Company fails to
successfully complete a significant portion of the Year 2000 plan by September
1999, such failure may have a material adverse impact on the Company's financial
condition. Currently, management considers the possibility of such a failure to
be unlikely; however, in the event management's assessment changes in the
future, an appropriate contingency plan will be developed.
A major part of the Company's Year 2000 plan relates to other business entities
on which the Company is reliant to conduct its operations. The aforementioned
Year 2000 committee has identified key business partners, customers, vendors and
suppliers to participate in a survey program. These business entities are
comprised of entities which impact many companies across the country in varied
industries, as well as entities with more limited customers. Entities serving
customers nationwide include the federal government, the federal banking system,
the postal service, national brokerage firms, stock exchanges, and national
overnight delivery providers. Local entities include the Company's reinsurers,
banks, computer hardware vendors, payroll processor, public utilities and phone
companies. After identifying the entities, the Company sent surveys to each
requesting information related to Year 2000 readiness. Management has developed
a database to track survey responses and will send second requests after an
appropriate period of time has elapsed. If further requests do not result in a
response, a determination will be made at that time whether further contact
should be made. The responses to these surveys are being evaluated by Company
management to determine whether potential Year 2000 problems exist. If the
Company believes a problem may exist, an appropriate contingency plan will be
developed to minimize any effect on the Company. The Company is specifically
reliant upon the federal government for various functions including mail
delivery of customer correspondence, national banking activities and electronic
list bill premium processing for government employees. The federal government's
policy is to not respond to Year 2000 surveys, so the Company, like most
organizations, has assumed the operations of the federal government will not be
significantly affected by Year 2000 problems. If problems do arise, the
operations of the Company may be materially adversely impacted.
The Company incurred expense through September 1998 related to this project of
$160,000. It is expected additional expenses will total $100,000 during 1999. As
these expenses are not significant to the Company's overall information
technology budget, this remediation plan will be funded from the Company's
normal operating cash flow. The remediation costs are nominal due to the
Company's service agreement with its third party provider. At this point in
time, other information systems projects have not suffered due to Year 2000
compliance efforts so as to have an adverse effect on the Company's operations.
The estimates and conclusions herein contain forward-looking statements and are
based on management's best estimates of future events. Risks to completing the
plan include the availability of trained personnel, management's ability to
discover and correct the potential Year 2000 sensitive problems which could have
a serious impact on specific facilities, and the ability of suppliers and
customers to bring their systems into Year 2000 compliance.
<PAGE>
PART II - OTHER INFORMATION
ITEM 2. LEGAL PROCEEDINGS
From time to time the Company is party to litigation and arbitration proceedings
in the ordinary course of its business, none of which is expected to have a
material adverse effect on the Company.
As previously reported in the Company's December 31, 1997 Form 10-K, and its
June 30, 1998 Form 10-Q, Great Southern is a defendant in four purported class
action lawsuits seeking unspecified damages. These lawsuits allege deceptive
sales practices in the marketing of its whole life and universal life insurance
policies. Additionally, on August 13, 1998, a fifth purported class action
lawsuit also alleging deceptive sales practices was filed against Great Southern
in state court in Dallas, Texas (Ebling v. Great Southern Life Insurance Co.,
68th District Court, Dallas County, Texas). The Company intends to defend all of
these cases vigorously.
As previously reported in the Company's June 30, 1998 Form 10-Q, Great Southern,
Fremont Life Insurance Company and Fremont General Corporation (collectively,
"Fremont") were named as defendants in a purported class action lawsuit arising
out of the sale of, and imposition of surrender charges under, deferred annuity
contracts (Gularte v. Fremont Life Ins. Co., et al., Los Angeles Superior Court,
Los Angeles, California). On October 16, 1998, Great Southern and Fremont
successfully caused a portion of Plaintiff's First Amended Complaint to be
dismissed, the effect of which was to eliminate the action's class treatment and
to limit Plaintiff's revised complaint to two causes of action: declaratory
relief and unlawful business practices. Plaintiff has moved for reconsideration
of that dismissal. In the interim, Fremont has agreed to assume the defense and
indemnity of Great Southern in the action going forward on the basis of
Plaintiff's revised complaint.
As previously reported in the Company's June 10, 1998 Form 10-Q, Great
Southern and the Company and certain of their officers are named defendants in
an action that was certified as a class action on April 28, 1998(Thibodeau et.
al. v. Great American Life Underwriters, et. al., District Court, Dallas County,
Texas). The defendants have appealed the ruling certifying a class.
There can be no assurance that any of the foregoing actions will not have a
materially adverse effect on the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
<TABLE>
<S> <C>
2.4 Stock Purchase Agreement dated February 27, 1998 between Great Southern Life Insurance
Company and John Hancock Mutual Life Insurance Company (incorporated by reference from
Exhibit 2.4 to Registrant's Form 10-Q [File No. 33-64820] for the quarter ended March
31, 1998).
2.5 Purchase Agreement dated October 1, 1998 between the Registrant, Robert L. Myer, Great
Southern Group, Inc., Marketing Services Group, Inc., NAP Partners, Inc., and Pension
Consultants & Administrators, Inc.
3.1 Restated Articles of Incorporation, as amended, of the Registrant (incorporated by
reference from Exhibit 3.1 to Registrant's Form S-4 [File No. 33-64820] filed June 22,
1993).
3.2 By-laws, as amended, of the Registrant (incorporated by reference from Exhibit 3.2 to
Registrant's Form S-4 [File No. 33-64820] filed June 22, 1993).
4.2(c)(3) Amendment No. 2 dated April 6, 1998 to the amended and restated credit agreement dated
as of February 27, 1997, between the Registrant and The Chase Manhattan Bank as
administrative agent (incorporated by reference from Exhibit 4.2(c)(3) to Registrant's
Form 10-Q [File No. 33-64820] for the quarter ended March 31, 1998).
</TABLE>
(a) Exhibits: (continued)
4.2(c)(4) Amendment No. 3 dated April 30, 1998 to the
amended and restated credit agreement dated as of
February 27, 1997, between the Registrant and The
Chase Manhattan Bank as administrative agent
(incorporated by reference from Exhibit 4.2(c)(4)
to Registrant's Form 10-Q [File No. 33-64820] for
the quarter ended March 31, 1998).
27 Financial Data Schedule.
- ------------ ----------------- -----------------------------------------------
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed for the three months ended September 30,
1998.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, Registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
AMERICO LIFE, INC.
BY: /s/ Gary E. Jenkins
Name: Gary E. Jenkins
Title: Senior Vice President,
Chief Financial Officer and Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
Date: November 13, 1998
PURCHASE AGREEMENT
between
AMERICO LIFE, INC.
and
ROBERT L. MYER, GREAT SOUTHERN GROUP, INC.
MARKETING SYSTEMS GROUP, INC., NAP PARTNERS, INC.,
and PENSION CONSULTANTS & ADMINISTRATORS, INC.
Dated: September __, 1998
PURCHASE AGREEMENT
This Purchase Agreement (the "Agreement") is made and entered into as
of this ___ day of September, 1998, by and among Americo Life, Inc., a Missouri
corporation, as buyer ("Buyer"), and the following selling parties: Robert L.
Myer, an individual residing in Travis County, Texas ("Myer"), Great Southern
Group, Inc., a Tennessee corporation ("GSG"), Marketing Systems Group, Inc., a
Texas corporation ("MSG"), NAP Partners, Inc., a Texas corporation ("NAPP"), and
Pension Consultants & Administrators, Inc., a Texas corporation ("PCA"). GSG and
MSG are sometimes collectively referred to herein as the "Marketing Companies."
WITNESSETH:
WHEREAS, Myer owns (a) all of the issued and outstanding capital stock
of PCA, MSG, GSG, NAPP, NAP Life Insurance Company, a Texas corporation ("NAP
Life"), and Strider Marketing Group, Inc., a Texas corporation ("Strider"); (b)
50% of the issued and outstanding capital stock of Aragon Financial Services,
Inc. ("Aragon"); and (c) 50% of the issued and outstanding capital stock of
College Insurance Group, Inc., a Missouri corporation ("CIG"); and
WHEREAS, United Fidelity Life Insurance Company, a wholly owned
subsidiary of Buyer ("UFL"), owns the other 50% of the issued and outstanding
capital stock of CIG; and
WHEREAS, CIG owns all of the outstanding capital stock of (a) Financial
Assurance Life Insurance Company, a Texas corporation ("FAI"), and Annuity
Service Corp., a Texas corporation ("ASC"); and
WHEREAS, Buyer wishes to purchase from Myer, and Myer wishes to sell to
Buyer, all of the issued and outstanding capital stock of PCA (the "PCA
Shares"), all of the issued and outstanding capital stock of NAPP (the "NAPP
Shares") and all 1,000 shares of the issued and outstanding capital stock of CIG
owned by Myer (the "CIG Shares"), in each case on the terms and in accordance
with the provisions hereinafter set forth; and
WHEREAS, the Marketing Companies each possess certain tangible and
intangible assets used in their respective marketing operations, and Buyer
wishes to purchase from the Marketing Companies, and the Marketing Companies
wish to sell to Buyer, certain of such tangible and intangible assets, in each
case on the terms and in accordance with the provisions hereinafter set forth;
and
WHEREAS, Buyer wishes to engage the services of Myer as a marketing
consultant in connection with the production of life and annuity insurance
business for Buyer and its subsidiaries;
NOW, THEREFORE, in consideration of the mutual promises contained in
this Agreement and for other good and valuable consideration, the receipt and
sufficiency of which are acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
"ASC Claim" shall have the meaning provided in Section 11.3(b).
"Affiliate" shall mean, with respect to any Person, any other Person
that directly, or indirectly through one or more intermediaries, controls, is
controlled by or is under common control with such Person. For purposes of this
definition, "control" (and its derivative terms, including "controls" and
"controlled by") shall mean the possession of the power to direct or cause the
direction of the management and policies of a Person, unless such power is
solely the result of an official position with or corporate office held by the
Person. Control shall be presumed to exist if any Person, directly or
indirectly, owns, controls, holds with the power to vote, or holds shareholders'
proxies representing 10% or more of the voting securities of any other Person.
"Aragon" shall have the meaning provided in the Recitals.
"Arbiter" shall have the meaning provided in Section 2.5(b).
"ASC" shall have the meaning provided in the Recitals.
"Assignment and Assumption Agreements" shall have the meaning provided
in Section 10.2(h).
"Assumed Obligations" shall have the meaning provided in Section 2.6.
"Bills of Sale" shall have the meaning provided in Section 10.2(g).
"Buyer-Related Entities" shall mean FHC, UFL, Great Southern, College
Life, NFU and Ohio State.
"Business Day" shall mean a day on which banks are open for business in
Kansas City, Missouri, other than a Saturday or Sunday.
"Buyer" shall have the meaning provided in the Preamble.
"CIG" shall have the meaning provided in the Recitals.
"CIG Shareholders' Agreement" shall mean that certain Shareholders'
Agreement dated as of July 30, 1993, among CIG, Myer, UFL and FHC.
"CIG Shareholders' Agreement Termination" shall have the meaning
provided in Section 7.4(b).
"CIG Shares" shall have the meaning provided in the Recitals.
"Claim Notice" shall have the meaning provided in Section 11.3(a).
"Closing" shall have the meaning provided in Section 10.1.
"Closing Date" shall have the meaning provided in Section 10.1
"Closing Date Payment" shall have the meaning provided in Section 2.4.
"Closing Date Balance Sheets" shall have the meaning provided in
Section 2.5(a).
"College Life" shall mean The College Life Insurance Company
of America.
"Commercially Reasonable Efforts" of a party shall mean the reasonable
efforts that a prudent Person desirous of achieving a result would use in
similar circumstances, without the requirement that such party incur any
reasonably unanticipated (as of the date hereof) out-of-pocket expenses or incur
any other reasonably unanticipated burden or commence or pursue litigation in
any Proceeding.
"Common Control Entity" shall have the meaning provided in Section
3.16(a)(ii).
"Consulting Agreement" shall have the meaning provided in Section 7.3.
"Contract" and "Contracts" shall have the meanings provided in
Section 3.14.
"Damages" shall have the meaning provided in Section 11.1.
"Dispute Notice" shall have the meaning provided in Section 2.5(a).
"Dispute Notice Date" shall have the meaning provided in Section
2.5(a).
"Encumbrances" shall mean any and all liens, security interests,
pledges, charges, claims, conditions, equitable interests, restrictions,
limitations, options, rights of first refusal or other encumbrances of any kind,
character or description, whether or not of record, including any restriction on
use, voting, transfer, receipt of income or exercise of any other attribute of
ownership.
"Equita Companies" shall mean shall mean Equita Financial and Insurance
Services of Texas, Inc., a Texas corporation; Atiuqe Financial and Insurance
Services, Inc., a Texas corporation; Equita Financial and Insurance Services,
Inc., a Florida corporation; Atiuqe Financial and Insurance Services, Inc., a
Florida corporation; Equita Financial and Insurance Services of Washington,
Inc., a Washington corporation; and Atiuqe Financial and Insurance Services of
Washington, Inc. a Washington corporation; each of which individually is an
"Equita Company."
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended, and any regulations or published rulings promulgated or issued
thereunder, as amended.
"Estoppel Agreements" shall have the meaning provided in Section 5.8.
"FAI" shall have the meaning provided in the Recitals.
"FHC" shall mean Buyer's parent, Financial Holding Corporation, a
Missouri corporation.
"Financial Statements" shall have the meaning provided in Section 3.7.
"Fixed Assets" shall mean all assets of the nature reflected on the
Financial Statements as "Fixed Assets (Net)".
"GAAP" shall mean generally accepted accounting principles consistently
applied.
"Governmental Body" shall mean any (a) nation, state, county, city,
town, village, district or other jurisdiction of any nature; (b) federal, state,
local, municipal, foreign or other government; (c) governmental or
quasi-government authority of any nature (including any governmental agency,
branch, department, official or entity and any court or other tribunal); (d)
multi-national organization or body; or (e) body exercising, or entitled to
exercise, any administrative, executive, judicial, legislative, police,
regulatory or taxing authority or power of any nature.
"Great Southern" shall mean Great Southern Life Insurance Company, a
Texas corporation wholly owned by Buyer.
"GSG" shall have the meaning provided in the Preamble.
"GSG General Agent's Contract" shall mean that certain General Agent's
Contract dated as of February 1, 1991, between Great Southern and GSG (as
successor in interest to Charles P. Henry and Carolyn Griffin), as amended by
(a) Addendum to General Agent's Contract dated as of February 1, 1991, (b)
Letter Agreement dated as of February 2, 1994, (c) Assignment dated as of August
28, 1997, and (d) Assignment dated as of February 6, 1998.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended, and the rules and regulations promulgated thereunder, as
amended.
"Indemnified Party" shall mean a Person asserting a claim for
indemnification under Section 11.1 or Section
- -------------------------------------------------------------------------------
11.2.
- -----
"Indemnifying Party" shall mean a Person against whom a claim for
indemnification under Section 11.1 or Section 11.2 hereof has been asserted.
"Internal Revenue Code" shall mean the Internal Revenue Code of 1986,
as amended.
"June 30 Pro Forma Balance Sheets" shall have the meaning provided in
Section 2.3.
"knowledge" (and its derivative terms, including "know" and
"knowingly") shall mean, with respect to the entities listed below, the actual
knowledge of the individuals listed below opposite each of such entities after
reasonable inquiry of the appropriate personnel of, and a review of the relevant
records of, such entity and its Affiliates with respect to the matter in
question:
Entity Individuals
PCA, NAPP, Myer, Pat Tedrow, Bill Hudson, Bill Klepac,
Marketing Companies Caryolyn Griffin, Gary Teisch, Mike Cochran
and ASC
Buyer Gary Muller, Gary Jenkins, Donna Kinnaird,
Dave Hill and Bob Thomas
"Lease" and "Leases" shall have the meanings provided in Section 3.13.
"Lease Assignments" and "Landlord Consents" shall have the meanings
provided in Section 10.2(i).
"Loyalty" shall have the meaning provided in Section 3.19.
"Market Conduct Activities" means the marketing, solicitation,
application, underwriting, acceptance, sale, purchase, operation, retention,
administration, replacement, conversion, surrender, partial surrender, loans
respecting, withdrawal and/or termination of any insurance policy or annuity
(for purposes of this definition, each a "policy"), and all acts, omissions,
facts, matters, transactions, occurrences or oral or written statements or
representations made in connection with or directly or indirectly relating to
such activities.
"Marketing Agreement" shall mean that certain Marketing Agreement dated
as of February 1, 1993, among NAPP, FHC, UFL and certain Affiliates of FHC, as
amended by (i) Letter Agreement dated as of July 31, 1993, and (ii) Assignment
Agreement dated as of May 1, 1995, in which NAPP assigned all of its rights and
obligations under the Marketing Agreement to MSG (remaining obligated thereon,
however).
"Marketing Agreement Termination" shall have the meaning provided in
Section 7.4(c).
"Marketing Companies" shall have the meaning provided in the Preamble.
"Marketing Companies Net Assets" shall have the meaning provided in
Section 2.3(d).
"Marketing Companies Pro Forma Balance Sheet" shall have the meaning
provided in ss. 2.3.
"MSG" shall have the meaning provided in the Preamble.
"Multiemployer Plan" shall have the meaning provided in Section
3.16(a)(ii).
"Myer" shall have the meaning provided in the Preamble.
"Myer Warranting Parties" shall have the meaning provided in the
Preamble of Article III.
"NAP Life" shall have the meaning provided in the Recitals.
"NAPP" shall have the meaning provided in the Preamble.
"NAPP Net Assets" shall have the meaning provided in Section 2.3(c).
"NAPP Pro Forma Balance Sheet" shall have the meaning provided in ss.
2.3.
"NAPP Shares" shall have the meaning provided in the Recitals.
"Net Assets" shall have the meaning provided in Section 2.3.
"New Trailers" shall have the meaning provided in the New Trailer
Agreement, which meaning is incorporated herein by this reference.
"NFU" means National Farmers Union Life Insurance Company, a Texas
corporation and wholly-owned subsidiary of Great Southern.
"Ohio State" shall mean The Ohio State Life Insurance Company, an Ohio
corporation.
"Old Trailers" shall have the meaning provided in the Old Trailer
Agreement, which meaning is incorporated herein by this reference.
"Payroll Slot Agreement" shall have the meaning provided in Section
7.1.
"PBGC" shall have the meaning provided in Section 3.16(b)(iv).
"PCA" shall have the meaning provided in the Preamble.
"PCA Net Assets" shall have the meaning provided in Section 2.3(b).
"PCA Pro Forma Balance Sheets" shall have the meaning provided in ss.
2.3.
"PCA Shares" shall have the meaning provided in the Recitals.
"Pension Plan" shall have the meaning provided in Section 3.16(a)(iii).
"Person" shall mean any individual, corporation, general or limited
partnership, association, limited liability company, joint venture, trust,
unincorporated association or organization or government or political
subdivision thereof.
"Plans" shall have the meaning provided in Section 3.16(a).
"Proceeding" shall mean any action, arbitration, audit, examination,
hearing, investigation, litigation, or suit (whether civil, criminal,
administrative, investigative or informal) commenced, brought, conducted, or
heard by or before or otherwise involving, any court, administrative agency or
arbitrator, whether at law, equity or otherwise.
"Product Development Agreement" means that certain Product Development
Agreement dated as of February 1, 1993, among MSG, Strider and all parties to
the Marketing Agreement except NAPP, as amended by (a) Letter Agreement dated as
of July 31, 1993, and (b) Bonus Assignment Agreement dated as of January 1,
1995.
"Product Development Agreement Termination" shall have the meaning
provided in Section 7.4(a).
"Purchase Price" shall have the meaning provided in Section 2.3.
"Purchase Price Adjustment Amount" shall have the meaning provided in
Section 2.5(a).
"Purchased Assets" shall have the meaning provided in Section 2.2.
"Qualifying Period" shall have the meaning set forth in the New Trailer
Agreement, which meaning is incorporated herein by this reference.
"Qualifying Production" shall have the meaning set forth in the New
Trailer Agreement, which meaning is incorporated herein by this reference.
"SAP" shall mean the accounting practices required or permitted by the
National Association of Insurance Commissioners and the insurance regulatory
authorities of the State of Texas, consistently applied throughout the specified
period and in the immediately prior comparable period.
"Services Agreement" shall have the meaning provided in Section 7.7.
"Strider" shall have the meaning provided in the Recitals.
"Third Party Claim" shall have the meaning provided in Section 11.3(a).
"Third Party Trailers" shall mean the rights of NAPP to receive any
compensation under that certain Marketing Agreement dated as of February 1,
1991, among NAPP, Life Partners Group, Inc., Massachusetts General Life
Insurance Company, Philadelphia Life Insurance Company and Wabash Life Insurance
Company, as amended by (a) Letter Agreement dated as of February 1, 1991, (b)
Letter Agreement dated as of February 1, 1991, (c) Amendment to Agreements dated
as of January 1, 1996, and (d) Addendum to Amendment of Agreements dated as of
January 1, 1996.
"Trailer Agreements" shall have the meaning provided in Section 7.6.
"Transaction Documents" shall mean the Consulting Agreement, the Bills
of Sale, the Assignment and Assumption Agreements, the Payroll Slot Agreement,
the Aragon Stock Agreement, the Lease Assignments and Landlord Consents, the
Estoppel Agreements, the Product Development Agreement Termination, the CIG
Shareholders' Agreement Termination, the Marketing Agreement Termination, the
GSG General Agent's Contract Termination, the Trailer Agreements and the
Services Agreement.
"UFL" shall have the meaning provided in the Recitals.
"Welfare Plan" shall have the meaning provided in Section 3.16(a)(i).
"Year 2000 Compliant" means that all computer hardware, including
microprocessors and other electronic data processing equipment, computer
application software and other electronic media or records, computer operating
systems and related software, computer networks, microprocessors (computer
chips) not part of any computer system, and any other computerized or electronic
equipment and components, and any other products and any services, data,
processing, or other functions or assets that directly or indirectly use or rely
upon, in any manner, any of the items listed herein, will be able to accurately
and timely process, sequence, calculate, compare, interpret, recognize and
manipulate data from, into, between and involving the years 1999 and 2000
(including but not limited to the dates 1/1/1999, 9/9/1999, 1/1/2000, and
2/29/2000), and will accurately and timely create, store and generate data
related to or involving all dates, and will otherwise function normally, without
errors or omissions.
ARTICLE II
PURCHASE AND SALE OF SHARES AND ASSETS
2.1 Share Transfers. Upon the terms and subject to the conditions set
forth in this Agreement, on the Closing Date Myer shall sell, convey, transfer,
assign, and deliver to Buyer, and Buyer shall purchase and accept from Myer, the
PCA Shares, the NAPP Shares and the CIG Shares, free and clear of all
Encumbrances.
2.2 Asset Transfers. Upon the terms and subject to the conditions set
forth in this Agreement, on the Closing Date the Marketing Companies shall sell,
convey, transfer, assign, and deliver to Buyer, and Buyer shall purchase and
accept from the Marketing Companies, the following assets (collectively, the
"Purchased Assets"), free and clear of all Encumbrances (except as set forth on
Schedule 2.2):
a) those tangible assets of the Marketing Companies described on
Schedule 3.10 and marked with an asterisk ("*");
b) the accounts receivable of the Marketing Companies described on
Schedule 3.11;
c) the intellectual property rights of the Marketing Companies described
on Schedule 3.12;
d) the rights of the Marketing Companies under the Leases described on
Schedule 3.13 and marked with an asterisk ("*"); and
e) the rights of the Marketing Companies under the Contracts described on
Schedule 3.14.
2.3 Purchase Price. Attached hereto as Schedules 2.3(b), (c) and (d),
respectively, are pro forma balance sheets of PCA, NAPP and the Marketing
Companies as of June 30, 1998, reflecting (i) the PCA Net Assets, the NAPP Net
Assets and the Marketing Companies Net Assets (collectively, the "Net Assets")
to be included in the calculation of the Purchase Price, (ii) those assets of
PCA, NAPP or the Marketing Companies to be retained by or transferred to Myer or
his designated Affiliates, and (iii) those obligations of PCA or NAPP to be
assumed by Myer or his designated Affiliates (individually, the "PCA Pro Forma
Balance Sheet," the "NAPP Pro Forma Balance Sheet" and the "Marketing Companies
Pro Forma Balance Sheet" and collectively, the "June 30 Pro Forma Balance
Sheets").
Schedule 2.3(e) is a listing, by company, of the Fixed Assets.
The aggregate purchase price for each of the PCA Shares, the NAPP
Shares, the CIG Shares and the Purchased Assets (collectively, the "Purchase
Price") shall be as follows:
a) For the CIG Shares, the sum of Six Million Two Hundred Thirty Six
Thousand Four Hundred Seventy Eight Dollars ($6,236,478);
b) For the PCA Shares, the sum of (i) Five Hundred Thousand Dollars ($500,000),
plus (ii) Two Hundred Eighty Seven Thousand Two Hundred Seventy Dollars
($287,270) for the assets of PCA described on the PCA Pro Forma Balance Sheet as
being retained by PCA, net of the liabilities of PCA shown on such balance sheet
as being retained by PCA (the "PCA Net Assets");
c) For the NAPP Shares, the sum of (i) One Hundred Thousand Dollars ($100,000),
plus (ii) Three Million Fourteen Thousand Nine Hundred Twenty Five Dollars
($3,014,925) for the assets of NAPP described on the NAPP Pro Forma Balance
Sheet as being retained by NAPP, net of the liabilities of NAPP shown on the
NAPP Pro Forma Balance Sheet as being retained by NAPP (the "NAPP Net Assets");
and
d) For the Purchased Assets, the sum of (i) Four Million Nine Hundred Thousand
Dollars ($4,900,000) plus (ii) Seven Hundred Sixteen Thousand One Hundred Ninety
Six Dollars ($716,196) for the assets of the Marketing Companies described in
Section 2.2 above (including the assets described on the Marketing Companies Pro
Forma Balance Sheet to be transferred to Buyer), net of the obligations of the
Marketing Companies described in the Marketing Companies Pro Forma Balance Sheet
as being assumed by Buyer (the "Marketing Companies Net Assets");
As additional consideration for the Purchased Assets, subject to
Buyer's rights under Section 5.13, Buyer shall pay to the Marketing Companies,
in cash, $5,000,000 in five annual payments of $1,000,000 each, together with
interest on the amount remaining unpaid from the Closing at a rate per annum
equal to 7%, with the first of such payments commencing on January 1, 2000, and
subsequent payments being made on January 1 of 2001, 2002, 2003 and 2004, in
each case via wire transfer to such bank account(s) as Myer shall designate in
writing to Buyer.
If the cumulative Qualifying Production in the Qualifying Period is
less than $150,000,000, then Myer shall repay to Buyer $7,500,000 in cash, upon
demand, together with interest at a rate per annum equal to 7% from the Closing
Date. Such obligation of Myer may be collected by Buyer pursuant to the set off
provisions of Section 5.13.
2.4 Closing Date Payment. Upon the terms and subject to the conditions
set forth in this Agreement, on the Closing Date Buyer shall deliver to Myer and
the Marketing Companies, via wire transfer to such bank account(s) as Myer shall
designate in writing to Buyer, the Purchase Price.
2.5 Post Closing Adjustment to Purchase Price.
(a) As soon as practicable, but in any event within 45 calendar days
following the Closing Date, Buyer shall, at its expense, prepare and deliver to
Myer (i) balance sheets of PCA, NAPP and the Marketing Companies as of the
Closing Date, and statements of operations for each of such companies for the
period from June 30, 1998, through the Closing Date, each of which balance
sheets and statements of operations shall be prepared on a basis in all respects
consistent with, and using the same methodology as was used to prepare, the June
30 Pro Forma Balance Sheets (collectively, the "Closing Date Pro Forma Financial
Statements"), and (ii) Buyer's reconciliation of the Net Assets as reflected in
the June 30 Pro Forma Balance Sheets (with the June 30 Net Assets increased by
the net income, or decreased by the net losses, realized by such companies from
June 30, 1998, through the Closing Date, as reflected in the statements of
operations included in the Closing Date Pro Forma Financial Statements) with the
Net Assets as reflected in the Closing Date Balance Sheets. The aggregate of the
net differences between the Net Assets as reflected in each of the June 30 Pro
Forma Balance Sheets (as so adjusted for net income or net losses from June 30,
1998, through the Closing Date) and the Net Assets as reflected in each of the
Closing Date Pro Forma Financial Statements shall be the "Purchase Price
Adjustment Amount."
If Myer does not agree with the Closing Date Pro Forma Financial
Statements as prepared by Buyer or Buyer's calculation of the Purchase Price
Adjustment Amount, Myer shall provide notice of such disagreement to Buyer (the
"Dispute Notice," and the date of its delivery, the "Dispute Notice Date"). If
Myer and Buyer are unable to agree on the resolution of such disagreement within
30 calendar days following the Dispute Notice Date, Myer and Buyer shall resolve
such disagreement in accordance with the procedures set forth in Section 2.5(b).
(b) Buyer and Myer shall each select an independent certified public
accountant within 30 calendar days after the Dispute Notice Date for the purpose
of selecting a third independent certified public accountant with a regional or
national accounting practice in the life insurance industry (the "Arbiter").
Such accountants shall mutually select the Arbiter and give a written notice to
Buyer and Myer identifying the Arbiter, including a written acceptance of such
appointment from the Arbiter, within twenty Business Days after the last of the
two of them is selected. The Arbiter shall not have performed services for
either Buyer or Myer or any of their respective Affiliates within the preceding
three years and shall not have testified in any dispute in which either Buyer or
Myer or any of their respective Affiliates was involved as a party; provided,
however, that Buyer and Myer may waive such restriction in writing if they
mutually agree to such waiver.
Each party shall submit to the Arbiter all information reasonably
requested by the Arbiter to enable the Arbiter to independently resolve the
issue that is the subject of the Dispute Notice. The Arbiter shall make its own
determination of the Purchase Price Adjustment Amount, which may not be less
than the Purchase Price Adjustment Amount, as prepared by Buyer, and may not be
greater than the Purchase Price Adjustment Amount, as claimed by Myer. The
Arbiter shall issue a written report of its determination in reasonable detail
and shall deliver a copy of such report to Myer and Buyer within 20 Business
Days following the Arbiter's receipt of the Dispute Notice. The determination
made by the Arbiter shall be final and binding and may be enforced by any court
having jurisdiction. The parties shall cooperate fully in assisting the Arbiter
in determining the Purchase Price Adjustment Amount and shall take such actions
as are necessary to expedite and to cause the Arbiter to expedite such
calculation.
Each of Myer and Buyer shall pay one-half of the total fees and
expenses of the Arbiter. Each party shall bear all costs associated with its own
appointed independent certified public accountant.
(c) The Closing Date Pro Forma Financial Statements and the Purchase
Price Adjustment Amount shall be deemed to be final upon the earliest of (i) the
date on which Myer and Buyer jointly agree that they are final, (ii) the 31st
calendar day following the date of delivery of the Closing Date Pro Forma
Financial Statements and the Purchase Price Adjustment Amount by Buyer to Myer
pursuant to Section 2.5(a), if Myer has not provided Buyer with a Dispute
Notice, and (iii) the date on which all disputes between Buyer and Myer relating
to the Closing Date Pro Forma Financial Statements and the Purchase Price
Adjustment Amount are resolved in accordance with Section 2.5(b).
(d) If the Net Assets as reflected in the Closing Date Pro Forma
Financial Statements are greater than the Net Assets as reflected in the June 30
Pro Forma Balance Sheets (as such June 30 Net Assets are adjusted for net income
or net losses during the period from June 30, 1998, through the Closing Date as
described in Section 2.5(a)), Buyer shall pay to Myer an amount equal to the
Purchase Price Adjustment Amount. If the Net Assets as reflected in the Closing
Date Pro Forma Financial Statements are less than the Net Assets as reflected in
the June 30 Pro Forma Balance Sheets (as such June 30 Net Assets are adjusted
for net income or net losses during the period from June 30, 1998, through the
Closing Date as described in Section 2.5(a)), Myer shall pay to Buyer an amount
equal to the Purchase Price Adjustment Amount. On or before the 20th Business
Day following the date on which, pursuant to Section 2.5(c), the Closing Date
Pro Forma Financial Statements and the Purchase Price Adjustment Amount are
deemed to be final, Myer or Buyer, as the case may be, shall pay the Purchase
Price Adjustment Amount to the other party by wire transfer of immediately
available funds to such bank account(s) as the recipient shall designate in
writing, together with interest from the Closing Date at a rate per annum equal
to 7%.
2.6 Assumption of Obligations. Except as expressly set forth in this
Agreement, it is expressly understood and agreed that Buyer is not assuming, and
shall not be liable for, any obligations of Myer or of either of the Marketing
Companies other than (a) the obligations of the Marketing Companies described in
the Marketing Companies Pro Forma Balance Sheet to be assumed by Buyer
(including, without limitation, the vacation pay liabilities reflected on
Schedule 3.16(g), trade payables and accrued expenses as of the Closing Date),
and (b) the obligations of the Marketing Companies arising after the Closing
under (i) the Leases described on Schedule 3.13 that are marked with an asterisk
("*"), and (ii) the Contracts described on Schedule 3.14 that are marked with an
asterisk ("*") and (c) sick pay liabilities reflected in Schedule 3.16(g)
(collectively, the "Assumed Obligations").
2.7 Taxes. Myer and the Marketing Companies shall pay all sales and use
taxes, if any, arising out of the transfer of the PCA Shares, the NAPP Shares,
the CIG Shares and the Purchased Assets, and they shall pay their respective
portions, prorated as of the Closing Date, of state and local personal property
taxes relating to the PCA Shares, the NAPP Shares, the CIG Shares and the
Purchased Assets. Buyer shall not be responsible for any business, occupation,
withholding or other tax of Myer or either of the Marketing Companies, of any
kind, related to any period before the Closing Date.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF MYER, PCA,
NAPP AND THE MARKETING COMPANIES
Myer, PCA, NAPP and the Marketing Companies (collectively, the "Myer
Warranting Parties") represent and warrant as follows:
3.1 Organization and Authority. Each of PCA, NAPP, Aragon, Strider and
the Marketing Companies (i) is a corporation duly organized, validly existing
and in good standing under the laws of its state of incorporation, (ii) has all
necessary corporate power to own its properties (including, with respect to the
Marketing Companies, the Purchased Assets), to carry on its business as now
owned and operated, and to enter into and perform its obligations under this
Agreement and the Transaction Documents to which it is a party, and (iii) is
duly licensed, qualified or admitted to do intrastate business, and is in good
standing, in the jurisdictions set forth on Schedule 3.1 opposite its name, and
except as set forth on Schedule 3.1, there are no other jurisdictions in which
the nature of its business or the nature, ownership or use of its properties
makes such licensing, qualification or admission necessary.
Each of PCA, NAPP, Aragon, Strider and the Marketing Companies has
taken all corporate actions required by law, its Articles of Incorporation, its
Bylaws or otherwise to authorize the execution and delivery by it of this
Agreement and the Transaction Documents to which it is a party, the performance
by it of its obligations hereunder and thereunder, and the consummation of the
transactions contemplated hereby and thereby. Myer owns all of the issued and
outstanding capital stock of the Marketing Companies and Strider and 50% of the
issued and outstanding capital stock of Aragon.
This Agreement has been duly executed and delivered by the Myer
Warranting Parties and Sharon K. Myer and is the valid and binding obligation of
each of them enforceable in accordance with its terms, and when the Transaction
Documents have been executed and delivered, they each will be the valid and
binding obligation of Myer, Aragon, Strider and Sharon K. Myer (as the case may
be) enforceable in accordance with their respective terms, subject in each case
to the qualifications (i) that the enforceability thereof may be limited by the
effect of bankruptcy and other similar laws of general application relating to
or affecting the rights and remedies of creditors, (ii) that the remedy of
specific enforcement or of injunctive relief is subject to the discretion of the
court before which any Proceeding therefor may be brought, and (iii) that the
validity, binding effect and enforceability hereof and thereof may be affected
by applicable insurance laws, regulations or rules.
3.2 Conflicts. Except for the approvals and filings disclosed in
Schedule 3.3, neither the execution and delivery by the Myer Warranting Parties
of this Agreement and by Myer, Aragon and Strider of the Transaction Documents
to which they are parties, nor the performance by any of such parties of their
respective obligations hereunder or thereunder, nor the consummation of the
transactions contemplated hereby or thereby, will (a) violate any provision of
the Articles of Incorporation or Bylaws of PCA, NAPP, Aragon, Strider or either
of the Marketing Companies; (b) violate or be in conflict with or constitute a
default under (or with the giving of notice or passage of time or both would
violate or constitute a default under) any oral or written agreement,
instrument, arrangement or understanding (including the Contracts) to which any
of the Myer Warranting Parties, Aragon or Strider is a party or by which any of
such parties may be bound or accelerate the maturity of any debt or other
obligation of any of them; (c) require the consent of any other party or
Governmental Body; (d) violate any statute, law, rule, regulation, judgment,
decree, order of any Governmental Body to which any of such parties or their
respective properties (including the Purchased Assets, the PCA Shares, the NAPP
Shares and the CIG Shares) is subject; or (e) result in the imposition of any
Encumbrance upon any of the Purchased Assets, the CIG Shares, the NAPP Shares or
the PCA Shares.
3.3 Consents. Except as set forth on Schedule 3.3, no consent, approval
or authorization of, or declaration, filing or registration with, any
Governmental Body is required to be made or obtained by any of the Myer
Warranting Parties, Aragon or Strider in connection with the execution and
delivery by the Myer Warranting Parties of this Agreement and by Myer, Aragon
and Strider of the Transaction Documents to which they are parties, the
performance by any of such parties of their respective obligations hereunder and
thereunder, or the consummation of the transactions contemplated hereby and
thereby.
3.4 PCA Shares. The authorized capital stock of PCA consists of 100,000
shares of common stock, having a par value of $1.00 each, of which 1,852 shares
(the PCA Shares) are issued and outstanding. All of the PCA Shares are validly
issued, fully paid and nonassessable, and such shares have been so issued in
full compliance with all federal and state securities laws. There are no
outstanding securities, obligations, preemptive or other rights, subscriptions,
warrants, options, phantom stock rights, calls, puts or other contracts (except
for this Agreement) of any kind that give any Person the right to (i) redeem,
purchase or otherwise receive or be issued any shares of capital stock of PCA
(or any interest therein) or any securities or debt instruments of any kind
convertible into or exchangeable for any shares of capital stock of PCA (or any
interest therein) or (ii) receive any benefits or rights similar to any rights
enjoyed by or accruing to the holder of such stock, or any rights to participate
in the equity, income or election of directors or officers of PCA. Myer is the
owner, beneficially and of record, of all of the PCA Shares, free and clear of
all Encumbrances (other than the community property interest of his wife, Sharon
K. Myer). PCA does not own, directly or indirectly, any interest or investment
(whether equity or debt) in any other corporation, partnership, business, trust
or other entity.
3.5 CIG Shares. To the knowledge of the Myer Warranting Parties, there
are no outstanding securities, obligations, preemptive or other rights,
subscriptions, warrants, options, phantom stock rights, calls, puts or other
contracts (except for this Agreement) of any kind that give any Person the right
to (i) redeem, purchase or otherwise receive or be issued any shares of capital
stock of CIG (or any interest therein) or any securities or debt instruments of
any kind convertible into or exchangeable for any shares of capital stock of CIG
(or any interest therein) or (ii) receive any benefits or rights similar to any
rights enjoyed by or accruing to the holder of such stock, or any rights to
participate in the equity, income or election of directors or officers of CIG.
Myer is the owner, beneficially and of record, of all of the CIG Shares, free
and clear of all Encumbrances (other than the community property interest of his
wife, Sharon K. Myer).
3.6 NAPP Shares. The authorized capital stock of NAPP consists of
100,000 shares of common stock, having a par value of $.01 each, of which 1,000
shares (the NAPP Shares) are issued and outstanding. All of the NAPP Shares are
validly issued, fully paid and nonassessable, and such shares have been so
issued in full compliance with all federal and state securities laws. There are
no outstanding securities, obligations, preemptive or other rights,
subscriptions, warrants, options, phantom stock rights, calls, puts or other
contracts (except for this Agreement) of any kind that give any Person the right
to (i) redeem, purchase or otherwise receive or be issued any shares of capital
stock of NAPP (or any interest therein) or any securities or debt instruments of
any kind convertible into or exchangeable for any shares of capital stock of
NAPP (or any interest therein) or (ii) receive any benefits or rights similar to
any rights enjoyed by or accruing to the holder of such stock, or any rights to
participate in the equity, income or election of directors or officers of NAPP.
Myer is the owner, beneficially and of record, of all of the NAPP Shares, free
and clear of all Encumbrances (other than the community property interest of his
wife, Sharon K. Myer). NAPP does not own, directly or indirectly, any interest
or investment (whether equity or debt) in any other corporation, partnership,
business, trust or other entity.
3.7 Financial Statements.
a) Schedule 3.7(a) sets forth the unaudited balance sheets of PCA, NAPP and the
Marketing Companies as of September 30, 1997, December 31, 1997, March 31, 1998,
and June 30, 1998, and the related unaudited statements of income and retained
earnings for the periods ending on those dates, in each case certified by the
respective chief financial officers of such parties as accurately reflecting the
respective financial conditions of such parties for those periods (collectively,
the "Financial Statements"). Except for sick pay obligations which have not been
accrued but are reflected on Schedule 3.16(g), the Financial Statements are
consistent with the books and records of such parties (which are themselves
complete and accurate in all material respects), have been consistently
maintained from period to period, and fairly present the respective financial
positions of such parties as of the respective dates of the balance sheets
included in the Financial Statements, and the results of their respective
operations for the respective periods indicated; provided, however, that
notwithstanding the foregoing, the parties acknowledge that between the
September 30, 1997, and December 31, 1997 financial statements, the Marketing
Companies began receiving commission advances on submitted applications, whereas
previously all commissions were based on collected premiums.
b) The Myer Warranting Parties have previously delivered to Buyer the financial
and other information described on Schedule 3.7(b) regarding the projected
collectability of the NAPP receivable resulting from profit center advances. The
net renewal commission rates indicated on Schedule 3.7(b) are consistent with
the rates that the Myer Warranting Parties will be receiving as of the Closing
Date, and the assumptions as to the ongoing collection of renewal premiums, as
reflected on Schedule 3.7(b), were the same as actuarial assumptions provided to
the Myer Warranting Parties by Buyer.
c) There were no liabilities of any of the Marketing Companies, PCA or NAPP as
of March 31, 1998, or as of June 30, 1998, not reflected on the balance sheets
as of such dates included in the Financial Statements that would be required to
prevent the Financial Statements from being materially misleading.
3.8 Absence of Changes. Except as set forth on Schedule 3.8 and except
for the losses reflected on the Financial Statements, the results of operations
of PCA, NAPP and the Marketing Companies for the periods ended September 30,
1997, December 31, 1997, March 31, 1998, and June 30, 1998, reflect no material
adverse change in the financial condition or the results of operations of such
parties from preceding periods. Except as set forth on Schedule 3.8 and except
for the losses reflected on the Financial Statements, and excluding the
transactions contemplated by this Agreement and the Transaction Documents, since
September 30, 1997, there has not been, occurred or arisen any change in, or any
event (including, without limitation, any damage, destruction or loss, whether
or not covered by insurance), condition or state of facts of any character that,
individually or in the aggregate, has, or might reasonably be expected to
materially and adversely affect, PCA, NAPP or either of the Marketing Companies
or the Purchased Assets. Without limiting the generality of the foregoing,
except as set forth on Schedule 3.8, since September 30, 1997, there has not
been any:
a) Transaction by PCA, NAPP or either of the Marketing Companies except
in the ordinary course of business consistent with past practices;
b) Amendment by PCA or NAPP of its Articles of Incorporation or Bylaws;
c) Change in accounting methods or practices (including, without limitation, any
change in depreciation or amortization policies or rates) by PCA, NAPP or either
of the Marketing Companies;
d) Sale or transfer of any asset of PCA or NAPP, except in the ordinary course
of business consistent with past practices;
e) Amendment or termination of any contract, agreement or license to which PCA,
NAPP or either of the Marketing Companies is a party (including the Contracts),
except in the ordinary course of business consistent with past practices;
f) Encumbrance created or imposed on any asset of PCA or NAPP, or on any
Purchased Asset;
g) Waiver or release of any right or claim of PCA, NAPP or either of the
Marketing Companies, except in the ordinary course of business consistent with
past practices;
h) Issuance, sale or redemption by either PCA or NAPP of any shares of its
capital stock, or the declaration, set aside or payment by either PCA or NAPP of
any dividend or other distribution in respect of its capital stock;
i) Change in (A) the compensation or benefits payable or to become payable by
PCA, NAPP or either of the Marketing Companies to any officer, employee, sales
agent or representative under any bonus or pension plan or other contract or
commitment such that after such change the compensation and benefits, taken
together, of such officer, employee, sales agent or representative exceeds
$100,000, or (B) any employment or compensation agreement to which PCA, NAPP or
either of the Marketing Companies are parties or by which they may be bound;
j) Agreement by PCA, NAPP or either of the Marketing Companies to do any of the
things described in the preceding clauses (a) through (i); or
k) Other event or condition of any character that has, or might reasonably be
expected to have, a material and adverse effect on the financial condition,
business, assets or prospects of any of PCA, NAPP or either of the Marketing
Companies (including the Purchased Assets).
3.9 Taxes. Within the times and in the manner prescribed by law, PCA,
NAPP and the Marketing Companies have filed all federal, state and local tax
returns and reports required by law and have paid all taxes, assessments and
penalties due and payable or adequate provision for payment thereof has been
made in the Financial Statements. All such returns, reports, payments and
accruals properly and accurately reflect the tax and other liabilities of PCA,
NAPP and the Marketing Companies for the periods indicated thereon or for which
payment was made. There are no present disputes as to taxes of any nature
payable by PCA, NAPP or either of the Marketing Companies. None of the Myer
Warranting Parties has received notice or have any knowledge of any tax
deficiency outstanding, proposed or assessed against any of such parties, nor
have any of such parties executed any waiver of any statute of limitations on
the assessment or collection of any tax. There are no Encumbrances in respect of
taxes upon the properties of PCA or NAPP or upon the Purchased Assets, except
Encumbrances in respect of personal property taxes not yet delinquent. Neither
PCA nor NAPP is a party to, bound by or have any obligation under any tax
sharing agreement. Both PCA and NAPP are "S" corporations for federal income tax
purposes (until the Closing).
3.10 Tangible Personal Property. Schedule 3.10 to this Agreement
describes all equipment, furniture, motor vehicles, supplies and other tangible
personal property (a) owned by PCA or NAPP or owned by, in the possession of, or
used by the Marketing Companies in their respective marketing operations and (b)
having an original acquisition cost exceeding $1,000. The tangible personal
property listed in Schedule 3.10 constitutes all of the tangible personal
property having an original acquisition cost exceeding $1,000 necessary for the
conduct by PCA, NAPP and the Marketing Companies of their respective businesses
as now conducted. Except as stated in Schedule 3.10, none of such tangible
personal property is held under any lease, security agreement, conditional sales
contract or other title retention or security arrangement, or is located other
than in the possession of Myer, PCA, NAPP or either of the Marketing Companies.
All of such tangible personal property is in good operating condition and
repair, ordinary wear and tear excepted.
3.11 Accounts Receivable. Schedule 3.11 describes the accounts
receivable of PCA and of NAPP as of March 31, 1998, and as of June 30, 1998, as
reflected in the consolidating and consolidated balance sheets as of those dates
included in the Financial Statements, together with an accurate aging of each of
these accounts. These accounts have been collected in full since that date, or
are collectible at their full amounts.
3.12 Intellectual Property. Schedule 3.12 describes all trade names,
trademarks, service marks and copyrights and their registrations, and all trade
secrets (including, without limitation, customer lists and code for all
internally developed software), owned by PCA, NAPP or either of the Marketing
Companies or in which PCA, NAPP or either of the Marketing Companies has any
rights or licenses (and, in the case of the Marketing Companies, which is used
by such Marketing Company in its marketing operations). The intellectual
property rights described in Schedule 3.12 constitute all of the intellectual
property rights necessary for the conduct by PCA, NAPP and the Marketing
Companies of their respective businesses as now conducted. None of the Myer
Warranting Parties has any knowledge of (i) any infringement by other Persons of
any of such intellectual property rights or (ii) any infringement by them on any
trade name, trademark, service mark or copyright, or any other intellectual
property right, belonging to any other Person. Except as set forth in Schedule
3.12, PCA, NAPP and the Marketing Companies are not parties to any license,
agreement or arrangement, whether as licensor, licensee or otherwise, with
respect to any intellectual property rights.
PCA, NAPP and the Marketing Companies have the exclusive right in
perpetuity to use their respective names for and in connection with all business
of whatever kind and character conducted previously or in the future by PCA,
NAPP and the Marketing Companies and, except as disclosed on Schedule 3.12, none
of the Myer Warranting Parties has granted to any other Person the right to use
its name as part of such other Person's name or as part of any trade name or
trademark not belonging to such Myer Warranting Party.
Each of PCA, NAPP and the Marketing Companies has taken all reasonable
security measures to protect the secrecy, confidentiality and value of its trade
secrets described on Schedule 3.12 (including, without limitation, any customer
lists or code for internally developed software); provided, however, Buyer
acknowledges that PCA, NAPP and the Marketing Companies have not registered or
copyrighted or patented any of such trade secrets. To the knowledge of the Myer
Warranting Parties, all of such trade secrets are valid and protectable and are
not part of the public knowledge or literature, nor have they been used,
divulged or appropriated for the benefit of any past or present employees of any
of such parties (or their respective Affiliates) or other Persons, or to the
detriment of PCA, NAPP or either of the Marketing Companies. Schedule 3.12
includes, with respect to the customer lists described therein, a brief
description of the services provided by PCA, NAPP or the Marketing Companies (as
the case may be) to each customer.
3.13 Leases. Schedule 3.13 is a complete and accurate list of all
leases (and any amendments thereto) to which PCA, NAPP or either of the
Marketing Companies is a party or by which any of such parties, or their
respective properties, is bound (each a "Lease" and collectively the "Leases").
The Myer Warranting Parties have delivered to Buyer complete and accurate copies
of each Lease. The Leases so delivered accurately reflect and constitute all of
the agreements and understandings between PCA, NAPP or the Marketing Companies
(whichever is applicable) and the landlords thereunder with respect to the
applicable leased premises. Neither PCA, NAPP nor either of the Marketing
Companies is a party to any written or oral lease under which it is either
lessor or lessee (and, with respect to the Marketing Companies, which lease
relates to the Purchased Assets or their respective marketing operations or any
location at which the Purchased Assets are located), other than the Leases. Each
of PCA, NAPP and the Marketing Companies is in possession of all premises leased
to it from others. Neither PCA or NAPP nor either of the Marketing Companies
nor, to the knowledge of any of the Myer Warranting Parties, any other party to
any Lease is currently in violation, breach or default under any such Lease or,
with or without notice or lapse of time or both, would be in violation or breach
of or in default under any such Lease, and the assignment of the Leases to Buyer
or any of Buyer's Affiliates (after obtaining the consents of the lessors) will
not cause any such default. None of the Myer Warranting Parties has received
notice that any party to any of the Leases intends to cancel or terminate any of
the Leases or to exercise or not exercise any options under any of the Leases.
3.14 Contracts. Schedule 3.14 sets forth a complete and accurate list
of all written agreements, and a brief description of all oral agreements, that
are currently in effect:
a) (i) to which either PCA or NAPP is a party or by which any of the assets of
either PCA or NAPP is bound, (ii) to which any of the Marketing Companies is a
party and pertaining to the marketing operations of such Marketing Company, or
(iii) by which any of the Purchased Assets is bound; and
b) that involves either (i) one or more payments by PCA, NAPP or either of the
Marketing Companies in an aggregate amount exceeding $50,000, or (ii) an
obligation of PCA, NAPP or either of the Marketing Companies which has existed,
or will exist, for a period exceeding one year;
other than the Leases (individually a "Contract" and collectively the
"Contracts"). Complete and accurate copies of the Contracts have been furnished
to or made available to Buyer; provided, however, that in the case of the
agreements described in subparagraphs (i) - (iv) below, the Myer Warranting
Parties have provided to Buyer only specimens of the forms of each of such
agreements rather than copies of each actual agreement; such actual agreements
in each case do not materially vary from the corresponding specimen:
(i) the following forms of PCA agreements with employers or
relating to plan administration for employers:
(A) PCA Administration Agreement for
Cafeteria Plan between PCA and Employer for the
operation of a Cafeteria Plan;
(B) Investment Allocation Agreement between
PCA and Employer to perform investment allocation
services in connection with pension plan;
(C) Administration Agreement between
PCA and Employer to govern administration of pension
plan;
(D) Hold Harmless Agreement between
PCA and Employer to hold harmless Employer;
(E) Administration and Solicitation Rules
for Plans Using PCA as Third Party Administrator
between PCA and Employer, to protect Employer from
liability and to ensure Plans are administered in a
consistent manner;
(F) Hold Harmless Agreement between
Insurance and Investment Companies and Employer to
hold harmless Employer;
(G) Authorization for Joint Payment of
Medical Expenses between PCA, Health Plan Provider
and Participant, allowing participants in group
health plan to file one claim with Health Plan
Provider and receive payment from both Plans (Group
Health Plan and Section 125 Cafeteria Plan);
(H) Hold Harmless Agreement between
Insurance and Investment Companies and PCA to hold
harmless PCA;
(I) Administration Agreement between PCA and
Plan Sponsor to provide Plan Sponsor technical
support services in conjunction with operation of the
Plan;
(J) Retirement Plan Schedule of Fees, which
provides information on standard charges and fees;
(K) Cafeteria Plans Schedule of Fees, which
provides information on standard charges and fees;
(L) Investment Allocation Agreement between
PCA and Trustee to provide investment allocation
services; and
(M) Administration Agreement for FlexMed
Cafeteria Plan between PCA and Employer to provide
Employer technical support services in conjunction
with operation of the Plan;
a list of all existing agreements entered into on any of the forms described in
subparts (A) through (M) above is attached as Schedule 3.14(i);
(ii) The following forms of NAPP agent agreements:
(A) Divisional Director Agreement, for
territorial managers assigned a geographic area in
which to recruit, train and supervise managers and
agents;
(B) Regional Director Agreement, to secure
FlexEd cases and other 403(b) seminars and contacts;
(C) Amendment to Regional Director
Agreement, amending the vesting provisions of the
Regional Director Agreement to provide for 100%
vesting of first year and renewal compensation after
completion of two full years of service;
(D) Regional Director Compensation Vesting
Acknowledgment, acknowledging that NAPP will pay the
Regional Director any compensation due pursuant to
Regional Director Agreement, conditional upon the
Regional Director being in compliance with all
contractual agreements with NAPP or its affiliates;
(E) District Manager Agreement, to recruit,
train and motivate Account Executives and Senior
Account Executives to enroll benefits and procure
applications;
(F) Amendment to District Manager Agreement,
amending the vesting provisions of the District
Manager Agreement to provide for 100% vesting of
first year and renewal compensation after completion
of two full years of service;
(G) District Manager Compensation Vesting
Acknowledgment, acknowledging that NAPP will pay the
District Manager any compensation due pursuant to
District Manager Agreement, conditional upon the
District Manager being in compliance with all
contractual agreements with NAPP or its affiliates;
(H) Senior Account Executive Agreement,
to procure applications for insurance and annuity
contracts;
(I) Account Executive Agreement, to
procure applications for life insurance and annuity
contracts;
(J) Consultant Agreement, to procure
FlexEd cases and other 403(b) seminars;
(K) Appointment Only Agreement between
College Life and the agent, to appoint the agent as
life insurance agent to represent College Life; and
(L) Advance Addendum between College Life
and another party, governing advances from College
Life;
a list of all existing agreements entered into on any of the forms described in
subparts (A) through (L) above is attached as Schedule 3.14(ii);
iii) The following forms of GSG agent agreements:
A) Executive General Agent Contract between
GSG and Executive General Agent to recruit and
contract sub-producers;
B) Managing General Agent Agreement between
GSG and Managing General Agent to recruit qualified
sub-producers to solicit applications;
C) General Agent Contract between GSG and
General Agent for Independent Contractor to solicit
applications; and
D) Agent Contract between GSG and Agent to have
independent contractor solicit applications for
Products;
a list of all existing agreements entered into on any of the forms described in
subparts (A) through (D) above is attached as Schedule 3.14(iii); and
iv) those four consulting agreements between GSG and members of the Bland
family.
The Contracts so delivered accurately reflect and constitute all of the
agreements and understandings between PCA, NAPP or the Marketing Companies
(whichever is applicable) and the other party or parties thereto, and PCA, NAPP
and the Marketing Companies have fully performed all of their obligations
thereunder.
Neither PCA or NAPP nor either of the Marketing Companies nor, to the
knowledge of any of the Myer Warranting Parties, any other party to any Contract
is currently in violation, breach or default under any such Contract or, with or
without notice or lapse of time or both, would be in violation or breach of or
in default under any such Contract, and the assignment of the Contracts to Buyer
will not cause any such default. None of the Myer Warranting Parties has
received notice that any party to any of the Contracts intends to cancel or
terminate any of the Contracts or to exercise or not exercise any options under
any of the Contracts. Except as specifically noted on Schedule 3.14, none of the
Contracts are cancelable without penalty or cancellation fee by PCA or NAPP upon
30 days' or less written notice. With respect to PCA's actions and omissions
with respect to hospitals, school districts and corporations with which PCA has
one or more plan administration agreements in place, PCA is not, and has not
been, a "fiduciary" (as defined in ERISA) with respect to such entities or their
respective plans, nor has PCA engaged in any "prohibited transaction" (as
defined in ERISA) with respect to any of such plans.
3.15 Title. Each of the Marketing Companies has good and marketable
title to, or assignable interests in, all of its assets and interests in assets,
whether real, personal, mixed, tangible or intangible, described on Schedules
3.10, 3.11, 3.12, 3.13 and 3.14; such assets constitute all of the material
assets and interests in material assets that are used by such party in its
marketing operations. Each of PCA and NAPP has good and marketable title to or
assignable interests in, all of its assets and interests in assets, whether
real, personal, mixed, tangible or intangible described on Schedules 3.10, 3.11,
3.12, 3.13 and 3.14; such assets constitute all of the material assets and
interests in material assets that are used by such party in its business
operations. All of the Purchased Assets and such assets of PCA and NAPP are free
and clear of all Encumbrances except for (a) the lien of current taxes not yet
due and payable, (b) Encumbrances listed on Schedule 2.2 relating to future
performance obligations under the Contracts and consents listed on Schedule 2.2
as not having been obtained and (c) possible minor matters that, in the
aggregate, are not substantial in amount and do not materially detract from or
interfere with the present or intended use of any of such assets, nor materially
impair the marketing operations of the Marketing Companies or the respective
businesses of PCA and NAPP.
3.16 Employee Benefits.
a) Disclosure. Schedule 3.16(a) contains a complete list of
"Plans" consisting of each:
i) "employee welfare benefit plans," as defined in ss.3(1) of
ERISA, to which PCA, NAPP, ASC or either of the Marketing
Companies contributes or is required to contribute ("Welfare
Plan"); Schedule 3.16 sets forth the amount of any liability
of PCA, NAPP, ASC or either of the Marketing Companies for
payments more than 30 days past due with respect to each
Welfare Plan as of the Closing Date;
ii) "multiemployer pension plan," as defined in ss.3(37) of ERISA,
to which PCA, NAPP, ASC or either of the Marketing Companies
(or any entity (a "Common Control Entity") that is a member of
a "controlled group of corporations" with, or is under "common
control" with, PCA, NAPP, ASC or either of the Marketing
Companies as such control is defined in ss.414(b) or (c) of
the Internal Revenue Code has contributed or has been
obligated to contribute at any time after September 25, 1980
("Multiemployer Plan");
iii) "employee pension benefit plan," as defined in ss.3(2) of
ERISA (other than a Multiemployer Plan), to which PCA, NAPP,
ASC or either of the Marketing Companies or any Common Control
Entity contributes or is required to contribute ("Pension
Plan");
iv) deferred or incentive compensation plan, bonus plan, stock
option or appreciation plan, employee stock purchase plan,
retirement plan, health plan, insurance plan, travel allowance
plan, profit-sharing plan, severance or termination plan and
any other formal or informal, written or unwritten employee,
fringe benefit or compensatory plan, agreement, arrangement
or commitment in which one or more current or former employees
participate or have an interest (other than normal payroll
practices and policies concerning holidays, vacations and
salary continuation during short absences or illness or other
reasons), maintained by, or pursuant to the terms of which,
PCA, NAPP, ASC or either of the Marketing Companies have any
obligation or liability ("Benefit Plan"); and
v) other employment contract to which PCA, NAPP, ASC or either of
the Marketing Companies is a party or by which PCA, NAPP, ASC
or either of the Marketing Companies is bound.
All of these Welfare Plans, Multiemployer Plans, Pension Plans and Benefit Plans
(together, the "Plans") and employment contracts and arrangements are in full
force and effect, and neither PCA, NAPP, ASC nor either of the Marketing
Companies nor, to the knowledge of any of the Myer Warranting Parties or ASC,
any other party is in default under them; there have been no claims of defaults
asserted in writing and, to the knowledge of any of the Myer Warranting Parties
or ASC, none have been asserted orally or are there any facts or conditions that
if continued, or on notice, will result in a default under any of these Plans,
contracts or arrangements. Each of the Plans have been administered in
accordance with its terms and with all applicable provisions of ERISA, the
Internal Revenue Code and other applicable federal and state laws.
b) Pension Plans.
i) The funding method used in connection with each Pension
Plan that is subject to the minimum funding requirements
of ERISA is acceptable, and the actuarial assumptions
used in connection with funding each such plan, in the
aggregate, are reasonable. The assets of each Pension Plan
are sufficient to discharge all liabilities under that plan,
on an ongoing basis and on a termination basis, and there is
no "accumulated funding deficiency,"as defined inss.302(a)(2)
of ERISA, with respect to any plan year of any such plan.
Except as set forth in Schedule 3.16(b), neither PCA, NAPP,
ASC nor either of the Marketing Companies nor any Common
Control Entity has any liability for unpaid contributions with
respect to any Pension Plan.
ii) Each Pension Plan and each related trust agreement, annuity
contract or other funding instrument is qualified and tax
exempt under the provisions of Internal Revenue Code
ss.ss.401(a) (or 403(a) as appropriate) and 501(a) and nothing
has occurred with respect to such Pension Plan or related
trust, annuity contract or other funding instrument that could
cause the loss of such qualification or exemption. Each
Pension Plan has received a favorable determination letter
issued by the Internal Revenue Service.
iii) Each Pension Plan and each related trust agreement, annuity
contract or other funding instrument complies currently, and
has complied in all material respects at all times in the
past, both as to form and in operation, with the provisions of
applicable federal law, including the Internal Revenue Code
and ERISA.
iv) PCA, NAPP, ASC and the Marketing Companies have each paid all
premiums (and interest charges and penalties for late payment,
if applicable) due to the Pension Benefit Guaranty
Corporation (the "PBGC") with respect to each Pension Plan
for each of its plan years for which such premiums are
required. To the knowledge of any of the Myer Warranting
Parties or ASC, there has been no "reportable event"
(as defined inss.4043(b) of ERISA and the PBGC regulations
under that Section) with respect to any Pension Plan. No
liability to the PBGC has been incurred by PCA, NAPP, ASC or
either of the Marketing Companies or any Common Control
Entity on account of the termination of any Pension Plan.
No filing has been made by PCA, NAPP, ASC or either of the
Marketing Companies or any Common Control Entity on
account of the termination of any Pension Plan. No filing
has been made by PCA, NAPP, ASC or either of the Marketing
Companies or any Common Control Entity with the PBGC, and
no proceeding has been commenced by the PBGC to terminate
any Pension Plan. Neither PCA, NAPP, ASC nor either of the
Marketing Companies nor any Common Control Entity has, at
any time, (A) ceased operations at a facility so as to
become subject to the provisions ofss.4062(e) of ERISA,
(B) withdrawn as a substantial employer so as to become
subject to the provisions ofss.4063 of ERISA, or (C) ceased
making contributions on or before the Closing Date to any
Pension Plan subject toss.4064(a) of ERISA to which PCA,
NAPP, ASC or either of the Marketing Companies or any
Common Control Entity made contributions during the five
years prior to the Closing Date.
c) Multiemployer Plan. Neither PCA, NAPP, ASC nor either of the Marketing
Companies nor any Common Control Entity has at any time after September
25, 1980, contributed or been obligated to contribute to a
Multiemployer Plan, or withdrawn from a Multiemployer Plan in a
"complete withdrawal" or a "partial withdrawal," as defined in ERISA
ss.ss.4203 and 4205, respectively.
d) Prohibited Transactions. Neither PCA, NAPP, ASC nor either of the
Marketing Companies nor, to the knowledge of any of the Myer Warranting
Parties or ASC, any plan fiduciary of any Welfare Plan or Pension Plan
has engaged in any transaction in violation of ss.406(a) or (b) of
ERISA or any "prohibited transaction," as defined in ss.4975(c) (1) of
the Internal Revenue Code, for which no exemption exists under
ss.4975(c)(2) or Section 4975(d) of the Internal Revenue Code. All
contributions payable, whether employer or employee, have been or will
be made by Myer or the appropriate party to each of the Plans prior to
or as of the Closing.
e) Copies of Relevant Documents. Complete and accurate copies of
each of the following documents have been delivered by the Myer
Warranting Parties to Buyer: (i) each Welfare Plan, Multiemployer
Plan and Pension Plan, related trust agreement, annuity or group
insurance contract or other funding instrument and the most recent
determination letter issued by the Internal Revenue Service with
respect to such Plan(s) or funding arrangement; (ii) each Benefit
Plan referred to in subsection (a)(iv) above, and complete
descriptions of any such plans or arrangements that are not in writing;
(iii) the most recent "summary plan description" for each Welfare
Plan, Multiemployer Plan and Pension Plan and all other written
communications describing or referring to any Welfare Plan; (iv)
Annual Reports on Form 5500 Series required to be filed with any
governmental agency for each Welfare Plan and each Pension Plan for
the two most recent plan years; and (v) all actuarial reports
prepared for the last three plan years for each Pension Plan.
f) Validity and Enforceability. Each Welfare Plan, Pension Plan, related
trust agreement, annuity contract or other funding instrument and each
Benefit Plan is legally valid and binding and in full force and effect.
Consummation of the transactions contemplated by this Agreement will
not accelerate any payment or liability in connection with any of the
Plans or under any employment contract referred to in subsection (a)(v)
above. All reporting and disclosure requirements of PCA, NAPP, ASC and
the Marketing Companies under ERISA and the Internal Revenue Code have
been satisfied.
g) Financial Statements. The respective financial statements of PCA,
NAPP, ASC and the Marketing Companies (including those included in
the Financial Statements) fully and accurately reflect all
liabilities of such entities for all wages, medical, dental and
hospitalization benefits, short and long-term disability benefits,
workers compensation, termination, severance and separation benefits,
and any and all other benefits or payments (except for sick pay)
under all Plans or under all employment contracts referred to in
subsection (a)(v) above as of June 30, 1998, including all claims,
expenses, rights to reimbursement or benefits arising out of known
events or known conditions existing or occurring as of or prior to
June 30, 1998, whether or not payable as of June 30, 1998. All
liabilities of such entities for sick pay and vacation pay as of
June 30, 1998, are described on Schedule 3.16(g), which Schedule
shall be updated by such entities to be true and correct as of the
Closing. When updated as of the Closing, Schedule 3.16(g) will also
fully and accurately reflect all liabilities of such entities for
wages, medical, dental and hospitalization benefits, short and
long-term disability benefits, workers compensation, termination,
severance and separation benefits, and any and all other benefits or
payments under all Plans or under all employment contracts referred
to in subsection (a)(v) above, as of the Closing, including all
claims, expenses, rights to reimbursement or benefits arising out of
known events or known conditions existing or occurring as of or
prior to the Closing, whether or not payable as of the Closing.
h) Payments to Retirees. Except as described in Schedule 3.16(h), neither
PCA, NAPP, ASC nor either of the Marketing Companies nor any plan
fiduciary of a Welfare Plan is obligated to make any payment to or with
respect to any former employee of PCA, NAPP, ASC or either of the
Marketing Companies under any retiree medical benefit or other welfare
plan.
i) Other Employee Matters. There is no pending or, to the knowledge of any
of the Myer Warranting Parties or ASC, threatened, labor dispute,
strike or work stoppage affecting PCA, NAPP, ASC or either of the
Marketing Companies. Except as set forth in Schedule 3.16(h), neither
PCA, NAPP, ASC nor either of the Marketing Companies has entered into
any severance or similar arrangement in respect of any present or
former employee that will result in any obligation, absolute or
contingent, of Buyer, PCA, NAPP or ASC to make any payment to any
present or former employee following termination of employment. PCA,
NAPP, ASC and the Marketing Companies are, and have been, in
compliance with all federal, state and local laws affecting employment
and employment practices (including, without limitation, terms and
conditions of employment and wage and hour regulations), and are not
and have not been engaged in any unfair labor practices. Schedule
3.16(h) contains a list of the names and addresses of all officers,
directors and employees of each of PCA, NAPP and the Marketing
Companies whose annual rate of compensation exceeds $50,000, stating
the rates of compensation payable to each.
3.17 Insurance. Schedule 3.17 describes all insurance policies held by
PCA, NAPP or either of the Marketing Companies concerning their respective
businesses and properties (including the Purchased Assets). PCA, NAPP and the
Marketing Companies have maintained and now maintain (a) insurance on all their
assets and businesses of a type customarily insured, covering property damage
and loss of income by fire or other casualty, and (b) reasonably adequate
insurance protection against all liabilities, claims and risks against which it
is customary to insure. PCA, NAPP and the Marketing Companies are not in default
with respect to payment of premiums on any such policy. Except as set forth in
Schedule 3.17, no claim is pending under any such policy.
3.18 Marketing Operations. Schedule 3.18 describes each Affiliate of
Myer that is, or within the past two years has been, engaged in the marketing of
life insurance and annuity products, other than PCA, NAPP, the Marketing
Companies, FAI, Buyer and Buyer's Affiliates.
3.19 Compliance with Law; Market Conduct Activities.
a) Each of ASC, PCA, NAPP and the Marketing Companies is in compliance in
all material respects with all federal, state, local and foreign laws
and regulations applicable to it.
When the Myer Warranting Parties and ASC (and their respective
agents and Affiliates) have engaged in Market Conduct Activities on
behalf of Great Southern, College Life, FAI or Loyalty Life Insurance
Company (formerly a subsidiary of Great Southern, "Loyalty"), the
application and underwriting standards and procedures utilized by the
Myer Warranting Parties, ASC or their respective agents or Affiliates,
as the case may be, have conformed in all material respects to the then
existing underwriting and policy issuance guidelines of College Life,
Great Southern, FAI or Loyalty (whichever is applicable) and such
Market Conduct Activities have conformed with applicable law. Each
agent (whether of any of the Myer Warranting Parties, ASC or any of
their respective agents or Affiliates), at the time such agent wrote,
sold or produced such business for Great Southern, College Life, FAI or
Loyalty, was duly licensed as an insurance agent (for the type of
business written, sold or produced by such agent) in the particular
jurisdiction in which such agent wrote, sold or produced such business;
none of such agents have violated (or with or without notice or lapse
of time or both, would have violated) any term or provision of any law,
regulation or any writ, judgment, decree, injunction or similar order
applicable to the writing, sale or production of such business.
Schedule 3.19 sets forth a description of all claims or demands
received by the Myer Warranting Parties relating to Market Conduct
Activities. Notwithstanding the foregoing, it is acknowledged and
agreed that the representations and warranties contained in this
Section 3.19(a) shall not be deemed to apply to, or cover, those
activities or matters described in Section 3.19(b) below. In addition,
references in this Section 3.19(a) to "Market Conduct Activities" shall
not include those aspects of Market Conduct Activities described in
Section 3.19(b) below and references in this Section 3.19(a) to laws or
regulations shall not include those laws and regulations described in
Section 3.19(b) below.
b) Each of ASC, PCA, NAPP and the Marketing Companies is in compliance in
all material respects with all federal, state, local and foreign laws
and regulations applicable to its activities and conduct and relating
to the processing, after receipt from agents, of applications for
insurance policies or annuities, including, without limitation,
activities related to the review of such applications for accuracy and
completeness and activities involved in completing any such
applications that were not accurate or complete when initially
submitted by an agent.
3.20 Litigation. Except as set forth in Schedule 3.20, there is not
pending or, to the knowledge of any of the Myer Warranting Parties or ASC
threatened, any Proceeding against or affecting any of the Myer Warranting
Parties or ASC, Aragon, Strider or the respective businesses, assets (including
the Purchased Assets) or financial conditions of any of such parties or that
would impair the ability of any of such parties to perform their respective
obligations under this Agreement and the Transaction Documents to which they are
parties. To the knowledge of the Myer Warranting Parties after consultation with
their legal counsel about each such matter, the matters set forth in Schedule
3.20, if decided adversely to any of such parties, will not result in a material
adverse change in the business, assets (including the Purchased Assets) or
financial condition of any of such parties. The Myer Warranting Parties have
furnished or made available to Buyer copies of all relevant court papers and
other documents relating to the matters set forth in Schedule 3.20 involving
PCA, NAPP or ASC. Except as set forth in Schedule 3.20, neither PCA, ASC nor
NAPP is presently engaged in any Proceeding to recover monies due to it or
damages sustained by it.
3.21 Corporate Records. Myer, PCA and/or NAPP have furnished to Buyer
for its examination (a) complete and accurate copies of the respective Articles
of Incorporation and Bylaws of PCA and NAPP; (b) the minute books of PCA and
NAPP containing all records required to be set forth of all proceedings,
consents, actions and meetings of the Stockholders and Board of Directors of
such entities; and (c) the stock books of PCA and NAPP, and related stock
transfer ledgers, setting forth all transfers of any capital stock of such
entities.
3.22 Powers of Attorney; Accounts. Schedule 3.22 lists the names and
addresses of all Persons holding a power of attorney on behalf of either PCA or
NAPP and the names and addresses of all banks, trust companies, securities
brokers and other financial institutions at which either PCA or NAPP has an
account or safe deposit box or maintains a banking, custodial, trading or other
similar relationship, indicating, in each case, the account holder and the names
of all Persons authorized to transact business with respect to such accounts or
deposits or to have access to such boxes.
3.23 No Omissions. None of the representations and warranties made by
any of the Myer Warranting Parties in this Agreement, in any of the Transaction
Documents or in any certificate furnished or to be furnished to Buyer by any of
such parties, or on their behalf, contains or will contain any untrue statement
of a material fact, or omits to state a material fact necessary to make the
statements made, in the light of the circumstances under which they were made,
not misleading.
ARTICLE IV
BUYER'S REPRESENTATIONS AND WARRANTIES
Buyer represents and warrants that:
4.1 Organization and Authority. Each of Buyer and the Buyer-Related
Entities is (i) a corporation duly organized, validly existing and in good
standing under the laws of its state of incorporation, (ii) has all necessary
corporate power to own its properties, to carry on its business as now owned and
operated, and to enter into and perform its obligations under this Agreement and
the Transaction Documents to which it is a party, and (iii) is duly qualified to
do intrastate business, and is in good standing, in each jurisdiction in which
the nature of its business or of its properties makes such qualification
necessary.
Each of Buyer and the Buyer-Related Entities has taken all corporate
actions required by law, its Articles of Incorporation, its Bylaws or otherwise
to authorize the execution and delivery by it of this Agreement and the
Transaction Documents to which it is a party, the performance by it of its
obligations hereunder and thereunder, and the consummation of the transactions
contemplated hereby and thereby.
This Agreement has been duly executed and delivered by Buyer and is the
valid and binding obligation of Buyer, enforceable in accordance with its terms,
and when the Transaction Documents have been executed and delivered, they each
will be the valid and binding obligation of Buyer and the Buyer-Related Entities
(as the case may be) enforceable in accordance with their respective terms,
subject in each case to the qualification that the enforceability thereof may be
limited by the effect of bankruptcy and other similar laws of general
application relating to or affecting the rights and remedies of creditors, that
the remedy of specific enforcement or of injunctive relief is subject to the
discretion of the court before which any Proceeding therefor may be brought and
that the validity, binding effect and enforceability hereof and thereof may be
affected by insurance laws, regulations or rules.
4.2 Conflicts. Except for the approvals and filings described on
Schedule 4.3, neither the execution and delivery by Buyer of this Agreement and
by Buyer and the Buyer-Related Entities of the Transaction Documents to which
they are parties, nor the performance by any of such parties of its obligations
hereunder or thereunder, nor the consummation of the transactions contemplated
hereby or thereby, will (a) violate any provision of the Articles of
Incorporation or Bylaws of Buyer and the Buyer-Related Entities; (b) violate or
be in conflict with or constitute a default under (or with the giving of notice
or passage of time or both would violate or constitute a default under) any oral
or written agreement, instrument, arrangement or understanding to which any of
such parties is a party or by which any of such parties may be bound or
accelerate the maturity of any debt or other obligation of any of such parties;
(c) require the consent of any other party or Governmental Body; or (d) violate
any statute, law, rule, regulation, judgment, decree, order of any Governmental
Body to which any of such parties or its properties is subject.
4.3 Consents. Except as set forth on Schedule 4.3, no consent, approval
or authorization of, or declaration, filing or registration with, any
Governmental Body is required to be made or obtained by Buyer and the
Buyer-Related Entities in connection with the execution and delivery by such
parties of this Agreement and the Transaction Documents to which they are
parties, the performance by any of such parties of their respective obligations
hereunder and thereunder, or the consummation of the transactions contemplated
hereby and thereby.
4.4 Litigation. There is not pending nor, to Buyer's knowledge,
threatened, any Proceeding against or affecting Buyer and the Buyer-Related
Entities that would impair the ability of any of such parties to perform their
respective obligations under this Agreement and the Transaction Documents to
which they are parties.
4.5 Financial Information.
a) Schedule 4.5(a) sets forth the unaudited balance sheets of CIG as of
September 30, 1997, December 31, 1997, March 31, 1998, and June 30,
1998, and the related unaudited statements of income and retained
earnings for the periods ending on those dates, which financial
statements are consistent with the books and records of CIG and have
been prepared in accordance with GAAP consistently followed throughout
the periods indicated, and fairly present in all material respects the
financial positions of CIG as of the respective dates of the balance
sheets included therein, and the results of CIG's operations for the
respective periods indicated.
b) Schedule 4.5(b) sets forth the audited annual statutory financial
statements of FAI as of December 31, 1997, as filed with the Texas
Department of Insurance, which statutory statements have been prepared
in accordance with SAP and present fairly in all material respects the
financial position of FAI as of the date indicated and the results of
its operations for the period therein specified.
c) The inventory of policies in-force previously delivered by Buyer to
Lewis & Ellis, consulting actuaries, regarding the insurance business
reinsured by FAI was consistent with the financial statements described
in Section 4.5(b).
4.6 No Omissions. None of the representations and warranties made by
Buyer in this Agreement, in any of the Transaction Documents or in any
certificate furnished or to be furnished to Myer by Buyer, or on its behalf,
contains or will contain any untrue statement of a material fact, or omits to
state a material fact necessary to make the statements made, in the light of the
circumstances under which they were made, not misleading.
ARTICLE V
COVENANTS OF MYER, PCA,
NAPP AND THE MARKETING COMPANIES
Myer, PCA, NAPP and the Marketing Companies agree as follows:
5.1 Access. From the date of this Agreement to the Closing Date, Myer
shall give Buyer and its representatives reasonable opportunity and access to
inspect, investigate and audit the operations, business and books and records of
PCA, NAPP and the Marketing Companies, including, without limitation, the assets
described on Schedules 3.10, 3.11, 3.12, 3.13 and 3.14. During the period of
time between the Closing Date and Buyer's delivery of the Closing Date Balance
Sheets, Myer shall give Buyer and its representatives reasonable access to the
books and records of the Marketing Companies to make such investigations as
Buyer shall reasonably desire in conjunction with the preparation and evaluation
by Buyer of the Closing Date Balance Sheets.
5.2 Conduct of Business. From the date of this Agreement through the
Closing:
a) PCA, NAPP and the Marketing Companies shall carry on their respective
businesses and activities diligently and in substantially the same
manner as previously carried out and shall not make or institute any
unusual or novel methods of sale, marketing, management, accounting or
operation that will vary materially from those methods used by such
parties as of the date of this Agreement;
b) Except as otherwise provided in this Agreement, PCA, NAPP and the
Marketing Companies shall not take any action that may result in any of
the changes or events listed in Section 3.8; without limiting the
foregoing, Myer, PCA, NAPP and the Marketing Companies shall not engage
in any inter-party transactions involving advances, dividends or other
cash transfers other than the settlement of amounts shown on the June
30 Pro Forma Balance Sheets;
c) Myer, PCA, NAPP and the Marketing Companies shall furnish or cause to
be furnished to Buyer and its representatives all data and information
concerning the business, finances and properties of PCA, NAPP, Aragon
and the Marketing Companies that Buyer may reasonably request; and
d) Myer, PCA, NAPP and the Marketing Companies will use their respective
Commercially Reasonable Efforts (i) to preserve their business
organizations intact, (ii) to maintain satisfactory employment
relationships with present officers and employees who devote
significant time to the marketing or administrative operations of
PCA, NAPP and the Marketing Companies and whose continued employment
by Buyer would help assure the continuity of PCA's and NAP
Partner's respective businesses and the marketing operations of the
Marketing Companies being purchased by Buyer, and (iii) to preserve
their respective present relationships with Persons having business
relationships with them. If Buyer extends employment offers to any
officer or employee of the Marketing Companies and advises Myer and
the Marketing Companies of such extension of employment offers, then
Myer and the Marketing Companies shall encourage such officers
and employees to accept employment with Buyer.
Notwithstanding the foregoing, it is agreed that (i) NAPP and NAP Life Insurance
Company may enter into an agreement (the "Termination Agreement") with the
parties to the various agreements giving rise to the Third Party Trailers (or
their successors-in-interest, as the case may be) pursuant to which such
agreements, together with the related reinsurance, coinsurance and other
agreements entered into by NAP Life Insurance Company in connection therewith,
would be terminated on terms and conditions acceptable to the parties to the
Termination Agreement and (ii) the execution and delivery of the Termination
Agreement will not require any consents or approvals by Buyer so long as the
Termination Agreement (a copy of which shall be provided to Buyer) does not
provide for the reduction of any compensation due NAPP with respect to insurance
business produced under such terminated agreements prior to their termination.
5.3 Insurance. From the date of this Agreement through the Closing,
PCA, NAPP and the Marketing Companies will continue to carry their existing
insurance, subject to variations in amounts required by the ordinary operations
of their respective businesses. At the request of Buyer and at Buyer's expense,
the amount of insurance against fire and other casualties that, at the date of
this Agreement, PCA, NAPP and the Marketing Companies carry on any of their
properties or in respect of their operations shall be increased by such amount
or amounts as Buyer shall specify.
5.4 Consents. From the date of this Agreement through the Closing,
Myer, PCA, NAPP and the Marketing Companies will use their respective
Commercially Reasonable Efforts to obtain all consents or approvals of, and
provide all notices to, other Persons required for such Persons to authorize,
approve or permit the consummation of the transactions contemplated hereby and
will cooperate with Buyer, at Buyer's expense, in connection with Buyer's
efforts to obtain all consents or approvals of, and to provide notices to, other
Persons required for Buyer to authorize, approve or permit the consummation of
the transactions contemplated by this Agreement. Myer shall provide Buyer with a
copy of all filings and material correspondence with Governmental Bodies in
connection with such consents and approvals and a copy of all correspondence or
notices from Governmental Bodies concerning the transactions contemplated by
this Agreement.
Myer, PCA, NAPP and the Marketing Companies will exercise their
Commercially Reasonable Efforts, at Buyer's expense, and execute and deliver any
documents and instruments that may be reasonably required, to assist Buyer in
obtaining the consents described in Section 6.1; provided, however, that Myer,
PCA, NAPP and the Marketing Companies shall not be obligated under this Section
to execute any guaranty, assumption of liability or other document or instrument
requiring them to assume obligations not contemplated by this Agreement.
5.5 Change of Names. Myer and the Marketing Companies shall deliver to
Buyer, on or before the Closing Date, all documentation necessary for filing
with the appropriate Governmental Bodies to change the names of the Marketing
Companies to names that do not include the names of, and are not deceptively
similar to, the name of Buyer, Buyer's Affiliates or the present names of the
Marketing Companies, which documentation shall be duly executed.
5.6 Stand Still. Until such time, if any, as this Agreement is
terminated pursuant to Article XII, none of the Myer Warranting Parties shall
either directly or through their respective representatives, directly or
indirectly solicit, initiate or encourage any inquiries or proposals from,
discuss or negotiate with, provide any non-public information to, or consider
the merits of any unsolicited inquiries or proposals from, any Person (other
than Buyer) relating to any transaction involving the sale of the CIG Shares,
the PCA Shares, the NAPP Shares or any of the Purchased Assets, or any merger,
consolidation, business combination or similar transaction involving PCA, NAPP
or either of the Marketing Companies.
5.7 Financial Statements. Myer shall promptly deliver to Buyer such
annual or quarterly financial statements (of the nature described in Section
4.6) of PCA, NAPP and the Marketing Companies as may become available after the
date of this Agreement but on or prior to the Closing Date (and such additional
financial statements shall thereafter be deemed to be part of the "Financial
Statements" for purposes of this Agreement). Myer shall promptly deliver to
Buyer copies of any tax returns of PCA or NAPP that are filed between the date
of this Agreement and the Closing Date.
5.8 Lease Estoppels.
a) With respect to the Office Lease with an estimated
commencement date of June 1, 1998, between Barton Creek Plaza,
Ltd., as landlord, and MSG, as tenant, Myer and MSG shall
obtain from such landlord, and deliver to Buyer prior to the
Closing, an estoppel agreement in the form attached hereto as
Exhibit 5.8(a); and
b) With respect to the Office Lease with an estimated
commencement date of June 1, 1998, between Barton Creek Plaza,
Ltd., as landlord, and ASC, as tenant, Myer shall obtain from
such landlord, and deliver to Buyer prior to the Closing, an
estoppel agreement in the form attached hereto as Exhibit
5.8(b);
The estoppel certificates described in the foregoing subparagraphs (a) and (b)
are collectively referred to herein as the "Estoppel Agreements." The facts set
forth in each of the Estoppel Agreements shall be complete and accurate on the
Closing Date.
5.9 Inter-Company Obligations. Myer shall cause to be settled on or
before the Closing all liabilities, contracts or commitments between PCA or
NAPP, on the one hand, and Myer, Aragon, Strider, either of the Marketing
Companies or any Affiliate of any of such parties (other than PCA or NAPP), on
the other.
5.10 No Churning. Myer and the Marketing Companies (and, prior to the
Closing, PCA and NAPP) shall not (and Myer shall cause Aragon and Strider and
any other Affiliates of Myer, the Marketing Companies, Aragon or Strider to not)
solicit or induce exchanges or replacements of the policies constituting any of
the insurance business of Buyer or any of Buyer's Affiliates, or knowingly
exchange or replace any of such policies; provided, however, that no acts or
omissions of any of the Equita Companies, or any of their respective agents or
employees, shall constitute a violation of this Section 5.10 unless such act or
omission results from or occurs in connection with a breach by Myer of his
obligations under Section 12 of the Consulting Agreement, which is incorporated
herein by this reference.
5.11 Termination of Plans. On or before the Closing, Myer shall cause
PCA, NAPP and ASC to terminate the participation of such entities in the Plans
described on Schedule 3.16(a) (and to terminate such of those Plans as are
sponsored or maintained by PCA, NAPP or ASC) without any surviving or future
liability to any of such entities or Buyer. To the extent necessary, Buyer shall
cooperate with Myer in effecting such termination involving ASC.
5.12 Transfer of Assets; Assumption of Liabilities. On or before the
Closing, Myer shall cause (a) the transfer to Myer or his designated Affiliate
of all assets described on the PCA Pro Forma Balance Sheet or the NAPP Pro Forma
Balance Sheet as "Assets Transferred to Myer" and (b) the assumption by Myer or
his designated Affiliate of (i) all obligations described on such balance sheets
as "Liabilities Assumed by Myer" and (ii) all liabilities of PCA and NAPP and
50% of the liabilities of ASC relating to or arising under the Plans described
on Schedule 3.16(a), in each case to the extent not reflected on the June 30 Pro
Forma Balance Sheets.
5.13 Security. As collateral security for the timely performance of the
respective obligations of Myer and the Marketing Companies under this Agreement
and the Transaction Documents to which they are parties, effective as of the
Closing without further action Myer and the Marketing Companies do hereby grant
to Buyer and its Affiliates (and Myer shall cause Strider to grant to Buyer
under the terms of the Trailer Agreement) the right to set off any of the
following amounts:
(A) the liquidated amount of any damages Buyer may incur as a
result of the breach of any such obligation (subject, in the case of
the indemnity obligations of Myer and the Marketing Companies under
Section 11.1 of this Agreement, to the claims limitations set forth in
Section 11.4), and
(B) all amounts owed by Myer under Section 5.15 or the last
paragraph of Section 2.3;
against any amounts Buyer or any of its Affiliates may owe to
Myer, either of the Marketing Companies or Strider or their assigns;
provided, however, that except as set forth in Section 5.15 of this
Agreement, Buyer and its Affiliates:
a) shall have the right to set off the Old Trailers
against amounts described in (A) above only if the
Qualifying Production in the Qualifying Period falls below
$150,000,000; and
b) shall have no right of set off with respect to the
Third Party Trailers except for amounts owed by Myer under
Section 5.15.
Damages shall be deemed to be "liquidated" for purposes of clause (A) above if
the amount of such damages has been determined (A) by agreement among Buyer and
Myer, (B) by decision of arbitrators under Section 11.5 and an appeal thereof,
to the extent permitted under applicable law, has not been pursued within the
earlier of the applicable time permitted by law and 30 days; or (C) by decision
of a court (obtained without violating the binding arbitration provisions of
this Agreement) and an appeal thereof, to the extent permitted under applicable
law, has not been pursued within the applicable time permitted by law, or an
appeal has been pursued and, following such appeal, such decision has become or
has been made final.
5.14 Agreements with Pesce and Barton. On or before the Closing, Myer,
NAPP and the Marketing Companies shall cause to be prepared, negotiated and
entered into (a) an amendment to that certain Employment Agreement dated as of
January 11, 1995, between NAPP and John Pesce, and (b) an amendment to that
certain Employment Agreement dated as of January 11, 1995, between NAPP and Kurt
Barton, which amendments shall each be in the form attached hereto as Exhibit
5.14. When such amendments have been executed and delivered, such agreements, as
amended, shall be deemed to be included in the Contracts, and obligations
assumed by Buyer, for purposes of this Agreement.
5.15 Reimbursement for Certain Employment Expenditures. Following the
Closing, within 30 days of receipt from Buyer of an invoice and any other
documentation reasonably requested by Myer, Myer shall reimburse Buyer for all
of the amounts actually paid by Buyer in excess of:
a) $500,000 to William P. Tedrow;
b) $ 86,250 to Bill D. Hudson; and
c) $ 97,500 to William J. Klepac;
for severance (or other amounts due thereunder solely because of the
consummation of the transactions contemplated by this Agreement) under their
respective existing employment agreements with the Marketing Companies (to the
extent such agreements have been assumed by Buyer as specified in the Assignment
and Assumption Agreements).
5.16 Assignment of Registered Trademarks. On or before the Closing,
Myer and NAPP shall cause the registered trademarks described on Schedule 3.12
to be assigned by National Annuity Programs, Inc. to NAPP or PCA (as directed by
Buyer) pursuant to assignments acceptable to Buyer.
ARTICLE VI
BUYER'S COVENANTS
6.1 Consents. From the date of this Agreement through the Closing,
Buyer will use its Commercially Reasonable Efforts to obtain all consents or
approvals of, and provide all notices to, other Persons required for such
Persons to authorize, approve or permit the consummation of the transactions
contemplated hereby and will cooperate with Myer, PCA, NAPP and the Marketing
Companies, at their expense, in connection with their efforts to obtain all
consents or approvals of, and to provide notices to, other Persons required for
them to authorize, approve or permit the consummation of the transactions
contemplated by this Agreement. Buyer shall provide Myer with a copy of all
filings and material correspondence with Governmental Bodies in connection with
such consents and approvals and a copy of all correspondence or notices from
Governmental Bodies concerning the transactions contemplated by this Agreement.
Buyer will exercise its Commercially Reasonable Efforts, at Myer's
expense, and execute and deliver any documents and instruments that may be
reasonably required, to assist Myer, PCA, NAPP and the Marketing Companies in
obtaining such consents; provided, however, that Buyer shall not be obligated
under this Section to execute any guaranty, assumption of liability or other
document or instrument requiring it to assume obligations not contemplated by
this Agreement.
6.2 Access to Personnel. During the five year period following the
Closing, Buyer shall provide Myer with reasonable access, during normal business
hours and at Myer's expense, to such personnel of Buyer or Buyer's Affiliates
formerly employed by the Marketing Companies for the purpose of assisting Myer
in winding down and liquidating the Marketing Companies, in resolving certain
litigation of Myer and his Affiliates with National Western Life Insurance
Company, and in collecting trailers or taking any other action that does not
violate the provisions of this Agreement or of any of the Transaction Documents.
6.3 Third Party Trailers. From time to time following the Closing, (a)
NAPP shall, immediately upon receipt of any Third Party Trailers, transfer the
amount of such trailers to Strider pursuant to Myer's written instructions
(which instructions, once given, shall remain in effect until changed by Myer
through written notice to NAPP or Buyer); (b) upon Myer's or Strider's request
and at his or its direction and at their expense, NAPP shall cooperate with Myer
in enforcing NAPP's rights to the Third Party Trailers (including, without
limitation, assigning to Myer upon request, to the extent permitted under such
agreements, all rights under the agreements giving rise to the Third Party
Trailers to facilitate Myer's enforcement of such rights) and in taking such
actions as may be required of NAPP in order to continue receiving the Third
Party Trailers; and (c) neither Buyer nor NAPP shall take any action
purposefully intended either (i) to interfere with NAPP's rights to receive the
Third Party Trailers or (ii) to diminish the amount of such trailers.
ARTICLE VII
OTHER COVENANTS
7.1 Payroll Slot Agreement. Upon the terms and subject to the
conditions set forth in this Agreement, at the Closing Buyer shall enter into,
and Myer shall use his best efforts to cause Aragon to enter into, a Payroll
Slot Agreement in the form attached to this Agreement as Exhibit 7.1 (the
"Payroll Slot Agreement").
7.2 Aragon Stock Agreement. Upon the terms and subject to the
conditions set forth in this Agreement, at the Closing Buyer and Myer shall
enter into an Aragon Stock Agreement in the form attached to this Agreement as
Exhibit 7.2 (the "Aragon Stock Agreement").
Myer shall enter into, prior to the Closing, a stockholders' agreement
with Steve Myer containing terms reasonably acceptable to Buyer which provide
Myer with a right of first refusal with respect to such stock substantially the
same as Myer now enjoys with respect to Doug Lish's Aragon stock.
If, prior to the Closing, either Steve Myer or Doug Lish receives an
offer to sell, or desires to sell, all or any part of his Aragon stock, Myer
shall:
i) exercise his right of first refusal and purchase such Aragon stock
(provided that Americo shall immediately thereafter purchase such stock
from Myer on the same terms as Myer's purchase);
ii) transfer such right to Americo or Americo's designated Affiliate to
facilitate Americo's (or such Affiliate's) exercise of such right (to
the extent permitted by the agreement providing Myer with a right of
first refusal respecting transfers of Aragon stock); or
iii) with Buyer's prior consent, permit such stock transfer to occur
provided the transferee enters into a stockholders' agreement with Myer
containing terms acceptable to Buyer which provide Myer with a right of
first refusal with respect to such stock substantially the same as Myer
prior to such transfer enjoys with respect to such Aragon stock. Buyer
hereby consents to such a transfer to William P. Tedrow or Steve Myer.
In the event of any such transfer, the form of the Aragon Stock Agreement shall
be revised, prior to the parties' executing and delivering such agreement, to
reflect such change in Aragon stock ownership.
7.3 Consulting Agreement. Upon the terms and subject to the conditions
set forth in this Agreement, at the Closing Buyer and Myer shall enter into a
Consulting Agreement in the form attached to this Agreement as Exhibit 7.3 (the
"Consulting Agreement").
7.4 Terminations of Certain Agreements. Upon the terms and subject to
the conditions set forth in this Agreement, on or before the Closing:
a) Buyer shall cause such Affiliates of Buyer who are parties to such
agreement to enter into, and Myer shall cause Strider to enter into, a
termination of the Product Development Agreement in the form attached
to this Agreement as Exhibit 7.4(a) (the "Product Development Agreement
Termination");
b) Myer shall enter into, and Buyer shall cause UFL and FHC to enter into,
a termination of the CIG Shareholders' Agreement in the form attached
hereto as Exhibit 7.4(b) (the "CIG Shareholders' Agreement
Termination");
c) Buyer shall cause such Affiliates of Buyer who are parties to such
agreement to enter into, and MSG and NAPP shall enter into, a
termination of the Marketing Agreement in the form attached to this
Agreement as Exhibit 7.4(c) (the "Marketing Agreement Termination");
and
d) Buyer shall cause Great Southern to enter into, and GSG shall enter
into, a termination of the GSG General Agent's Contract in the form
attached to this Agreement as Exhibit 7.4(d) (the "GSG General Agent's
Contract Termination").
7.5 Waiver of CIG Shareholders' Agreement. The CIG Shareholders'
Agreement contains provisions restricting the transfer of CIG stock and
provisions governing the management and operation of CIG, FAI and ASC, including
the election and removal of directors and officers. To the extent that this
Agreement, the Transaction Documents and the transactions contemplated hereby
and thereby are inconsistent with such provisions of the CIG Shareholders'
Agreement, such provisions are hereby waived by Myer, individually and as a
shareholder of CIG, and by Buyer, on behalf of FHC and Buyer's wholly owned
subsidiary, UFL, individually and as a shareholder of CIG.
7.6 Trailer Agreements. Upon the terms and subject to the conditions
set forth in this Agreement, at the Closing Myer, the Marketing Companies and
Buyer shall enter into (and Myer shall cause Strider to enter into, and Buyer
shall cause Great Southern, College Life, NFU and Ohio State to enter into) an
Old Trailer Agreement and a New Trailer Agreement in the forms attached to this
Agreement as Exhibit 7.6(a) and (b), respectively (the "Old Trailer Agreement"
and the "New Trailer Agreement," respectively, and collectively the "Trailer
Agreements").
7.7 Services Agreement. Upon the terms and subject to the conditions
set forth in this Agreement, at the Closing Myer and Buyer shall cause ASC to
enter into, and Myer shall use his best efforts to cause Aragon to enter into, a
Payroll Slot Administrative Services Agreement in the form attached to this
Agreement as Exhibit 7.7 (the "Services Agreement").
7.8 Allocation of PCA and NAPP Income for Tax Purposes. Following the
Closing, Buyer, PCA, NAPP, Myer and the Marketing Companies shall take all
actions necessary to insure that the income of PCA and NAPP is allocated between
the short "S" tax year ending on the Closing and the short "C" tax year
commencing on the Closing in accordance with when such income was earned, rather
than ratably based on the number of days in such period.
7.9 Further Assurances. From time to time, subsequent to the Closing,
at a party's request and without further consideration, the other party or
parties shall execute and deliver to the requesting party such documents, and
take such other action, as the requesting party may reasonably request to
consummate more effectively the transactions contemplated by this Agreement.
ARTICLE VIII
CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS
The obligations of Buyer under this Agreement to consummate
the transactions contemplated by this Agreement are subject to the
satisfaction, at or before the Closing, of all the conditions set forth
below in this Article VIII. Buyer may waive any or all of these
conditions in whole or in part without prior notice; provided, however,
that no such waiver of a condition shall constitute a waiver by Buyer
of any of its other rights or remedies, at law or in equity, if any of
the Myer Warranting Parties shall be in default of any of their
respective representations, warranties or covenants under this
Agreement.
8.1 Representations and Warranties. Except as otherwise permitted by
this Agreement, all of the representations and warranties of the Myer Warranting
Parties in this Agreement shall be accurate in all material respects as of the
Closing Date as if made on the Closing Date, and Buyer shall have received
certificates, dated as of the Closing Date and executed by Myer and authorized
officers of each of such entities, to such effect.
8.2 Covenants. The Myer Warranting Companies shall have performed or
complied with, in all material respects, all of their respective covenants under
this Agreement to be performed or complied with on or prior to the Closing Date,
and Buyer shall have received certificates, dated as of the Closing Date and
executed by Myer and authorized officers of each of such entities, to such
effect.
8.3 Adverse Changes. During the period from June 30, 1998, to the
Closing Date, there shall not have been any material adverse change in the
financial condition or the results of operations of PCA, NAPP or either of the
Marketing Companies (other than operating losses consistent with those incurred
by such entities in the year prior to the date of this Agreement), and the
assets of PCA and NAPP and the Purchased Assets shall be substantially the same
as those assets existed on September 30, 1997 (except for assets acquired or
disposed of in the ordinary course of business and such other changes as Buyer
may agree upon).
8.4 Legal Opinion. Buyer shall have received from Akin, Gump, Strauss,
Hauer & Feld, L.L.P., counsel for Myer, PCA, NAPP and the Marketing Companies,
an opinion dated the Closing Date, in form and substance satisfactory to Buyer,
addressing the matters set forth in Exhibit 8.4.
8.5 Litigation. No Proceeding pertaining to the transactions
contemplated by this Agreement, or to their consummation, shall have been
instituted or threatened on or before the Closing Date.
8.6 Certified Resolutions. The execution and delivery of this Agreement
by PCA, NAPP and the Marketing Companies, and of the Transaction Documents to
which they are parties by Aragon and Strider, and the performance of their
respective covenants hereunder and thereunder, shall have been duly authorized
by all necessary corporate action, and Buyer shall have received copies of all
resolutions pertaining to that authorization, certified respectively by the
secretaries of each of such parties.
8.7 Tax Clearance Certificates. Buyer shall have received tax clearance
certificates from PCA, NAPP and the Marketing Companies, dated as of a date not
more than 30 days before the Closing Date, from the appropriate state
Governmental Body for each of such parties.
8.8 Third Party Consents. All necessary agreements and consents of any
parties to the consummation of the transactions contemplated by this Agreement,
or otherwise pertaining to the matters covered by it, including, without
limitation, the Lease Assignments and Landlord Consents and other consents to
assignments to and assumptions by Buyer, shall have been obtained by the Myer
Warranting Parties and delivered to Buyer.
8.9 Regulatory Approvals. All regulatory approvals necessary for:
a) the consummation of the transactions contemplated by this
Agreement (including, to the extent desired by Buyer, the
purchase of the CIG Shares from Myer by one of Buyer's
insurance company Affiliates);
b) the contribution by UFL of its shares of capital stock of CIG
to College Life;
c) the payment of an extraordinary dividend by FAI to CIG;
d) the modification or the termination and replacement of the
existing reinsurance agreements between (i) FAI and College
Life and (ii) FAI and Great Southern; and
e) the termination of the existing reinsurance agreement between
College Life and NAP Life;
shall, in each case, have been obtained without the imposition of any
financially or operationally burdensome requirements on Buyer, College Life,
Great Southern, FAI, PCA or NAPP.
8.10 HSR Act Approval. To the extent that any HSR Act filings are
required with respect to the transactions contemplated by this Agreement, the
applicable waiting period under the HSR Act shall have expired without any
objection of the Federal Trade Commission or any other Governmental Body, or any
such objection shall have been waived by the objecting Governmental Body.
8.13 "Key Man" Life Insurance. Buyer must be able to procure "key man"
life insurance on Myer's life in an amount not to exceed $12,500,000 and on
terms acceptable to Buyer.
8.12 Transaction Documents. The Transactions Documents shall have been
executed and delivered by those of Myer (and, to the extent necessary, Sharon K.
Myer) and his Affiliates who are parties thereto.
ARTICLE IX
CONDITIONS PRECEDENT TO THE PERFORMANCE OF
MYER, PCA, NAPP AND THE MARKETING COMPANIES
The obligations of Myer, PCA, NAPP and the Marketing Companies under
this Agreement to consummate the transactions contemplated by this Agreement are
subject to the satisfaction, at or before the Closing, of all the conditions set
forth below in this Article IX. Myer may waive any or all of these conditions in
whole or in part without prior notice; provided, however, that no such waiver of
a condition shall constitute a waiver by Myer of any of the other rights or
remedies, at law or in equity, of Myer, PCA, NAPP or either of the Marketing
Companies, if Buyer shall be in default of any of its representations,
warranties or covenants under this Agreement.
9.1 Representations and Warranties. Except as otherwise permitted by
this Agreement, all of the representations and warranties of Buyer in this
Agreement shall be accurate in all material respects as of the Closing Date as
if made on the Closing Date, and Myer shall have received a certificate, dated
as of the Closing Date and executed by an authorized officer of Buyer, to such
effect.
9.2 Covenants. Buyer shall have performed or complied with, in all
material respects, all of its covenants under this Agreement to be performed or
complied with on or prior to the Closing Date, and Myer shall have received a
certificate, dated as of the Closing Date and executed by an authorized officer
of Buyer, to such effect.
9.3 Legal Opinions. Buyer shall have furnished Myer and the Marketing
Companies with opinions, dated as of the Closing Date, of Lathrop & Gage L.C.
and Heath, Davis & McCalla, P.C., counsel for Buyer, in form and substance
satisfactory to Myer, addressing the matters set forth in Exhibit 9.3.
9.4 Litigation. No Proceeding pertaining to the transactions
contemplated by this Agreement, or to their consummation, shall have been
instituted or threatened on or before the Closing Date.
9.5 Certified Resolutions. The execution and delivery by Buyer of this
Agreement and by Buyer and its Affiliates of the Transaction Documents to which
they are parties, and the performance by such parties of their respective
covenants hereunder and thereunder, shall have been duly authorized by all
necessary corporate action, and Myer shall have received copies of all
resolutions pertaining to that authorization, certified by the Secretary of
Buyer and such Affiliates.
9.6 Regulatory Approvals. All regulatory approvals necessary for the
consummation of the transactions contemplated by this Agreement and the
modification or the termination and replacement of the existing reinsurance
agreements between (i) FAI and College Life; (ii) College Life and NAP Life; and
(iii) FAI and Great Southern shall have been obtained without the imposition of
any financially or operationally burdensome requirements on Myer, the Marketing
Companies or NAP Life.
9.7 HSR Act Approval. To the extent that any HSR Act filings are
required with respect to the transactions contemplated by this Agreement, the
applicable waiting period under the HSR Act shall have expired without any
objection of the Federal Trade Commission or any other Governmental Body, or any
such objection shall have been waived by the objecting Governmental Body.
9.8 Transaction Documents. The Transactions Documents shall have been
executed and delivered by those of Buyer and its Affiliates who are parties
thereto.
ARTICLE X
CLOSING
10.1 Time and Place of Closing. Upon the terms and subject to the
conditions contained in this Agreement, the closing of the transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of Lathrop & Gage L.C., 2345 Grand Boulevard, Suite 2800, Kansas City, Missouri,
effective as of the close of business on the last Business Day of the month in
which all conditions precedent set forth in this Agreement shall have been
satisfied or (to the extent permitted under this Agreement) waived, or if Buyer
and Myer agree in writing to an extension of such date, the date so agreed to
(the "Closing Date").
10.2 Deliveries of Myer, PCA, NAPP and the Marketing Companies. At the
Closing, Myer, PCA, NAPP and the Marketing Companies shall deliver to Buyer:
a) stock certificates representing the PCA Shares, the NAPP Shares and the
CIG Shares, each accompanied by stock powers duly executed in blank;
b) long form certificates of the states of incorporation of PCA, NAPP,
Strider, Aragon and the Marketing Companies dated not earlier than the
date of the 20th day preceding the Closing Date to the effect that each
is a corporation validly existing and in good standing under the laws
of its state of incorporation as of such date;
c) a copy, certified as true and correct by the respective states of
incorporation of PCA and NAPP, of the Articles of Incorporation of PCA
and NAPP, as amended, and a copy, certified as true and correct by the
respective Secretary or Assistant Secretary of PCA and NAPP, of the
Bylaws of PCA and NAPP, as amended;
d) the stock books, stock ledgers, minute books, corporate seals and all
other books and records of ASC, PCA and NAPP;
e) the resignations, effective as of the Closing Date, of all of the
directors and officers of PCA and NAPP and those directors and officers
of CIG, ASC and FAI who are not designees of Buyer;
f) evidence of the third party consents and regulatory approvals required
by Sections 5.4, 8.8 and 8.9;
g) bills of sale, duly executed by the Marketing Companies, transferring
to Buyer the tangible assets of the Marketing Companies included in the
Purchased Assets, which bills of sale shall be in substantially the
form attached hereto as Exhibit 10.2(g) (collectively, the "Bills of
Sale");
h) assignment and assumption agreements, duly executed by the Marketing
Companies, transferring to Buyer of all intangible assets of the
Marketing Companies included in the Purchased Assets, which assignment
and assumption agreements shall be in substantially the form attached
hereto as Exhibit 10.2(h) (collectively, the "Assignment and Assumption
Agreements");
i) for each Lease described on Schedule 3.13 and marked with an asterisk
("*"), duly executed lease assignments and landlord consents in
substantially the form attached hereto as Exhibit 10.2(i)
(collectively, the "Lease Assignments and Landlord Consents");
j) the certificates described in Section 8.1;
k) the certificates described in Section 8.2;
l) the legal opinion described in Section 8.4;
m) the certified resolutions described in Section 8.6;
n) the tax clearance certificates described in Section 8.7; and
o) all other agreements, documents, instruments and writings required to
be delivered by any of the Myer Warranting Parties pursuant to this
Agreement or reasonably requested by Buyer.
10.3 Deliveries of Buyer. At the Closing, Buyer shall deliver to Myer
and the Marketing Companies:
a) The Purchase Price;
b) the Assignment and Assumption Agreements, duly executed by Buyer, by
which Buyer assumes the Assumed Obligations;
c) certificates of the states of incorporation of Buyer and the
Buyer-Related Entities dated not earlier than the date of the 20th day
preceding the Closing Date to the effect that each is a corporation
validly existing and in good standing or in compliance (as applicable)
under the laws of its state of incorporation as of such date;
d) evidence of the regulatory approvals required by Sections 6.1
and 9.6;
e) the certificates described in Section 9.1;
f) the certificates described in Section 9.2;
g) the legal opinions described in Section 9.3;
h) the certified resolutions described in Section 9.5; and
i) all other agreements, documents, instruments and writings
required to be delivered by Buyer pursuant to this
Agreement or reasonably requested by Myer or any of the
Marketing Companies.
ARTICLE XI
REMEDIES
11.1 Indemnification by Myer and the Marketing Companies. Myer and the
Marketing Companies shall have no liability or obligation for Damages under this
Agreement except as set forth in this Article XI. Myer and the Marketing
Companies shall jointly and severally indemnify, defend and hold harmless Buyer,
PCA, NAPP and their respective Affiliates against and in respect of any and all
claims, demands, losses, costs, expenses, obligations, liabilities, damages,
recoveries and deficiencies, including interest, penalties, settlement costs,
costs of investigation and reasonable attorneys' fees (collectively, "Damages"),
that any of such parties shall incur or suffer, which arise or result from, or
relate to:
a) the breach by Myer, PCA, NAPP, either of the Marketing Companies,
Strider or Aragon of any of their respective representations,
warranties and agreements under this Agreement (other than those
contained in Section 3.19(b)) or under any of the Transaction Documents
to which they are parties; provided, however, that the indemnity
obligations of Myer and the Marketing Companies under this Section
11.1(a) with respect to Aragon shall be limited to breaches occurring
prior to the acquisition, if any, of Myer's Aragon stock by Americo;
b) the claim of any third party regarding any transaction, occurrence,
action or omission in connection with the operation of the respective
businesses of Myer, PCA, NAPP and the Marketing Companies prior to
Closing;
c) the claim of any third party that Buyer or any of its Affiliates is the
"successor" to Myer or either of the Marketing Companies with respect
to any of their liabilities (which were not expressly assumed by Buyer
or any of its Affiliates under the terms of the Assignment and
Assumption Agreements or the Lease Assignments and Landlord Consents);
d) the Market Conduct Activities prior to the Closing of Myer, ASC, PCA,
NAPP or either of the Marketing Companies (or any of their respective
employees, agents or Affiliates) on behalf of College Life, Great
Southern, FAI or Loyalty, or the breach by any of the Myer Warranting
Parties of any of their respective representations, warranties or
agreements under Section 3.19(b); provided, however:
i) that to the extent that ASC, when engaged in such Market
Conduct Activities, did not knowingly violate any applicable
laws or regulations, Myer and the Marketing Companies shall be
obligated to indemnify Buyer for only 50% of any Damages which
arise or result from, or relate to, such activities of ASC;
and
ii) Myer and the Marketing Companies shall have no indemnity
obligation under this Section 11.1(d) (A) with respect to ASC
or (B) with respect to the breach by any of the Myer
Warranting Parties of any of their respective representations,
warranties or agreements under Section 3.19(b), except in each
case as may arise in connection with the claim of a third
party;
e) the activities of Myer, PCA, ASC, NAPP and the Marketing Companies with
respect to administration of business generated by Myer and his
Affiliates, including, without limitation, any delays in processing
monies received, policy surrenders and policyholder inquiries and
resolving items in suspense; provided, however:
i) that to the extent that ASC, when engaged in such
administrative activities, did not knowingly violate any
applicable laws or regulations, Myer and the Marketing
Companies shall be obligated to indemnify Buyer for only 50%
of any Damages which arise or result from, or relate to, such
administration activities of ASC; and
ii) Myer and the Marketing Companies shall have no indemnity
obligation under this Section 11(e) (A) with respect to ASC or
(B) with respect to the breach by any of the Myer Warranting
Parties of any of their respective representations, warranties
or agreements under Section 3.19(b), except in each case as
may arise in connection with the claim of a third party; and
provided, however, that notwithstanding anything contained herein to the
contrary, Myer and the Marketing Companies shall have no indemnity obligations
under this Section 11.1 with respect to (x) acts or omissions occurring prior to
July 30, 1993 in regards of those policies of Great Southern described on
Schedule 11.1 or (y) the failure of ASC, PCA, NAPP or the Marketing Companies,
or Buyer or any of Buyer's Affiliates, to be Year 2000 Compliant.
11.2 Indemnification by Buyer. Buyer shall have no liability or
obligation for Damages under this Agreement except as set forth in this Article
XI. Buyer shall indemnify, defend and hold harmless Myer, the Marketing
Companies and their respective Affiliates against and in respect of any and all
Damages that any of such parties shall incur or suffer, which arise or result
from, or relate to:
a) any breach by Buyer or any of its Affiliates of any of their respective
representations, warranties and agreements under this Agreement or any
of the Transaction Documents to which they are parties; or
b) the claim of any third party regarding any transaction, occurrence,
action or omission in connection with (i) the operation following the
Closing of the respective businesses of PCA, ASC and NAPP or (ii) the
Purchased Assets following the Closing; or
c) any of their respective employees, agents or Affiliates) on behalf of
Buyer's insurance company Affiliates; or
d) the activities of PCA, ASC and NAPP following the Closing with respect
to the administration of the insurance business of Buyer's insurance
company Affiliates.
11.3 Claim Notice and Defense.
a)Third Party Claims. If any claim or demand, or any Proceeding is commenced
for which an Indemnifying Party would be liable for Damages to an Indemnified
Party is asserted against or sought to be collected from such Indemnified
Party by a Person other than a party hereto or any Affiliate thereof (a "Third
Party Claim"), then the Indemnified Party shall promptly deliver to the
Indemnifying Party a written notice with respect to such Third Party Claim (a
"Claim Notice"); provided, however, no failure or delay in giving any such
Claim Notice shall relieve the Indemnifying Party of its obligations except,
and only to the extent, that it is prejudiced thereby.
The Indemnifying Party shall respond to the Indemnified Party within 30
days of receipt of a Claim Notice setting forth whether the Indemnifying Party
disputes its liability with respect to the matters covered by such Claim Notice
and whether the Indemnifying Party, at the sole cost and expense of the
Indemnifying Party, desires to assume the defense of the matters set forth in
such Claim Notice. The Indemnified Party may take any action it deems to be
necessary to preserve its rights prior to receipt of such response from the
Indemnifying Party but shall not settle or proceed to final judgment with
respect to such Third Party Claim prior to the expiration of such 30 day period.
The Indemnifying Party shall have the right to direct, through counsel
of its own choosing, the defense or settlement of any Proceeding brought against
the Indemnified Party in respect of Third Party Claims; provided, however, that
the Indemnifying Party shall not settle any matter without obtaining the
Indemnified Party's prior consent thereto if such settlement provides for any
remedy other than the payment of money damages or does not provide for a full
release of the Indemnified Party or, regardless of the terms of such settlement,
if the Indemnifying Party disputes its liability with respect to the Third Party
Claim. If the Indemnifying Party elects to assume the defense of any such Third
Party Claim or Proceeding, the Indemnified Party may participate in such defense
at its own expense. If the Indemnifying Party fails to defend or, after
commencing or undertaking any such defense, fails to prosecute or withdraws from
such defense other than as a result of a settlement, the Indemnified Party shall
have the right to direct, through counsel of its own choosing, the defense or
settlement of any such Proceeding; provided, however, that if the Indemnified
Party assumes the defense of any such Third Party Claim or Proceeding pursuant
to this Section 11.3 and proposes to settle such Third Party Claim or Proceeding
prior to a final judgment thereon or to forego appeal with respect thereto, then
the Indemnified Party shall give the Indemnifying Party prompt written notice
thereof and the Indemnifying Party shall have the right either (i) to
participate in and consent (which consent shall not be unreasonably withheld,
taking into account the costs of the settlement, or the reputational impacts of
settling or not settling on Buyer and its Affiliates and the adverse impact on
Buyer and its Affiliates of continuing the Proceeding, in terms of management
time or otherwise) to the settlement or (ii) to assume or reassume the defense
of such Proceeding.
Notwithstanding the foregoing provisions of this Section 11.3(a), if
the Indemnifying Party disputes its liability to the Indemnified Party and if
such dispute is resolved by binding arbitration as provided in Section 11.5, the
Indemnifying Party shall be required to bear only that portion of the costs and
expenses of its defense pursuant to this Section 11.3(a) that is proportionate
to its responsibility for such Third Party Claim, and the Indemnified Party
shall reimburse the Indemnifying Party for that portion of such costs and
expenses that is proportionate to the Indemnified Party's responsibility for
such Third Party Claim.
The party directing the defense shall pursue such defense diligently
and promptly. The parties shall cooperate in the defense of all Third Party
Claims. In connection with the defense of any Third Party Claim, each party
shall make available to the party controlling such defense any books, records or
other documents within its control that are reasonably requested in the course
of or necessary or appropriate for such defense; provided, however, that
appropriate arrangements are made to safeguard the confidentiality of such
materials.
The provisions of this Section 11.3(a) shall not apply to Third Party
Claims to the extent they involve ASC. Such matters shall be governed by Section
11.3(b).
b) ASC Claims. If any Third Party Claim is commenced relating to ASC (an "ASC
Claim"), then upon learning of such claim, Buyer shall provide a Claim Notice to
Myer and the Marketing Companies regarding such claim; provided, however, no
failure or delay in giving any such Claim Notice shall relieve Myer and the
Marketing Companies of their indemnity obligations except, and only to the
extent, that they are prejudiced thereby.
Myer and the Marketing Companies shall respond to Buyer within 30 days of
receipt of a Claim Notice under this Section 11.3(b) setting forth whether they
dispute their liability with respect to the matters covered by such Claim
Notice. Buyer may take any action it deems to be necessary to preserve its
rights prior to receipt of such response from Myer and the Marketing Companies,
but shall not settle or proceed to final judgment with respect to such ASC Claim
prior to the expiration of such 30 day period.
Buyer shall have the right to direct, through counsel of its own choosing, the
defense or settlement of any ASC Claim. Myer and the Marketing Companies may
participate in such defense at their own expense.
Buyer shall not settle any matter without obtaining the Indemnified Party's
prior consent thereto (which consent shall not be unreasonably withheld). In
seeking such consent, Buyer shall inform Myer and the Marketing Companies, in
writing, of the terms of the proposed settlement. If Myer and the Marketing
Companies consent to such settlement proposal, Buyer shall proceed with settling
the ASC Claim on the terms described in such writing. If Myer and the Marketing
Companies refuse such consent for any reason or fail to consent to such
settlement proposal within 20 days after the date of Buyer's notice to Myer and
the Marketing Companies of such settlement proposal, then they shall thereafter
assume the defense of such ASC Claim, at their expense. Upon resolving such
claim (whether by settlement, arbitration, litigation or otherwise), Buyer shall
be responsible only for 50% of the amount reflected in the settlement proposal
previously made by Buyer, and Myer and the Marketing Companies shall be
responsible for all other Damages relating to such ASC Claim.
The party controlling the defense of an ASC Claim shall pursue such defense
diligently and promptly. The parties shall cooperate in the defense of all ASC
Claims. In connection with the defense of any ASC Claim, each party shall make
available to the party controlling such defense any books, records or other
documents within its control that are reasonably requested in the course of or
necessary or appropriate for such defense; provided, however, that appropriate
arrangements are made to safeguard the confidentiality of such materials.
c) Claims Between the Parties and their Affiliates. If an Indemnified Party has
a claim against an Indemnifying Party that does not involve a Third Party Claim,
the Indemnified Party shall give written notice of such claim to the
Indemnifying Party specifying the nature, estimated amount and the specific
basis for such claim. The Indemnifying Party shall respond to the Indemnified
Party within 30 days of receipt of such notice setting forth whether the
Indemnifying Party disputes its liability with respect to the matters covered by
such notice. If the Indemnifying Party disputes its liability with respect to
such matters, then the Indemnified Party and the Indemnifying Party shall
negotiate in good faith to resolve such dispute. If not so resolved or if no
timely response is made, either party may pursue whatever remedies it may have.
11.4 Claims Limitation.
a) An Indemnifying Party shall not have any liability or obligation for
any Damages under this Agreement unless the aggregate amount of all
Damages charged to such party exceeds $250,000, in which case such
Indemnifying Party shall be liable only for the amount of such Damages
over $250,000. For purposes of the foregoing, Myer and the Marketing
Companies shall constitute one party. The foregoing limitations shall
not apply to:
i) Damages which arise or result from, or relate to a breach of
any of the representations and warranties set forth in Section
3.4 ("PCA Shares"), Section 3.5 ("CIG Shares"), Section 3.6
("NAPP Shares"), and Section 3.9 ("Taxes") (to the extent
applicable to PCA and NAPP) of this Agreement;
ii) Damages which arise or result from, or relate to a breach of
any of the obligations of Myer under Section 5.15 and the last
paragraph of Section 2.3;
iii) any indemnity obligation arising under Section 11.1(d) or (e)
or under Section 11.2(c) or (d), to the extent such indemnity
obligation pertains to actual or alleged acts or omissions by
ASC; or
iv) any indemnity obligation of Buyer arising from Buyer's
nonpayment of (A) the Assumed Obligations, (B) the Purchase
Price, the New Trailers, the Old Trailers, the Third Party
Trailers or amounts due to Myer under the Consulting Agreement
or the Aragon Stock Agreement.
b) Myer and the Marketing Companies shall not be liable or obligated for
any Damages under this Agreement (except as provided in clauses (i) and
(ii) below) that, together with all other Damages for which Myer and
the Marketing Companies is liable or obligated under this Agreement,
exceed the amount of the aggregate payments to be made by Buyer and
Buyer's Affiliates to Myer and his Affiliates under the terms of this
Agreement and the Transaction Documents (excluding, however, the sum of
(i) the amount of the Old Trailers, plus (ii) Seven Million One Hundred
Thirty Three Thousand Seven Hundred Eight Dollars ($7,133,708). The
foregoing limitation shall not apply to:
i) Damages which arise or result from, or relate to a breach of
any of the representations and warranties set forth in Section
3.4 ("PCA Shares"), Section 3.5 ("CIG Shares"), Section 3.6
("NAPP Shares") and Section 3.9 ("Taxes") (to the extent
applicable to PCA and NAPP) of this Agreement; or
ii) Damages which arise or result from, or relate to a breach of
any of the obligations of Myer under Section 5.15 and the last
paragraph of Section 2.3.
11.5 Arbitration.
a) In the event of any dispute arising after the date of this Agreement
with reference to any transaction contemplated by this Agreement
(other than with respect to the initial determination of the Purchase
Price (but not as to its payment), disputes regarding which shall
be resolved to the extent and in the manner provided in Section 2.5)or
by any of the Transaction Documents among the parties hereto or
thereto, the same shall be referred to three arbitrators for binding
arbitration. For purposes of this Section 11.5, "Myer" shall mean
Myer and his Affiliates at the time such arbitration process is
initiated, and "Buyer" shall mean Buyer and its Affiliates at such
time). Buyer shall appoint one arbitrator and Myer shall appoint
one arbitrator and such two arbitrators to select the third.
Each arbitrator shall be a knowledgeable, independent businessperson
or professional. If either Buyer or Myer refuses or neglects to
appoint an arbitrator within 30 days after receipt of the written
request for arbitration, the initiating party may appoint a second
arbitrator. If the two arbitrators fail to agree on the selection
of a third arbitrator within 30 days of their appointment, each of
them shall name three individuals, of whom the other shall decline
two, and the decision shall be made by drawing lots. Buyer and Myer
shall bear the expense of their own arbitration, including their
arbitrator and outside attorneys' fees, and shall jointly and
equally bear with the other parties the expense of the third
arbitrator. Any remaining costs of the arbitration proceedings shall
be apportioned by the three arbitrators.
c) The arbitration proceedings shall be conducted in accordance with the
commercial arbitration rules of the American Arbitration Association,
except that Buyer and Myer each shall be entitled to take discovery as
provided under Federal Rules of Civil Procedure Nos. 28 through 36
during a period of 90 days after the final arbitrator is appointed
and the arbitrators shall have the power to issue subpoenas, compel
discovery, award sanctions and grant injunctive relief. The
arbitrators shall be entitled to retain a lawyer to advise them as to
legal matters, but such lawyer shall have none of the relationships
to Buyer or Myer (or any of their Affiliates) that are proscribed
above for arbitrators. The arbitration hearings shall commence no
sooner than 120 days after the date the final arbitrator is appointed
and not later than 180 days after such date. The arbitration hearing
shall be conducted during normal working hours on Business Days without
interruption or adjournment of more than two days at any one time or
six days in the aggregate. In rendering their decision, the
arbitrators shall consider the parties' proportionate responsibility
for the circumstances underlying the dispute being arbitrated. The
arbitrators shall decide by a majority vote of the arbitrators. The
arbitrators shall deliver their decision to Buyer and Myer in writing
within 20 days after the conclusion of the arbitration hearing, which
written decision shall include detailed findings of fact and
conclusions of law. There shall be no appeal from their written
decision, except as permitted by applicable law.
d) Any arbitration instituted pursuant to this Section shall be held in
Dallas, Texas or such other city that is mutually agreeable to Buyer
and Myer, with the precise location within such city being as agreed
upon by Buyer and Myer or, absent such agreement, at a location within
such city designated by the American Arbitration Association's resident
manager in Kansas City, Missouri.
e) Notwithstanding any other provision of this Section, nothing contained
in this Agreement shall require arbitration of any issue for which
injunctive relief is properly sought by a party hereto; provided,
however, that no party shall be entitled to seek or be awarded any
Damages from another party except pursuant to arbitration in accordance
with Section 11.5. The arbitrators, if they find that any party has
acted in a fraudulent manner with respect to any representation
contained in, or any transaction contemplated by, this Agreement or any
of the Transaction Documents, may award punitive damages to the victim
of such fraudulent conduct.
11.6 Equitable Relief. Each party's obligation under this Agreement is
unique. If any party should default in its obligations under this Agreement, the
parties each acknowledge that it would be extremely impracticable to measure the
resulting damages; accordingly, the nondefaulting party, in addition to any
other available rights or remedies, may seek equitable relief, including
specific performance, and in such instance the parties each expressly waive the
defense that a remedy in damages will be adequate.
11.7 Costs. If any Proceeding is brought for the enforcement of this
Agreement, or because of an alleged dispute, breach, default or
misrepresentation in connection with any of the provisions of this Agreement,
the successful or prevailing party or parties shall be entitled to recover
reasonable attorneys' fees and other costs incurred in that Proceeding, in
addition to any other relief to which it or they may be entitled.
11.8 Acceleration Right. In the event of any material breach or default
under this Agreement by Buyer with respect to its deferred Purchase Price
payment obligations under Section 2.3 hereof, Myer shall be entitled, upon
written notice to Buyer, to accelerate such payment obligations of Buyer and to
be paid the full amount of such accelerated payment obligations at that time;
provided, however, that for purposes hereof a breach or default shall not be
deemed to have occurred unless it is so determined in accordance with the
arbitration provisions of this Agreement.
11.9 Payment Due Upon Wrongful Non-payment Period. In the event that it
is determined, pursuant to the arbitration provisions set forth in Section 11.5
hereof, that Buyer or any of its Affiliates (for purposes of this Section 11.9,
the "Payor") has wrongfully failed to pay to Myer, Strider or their respective
assigns (for purposes of this Section 11.9, the "Payee") any portion of the Old
Trailer, the New Trailer or the Third Party Trailer (for purposes of this
Section 11.9, each a "trailer") when due and payable (whether because of a
wrongful set-off, a breach of a payment obligation under Section 6.3 of this
Agreement, under the Old Trailer Agreement or under the New Trailer Agreement,
or otherwise), then the Payor shall immediately pay to the Payee an amount equal
to the sum of (a) the amount wrongfully withheld, plus (b) an amount equal to
double the amount wrongfully withheld.
Notwithstanding the foregoing, the amount described in (b) above shall
not be due and payable if Payor has, in calculating the amount to be paid, acted
in good faith (including, without limitation, those situations in which Payor
has paid Payee and a dispute has arisen concerning only whether the amount paid
was proper). Any payment by Payor of the amount described in (b) above shall be
deemed to be a prepayment of Payor's future obligations to pay trailers under
this Agreement, the Old Trailer Agreement or the New Trailer Agreement.
By way of example, if an arbitrator determined that $100 was wrongfully
withheld, the Payor would be obligated to pay to the Payee an amount equal to
the sum of (a) $100 (the amount wrongfully withheld), plus (b) $200 (double the
amount wrongfully withheld). The $200 portion of such payment would be treated
as a prepayment of Payor's future obligations to pay trailers.
ARTICLE XII
TERMINATION
12.1 Termination. This Agreement may be terminated:
a) by the mutual consent of Buyer and Myer;
b) by Myer at the Closing if any of the conditions precedent to the
obligations of Myer, PCA, NAPP and the Marketing Companies set forth in
this Agreement to be performed or satisfied on or before the Closing
shall not have been performed and satisfied and if Myer shall not have
expressly waived satisfaction thereof;
c) by Buyer at the Closing if any of the conditions precedent to its
obligations set forth in this Agreement to be performed or satisfied on
or before the Closing shall not have been performed and satisfied and
if Buyer shall not have expressly waived satisfaction thereof; and
d) by Buyer or Myer if, for reasons beyond the reasonable control of the
terminating party, the Closing shall not have been consummated on or
before December 31, 1998.
In the event of any termination of this Agreement pursuant to this Section, the
terminating party shall give written notice of such termination to the other
parties to this Agreement and upon the giving of such notice, such termination
shall automatically become effective.
Termination in accordance with this Section shall not relieve a
breaching or defaulting party of liability arising from any breach or default
under this Agreement, and certain terms and conditions of this Agreement shall
continue in effect, as set forth in this Agreement. Without limiting the
generality of the foregoing, termination of this Agreement shall not affect the
effectiveness of any provisions of this Agreement that, by their terms or
implication, survive termination, including, without limitation, Article XI
("Remedies"), Section 13.1 ("Confidentiality"), Section 13.2 ("Publicity") and
Section 13.4 ("Costs").
Termination of this Agreement because of the non-occurrence of the
Closing shall restore, without further action, the provisions of the CIG
Shareholders' Agreement to their status prior to the execution and delivery of
this Agreement (and the effectiveness of Section 7.6 ("Waiver of CIG
Shareholders' Agreement")).
ARTICLE XIII
MISCELLANEOUS PROVISIONS
13.1 Confidentiality. All information obtained by either party
respecting the other party or any of its Affiliates during the course of
evaluating and negotiating the transactions, the terms of the letter of intent
and the agreements, documents and instruments contemplated thereby (except for
information that is generally available to the public other than as a result of
a disclosure by the recipient or his representative or otherwise available to
the recipient on a non-confidential basis), will be kept in strict confidence by
the recipient and will not be disclosed by the recipient to any third party
without the prior written consent of the other party; provided, however:
a) that all or any portion of such information may be disclosed
by the recipient or his or its representatives, accountants, attorneys
and agents (i) to the extent required by applicable law or
subpoena, (ii) to any third party associated with the recipient
who needs to know such confidential information to evaluate and
negotiate the terms of the transactions or to assist the recipient in
conducting any such evaluation, or (iii) to the extent necessary
to enforce the provisions of this Agreement or any of the Transaction
Documents; each party will inform his or its representatives,
accountants, attorneys and agents of the confidential nature of such
information and will direct all of such Persons to treat such
information in a manner consistent with this provision; and
b) that Myer may make (i) such disclosures to Rick Wolfe as are reasonably
necessary to obtain his consent to Myer's covenant under Section 12 of
the Consulting Agreement, and (ii) such disclosures to Doug Lish and
Steve Myer as are reasonably necessary to obtain their consents to
Myer's covenant under Section 13 of the Consulting Agreement and to
Aragon's entering into, and performing its obligations under, the
Transaction Documents to which it is a party.
For purposes of this provision and Section 13.2, Myer and the Marketing
Companies (and, prior to the Closing, PCA and NAP Partners) shall be considered
to be one party.
13.2 Publicity. No party shall issue any public announcement concerning
the transactions without the approval of the other party, unless in the opinion
of any of the parties counsel an announcement is required to be made to comply
with the requirements of applicable law or regulation, in which event a
facsimile transmission of the text of any such arrangement will be sent to the
other party as soon as possible before or, only if necessary, after making such
announcement.
13.3 Brokerage Fees. Each party represents and warrants that there
are no brokerage of finder's fees concerning the transactions.
13.4 Costs. Each of the parties shall pay all costs and expenses
incurred by it in negotiating and preparing this Agreement and in Closing and
carrying out the transactions contemplated by this Agreement, whether or not the
Closing occurs.
13.5 Headings. The subject headings of the paragraphs and subsections
of this Agreement are included for purposes of convenience only, and shall not
affect the construction or interpretation of any of its provisions.
13.6 Entire Agreement; Waiver. This Agreement constitutes, including
the schedules hereto (which are incorporated herein by this reference), the
entire agreement between the parties pertaining to the subject matter contained
in it and supersedes all prior and contemporaneous agreements, representations,
and understandings of the parties. Notwithstanding the foregoing, the parties
acknowledge and agree that this Agreement has been entered into in connection
with the Closing of the transactions contemplated hereby and is to be construed
consistently with the Transaction Documents, including, without limitation, the
obligations that all disputes under this Agreement and Transaction Documents be
resolved by binding arbitration as set forth in Section 11.5 hereof. No
supplement, modification, or amendment of this Agreement shall be binding unless
executed in writing by all the parties. No waiver of any of the provisions of
this Agreement shall be deemed to be, or shall constitute, a waiver of any other
provision, whether or not similar, nor shall any waiver constitute a continuing
waiver. No waiver shall be binding unless executed in writing by the party
making the waiver.
13.7 Counterparts. This Agreement may be executed simultaneously in one
or more counterparts, each of which parts shall be deemed to be an original, but
all of which together shall constitute one and the same instrument.
13.8 Third Parties. Nothing in this Agreement, whether express or
implied, is intended to confer any rights or in remedies under or by reason of
this Agreement on any Persons other than the parties to it and their respective
successors and assigns, nor is anything in this Agreement intended to relieve or
discharge the obligation or liability of any third Persons to any party to this
agreement, nor shall any provision give any third Persons any right of
subrogation or action over against any party to this Agreement.
13.9 Binding Effect; Assignment. This Agreement shall be binding on,
and shall inure to the benefit of, the parties to it and their respective heirs,
legal representatives, successors and assigns. The rights and obligations of the
parties under this Agreement shall not be assignable without prior written
consent of the other parties; provided, however, that notwithstanding the
foregoing:
a) Buyer may assign any of its rights or obligations under this Agreement
to a wholly owned subsidiary of Buyer (or, in the case of the NAPP
Shares, to an individual as nominee for Buyer or any of Buyer's
wholly-owned subsidiaries), but any such assignment shall not release
Buyer from its obligations under this Agreement; and
b) Myer, the Marketing Companies and Strider may assign (and the Trailer
Agreement shall so provide ) any of their respective rights with
respect to the Old Trailers, the New Trailers and the Third Party
Trailers with the prior written consent of Buyer, which consent shall
not be unreasonably withheld.
13.10 Survival of Representations and WarrantiesError! Reference source
not found.. The representations and warranties of the parties contained in this
Agreement, or in any instrument, certificate or other writing delivered by the
parties pursuant to the terms of this Agreement, shall survive the Closing:
a) until the expiration of all applicable statutes of limitations
(including all periods of extension, whether automatic or permissive)
in the case of the representations and warranties of Myer, PCA, NAPP
and the Marketing Companies set forth in Section 3.4 ("PCA Shares"),
Section 3.5 ("CIG Shares"), Section 3.6 ("NAPP Shares") and Section 3.9
("Taxes") of this Agreement, or in any instrument, certificate or other
writing delivered by Myer, PCA, NAPP or either of the Marketing
Companies pursuant to the terms of this Agreement (to the extent such
instrument, certificate or other writing refers to such representations
and warranties); and
b) until the second anniversary of the Closing in the case of (i) all of
the representations and warranties of Myer, PCA, NAPP and the Marketing
Companies not described in subsection (a) above, and (ii) the
representations and warranties of Buyer set forth in Article IV
("Buyer's Representations and Warranties") of this Agreement or in any
instrument, certificate or other writing delivered by Buyer pursuant to
the terms of this Agreement (to the extent such instrument, certificate
or other writing refers to such representations and warranties).
If a notice claiming, with specificity, indemnity is given in accordance with
Section 11.3 before the expiration of the applicable time period referenced
above, then notwithstanding the expiration of such time period the
representation and warranty applicable to such claim shall survive until, but
only for purposes of, such claim has been resolved. This Section 13.10 shall
survive the Closing and the termination of this Agreement.
13.11 Notices. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed to have been duly
given on the date of service if served personally on the party to whom notice is
to be given, or on the day of mailing or transmission by facsimile, if mailed to
the party to whom notice is to be given, by first class mail, registered or
certified, postage prepaid, and properly addressed as follows:
To Myer at: Robert L. Myer
10222 Pinehurst Drive
Austin, Texas 78747
FAX: (512) 282-9573
with a copy to: Timothy L. LaFrey
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
Frost Bank Plaza
816 Congress Avenue, Suite 1900
Austin, Texas 78701
FAX: (512) 499-6290
To Buyer at: Americo Life, Inc.
Attn: Gary L. Muller, President and
Chief Executive Officer
300 West 11th Street
Kansas City, Missouri 64105
FAX: (816) 391-2018
with a copy to: Lathrop & Gage L.C.
Attn: Thomas M. Higgins, III, Esq.
2345 Grand Boulevard, Suite 2800
Kansas City, Missouri 64108-2684
FAX: (816) 292-2001
or if faxed with facsimile confirmation. Any party may change its address for
purposes of this Section 13.11 by giving the other parties written notice of the
new address in the manner set forth above.
13.12 Governing Law. This Agreement shall be construed in accordance
with, and governed by, the laws of the State of Missouri as applied to contracts
that are executed and performed entirely in Missouri.
13.13 Severability. If any provision of this Agreement is held invalid
or unenforceable by any court of final jurisdiction, it is the intent of the
parties that all other provisions of this Agreement be construed to remain fully
valid, enforceable, and binding on the parties.
IN WITNESS WHEREOF, the parties to this Agreement have duly executed it
on the day and year first above written.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE
ENFORCED BY THE PARTIES
BUYER: AMERICO LIFE, INC.
By
Name
Title
MYER:
Robert L. Myer
THE MARKETING COMPANIES: GREAT SOUTHERN GROUP, INC.
By
Name
Title
MARKETING SYSTEMS GROUP, INC.
By
Name
Title
NAPP: NAP PARTNERS, INC.
By
Name
Title
PCA: PENSION CONSULTANTS AND
ADMINISTRATORS, INC.
By
Name
Title
The undersigned, Sharon K. Myer, wife of Robert L. Myer, hereby agrees
to the conveyance and transfer to Buyer of the PCA Shares, the NAPP Shares and
the CIG Shares, including, without limitation, all marital and other interests
she may have therein, on the terms, and subject to the conditions, set forth in
this Agreement.
--------------------------------
Sharon K. Myer
<PAGE>
LIST OF EXHIBITS
<TABLE>
<S> <C>
Exhibit 5.8(a) Form of Estoppel Agreement (MSG Lease for Barton Creek office)
Exhibit 5.8(b) Form of Estoppel Agreement (ASC Lease for Barton Creek office)
Exhibit 5.14 Form of Amendment to Pesce and Barton Employment Agreements
Exhibit 7.1 Form of Payroll Slot Agreement
Exhibit 7.2 Form of Aragon Stock Agreement
Exhibit 7.3 Form of Consulting Agreement
Exhibit 7.4(a) Form of Product Development Agreement Termination
Exhibit 7.4(b) Form of CIG Shareholders' Agreement Termination
Exhibit 7.4(c) Form of Marketing Agreement Termination
Exhibit 7.4(d) Form of GSG General Agent's Contract Termination
Exhibit 7.6(a) Form of Old Trailer Agreement
Exhibit 7.6(b) Form of New Trailer Agreement
Exhibit 7.7 Form of Payroll Slot Administrative Services Agreement
Exhibit 8.4 Matters to be covered in the Legal Opinion of Counsel to Myer, PCA,
NAPP and the Marketing Companies
Exhibit 9.3 Matters to be covered in the Legal Opinions of Counsel to Buyer
Exhibit 10.2(g) Form of Bill of Sale
Exhibit 10.2(h) Form of Assignment and Assumption Agreement
Exhibit 10.2(i) Form of Lease Assignment and Landlord Consent
</TABLE>
<PAGE>
LIST OF SCHEDULES
<TABLE>
<S> <C>
Schedule 2.2 Permitted Encumbrance
Schedule 2.3(b) PCA Pro Forma Balance Sheet
Schedule 2.3(c) NAPP Pro Forma Balance Sheet
Schedule 2.3(d) Marketing Companies Pro Forma Balance Sheet
Schedule 2.3(e) Fixed Assets
Schedule 3.1 Jurisdictions
Schedule 3.3 Conflicts (Myer)
Schedule 3.7(a) Financial Statements
Schedule 3.7(b) Financial Information
Schedule 3.8 Changes
Schedule 3.10 Tangible Assets
Schedule 3.11 Accounts Receivable
Schedule 3.12 Intellectual Property
Schedule 3.13 Leases
Schedule 3.14 Contracts
Schedule 3.14(i) PCA agreements with employers or otherwise relating to PCA's plan
administration for employers
Schedule 3.14(ii) NAPP agent agreements
Schedule 3.14(iii) GSG agent agreements
Schedule 3.16(a) Employee Benefit Plans
Schedule 3.16(b) Unpaid Contributions
Schedule 3.16(g) Sick Pay and Vacation Pay Obligations
Schedule 3.16(h) Payments to Retirees
Schedule 3.17 Insurance
Schedule 3.18 Marketing Operations
Schedule 3.19 Market Conduct
Schedule 3.20 Litigation
Schedule 3.22 Powers of Attorney; Bank Accounts
Schedule 4.3 Conflicts (Buyer)
Schedule 4.5(a) CIG Financial Statements
Schedule 4.5(b) FAI Financial Statements
Schedule 11.1 Great Southern Policies
</TABLE>
<PAGE>
Schedule 4.3
Consents (Buyer)
1. The approval of the Texas Department of Insurance is required
for the following:
(a) the consummation of the transactions contemplated by the
Purchase Agreement (including, to the extent desired by
Buyer, the purchase of the CIG Shares from Myer by one of
Buyer's insurance company Affiliates);
(b) the contribution by UFL of its shares of capital stock of CIG to
College Life;
(c) the payment of an extraordinary dividend by FAI to CIG;
(d) the modification or the termination and replacement of the
existing reinsurance agreements between (i) FAI and
College Life and (ii) FAI and Great Southern; and
(e) the acquisition of NAPP by Buyer or one of Buyer's Affiliates.
2. The consent of Buyer's lenders under that certain Credit Agreement
between Buyer, on the one hand, and Chase Manhattan Bank and Commerce Bank of
Kansas City, N.A., on the other hand, with respect to the consummation of all
transactions contemplated in the Purchase Agreement and the Transaction
Documents.
3. The approval of the Boards of Directors of Buyer and the
Buyer-Related Entities is required.
4. See also the consents which must be obtained to
consummate the transactions contemplated by the
Purchase Agreement and the Transaction Documents
reflected on Schedule 3.3.
<PAGE>
TABLE OF CONTENTS
ARTICLE IDEFINITIONS 2
ARTICLE IIPURCHASE AND SALE OF SHARES AND ASSETS 9
2.1 Share Transfers 9
2.2 Asset Transfers 9
2.3 Purchase Price 10
2.4 Closing Date Payment 11
2.5 Post Closing Adjustment to Purchase Price 11
2.6 Assumption of Obligations 13
2.7 Taxes 13
ARTICLE III REPRESENTATIONS AND WARRANTIES OF MYER, PCA,NAPP AND THE MARKETING
COMPANIES 14
3.1 Organization and Authority14
3.2 Conflicts 15
3.3 Consents 15
3.4 PCA Shares 15
3.5 CIG Shares 16
3.6 NAPP Shares 16
3.7 Financial Statements 16 3.8 Absence of Changes 17 3.9 Taxes 19 3.10
Tangible Personal Property19 3.11 Accounts Receivable 19 3.12 Intellectual
Property19 3.13 Leases 20 3.14 Contracts 21 3.15 Title 25 3.16 Employee
Benefits 25
(a) Disclosure 25
(b) Pension Plans 26
(c) Multiemployer Plan 28
(d) Prohibited Transactions 28 (e) Copies of Relevant Documents 28
(f) Validity and Enforceability 28 (g) Financial Statements 29 (h)
Payments to Retirees 29 (i) Other Employee Matters 29
3.17 Insurance 30
3.18 Marketing Operations 30
3.19 Compliance with Law; Market Conduct Activities 30
3.20 Litigation 31
3.21 Corporate Records 31
3.22 Powers of Attorney; Accounts 32
3.23 No Omissions 32
ARTICLE IVBUYER'S REPRESENTATIONS AND WARRANTIES 32
4.1 Organization and Authority32
4.2 Conflicts 33
4.3 Consents 33
4.4 Litigation 33
4.5 Financial Information33
4.6 No Omissions 34
ARTICLE VCOVENANTS OF MYER, PCA,NAPP AND THE MARKETING COMPANIES 34
5.1 Access 34
5.2 Conduct of Business 34
5.3 Insurance 36
5.4 Consents 36
5.5 Change of Names 36
5.6 Stand Still 36
5.7 Financial Statements 37
5.8 Lease Estoppels 37
5.9 Inter-Company Obligations 37
5.10 No Churning 37
5.11 Termination of Plans 38
5.12 Transfer of Assets; Assumption of Liabilities 38
5.13 Security 38
5.14 Agreements with Pesce and Barton 39
5.15 Reimbursement for Certain Employment Expenditures. 39
5.16 Assignment of Registered Trademarks 39
ARTICLE VI
BUYER'S COVENANTS 40
6.1 Consents 40
6.2 Access to Personnel 40
6.3 Third Party Trailers 40
ARTICLE VIIOTHER COVENANTS 41
7.1 Payroll Slot Agreement 41
7.2 Aragon Stock Agreement 41
7.3 Consulting Agreement 42
7.4 Terminations of Certain Agreements 42
7.5 Waiver of CIG Shareholders' Agreement 42
7.6 Trailer Agreements 42
7.7 Services Agreement 43
7.8 Allocation of PCA and NAPP Income for Tax Purposes 43
7.9 Further Assurances 43
ARTICLE VIIICONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS 43
8.1 Representations and Warranties 43
8.2 Covenants 44
8.3 Adverse Changes 44
8.4 Legal Opinion 44
8.5 Litigation 44
8.6 Certified Resolutions44
8.7 Tax Clearance Certificates44
8.8 Third Party Consents 44
8.9 Regulatory Approvals 45
8.10 HSR Act Approval 45
8.11 "Key Man" Life Insurance 45
8.12 Transaction Documents45
ARTICLE IXCONDITIONS PRECEDENT TO THE PERFORMANCE OF MYER, PCA, NAPP AND THE
MARKETING COMPANIES 46
9.1 Representations and Warranties 46
9.2 Covenants 46
9.3 Legal Opinions 46
9.4 Litigation 46
9.5 Certified Resolutions46
9.6 Regulatory Approvals 46
9.7 HSR Act Approval 47
9.8 Transaction Documents47
ARTICLE XCLOSING 47
10.1 Time and Place of Closing 47
10.2 Deliveries of Myer, PCA, NAPP and the Marketing Companies 47 10.3
Deliveries of Buyer 48
ARTICLE XIREMEDIES 49
11.1 Indemnification by Myer and the Marketing Companies 49
11.2 Indemnification by Buyer 51
11.3 Claim Notice and Defense 52
(a) Third Party Claims 52
(b) ASC Claims 53
(c) Claims Between the Parties and their Affiliates 54
11.4 Claims Limitation 54
11.5 Arbitration 55
11.6 Equitable Relief 57
11.7 Costs 57
11.8 Acceleration Right 57
11.9 Payment Due Upon Wrongful Non-payment Period 57
ARTICLE XIITERMINATION 58
12.1 Termination. 58
ARTICLE XIIIMISCELLANEOUS PROVISIONS 59
13.1 Confidentiality 59
13.2 Publicity 60
13.3 Brokerage Fees 60
13.4 Costs 60
13.5 Headings 60
13.6 Entire Agreement; Waiver 60
13.7 Counterparts 60
13.8 Third Parties 60
13.9 Binding Effect; Assignment61
13.10Survival of Representations and Warranties61
13.11Notices62
13.12Governing Law 63
13.13Severability 63
LIST OF EXHIBITS 65
LIST OF SCHEDULES 66
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0000908139
<NAME> Americo Life, Inc.
<MULTIPLIER> 1000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 815,025
<DEBT-CARRYING-VALUE> 823,861
<DEBT-MARKET-VALUE> 870,533
<EQUITIES> 81,124
<MORTGAGE> 192,183
<REAL-ESTATE> 18,957
<TOTAL-INVEST> 2,164,253
<CASH> 73,091
<RECOVER-REINSURE> 1,378,086
<DEFERRED-ACQUISITION> 86,946
<TOTAL-ASSETS> 4,076,660
<POLICY-LOSSES> 3,348,186
<UNEARNED-PREMIUMS> 29,343
<POLICY-OTHER> 35,374
<POLICY-HOLDER-FUNDS> 92,186
<NOTES-PAYABLE> 132,751
0
0
<COMMON> 10
<OTHER-SE> 256,750
<TOTAL-LIABILITY-AND-EQUITY> 4,076,660
161,467
<INVESTMENT-INCOME> 167,167
<INVESTMENT-GAINS> 8,318
<OTHER-INCOME> 9,323
<BENEFITS> 185,492
<UNDERWRITING-AMORTIZATION> 60,518
<UNDERWRITING-OTHER> 63,667
<INCOME-PRETAX> 18,442
<INCOME-TAX> 5,566
<INCOME-CONTINUING> 12,876
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,876
<EPS-PRIMARY> 1,287.60
<EPS-DILUTED> 1,287.60
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
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</TABLE>
